Morning, everyone. I'm Graham Stapleton, Chief Executive of Halfords, and it is my pleasure to welcome you to the Halfords Group Capital Markets Day. Thank you for coming along. I've met many of you before, but for those who don't know me, I've spent over 30 years in consumer-facing service and retail businesses, five of those here at Halfords. Before we get started, let me just take a few moments to introduce you to my team. Many of you will have met Jo Hartley, our CFO. Jo has over 20 years of services and retail experience, most recently as Group CFO at Virgin Active, and before that, as U.K. Finance Director at Tesco. Karen Bellairs has spent 25 years in consumer-facing businesses, including nearly 20 years with Halfords, in roles across trading, marketing, and digital.
Karen Bellairs is now our Chief Customer and Commercial Officer. She is here today to talk to you about the value of our customer data. Moving now to Rob Keates, our Chief Operating Officer. Rob joined us from O2 nearly three years ago, where he was Director of Transformation and also led O2's retail and supply chain team. Prior to that, Rob spent 14 years as a management consultant, where he focused on customer experience, sales, service, and change. Finally, Chris McShane joins us today to talk about Avayler. Prior to joining Halfords, Chris and I worked together to develop and grow honeyBee, the SaaS platform that Dixons Carphone created and sold to other businesses. That's an introduction to the presenters today. Here is the agenda we are going to cover.
I will start with a reminder of the journey we have been on since our last Capital Markets Day in October 2018. I will cover the progress we have made against both our vision and strategy. I will highlight how I believe we have created a more resilient, differentiated customer and data-centric business, one that is now well-positioned to deliver significant shareholder value. We will then spend the majority of today in the midterm, showing you how we plan to fully leverage the investments and transformation that we've already delivered. Here, Jo, Rob, and Karen will cover the market and cost opportunities we have, together with a deep dive into garage services and data and lifetime value.
I will then talk about our opportunities in the mid to longer term, outlining where we believe there is further potential for the Halfords brand to create even greater value for customers and shareholders. Chris will then give a separate update outlining our Avayler business and the opportunity it creates for us. Within this overview, we will focus on how Avayler works, its economic model, and why we intend to separate the business from the core Halfords operation. Finally, to close today's session, I will summarize the key points and then the team and I will be happy to take your questions. Some of you might be thinking, why do a CMD now when it is so difficult to forecast forward and we are trading through an unprecedented period with significant headwinds and subdued profits?
Well, I believe this CMD is necessary to highlight the significant amount of transformation that we have managed to deliver over the last few years and the potential of the business platform we have created. In the mid to long term, we intend to fully leverage the investments we have made and the potential we believe the Halfords brand has. As you can see on the slide here, in the midterm, sales are expected to reach around GBP 1.9 billion as the key markets in which we operate recover, and we continue to grow market share through our uniquely convenient and competitive proposition. Inflation and cost efficiencies are broadly expected to offset, enabling us to maintain current gross margin and grow operating margin to 5.5%.
With profit in the midterm set to grow to GBP 90 million-GBP 110 million and CapEx at lower levels than we've seen historically, we also foresee strong cash generation and expect growth in return on capital employed . As we continue to transform the business and unlock further potential in the Halfords brand, we believe there is an opportunity to add a further GBP 300 million of sales in the mid to longer term. This will generate GBP 130 million-GBP 150 million of PBIT and a 6.5% group operating margin. We also expect to continue to generate strong cash flows and grow our return on capital employed to 20%. Let me bring you back though now to where our journey started in 2018.
When I joined Halfords, I was fortunate enough to inherit a great brand with a strong heritage and good awareness. The business employed fantastic colleagues with good technical expertise and knowledge, and we have created the foundation of a services business. It's also fair to say that operationally, Halfords was still an industry and store-focused traditional retailer. Some customers had to travel long distances for services and many shopped across fragmented and disconnected channels. The business operating model was oriented towards marketing and acquisition with little focus on data, capture, customer retention, and lifetime value. It was with this context, together with a significant program of customer, competitor, and market research, that we formed our current customer purpose: to inspire and support a lifetime of motoring and cycling.
This purpose remains as relevant today as it did then and has helped shape our strategy to become a consumer and B2B services business. With greater emphasis on motoring, generating higher and more sustainable financial returns. To bring the point around higher and more sustainable returns alive, it's best explained from this simple bubble chart from 2019. On the slide here, you can see the markets that we operate in. The sizes of the bubbles are indicative of the sizes of our business in FY 2019. The vertical axis shows the potential growth opportunity, and the horizontal axis shows the return on investment. Very simply, what you can see on the chart is that our motoring categories deliver much more profit than our cycling business does, and that there is a huge potential growth opportunity for services, which are also much more profitable.
Taking that into account, what progress have we made in delivering the purpose and strategy over the last four and a half years? Today, Halfords is a very different business. It is now a truly digitally enabled omni-channel company. We have invested significantly in our digital transformation with customers now able to shop seamlessly across all our channels on one market-leading customer-centric Halfords Group website. Alongside this, we have built a unique and more convenient physical state for customers. Our scaled services business can now be accessed through a very different mix of channels with a combination of a nationwide network of stores, garages, and mobile vans. As a result, for motoring services, the average customer drive time has been reduced from 30 minutes in 2018 to just 20 minutes now, or zero if we come to you at home or work.
On this slide, you can see how the change in channel mix and increased customer convenience has impacted the type and number of service we deliver each year. In 2018, our services business was entirely customer-based, almost equally split between service events in retail stores and garages. At this stage, we had no mobile option for customers or commercial presence. Today, we have a much bigger services business with a greater focus on more complex and valuable service jobs such as MOT, service and repair. While jobs have increased 44%, revenue has almost doubled. Combine this digital and physical transformation, it means that we are now the U.K.'s biggest motoring and cycling services provider, undertaking just over 10 million service events per year.
We have also firmly established ourselves as a super specialist in what we do, not just because we've more than doubled the size of our services and B2B business, but because we also continue to focus on product, innovation, and growing our unique own brand offer. This is not just good for customers, it also further differentiates us from our generalist competitors. Last but certainly not least, we have step changed the way we collect and use data through the investment that you can see on the left-hand side of this slide. We collect data in all of our channels via our own technology, which we embed in the devices that colleagues use at every step of the customer journey.
Once we have that data, we use best in-car systems such as our single customer view, CRM, and group data platform to ensure we can analyze and make the most of the information we have collected. Our aim here is to become as good at retaining customers and improving lifetime value as we are at acquiring customers. Ultimately, we want to get to know more about a customer's car and bike than they do, so we can predict what they need before they know they need it and ahead of our competitors. Customers are positively responding to this transformation. We now have more than 30 million known customers shopping across our group products and services every year, and more than half of those customers share their vehicle data with us.
We have also seen a six-point increase in our Net Promoter Score in just four years from 62.9 in FY 2019 to 69.1 today. Alongside the customer transformation, we've also been identifying ways to continually make our business more efficient and effective. This slide shows some of the highlights from the work we've done. To pick out the big ones, within our property portfolio, we have closed over 80 stores, generating savings of over GBP 20 million. This, combined with a new approach to merchandising cycling, has driven up retail store sales densities by 7%. We've significantly increased our focus on the procurement of goods not for resale, resulting in savings of GBP 30 million over four years. Delivering a combination of a better customer experience and a significant shift in the mix of our revenues has led to better results overall.
Our total group revenue has increased by over 40%. Much more profitable service-related sales have more than doubled and now represent nearly 50% of total group revenue. Our comparatively higher gross margin motoring business has also grown, moving from 66% in FY 2019 to now 77% of total group sales. B2B revenue has grown from just 12% of total group sales in 2018 to 22% today. In terms of relative return on invested capital and market opportunity, you can see in this update to the bubble chart that we talked about a few minutes ago, our growth has very much been in areas that are either higher returning or have a greater market opportunity. Finally, we've also created a much more resilient operating business, less prone to cyclical external market events.
Our much bigger B2B business is far less impacted by changes in customer sentiment, and an increasing proportion of this is now contracted multi-year revenue. At the same time, the split of needs-based spend across the Halfords Group has increased from just under half our spend in 2018 to just under two-thirds of our spend today. We've reduced the impact that FX can have on our business, moving the percentage of goods we buy in US dollars from 35% in FY 2019 to just 23% today. Before we move on to the next part of our agenda, let's just recap on the key messages. As you can see on this slide, there are three big takeouts for me. Since 2018, we've created a significantly bigger business, with service-related sales just under 50% of total revenue and our B 2 B business more than doubling.
We have developed a unique and scaled platform, building a market-leading interconnected infrastructure of stores, garages, and vans at the same time as creating a data and digitally enabled business. This platform differentiates us from our competitors and provides significant opportunities for earnings growth. In the mid-term, we believe a combination of our core markets recovering, leveraging the investments we have made, and optimizing the unique platform, we will create, we will deliver GBP 1.9 billion of revenue, GBP 90 million-GBP 110 million of PBIT, and 5.5% operating margin. Finally, what is really exciting is that in the mid to long term, there is a huge opportunity to unlock further potential in the Halfords brand.
We believe that this significant transformation will deliver a further GBP 300 million of revenue and a much more profitable business. Today, we will set out a plan which shows how we will deliver that. On that note, I'll hand you over to Jo, who'll begin the midterm section of today's presentation.
Thank you, Graham, and good morning, everybody. In this next section, I'll show you how we plan to leverage the platform that Graham has described to grow our profits over the medium term, and I'll get my caveats out of the way before I start. I've been involved in forecasting financial performance of consumer-facing businesses for about 24 years. I can honestly say it has never been harder to predict customer behavior or cost inflation. Over the last year or so, we've seen interest rates increase from 0.1% to 4.25%, inflation reach over 10%, the sterling to US dollar FX rate fluctuate from GBP 1.08-GBP 1.30, freight rates move between $2,000 and $15,000 per container, seasonal gas prices range between GBP 2.25 and GBP 8.27 per therm, minimum wage increases over 10%.
On top of all of that, consumer confidence has been at an all-time low for much of the year. Not sure anyone saw all that coming. Looking forward with certainty is therefore hard. While the short-term picture on cost is clearer, in the mid-term, there remains considerable uncertainty around both costs and consumer behavior. Against that backdrop, what I can promise with absolute certainty is that this forecast will contain some inaccuracies.
With that in mind, we've anchored our projections around external forecasts of market recoveries and factors within our control for which we have a strong track record of delivery, such as cost. I'll lay out our assumptions with as much clarity as I can. Where there are significant sensitivities, I'll explain how they impact our profitability. Hopefully, you'll leave with confidence that the forecast has been built sensibly and able to understand the sensitivities within it. Before we do that, I thought it might be useful to recap how our profits have moved since FY 2020, our last normal year before COVID. In FY 2020, Halfords delivered underlying profit before tax of GBP 55.9 million. In the years since then, we've transformed the business, bought National and Lodge, grown our services and B2B businesses, significantly reduced our retail store portfolio, and delivered meaningful cost reduction programs.
We saw underlying profit before tax rise to nearly GBP 90 million in FY 2022 before the enormous impact of unprecedented inflation and deteriorating consumer confidence hit. We've reviewed data from GfK, Kantar and ONS. This clearly shows that the markets in which we operate saw more decline than most, with the cycling and the tire market particularly impacted. Our efforts to reduce cost helped to significantly mitigate the headwinds. We guided in January that we expect FY 2023 profit before tax in the range of GBP 50 million-GBP 60 million, close to what was delivered pre-COVID, despite the inflation and market deterioration we've seen since then. The good news is that while FY 2024 looks set to continue to be challenging, the midterm future looks much brighter. The markets that have come down are expected to go back up based on external forecasts.
Furthermore, inflation is widely expected to abate and indeed we expect some costs to deflate. While we've seen a sharper fall in profit than some others, we may also see a sharper rise. This next slide bridges from our GBP 50 million-GBP 60 million guided range for FY 2023 to our midterm targeted profit of GBP 90 million-GBP 110 million and an operating margin of around 5.5%. In a moment, I'll spend some time talking to you about the significant growth we expect from market recovery and market share gains and the inflation and cost-saving assumptions we've made. Karen will cover the incremental value we expect from data in her section before Rob explains the incremental benefits we expect as our synergies from acquisitions mature.
Before that, let's briefly touch on CapEx, cash, and return on capital employed. Since FY 2020, our total capital expenditure has been GBP 290 million, with around GBP 130 million of that on acquisitions and integrations, predominantly of Lodge and National Garages. The remaining GBP 160 million has been spent on the existing estate, with around 60% being on the maintenance of our growing number of fixed and mobile locations. Looking forward over the midterm, we do not foresee any further major acquisitions, and our focus will be on leveraging the platform already built. As such, we see expenditure falling back to around GBP 50-GBP 60 million per annum and averaging around 3% of revenue, which is below historical averages. Profit and capital are key drivers of cash flow for the business.
The charts on this slide illustrate our expectations on free cash flow and leverage over the midterm compared to what we saw between FY 2021 and FY 2023. As you can see, we expect improvement in both metrics. We expect to see growth in positive free cash flow in the midterm to around GBP 45 million-GBP 55 million per annum as profit grows and capital expenditure falls, as I have described. That results in a positive cash position that's forecast to build through the plan. As a result, net positive leverage is anticipated. Looking forward, we intend to retain our balance sheet strength. The profit and CapEx trajectories that I've just highlighted explain our returns history and forecast. Here you can see that unsurprisingly, return on capital employed has fallen versus FY 2020.
Profit has been significantly suppressed given the extraordinary headwinds which we have already described. Capital employed has increased following the acquisitions of Lodge and National Garages. While these factors have led to a decline in ROCE, if we normalize inflation and the size of the markets in which we operate, the picture would look very different, as illustrated by the green box at the top of the FY 2023 bar. Our view is that the investments we've made in transforming the business are returning. The current market and inflationary headwinds are offsetting the growth we would otherwise have seen. As we look forward, we see return on capital grow and exceed the levels seen in FY 2020, with a midterm target of over 15% as markets recover and our acquisitions continue to mature while capital returns to normalized levels.
Rob will cover the acquisition returns in more detail in his section. With limited capital expenditure looking forward, the key to delivering ROCE expansion and cash generation is the forecast profit growth, which I'll now go on to cover in some more detail. Let's turn now to look at the markets in which we operate. I start here because this is where we start our forecasting process. In this section, we'll cover what we expect to happen to each of the markets in which we operate, and what we expect to happen to our share of those markets. Those two factors together drive our sales forecast, and given the leverage within the business, this is probably the most critical number in any forecast. For that reason, I'll take time here to go through my assumptions in some detail.
Today, Halfords operates in four key markets: motoring products, cycling, tires, and motoring servicing. These are all markets with strong fundamentals. Our motoring markets are underpinned by a growing and aging U.K. car park, the cycling market continues to be supported by significant government investment into infrastructure. When these markets are looked at in aggregate, Halfords is able to support customers across their mobility needs in a way that the competition cannot. This slide shows the size of each market today and our volume share within that market. It also shows what has happened to those markets since COVID.
Here, I draw your attention to the significant declines we've seen in both the cycling and consumer tire markets, which have been a key driver of the profit decline we're forecasting in this year, but will also be a key driver of the recovery we anticipate as we look forward. With that context, let's now take each market in turn, and I'll explain to you the GBP 17 million of profit growth we expect over the midterm from market recovery. The GBP 4 billion motoring products market has been comparatively resilient, with the more needs-based areas offsetting much softer performance in more discretionary categories. We expect volumes in this market to grow 2% in the midterm based on GPRA data suggesting that the aging car park will push more cars into the aftermarket in which we operate.
This market growth is expected to deliver profit growth of around GBP 6 million in the midterm based on our current share. Every 1% change in the market has a GBP 3 million profit impact for Halfords. The GBP 1.2 billion cycling market, given its more discretionary nature, is the most significantly impacted by the cost of living crisis. As we've already seen in volume terms, it's around 24% down versus pre-COVID levels. To make that really clear, on this next slide, I've shown the volume of units sold in the cycling market since FY 2020. It has been a staggering decline. The chart shows that approximately 800,000 less bikes will be sold in the U.K. in FY 2023 than were sold in FY 2020. The graph shows that an extra 300,000 bikes were sold in the U.K. in FY 2021.
Even if we assume that was a pull forward of demand driven by COVID and add all of that back into the FY 2023 numbers, we still have a 500,000 bike delta to normalize bike volumes. Sorry, can we go back a slide? To explain these dynamics further, the chart on this slide indexes market price and volume versus FY 2020, effectively mapping the percentag movements in each metric by year against an FY 2020 baseline. On cycling, the story is clear. In FY 2021, the first COVID year, the market saw record volume growth through successive lockdowns. Prices started to rise at the same time as supply chain issues started to hit stock availability. In FY 2022, volume fell back to below the level seen in FY 2021, reflecting the fact that there had likely been some pull forward in demand.
Pricing in the market continued to increase as supply chain issues continued and freight rates started to increase. In FY 2023, we saw further price rises fueled by inflation in freight rates, commodity prices, and the weakening of sterling. Volume fell even further, reflecting a cost of living crisis and customers cutting back on discretionary spend. As we look to the midterm based on external market projections, we do expect volumes to recover, albeit not to pre-COVID levels. Our planning assumption is that there will be some price deflation in the market to drive this volume growth, especially as commodity and freight prices start to reverse. Our market growth assumptions are based on those of the Bicycle Association, who forecast that while FY 2024 will continue to be challenging, we can expect volumes to recover to 10% below pre-COVID levels in the midterm.
As we've already discussed, the market has seen significant price inflation as retailers have passed on the impact of increasing freight and product costs to consumers. Our forecast GBP 5 million profit growth from the market recovery includes an assumption that pricing will need to fall to deliver the scale of volume growth that's forecast. Therefore, our profit sensitivity contains some contingency. Using this logic, every 1% change in the market impacts profit by GBP 0.4 million. It is important to note that cycling's different to our other markets in that market forecasts suggest that we have not yet reached the bottom of the trough here. Therefore, those further declines to come in FY 2024 before recovery in the midterm. The consumer tire market has also been significantly impacted by COVID and the cost of living crisis.
Throughout this year, we've talked about the challenges presented to us by a GBP 2.2 billion consumer tire market in which volumes remain 14% below pre-COVID levels. Our National Garages business case assumed that the consumer tire market would return to pre-COVID levels in FY 2023. We didn't anticipate that a cost of living crisis would mean consumers would slow down the replacement of their tires, given the significant safety risks, fines, and penalties associated with driving with tread depth below the legal minimums. In fact, in such extreme circumstances, we've seen customers defer and delay tire replacement for as long as possible, in some cases, waiting for an MOT fail before replacing them. GiPA data also shows us that miles traveled remains 7% below pre-COVID levels, another change which no one anticipated.
These two factors explain why we're seeing such a significant difference between current market performance and our business case assumptions. This next slide indexes the movement in consumer tire prices and volumes versus FY 2020 in the same way as we did for the cycling market. Here we see consumer tire volumes drop and stay depressed from FY 2021 to FY 2023, reflecting less miles traveled through the COVID years, and then the impact of a cost of living crisis on consumer expenditure in FY 2023. At the same time, market prices increased in FY 2022 and then sharply in FY 2023, reflecting commodity cost price inflation, freight rate increases, and the weakening of sterling. As we look forward to the midterm based on forecast of miles traveled, we do expect volume recovery, albeit not to the level we saw in FY 2020.
We expect some price deflation as commodity and freight rates normalize and in order to drive market volume growth. The consumer tire manufacturers previously indicated that we might expect volumes to start to return in calendar year 2023, we're yet to see that recovery commence. Our midterm forecast now assumes a gradual improvement such that volumes in the consumer tire market return to 3% below pre-COVID levels based on GiPA's data that miles traveled will only return to 97% of pre-COVID levels. We hope that's a prudent assumption. The move from -14% to -3% is expected to deliver an incremental GBP 6 million of profit across the group with every 1% movement in the market, worth GBP 0.6 million for Halfords based on our current market share.
The GBP 9 billion motoring servicing market is currently seeing volumes around 4% above pre-COVID levels. Based on SMMT forecasts that the U.K. car park will remain broadly flat in the medium term, we've assumed the motoring servicing market remains flat. Given the aging car park predicted by GiPA, this may prove to be a conservative assumption. Every 1% movement in the market impacts profit by GBP 1 million. In addition to the growth we expect as markets recover, we're also confident in our ability to grow market share. The next few slides will cover the GBP 22 million of profit growth we expect from market share gains over the midterm. In motoring products, we see opportunity to grow volume share from 41.8% to 43%, adding GBP 10 million of incremental profit.
The volume share metrics here reflect GfK data, which audits seven categories in which we participate. We've recently started buying Kantar's wider survey of the motoring market. It's notable that on that measure, Halfords currently accounts for less than one-third of customers' yearly spend on motoring products. This is despite the fact that unlike our competitors, as a super specialist, Halfords can offer customers product advice and a fitting service in hundreds of convenient locations across the U.K. Over 40% of all batteries, bulbs, and windscreen wiper blades are now fitted. There is room for that to grow. We see share growth coming from 3 key areas. Firstly, data, personalization, and the Motoring Loyalty Club provide us with unique opportunities to take share. We're already seeing increased spend and frequency from the 1.7 million club members we already have. There's significant further opportunity.
Karen will cover this in more detail in her section later. Secondly, extending ranges to markets where we under-index presents a clear share growth opportunity. The most notable of these is an extended range of car parts, a GBP 800 million market that we currently have less than 1% share in. In November last year, we launched a new broader range of thousands of car parts online with competitive pricing. Today, we offer free next-day delivery and shortly we'll be offering order online and collect in store within 60 minutes, making Halfords one of the most competitive and convenient propositions in the market. With stocks managed by the vendor and limited cost to serve, this is a high returning area for us, despite lower than average gross margins. Finally, we see share growth coming from an improved value proposition.
Own brand products account for only 44% of motoring revenue versus around 70% in cycling, with immediate opportunities in touring, car seats, and car cleaning. Combining a good value own brand range with enhanced promotions, including bundled deals and impulse lines, is expected to drive share growth. Overall, clear plans in place to take market share from both pure-play online retailers and physical retailers. Each 1 percentage point volume share gain over the midterm adds GBP 10 million of profit. As the cycling market recovers, we see a further GBP 2 million of profit growth through growing our volume share by approximately 2 percentage points. Here again, we see great opportunity from enhanced data in CRM, driving increased retail visits and frequency. Indeed, in the midterm, we plan to launch a cycling loyalty club to drive this opportunity further, given the success we've seen in the Motoring Loyalty Club.
Innovation and range development also provide share growth opportunity. With the shift in the market towards more premium products in both adult bikes and electric bikes, we see opportunity to grow our average selling price through product mix and Boardman range expansion opportunities. The cycle-to-work market has proved resilient so far for us, with many customers taking the opportunity to buy bikes through their company cycle-to-work schemes, giving them an effective discount of up to 47% through the tax advantages of salary sacrifice schemes. We are investing in our cycle-to-work platform to make signing up quicker and easier, which will enable us to target the SME market that we currently cannot access. We're confident that this is an area in which we can drive share growth. Finally, we see opportunity in servicing.
We're investing to develop our cycle servicing proposition and experience, introducing bookable slots for all types of services, digitalizing the customer journey so that customers can see when their bike's been completed and is ready to collect, and upskilling all our colleagues, so they know how to confidently sell customers the services they need. We see a GBP 2 million profit opportunity from cycling market share gains, predominantly coming from the independent bike shops, general retailers, and mid-market high street bike shops. Every 1% share gain delivers around GBP 1 million of incremental profit. In a depressed consumer tire market, we need to double down on our efforts to drive market share, our target here is to grow volume share from 9.5% to 11% over the midterm, delivering GBP 5 million in incremental profit.
We now have the largest nationwide network of fixed and mobile locations, which is a great platform from which to grow share. Here again, data and CRM will play a role, particularly as we leverage our loyalty club to drive consumer tire demand looking forward, which Karen will talk more about later. We're also driving share growth through improving our proposition. Last year, we launched same-day tires, bookable online, and we believe we have the largest range of tires available for fitting across the U.K. We've also introduced dynamic slot pricing to enable customers to make their own value and convenience choices. Finally, we see considerable share growth opportunity as we continue to develop own brand consumer tire ranges. We already have one of the fastest-growing own brand tire products with Autogreen, with volumes up 67% versus FY 2023, and opportunity to expand further.
With our unique Motoring Loyalty Club to drive demand and a customer proposition delivering unrivaled convenience and value, we believe we're very well placed to take consumer tire share, both from national chains and local garages. Every 1% volume share gain delivers GBP 3.5 million of profit. In motoring servicing, we forecast an increase in our volume share of this highly fragmented market from 3.5% to 3.8%, driving GBP 5 million of profit. We expect these share gains to be fueled by demand, driven by our growing Motoring Loyalty Club and also from referrals from our retail estate, which performs 3.7 million service jobs every year. Driving cross-shop through these and other data-led initiatives is one of the biggest share growth opportunities we have.
We also forecast share gains as we improve utilization of our garage estate through better localized demand and capacity matching. We know this year we have at times had more demand than capacity. Using new data and tools, we will be able to optimize each individual location through localized demand forecasting and targeted capacity increases, enabling us to take a greater share of demand within a locality, and Rob will talk more about this in his section. Finally, improvements to our value proposition, as well as communicating them more broadly, will also drive share gains. We already offer market-beating value levers, including Brakes4Life, two-year standard guarantee, and Price Match Promise, as well as financing propositions to enable customers to spread the price of their repairs.
With prices that are over 25% cheaper than the dealers, we see significant opportunity to take share both from the brand dealerships, independents, and nationwide garage chains. Every 1% improvement in volume share in motoring servicing improves profit by GBP 60 million. We've now gone through all the markets in which we operate, and I've outlined the profit growth we expect from externally forecast market recovery and detailed our clear plans to drive market share gains. In total, these deliver nearly GBP 40 million of the expected profit growth from FY 2023 into the midterm, with a roughly equal split between market recovery and volume share growth. Having described the market movements, I'll now go on to cover the third and fourth bars on the profit bridge: cost inflation and efficiency.
Before getting into any more detail, I'd like to be clear that our planning assumption is that cost inflation will be more than offset by cost efficiencies over the medium term, which this bridge illustrates. As a business, we've increased our focus on cost and efficiency, particularly in the very near term, where the headwinds are expected to be the greatest. Let's start with the GBP 46 million of cost increases we expect over the midterm. Over the last year, we've talked with you about the four key factors that impact our cost base, and these factors remain the same. Here I'll lay out our assumptions. FX is assumed to stay broadly flat at 1.23 in the midterm, being close to the current rate. This assumption will definitely be wrong, but given the volatility seen in the past year, I can't begin to predict it.
We buy around $230 million of product in U.S. dollars each year. It's straightforward to work out the sensitivity. We expect significant inflation in utility costs in FY 2024, we're expecting those costs to return to FY 2022 levels in the midterm, meaning we're broadly assuming a return to the level seen before the war in Ukraine started. On wages, we've taken account of the FY 2024 minimum wage increases, which are known, and assumed around a 6% increase thereafter. Taking account of the impact on the whole employed workforce, we see average inflation per annum of 4% in the midterm. These cost increases are partly offset by expected decreases in freight rates, which we expect to return broadly to pre-COVID levels, a significant reduction versus what we've seen in FY 2023.
We expect to offset this inflation through our GBP 51 million cost reduction program. In this area, I would hope that our strong track record of exceeding the cost-saving targets we set gives confidence that we can deliver or beat this number. There are three key areas where we'll drive value, and I'll now go on to step through each in turn. Perhaps unsurprisingly, our biggest cost reduction opportunity is in the cost of goods we sell. Let me move now to outline our plans in that area. Today, we have over 400 suppliers from whom we purchase close to GBP 800 million worth of goods each year. Our purchases from suppliers have grown 36% or GBP 200 million since FY 2020 as the business has grown, and looking to the midterm, we anticipate significant continued growth.
Despite that volume growth, we've seen the cost of goods we sell, excluding the impact of FX movement and freight costs, inflate by around 6% over the last two years. This has been particularly seen in the cycling market, which has seen unprecedented raw material price inflation and supply chain disruption, in part mitigated by our negotiating strength. We've been working with external consultants to understand how we drive material reduction in the cost of goods we sell, supported by expected commodity cost deflation, which we're already seeing. There are four key levers to the program. Firstly, reviewing our strategic supplier partnerships. Over 50% of the goods we purchase for resale are supplied by 20 key suppliers.
By strengthening strategic partnerships, we see the opportunity to drive joint growth and value together through the unparalleled opportunities we can offer these suppliers, given our scale and growth ambition, and our ability to add advice and service to their products across our fixed and mobile locations. These partnerships can unlock product innovation, category leadership investment, and supply chain agility, giving us further points of differentiation. These strategic partners can also lead from the front on partnering with us on our wider sustainability agenda in areas like carbon reduction, packaging, and recycling initiatives. Secondly, we have significant opportunity to reduce costs through value engineering products across our own brand ranges. We've historically had success with this in the cycling category, where changing components such as the pedal or handlebar on a bike has enabled up to 4% reduction in individual product cost prices.
There's significant opportunity to expand this approach across both motoring and cycling. Thirdly, we see significant cost benefits both through growing the penetration of own brand and also through retendering supply and expanding sourcing through our Halfords Global Sourcing office based in Hong Kong. Our own brand products typically see margins more than 2 percentage points higher than branded margins, and historic tenders have led to reductions in cost prices of the tendered products averaging 4%. This year, we plan to run around three times the number of tenders we did last year. In the mid term, we see significant opportunity to grow own brand penetration in motoring and tires, which currently under-index on own brand versus cycling. Finally, there remains opportunity to drive value through our increased scale as we deliver group buying synergies and to supplier rationalization program.
With 400 suppliers of around GBP 800 million of products, there is very clearly an opportunity to cut the tail here and give more volume and growth to a smaller number of suppliers across the group to drive more value for everyone. Supporting the whole program is investment in systems and data to bring a more rigorous and data-based approach to supplier management, which in itself will unlock value. All this work supports a prudent target of a cumulative 3.5% reduction in the cost of goods we sell over the midterm, and therefore a GBP 30 million saving versus today's pricing. Combining our historic investment and compelling future growth plans with a clear and externally supported better buying program underpinned with data gives many reasons to believe the targets are achievable, and they fall well within externally validated benchmarks.
While freight costs were not included in the product cost information I've just shared, freight costs do form part of our gross margin. As we've already heard, there's been significant fluctuation in the cost of freight over the last year. Looking forward, we've assumed that freight rates remain above pre-COVID levels, but stay broadly in line with our FY 2023 exit rates in the medium term. This leads to a 20% reduction versus the rates we paid this year. Can we go to the margin bridge slide, please? Thank you. Okay. Thank you. At this point, I thought it would be useful to lay out our expectations looking forward on gross margin.
We've now talked through the differential growth rates we expect in our markets going forward, the fact that in some markets we expect reduction in pricing to be necessary to drive growth, our assumptions on FX and freight going forward, and our plans to reduce the cost of goods we sell through a better buying program. Effectively, we've talked through many of the drivers of the margin rate, you can see from the bridge in the mid-term, we expect to maintain margin in line with FY 2023 at a group level.
While our product cost reduction program would normally support margin expansion, we anticipate some price investment in cycling and tires as deflation in commodity prices is passed on to consumers to drive market volume growth and some adverse mix impacts as sales grow in lower margin categories driven by the market recovery and cycling and range expansion into lower margin motoring categories where suppliers manage inventory. Our sales mix into Halfords Autocentres at higher margin rates will offset an expected reduction in retail margins across the plan period. Our view is that margin maintenance is a very reasonable planning assumption for all the reasons I've just outlined. Let's now move back to our cost saving initiative. The second significant cost saving we see over the midterm is in retail property costs, where we anticipate GBP 6 million of savings.
Firstly, we expect to see a further reduction in our retail store estate as we continue to rightsize the business at lease renewals and benefit from a proportion of the trade transferring to adjacent stores. In the midterm, we expect our store estate to reduce to around 380, a reduction of 100 stores since FY 2018. Secondly, we'll continue the great work that our property team have done over recent years in bringing down our average retail lease cost at each lease renewal event. We have around 45 lease renewals coming up each year and anticipate savings averaging around 10% at the point of renewal. While not so relevant to our cost program, I also highlight here the flexibility in our retail lease profile.
The average lease length of our retail estate is now less than three years, down from close to six years in FY 2018, giving us considerable flexibility. As a final point on retail property, it's worth noting that the combination of our sales growth and store reduction plans see sales densities improve by over 15% in the midterm. Finally, this slide summarizes some of the other cost saving programs we'll be working on over the midterm. We've identified a further GBP 50 million of savings opportunities across three key areas. Firstly, we've identified numerous opportunities to reduce the central support cost of our business. We will rationalize our goods not for resale supplier base and renegotiate contracts. We'll utilize our group data platform to underpin efficiencies across the business and we'll make further savings through a more efficient operating model.
Secondly, in warehousing and distribution, we're rolling out a new warehouse management system and a customs and duty platform, both of which will drive efficiencies and savings. Lastly, in our store and garage estate, we target energy consumption reductions through further rollouts of LED lighting and building management systems, efficiency savings through our well-established We Operate For Less program, and cost savings through improved utilization in our garage business, as Rob will explain later. The assurance I can give you on this is that there are clear plans in place for all the savings that I'm describing. The other assurance I can give you is that we will not stop here. We will leave no stone unturned as we continue to optimize the business. I've now taken you through the first four bars on the bridge.
I've highlighted how externally supported market growth assumptions and our share growth assumptions are expected to drive nearly GBP 40 million of profit growth in the midterm. I've explained our assumptions on cost inflation and our cost reduction plan that will more than offset those headwinds to deliver GBP 5 million of profit growth. These items alone would take us into our midterm guided range. Karen and Rob will go on to describe the incremental growth we expect from data and loyalty and the maturity of our acquisitions, which together will enable our profit to grow further to between GBP 90 million and GBP 110 million. You will notice that if we add all the bars on this chart together, we're describing GBP 65 million of growth initiatives, which could take us beyond even the top of our guided range in the midterm.
All the bars contain best estimates, having some contingency in there seems sensible. Three key takeaways for the midterm plan to leverage the platform that we've created. We expect profit to grow from GBP 50 million-GBP 60 million in FY 2023 to GBP 90 million-GBP 110 million in the midterm. FY 2023 has been impacted by the extraordinary inflationary and consumer headwinds. These factors are likely to continue to suppress profit in FY 2024. In the midterm, external forecasts suggest these pressures may abate, driving market and profit recovery. These dynamics, supported by our own efforts to drive cost reduction and market share growth, are expected to deliver compelling midterm profit growth.
CapEx, including acquisition spend, is expected to drop back to between GBP 50 million and GBP 60 million per annum, or 3% of revenue over the midterm, as we focus on leveraging the platform we've created and the money that we've spent to date on acquisitions. We do not foresee significant M&A in the midterm. Return on capital employed has been suppressed in FY 2023 by the challenging market conditions. As we look forward, we expect capital employed to exceed 15%. I hope it's now clear how we've built our forecast, the basis of our assumptions, and the sensitivities that are contained within them. I'll now pass you over to Karen, who'll describe our plans to leverage data and lifetime value. Thank you.
Morning, everyone. I'm delighted to be here today to talk to you about the significant progress that we have made over recent years to build out our group data and analytics capabilities. We have transformed our platform, and as you will see, we will continue to deliver substantial outcomes for the group returns as we grow our customer lifetime value. Our vision here is to support our super specialist proposition by creating the most unique and personalized end-to-end customer experience. I'm going to cover two key areas in my presentation this morning. Firstly, I will shine a spotlight on our unique data platform, which is enabling us to know more about our customers and their vehicles and helping us to predict future customer needs. The scale and quality of our data capture provides us real differentiation in the market.
Secondly, I will demonstrate how this data and subsequent personalization across our key customer touchpoints unlocks value for our business. As a quick reference from the offset, the value we will unlock in the midterm is twofold. Our lifetime activity is a key underpin to the GBP 22 million market share growth that Jo just referenced. This is achieved through growing breadth of spend across the group and multiyear retention of that spend, ultimately changing customer behavior, so we take more of their cycling and motoring share of purse. In parallel with the infrastructure that we have now built, there is also a discrete and incremental benefit of GBP 8 million PBT in the midterm from leveraging this data ecosystem.
I'm going to begin by talking about the area that supports the 22 million market share, starting with sharing how we have created a unique data platform to power understanding and leverage this growth. Let's look firstly at what type of data we collect. The sheer scale of our collection is compelling. Overall, we capture hundreds of different data points to uniquely position our customer and vehicle understanding across our touchpoints. Just put up the next slide, please. Just pause so you can see. From a customer perspective then, we collect over 40 feeds, capturing an array of customer contact details like email address, postcode, their shopping and service history, including spend and browse behaviors, which is captured right across channels. We enrich this with demographic attributes, enabling us to segment customer groups for targeting.
We also collect data from our customers on their experience and the reviews that they leave us across categories, channels, and down to shop or garage locations, which supports journey improvements and range development. Across vehicles, we collect rich data too. Let's have a look at our car data now to bring this alive. Here we capture everything about the car and its condition across 200 different data fields. Information like make, model, mileage, tire tread, MOT advisories, Halfords service history, our WeCheck assessment and their outcomes. The vehicle registration number capture is the critical data point to collect, though, as it connects the vehicle to the customer and to their cross-group purchasing. Enriching this VRN with our third-party data helps us understand MOT and service due dates and all the car-specific parts for that vehicle. We really have a 360-degree view of the car.
To have this level of understanding is really valuable, and it's a combination of the scale of data that we can access, combined with the quality of our vehicle view, that gives us the ultimate differentiation versus our competitors. This is a result of how we collect our data. Let's have a look. We collect our data from multiple touchpoints across the Halfords Group, including our websites and our stores, where the scale of our customers is vast, to our retail car parks, garages, and mobile vans, where we have access to customers' vehicles, creating a richness in the quality of the data that we capture. We have invested in technology, smart technology, to collect the data from both our customer and our vehicle interactions with infrastructure systems and software all integrated to enable this process.
We have also created and embedded our own technology to collect data. Chris will talk about this later as part of Avayler. One real advantage in how we collect our data is the access we have to so many vehicles. Not only do we see over 35 million vehicle registration checks on our website and in our shops annually, we physically inspect, fit products, maintain and service more vehicles than anyone else. In fact, customers give us their keys to carry out 8.8 million jobs every year. The result of this has been a collection of over 16 million unique vehicles into our ecosystem to date. This is nearly half of the U.K. car park. Overall, the output of our data collection has seen phenomenal growth over the last five years, especially in the scale of vehicle and customer email records.
We now have almost 15 million customers that have opted in to receive communications from us. Of the 30 million known customers in Halfords' database today, we can match these to over 3three quarters of our group sales. Now that you've seen what data we collect and how we collect it, let's move on to what we do with it. Again, we've heavily advanced our infrastructure in this space. Just wait for the next slide. With systems that include Microsoft Azure, Databricks, Power BI, Python, and Spark, and at the heart of this, our market-leading single customer view.
With an end-to-end view of our customers, their vehicles, and our operation, our group data platform is fueled by data science and analytics, which transform these diverse and scaled data feeds to help give us rich intelligence, help us predict customer needs, and enable us to model and set target strategies to personalize communication through CRM and colleague interactions. To bring this to life, let me give you a few examples. Understanding our customers, their needs, and their vehicle health enables us to predict the next likely health issue and what they will need to solve it. For instance, we remind customers about MOT due dates. We warn customers that their brakes will need replacing, and we use car and tire tread data to predict when their tires need changing.
We use product recommendation engines to suggest the most appropriate products for our customers based on their browse and purchase behavior. For example, a customer buying a bike without accessories could be served communication to offer a matching helmet, a lock to keep their new bike safe, or a cycle carrier to support their cycle usage. We use models to enable us to predict the customer next best action with the largest future value to Halfords. For example, if we have identified a customer with a high propensity to use a mobile van service, we up-weight Halfords mobile van expert offers within their communication. You'll see that our program is more than just email. We use the same sophisticated models to personalize our website and create a more personalized experience in our social channels.
In fact, we have over 10 million different personalized web experiences, so when a known customer lands on our website, they see unique and relevant content based on our knowledge of them. In marketing, we use this data to target lookalike customers and improve our efficiency of spend. We also enrich our targeting by using third-party data, like weather, for example, to personalize content further by locations across all channels. If we knew it was frosty in Hull and you had an aging car, we might serve you a battery communication, for example. Over the past five years, we've been using this growing data science and modeling capability to drive highly personalized, timely, helpful communications that both engage and support our customers and in turn, increase customer lifetime value for Halfords.
This transformation in personalization enabled from data has supported a significant change in customer behavior over time, resulting in higher conversion online and strong growth in our CRM. A customer opted in for emails, for example, spends 1.5 times more than a less engaged customer. When we have an email and that magical VRN, we see 2.4 times more spend. This has resulted in a nearly five-fold growth in CRM, now accounting for GBP 282 million of group revenue. We know if our customer has opted into our communication, we see that they are our most retained group within our business, evidencing further that customers are finding this personalized content valuable, and it's powering their relationship with our brand.
Growing lifetime value is our ultimate North Star. With a low frequency products and services business like ours, this, of course, takes time to mature. To continue to unlock this growth curve at Halfords, the customer behaviors we need to keep driving forward are breadth of shop, both across categories in our shops and cross-shopping across our shops and garages, and our multiyear retention. This subsequently results in more market share as customers spend a greater proportion of their motoring and cycling spend within the Halfords brand. Why are these behavior changes so intrinsic to growing value and in turn share? Well, because a loyal customer demonstrating all of these behaviors is nearly six times more valuable, spending over GBP 470 versus a non-loyal customer who spends under GBP 81 over a three-year period.
Despite our significant success to date, we still have 43% of customers spending under GBP 81, so there is meaningful headroom for growth. These changes in behaviors take time, and we see a curve to the growing spend. At the extremes of the curve, for every one point growth we see in moving the under GBP 80 cohort of customers literally shopping once in the three years and buying one product to the loyal cohort group of customers spending GBP 470, shopping over multiple years across the breadth of our offer and across the group, it's worth GBP 77 million of revenue to us over that three-year period.
Now, before I move on to how we can drive even greater returns in the mid-term, leveraging data for further value creation, I wanted to play a short video to bring all of this to life and demonstrate visually our unique advantage in data capture, how we use our communications to engage customers and drive their spend with us. We have transformed our business over the last five years with investment in building unrivaled data and analytics capabilities, providing rich insights into customers and their vehicle needs. Only Halfords holds such rich customer and vehicle data. Customers are happy to share their vehicle details and trust us with their keys to carry out millions of jobs every year in our retail car parks through our WeCheck and WeFit services and in our garages through our array of repairs, servicing and MOTs.
The Halfords data ecosystem captures tens of millions of data points from customers' cars during inspections, fitting, and repairs, and from purchases and bookings. These data points are captured through our website, stores, garages, and mobile vans, enabling an end-to-end view of our customers and their vehicles across all touch points. We have over 30 million identified customers in our database, currently accounting for 76% of our sales. Our product, services, and omni-channel model, plus our scale and excellent data capabilities differentiate us from our competitors who only operate in either the product or servicing fields. Most competitors also pay for advertising to drive customers to their garages and brands. Our rich data means we have the opportunity to know more about our customers' vehicles than they do, enabling us to predict the next likely health issue and what they'll need to solve it.
Combining this with the scale of customers we assist in our retail proposition means our conversion and acquisition costs reduce over time. We can reduce our reliance on expensive advertising to drive new or repeat business. Instead, we acquire customers within the group and proactively target future vehicle needs. We use all this information and expertise to deliver highly personalized and helpful communications, even prompting new services that our customers have not used before to extend their spend with us. These add value to the customer and increase customer lifetime value for Halfords. We know customers who shop multiple categories and across our group in both stores and garages stay with us longer and spend significantly more than those that don't, so we have the opportunity to grow customer spend via cross-shop through the sheer scale of customers visiting us in each of our channels every year.
Our data also shows a huge opportunity to increase customer retention, as currently only half of our MOT customers come back the following year. We're using this data to send personalized reminders to customers to book their MOT via multiple channels. Hyper-personalized communications that reach the right customer with the right message at the right time are changing behaviors and driving cross-category spend and lifetime value. We've been focused on building these solid data and analytics foundations over the last five years. No one else in our market holds such rich data or can predict vehicle health, giving us an unrivaled position in customer and vehicle data. Halfords is now a data-led, customer-centric, digitally informed business ready to unlock further opportunity and growth.
As the video has highlighted, the value we're getting from our unique data platform is now meaningful for the group, and it underpins a key driver of market share growth over the midterm as we continue to drive our data collection and use our tools to drive value from it. Though, I want to turn to the GBP 8 million we will also unlock in parallel within the midterm. This further incremental value is all about discreetly leveraging the data platform we've built. This GBP 8 million PBT will come from three key areas, the reduction in customer acquisition costs, new data monetization income, and new motoring and cycling subscription products. Let's take each in turn.
One unique advantage we have for our Motoring Loyalty Club, and indeed our car park managers, is the scale of customers we can attract from our multi-million retail and digital customer base to support referrals into our garage group.
Acquiring from within the group at scale means we can reduce our marketing acquisition costs in channels like radio, outdoor advertising, and Google. You might be surprised to know it can cost us GBP 20 to acquire a tire customer in Google, for example. Reducing this spend into a lower benefit exchange through loyalty rewards is very valuable to us. Of course, as our retention through our club grows, so does the stickiness to the spend within our group, and further reductions can then also be made in marketing costs. The next step in our journey is leveraging our unique data and insight. As the super specialist, we believe we have more customer and vehicle data than anyone else, and we have opportunities to monetize this. The motoring and cycling categories are one of the most underdeveloped areas for market intelligence and customer understanding.
We are therefore the best positioned to partner with suppliers and provide robust data and insight around their categories and customer base on who their customers are, where and how they shop, what they buy, and what they might buy next. We believe this can create a revenue stream for us through monetization, as well as helping us to build stronger joint business plans with our suppliers. This is a growth path that many loyalty propositions and retailer brands have followed historically and one that has genuine interest and support for with our supplier base. In the midterm, we are going to build on the success and infrastructures we've built for Motoring Club and expand our subscription propositions. The recurring revenue from subscription supports both certainty of income as well as a more predictable customer demand over the long term.
On the roadmap here is a cycling club, motoring consumables, and cycle service care subscription. I wanted to finish my presentation today with a case study that will hopefully bring together what I have shared, highlighting how we optimize our unique data collection to change customer behaviors by knowing more about them and their vehicles, and how this provides value for Halfords, both in market share and in leveraging the platform. This year, we have taken another step in our lifetime journey, launching our Motoring Club. The club helps us grow more customer data. We collect it across multiple touch points as customers can sign up in our shops, our garages, online or through our contact center.
The scale of collection is significant, with an average 35,000 sign-ups to our club every week. The richness of the data is high, with mandatory email addresses and vehicle registration numbers secured. Recently reaching our first anniversary, the results have been spectacular. We've signed up over 1.7 million members, with 7.4% signing up to the recurring revenue subscription tier. As you can see, new customers have shopped in Halfords for the first time, with significant customers shopping in our garage services channel for the first time too, as we successfully deliver cross-shop from the retail shops into garages. We're attracting a slightly younger audience with a stronger EV bias. Importantly, our club members are enjoying the benefits of a VIP experience, demonstrated by our growing NPS scores of +4 points versus non-members.
Furthermore, our commercial results so far are beyond expectations. For example, we have achieved record levels of cross-shop, now standing at 15% for members versus circa 4% for non-members across our retail and garage businesses. Not only are members therefore cross-shopping four times more than non-members, but they now represent over 33% and growing of all our MOT customers. The North Star ambition to drive lifetime value is truly working within our Motoring Club. It's a case study to how our collection of data and the use of it is delivering positive impact to our customers and to our financial performance. This is reflected in the powerful change to customer behaviors we're enjoying so far from club members.
Our members are visiting more often and spending more per visit, which results in our subscription members, for example, providing an additional GBP 245 of revenue to date. Our subscribers give us the certainty of recurring revenue and a predictable demand to help plan and optimize our capacity. We anticipate our Motoring Club membership growing to 4 million-6 million in the midterm with an 8%-10% subscription mix, and our vision is to grow to over 10 million members longer term. To summarize what you've heard from me. Firstly, I shared how the unique data platform we have built is now helping us to know more about our customers and their vehicles than anyone else. The scale and richness of the data we collect and how we collect it is truly differentiating.
I described how our data science and analytics uses this data to power our understanding of car health and predicting future customer needs, enables us to personalize content across customer touch points, helping us drive breadth of shop and multi-year retention. This is driving GBP 282 million to the group revenue and is key to unlocking further market share growth over the midterm. I highlighted the incremental midterm value we can now start to unlock from our investments through leveraging our data further in three discrete areas. Lowering customer marketing acquisition costs from attracting customers via our more efficient club mechanic and in growing our repeat members. The unique opportunity to leverage our customer and vehicle data and monetize this more strategically with our supplier base, powering our sales performance and funding income.
The roadmap of further subscription propositions to drive greater recurring revenue, which is still in scope for the next few years. I concluded by celebrating the launch of our Motoring Club, which is providing stellar strategic and commercial outcomes and provides a case study to how we are driving value through positively changing customer behavior. I'm extremely proud of the progress we are making on our lifetime journey, the impact that it's having on customers, the unique advantage it's creating versus our competitors, and the value this is driving for the group. I'll now hand over to Rob to talk to you about how we're going to leverage our garage services in the midterm.
Hello, everyone. Many of you will not have met me before. My name is Rob Keates, and I joined the business in 2020 and have recently taken on the position of the chief operating officer. I'm accountable for the customer-facing parts of the business, stores, garages, mobile vans, and contact centers. In this section, I'm going to take you through our progress and plans for our recent acquisitions and how we're going to leverage our unique platform to create more efficiency and profitability in our garage services business. I thought it would be useful up front to give you the major headlines from this section. Firstly, we will grow our total garage services annual profit to GBP 40 million-GBP 50 million in the midterm. Secondly, our synergy growth plan within Lodge and National Tyres will contribute around GBP 13 million of profit growth to the total garage business.
Finally, I will summarize our investments over the last four years have created a unique platform that we will use to drive utilization. Utilization is the biggest lever to creating more profit and will become an important focus in the coming years. It will underpin and enable the profit growth we plan to deliver from market share and cost improvements. Let's move first to how we will grow profitably in our garage services business. We have a clearly defined strategy with garage services at the heart of it, and we aim to evolve Halfords into a consumer and B2B service-focused business with a greater emphasis on motoring. This will generate higher and more sustainable financial returns. Our confidence to deliver this strategy comes from the transformation we have delivered in our core autocenter business over the last four years.
When we refer to our core autocenter business, we mean the original garages acquired in 2010, and which we have improved through a major focus since 2018. This area has been through massive change. We have a new dedicated technology developed through our Avayler platform, which is transforming how we work. Our buying approach is centralized and coordinated, and we are now leveraging a single integrated group website to attract and book in customers. Through all of this, we are growing our demand, capacity and efficiency. The financial results of this are compelling. In 2018, our circa 300 site garage business generated a little over GBP 4 million of profit from GBP 158 million of sales. That's an EBIT percentage of 2.6%.
From less garages over four years later, that profit figure is now over GBP 11 million, with an EBIT percentage of almost 6%. This shows the huge value created through growing demand and serving that demand while reducing our costs as a percentage of sales. It also demonstrates the power of efficiency and utilization improvements in our business, a key theme I will come back to later. Ultimately, this is about our ability to better leverage a fixed cost base. Our ambition in the midterm is to grow this business to GBP 40 million-GBP 50 million of annual EBIT and an operating margin of 6%+. Jo and Karen have already taken us through the detail of how we will drive benefit from market recovery, share, cost and data. Where I will focus next is the synergy maturity of our most recent acquisitions, specifically National and Lodge Tyre.
I will also summarize how we are progressing against the total business cases for these acquisitions and our comprehensive plans to drive performance. As we deliver the plans I will summarize now, we forecast a further GBP 13 million of profit from synergies will be created in the midterm. Before we get into the detail of the specific acquisitions, let me just quickly cover how we create value and why we have confidence in our approach. At a micro level, our approach to value creation is consistent. First, through acquisitions, we increase our scale, which unlocks significant buying and cost synergies. Secondly, as we acquire more garages and vans, we increase location coverage and reduce drive time for our customers. This improves the convenience we offer and therefore allows us to grow share. Thirdly, we fully leverage the core Autocentres platform that I outlined earlier in my presentation.
This means introducing Avayler and digital integration, ensuring acquisitions benefit from all our group assets, for example, our halfords.com website. It also ensures we fully leverage the efficiencies already within the business and increase the mix into service, maintenance and repair. Finally, our acquisitions give us the potential for new capabilities. For example, walk-in tires in National garages and commercial tires in Lodge. This gives us a bigger addressable market to target. Let's recap on the acquisition journey we've been on. In the last five years, we've expanded our garage volume by more than 100% and our vans from a handful to 264 consumer vans and 473 commercial vans.
This has given us true nationwide coverage for our garage services business, with the majority of customers now within just a 20-minute drive time. This has been achieved through a series of carefully considered acquisitions that have expanded coverage and grown the markets we operate in. Whilst we've had success with previous acquisitions, such as Tyres on the Drive and McConechy's, the majority of our future profit growth will come from our recent acquisitions, National Garages and Lodge, and that is where we will focus today. Moving on to National Garages. If we recap on exactly what we communicated when completing the acquisition, our plan was to deliver GBP 18 million of synergies in year five with GBP 6 million of those coming in the 1st year. Overall, we also forecasted an underlying EBITDAR of GBP 5.9 million in the 1st full year, assuming the tire market recovered.
Our synergy plan is on track. I will take you through the detail of this, but the key message is the major integration deliverables planned so far have been completed. In FY 2023, as we committed, we've delivered GBP 6 million of synergy benefit to the group. However, as Jo has already articulated, the delay in the tyre market recovery has impacted the underlying business and therefore the FY 2023 profit position. Looking ahead, due to the success of the synergy delivery to date and the plan we have, we are confident that we will achieve the full business case, but now in the mid to long term. We'll be focused on both synergies and additional actions that improve the performance of the underlying business. I wanted to give you a specific update on the core synergies we identified and communicated as part of the acquisition process.
As you can see, we are making good progress. All of the core synergies we communicated within the business case are on track to be completed in line with the plan. I won't go through all of these, but to select some particular highlights. Our combined group buying scale has been leveraged with improvements in terms across key product lines, delivering over GBP 5 million savings each full year. The core head office functions have been consolidated across the group. We've merged or closed 26 sites, delivering cost savings to the group. One of the most complicated parts of any integration is technology. Critically, we now have the Avayler technology, a core part of the Halfords Group platform, embedded in every National Garage. This has enabled the growth of our SMR business by 27%.
National Garage slots are also available to book via the Halfords website, giving those garages a bigger market and our customers more choice. Other synergies we have delivered include in our group B2B fleet business. A major improvement has been built from National Garage fleet clients now being able to book into an Autocentres' estate for tire and SMR work. Combined, these have enabled us to deliver over GBP 6 million of synergy improvement to the group in FY 2023, in line with our original plan. The synergy benefits from the activity completed to date will grow again in FY 2024 as it matures and we get the full year return from the FY 2023 actions. We will also continue to deliver against these major opportunities, optimizing each one. We're delivering further actions to address the underlying performance of the business and complete our synergy program.
For example, there are further organization design efficiencies planned, including the contact center, more SMR and MOT lanes installed, and enhancements to our tire proposition. This is a theme I will come back to shortly. We'll be running major tenders within our tire business, creating further savings from buying synergies. We will launch our Halfords Motoring Club into our national garages. We anticipate even more growth from our fleet business as more new contracts are won as a result of our broader group offer. Let's move briefly on to Lodge. Where overall with good market resilience, our plans are on track.
With the synergies progress made to date and the plan in place, we have very good confidence in delivering our business case in the mid to long term. First, as a relatively recent addition to the group, let me quickly remind you of the market this business operates in. The commercial tires market involves the provision of tire service on large commercial vehicles, for example, HGVs and tractors. The market is valued at over GBP 800 million and is primarily a B2B business. It's historically been served by a fragmented range of local independents, and this creates a major opportunity for Halfords. Through the acquisition of Lodge, we have created the U.K.'s market-leading nationwide commercial tire provider. We've successfully brought Lodge together with McConechy's and Universal and become number one in the market. We've made excellent progress on consolidation of infrastructure and bringing together our core external relationships.
As we are less than a year into this acquisition, there remains much more to do. We are on plan and expect to deliver our synergy business case. This market has proved resilient to the more specific consumer headwinds, and we have a very clear differentiated offer. In summary, we expect to deliver the full National Garage and Lodge Tyre business case in the mid to long term. Our forecasts are that in the mid-term, these combined plans will deliver GBP 13 million of synergy growth, with GBP 10 million from National Garages and GBP 3 million from Lodge. This means that GBP 22 million of synergy growth will have been delivered in total by the mid to long term. Hopefully that gives you a better understanding of our acquisition progress.
I wanted to talk a bit more about our increased focus on utilization that will underpin not just our acquired businesses, but also the original Halfords sites as well. This theme is going to be even more important to us over the next few years. It is going to support our plans by ensuring our market share growth is profitable, and it will also enable the reduction in our cost base as a proportion of revenue. Whilst we've not separated it out within our profit growth chart, it is critical to the delivery of our market share and cost targets. Let's start with a very simple description of what we mean by utilization and why it is so important. We measure utilization as the amount of time we spend on a job divided by the amount of time we had available.
Within our services business, we are selling our colleagues' time. As with most services businesses, we are paying for colleague time, whether they are completing work on a vehicle or not. The amount of productive time on revenue-generating work that our colleagues complete is hugely important sensitively. The cost will be there, so we need to make sure the demand and therefore the revenue is as well. To meet this challenge, we have a careful balancing act. We need to make sure we have enough capacity to meet and make the most of the customer demand, while also making sure we don't have too many technicians that we cannot keep busy. A balance between making the most of the opportunity while maintaining efficiency.
Customers demand convenience, therefore we also have to make sure we're getting this right in all of our 650 garages across the U.K. There's obviously no point in having the right capacity, but in the wrong place. This graph. Just on the next slide, please. This graph maps our individual garage utilization rate. Due to the sensitive nature of the data, we've removed the axis labels, but it illustrates two key points I wanted to make. Firstly, as a garage estate that has grown rapidly with many acquisitions, we have a spread of performance to consider and manage. Secondly, the equation is relatively straightforward. Very high capacity garages are full and likely need more capacity to deliver more profit. Lower capacity garages need more demand to increase their profit.
Critically, this is why we are now focused on capacity creation as a function of increased utilization and increased recruitment. We will recruit where we identify opportunities for growth, but we will also create capacity from our existing technicians through improved utilization. For example, in some circumstances, we'll relocate a colleague from an area of low utilization to one with high utilization rather than recruit. We previously communicated a target of adding 1,000 more technicians to our business. We've made good progress against this, but we've also identified we can create the capacity by driving utilization further in addition to recruitment. In effect, we've found alternative and more innovative ways to create capacity, and we will not require this full level of recruitment that we communicated in January. Therefore, we will not be reporting against this target going forward. We're also not focused on a total average utilization number.
We're focused on the unlocking of potential by managing the spread of performance. For very high utilization garages, we will add capacity which will drive more profit, even if the utilization performance stays the same or even reduces in the short term for those garages. This challenge is universal across our industry and many others. What we believe is different is the Halfords platform and how it will enable us to strike the right balance across all of our garages. Let me bring this to life. In a traditional garage model, a garage business that needs demand may run a nationwide promotion. For example, it might reduce the price of its MOT for a few weeks. This may be effective in driving more demand to garages that need it, but it will also drive demand to garages that are already full.
As a result, in certain locations, it will increase cost. Within Halfords, we now have the tools, the platform, to run a new hyper-localized model. We believe we have a unique capability to drive local demand to individual garages and towns where we can see we have capacity. We can do this as we have a large store estate where we can drive referrals from the store to the local garages. We can utilize dynamic pricing to stimulate demand using our digital channels, and we can create more predictable demand through our recurring subscription offer and local fleet clients, which allows us to better plan our capacity. On the capacity side, a traditional model uses standard local and national recruitment, typically based on seasonal demand spikes. Many garages have operated using manual or paper-based processes. This means there's limited reporting on capacity or utilization.
As a result, it's very difficult to understand when a garage is full or empty and respond accordingly. This means the national push for more technicians during general peak periods without a clear understanding of the specific demand potential of an individual garage. Therefore, solving the capacity problem in some garages can create unnecessary costs and poor utilization of the garages that didn't need it. In the new Halfords model, to build capacity, we are building out even more capabilities. Uniquely, we have a range of colleagues across the group in stores, garages, and vans. Our new model will enable us to share capabilities locally, ensuring we maximize utilization and driving real flexibility. Fundamental to all of this is our unique technology that allows us to understand capacity. The Avayler software gives us specific data at a technician, garage, and town level.
It allows us to understand exactly what our capacity is, where it is, and how much of it is being used on any given day. We can identify and react to areas of low utilization with more demand and more and areas of high utilization with more capacity. The real power is when we bring all of this together, matching capacity with growing demand, all at a local level, underpinned by real data science and a massive retail customer database. Ultimately, we expect this total capability to lead us to a bigger, more efficient and ultimately more profitable garage business that we don't think anyone can replicate today. Back with our major headlines. We have a target to grow our garage businesses to GBP 40-GBP 50 million of annual profits in the mid-term.
The synergy growth plans for our acquisitions are well underway and will ultimately deliver on their original business cases, albeit with the change to the expected timings in the national business. Lastly, over the next period, we will increase our focus on utilization, leveraging our unique platform to grow supply and demand at a local level. The combination of these makes us both confident and excited for the future of our garage services business. I will now pass you back to Graham. Thank you.
Thanks, Rob. Before moving on to describe our plans in the mid to longer term, let me take a moment to summarize where we have got to today. Jo has explained how we expect our underlying profit before tax to grow from GBP 50 million-GBP 60 million in FY 2023 to GBP 90 million-GBP 110 million in the mid-term. Jo covered the fact that GBP 17 million of growth is expected to come from externally supported market growth forecasts, particularly in the cycling and tire markets, which currently remain significantly below pre-COVID levels. GBP 22 million comes from our clear plans to drive market share across all of our categories, leveraging the platform we have built and continue to offer convenience and value to customers. GBP 5 million of profit growth is forecast as our cost savings more than offset the likely cost of inflation in the mid-term.
Karen went on to explain that GBP 8 million of profit growth is expected specifically from leveraging data and lifetime value. As you heard, this is also an underpin to our share growth too. Rob described how our maturing acquisitions deliver a further GBP 13 million and how utilization becomes an important contributor. Jo also explained that we forecast CapEx to be around GBP 50 million-GBP 60 million per annum across the mid-term, equating to circa 3% of revenue as we focus on leveraging the platform we've built. Therefore, we expect to deliver better free cash flow conversion going forward and that return on capital employed will grow to over 15%. As such, we believe our mid-term investment case is an attractive one.
With a trusted brand and as a leader in markets with strong fundamentals, we are well placed to capitalize on markets rebounding from historic lows. We have a unique and well-invested platform to leverage and are now the U.K.'s biggest motoring and cycling services business. We are already seeing data driven growth in revenue and profit through our Motoring Loyalty Club and the improvements we have made in CRM and personalization. We believe there is much more to come. I want to give you a couple of facts here that really bring alive how big this opportunity is for Halfords. Last financial year, we conducted almost 9 million service jobs on vehicles. That means millions of customers gave us the keys to their cars, enabling us to start building a relationship with them and their vehicle.
To put that in context, the AA completes a little over GBP 3 million call outs or breakdowns per year, roughly a third of the jobs we do. All these things enable a highly differentiated operating model, bringing clear competitive advantage through a market-leading interconnected infrastructure of stores, garages, and vans together with our expert colleagues. In addition, we have a fast-growing services and commercial business offering attractive returns and resilient recurring revenue streams. All of these reasons to invest are underpinned by our strong balance sheet and a relentless focus on cost and efficiency. In summary, there is significant opportunity for growth and returns in the mid-term by leveraging the platform that we have built. We've laid the foundations, but as I said in my introduction, the business and platform we have created lends itself to even more opportunity in the mid- to long-term.
I believe we can create a business of well over GBP 2 billion of sales and GBP 130 million-GBP 150 million of PBIT, with circa 6.5% operating margin. We are now in the last part of the agenda for today. Over the course of this morning we've looked at how we have laid solid foundations, but as I said in my introduction, the business and platform we've created lends itself to even more opportunity in the mid to long term. I believe we can create a business of well over GBP 2 billion of sales and GBP 130 million-GBP 150 million of PBIT, with circa 6.5% operating margin. Now I'm going to bring to life what that looks like in the outer years of the plan.
Let's start with a brief summary of what we believe are the key customer and market trends that have helped inform our mid to longer term thinking. Firstly, there is a continuing trend towards convenience as customers prioritize their time around the things they really want to do. Put simply, this means they want to be able to access products and services easily and at a time and place to suit them. Many customers also want to take the stress out of complex maintenance and repairs where they don't have the skills, knowledge, or time to complete the work themselves. Those are the customers who want it done for them. Whilst arguably value is the most important consideration for customers today, we still think it will feature as a major theme for the foreseeable future.
For specialist retailers and service providers, this means offering the very best combination of quality, service, and price. In addition to these customer themes, there are a large number of market trends that we could cover today, but there are three that are most likely to contribute to our strategy in this period, as you can see here outlined on the slide. Firstly, electric, where we see the transition to more sustainable forms of transport continuing to accelerate over the coming years with all forms of electric mobility increasing. We believe that electric and hybrid cars still represent the biggest opportunity here because of the potential market scale, their common parts versus traditional mechanical cars, and the range of new parts and services linked to EVs. To bring that to life, on this slide you can see a traditional mechanical car next to an electric car.
Highlighted in red are those components that continue to be common between the two and therefore retain their profit and revenue contribution. For example, wipers and blades and bulbs. In yellow, you can see some of the components that are the same on both cars, but on an electric car, the parts are either more expensive or require more regular maintenance. One example here would be tires, which wear more quickly because electric vehicles are heavier and the tires themselves are manufactured with less tread to increase efficiency. Other examples would be steering, suspension, and brakes. In blue, we show the parts and services that are purely for the traditional car, mainly relating to the engine components. Finally, in green, you can see the new parts and services that are specific to electric cars.
These include larger, more expensive, and sometimes multiple batteries and of course, the EV charge point. Going back now to the key market trends, and the second of these is the continually changing U.K. car park. Here, we have already seen an increase in the average age of a car move from 7.9 to 9.7 years since 2019, and we believe that this will continue. We also think that towards the end of the period of this plan, we will start to see an increase in shared ownership, leasing, and other options which will advantage businesses with a nationwide B2B and commercial fleet services operation.
Finally, the last trend you can see on the slide is around cycling infrastructure, where we think in the mid to long term we will start to see some benefit from the investment that government and local authorities have made in making it easier for the public to use bikes. If those are the key customer market trends, how are we going to evolve our strategy to take full advantage of these? We believe there are three key areas of opportunity. Firstly, to develop the U.K.'s one-stop shop for motoring ownership. Secondly, to be the U.K.'s servicing destination for all electric cars, vans, bikes and scooters. Lastly, to create a unique, local, multi-channel motoring and cycling offer. Let's now look at each of these three elements of the mid to long term plan in a bit more detail, starting with one-stop shop for motoring ownership.
For some time now, we've been looking at how we could expand our motoring offer to better leverage the platform and investments we have made. As you can see from this slide, there is a lot a customer has to do across their ownership journey. Currently they have to do it with many different brands, spending a lot of money in many different places. With this complex and fragmented market in mind, we commissioned some research aimed at identifying how far the Halfords brand could stretch within the overall motoring market. The results were compelling. Not unsurprisingly, customers told us that they currently find shopping for all that they need when owning a vehicle daunting, confusing, as well as costly.
Three quarters of customers surveyed said they would find a one-stop shop to motoring ownership very appealing, not just to simplify the process, but to put every element of the cost associated with owning a vehicle into one place that is easy to access and easy to navigate. The majority said that they see Halfords as one of the very few brands that is both a great fit and highly relevant. As you can see, the vehicle ownership space is currently a highly fragmented market with no one single provider for a scaled one-stop shop.
That is where we see huge opportunity to provide our customers with a full ownership solution throughout the life of their car, all under the trusted Halfords brand, either via affiliation, partnerships and franchising or through our own capability. In fact, we believe we are the only motoring product and services provider in the U.K. with the infrastructure, scale, and expertise to do this. As you can see here, there are a large number of big markets that we currently do not access with the Halfords brand, from insurance, service plan and warranties, through to breakdown cover, windscreens, and minor body repairs. A number of these services are recurring, subscription revenue, and needs-based spend, far less impacted by customer sentiment and more reliable and predictable.
The overall size of the prize here is potentially huge, as we have the opportunity to nearly double the size of our addressable market from GBP 15 billion to GBP 28 billion. The good news is, we know exactly how to create a one-stop shop, because we've already done it for bikes. In cycling, we spent over 130 years supporting customers and growing our offer so that we can be with our customers throughout the ownership of their bike, and indeed, throughout their lifetime. We are there at the beginning when they select a bike. We help them to buy it through financing it. We then build it for them, and we help protect their bike, insuring it for them. We provide them with the right parts, accessories and clothing to help them use it effectively. We support them in maintaining their bike, servicing and repairing it.
Finally, when they are finished with it, we can recycle it and give them the value of that bike to put towards buying a new one from us. Not only have we a track record in the mobility ownership space, but the data capability of Motoring Club platform we have created means that it doesn't need to be expensive to surface new services to customers in the future either. Our club provides us with a unique opportunity to do this in a relatively low-cost way. For example, if we've been servicing, repairing, and collecting vehicle data on your Volvo for a number of years, we would be well-placed to help you with a tailored service plan or warranty specifically for this car. This could then be surfaced through your Motoring Club membership accordingly.
At its greatest extreme, what we are attempting here with a combination of our one-stop shop and our data capability is to create a unique competitive advantage around a customer's car ownership journey, where not only are we offering all the products and services that they might need, but we are predicting when they need them before any competitor has the chance to intervene. Not only is a one-stop-shop great for customers, we think it will be very good for shareholders. Alongside significantly increasing our addressable marketplace, it enables us to better leverage the fixed costs and investments we have made. It provides us with economies of scale and even greater relevance to supply partners, it increases our brand relevance, proportion of sales from services, and recurring revenue.
Moving on now to the second area of opportunity, establishing ourselves as the U.K.'s servicing destination for all types of electric transport. As I said earlier, we are the only U.K. brand with a physical network to service all modes of electric transport. The majority of our consumer garages and all of our stores are currently set up to service e-mobility. We also have the capability and expertise across our estate to deliver these services, with more than 2,000 technicians trained to service, maintain, and repair electric transport across both our retail stores and garages. Our operational infrastructure is already in place. The majority of our garage estate is equipped with diagnostic software to service all brands of EV and hybrid cars, and our Halfords Training Academies are already delivering e-mobility qualifications to the technicians of the future.
In the mid to longer term, we are focused on the following areas to build this market-leading position. We will significantly increase resource and capability, both in retail and garages. Our aim is to have 100% of our garage technicians trained in EV and hybrid technology versus 20% today. In addition, we plan to introduce further e-mobility training into our four Halfords academies and work with government to ensure electric becomes a bigger part of standard industry qualifications. We will fully leverage our mobile servicing capability and expand the range of electric maintenance and servicing we can offer customers at home or at work. This will incorporate charge point fitting, servicing and diagnostics, all delivered on the driveway. We will continue to grow our market-leading position as an e-bike and e-scooter retailer and the servicing opportunity which then comes from that.
This will be more effectively delivered through the introduction of our cycling club towards the end of the plan. Finally, as we showed in the market data earlier, as the used electric vehicle car park becomes more substantial, we have investment in the outer years of the plan to start to build a destination Halfords brand position for the servicing of all types of electric transport. We will also use the motoring and cycling clubs to increase awareness of our unique market status. Timing here is everything, particularly as the Halfords garage business delivers most of its servicing in the used car park, where we are maintaining cars with an average age of more than eight years old.
You can see on the chart here that we estimate the opportunity for the used car park on EV is still some way away. That's why we plan to build out our electric credentials towards the back end of the plan. Last but certainly not least is our plan to create a unique local motoring and cycling multi-channel offer. We thought the best way to show you the huge opportunity generated by the town-based shopping experience we have already created in Halifax and Colchester is to bring this alive in a video so you can see what it looks like and how the roles of our channels come together.
Since 2018, Halfords has built a scaled network of stores, garages, and vans, each playing a key role for our customers and for our business. Our stores provide customers with an inspirational range of motoring and cycling products, supported by our on-demand fitting services. Our garages serve customers with more complex motoring needs on both a scheduled and walk-in basis. Our vans provide customers with ultimate convenience as our mobile experts deliver servicing and fitting in locations to suit them. Our Fusion towns, launched in financial year 2022, bring these elements together to deliver a seamless, convenient, and consistent experience for customers, underpinned by our market-leading digital offering. Initially launched in Colchester and Halifax, it allowed us to rapidly test new ideas that would inform our long-term thinking and planning. Even in small towns, customers don't always shop exclusively with Halfords.
As an example, they may buy motoring products from us, but had previously been unaware that we also offer car servicing and MOTs. Fusion brings the experience together and enables us to better meet the needs of the customer, ensuring they're aware of our full product and service offer. We change the way Halfords looks and feels across the town, investing in the brand to help customers see the services journey in a way that connects each touchpoint from car park to front of house, store to garage. Our services look and feel the same in each location.
Customers can go into a store and have their car checked, be booked into the garage there and then for any necessary repairs, or arrange a time for a Mobile Expert to visit them at home or at work, giving customers a full solution when and where they want it, seamlessly, consistently, and in the most convenient way for them. We've not only improved the way we refer customers across the town, but our Fusion colleagues are also trained in selling the full solution to every customer, every time. Our solution selling program empowers colleagues to introduce products and services to customers at every interaction. Fusion is not just about selling more, it is also about how we sell more efficiently and more effectively.
For example, a convenient collection desk for bulbs, blades, and batteries enables us to invest less in stock on display and ensures every single customer gets an assisted sale, so we can guide them towards the best product and attach a service every time. Fusion is already delivering and the results are compelling. Our vision is to inspire and support our customers through a lifetime of motoring and cycling, and Fusion empowers us to do just that.
I hope the video has helped you visualize what the optimum customer experience in a town could look like for Halfords and has given you the confidence that in the short to mid-term, there's enough opportunity to leverage the less capital-intensive, high returning parts of Fusion, namely upgrading the resale car park, service revision, and empowering more colleagues with the tools to sell the full solution to every customer every time. What about the mid to long-term plan? Well, with the results that we have seen, we believe there is an opportunity for a Fusion town experience in more than half of our locations across the U.K., which means investing in 25 towns per year in the outer years of the plan. These are highlighted by the red dots on the map just to the right here.
In the future, we will look at the entire Halfords physical estate through a local lens to ensure we have a town-based approach that optimizes all of our local assets with the appropriate levels of investment. The final piece here is: what does all of this mean when we look at planning all of our channels and respective physical assets alongside the strategy we have outlined? In the future, retail stores not only play their unique traditional role in on-demand fitting and as the only nationwide specialist showroom for products, but they also become a vital customer acquisition channel for our garages and an important scale source of customer data capture. We currently have 394 retail stores, and we expect this to decrease to around 350 over the mid to longer term.
This would still mean we are within 20 minutes drive time for 86% of the population across the U.K. Moving to our consumer and commercial garages, where in the consumer space, colleagues deliver the more complex service and MOT events and where we know electric will play an even greater role in the long term. We believe here it will be necessary to grow from 650 to 800 garages, which in turn will mean we are within 20 minutes drive time for just under 90% of the population. Finally, we intend to complement our fixed locations with an increased network of consumer and commercial mobile vans and technicians to reach a total of 800. This will cover circa 90% of the U.K. population and allows us the future headroom to service and maintain the growing proportion of electric vehicles on the driveway.
As you might expect, the growth I've described will require more capital going forward. In the mid to long term, as we grow the number of vans and garages and roll out elements of Fusion to more towns, we anticipate our capital requirement increasing to GBP 90 million-GBP 110 million per annum or circa 5% of revenue. This investment will undoubtedly drive returns even beyond the longer term we are describing today. Notwithstanding the increase in CapEx, as this slide illustrates, we still expect to generate strong free cash flow in each year of the mid to long-term plan, given our increasing profit across this period.
Our positive leverage position is therefore expected to improve further. We believe the three big strategic opportunities of developing the U.K.'s one-stop shop for motoring ownership, becoming the U.K.'s servicing destination for all electric vehicles, and creating a unique local multi-channel motoring and cycling offer will help us to deliver greater value in the long term. Alongside this, we will continue our relentless focus on cost and efficiency through a combination of both strategic and tactical plans. This will include a greater emphasis on outsourcing, automation and AI, and a strategic review of our supply chain. As we build out an even bigger services business, colleagues will, of course, be central to what we do here. We will continue to put them at the top of our business agenda, continue to invest in their expertise, training and development to ensure we maintain our competitive advantage.
I hope you agree there are some real opportunities to create significant shareholder value in the years ahead. I want to be very clear that our immediate focus as a team will be very much on the short to midterm plan, ensuring we do all we can to optimize and leverage the investment we have made and the platform we have already created to deliver value now, not just in the future. Before I hand you over to Chris McShane, I want to give a bit of context around why we are covering Avayler as part of today's presentation.
Avayler has previously operated as a relatively small part of the Halfords business. Over the last 12 months, we have clearly defined the economic model for this business. We've also contracted some significant international enterprise clients and developed a substantial pipeline. We therefore believe today is a great opportunity to share a bit more detail about the business. On that note, I'll now hand you over to Chris McShane. Chris?
Thanks, Graham. Good morning, everyone. I'm Chris McShane, I head up the B2B business at Halfords, which as you've heard today, is now 22% of our group business and includes Avayler, Halfords' software arm. Today, I'll walk you through the details of the Avayler business, its origin, current state, its future plans, including splitting Avayler out as a separate Halfords business to accelerate its growth. However, it's always easier to show rather than tell, so let's start with a short video about what Avayler is.
Today's customers demand the easy, seamless experience they receive from other markets when getting their car serviced, building trust through full visibility. However, automotive services have traditionally struggled with digital transformation, still relying on outdated processes and siloed systems. Halfords has changed this with their proprietary customer-centric, tech-powered solution, delivering an industry-leading customer, colleague, and operational experience. Customers now get a consistent experience across the Halfords omni-channel estate and can book online for garage, store, or mobile services. Dynamically priced time slots based on factors such as availability, density, location, and job profitability are offered up, allowing plentiful choice for customers and offsetting operational costs. Data captured at every touch point feeds into a unique customer portal, allowing for complete transparency and easy communication throughout the service.
Colleagues are empowered to provide the highest level of service and can be guided to upsell and cross-sell with the ability to attach specific products and services along the way. Mobile technicians are routed to jobs based on location, saving on fuel costs while supporting environmental initiatives. The system saves our teams hours by providing a fully integrated parts bidding and parts ordering module, as well as dedicated job-specific workflows to ensure compliance and a world-class service every time. With these streamlined operations, paper usage significantly reduces and real-time integrated parts bidding and purchasing drives technician efficiency, saving many hours interacting with dealers. Customer and vehicle data is used for future growth plans, engagement with partners and suppliers, pricing, and more, with real-time reporting giving full visibility across the entire business.
It all results in a highly personalized customer experience with an industry-leading NPS score and the number one Trustpilot rating worldwide. Halfords is now offering this software to like-minded businesses around the world as a SaaS-based system called Avayler, providing an operator-built solution from directly within the industry. Real operational expertise and experience continually shape its functionality, helping businesses prioritize customers, empower colleagues, streamline operations, and boost efficiency. It's an additional high-value revenue stream for Halfords and is already being successfully rolled out by major automotive and retail brands in the U.S. and Europe. With Avayler, Halfords will become a leading automotive service technology provider, in addition to the U.K.'s leading motoring and cycling retailer and service provider.
As we've communicated in previous presentations, Halfords has spent the past five years investing in technology to create a platform that facilitates customer centricity, growth, and profitability, which Halfords knows internally as the PACE and Tyres on the Drive platforms. It's been a journey of discovery fueled by Halfords' ambition to be the best for its customers and deliver the best automotive services in the U.K. Avayler was born from this. Having done it successfully ourselves, our mission is to help other ambitious businesses provide a truly customer-centric service offering that connects colleagues and customers and streamlines operations, increases efficiencies, and reduces costs in a complex service environment. The Avayler platform is built by the automotive industry for the automotive industry. In 2018, Halfords was facing the automotive industry challenges that still impact the automotive services business today.
Customers now accustomed to the fast, convenient, and digitally enabled services of Amazon and Uber now expect an end-to-end seamless and digital journey from all service providers. At the same time, customers are often mistrusting of automotive services businesses. They fear a lack of transparency, price increases on products and services, and being intimidated by their lack of knowledge around their vehicle. Technicians, on the other hand, struggle to meet customer demand due to a shortfall in available skilled technicians, being spread thin by a lack of new talent entering the workforce and not being given the tools or visibility to suitably serve customers. These issues are additionally compounded by the automotive industry's reluctance to transform digitally with disparate and often paper-based processes thinning profit margins due to time and stock wastage.
To solve these industry challenges and support its services strategy, Halfords set out to create a purpose-built technology platform to put the customer at the heart of operations and allowed Halfords to deliver automotive services profitably. This technology gives Halfords customers the ability to purchase automotive services online and connects them to their services on the day, while automating service delivery for Halfords technicians and retail associates. The platform enables automotive service delivery to your home, in garages, or in a retail store.
Because of rolling out these technology solutions in-house, Halfords has seen a 77% increase in productivity in mobile, a 20% increase in job bookings year-over-year in garages, plus the leading Trustpilot excellent score of 4.8 out of five for Halfords Mobile Experts, and 4.4 out of five for Halfords Autocentres, with Halfords Mobile Experts still number one in the world on Trustpilot. Avayler now offers the Halfords technology externally to the automotive market as an omni-channel product suite built on a commercially ready and agile platform. Avayler Mobile and Mobile Pro enables mobile delivery end to end and supports businesses with on-site operations looking to provide mobile services. Avayler Hub and Hub Pro provide garage management options for businesses looking for a light touch garage management platform through to those looking for the fully featured end-to-end garage management platform.
Avayler for Retail is an industry accelerator designed to help omni-channel automotive businesses offer services in traditional retail environments. Businesses looking to provide a full omni-channel solution to their customers will benefit from acquiring the full Avayler product suite. The key differentiator that sets Avayler apart from the rest of the market is its origin, born from an automotive industry operator. This means that Avayler is best positioned to help other automotive businesses solve critical pain points and rapidly receive return on investment from the solution. We test our products in our own business, we improve them with real operational feedback, and then bring the best to the external market. Additionally, Avayler is the only software out there in the automotive market now that enables service delivery across a varied estate.
Omni-channel, both in enabling the way customers buy services and omni-channel, as in applied to a business that runs garages, retail stores, mobile delivery, and any hybrid combination of these. Avayler also contains unique features such as truly dynamic pricing that uses historic trends, business rules, and real-time product and job information to price slots, then optimize profitability and optimize route density. An integrated parts bidding, a system that plugs into your selected parts providers, allowing them to automatically bid on needed parts with best price and fastest arrival time, ensuring that customers always get the best price, reducing service lead times, and giving businesses the best margin possible. The competitive landscape further enforces Avayler's USP as an omni-channel solution. The automotive software market is a saturated and disparate market. There are no true end-to-end enterprise players.
For example, the market is divided into providers of technologies like front of house, OMS, digital vehicle inspections, mobile delivery, and many others. Enterprise automotive businesses use multiple systems, with multi-site businesses often using different solutions at different sites without consistent oversight of performance. Most automotive solutions are legacy systems with outdated UIs. Avayler is the only solution that brings the required automotive market functions, processes into one place of service delivery. Let's look at the automotive market in our target territories. Not only does the Avayler have the advantage of being a unique player in a disparate market where another like for like solution does not exist, but the opportunity in the market is significant.
Our market is the core automotive garage market in every territory, with the ability to provide our garage management platform and our mobile management platform, with the potential to extend into the automotive retail market within these territories as well. With Avayler's licensing, based off a per garage or per van fee, the opportunity in the U.S., U.K., and EU alone, where our current client base is expansive, with the potential to tap into over 500,000 automotive repairers. For context, think about Halfords for a moment. Avayler's deployed into all of our 650 garages with our mobile expert vans using it as well, and not to mention our 394 stores. In the U.K. market, with over 30,000 garage repairers, we have the largest player in the U.K. market now using it with 1,000 locations.
In comparison, the U.S. has over a quarter of a million automotive repairers, with many much larger garage chains than those in the U.K., giving us a significant market opportunity. This potential, coupled with our target sales strategy, drives Avayler, the, to have the ability to continue to grow rapidly. How does the economic model in a software business like Avayler work? Firstly, we have a very focused automotive industry-targeted sales strategy to ensure its commercial success. Avayler has also taken an enterprise client target approach rather than SMB, focusing on larger turnover businesses with an already established garage footprint, primarily in English-speaking or Western European countries, or existing relationships that help speed up our sales cycle. Enterprise automotive businesses often cover many countries, enabling us to land and show the value to their business, then expand with them.
They're also further along on a digital transformation journey, making them more receptive to our technology and making our solution easier to adopt. We use a number of criteria to ensure they are worth the time and effort, and have the greatest chance of closing. We already have an advanced pipeline of enterprise customers where we focus on a smaller number of larger clients. We're therefore confident in our conversion of these clients as we progress towards closing our agreements with our partners. We have a major client already, such as American Tire Distributors in the U.S. with over 80,000 partner garage chains. Other chains like Tire Pros here, where we have recently gone live in the U.S., and Mobivia in Europe with 1,970 garages, where we're about to go live in Germany.
These enterprise clients with established bases of garages enable us to close long-term, successful partnerships. Next slide, please. This strategy feeds directly into the revenue model for Avayler, which ensures committed, recurring long-term revenue streams for the business. Our revenue model is based off four foundational principles: long-term contracts of three years or more, license fees that are charged on a per-van or per-garage basis per month or per transaction, fixed setup and configuration costs based on the size and complexity of the initial implementation, and minimum contract commitments as well. Committed revenue comes in the form of monthly revenue based off the license fees and upfront revenue from configuration and setup. An additional revenue can come from offering operational excellence consultancy and one-off customized project-based work or development work alongside our license and setup fees.
As a business unit within Halfords Group plc, Avayler has developed rapidly in the last two years, establishing an external client base, a product suite, a dedicated team, and a strong go-to-market strategy that is being executed on. However, as Graham mentioned, to better enable its future growth, Avayler has now become a separate entity in Halfords. Why separate the business now? Avayler is a software business and it needs to develop competitively in every way within a software market. It needs to act like an entrepreneurial startup, develop a culture appropriate to a software business, be able to attract the best talent in the software market. As a more separate business, we can clearly report and show its value, enabling us to talk more effectively to shareholders about its progress.
In the future, Halfords Group intends to report on Avayler as a separate reportable segment from a financial reporting perspective, and create an automotive industry leading piece of software. Our performance to date and our business plan gives us confidence that Avayler is now positioned to provide significant long-term value to Halfords. Key software business financial metrics, such as growth in our annual recurring revenue, our operating margin, aims to deliver a valuable software business with a strong valuation multiple in the mid to long term. The expansion of our business into new territories, supported by an experienced and growing automotive specialist and software team, mean we are well placed to support our clients. Our capital expenditure grows in Avayler, as you'd expect in an early-stage software business. The future annual CapEx spend includes spend to support all internal and external platform needs.
Three key takeaways that I'm very excited to leave you with today for the Avayler business. Firstly, we've created an innovative and automotive industry leading platform for Halfords and for our external clients. Secondly, we already have clients across the U.S. and Europe and a well-developed pipeline in our target territories, giving us confidence in our ability to expand further. Finally, our performance to date and forecast on the key software business financial metrics give us great confidence in creating a strongly performing SaaS business in the mid to long term.
This means that Avayler is positioned to add significant value to Halfords in the coming years. It is an exciting point in the Avayler evolution with an even more exciting future. Thank you for allowing me to talk you through the Avayler business. To close, why don't I let someone far more important than me, one of our clients, tell you about what they think about Avayler. Thank you.
Hi, my name is Greg Bell, the President of Tire Pros. Tire Pros is a nationwide automotive tire and service retail franchise. We have over 430 owner-operators comprising of 620 locations across the contiguous United States. Tire Pros employs roughly 6,500 technicians and associates across those retail locations. Tire Pros invested in mobile simply because the consumer needs have shifted dramatically over the last five years. COVID certainly accelerated some of those needs. Consumer demand is changing. The industry is changing. Tire Pros needs to stay ahead of that change curve. We feel an investment in mobile tire is the right place for us to be. Tire Pros chose Avayler because of their look forward in the digital space. They had a proven model over in the U.K. with their Halfords business that, for us, was essential.
Once we found the learnings and we talked to their teams, and several have actually gone and visited their operations, that we took the learnings from mobile that they implemented, combined that with their technology platform, integrating that with the Tire Pros digital ecosystem. For us, this was a way to differentiate ourselves in the market. Avayler provides value for Tire Pros in the sense of their digital technology stack, its ability to integrate with our point of sale ecosystem, as well as our online digital platform and e-commerce system, tirepros.com. They also have tested and tried learnings from their Halfords model over in the U.K. We've been able to take a look in depth at what they've done, the successes that they've had implementing the Avayler technology.
We feel for us, this is a differentiator and a way to go to market, to connect in with our proprietary software and systems to meet the needs and expectations of our customer. Avayler has been a great partner for us. We're excited about this relationship, and we look forward to continued success.
Thank you. I'll hand over to Graham now.
Thanks, Chris. I hope everyone is as excited as ATD and we are about the Avayler opportunity. We're reaching our conclusion now, in a few moments there will be an opportunity for you to ask some questions. Before that, I wanted to summarize the shape of the plan we have set out today by putting all the key numbers onto a single slide. Our financial aspirations are clear. We will grow sales from GBP 1.6 billion in FY 2023 to around GBP 1.9 billion in the midterm. This will be driven by market recovery, leveraging the investments and platform that we have built, our acquisitions maturing, and driving data and growing lifetime value.
As those dynamics continue in the mid to long term, we expect revenue to grow to GBP 2.2 billion as we expand to adjacent markets, creating a one-stop shop for motoring ownership, establish a market-leading position in the servicing of electric mobility, and create a unique local motoring and cycling multichannel offer. This plan, coupled with a relentless focus on cost and efficiency to offset continuing inflationary headwinds, is expected to drive profit growth from GBP 50 million-GBP 60 million in FY 2023 to GBP 90 million-GBP 110 million in the midterm, and on to GBP 130 million-GBP 150 million in the mid to longer term. As such, we see operating margin expansion from 3%-4% today to around 5.5% in the midterm and 6.5% in the long term.
CapEx, as we have discussed, will reduce to around 3% of revenue or GBP 50 million-GBP 60 million per annum in the midterm before increasing to circa GBP 90 million-GBP 110 million in the long term as we lay the foundations for the future through the three strategic opportunities we have described. Free cash flow in the midterm is expected to improve to GBP 45 million-GBP 55 million on average per annum as profit grows and we reduce capital expenditure and focus on leveraging the platform we have built. In the mid to long term, we expect free cash flow to continue to improve to around GBP 55 million-GBP 65 million. Our strong cash generation means that we expect to be in a net cash position in the mid and mid to long term.
Finally, return on capital invested is expected to increase to over 15% in the midterm and over 20% in the mid to long term. In light of our strong balance sheet and the board's confidence in our mid and mid to long term plans, I am pleased to announce today our intention to pay a final dividend of GBP 0.07 per share. This brings the FY 2023 dividend to GBP 0.10 per share, an 11% increase on the dividend paid in FY 2022, and in line with the progressive dividend policy we have had to date. Going forward, our dividend policy moves to more closely align with earnings, and we intend to pay a dividend that is covered 1.5x to 2.5 x by underlying profit after tax.
Otherwise, our capital allocation priorities remain unchanged, as you can see on this slide. I will finish with our investment case for the long term. About an hour ago, we ran through the midterm investment case, and in the long term, all these points still stand, but there is even more to be excited about. Our trusted brand has the ability to stretch to adjacent markets as we become a one-stop shop for motoring ownership, increasing our addressable market from GBP 15 billion-GBP 28 billion. We can expand our market leadership position by becoming the market leader in servicing all types of electric transport as we increase resource and expertise in both retail and garages and leverage our mobile electric servicing capability.
When you combine these things with our millions of data points, we expect to be able to create a unique competitive advantage as we know more about bikes and cars than our customers do and can predict their needs like no one else can. By rolling out key elements of our Fusion plan and bringing together the assets in a town, we will even further differentiate our operating model. Finally, we see Avayler, our SaaS business, as a significant strategic growth lever for us in the mid to longer term. To summarize, I believe the future for Halfords is exciting, and the investment case we have laid out to you today is clear, both for the mid-term and the mid to longer term.
Since 2018, we have created a significantly bigger business, increasing revenue by 40% and more than doubling the size of our B2B and services business. We have developed a unique and scaled platform, building a market-leading, interconnected infrastructure of stores, garages, and vans at the same time as creating a data and digitally enabled business. In the mid-term, we believe recovery in our core markets, combined with the fully leveraging the investments we've made and optimizing the unique platform we've created, will deliver GBP 1.9 billion of revenue, GBP 90 million-GBP 110 million of PBIT, and 5.5% of operating margin and a return on capital employed of over 15%.
Finally, there is significant scope for further transformation in the mid to long term by unlocking the full potential in the Halfords brand and in turn creating a much more profitable business. Thank you for listening. We are happy to take any questions now. I'll just ask my team to come to the stage first, if you just give us a moment. Thank you.
Morning, all. Morning, all. It's Jonathan Pritchard at Peel Hunt. Sounds like there's gonna be a sort of price reset on, definitely on bikes and to a degree on tires. Are you gonna be on the front foot there? Are you going to be driving these prices low, or are you going to be slightly reactive, or is it gonna be you in the driving seat? Secondly, on EV training, forgive me, Is it academically more difficult to train to be an EV technician than it is another engine technician? It may you need to have upgrade personnel sort of intellectually almost to do that, to get that training done. Just a quick, any bullet points you might have on current trading. Obviously, you've held guidance unchanged. Q4 is now in the bag. Any headlines you might have on Q4 trading?
Good start.
Yeah.
Good. Thanks, Jonathan, particularly for the last question, which I will take first. Current trading, we're obviously only two weeks into the financial year. What I will say is it is going as we expected it to in the first two weeks, albeit it is only two weeks. In terms of the other two questions, perhaps, Rob, do you want to pick up the EV training point? Then maybe Jo, around the price reset.
Yeah. I mean, I think in terms of EV training, we actually see this as an opportunity to bring in different demographics, potentially even more diversity, 'cause you don't have to have gone through the traditional training in some of the more mechanical side of expertise. It's actually a different career path to bring people in direct with EV. We're actually also trying a more, see if we can get a different qualification in as well on the EV side at the moment as well. It, it can be a different route as well as the traditional way for our existing colleagues as well.
I mean, we've got just to build on that, Jonathan, obviously we've trained 20% of our colleagues already. We've got a good track record of training not just in vehicles, but also in bikes and scooters too. We're confident that we can train existing colleagues, but as Rob says, you know, there's also potentially new career paths for people to be brought in on, which is even more exciting.
I take the question on bike and tire pricing. What I was trying to describe, Jonathan, is that we expect the market itself to adjust in terms of pricing on both bike and tires to enable the market growth that's forecast externally. At Halfords, we aim to be very competitive from a pricing perspective. We scrape thousands of prices across our competition. We don't intend to lead the market down, but we do intend to remain very competitive across both of those markets as we look forward.
I've got three. Do you want them all?
Mm-hmm.
Okay. The first one is about bikes, which I appreciate is less and less important for you. I was very surprised to see that about 2 million bikes get sold in the U.K. when the population is only 66, and many of those don't ride bikes. Perhaps you could talk a little bit about that. I understand that parents always buy new for their growing kids. Is there Why should we have confidence that that 2 million is going to come back? The second one is kind of a mean one.
When Halfords bought Autocentres way back when and even when Kwik Fit was a listed company, we heard that market share was gonna be scooped up by these bigger companies because there was gonna be a transition from mechanical parts to digital and car manufacturers had extended warranties, and it just didn't happen. Why now? Why is it that Halfords thinks that they're gonna be able to take share? Is it perhaps because the retail estate is shrinking and shrinking and there's nothing else for you to do? Very mean question. The last one is a little less mean. It's about capacity utilization in the garages business. That was an interesting chart that you showed without, even though the axes weren't labeled. Is there any color there?
Is it, does it depend on the site? Does it depend how big the site is? Does it depend on which brand is over the top? Isn't that business very, very seasonal? What percentage of garages business is MOT or MOT related? Isn't that very concentrated in June and now December? There, in some cases, how much can you do, as well you're somewhat bounded by the equipment within the site. How much improvement is realistic? Is there not a point where actually you need to put capital into the business?
Okay. Thank you. I suggest I take the bike one, perhaps Rob on capacity, and then, I don't know, Jo, do you want to take the Autocentres one?
Give it a go.
Yeah. We'll give it a go. We'll do it together. This is a difficult one. In terms of bikes, the 2 million number is obviously an annual number, and the replacement cycle for bikes is not very frequent. There's a lot more bike ownership than the two that you've got. It's a much less frequent replacement cycle, for example, than some of the motoring product items that we sell in the niche-based categories. We're still very confident about the industry and market dynamics here. Yes, we've seen a big drop, but that is directly correlated to the cost of living crisis that we can see. We've seen that literally happen as the prices have gone up and the demand has dropped. We've seen those volumes come out of the whole market.
We think because of the deflation we are likely to see in some of the pricing, coupled with the government spend on infrastructure, that we will see that market come back. That's why we put what we put in the presentation today in terms of market growth. We're well-positioned to take more share because the other thing, perhaps we didn't make super clear in the presentation, is that we think there will be further consolidation opportunities in the cycling market.
It's been tough, not just for us, in cycling, but it's been very tough for some of the independents in the market. I think we will see some of those independents, particularly the smaller ones, come out of the market over the next six, 12 months. We are in a fantastic position to take that business with what we've done. That's how I would respond to the cycling piece. Rob, do you want to pick up?
I think, just bringing down a few of your points from your question. I think still across this, now that we're getting more forensic at a local level, we still see a lot of garages where there's definitely more growth within the competitive area, and that's why we're saying to take advantage of that, adding in even more capacity or sharing the resources across the local garages or stores within there, we can take more within that market. To answer your question more about the brands, I think we talked to you before previously that obviously the National Tyres and the Autocentres brands have got very different mixes of work. Whereas the Autocentres, the core Autocentres business has been predominantly sales, maintenance, repair, and then less tyres, and then pretty much the flip has been where we've seen with National Tyres.
Just if we take National Tyres as an example, we've seen 27% growth in service maintenance repair, as I was mentioning. That's seen more as we've gone through the back end of the year. In this first six months, which you could say is not as peaky as the second half of the year, we still see quite a lot of opportunity to grow service maintenance and repair in that first half of the year. I think the other thing we've noticed now that we've got, you know, a real established tire business is just how much tires have grown in the established core Autocentres business as well. We still see a lot of growth there.
I think when you combine that with the fleet business as well, we still see a lot more opportunity now we've got the scale of 650 garages across both existing and the newly acquired garages to drive more fleet business into both as well, and to be able to top that up pretty much throughout the year. I hope that answers your question.
I'll perhaps take your question by talking about two things that are unique to Halfords and two things that are quite different in terms of where we are now versus where we were back in 2010. The first of those is data and the power of the loyalty club that Karen described to you in some detail, which enables us to take share predominantly through taking customers from our retail channels and funneling them into our Autocentres. That is an infrastructure that no other competitor has and no one else has access to that number of unique customers to pull them in in that way with that level of efficiency. The second point is our electric vehicle servicing capability, and clearly, that wasn't so much of a thing back in 2010.
GiPA themselves acknowledge that actually the advent of electric mobility is likely to take consumers away from independent garages who just won't be able to invest in the infrastructure to enable them to service those types of vehicles going forward. I think those are probably the two new and different things versus 2010. I won't repeat all the other things I talked about in terms of motoring servicing and the strength of the brand, but those are two I'd point to. Have I missed anything, Graham?
No. I think they're two.
I've heard the EV. Thank you. I've heard the EV argument before. The little bit of research I've done makes it seem like that might be ambitious that an independent garage can invest in at least the basics. Do you have any sort of pounds and pence comparisons there? Like, why shouldn't they just go with the market and invest in EV once the EV market gets big enough for them to bother?
Yeah. I think there's two parts to that. The first is there is definitely an investment in technology, be that ADAS, so how you deal with ADAS and windscreens or the software diagnostic tools that you need, and the capability then to meet the needs of every single brand of hybrid and electric car. There's a second point, though, which I think is probably more fundamental, which is whether independent garages want to make that transition. A lot of them are owner-operated, and they came into the industry because they liked the mechanical part of what they do. I think there will be a number of independent garages run by those types of individuals that decide that they don't want to go on to that digital software transition. That's not what they want to do.
Exactly. It's a cultural change. It goes back to Rob's point around there's different career paths now emerging, and makes the industry very different going forward. I think a scaled operator like Halfords, with the access to the breadth of skills across stores, vans, garages, is in a superb position to take advantage of this.
Kate Calvert here from Investec. Three questions from me. First one is, can I try and pin you down on the definition of midterm and also mid to longer term? My second question is that, I think it was pre-COVID you signed a buying agreement with Mobivia. How has that progressed, if at all, and how much of the sort of savings you're looking to get on cost of goods sold is to do with combining some buying with Mobivia? My third question is, where did you actually get to in terms of recruiting of the 1,000 technicians?
Yeah. Okay. I think Jo is probably best placed for your first question. We'll come onto that in a moment. I mean, I'm happy to pick up the buying agreement with Mobivia.
Yeah.
Karen, if you're happy with that. Rob, if you could pick up the recruitment piece. If I start with the buying agreement with Mobivia, very, very important venture with Mobivia. Unfortunately, we started it as COVID started too. As we were buying a lot of products from Asia, we had to pause a lot of the strategic procurement that we planned because we just couldn't get to the factories, you know, you know where we are. We have very recently started to pick that up again, and we now have a new plan, and there will be some value in the cost of goods number that we've talked about here, the reduction in that coming from Mobivia. It won't be the lion's share of it, they will definitely play a role.
Rob, do you wanna pick up?
Yeah, sure. We've recruited 600 since November, and then on top of that, we've obviously got labor turnover as well. This year, we're planning to increase by an incremental 400 as well by the end of the financial year, and that includes 100 new apprentices as well. Obviously, as we talked about as well, the big focus we're trying to do then is focus on the utilization and how we use our existing colleagues on top of that to create the capacity that we want.
Midterm and mid to long term, look, we haven't formally defined that in our presentation. I'm sure you can imagine why we haven't done that. I think it would be fair to assume that the midterm's sort of around three to four years and the long term's a little way after that, Kate, if that helps.
Okay, thank you.
Thanks. Hi, morning. John Stevenson at Peel Hunt. Three questions as well, please. First one, the applied market share of Avayler in the long term. It doesn't feel like the longer term client opportunity was particularly aggressive. I suppose it depends on the size of your 15 clients, but can you maybe sort of just talk about that and maybe the wider opportunity going forward?
On customer average lifetime, you sort of talked about retaining being as important as recruiting. What is your average customer lifetime and why do people leave you? Then as a, as a sort of add-on to that, I guess, the average age of the car in the Halfords you mentioned is eight years. How successful are you at tapping into people when they come out of the dealerships at sort of three, four years and getting those sort of, that first 25% of the car park in?
Yeah. What I suggest is, Chris, do you want to pick up first the Avayler question?
Sure.
Yeah. Then, Karen, do you want to pick up the lifetime one?
Yeah.
I will try and pick up the last one around the age of the car park.
Great. Just to touch on the future performance of Avayler and the forecast of the number of enterprise clients that you talked about, really this comes back to the sales strategy that we have. You know, we're clear, we will not have large numbers of clients that we will be converting in the future. We will have a smaller number of larger clients. If you take the type of businesses that we're talking about, they're often multi-country, hundreds or potentially 1,000 of garages in a potential country, and then you have the opportunity to expand into mobile with those partners as well. The focus strategy to really put our effort into nurturing those clients, making them really successful and expanding, actually presents a greater number of expansion of garages and therefore license users than a larger number of independent clients, for example.
There are other garage management platforms within the marketplace that focus on SMB or independents. If you think about the level of focus you have to convert one garage and then another independent garage versus working on a potential partner that may have multiple 1,000 opportunities, that's why the enterprise focus strategy is really key for us. Obviously, the value that it generates is also a different level of value from a Halfords perspective. The revenue in the software market is focused on its annual recurring revenue position, and therefore that can generate much greater multiples and value for a business off the back of that.
I suppose if you thought about the market share as the kind of pool of those kind of potential customers, what would the implication be in the long term?
The market data for the software space in the automotive market actually is relatively limited at the moment. To be able to find a source and therefore to pitch exactly the market share we will have, we're not at that point yet to be able to do it. What we've been able to show, though, is that the market opportunity of even just in our individual target markets of 500,000 potential customers is very large. If you look at those 15 customers and the relative scale of each of those that we've talked about that we're working on.
For example, at Mobivia, where we're launching into Germany, there's 600 garages plus in that one client alone in one territory, and they actually cover over 10 territories within the European European estate. There's significant market share opportunity. At this point in time, because of that market data position, we can't state what the future market share position will be.
Yes, on the on the lifetime value point. Obviously I shared earlier our change from our under GBP 81 to our over GBP 470, and it's definitely that move that obviously the club and all of our retention work is trying to set out, and you saw the 1 point growth obviously can deliver up to GBP 77 million. We are obviously trying to move as many customers into that top right-hand box as possible, and at the very high level, the average is GBP 470, as I said, of that sort of customer behavior, which is really rooted in multi-category within retail and cross-shop into garages. That's obviously what we're trying to change in those behaviors. The cross-shop point is really important.
If we take something like MOT to specifically talk about retention, we only retain half of those after the first year. That's obviously what the loyalty scheme is trying to support. They leave because we're just not front of mind. They shop around. Having this loyalty club and being in a regular communication, regularly relevant, timely with the communication that we're giving, will hopefully mean that we see that improve. We're at the point that our anniversary is coming up, we'll be able to share more obviously in the future around how successful we've been with that.
Okay.
Moving on to the average age of the car park that we serve and how do we get to newer cars. The great thing is the plan we've shared today is going to be a big enabler of that. If we start straight away with the Motoring Club, the Motoring Club enables us to acquire customers from retail stores and the retail web journey. In the retail stores and retail web journey, we have customers with cars of all age groups. They aren't necessarily from a, an average age of eight years. They might be buying polish for their new, brand-new car. When we bring them into the club, we can then build a relationship with that customer and introduce them to the garage.
As you heard, I think from Karen, pretty much a third of all the MOTs that we offer now are for Motoring Club members, basically. That gives you a sense of that. The other thing to say is our business strategy of moving more into tires also helps because tires burst on any type of car, on any age car. Therefore, be that through the Halfords Mobile Expert provision, or through the national tire acquisition, we can start to again get that data from those customers to try and build a relationship with potentially a new car customer, be it into the club or just into our data capture piece. In the future, our plans also think about this key point.
Electric, when we have built a destination positioning for that, obviously we'll become more relevant for newer car owners. Also, as you heard, we are looking at potentially adding to our mobile servicing business, the installation of electric power points for the cars. If you put the power point in, you are there right at the beginning of a car ownership journey. That gives us a unique position to build a relationship at that point. Last bit in the strategy is one-stop shop. One-stop shop is also good at bringing new customers to Halfords for new cars, because you will be doing things with that customer at the start of their ownership journey, not through the middle of it.
For example, insuring the car or providing a warranty is right at the outset of any car, be that new or old. We think both today and in the future, we will start to see a lot more newer cars come into the Halfords business.
Oops. Yeah, a couple of questions, please. Tony Shiret, Panmure. On Avayler, why is it so small in the forecast in the outer year? I mean, you've got 15 clients and you're only getting GBP 25 million. I mean, the fee sound looks a bit on the tiny side. A related point on Avayler, are you gonna be limited in terms of the tech of potential clients? I mean, presumably, they have to have sort of headless systems to just plug your system into. Is that how it works, and is that a limiting factor? Moving on to Karen.
The data we're talking about, is there some sort of maturity profile in terms of your utility from that data, because you've got to establish the transaction behavior of the people going into the database. When would you really expect to start to get, you know, decent economic results from your data collection? The last one, we haven't really talked about marketing at all, nor just for the record, retail. On marketing, I've sort of got the sense that you sort of feel that the marketing cost is actually gonna go down, because you're gonna be sort of more in-house data rather than transactional SEM, that type of thing. Is that a fair sort of comment, and is it material?
Okay. Thanks, Tony. Chris, do you wanna pick up the Avayler points, Karen, on the lifetime, and I'll try and pick up the marketing and retail point. Yeah.
Shall I go first?
Yeah. Is that okay?
Sure. I mean, Avayler is obviously at an early stage of its development. At any early stage, software business does progress on a development curve of its product, but also on a development curve for its financial performance. What we have shown in the mid to long-term forecast here is an annual recurring revenue of GBP 25 million-GBP 35 million per year, GBP 5 million-GBP 8 million EBIT, and an operating margin that is accretive to the Halfords Group. I recognize that there can, of course, be more aggressive performances and forecasts and that could improve the business, but for a software business in that stage of its evolution, particularly in the market we operate, it does create a significant value for the Halfords business. Just on the technology side of the question.
How does a partner interact with the Avayler software? It is absolutely an integrated enterprise piece of software. Ultimately, it's running a garage's end-to-end operation. What we provide, though, in the product portfolio, so if you may recall the Hub and Hub Pro definitions that I utilized, we provide two versions, one which is a lighter version, less integration, and then one that is a fuller end-to-end garage management platform. Businesses will need a front end, a website, but that's often, and in reality, what the market wants. Customers, clients want to own their own customer journey, and therefore we've built a platform that enables our service offering and our product to be integrated into, easily integrated into client's back-end systems, but also their front end.
Just to add on the first point, Avayler is a couple of years old. It's a relatively early-stage SaaS business, even with very big enterprise international clients, Tony. We have deliberately put a plan together that we are comfortable with the visibility of pipeline that we will deliver. This isn't a SaaS plan that you may see elsewhere where, you know, there's some quite big dreams in it. This is grounded in sort of practical reality of what we see in the pipeline, the stage that the pipeline's at, the type of clients, and the experience we've got with the clients we already have. Could it be bigger? Maybe.
In fact, part of the reason for separating Avayler within the Halfords business, as we talked about earlier, is so we can have those sort of conversations with shareholders and look at the potential opportunity more broadly.
On, on the data points, I think, certainly from what you've seen today with the growth in our CRM and our underlying performance, ultimately we have been driving market share from our advancements in CRM personalization over a number of years. The loyalty scheme, we've got every confidence that that's just going to grow further, hence talking about how much it's underpinning the market share growth set out in the midterm. If you think about our type of business, as I said earlier, our sort of level of frequency is clearly, for our services and products, quite low. What we're seeing with our loyal customers, is a much higher frequency, so 3.2 for free, 5.1 for paid, versus sort of two normally. We're already seeing those behaviors change to underpin that continued growth.
I think the exciting bit is that the data's got to a position now that we can look at that discrete part of income. We talked about the GBP 8 million figure in our bridge this morning, which we can now start to unlock in the midterm. The time is definitely now. It's definitely through this midterm that we can see that maturity.
Yeah. Marketing, no, we haven't, we haven't pulled that out specifically. We're not necessarily suggesting that our marketing spend would significantly decline because in the plan as well, we've talked about some investment in things like establishing a brand position for electric servicing, for example, towards the latter end of the plan. We think that we will definitely be more efficient in the way that we market, there's no doubt with the club. We haven't built a significant reduction in marketing spend into the plan that you've seen today. We can obviously pick up in a bit more detail on that afterwards if need be, Tony, as well. In terms of retail, your point on retail, I do wanna pick that up. You're absolutely right.
We haven't pulled retail out separately, and that is deliberate because we see retail as part of an omni-channel offer. What you'll have heard us talk about with retail time and time again is how all of the assets come together in a town, the interconnecting assets of vans, garages, and retail stores. We wanna view our business the way customers do or should do, which is these are just locations in a town that we help them connect together, and we utilize all of them with customers getting the best from every part of what we do. We've looked and viewed it through that lens to date.
Actually, that's just a shrinking strategy, isn't it? It's like condensing all the retail sort of formats into something that right sizes the town. You're not really talking that much about what you're gonna do inside the store to improve the performance.
Well, that's the Fusion. That is very much Fusion. Admittedly today, the video that we showed was more services oriented because that's how we connect the town is through the services offer, 'cause we've got garages obviously doing services, vans and the store. We do in Fusion invest within the store in the retail product offer as well, be that the three Bs test that we showed as a new operation or new displays and fixtures for cycling, new displays for touring, for example, we showed in the video. There is a lot of investment into the products part of the store through Fusion too. You're right, that doesn't come out as much in that video.
There's a lot of fixed costs in the stores and improving the productivity of the stores arguably will, you know, not be transformational, but certainly protect your downside.
Def-
And-
Definitely. That's why we've said today we will improve sales densities from 7%-15%. We will literally double the improvement that we've had. We've had 7% improvement over the last period of the plan. We're going to make that 15% over the next period, we will have much more effective stores in the future.
It's just how. Anyway, sorry, Phil.
Yeah.
Someone else.
Hi there. Ben Hunt, Ben Hunt from Investec. Just elaborating a bit more on this customer lifetime value and acquisition. You alluded to, I think you quoted a sort of GBP 20 bid cost to acquire a customer and, if you're sort of doing somewhere between that GBP 80 and GBP 470, it sort of strikes me as quite a high acquisition cost, and you're not probably making a huge amount of return for those. What assurances can you give us that with the personalization and the data you do, you can bring that down quite meaningfully, for, you know, to get people to repeat?
If I'm candid, if I turn on my mobile and check my inbox, I've probably got about five different emails from insurance companies to the OEM all telling me if I've got to have an MOT at some point this month. It sort of feels like I'm getting a bit blind to it all, and sort of where does your sort of marketing come head and shoulders above them that it's gonna make me want to go to you rather than your competitors?
Yes. I think the answer is in what we're seeing in the club so far, if we took MOTs. We obviously haven't started to look at an exchange for tires at the moment. That was why I used that example, that's something that we've got coming to try to use this, use the loyalty scheme to actually attract customers across to both our vans, but also our national business, as well as our core Autocentres. I think the MOT is indicating just how well we're doing with that.
As Graham said, it's 33% of our MOT business is coming from club members and growing. That I think really speaks loud signs to how well that's working and how the customer is staying with us. Clearly, the key will be, as we get to this anniversary point. I think that's when we'll be able to give you know, more confidence around that.
Okay. Just one for Jo. One of the biggest COGS in your bridge between FY 2023 and the mid is the GBP 30 million of COGS. How underpinned is that number? It's quite a important piece in the jigsaw, I guess. What's the sort of downside and, or the upside even to that and your assumptions?
We've assumed we can reduce the cost of goods sold by 3.5% across the midterm. That's the cumulative reduction across the midterm plan. The way we've got comfortable with that is actually by getting some external consultants to come in and help us look at the health of the business, understand the size of the prize, and benchmark that as a savings target versus what's seen in other companies. Actually, it looks fairly, very reasonable versus what's seen externally, which can be sort of 5%-7% more usually over a similar time frame. We're really pretty confident in that, and the levers to deliver it are the ones that I described to you earlier.
Yeah. We've seen 6% product cost inflation outside of freight and FX-
Over two years.
Over two years, we are now starting to see some deflation come through. It's also what we're seeing today that gives us the confidence. I think we're almost at the time, but I've got a couple of questions that have come online. Just got one more. Okay, go for it. Sorry.
Thank you. What about the garages business? Despite more trips being done in a car by women, the garage visit is always, almost always male. How much is that Autocentre's fault, and how much of that is just culture's fault? Is there anything that Halfords can do to acquire female customers? Is it even worth? I mean, being honest, is it worth bothering with? A couple of numbers questions. In that lovely returns and margins bubble chart, did those bubbles move, or have they always been exactly where they were, and will they always stay where they are? Or have they moved through time? You mentioned about the investment or reducing near-term investment in CapEx. What about working capital, and how does that change as the tire business gets back to normal?
How do you see day sales outstanding changing over time versus what we are used to in a more retail-oriented business? Finally that, was it -0.3 net debt to EBITDA? Is that an average over the year or is that the year-end number? Okay. That's it.
Jo, do you want to pick up the two finance questions? Maybe I'll pick up the bubble chart, Karen, do you want to pick up the one about female customers and Autocentres?
Kate, just to make sure I've got them correct. I think your first question was about working capital for me. Yeah. Okay. We have seen stock levels reduce through this year, which is actually better than we expected, particularly in the retail business. The supply chain team and the commercial team have done a fantastic job to manage our stock levels through actually what's been a very challenging consumer environment and decline in the sales forecast. We expect that momentum to continue as we look into next year and beyond. We see stock levels come down to a more normalized level, particularly in the retail business, which is good.
The growth in the Autocentres business and the tire market, we don't see having a very material impact on our working capital position because the stock turn is much, much quicker on tires than it is anywhere else in our retail business. Actually we see inflows from a working capital perspective in the near term and then a fairly stable position looking forward. In terms of our positive leverage, so the cash on the balance sheet, what we described as positive leverage was the average per annum, yeah, across the period.
Okay.
Well, in terms of bubble chart, yes, the bubbles do sort of move in size over time. I think we highlighted that Autocentres and B2B had moved in size over that period.
The size of the bubble, but where they are on the chart.
Where they are on the chart will move. It's indicative, the chart. It's very. Maybe we should have made that even clearer. It's sort of an indicative sense of where the return on invested capital is versus the market growth opportunity. If it was being drawn super accurately, it would probably have moved some of those bubbles around a bit, if I'm honest. It was really just to show that B2B and Autocentres had grown, and that's where the biggest market growth and return on invested capital was.
There's no material change, though, in the relativity?
In the relativity.
Yes.
Okay.
Yes, it's definitely an industry challenge for us, and we are trying our very best to try to move forward and recruit and retain more female colleagues. We're gonna be setting out in the next annual report more of a strategy around D&I in that space. I think the one thing that we do believe is that we might well, have more success when we move into more of that EV space, to attract into the industry female colleagues.
I guess it wasn't so much as attracting the colleagues as attracting the female customer who uses the car more often than the male customer.
Yeah. Okay.
For example, an Autocentre is almost always in an ill-lit industrial estate that a woman doesn't feel safe going into it at 4:00 P.M.
Yeah.
After picking up the kids.
Yeah.
In November when it's dark and it's very toxic atmosphere. The reception is much improved, but the atmosphere can be extremely unpleasant.
Yeah.
Yeah. We've been working really hard on that, and we are seeing a more skewed female, mix in our loyalty club.
It may not be worth doing. that's, while that's an.
Mm-hmm.
That's not a woke thing to say, it just may not be worth spending money.
Yeah. I mean, I think just to add to that, I think obviously with Fusion, we definitely update. I think female customers are important. They use cars a lot. It's a big market. I think our brand is positioned really well to meet their needs. Fusion certainly unlocks that potential further because we do update the garage, as you can see in the video. Having a mobile service is also very important, and I think with electric, there will be more maintenance and servicing of cars able to be done on the drive or at work. I think that will help us access the female customer in the market too. Again, I think we're well-placed, and it's an industry challenge for sure.
Okay. Shall I answer, ask the three online? Could I ask all of them now? The first two from Peter Batey at Killik. How have you added capacity without adding colleagues to your garages? The next one: What are the first new one-stop shop markets you will enter? When will it be, what are the lowest and greatest capital intensity markets you'll enter? The final one from Craig McDue at Aura Capital. What are your ambitions for % conversion of motoring club members into paid subscribers? What do you anticipate the lifetime value of a subscriber is?
Rob, do you want to start with that first question on capacity?
Yeah. No, sure. I think, to probably to bring this to life, this was the question about, how we put more capacity in without recruiting. If you can imagine the town-based focus we're putting a lot more effort in at the moment, you could have two traditional autocenters, garages, you could have a couple of National garages, you could have a store, and two or three vans. Within that, if you look at the skew of the utilization I was talking through earlier on, we do have underutilized areas. Very simply, being able to move our existing colleagues from underutilized garages to those where there's more demand and higher capacity, we're doing that a lot more now within a, within a local town.
I think the other couple of points I'd still say is, when we say more capacity, what we're flagging is at the top level, at the national level, it may look like we've, at a macro level, need fundamentally more capacity. When you look at a local level, how do we drive more demand in to take advantage of that capacity that already exists? That's why we were trying to do a lot more of the local demand driving and activity that we talked about.
Yeah. Shall I take the one-stop shop question next and then, Karen, you the last one? Yeah, in terms of one-stop shop categories, we have said obviously that's a mid to longer term plan. All that said, where we've got an opportunity to enter an adjacent market, in a way that isn't very capital intensive, where we don't have to own a lot of stock, it leverages the assets that we already have. We will prioritize those first. I think we mentioned car parts in the presentation. It's a GBP 800 million market. We have 1% share. That's where we're focusing our attentions right now. We think we've got a market beating, a market leading proposition there.
I think we'll be talking about some really exciting news in that space as we go through this financial year. We aren't going to indicate where the next parts will be, partly because we do not want competitors to know that information.
Yeah. On the paid subscribers, we talked about 8%-10%. That's our paid subscriber mix that we're hoping to get, and that's in the mid-term of 4 million-6 million overall members. The lifetime value, of course, is sitting in that top right-hand box, that GBP 470 average, because they are cross-shopping at a very high level. There's a huge breadth of shop across our categories. But really until we get to the annual element around how those subscribers stay with us, then... At the moment, we've assumed a sort of 30% churn. We're not seeing anything to indicate so far, but it's very early that it's going to be above that. But that's what we're looking to understand. I think it'll just be a little bit further on before we can give an exact lifetime value figure.
I have no further questions. Graham, it's over to you.
Any more further questions? No. Well, thank you very much indeed for your time this morning and look forward to seeing you in June.