AO World plc (81A.DU) Earnings Call Transcript & Summary

Okay. Good morning. So today, we're going to do things a little bit differently. Given there are no surprises in our first half numbers, I'm going to focus most of my time today on the strategy of where we're going rather than where we've been. Mark is going to run through these in more details later, but the headlines as far as numbers are concerned, are as follows. Group sales in the first half are GBP 586 million, which on a like-for-like B2C basis is an increase of 12% and total business increase of 14%. Corresponding profit with this performance for the first half is a PBT of GBP 18 million, which is an increase of 10.4% despite the government's best efforts to constrain growth and add costs, which for us was about GBP 4 million in the period. We've ended the period with GBP 57 million of free cash flow and about GBP 200 million of available liquidity. This highly positive position has enabled us also to commence a GBP 10 million share buyback. And this has all been delivered whilst maintaining our globally leading Trustpilot score of 4.9 out of 5 on over 850,000 reviews. One could say that the first half of this year continues our theme of being reassuringly boring. Looking forward, you won't be surprised that we expect to be a growth business. And today, we upgrade our profit guidance to be around the top end of our recently narrowed range of GBP 45 million to GBP 50 million of profit before tax. Operationally, the business is in the best shape it's ever been in. And the strategy that we set out in June, which is summarized by the animation that we shared, is all going to plan, and we are better joined up than ever. That's why my big message today is quite simply, we're doing what we're committed to do. Our strategy is working, and we'll continue to deliver against that. For anyone that hasn't seen the strategy animation, it's on our investor website, and it is essential viewing if you really want to understand our direction of travel. This image is the conclusion of the animation, and I believe that this strategy will serve us well for a long time, and it's one that we can continue to obsessively invest in. In the interest of expediency today, let's take our brilliant retail basics for granted, and let's assume that our high-performance culture that serves customers brilliantly and makes us the most trusted electrical retailer in the U.K. is in good health because it is. As an output from the strategy animation, we've been asked several questions repeatedly. So I wanted to use this time now to answer these head on because they'll help to inform how you think about our future performance. So let's start with membership. Now I know how unhelpful it is that we haven't given you all the commercially sensitive building blocks so far. And for this, I am genuinely sorry, and we know how unhelpful it is, but they do continue to be exactly that, which is commercially sensitive. So we don't plan to change our approach. But what I can tell you is that membership is central to our flywheel, as you see in the animation. Member numbers are higher than ever. Share of wallet continues to improve, as do member retention rates. You can see all this as an output in our sales and profit numbers as we continue to grow share. The compounding effect of all of this means that I am delighted with the progress of our membership offer. At full year, we still have 2 big pieces of the sticky chicken jigsaw to launch. So I'm delighted to say that yesterday, we launched the first of these, which is Switch 24 on Apple iPhone handsets, which is referred to in the animation as PCP mobile. This means that members can now get an iPhone 17 from only GBP 17 a month and have it upgraded every 2 years to the latest model. It is a first for the U.K. market. I'll say that again because you probably didn't think you heard it right. An iPhone 17 from only GBP 17 a month. Clearly, it's only been live for a short time, but it has been a 5-year journey of investing in it and inventing the capability to deliver it. And I genuinely expect this to now forever change how mobiles are bought in the U.K. To confirm, we're also on track to deliver the second big piece, our MVNO, AO mobile from around the end of the financial year. That will then complete all the key pieces of the strategic flywheel that we've been building, which we can then drive for a long time to come. So what's the latest with mobile? One of the biggest misunderstood areas in the business is that of mobile networks, their corresponding economics and their strategic impact. So please indulge me while I go into more detail than I usually would. This has been a turbulent journey for us as a business and a very unpredictable one. The mobile category is one of the most important to our customers with one of the highest frequencies of renewal. So we have invested a lot in it. To make it a success, we've had to reimagine and reengineer how the whole thing works. We must be clear, though, about what drives our flywheel and what doesn't, what we're prepared to commit to and what we're not. But first, it's important to understand a few things on how the mobile market actually works. So I'm going to do this at a very high level, but I'm very happy to take questions at the end if there's any appetite that's left. In what I think of as the old world, you used to go to Carphone warehouse, Phones 4U or a network shop and choose a handset with a contract and then pay a monthly amount for 1 or 2 years. At the end, you owned your handset, albeit it was pretty worthless and could upgrade to the latest model. Over time, handsets have become more expensive and tech less transformational. So refresh cycles have elongated and the term of contracts have introduced to -- the term of contracts have increased to maybe 3 or even 4 years in some cases to keep the corresponding monthly cost of the handset affordable. There's actually been relatively little innovation in how you buy mobiles beyond lengthening the term of the contract. In parallel, networks and handsets have become increasingly unbundled and SIM-only has grown and mobile virtual network operators have taken increasing share. There's also been consolidation across the networks with now only 3 primary mobile network operators in O2, Vodafone, Three (3) and EE. In super simple macro terms, those mobile network operators are highly geared businesses. So incremental customers are incredibly important to them. In the indirect space, the networks would agree minimum targets with retailers, including severe financial penalties for missing those targets. These targets grew each year irrespective of the aforementioned change in market dynamics. So gradually, that indirect channel has nearly ceased to exist as one retailer after another has either gone bust or closed. So we've worked really hard in partnership with the networks over the last 12 months, particularly to build an agreement structure that is mutually beneficial. Profitable or not, it does not drive our membership flywheel. So it is simply a tactical commercial opportunity that currently makes sense for us and the networks. If at some point that were to change, we would close our postpaid business, which following the reengineering that we've done this year would have no material cost impact for us as a business. Our own plans for AO Mobile, the MVNO, do drive our flywheel. It is strategically very important to us, and it is exclusively focused on sharing scale economics with our members. We've worked very hard to engineer as much of the cost out of the supply chain to bring the best possible value for our members, just as we have with the Switch24 offer. Economically, our starting premise for our membership mobile offering is that it will not lose money, but it will drive our flywheel, share of wallet and become another reason to renew membership. We'll only know whether it will make money once we understand the dynamics of the base that we're going to grow. So there is potential for lots of upside, but please think of that upside as more budget for chicken to give back to members. Priorities 1, 2 and 3 for our membership mobile offer is value for members, more chicken in the chicken soup. The more handsets we have on Switch24, the more hair dryers we will sell. The more SIM cards we sell on the MVNO, the more stoves we will sell. And the easier we make it for members to buy all this on finance, the more fridges we will sell. Our objective is always increasing total share of the electricals wallet from our members and to have them delighted to renew each year. This section of our mobile business is totally within our control. It does drive our flywheel, and we are very excited about its future. So the 2 entities operate completely separately and independently. But clearly, we do get some group synergies on the back-end elements and some of the purchasing. Another question we get asked a lot is why AO bought music Magpie. Music Magpie has been a very valuable, but also misunderstood addition to the group. So hopefully, I can clear that up now. I've just told you about the transformational iPhone 17 from GBP 17 a month. And the capabilities of Magpie are absolutely fundamental to have in-house to deliver that level of value to our members. The Switch24 model is about the customer paying for the handset depreciation rather than its full value. So maximizing the residual value as we're able to do with Magpie's capabilities enables us to deliver this outstanding proposition for our members. In turn, this will also make it incredibly difficult for our competitors to break customers out of their 2-year renewal cycle, which keeps them as members and means we get their share of wallet right across the full electricals range. So what did we buy in Magpie? We bought one of the leading e-commerce companies in the U.K., which incidentally just won the Lifetime Achievement Award from eBay as the most successful eBay seller ever. That's quite a capability and knowledge base to buy. The business was losing GBP 6 million a year at PBT level when we bought it. And in less than a year, it is now run rate profitable at PBT level. We paid GBP 10 million for the equity and a further GBP 22 million to pay off the debt and transaction fees. The business was about GBP 100 million of sales, including GBP 35 million of legacy trading media like DVDs, CDs, et cetera. And we still trade just under 1 million of these units every single month. For clarity, this area is profitable, and it is an important part of the Magpie model, but it is not our focus for sales or profit growth. Our focus is tech trading, and that part of Magpie that the team have been learning and building for the last 13 years. And they are one of the biggest buyers of secondhand tech in the U.K. As a result, they have vast experience in this market and understand the dynamics and the nuances deeply. This is the capability that we chose to buy rather than build. And I think we got incredible value, speed, and it's also a perfect cultural fit. We have yet to fully realize the opportunity of integrating the Magpie capability across the group, but this is all more upside for the next year or 2. Priority 1 was getting to profitability and enabling our Switch24 offer that we've talked about today. Another question we get asked is, what's AO's structural difference that's going to enable us to make 7% PBT in the medium term, which is significantly higher than our industry peers. So in other words, is the AO margin target achievable and sustainable? As you'll see from our profit guidance for the full year, the business is currently performing at about 4% PBT. Our medium-term plan is to get that margin to around 7% and to invest everything over this into more fuel for the flywheel for customers. I thought it was worth setting out quite how achievable that goal is by highlighting just 2 key areas. First, our central overhead is very well invested and leverages with growth. It currently stands at about 11% of sales, and we believe that around GBP 2.5 billion of sales, this drops to about 7% to 8%. This is within our control to deliver with cost discipline and growth leverage. Secondly, it costs us around 9% to generate, process and deliver an order. And we have a clear path over the next few years to reduce this to around 6% through AI and automation as well as leveraging our sales mix into our growing member base. Critically, this is not about leveraging scale into our trading partners. There will be other opportunities as well. But for simplicity, we can see 6% to 7% of extra PBT from simple self-help and growth through driving our flywheel. This creates significant structural competitive advantage, delivering 7% PBT that converts to cash while also making meaningful investments in ever deeper, wider moats. It won't happen overnight, and our commitment to the principle of shared scale economics means we will give back about half the incremental margin that we create back to members in one form more of price discount, added value or service on that journey to 7%. And naturally, none of it will be a straight line, and we don't live in a vacuum. But relative to our major competitors, in our opinion, we have the lowest overall cost base, the biggest opportunity for growth and the clearest right to win. We're also asked what happens to AO should consumer sentiment change? Well, look, clearly, if the consumer were to be feeling upbeat, affluent and positive, that were to ever happen, all votes would rise. So obviously, we would be a big beneficiary of that. However, we've always thought that Noah was right to build the ark before the rain came. And so our planning is around our resilience in a down market. We've lived through a few recessions and roller coaster rides over the last 25 years. And what has proven each time is that our business normally grows through them. The reasons for this are as follows: First, the vast majority of what we sell is as essential to customers' daily lives as it is unappreciated. You don't think about it every day, but you rely on all the key things we sell for the vast majority of our customer base. It is a question of priority of spend, not necessarily ability to spend. If your fridge freezer at home breaks, you will replace it. You won't ponder whether to do it for 4 months. If your phone stops working, it's like having your arm cut off. If the TV in your lounge stops entertaining you, you will buy another. You might sacrifice a meal out or the outfit that might have gone with it, but few people will live for long, let alone stay married without the key products that we sell them. What people do seek out though is better value for their spend. And this is where we tend to benefit because our service is better and faster. Our prices are at least competitive or if you remember, cheaper, and we have the most trusted brand in electrical retail. You don't build any of that through cost cutting in a downturn. We already have it, and it's incredibly well invested. In my opinion, it's not necessarily about macro sentiment, but who is going to win within each category and what is their right to win. Not all electrical retailers have built the same. And overall, the market is huge. Given the pace and scale of change of AI development, a number of people have asked, how will it impact online retail more broadly and AO more specifically if or when AI is making the decisions on what to present to customers. Added to this is the question of how far the service that Agentic AI might offer from products and retailer selection as a shopping assistant through to transaction and who gets commoditized or marginalized through the process as a result. But this is where our depth of long-term belief and investment in the fundamentals of the business and its service really matter. And it's difficult and it's complex, and it will pay dividends. When AI is giving advice, it bases its recommendation as a formula on who is the best price, where we are, who offers the best service or we're the most trusted electrical retail with the greatest scale of reviews on Trustpilot and how quickly can it be delivered? Well, we win there, too. Our membership program also provides an inherent hedge to this, given that whilst we can serve the member pricing into the AI algorithm, our members also get the best experience when they're logged in. And members are already invested in AO as their destination for electrical purchases. And this is, of course, the defense argument. Clearly, the opportunity is enormous as more of these facts are surfaced more effectively to customers and potential customers where maybe for legacy brand reasons, we might not have been top of mind. So we actually see huge potential upside, and we expect this form of shopping to simply amplify the truth to more people, which will accelerate the fate of winners and losers. It's a classic story for us of heads, we win big and tails, we don't really lose. So in summary, there are a lot of reasons to be cheerful. And hopefully, what you've heard today so far gives you more confidence that we are in control of our own destiny and have the right strategy. It's 5 years since the massive COVID sales spike, and we're now getting into the replacement cycle as well for products that are being used more than ever given the work-from-home trend. We have an incredibly exciting runway of new things to deliver for customers, some of which you've heard about today, and we have real clarity in our plan. So to conclude, I'll go back to where I started. Our strategy and model are working, delivering double-digit growth and strong profitability, all the while driving further efficiencies from our cost base while maintaining record service levels to customers. Therefore, our plan from here is to keep doing what we've been doing. It might all sound straightforward, but none of it happens by accident. So I'd like to thank everyone involved with AO, our people, our suppliers, our trading partners, our investors and most importantly, our customers. It makes me really proud to share these record results with you. So thanks for your time today. I'll now hand over to Mark to run through the first half, and I'll see you back for questions at the end. Thank you.

Good morning, everyone. So John has given you the headlines and talked us through our strategic progress. So I'll paint a bit more color on the numbers and some of the operational detail behind them, and then I'll explain the outlook for the rest of the year. We'll then take questions at the end. So we performed well over the first half. Group revenue numbers now include Magpie, which we obviously see the benefit of in H1 and more than offset some of the deliberate reductions on mobile and B2B. And so overall, for the group, we're up 14.4%. In our main retail business, despite the consumer sentiment challenges, market data shows the electrical market has grown year-on-year. The MDA market grew about 2% in value terms, although that volume growth is slightly more than that. But we've seen customers trading down and a bit of a reduction in average selling prices, which we think is a market-wide mix issue. We continue to delight customers, attracting more members and have delivered B2C revenue growth of 12%. The membership program continues to be a key differentiator, driving increased share of wallet with increasing renewal rates and the base continues to grow. Winning market share across all our key categories, MDA, SDA and audiovisual, and we're doing it by focusing on the fundamentals. We've expanded our product catalog by over 10% since the year-end, now offering more than 10,000 SKUs across all categories. Our proposition from product availability, finance payment options, product protection plans, great delivery and installation and membership benefits has never been stronger. Underpinning all of this is a brilliant customer service, which will always be a cornerstone of our business. As I mentioned in our update this time last year, we implemented minimum margin requirements across our B2B business, resulting in the removal of sales that required costly complex solutions, and this included kitchen furniture manufacturers. The revenue decline in this channel reflects the annualization of those strategic decisions taken in FY '25. And as such, I don't expect the decline in sales in B2B to be as large in H2. As John has spoken about, the transformation we've undertaken in our postpaid mobile business has materially changed the profitability performance. Part of the changes we've made is to focus on a smaller, more profitable segment of customers and so network commission revenues have declined. Recommerce revenue in the prior year represents the sale of reconditioned MDA products, sourced from our own ecosystem, but the current period now sees the addition of the Magpie business. And whilst this year has seen the integration of Magpie into the wider group, there's still considerable opportunity ahead, and the first of this will be supporting the back end of the Switch24 product, which John spoke about earlier, but there will be more to come too. Gross margin percentage is up year-on-year. The majority of this is the mix of Magpie sales, but margins have increased slightly in the main retail business, too, and this offsets the average selling price reduction that I mentioned earlier. We've now completed the transformation of mobile. Margin was lumpy and bumpy through H1, but we expect to see a much improved position in the second half. In our recycling operation, metal prices have been under pressure, particularly steel, which has acted to reduce overall gross margin. And based on future -- on current future prices, we don't expect to see a recovery in H2. We've increased marketing spend as a percentage year-on-year. This was the dynamic of the addition of Magpie, the AO at Home brochure and more acquisition costs where product unit economics now allow us to push harder in some of these channels. This is offset by an improvement in mobile where we focused on those fewer, more profitable sales. There's been an GBP 8 million increase in warehouse costs. And while some of this is the Magpie operation, the big challenge has been the government-driven inflation in labor costs. We've also made good progress in addressing the debt in our technology stack and modernizing our infrastructure. This period saw about GBP 2 million invested in our warehouse management system as part of the broader ongoing modular ERP implementation. We've also successfully rolled out a new telephony platform, which offers the latest functionality and enables AI-driven features that will drive further efficiency and service improvements in the year ahead. These investments are essential to future-proofing operations, and they'll continue as we go through the year. We've made strong progress in our offshoring program. We now have over 130 colleagues based in South Africa. And so far, we've been pleased with the results. To be clear, though, we will never take a cost saving in return for an inferior service that might jeopardize our 4.9 out of 5 Trustpilot rating and position as the U.K.'s most trusted electrical retailer. This initiative will deliver medium-term improved profitability and is also helping us to build our capability in managing offshore roles more generally. Whilst we have learned that it is not easy or simple to replicate our quality of culture and it is definitely not a straight line to get there, it is possible. And it gives me encouragement that we have solutions to any anti-business developments that the government might take. To summarize, the impact of all this, underlying profit margin has fallen slightly year-on-year from 3.3% to 3.1%. And this is broadly due in equal measure to the government-driven employment cost increases and the inclusion of Magpie in the overall numbers with slight increases in advertising being offset elsewhere in the the P&L. So we ended the period with GBP 200 million of available liquidity, up from GBP 147 million at the year-end, and that's as a result of the strong operating performance, but also some working capital wins. We saw a slight reduction in inventories with an increase in the core retail business as we expect -- as we expand our range and availability, offset by a reduction in mobile as part of our pivot. A working capital inflow of about GBP 39 million comes from a timing quirk of stock receipts and retail sales in August and September, and we do anticipate that a significant part of that will reverse into H2. Given the group's strong cash generation and the Board's ongoing confidence in future performance, we commenced our first ever share buyback program. During the period, we purchased about 1 million shares, and we expect to spend a further about GBP 9 million in the second half. During the period, we also funded the EBT with GBP 4 million to purchase shares to satisfy incentive schemes. As we noted at the year-end, we have moved from financing vehicles from traditional operating leases to purchasing vehicles using asset finance. We acquired about GBP 13 million of assets in the period, of which GBP 11 million related to vehicles funded in this way, hence, increasing net debt with a further GBP 2 million of cash CapEx in recycling and technology. CapEx in H2 will be about GBP 6 million with the vast majority of it being the purchase of logistics vehicles, along with a bit more investment in our recycling plant, and we expect to put asset financing in place for the expenditure. As we look forward to the second half of the year, we expect recent levels of consumer confidence will not get worse and that the reduction in average selling prices have now evened out. We also think that metal futures -- based on metal futures, sorry, that commodity pricing will remain at current levels, but there is some opportunity here if they do improve. Delighting our customers has its foundations in being thoroughly efficient for them, getting things right first time. This mentality helps us as we obsess about keeping costs as low as possible, which we'll continue to progress with, whether that be in tech investment, automation, AI or offshoring where appropriate. But I repeat my earlier point that cost savings will only be delivered where the customer service is in line with our position as the U.K.'s most trusted electricals retailer. Driving our membership base will always be a key part of our growth, and we're excited about the recently launched Switch24 product and our own virtual mobile network proposition, which will follow at the end of the year. Both of these will create more value for our members, more chicken in the chicken soup, you might say. The government will announce its budget tomorrow, and we are hopeful that it's not materially to the detriment of the wider economy. I do say we're hopeful and the consumer specifically. But if it is, the built-in resilience of our core categories should see us right. And as John has said, we now expect the result of all of this to land us around the top end of our previously narrowed guidance of GBP 45 million to GBP 50 million with full year free cash flow of about GBP 50 million. We continue to make progress towards our target of 7% PBT with a business and a balance sheet in good shape. And so with that, we'll now take questions. As a point of housekeeping, please can take the microphone and state your name and organization so that anyone watching can hear. who'd like to go first, and John has already got his hand up.

John Stevenson at Peel Hunt. I appreciate, obviously, you don't want to dive into the KPIs on membership, but maybe try a different approach this time. A couple of areas would be quite interesting to hear more about. One is maybe if you could talk about the performance of some of the worst performing categories traditionally and how that's changed now you've got membership and now you've got obviously the range increase as well. And secondly, maybe I don't know if you're willing to talk about the level of OEM support you see these days for sort of deals and events and if you're able to do more stuff now membership is increasing in its capability.

So beautifully crafted, John, but we still view it as commercially sensitive. I think the best way to answer both of those questions is that if you think about the categories, our total market share is a function more in our member base than it is in our nonmember base and particularly in newer categories, where we have the biggest opportunities for growth. So if you think we're just under 20% total market share in MDA, we will be single-digit market share and low single digit in most of the other categories. But in our member mix, some of those are now in double-digit shares. So that's just very illustrative of the direction of travel of the more members you get, that's representative of the share that you get and the flywheel continues to fly. From an OEM perspective, what the -- what we're able to do with the value that we deliver for members is to polarize and focus more sales into the offers because naturally, they are better value for members. So we're able to invest some of our margin into it. And at times, the OEMs want to invest some of their margin into it. So it isn't a case that the OEMs are paying for all the discounts. We are funding some of the -- quite a lot of the margin into those as well. But as you focus more sales into a smaller range and polarization in the SKUs, you get -- we engineer the supply chain to get savings out of that, that we then keep giving back that value to members. And so brands unquestionably see the value of that as we're able to make more and more decisions around -- and it's similar to Black Friday, where we will have the Black Friday deals, where you've sort of got that for the brands going all day, every day, if you like. And so we have promotional calendars that we now build with the brands, and you'll see that in the offers that we have on site.

And just -- sorry, just on the music Magpie, when do you think those capabilities will come into the website, the main website?

Over the next couple of years.

Caroline Gulliver from Equity Development. A couple of questions on marketing, please. First of all, can you give us any color on the marketing campaign for Switch24? And secondly, as we come into sort of peak trading, are you happy with sort of awareness of the cross-sell opportunity sort of in terms of people buying into more discretionary products, are you happy with where brand awareness is on the full offer that's available at AO now?

Yes. So that's a continued journey. So Mark talked about the investment in the brochure. The brochure is about education of we sell more categories than white goods, and we just see that continuing to progress. You really are only thinking about it when you're in market. So it is an always-on drip, drip, educational process with customers. There's no step change like Switch moment that I expect with that. I think it's just a continued progression. As far as marketing investment with Switch24, we don't have any great plans for a big marketing investment into it. I think the scale of the value in that offer is deafening. I mean it is an iPhone 17 for GBP 17 a month. I mean if you go on the Apple website, that's GBP 33, GBP 34 a month. So in our experience, when you put such a sensational offer out into the market, people will talk about it, and we think customers will do the marketing for us.

Actually, just on that, -- how confident are you you have enough stocks to satisfy demand?

Stock is always a challenge on Apple products, but we're working really closely with Apple on that. And we would expect stock to be a challenge.

I had a second question just on cash. You're generating a lot of cash, particularly going forward. You've obviously announced the first GBP 10 million share buyback. Do you have any other plans? You've got a lot of liquidity, as you mentioned in the presentation.

I'll defer to Mark on that. In the last 25 years, what to do with cash has never been a major strategy for me.

Yes. So I mean, we've obviously still been on a journey of strengthening the balance sheet to see us through whatever might sort of come at us. And I think we're still in the process of that. We are about halfway through our GBP 10 million buyback as of today. And so we expect this to continue into the new year, and we'll see how things go and update in due course. But I think we've sort of set the direction of travel for what we might do some without cash.

Andy Wade at Jefferies. First one, just in terms of your sort of strategic overview piece, obviously, we saw the video previously. Just interested because you've talked a few occasions about how things are never quite a straight line. Has there been any sort of nuance or change around there? Any areas within that where you sort of just changed slightly your perspective on it? Is there any nuance in that? Or is it just development along the way? You're launching Switch24, you're launching A MVNO and so on?

So -- it is a big -- yesterday was a big day on that going live. And we can only deliver an iPhone 17, at GBP 17 because we bought Magpie and we have that capability in-house. That was a multiyear journey that was a very inexact science on exactly when we were going to do it, how we were going to do it. And so we've now delivered on that. And the last piece of the jigsaw is our MVNO. After that, we see all the pieces on the board and the strategy is super clear, and then it is just drive it as hard as we can and keep reinvesting that back in the flywheel.

And then the second one, you referred to it in the statement around the ASP decline because of shift in consumer choice towards the sort of lower-priced Chinese models or Chinese manufacturers. I'm interested in digging into that a little bit more. Presumably, that's hurting everyone, not just you, wasn't, first of all. Secondly, is there a bit of risk around this in the sense that you talked to the potential COVID tailwind coming through now. This should be a really good bit of the cycle, but it's kind of only an okay bit of the cycle because we're seeing that trading down. Is that going to be an enduring feature that when the market gets a bit tougher, we're still seeing the trading down. I'm just interested as to how you're thinking about that and how it plays out through the industry.

Yes. I mean I think it's worth saying it's a pretty small reduction in ASPs in the overall mix, but it's noticeable, but it's small. And it does reflect, as you sort of surmise a shift in sort of brand mix, particularly. And so we've seen some manufacturers being a bit stronger and sort of some of the legacy manufacturers being a little bit weaker at sort of different price points. But I think it reflects where the market is. We don't know what it means for replacement cycles. Do they get shorter? Is it an inferior quality product and does it have a shorter life? We have no idea, right? But the -- I don't think it's sort of a big thing, but it is when you're sort of looking at the -- what percentage of that is your percentage gain or loss in revenues in the period, actually, it is a sensible number compared to that, but not in the overall mix.

It's not unhelpful from a margin perspective?

That's correct. And so when we've seen that slight reduction in ASPs, we have seen an offsetting slight improvement in gross margins. And so the cash margins per box is pretty similar.

And I think it's important to say on a relative basis, we don't operate in a vacuum. This will be the same for all our competitors. And when you've got the structurally -- the structural cost advantage of having the lowest cost operating model, actually, it's not bad news for us.

Yes, certainly seems to be affecting at least one of your competitors more than you. And the other final one for me was, obviously, you've got your 7% PBT margin target. But again, sort of interested how some of the newer elements, so Switch24, AO, MVNO because you've sort of talked to the MVNO in particular, as being sort of we don't know whether it's going to be contributive or not, but it's going to be revenue associated with it. So you're going to be to get to that 7% PBT, you've got a bit of a headwind from categories that are going to contribute revenue, but not a lot of profit potentially. So I guess that's even more positive about the core business. Is that how I should be thinking about it?