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

Good morning, and welcome to AO's full year results presentation. It has definitely been a very different year for all of us. At AO, we've seen significant strategic, operational and financial progress, a real step-change year. And we're updating you differently today as well. We think understanding the AO journey is really important. So Mark will run you through the financials in a moment, and then you'll hear more from me. At the end of the presentation, we'll be hosting a Q&A. So please stay on and don't be shy with your questions.

Good morning, and thank you, John. This has been a phenomenal 12 months, and one that has accelerated the strategic and market progress we've made over the last couple of years. Total group revenue grew by 62% to GBP 1.7 billion. This came mainly from product sales, which increased as we all switched to online shopping when nonessential stores were shut. The mix of products in high demand changed through the year with freezers being the first hot product as COVID hit, through to gaming and consumer electronics and major domestic appliances in the run up to Christmas. I was incredibly thankful to all our AOers, particularly those in our logistics business who stepped up to the plate in the early days of COVID and continue to deliver for our customers. Our U.K. business grew at 59%, generating sales of over GBP 1.4 billion. Our newer categories, including small domestic appliances, audio visual and consumer electronics, all more than doubled their sales. Gaming, DIY and mobile handsets also had a great year, although from a smaller base. We saw strong growth in Germany, where our market share doubled to over 3%. Revenue grew 81% to GBP 226 million, and we achieved a breakeven adjusted EBITDA run rate through our peak period. This is a great milestone and shows what we can accomplish with our One AO model. More broadly, on a group basis, product revenues grew by 74% as the electrical market shifted further online. Service revenues, comprising installations, premium delivery and so forth, were up by 51%, slightly behind product revenues as COVID restrictions on entering people's homes and social distancing meant that we had to pause these services at certain times over the year. Commission revenue grew modestly, but was impacted by adjustments in warranties and issues in mobile, which I will come back to explain in more detail later. In third-party logistics, we prioritized deliveries to our regular partners and AO customers during COVID and put new growth on hold. Recycling volumes were particularly affected by COVID restrictions, about which John will speak shortly. Despite the volume volatility, recycling reported a 32% increase in revenues. Operationally, we opened our plastics recycling facility during the year, further increasing our credentials in this area. Whilst this has been a great year for us, don't forget, we have consistently reported double-digit growth of 25% since IPO. And over the past 5 years, Germany has grown at 37% on a compound basis. So our high-growth strategy has been successful through many market cycles, and this shouldn't be seen as a one-off year. Moving on to gross margin, which remained consistent at 18% for the group, it's in the business units where positive movements become clear. U.K. gross margin fell slightly as a result of category mix, with newer categories typically having lower gross margin than mature categories, and this was compounded by the challenges in mobile and warranties. Despite this mix effect, margins in all categories on ao.com improved during the period. The huge inflection point is in Germany, but gross margin has moved from a loss of 2% to almost a 9% positive margin this year. This mainly came from the steady improvements in our supplier terms, aligning pricing with the U.K. and the increased product sales driving scale efficiencies through our logistics operations. What does this mean for the bottom line? Our primary focus remains revenue growth, but adjusted EBITDA has continued to grow, doubling at group level from 2% last year to 4% of revenues for this financial year or GBP 64 million. We've seen headwinds and tailwinds throughout the year from COVID. So we won't try to quantify them all. That said, to call out just a few, in the U.K., we've increased our warehouse capacity by over 80% with all the associated costs to mitigate supply chain disruption and serve customer demand. We've created 1,200 new roles across the group to meet this elevated level of sales and to bring in the skills, helping us to achieve our next phase of growth. Our margin and marketing costs benefited from capacity restrictions in the market when stores were closed. And finally, we saw lots of new customers buying our category online for the first time whom we hope will repeat purchase time and again in the future. U.K. EBITDA was GBP 67 million, an increase of 68%, which was a great performance given the mix of headwinds and tailwinds we managed through the year. Losses have reduced further in our German business. As gross margins improved, we've also reduced overhead costs and improved marketing effectiveness. In the third quarter, our breakeven run rate performance demonstrates the potential of the business to deliver profitability and underlines the confidence we have in our model. As we look through the key line items in SG&A, we saw marketing costs increasing as we ran a number of campaigns to build longer-term brand awareness. We welcomed 1.9 million new customers to the website and increased traffic by over 80%. As I've already mentioned, we added around 600,000 square feet of warehousing space, which worked to our advantage when supply chain disruption hit and customer demand soared. We were able to support our supplier partners as we took on their stock in transit when stores closed, and we were able to meet demand from our customers who relied on our next-day service of essential electricals. The increase in other administrative costs were primarily related to the recruitment of staff across our IT and people functions to support the continued growth of our business as well as an increase in incentive payments, reflecting our performance and the introduction of the value creation plan. As a percentage of revenue, these costs overall reduced from 10% to 8%. The strong growth helps us to achieve group adjusted EBITDA of GBP 64 million, up over 190% on the previous year. Although this has generally been a great year for AO, there were some challenges. As previously reported, our Mobile Phones Direct business was impacted by shifts in customer behavior during the year under COVID, with much higher levels of cash back redemption and contract cancellations that our model predicted. We acted swiftly to move to a higher upfront cost model, which reduced monthly network cost for customers and removed cash back as a sales proposition. We've seen an increase in warranty plan cancellations, partly due to household financial uncertainty on the COVID restrictions. Following a full review of the customer contract base, we have made a cumulative adjustment to reserves at year-end of GBP 11.1 million, with a one-off charge in the current period of GBP 8.1 million to align our ongoing assumptions and estimates for the warranty contract assets. We finally ended our onerous contract with payback in Germany, resulting in a GBP 2.2 million adjustment to EBITDA this year. Moving on to cash flow. EBITDA delivered in the period was a key driver of our strong performance. Working capital inflow was then partially offset by the repayment in the ordinary course of borrowings and lease liabilities of GBP 45 million and capital expenditure of GBP 9 million. During the year, we refinanced our debt facilities by consolidating our GBP 60 million RCF, with the GBP 20 million term loan into a new GBP 80 million RCF. This matures in April 2023, resulting in total liquidity headroom of GBP 143 million at the year-end. Looking now at working capital. As you can see from this chart, inventories have increased significantly to serve strong customer demand and mitigate supply chain disruption. Stockholding in both the U.K. and Germany roughly doubled compared to last year. Inventory days increased slightly to about 30 days versus 28 previously. We anticipate that stock levels will remain higher than normal until our supply chains normalize. The increase in trade payables reflects higher revenues compounded with increased credit limits from manufacturers. Commercial income, mainly rebates from suppliers has increased with revenue. Looking forward, our plan is to build on the strong momentum within AO and invest in our long-term vision. Over the next 12 months, we aim to lap the volatile COVID comparatives with double-digit growth. We will invest further in marketing and digital content, particularly in the U.K., with a total of about GBP 30 million incrementally planned for FY '22, about GBP 5 million of this is capital. We will invest about GBP 30 million in support systems and process improvement. Roughly 2/3 is capital. We continue to investigate a mega recycling center. The capital cost would be in the region of GBP 20 million. We will continue to grow our German business as quickly as we can at roughly breakeven, plus or minus 2%. We will invest sensibly in our U.K. business for growth, but will constrain these investment opportunities to within plus or minus 1% of revenue. Our firm view is that the shift to online retail accelerated by COVID will continue, but we're conscious that markets are volatile and forecasting the next 12 to 18 months will remain difficult. We continue to focus on revenue growth and taking market share, becoming the recognized category leader in electricals and giving us real scale. To sum up, we have a strong business model built up over 20 years, which is underpinned by our vertical integration, our One AO centers of expertise and our clear vision for high-growth potential in newer categories. We're continuing to build scale, which drives our profitability and our flywheel. It is these factors that give us confidence in our strategy and our vision. We remain cautiously optimistic about the coming year. Finally, our people have done a great job this year under extraordinary circumstances, and I would like to thank them for all their hard work.

So I'm delighted to talk to you today about what we've achieved, but more importantly, I wanted to talk you through our strategic plan and why we're just so excited about the next chapter of the AO story. Our mission is to be the global destination for electricals. And the migration to online is firmly in our favor. The plan I'll set out later will bring some scale to the opportunity ahead of us, and we intend to realize it. In 5 years' time, we will aim to have expanded into 5 territories with a turnover more than double what it is today, and we'll be operating in a total addressable market of some GBP 118 billion. But before I explain more about the strategy to get us there, let me take a second to remind you quite how far we've come since Christmas 1999, when I bet my friend, Alan Latchford, that we really could sell washing machines on the Internet. Five months later, we were registered with the company's house and selling our first few products. More than 8 million customers have now experienced the AO way since launch, with 2 million choosing us in the last year alone. We make around 14,000 deliveries a day across the U.K. and Germany, and we've got about 1.8 million square feet of warehousing. We employ around 4,400 AOers and have about 1,000 vans a day out on the road. We recycle hundreds of thousands of appliances, and we sell products across 9 categories while maintaining industry-leading Net Promoter Scores well into the 80s, both in the U.K. and Germany. It really has been an incredible 2 decades. As I said before, this has been a significant step-change year for AO. We're proud to have risen to the challenge for the people that really matter most to us, our customers. And we've relished the opportunity to impress those 2 million more of them. Testing times are always an opportunity to deepen relationship. And of course, our trading partners who've been shoulder to shoulder with us throughout. This year has also been one of uncertainty for all areas of life and business. Our immediate response to the pandemic was to invest early and boldly to seize the opportunities created by the temporary closure of physical retail during the pandemic and prove to new customers that there really is a better way to buy these categories. The investment in our capacity, infrastructure and people, set us up to serve customers brilliantly when they really need it us most. Our culture is to treat every customer as if they were our own gran, and to make decisions that would make our moms proud. We live this in spades. And at times, they add meaningful cost attached to it. But we view those costs as great investments in customer lifetime value. It was certainly a time to have a well-invested culture and not a time to start building one. Our swift response to COVID and our platform that's designed for scale leverage delivered transformational results on growth, cash and profit. Our group revenues were up 59%, and profits were up 191%. In the U.K., we made an incredible 8% market share gain in major domestic appliances, giving us an average of 23% share across the year. Our share in small domestic appliances was 2% pre-pandemic and rose to peaks of over 5%, albeit settled back a little since. And consumer electronics was a very similar story. But this shows the sheer scale of opportunity here, and that customers will vote to buy these products in some categories that are new to AO when they're given the right range, price and delivery proposition that we are always working to improve. Mobile remains a great opportunity. Frankly, a more dysfunctional market, I don't think I've ever seen, but the fog is clearing and the customer direction of travel is firmly towards disaggregation of handset and SIM as we hoped and away from contracts. In Germany, we reached a profitable run rate, and we expect to maintain this level, give or take a couple of points of margin tolerance as we grow. We deepened relationships in Germany with suppliers, and our import prices there are now near parity to those in the U.K. We reorganized our logistics in Germany to operate on a model that we've proven in the U.K. with the financial output that will now drive scale efficiencies as we grow. Our centers of expertise led from and largely based in the U.K. now deliver virtually all the marketing and e-commerce operations to increase sales while reducing marketing costs. We removed or prevented complexity and management layers to the tune of about GBP 5 million of overhead annually. At group level, we accelerated our investment in tech, innovation and improving the customer journey, including a full site-wide rebrand, and the launch of personalization with the benefits of that are going to be realized in the second half of this year and, of course, in the years ahead as well. We've refined ways of working that will allow us to repeat and scale our model from Germany into more European territories. We've created around 1,200 new roles and built a program of leadership training and development as we reinvigorate a high-performance culture. The leadership team has also discovered new ways to operate and to integrate the new talent that we're bringing in with deep experience. The challenge of COVID, of course, brought with it headwinds and tailwinds. But one of the most important aspects was the speed with which the world, governments, customers and business had to adapt. This just wasn't like a huge peak trading or a Black Friday that you plan for all year. This was several Black Fridays, one after another with very limited planning. We saw about 10 years of change accelerate into the last year on all levels, and the overall shift of customers online, I believe, will stick. I believe that a tipping point has been reached and we expect it to settle around 60% to 65% on U.K. MDA market share and then start to grow again, frankly, as it has for every year in the last 20 years. There's still loads of opportunity to show people a better way to shop. I also think working from home is here to stay for lots of people, and if you think even just 1 day a week is a significant increase in appliance usage. We are anticipating more and faster replacements and products upgrades, while investments in home improvements and a reinvigorated housing market will also fuel that demand. However, COVID-working practices have been expensive to operate, particularly in our logistics business, but our structural investment has created long-lasting scale advantage. Our recycling business in the early stages of COVID suffered from famine followed by the expensive indigestion of feast when we were able to resume normal collection services. But it could have been much worse and more costly as well if we didn't have that operation in-house. And change in legislation in recycling is also creating lots of opportunity for the future. And as such, we now need to invest in bigger capacity with a long-term time horizon in mind. Global manufacturers and many of whom had resisted the migration to online for the last 20 years, they're now viewing the world with a digital-first lens, and we are passionate as we always have been about being their long-term partner of choice. And of course, there's still uncertainty, and there will be volatility, but the direction of travel is firmly with AO and the business model we've spent more than 20 years building. It's worth remembering that the store shopping experience is as good as it's ever going to get, and the online experience will never be worse than it is today. I expect with our growth mindset and focus on scale, we'll continue to be a double-digit growth business in this year ahead, even as we lap the early stages of volatile COVID comparatives from last year and, of course, now with physical retail having reopened. We have an opportunity to continue to drive further growth and the ability to reinvest in our flywheel and a firm belief in the scale we can achieve. And scale matters because centrally, we're actually a high fixed cost based business. And our structural advantage is our ability to leverage that investment over a greater addressable market. We are already proving our ability to leverage our capability and retail platform very effectively into new market segments such as housebuilders, B2B, social housing, SMEs, even kitchen retailers, and we're also able to test convenience stores within Tesco as well. The same is true with our logistics model, where we now make deliveries for a whole host of other companies. They're proud to have their goods delivered on an AO green van because of the quality of that service and the efficiency that it represents. We're also approving this in Germany as well, where we've repeated our relationship with Aldi from the U.K., and we're also now making furniture deliveries for other retailers. And I think it's an important evidence point that our logistics infrastructure is not just regarded as best-in-class in Germany for quality, but that we've now got the economics right such that we can serve these contracts profitably. Every one of these opportunities leverages our infrastructure. It drives our flywheel. And if we're successful, there will be repeatable playbooks that we can roll internationally. Scale doesn't happen overnight. It needs investment in capability and time and the experience to learn what works. So to our strategy. First, a reminder of the opportunity. I've been saying for more than 20 years that the market is going to migrate online. Even before the pandemic, we were growing at 9% and that's just been turbocharged recently. In the U.K. and in Germany, in fact, globally, we've become ubiquitously connected. Importantly, that also includes demographics that might have been much slower to adopt online shopping pre-COVID. And so we are truly blessed to have such a long runway of opportunity ahead of us. And crucially, we'll realize that by repeating and scaling what we already do. It enables us to continue to invest aggressively to expand and leverage our customer base, brand and infrastructure. We've worked hard to create a business model that is cash generative and very capital efficient. The opportunity in the U.K. and Germany is huge. But we believe there's also a huge opportunity for us in Europe right across the electricals categories well beyond the bedrock of MDA. The AO flywheel is the reason we're able to do the things we do, and do them brilliantly with confidence. It makes us uniquely placed to grab the opportunity ahead. By obsessing about customers and making things ever better for them by innovating and investing bravely, we increased sales at strong growth rates in each of our markets. We grow repeat and recommendation business to build lifetime value while also finding ways to reach and delight even more customers. And through that growth of sales, we get operational gearing. We get scalability. We get efficiencies. And because we're vertically integrated, that flywheel really does start to turn faster and faster, and it makes the business more profitable. And that profitability gives us choices. And in those choices, well, who comes first? Well, of course, the customer. So we obsess about how we reinvest those profits for our customers, and we drive to grow sales. We believe deeply in sharing that lifetime value that customers help us to create with them, always with the long term in mind. And this takes many forms, but our focus broadly is to be quicker, easier, cheaper and more convenient. Of course, all with a cheeky little AO smile. And what I love about all those ingredients is there's no destination. They will never run out. They can always be improved and always giving us greater advantage, and we'll continue to invest to realize that long-term price. By driving sales harder, we'll grow a bigger business over the long term, which will mean we'll choose to invest profits in the short term. We're investing to reinvent the customer journey with a focus on how capabilities like AI and machine learning can leverage our vertically integrated supply chain, providing totally personalized experience. We're also investing in bringing products alive and being the true global leader for customers to explore products and of course, for global manufacturers to best present those products. We'll be opening a new London-based creative center with the brief of doing to product content, what Pixar did to animation. We're going to start that with a commitment in the year ahead of about GBP 15 million to GBP 20 million. And my belief and hope is that manufacturers will love what they see through their now digital-first lens. For now, this is an investment that we make alone. But my expectation is that over time, this will very much be a foundation of our partnership together. We're also making significant brand investment of about GBP 15 million in the year ahead in the U.K. On prompted brand awareness is only 37% and yet our share of the MDA market has averaged 23% over the last year. The opportunity here is clear, and we've learned a lot of lessons over the past few years and probably the biggest is that there's no quick fix. But I believe deeply that people forget what you tell them, but they remember how you made them feel. We want customers to love AO as a brand, and that is going to take time. And it will critically require customers to experience the AO way or to have it recommended to them. And we've got a number of exciting plans in this area that drive engagement and activation and all having a long-term lens. We're excited about the platform that the AO arena gives our brand. And Bear, The AO Teddy, has been received really well by customers, and our drivers are creating thousands of moments of magic every day as they hand them out. But critically, the kids, the target audience, they absolutely love them. We're driving the customer proposition hard through the benefits of our new scale, especially in logistics, premium fleet, faster deliveries, more convenient delivery time slots. We're also innovating with our B2B channel offer, as I mentioned earlier, and we see significant opportunity ahead with housebuilders, kitchen manufacturers and retailers and housing associations as well with our rental model. And we also look forward to repeating those lessons from all these areas internationally as well. For those customers who don't shop online where we'll find a new and different way for them to experience the AO way. An example is our trial of a 5-store store-within-a-store partnership with Tesco. And although the stores have been like to close during the COVID period, the trial is raring to give customers the convenience of browsing and ordering large appliances for delivery while taking away with them small appliances with their grocery shopping. Customers are just going to be met by the same passionate AO customer service experience that we're known for online but with the convenience of being located where they are already shopping. We think this is a far superior cost dynamic than a stand-alone store. I'm super excited by the capabilities that we're building, whilst also investing significantly in our foundation system technology to the tune of about GBP 30 million a year for the next 3 years at least. This is about building bulletproof, stable back-end systems that enable new geographies and allow us to plug and play the elements we need with improved internal tools. This will also facilitate more automation right across the business and the ability to scale seamlessly to support our growth ambitions. These foundation systems really are, if you will, the root system of an oak tree, a solid base that grows and strengthens over time. So if you think about the trunk as our flywheel that drives the capability and learnings into the branches and those branches are the part that customers see and hopefully value. And they increase our reach and allow us to flex in the wind to meet changing needs and our ability to disrupt on customers' behalf. We'll be able to apply all of that model globally. In some markets, we think this will involve us taking full control as we do in the U.K. and Germany now. Further afield, that might involve a partnership to enable others to access some of our capabilities to disrupt their local markets for their customers. Our optimism and determination is underpinned by the stat that Mark gave you earlier. But we've had compound annual growth since IPO, which is about 8 years ago, of 25%. Europe is still in its Internet infancy in many markets. Germany has taught us valuable lessons and now provides a template for expansion. We need to repeat, not reinvent the U.K. business in each country. We can leverage our knowledge and centers of expertise such as logistics, customer service, web platform, e-commerce capability, amazing content and the consistency of what we sell, how we sell it and how we deliver. I mean the list just goes on. Our ambition is to be in 5 countries in 5 years, capitalizing on that total addressable market that I talked about, and that can all grow into 1 hell of an oak tree. Our focus in Germany is now about growth with discipline. And our ambition is to enter the next European territory towards the end of financial year '23. And we'll give you more information about where and when in November at half year. But in terms of European rollout, we believe there's all to play for in the big markets of Italy, France and Spain. We believe that we'll be able to achieve the breakeven in approximately 3 years at a sales rate of around GBP 120 million with cumulative losses not exceeding around GBP 30 million per territory. And this for context, compares to our German journey that took 6 years and over GBP 150 million of investment. And we've now reached a profitable run rate which we expect to maintain at that level, give or take a couple of points of margin on tolerance as we now grow. The difference now is that we took time to learn the lessons in Germany, where in the new territories, we'll just be applying those learnings right from the start. And our approach will be to roll out the proposition by population density this time as well rather than nationally from day one. And this enables us to concentrate our key commercial dynamics into a profitable business to then drive that forward. It's much more about having a replicable model using proven centers of expertise with a much lower cost base rather than layering in new overhead per discipline for each territories. These investments will give us a capability to really accelerate our growth and therefore, the long-term potential revenue and profitability potential of the business. For new categories and territories, we will drive to profit quickly, but sensibly and then drive for scale around breakeven, continually reinvesting until the scale ultimately drives the profitability from the model. Now let's be clear on where we are. The next 12 to 18 months are going to be really difficult to forecast precisely. And the timing and the impact of what sticks and what doesn't has varying degrees of clarity, as does the lasting impact of the pandemic and the response to it as well from governments, whether here in the U.K. or in Europe. However, over the next 5 years, we can be more confident with our predictions, and we expect growth on average to be in excess of 20% compound annual growth, with an EBITDA margin of between about 6% and 8% in our U.K. business. We expect margins in new territories and categories to perform at least as well as the U.K. once they reach maturity in a market. As I say, we pay attention to what our customers want, need and what they really care about, and they care that we are a responsible business that plays its part on the issues that matter to us all. It's great to see, and I have to say, investors focus on ESG issues converging with that of customers. But because the great news is customers got there first, this is an area where we're already ahead of the game. And we believe for many years, as many investors now do that doing business the right way, it's a better long-term investment and it's great fuel for our flywheel. We believe that customers increasingly care about this area of business. And the legislative direction of travel certainly now supports the investments that we've been making for many years, frankly, all on the basis that it was the right thing to do, and it would make our moms proud. So in addition to online shopping being more environmentally friendly in the first place, we're also ahead of legislation in our recycling operation and capacity. We are now working with manufacturers as well on using our output recycled plastics in their products to create cradle-to-cradle appliances. We're working on the efficiency of our vehicle fleet, and we launched an ambitious value-creation plan scheme to ensure that all AOers share in the value that we create together. We're actively recruiting to encourage talent from all different backgrounds because we believe in the value of diversity and particularly the diversity of thought. What is good for customers is good for our people, and I believe that is good for our share owners, too. We'll always take the long view and invest to drive our flywheel harder and faster for long-term benefit, all whilst over time, building huge customer loyalty moat right around our business. So that's the AO story and strategy. In 5 years, we plan to be in 5 territories with more than double our current turnover. We'll continue to invest to drive the customer offer through range, services and proposition and the territories we can serve. We'll continue to obsess about cash generation forever, which will fuel our growth capability, and that ultimately drives our business forward to deliver brilliantly for customers. All of this positions us to become the global destination for electricals. The choices we make will create incredible long-term value for our share owners. So thank you for your support. It really has been an incredible journey over the last 20 years, and we're only just getting started.

Okay. So that brings the formal part of today's results presentation to a close. I'd now like to ask Cecilia to explain how participants can ask their questions.

[Operator Instructions] We will take our first question from Tony Shiret from Panmure Gordon.

I just -- I know you're going to sort of talk a lot on the Capital Markets Day about the international stuff. So maybe I could just ask a question on your marketing. And if you could give us what you think is a meaningful analysis of the amount you've spent in the year reported on and how that's going to change with the increased amount of marketing in terms of things like above the line and cost per click and stuff like that?

Yes. So thanks, Tony. So the year gone on marketing has been a real strange one in terms of the normal mix, given that at one point in the year because of the demand and the capacity that wasn't there, for example, we even turned Google clicks off. So the mix across the year is not particularly representative of a normal year. And the cost of TV advertising dropped by about 50%, but actually, that created an opportunity to go and do some, particularly when everybody was at home and with not a lot to do and watching lots of tele and particularly, watching live TV. As we look forward, we would expect the normal mix of marketing to normalize. And so the market around paid clicks -- actually, we would probably expect to get more competitive than maybe it was pre-pandemic because the world has woken up to actually this online migration is actually real and it isn't going away, and it isn't stepping back. So we are seeing people increase their investment in that space. But we're very relaxed about that. We've got 20 years of experience on how to do digital sort of direct response marketing. Where we're going to be making increased investment this year is around activation and how we engage with customers. One of our big learnings over the last few years, aside from the fact that there's no quick fix on it, is that people really need to experience the AO way. The idea that we can just do a TV advert to tell people that it is a much better experience. And at this point about people forget what you tell them and they remember how you make them feel. You kind of got to feel that to understand it. And that's what we see with our industry lead in repeat and cross-pollination across categories dynamics. And so you'll see us doing things like -- more things like the AO arena, more sponsorship activities and more things that we can activate through channels like social media where we can engage customers, whether it's new customers or existing customers in the conversation. And really, part of that is to sort of wake up or ignite the engagement of existing customers to create recommendation for new customers as well. And that's all built on the fact that we've got globally leading Net Promoter Scores. So we're not afraid to try new things. The teddy bear is an interesting example of that, and going to have a bit of fun with customers and to position the brand slightly differently. Exactly what is going to work in that format, we're learning as we go. But what's great about it is on those things, we can dial those up and dial them down in a really controllable way where sponsoring something like Britain's Got Talent, which was a lesson for us and a major investment. The major mistake we made there was thinking that the investment was just the sponsorship and we should have probably spent another GBP 7 million or GBP 8 million on activation to really capitalize on that. So that's kind of how we're thinking about the mix going forward, but all with the medium- to long-term lens in mind rather than a -- this is all going to pay back even in the current financial year. But the brand awareness, I believe, still remains our single biggest opportunity in the business.

We will now take our next question from Simon Bowler from Numis.

I was hoping to just kind of dig into a bit around the support systems investment, which you mentioned is kind of a 3-year program. Can you just give us a sense of what tools that does unlock and how that kind of happens over the course of that 3-year period?

Yes. Sure. So it's across the whole estate is the reality of that. And that's about making us bulletproof for the future. So -- when we think about back-end systems, for example, so I think the headline is we're moving from loads of tech that we built historically and iteratively. The way that we think about it is where it creates a point of difference for customers, we will continue to invest ourselves and differentiate. And where it's pretty much a hygiene factor, we want to go with much more of an off-the-shelf solution largely cloud-based that we can plug and play across those to give us scalable -- a much more scalable platform that we get the updates as we go along on that. So it's not one big bang of change. It's progressive across the piece. And it will cover all areas around things like order management systems. It will cover warehouse systems, routing systems for vehicles. It will cover core web platform. But then on top of that, we will have our product team differentiation with all the different innovation that we put in on the front end. So the simple principle being where we want to create differentiation, we make that investment ourselves, but we do it in a microservices world, and we plug it back into an API-driven core services architecture. And that is then something that from a system point of view, we will simply repeat into different categories and different markets rather than having to repurpose it each time we do that.