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

Okay. Good morning, everyone, and thank you for joining us. I wanted to start today by reflecting back further than just the prior year because there's a bit of a milestone today, which is it's 25 years since the now famous or infamous GBP 1 bet in a Bolton pub that conceived AO into being. It's been a fantastic journey of innovation and investment, resilience and rejuvenation, hard work and a lot of heroism through that. We've come a long way, and there's definitely still a lot more to do. But we really are just only getting started. And personally, I have never been more excited about our business. Today, we have operations spanning retail, warehousing, logistics, recycling, circularity and insurance. We're vertically integrated to ensure absolute total control of the customer journey while simultaneously capturing the maximum amount of the value that we create. Mark is going to explain the numbers in detail, but I thought it's worth summarizing the headlines for some context for you. It's been a record year. Like-for-like group turnover is GBP 1.1 billion, and profit before tax is above the top end of the range at GBP 45.2 million, up 32% year-on-year and growing faster than revenue on a comparable basis. We began this financial year with a commitment to grow our B2C retail sales by over 10%. So I'm delighted to report that the team have delivered over 12%. And it's all the clearest possible proof that our model is working and these profits are converting as expected to free cash flow. All of this was achieved alongside stepping up our relentless commitment to amazing service. And consequently, we are now the #1 rated company at scale in the world across all categories, on Trustpilot. And so that's across over 750,000 reviews at an average rating of over 4.9 out of 5, and I'll return to the significance of that later. But first, I wanted to remind you of the model that we've been building for the last 5 years and the scale of the opportunity that we are playing for. In 2014, when we did our IPO, we were an MDA-only retailer. One of the key reasons for the IPO was to raise the funding to facilitate our capability to broaden our proposition into other categories. And there have been many challenges that we have underestimated on that journey and many eggs before chickens. But I thought it was worth bringing a few to life. Ranging. Simply getting the supply of product from brands like Apple, Shark and Dyson on a direct basis when you have no obvious right to win and no compelling point of difference is not easy. You also have no scale or corresponding volume to offer. As examples, it took us over 5 years to get access to the full range of Samsung TV products and 7 years to get a direct account with Apple. Pricing. Even if brands are willing to supply product, you won't immediately get the terms to enable you to compete profitably. And in truth, nor should you. Fulfillment, when you don't have any scale, massive CapEx into automated warehousing doesn't make sense. So all processes are manual and therefore, expensive. This means that broadly, once you step out of premium and into the volume segments, you lose money on most orders that you fulfill. Has a right to win. The most important thing here is our right to win with customers. And the truth is that we didn't really have one other than, of course, for Uber loyal AO customers. Our key differentiator into a home delivery doesn't transfer when delivering toasters. Competitors. Even without a right to win and no price range or convenience difference, it's going to be tough when the competitor set now includes Amazon, and of course, the brands themselves on top of our normal competitors. Marketing, therefore, is incredibly expensive as well because to drive web traffic for categories that are not -- we are not top of mind for, means that we're competing on terms like, let's say, Dyson vacuum cleaner, you're competing with, well, Dyson themselves or Amazon and one of their 15 million Prime customers. So the summary of all that is that it's been very hard yards. It's been expensive, and it's required patience and investment. So getting to 1% total market share is always going to be the hardest because you have to fix all these things simultaneously. Nothing great, though was ever achieved with easy and the prize is huge. The total addressable market for us across all categories in which we play is -- and have a meaningful presence is now about GBP 28 billion. So you can see here on this slide that we've now crossed that magic 1% threshold in all key categories. And it might not sound like a massive business, but 1% of GBP 10 billion is a decent start. All big companies start as small ones and all journeys begin with first steps. Those journeys don't always come with a map, and the winners often get referred to as a 10-year overnight success story. And it's 11 years since our IPO. I realize we have not shone a light on category breakdown so far, and we don't plan to for clarity going forward. But I wanted to bring to light with these slides the progress that we have actually made in the background, understanding how we have done this and why we have the confidence in the flywheel that we have and the way that we've been building it is crucial. So we've created an animation to explain how it all comes together and how it all drives the flywheel. And hopefully, that will shed some light on the confidence that we have in future performance and critically, our right to win against the backdrop of the challenges that I've just set out that we've navigated. Mark will then take you through the numbers for last year, and I'll return to take you through in more detail the rationale on our right to win in this GBP 28 billion opportunity. So we'll play the animation. I hope you find it useful. [Presentation] Everything is built on the foundation of brilliant retail basics. These are the fundamental hygiene factors that determine why a customer should choose to shop with AO. We need to obsess about being brilliant on all these metrics and be forever resetting our bar on our ambition by just how good we can be. A customer shopping journey begins with us helping them to make sure they buy the right product. So we need to make sure we can offer awesome advice and help in whatever form, whether that's through a website journey, our video content to explain products or good old-fashioned personal help on the phone. Of course, we need to make sure that we sell everything that a customer may want to buy from us and so have a full and complete range. We must always be the best price for a customer to buy that product. And so we need to make sure that this is checked multiple times a day and proactively reset with the backup of an all-encompassing price promise. We are so confident about this that we now even display all our competitors' pricing on our own website so that customers don't even need to leave to check. Once we've helped you choose, we need to make sure we have everything physically in stock and available. That availability needs to power a complete delivery and service proposition that means customers can order it as late in the day as possible for delivery the next day, 7 days a week in a time slot that is convenient for them and have all the additional services that they might need, such as installations, recycle and takeaway services and be able to be completed at the point of delivery, all in one go. Simple, no hassle. The AO difference, of course, isn't just what we do, but much more importantly, how we do it. And so all of this needs to be carried out with our world-class personal service, where our people are inspired and empowered to create magic for customers in the moments that matter, always looking for the opportunities to sprinkle a little AO pixie dust. And all this capability can only happen because of the depth and breadth of our partnerships with great brands that run much more than skin deep and are built over decades, way past just selling products, but into supply chains, reverse logistics and through to aftersales as well. We need to be their most trusted partner as well, not just for customers. If we were only to get these brilliant retail basics right, then the future should be very bright. I have never spoken to a customer that has asked us to charge them more, make them wait longer for delivery, make it less convenient or be less nice and happy, and I don't ever expect them to in the future. I've also never met a customer who wants us to care less about the environment. This gives us a mandate for projects like creating new fridges from the materials we have recycled from old ones and scaling musicMagpie's expertise in refurbished tech into AO. We can, therefore, invest in all these areas forever with deep conviction, and we also expect the physical products well to stay physical for the foreseeable future. However, we want to deepen our relationships with customers way past these brilliant retail basics. We want to create a shared economics model with customers that they are able to understand and invest in with us. The more customers spend with us, the more profitable the AO model becomes, and we are then able to share more of that profit opportunity with customers. You'll often hear me refer to this as putting more chicken in the chicken soup for customers. This is a simple idea, but one we take incredibly seriously, and we are baking it into our culture and decision-making every day. The primary driver here is for customers to give us a greater share of their wallet or in other words, their total annual spend on electricals. We need to make it a no-brainer for them to buy all their electrical items from AO. This gives our operating model more operational gearing or in more simple terms, it means that as we grow, our overhead becomes a smaller percentage of our sales, which means we are more profitable. The Shared Economics model begins with a commitment from a customer to pay GBP 39 to join the AO membership scheme. In return for this, they get free of charge recycling on every order, free delivery and special extra discounts that are only available to our members. Critically, and just for clarity, the normal website price will always be the best price in the market. The member prices are, therefore, naturally lower than available anywhere. As we have now fixed most of the unit economics of our non-MDA categories, this principle now applies right across the whole range as well, and we will continue to get better with time, as members will have clear and meaningful reasons to save money on most of what they buy when shopping with AO. This should encourage them to use their membership more and therefore, should also make them more motivated to renew their membership because they're able to get more value across more products. This is what we think of as the economic chicken, and we keep buying it to make that soup taste even better. To be able to really drive this flywheel, it is critical that we are ruthlessly efficient and operate the lowest cost operating model. This is why we have invested over the years to be as vertically integrated as possible so that we're in control of both the costs, value capture and the experience for key areas of the business. The better and more efficiently we're able to operate everything, the more budget we can create for chicken to share with customers, which creates a significant structural advantage. We are then planning to create more and more reasons for a customer to be sticky for other reasons as well. We see one of the key drivers of this being to encourage members to also have a finance account with us that makes transacting much quicker and simpler in the basket. It will also enable us to give them promotional finance offers to spread the costs that are only available to members, and we call this sticky chicken. We also want to use our market position within mobile to disrupt yet another sector. First, we'll launch a virtual network under the AO mobile brand. Through a customer lens, I hate how complicated tariffs are in the world of mobile. And so our goal is to have just one tariff with unlimited minutes data and text for a market-leading price only for members. We also want to disrupt the way that mobile handsets are bought by leveraging the residual value of the handset. The best way to think about this is as a personal contract plan in the same way that you would lease a car with a balloon payment. Our goal here is to have a super simple proposition of the latest handsets available for market-leading prices and the ability to change it every year or 2. The payments are a lot lower because in effect, they are only funding the financing and 1-year depreciation cost, not the whole handset. We will innovate to reduce both these costs for customers to keep the handset cost as low as possible. Overall, we want to deepen our relationship with our members to get them as many brilliant exclusive deals as possible so that they use AO as their default for everything. We want members to be delighted to renew each year because of the value they receive, and we're targeting to get all members fully aware of all the products and categories we now sell, all of them set up with a finance account and a PCP phone deal and an AO mobile SIM. This will drive our frequency of transaction, familiarity and therefore, loyalty as long as we deliver on the brilliant retail basics. We will achieve all this by having the very best passionate people working in a high-performance culture. We need to keep obsessing about treating all customers like our own brands and doing things the right way with a long-term lens, making decisions that would make our moms proud. Always with a human touch that makes the difference whenever it's required. Quite simply, the best service should always be no service. We need to build everything to eliminate friction and waste. It must just work perfectly every time. When we do this, we will cement our position as the U.K.'s most trusted electrical retailer. This is the formula that we can build on for decades to come. Our members will be very difficult for our competitors to prize away, and we will have a much more meaningful long-term trusted relationship with them. We hope you share the vision and want to be part of the journey. AO, let's go.

[indiscernible] business model, and we'll assume that knowledge as we go through the presentation today. So just to start, we obviously bought musicMagpie just before the end of the financial period and all of our previous guidance and communication with the market was on numbers that excluded the impact of that acquisition. So today, our announcement consolidates their results into the group. But for this presentation, we'll also discuss the numbers excluding musicMagpie using the phrase like-for-like. So I'm pleased to say that we've delivered against our guidance. Our B2C revenue is GBP 832 million, up 12% on the year. This growth has been delivered on the foundations of our excellent customer experience where we've enjoyed repeat customers returning as well as increased share of wallet from our members. Having now fixed the warehousing economics of some smaller products, we have extended the range of AO customers. Our last profit before tax guidance was around the top end of a GBP 39 million to GBP 44 million range, and I'm pleased to report GBP 45.2 million today on a like-for-like basis. As John mentioned, our business model is working, and we're getting leverage on costs as we've grown revenues, so profit has increased faster than revenue. There are GBP 23 million of adjustments in the period, which are the noncash impairments of goodwill and intangibles in mobile, which we noted in our pre-close in March of GBP 20 million and GBP 3 million of acquisition costs relating to musicMagpie. The mobile impairment is obviously significant, and I will come on to the plan for mobile shortly. We'll also discuss how a full year of musicMagpie trading will impact expectations for FY '26 when we go through the outlook statement. Performance since acquisition from musicMagpie, though, has been slightly better than we'd anticipated, and the opportunity is at least as big as it was in our investment case. So I'll come back to those numbers later. But for now, I'd like to say how happy we are to welcome Steve and the Magpie team to the AO family. And John is going to talk a little more about how we expect to leverage the acquisition to continue to differentiate for our customers. So those record profits were delivered against a pretty tough macroeconomic backdrop. We had a consumer under pressure, government-driven pay inflation above long-term trends, and we saw cost inflation catch up where we've been protected by some medium-term contracts. And we expect there's more of it to come. So it's great that our underlying model resiliently delivers for us. As you've seen from the animation, our foundation of brilliant retail basics with the highest rated customer service on Trustpilot delivered efficiently by our highly engaged employees, all effectively helped to protect us from some of these headwinds. Our largest category in major domestic appliances is inherently resilient. If your fridge or washing machine breaks down, you will replace it. And in addition, 12.5 million people have now experienced buying from ao.com, which along with our membership model, all compound to give us really solid revenue foundations. And whilst we're fortunate our model helps us in this way, we've also been taking action with self-help too. Our membership model, while still in its infancy and our increased range have helped to maintain and drive our share in a competitive market. We anticipate that both of these will continue to develop and be fuel for our engine in the future, too. We know that for some customers now is a time in the cycle when they have savings to fall back on. However, for many others, they need more support. So it's never been more important to have a range of finance products that can meet their differing needs. And to that end, we extended our agreement with Nuuday through to 2033 and look forward to further innovation in this area over the next 12 months. The acquisition of musicMagpie will help customers afford new products as trade-in lowers the overall effective price they have to pay. And we think in time, this will provide a real win-win for both businesses. Changes in government legislation and policy, which have led to increased employment costs have encouraged us to revisit our employment strategy. The first offshore call center agents went live in South Africa in the year, and it's imperative that we continue through to develop, to deliver amazing service, which is so key to our reputation. So knowing this and knowing that this structure could compromise that customer experience, it's been great to see the culture form over there and the enthusiasm in the team that we've recruited. So we'll continue to look for offshoring or automation opportunities as we move forward and making the model more efficient will help us to provide even more value to our members. And lastly, product confidence and security is very important to a lot of our customers. And our AO Care product, which has been provided by Domestic & General since 2007 does just that, with an excellent reputation for dealing with any product and issues that arise, a real no first service. I was delighted to renew our partnership in the year until 2033. Okay. So we faced a year of challenge in our mobile business. And whilst we thought the renegotiation of contracts with the network operators had fixed the problems, the reality has been that the continued reduction in the postpaid channel where MPD, affordablemobiles and buymobiles operate has resulted in continued losses in FY '25. We have made some tactical progress becoming the handset supplier for Lebara and also entered into an agreement with Samsung to provide customers buying handsets on the Samsung website a bundled airtime contract. This progress, however, has not been enough to offset changes in consumer demand. And these graphs show the market evolution over the last few years of both new contracts and upgrades and then the shift to SIM free. The shrinking market not only directly affects revenue, but also puts pressure on margins and acquisition costs as competitors fight for share. So the financial result this year, the direction of travel of the market and the uncertainty over our model means that we have assessed the carrying value of goodwill and certain of the intangible assets. These impairments, given the noncash and one-off nature, have been included in adjustments in the income statement. However, as John highlighted earlier, mobile is the largest category in the electrical sector by value and strategically an important product for AO to make available to its customers. It is the product that they change the most frequently and have the most emotional attachment to. John will touch on it later, but our strategy on mobile is evolving. We will either fix the legacy websites once and for all or we will close these channels. But as you saw in the animation, we will launch some exciting developments in the mobile space targeted at delivering exceptional value for our members during this financial year. We will become a mobile virtual network operator branded as AO Mobile. And as well, we will introduce an innovative range of finance products for mobiles. We expect this to make membership an ever more sticky destination with more share of wallet and higher frequency of transaction. The musicMagpie trading capability will further improve customer affordability, turbocharging both AO and musicMagpie sales. We ended the year with GBP 147 million of available liquidity, up from GBP 116 million at the end of last year. We were pleased to increase our revolving credit facility to GBP 120 million, and we extended it out until October 2028. During the year, we acquired musicMagpie with an effective cash cost of GBP 28 million, so a GBP 10 million purchase price, GBP 15 million of net debt and GBP 3 million of costs. And we also funded the EBT with GBP 11 million to purchase shares. It's worth noting that the EBT purchase represented 3 years of schemes. And whilst we might continue to do this as we go forward, levels will inevitably be much smaller. When we look through the operational elements of the cash flow, working capital, which we would normally expect to be broadly neutral, was slightly negative, and this was largely due to some fluctuations in timing in stock and in creditors near the end of the year. You'll note that the tax payment in the cash flow is in line with U.K. corporation tax rates, and we would expect to see this going forward, which has not always been the case previously. Our approach obtaining delivery vehicles has also changed over the last 12 months. In this commercial vehicle sector, historically, deeper discounts were available to lease companies than to end users. But now it makes economic sense for us to purchase these vehicles directly, backed off into asset finance rather than contracting through operating leases. We will therefore see over the next few years, a change in the categorization of these assets, which results in a better long-term economic outcome for AO. And the GBP 9 million in CapEx during the period principally related to delivery vehicles and logistics, as I've just described, but it did also include an extruder in recycling, and that allows us to take the flake output from our plastic recycling center, which was a waste product and transform it into higher-value granulated plastic ready for the manufacturing process. In FY '26, we will see a step change from leasing to purchasing vehicles, and this is expected to increase headline CapEx to around GBP 20 million next year. Those purchases though will be backed off into asset financing, resulting in a minimal impact in free cash flow in the year. We will, however, see a contrasting reduction in lease payments phased in as we move forward. So whilst we've got a medium expectation of tailwinds, we haven't modeled that into our guidance. What we have got in there is the cost that we know about and the output of our old-fashioned self-help. So as we look forward to our expectations for FY '26, we ended FY '25 with our like-for-like record of GBP 45.2 million of profit. And from that, we need to take the run rate of musicMagpie and the impact of the labor budget and the changes to national minimum wage. And that gets us to an exit run rate of about GBP 31 million. We'll then build on this with the profits from our growth in B2C revenue, efficiency savings through automation and offshoring, fixing or closing our mobile postpaid operation, and realizing synergies from the integration of musicMagpie. And we, therefore, expect profitability to be between GBP 40 million and GBP 50 million for the coming year with continued progress towards our medium-term target of at least 5% PBT. It's worth noting the labor cost increases will impact from day 1, but some of the efficiencies and innovations won't benefit until H2. So the distribution of profit may be faced slightly differently than it was in FY '25. So on that positive note, I will hand you back to John.

Thanks, Mark. Well, look, the numbers are good, as you can see, but they are simply the output of the animation and that flywheel starting to work. And whilst this model may look simple, there are lots of complexities that we needed to bring together in some meaningful initiatives that actually we still have to deliver. But I thought it's worth spending a few minutes on the strategic moats that we've been building around our business for the last 25 years. Building scale in a low-frequency category is hard, and it takes time and patience. Building trusted relationships with global brands and integrating service level agreements deep into their supply chain, it takes time, patience and consistency. Building brand awareness and trust in a category that, let's be honest, customers just don't wake up worrying about and they don't buy frequently, well, that takes time, investment and patience. Operating a 2-man home delivery network at scale is hard. The graveyard is full of those that have tried because stepping over a customer's threshold and performing complicated tasks like gas installations is not for the faint hearted. Our customers must be in when we deliver. And so delivering in the time window is critical and the impact on people's lives of not having a working washer, TV or fridge freezer is immense. So to do all this at scale at the level of profitability we do to the globally leading standard of 4.9 out of 5 on Trustpilot on over 750,000 reviews is, I believe, a big moat that has required a lot of time, investment and patience to dig. We often take this for granted, but we really shouldn't. Internally, we're doubling down on how we raise the bar again from here. And our membership model is resonating with customers, and we are deepening our relationships with those customers. You might not be surprised that building the membership model has taken a lot of time, investment and patience to get to here, and we're really happy with how it's developing. You don't build a finance book with over 0.5 million customers with just under GBP 1 billion of available to spend in 5 minutes either. And the acquisition of that takes time, patience and investment. We invented AO Care as a new way to look after your product back in 2007. As ever, inventing new things, honing the proposition and making sure it's amazing for customers takes, guess what, time, patience, you're probably getting the picture, right? We now have over 1 million customers paying us a monthly direct debit for that AO Care service that they love. Members repeat more. They give us more share of wallet. Repeat customers cost less in acquisition, and they're more likely to buy products that we recommend and they will also shop across categories. In the last year, we've also attracted another 650,000 brand-new customers into our base, which is more fuel as well for our future flywheel. And as I said earlier, we've also fixed the unit economics in the new and non-MDA categories, whereby virtually all orders are now margin accretive compared to the first 5 years of that journey when they were margin dilutive as we built scale reputation and credibility, as I highlighted earlier. We are now through the magic 1% share threshold in all of those key categories. And in the last 12 months, we've also added around 1,500 new products as well to the range, including fitness, drones, cameras, health and beauty, and they'll all begin their journey as well to that magic 1% and beyond. Fundamentally, we have built a right to win. Our gap now is simply one of education and making customers aware that we sell these new categories with a better price and proposition than our competitors. It will take time, but we can do this very cost effectively by marketing directly to our own base, and it is working. Add all of these together, and we are driving more and investing less, which means that we have great momentum now in the business, and we are fast approaching our medium-term target of 5% of PBT. And as Mark mentioned, we still have a few things to do. We have to fix or close our postpaid mobile business. And I am still hopeful that after some hard yards, a lot of hard yards that we will fix it in partnership with the networks. But to be clear, if it isn't possible and we do not have clear line of sight to profit and cash generation, we will close it and we will remove the distraction. We still need to integrate the musicMagpie business, which is just bursting with opportunity for us. And as Mark said, it's great to welcome Steve Oliver and the Magpie team to the AO family. And it really is a classic AO deal. In the -- what we bought is a culture that looks and feels like us and a capability where they too obsess about customers just like we do. And those are actually the hard bits to build. The rest is just integration and plugging it all together for customers to benefit from it over the next 12 months and beyond. This is going to enable us to deliver a market-leading mobile affordability proposition to our members. And as Mark mentioned, an enhanced trading capability, both in terms of price and convenience for members that I'll talk to you much more about at our half year. Bringing together membership, mobile, Magpie and finance is probably the most exciting thing that I've seen in some time across our business. So -- in summary, we're back to double-digit growth. Our flywheel is working, and so profit is growing faster than sales. And we're at 4.1% PBT on our medium-term journey to 5% PBT. Our balance sheet and liquidity are in their best place ever, and our model is now highly cash generative. Our big strategic bets are materially now all placed, and they are working and they're compounding better than ever every day. Our operational excellence and depth of relationships with our customers is a real strategic value to our manufacturers and brand partners. Our addressable market is GBP 28 billion, and we only have a 3% market share. None of this has been easy and none of it has happened by accident. So I'd like to thank everyone that is connected with AO, our people, our suppliers, our trading partners, our investors and most importantly, our customers for taking this journey with us over the last 25 years. It makes me really proud to be able to stand here and share all of this with you. So thank you very much for the time. And before we get to Q&A, as housekeeping, please take the microphone and if you could state your name and organization so that anyone watching can know. So questions. Who wants to go first? John?

John Stevenson at Peel Hunt. I'll give it a go. Just on non-MDA to start us off. I don't know if you can talk about progress in terms of -- yes, maybe in terms of customers. So how are you getting those customers? Is it all through membership and existing customers? Or are you starting to -- I don't know if you're bothering to sort of market non-MDA products to actually acquire new customers. I guess it's much easier and more effective to do it on membership through existing base.

So the simple answer is the vast majority is coming from our existing base. As you've all got grocers on the chairs. Our job is to educate customers that we sell those products and we're a better place to buy those products and you get the AO service that comes with it. As I made the point earlier, competing for Dyson vacuum cleaners against Dyson, let's get in the real world, right? You just blow your brains out on Google. So there's no huge opportunity for us in going to acquire new customers in those channels. It just doesn't make economic sense. So it is much more about in our existing customer bases, whether it's our finance base that shop across categories better or our membership base that shop across categories better or our Care base, we've got 12.5 million customers that understand the AO difference, and they are increasingly shopping across the categories.

Fantastic. And anything you say about the sort of frequency once people do start buying MDA off your -- or get into membership?

Yes. So we don't release, as you well know, all any of those stats, and we know how unhelpful that is. What I would say, though, and I've been consistent on this is whichever product you originate on, you shop across all categories. So people who originate on a toaster do buy washing machines and fridge freezers and people that originate on fridge freezers do buy Xboxes and PlayStations and Nintendo Switches from us. So it all cross-pollinates increasingly across all categories.

Fantastic. And can you -- just while I've got the mic, can you give us an update in terms of the launch plans for the new mobile network, virtual mobile network and the offer? Will that be in time for peak? And what does it look like?

So it will be in towards the back end of this financial year exactly. So we've got some big integration work to do with external partners that we're currently scoping out. So I genuinely can't give you an exact time frame, albeit we would expect to have the materiality of it all launched and live within towards the back end of this financial year. So I wouldn't factor much in for numbers for this year.

Andy Wade at Jefferies. Two for me really, I suppose, first of all, on the mobile side of things, obviously, difficult to put a number on it, but what has to go right for that to work? And what do you think your sort of chances are of getting mobile to work? And as a follow-on from that, if you do end up deciding that it's not going to happen and you're going to close it, how much of a challenges that not having that sort of element to the sticky chicken. So that would be the first one.

So the way I would think -- the way I think about that is that our medium-term target is to be a 5% PBT business. Every area of the business should contribute to that, and mobile is no different. So I definitely don't want to carry any bricks around. So if it continues to be loss-making, we will just close it. So my target is that it should be a 5% PBT business or more. In the indirect channel, which is Mobile Phones Direct, affordablemobiles and buymobiles, selling the networks of O2, Three and Voda, that actually doesn't drive the animation flywheel that we've set out. So because they're buying from affordablemobiles, it may say part of the AO family on it. But the truth is that isn't driving somebody in to come and then shop fridges and freezers and washing machines from us. So it has to -- for me, it has to standalone as a contributing factor to our 5% PBT not to be a drag to it. And that's firmly the direction that we've given. You have 2 key suppliers in it, which are network operators and handset suppliers, and it's a formula of the 2. So I actually think we can get there, but time will tell. It is not absolutely not guaranteed.

And the swing factor, essentially, what you're saying there is a swing factor is how much help you get from the support you get from the networks and handset providers in commercial negotiations?

It needs to go from -- so it will be -- if we make it a success, and we do that with the networks, it will be something that happens through the year. And it will go from loss-making towards a 5% PBT business. I don't know exactly where the timing of that will shape out. If we close it, we've already impaired the goodwill. So we're done on that. It will be an orderly exit of how we do that. And again, exactly on the timing of that, we're a bit unsure. But I would expect that to take a three -- I would expect it to be a 3- to 6-month process. I can't reiterate enough though, I am hopeful that we can -- we've done some hard yards on it. And the indirect channel is an important channel for the network. So I'm hopeful that we can get there, but I do want to flag that if we can't, if I hark back to -- we wrote GBP 160 million off in Germany, and we were really clear that if we did not have line of sight to profitability and cash generation, we would not call good money out the bad, and we would close it. This is in exactly the same category.

Just I guess, following up on that, you talked about how the MVNO and PCP elements are more strategically relevant, obviously. So would it be almost in your interest over time to sort of migrate those customers who would have been on postpaid into your own MVNO and PCP?

We see them as different customer base essentially.

Okay. And then the other one I was going to ask, obviously, membership has been a really key area that we've talked about. I appreciate you don't -- not going to be giving any sort of detailed stats on that. But in terms of your right to win, I think you really clearly explained that. One of the things I'm interested in though is what do you think makes it difficult for other electricals players to do some of those elements as well, let's say, Currys is the biggest operator out there. Why is it harder for them to do membership than it is for you to do membership? And why could they not launch something exactly the same way to keep all of their customers in the same way and so on?

So I think they could. They have their own membership program. It's called Currys Perks. And I can't speak to what their dynamics are behind all that, but we have a fundamental difference, which is you're paid to join ours. So I think it's a fundamental difference. I always say the best clubs in the world have a waiting list. So it's a very similar principle, but you have to pay GBP 39 to join a membership scheme of an electrical retailer. That takes a bit of consideration. And then when you renew after a year, you have to make another considered decision to pay another GBP 39. I remember when we launched this, right, and everyone said, you're nuts, you're mad. No one's going to join. No one's going to pay money to join a membership scheme for an electrical retailer. And that's normally when I've known over the last 25 years, I'm on the right track, which is when people think you're nuts. So we -- somebody can start a membership scheme tomorrow. The benefit that we have is we're quite a few years now in. It's expensive to learn those lessons at the outset. And we've learned some of those lessons. All the things we thought would play out broadly have played out, just not always in the right order at the right cost at the right time and everything that's gone with it. So we're really happy with it. What's to stop a competitor doing exactly the same? Absolutely nothing. Caroline?

Caroline Gulliver from Equity Development. Can I ask a follow-up question to John's on how you're cross-marketing to -- on non-MDA? And my question is, do you get real-time information on what customers are searching? So say someone is looking for Dyson, Hoovers, et cetera. Are you then able to go and educate that you're selling that at that point in time? Or are you doing more sort of general education and marketing?

Both and every bit in between. So our strategy is to be always on in every channel on everything all the time. Are we -- I would score us in terms of how good are we at it on the real-time stuff. So if you think about Google real time, well, yes, that's what we've done for 25 years. However, if you are sticking with Dyson, not for any other reason, then we all get it. But if you're competing with Dyson on a Dyson vacuum cleaner term, your cost to get to buy that traffic is very, very expensive. So in those categories and the point that I'm making is it's a lot more cost effective for us to market those to the base that we've already got on whether it's a weekly deal or a monthly deal or whichever element of CRM or social or whatever it is, that fighting in that red ocean of Google traffic, the cost of Google broadly since the pandemic is just increasing and increasing and increasing. The vast majority of our traffic is now not in that space. Our brand direct search terms is a structural advantage for us now, where if I go back 15 years ago, it would have been a structural disadvantage. So AO, more people have heard of AO than ever, having 1,000 green vans running around every day has a value. Looking at Vicky as our brand director, I don't know how many we're up to, but over -- there's over 1 million green teddy bears kicking around. And that takes time to get out there. And over time, you build the value of all these things. So it isn't -- it just is absolutely not one thing.