ASOS Plc

Okay. Good morning, everyone. Can you hear me? I hope so. Yeah. Okay. Thank you for coming this morning, as always. And happy to have you here. And as always, I'm sick. No, just kidding. I have a little bit of cough, but nothing. I thought it would be nice to start with a little bit of a joke. Thank you for coming. As you know, this morning we will be sharing with you our results for H1 and our level of progress in our transformation of ASOS and also our outlook and our guidance for the rest of the year. I promise this is going to be a much shorter session, so we will not be torturing you in these uncomfortable chairs for as long as we did it year-end, so I think we'll have plenty of time for Q&A at the end. So let me get it going with the main messages. So the first thing, let me just start by saying that for us it was clear that fiscal year 24 is a year of change, it's a year of transformation, the transformation of ASOS into a more agile, flexible, cash-generative, and profitable business. And in this journey, there was a very clear starting point, precondition, whatever you want to call it. That is, it was reshaping, resizing our stock, our stock profile. And that was a precondition because that was unlocking two things. On one hand, it was unlocking a lot of cash. And on the other hand, it was, if you want, the precondition when we were going to create the setup to really generate all the potential of our new commercial model. And today, I'm happy to share with you that we are having good progress in this transformation. First of all, I'm happy to say that during the first half of this fiscal year, we have produced the best result in terms of cash generation since the first half of fiscal year 27. That is 240 million pounds better than last year. And that performance has been supported pretty much by two pillars. The first one is the stock resizing. We have done a lot of the heavy lifting of the stock resizing. We have already gone below the 600 million pounds that we were defining as our target for the end of the year. And that has been achieved by a combination of targeted discounts on the older merchandise and a very active management of the in-season merchandise through a management of the intake, but also through a management of the sell-through. And I will give you more color later on. And it has also been achieved by a disciplined approach into cost. That will also give you more color later. But if you want to highlight is the stock resizing. We have done the heavy lifting, and that has resulted in a very – very remarkable, I don't know what would be the right word, level of cash generation in this H1. The second message I wanted to share with you as a highlight is that we see good progress in the strategic transformation of ASOS. This is the data formation to become a more agile, more flexible business that really attracts consumers because of fashionability. I will share more detail later, but just to highlight two of our star initiatives, Test and React and Partner Fulfills. On Test and React, during the course of the hub, we have already reached 5% of the sales of our own brands. And it's not only the size that is placing us in a good and comfortable position to reach our targets for the year. It's also how we have reached that position. We have done that by generating a gross margin of 58%. with our test and react lines, which pretty much means that we are selling the vast majority of it at full price with hardly any discounts. That is precisely how we want to interact with our consumers. The second one that it would be partner fulfills, we have already reached 5% of our sales of third-party brands through this more flexible fulfillment model. That is pretty much the target that we had for the year and that doubles the contribution of last year. So it's also... Very, very reinforcing to see that these two initiatives as an example are moving at that pace. If you want, on the other side of the medal is that as a result of our deliberate actions to tackle the unprofitable sales and also as a result of the reduction in the intake, we have seen a reduction of sales of 18% as we announced in our trading statement in March and we are restating today. All of it together give us great confidence to reiterate our guidance for the rest of the year. And as I said, our guidance of this year pretty much encompasses the capacity to unlock all the value of our proposal going into fiscal year 25 and beyond. And the last message I wanted to highlight here is that I'm very happy to announce the joining of our new CFO. who will be joining at the end of this month, the company. And it's very, very exciting to see him coming. I will also elaborate a little bit more on that later if you guys want. And I would like to take a second to say thank you to Sean, who has been an incredible partner. I have been told that I have not to say partner in crime because in English it's bad, but an incredible partner for these 14 months. And he has given us the position to take all the time we needed and wanted to do the right choice with our CFO. So thank you so much, Sean. I really appreciate it. And you will always be an ASO, sir. That's very clear. With that, let me, if you want, take one second to take you back to the strategy presentation we made six months ago, more or less. In that day, we were saying that our ambition is to be the world's number one fashion destination for fashion-loving 20-somethings. And that ambition was supported by five pillars. offering our consumers the best product, best meaning the most relevant product, both with our own brands and our brand partners. And that was achieved through a set of measures, and speed was a word that I use a lot. The second one was to become a destination of styling. It's the way how we blend our own brands and these third-party brands makes us unique, and we want to leverage more on that capacity and that uniqueness of ASOS. The third one was to offer our consumers a more compelling and distinct brand, and that was going to be supported by a change in our marketing model, but also investments in how our consumers interact with us in our sites, so their shopping experience, The fourth one was to offer them a frictionless and seamless experience, but we wanted to be competitive. And here we were saying that we want to match the best proposition in the market, but not necessarily to go beyond. And all this was underpinned by our strategy. obsession with operational efficiency, with being more efficient, with releasing continuously, with better capital allocation, to continuously release resources and reinvest these resources into our business. These priorities... What we did is we distilled these priorities into three very specific, if you want action plans or priorities, sorry to repeat the word, for fiscal year 24. And these were the three that you can see right now on screen, which was to offer our consumers the most relevant products. And this was supported by making sure they can see these products, so a very disciplined approach into stock management and also this obsession with speed. to develop a stronger set of consumer relationships, and as I said before, supported by changing our marketing model, by also investing in a fashion-led customer experience, and with a reduction in our cost to serve as a result of this obsession with capital allocation and operational excellence. Let me spend the next minutes sharing with you a little bit the level of progress we have reached in each and every one of these priorities. Starting with the most relevant product. You know, we sell clothing. It's the most important thing we do. It's the reason why we're here. It's the reason why our consumers come here. And that has to be always in the center of everything we do. Offering them the right product, offering them the right curation, and the right styling to make ASOS the unique place it is. In order to, let's say, sharpen this capacity of ASOS, we have identified three clear initiatives for this year. The first one is this discipline in stock management, so that consumers can really see the new, and the new is not under a mountain of old stock. Thank you. The second one is we want to be the best partner for our brands so that we can really offer our consumers the best curation of the best brands. And the third one was this obsession with the speed as a way to elevate our own brands. And I'm going to try to elaborate in each and every one of them what we have done. In terms of this discipline stock management, you will probably recall this graph because this is a graph we have used before. And it's been a little bit updated with the real data. We started fiscal year 23 with pretty much 1.1 billion pounds in stock. We ended the half with less than 600. This is a 45% reduction in absolute terms, and this is when I say that we have done the heavy lifting, that's what I mean with that. There has been a lot of work to do that. That is not a coincidence. Pretty much, if you want, there are three main levers behind that. One is how we have tackled our older stock, and the other two are in how we have managed our in-season stock. So let me, if you want, go a little bit deeper on it. How we have tackled our older stock. Obviously, we had a lot of old stock, as we said back in the days, and what we have done is we have been very determined with a targeted but aggressive level of discounts to get rid of that stock. We have invested 60% of our discounts on that type of stock. And 50% of our stock reduction comes from this stock that is older than 12 months. So we're very happy with that. Obviously, that has had an impact on our margins. And this impact is quantified in five points. So the average margin of the half has been reduced by five points because of all the efforts we have been doing here. That is, if you want the bad news. The good news, it has enabled us to unlock 175 million pounds of cash. which is a sizable amount of money. And we are happy to say that we have been able to do it. We have done a lot of the heavy lifting, as I said, with the autumn-winter stock. We need to use the second half to finalize that job with the spring-summer, which is in a better place, but we still have work to do. And as our stock shape gets more normal, obviously the impact on our margin will become lower. And we will see that during the course of the second half. The second part of our effort has been focused on the in-season stock. In the case that we're talking about, it would be now the autumn-winter 23. That is the last season we finished pretty much in January, February this year. And in this in-season stock, we have pretty much done two different things. On one side, we have been very cautious with the intake. We have reduced our intake by 30%. That obviously has had an impact on our capacity to sell, but as I said before, it was almost a precondition to unlock the value of our new commercial model that we would put the stock in the right place. And the second one is that we have been very disciplined in how do we manage the in-season stock, making sure that it's moving at the pace we want at every state. That has taken us to move our stock 40% faster, so the stock trend has increased significantly. The end point of the season has reached 17 percentile points higher than last year, up to 83% sell-through, and it is enabling us to say that today the amount of merchandise that we're carrying over from autumn-winter this year versus last year is two-thirds smaller than last year. So if you want, in simpler terms, The problem of old stock is not going to repeat because we are dealing with it in season instead of waiting to do it later. So let me here make a mention of the Red Sea events. Obviously, the 30% reduction was the planned reduction of the intake. What we have seen starting pretty much in December, but especially over the last almost four months, is that the Red Sea events have had an unplanned impact on our intake. That unplanned impact started having more of an impact on our own brands, which are the brands, obviously, that we have more control on the value chain. We are very actively managing that, and I'm pretty confident to say now that we will have probably neutralized that impact during the course of the next four to eight weeks. What we're seeing now is that part of this impact is moving to our third-party brands, our brand partners, and obviously we will be managing that within the... the partner relationship that we have with them to make sure that everybody's in the best possible position, but so are we. So we will continue with that journey of bringing more intake and clearing the old stock, and obviously that is going to have an impact on the shape of our stock, and as the shape gets more normal, we will see some of the investments to unpack, and that will be obviously great news, but we'll also see more intake that will help us to sell better. The second thing that I mentioned was we want to become the best partner for our brand partners. Sorry to repeat the word. We want them to see ASOS as a different place. We are a different place. We are the place where we can, in the mass market, be in a multi-label, if you want, context, and in a fashion context. And that is something highly appreciated by them. And what we have done in the last six months to improve our relationship with them, one of the things we have done is to make it more flexible through Partner Fulfills. This is a program that you know very well. No need to spend a lot of time on it. I'm happy to say we have already reached 5% of our sales of brand partners through this program, which is very reinforcing. And it's, as I said before, doubling the contribution of last year and already at the target that we have for the full year. And this has done by the addition of 21 brands during the course of the half. The last ones to come to the party that are mentioned in the slide are Converse and Summers, and they are joining a very long list of brands like Adidas, New Balance, Tommy Hilfiger, or Bestseller, to give you some examples. So it's a very consistent. As of today, we have 54 brands that are in this program. We are enriching that relationship with our partners with ASOS Fulfillment Services and we are currently in a pilot with a smaller Spanish brand called Scalpers that has very generously decided to be our guinea pig here and we are obviously using that pilot to develop the technology but also to learn on the implications and we are very comfortable to say that during fiscal year 25, we will be able to roll it out to bigger brands and then have a much bigger contribution into this kind of flexibility and richer and more flexible formulas. And last but not least, I wanted to mention that obviously on top of that, we are always working in bringing new brands and enriching the assortment for our consumers. And I'm very happy to share with you that during the second half of the year, Arquette and Veja are going to be joining the set of brands that we offer our consumers. This is only just an example. We keep on adding new brands continuously and we will continue doing that because, as I said, our ambition is to offer our consumers the best curation of the best brands. Let me go to, as you probably already know, one of my personal favorites. That is, how do we elevate our own brands? Our own brands is our crown jewel is what makes us absolutely unique. Nobody has our own brands. That's quite obvious. And this is our obsession with the speed. And I'm going to talk now more about test and react, even though we have other programs. And we mentioned those programs in the announcement this morning. As you know, Test and React is a market-leading program. We are bringing merchandise in less than three weeks, actually 2.3, if I recall properly, but don't quote me on this one, from design to shelf, I could say, which is quite remarkable. We started the program with suppliers in the UK. We have already enlarged, we have already opened that program to suppliers in Turkey and Morocco and with no impact in our lead time, so I'm very, very happy to say that. This is a program I have already explained before that has a lot of benefits for us and for our consumers. For us, because it gives us the possibility to test with very small quantities, and as we see, that the style is successful. We then ramp up production, and that reduces the risk significantly. That is very clear when I share with you the real data of what we have achieved during this first half. That is a 58% gross margin in these styles overall, which means, take into account these styles are exclusively produced in closer sources, so the initial margin is lower than the average of our own brands. But therefore, we're doing in markdown is significantly lower. And obviously, that results in this 58% gross margin and a stock turn of less than three weeks. That is a great advantage. I think this is transformational, and it can be transformational for ASOS as a whole. The other thing is how it is connecting with consumers. And the reason why you see this picture, that is one of my favorites, the picture, not how to pronounce it, because it's a pepling, poppling top. I think they did it on purpose so that I cannot pronounce it. But anyway, this one, the reason why we bring this picture is like, this is probably the best summary of all the benefits of this program. We brought it online, we saw it was working very well, brought a repeat, sold 1,500 units in the course of a morning, keep on bringing it continuously, is every day top five sales in terms of number of units, every single day, regardless of what we're offering, regardless of the most incredible brands in the planet, regardless of whatever liquidation we do, this top is top five, unless we run out of stock. And then it falls out of the top five, then stock comes back, and it goes up again. It's quite remarkable, and it shows a lot of the power of this program. I think it's important to say that the power of this program is going beyond the sales. It's also in how consumers are talking about ASOS in social media. It's quite interesting to see how consumers are starting to identify ASOS as the first place to go and find fashion. And this is precisely what we want. As I said before, today we are at 5% of our sales of our brands, which places us in a comfortable place to reach the target for the end of the year, around 10%. And it creates, if you want, a good platform to go to our more midterms ambitions, that is to take it much farther, up to 30%. In that sense, just one small note. The fact that we have already expanded from the UK into other sources is a very critical thing to ensure that growth, because obviously that gives us the possibility to open it to new categories like denim, unwovens, and that is very important and that is quite interesting. To give a little bit more of color on this on this uh test and react program um just let me very fast deep dive on the first two categories where we started with which are jersey tops and and jersey evening dresses these are not irrelevant categories all together become 20 of the sales of our asus design womenswear so is they're relevant One of them, even in dresses, is already at 20% of sales coming from Test and React. The other one is already at 40% of sales. So I think it clearly shows that this program can be taken to significant part of the turnover. The other thing that I wanted to highlight is these pictures you are seeing here are pictures from the social media of some of our consumers and how they are talking about ASOS. And it's a completely different way of talking about ASOS when they talk about ASOS as the first place to find ASOS. fashion and actually we did the test lately about where can you find peplin pop sorry leopard print peplin poplin whatever and you could count the number of brands where you can find it with the fingers in only one hand and asos is one of them so clearly it's positioning us in the right place As I said before, the fact that we are already working with suppliers in other geographies that can work with different fabrics is giving us the possibility to go deeper in some of these categories by adding new fabrics like dresses or adding new categories like denim. And as I said, very comfortable that this is only the beginning of a much bigger success story within ASOS. Let me move into the second priority, which was to create stronger customer relationships. You will remember from our year end, again, now recycling another page from year end, when Dan and Vanessa came and told us about how we were going to transform our marketing, if you want, model within ASOS. Without walking through the whole chat, no worries. Pretty much what we were saying is like we were going to move into full funnel marketing from only perform or mainly performance marketing. We're going to invest in stronger relationship with creators and influencers. So we were moving more social if you want. And we were going to work into brand activation. We said back six months ago that obviously this is a set of policies that take some time to have impact. And at the beginning, we would be seeing leading and lagging indicators until we can see the impact on ourselves. And obviously today, we're still in the first part of this journey, taking into account that we only started in November, end of November. But we are confident that we will see this impact over time. So going back to what we have done so far along the year, We started at the end of November, as I said, with our Asos Your Way campaign. That is a campaign focused on the individual style of our consumers, a campaign really focused on our Gen Z consumers, and that's why we leveraged on six star influencers for Gen Z, even though we used overall four influencers. We had a reach of 500 million impressions, and it was pretty much London-centric. We did all our live activations, our out-of-home activations, Here in London, we were previewing a lot of learnings we took, and we saw some interesting results. As I say, leading and lagging, new customers growing by 10%, brand search also growing, direct visits. But it was more the learnings we got rather than the impact it had. We have used these learnings into our new campaign, our ASOS Unreal Finds. And this is, if you want, a different campaign where we're positioning Acer as a destination for style and a place to discover styling. And let me just... Just a snapshot of the campaign. Three big differences between this campaign and the previous one. Well, this campaign is clearly social first. We are working with a wide range of micro and big influencers. to reach an audience of 30 million unique users. Our ambition is to have a much bigger reach of 1.5 billion impressions, so it's almost three times the level of impressions through nine different channels, and this is much more of a national-wide campaign. It's going to be activated in eight cities, rather than only in London. We keep on learning on it, and we are confident that this is going to reinforce the messages that our improved assortment is sending to our consumers. But as I said before, the way we strengthen our relationship with our consumer will not only come from marketing, will also come from their experience on site. And just to share an example with you, we decided to revamp, to change, to upgrade our by-the-look functionality. We started at the beginning of the half. As of the end of the half, we have already implemented that in 42,000 options. By now, it's 52,000 options. Our ambition is to reach 50% of the total assortment by the end of the year, and we think we're in a good place to reach that. This is a functionality that builds in some of the unique capabilities of ASOS. capacity that we are multi-label so we offer our brands and third-party brands our differential capacity to create styling and outfits and and the visual language of our of our studio what we have seen is that the customers are engaging really strongly with this functionality customers buying through uh by the look have a 55 bigger basket which is quite remarkable And if you want the other thing that is also quite remarkable, customers using that tend to be younger and more fashion engaged. So it is very, very interesting functionality. And if you want to send our example of a win-win relationship, because we're doing something for our consumers so that they can buy better and we also benefit. So it's a little bit like test and react. And we're really looking for these flywheels where everybody wins. Moving into the third pillar, which was our obsession with optimization and reduce cost to serve, this is a little bit this mentality of continuous improvement. I'm happy to share with you that during the course of this first half, we have reduced our fixed cost 20%, which is faster than the reduction of our sales, if you remember. And we have also reduced our variable costs as a percentage of sales, obviously, in 80 bps. which means we are more efficient. I think it's quite important to say that. You know I'm a big fan of images, and I've been torturing you for months with the famous fresh fish. No worries, not fresh fish today. This is the new image for the season. The new image for the season is Formula One. That is quite popular in the UK, so I'm pretty sure it's going to resonate with you better than fresh fish. the image is along these lines you know in formula one they go for a lap they stop they move a little bit they go for a second lap they improve just a little bit 0.1 of a second but then they do it over and over and over again and they question everything every time i don't know if you've ever seen how they train this process of changing the wheels in life i did it once and it was shocking You have 10 guys doing that 100 times over and over and over again. They train absolutely every single gesture to make sure that they can change the tires and refill the tank in two seconds or whatever. It's quite remarkable. This obsession for the detail and this obsession for reinventing everything and questioning everything every day is our obsession with cost optimization. If you want operational excellence, this is our obsession. This is the driving force to make sure that we deliver here. During the course of this first half, these improvements have come mainly from two sources. One of it is logistics, and so warehousing, distribution, and so on and so forth. Obviously, the reduction of stock and the subsequent reduction of our logistics footprint, plus a simplification of the delivery in partners, plus our renegotiation of certain contracts, has taken us to reduce our delivery cost per unit by 20%, and I think it's quite remarkable, especially in a moment of losing size or deleveraging the cost base. And it's also obviously the reduction of the footprint has helped us also with the fixed cost of logistics and also having a lot of work here in the headquarters with fixed costs, obviously with a number of people, as you saw, we have been very cautious with that and we have done some activities to reduce, but also with every single overhead cost reduction. to make sure that we are as frugal and as efficient as possible. This has been the main driving forces during this half. As I said, this is only one more lap, so the car is stopping again. We're going to do it a little bit more and gain another half of a second or whatever. This time we're working a lot about the use of data and the effective use of data, and that would not be a surprise because that is happening everywhere, but we are also working on a lot of the automation of our processes through pro-life management systems and so forth. So this is only the beginning of a journey that will never end. We will always be talking about this operational excellence and making sure that we are as efficient as possible and With this obsession that you can always reinvent the business every day, there is always a possibility to improve. So let me just summarize the key messages before I hand it over to Sean to give you a little bit more details. So if you want overarching message, we have done a significant, if you want, development or achievement in terms of our transformation. Remember, this is a transformation. We're really transforming the way we work. As a result of that, happy with the cash generation, the best cash generation since the first half of 2017, £240 million better than last year, supported by we have done the heavy lifting in the stock reduction with a very active management of the old stock and the in-season stock and also a very disciplined approach into cost that will never end. Also very happy with the development of the more, if you want, substantial transformation of the way we operate with consumers. The main two examples that I share with you is partner fulfills and test and react, but there are many other. So with that in mind, happy to reinstate, to reaffirm our guidance for the year and as a way to unlock the value that will be unlocked during fiscal year 25 and going forward. So with that, I'm going to hand it over to Sean so that he can give you more details about our canvas. Sean?

Thank you, Jose. And thanks, everyone, for joining us. So here's our usual summary slide showing you some of our key metrics. Sales were back 18% on the year as we cycled the profit actions taken during the course of last year, which were mostly in H2. Intake was lower by around 30%, resulting in reduced levels of newness on site. Gross margin suffered due to heavy discounting to clear our older stock, but the flip side of that was in our free cash flow performance. This was £240 million better than last year and our best performance since 2017, with an outflow of just £21 million. Looking ahead, gross margin will recover in future years due firstly to the elimination of age stock in our new model and secondly from the lower discount debts we plan over a product's life cycle. I'm really pleased with the performance on cost to serve. That's defined as adjusted operating expenses, excluding depreciation and amortization expressed as a potential sales, and that was down 120 bits. This is despite the deleveraging impact from falling sales and the incremental investment into brand marketing, and was achieved by way of great progress on both fixed and variable costs, as Jose's just outlined. Whilst the cost-to-serve improvement more than offset the volume impact, the additional discounting we employed to cleanse our stock resulted in an EBITDA loss of 16.3 million for the half. However, we've reiterated our guidance for positive adjusted EBITDA for the full year. Net debt has fallen by 83 million from this time last year through a combination of cash generative H2 in FY23 and a small cash outflow this half. Ultimately, our performance in the first half is primarily a function of the action we've taken to prioritise right-sizing our stock ahead of FY25. And I'm really pleased to say these actions have achieved our four-year stock target of less than $600 million ahead of time, as outlined in the chart. The more astute of you may have noticed that this slide isn't our usual KPIs, which are still included in our statement and will be released this morning, and also on the next slide where we cover our segmental performance. However, the strategic indicators listed on this slide are more up-to-date reflection of how we are thinking about running the business and what our progress should look like. As you can see, test and react has reached 4.9% of own brand sales at the end of the half from nothing a year ago. Likewise, flexible fulfillment, which will ultimately encompass both partner fulfills and ASOS fulfills, reached 2.2% of GMV, an increase of 160 bps on H1 FY23. Adjusted growth margin is back 260 bps year-on-year and 280 bps on a two-year view to 40.3% due to that discounting of old and aged stock. As outlined, cost of service has fallen 120 bps and with variable contribution per order falling 4% as the efficiency measures couldn't fully offset that softness in our gross margin. But on a two-year view, we're plus five. But pleasingly, with all the changes we've made, we're seeing our stock work much harder. We've stocked turn up more than 30% on the year as we've reduced the quantity and improved the quality of our inventory. So looking at the segmental performance, basically what we're seeing in the headline numbers is a continuation of the regional variation that we've highlighted in past results, and a reflection of the severity of the profit actions we've taken in each of the regions. As such, the rest of the world and the US have experienced a more pronounced impact on sales than the UK and continental Europe, having previously been less profitable. Between the UK and Europe, consumer sentiment and the wider macro backdrop have been the main differentiating factors. If we move on to growth margin, this slide really shows the scale of the additional discounting we've undertaken to clear that old stock. Whilst the adjusted gross margin was down 260 bps overall, the impact of the markdown was more than 300 bps, which was then partially offset through improved freight rates under our contract with Maersk, as well as improvements in our buying margin resulting from sourcing improvements. you'll note there's a minimal impact on H1 gross margin from surcharges on ocean freight imposed in relation to vessels being rerouted to avoid the Red Sea. This will instead modestly affect gross margin in H2 as we sell through the rerouted intake, but we expect to offset these impacts further down the P&L through other supply chain savings. In terms of cost savings, we've made excellent progress on reducing our cost to serve against that backdrop of decline in sales. We've achieved 100 bps reduction in distribution costs as a percentage of sales and 130 bps in warehouse, resulting from both the actions taken in FOA 23 including cessation of split orders and closure of ancillary storage facilities, but also new initiatives introduced into the first half of FY24, such as renegotiation of delivery partner contracts across each of our major regions and elimination of extra storage sites. While marketing and other costs have increased by 70 bps and 30 bps respectively as a percentage of sales, you can see from the chart on the right that both have fallen in pound turns. This is even after taking account of the additional marketing investment into UK full funnel activity as set out at the start of the year. The net impact is a cost to serve of our activities being 120 bps better at 41.5%. If you follow that through to adjusted EBITDA, you can see that our progress on cost of service more than offset the impact of reduced volume in the hearth. The EBITDA loss is therefore attributable to the high levels of short-term discounting to clear old stock ahead of the full rollout of the new commercial model in FY25. Just briefly on the adjusting items, the majority of these relate to the closure of the Litchfield Fulfillment Centre, which we previously indicated, and that's expected to yield an annual cost saving in the region of £20 million per annum from FY25. This site will be mothballed at the end of May, but has ceased to fulfil orders already in H1. We have yet to formally market it, and in the absence of a firm offer, a non-cash impairment charge has been booked against its value. Of the £150 million of adjusting items in the period, 80% of this figure is non-cash, with the remaining £30 million expected to be cash settled in future periods, including £16 million of automation spend at the Litchfield site that has not been capitalised in H1. And then finally on to cash flow, where we, as explained, we experienced our best H1 since 2017, with an outflow of just 21 million due to strong progress on inventory. Accordingly, bridging from adjusted EBITDA to free cash flow, you can see that the largest items relate to working capital and CapEx. CapEx of £86 million, or £66 million excluding Litchfield, is consistent with our guidance for £130 million of CapEx on an ex-Litchfield basis for the full year. And in the half, the spend is roughly split, 30 million on investment in supply chain, including 20 million on Litchfield, and 55 million on tech capex that's prioritised in areas such as test and react, flexible fulfilment and customer experience improvements. £175 million relates to the reduction of our stock balance to pre-COVID levels, which is partially offset by other working capital movements, including a reduction in payables as we continue to reduce both intake and operating costs. Together with interest in other movements, cash outflow in the half was £21 million, which when you add that to the non-cash movements result in net debt £39 million higher than at the FY23 year-end. However, as a result of the £238 million improvement on last year's H1 free cash flow, we saw net debt close the half at £345 million, £83 million lower than this time last year. And that net debt includes a strong cash position of £332 million, with more cash to be generated in H2. And on that note, I'll hand back to Jose to wrap up a few words on our outlook for the second half.

Thank you so much, Sean. Let's see if I'm lucky. Just a couple of slides. I promise I'll be brief so that we can go into Q&A. So what is it that we're expecting for H2? Well, we need to finish the job we started, and that means, if you want to be more concrete, we need to continue working through our stock. As I said, we have done the heavy lifting, but that doesn't mean we have finished, so we will continue working. dealing with the old stock and bringing the new stock to make sure we normalize the shape of our stock, which will have a set of impacts, positive in terms of our capacity to sell, but also in our capacity to generate gross margin. As you have seen, the gross margin we have generated during this half has been clearly impacted by that shape. The second thing will be we will continue with the transformation of the business with scaling test and react. We're taking even farther. There are other programs I have not mentioned, like speed to market. So all this is going to be part of this half, because obviously the ultimate goal is to make sure that we can really deliver this transformation of the underlying business. The third one will be we will continue strengthening the relationship with our consumers through our changes in marketing, but also through our changes in this fashion-led customer experience. So there will be new features coming, and we will continue deploying our campaigns. And last but not least, we will continue ingraining this culture of continuous improvement. Remember, the picture of the season is going to be the Formula One, so you will see it quite often here. Probably next time I will come with a Formula One T-shirt, so that to remind everyone. So as a result of that, we are comfortable of restating the guidance or confirming the guidance, probably is a better word, that we gave at the beginning of the year, which is sales somewhere between minus 5 and minus 15. adjusted EBITDA positive, stock below 600 million pounds, that as you already know, we're right there, CapEx excluding Litchfield on 130 million pounds, free cash flow generation, and a reduction of net debt. As I said before, this is the way to really unlock the real value of our new commercial model and the transformation of our business. And we are very confident that by the end of this year, the company is going to be in a significantly better position to do that. And with that in mind, I think it's enough of me, and I'm going to hand it over to you for Q&A. Thank you so much. I'm going to take a seat here. Sorry, I forgot to say Michelle is going to be coordinating the Q&A.

Jonathan, shall we start with you? If you just want to give your name and maybe ask one question at a time, that would be great.

John's theme is an appeal hunt. I'll go one question at a time. I've got three if I can squeeze three in. Can you comment on the U.S. position to the extent to which the strategic issues of a speed-to-market test-repeat partner fulfills? To what extent are they starting to become a feature in the U.S.? And can you talk about how you... or when we start to address the U.S. Second question, easy numbers one, just in terms of the gross margin rebound potential for next year. Assuming we're not going to lurch into another sort of international crisis, is it just as simple as 300 bps on clearance coming straight back in, no discount coming back in, and we're literally going to see a 400 bps rebound straight in? And final question, I guess, can you just comment on how you rate the current customer base? Are you actually seeing youth coming in in terms of customer acquisition behind that, obviously, attrition in overall actives? Okay.

I'll do my best. Sorry, Shell, how do you want to do that?

Do you want to start with, Sean, do you want to start with the gross margin question on the rebound next year? And then, Jose, if you come on to US, when we start to see the US proposition improving. And then I think the final question was on the customer base and when we expect a rebound in the customer base.

Yes, on the gross margin, we've seen that sort of 300 bps hit this half from the discounting. It's probably sort of cumulatively against the model we want to be operating the 500 bps impact from the sort of the olden age stock. And then as we rush through that stock and then we actually improve with the newer stock as well, that's what's given us confidence of getting towards that medium term guidance of towards 50%. Next year is going to be a journey towards that, as we outlined, but certainly our guidance for next year is 6% EBITDA margin will be underpinned by that gross margin improvement.

Thank you. So let me go on the U.S. first and then the customer base. So in the U.S., as we said before, the U.S. is one of our core markets. We have not changed that, so it's still one of our core markets. There are some natural difficulties to take some of the initiatives there, as you may imagine, so it takes more time. But, for instance, Test and React is already active in the U.S., not at the same level of the U.K. and continental Europe, but it's already active. What we're seeing is that the reaction of the consumers is equally positive. It doesn't really change. We will continue taking it there at the appropriate pace so that we can really transform the relationship with our consumers in the U.S. As you have seen in the numbers, it has had a bigger impact in terms of sales. That is not coming from the fact that the new initiatives are not going there. That is coming from the fact that the type of action we took in the U.S. was deeper. in terms of reduction of marketing, in terms of cost of deliveries, in terms of management of the assortment. So it was a deeper type of, I mean, I don't know if the word is manipulation, the interaction we had with the assortment in the U.S. The good news is by the end of last fiscal year, the U.S. was positive in viable contribution, and it remains there. So we had the impact that we wanted to have. On the current customer base, obviously, we have seen a reduction of 14%, and I think clearly part of this reduction is our delivery reductions to reduce part of our sales that were unprofitable. That is quite clear, and we've never been... being shy to say that. But we're also doing a lot of things that is engaging with this newer and younger consumer. And I made a couple of fast comments during my presentation. One of them is test and react. We see that the customers buying test and react are younger on average and more fashion engaged. So it's the type of consumer we're looking for. The same would apply to the customers that are interacting with our buy the look feature. So we see that this is helping us to improve to improve the relationship with our customers and to bounce back there. Thank you. Thank you.

Should we go to Warwick in the middle there?

Thank you. Good morning. Warwick O'Connor from BNP Paribas. Actually, just building on that last answer that you gave, I was interested to hear about what sort of evidence you have of your ability to convert customers who were previously buying on discount to full price, or is the shift in some of these new initiatives really just acquiring a new, younger customer, and perhaps you're leaving some of the older customer base behind?

Yeah, yeah, that's a great question. Well, obviously, let me take a little bit of perspective here, if you don't mind. That was the origin of ASOS. ASOS was a place for fashion, not a place for discounts. Then we got into, let's grow faster, let's add some discount, let's grow even faster, let's add performance marketing on top of the discount, let's add more buying, oh, now we have too much stock, we need even more discounts, so we got into this loop. And this is, part of this, if you want, fundamental transformation of ASOS is about going back, as I said, that's what this back to fashion, to these origins of ASOS. Okay. You might think, well, there's a little bit of wishful thinking in what you're saying because why consumers would do that? What we see is that when we do our job, consumers react positively. I think test and react is a very clear example. When we do the right things, they come, it flies out of the shelf or of the site in that case, and we sell 1,500 units in the course of a morning and it's consistently top five. I acknowledge this is a small part of what we do today, but let me show you another piece of data. Today, 60% of our sales are happening without promotion, which means... the customers are engaging into that journey with us. When we give them what they want, when our new collections are better, they engage because what they want to buy is fashion at a fair price, not necessarily at a discount. If you want nuance to say here, I never said we want to completely eliminate discounts. We want to take discounts to a rational place. Black Friday, Spring Fling, that is always going to be part of ASOS, and that's okay, but it has to be at a reasonable price. And it's quite normal. I mean, it's quite easy to understand. We will never eliminate mistakes. So there is always going to be clearance. But we have to take it to a reasonable place, not down to zero. But we see evidence today that customers are engaging with us in that journey.

You've already got the mic. Okay.

David Hughes from Stiefel. Three questions from me, please, if that's okay. First of all, on the sales performance that you see, are you able to give any flavor about how much of that would you say is driven by those profit nexus versus what you might view as a bit of an underlying sales performance that you're kind of seeing naturally? and on the stock resizing obviously you've improved that through both reducing the newest older stock but also kind of more efficient on the newest stock how much older stock would you say you've kind of still got to get through and what does that make your medium-term target on stock levels and then finally with all the profit improvements are you seeing a movement on returns rate and seeing that come down as you can get rid of some of those less profitable customers thank you

Okay, maybe Sean, do you want to start with returns rate and then Jose can come back on the stock levels and the first question around and the sales mix.

Yeah, so I think with returns rates, the starting point has to be that part of the model is you must have returns. It's part of the call to the offering to the consumer. So we are conscious about return rates and we want them to be lower, but we recognise there is always a place for returns. Returns is also very much a function of the geography we sell in. We place it in Europe. Germany is particularly high. Other countries lower. So the sales mix will be driving your returns. The product mix will be driving your returns. Again, when we get it right in terms of fashionability, people keep the product. When we get it right in terms of with our third party brands, we get the right size, we get the right pricing for the quality, that will be helping our return. So it's a long way of saying that there's a lot of moving parts in returns, but the benefit, we are seeing better returns. Some of it is structural to do with those mix of countries and products, but it's also a function of the initiatives and the focus and the data we use to isolate those products that perhaps have got a high return rate. We work out why. We isolate those customers that have got a high return rate. So returns are improving, but a lot of it's structural, but it's our initiatives as well.

So on your first question on sales and then split between what is what we have done and what is the market, it's difficult to tell you, to be honest. It's probably the million dollar question. If I can take a little bit of perspective again in this question, what... We are doing it. This is really a transformation. And as part of the transformation, we said there is part of ourselves that is clearly unprofitable. And probably the word is not happy, but we will accept that we need to take action to tackle it. Because I think you've seen, I think in English it's like, sales is vanity, profit is sanity. So we are more on the sanity than on the vanity right now. But if I can illustrate a little bit more the journey where we are, we have done a lot to have a negative impact on the sales in the last months. We have reduced intake by 30%. It's not a little bit. It's 30%. It's a sizable impact. We know that the amount of newness has a direct impact on our capacity to sell. We have reduced aggressively the older stock, so it has created a certain level of cannibalization with the new stock, especially in some lines, not everywhere. So we know we have done in some countries, we have reduced marketing to a level of rationality. So we have had... relevant interactions that we're going to have an impact. The good side of it is to see how our new collection is performing. We have sold 83% of it, 40% faster, on average 30% faster stock turn, test and react performing well. So we see that we are in the middle of this transformation, and it's always going to hurt. It's hurting on sales, and as you've seen, we have done a lot to improve profit, and we don't see it because it's hurting on margin because of what we're doing. But the purpose is, as I said, is really to unlock the full potential of this model. So there is a lot on what we have done, to be honest. Sorry, very long answer to a short question. Then on the stock resizing and how much old stock we have. This is an interesting one. Let me try to elaborate a little bit on this one. We said, I think, back at the end of last year that we have already cleared, if I recall properly, it was 84% of the old stock we had. So we had done a lot of work last year. During the course of this half, we have tackled a lot of the remaining autumn-winter stock, and 50% of the stock reduction is coming from that bucket. We are happy with that. We think it's a good level of achievement. We have also done a lot of work to avoid that that happens again. the autumn-winter of this year, we have reduced the leftovers by two-thirds, which is a significant amount of reduction, which means that the remaining part is the old spring-summer that is still in our books or in our warehouses. We are going to finish the job during the second half, and we are determined to do so. That will not mean a reduction in total numbers, but will mean a normalization of the shape of our stock. Thank you.

Next one from George.

Thanks. It's Georgina Jones now from JPMorgan. Just one from me, please. There's lots of sort of moving parts, isn't there, in terms of your stock buyer, like reduce the intake by 30%, faster buying on the test and react and so on, and lots of moving parts. I guess just a bit more holistically, I'm trying to think with regards to next year, you're obviously... guiding for growth, presumably we're only sort of four or five months away. You are having to put in orders with your wholesale part, your third party brands and so on and so forth. How should we think about that? Like, are you, are you buying for growth next year or is it about still buying for reduction in sales and then kind of chasing that opportunity if it comes through. And I guess that all ties into kind of risk mitigation into next year if that demand isn't there, be it ASOS-specific or external. I hope that question makes sense.

It makes perfect sense. Thank you so much. And actually, it's a really good question. So there are many different ways to face how do we prepare a season. We can take a very... Let me say generous way. Generous probably is not the word. Probably not tight enough way of doing it. And if you're going to sell plus five, you need to buy plus five because that ensures that you have enough stock to deliver the sale. I don't think that is the right way to do things. And this is not how we're doing things. We buy tighter. We are always trying to get more from our stock. The way to get more from our stock is either to buy more units or to buy more at full price. But we're always trying to get more from our stock. We're always demanding more from ourselves. We want this obsession, this Formula One image is this obsession of improving every season a little bit. So we are not buying with abundance. We are buying tight. But when we buy, we ensure that we're buying enough to support the level of growth we are targeting. The other thing that is worth mentioning is when we define a purchase budget, we don't buy everything in one go. The more capacity we have to react fast, the more we can delay the decision until we have more information. So all these initiatives we are adding to gain flexibility in the company, test and react, speed to market, is giving us the capacity to aim for that purchase without purchasing it today. So obviously it's giving us a better capacity to manage that. So if you want, putting it all together, are we having the capacity to deliver that growth? Absolutely, yes. The beauty is that versus the approach of a few years ago, we can do that. building much more flexibility into our approach into the season because of the improvement of the flexibility of the company, but also because of the fact that we are every year targeting for an improvement. I don't know if that kind of makes sense or not. Yeah.

Adam in the front there.

It's Adam Cochran at Deutsche Bank. A couple of questions, please. On the cost-to-serve reductions, can you just confirm that these are all strategic cost reductions rather than you've just dived for the line, we need to create cash, let's just car head off this headcount, make people sweat and work a bit harder? but it's not a sustainable basis. And that will go to the warehouse and things. Just a sort of confirmation, really, that it's an ongoing business plan, business model change, rather than a sort of excessive cost-cutting basis. And then, secondly... Just to confirm, through this change in business model, have you lost any third-party brand partners that you didn't want to lose? I know that you've rotated some out by choice probably, but have all of your branded partners been supportive of what you're doing? And on this, when you're talking about reducing the discounting and the promotions, How easy is that to do on third-party brands where there might be market-wide promotions? Do you need the market to improve on some of those areas rather than the bits where, on your own brand, you can improve very much your own product? So on the third-party bit, what can be done? Thanks.

Okay, thanks, Adam. So, Sean, can I ask you to tackle the question on cost to serve? And then, Jose, the two questions, the first one was... on have we lost any brand partners we didn't want to lose, and the second one on discounting third-party brands.

So the short answer is it is sustainable. It's not a die for the line. This is thoughtful. It's cost reduction. If you think about the journey we've been on, we've done a really good job in supply chain. The extra stock caused us to take on extra cost. Reducing that stock, we can reduce that extra cost that we took on. So that's gone. That's always going to be gone because the stock's down. But also, the team have been focused on... Relentlessly looking at each part, improving it, new contracts, new ways of working. So it's a discipline that's all the way through. And you see that in every piece, whether it's transaction costs. My team are looking at new deals. So I have 10 bips off. So you're seeing that all the time. And then the fixed cost, we are getting more efficient. We are spending money on technology. We're investing in efficiency. We're using data better. We are improving all the time. So it is the same thing.

In fact, Camille, on this one, we have reduced our logistics footprint, but we're still comfortable that we have a footprint big enough to support ASOS until the end of the decade and beyond. So it's like the fact that the merchandise is working 30% faster, if you want in very simple terms, means that we can serve 30% less sales with 30% less footprint. It's significant. So I think it's only to... reaffirm what Sean said. On the third-party brands, I'm very happy to say that no, we have not lost any relevant third-party brands in this journey. Actually, it's the opposite. We are very happy to announce that we are adding brands as relevant as Arquette or Veja, and we have a very strong relationship with the strongest brands in the world, and that is... That is, if you want, shown by the fact that we are getting access to the hottest product, to the best selection of their products. So, no, I think that the reason is like we offer a unique proposition for these brands. There is no one really that I am aware of in the mass market that offers a proposition like Asos, where it's this multi... multi-brand approach, but it's totally integrated. It's perfectly blended. And as I said back in October, this capacity, for instance, for the sports brands to show them in a fashion context or for some of the fashion brands to approach new consumers and new occasions is very highly appreciated by the brands. And that's why we have this, if you want, really high ranking in terms of the retailers, probably higher than what our size would suggest. in most cases. So no, no, we have a very strong relationship. And then if you want the other thing, we manage that relationship within the realm of the partnership. When we need to discount, we share with them. So that also helps create this idea of partnership rather than a more transactional approach. And then when you were saying how easy it is to reduce discounts on third parties, that is a great question. Obviously, We are aiming to be as competitive as the market. So if the market is reducing at the price of something, we end up matching to a certain extent. The market is an abstract concept, not the most aggressive. But we tend to match the price of the brands. We are not aiming to be cheaper. But obviously, we cannot afford to be more expensive. But that was not the situation before. In some cases, we were more aggressive than the brands. So there is room, or there was room to get there. But normally, the brands would never worry about us much in their prices. They worry if we are more aggressive than them. And this is what we don't want to be.

I think it was about a year ago you talked about a long tail of customers, some 60% of them lost you hundreds of millions. I think your analogy was the sort of lipstick bar 15 times a year. And I was wondering how much has the fact that you've needed to discount the stock and been more promotional sort of delayed the ability to rid yourselves of those loss-making customers And to what extent there is difference in the actual customer lifetime profitability of the new ones that you're getting through the door by the look and the marketing campaigns that you're doing? If you've got any sort of color on that, would you use it?

Let me try to rephrase. I'm not sure I understood what you were saying. The fact that we're reducing discounts, if this is making it more difficult for us to read the profitability of customers, this is what you're asking.

Well, no, the fact that you are having to clear the old stock is probably maintaining some of that tale of loss-making customers. Or making it harder to get rid of.

Harder to read, probably, yeah. When we lose money with a customer, there might be a set of reasons why. One is they're buying stock with very high discounts, so the fact that we're discounting would bring noise into that. Second is the return rate is abnormally high. That doesn't necessarily change with more discount or not. And third one could be the cost to serve that customer. Normally coming from the marketing side, it might be coming from other areas, but the cost to serve is too high. So we can still read the other two very clearly. And this is where we've been acting. With a very decisive action. In terms of the average gross margin of the basket, you're right. The fact that we have in this company could bring some noise and some customers that today we see they are not making a lot of profit. They might make profit with a different stock profile. They're right. But we have not been acting on the slightly negative customers. We have been acting on the more negative customers than before. In 99% of the cases, we're really having a big impact on returns rate. So it was really driven by returns rate and also cost to serve on this year for whatever reason. Does it make sense?

Okay. And then finally, the convertible bond is sort of getting close to maturity. If there's any thoughts on the refinancing of that? Yeah.

Yeah, so I think close to maturity, I think we've been pretty clear in our disclosures and things well known in the market. Our convertible bond is due for repayment April 2026. That comes around sooner than you think, and it's in our planning. We are... We have medium-term forecasts. That is taking into account thinking about the options on that. We still have time to work that through, but we are actively thinking about that. And I think we will update the market when we've got something to say. But we're very conscious of it. We put it into our planning. There's a variety of different ways to think about it. So it's part of our job.

Yashar Rajani, UBS. Thank you so much for taking my question. So the first one is just a follow-up on gross margin. You mentioned that you still have some stock to clear in the second half of this financial year. Can you give us a rough ballpark of how much of impact does that clearance have on the gross margin? And also, are you confident that some of the initiatives like Newness and Test2React is more than enough to offset that and bring a positive improvement year on year? The second question is on ASOS Fulfills, which you spoke about. So, again, is that sort of solely focused, again, on the U.K. at the moment, or is that also going to expand in some of the other regions? And can you give us some idea of how competitive that offer is versus the likes of Zalando's Fulfillment Business or Next Total Platform? Sure. And then the last question, apologies if this is a low-quality question on March, but just wanted to understand, now that you've seen March trade through with some of the new collections of spring-summer, how competitive are some of your new collections versus the likes of competitors like Sheehan and Primark? Thank you.

Okay, so first one, Sean, if you can tackle on gross margins, so roughly how gross margin the second half will look compared to the first half. Jose, I think there are two for you. So ASOS fulfills, how competitive is the ASOS performance solutions versus competitors? And then on March trading, it's the current trading question.

So, I mean, growth margin, the way I think about the second half, it's going to be broadly maybe two things. So in terms of the new stock we're getting in, we know it's performing well. As we've outlined, it's selling with reduced discounts. It's having a good margin. We've got the test and react scaling as well. We've got flexible fulfillment scaling as well. So the new stock will be supporting improvement. But on the flip side, we've still got some old and aged stock that we need to clear. And why we've not been more specific around gross margin is we want that flexibility to do the right thing. And the right thing is about setting ourselves up for growth next year and gross margin growth. And that's going to be about having a clean stock profile. So you see lots of positives in terms of our core new operating model, but we've still got some old to tackle. So it's going to be a function of those two things. The other thing I would say is seasonally, we tend to have a lower gross margin in the first half because of Black Friday, et cetera. And then second half May, the other factor is actually intake coming in, as Jose said. That's going to improve the newness, improve the margin. So those are the moving parts.

Sorry. Sorry. So in terms of AFS, I guess this is what you refer to. We started testing it in the UK for obvious reasons, because it was easier. But the ambition is to offer that from all our warehouses. So US, EU, and US. UK, sorry. EU and US. I said two times US. That would certainly position ASOS as a unique partner to do that because a lot of the partners, not the only one, but at least in the world of fashion, a lot of the partners that are offering that tend to be more regional. So for a brand, it's very convenient to have a one-stop shop where you can have a fulfillment solution that applies in all these three geographies. And I think that is quite interesting. So our ambition is to offer it. Obviously, we will go step by step. We start with the UK and then EU and finally the US. But we will do it. We are having conversations with partners to do it in the three geographies. So that is the ambition. And in terms of pricing, you asked if we are competitive. We are competitive. Obviously, we are designing the solution with being competitive in mind. And that's why we're having ongoing conversations with partners. So we know we're competitive, because they also work with some of our competitors, and they know the price. And that makes it very, very interesting. Let me add that obviously AFS is not only a good solution in terms of logistics, it's also a good solution in terms of access to our fashion-loving 20-something, 21 million consumers that enables for certain brands that are very local to do it in other geographies at a very interesting price. The question about March and the relevance of our collections versus the likes of Shein and Primark. Well, first of all, we, I mean, I'm not going to say we don't consider Shein and Bremer our competitors because that would be ridiculous, but we are not competing for the cheapest price. And that would have been very consistent. We want to bring consumers fashion at a fair price. We have been working very hard on our prices. to be competitive and to be in the market, and we are comfortable, we are in the market, but we are not aiming to sell the cheapest dress by no stretch of the imagination. What we are seeing of the performance of the new collections is good, as I mentioned before, newness is performing well, test and react is clearly flying, but even autumn-winter, we closed autumn-winter with a 40% stock turn, with 17 points higher returns, sell through we are seeing that the stockton continues in the spring summer and we are confident we will we will have a similar a similar behavior okay i think we've got time for one last question from matt

Great, thank you. Just a query on test and react, please. So you referenced the gross margin on test and react, the 58%. Just wondering if you had any thoughts as to how that margin evolves as test and react expands across the business. Thank you.

So we don't have any reason to believe that that is going to behave differently. We measure a lot of things in Test and React, not only gross margin. We measure the amount of options that we end up repeating or building upon them, the amount of options that we don't, the sell-through of every option. We measure quite a lot of KPIs. The reality is that what we're seeing is the fact that we launched very short productions, like 100 units, to test the value of that style. enables us to detect where it's not going to work and eliminate it with very small quantities. So then the fact that we are already hitting a significant amount of options that we end up repeating dilutes these hundred of the mistakes really, really fast. And what we're seeing is the dilution ends up with a minimal impact on the gross margin. So as long as we maintain our hit rate in terms of the options we repeat and span, the margin should not suffer at all. The thing here is that what is driving these heat rates? And one of the things we see is that the longer we work with a supplier, the higher the heat rate gets. The supplier learns about the way we work, learns about our consumers, and then this cooperation becomes better. So if anything, we could have the hope that test and react could even get even better. Let's not be super ambitious, but we don't see any reason why the margin should decrease, not at all.

Great. I think that's all we have time for.

Thank you so much, then, everyone, as always. I'm looking forward to seeing you on the October, November, whenever that will be, I guess, October year-end results. Thank you.