N Brown Group plc

Good morning everybody and welcome to N Brown's preliminary results for the 53 weeks ending the 4th of March 2023. I'm joined by Dominic Appleton, our incoming CFO, who I'd like to welcome to N Brown. Let's turn to the agenda for today. First, I'll give you an update on our highlights so far this year. Then I'll hand over to Dominic, who will take you through the financial performance of FY23 and the outlook and guidance for FY24. I will then return to talk in a little more detail about our KPIs and our strategic progress. And after that, we'll open up to Q&A. This has been another year of strategic progress across the evolved pillars we announced a year ago. We launched a new trading website to Simply Be customers in September. a key investment in our digital transformation, providing a mobile-first experience for customers, reducing friction through the navigation and checkout. Looking ahead, we continue to build on those pillars and have committed to a number of transformational priorities for FY24 and beyond, including rolling out the new website for Giacomo and JD Williams and the delivery of our new financial services platform. I'll talk more about this later on. Last year was characterized by the normalizing of consumer trends post the impact of the pandemic and the new challenges of a high inflationary environment. Cost of living pressures have impacted consumer confidence and their available spend. Weighted for our category mix, the non-food online market reduced by around 5% over the prior year. Alongside this, we've faced the impact of inflation on our cost base. We've met these challenging conditions by taking decisive action to mitigate these, and as a result, have continued to make progress across our business, balancing operational resilience with successfully continuing our strategic transformation. Although reported product revenue is down by around 7%, we've been disciplined in our trading approach. We haven't aggressively chased sales and have seen average item values increase by 12%, which partially offset software website sessions and conversions. Software product revenue trends seen in Q4 FY23 have continued into the start of FY24, and we expect that the market for discretionary products will remain under pressure in FY24. As a result, we are guiding to only a slight improvement in the rate of product revenue decline in FY24 over that seen in FY23. Alongside this, though we expect an improvement in product margin, this is likely to be more than offset by headwinds on the ratio of operating costs to revenue, together causing a net drag of around one point on EBITDA margin over FY23. However, despite making a full and final settlement to Allianz in the year, we have continued to have a strong balance sheet with total accessible liquidity of £112 million at the 6th of May. We remain confident in our previously outlined strategy. However, to deliver on this, we need to prioritise what makes the most impact and execute these things better and faster. By the end of calendar year 2024, we expect to have built the majority of the foundational capabilities needed for the business to grasp that opportunity. I'll come back and talk about our five transformational priorities and our work to deliver these a little later on. I'll now hand over to Dominic to talk you through the financial results.

Thank you, Steve. I'm delighted to have joined M Brand. I'm excited about delivering our strategic plan and the future of the business. Let me start with giving you a summary of the group's financial performance in the year. As a reminder, the year ended the 4th of March 2023, included a 53rd week, and the results we're talking to on this page include the extra week against last year's 52 weeks. Detailed comparison of the 52nd and 53rd week figures is available in the appendix. And when we come to the revenue detail, we'll talk to these on a 52-week basis. Overall, group revenue was down to 49 million pounds, driven by a combination of both lower product revenue, reflecting the challenging online retail conditions, and lower financial services interest income, reflecting the smaller customer loan book from the start of the year and softer retail sales through the period. Gross profit margins declined 3.1 percentage points, severely driven by the FS margin rate post-COVID-19 normalizing. Last year, we had exceptionally elevated FS margins as write-offs were abnormally low, and as a result, we released the majority of the initial COVID-19 debt provision. This has been partially offset by solid growth in the retail gross margin. I'll talk in more detail about both these swings later. Our OPEX cost sales ratio has remained below the pre-pandemic level of circa 40%. Against last year, we saw a circa two percentage point increase in the ratio due to a lower operational leverage. Within the absolute spend, we absorbed an impact of around two percentage points as a result of inflationary headwinds through contract management and volume flexibility. The lower gross margin materially driven by the FS normalization together with the net of lower product revenue but a stronger margin rate, led to an adjusted EBITDA of 57.3 million, circa 38 million lower than prior year, but in line with board expectation and market consensus. Below EBITDA, we saw a 2.4 million reduction in depreciation and amortization, following last year's acceleration of amortization and software as a service change. We successfully held interest costs flat, giving an adjusted profit before tax of 7.5 million, down 36 million on prior year. We also have material adjusting items this year. As previously announced, we reached full and final settlement with Allianz, which resulted in a 26 million adjusting item in the year. We've also taken a non-cash impairment of 53 million pounds in the year, driven by the impact of the challenging macroeconomic environment on the FY23 exit run rate and our future financial forecasts, which I'll talk through later. Unsecured net cash, with 9 million down on prior year at 36 million. Largely reflects the impact of the cash payment for the full and final settlement of the litigation with Allianz. Despite this, the balance sheet continues to be strong with total accessible liquidity of 112 million pounds at the 6th of May. Finally, adjusted EPS of 1.81 pence reflects the profit performance during the year. You'll see from this slide that the majority of the EBITDA reduction has come from an absolute reduction in FS gross profit. This is due in part due to the smaller loan book size coming into the year and the continuation of this through lower product revenue performance. So, the majority is due to post-COVID-19 normalization. the prior year including abnormally low levels of write-offs, and the release of most of the COVID-19 expected credit loss provision that we put aside at the start of the pandemic. Absolute gross profit in retail was down only £6 million. We offset most of the market-driven volume impact through a disciplined approach to trading and margin, which I will talk more about later. We have continued to control costs well, mitigating inflation impacts, which cost 15 million pounds, managing volume reduction through the cost base, leaving costs lower by 2 million pounds against last year. Turning to revenue performance. Firstly, as I just mentioned, we're showing these on a 52-week basis for better comparability without the 53rd week. The context of the market and weaker UK consumer confidence is important. Over the year, the BRC's online non-food market tracker showed an 8 percentage point drop in sales. If we adjust that for our product mix, which is more heavily women's wear and less electricals, our market dropped about 5 percentage points. Our strategic brands performed in line with that adjusted market performance, contracting by 5%, and we have continued to strategically develop these, as Steve will talk to later. We've seen a managed decline in heritage brands' product revenue, with this portfolio of brands being managed for value rather than growth. We've been disciplined in our approach to trading and preserving margins, and took the decision not to aggressively drive volumes. As we flagged in our January update, we expected quarter four to be softer, as we took a rational approach to trading through this quieter period post-Peace. This is evident in the quarterly performance we have presented here. I'll come on to the positive product margin rate next, and Steve will pick up on the growth in average outing volumes. So mitigating the lower volumes, product growth margin rate has improved, building on gains shown in the last two halves, with full year rate at 1.8 percentage points versus last year. This is part of our strategic change in the business, where we are anchoring sensible levels of margin and profitability, rather than growth at any cost. Looking at what has driven that, Firstly, a pricing of mixed benefit at circa two percentage points from a combination of reduced promotional levels as we have traded in a disciplined manner and not changed volume, increasing prices in a measured data-led way in response to cost inflation, the mix back into clothing, which has a higher margin than home, and updating the way we work with some of our third parties. Secondly, due to normalizing levels of write-offs in financial services, we have claimed back higher amounts of associated VAT, bad debt relief. We credit that for product gross margin, but we can only reclaim it due to the benefit of being a combined retail and credit provider. This improved product gross margin by circa one percentage point. Thirdly, Partially offsetting this, we've seen flow-through of higher freight rates with a drag of around 50 basis points, an improvement on the position at half-year. Finally, there was a further one percentage point adverse impact, which primarily relates to additional stock provisioning covering year-end stock being higher than normal for the forward level of sales. The proportion of current stock versus price season has improved year on year. We are also carefully managing our inventory intake. Looking at the FX impact, we buy most of our retail stock in dollars. We were fully hedged in the year without which we would have seen an adverse impact on gross margin rate of around two percentage points. In the FS business, the interest income reduced 4.3% due to the smaller debtor book. In turn, the debtor book reflects the lower opening position and the lower product revenue during the year. When we look at how the debtor book has moved against the product revenue trend over the last few years, it's actually been really robust and generally declining more slowly than product revenue. This gives us confidence that the debtor book growth is likely to follow when product revenue returns to growth. I'll also flag here the strategic decision which we took this year to defer an element of the annual payment arrangement debt sale. To improve data usage, we have retained an element to either enable customers to return to trade or a higher price to be achieved in the median term. We have shown this element of the debtor balance separately on the chart. The group's adjusted gross margin was 46.2% compared to 49.3% in FY22. And that swing is materially driven by the FS rate normalizing post-COVID-19. Within our FY22 year-end results, we outlined the elevated financial services margin rates seen in that year. Now that we have normalized, the year-on-year change has been seen in two ways. Firstly, the release of circa £14 million for the extra overlaid COVID-19 additional credit loss provision from year one of the pandemic, as it was no longer required. Customer behaviour was actually better than expected, and so caused a one-off benefit to reported margin last year, with a delta for this year versus last year's comparative, at circa 6 percentage points. Secondly, in H1 last year, we also saw a lower than normal level of write-offs. As customers have been supported through the pandemic with government schemes, it resulted in low defaults and arrears across all the consumer credit markets. This year has been more normal. So the last year comparative showed the impact of around 6 percentage points. Our provision rate has increased from 11.9% at prior end to 13.4%. The change in debt sales strategy, which I explained on the previous slide, is the main driver behind this. These payment arrangement balances are provided at a higher rate than the receivables not on a payment arrangement. On adjusted operating costs, we have reduced our costs by 2 million pounds in the year, despite an inflationary price headwind of 15 million pounds. We have done this through 17 million pounds of lower variable costs, but our model has flexed with the lower volumes we have seen. We have continued to hold our adjusted operating cost ratio below pre-COVID levels. On a one-year basis, we're seeing an increase in the ratio. Some of this is operational gearing with a lower revenue impacting the cost ratio for our fixed costs. Looking at the individual areas, admin and payroll has increased by around £6 million over the prior year, driven by inflationary impacts of £5 million. Combined with the operational deleverage, this is the area which has seen pressure on the ratio. Marketing and production, warehouse and fulfilment have each broadly flexed with the lower revenues as the inflationary impacts have been offset by higher average order values on volumes. The slide shows adjusting items of around £88 million. It's important to note that £53 million of this is non-cash and relating to the impairment of intangible and plant and equipment assets. The impairment reflects macroeconomic conditions and the exit room rate for FY23, lowering the start point for forward financial forecasts. Discounting standard IES 36 requires that the discounted value of financial forecasts are compared to net assets value. Discounted value of forecasts is lower than our net assets and therefore results in the impairment. which has been allocated on a pro rata basis against intangible and plant and equipment assets. This is an accounting assessment rather than a market valuation of the business. The other main item relates to the full and final settlement in respect to the legal dispute with Oliance. Charge taken in year reflects the additional amount required to cover the settlement and leave costs to completion. This removes a significant amount of uncertainty and distraction from the business. We've also incurred restructuring costs in the year across operations and head office, reflecting lower order levels. In addition, adjusting items include litigation costs related to legacy customer claims and associated committed legal costs. This slide shows how EBITDA of 57 million has converted to a positive underlying net cash generation position of £11 million, which is pleasing given the difficult trading conditions. Starting on the left at the top, we've seen an outflow of around £12 million, which includes investment in inventory. The inventory increased around £7 million, driven by higher freight rates and input costs, with similar underlying unit volumes year on year. Also within this caption are some reductions in trade payables and accruals. Customer loan book and securitisation borrowings in financial services have resulted in a cash influx, net loan book size having reduced somewhat and generating a net cash return. Non-operational cash outflows of £40 million include a well-managed step-up in capital investment of £26 million and interest costs. With regard to interest rates, in the prior year, we entered into an interest rate spot to a notional value of £250 million, fixing Sonia interest rates through to the end of December 2024. This provided a £4 million cash benefit relative to if this had not been in place. To change an approach to the debt sales, has reduced cash inflows by £14 million in comparison to the previous strategy. This decision was taken with a view to maximising value to the business and so is a one-off in-year impact rather than a permanent hit. The 53rd week resulted in an additional month's payroll falling into the year, as well as other cash payments totaling £9 million. Adjusting items are driven by the cash payment made to Allianz in January. We've also returned to the normal operating procedure as fully drawing on the securitisation facility relative to the loan book size. And all of this has given us a net cash outflow of £8 million. I'll now walk through what that practically means in terms of our robust cash and funding positions. Three key points to highlight are, first, we have unsecured net cash of £35.5 million at the year end. Last year, we had an unsecured net cash position of £43 million and £60 million problemarily underdrawn on the securitisation facility, which was accessible. Combined, this reflected a figure of just over £100 million. Cash reduction in the year is largely driven by the Allianz settlement. Corporate financing remaining in a strong net cash position. Second tranche of our funding is the financial services securitization facility. Grown funding of £333 million is well covered by customer debtor balances, with our gross debtor book being £555 million at year end. Taking the strong corporate net cash position, together with the well-balanced FS prioritisation, we have a net debt of £297 million. This has increased over last year in line with the one-off payment we have made. Post year-end, we completed the refinancing of the revolving credit facility of £75 million and the overdraft facility of £12.5 million. Both maturities now fully committed to December 2026. So, in summary, our balance sheet remains strong, including the level of cash and accessible liquidity which is available to us. We have total accessible liquidity in excess of £140 million at year-end and £112 million at the 6th of May. The latter reflecting the refinancing of the RCF which took place post-year end. Now, looking ahead to FY24 outlook and guidance, we have seen uncertainty around macroeconomic conditions and low consumer confidence, and expect these to continue throughout FY24. In the context of this backdrop, we have commenced FY24 with lower active customers, and performance has been further impacted in Q1 due to unseasonably cold and wet weather, reducing demand for our spring and summer ranges. Q1 also annualizes against the strong Q1 in FY23. As a result, product revenue momentum, which was 17.8% lower in Q4 FY23, has broadly continued into Q1 FY24. We currently expect full-year product revenue in FY24 to decline, a slightly more favorable rate to the 8.4% decline seen across FY23 52-week performance. We expect to deliver product margin improvements through further increases in clothing mix and a greater proportion of full-price sales, supported by optimized pricing strategies which utilize our improved data usage, as well as normalising freight ranges. Clothing and footwear remains the heartland of the business, where we see the most opportunity for future growth. We also remain well hedged on foreign exchange for FY24. Customer loan book opened the year lower than prior year. Combined with our expectations for product revenue, we currently expect excess revenue to decline at a rate slightly adverse to the 4.3% seen in FY23 52-week performance. Financial services growth margin normalized in FY23. We expect a further increase in adjusted operating costs to group revenue as a result of ongoing inflationary pressure. But we continue to take action to mitigate these where possible. As a result of the combination of gross margin improvements and headwinds in adjusted operating costs, we currently expect a reduction of around one percentage point in adjusted EBITDA margins versus our FY23 52-week level of 8.2%. Following the impairments of our intangible assets, plants and equipment in FY23, We will see approximately 15 million lower amortization in the year. The business continues to be well positioned to invest in and deliver our strategic change. And we plan to step up the investment aligned to our transformational priorities in FY24. We will continue to self-fund investment through carefully managed cash flows, including site control and right sizing of stock. At the end of FY24, we expect net debt to be slightly better than FY23's closing position. We remain confident in our strategic direction and our digital transformation as we focus on driving sustainable, profitable growth. So with that, I will now hand back to Steve to talk you through progress on our strategy.

Thank you, Dominic. I'll now talk about some of the strategic highlights from the year. We've made good progress across each of our strategic pillars in the year. Within build a differentiated brand portfolio, we continue to iterate our creatives to better represent the brand positioning. A considerable amount of work has been undertaken this year to build stronger identities and points of differentiation for the strategic brands in our portfolio. So simply be, We launched a new creative campaign, the Fit Revolution, which was delivered via a new media approach, which saw us move away from traditional TV advertising and switch to more impactful digital video, social, out of home and influences. We also launched our JD Williams collections campaign and supported this with specific activities showcasing how our financial services offer makes our collections more accessible to our customers. We launched a collections campaign with an updated media approach in spring-summer, working alongside our brand ambassadors Davina McCall and Amanda Holden, and we'll evolve this further in the autumn-winter season. With Giacomo, we continued to champion inclusivity through the launch of our Everyman creative campaign. This was accompanied by a new media approach where we aligned our ongoing communications and storytelling with the new Everyman creators. Our heritage brand portfolio is focused on the retention and retrade of existing customers, and in particular, loyal credit customers. These brands are now managed by a dedicated team to create operational focus and clarity, separate from the strategic brands which we are seeking to accelerate. Now, moving on to elevate the fashion and FinTech proposition, In line with our vision of inclusivity, we have extended the size range across our product portfolio, introducing smaller sizes, ensuring accessibility of our fantastic product to all. Our teams have reduced the historic syndication across strategic brands, replacing it with own label product that is designed and bought specifically for Simply B, JD Williams and Giacomo. This product is now distinct and bespoke to each brand, strengthening our unique brand-aligned proposition across our product offering. We welcomed some fantastic third-party brands across our strategic brands during the year, carefully selected to complement our own product offering, particularly important on our platforms of JD Williams and Giacomo. In financial services, we rebranded our JD Williams credit offer to JDWPay, communicated through direct mail campaigns, which attracted over 20,000 new credit customers. Building on learnings from this, we later rebranded our Simply Be credit offer as Pay Simply Be. Now on to transform the customer experience. As mentioned earlier, we have launched the new website for Simply Be, which aims to deliver a more seamless customer experience so shoppers are able to navigate the site have a frictionless checkout experience, and receive the same rich mobile experience across any device. It is already 18% faster than any of our other websites, and we will continue to improve this. Native Checkout, which allows customers to pay directly through our app rather than being redirected to the website, was launched for mobile users across Android and iOS. Native checkout creates a smoother user experience, fewer errors, and abandoned carts at the point of payment, providing a faster checkout. On win with our target customers, we have invested in new marketing channels in order to better attract our target customers. We built a customer bidding algorithm to target prospective customers interested in purchasing our products through our credit with branded display advertisements. Of the new customers that were recruited through this channel, 80% went on to purchase using our credit proposition. We also rebuilt our customer lifetime value model to give us more accurate customer data so that we can better understand our base and how to improve customer targeting and personalization. In establishing data as an asset to win, we have largely achieved our target operating model by establishing a group data function as part of our desire to drive a data culture. We've plugged capability gaps with key hires and aligned this to the organization's agile way of working. Strategic hires, including three heads of data across engineering, analytics, and visualization, have fortified our internal capability. We saw huge success with the build of our internal tool, PriceTagger, which helps us promote product optimally using price elasticity curves. This has now been rolled out to all clothing promotions. We continue to provide a range of digital customer metrics to help track the progress of our business. It's been a challenging trading period, and the impacts of this, as well as some of the mitigants, are reflected in the KPIs. However, I am confident as we move forward with strategic change, there's plenty of opportunity for further progress. Today, I'll talk through four of the KPIs. First is the number of orders, which is 15% lower than the prior year. This is the result of a combination of lower website sessions and conversion due to a challenging online non-food market, as well as the impact of significant inflationary pressure on performance marketing. Second, average item value rose by 12%. The impact on customer demand of more a subdued backdrop has been partially mitigated through measured price increases, increased product mix with higher value categories and promotional discipline. Third is our total active customers. The number of customers who have been active with us in the last 12 months has declined, as we previously flagged. This reflects lower retrade rates. Fourthly, our arrears rates are at 0.7 points against last year, reflecting a return to pre-pandemic levels in H2 following abnormally low rates last year, but remain well controlled. At Enbrown, we are fully committed to embedding sustainability throughout the organization, our product ranges, and all our processes, and continue to progress with sustained our sustainability strategy. Developments in the year include responsibly sourced product now making up 41% of our own brand clothing and home textile ranges, up over 10 points in the year, and as we target 100% by 2030, in line with our Textiles 2030 commitment. Submitted our science-based target to the Science-Based Target Initiative, with validation due in October 2023. The proposed target is aligned with the 1.5 degree Celsius pathway of the Paris Agreement. We've concluded our four-year charity partnership with Maggie's, raising over £180,000 and have now launched new charity partnerships with Retail Trust and Fair Share Greater Manchester. We've also implemented a new diversity, equity and inclusion policy, Embrace, across Now, as highlighted earlier, I'll turn back to our transformational priorities committed for FY24 and beyond. These are focus areas looking ahead which we believe will deliver the biggest benefits. Firstly, our FS offer will be rebranded with the platform built and deployed to customers. Building our FS platform enables us to offer more modern credit products to our customers, allowing them greater flexibility and choice in the way they pay. Secondly, all of our strategic brands will have a new customer-facing website experience. Thirdly, we will continue to embed a data culture to empower our colleagues to meaningfully engage with data to identify and leverage analytical opportunities, which will allow us to make better informed decisions to enrich the customer experience. Fourthly, a new product information management system will be live, providing a single place to collect, manage, and enrich product data. This will ensure our customers have better product information to inform their purchase, which we expect will lead to far fewer returns for our colleagues. Finally, by the end of calendar year 2024, we will have moved to an agile way of working. Agile will transform the focus and execution of the work our colleagues will undertake, which will deliver value to our customers much faster. To execute this transformation, we have a managed step up in the level of capital investment in our transformation over last year, and which we will continue to self-fund. The high inflationary environment during the year has required us to adapt, but despite this, we've continued to have confidence to invest in our strategy. We've now set our priorities for FY24 and beyond, and we will step up investments. Our ability to do so is underpinned by a strong balance sheet. In an online market which declined year on year, we believe that we've made the right decisions around trading, driving some mitigation through average item values and retail margins, leading to only a relatively small decline in product gross profit, and an increase in product growth profit margin. Meanwhile, we flexed our cost base with volumes, offsetting, where possible, significant inflationary impacts. We've normalized against abnormal financial services dynamics in recent years as our customers transition through the pandemic, and this is what has driven the lower year-on-year EBITDA. Looking ahead, we remain cautious about the UK discretionary goods market, but we'll continue to trade through this with discipline whilst continuing to make progress with our strategy. Focus on the transformation priorities we are clear on. We'll now turn to Q&A. So if you're not already dialed into the conference call, please do so now and we will take your questions in a moment. Thank you.

Thank you, sir. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star one on your telephone keypad. And please make sure the mute function on your phone is switched off to allow your signal to reach our equipment. Again, please press star one to ask a question. We will pause for just a moment to allow you to signal. And we have a question from Clive Black from Shore Capital. Please go ahead. Your line is open. Thank you.

I hope you can hear me okay. Thanks for the presentation. I just thought it would be worthwhile understanding a little bit more about what the upgraded FS platform actually brings to A, customers, and B, to M. Brown commercially, given its magnitude and the time for which it's been taken to implement. That would be a first question. Thank you.

Hi Clive, thanks for the question. Steve, so I think, listen, if I can just, if you just bear with me for two seconds in setting the scene and answering the question, I think it's important to take a step back and just really reflect on what we're doing here. I mean, this is a business that's been around for over 160 years. It's been successful in the past, but it's a legacy business. And what we're doing is taking that successful business and we're making it a modern equivalent. So in doing so, we have to transform everything because it was a catalog business driving lots of different processes and lots of different products for our customers. So we've gone about a lot of change to build sustainable cash flows in the future. So we've always been medium term focused. We are delivering on our priorities and that will generate higher levels of earnings more generally and but creating better cash flows in the future. And that's what we're trying to do. And we're quite a distance down it now, and we're feeling a bit more confident about saying we're quite a distance down it. And the large majority of these capabilities will be delivered by the back end of calendar year 24, going into sort of March 25. Now, the reason why I sort of start with that is because the way that I see value creation is by effectively delivering capability. And that capability marries up across the piece. It's about changing the ways of working at the same time as changing the platforms. But fundamentally, what we're trying to do is create capabilities so that colleagues can change things. And the way of working with the Agile methodology is and the new financial services platform means that things can be adapted. And at the moment, we can't adapt them anywhere near the speed that we need to. We operate on a mainframe system, which we're moving away from as we sort of move to new websites. And that operates with a change program, which is effectively a batch change program. And colleagues, therefore, are not empowered to enable them to make changes to increase the experience of the customers through the websites. So as we deliver, which we are doing, the new website for Simply Be, which is already live, the website for Giacomo, we're in test mode at the moment. It is actually live with some customers. So on that side, you've got a retail capability so you can change things. On the financial services side of things, well, effectively, we're creating an adaptable platform that allows colleagues to launch new products as they go forward and we will create squads and tribes and we'll give them an objective and that objective will be in an OKR framework and colleagues will create the right products for the customers because they've got something that they can change and adapt. So therefore the value comes in speed in enabling those capabilities and we do feel that the business has a good future once we get these things through.

In terms of, therefore, I can see the commercial benefit, therefore, and strategic benefits of business. In terms of practicality or practical outcomes for the shopper from the FS platform, what will that mean in simple terms?

In simple terms, we will launch something that's sort of modern in relation to the experience that we create for customers. And in simple terms, we will have the ability to launch new products, which could look like products that you see in a market. We haven't sort of gone through that process yet. We will be able to launch new products. And there's a whole sort of set of conversations to have with our customer base to understand what is relevant for them. And once we've landed the platform, we'll be in the process of that. But fundamentally, I think what we can see going forward is a platform that is adaptable. It's mobile for colleagues can change. They can change the experience that they create on a daily basis and they will have access to launch new products as we as we deem fit for the business. And at this stage, we're working through that process.

That includes things like variable interest rates because it's been very rigid up to now, hasn't it?

Yeah, I mean, we can do different pricing for customers. We do do sort of different pricing for customers. We've got a headline rate, but we do do different pricing for customers. But yes, variable rates, we'll be looking at different ones, different products. And again, we'll get into the methodology of launching new products on a new product development cycle. And we can't do that at the moment. We really can't do that at the moment. And, you know, I'm really excited about when that comes along. Equally, you know, let me talk about the product information management system. You know, colleagues in this business currently pull together data across four to five spreadsheets, which effectively creates the information that you see on our website. Because that's how the sort of old catalog system works. Now, when we launched the new product information management system, you know, that creates better information, clearer information, more consistent information. It improves the experience for customers when they go to try and buy the products on the site. But it gives us SEO benefits, which we're not currently getting either. So from my perspective, the sort of search capability that we can sort of move forward on that is hugely exciting. similar to all of the other things that we're sort of delivering. So a combination of improving our data capabilities, launching a new FS platform, launching new websites, changing our sort of ways of working, launching a new product information management system. We've separated the business so that we have no syndication on products anymore. That's a big, big step forward. So we have individual customer brands now that we are... getting after, and we've got three that we want to grow and a bunch of heritage brands that are in managed decline. It's separated in the organisation and actually even buying the right product rather than selling the same product to every brand is going to take us forward. So there's so much that we can sort of look forward to and, you know, there's many opportunities in this business.

So that's a very comprehensive answer. Thank you. I'll let someone else ask a question and then I've got one or two more. Thank you. Okay, thanks, Mark.

Thank you. As a reminder, to ask a question, please signal by pressing star one on your telephone keypad. We'll pause for just a moment to allow you to signal. And we have a few follow-up questions from Clive Black from Shore Capital. Please go ahead with your questions.

Yeah, actually, gents, it's Darren Shirley here. We're on a conference line. Hi, yeah. You highlighted one of the headwinds in the last financial year was obviously inflation and cost, and I think you talked about 15 million headwind you offset. I mean, how do you see the cost headwinds or tailwinds going forward? And I mean, sort of through the supply chain, both from sort of source or international freight, local labour, energy, just give us a flavour of how you see those headwinds into the current year and Can you give us an equivalent of that 15 million for the current year, if possible?

Yeah, sure. I mean, it's a conversation that obviously we've spent a bit of time on. You know, we are seeing some upsides to sort of counteract some of the downsides. So freight costs, for example, are definitely going in the right direction. you know, what we need is sort of CPI to come and control over the next 12 months. And that's effectively where we're sort of guiding to be a little bit cautious over the next 12 months. But fundamentally, you know, we do see that sort of washing through into the sort of calendar year 2024. And hopefully we'll sort of move on from there. But Dominic, I don't know if you want to sort of give a perspective on that.

Yes. Thanks, Stephen. Thanks, Darren, for the question. I think what we're seeing is a continuing trend around inflation as we move into FY24, specifically around labour inflation, Darren, and utilities inflation. As Steve has already said, we are starting to see freight costs reduced, but we are continuing to see labour inflation come through and utility inflation to come through at a similar magnitude to what we've seen in the prior year.

So if you were to look at that sort of 15 million, is that sort of 5 to 10 maybe this year as a headwind? Or are we still looking at double digits? No, it's a similar magnitude, probably the same. Okay, that's interesting. And obviously you've been keeping a tight control on terms of your your marketing spend over the past 12 months, I mean, maybe a little bit longer. How are you seeing that market in terms of cost, et cetera? I mean, I expect you to turn the tap on once all the systems and capabilities are brought to the fore. How would you categorise the sort of cost environment that you're dealing with or will be dealing with?

Well, we've certainly seen inflation running through over the last 12 months, particularly in performance marketing. But I think at the moment, we're quite happy with the approaches that we're taking. We are moving to different types of media and ways of marketing our products, as I talked about in the presentation. And actually, you know, this is a great period for us to sort of learn quite a lot. And as you've made the point, Darren, when things are in a good place, which again, I'll just sort of reiterate that we believe the majority of these capabilities will be in place based on what we know today towards the back end of calendar year 2024 and into sort of the early 2025. Well, we may, to your point, get very confident and start to sort of push the business on from there. That's always been the intention. But we have some level of inefficiency, and again, I use the example that we talked earlier on about in relation to the sort of way that we have to put product information on our websites, it's quite inefficient, and therefore we lose natural search, and therefore we can't get the benefit of the sort of cost advantages from sort of efficiency in that space, and therefore we're only sort of spending to a point where it's profitable. Now, if we improve the efficiencies of all those things, then it doesn't necessarily follow that, you know, you have to sort of all of a sudden spend a shed load of money. And you actually start to get the bigger bang for your buck. And on our customer lifetime value models, hopefully that would enable us to sort of go a bit harder and a bit faster and spend a bit more. But it's not just about what you spend. It's about the efficiency of what you get back. So I think from my perspective, I'm looking forward to... to sort of delivering on these things, and then we can hopefully sort of step forward from that.

No, that's encouraging. And just one more, if you don't mind. You're obviously guiding, you did a pleasing increase in terms of your product gross margin in the past 12 months, which is in contrast with some of your maybe sort of bigger general merchandise peers and You're again guiding to some positive progress over the next 12 months, again in contrast to some of your apparel peers. What do you think is unique to M Brown at this moment in time that you're able to deliver those margin increases?

There's probably two answers to it. First of all, we are seeing some supply side distribution sort of benefits in terms of the freight costs that we sort of talked about earlier on. So that gives a little bit confidence. But actually, the main thing is the progress that we're actually making in relation to our products and specifically with the use of data and specifically with the change in ways of working where we have data colleagues sat within sort of tribes working with the general manager of SimplyBee and identifying, for example, that we have been able to sort of actually reduce some of our opening price points in our more basics range, but because we can sort of fund it through perhaps a bit of inefficiency in relation to our pricing in the better and best range, and therefore we've got some level of confidence based on the analytical approach that we've taken that we can continue to sort of grow that margin rate. Now, that's how we see it today. And what we have learned over the last few years is that the market has been quite volatile. But as we see it today, we're confident we can see a path to improving the margin rate.

Okay. Thanks for that, Steve, and good luck. Thanks for the questions, Darren.

Thank you. And as a final reminder, to ask a question, please signal by pressing star 1. we'll pause for just a moment to allow you to signal. And we have a follow-up question from the line of, please, Clive Black from Shore Capital. Please go ahead.

Yeah, just the last question, guys. Just wondering what your CapEx priorities are for 2024, where you're going to be actually allocating the capital expenditure you've guided to, please. Thank you.

I'll give you the high level version and I'll hand over to Dominic. But the way that we think about it is run, grow and transform. So run is keeping the business sort of running its compliance projects, its server upgrades, etc. Grow is day-to-day activity, sort of let's call it tactical trading activity. And transform is where the majority of the money is. The way that we sort of think about it is about 30% is in run, 10% is in grow, and 60% is in transform. So the large majority of the money is being spent delivering these capabilities so we can move this business forward. I don't know, Dominic, if there's any further detail you want to give, but that's how I keep a simple view of it.

Yeah, so I absolutely agree, Steve, in terms of that split, 5% run, 10% grow, 6% transform. And if you think about this transform, which is the biggest element, It's all about building that strategic capability that we talked about earlier around the FS platform, the new content and the PIMP systems where our priorities are for this year, Clive.

Yeah. OK, that's very helpful to get the context and good to hear that the FS platform we spent on this year. Thank you.

Thank you. Is there enough other questions in the queue? With this, I'd like to hand the call back over to Steve Johnson, CEO, for any additional or closing remarks. Over to you, sir.

Just like to say thank you for joining the call and thank you particularly for the questions. We're a resilient business and we are navigating short-term trading challenges whilst continuing to transform and a legacy organisation But we are starting to deliver some stuff and we can see it. And, you know, people in the business are excited about where we could take it. And I look forward to speaking to you again in due course. Thank you.