Boohoo Grp Plc Unsp/Adr

Hi, good morning, everybody. I'll introduce, well, they're all with me, the guys with me, Sean, John, Carol. Been interesting times. Really looking forward to the future. We've had days and days of a year of every day there's a higher cost and we've got to deal with this and it's like the dungeon cars and we're just moving and swerving. And now as it opens up, it's not only exciting, it's fun. Because the opportunity is opening up everywhere for us. And I'm really looking forward to the next part of the journey. So I've said enough. And over to the guys. Thanks.

Thanks, Mahmood. And good morning, everyone. I'm going to give an update this morning on our group and performance last year. how we are navigating the macro backdrop and getting the business back to growth. Sean will talk through the financials and I will then come back to talk in more detail about the initiatives we are taking, after which Carol, Sean, Mahmood and I will take any questions that you guys may have. What we've seen has been significant growth over the last three years with sales plus 43% and we have taken meaningful amounts of market share. More recently, trading conditions have been tougher for the sector, with supply chains disrupted and inflation impacting costs and dampening consumer demand. During this period, we've made substantial progress with operational priorities. Macro conditions are improving and we're reinvesting into price and lead time to reinforce our value credentials and our test and repeat model. Inventory is leaner, lighter and turning faster. Significant progress has been made with key infrastructure projects, including automation and our US distribution center that goes live later this year. And this is all geared towards ensuring that we are well placed so that the group can rebound strongly as headwinds ease and we get back to growth. Macro headwinds are improving, and this gives us a good degree of confidence for the year ahead. Inflationary cost pressures remain, but the outlook into the second half of the year looks more promising. Freight costs have been reducing from record highs, particularly within sea, and we have been reinvesting gains into more expensive air routes to improve speed to market. That said, consumers continue to face cost pressure right now, and we have to navigate the business carefully through this period. Looking at the markets we operate in, we remain optimistic about the huge opportunity ahead with a target addressable market approaching half a billion customers across the UK, US and Europe. In the UK and US, there has been a significant acceleration in that online channel shift. with more than 40% of spend taking place online today, and that will continue to grow in the coming years. In the UK, we've materially grown our market share from 6.2% to 6.9% of spend online, where the right price, product and proposition has resonated strongly with our customers, and our focus is to replicate this at scale in key overseas markets. where we have low levels of market share today, but massive potential. There are three areas that I want to outline on how we get Boohoo back to growth. And between Sean and I, we are going to share the details of the strategic programmes that we are putting in place to deliver this. Customer first, investing for growth and delivering sustainable ROI. We have a clear list of priorities, the execution of which underpin future growth. Firstly, our customer. We are getting back to our tried and tested, test and repeat model, now that we are seeing a degree of recovery in supply chain disruption. We will be using tailwinds from lower cost inflation to drive speed and enhance our value offering. And through continuous investment to upgrade the user experience, we will focus on driving lifetime value. Secondly, investing for growth. Key enablers will unlock our growth potential. The US distribution center is a significant game changer for our US proposition. Our automation projects are delivering exceptional results, and there is more to come here. Elsewhere, internationally, we see wholesale and marketplace partnerships as key for growth, and we'll be investing in the brands to expand our global reach and awareness. Lastly, we want to deliver sustainable ROI for our shareholders. We will drive a leaner, lighter, faster inventory model with a focus on rebuilding profitability where we can deliver a return to growth combined with a significant improvements in profitability. Before I hand over to Sean to present the financial review, we have a short video which I want to play for you to demonstrate the strength of our group. Thanks, John. Good morning, everybody.

It's great to be here for what is my first BVU results presentation. I'm now going to walk you through the financial review as well as talk to delivering sustainable return on investment as we get the group back to growth. My focus is on four key areas. Firstly, on stock management. We've made great progress bringing inventory down significantly. with a 36% reduction year on year and more than 100 million in absolute terms. And we see further opportunity to move this further. We're prudently managing all of our costs in our business, ensuring that the cost base is appropriately sized. It's lead and right size for the current environment and gives us the right platform as we get back to growth. Cash is queen. And careful cash management is a key focus area. And the cash that we are generating is then being selectively invested to support future growth opportunities, of which there are many. Sales for the year totaled £1.77 billion, down 11% year on year, albeit slightly ahead of what we'd previously guided in January. Performance in the year was impacted by consumer demand softening due to the cost of living challenges, as well as reflecting the shift back towards offline channels following the pandemic. Gross margin at 50.6% was down 190 basis points year on year, and a resilient performance given the significant cost headwinds facing us last year, along with the work done to proactively bring the inventory position down in H2. Adjusted EBITDA was 63 million, as operating costs have been impacted by rising inflation, as well as the ongoing elevation of international shipping costs. We have a robust liquidity position with 5.9 million of net cash at the end of the period, which was better than expected due to the positive actions we've taken on capex, on working capital and on costs. And we finished the year with 331 million of liquidity headroom. And on inventory, we've significantly reduced this, down 36% year on year, as we've managed through a period of uncertain demand. A key driver of unlocking cash is the work we're doing on our stock management as we push to drive a leaner, lighter, faster Boohoo. As mentioned, inventory is down 36% year on year. Our lead times are improving three weeks faster alone in April compared to a year ago. We've accelerated our stock turn, delivering an additional turn improvement to date. And whilst we're pleased with the progress made in recent months, there's more opportunity ahead as we look to unlock further lead time improvements. Speed matters and shorter lead times are critical in our drive to get back to growth. The execution of our strategy and specifically the focus on inventory turn has driven significant working capital inflows over the last year. We've continued to make significant investments with 91 million of capex in projects we believe underpin our plans to get back to growth. We generated 30 million of free cash flow and ended the year in a strong liquidity position with 6 million of net cash and 325 million of committed credit facilities via our RCF, giving the group over 330 million of liquidity headroom. We've taken steps to rationalise costs. Pre-reinvestment, we'll reduce overheads by over 50 million through headcount reduction and other initiatives, all of which are in flight. This ensures that the business is right-sized for the current environment and has the headroom to selectively invest in key growth initiatives. The percentages we share here are cost as a percentage of net sales excluding DNA. You'll find it no surprise to hear that marketing is absolutely vital to the success of our business. 10.8% of net sales in FY23. And as we look out to the medium term, we will continue to invest in marketing to ensure that we continue to acquire customers and build excellent brand awareness across our UK and international markets. Distribution costs in FY23 were 23% of net sales, as fulfilment costs remain elevated in the teeth of a global supply chain challenge. Looking ahead, with the existing automation we have in place and optionality for US automation as volumes grow, we expect to be able to benefit from operating leverage in the medium term. Finally, admin costs of 13.2% of net sales in FY23 are expected to reduce as we leverage overheads through efficiencies and scale. And we exited the financial year on an improved trajectory. By the end of the summer, the first phase of our 1 million square foot US distribution centre will go live. Opening the DC in the US will help unlock our growth potential, providing a delivery proposition that can service 95% of the US within three days. compared to seven, eight or even ten days that we've been facing over the last couple of years. And as we grow, this will provide the additional capacity that the group will need. We're in a key focus market with proximity to our customer. However, as with any new operation, one thing I can tell you for certain is that we will see some initial operating inefficiencies. As we open the distribution centre and as we expect, the group will also incur additional freight and import duties as a result of the shift to the US local fulfilment. Therefore, we expect the site to be a net investment for us this year. But of course, it unlocks that growth potential. Over the medium term, we expect this to become neutral as we scale. But from day one, This investment fundamentally transforms our capability to service the US market and unlock growth with the right product, the right price and the right delivery proposition. Where we stand today, we have an EBITDAO margin of 3.6%. As we look forward, we see a clear path to profitability. We believe 6% to 8% EBITDA margin represents a realistic ambition coupled with getting back to double digit growth in the medium term. I've detailed key areas to support this. First of all, input cost deflation. We've already started to see deflation in areas such as inbound freight and raw materials, prices like cotton coming down. This will clearly take some time to fully flow through. But even after we reinvest into pricing and lead time, there is a clear opportunity. We saw the cost prices of our products increase as inflation bit into raw materials, into energy prices, into freight prices. And now we see all of those input prices decreasing and we need to capture that deflation. Returns have risen through the pandemic. Our focus is on taking steps to lower returns in a way that doesn't negatively impact the customer experience. For example, through a focus on size and fit improvements with our suppliers, quality checks further upstream in our supply base and improved processes in our supply chain. volume growth and overhead efficiencies from our back to growth strategy will drive operating leverage supporting margins alongside tightly controlled costs and international growth we're well underway with our us distribution center and we have many other markets internationally where we see growth opportunity for example through wholesale and marketplace partnerships this gives us clear line of sight to an EBITDA margin of 6% to 8% in the medium term, whilst investing in price, in product, and in proposition in a manner that will deliver a return to double-digit revenue growth and sustainable ROI. Moving finally onto guidance. The group's focus for the year ahead is on rebuilding profitability and getting back to growth. For the year ending 28th of Feb 2024, FY24, Revenues are expected to be between flat and a decline of 5% versus the prior year, with increased emphasis on driving profitable sales. In the first half, revenues are expected to decline by 10% to 15% as a result of this action being taken. In the second half of the year, the group expects to return to revenue growth as it benefits from the investments being made across price, product and proposition under the back to growth strategy. Adjusted EBITDA for FY24 is expected to improve year on year as a result of operational gains, cost efficiencies and cost deflation in our supply chain. With adjusted EBITDA margins of 4% to 4.5% and adjusted EBITDA of between 69 million to 78 million, in line with market expectations. CAPEX will be 80 to 90 million and year-end net debt to adjusted EBITDA of approximately 1 times. So, To summarize, we have a strong financial and operating model. Right now, we're focused on getting the group back to growth through self-help in the delivery of our strategy. With that, let me hand you back to John. Thank you.

Thanks, Sean. The Boohoo group was built on the test and repeat model. In an industry where customer tastes and preferences are constantly evolving, we need to stay on top of trends and ensure we are offering the right product to customers at the right price. We then need to get that onto our platform and deliver to our customers as quickly as possible. Over the last year, we have seen a worldwide supply chain crisis, which impacted how we execute our test and repeat model. As market conditions have shown signs of improvement, we want to ensure we reinforce the strengths of test and repeat as the world gets back to normal. For example, investing into air freight to drive down lead times and investing in pricing to upweight our entry price product mix, all of which is geared towards building a leaner, lighter and faster model. At the heart of Boohoo's DNA is fashion. It is crucial that whatever market we find ourselves in, we have a fantastic fashion offering across our brand portfolio, appealing to everyone from 16 to 55 years old, of all sizes and demographics. We visually wanted to show you here how the product mix has changed over the last few years. Of course, 2019 was our last year comparison point, where we had a traditional mix of products across all lines. As COVID hit, the years of 2020 and 2021 were all about athleisure and all things Jersey as people stayed at home. Then in 2022, as the world started to open up again, we saw a resurgence in premium and occasion wear with no restrictions for the first time in three years. Now, finally, in 2023, we are seeing a return to normal with strong shifts into swim, beach and holiday wear. with more normal product mixes compared to the last three years. Crucially, we are approaching the first summer holiday season, which has had no COVID impacts for three years. The key takeaway here is that we are always at the forefront of what people want. We are leaner and faster and will always remain agile, thanks to our test and repeat model. At the end of the year, we had 18 million active customers and over 65 million followers globally across our brand's social channels. We work with high profile celebrities on big name campaigns. And for example, in the last year, we have partnered with Kourtney Kardashian through Boohoo, Liz Hurley through Karen Millen, Jade Achieves at PLT and Trippie Redd at Boohoo Man, amongst many others. We also work with hundreds of influencers who allow us to target huge audiences that are specific for our brands and geographies. The combined reach of influencers that our brands work with totaled in excess of 400 million. We recently launched on TikTok Shop, enabling followers to purchase directly through the platform. and we are focused on engaging our customer base across the platforms relevant to them, as well as through our customer journey, such as our apps to upgrade the shopping experience. Infrastructure plays a key role in our proposition. At our Sheffield site, we have invested £125 million to build a state-of-the-art facility which will have doubled our capacity, driven significant increases in throughput and comfortably delivered savings in double-digit millions of pounds. This summer, we expect the first phase of our US distribution centre to go live, launching with one brand and then rolling out the group brands later in a considered and phased approach. We already have a significant business in the US with over $400 million of sales last year. The distribution centre's opening will transform our proposition, allowing for next and express delivery across key states, with 95% of the US covered within three days, compared to the eight to 10 days we currently have. This, we believe, will be a real game changer, ensuring our product, price, and crucially, our proposition is as strong as possible. Moving on to Debenhams, our digital marketplace. Our strategy is to add more partners, more brands and more products and through this to grow our customer numbers. You can see in the table the rapid progress we have made in growing our customer base, the number of brands available for consumers and the impressive number of products available across fashion, beauty and home. Looking forward, we want to accelerate Debenhams, focusing on premiumisation, turbocharging our marketplace and accelerating beauty. This will allow us to capitalize on Debenhams huge brand awareness and significantly scale its capital light stockless model, which at scale can deliver superior margins. Our partnership strategy is focused on working with partners that can extend our global reach through their direct to consumer platforms and help raise our brand's awareness in a manner that offers complementary and incremental revenues in a low risk way. In turn, our wholesale partners get access to our fashion, our newness and our short lead time model. Our sales portal allows them to select from the same ranges that our teams are buying and benefit from the group's buying scale. We have today a large wholesale footprint around the world with five key partners as outlined on this slide. Looking ahead, we are working on partnership opportunities across new regions to continue to expand this offering, elevating our brand's presence across existing and exciting new markets. So to summarise, we are focused on a leaner, lighter and faster model, and we're focused on getting this business back to growth. We are putting the customer first, we are investing, and we are looking to deliver sustainable ROI as we get back to growth. Looking ahead, we will continue to invest selectively where we see clear opportunities to support these strategies. These include reinforcing the strengths of our test and repeat model to deliver amazing fashion and great value to our customers, our digital marketplace, Debenhams, expanding our wholesale partnerships, and developing our global infrastructure network. We're extremely confident in our medium-term outlook as we continue to offer customers unrivaled choice, inclusive ranges and outstanding value, giving them even more reasons to shop with us. So thank you, and we'll now open up the floor to questions.

Good morning. It's Caroline Gulliver from Stiefel. Thank you. My first question just relates to international, and in particular, can you give us some of the catalysts to getting back to growth in rest of Europe and rest of world? You've obviously talked about the US and the USDC, but what's it going to take in rest of Europe and rest of world?

I think if I take them to start with a couple of things, I think we talked about our overseas partnerships. So in terms of getting our brand awareness in Europe and rest of the world, we're working on some new partnerships, which we hope to announce in the next couple of months. That will be one in terms of our brand awareness. Like other parts of the world, we're seeing lead times improve in terms of getting our product to consumers in a more in-time fashion. So US still been our longest one at eight to 10 days. But if you look at the rest of the world, Australia is an example. We're now getting key cities in Australia in just under five days. So it's really about been able to, for the first time in a couple of years, been able to push some of those markets again. So they're probably two of the key in terms of getting that back to growth.

My second question just relates to beauty. Just if you could give us some examples of how you're intending to accelerate beauty. I know you've had some wins, but just a few more examples would be good.

So if I take Debenhams to start, Debenhams now carries, I would say, 85% of the premium beauty brands. So obviously Debenhams is making huge progress. in terms of their beauty business. We're equally, we're not very strong, I would say, in our core brands in Boohoo, Pretty Little Thing, Caramel and Nasty Gal as an example. And we've big ambitions in terms of own bite and own brand in terms of development there with those brands. And then obviously we've kind of recently invested in Revolution Beauty. And, you know, that's obviously given us more insight into the beauty market and what potentially we can do with our internal brand. So, you know, quite a lot actually going on in the beauty space.

Thank you. It's Anne Critchlow from SG. A question, please, on current trading. What have you seen in March, April, May, and particularly in the UK, where I think the fourth quarter was quite weak? And then secondly, are you still sourcing 60% from near-shore countries? How is it trending? Thank you.

So let me take the current trading question. So We haven't shared an update on current trading, but what we have done is given you some guidance around first half performance. And we've pretty consistently said, I think, now that our expectations are the first half remains challenging. If you think about a year ago, we were coming out of Omicron. We were seeing a lot of pent-up demand, John spoke to that, around occasionware. And year on year, the gaps that we see right now are all about occasionware. Everything else... is there or thereabouts, puts and takes, but there or thereabouts. And the gap is occasionware. And that really speaks to the strength of occasionware last year. So we're not going to give you an update on current trading, but we have given you the first half, which should give you enough to sort of understand where we're currently operating.

And then on the sourcing point, I would say, yeah, pretty much. kind of, let's say 60, 40. But what I would say is that everything is back to normal. So the global supply chain crisis where, you know, goods were taking double digit weeks to get. So, you know, back to our test and repeat model, we could in a lot of cases test, but we couldn't repeat because basically the lead time wouldn't allow us to do that. So if I look at China today, you know, I can order in China and I can have air freighted in 48 hours in a couple of weeks. So, you know, kind of what we had to pivot to in COVID to get more near sourcing because of expensive freight out of Asia, but also slow freight out of Asia. Actually, that's all back to normal. So depending on the product category now, we can pivot quite easily. But, you know, there's no delays anymore. And everybody talks a lot about sort of the fifteen hundred dollar container going to fifteen thousand dollars. But we don't talk so much about actually the impact on lead time and particularly for somebody like us, the test and repeat, you know, been able to do the test, but most cases not been able to do repeat was quite a big impact.

Hi, it's Mirim Desire from Morgan Stanley. Just a question firstly on the guidance. Could you just talk about what gives you confidence to be able to get back to growth in the second half from the sort of minus 10, 15% you're expecting in the first half? Is that purely driven by the pricing investments you've mentioned, or are there other factors as well? And how are you thinking about macro in that as well? And sort of linked to that, I guess, how much flex do you think you have in your OPEC space to be able to hit that guidance on top line if demand is slightly weaker? Are there areas that you perhaps could cut further? Because I know you said that the cost base is sort of rationalised at the moment.

Hey, Miriam, nice to see you. So let me give you my perspective on that. I think there's probably... four reasons that give us confidence that we can get back to growth in the second half a couple of them external and a couple of them internal so if i start with the with the external um the the first part is is the comps the comps are just easier in the second half and i spoke earlier about you know that first half comp against um the occasion where so second half comps are easier Also, I think as we segue through this year, what I expect to see is headline inflation coming down. And so I think just consumers will feel better as we get back down to what I expect to be kind of mid-single-digit inflation and not double-digit inflation. They're kind of the macro factors. And that's pretty consistent with what the banks and commentators on the market are saying. And if you think of the internal factors, we are investing for growth, right? We are, John talks about, we're investing in price to drive growth. And we're investing in our proposition. And we speak to our US fulfillment center capacity. And so we are investing for second half growth. So I feel... There's a lot in the tank for us to run at. And this is a great business and we've got a ton of headroom. And so, yeah, I do feel confident about getting back to growth. And the second part of your question? The cost base. Yeah, look, I think we've demonstrated over the course of the last few months our ability to manage the cost base accordingly. So this business was set up for growth. And during a period of decline, managing decline, we've adjusted the cost base accordingly. And that's right across all the costs. So I think our ability to be agile around costs, I think we've been able to demonstrate that. And I absolutely see more opportunity there if that's where we need to go. Right now, our focus is on getting back to growth, but we can pivot and adjust as necessary.

John Stephenson at Pill Hunt. A couple of questions, please. First up, just on the US launch, can you touch on plans for marketing and also plans for local supply chain? I don't know how quickly you would hope to start testing something a little closer to the US. And second question, just on Debenhams. I don't know if we can talk a little bit about how Debenhams performed last year and what you're looking to achieve coming into peak this year, whether that's in terms of number of brands or the profitability of the platform and sort of the progress that you think you can get to.

Yeah, so if I kick off with the US and local supply chain, so we're already active is what I would say in the US. So that's working with partners in the US who may be making in China, Asia in some countries, but importing directly in and that's mostly in LA and in New York. We're looking at Mexico, we're looking at Central America, Guatemala, in terms of what's coming through there. So we're We're active, we've already opened up, we're already working with suppliers in advance of that and ready for when our first brand pretty little thing goes live sort of towards the end of summer. So all happening there. We've got actually our own team on the ground. We're beginning to build a team in Los Angeles. So that's all progressing really, really well. In terms of US marketing plans, clearly we want consumers to know that you can now get a parcel within three days and in some cases next day. So we'll be actively communicating that. We have some events planned as we go into September, October, particularly on Pretty Little Thing to really begin to build that brand awareness again. I'll hold back on those plans for the moment, just sort of, you know, we kind of give those to the consumer first. But obviously, yeah, we're preparing in terms of marketing for that as we come through. And then finally, just a question on Debenhams. Look, we're really pleased with Debenhams. You'll have seen some of the numbers that we've got. I can say it's a profitable Debenhams already. Really now it's about onboarding more brands. We're way ahead of number of brands that were on old Debenhams and clearly having online only allows us to do that. It's really about scoring more and more brands, getting more customers, but we're excited. You can see we mention it, it's one of our key brands, one of our key focuses. And, you know, it's from an investment point of view, Sean's very happy. You know, it's stock stock like less in terms of infrastructure. But, you know, we just see a super opportunity ahead for us on that brand.

I love a good marketplace.

You still see sort of decent sort of traffic growth as people sort of rediscover. Yeah. Yeah.

It's Nicholas Katsapas from BNP Pirate Bay Exxon. I have a couple of questions, please. The first question is just on the net debt expectations for the full year 24. It looks like those have gone up versus 23, but you're expecting slightly better profits. And it sounds like there's still more to go on working capital. Yeah, so could you explain what the bridge is there? And then secondly, you commented on the neutral impact in the medium term of the US distribution facility. But could you expand a bit more on the puts and takes on the gross margin versus the fulfillment leverage you expect? Thank you.

So let me start with the net debt question, the bridge for 24. So, yes, we've guided to kind of one times EBITDA for net debt for this year. And. I think we delivered a good performance for FY23, got to a net cash position, a lot of that about the improvement in inventory, the work we've done on the cost base and on cash and working capital more generally. And all of those lessons that we've learned and all of those muscles that we've started to develop, we take forward. The real driver, Nick, of the net debt increase is simply the capex that we're going to spend on U.S. fulfillment, but also on phase two of automation in Sheffield, which is about increasing the capacity. So those are the two big infrastructure problems. initiatives that we've got in the plan for this year. On top of that, of course, you've got some cash exceptionals in the US. As we launch, there's going to be some building up the team. There's going to be some split shipping as we get the proposition in the inventory and the stock. in the right place. So there's cash exceptional as well. There's a bit of interest as well. Interest will be a bit higher in this year. So yeah, it's those typical things. And the second question was on gross margin. What was the specific?

So the question was on the neutral impact that you spoke to in the medium term for the US distribution. But how does that work between gross margin and fulfillment? Yeah.

so so yeah there are some there's some puts and takes of course so as we move into the us what we what we'll definitely expect to see straight out of the gate is inefficiency i mean we've got a big shed and we're going to start with one brand and maybe we'll get the second brand up and running pre-peak but it's a lot of capacity for for one brand and we're not at scale so the cost per unit is going to be a drag for for this year until we get to to scale and get the rest of those brands launched There's going to be a higher import duty and a higher inbound cost of freight as well, moving product directly into the US. But offset against that is the benefit that we get to outbound shipping. So instead of shipping from Sheffield to the US, as John spoke about earlier, we'll be shipping from Pennsylvania to the US. And so we get the so on a cost basis, as we scale, we expect the costs overall to be broadly neutral. But of course. The win here is that we get the opportunity for local fulfillment and a much better proposition. And John spoke to 95% of US households within three days. And it just gives us the opportunity to compete in the US. And we talked about how, for us, this isn't really optional. If we are serious about growing our business in the US, and we absolutely are, then we have to have a local fulfillment and local proposition. And this is the step. And so I'd rather make that step and then work to optimize the cost base and optimize the speed and the delivery times and all of those things and just get out the gate and get going with that.

Hi, it's Simon Owen from Credit Suisse. Three questions for you. Following up on your guidance for next year, can you just tell us how much exceptional cost then there is going to be next year, either on both P&L and on an op-ed and cash flow basis. It's clearly going to be quite a large number that you're going to be declaring to be exceptional.

Yeah. Do you want me to take the questions one by one? Yeah. Yeah. So I would say expect mid-20s order of magnitude on exceptionals. It will almost all be to do with the U.S., distribution center launch. And it is things like the building of the team pre-launch. It is the split shipping cost, which is probably the largest single cost. And if you think about that, what we're trying to do there is we'll put as much inventory as makes sense into the US for launch. And so that will be all of the continuity lines, all of the bestsellers, and all the new stuff from a moment in time so we'll split our our inbound and newness will go into the us and also into sheffield but what we won't do is we won't move end of range products or mark products in markdown into the us so there'll be a period of time where we service a proportion of US demand from both Pennsylvania and from Sheffield. And so we'll create those split shipments. And it will be for a period of time. And so that creates some exceptional launch costs.

More broadly, why is deflation a competitive advantage? That seems to be the core of your optimism around future margins, is that costs are coming down and therefore your margins are going to go up. because you're going to invest. Why isn't everyone else going to do the same thing?

I can't answer for everybody else, but I can answer for us. I think if you look at shipping rates as a clear example, you know, we're circa, I'm going to say $1,500 for a 40 foot from China, most ports in Asia into the UK that had hit $15,000 at its peak. If I look at air freight, you know, even in last year versus this year, Air freight today is what sea freight was a year ago and has come down dramatically. If I look at raw materials, cotton, polyester, again, they've come over the top of the mountain. They've come down substantially versus last year. They're still higher than two years ago, but they've come down a lot there. If I look at energy, again, well documented in terms of where energy prices are. So there are just some examples of where deflation is happening. Our job, at the top of this table, we paid on the way up, is absolutely to make sure we grab it on the way down. And we're being quite aggressive on that.

Can I just rephrase that then, saying of all the benefits that are coming through, how much do you think that you'll take to the bottom line and how much do you think you'll invest in price and proposition?

So we're not going to give you a split of that because actually we don't know the answer to that. But it will be about investing in price So improving the price for the customer and it will be about taking some to margin But also be about investing in lead time and your question was about why is it competitive advantage? And let me just give you an example of why I think it does give us a competitive advantage so when when we capture that deflation and we what we'll do what we saw a year ago Simon is a Air freight was so egregiously expensive that we shifted a whole bunch of our inbound to sea. And of course, that adds to lead time. And John spoke about how the test and repeat model is very difficult in an environment where you can test, but you can't repeat. You just don't have the lead time to be able to get the product back fast enough. But in a world where we can invest those deflation, those savings back into air freight, that allows us to get the test and repeat model really working for us again. And that's why I think it's a competitive advantage. Because the test and repeat model is the kind of lifeblood of our buying model.

Great. Thank you very much.

Hi. Tony Charette from Pamu Gordon. A couple of things. First of all, Debenhams. You talk about turbocharging Debenhams and the slide's got a few brands on it, quite a few brands, admittedly, but doesn't really come across as very turbocharged. I just wondered if there's something else you're going to do. Is there going to be a sort of big marketing push on Debenhams at some point, you know, refocusing more of the marketing on Debenhams to get behind it? And the second thing is, I sort of appreciate your presentations are a bit different this time, and I've missed the slides on product and stuff. And I just wondered if you could give us some sort of ideas about what you're planning to do in the launch of the autumn-winter, just in terms of themes and stuff like that, just so we can hear from the person on the table who hasn't spoken yet.

Okay, so I'll take that one. Do you want to take the autumn... Yeah. So in terms of Debenhams, look, we're in discussions with lots of other brands and we're launching new brands on Debenhams every week is what I would say. We clearly have a lot to go in terms of brands that we want to attract and get on it. It's a slow process. But actually, you know, if I think even in the next month, the number of new brands, well-known brands that you'll be very familiar with that we'll have on board. So we continue to push brands. Marketing spend continues to increase, obviously, as we get more consumers and we get more brands and we look to attract more people. So, you know, we've got ambitious plans for Debenhams for this financial year. And obviously that's going to be through more brands and further marketing spend in Debenhams.

In terms of the 10.8% marketing spend, what would that figure look like for Debenhams?

Well, we don't break down our brands by marketing spend, but we have different spends depending on brand and depending on region in terms of is what I would say. So some of our more mature brands in the UK have got our lowest marketing spends as an example, and some of our newer brands have got higher percentages. And equally, if we go into the US or go into Europe, the percentages tend to be a little bit higher. So clearly we see the opportunity is what I would say in Debenhams and we'll be making sure we get behind that opportunity.

Just to add on to John on the governance question, we have actually actually already just launched TV campaign, which is our bigger, better, bolder campaign, which is, you know, it's about relaunching and actually telling the consumer that governance is still here. It hasn't gone away. It is a pure play. It is online. But we have done quite a lot in terms of inventory with our partners. We have just landed some of the big premium brands, which John said earlier, which is really, really helping drive that positioning of Devlin's becoming more premium than I think it was when it was on the high street. Certainly, if you looked at the online shop today, you will be able to see that it's actually getting a much more premium feel than the old Debenhams that we used to know. So there is quite a lot of marketing going on in the background. And I think when we get all our new partners on board, it's just, you know, that is going to turbo that growth. Just in terms of fashion going forward, Going back to test and repeat, we're not a business that forecasts so far in advance into autumn, winter, because we're actually currently landing in summer. But obviously there's going to be all the traditional categories that we do buy in advance, obviously outerwear and our jackets, our knitwear and the occasion wear pieces, the stuff that's got beading and everything else that comes out of China that we have to buy in advance. So all of that is business as usual. What we are doing is going back to, depending on the brand is what we're really in terms of how we're working. So the likes of a Boohoo and a Pretty Little Thing are working on really fast leads. Karen Millen's probably worked on a slightly longer lead. And with Karen Millen, we've seen a return to working on collaborations. We've just worked with Karen Millen, the founder, for example. It launched last week, absolutely flew out. I'm actually wearing it today. But so we've done that. And then we've worked with Elle McPherson. We've worked with Liz Hurley. We've worked with loads of iconic kind of people on Karen Millen. But equally on the Boohoo brand, we've just launched with Pantone. So we're seeing these collaborations really come through. It's quite a fresh approach as well. So that's a Nath Leisure collection. Pretty little thing we've just launched with Kappa. just last week in LA, but there's quite a lot of marketing and I can't give those marketing kind of fashion collaborations to you at this stage. That will be second half loaded and will actually come into play for the US launch.

Hi, thank you. It's Simon Bowler from Numis. I've got a couple, I'll go one at a time in terms of theme. Both folks around the US. How long a period of time do you expect to be doing split shipping in the US? And whilst you're doing split shipping, I assume you're not going to be able to present kind of next day through to the consumer, given some of the items may be coming from the UK. So how do you plan to kind of communicate that through to the consumer at the point of basket or before?

So the consumer, when they come onto Pretty Little Thing, do their order, it'll be very clear in terms of what's going to be within three days and then what's going to come from the UK. That will be eight to ten days. So that will be a very clear message in terms of as part of that process. In terms of split shipping, look, clearly we want it as short as possible. You don't really want to be running it very long. So, you know, it's a temporary while we get up and running, but, you know, the shortest period we can make that effective, the better for us. So the teams will be working. It's good because the consumer can get their full order, but equally could be a little bit frustrating because something may take eight to 10 days and something takes three days. So it's a temporary, is what I would say, in the initial stages. And we'd like it to be weeks into months rather than any longer than that.

The way I think about it, Simon, is we'll launch, we'll put the inventory in the US from the start around the best sellers, around the continuity and the newness that will have moved in. And then over the period of the next few weeks and months, we'll be just adding more newness in and more newness in until we get to a point where actually almost all of the range is then available in the US. So my estimate is it's probably three to four months. That's how long it will take us.

All ideas welcome.

It's a bit late for that. And just because the idea of the USDC being kind of cost neutral. Does that require automation and kind of local lower duty inbound sourcing or do they offer kind of further upside on the cost profile of it there?

Yeah. So expect us to optimize every part of that facility, whether it's import duties and making sure that we're sourcing product from the right location. It's interesting when John mentioned Mexico earlier, Mexico looks a lot like Leicester, funnily enough. It is. Yeah, look, it's small quantities and it's short lead time. And it's also low no duty into the US. So finding these sourcing locations that allow us to optimize duty is helpful, I think. But expect us to optimize all of those costs as we just get up to speed in the US.

don't expect us to do get it right straight out the gate but we will do over time okay thank you and then one final one if i may um just i think your guidance for next year kind of implies capex the sales of around about five percent is that kind of a sensible number to be thinking about over the mid time and aligning with that ebitda guidance that you've given so yes i would say i mean

I don't think about it as a percent to sales typically, Simon, because some of our CapEx is a bit lumpy. I would say if you look at the two big things CapEx spends this year will be US fulfillment and it will be the UK, the Sheffield second phase automation, which is a capacity play. Then ongoing, we've obviously got our capitalized development time as our engineers are always building new products and features. So our capex can be a bit lumpy. But of course, you know, the guidance we've given, 80 to 90 million, I think puts us in the right space for next year. I expect the following year to probably be lower than that because we won't have some of those lumps. So, yeah, look, you could say 5%, but I don't really think about it as a percent to sales because of that lumpiness.

Cool. Thank you.

Hi, it's Adam Cochrane from Deutsche Bank. A couple of questions, please. You mentioned you have a clear line of sight to 6% to 8% EBITDA margin. Can you share what sales base is required within your clear line of sight and what the gross margin is? that is really embedded within that 6% to 8% is pleased.

Yes, I'm not going to give you a breakdown of what sort of margin improvements we might make or where exactly we're going to get those EBITDA improvements from, but the sort of things that we're going to see. John spoke to the capturing of deflation in our product cost prices, whether that's raw materials, as we've seen cotton prices dropping, whether it's freight, whether it's energy costs, all of those things, we need to go and get that. So that is a big chunk. But there's other stuff as well. So in the supply chain, we went from two fulfillment centers to four. And now we've reduced back down to three as we've closed our Wellingborough facility. So we've made ourselves more efficient in the supply chain, for example. As we've managed through a period of decline, we've seen some inefficiency in our marketing. And so we'll make sure that we... that we drive that efficiency back into our marketing spend and use our customer acquisition cost versus lifetime value of customer equation to make sure we're in the right place by brand, by territory. So there's just a lot to go at. And I think Miriam asked the question earlier about OPEX. There is more for us to go at if that's what's required. We're always looking at the cost base. We've had this narrative that um over the last six months which is really about control the controllables and that you know that's what we've tried to do in a period of demand being difficult then we've tried to control the controllables so the cost base inventory cash all of those things lead times and and so i think we've put ourselves in a good place to be able to pivot now back to growth And whether that is later in the first half or the second half, our expectations are very clear that we expect to get back to growth and certainly by the second half.

And so to get to that number, you're saying it could be some gross margin increase, but it could not be. It could be some OPEX increase. Percentage of sales is it sales really the driver here of that margin recovery?

No, the key driver so sales volume obviously helps I'll take it but the key driver is the capturing of the deflation because that was a if you look at the if you think about the bridge that took us from, you know, FY 21 to a shade under 10% EBITDA margin to 3.6% EBITDA margin for FY23, if you look at that bridge, the biggest component of that bridge was a gross margin headwind as we saw those cost prices go up. Now, what we could have done is we could have taken those cost price increases that we got and we could have pushed them all through to retail prices and we didn't want to do that. We wanted to stay as competitive as we could on retail prices. And so we took that haircut on margin as a result. And also, there was investment in making sure we came out with clean inventory. And so we were marking down product to come out clean. I think it's important that we're in a position that once demand starts to turn, and it will, that we are able to pivot straight back to growth. And so it's that agility I think is important. And so it's a particular focus for us to make sure that our inventory position is clean, that we're able to bring product in, our lead times are shorter, we're able to bring product in faster, we're able to repeat the winners, all of those things that make our model a great model, that we're able to operate those effectively as we segue into this financial year and into the second half in particular.

And just two really quick ones. Share-based payments grew a bit this year. Can you give us an estimate of what it will be for next year at all?

Yeah, so mid to high 20s.

Thanks. And then secondly, the actions that you've taken to preserve profitability during the year and into this year, are you able to ascertain between all of those actions that you've taken what the impact on sales has been so that when they annualize, we can think about effectively adding it back, if that makes sense?

Yeah, it's obviously a hard question, as you know. Of course, we try to do that, right? We try to say, when we do any of these initiatives, we think about the business case. We think about the impact on sales and ultimately on profitability and the cost base as well. Some of this is hard to take the sugar out the tea. And so I'm not going to give you a, you know, what upside possibilities are on volume. But I think the key one is, as we've talked about this, this getting back to growth and the strategies behind that, particularly around lead times. So as we get shorter lead times, just having that ability to repeat the winners. And that's just a massive advantage. impact benefit for our business that we're able to see the winners and then get back after them very quickly and get them back on the shelves so that that to me is a clear growth driver there's others of course us fulfillment is a is a clear growth strategy um you know the whole wholesale international expansion is another growth strategy marketplace is yet another so there's lots of them But I think if I was to pick my favorite child, I would say it is really about getting that lead time back down to something that allows us to operate test and repeat effectively.

I suppose it meant more like what was the impact of paid for returns and stuff.

In terms of more questions, Alistair? Do we take one more, guys? Because we need to, yeah. Come on. Is there one more? OK, that's great. Listen, thanks very much, everybody, for coming this morning. Thank you.