Next Group Plc Unsp/Adr

It's hard to believe, but it's been three years since the last time we were all together here in person. And it's good to have everybody here. Since our last in-person meeting, we've had two new board members join the next board. One is Shoman Das. Shoman is CFO of Seagrow. And second, Tom Hall. Tom is a partner at Apex. I came in as chairman in 2017, and it's really amazing what happens over a period of five years. Back then, the label business, international business, were too small, what I would call gems, just starting to grow. And now, five years on, they are really significant businesses. I think one of the unique things about Next is the company tries a lot of new things. If it works, the board supports it with capital, and then it grows organically. And if it doesn't prove to be success in the marketplace, we look for something else. So it's really a good sign that you have a company that's constantly trying to look for new opportunities and new places to grow. So with that, I'll turn it over to Simon. Simon, go ahead.

Thank you very much. Morning, everybody. It's lovely to see you all in person, looking thinner, a little bit older than before. And I have to say, from a personal point of view, much as these presentations are quite nerve-wracking in a way, they are so much better than doing a video presentation. It's five hours of recording for just one hour, or one and a bit hours of recording. of presentation, and all sanitized. You can't make a single gaff, a joke, it all gets cut out. Even worse than that, some of you will have noticed that occasionally, before I was taking too long on something, my voice was artificially speeded up. So those of you who remember Pinky and Perky, I sounded a little bit like that through some of the presentation. You'll be perhaps sad to know that there isn't such a button available today. And we have a lot to get through, so I will press on. The first thing to say overall is that throughout the vast majority of this presentation, with the exception of the finance section, I will be focusing on the three-year comparatives. One-year comparatives are so dominated by the closure of our shops and various subsidies and... um grants that we got through covid and abnormal returns rates that i would have spent the whole presentation re-explaining what happened during the pandemic so we're going to focus on the three-year numbers and actually having done that i think there's a lot that it tells us about about the business it is actually informative in itself. The second thing, just to remind everybody, is that this year, as with last year, the numbers are IFRS 16 compliant, reported on that basis. They weren't three years ago, so we've restated the numbers from three years ago to be like-for-like in IFRS 16. The second thing to say is that despite the news today, actually it was a good first half, a much better first half than we were expecting. Sales up 24% on three years ago, 22% on full price sales, 46% of that growth has come from online, so you can see the lion's share of growth coming online. from online, and compound annual growth rates of just under 7% over the three-year period. That compares to a compound annual growth rate of 3% that we gave in our stress test. So the last three years taken as a whole have been significantly better than the stress test scenario that we presented to you three or four years ago. In terms of operating profit, operating profit up 14%. As a result of the wonderful IFRS 16, those profit numbers are actually overstated because they don't include a lot of our lease costs because they are classed as interest. If we take the operational lease interest and include that in the operating part of the business, the true operating profit, is reduced and what you see growth there around 18%. Margins, the group margins have moved from 16.9% to 16.1%. In terms of the main drivers of that margin decline, and all of this will be covered in more detail as we go through, the two big negatives are overseas margin decline and what is euphemistically referred to here as investment in technology, but of course actually spending in technology. The positives are an improvement in retail margin and the online business has got a significant boost from the fact that three years ago we were still printing catalogues and doing all the photography for them. We're not now. Interest significant decline on three years ago. This is all about the step change in debt levels the company did during the pandemic. It's about 300 million off our debt in that time. And a little bit of interest income, about £2 million of interest income from loans to TP clients. Profit before tax up 22%. Profit after tax up 23%. Earnings per share, as well as the share buybacks, up 28%. Moving on to cash flow. CapEx up 42 million on three years ago. Two things going on here. Slightly less being spent on stores, a lot more being spent on warehousing, and more on technology CapEx as well. In terms of capex, the biggest single item of expenditure over the last two years has been our new boxed warehouse in MSL3. We have already started using the floor space in that warehouse, but we're using it for conventional picking. In essence, it's no more automated than what we have at the moment. We're using the floor space. That's taken a lot of pressure off capacity. Towards the back end of this year, we will have a new sorter that will increase our packing capacity. giving total increase in capacity around 15%. As we move through next year, we will begin to commission the highly automated picking systems and high-based storage in Elmstall 3 that will come on stream into the third, fourth quarter. That'll add another 35% to capacity. And then in the following year, we'll move to the mechanised packing system. It's much more efficient and it's also extremely useful for things like total platform because it allows you to have lots of different types of packaging going to the same courier. In terms of working capital, big outflow into working capital compared to three years ago. two big ticket items here stock of 90 million we'll talk about that in a second and staff incentives this is the bonus we paid to our general staff last year that goes in last year's accounts but is paid in cash terms in this year also big swing into the ESOT 40 million pounds This year we expect the ESOT to cost us in cash terms £40 million more than last year. The reason for that is that we expect fewer redemptions with the share price where it is. So we're not issuing more options, but we are expecting fewer redemptions. Buyback is £228 million. We did those all at the front end of the year, partly in order to get the maximum benefit of earnings per share in this year, partly because we thought the stock price was good at the time, which is proof that you are much better at your job than we would be. So you can take some comfort from that. In terms of year-end debt, broadly where we expected it to be, operating cash flow, £664 million is what we're expecting this year. That compares to £740 million estimates at the beginning of the year. There's about £10 million less cash flow from profits because we started the year at £850 million. The next biggest ticket item is the outflow into ESOT as a result of non-redemptions this year. capex and investments much as expected. In terms of investments, the number itself looks low at 3 million. This is because... Although we invested in more assets, we also leased back a warehouse that gave us a big inflow. So those two things pretty much netted off. In terms of customer receivables, 90 million increase. This is the rebuilding of our customer data book. Shared buybacks at 228 million as well. discussed earlier, and £240 million of dividends expected in the year. That's the August dividend we've paid and a 66p interim dividend that we're declaring in respect that we're declaring today. That leaves us with 700 million of debt. That's about 60, 70 million more than we're anticipating at the beginning of the year. I should stress we are very comfortable with that level of debt. We won't work too hard to reduce that back to the 630 that we expected at the beginning of the year. To put it in context, we've got financing of 1.25 billion. The earliest bond we have to refinance, in case, having looked at the bond markets, you're worried about that. The earliest bond, we've got to refinance this in 2025, when hopefully the funding games will be in one way or another over. And in terms of the actual debt of the business, what we are owed by our consumers is almost double the money that we owe in financial debt. So the business starts with very solid foundations in terms of its debt. Moving on to the balance sheet. Fixed assets, £134 million increase on three years ago. £109 million of that is the investments that we've made. Another £25 million of increase in capex. Although we've reduced expenditure on our stores, we've spent a lot more on our warehouse. So our capex has run around £25 million ahead of our depreciation. Goodwill and intangibles, the increase here is largely about capitalised software. We depreciate software on average over three years, so this will be quite a rapid impact through our P&L as time goes on. Stock is where we've got the really big increase, and this requires a little bit of explanation. Stock on paper in July was 38% up. It isn't anywhere near there today. Part of that increase was the increase in the amount of stock that we had on the water. That's all about the fact that we were having to place orders much earlier, between 12 months ago and 6 months ago, in order to account for longer freight times. So as lead times on freight went out, we placed orders earlier. That means at July we had an awful lot more on the water than we did at the same time three years ago. I should stress that that is about buying stock and taking delivery of it early. It's not about being hugely overstocked. If we look at our forecast for the end of the year, we're anticipating that stock at the end of the year will be around 4% up on the previous year. So broadly in line with where we were Jan 22. And in Jan 22, if anything, we were a little bit understocked. So stocks, and we're already beginning to see the value of the stock in the business decline as we begin to sell stock and delivery slow up a little bit. In terms of debt, that's the 331 million reduction that we did, partly as a result of investing the cash that we made during the pandemic in reducing debt, partly as a result of selling these backup warehouses. In terms of our right of use assets and lease debt, have both come down by roughly the same amount. So there you are, it all does add up in the end. Moving on to retail, total sales. Up 1% on three years ago. Full price sales down 1%. Larger result of store closures in that period of time. Like for likes up half a percent. In terms of the first half versus three years ago, you can see two very different performance in the first quarter and the second quarter of the first half. We think that the poor performance in the first quarter was partly as a result of low stock levels. We think the much better performance in the second quarter is partly as a result of very good weather in May, June and July. Very good summer weather in May, June and July. And that had a significant effect. And the reason I say that is because it's important for you to remember next year when it comes to Q2 trading statements. One of the depressing things about being in retail a very long time is that whenever you have a good quarter, there's a big part of you that worries about next year's trading statement rather than taking pleasure in the good numbers. But just look out for that. In terms of long-term retail trends... I think it's too early to call what is actually going on in retail. If you look at the four previous years to the pandemic, sales declined at around 6.2%. That compares to our stress test number around minus 10%, like for like. If we look at where we've been over the last three years, including the estimate for the second half of this year, then the CAGR in the last three years will be about minus 1.7%. Now you could look at that and think that actually retail is beginning to reach an equilibrium with online and ultimately that's a question of judgement. Our sense is that it probably isn't and that although the future decline in retail is unlikely, we think, to be as aggressive as the minus 6.2% like for likes, The 1.7% is flattered by the fact that our sales today, and indeed everyone who's trading on the high street, are benefiting from the fact that a lot of people who were trading in 2019 are not trading today. A lot of those were very direct competitors of Next, so we think that our store sales, to a degree, are being supported by that. Operating profit after lease interest up 34%, giving margins of 9.3 as against 7.0 three years ago. 2.3% improvement in margin. All of that and more is a result of declining occupancy costs. A number of things going on there. The most important thing is the underlying reduction in the actual cash cost of rent rates and service charge as a result of the various renegotiations that we've had with landlords over that three-year period that accounts for around half of it. The other changes are accounting changes. So an increase in fully depreciated assets. That is a real cash saving because it reflects the fact that we are investing less capex in our stores than we were three years ago. And then there's the impact of IRS 16 timing, which means you pay less interest at the end of the lease than you do at the beginning, even though the actual rent you pay may be higher. And the utilization of the onerous lease provisions, the various onerous lease provisions that we've made over the last few years. In terms of lease renewals, we're still seeing an environment that is very benign in terms of lease renewals. On average, the leases that we either have already agreed or that we expect to agree in the current year, where we're a long way down the path of the negotiation, the 74 stores, we expect on average a reduction of 33% in occupancy costs, annualised saving of £12.5 million. I mean, an average lease term of 4.7 years. The number that looks odd there or at odds with previous years is the 4.7 years. During the pandemic, we were renewing on shorter leases. There is a reason for that. If you take the stores that have got a straight fixed rent, we've only renewed those on four years old. If you take the stores where we've done a total occupancy cost, this is at the other end of the extreme where we agree with the landlord to pay them a fixed percentage of sales to cover rent, rate and service charge. On average, we are agreeing to much longer lease terms. So there is a trade-off here for landlords between the amount of risk they're prepared to accept and the length of lease. that they get. If anything that number slightly understates reality because there are a few stores on very short leases where we're in effect holding over on a turnover rate lease and some very big stores where we've agreed to very long leases eight to ten years on a turnover, on a turnover, a total turnover basis. Achieved gross margin down 1.4%, two things going on there. Freight costs, this is uncosted freight that we've incurred in the current year where we're expecting freight prices to be lower than they turned out. And increased surplus costs in retail. The stock... in retail for sale at the end of the summer was 22% up on three years ago, and the cash recovery was down. So the combination of those two things has contributed to the reduction in margin there. Logistics. The 1% here, the vast majority of that increase in logistics costs in retail is about inflation in wage rates and fuel costs, both in the warehouse itself but also in our distribution network. Full year operating margin in retail we expect to be 10.5%. You would expect margins in the second half of a retail business to be higher than the first because of leverage over fixed costs. So that's the retail business. Moving on to the online business. Online, sales up 42%, full price up 46%, compound annual growth rates around 13.5%. Again, significantly better than the long-term rate we put into our stress test, but sort of in line with the first three or four years of the stress test. Again, similar effect to what we saw in retail is if you just take... this year and our take our estimates for the full year we anticipate that sales in online will be down five percent again you could look at that and think is the online thing coming to the end of its is that is the balance between retail online beginning to um stabilize we think to some extent it is but not the extent it looks so take the compound annual growth rate pre-pandemic it was 13.1 from 2017 If you add on where we are, where we expect to be at the end of this year, compound annual growth rate has moderated, but it's still double digit. And our view, for what it's worth, is that over the next three years, we will continue to see the attrition of retail sales into online. In terms of the divisional performance of our online business, Next brand, in the UK, up 24%. The lion's share of the growth we've got has come from label, up 105%. If we look at the label growth that we've got, this is taking 105% and breaking it into the two contributing factors. 50% of that growth has come from expanding the offer of brands we were already trading with in 2019. 55% of it has come from bringing on new brands, in particular, actually, brands like Gap and Reese, where we've also got a total platform arrangement with them. Overseas growth up 41%. This growth is slightly misleading, because if you reverse out Russia and Ukraine, the number's around 55%. So, like-for-like growth, and our overseas business up 55%. In terms of where that growth has come from, You can see around half of the growth has come from the growth in sales on aggregators. The other half has come from light flight growth on our own websites. And it's just worth talking briefly about aggregators, because this is one of the areas where we've slipped on margin. If we look back to where we were in 2019, in terms of participation, aggregators were 9% of our turnover. They've grown 274%, and now 22% of our turnover. And that has had an impact on margin in two ways. In terms of cash versus credit customers, these are the numbers of customers that are trading with us using an account. What you see is lion's share of the growth in customer numbers has come from cash customers, but we have also continued to grow our credit customer base, which I think is the surprise. And I think what I should say here is that this is the continuation of a long-term trend. at the participation of our total customer base from cash customers. You can see that from long before the pandemic, we were seeing a consistent increase in the numbers of customers choosing to trade with us on a credit card or through PayPal or through some other payment method. However, the credit business is still very important to us because it accounts for, we estimate that it will still account for two-thirds of our trade this year. The other thing is that the best cash customers are the ones most likely to convert to credit customers. And if you look at the growth in credit customers that we have achieved, the vast majority of that has come from the conversion of people who started as cash customers. There are very few people who come straight onto the website and for their first order trade on credit. In terms of sales per customer, and this looks like it's rather unremarkable at 6%, but if you look at the growth in sales per customer for cash and sales per customer for credit customers, both of them have gone up by 19%. But because cash customers on average spend less, the total growth in sales per customer is only six. The underlying growth in both credit and cash customers, we believe, is the result of the additional choice that people have on our website through label. And you can see that both in the label numbers and in the sales per customer number. Overseas, a decline of 8% in sales per customer. That number is actually slightly worse than it looks because if you break that down and say, well, how much of that is about country mix? Actually, if anything, the countries that have a higher spend per customer have grown faster than the ones that have a lower spend per customer. So all things being equal, our average sales per customer should have gone up. The reason they haven't is because we have... dramatically accelerated the rate at which we take on new customers through advertising. That does two things. First of all, it increases the participation of new customers as a percentage of our overall sales base. And secondly, the new customers themselves, because they've been persuaded to come to the website by advertising rather than come through just seeking out the brand, on average tend to spend less. What I should stress here is that we're not planning on cutting back our marketing overseas and it's still extremely profitable to do the marketing that we do so it's not that the marketing is unsuccessful it's just that the nature of those customers that we're getting is that they initially at any rate spend less but are still profitable. The other interesting thing that's happened over the last three years is the change in our returns rates and that again needs a little bit of explanation because there's a lot of chatter about returns rates Returns rates three years ago, on average for the company, were 41.1%. If we apply the weighted returns rate of cash versus credit customers, because cash customers return less than credit customers because they're having to pay for it at the point they order, you would have expected our returns rates to have gone down by 2.2%. Two things, three things have pushed that the other way. The first is the mix of aggregators. Aggregators have, on the whole, very high returns rates. We incur the cost of sending out and bringing back that stock. And the countries that have done best overseas are the countries that have the higher levels of returns. Secondly, product mix. The last half on the half three years ago, relatively, we're selling more high-returning product, things like in particular dresses. And then the final thing is there is an underlying change in sort of consumer behavior of 0.9%. What we think that is down to is the increase in the average spend per customer. What you tend to find is that as customers spend more and their habit of using online increases, they tend to over-order more and return more. Still very profitable because obviously you're not having to market to those customers. You've recruited them already. But what you gain by way of saving on marketing by having the customer, you lose a little bit of through the fact that they tend to return more. So in terms of margins online versus three years ago, decline of 2.9%. Just again, walking that through. Unplanned freight costs, as with retail, minus 0.6% impact. And the fact that our label stock, because we don't buy it, we're buying it wholesale or it's on commission, both of which the percentage margin on wholesale and the percentage commission is significantly below our own bought in gross margin. That mix has reduced the online profitability. Markdown. Unlike retail, very little attrition from Markdown in terms of our online business. And that is mainly because although we did see a deterioration in clearance rates online, the sales stock that we had online grew significantly less than the growth in sales. Sales stock was up about 22% on three years ago, as against full price sales, they were up 46%. Warehouse and distribution, adverse movement of 1.4%. Three things happening here, two costs and one benefit. The costs is UK cost inflation, this is fuel and labour, particularly things like HTV drivers. Overseas has a much higher percentage of its costs are distribution and warehousing than the UK. mainly because of air freight, and increase in average selling price has moved it the other way. Because average selling prices have moved up, the number of units we're pushing through our warehouse relative to sales has not risen as fast, and that gives us economies of scale. In terms of other costs, what you can see here is that the rising cost of technology has pretty much, well, has more than been paid for by the savings that we've had on print. Margins for the full year are expected to be 15.3%, marginally below the first half year, and this is the result of depreciation and rent beginning to kick in on the Elmstall 3 warehouse where we're beginning to use the floor space. In terms of the breakdown of margin between the businesses, this is the profit that these are the margins that we made three years ago they are different from the ones that we showed you three years ago for two reasons and i want to explain both reasons um the first is that we have looked much more carefully at the profits in our label business and the costs of our label business. One of the main reasons here is because, relatively, we hold a lot more of our clients' stock than we do our own. It turns slower. We have under-allocated warehousing costs to label and various other central costs where they were getting a little bit of a free ride when they were small and now they've got to pay their fair share. So that has served to increase... the reported profit on our next brand and reduce the label margins to 13.3. Moving the other way, the way we have accounted traditionally for our LIPSY profit, in order to motivate and manage that business, which is run as a separate business, we have taken half the profit they make online and put it into the LIPSY division. This works very well in terms of managing that business and motivating them and making sure they're looking at their profits But because all of their sales go into our online business and always have, but only half of their profits, as they get bigger, that begins to artificially lower the margin in our online business. So what we've done now is put all of the Lipsy profit where it belongs in overseas and label. both for this year and three years ago, and you get an opposite movement of 1% improvement in labour margin and 0.2% movement in overseas margins. So that's all of the adjustments, but we think those numbers are now much better numbers. I think the other thing that's important to say is on the 13.3 margin on labour, although it's lower than we thought it was, and we think we can improve it, We're not anxious to get back to 15%. We think looking at the general aggregator market, both in the UK and worldwide, our margins at 13%, double-digit margins, are unusual for aggregators. So we're certainly not going to punish our clients or our consumers in order to rebuild that margin back to what we thought it was three years ago. In terms of three-year change, you can see Label and Next UK on a light flight basis pretty much in line with three years ago. And then overseas, now one of the things that people used to say to us in the old days, three years ago, a lot of our investors, indeed even some of the analyst community were saying, why are you making so much profit overseas? Surely you're over-profiting and that's a mistake. You'll be pleased to hear that we have corrected that mistake. analyst joke. We always plan for our overseas margin to be 10% in the first half. We underachieved on that by 7.4% and what I want to do is just talk through where margin has eroded by design and where it's eroded by mistake and what we think we can do about it this year and going forward. So in terms of where we've eroded it by design, we used to make very high margins, significantly north of 25% in a lot of our Middle Eastern territories when there was no duty. When duty came in in those countries, we decided that we would take the hit of that rather than pass it on to our consumers because we were already making very healthy margins and still do in most of our Middle Eastern territories. So that is a hit that we consciously took. Technology, as with the rest of the business, our overseas business needs to take its fair share of the increasing costs of our technology base. The areas that were less planned were on delivery and logistics. Now, some of this is the inflationary increases that we've seen in the UK just being reflected in our overseas business. But the lion's share of it is down to what started as surcharges. And during the pandemic, a lot of the air freight costs that we incurred delivering to our customers went up dramatically. because air freight was so expensive. At that time, we thought that we would take the hit of that cost, we'd keep our prices where they were because it was only temporary. As time has gone on, we've realised that a lot of those surcharges have now just translated into higher fuel costs and air freight costs. So we need to look to our pricing in some territories to recover some of those now permanent delivery costs. aggregator participation and margin aggregator margins quite rightly are lower than our own so aggregator target margins would be 9-10% our own sites overseas would be 13-14% the aggregator the increase in participation naturally brought down our overseas margin. That was planned and acceptable. However, the aggregators themselves made much less profit than expected. And that is mainly about returns rates. That unlike the UK, where we planned for a dramatic increase in returns rates, a return to normal this year, because we had so little experience of our... aggregators going into the pandemic, pre-pandemic returns rates, we didn't anticipate the increase in returns rates that our aggregators would experience. That was a mistake, it was an oversight, and that has cost us in the first half. Because the returns rates are high, there are some products with low average selling price that we just shouldn't have on those aggregators at all. So basically, low average selling price, high returns rates items are not profitable selling aggregation sites and they should come off. be sold on our own sites where we get much better consolidation costs and low returns rates. So, again, that is an erosion where we can correct some of that. And then finally, we had a higher surplus overseas, as we did with the rest of the business, but... overseas again we weren't careful enough about which outlets we put it through and again we put too much of that markdown stock into high returning countries where we cleared a lot of it but because you've got high returns the cost of clearing actually wasn't worth it and we should have put it into the lower returning countries so The three areas in green are areas where we think we can and should recover some profitability. In terms of what we're expecting, we're expecting H2 to recover marginally to 9%. Long-term, we're expecting next year, year after, for price increases largely to drive profitability back to 12%, along with the removal of some items where we shouldn't be selling the low-ticket items in high-return countries. That, on the face of it, looks very bad because it means that we're going to have to raise our prices in some territories. I should stress, and there are very, very few silver linings, but one very small silver lining to the weakness of the pound is that actually in local currency terms, we will not have to raise our prices at all. in order to achieve higher margins next year and the year after, because the local currencies are so much more valuable than they were to us. So in terms of consumer impact, we're not expecting any consumer impact from the margin recovery over the next year or so. It will be paid for by the currency decline. Moving on to finance. Finance... had a good season. Total credit sales were up 3%. But as a result of the recovery post-pandemic in the data book, we saw a 13% increase in average balances. By the end of the year, we expect that increase to be around 8%. So we're expecting the growth in the interest income to slow as the debtor book begins to stabilise as we've gone through the year. Interest income up broadly in line with receivables. Bad debt charge significantly lower than three years ago, partly as a result of COVID provision release. We took, you'll remember, that we took a £20 million COVID provision release. Most of that we have rebadged. We haven't just hung on to it because COVID is now truly over, we think. We haven't just hung on to it. We have reallocated a lot of it to account for potential cost of living crisis increases going forward. About £3 million of it we've released. We had a debt sale of defaulted debt that gave us £3 million income. That's a one-off. and we have reduced our provision rate back to the levels that it was at, so 2014, 15 and 16, and just... to remind you all, in 2019, we saw a significant increase in default rates. That was largely, we think, as a result of internal measures that we took, but we increased our provision rates to account for that. What we've seen over the last, over the pandemic and continuing into this year is default rates returning to levels that they were at pre-pandemic. So we've brought our provisioning rate down to those levels. In terms of our overall provisions, we still, I think, have a very Prudent but, you know, right provision for a bad debt. So our total provision for bad debt is about 8.8 as compared to the default rate around 3.4. So we think a very sort of conservative debtor book, but not too conservative. That was especially for our auditors. Just in terms of the current performance of Dettabook, this is one of the remarkable things about the time we're going through at the moment, is that if you look at the percentage of our account that customers pay off month by month, running into the pandemic, that was running around 12.5%. During the pandemic, of course, we saw significant pay down of debt as consumers cut their expenditure elsewhere. But what's interesting is since the end of the pandemic and right up into the weeks we're experiencing at the moment, we're still seeing the payment rates drop. remain higher than they were running into the pandemic. So everything that we can see on our consumer receivables book as yet would not give us any indication that there are strong levels of distress in our customer base. That doesn't mean that won't happen going forward, but as yet we're not seeing any evidence of that. Net profit up 23%. We did the same thing on the interest profit on Lipsy sales as we did in Label. We gave the Lipsy business half of the interest profit we allocated to Lipsy. If we add that back into the finance business, as we will going forward, the increase was 27% on three years ago. Good. Okay, so that is all we've got to say about the performance of last year. Looking forward at the outlook, you can all read the wonderful quotes that I've put for your benefit, that there are two types of forecasters, those who don't know and those who don't know they don't know. Obviously, we apologise for stealing the equity analyst's motto. I actually got a laugh. That is the first time in any analyst meeting I've got a laugh, but thank you very much. You know, we are trying to make a serious point here, is that the forecast over the last three or four weeks, as we've been beginning to write this document, we have changed our view of the outlook several times. When you ask a retailer how they feel about the next 10 years, most of them, the main reference point will be yesterday's sales, and for those of us with long memories, it'll be the day before. And if we look at how the sales have panned out over the last eight weeks, it has been very hard to read. Quarter two, we already said, was very good, up 5%. We always expected quarter three and quarter four to drop back. August was very poor, minus 3.1%. That was over five weeks. Now, there are all sorts of excuses that we love to make when bad things happen. There was a heat wave, a lot more people were on holiday. I should stress, by the way, I'm now talking, confusingly, I'm talking about last year, rather than three years ago, but we think that's a better reference point for our sales going forward. So against last year, 5%, quarter two, when all the shops were open, 3.1%. decline in August, we think that there was more going on there than just weather and holidays. Very difficult to prove that, but we think the anticipation of very high energy bills and costs of living, costs beginning to go up, including the cost of travel and holidays themselves, were beginning to affect consumer behaviour. We have seen a very strong bounce back. It's only three weeks, and the weather has turned earlier than it turned last year. But we have seen a strong bounce back in September. If we look at the average sales over the last eight or so weeks, then sales were down 0.3%. So you can see, however you look at that, there is a marked slowdown from Q2. Previously, we had thought the rest of the year would be up 1%. So we had, after Q2, we'd shaved 4% off our Q2 growth rates. We think that's probably not enough. A lot of the bills that people are worried about won't actually hit down until October, energy bills in particular. And we know that a lot of our consumers, a lot of people, are only affected when they actually get the bill, when it actually hits them. So we think the right thing to do is to moderate our sales forecast for the rest of the year down 2%, which is how we've adjusted our forecast. We may be wrong about that. We may have been too pessimistic. We may not have been pessimistic enough. There is, however... one, shall I say, joker in the pack, and that is that we don't yet know what the effect of government stimulus packages will have on consumer spending. So if there's anything that might wrong-foot this forecast, it's that the effect of tax reductions, energy price caps, actually have a more positive effect than we're expecting. But it is, at the moment, it's anyone's guess. So if we take a minus 2%, and I should stress here, because we've all made this mistake, it's minus 2% for the rest of the season, which when you factor in the season, the August and September sales we had already, is minus 1.5% in the second half. But if we take the minus 2% we're expecting going forward from this point... that breaks down plus three in retail, minus five online. And what you can see there is that in terms of how we've broken that down, we are expecting a bigger fall off in online sales versus last year than we are in our retail sales. That's because we think that last year, particularly in the run up to Christmas, a lot of people, because you believe it or not, it was only less than a year ago we all worried about Omicron. There were people who didn't go to, there were still people not going to shops because they were worried about COVID. So we think it's right to take the money out of the online business rather than the retail business. just to give a complete picture in terms of what that means for the full year. That gives you a full year picture by division, 4.8% in total. And just so that it's there for your records, what we've also given you is added the finance numbers to there. So the slide has now got performance in the first half, performance to date in this half, and rest of year with the total. In terms of the effect that that has on our profits, we had... Guided to 860 when we euphorically raised our forecast just eight weeks ago by 10 million. The sales reduction, the reduction in full price sales we've now put in versus our forecast, 24 million loss of profit. 3 million, we've anticipated that our clearance rates will be worse with more stock going in with lower clearance rates. And we've got various costs and provisions that we now think will be slightly higher in the second half than we anticipated when we issued the £860 million guidance. So that's our new guidance and earnings per share up 2.7%. And if you're wondering why the increase isn't as great as you might expect, there's something funny going on with a... with the change in corporation tax rates that Amanda can explain in great detail which means although corporation taxes are now expected not to go up that means some credits that we had that we were releasing we won't but Amanda can explain that in great detail because it's exciting and interesting moving on to the year after next if you say to me Simon what are you worried about it isn't the run up to Christmas and the rest of this year. That actually is the least of our worries, our big worries next year and the cost of goods. If we look, and that's just to sort of give you a sense of where we stand at the moment, if we look at our costing rate for this summer, the half we just reported, we costed at 137, so each dollar was costing 73p. If we look at where we are for next year, there is an 8% erosion in the value of the dollar for next year. That 127 we have locked into. So we won't feel the worst of it in spring, summer. As we move into autumn, winter, that's when the problems really begin. The equivalent number this year is 74p. As we stand today, well, it moves every day, so this slide is already out of date. Who knows what it is this morning? We've covered 30% of this, partly through natural hedging, our own income, partly through cover that we've taken. But the rate we've covered out is obviously significantly lower than this year. And we've still got 70% to cover. If we were to cover out at 107, then the increase in the value of the dollar will be 26%. Now, what I wouldn't want you to do is to take that number and assume that that cost of goods increase, which is a factory gate increase, all goes straight through into price. Some of it will have to, but there is an awful lot we can do or that will naturally mitigate those cost increases. First, and probably most important, is that a lot of the pound's weakness is dollar strength. The dollar had already dropped to 1.15 before the various announcements made over the last two weeks. And local currencies have appreciated. Take the Bangladeshi taka or the renminbi or the Sri Lankan rupee. All of those have appreciated much less against the pound than the dollar. So there will be some of the local costs that don't rise by as much. Factory capacities are in much better shape than they were this time last year. So there is capacity both... to negotiate with existing suppliers and to move to new suppliers. Freight costs have already come down and we think will continue to come down. Commodity prices have come down. I think they may continue to come down. And obviously we have our overseas revenue. Well, in effect, we can set the exchange rate that... revenue is covered at. And we may choose to use some of our increase in overseas profits, although we'll still want the margins to recover, we may choose to use some of that profit to reduce our costing rate for the rest of the business. The final thing is to say that the UK, the cost of stock is around only 60% of our total costs. So anything we can do to reduce contain our UK cost base and profitability will serve to reduce the amount we need to put products up by. We won't just take the cost of goods and pass them straight to the customer. We'll look at our cost base in the round. We will, as always, aim to maintain our margins, but we've yet to take a view on that. And before anyone asks a question, it is much too early to say what we will do next autumn, winter, because we haven't yet bought a single garment yet. It's probably an exaggeration. We haven't yet bought any material amounts of stock for autumn, winter next year. So I think it is way too early to begin to make forecasts. But there's an awful lot we can do to mitigate the costs. Of course, the other thing that this doesn't include is our ability to resource. For three years, really, we haven't done very much, if any, overseas travel and our supply bases remain pretty static. There are still new parts of the world coming on stream. Now, the reliability, quality, ethics of those places all needs to be tested. But we will redouble our efforts as a business to push into new territories and to make up for some of this increasing costs through resourcing, which is a game we've played for many years in terms of new suppliers, but it's not something that we've done really over the last three years during COVID. So looking ahead, I think the first thing, and obviously this is self-evident, but in terms, it's very important to remind ourselves that as we go into next year, that the company is a financially strong company. So whatever we need to do, we have got the capacity to do. I say, not our plan to take a hit on margin, but if we have to, this year we look like we'll be operating on 16% margins. We're highly cash generative. Our debt is only just over half of what we're owed. So we are in a position of strength. And it's important for you and our shareholders to know that although times will be getting difficult, we won't cut expenditure and investment in the areas of the business where we think we will benefit the most. And those really come down to two areas. Our product, continuing to push investment in the design and breadth of our offer, both in our own products, through licenses, collaborations, and through other brands. And we will continue to invest in our technology. We're not going to suddenly say, well, times are tough, so let's cut back on our systems expenditure, because we think that is absolutely central to the future of both our core business to our aggregation business and, of course, to Total Platform, which we still think will be a useful source of revenue once the Amazon 3 warehouse is open. So I want to kind of reassure you that we're not in panic mode over costs because next year, cost of goods are going to go up. There is, however, more we can do to manage costs. The biggest single leave we've got in our operations is really to get better operating efficiencies in our warehousing, distribution, store networks. As average selling prices go up, unit volumes come down. we will begin to reverse some of the inefficiencies that we have had to endure during the pandemic when we have been working right up against the limits of our capacity. As a warehouse begins to get to capacity, you begin to get lots of inefficiencies. that begin to increase your costs, not least if you're taking on huge numbers of new colleagues. Those new colleagues take at least three months to get up to the efficiency of their new colleagues. a reduction in the units that we have to handle and the rate at which we have to take on new people ought to move efficiencies forward. And the other thing is that over the last three years, and I think we explained this during the pandemic, one of the levers that we've been able to pull in order to take the pressure off capacities is to compromise our service level, whether that means pulling forward the cut-off on any given evening to early in the evening to move some of the volume picking into the following day, or the efforts that we go to to get stock from our stores and through Label Plus to our customers. So, for example, going into the pandemic, any stock that came out of stores or from our partners' warehouses delivered to customers got there in two days. We had a 48-hour promise. Today, that's three days. So we've got an awful lot of work to do to get our efficiencies and service levels back to where they were pre-pandemic. We've already talked about this, but it is, just to re-emphasise, the rebuilding of margin in our overseas business and the fine-tuning of the margin in labour will become all the more important as we move through the rest of the year and into next year. Managing choice. Now, this is a tricky one because this could be an enormous pendulum swing and we could score an own goal. The increased choice on our warehouse has been a significant driver of growth for the last five, six years. However, there are some areas where we've gone over the top. I'm just going to use one example, which actually the example I'm going to give you is not as bad as it is in real life, but nonetheless. This is a men's blue Chino. If you want this blue Chino, you can get it in any number of six different blues. Some of those booths actually, if you change the contrast on your monitor, you actually change it by more than the actual difference in the Chino. And we've got it in four different fits. Most of those come in 22 different sizes, longs, shorts, and that has two problems. The first is that it takes up an awful lot of warehouse capacity forward picking location. If you've got lots of items in your forward picking locations that means people have to walk further to pick it and that reduces your efficiencies. It also means you fill up forward locations which makes it much harder to manage returns and get them back on sale. The other problem is that if you spread the jam too thinly, you begin to run out of stock of lines. If I've got six different blues and I buy a little bit of each, the chances of the customer landing on the one that's fully stocked becomes lower and lower and lower. So there is a job of work to do to take the areas where we are over-optioned and cut those back. That needs to be done with great care. And I'm saying this is what we're going to be saying to our colleagues in our presentations this afternoon and tomorrow. But... that doesn't mean that we stop doing choice. We don't want to do this, But we do still think there is a big opportunity to push the boundaries of our design. So if you take this blouse, this blouse is same fabric, same style. But actually, on this one, each of those items does a different job. And if you were to add a plain white or a cream, not both, but if you add to one of those, it would add to the choice. If you were to do a paisley, it would genuinely add to choice. So we've got to do something very difficult, which is cut back on unnecessary duplication, but... continue to add genuine choice and diversity of design. If we can achieve that, not only will it reduce costs and increase our efficiencies and stock availability, but it will also make it much easier to navigate our website. And that is the second big objective we're setting ourselves going forward. Over the last five years, as we've increased the amount of choice on our website, it's become... harder and harder to find the item you're actually looking for like it's one because there's more on the website now on balance we know that adding that choice because we've trialed it we're not adding the choice on balance is definitely the right thing to do but we think there's an awful lot we can do to improve the effectiveness with which we um with which we um help customers search and select items so we're looking at attribution our filtering both on the mobile site and the desktop we're looking up we have just started a trial actually where we're personalizing our sort order and that doesn't mean you as an individual will get your own special sort because that would be incredibly slow but it does mean for example that we may have some success if we give people who tend to buy items at the top end of our price range a different sort order from those who tend to buy at the value end of our price range so we think there's a lot of opportunity there and on the product page itself we can do a much better job of offering complimentary and alternative items so here you can see you want to buy the lovely wardrobe but if you want the bed or the chest or the dresser at the moment you've got to search the whole website to find it put it on tabs and it makes it much easier and this is something we're beginning to realize at the moment and where we're having good success on what we've done so far the final that we'll be talking to our teams about, and have already started talking about, is what I've already mentioned in terms of managing the cost of goods. We need to get back on those aeroplanes, go out into the territories, and we need to push very hard at our supply base. Again, there's risk here. This is not risk-free. There is still opportunity. within our supply list, we can push further into existing countries where we trade and into new countries, but mainly further into cheaper areas of countries where we're already trading. And that has to be done ethically. We've made mistakes in the past where we've put big orders with people who had very good prices where they just either didn't deliver it or where the quality wasn't up to scratch. And in pushing into new sources of supply, we mustn't compromise our design. So this is not straightforward, but it is one of the big tasks that we'll be undertaking over the next six months. So that's it. And I have to say, I've done it in under an hour, which is much better than any pre-pandemic record. So I have been practicing very hard. I think to sum up, I realise on our first meeting together, I'm not delivering you a bundle of joyous news, and that we are looking at not just another six months of difficulty, but really another 18 months of difficulty. And the sort of cost of living crisis, it looks as though we're going to have to endure that. As a business, we're going to have to endure that twice. Once as a constraint on supply, and secondly as a currency crisis. Whilst. That is extremely challenging. We will take the approach to this crisis that we've taken to all the other crises that we have talked about together over the last 20 years, whether that be the credit crunch or the pandemic or various times we've messed up our own ranges. And there are sort of a few things, features of what we will do. The first is we'll be completely open and honest and transparent with ourselves and with you about the nature and scale of the challenges. And secondly, we will, as we have always tried to do, boil down our response to the simple, clear things we can do to make things better. Ultimately, we are a business that is constantly looking at a five-year horizon. And however difficult things may be for us over the next 18 months, and we don't yet know what prices will look like in autumn, however difficult they are, the overriding priority of the business is that in three years' time we are a better business with better products, better services, better technology than we are today. keeping our eyes very firmly on that horizon that will ultimately make the difference to whether or not we're successful in the long run. And that has always been our philosophy, and it will be our philosophy going into the next 18 months. So that's where we stand. Alistair was desperate for me to say, well, you've done it all before, you've seen these crises before. Actually, every crisis is different, and we don't know that we will be successful, but... At least you will know exactly the attitude with which we tackle it and the values that will continue to underpin our business, whatever. And those will be to make sure that we're delivering great value to our customers, as good a value as we can to our customers, our clients, our partners, to make sure that we continue to play to our strengths. You're not going to see us suddenly veering off into doing insurance or some weird and wacky business in order to plug any gap that might be left by cost of goods going up. We will continue to be very disciplined about the margins we make in the business. And we will continue to get a good return on capital. If we stick to those four things, we think we can emerge in better shape. So there we are. That is a preview of the speech I will be giving all of my colleagues later on. And with that, we will move on to questions.

Hi, it's Simon Owen from Credit Suisse. Three for you.

We're going to limit it to two questions. We'll have all sorts of inflation going on here. So, Simon, we're not going to have question inflation as well.

We'll stick with two then. How should we think about OPEX next year? Is there a kind of nice number you can give us on elasticity? So volumes, say, are down 10. How should we think about unit OPEX? Down 5, you know, or just give us some kind of colour around that. And secondly, on label, you're obviously buying a lot of product in sterling. the brands presumably are going to be taking a bit of a hit on not passing through costs. Are there going to be constraints on you being able to pass through effectively sterling costs on label product into euros and dollars?

Yeah, look, I mean, the second question is a very important question. Yeah, I think when people always say this, it's like, are you going to be able to pass it on? At the end of the day, there is going to be no law, as yet. You never know what this government is going to do. But there is no law dictating what we can and can't put our price by. So, of course, we can pass on. The real question for us will be, and we'll take this on a brand by brand and product by product basis, is what is the margin sales equation mix from not taking a hit? And whenever we looked at this in the past, actually... the sales you gain by not passing on the increasing costs it's very hard to ever get to a sensible number for sales to make up for that. So I can't say what we'll decide to do because, as yet, we haven't done our budgets for next year. We don't know what our prices are going to look like in autumn-winter. But what I can tell you is that the method we will use is to say, very simply, if we don't pass on this price increase, what do our sales need to go up by or not go down by in order to pay for that? The answer we've always come back to in the end, in the past, is actually... You've got to pass it on. I think the one exception to that would be, and I'm hypothesizing now, which is very dangerous, but I'll do it anyway. Amanda won't like this. If we got to the stage where the rate at which we bought autumn, winter next year was much worse than the rate we got for the following spring, summer. In order to keep our prices the same from summer to winter to autumn the next year, we may choose then to take a hit on margin because you're not just then talking about the sales you achieve in that year, you're also talking about hanging on to customers that you'll have next year and putting your prices up in order to bring them down is never a sensible thing to do. But again, I'm sort of straying into the hypothetical, but hopefully it gives you a flavour of how we will handle those questions as and when they arise. In terms of OPEX, what I would hope is that our manual labour costs would come down pretty much in line with any unit reduction we get in sales. And you can already see in our accounts we've got some benefit from that this year. In terms of the actual unit cost for handling, one of our big objectives is to reduce that as we get the luxury of more capacity. Whether that will be enough to offset the increase in fixed costs from that new capacity and any top line erosion is very difficult to know. And particularly as we haven't done our budgets yet. So really, I think the time for me to answer that question in detail is next March when we will have proper budgets for next year.

It's Adam Cochrane from Deutsche Bank. I was really pleased that you didn't have any storm clouds or down escalators or nothing.

Yeah, no, we thought about it, honestly, and we thought they'd done that.

But when you sort of think about the utility costs, we can obviously have a view on the consumer. How is it as an impact for your own business in addition to wage inflation? I don't know. if you have a view on that for next year at this stage, but is there sort of OPEX pressures coming through as well? So any work you have to do to offset any cost of goods sold, there are some competing pressures on OPEX as well. And then secondly, when you think about your passing through your prices or not passing them through, historically at least, I think you've always tried to talk about maintaining percentage margin rather than the cash margin. Is it get to a stage where you're uncertain because the number's so big it's going into a different environment rather than the policy of how you would think about it has changed?

Thanks. Yeah, it's a great question. We have discussed it. We haven't come to a conclusion. My gut feeling today is that we will focus on the cash. We will focus on the cash margin next year in the middle of the crisis. I think it would be pedantic of us to focus on maintaining a percentage which already by industry standards at 16% for the... for the group is high. So I think that that, you know, I think cash margin and cash profit has to be the overriding priority for next year, I think. Would you agree with that, Amanda? Yeah. Okay. See, there we are. So finance director agrees. It's great. But we know, we definitely think that. And it comes down to the fact that our finance, that the strength of our margins allow us to do that. I don't think, you know, if our margins are owed to 14, 15% and we maintain our cash profit, I don't think the business becomes markedly more risky through that. The second thing, in terms of OPEX pressures that we can see next year, the biggest single pressure is going to be what happens to the minimum wage. And we don't yet know that. I think whatever happens, though, it's likely to be less than the cost of goods. I'm going to say, you never know with this government, but it is likely to be less than the cost of goods. So whilst we still foresee OPEC's pressures, we think the one that we've most got to worry about is cost of goods in the second half. It may not be the same in the first half. In terms of electricity, this year our electricity bill has gone up, correct me if I'm wrong, about £27 million on 30. So we have electricity and gas together. Apologies, thank you. It's gone up by £27 million on 30. We're capped until March. After the cap comes off, it's anyone's guess, and it will depend on market prices as and when that cap comes off, and indeed whether it is continued. But it could be as much as another 25, 30 million.

Thanks. It's Anne Critchley from StockGen. Two questions from me, please. Could you comment a bit on how home has performed relative to clothing, both in the half and in current trading? And then secondly, on price inflation, I think previously you said you expected 6.5% for clothing and 13% for home for autumn-winter. Is that still your view? Thanks.

Yes. So yes is the answer to the second question. No change in our outlook on inflation, either fashion or home for the current season. In terms of home's performance, against last year, home has performed much, much, much worse than fashion and clothing. In the first half, it performed worse than fashion against both last year and three years ago. We have seen a moderation of the decline in the last two months. So both against last year and I think I'm right in saying three years ago. So it looks like sort of the sort of peak decline decline in homeware, both against three years ago and last year, is behind us. But I would hate for anyone to think I was an optimist on that, but it does look vaguely encouraging. Pleasure.

Hi, it's Simon Boulder from Numis. I'll stick to the two. First one, you haven't referenced total platform in any kind of meaningful way, so I just wanted to have a little bit of an update on how you're seeing that part of the business and development there. And then secondly, you made reference to kind of product mix within the presentation and kind of more going into some of the high-returning categories, I think was where I picked it up from. What do you think that is? Do you think you've made more progress in those sorts of categories, or do you think that's kind of a release of some kind of pent-up demand that, again, to reference your point about good quarter being away for next year, we need to be thinking about in terms of next year?

Yeah, very good. I agree. I think the product mix, I think it's partly driven by fashion. You know, fashion has definitely, we have seen a return to more formal fashion. Fewer people with open neck shirts, more people with ties and jackets. And actually, to the extent that people with open neck shirts now feel slightly uncomfortable when they look at their sharper colleagues, sharper dressed colleagues, I should say, sitting next to them. So we're definitely seeing, both on men's and women's, a return to formal dressing. I think part of that fashion trend is pent-up demand. But because people haven't bought a new suit or a new dress for three years, they're buying a new one. But the two things become self-fueling because the act of everyone going out and buying one means that people begin to notice their friends and see new designs and you sort of get a virtuous circle. So I think it's difficult to see which is which. But I think where you're right to be cautious is next Q2, part of what we saw, so part of that exceptional performance was people going to a party or a race course or a wedding for the first time in three years. The other question you asked about total platform. In terms of total platform, there are two important things about that. The first is that we are in the process of... making the system far more adaptable so that the time taken to take on a new client in terms of IT time has come down from over a year to significantly less than six months. So in terms of our ability to take on new clients, we are in a much, much better position than we have been in terms of recent launches. The Gap launch was the best launch we've ever had. Reece launch went extremely well. So we're very pleased with what we've done. The rate determining step on Total Platform and the reason that there's no news about it is because really until we've got the automation open in our warehouse back in the next year, we will be uncomfortable taking on a new client. It's not to say that we couldn't, and if we wanted to gamble, we could say, well, let's look at our own declining units as a result of increasing selling price. We could gamble and take on a new client, but at this stage in the business's development, and indeed I think any sort of response provider, the worst thing we could do is take on a client and make aholics of it. So really, we're not looking at taking on any new clients or actually going operational with any new clients till the very earliest, the fourth quarter of next year when we've got the automation picking open and the beginning of next year. In the interim time, we will go live with a client we've already run, which is the... Jojo Baby Maman business. So I'm really expecting Total Platform to come into its own 2024, but we will begin to start negotiating and recruiting new customers in earnest next year. There's no point in talking to people now if we say we've got to wait 18 months, two years before we can go live. Catherine.

Hi, Caroline Gulliver from Stiefel. We've talked a lot about rising costs this morning, but in the change in guidance, I think you alluded to a $6 million increase in costs since you last gave guidance in August. I just wondered if you could give us a bit more detail specifically on that. And my second question is, in your customer segmentation analysis, I just wondered if you had a view on how many of your customers have a mortgage.

Yeah. On the mortgage side, it's very difficult to model. And I'm not going to give you a number because what matters is not the number of customers you've got that have a mortgage. It is the term for which they're fixed. So we don't have a number for that. What we do know is that in the long run, as mortgages begin to unfix, that is going to begin to weigh on consumer expenditure. And again, it comes back to the same thing, really, in terms of prices. The benefit that we may or may not get this season we're going to pay for. Next year in prices, the year after that may be in mortgage rates. In terms of the 6 million rising costs, some of that is provision increase. Most of it is wages. About 2 million of it are wages that we incurred in August. where the sales were significantly below our expectations. And each week we thought it would get better next week. So things like our store staff and warehouse staff, we didn't moderate that fast enough. So £2 million of that £6 million cost is sort of in the bank, if you like, or not in the bank. And the other £4 million is either provision or expectation that some of our wage costs will continue to rise throughout the rest of the year.

Thanks, Richard Chamberlain, RBC. Can I just ask a couple, please? Can you just give us an update, please, on your full price sales percentage or some maybe thoughts there versus where it was pre-pandemic? And then also the recent summer trading period, particularly the weaker August, better September. To what extent was September affected by depth and timing of sales? versus last year. Thanks.

Yeah, okay, good. So first of all, I should stress that the numbers we've shown you on the week-by-week chart are all full price. So they are. And this year's markdown wasn't significantly different to last year. Slightly more, actually. You would expect it to have more of a negative effect on full price. So I think those numbers that you've... I wouldn't factor in any significant effect of markdown on those full price sales that we've shown you over the last... eight weeks. In terms of the company's total markdown versus three years ago, it looks broadly comfortable. I think there are areas where we can tighten up, particularly on label wholesale. Some areas in particular, for example, sportswear, where although we cut our budget on various wholesale sports products, brands, we didn't cut it by enough. So there are definitely pockets where I can say, look, actually we can do better on markdown. But if I'm looking at what's going to drive profitability going forward, it's really the management of the markdown rather than the total markdown that I think will make the difference. Not, for example, putting it through aggregators and selling at a loss would be a start.

Hi, it's Georgina Jones from JP Morgan. Two as well from me, please. First of all, I appreciate you've given the difference in freight versus what you expected and therefore the kind of headline drag within the margin, but is it possible to share the cumulative drag that you're seeing from freight so far, please, just so we can get a sense as that eases from here how much kind of offset you've got against currency? And then the second one was just I'm not sure if this is something you'll share, but given the price rises that you're kind of talking to, is that a similar rate that's coming through in kids pricing as well, please? Or is that different? Thank you.

So in terms of freight, I think the best way of answering your question is to say that at the moment, freight costs around six and a half percent. of the cost of goods, of the landed cost of goods. So there is definitely flexibility in the freight line, but, you know, it's not the best way in the world. It's not going to be much more than 1% or 2%, maybe 3%. Then in terms of kids' prices, we're seeing exactly the same sorts of pressure on kids that we're seeing elsewhere. We haven't lowered... This year, we've basically maintained our margins. We've maintained our margin targets year on year. So no area is getting special treatment other than in home. We did take hit on some of the areas where the prices would have had to go up by more than 15%. We took a view on some of those product areas. I can't. I haven't had any conversations with governments on any issue. I can't speak for the rest of industry. We have said we will continue to say what we think, which is that... whether or not this stimulus package is a disaster or not will depend entirely on the supply side measures the government introduce, combined with any savings they can make in their own expenditure. So our view as a business is that what the government ought to be doing are two things, being as aggressive on supply side reform as they have been on the demand side. And that means looking at things like planning, energy markets, trade, administration, tariffs, economic migration, all of which could provide significant boost to growth if tackled quickly and aggressively enough. And then they should also look to their own budgets and, I should stress, without prejudging it, as we have said in our document, look at very big capital projects that might provide no value at all, such as HS2. Yeah, sorry, front row first.

Two questions, please. Only current trading talks about feeling there's something more economy... Is there something in the customer trends, in the way of shopping, that sort of raises that flag? It's something that's coming in September. And then secondly, over the pandemic and the demographics, you picked up a lot of growth in them with all the customer demographics. Are those customers stuck in the there spending habits the same as...

The second is we've seen no significant difference that we found or that I've seen in the various different demographics that we've recruited in terms of their overall behaviour. So generally we've seen an increase in spend for customer across the demographic base and that's because in a lot of cases they buy multi-generation anyway. Second is that in terms of what made us think that there might be more to the downturn than we saw in August. I think it's really just experience. that when you see the levels of decline we saw, there's always, there is always an excuse. On any given day, there's always, you can always say, well, the weather isn't right, or the, you know, last year was particularly good, or we didn't have this, but when you see the levels of decline, you think, actually, no, there is more to this than that. So it's really a sort of gut feeling based on experience rather than any scientific evidence.

Just a couple of questions, really. You're not known for hyperbole, but when you launched Total Platform, you did say some quite bullish things about an important moment and groundbreaking operation in the UK. That's a little different to a useful source of revenue, which is what you said today. I'm not trying to pick you up on it. It's obviously there's other things to talk about today. But my first question is, I know you can't sign clients yet, but do you still have the same optimism for Total Platform? And when you talk to people in the industry, when people talk to you about what it could do for them, do you think there's a really strong pent-up demand when you can sell the product or the service?

Lots of people. There are more people talking to us than at the moment. We are actually saying to people, actually, not at the moment. So it's a handful of people, because there aren't that many clients, but we have got more clients than we're prepared to take on, more potential clients than we were prepared to take on at this point in time. And we've limited ourselves at the moment to people we can take equity stakes in because we think that's where a lot of the upside is. Going forward, 2024, when we've got more capacity, we won't limit ourselves in that way. I suppose the embarrassment for me is that I allowed anything like hyperbole to creep into my language before. And I thought at the time we'd said not to get carried away with it and it was never going to be, you know, that it was a relatively small part of the business. We are, I think... Where I think we are consistent is that it's going to be some time before it makes a meaningful contribution towards the group's profit. I do think it is a very exciting service because I don't think anyone else can do it in terms of clothing and homeware, in terms of what it can do in joining up online service, stores, warehouses, distribution networks. There's no one else in the market at the moment that can provide that service. So we're still very excited about the service, but we are as cautious as we were before about the economic outlook for it. We have, I should stress, we've made more money this year than we were anticipating when we started it.

Okay, that's very clear. Thank you. If I could just follow up with one on label.

I think you have had your two questions, haven't you? Am I miscounting?

Okay, go on.

Don't want anyone else to try this, though.

Okay, I just separated them to make it easy. I'm sorry, on label, I mean, obviously, label's growing very strongly. It's becoming an important part of the group. You've talked about the margin and how the margin's sort of flat, but there's pluses and minuses. Could you just talk about, obviously, during that period of time, it's become less risky in the sense that it's more commissions and less warehouse, which is what you've put in the statement. Yeah. And maybe you could tell us how much you've reduced commissions to third-party suppliers during that time. And also just talk about just how big label could be in the sense that as a part of NEXT it looks big, but as an aggregator it doesn't look big. So where could label be if you look forward five or ten years?

Yes. First of all, and again, hopefully I'll be consistent here, I don't want to deprive any retail analysts of their work. So I'm not going to make a prediction about four or five years' time. Our job is to grow it as fast as we can within the constraints of value, margin, return on capital. Your job is to guess where it could be in five years' time. And I wouldn't want to cloud your judgment with my over-optimistic analysis. views, as I obviously did on Total Platform. In terms of commission, we have lowered our commission consistently over the last five years. I can't remember where it was in 2019. I know we lowered it last year by 1%, and it's now running at 37% for normal brands. We do have a slightly higher rate for very high-returning, lower average selling price fashion brands, but the vast majority of commission brands are on 37%, and commission is still growing faster than wholesale. Thank you. It was 39%. There we are.

So it's come down twice. Yeah.

Tony. Thanks, Simon. Tony Shrett from Pamley Gordon. Small question for Amanda, because she hasn't answered any so far. I wonder if you could just tell us what the IFRS 16 benefit overall was, these figures, and to last year.

In the half, it would be something like £10 million, I think. So across the year, Ian's nodding furiously in the back, so broadly £10 million boost. So what's your rent, sorry?

What's your rent for the half?

What's our rent bill for the half? Actual rent or lease? Real rent, I think it's about £150 million. £150 for the full year, yeah.

Okay, thanks. And secondly, a bit more of a question, I guess. I sort of get the feeling coming into this room I was a bit more optimistic than having listened to you now. Job done. I just wonder, it doesn't sound to me like you think sales are going to go up next year in pound terms, and I just wonder at what point you decide you need to get a bit more defensive and what levers you've got in case it all goes a bit pear-shaped.

Yeah, I mean, what we talked about is what we're going to do. And I think it's very, you know, first of all, there aren't any magic levers that aren't dangerous because the reality is if we could do something to boost sales and profit in tough times, we should be doing those things already. You know, so there is no silver bullet to say, well, if things get really tough, what will you do? The answer is you can only stop doing things that you otherwise think are a good thing to do, and generally we're committed to not doing that. So, you know, what could we do? We could slash our expenditure on technology. I think it'd be the wrong thing to do. We could do it. That would be the most obvious lever to pull. We could stop the development of our new elsewhere warehouse. That would be the wrong thing to do. So there aren't any magic bullets. We haven't yet taken a view on what happens to nominal sales next year, and I think our view on nominal sales for next year will be very much driven by what we experience in the run-up to Christmas, wage inflation, and really I think the earliest sensible view we can have on that for the purposes of forecasting is going to be the January trading statement. You know, we have a budget we're working to, but we just don't know. And it comes back to that, you know, the J.K. Galbraith, is that it is not worth pretending that you know something you don't know, and we don't know what nominal sales will be.

But there's going to be some lead time on some of this stuff, so you yourself will have presumably scenario analysis and, you know, have some idea what you would do if sales were down 10% nominal or something like that, or down 5%.

Again, I should stress that the key thing we would have to do in that situation, I think that's unlikely, but the key thing we would have to do is make sure that we paired back our variable wage costs as fast and as efficiently as we possibly could. But I should stress again, without damaging the company, there is no magic lever that we could pull if sales are down 5%, other than cutting costs that we think are generally in the interests of the company.

Rebecca McClellan Santander just in that further on to Tony's question can you talk about how reactive your sourcing is and your inventory flows etc in the case that revenues do start to sort of come under further pressure

Yeah, I mean, I suppose that the key thing in managing our stock for next year is to start conservatively. As you can see from our numbers, if we look at the stock that we sell at full price, we're buying between 25% and 30% of planned and unplanned markdown. So our experience during the pandemic and many times in the past is that If you start to beat your target, you can capture a lot of those sales by eating into your markdown. So we are taking a very conservative view of stock going into next year. We think it's a conservative view of stock and sales going into next year. We haven't finalised our budget yet, but our starting point is very conservative. And we do that in a knowledge that if we're wrong... and sales are much better than expected, it won't be as good as it could have been, but it won't be a disaster. If we order too much, then it will be a real mistake. It's very expensive. And on that, okay, so I thought it was a bit of a downer to end on there, so I was hoping you'd have a slightly more optimistic question.

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Yeah, I mean, I think it all depends on what you're... Doing the second question first. I think it all depends on what your ambition is. If your ambition is growth, then yes, of course we could pull that lever. If your ambition is profit, then I don't think it is. And actually, I think the margins that we have in the business are its key strength going into next year. And it would be unwise of us to undermine those to fuel growth at the expense of profit. That doesn't mean that those margins don't give us the flexibility. For example, if there was a one-off hit on the pound and it came back, it gives us the flexibility to fund that next year if we had to. But what I wouldn't do is permanently undermine the profitability of the company in order to grow to supersize, because we've seen how that plays out elsewhere, and it's not pretty, we think. What was the other question? Buy now, pay later. We don't have buy now, pay later, other than the credit offer that we have, which all the numbers are in the presentation. I think the key... Yeah, the three-step, but it's all within the credit numbers. The key metric there is the one that we pointed to in terms of the average percentage of our customers' bills that they are paying off each month. And what you can see is that it's still higher than it was pre-pandemic. So that suggests at the moment consumers aren't pulling that lever. Pleasure. And on that joyous note... We'll end the presentation. That's it. Amanda and I will be here to talk to you individually if you want to ask us questions outside of the gaze of each other. Otherwise, thank you very much for coming today, and I look forward to seeing you all again in six months' time.