Next Group Plc Unsp/Adr

Good morning and welcome to the next half year results presentation. Let me start off by thanking all of our 30,000 plus employees worldwide for helping us deliver the very good first half results. You know, I joined the board back in March 2017, and I was speaking with Amanda last week, and I said I wanted to see some numbers since when I joined, just see some of the progress we've made. There was a few numbers that she passed along to me which I think just really show the power of compounding and moving in a consistent direction. Our label business, I remember sitting down with Jade Taylor, who was leading the label business really from the very beginning. In those days, back in January 2017, year end, we sold 215 million in label. And this past year end, January 23, we're over a billion. So that's almost five-time increase in our label business. Looking at the international business, the overseas business, for the year ended January 2017, sales were 234 million pounds. And this past year, 625 million. So an increase of almost 170%. And just looking at the breakdown between online and retail, Back in 2017, year end of January, the breakdown was 40% online, 60% retail. Now, if we fast forward to January 23, the breakdown is actually almost just the opposite, 62% online and 38% retail. And most of that was driven by growth in retail, growth in online. Online basically doubled from $1.5 billion in 2017 to just over $3 billion in January 23. So it just shows really the power of compounding growth and delivering year-on-year results in that area. So good progress there. Simon, over to you.

Thank you, Mike. Good morning, everybody. It's interesting listening to those numbers, isn't it? Because you think, oh, that all sounds fantastic. But the one number Mike didn't mention was the decline in the retail business, which meant all of that glory got eaten up by what we now think was probably inevitable decline in our retail business. So the last, I'd say the last six or seven years, and we kind of knew this when we set out on this journey because it's what we put in our... as it transpires overly pessimistic 15 year scenario, was that we were going to have years of trading water where we're going to have to work very, very hard to make up for this move back in retail. And I think where we are today is that we've reached a point where potentially retail has stabilized, but even if it hasn't, it's so much smaller part of the business that the sort of drag of structural change is something that we can really move on from now, we think. and focus on actually growing the business. which is what I'm going to talk about at the end of this presentation. In terms of the first half, much better half than we were expecting. Total sales up 5.5%. That's a little bit misleading in that it's distorted by the addition of Jools sales to our top line that we bought. If you look at the underlying rest of the business, the next group was up 3.2%, excluding total platform clients. That's full price. In terms of the breakdown of that, online up 4%, retail up 0.9%, finance up 7%. The online growth largely being driven by overseas rather than the UK. And we'll go into a little bit more detail about that later on. In terms of profit after lease interest, which is a proxy for rent, operating profits up in limer sales at 5.5%. and net margins flat. And really I think there are two stories here that sort of characterise the first half, better than expected sales and much better than expected cost savings delivered sort of throughout the group. Small increase in interest as a result of the interest on the debt that we owe going up. Profit before tax up 4.8%. Tax charge at 23.3%. Expect a similarish number for the year end. The reason it isn't at the 25% national rate is because some of our subsidiary profits that are delivered to the group are delivered post-tax. So they've already been taxed and we still have some overseas profits in places like Hong Kong that are taxed at lower rates. So that differential we think will be maintained for the moment. As we consolidate, when we consolidate REITs, some of that differential will disappear because then we'll show pre-tax and post-tax profits consolidated within our balance sheets. That will move to nearer 25 as we go into next year, the year after. Profit after tax down, earnings per share up as a result of share buybacks. Surplus cash very strong in the first half. capital expenditure down 23 million just to put that in context the story here is all about warehouse investment so if we look at our capex this this is forecast for the full year we're expecting 170 million of capex that compares to 200 last year 184 the year before and what you can see with these new green bars is these just show the 200 million odd that we've invested in our new AlmaSol 3 automated boxed warehouse. And you can see we expect that capex to pretty much have been complete at the end of this year. That doesn't mean no further warehouse capex, there are still other projects, but the big lump of capex will come through and we're expecting that 170 to drop again next year. The space that we now have in our warehouses, we think, gives us room for another billion or so of online turnover. Assuming that it comes in the same mix that we've got at the moment, if it suddenly lurches towards home, which is not in our box warehouse, we may need some additional spending to accommodate that. But it feels like we're in a much better place now on warehouse expenditure, capex. In terms of the costs of that, if you wrap up the full annualized costs of this new warehousing complex, including depreciating all the capital investment, comes to around 32 million, which is 26 million of occupancy costs, and another 6 million of people costs, extra security guards, additional management, et cetera, to keep the doors open. Against that, there are savings. There is 32 million of savings that we think we can achieve directly as a result of the investment in automation. This is the labour savings from the automation itself. In addition to that, the extra space we're getting means that we can do a whole load of other initiatives, which we think in total will deliver around 15 million pounds worth of efficiency savings. across our warehousing network. If we look at the phasing of those costs and savings, what you can see is that the costs are front-ended, with £15 million of costs being added to our P&L this year, but the savings are back-ended. So this year it's a sort of no-score draw. Next year we're expecting a slight tailwind. The year after that, a big tailwind. Working capital down 176 million. This is all about less money flowing into stock. I'm going to talk a little bit more about that when we look at the balance sheet. In terms of the 53 million, this is not about last year's bonus. It's about the bonus from the previous year that was earned in 21-22 but paid in 22-23. Last year we did not have as big a bonus as the previous year, so this year we don't have that cash drain. ESOT, this is the Employee Share Option Trust, less cash flowing into that. That is because last year was exceptional. That was because the share price went very low. The employees didn't exercise their options, which meant we got less cash inflow. The 42 million this year is a normal amount, we think. Surplus cash, I said earlier, very strong. Investments, 9 million on Cath Kidson. Obviously, that doesn't include the 95 million we've just invested in race, which will come in the second half. Normally we front-end our buybacks in order to get the full benefit of the reduction in shares for the full year and get it as early as possible. This year we decided to smooth it in order to make room for possible investments, which turns out to have been a wise thing to have done. So less money flowing into buybacks, net cash. Improved. Moving on to the balance sheet. Stock. Our stock levels have come down. And what you can see is that this just shows our stock levels each half for the last, since 2019. You see that's come down 11%. It's not because our stock levels at the moment are low, it was because this time last year they were very high. If we look at the week's cover in the business, at 21 week's cover, we're sort of where we were in 2019, and we think our stock levels are broadly where we'd want them to be. Looking forward to the end of the year, we think that stock cover for January, when we'd have bigger week's cover anyway, back to sort of more normal levels at around 22. and minus four on where we were at the beginning of the year. So still some cash flowing into the business for the full year as a result of less stock. debtors up 37. All of that, more than all of that, is about the increase in customer receivables, which was up 3.5% on last year. That was against credit sales that were flat. That's unusual. You'd expect our customer receivables to rise in line with credit sales. They haven't and the reason for that was because at the beginning of the year we had a big increase on the previous year. That was all about the recovery, the return to more normal balances, levels of payments after Covid. So what was exceptional was the low in 2022, which has given us the increase year on year. As credit sales have been flat as the year progresses, that increase comes down and we're expecting the balances to be only up around 3.5% by the end of the year. In terms of consumer behaviour, we're seeing a continuation of the sorts of behaviour that we saw in during the COVID, which we weren't expecting. So what this graph shows is the average amount of time it takes consumers to pay down their balances. Pre-COVID, that was around seven and a half months, dropped to six, six and a half. So far this year, it's stayed at six and a half. And we think either there's trouble to come when employment begins to soften and we'll see that rising or we've kind of got to a new normal and that people are just making less use of these types of credit facilities using them more just to fund the stock they've got that they want to return rather than as a source of credit. Net debt down 156 million at the half. Just looking at where we anticipate debt ending the year, started at around £800 million, we're anticipating on our new guidance a cash inflow of £767 million, capex £170 as we said, much less than we were expecting flowing into receivables. And this is the main reason we increased our cash flow forecast for the year, and we're expecting that figure to be near a 90%. In terms of returns, buybacks £167 million, investments £104 million, and that leaves us available to spend £52 million. You shouldn't think, though, that the £52 million limits the amount we'll do on buybacks. It doesn't necessarily limit the amount that we will spend on acquisitions, and I'll come on to that later. That leaves, after dividends, around £800 million, or there or thereabouts, at the year end, after consolidating REIS. Moving on to the divisional analysis. Retail sales up half. Actually, those numbers sort of hide a sort of an underlying more benign picture. If we look at full price sales, they're up nearly 1%. Like for like sales are up near a 2.9. So we closed a number of stores that had significant amount of turnover. Six of them were in places where we just didn't think the store was viable anymore, whatever the deal, wouldn't matter what the landlord offered us, we were going to close. And that would be the sort of place where we had two stores where we now feel we only needed one. Two of them were closed for redevelopment by the landlord, and three of them we couldn't reach terms with the landlord. Of that 17 million, pretty much 15 million was all one store, and there the problem wasn't so much the level of rent we were being asked for, it was the term that we were being asked to commit to, which we felt was just too long to be an acceptable level of risk. In terms of performance between retail parks and city centres, regional shopping centres, again, a reversal, we're seeing the sort of tail end, a less extreme version of what we saw before, return to city centres and regional shopping centres at the expense of retail parks. Those numbers are slightly distorted by the underperformance of home, which the vast majority of home is sold out of town rather than in town. If we reverse out home, you can see the differential narrows from sort of 3% to 2%. in terms of retail operating profit up 2%, margins, this is a phrase I didn't think I would ever hear myself saying, but retail margins up, albeit at 0.2%, so party time. We will just sort of go through how we've arrived at that. Bought-in gross margin up 1%. This is all about freight. And when we costed our freight rates and the buyers placed their order and priced the stock, freight rates were much higher than the prevailing market rates at the time we actually shipped the stock, and we managed to capture some of that difference So freight rates actually came down from 9% of the cost of goods to 3%, and that delivered some of that margin benefit. Markdown, much less stock going into the end of season sale, and this is all about last year's overstock reversing out of the company. And obviously less markdown stock gives you more full price stock, which pushes up margins. Payroll, adverse movement to 0.9%. This is actually not what we've seen in the last five or six years. In most years, we've been able to pay for a lot of the inflationary costs and light-for-light sales declines through efficiency measures in our stores. We haven't been able to do that this year. And I think we've slightly reached the bottom of the barrel on that one. I think from here on in, wage inflation and any light-for-light declines are going to adversely impact wages as a percentage of sales. Part of the reason for that is actually the improvements we've made in our warehouse. What we did during COVID is we were able to push some of the simpler processing back into our branches. It's much more efficient in terms of use of retail staff because you can use them in the low periods when you're quiet, but it's not great. It provides worse service than doing it all under one roof. So we've returned it to one roof, but that has taken some of the opportunity for improved efficiencies in the branches out of the network. Warehousing distribution, no score draw. Wage and fuel inflation paid for by operating efficiencies and higher average selling prices which reduced, it doesn't reduce unit handling cost, it just pushes up the value of the units that you shift. Adverse movement on central costs, investment in technology, bigger expected staff incentives than last year, and inflation in head office wages. Store occupancy costs, big adverse movement in energy costs, offset by fully depreciated assets, in essence less capex flowing into our stores and lower lease costs as a result of the savings we've made through renegotiating leases. In terms of how this year's leases are panning out, by the end of the year we think we'll have renegotiated 73 leases and the vast majority of these are either agreed or close to being agreed, so I can give you the numbers with a degree of confidence. Weighted average lease term is 4.2 years, that's higher than during Covid. It's not because on the big stores we're agreeing to longer leases, it's just that we're not – during Covid there were a lot of stores where the jury was out and we were agreeing to leases of one or two year temporary type deals, we're not doing nearly as much of that at the moment. Occupancy saving on average is 28% as a result of the new leases, giving annualised saving around £7.5 million. Four-year margins, party over. Four-year margins we're expecting to move slightly back, around 0.5%, because we're not expecting as strong light-flight growth in the second half as we got in the first. In fact, we're expecting negative light-flights in the second half. Moving on to the online business. Total sales up 5%. Full price sales up 4.1%. And there's a big story around Mark down here, so brace yourselves. What we saw was an enormous swing in the performance between Q1 and Q2. Remember, in Q1, the fashion was for people to say, oh, online is now over. The party's completely finished and then on Q2, everyone goes, oh, actually, maybe not. In terms of our sales performance, there are a number of factors affecting these numbers. The first is this is full price sales. If we look at markdown and clearance sales and add those back in, the gap narrows significantly. And there are two very different things going on here. The first is that in the first quarter, as a result of a much larger end of season sale last year, we carried over far more stock into our clearance business. Clearance business as the stock that we sell through our offers tab. It's not included in full price sales, but it does go through a full margin because we write the stock down to around 30% of cost, I think. Is that right, Amanda? 30% of cost. So it sells at close to full margin, so it doesn't adversely impact full margin, but it does adversely impact full price sales because it competes with the stock we got on the website. In the second half we saw the reverse effect. We had a much lower end of season sale, which meant during July our full price stock had less competition. So the actual difference, the actual swing was more like 6.7. That is significant. Three things we think are happening here. First, retailer favourite weather. And please, please, for the purposes of next year's forecast, I want to get my excuses in early, please remember that this year, the second quarter's weather was the retailer's dream. It was bright and sunny from the middle of May and we had August weather from May to the end of June. That's exactly when you need it because that's when people are buying the most summer clothing. By the time you get to August, they've only got a few months left of wearing summer clothes, or a few weeks left, potentially. So that was pretty much perfect. Second thing is pay rises. In the month they went through, and a lot of pay rises, particularly national living wage, That pay rise would have gone through in April. In the month that occurs, you have a big increase in real income. That slowly eroded as the year goes on, so don't expect that to persist. And the third thing we think was the improvements we made to our own online service, which were quite dramatic and which I'll describe later. In terms of the balance, UK was broadly flat. Again, we saw negative sales first half, positive sales first quarter, positive sales second quarter. Overseas, very strong. Not quite as strong as it looks. In local currency, that was around 15%, so we did get some benefit from exchange rates. and a lot of that driven through aggregators. So we're now doing just over a quarter of our sales for aggregators, the main one being Zalando, and they were 43% up on the previous year. And we think that's been driven by their endeavours rather than the way that we work with them, although we have improved the way we stock those aggregator sites, but that doesn't in any way account for all of the increase. Like for like on our own store, our own website's up 11%. That doesn't sound that exciting, but given that our biggest sites, most of our biggest sites are also in competition with the aggregators that are the most successful, we think it's a very good number. Operating profit up 11% in terms of margin movement, 1% improvement from bought in gross, very similar story to retail with one twist and that is there was an adverse movement on margin as a result of some new duties being imposed in various countries which we didn't pass on to the consumer. there was an advantage in that currency rates moved in our favor and we didn't lower our prices. And that meant that we made more margin in those countries where we got a currency gain. Markdown and clearance, pretty much the same story as the UK. achieve gross margin 2.5, warehousing distribution, no score draw there, higher selling prices resulting in fewer parcels. And because so much of our costs are driven by the number of parcels we dispatch, obviously fewer parcels means lower costs. Overseas parcel rates, this is where we saw some prices go up enormously during Covid on air freight to overseas countries, those have begun to return to more normal levels and those were offset by wage, fuel inflation and increased overheads, such as the occupancy in Elmstall 3. Marketing increased, I use this word slightly euphemistically, but increased investment in marketing, as they like to say, it's spending really, but it is all profitable. Increased technology spend and increased staff incentives as with and inflationary costs as in retail and central costs. In terms of the margins by individual business stream, breaking it down into Next UK, Next Branded Stock UK, Label and Overseas, you can see that the inflationary costs hit Next Brand UK by about 1.3%, all things being equal because Label as expressed here, is pretty much all in the UK. You'd expect the same level of erosion in label. That didn't happen because we weeded out a huge number of unprofitable brands and unprofitable products, basically the products that had high returns rates and low selling prices. So we managed to preserve margin in label. Overseas, this time last year, you can remember we were not happy with our overseas margin, and it has, as promised, made a dramatic recovery in terms of the shape of that recovery, We've talked about bought-in gross margin and the benefits of prices, markdown. Distribution has a much bigger effect on overseas because the savings that we made in distribution in the UK and the smaller number of items in a parcel has a much bigger impact overseas than it does in the UK because parcel costs are a much bigger percentage of our sales overseas than they are in the UK and we've got lower rates. And then similar increase in marketing. So full year margin, we're expecting to nudge up by about 0.3 online. Moving on to total platform. There's a lot to say here about some quite small numbers. And in order to make them sound not trivial, I'm going to talk about our full year estimate to save you the embarrassment of looking at ones and twos here and there. I just want to give you the full year. So in terms of, first thing is in terms of the underlying driver of total platform are our clients' sales on the platform. Client sales on our total platform websites are at 47%, of which 20% was like-for-like clients. The balance was driven by new clients, mainly Gap and Jojo. In terms of the makeup of our income from Total Platform, you'll remember that we charge in two ways. We charge for online sales. For all of our online services, we just charge a percentage commission. That was up 60%. Up slightly more than our client sales because the new clients we took on, Jojo and Gap, have lower average selling prices than Reese and therefore require a higher commission rate. And then our cost plus income, which is the 90% of which is our retail services. This is retail distribution and till services. That was up 70% as we took on businesses that had a bigger percentage of their business in retail than our existing portfolio, mainly because Victoria Secret and Gap have very little retail. So our income from total platform was up 63%. That income, the sharp once amongst you will have instantly noticed, is not the same as the income that we've got in the headline numbers. The reason for that is that there are some recharges where we're not making any margin. This is costs that are passed straight through to the client, which technically in accounting terms are classed as sales rather than cost transfer. They were around 7.6 million in both years. So the top line was 54.6 million in terms of income, but the real income, underlying income, we think will be 47. And that is the income against which we will measure profitability. The profit from those services was 10.3 million. a significant increase on last year, and that is all about us getting some of the costs in the network, in total platform, much, much better controlled, and some of the one-off startup costs we incurred last year not recurring this year. In terms of margin, there are two ways of looking at margin. There's a sort of, are we getting a good margin on the effort we're putting in? And that really is best measured against the income that we get. So sort of 22% margin on what we're charging our clients. The other way of looking at it, which I think is intuitively the way that is easier to think about it, is as a percentage of our clients' sales, a combination of our cost plus income and client sales, and that's at around 5.9. You'll remember that when we started Total Platform, we said we were going to aim between 6 and 7, and so we're sort of where we want to be on profitability on both measures. Equity profit, so this is just moving onto the profit we're making by owning the businesses rather than the profit we're making from servicing them. That was up 6 percent, which actually on the face of it is disappointing. Two things going on there really. First is actually the clients that we invested in, most of the clients actually have increased their profits significantly, 27 percent up, hurrah, but that's offset by significant losses in jewels. Now, this shouldn't be a surprise because we talked about that seven million six months ago. You know, when you make mistakes, everyone falls back on that, well, we've learned some lessons, excuse, sort of upside, and we have. And I just, I want to share the most, the most important lesson in terms of this type of acquisition, and that is not to underestimate the benefit that a business in distress can give to its top line through promoting online. You see a business, you're buying the business, you think, oh, it's got turnover 200 million, let's say. How bad can it be? Don't think, oh, take 25% off that when you stop doing the promotions. Think, take 50, 60% off. Because unlike retail, where the benefit of a sale is pretty much over after three weeks, you can carry on in sale mode, but customers have lost interest. Whoever was interested in that sale has walked past the shop, been in, seen it, done. Online, you can keep going back to customers, and because you only get... half a percent, one percent return response rates to emails. And because you've got huge amount of Google Ads you can make, and if you're not too worried about losing money to maintain that top line, you can drive an awful lot more sale through sale activity online than you could dream of doing in retail. And we woke up from that dream and realised it was a bit of a nightmare. Had we not done that, the losses would have been significantly lower than they were because we wouldn't have bought the stock. A lot of that loss is in the stock that we shouldn't have carried over. And we had the opportunity to get out of it in the administration process. And we didn't because we underestimated the extent to which sales would move back. We've done a lot of work on jewels and we think there'll be about break even next year. Total profit up 26%, if you add the two together, equity and total platform. That is understated because it includes amortization of the brand. And just to be clear, a lot of people talk about EBITDA, which we don't, because depreciation is a real cost. It is accounting for the cost of something, a real cost, which is capex. Amortization isn't a real cost. It's what you paid for the business being depreciated as if it were a devaluing asset, as if it was going to have to be replaced. And we don't think that's a real cost. And when you think about that, you sort of think, well, imagine we took over a business the same size as Next, making the same profit as Next. We might have two businesses making circa £870 million. And by putting them together, we'd have to depreciate the eight or nine billion, amortize the eight or nine billion of one of those businesses that we bought. So the tune of 500 million, maybe 25, you know, 20%. Now clearly, the sum total of those two businesses, just by doing the transaction, can't be that much lower than it was when you started. So we think that amortization, and going forward, we will talk more about including interest, including appreciation, which are real costs, but we'll talk more about adding back the amortization, which we don't think is not a real cost in terms of cash. But that was, if you look at the cash proxy, that was more like $36 million. Return on capital employed, in terms of how we've calculated this, we've looked at the sum total of all the equity and debt that we've invested in these businesses, added to that the capex in total platform, deducted the recovered capital, and in terms of calculating the recovered capital, the way we've done that as a proxy for cash is we've looked at the post-tax profits of the businesses that we've bought and deducted also the amortization that's not a real cash cost. So that's a sort of total cash in, cumulatively. And in terms of the return we looked at, the return we're looking at is looking at the profit before tax of the business, including depreciation, including interest, as again, as a proxy for cash because depreciation's a proxy for capex. deduct the depreciation, not the depreciation within the businesses that we bought, but the depreciation on the total platform investment, because otherwise you're double counting the cost of the capital whose productivity you're trying to measure. add back the brand amortisation, and add back the interest received. The profit before tax of our subsidiaries will often include a line that is interest paid to Next. So we include it in the profits of the subsidiary, but obviously we're getting that income, so you have to look at that as part of the cash received as a result of the investment. put those all together and for total platform as a whole, including the services, 25%. If you just look at the investments we've made and take out the capex and profits from total platform, that comes to 20%. So we're very comfortable with the levels of return that we're getting on the capital employed in total platform and they wouldn't have been as high last year as they are this year and we're hoping that they certainly don't move backwards next year but may potentially move forwards. In terms of the year ahead, so the full year, that's where we started in March at 1.5 percent full price sales down. That would have resulted in the 795 we started with. In terms of how we've moved from there, two things have happened first of all we've increased our sales estimate plus 2.6 for the year that's a combination of the 3.2 we achieved in the first half and two percent growth in the second half now i i should say at this point please please i i've got to be kept we're accused of crying wolf i know but please don't look at that number i think our next really think it's four Pencil that into my model, that's what they do. Just do that. Honestly, we think that's the right number and everything we've seen since the end of the season suggests that it is the right number, so please don't... Remember, H1 benefited from the extraordinary weather in June, which was really helpful and it definitely added something to the top line, and it benefited from all the pay rises going through. As we move into the second half, the benefit of those pay rises diminishes as costs begin to tick up each month, and we think the labour market's softening, and we'll come on to that later. So, you know, if anything, you can look at that and say, oh, maybe it's a bit hopeful, but please don't think it's... that we're playing a game on it. So if we add back the profit, the difference in the minus 1.5 and the 2.6, that's 190 million of sales. That delivers a margin of 24 percent. Gross, it will be near a 34 percent. But because we begin to move through the targets that we set the business, our staff incentives begin to kick in. So the net margin on the incremental profits around 24 percent. And then cost savings, significant cost savings coming through here. However, that is offset to a degree by some non-recurring costs. And here I just want to distinguish between non-recurring and exceptional. Just because something is a one-off cost doesn't mean it's exceptional, because you always get different one-off costs. And the sort of normal one-off costs, these are not exceptional costs. They are just costs that we don't expect to occur next year. I'm sure there will be others that take some of that, hopefully not too much of it, but some of that space will be taken by other unforeseen costs. non-recurrings. And finally, the REIS transaction itself delivers another £5 million to profit. The reason it delivers what appears to be a disproportionate amount of profit is because REIS makes so much more profit in the fourth quarter than it does in the other three. In terms of what that means for the full year, pre-tax earnings per share up 3.2%. Again, hurrah, but taxman takes away all of that gain and a little bit more. So post-tax profits we're anticipating for the full year around minus 3.6%. Now, we started the year saying that we had four priorities. Those four priorities have remained constant, and they will continue to be our priorities for the rest of the year. In terms of how they're going, I'm going to start with product. Now, product is the hardest thing to talk about in an environment like this, or indeed any environment, because for chief executive, particularly one whose background isn't product, you tend to end up sounding like you're talking fashion gobbledygook, Or coming up with lots of bogus measures like percentage newness and percentage core, which of course, you know, those numbers that are produced by the teams that give them to you basically will be whatever you want them to be. So I'm not going to do that. Instead, I'm going to talk about what we have tried to achieve with our product ranges. And it comes down to sort of one central thing, and that is better by design. As COVID has lifted, we have really put all our energy back into traveling to new sources of inspiration, new suppliers, new mills, in order to broaden the design base we offer. Obviously, it has to still come at next quality. We're not in any way devaluing our quality, but we have, we think, pushed and will continue to push the boundaries of our design handwriting to reach more customers. And one area that we have sort of really focused on are the mid and upper price points, where we've really looked at investing more in product, which we think is the way fashion's going, whether that be through better fabrics, better embellishments, more investment in external sources of print design, more complex prints, which are more expensive to produce. So that is in essence what we've done on product. And we think it's contributing, but we can't prove it. The real test is to walk into our stores or go online and have a look. At the same time, they've continued to push the boundaries of the business through taking on product outside of the next brand, whether that be through new wholly owned brands that we have initiated like Friends Like These or Love and Roses. The acquisition of licenses such as Cath Kidson and Made and taking on licenses for other people's specialist products such as children's wear for Ted Baker or swimwear. for a retailer that isn't an expert in doing swimwear. I've written a great deal about this in the document, well not a great deal, two, three pages. So I'm not gonna say any more about it now, other than to say there are lots and lots of new brands. There's not a huge increase in turnover yet, but we think and we hope and we're aiming for sort of a lot of new brands to deliver sort of as we go through the year and into next year. Service, now I think the thing we should say is that throughout COVID and really since sort of 2018, 19, we have struggled on service and we struggled for one simple reason. We just haven't had the space that we need in our warehouses and as the business has increased far faster than we're expecting at 62%, we weren't planning for that. As that has happened, we've had to take on new people The numbers of new people have been greater than expected because of the inefficiencies of working in less space. And that has taken place in a very tight labour market. So we've struggled both on space and labour. And if we sort of draw a line that says, you know, what level would we have been comfortable in terms of turnover, it kind of looks like that. And of course, it's not just the turnover, it's not the straw that falls to the ground when you put it on the camel's back, it's the whole bale. So that, you know, the whole, every part of our operation is affected by congestion and not just the growth element. And that's really what's happened now. You could look at that and go, well, how have you managed to grow the business at the rates you have without the space to do it in your warehouse and the answer is we have come up with a lot of extremely innovative ways of coping including more stock in bulk storage where we hold it in high bay and then when it's ordered to try and get it out of the high bay mechanical automated storage and retrieval, get it into a forward location and pick it and give it to the customer, more orders being fulfilled from our stores, extending our returns queue, basically using the returns queue as warehouse storage, using more store and depot labor to undertake some of the simpler tasks that were undertaken in the warehouse, pushing those out back through the network. Can't do it with complex tasks, they need specialists, but some of the simpler tasks can be done in stores, but they're not done as well or as accurately, and each one of these measures, as good as they were at getting us through this crisis of space, each of them served to erode our service levels. And that really came to a peak last Christmas when not only were we suffering on our own internal space, but also all of the distribution networks, courier networks were suffering as well, partly as a result of postal strikes, partly as a result of a very tight labour market. This year, we've opened our new warehouse. Now, we haven't got the automation working yet, but we have got space to do more conventional picking, and that has made an enormous difference. And I just want to share some of the metrics that have changed. So, for example, this time last year, we were fulfilling nearly 10% of the orders that we sold online were fulfilled from branches, with all the problems and the two-day delay that that gives the customer. So degradation both in promise and accuracy. 11% were delivered later than expected. Our sale took ages to get out. Nearly a quarter of it took more than two weeks to get to our customers. This year, we've seen an improvement in all of those metrics. Dramatic. This is June on June. So nearly 50% reduction in items fulfilled from store, 50% reduction in items delivered later than promised. And our sale, we got 97% of the sale out within two weeks. So we really have seen an enormous improvement in service. And the best way of gauging that is to look at calls, because if things go well, your customers really shouldn't need to speak to you. So your calls and contacts are a good measure of how effective you're being. Our calls in our call center, despite rising sales, are down nearly 25% on last year. So, we think we have made huge inroads into approving our service. What I should say is if I look at those numbers in absolute terms, I'm still not happy with them. Particularly the items not delivered later than promised at 6%. I think we can do better than that. Finally, costs. Costs, two types of costs. Operating costs, which in one way or another, in the book, sorry, not book, report, feels like a book, in the report we've detailed it, we've detailed cost savings in great detail in operations, and I've talked about them in margins, I won't talk about them anymore. In terms of cost of goods, what we're seeing here is the COVID bubble is really collapsing. We thought costs would be up 3 percent in autumn-winter. They've come through slightly better than that. We costed in some of that freight again. And if we're looking forward at the products that we're ordering now for spring-summer next year, those on light-flight items we're seeing prices pretty much somewhere between 0.5% up and 1% down. So we think cost price inflation in goods has really worked its way through the system. And it's not just factories, it's pretty much every element of the supply chain we're seeing an easing in the capacity constraints that we experienced last year, from freight through to mills. just sort of thinking a little bit about cost inflation as we move into next year. We think wage inflation will diminish, although the big sort of warning light here, our own costs, wage costs are hugely driven by the national living wage. And the national living wage is at a level now where an increase in the national living wage, because we've compressed so much our wage hierarchy at the lower ends, an increase in the national living wage affects far more than just the staff on national living wage. All the, you know, the coordinators, the managers above them all have to have their wages put up. So that will, whatever the national living wage comes through at, that will cascade through the business far further than you might have expected and far more than it would have done five years ago. Just in terms of sort of anecdotes, in terms of the availability of labor this time last year for every store vacancy we had nine applications this year we've got 17 for every warehouse vacancy we had eight now I've got 11 that doesn't sound like much but actually that is because you kind of get a one in ten hit rate in terms of suitability that is actually a very you know a meaningful improvement and remember in our warehouse with all the automation coming on stream we're not expecting to take on lots of new staff anyway Even in technology, where we had an enormous squeeze, our vacancy rate has dropped from 13% to 6%. So sort of putting that all together, what that looks like is much less of a cost headwind as we go into next year. And from what we can see so far, and these are very early thoughts, and I should stress, not guidance. Don't take these numbers and go, oh, the number they've given there, that's what they think they're going to do. It's not. What we want to give you a sense of is what growth do we need to have on the top line to pay for the cost inflation we expect next year? and we think that's going to be about 1% growth in sales will deliver flat profits. As we stood at the beginning of this year, the equivalent number was around 3%. That was before all the cost savings we found, but we may find more cost savings next year as well. So in terms of headwinds on the company's performance, and given the scale of our business and the size of our market share, the difference in 1% and 3%, delivering profit or not is huge. We think that's very significant. However, good news, this is our financial reporting motto. Every silver lining has a cloud. And one of the things that we just need to be aware of is that if we go back and say, look, what is it that has driven, more than anything else, what is it that's driven the buoyancy of consumer demand over the last 12 months of extraordinary cost of living increases, we think it's the strength of the employment market. In particular, the ability of people to get jobs when they lose jobs, take on extra hours, being really important we know in our own business for people managing the cost of living through taking extra hours, or people going out and getting additional jobs within their household. That pressure valve, as we see the pressure on the labour market easing, that pressure valve will also ease. So we think the strength that we've seen in consumer demand next year needs to be tempered. We don't know what the balance between declining cost of living pressures, wage inflation and vacancies will be, but it's not all unremitted good news and you need to be very cautious, we think, we are being very cautious, I won't tell you what you need to do. We are being very cautious about the sales outlook for next year because of this factor. So that's costs. Moving on to new business. Really, total platform is what I'm going to talk about here now. Technology, we're delivering the technology for total platform much faster and at much lower cost than we were. And to give you a sense of that, Jools, the development hours going into Jools are 20% of the development hours we put into Reese, and the timescales are four months rather than 11. That's just the development time. If we took a look at the time elapsed, including testing time, specification time, with Jules, we've done the whole thing pretty much in six months, or we will have done when it hopefully launches in October. I'm slightly counting my chickens here. The interesting thing about Jules, and again, the silver lining to the Jules story, is that as a result of the business taking much less turnover than we thought, stabilizing at a much lower level, we had a situation where their cost base, their central overheads were just way too big for the type of business we thought they could be going forward. We had to take some very radical action. The way that we have done that is by taking not just their total platform systems, their trading systems, but by taking all of their systems, every single system they use and pushing them onto next systems. So, that sort of takes Total Platform and it transforms it into a different type of business, sort of extended and more powerful business, what we're calling Total Enterprise Platform, because we couldn't think of a better name. Just to explain a little bit more about what that means. Total Platform delivers website, warehousing, contact center, retail systems, digital marketing, everything you need to run a website, but not everything you need to run a business. What Total Enterprise Platform does is it gives you all of the other systems you need. Probably most importantly for retail business, it gives you the benefit of all of the investment we have put into our product, merchandising, stock allocation, systems. It means all the contracting can be done through Next Systems. All the imports and exports, paperwork, customs, which cause smaller businesses a lot of problems. All of that can be done through our systems and passed straight through to the client complete. It also means they can piggyback on our freight rates as well. So we can get them generally much better freight rates than they're able to get for themselves if they're a smaller business. And things like branch allocation, maybe this is too grand a word, but we have developed a significant science in terms of how we allocate to branches. And when we look at how others do it, we think there's a huge gain for them. And it's not just the systems that are better, it's also the numbers of people required to operate those systems. For example... On branch allocation, Jules had a team of seven people doing branch allocation. It was very manual and mathematically we don't think as efficient as it could have been, to put it mildly. We're taking the system and those people and replacing them by doing the job centrally as a service for them and that job will in essence be done by about one head. So it's not just giving more efficient systems and cheaper systems, it's also far fewer people required, we think, to run those systems. That goes through finance and payroll, HR, things like accounts payable. Accounts payable, they have three people. We think it'll take one FTE. Cash management, payroll processing, and then all the other bits and bobs you need to run a business. From your email, IT security, server, infrastructure, cloud services, everything. So this is kind of a step change for Total Platform. And to put it in context, and I should say, big health warning here, please listen to this. The savings we've got from Jools are exceptional because they were geared up to turnover far more than they ever were going to. And the opportunity for cost savings were far bigger than you'd expect, than we would expect from other potential partners. But the savings from Total Platform, excluding the profit that we make from it, were six million on Jools. Total enterprise platform added another 4 million to that, again, excluding any profit Next might make on providing that service. It's another 66% in terms of cost, benefits, and of course, and probably more importantly, you get all the operational synergies, the people synergies, but vitally, in the vast majority of cases, much, much better systems. So we think that's quite exciting. It does beg the question, hold on, what's next? What's left of these poor businesses that have all this stripped out? You think, what are they going to do now? And the answer is they're going to do the really important stuff, the bit that matters, the products, the buying. They've got their own head office. There it is in all its glory, much nicer than ours. Marketing, HR, they recruit their people, they decide their pay structures, their pay scales, all the things that affect the culture, the product, the brand, the marketing, all of those things they will continue to do. But the less interesting, I nearly said boring, but less interesting side of the business, the processing, the systems, all that we think we can do very efficiently centrally. It's an experimental model. It's not proven, so we're not counting any chickens, but we think potentially it's a very exciting product to be able to offer businesses. The only problem with it is, realistically, whereas with Total Platform, clients have come off it and it's perfectly possible to outsource the services to other people and transition off Total Platform, realistically, you couldn't do come off total platform and change your buying merchandise finance warehousing payroll imports emails you couldn't do all of that so the client is pretty much locked into the service and therefore hugely dependent on the goodwill of the provider because obviously you could go along and just wrap the price up so total enterprise platform really plays only to those businesses we think where we have a very significant stake, where it really doesn't pay us to play that game of sort of robbing Peter to pay Paul. And that begs the question, we want to run these businesses as independent businesses. We want to be able to accommodate existing shareholders and most importantly, existing management teams in the future of those businesses. We're not going to manage them in than other people are and if we are to motivate those management teams as effectively as is necessary and compete directly with private equity incentives then we need a means by which management can realise the fruits of their labours akin to what is offered in private equity which all depends on a sale. which obviously for this business is much less likely, not least because we won't want to sell them. We've come up with an alternative exit route for managers, and we have done this for both Reese and Jules. There will be the normal, when appropriate, normal performance hurdles, length of service hurdles. And actually, unlike private equity, there isn't going to be this cliff edge. We will spread any options that people get. They will basically have a share in the business, Whether they get that share or not will depend on the performance of the business. And then they'll have a put option that allows it to sell that share to us. And those options will not all be granted in one year. So the temptation, call me cynical, the temptation of companies to ramp, pump and dump their businesses on the public market, some of you might have experience with that. it diminishes because you spread the reward over three years. In terms of how we're calculating that exit price, we take the profits of the company, post-tax profits, not EBITDA, interest depreciation are both real costs, you can't ignore them. So, post-tax profits of the business calculated in the way that we construct our accounts. One of the few things we will be imposing on our subsidiaries is our financial discipline. That number, to calculate the value of the business, will then be multiplied by the PE of next, prevailing in, say, the previous three months, multiplied by a discount. So the price of liquidity is you're not going to get quite as much as you could do if you did a direct IPO, but the IPO, in effect, if you're IPOing through next shares, is more guaranteed. An example, which I feel almost embarrassed to put on the table, but if a business is making 10 million, next to the P of 13, discount of 30%, the business is valued at 91. If the management had, say, 5% of a pot, that would be worth 4.5 million to be shared amongst managers and staff over a period of time as they exit the business. In terms of creating new incentives, and this is a long way off. We're just dealing with people who are already in Stitch at the moment. But new incentives, you will ask, well, what happens when those management teams leave? What we would do is exactly the same as PE do. We would create a new class of share that sits above the existing capitalization and then incentivize the management team on the increase in the value of that top slice or suite equity, as they call it in PE. in private equity. So we would operate in a similar way, which we think is very neat and has a number of important advantages. It's commensurate with the value of the company. It is always earnings-enhancing to Next, unless we do it one month before a profit warning, in which case it's unfortunate. But it's always earnings-enhancing to Next. The risk of this is that you are, in effect, they will be capped, but you're writing big cheques for the future at a time when you don't know you're going to have the cash. So all of these deals are structured in a way that at next election can be settled in next shares. So, we remove the risk of a cash crunch, and if we need to issue shares, we will. Obviously, subject to all the restrictions in our articles and statutory requirements and stuff like that that I was told I had to say. So, we think that provides an excellent route for management, highly motivating, more certain than private equity. We also think actually, if you're a founder sitting on a business and you're looking for a part exit with an earn out, or even a private equity firm that's having difficulty selling and realizing the value of your stake, and there are quite a few of those around at the moment, we understand. This actually could be quite an exciting opportunity for us to add value to the market through, in essence, our ability to issue shares. and it kind of goes back to the market doing, or the equity market doing what it was designed to do, which is to provide risk capital. Because in a world where it's very, very hard to float a small company, a mid-sized company, a company turning over three, four hundred million pounds, very hard to float that because the costs of being a public company are so enormous that they wipe out a big chunk of the profit. So in that world, An alternative route to market is to join the Next community and earn your way into the market through, in essence, acquiring Next shares or cash, whichever is convenient for us at the time. So Total Platform is kind of on a journey. And the problem that we were trying to solve, or the opportunity, is the same. The problem is, how do we monetize the value of the 30 or so years of investment we've put into retail systems, retail technology, retail warehousing, automation. How do we monetize that beyond just servicing the next brand? And total platform still, the question is still the same. But when we started, we thought, oh, we'll go and be a service provider because others have done that. Software as services, blah, blah, blah. Actually, as time has gone on, the answer sort of evolved because it became very quickly apparent apparent to us that being a service provider on its own was never going to make us very much money, or not enough to warrant the time and energy. And having skin in the game not only provided us with some of the upside that the client gets, it also aligned our interests with the client companies and made the relationship much more productive. And as time has moved on with Total Enterprise Platform, it's beginning to look, you're still a service provider, but potentially also a sort of mergers and acquisition tool as well. Now, before everyone gets too excited and I can feel the room buzzing with excitement, because people who work for brokers might think there are fees involved somewhere along the line. If we can't get companies that fit all of our criteria and they're listed, good management, the ability to add synergies, the right price, we won't do it. So don't expect lots and lots of news from this and suddenly Next is going to be buying everything in sight. We won't. But if the right opportunities are there and our conditions are met, we will. And we're relatively unconstrained if we can pay for them in shares because we do have the ability to issue 10% of our share capital without reverting to shareholders. Warning, very important warning. That might tempt some people to think that is cheaper than paying in cash. Obviously our shares are more valuable than cash and that's why we buy them back. So don't think we're going to make that mistake. So all that sounds very good, but it does lead to a sort of not so nice thought. And that thought is really about the nature of retail conglomerates. Because whilst when you look at retail conglomerates, they appear to have sort of an inexorable ability to outcompete small businesses. They've got all of the infrastructure, all of the financial crowd, all of the expertise. And that advantage at this point in time is greater than it was 30, 40 years ago because of software. Because when you look at traditional retail companies, actually, if you're just doing manual picking in manual warehouses, actually buying another business, you still need extra warehouse space, you still need another warehouse, you still need extra shops. So the synergies just aren't that great. But where so much investment is being made in software that is much, much easier and cheaper to share, you can get genuine leverage, leveraging the software that your website is driven by, your product systems, all the algorithms that you run to run the business. Spreading them over more retail companies involves very little, some, but very little extra cost. So actually the argument for and the case for retail conglomerates is greater than it's ever been. But we're acutely aware that the history of retail conglomerates is not a happy one. There are amazing successes, multi-brand retailers like Inditex Group, LVMH, extraordinary example of a really successful development. There are examples, but there are far more examples of failure, and I've listed some of them here. I won't say the names because it's bad luck, but we can all think of them. What happens, we think, is very simple, and that is that over time, these conglomerates become big, unwieldy, boring, corporate, that people running small subsidiaries see themselves not as independent entrepreneurs, but basically as corporate apparatchiks who are clawing their way up the system, and they lose all the innovation, all the agility, all the motivation that companies like Next have fought so hard to maintain as we've grown. which is relatively easy with a single brand. So how do we address that balance? Keep the best of the small business agility and initiative and motivation, but leverage the infrastructure in the way that we want. So there are some do's and don'ts. The do's are all the things we've talked about. Share all this infrastructure, but don't think of it as being a cost centre. Because the risk is that when the head of the subsidiary or the product director of the subsidiary rings up the warehouse person. The warehouse person regards that call as a call from a very inconvenient colleague who wants them to try a bit harder. We set Total Platform up as a business. It will remain as a business with clients, with service levels, clients, and an attitude that it has to make a profit. So it's motivated to control its costs and to serve its clients well. That is sort of the first thing. Second thing, and I've talked about this already, so I won't bang on about it anymore, make sure that management are motivated as if they were running their own business, even if the majority of it is owned by Next. And finally, some don'ts. And the reason these don'ts are so important is because, and we've seen this, it's extraordinary. These are the things that people do without even being asked. without even being asked. The assumption is this is what they're meant to do. It's like, oh, obviously we'll be using, you know, you'll be telling us what your bestsellers are, we'll tell you what our bestsellers are so we can leverage those bestsellers. Absolutely not. there will be no data sharing between the businesses. Because once we're all sharing each other's bestsellers, and every Monday morning, the first thing you do is to look at all your brothers and sisters' bestsellers, not least because people compete far harder with their brothers and sisters than they do anywhere else. I can say that from experience. My kids, I should say, not with my own brother, or maybe. What will happen is, slowly but surely, all the ranges will end up looking the same. They'll look like different versions of the same bestseller. Same thing with supplier base. A lot of a brand's handwriting, in reality, if we're going to be honest, is the unique handwriting of the suppliers that we find. So using one supply base, you begin to kill originality, not least because that supplier thinks, oh, here's another person coming from the next group. I'll show them the same stuff or very similar stuff that I showed the last next people. They'll love it. So you've got to keep the supply base. You should never impose the same supply base. There will be overlap. And then that happens anyway. But what you shouldn't do is suddenly everyone march into the same sort of regiment. And the other thing that's very important, and again, counterintuitive, is we shouldn't assume that all of our subsidiaries now have to conform to our quality standards, our rub tests, our lightfastness, stretch tests, whatever tests we have. Obviously, the product has to be merchantable. But the reality is there are very successful retailers, more successful than Next, and we can all think of them, who are fast to fashion but not as good quality in our sense. Our product is pretty bulletproof. That's just who we are. Imposing that on a brand that might want to use a fabric that's still merchantable but just not bulletproof, a little bit better, in any case more expensive, that would be a mistake. So we're not going to do that. We won't impose people and we won't impose culture. It will be their culture, their people. The only two things we will definitely impose are financial discipline, capital allocation, proper accounting, not ramp, pump and dump accounting, You know, lots of exceptionals and EBITDAs and hidden, you know, trying to account for as much as possible as capex. So it never hits your key measure of success. Notice that with EBITDA. When it goes in, it's capex, so it doesn't affect your EBITDA. And when it goes out, it's an exceptional write-off, so you're fine. It doesn't actually cost anything. We're not going to do that. And secondly, they have to conform to our ethical trading standards. But other than that, they've got to be independent. So our aim, in short, is to create a sort of what we want to build as a community of entrepreneurial businesses, sharing infrastructure, core values, financial discipline, but maintaining their own personality, drive, and motivation. I'm not saying that we will definitely achieve that, and many others have failed, but we're very clear about what needs to happen and what needs to not happen in order to avoid this risk. And the biggest risk, of course, of all of this is that we lose sight, as managers of Next, of the jewel in the crown. Next is our most important asset. My time, my colleagues' time, the vast majority of it will still be spent on next because that is the heart of my job. And these businesses, there we are. Yeah, nice graphic. Just explain it clearly to the heart of thinking. The key is, and what you mustn't think is that we will lose sight, that I will not go to the next trading meeting anymore because I'm busy worrying about a small subsidiary. They will have to worry about it for themselves, and our investments and acquisitions director will be worrying about the investments, but the core Next team will be focused, 90% of their time will be on Next, or on Next's infrastructure, which of course serves everybody else as well. So that is it in summary. All of those words can be summed up very simply. This year's going better than expected. Sales are better than we thought. Costs are better than we thought. Early look forward to next year. Cost pressures look like they're declining and in some cases maybe will be tailwinds but nervousness about top line demand and the new businesses that we're developing whilst at the moment not making a huge contribution to the group are all profitable, making a healthy return on capital and there is lots to go at. And that's it. And I think we're going to hand over to questions. But before we do, I have two important announcements. The first is, for the box back there, they said please pick up your microphones and talk through the microphones rather than directly at me. The second is that JD Sports, a wonderful business, has a much more interesting presentation, I understand, and important. And anyone who needs to go to that presentation should leave now. Or wait until you've asked your question, hear your own voice, maybe wait for the answer and then quietly and undisruptively please do feel free to leave because we know that there's a lot of pressure on your time this morning Richard

Thanks, Simon. Morning, everyone. Richard Chamberlain, RBC. Just one for me, please. I see there's quite a big step up in marketing for the overseas online business. I think it's coming through, particularly in the second half. What sort of results have you seen from that so far? I mean, is that driving quite a big top-line acceleration? And is that the reason why you're expecting the overseas online margin to sort of fade down Again, in the second half, is that a major reason behind that? Thanks.

It's part of the reason. There are all sorts of other operating cost savings in the first half that we'll have annualised by the time we get into next year. So it's not just that. We are expecting overall to spend more on marketing. And I think this is a really important question, actually. What we've done overseas is there are a number of territories where our prices have naturally gone up in pounds because of the exchange rate, or we've actually, in lots of territories, we've put our prices up marginally, because we made a mistake when we went overseas. We've realized we made a mistake, and the mistake was we thought it's just like the UK. All we've got to do, the most important marketing we do is getting the price right, the best price we can possibly offer, hit our target margin, and that is what it takes to be successful. And that's fine if your customers have heard of you. But actually, you talk to a very wide audience that can't see or hear you. What we think it's better to do in a number of territories is to narrow the audience by pushing the prices up a little bit, achieved margins and use that to spend on marketing. And you kind of get a bit of a virtuous circle there because every pound of marketing you spend makes more profit and you can do so without eroding your bottom line net margins. So in essence what we've done is we're going to increase investment in marketing at the expense of decreasing investment in price. And the returns we're seeing are very strong. I wouldn't want to quantify how much sales growth we think we can get from that because I'd rather do it first than tell you.

Thank you. Good morning. Warwick O'Kines from BNP Paribas Exxon. Could you just talk a little bit more about REIS? Are there things different that you can do with REIS operationally and strategically with your higher share ownership? Or is it financial? And maybe does Total Enterprise Platform play into that?

No, it's the bottom line. I think I'm always nervous when anyone says anything strategically. You've got to be careful of that. So, no, this is not an enabling increase in stake. This is because we really fancy their long-term future. Now, I should say, short-term, we can't... Brands go in and out of fashion, but we think where Reese is in the market, it's a great brand... It's got a lot of space between it and luxury and a lot of space between it and mass market. We think it could be a great brand. We think it's got a great management team who can develop new products, push into new markets overseas. We think long-term there's a lot of potential and that's why we've bought it. We haven't bought it with T, total enterprise platform in mind, not least because their overheads are already very well controlled, so the opportunity is much lower. Our sense at the moment is it's just not worth the disruption. Sorry. I'll come to you next, Hubert.

John Stevenson at Peel Hunt. A couple of questions, please, Simon. First up on the headroom on the warehouse, you talked about sort of billion pounds of sales headroom. Is that based on current throughput and technology or is there sort of more to do? And connected to that, you obviously talked about the service levels, the efficiency at the moment. How are those service levels compared to pre-COVID and now post-investment? What can we do over the next couple of years to improve both service and cost?

Excellent point. So the answer is that increasing capacity assumes that all the automation comes online and works as we were expecting. And both of which we have yet to prove. What we have done, and you'll notice in the walk forward on costs, we've assumed that the system is pretty much fully implemented by April, May next year. But we've assumed that a lot of the savings won't be achieved until the following year because our experiences with automation, it does take much longer than you think to really get the full benefits and efficiencies and cost savings. So I think the best answer about the cost savings is that chart we gave, which showed I think 14 million of the benefit coming in the, not next year, but the year after. Is it 14 million? Yeah. And then... as I kind of alluded to, I'm hoping that all of those service metrics that you saw on that graph, that chart, will it improve further, not just as a result of the automation, but also I think we can tighten up our operation further now that we've got the space to do it. Sorry. Yeah, you.

Thanks. Hi, it's Georgina Johanan from J.P. Morgan. Two questions, please. The first one, thank you for the colour on the potential pricing outlook in the first half of next year. I guess just to understand better how that would potentially look for autumn-winter 24, given what you're seeing at the moment, because I guess from the outside in there's a bit of a disconnect with many of those pressures actually not just having eased but moved backwards, yet also pricing being materially higher or double-digit higher than it was before, and you're historic comments around maintaining gross gross margins and then my second question was just on sort of total enterprise platform i think historically when you talked about it you talked about businesses with online sales in excess of around 30 million but now obviously direction seems to have changed a little bit how do we like assess the opportunity set like are we talking about struggling uk retail businesses like how are you thinking about that please thank you so um

Both very good questions. And unfortunately, the short answer to both of them is don't know. So autumn enterprising, we really haven't started contracting yet. My guess, if I had to guess, I would guess that it's going to be broadly the same as spring-summer. But there's an awful lot that can happen in six months, as has been proven for the last six months. So I wouldn't want to be hostage to fortune on that. I think what we have proven is that whether prices come up or down, And we'll continue to do the same thing as we've always done, which is pass both good and bad news through to consumers. So of that you can be sure. What we can't be sure of is what's going to happen to prices. In nominal terms, I'm not expecting prices to go back to where they were pre-COVID. But I don't think that's a problem because I'm not expecting wages to go back to where they were pre-COVID either. So in real terms, I don't think... I think this is sort of a no-score draw. In terms of Total Enterprise Platform... Again, the answer here is this project is evolving. I think the 30 million rule still applies. Because even if you're applying total enterprise platform, One of the key questions we have to ask when we look at taking a stake or acquiring the whole of a business is can we add value? And if the turnover less than 30 million online, because so much of the benefit we add is online, even in TEP, all those systems, a lot of them are systems to manage an online business. I think that threshold is still there.

It's Adam Cochrane at Deutsche. You've mentioned the benefit of higher ASP a couple of times in reference to handling costs, distribution, etc. With price inflation going towards zero, does that mean you have to work even harder? What can you do to offset some of those challenges in Germany? effectively your unit per unit costs on both international and the UK. And then the second one, on total enterprise platform, if you've got these ambitious growing brands, what can you offer them to help them with any overseas expansion if they're fully on board with your total enterprise platform? Thanks.

Okay, so first, what can we do to offset that? the potential decline in ASPs. I think you're running ahead of yourself there. But if there is a decline in ASP, we think that's going to be hugely positive for demand in a way that rising ASPs were negative for demand. So I'm not overly concerned about that. And of course, declining ASPs, if they occur, which I think is unlikely at any significant level, but if they do, it will push up operating costs. I think the answer is that schedule we showed you of cost savings going through, but we'll do that whether or not average selling prices go up or down because the savings are there to make. It wouldn't be very sensible to say we'll only save them if we really need to. I think that is the answer, but whatever happens, If average selling prices drop, it's good news for consumer, good news for demand probably, but not such good news for some of those cost benefits that we were anticipating won't be as great. Then in terms of overseas benefits to potential clients, I think the most important thing we can offer them is a website that will be transactional in 70 countries overnight. and with all the relationships that we have developed online with companies like Zalando, Otterver Sand, Zadora, all the aggregators we use, again, we can turn those relations on for them at the flick of a switch. literally just adding them to an assortment and they're going out of the same warehouse to the same aggregator. It's pretty comprehensive what we offer. What we don't offer and what we're working on, and we've alluded to this in the document, is the wholesale relationships that other people have with licensees, but that is one of the things that we're really putting a lot of effort into at the moment to try and build a wholesale licensing franchise business for the countries we can't reach through our direct websites.

Thank you. Sridhar Mahamkali from UBS.

Anybody else want to go before we start? Anybody else? Okay, go on. It's an easy chance. Carpe diem. Very good. Sorry, go ahead.

Thank you, Simon. A couple of questions. First one is on product mix. I think you referred to a push on design-rich, I think top-end products you were calling them, versus basics and entry price. How has the mix actually changed within the business? Is there anything noticeable? Is there any numbers you can share with us? in terms of basics versus the products you've referred to or average selling price or anything like that. And the second one is, I think somewhere along your prepared remarks, you said you may find more cost savings next year. Can you maybe expand a little bit? How do you think about them in terms of like, do you set out now planning with whatever sales outlook you're planning or you need to make certain level of cost savings or is it much more a natural and organic process looking for those cost savings?

First of all, the way we do most things is natural and organic. That's sort of the way we operate. I think your first question was about what's happening to the overall shape of the range. I can give you lots of statistics, but they're pretty meaningless, and I would have made half of them up. So I think it's not sensible to look at that. And one thing I want to be very clear about, it's not that we're retreating from our entry-level prices. We're not saying, oh, it's this at the expense of that, so cut some of the bottom and add some of the top. It's really just bolstering the middle and top, because we're not constrained on options online. It's not about... one part of the range at the expense of the other. I think it's a very important point. The only statistic I'll give you, which I won't give you exactly, is that our sold average selling price if we just take out all the units, divide it into all the money we've taken, has risen more by the increase in like-for-like prices. So mathematically we are seeing a shift, naturally, towards the middle and upper price points in our range. That's not something we're pushing, actually. It's something that's just happening in fashion. People are going for the textured weave polo shirt rather than the plain one, and that's more expensive than the plain one. That's just the way fashion's going at the moment. In terms of the second question, the cost control, we have what is in the business the least popular director meeting that we have every six weeks, which Amanda runs and comes in with a big stick and a calculator, and we sit down with all the main directors, all the cost center directors, and we have a bit of a chat about all their ideas for saving money, what new ideas they've got on their table, and they have a scorekeeper, and it's all great fun if you're in the chair. LAUGHTER Sound.

Hi, it's Simon Irwin. Can I just come back to you on your comments around labour costs next year? So I think the minimum wage is likely to go up 7%, so annualised with this year's 10-7 gives you about 8%. What do you think then your overall increase would be in that kind of environment, bearing in mind your kind of comments around the labour pool becoming easier? I mean, is it 2% less than that or is it a bigger metric?

It's a great question. We haven't worked it out. We don't know. And the reason we don't know is because we don't know what the general award will be. We don't know what the award will be for our head office staff. So I can't give you a number. It's uncalculable without the other input number. But it'll be somewhere between seven and the general award. But I could give you a number, but again, it would be one of those made-up numbers that I wouldn't want to chance my arm on. I think it's fair, isn't it?

Yeah. Head office bonus in January. Sorry, head office pay awards in January.

It's the profits that decide the bonus, not us.

Yes.

Would you not be more optimistic about volume, given that you're almost certainly to see a real terms pay increase next year, assuming that inflation is below that? Is it not reasonable to expect some volume recovery as prices come down and real wages go positive? Let's hope so.

But no business was built on hope. So I'm not going to, yeah. I think it's very difficult to know. You're definitely right. That is a fact that we didn't mention, which is actually real wages, certainly relative to clothing, are likely, definitely will rise relative to the price of clothing. And that should be good news for us. I think it's the impact of the sort of extra hours thing, mortgage rates, and job security that might weigh against that. And trying to balance you know which ones of those will be more powerful than the other is is impossible at this stage so we'll just wait till we get close to the time keep our buy budget very tight at the moment um and make that decision probably as we go into november december yeah good morning william woods from bernstein um could you give any comments on shrink given that many of your peers have commented on increasing theft and things like that thanks We have seen an uptick in that sort of activity in branches. We don't really understand why. It affected our margins by about 0.2 percent in half.

Hi, good morning, Nick Coulter from City2, if I may, please. Firstly, when you look forward three to five years as you stand here today with your crystal ball... We don't have a crystal ball, you know that. I'm sure it's somewhere in the home collection. They are, very good. Balls, crystal balls. But what do you think will be driving the majority of the group's growth? How significant might Total Platform... and I appreciate that's a very difficult question to answer. So maybe one that's a bit easier. Could you also comment on the impact of or cost pressure from business rates next year as well, please?

Thank you. Yeah. So first of all, I don't think any significant impact on the group with business rates one way or the other. Dominic, you're in the room. Any? No. No. Nothing. Nothing that will move the dial, we don't think. Just coming back, I think... I think it's very important that I don't give you an answer to your first question, because it's just not the way we work. And we don't work like that for a really important reason. And that is, once you have the leadership of an organization saying, our growth is coming from here, everyone in the business no longer sees it as their job to deliver the maximum growth they can within the profit hurdles and cost constraints you've given them. They see it their job as to fulfill your great vision. of the future. So we try to avoid great visions of the future and instead come up with ideas that we think are good ideas, test them, trial them, and then do as much of them as we possibly can. And it will be the outturn from all those different activities, the successes and failures we have in all those different projects that will determine the shape of the group. And to guess it at this stage not only would be impossible, it would be damaging. Don't worry, just go for it. I can hear you.

Okay, thanks. So I've got two questions, please. Made.com has relaunched, and I just wondered if you could talk a bit about the potential you see for that over the years ahead as a standalone website. And then linked to that, you've launched a lot of different brands and have responsibility for many different brands these days. So I just wondered what the challenges were in managing that and avoiding detracting from the next brand. Thank you.

Yeah, it's a very good question. The second one, and it is the question. And the answer is independent management team. Even if it's just like an internal license, that internal license, someone like, let's say Cath Kidson, the way we're going to set that up is as its own profit center, it will charge Next and anyone else their license a royalty fee. So if our women's accessories team start producing Cath Kidson bags, they will pay a 6% license fee to the cost and the profit center that is Cath Kidson. They will charge a 6% royalty. They will have their own costs to weigh against that, marketing, people, design. They'll have a target margin set, and that target margin will be geared up to returning, making a very healthy return on the capital that we have invested in Cath Kidson, including any startup marketing costs. And then you have to let them get on with it. And it's kind of sink or swim. Because if you take the opposite view, if it's not sink or swim, and it's help from the corporate structure, and men in grey suits turn up and say we're here, or women in grey suits turn up and say we're here to help, you end up with everything looking the same. So we think it's quite important to keep. And the other mistake I think we could make is recruiting into those jobs too many people from Next. So we're trying to keep the, if you look at Maid and Cath, both of them, I think pretty much 100%, Jeremy's in the room, pretty much all of their staff are drawn from outside the group. But it's not just a good question, it's the question. Yeah, one of the, again, really important things is that we're not going to comment on the performance of any individual business. I don't want to put any undue pressure on the managers of that business. They'll get their rewards if it's good and not if it isn't. And what matters to us is the portfolio, not the one we talk about in public. And I, oh, sorry, silent.

Simon, forgive me for misquoting you from several years ago, but I think you said there's no such thing as sustainable competitive advantage in retail because someone comes along and does it better. But given the scale, given the investment you've made, given the model you've come up with and leveraging the cash flow from a fairly resilient retail business, have you not just done that?

We'll see. Well, see, it doesn't, it in no way makes us a better run company to think that we've locked ourselves into some mythical, unchallengeable advantage. In fact, it actively weakens us. So even if it were true, I would deny it. Actually, I wouldn't because I'd be lying, but you know what I mean.

Hi, can I just ask on your international operations? Sorry, it's Anwar Malhotra from Librem. You talked about in the past aggregators having a very high return rate and that being a problem for you. So what have you done in the first half to fix that, or is that still a work in progress? Thank you.

Yeah, good question. We have... consciously gone back to all of the ranges that we sell on, all of our aggregators, and analyzed the profitability individual lines we're giving them. In simple terms, we've taken off the low average selling price, higher return items. It's relatively simple calculation that you can make on an item by item, category by category basis. You know what dresses return on Zalando in Switzerland and you kind of go, well, that means the price of the dress has got to be more than 35 francs in order to hit our profit hurdles. Anything that's cheaper than that, either put the price up, put it into a pack, which you wouldn't with dresses, but either put the price up, put it in a pack, or take it off. Yep. And on that, bon Michel. I think we've run out of questions. Thank you very much, everyone. Enjoy the day.