Next Group Plc Unsp/Adr

Well, good morning to everybody and welcome to the next results. In the presentation this morning, Simon will talk about surpassing a profitability milestone. In fact, if you read the press this morning, it was the headlines in the first two things that I saw. And what that really should mean for Next and its 40,000 plus employees. In general, the most widely held view is that when companies become bigger, they change, and generally the change is for the worse, as they discard some of the behaviors that brought them success to date. Some of the well-known comments, companies become more bureaucratic, are more control focused, less entrepreneurial, resist change, more risk averse, et cetera. The list of negative behaviors can go on. With respect to Next, we have been evolving as a company for a long period of time, and we will continue to evolve as a company, and we continue to change. We will do that best by continuing the behaviors which have brought us success to date. And those practices, you've probably read this, it was both in the public domain and certainly is inside of Next, the six rules for running a successful business. They've been laid out very clearly by our management team, our leadership team, and these six rules are, take decisions and make things happen, change is everyone's job, create value and make a profit, Keep it simple and speak in simple English. Be open, honest, and considerate in your dealings with others. And finally, be demanding, but never nasty. These rules don't guarantee success, but in my opinion, surely make it a lot more likely. Simon, over to you.

Good morning, everybody. Welcome. First of all, Chairman, thank you for that impromptu start. And, you know, it just shows what an innovative place next is, because the chairman didn't say he was going to say any of that. And, you know, I agree with every word of it, genuinely. So, a good... A good year. Group sales up 8.2%. That number is obviously flattered by the acquisition of an increased stake in Rees and the acquisition of Fatface. Just to remind you, in all of the profit and loss numbers that we'll be talking about, we will allocate our sales and profit in proportion to the percentage of the subsidiary businesses that we own. So if we own 70% of Rees, we'll report 70% of their turnover, 70% of their profit. We think that is the best way of reflecting the value that we own in their business and the success of the group. And it's those percentages that have pushed that 8.2% up from 5.7% total sales growth, 5.8% on a full price basis. In terms of how that breaks down in the United Kingdom, retail down 1.1%, online up 5.4%. So we're still continuing to see drift from retail into online, but at nothing like the pace that either we expected this year, we expected minus two. And we think that has reached a sort of, a level now, not that it will continue, but we don't expect that to go back to the minus sixes and minus sort of tens that we were experiencing in the first half of the structural shift. In terms of international, international up 24.6. The vast majority of the change in our performance we think was driven by marketing. And just in terms of how we performed versus our expectations, you can see there retail did do better, but not much better than we were expecting. Online in the UK, better, largely driven by non-next brands, and we'll come on to that later. Online international was where we really saw a big step forward in growth, driven by marketing, which we'll talk about a bit more later on. Total profits before tax up 10.1%. Slight nudge forward in the margin, and I'll be going through the margins business by business when we go through the detail. Just in terms of quality of earnings, and this is just focusing on the non-cash, non-recurring items that are within the P&L, I just want to kind of reassure you that they kind of balance out. So we've got bad debt provision, release of 10 million, foreign exchange gain of two, offset by the impairment of our investment in Jojo Maman Baby, which I've been practicing saying and still got in slightly the wrong order. That business didn't make a profit this year, so we chose to write off our investment there. We are hopeful that it will get back into a profit, but that's a hope rather than a certainty. In terms of profit after tax, up 8.5% and the erosion in profits caused by increase of tax made up for on a post-tax basis through buybacks enhancing earnings per share back up to near the 10% level. Ordinary dividend up 12.6%. The reason that's risen faster than earnings per share is all about the timing of buybacks. The actual sterling amount we paid out in dividend is still 2.8 on a ratio of 2.8 to profits. In terms of cash flow, and unlike the P&L, I'm going to talk about the cash flow and balance sheet on a consolidated basis. So if we own more than 51% of a business, we will show all of its cash flows and all of its assets in these two sections. The reason we've done that is because actually disentangling it is extremely difficult and it doesn't provide any particular insight. So we'll do this on a consolidated basis. Profit before tax at 93 million. Depreciation and amortisation up 20. The lion's share of that you can see is the new mechanisation in Elmstead 3. But a good amount of IT amortisation beginning to hit the balance sheet now as we begin to pay for the increase in capex on our modernisation programme. In terms of capex in the year, down 16 million. To put that in context, we've seen a big sort of fall off in capex over the last three years. The 151 was a little bit less than we were expecting. We were expecting to spend 161 at the beginning of the year. That is for two reasons. One good reason, one timing. In terms of capex on systems, that reduced by 8 million, and that's all to do with the fact that we are getting better value now for the systems work that we're doing. So some of our modernisation programmes have not cost as much as we thought they might. And then the 6 million in warehousing really is about the timing of the replacement of our fleet. So that really is a timing issue, and that will come into next year's... That's our van fleet, I should say. That will come into next year's capex numbers. Looking forward to next year, you can see we have got an increase of 28 million. Pretty much all of that increase comes in stores. And the increase there is not because we're spending more maintaining our shops. Our maintenance capex is about the same as last year. It's all about increasing space. where we have... I think there are two things that are happening here. First of all, we haven't really been looking for new space for the last seven years, and there are some towns and locations where previously we've not thought we could have a Next and we now think we can, partly supported by the evidence of what we're taking online in those regions, and partly as a result of opportunities to move and improve the size of stores that we've got. So we've got 12 new locations, six re-sites. In terms of the portfolio that we plan to open in the year ahead, we still set our target of 24-month payback on capex invested in stores and a hurdle rate of 19% net branch contribution. And the appraisals for these stores are 23-month payback and 19% net branch contribution. It is the first time, in earnest, we've opened a lot of new space. So if you want to look at a sort of downside risk number in this presentation, I would say that is the one that I'm most nervous about. It's a long time since we've opened this much new space. The number there, neatly, is a bit of a cheat because it excludes one store, which is Thurrock. Just to explain, in Thurrock, we're spending 19 million pounds A lot of that cost is a new shop fit concept that we haven't refreshed our concept, our shop fit concept for over 10 years. And so there are a lot of one-off and design costs in this store that won't be there going forward. But the return on that store The payback is so embarrassing that I put it as an IRR of 14%, which is not a disaster but not anything like what we would expect from stores going forward. It is mitigated by the fact that the lease structure in Thurrock is turnover related, so the risk on that 14% is much lower than we would take in a normal upward only rent review situation. In terms of working capital, working capital increase of £92 million. Part of that is payments of the previous year's staff incentives, but a big part of it is £50 million of stock, £50 million more cash flowing into stock. I'm going to talk about stock a little bit more when we get to the balance sheet. Surplus cash down 15 million. Ordinary dividends at 2.8 times cover, which we intend to maintain going forward. Big increase in buybacks driven by the fact that we haven't made any significant investments during the year. Net cash flow of 40 million inflow and 97 last year. Those two, that retention of that surplus cash needs to be taken in the context of the group's debt, which I'll cover as we go through the balance sheet. Investments on the balance sheet down 27 million. This is all about amortization. Stock up 100 million. That represents an increase of 13% in 2.3 weeks cover. Two things happening here. First is at this point last year, the effect of Sueys hadn't fully flown through into our buying. So this reflects a sort of annualisation of the extra two weeks it's taking us to get stock around the continent of Africa. And... Partly also, we have increased our lead times in Bangladesh as a result of the political disruption, some floods that we had there. Towards October last year, we started to increase our lead times in Bangladesh. We have got more stock in the business. That increase is coming down as we stand today. It's around 11%. I would expect it to work its way through the business and be more in line with sales as we approach the end of the year. Custom receivables, pretty much up in line with credit sales. Data days, this is interesting. We call them receivable days now. Data days have negative connotations, so you're not allowed to do that. Receivable days, customers are still continuing to pay down their balances slightly faster, which is a positive thing for sort of consumer confidence. And to sort of reinforce that, if you look at the observed default rate that we're now experiencing in our data book, It's at 2.6%. That is the lowest level of default rate that we've ever had as a business, going back 30, 40 years. So in terms of consumer debt, the book is in good shape, partly because it's not growing very much. And because it's in such good shape, we have released 10 million of our bad debt provision, but we're still very comfortably, some might argue, too comfortably provided at 7.8%. We think we've achieved a happy balance. I say that for the benefit of the auditors in the room. The creditors up 28 million, partly as we buy more stock, we owe more to suppliers. Label creditors, this is the stock that we sell on commission. We take the sales and then pass the sales to the brands, less our commission, and there's a gap in timing between when we receive the sales and when we Pass it over and that's the label creditors and then staff incentives there as well. Pension surplus down. This is not a real number. This is a reflection of the buy-in process that we're going through and we would expect that pension surplus figure to reduce to zero over the next couple of years as we work our way through the process of the buy-in and take that liability off our balance sheet. Liability and asset. Net debt down 40 million. which leaves net debt at 660 at the beginning of this year. In terms of the year ahead, operational cash flow of 884, that's what we're expecting, capex of 179, ordinary dividends in line with our forecast at 2.8 times 279 million. That would leave surplus cash of 426 million. I'm going to do a little bit of a reverse grand old Duke of York here and talk the number down and then build it back up again. In our plans and the forecasts that we've given you, we have assumed that we will distribute £316 million of cash, not the full surplus cash. The reason for that is that we want to be able to be in a position where we do not need to finance the £250 million bond that becomes due in August. That will leave us in a position where at peak borrowing requirement, we still had headroom within our cash resources of £200 million, which we think is comfortable. It's only for about two or three weeks as well that... that squeeze. So we think that's a comfortable position for the business to be in. However, we may well choose to either refinance the bond, extend our RCF, do a private placement and increase the cash resources in one of those three ways. At this point, particularly with the volatility and pricing in the bond market, we don't want to commit ourselves to any of those things, not least because the market will see us coming and we don't think we'll get as good a price as we can. If we are able to add to our cash resources, then we will return to distributing our full surplus cash at around £425 million. So net assets of £116 million, pretty much all of that is stock. In terms of the divisional analysis, starting with retail, retail was down 0.9% total sales. Full price sales down a little bit more than that. Light for light down 1.2%. Profit down 3.2%, margin erosion of 0.3%. So whilst retail is still delivering a good profit, and this year we expect to expand space, it is still a business that is treading water at best. And we did have a slight decline last year. Bought-in gross margin up 0.4%. This was across the whole next brand, and this, in essence, is the reflection of price rises needed to pay for the 10% increase in national living wage last year. Markdown, an adverse move into 0.8%. That's all about the fact that last year we had unusually low levels of stock for our end-of-season sales overall, and this year it's returned to more normal levels. warehouse and distribution flat. That is two competing things that are happening there. First of all, our costs are going up with wage inflation, but we managed to save quite a few, we managed to find quite a lot of efficiency savings, particularly in our retail distribution network, which offset those, and payroll and adverse movement at 1%, and that is all about national living wage going up by 10%. Store occupancy costs, positive movement here, not being driven by rent reductions, actually, but being driven by lower energy costs and release of historical rates refunds. In terms of lease renewals, and we're talking here about sort of obviously cash cost of rents rather than the lease interest costs, we renegotiated 74 stores, average reduction of 16% in rent. This is much lower than the sort of 30% we've been talking about for the last three or four years. Interestingly, if you separate those portfolios into the 28 stores that had not been renegotiated since 2019, with those renegotiated afterwards. You can see two very different stories. And what appears to be happening is that broadly, Post-2019, rents have rebased to levels that are sustainable. There were plenty of rents within that portfolio that went down and some where we got particularly good deals during COVID where they went up. But sort of stable rents post-2019 and still getting big savings on any rents, legacy rents, that had not been negotiated since 2019. If we look forward to the year ahead, we're expecting around a 9% reduction in occupancy costs at around £2 million. Actually, one other point there is the average lease term we're taking on new stores in the year ahead will be around four years. So we're still not extending our liability terms. So total margin down 0.3. Looking forward to next year, we expect negative light for lights of 2%, total sales down 0.3, and margins to road by a further 1.3%. In terms of the driver of that... Margin erosion, the lion's share of it is coming from wage inflation and national insurance. And then obviously the reduction in like-for-likes push occupancy costs up as a percentage of sales. Slightly offset by the margin gains from price increases of 1%. In terms of online, now online in past we have talked of as one business. And in terms of that one business, online business sales are up 9.8%, total profit up 13.3%. But, and this is going to be very exciting for you as analysts, and I hope you appreciate this, that actually reporting the whole of the online business is a bit misleading because there are two very different businesses. sort of under the bonnet. A UK business which sells a lot of third-party brands and an overseas business which is much more dominated by Next and which is growing much faster. So we're going to share with you both separate businesses in terms of margin walk forward and treat them separately. That's the good and exciting news. The bad news is we're going to drop the finance section which you can take as red, which it is in detail described in our in our CEO report, but you won't have the pleasure of listening to it being described in its minutiae here today. So starting with the UK, Total full price sales in the UK up 5.4%. In terms of the participation of sales, what is really noteworthy here is just how much of the business now on our UK platform is not Next branded. So you can see that 42% is non-Next branded. non-Next branded stock, of the 42 that's non-Next branded, 8% is wholly owned. This is where we're making full margin, either because we're licensing somebody else's brand or because we own or have started or have bought a brand. Of the 34%, 4% of that, so not 4% of that, 4% of the total is represented by subsidiary companies in which we have an interest. So it's not quite... Although the third-party brands are not Next brands, they're not quite as alien from the group as it first appears when you look at the 42%. In terms of growth, what you can see here is that the non-Next branded part of the business is growing faster than the Next branded part of the business. That's what you would expect. That's where the newness is. In terms of that growth, wholly owned brands are growing slightly faster than Next, but the real star performer this year was the third party brands. And we have been on a bit of a journey on third party brands over the last sort of two years. Two years ago, we weeded out a lot of the unprofitable items on our website and unprofitable brands. These were items basically that were high returns rates and low selling price and therefore on an item-by-item basis, weren't making a profit. And it took us a while, being honest, to work that out. We weeded out all of those, which meant that sales last year in label were suppressed. This year, we focused on improving the mix and stock availability of the brands that we sell well. And the lion's share of that 9.8% comes from that improvement. In addition to that, 3.7% of the 9.8% 3.7% of that growth came from brands that we had moved onto Total Platform. And so to give you a sense of that, the brands like Fatface, Reese, Jules, the brands that we moved onto Total Platform experienced a 41% increase in sales on our website as a result of consolidating the stock that they were using to service their website with the stock that they were using to service our website. bigger stock pool meant that both businesses ended up with better stock availability and they benefited enormously from much better trade on our website as a result of the stock being in our warehouse um profit up eight percent margins moving forward online um just to sort of go through that um the margin on next branded stock is up only 0.1. So really no change in the next branded stock margin. The increase has all come through label. And I'm going to break that down further. And what you can see here is that the third party brands did increase their margin by 1.4%. And that's really the tail end of the process of weeding out the least profitable brands and items. The big increase came in our wholly owned brands and licenses, which was mainly about margin, bought in gross margin. And what I'm now going to do is going to involve a little bit of mental gymnastics. So watch the screen carefully as I'm going to change the columns and rows and walk the margins of both parts of the business forward line by line. So you see this is the journey from next brand from 19.9 to 20 and label from 12.8 to 14.1. So the big difference is the bought-in gross margin. The next product, like retail, grew by 0.4%. The label business grew by 1.1%, mainly driven by what is unfortunately referred to as Wobble, which is wholly owned brands and licenses, where, particularly with the wholly owned brands, as those businesses begin to gain scale, they're getting much better prices for the product that they're buying from suppliers and, as importantly, beginning to get leverage over the fixed costs of the product departments build the ranges. Markdown, we didn't experience the same erosion in label than we did in the next brand, and that's all to do with the year-on-year stock comparisons being more favorable in label than they were in Next. Warehouse and distribution, pretty much a no score draw in the UK for the next brand, and this is where increased efficiencies are paying for higher operating costs, inflation operating costs. In label, the move forward again was weeding out those low returning, low ticket price, high returning items, where you have very high distribution costs associated with sending out and bringing back cheap items. We've re-invested, I said re-spent is a better word, sorry. We have spent the gains that we've made in bought in gross margin and warehousing. We spent on marketing and we've got a benefit from lower staff incentives in the reported year to the one in the year before. Looking at next year's forecast, assuming full price sales in the UK online are at 4.3%. We're expecting margins to edge forward by 0.2%. In terms of international, Total sales up 25% on a full price basis. In terms of participation, third party aggregators now accounting for 30% of our overseas trade and growing faster than the next websites. The really important point for us here is that in the countries where we're doing well on aggregators, we can see no evidence of a slowdown in the growth on our own website. The two appear to be growing side by side and I think that's because we've got such small market share in pretty much every territory that we trade in that the two businesses at the moment are not bumping into each other. In terms of participation by region, still, you know, Middle Eastern Europe dominate our business overseas and we haven't got a lot of traction in the very large markets that are further afield, whether that be Japan, China, India, America. The good news on that front is we are beginning to get growth there. So you can see growth in Europe is 30%. The rest of the world wasn't far behind. And that 27% growth in the rest of the world needs to be taken in the context of the previous four years where the business actually in those countries declined by 12%. So we have begun to get a small amount of traction, but it's still... If you said to me, what is the area I'm least happy with, it is our ability to grow outside of the Middle East and Europe, and we're looking at a number of partnerships and collaborations to improve that as the year goes forward, some of which we've talked about in the past, such as the collaboration with MINTRA in India. In terms of the Middle East number, the Middle East number appears to stick out. That actually is... really about the first half. The first half, there was a degree of friction when we moved over to our new hub, which we think held back sales in the first half. And you can see that sales in the second half in the Middle East were more in line with the other territories. In terms of profit, 36% increase in profit, 0.9% improvement in margin. In the net margins of the business, more than all of that comes from bought-in gross margins. There are a number of things going on. First of all, the 0.4 that we get across the next brand. Secondly, duty savings, 1.9%. A lot of those savings are about being smarter about the way in which we import stock into businesses. territories particularly in the middle east where the move to a new hub and the setting up of a domiciled country through which we sell to people in the middle east meant that we were much more efficient in terms of the way that we pay duty we're still paying duty but we're doing it in a more efficient way price increases of one percent added one percent to margin we did that in order to fund the marketing um that drove growth um and then the mix of aggregators versus next brand eroded margin by 0.3 percent Markdown, we're beginning, a lot of our websites, we don't actually put Markdown through the sites. We always hypothecate an obsolescence cost to the overseas sales, even if they don't have a sale, because if you're buying stock to do full price sales overseas, you've got to clear that stock in the UK, really want to allocate the cost of that clearance to the overseas businesses, which we do by giving them the cost of the obsolescence that they generate within the group. we're beginning, particularly through our hubs, to sell markdown overseas and where we haven't done before. That boosts the top line, but it also erodes the margin. It doesn't actually affect the pound's profit much because we're gaining in sales pretty much what we're losing in margin. Warehousing distribution, wage inflation eroded by 0.3. Middle Eastern hub was more expensive, although we did get duty savings to offset those operational costs. And we have got some efficiencies which have added 0.3. Marketing, this is the big change overseas, that sort of 80 odd percent increase in marketing expenditure, which I will talk about later when we sort of go through the detail of the areas of growth. So that accounts for the margin growth overseas. In terms of what we're expecting next year, we are still expecting some growth in margin next year. Large as a result of improved, as the volumes of these businesses grow, they get more leverage over their fixed overheads. But that assumes that full price sales are 18% up. In terms of customer analysis, and here we're looking at all of our customers, international and UK, but obviously excluding aggregators. The traditional mail order way of looking at customers, we have 8.6 million active customers at the moment. That's up 10% on last year. And you can see that broken down by territory. That number, I think, is the best reflection of the people who you can honestly say are customers. People who traded nine months, 12 months ago, actually technically they're customers within the year, but you can't say that they're active because the chances of them trading again are much smaller once they haven't traded for six months. However, if you don't look at the total number that trade in the year, you end up with very misleading figures about sales per customer. So if we just look at the numbers of individuals that traded with us in the year across all territories, 13.7 million. up 13% and you can see a big increase. The big increase there is overseas in terms of sales per customer, pretty much flat, nudging up a little bit in the UK, both in cash and credit. international down 9%. That is what you would expect if you're going to grow your customer base by such a large amount. So if you get a 34% increase in customers, the new customers always spend less than the established customers, which is what is driving down that those sales per customer. So we're not concerned about that. The other slightly misleading number here is you shouldn't look at that and go, oh my gosh, overseas they take more on their cash overseas customers than they do on their cash UK customers. The cash UK customers are artificially depressed because the best ones convert to have a credit account. Even if they don't use the credit, they do use the trial before you buy. So the average figure in the UK is more like 265. So we've got a long way to go overseas in terms of spend per customer if you compare it to spend per customer in the UK. Moving on to total platform. So, you know, this is sort of good news, bad news. Very good year that we've just had is the good news. Total profit up 79%. Equity profit up 97%. Two things going on there. Obviously there's the additional profit that we've bought. from in the through buying the extra share in reese and fat face and then there's the underlying profit the underlying profit and this this 30 is the amount our profit from total part total a profit from equity would have made had we not bought those stakes in fat face and race they would have been up 30 percent that number 30 percent is hugely overstated because of the recovery of Jules. So Jules, in its first year of operation, we had to do a lot of painful surgery there. That reversed out last year. If you take Jules out of the equation, underlying business profit were up around 10%, which we're happy with. If we look at the profit on the services that we charge through Total Platform to those clients, it was up 24%. And in terms of how that profit comes about, the sales on the client's website on which we charge commission was up 31%, income up 28%, so slightly lower margins, but still very respectable margins, 19.4% margin on what we charge the client, and 6% margin on their sales. In terms of return on capital employed, and this is looking at the total return on all capital employed, that's the capital that we've used to buy the businesses, the capital that we have lent the businesses, and a hypothecated figure for the capital required to build the infrastructure that Total Platform uses within our warehouses and systems. So it's sort of as real a number as we can get. And we think very healthy return on return on capital. So that's all the good news. Fantastic last year. But next year, we're only forecasting a very slight increase in profits, about one and a half million. Now, I have to tell you that that one and a half, you know, if you're looking for caution in our numbers, that is a very cautious number. If I was to add up all the hopelessly optimistic, and some of them are in the room, but all the optimistic, encouraging the optimistic forecasts of the teams that run these businesses, it would have come to significantly more than 78 million, or not significantly, more than 78 million, but we've been very cautious about their estimates. And it's partly as a result, you know, there is a sort of thing where I think that businesses that have come out of private equity feel the need to put in much more aggressive budgets than they think. It's an instinct that is hard to fight, I've observed. But anyway, that assumes no new acquisitions. We may well make acquisitions, we may not. But it's binary. And what we haven't done is bank on making those acquisitions. And I realize that is kind of frustrating for investors because they would like to be able to say, well, every year they're going to take on two deals and it's going to add this much to profit. If we did that, we would end up buying businesses that we shouldn't. So we're very clear. We're only going to buy businesses that are great brands where we can add value. where the price of those businesses is right and where they've got great management teams, or we know of great management teams who can run it. And if they don't fulfill those criteria, then we won't buy them. One slight sort of tweak to our total platform services is that for a long time, a lot of the people who have said they didn't want to go the whole hog, they weren't prepared to commit to the website call centers, basically sending all their operations to Next, were interested in just online warehousing and distribution. Now we have extra capacity in our warehouse, we're looking at providing that as a service. Partly because I think it can make a good return on the capital employed, although relatively small numbers. But also because we have seen through our work with Zalando and Zios, which I'll come on to later, we have seen the huge benefit we can give clients through consolidating the stock that they have to service the label business with the stock that they have to service their own business. And we think that that is a real selling point for this potentially new business. Don't expect any fireworks. We expect to have one very small client this year to get the system up and running to check we can do it. And then really it will be next year before we had any meaningful clients. through that business stream. In terms of guidance for the year ahead, a slight upgrade here. Total full price sales. This is what we said, 3.5% for the year. and we're assuming 3.5% first half and second half. We now think, after the first eight weeks, which have been very encouraging, we now think the first half is more likely to be up to 6.5%, which is what we're budgeting, which takes the full year to 5%. We haven't increased our second half forecasts, and there will be those amongst you who are going, aha, that's next up to their old tricks again. Be very wary of putting any optimism into the second half. We certainly are, for two reasons. First of all, the comps get much stiffer. So if we look at our guidance versus two years ago, you can see that pretty much first and second half are identical. And secondly, we... think that as the year progresses, the impact of national insurance increases, a further squeeze on the UK employment market, will begin to affect the consumer economy in a way that it isn't at the moment. And that's the reason that we're being cautious in the second half, which at the moment I think is the right approach. That takes us on to 5% total growth. 66 million from that 5%, a million from total platform and equity investments, sourcing 3 million, cost increases, and this is the sort of ugly number, not dissimilar from last year's number, actually. Of those cost increases, if you strip out normal wage inflation, in essence, around 50 million of it is driven by government action, whether that be national living wage, national insurance, or packaging taxes. To compensate for that, we've got 71 million of savings that we think we can achieve in the group, 23 million for operating efficiencies, 13 million that we've taken back for margin by putting our prices up by 1%, and some electricity savings that we're still expecting to get in the current year as they continue to come down for business. users. One of the questions that we have been asked is, well, why don't you put your prices up by more? 1% is still well below inflation, well below wage inflation. I think the answer to that is we want to maintain our margins, but we want to give our customers as good of value as we can and be as competitive as we can be. And because our forecasts for the full year show sales and profits roughly rising in line with each other, we didn't feel the need to move the group's profit forward at the expense of our competitiveness. That takes us to 1066. Pure coincidence there, but easy to remember. Forecast at 5.4%, 8.8% earnings per share increase after accounting for the buybacks we expect to make and the effect of buybacks at the end of last year. Post-tax 8.5 cents, so broadly in line. One of the things I do need to talk about is because there's been a lot of sort of chatter about it It's this whole thing about reaching a milestone, which the chairman alluded to. And I think it is important for me to talk about this because it is profoundly unimportant that we have hit this arbitrary number. And I think that it's obviously you being incredibly bright analysts know that. But I want you to know that we as a company know that as well and that we are and that there is also, I think, a real risk in people's attitudes towards next changing both inside and outside the business if we put too much store in this number or any store in it, really. And, you know, I have heard firsthand someone in the business say, surely now we're making a billion pounds. Next can afford to buy me a new laptop. And I know that that was said because I said it. And, you know, so it just shows that, you know, how infectious this illusion is and how dangerous it is. And, you know, I'm sort of making a slight joke, but there is a genuine sense, you know, I have heard lots of mutterings about surely now we're making a billion, we can afford X, Y or Z. And the point is, it may well be a good investment for the company to be able to buy me a laptop whose battery life is longer than 15 minutes. That may be... a good thing for the company, but it's nothing to do with the amount of money we're making. It'd be a good investment if we were making 100 million or 10 million. It's nothing to do with the billion. And it's not just because, as the chairman rightly alluded to, it's not just because We have to be as competitive, as nimble, as careful with our money as our smallest and brightest and newest competitors. It's not just because of that. There is a much more profound and important reason why we have to treat this milestone carefully, and that is because Contrary to pretty much all pervasive illusion, Next is not a person that has a billion pounds. If Next were owned by one person, they were, oh, I've got a billion and 66 million of profit coming. And you could argue, well, they should, what do they care? But the reality is, of course, Next is not a person. It's a public company, and our average shareholder on the register has 150 shares. And those 150 shares generate a dividend income of around £350 a year. That's £30 a month. And that is how you have to think of a public corporation. You have to look at it as being the hard-won savings of people who have not got a lot of money, necessarily. That number, that 150 shares, is hugely understated because, of course, some of our biggest shareholders that are in the room represent themselves hundreds of thousands of people who've entrusted them with their pensions. And the day a company begins to talk about its profits as if they were a rich person that can afford to look after that money no less carefully than they would if they were thinking of it as £30 a month income for the average shareholder is a company that is set to decline. So we're determined not to do that. Earlier on also, I sort of said companies that are, you know, we have to be competitive with companies that are smaller, more careful and nimbler. than we are. And I think there is a big question mark over scale for a company. How do you remain nimble, agile, innovative, and big? And the answer we think, and funny enough, I do remember my dad and David Jones like 35 years ago saying, next is a big company, but it's run like a small company. And that's what you should really aspire to. And that is still what we aspire to. We aspire to doing that. One of the ways to doing that is by keeping things very, very simple and making it very clear to people what they have to do to be successful. And in essence, what we do is simple. We're admittedly two businesses rather than one. You can think of Next as being two types of businesses. There's a product business. And that product business, if we were an entertainment platform, that would be called content creation. This is a creative activity that is all about producing beautiful, original, innovative products at prices that our customers consider to be great value. And then there's another side of the business, That is operations, and that's all about how we sell the product, everything from how we market it, the digital marketing, presentation of it, photography, all the way through, not photography, actually more product, but the warehousing, the stores, all of the things that we've got to do to get that stock into our customers' hands in a way that excites them and inspires them and is cost effective. When you think about the business in those terms, actually what individuals have to do, whichever part of the business they're in, is very, very clear and simple. I think one of the exciting things for us as a business and that has given the company a little bit of a sort of spring in its step, if you like, in terms of growth, is that these two halves of the business are becoming less hindered by the constraints of the other. So our product business is no longer constrained by the four walls of next shops and the size of our customer base in the UK or even overseas. And it is instructive that 30% of the next brand's sales outside the UK are not coming from our own platform. And actually, even if you look at our own platform overseas, the next website, really the only infrastructure that we've paid for in that space Network is the website all of the infrastructure the distribution networks even the hubs that we operate Solely for us are other people's capital where we're doing that on a third-party basis. So the product is breaking free From the platform and at the same time the platform has broken free from the constraints of the next brand within the UK and to the extent that 42% of its product is is not next branded. And obviously, I can almost feel the zing of excitement in the merchant bankers as they look at this and go, surely there's a great deal of fees to be made out of splitting this business into two, where the sum of the parts may not be worth more than the total, but a great big fat fee will be generated in proving that. And I just want to reassure you that we're not looking at splitting the business. It would be very expensive, wouldn't create very much value. And I think there is an enormous benefit in the two businesses being part of the same group. The platform gives the next brand and all the new brands we're starting, so 8.5 million customers to talk to the moment they're conceived. And equally, the platform benefits from the fact that its biggest client by a long, long way biggest client brand is the client that owns it. So it provides the platform with security and the product with an enormous market at its fingertips. So we wouldn't look at splitting the business. There is a question of kind of what holds the business together. And the answer to that is very simple values. Both businesses are about profitably serving more customers. And the key there is that whatever activity you're undertaking, whether it be you're redesigning a new piece of mechanization in the warehouse, or you're opening a new shop in Ripon, or you're developing a new website piece of functionality or new dress, whatever you're doing in one way or another has got to fulfill four criteria to pass the test of whether it is an activity they want to take. First of all, are we creating value? And I know that value has become one of these sort of slightly trite words that people use. The word shareholder value, as far as I can see, is often used as a proxy for ramping the share price. But what we're talking about here is real. creating real value for customers, whether product or service you're providing those customers with, are products hand on heart, you can say, is better than anything they can get for the same price to do the same job. That is critical. Secondly, are we playing to our strengths? We're not going to go, because we've got a big customer base and a big warehouse, we're not going to suddenly go into the vitamins market. We don't know anything about vitamins, don't want to poison anyone. Margins commensurate with risk. Everything we do has to make a margin pretty much day one. We might give a new business, new brand a period of grace in its first year, but if something isn't making a profit in year two, the chances are it never will. So we have to make a margin commensurate with risks and healthy return on capital. And if we do all of those things, then actually managing the business becomes very simple because everyone knows what they've got to do and they kind of know the rules of the game. So kind of those are the general principles. If we move on to the sort of detail, there are four areas that I'd like to talk about. First of all, product. Now, I've talked about this six months ago and 12 months ago, and I'm conscious that when chief executives talk about product, it always sounds faintly ridiculous. But I hope you've got a sense of what we're trying to achieve, which is productivity. newness, more newness, really backing new trends with conviction and taking risks on newness, improving our quality and increasing the breadth of our offer so that the next brand is really hitting all the trends and looks that our customer base would want. One of the other things we're doing as a group is developing brands and licenses beyond the boundaries of where the next brand can reach. And that business is now becoming a not insignificant and important business to us. And I think it is important. as we grow as an organization that we give ourselves a little bit of sort of resilience and opportunity outside of the natural boundaries of the next brand. So that business you can see is now a £325 million business. You've seen the margins that it makes. It makes healthy margins. Just to remind you, there are two things going on here. There are the brands that we either have bought, like Cath Kidston, or started from scratch, like Love and Roses. And then there are those brands where we have taken the designs of a brand partner, like Ted Baker, We have bought and sourced and done all the quality control and stock risk on the children's wear part of their range. So we're doing licenses where we think we have particular product expertise, marrying the design inspiration of other brands with our product sourcing in specific areas like swimwear and kidswear. One of the important things that we're doing here, we think it's important, is moving this exercise into home as well. And you can see we've got a number of home brands now. Very small money, only 35 million pounds expected this year, but growing very dramatically. from pretty much nothing three years ago. And this is important for two reasons. One is because it's an important profit stream in its own right. It's doing a great job for its customers. But the other is because we want to establish Next as a real home destination. And I think that these brands reinforce the credibility of our online home offer. That's product. In terms of international, international marketing is what has really driven the growth more than anything else. We're spending 24 million in 2023. 2024, last year we increased by 85%. This year we'll increase by 25%. That estimate of 25% was 18% at the beginning of the year. And, you know, there are plenty of investors and advertising agencies in particular saying, why on earth are you limiting yourself to 25%? Just spend more money, get the growth and everything else will take care of itself. And the answer is that we are being very disciplined about the way that we're spending marketing money. And I think Next is quite different from a lot of other organisations in this respect in that marketing is not... the budget that the marketing team have in order to fulfill the sales ambitions of the company marketing is an investment in its own right and if it doesn't stack up we don't do it and if it does stack up we do more of it and our criteria on digital marketing are that we have to get one pound fifty of profit for every pound we spend so a net profit of 50p on a pound investment, and we have to get that within 18 months. And again, you could look at that number and say, well, that's ridiculously high. And you'd be right, if I trusted the metrics we use to get the returns, then I would say, absolutely, we should lower that. We don't need to be making 50% margin in effect, or 33% margin on total sales from marketing. But the key here is the word incremental. because it's very easy to kid yourself that money that appears to come from an advert online is genuinely being caused by that advert. And the problem of what is, we use this terrible word called incrementality, which I've checked is a real word, but still sounds hideous. But the issue of measuring incrementality gets harder and harder as you get better at digital marketing, because the best digital marketing is the one that most accurately finds the person who most wants to buy a pair of palm tree next swim shorts and you can show them an advert and go gosh that's brilliant look how we managed to find that person but of course that is the very person who would have bought it anyway so measuring that incrementality will be a key exercise and if we can get better at that and we're working with all of our providers google and meta to improve our metrics then we will lower that and that will allow us to spend more money and of course if we continue to get very strong returns from the investment we make in marketing we will increase that budget anyway Moving on to logistics, in terms of warehousing overseas, 34% of our business comes direct from our UK warehouse to the customer via third-party networks. The balance comes from hubs. We have three big hubs at the moment. They are solely operated for Next, but they are operated by third parties, so we haven't put capital into them. They work through being replenished in bulk and then when the customer orders, if the items are available in the hub, they are fulfilled from the hub. That means that the service is quicker and the cost to get it to the consumer is cheaper than coming from the UK. However, in the event that we don't have stock available in the hubs, we are able to fulfil on a slightly longer lead time and at a slightly higher cost. That's about a day to deliver it direct from the UK. So we've still got the fallback of the UK stock, even if the stock isn't available in the hubs. But availability in the hubs is a critical issue. We also have now quite a big business with Zalando, and that works in pretty much exactly the same way. Bulk replenishment, direct service, but we're not able to service Zalando orders from our UK hub because the economics don't stack up. What we're doing this year, and we hope to have this process completed by the end of September, is we are merging into one warehouse through ZEOS, Zalando's third party warehousing logistics provider. We are merging those two operations to give us one big stock holding that will be replenished in bulk from the UK and serve customers on the Zalando website and customers on our website. It's important to stress that the customers on our website will still get stock packaged in Next packaging. It's not gonna all go in Zalando packaging. And we will still be able to service our own website sales from the UK in the event the hub doesn't have all the items a customer wants. The advantages of that are we get better stock availability on Zalando, which we think will drive sales. We get better service on our own stock because we think more of the items will be available and therefore available on a faster lead time at lower cost. And the overall cost of serving our own website is cheaper through the third party than it was through the old hub. In terms of website functionality, you don't have to take in all of this. It's all in the pack. But just to explain, this is a list of all the functionality that we think should be present on any overseas website. We then give the list of countries that it is available in, the percentage of our business represented by those countries, and the percentage of the world's clothing market that is represented by those countries in which we provide that service. So for example, appropriate local sizing. For example, in France we use EU sizing, but actually France have their own sizing convention, which is slightly different from EU sizing. And in the ideal world, very shortly we will have proper French sizing on our website. but it's not at the moment it's not in that 33 those 33 countries we do cover 81 of our business so we're providing the functionality to the majority of our customers but you can see in the countries where we've traditionally had less traction we haven't got appropriate sizing and the risk is we get to a kind of chicken and egg situation where you know you don't take very much in japan so you don't invest in all the work to have local I should stress, by the way, it's just changing the size to the Japanese equivalent, not actually changing the size of the garment. But if you don't invest in the local sizing, you'll never have a substantial business. So throughout the year, we're going to go through in priority order, putting all of these services into all of these territories. Moving on to warehousing. Now, for those of you who came, and I think most of you did looking around the room to our warehouse day, this might be a little bit boring, but you can look at it as like a happy memory. Like when you're looking through snaps of your old holidays and they come up on your phone. This will be just like happy memory for you, so bear with us. I'll go through this very quickly. That's the new warehouse, has capacity of 700,000 units a day. The old two warehouses, between them had that same capacity. That of 700,000. We're not mechanising all of the space in the new warehouse, only half it to start with. That gives us a 50% increase in capacity. And just to run through the really important part of the presentation that we gave those who came to the warehouse day. What this explains is how our costs are expected to change as we grow. So this was the situation before we had any of the overhead of Elvis for free, any rent, rates, depreciation or mechanisation. That was in 2023. And you can see we've got the operational half there. Where we are today, the costs indexed to labour at 100 in 2023 was 167. Now we've opened the new mechanisation, we will fill that to maximum capacity. That lowers our labour cost CPU by around 25%, but obviously the total cost has gone up since 2023 because of all the new mechanisation, depreciation, rents and rates on the new warehouse. Still be down against last year, but not down against 2023. We will then reverse back into the old mechanisation. That will push labour costs up but bring total costs down as we get leverage over fixed overheads. When we fit out the new mechanisation in the other half of the... And this is the important point, actually, is that we think there the labour saving will be greater than the cost of the depreciation on the new mechanisation. So we will not see a step change in costs at that point. And when it fills back up, this takes us all the way to double our current capacity. You get to a figure that is significantly lower on a cost per unit basis than where we are today. So we think we've got a flight path. of lower costs per unit in our warehousing from where we are today to double our capacity. Now, that is in today's money. That doesn't account for inflation. But the elements that I'm most concerned about in terms of inflation are the labour costs. And they, as you can see, shrink as time goes on as a percentage of the total costs. So inflation could sort of mess up this nice smooth descent. And of course, we could mess it up ourselves by not operating the warehouses as well as they should be operated. Just in terms of that, I just wanted to share with you some of the under the bonnet friction that we suffered. And I should say, I say this without any It's in no way in detriment to the teams that implemented this. It was very, very difficult to implement a brand-new warehouse in the run-up to Christmas. I mean, if we hadn't done it, we wouldn't have been able to serve as a sales. But there was a cost. So this is a measure of the total items that are not delivered, parcels that are not delivered in time... in full now the vast majority of failures in this are where we have order for five items and one of them doesn't make it into the parcel and gets there the next day so it's not a disaster but it's not the service we would like to offer the normal run rate is around six percent and has been for many years as we ramped up the new mechanization it got to 12 and in november you can see and i've we've colored it like a pimple on the beautiful face of of the next warehousing landscape um We had a big peak. Since then, we have made huge progress. And each week that we're, you know, this number, we're now back at 7.4. And each week that goes on, we're bringing that number down. Our ambition is to get it to well below the 6% by this time next year, because actually the new warehouse should be more accurate, not less accurate. than previous mechanization. Interestingly, you can see how this genuinely filters straight through into customer perceptions. This is our trust pilot scores. And you can see after that peak, we dropped to 4.1. And as we've begun to rectify things, our trust built back up. Finally, on technology, nearly there. Technology costs have almost doubled in the last five years. We think we've needed to do that for three reasons. Most importantly, we had to rewrite all of our software. Just to remind you, Next, pretty much all of the software we run, all of the operating systems we run, is pretty much proprietary. We do not see ourselves as just a retail company. We see ourselves as a retail software company. It's part of our job. But the fact that we've written so much software over the last 30 years meant that a lot of it was out of date and we've had to modernize it. Pretty much all of our major systems we've had to rewrite, put into the cloud. And that's been a huge exercise. We've implemented Total Platform and we've delivered the new systems for Elmstall 3. Looking forward, the modernisation programme was 44% complete this time last year. We think it's now at 70% with only one major system to go, which is our finance system. Now, I should say that's a very high-risk project and we're taking it very slowly. And so, you know, I wouldn't want to make light of that, but we have now done the majority of modernisation that we want to do of our systems. And we think that means going forward, we should be able to reduce our technology costs going forward and improve, more importantly, and improve the amount of output. Because modernized systems are easier and better to develop. That's the whole point of modernizing them. When I showed this to our... technical teams and warehouses, when we discussed in the presentation, they almost had a heart attack. You can't show technology costs coming down, they said, and maybe they're right. Maybe we won't do that. Also, when we ran it past our brokers, they were a bit nervous about making promises we couldn't keep and who knows what technology will bring. But what we are very determined to do is bring technology down as a percentage of costs at the very least. We should be able to do that because Because we've modernized so much of our software, we've got a much more experience in the group than we had three years ago. This is the percentage of people with more than 12 months service in the group. See, at worst, that was 33% didn't have 12 months experience in the group. That's dropped to 10. And I hate to mention it because it's the flavor of the month, but AI is beginning to make a difference to our software development process. Software development can be thought of as specify, build and test, and deploy and maintain. And a lot of people think it's just the dark blue function. It isn't. The others are equally, if not more important. In terms of our use of AI, we've used what I consider to be slightly unfortunately branded GitHub co-pilot from Microsoft to start, our software programmers are beginning to use that. And we think we're about 25% along the journey for that. But where we've deployed it, we're seeing between 10 and 30% improvement in productivity. On specifications, we're just starting this January, we're only at 5%, but we're using Notebook LM to help document and accelerate the process of specification. That, again, has been amazing in terms of the benefits it's given us, not so much in terms of cost, but just in terms of the speed of writing specifications. But we're really not far down that journey, and we haven't yet found the software that we once used on deployment and maintenance of software. But we think, again, there's huge opportunities there for AI to spot problems before a human being can spot them in software, before it glitches and help correct it. So those are the sort of four focus areas. And that sort of neatly brings me to the end of the presentation. You know, I thought it was almost reasonable time. Just to sort of, in summary, you know, Next is increasingly becoming too, related but quite different businesses product creation business and a platform business and our ambitions in both businesses are we're very clear about our ambitions now you've got to be very careful of anyone making grand visions they normally turn out to be nonsense but you can foresee a situation where as the world's fashion markets converge there will be fewer bigger fashion brands that are truly global brands. And we can all think of the names that will most certainly be in that small group. There's Zara's as well, Uniqlo's. Our objective is to make sure that Next is one of those brands. So we kind of think global brand is the future for a product side of the business. Platform is really about geography. It's about feet on the ground. It's about having infrastructure, customer-based warehouses, stores, call centers. systems that serve one geography really well. It is about geography. So we think the platform business is a local business where the future is modest growth in what it can sell through next, but also increasing our product offer, improving our services. And our ambition there, again, is very clear. We want to be the UK's first choice clothing and homeware retailer for our customers. That is our ambition. Two caveats to that, really important caveats. And I'm telling Ian, I'm telling you this because this is what we will be and have been telling our own people is, The ambition to become a global brand and a first choice local platform are not ambitions in themselves. Once you start to see these things as ambitions in themselves, you begin to make terrible mistakes. People go, oh, if you want to be a global brand, you've got to have stores in Ulaanbaatar. What global brand of any respectable age wouldn't have stores in X, Y, or Z location? You've got to go and judge Tokyo Fashion Week or whatever it is. that they think you've got to do to be a global brand. And we're very clear. We will only do the things that are involved in becoming a global brand if they profitably serve our customers. Profitably serve new customers. The ambition of becoming a global brand is not to be a global brand, but to profitably serve more customers with the emphasis on customer and profit. And equally, if it aims to be a first choice local platform, That has to be governed by exactly the same financial discipline, that these activities are not activities to achieve some sort of glorious ambition. They are there. They're shorthand for serving more customers profitably. I think the second caveat, which is even more important, is there is nothing that we have as a business We may have a head start in some of these things, we may be behind in some of them, but there is nothing that we possess that is a moat, a USP, that cannot be, in one way or another, copied or developed or bought by other people. And our success in delivering these ambitions and profitably serving more customers will be driven entirely by our ability to execute well, to produce beautiful product ranges and provide excellent, cost-effective service in the UK. And if we do all those things, we'll be successful. And if we can't, then we won't be. And it's important that you know that that is the message that we are giving our people, that there is no time to relax. Whatever milestones we may have crossed or not, there is no time to relax. If we want to be successful, we have to keep delivering excellence. And on that bombshell, We'll go to questions. Exactly 10 o'clock, one hour and 15 minutes. We had a sweepstake earlier on and I was engineering it so that I would win. Sorry. Go ahead. Richard, don't worry, you can just speak. There's microphones in the ceilings, apparently.

I'll try and speak clearly. I guess one for me then to kick off. Sorry, that's all right. So you touched on the half what have you built in in terms of h2 guidance in terms of sales uplift from the signal inventory view or better service options for customers and I suppose following on from that where do you see the biggest geographic and sort of convenience opportunities coming from that partnership is it possibly broadening scale in Eastern Europe or is it I think you called out parcel shops lockers, those sort of convenience options. Are there sort of some things that Zalando does very well that Next could benefit from in time?

The last question is yes, obviously they have parcel shops pretty much everywhere and they have parcel shops in lots of locations that we don't have them. And there are other services and customer bases that they... effectively talk to, particularly as a result of their recent acquisition as well in Eastern Europe. So we're excited about that. Have we built it into our forecasts? No. And nor should we, by the way, because... No, and because it would be a big mistake, by the way, because, you know, and this is a conversation I've had many times with our operations teams, is I cannot think of a single warehouse transition, you know, you look at Amstel 3, you look at the Middle East, we just talked about those, where the transition itself has not caused some degree of sales disruption. So I think we haven't built any disruption into our sales numbers for the period of the transition, which is sort of July, August, September. But also we haven't built in any uplift from the possible benefits. And I think that is the right place to be at the moment on that.

I'd love to ask a question on AI, but it's a bit more mundane on stores. You talked about a new store format in Stratford. Thurrock. Thurrock. With the new stores that you're opening, are they all going to be in this new format going forwards? And do you have to refit many of your existing estates over maybe a 10-year period for that new format? And with that, the buzzword you didn't get in is RFID today. Is there any hope that you could use RFID in terms of your increasing the efficiency in those stores with higher cost of personnel to get the RFID in the garment so that you can do your returns to store, you can recycle things much more effectively. Is that the things that you're thinking about in terms of the new store format?

Yes, two good questions. I'll start with the first one, which is the new format. So first of all, you know, the new format is not a new religion. You don't have to go around forcing conversion on everyone. That doesn't work for religion or in short, in stock shop fit. So we'll absolutely not go back and be refitting our old stores with the new format, but we will be using it going forward in any new openings that we have. In terms of RFID, we already use RFID in our stores. We don't put it on the garments. we put it on the security tag and then we associate the garment with the security tag when it goes into the store. That gives us, we think, 95% of the benefit of RFID without the cost of having to put RFID tags into all of our clothes, the vast majority of which, because they're online, wouldn't use it. So in terms of cost effectiveness, at the moment it's much more effective to use security taxes, RFID, gives us quick stock counts, shop floor availability, all sorts of exciting things, but we're not looking at RFID for company wide at the moment, unless it drops in cost dramatically. Good, yeah.

Yeah, hi, Jeff Lowry, Redline. I'm just fascinated by your disclosure and conversation around new customer growth. Pre-COVID, you put up a slide talking about maturity curve of customers from sort of year zero up to year five. I wondered if that had changed very much over the years and whether you were seeing anything very different internationally to the UK in terms of that build after year one of acquisition?

So I think it's too early to say is the honest answer. If you look at the rate at which we're growing our business overseas, there are so many new customers that trying to use the customers we had four years ago to predict what the customers we're recruiting today, many of whom are in different countries from the ones we recruited four years ago. I could give you numbers, but they would be completely meaningless.

Is there a curve at all?

There is definitely a curve. There always is. It does depend very much what product group they come in to buy. It's a very different maturity curve if someone comes to buy children's wear than if they come in to buy women's wear. But we've got no meaningful information on that.

It's Woolworths from Bernstein. When you look at the 25% increase in the marketing spend internationally, I think on the map you highlighted new countries that you were going to spend money in. What's the repeat purchasing behaviour from those that you've acquired? And I suppose does that, if you thought about the lifetime value or something like that, are you seeing a good return on that, not just on the ad spend?

Yes, I think in answer to the first question, the vast majority of the increase in spend, of the spend full stop, will come in existing territories. where we've already got most territories. The biggest percentage increases in spend will come in the newer territories, but it'll still be relative to... Because the sales are so much smaller, it will be a smaller number and therefore a smaller amount of that 25% increase. In terms of sort of long-term value of customers, I think there are two points I'd make. One is kind of similar to Geoff's answer, we don't yet know. And I suppose the other answer is not that we don't care, it's that... The important thing is that we get the return on the sales that we can see within the 18 months. And as long as we're getting our 50% return on the investment, it would be a lovely thing if those customers then went on to deliver far greater return than that beyond it. But actually, that's not the point, is that we're not banking on that. Our hope is that it will, but we don't yet know.

Hi, Monique Pollard from Citi. I just had a question on the use of the third-party aggregators. When you look internationally, as you mentioned, the growth from the third-party aggregators is actually higher than what you're driving on your own website. So just wondering what learnings you've taken from, you know, yourselves being on the third-party aggregators that you can use with your third-party brands on your website to drive that faster sales growth.

No, it's... a good question i think you know stock it comes down to things that are really not rocket science ultimately stock availability selecting the right stock to put on the aggregator site and then making sure you're properly stocked of it because unlike our own websites we don't have the fail safe of being able to deliver the stock from the uk So getting stock levels right is super important. And that kind of leads into what I was alluding to about the provision of third-party services on warehousing logistics. If the trial is successful this year, and if we're able to genuinely add value and cost savings and improve service for clients through the warehousing logistics business, we think there is a further benefit for them, and ultimately us as well, through consolidating their stock in one place, because that will improve availability on our website.

And could that Theoretically, then, your pathway to increasing the utilization of your new warehousing, could that be far quicker if, for instance, these trials work and you end up with a lot of utilization?

Theoretically is the key word in your question. And the answer is yes, theoretically. But there's a huge amount of hard work and reality between the theory and practice. And I don't think we'll have any news on that, you know, meaningful news for 18 months to two years. Because I think it will take us that long to get a trial up and running, establish the systems, get the controls that need to be in place, to look after other people's stock for them, integrate, cost, make sure we're making money out of it, and then roll it out. So theoretically it's true, but it will take time.

Thank you. Hi, it's Georgina Jane now from Dope and Morgan. Just a question on AI, please. In terms of how you're using it within your tech in particular, and with the conversations that you're having with the providers of that AI, do you think that you are ahead of peers in terms of using it, or, you know, just a comparative... level, and also in terms of like the cost of that AI, and excuse my ignorance here, but like, is it prohibitive for a smaller player or not so? Like going forward over time, do you expect this to be able to sort of widen your differential being a scale player already, or actually will that differential narrow because AI can be used as kind of incremental support from smaller and growing?

Yeah, honest answer to that is I don't know, because, you know, One of the ways that we run Next is we stay in our lane and we focus on where we're going. We don't spend too much time looking over our shoulders at what other people are doing unless there's something to learn from it. I've got no idea how far we are down the journey compared to major competitors. What I'm interested in is what can it do for us and can we make the best use of it rather than getting too hung up on whether it provides a moat or a USP or an advantage because Even if it does provide those things, they won't last. And the important thing is what we are doing for our customers and our business, not whether we're ahead or behind the pack. I'd be very disappointed if we were behind the pack, but you know it's possible.

John Stevens at Pearl Hunt. Quick question on the consumer. Talk to Peak about people sort of choosing to spend more on products and sort of buy less. Is that still continuing? To what extent is that sort of informing how consumers are feeling at the moment?

Yeah. So, I mean, first of all, I think the buying fewer better garments is nothing to do with economics. I think it would be a huge mistake to regard that as being something to do with levels of affluence. Because ultimately, we're not saying that customers are spending any more money. In fact, you can see they're on average spending 1% more in the UK. It's about what they're choosing to spend their money on. And I think there's been a slight reversion from buying lots of throwaways type stuff to buying fewer more considered investment garments. But that has nothing to do with how the consumer's feeling. It's all to do with macro fashion trends rather than any economic trends.

Does that feed through into how you think about good, better, best and the structure of the range going forward?

Yes, I mean, we don't think about it in a global sense, you know, because we have literally, you know, tens of thousands of garments on our range. And it's not my job to think about the balance between better and best because it's the job of the dress buyer and the socks buyer and the baby grow buyer. It's their job is to work out what is the best balance between their mids. entry and exit price points and whether they should push those price points further or lower. All I'm really doing is taking the credit for their hard work and not directing it.

I'm Critchlow from Berenberg. Could you talk a bit about the trend through the current trading period? Because I imagine March was probably stronger than February and whether March informed your upgrading guidance. And secondly, if you could talk in broad terms about the performance of home relative to clothing. I know you don't normally comment. And there's a third one as well, if that's all right.

Well, you're not going to get an answer to the first two, so let's go for one. I cannot...

If you could comment a bit on the London office space you're taking, what that's for and where it's going.

So I'll start with a question I can answer or I'm prepared to answer. The London office space is mainly for the wobble brands, wholly owned brands and licenses. That's the vast majority of that is to accommodate the growth of those new and developing brands. businesses, we don't ever discuss the relative performance of our different product areas other than at very high level, like between, you know, Wobb and Next, we'll talk about it, but otherwise we don't discuss home versus other areas. I think the only thing that might be useful to say is I think in general, if you look at the home market generally, it has been through, had a fantastic 18 months in COVID, has had a sort of two and a half year, two year hangover. It appears to be out of that hangover now. So more encouraged by what we've seen on home sales. And then will we give a week by week, blow by blow, detail of what we took in February, March now? Sorry.

Hi. Can I ask on third party platforms where you sell?

Third party.

Third party aggregators where you sell in the next brand. Do you sell the ranges that you're selling on them? Are they any different to what you're selling on the Next direct websites? And the same in reverse on the third-party brands that are sold on the Next platform. How much are those exclusive to Next? And are you actively working with these brands to develop exclusive ranges?

So in terms of difference in performance, we do see significant difference in performance, not necessarily on a garment-by-garment basis. It's not that kind of the red dress sells well in Denmark and the blue one sells well in Spain. It's more that the product mix by territory is very different. Some countries are dominated by kids wear sales. Others aren't dominated in the same way by kids. So it's those sorts of mixed changes that we see both on our own websites and with aggregators. In terms of third-party brands, the vast majority of our third-party branded business on aggregators are the brands that we own. Because obviously the ones that we don't own tend to be trading already on their own account on those aggregators. If you're Nike, you go straight to Zalando or about you, you don't come to Next to put that on. So the third-party business is much smaller on overseas business and the growth is focused on the wobble brands. Yeah.

Thank you, Simon. Sridhar Mamatalli from UBS. Three questions, if I may.

Two questions. We're not having any inflation here. There's a war against inflation in this country.

Overseas margins, nearly 200 basis points last couple of years. Can you talk through on the midterm potential here? Because this year you're talking about operating leverage driving margins up, leveraging the fixed overheads. Is there a sort of philosophical point where you say you don't want these margins to be and going up further to high teens and so on and so forth. Secondly, I think on surplus cash flow, given you accumulated what you need to have 250 million bond, then potentially no need to retain any of the surplus cash going forward. Should we be assuming all of it to be returned to shareholders steadily or subject to M&A, of course? But is there anything else we should be thinking about?

Yes, it's a really good question. As are all the questions today, obviously. But so first of all, on margin, don't assume that margins will go much higher than where we intend to get them to this point. We want to get the right balance in having a healthy business that can fund its marketing and being over-profiting. So I wouldn't expect margins on our overseas businesses to increase faster than, to go above where they get to this year. That certainly wouldn't be the plan. If anything, they're more likely to come down solely because of the mix between aggregators where we make less margin and our own sites where we make more. And because aggregators are growing faster than our own I would actually expect the net effect of those two things to push down the margin. But in terms of the margins of the aggregation business and the next business, I think we've got both of those to where we're comfortable with at the moment. Then in terms of surplus cash, I think I don't want to talk too much about sort of beyond this year. So I think this year we said if we can get extra cash resources, we will return full amount of surplus cash. I think there is then a... argument to say that you know in order to maintain our investment grade we don't need to have we could take on more debt and I think if we do that we will do it slowly and gradually over a four or five year period rather than go out and borrow a great big slug of money in return all to shareholders because if we do the latter the chances are we'll get the timing horribly wrong and But I think the most important thing, because there is an underlying reality to it, is that we're not prepared to put in jeopardy our investment grade credit rates. And that is this kind of red line for us.

Yeah, one more. Simon, is there any level of critical mass in overseas markets where you'd consider opening physical stores to build the brand more broadly?

Yeah, it's a good question. And it's not about critical mass. It's about does that store in that country make a profit? I think our experience has been the experience, you know, like those flies you see flying into a window pane. And it doesn't matter how many times they do it, they just keep trying to do it again. And our experience opening stores overseas has been like that. The only time the window has been open is where somebody else has done it on our behalf through a franchise. So currently, you know, we are looking with our partner, Mintra, they are looking at opening stores on our behalf in India. I think to try and do that, I think to try and open your own stores in territories where you don't understand pitch, you don't have a relationship with the landlords, you're unlikely to take the same pounds per square foot as local competitors whose brands are 100% locally appropriate, I think is slim for a brand at next position in the market. Rees makes a profit trading some... Stores overseas, but it's been tough there as well. But they do make a profit. I would not say never, but we certainly have no plans to do it at the moment. And I'd much rather do it through a licensee, even if it means taking a smaller percentage of the profit. I'd much rather do it through a franchise or license than directly. And I think on that note, we've exhausted all the questions. Thank you very much. That's it.