Moonpig Group PLC (MOON.L) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Moonpig Group's Financial Year '24 Half Year Results' Q&A session. [Operator Instructions] I would like to remind all participants that this call is being recorded. I will now hand over to Nickyl Raithatha, CEO, for his opening remarks. Thank you.

Thank you. Hi, everyone, and thanks for joining the Moonpig Group half year results call. I'm here with Andy MacKinnon, our CFO. Hopefully, you've all had a chance to look through the announcements and to watch the presentation video on the website. I'll say a few words, and then we'll quickly get to the Q&A session. In short, we've delivered a really pleasing set of numbers in what is a continued challenging environment. These results today mark a real inflection point for our business with a return to both revenue and profit growth in line with the expectations we laid out at the beginning of the year. The positive trends have continued since the end of the half, and we're confident now to deliver on our expectations for the full year. The growth and the profitability is underpinned by the Moonpig U.K. business. With the technology investments we have continued to make through the cycle are really starting to pay off, with extraordinary loyalty from our customers underpinning a 5% growth in the first half. The velocity of technology feature releases of new products and of AI tooling have seen a significant step change increase in the half and will drive increasing customer acquisition, customer frequency and gift attach rate going forward. The experience business which is comprised of the Buyagift and the Red Letter Days brands, is one year into a full transformation project with solid performance in tough conditions. The technology re-platform is proceeding very well with some promising early wins and the new brand positionings have been received really well by customers. Today's results highlight the key strengths of our business, a resilient market that delivers growth even in challenging conditions, high profitability driven by the loyalty of our customers and a strong annual cash conversion, that means we will continue to delever at pace. The long-term opportunity remains vast. We're the market leaders in a card market that is still in the early days of shifting online and with a model that gives us a clear path to consistently growing a large and profitable gifting business. With that, we'll turn it over to your questions.

[Operator Instructions] Our first question is from Charlotte Barrie at JPMorgan.

Hi Nickyl, Hi Andy, thank you for the presentation. I have two questions, please. I can go one by one if that's easier. On Moonpig Plus, and Greetz Plus, I guess. Are there any changes you're having to make to that offering in the Netherlands to make it more applicable to the market there? And I guess in the same thing, what gives you confidence it will work in the same way.

Yes. So I think in the first instance, we're going to roll out essentially exactly the same subscription scheme. I think we've got a lot of data on millions of customers and multiple years of cohorts that show patterns are very consistent in both markets. And in particular, the promotional strategies that we have across the group just in sort of daily trading give us a pretty good indication on how customers react to different benefits. And so I think as a first iteration, launching what we've kind of refined in the U.K. is where we'll go. But over time, we'll, of course, adapt and react. And I think the great thing about the subscription scheme is it's not a -- we are -- we do have flexibility to change the benefits, the pricing et cetera, as we go. So I think initially, we'll launch with essentially the same scheme early in the new year, and we'll kind of analyze the sort of the take-up and the behavioral changes from customers and iterate from there. But we largely see that customer behavior is very similar across both markets, and so we see no reason why it shouldn't work effectively there.

And then my second question is just on Tamworth. Could you please just remind us what -- whether this is expected to have any implications on your inventory-light model. So like what proportion of inventory held that is on a consignment basis and whether that's going to change over the coming years.

Yes. So there is no expected change in our inventory model. So what we've effectively done with Tamworth take operations that were previously operated by a third party on our behalf and brought them in-house. As a reminder, we do operate pretty light inventory model. So our overall balance of stock across the business is relatively tight in scope, and we expect to maintain that going forwards. I think, obviously, as we scale the gift experiences business within Moonpig, that does not put -- offer opportunities to drive, give attach rate without incremental inventory, but for our existing gifting business, the model remains unchanged.

Our next question is from Jonathan Pritchard at Peel Hunt.

Two similar questions actually possibly both for Nickyl. The customer segmentation you talked about in the presentation, you talked about a road map there. Can we perhaps without being too commercially sensitive, perhaps the next sort of couple of steps on the road map on segmentation. Another dissimilar question as I say. The upsell capability on gifts, what's the sort of next step there? And how has that improved?

Yes, you should come spend some time with our tech teams and our Data Science teams. So I think on customer segmentation, I think the real change that we think we've kind of seen in the half, which kind of -- and which sets us up sort of, I think, multiple years of probably iterations at a higher pace than before is, when we look at the algorithms that we've used for recommendations on site, they -- historically, we've only incorporated data based on the mission that you're there for today. So if you take the example of a customer coming to buy a Disney card for her sister's birthday, customer one buying that same card for her sister's birthday and customer two buying that same card for her sister's birthday, would see the same recommendations in the gifting cross-sell page. What we're doing now is we're actually incorporating the customer's history. So maybe customer one has been with us for 10 years and typically spends GBP 40 on luxury flowers, whereas customer two who's buying the same card for the same recipient has made two purchases in the past and never attached a gift. And so I think the first step was really about just saying, let's just have a way of differentiating what we show those customers to drive attach rate. And I think that's the main driver where we saw attach rate grow in the year-on-year in the half was really that kind of ability to be even more relevant than before to customers. And to show those. I think the -- it's kind of -- that's version one. I think there's a whole -- right now, it's really sort of -- it's almost -- we've kind of been quite binary in terms of segmenting customers into large buckets of sort of customers with the propensity to spend on gifts and not. I think this can go all the way to individual user personalization. So I think the sort of where we're looking to go, is towards what we call internally a next best action. So if we can see that in the past, you've added a certain type of gift, then we'll recommend you a different type of gift or maybe a promotion or maybe flowers. And so it's actually -- so that almost every single individual moves beyond an individual who's in a bucket, but actually becomes a personalized journey. And so I think that's going to have real positives for sort of the relevance and the cross-sell. We're already actually starting to do that on other parts of the journey. So if you take the Homepage now, the Homepage banner for the first time, that's personalized. So the banner that you will see will be different to what I will see, and it will be based on when the last time you bought was what you bought, how you typically bought and any reminders you may have that kind of might give us indication into what you're doing. So I think just in general, the way we've invested in data science is basically moving us towards a world where we will be able to personalize for the user at every touch point. And I think another thing we probably have made pretty good progress on is personalized promotions. So we are seeing -- we know that, in particular, in this environment, customers do react to a 10% discount on gifts, if we give it to them. And we're able now to target customers who have never added a gift before at checkout, for example, with kind of a promotion that's tailored for them. So it might be a promotional flowers. It might be a 10% promotion. It might be a promotion with a minimum spend. But we're looking at their past history to work out what is the best thing that we can do for that individual. So really, it's about personalization. I think on upsell capability, I think the simple, but quite effective tool that we launched this year was add-ons and gifts. So now for a whole range of gifts and flowers, you can add bars or an extra box of chocolates, that's been limited to just one product per gift. I think we wanted to keep the operational complexity to down to as simple as possible. But we're increasing the range of options to the customer to the point where customers will more and more be able to choose between multiple gifts and then ultimately to add more than one gift to their card and it arrive in the right way. And again, I think this is all based on using the sort of the AI tools that we've been investing in to make sure that we're able to recommend the right gift to the right person, and to do that multiple times. So the upsell, I think as you know, it's been a real surprise, I think, in the last positive surprises in the past year of the fact that we've got more customers to upgrade from small cards to large cards than ever before. And on top of that, more customers to add gifts. And then on top of that, we've got more customers to add extra gifts to their original gifts. And so kind of there's several levels to this, and we're making progress in all of that.

Our next question is from Andrew Wade at Jefferies.

Just a couple of questions from me, albeit the first one could arguably be a couple of questions. On the Moonpig brands adjusted EBITDA margin -- the first obviously well ahead. You sort of detail the reasons why Tamworth price changes and shipping prices for gifts. Just wondering as we sort of head into the second half and we annualize some of those price increases, how sustainable that margin uplift is in the Moonpig brand. And I guess a similar question on the flip side for the [ Experiences ] business, should we be expecting the -- given the provisions in there, should we be expecting the adjusted EBITDA margin in that business to sort of recover to historical levels. So that was a sort of question one, albeit 2 parts. And the second one around the annualization of the trade down in gifts -- attached gifts. What have you seen as you've annualized that trading down in behavior? Have we seen the mechanical uplift in all mechanical removal of the drag on the revenue growth rate as we've annualized that step down a year ago or just over a year ago now. Those are my 2 questions.

Andy, you want to take the question?

Yes, sure. Thanks. I think, firstly, on -- the first question was around the impact of pricing changes in Moonpig. And I think, obviously, once we annualize that, it will drop out of AOV growth. And therefore, our AOV growth in Moonpig brand will be more of a balance on orders pricing and attached growth in the second half of the year. Obviously, it will stay there in gross margin because to the extent that we increase prices, that will [ main ] place. And that's why we're effectively saying that we expect gross margin for Moonpig in [ Greece ] to be broadly similar, in the second half of the year compared to the first half. On the question around experiences gross margin, that is a very specific point. It's a one-off provisioning against gift boxes effectively packaging relating to the rebranding of Buyagift and Red Letter Days, which we've introduced a new visual identity. It's quite small. Once it sort of sticks out in terms of the percentage margin you're talking about a few hundred thousand pounds worth of cost.

So just to circle back on the Moonpig brand and EBITDA margin, you think that sort of 30% adjusted EBITDA margin is a sustainable level going forward.

Yes. I think in terms of -- and we said in the announcement in terms of costs, we have been quite prudent in the way that we've managed the cost base in the first half of the year. So less of a gross margin, but more in the indirect cost base of the business. We have been quite cautious as we've been through the first half of the year. And probably you will see some additional costs coming in, in the second half. We've done that deliberately, where there have been an element of discretionary spend that we can make some choices around the timing of when we do that research or the timing of where we kick off that project or the timing when we make a significant hire in the business, we've sort of tended towards the second half of the year, and that's to make sure that we've got flexibility and to help managed P&L in the event that we see any sort of step down in the environment between now and the end of the year. And on your other question, which was around the annualization of detach gifts, we've not seen any sort of further step change in customer behavior. So the movement in effectively the center of gravity of the gifting merchandise range that we saw in around about this time last year, it's something that's endured and has remained unchanged. And it's obviously, to the extent that, that was a drag on average selling price and average order value and from the point that we made the change, we're seeing that annualize out.

Our next question is from Monique Pollard at Citi.

A couple of questions from me, if I may. The first one, just on the adjusted EBITDA margin expectations for FY '24. Obviously, if we would say that the adjusted EBITDA margin would be flat for this year, and assuming sort of mid- to high single-digit revenue growth in line with your guidance, that implies 2H margins down, that's a 240 basis points year-on-year and also down 160 basis points half-on-half. I mean given your comments, Andy, obviously, on the gross margin, you're expecting that to be sort of flat half-on-half. I understand that there was a bit of cost that has probably been delayed into the second half. But it just seems like down 160 basis points half-on-half seems pretty aggressive. So just trying to understand sort of what I might be missing there apart from the delay in some cost items. And then the second question was just on the, obviously, the close to 4 million customers that are using your innovative card creating features such as the video and the audio messages, et cetera. I'm just wondering if you're able to give any indication of the typical price uplift you see from those customers versus just a standard card customer.

I'll pick the first question I suppose the macro point there is that the stretch of our cost base is such that we've got significant flexibility with respect to where we land adjusted EBITDA. If you think more medium term and the fact that our adjusted EBITDA margin guidance is for a flat EBITDA percentage despite the inherent operating leverage in the business is effectively an indication of the fact that we, as a business make choices on a half year basis as to what level of investment in future growth initiatives we want to make. And I think what we're signaling here is that we've probably held back a bit in terms of doing things that we think would be beneficial in the medium term until the second half of the year in order to make sure that we've got scoped to effectively pull levers to make sure that we deliver our commitments in terms of adjusted EBITDA for the full financial year, but there is opportunity for us to go harder in terms of choices investments. And should we think that we're seeing stability in terms of overall trading environment as we move through the second half of the year. I think specifically on the comparison of EBITDA percentage margin for H2 this year implied versus H2 of last year. Obviously, the context last year was a slowdown in our expectations for revenue for the group, as we moved into the downturn round about October, November of 2022. And what we did was effectively quite assertively manage the cost base of the business in order to still deliver the same level of adjusted EBITDA. So obviously, to the extent that we're comping against period in which we took quite robust cost action. An example would be a significant reduction versus the current accrual rate in the annual bonus that we paid to all of our staff because everybody in our business is on a performance scheme each year, which is linked to profit, and financial performance, then that does have an impact on the year-on-year adjusted EBITDA margin rates.

And taking your second question, so the short answer is there is no price uplift from any of these features. We've made a conscious choice here that actually rather than looking to sort of move to a world of micro transaction, whereafter what we see is the bigger goal here, which is capturing a bigger share of the market. And if you think about just the core equity story, right, this is about Moonpig moving a market online. So moving the card market online. And so the real point of differentiation we have versus the high street is we have a better card. We've always had a better front of card because you can personalize it and choose from a bigger range. But we want to kind of really kind of extend that product lead, and so that's why we've really focused on innovating within the card. So the fact that you can now add a video message, you can get your kids to record -- sing a song for the grandparents, we have an AI message right now, so -- which has been -- customers are loving it because sometimes it's very hard to find the right words, especially things like condolences, but also for a lot of other occasions. The fact that you can add a gift inside the card and you can now say happy birthday in his two [ theater tickets ]. It's -- I think this is all about elevating the card so that a Moonpig card just stands out and is more memorable. And the real benefits that we see from this are twofold. I think one is in customer frequency that customers realize that Moonpig is the only place they should be buying cards from and it really does make a difference in terms of how happy the recipient is when they receive a fully-loaded Moonpig card compared to a sort of regular supermarket card. And the second thing is the WOW factor you get as a recipient. And this is a big thing for us that actually we see -- we're hearing time and time again that people who receive a video card, its novelty, it's new, and it's just -- it's a WOW factor. So they keep the card on their mantelpiece for longer. They show it to more people. They talk about it more. And guess what, they become more -- they'll become Moonpig customers in the future because they want to pass that on. So I think for us, this vein of innovation has really been about get customers to be more and more delighted in using our cards and sending our cards and in receiving them. And we're going to continue this sort of path of innovation. I think there's kind of a lot more to come. I think there's a project we're working on where potentially customers can save their own handwriting in the -- on Moonpig and potentially, you can type cards in your own perfect kind of handwriting, which will print and send for you. Looking at kind of using different AI tools to sort of personalize videos and audio messages so that maybe your audio message can be converted to a Snoop Dog rap or David Attenborough documentary style. So I think we're looking at a whole bunch of different ways of just making the card more exciting. And giving this way for free essentially to just increase the value, increase the differentiation from the High Street and then continue to drive those long-term levers of getting more customers to buy more cards each time.

Our next question is from David Hughes at Stifel.

So just in terms of a couple of questions on kind of the international business. Obviously, results in the Netherlands kind of significantly behind what we saw in the U.K. I know that you kind of highlighted the kind of tough macroeconomic conditions and perhaps some of the features in the U.K. that haven't been rolled out to the Netherlands yet. Do you just view the kind of that economy as the big driver? Or is there anything in terms of change in behavior that you're seeing differing between the U.K. and the Netherlands? And then secondly, just on the wider expansion. I know that other countries remain very smaller kind of a proportion of the whole, but you have seen significant growth there. Is there anything you're doing or thinking about doing in terms of marketing more in Australia, Ireland, the U.S., given the level of growth you are seeing there?

Yes, absolutely. So I think the context on -- I think we -- the primary thing here is when we look at the performance of the sort of the Greetz business, I think it really -- it validates the commitment we've made to technology because what we've seen is that two businesses that looked very, very similar pre-pandemic but looked very similar during the pandemic, have had quite different trajectories as we kind of come -- post-pandemic. And what we saw on Moonpig was that actually customers that we're engaging with us, engaging with our platform, we were able to sort of drive that loyalty up by getting them to download our app to set reminders, to use multiple missions, to capture their data, to personalize their experience. In Greetz, we weren't able to do that during the pandemic. And I think that's directly driven essentially what is probably similar to most other e-commerce verticals, where many of those customers just haven't stayed with us and kind of gone back to previous behaviors. And I think it really does show the power of the Moonpig platform that we've built. So I think for us, the focus now is that now we have the new platform at Greetz, we have all of the loyalty levers in place that every new customer that comes to us now behaves in a much more similarly to what the Moonpig U.K. customers behave like in terms of their loyalty and their retention. But also that actually every existing customer from Greetz that comes and interacts with us now, that we really encourage them to sort of adopt the features. So we've been pushing very hard on app. We've kind of -- if you look at the sort of the app share in Greetz, it's gone from sort of high teens to high 20s in the last year. So we're really pushing on that and that's going to have those benefits. And so I think for Greetz, I guess the way we see it is, we weren't able to sort of hold on to as many of the pandemic gains as possible. But when we look at it on a sort of today across both markets, actually, we see very similar patterns of behavior from customers who are engaging with the platform for the first time or even coming -- existing customers coming to the platform for the first time. And actually, when we look at Greetz, we look at the trajectory, we look at the business that was minus 20% last year, minus 10% in the first half, and probably kind of close to breakeven by the end of this half. So a pretty strong improvement in trajectory and we expect that to continue in that business to return to growth. I think on sort of the other -- is that okay?

Yes. I just -- I think that makes a lot of sense. So kind of in some ways, you kind of missed out on being able to capture all that data during COVID, but if we view the current state as more of a baseline from this point onwards, be kind of that data capture that technology is happening. And so you're kind of in an improved trajectory going forward?

Absolutely. Yes, absolutely. And then yes, in terms of rest of world, look, we launched Ireland last year. We have what were kind of document sites in Australia and the U.S. We have started, at a very small scale, kind of meddling and testing kind of different marketing strategies and tools, again, very, very lean in these markets. And that's contributing to the growth we're seeing. So I think for us, really just continuing on that path, experimenting, looking for product market fit. And I think hopefully, the growth in those countries, which are small, but are starting to move continues and then we can kind of grow our investments alongside the growth in the businesses.

Our next question is from Simon Bowler at Numis.

Two for myself, if okay. The second one is just a little bit on some more kind of technical modeling pieces. Just on the first one. It sounds like, again, kind of another period of kind of some strong innovation and proposition improvements coming through. And Nickyl, you've spoken around kind of penetration still being low in the category. And I guess I'm just trying to square that with -- we've seen kind of volumes down and kind of less new customers coming into the business. What do you -- what you put that down to? Is this kind of still a bit of a COVID hangover that's coming through in this sector? Do you think kind of market volumes are down? Is it purely a macro factor? Just wondering how you kind of rationalize those aspects?

Yes. Great question. I think the -- there are sort of two elements there. I think one is the sort of the final piece of the COVID unwind, I think, was the sort of the return to offices, which didn't finish last year, which actually if you look at mobility data or TFL data, you can see kind of continued all the way through to sort of September this year. So I think there was that kind of that final reversion to the new baseline and just society behavior, I think, did continue sort of three parts of this half. We think we're there now. So we don't expect that to be a continuing trend. That puts a little bit of pressure on just the headline numbers, but not the underlying, but our existing customers remain pretty strong. And actually, if you look at just the -- every cohort that we've acquired, pre-pandemic, during the pandemic and post-pandemic, the sort of -- the activity of those customers on a monthly basis is just significantly higher than it was at any point. So the activity of existing customers is kind of -- is doing very well. I think what is more cyclical is I think the new customer acquisition. And what we've seen is we kind of -- last year, we saw a step down. And I think this year, we've seen another sort of step down in sort of the amount of customers we can acquire at the payback levels that we kind of hold ourselves to. And kind of -- our strategy has always been that like we have a sort of minimum quality level and maximum payback level that we're willing to pay for a customer, and we kind of hold pretty firm on that, which is meant we have pulled back slightly on sort of the marketing budget to sort of to make sure -- and that means we're bringing in less new customers that kind of compounds after one year because those customers become existing customers. So I think that it is a bit more cyclical, but we're very, very confident that this is just -- this is purely a cyclical trend. We see it in every other e-commerce business that at least -- a list -- I speak to and engage with new customer acquisition is more challenging when the consumer is stretched and people are less willing to try something new. But structurally, we see absolutely no change here. Ultimately, the size of the card market is flat, has been flat for 20 years. We have a more convenient and service and a better product, and we will continue to pull the market online. So really for us, it's kind of waiting until the winds turn externally and we think the new customer acquisition will turn, and existing customers will continue to display the behaviors they're displaying.

And then the second question was just on some of the guidance on the bits below EBITDA, so it might be more of an Andy question. I think I'm comparing apples of apples here, but I think, first half interest was just over GBP 8 million. Full year guidance and changed to GBP 15 million despite some of your interest rolling off fixed rates, just anything that's worth is understanding there? And then secondly, on the D&A side, Again, I think this is apples to apples, first half charge was just over GBP 12 million and full year guidance unchanged at GBP 27 million to GBP 29 million, just wanted to double check that there is a step-up coming in the second half, which I presume we should then [ anniversary ] for instance next year.

Yes, first on the depreciation, that's correct. So obviously, to the extent that we effectively stepped up investment in CapEx within the technology organization as a couple of years ago, we're still in a period of time whereby some period-on-period, our depreciation will increase half-on-half because obviously, to the extent that we are incurring CapEx and we're amortizing the cost over a 3-year useful life or trajectory towards the point where CapEx and depreciation equal out, which we'll get to soon. And then there's nothing of note on the net finance costs. We've effectively -- we modeled that according to a [indiscernible] curve for the both first and second half.

[Operator Instructions] Our next question is from Anna [ Alderman ] at Berenberg.

Just a couple from me. And so has there been an increase in the order frequency you're seeing from existing customers, following some of the introduction of new features. And my second question is just how much is that average order value increase has been from kind of your price increase there is an inflation [indiscernible] features to introduce.

Sure. I'll take the frequency question, and Andy can take the AOB breakdown. So I think what we've seen is, as I mentioned to Simon's question, the -- when we look at the customers in the U.K. on the Moonpig business, every customer has a higher level of frequency than they did pre-pandemic by quite somewhere, I think we've talked in the past about it being roughly 20% higher. We're always looking to try and increase that. And if you think about some of the levers we've talked about in the past, we've talked about how -- when a customer downloads our app, their frequency jumps by 15%, almost instantly. When a customer sets a reminder, their frequency jumps, but slightly less but still is pretty significantly. And actually, one of the exciting things about Moonpig Plus is we can see that when a customer signs up to Moonpig Plus, their frequency jumped significantly, more than -- significantly more than when they download the app. And so that is a big lever. It's -- these numbers have been very encouraging for us, but they are still a small part of our base. But that's something that we're really looking at carefully. It's probably the next big driver of frequency for us is like how we can use our subscription service to bring more customers on to the platform that really purchase -- give us a significant share of their wallet. If we kind of remember the -- the big picture here is that our average customer is buying just under 3 cards from us every year and buying around 17 cards from somewhere else, typically, the off-line market. And so there's a huge opportunity to get them -- to get more of that share of wallet. And we think everything we've been doing and we'll continue to do, will continue, but we think -- well we see that Moonpig Plus is another way to really sort of unlock some of that frequency gain. We're also measuring, I think, with all of the new card features, the creative features, people are using video messages, people write using AI text, people using digital handwriting. We are measuring the frequency. It takes time for each one of these tests because you need to sort of wait probably 6 months before you can get a clear data. So we're looking at those. We believe it will be sort of a slow burn in terms of each of those sort of compounding to drive that customer loyalty. But as yet, Moonpig Plus is where we have pretty compelling data, and that's where we're focused on growing.

And then on your second question, Anna, around average order value. The primary driver of that has been in cards. Obviously, we put a 20p increase on the price of a standard-sized card in the U.K. on the first of November last year. And they've also been changes in Royal Mail's first-class and stamp prices, both in this year, actually both in March and at the beginning of October, because Royal Mail put through an additional price increase. So those have been the primary driver. However, there has been some lesser increase in AOV through gifting, which relates principally to the fact that we changed the shipping price that we charge to customers in January for both off-the-shelf gifts and flowers and we put a pound on the price there. And then to a lesser extent, there's been some positive impact from the fact that we resumed the trajectory of attach rate growth.

Our next question is from Paul Rossington at HSBC.

Just a quick question from me. You talked about reducing net debt leverage this year by 0.5 or half turn. Perhaps you can just remind me, because I can't find it in the statement, what your kind of longer-term, kind of medium-term net debt leverage type numbers or targets look like? And once you get to that level, what is then the use for any surplus over and above that.

I'll pick that one up. So we've not -- at this stage, we've not set a precise and long-term target for net leverage, but we are focused, as we said, an announcement on bringing down leverage in the short term will be below 1.5x by the end of the financial year. And I think once we're in a situation where we're in that 1x to 1.5x range. That starts to give us some optionality. It's really a question for the second half of next financial year because whilst by the end of this year, we'll be down at 1.5. Actually, most of the delevering that you see within our business through and operating cash flow, tends to happen in the second half of the year as a reflection of the seasonality of our trading and net working capital. I think what we'll have there is optionality. So depending on market circumstances at the time, it may make sense to delever a little bit further. I think we are aware of the fact that share buybacks may make sense, but obviously dependent upon the prevailing share price at the time. And if we think that the external environment is in a sufficiently robust state, and we think that there are investment opportunities that are strong and reasonably certain ROI. And then we do have some options to effectively resume stepping up investment in the business as well. So I think overall, we're on a path of deleveraging. That remains our short- and medium-term focus, but we do have optionality once we get down to a lower level of net debt to adjusted EBITDA.

Is it plausible to assume on that areas of potential investment that might mean a little bit more going into some of the other international markets or your present beyond the Netherlands that would be an option.

Yes. I think at this stage, we don't kind of have visibility of that. But I think, like I said, if we can find a compelling path to generating return on investment. And we don't think the distraction costs is too great then at some point that may come. But I think for now, we're focused very much on deleveraging.

Our next question is from Caroline Gulliver at Equity Development.

I had a similar question to Simon's on new customer acquisition. And I just wondered if you could expand on the brand investment you're making. And I ask because you've also got a lot of great technology initiatives going on, and it's clear how you've got a lot of access to your existing customers and getting that message across. But I'm just wondering how you're getting that innovation message out to potential new customers or whether now is just not the right time given the marketing environment.

Yes, great question. So actually, it's something we have been looking at and testing. So what we started and we've actually started at first in the Netherlands, and we're now rolling it out in the U.K. is we're using -- we're kind of continuing with our sort of -- well, let me say, in the Netherlands, we basically started a campaign that really runs only on digital, so primarily YouTube, Meta, and Display, that focuses only on features, and we've been testing the sort of how different features resonate with customers, both to excite and inspire and convert them. And measuring -- we can see that in the Netherlands, stickers and video cards tend to have a really high engagement, and we've kind of been pushing those features to sort of in the market. And so it's almost like picking one by one kind of these features and coming up with creative videos through sort of social and YouTube to sort of really trying to educate the customer. But we haven't -- I mean, actually, what we're doing is in the U.K., we're now kind of rolling out the same thing. So actually, you'll see -- we've got a kind of a part of our budget that's allocated to the sort of product marketing and feature marketing and that we are seeing pretty encouraging take-up. I mean so the engagement we're seeing on these product feature ads, in particular, once we've optimized them is kind of significantly higher than what we were seeing previously on sort of generic card app convenience range ad. So I think that's something that we started. We're testing and we're growing. The primary budget that we spend there from a marketing perspective and a brand perspective is obviously around the peaks. So Christmas, Valentine, et cetera. And I think there's a few things. I think, one, we have the creative assets kind of ready to go that have done quite a while in advance. And really, for those, it's very much still focusing on the reminder of the event and the sentiment. And I think one of the challenges for us is probably working out how we can integrate more kind of educational type messages into those brand campaigns as we go through the year. And that's something we're actively looking at. So I think there are -- they're always doing it. The other way of thinking about educating customers, and I know this is an existing customer piece, but is really just trying to drive adoption of customers that come to our site even more with the knowledge that actually every existing customer is probably gifting these products to a new customer. And that's something that I think is something we've never really been able to do before. So trying to build in mechanisms. I mean if you take the example of video cards, when you receive a video card from somebody, if you want to watch the video, you have to come to the Moonpig platform. And so you're kind of -- if you're a non-Moonpig customer, which many people are you come to the Moonpig platform to watch the video. And we have an opportunity there to engage you, to capture your email address, to get you to sign up, to get you to send a video message yourself. But I think we're really working on driving some of these viral tools to drive kind of organic awareness rather than purely paid awareness. So I think they'll work hand-in-hand.

There are no further questions on the webinar at this time. So I will now hand over to [ Gareth ] Davis to read out any written questions. Thank you.

Good morning, everyone. This is [ Gareth ] Davis from the finance team here at Moonpig. We have one written question, which comes from Laura Goldenberg at The Times. It reads what is your strategy for the use of AI going forward?

Great. My favorite topic. So I think there's probably 3 different -- like 3 different work streams that work in parallel when it comes to AI. And I think the first is the customer-facing side of things. And so we released our first sort of AI feature a few months ago, which is kind of AI message writing facility, and that just helps customers write poems, messages or just find the words when they are lost. And actually, customers have been loving it. In particular, in the Netherlands, actually, we've seen very good take-up. And I think there's a lot more we can do with AI all the way to sort of helping customers completely create their own card, and so I think there's kind of a long road map there. We want to make sure that we kind of release things slowly and to the previous point from Caroline that we kind of were able to sort of bring customers along the journey with us in terms of not adding too much complexity, but I touched on previously, just whether we can add more AI personalization into the audio or video capacity as well using AI to generate digital handwriting fonts. So the customer side of things, I think, is kind of pillar one and we're making progress on that. The second is kind of using AI with our sort of Data Science capabilities to sort of almost to improve the plumbing of the business. And that means having smarter personalization, smarter segmentation, smarter recommendations throughout the website. Again, we're pretty advanced there. We're kind of all in on just using the latest technologies to make sure customers get the best experience every time. The third sort of work stream in AI is driving internal productivity and we're still experimenting as I think most businesses are. It's -- we are seeing that it's had pretty widespread adoption from our technology workforce. So we're seeing productivity gains across the technology workforce. We're using different tools with our creative teams, with our marketing teams. And I think so across the business, we are seeing adoption, but really, we're looking at -- I think we're still probably early in the days of kind of being able to sort of -- to know exactly what the benefits are, but I think we're pretty encouraged on all 3 fronts, and we'll continue to make progress every time.

Given there's no further questions, I will now hand back to Nickyl for closing remarks.

Thanks, Gareth. And thank you, everyone, for joining the call for some great questions. Today, we announced a pleasing set of results for the first half, returning to revenue and profit growth, and we're confident that the trend is going to continue as we go through the year. Moonpig Group is a high-margin, cash-generative business with a large long-term growth opportunity, and we remain extremely well positioned to continue delivering profitable growth consistently over the next years. Look forward to speaking to you again in a few months. Thank you very much.