NEXT plc (NXT) Earnings Call Transcript & Summary

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, or 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. In those practices, you probably read this that it was both -- it was 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 consider it in their dealings with others; and finally, be demanding, but never nasty. These rules don't guarantee success, but in my opinion, it surely makes it a lot more likely. Simon, over to you.

Good morning, everybody. Welcome. First of all, Chairman, thank you for that impromptu start. I mean, and it just shows what an innovative place NEXT is because the Chairman didn't say he was going to say any of that. And I agree with every word of it, genuinely. So a good year. Group sales up 8.2%. That number is obviously flattered by the acquisition of an increased stake in Reiss 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 Reiss, we'll report 70% of the 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 at 5.4%. So we're still continuing to see a drift from Online, so from Retail into Online, but nothing like the pace that either we expected this year, we expected minus 2%. And we think that has reached a sort of level now, not that it will continue, but we don't expect that to go back to the minus 6% and minus 10% 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. And you can see there, Retail did do better but not much better than we're expecting. Online in the U.K. 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 profit before tax, up 10.1%, slightly nudged 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 GBP 10 million foreign exchange, gain of GBP 2 million, offset by the impairment of our investment in JoJo Maman Bébé, which I've been practicing saying and still got a slightly 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%. That's 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 2.8x, 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 the business, we will sell 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 not particularly -- I mean, it doesn't provide any particular insight. So we'll do this on a consolidated basis. Profit before tax at GBP 93 million. Depreciation and amortization, up GBP 20 million. The lion's share of that, you can see, is the new mechanization in Elmsall 3, but a good amount of IT -- amortization beginning to hit the balance sheet now as we begin to pay for the increase in CapEx on our modernization program. In terms of CapEx in the year, down GBP 16 million. And to put that in context, we've seen a big sort of fall off in CapEx over the last 3 years. The GBP 151 million was a little bit less than we're expecting. We're expecting to spend GBP 161 million 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 GBP 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 modernization programs have not cut costs as much as we thought they might. And then, the GBP 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. I saw 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 GBP 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. So 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 7 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 that -- 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, 6 resites. In terms of the portfolio that we plan to open in the year ahead, we still set our target at 24-month payback on CapEx invested in stores and a hurdle rate of 19% net branch contribution and the appraisals for these stores are our 23-month payback and 19% net branch contribution. It is the first -- for the first time in earnest, we've opened a lot of new space. So if you want to look at 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 GBP 19 million. A lot of that cost is a new shop fit concept, though we haven't refreshed our concept -- our shop fit concept for over 10 years. I said there are a lot of one-off and design costs in this store that weren't there, that won't be there going forward. But that -- the return on that store is -- the payback is so embarrassing and 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 have taken a normal upward-only rent review situation. In terms of working capital, working capital increase of GBP 92 million. Part of that is payments for the previous year staff incentives, but a big part of it is GBP 50 million of stock and GBP 50 million more cash flowing into stock, and we're going to talk about stock a little bit more when we get to the balance sheet. Surplus cash down GBP 15 million. Ordinary dividends at 3.8x cover, which we intend to maintain going forward. Investment -- a big increase in buybacks driven by the fact that we haven't made any significant investments during the year. Net cash flow of GBP 40 million inflow and GBP 97 million last year. Those two -- that retention of that surplus cash needs to be taken in the context of the group's debt and which I'll cover as we go through the balance sheet. Investments on the balance sheet down GBP 27 million. This is all about amortization, stock up GBP 100 million, that represents an increase of 13% and 2.3 weeks cover. Two things happening here. First is the -- at this point last year, the effect of Suez haven't fully flown through into our buying. So this reflects the annualization of the extra 2 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, we thought it was set up. 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. Customer receivables pretty much up in line with credit sales. Debtor days, this is interesting. We call them receivable days now. Debtor days have negative connotation, so you're not allowed to do that. Receivable days that 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 debtor 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 GBP 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 GBP 28 million, partly as we buy more stock, we owe more to suppliers, label creditors as we -- 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 self 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 0 over the next couple of years as we work our way through the process of the buy and then take that liability off our balance sheet. Liability and assets. Net debt down GBP 40 million, which leaves net debt at GBP 660 million at the beginning of this year. In terms of the year ahead, operational cash flow of GBP 884 million, that's what we're expecting, CapEx of GBP 179 million, ordinary dividends in line with our forecast at 2.8x, GBP 279 million. That would leave surplus cash of GBP 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 forecast that we've given you, we have assumed that we will distribute GBP 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 GBP 250 million bond that becomes due in August. That will leave us in a position where at peak borrowing requirements, we still have headroom within our cash resources of GBP 200 million, which we think is comfortable. It's only for up 2 or 3 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 GBP 425 million. So net assets, up GBP 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, like-for-like 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 trading water at best, and we did have a slight decline last year. Bought-in gross margin up 0.4%. This is across the whole NEXT brand, and is in essence where, this is the reflection of price rises needed to pay for the 10% increase in National Living Wage last year. Markdown, an adverse movement of 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 investment 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 that 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% that we've been talking about for the last 3 or 4 years. Interestingly, if you separate those portfolios into the 28 stores that have not ever 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. Some -- there are 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 of around GBP 2 million. Actually, one other point there is, we're still -- the average lease term we're taking on new stores in the year ahead will be around 4 years. So still -- we're still not extending our liability terms. So total margin down 0.3%. Looking forward to next year, we expect negative like-for-likes of 2%, total sales down 0.3% and margins to rose 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 on prices -- from price increases of 1%. In terms of Online. Our Online in past, we have talked of as one business. And in terms of that one business, our Online business, sales are up 9.8% and 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 a whole of the Online business is a bit misleading because they are two very different businesses, sort of, under the bonnet, a U.K. business, which sells a lot of third-party brands and an overseas business, which is much more dominated by NEXT, 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 read, which it is in detail described 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 U.K. Total full price sales in U.K. are 5.4%. In terms of the participation of sales, what is really noteworthy here is just how much of the business now on our U.K. platform is not NEXT branded. So you see that 42% is non-NEXT branded. Of the non-NEXT-branded stock, of the 42 is 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 that 34%, 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 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, 2 years. 2 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 was 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 on to total platform. And so to give you a sense of that, the brands like FatFace, Reiss, Joules, the brands that we moved on to 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. That bigger stock pull 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. Profit up 8%. Margins moving forward Online. Just to sort of go through that, 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, sort of, break that down further. What you can see here is that, 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 it is going to change the columns and rows. So -- 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 as 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 that 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 on -- in the U.K. for the NEXT brand. And this is where increased efficiencies are paying for higher operating costs or inflation operating costs. In LABEL, they move forward again with reading out those low-returning high -- low ticket price, high returning items, where you have very high distribution costs associated with sending out and bringing back cheap items. We've reinvested -- sorry, 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 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 U.K. online up 4.3%. We're expecting margins to edge forward by 0.2%. So to International. Total sales up 25% on a full price basis. In terms of the 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 a 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 Middle Eastern Europe dominate our business overseas, and we haven't got a lot of traction in the very large markets that are further a field, whether that be Japan, China, India, America. The, sort of -- the good news on that front is we are beginning to get growth there. So you can see growth in Europe was 30%. The rest of 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 4 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 -- that is 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 talked about in the past, such as the collaboration with Myntra 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. 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. The net margins of the business, a big -- more than all of that comes from bought-in gross margins. There are a number of things going on. First of all, 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 territories, particularly in the Middle East where the move to a new hub and the setting up of domicile of 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 1% added 1% to margin. We did that in order to fund the marketing that drove growth. And then the mix of aggregators versus NEXT brand eroded margin by 0.3%. 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 U.K., really want to allocate the cost of that clearance to the overseas businesses, which we do by giving them the cost of 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 pounds profit much because we're gaining in sales pretty much what we're losing in margin. Warehousing and distribution. Wage inflation eroded by 0.3%. Middle Eastern hub was more expensive, although we did get duty savings to offset that -- those operational costs, and we have got some efficiencies, which have added 0.3%. Marketing, this is the big change overseas. That's 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, largely 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 U.K., 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 our customers. Once the -- people traded 9 months, 12 months ago, actually technically, they are customers within the year, but you can't say that they're active, because the chances of them to trading again is much smaller once they haven't traded for 6 months. However, if you don't look at the total number of the 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 our territories, 13.7 million, up 13%. And you 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 U.K., 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 have 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 customers. So we're not concerned about that. The other slightly misleading number here is, you shouldn't look at that, oh, my gosh, overseas, they take more on their cash overseas customers than they do on the cash U.K. customers. The cash U.K. customers are artificially depressed, because the best ones convert have a credit account, even if they don't use the credit, they do use the Try Before You Buy. So the average figure in the U.K. 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 U.K. Moving on to Total Platform. So this is sort of good news, bad news, a 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 -- through buying of extra share in Reiss and FatFace. And then there's the underlying profit. The underlying profit, and this 30% is the amount of profit from a total -- our profit from equity would have made had we not bought those stakes in FatFace and Reiss. They would have been up 30%. That number of 30% is hugely overstated, because of the recovery of Joules. So Joules in its first year of operation, we had to do a lot of painful surgery there. That reversed out last year. If you take Joules 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 the 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 respectful 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 to 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 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 profit, about GBP 1.5 million. Now I have to tell you that -- 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 in the room, [indiscernible] all the encouragingly optimistic forecasts of the teams that run these businesses, it would have come to significantly more than GBP 78 million or not significant, more than GBP 78 million, but we've been very cautious about their estimates. I mean, it's partly as a result -- 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 that is just -- it's an instinct that it's hard to fight I've observed. But anyway, that assumes no new acquisitions. We may well make acquisitions, we may not. So -- 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 a nice -- 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 we can work. And if they don't fulfill those criteria, then we won't buy them. One site 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 certainly all their operations to NEXT. We're interested in just warehousing, online warehousing and distribution. And we are looking at -- now we have extra capacity in our warehouse, we are 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 ZEOS, 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 a 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 8 weeks, which have been very encouraging, we now think the first half is more likely to be up 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 going out hard, that's next up to the old tricks again. I'd be very aware of putting any optimism into the second half. We certainly are two reasons. First of all, the comps get much stiffer. So if we look at our guidance versus 2 years ago, you can see that pretty much first and second half are identical. And secondly, we -- I think, that as the year progresses, the impact of National Insurance increases, a further squeeze on the U.K. 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. GBP 66 million from that 5%, GBP 1 million from Total Platform and equity investments, sourcing GBP 3 million cost increases, and this is the sort of ugly number. Not dissimilar from last year's number actually. Of that -- of those cost increases, if you strip out normal wage inflation, in essence, around GBP 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 GBP 71 million of savings that we think we can achieve in the group, GBP 22 million from operating efficiencies, GBP 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 uses. 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 give -- we wanted to maintain our margins, and -- but we want to give our customers as good a value as we can and be as competitive as we can be. And because our forecast for the full year shows sales and profits roughly rising in line with each other, we didn't feel the need to move the groups' profit forward at the expense of our competitiveness. That takes us to GBP 1,066 million, pure coincidence there, easy to remember. Forecast up 5.4%. 8.8% earnings per share increase after accounting for the buybacks we expect to make and the effective buybacks at the end of last year. Post-tax, 8.5%, 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 and is the 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 obviously, you're 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 then, 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 I have heard firsthand someone in the business, say, surely, now we're making GBP 1 billion. NEXT can afford to buy me a new laptop. And I know that, that was said, because I said it. And so it just shows that how infectious this illusion is, and how dangerous it is. I'm sort of making a slight joke, but there is a genuine, since I have heard lots of mutterings about surely now we're making GBP 1 billion we can afford X, Y, or Z. And the point is, it may well be a good investment for the company 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 will be a good investment if we're making GBP 100 million or GBP 10 million. It's nothing to do with the GBP 1 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 sort of pretty much all pervasive illusion, NEXT is not a person that has GBP 1 billion. If NEXT were owned by one person, they were, I've got GBP 1.066 billion of profit coming in. You could argue, well, they should -- what do they care? But the reality is, of course, we're not -- NEXT is not a person. It's a public company, and our average shareholder on the register has 150 shares. And that -- those 150 shares generate dividend income of around GBP 350 a year. That's GBP 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 one savings of people who have not got a lot of money necessarily. And 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 GBP 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, as I said, companies that are -- 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 the company. And 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 of 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 the NEXT as being two types of businesses. It's a product business. And in that product business, if we were an entertainment platform that will 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 to -- they are not self actually more, 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. And 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 U.K. or even overseas. And it is instructive that 30% of our -- of the NEXT brand sales outside the U.K. are not coming from our own platform. And actually, even if you look at the our own platform overseas, the NEXT website, really the only infrastructure that we've paid for in that 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 U.K. And to the extent that 42% of its product 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 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 improving that." And I just want to reassure you that we're not looking at splitting the business, and it will 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 are starting, so 8.5 million customers to talk to the moment that they -- the moment they're conceived. And equally, the platform benefits from the fact that its biggest client by a long, long way, it's biggest client brand is the client that owns it. So it provides the platform with security and a 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 a 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 full criteria to pass the test of whether it is an activity, the one to take. First of all, are we creating value? And I know that value has become one of the sort of slightly trite words that people use. The word shareholder value as far as I can see, is often used as proxy for ramping the share price, which -- but this is -- what we're talking about here is real creating real value for customer, whether product or service you're providing those customers with our 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 1. We might give a new business, new brand, pretty great since first year. But if company isn't making a profit, in year 2, 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, products. Now I've talked about this 6 months ago and 12 months ago. And I'm conscious that when chief executives talk about product, it always sounds frankly ridiculous, but I hope you've got a sense of what we're trying to achieve, which is 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 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 is now GBP 325 million business. You've seen the margins that it makes. It makes healthy margins. Just to remind you, there were two things going on here. There are the brands that we either have bought like Cath Kidston and we'll start from scratch like Love & Roses. And then there are those brands where we have taken the designs of a brand partner like Ted Baker, and 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. That, one of the important things that we're doing here, we think is important is, moving this exercise into home as well. And you see we've got a number of home brands now, very small money, only GBP 35 million expected this year, but growing very dramatically from pretty much nothing 3 years ago. And this is important for two reasons. One is because it's an important profit stream in its own right, doing 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 GBP 24 million in 2023. 2024, last year, we increased by 85%. This year will increase by 25%. That estimate of 25% was 18% at the beginning of the year. And 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 organizations in this respect. In -- 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 life. 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 GBP 1.50 of profit for every GBP 1 we spend, so a net profit of 50p on GBP 1 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, a 33% margin on total sales from marketing. But the key here is the word incremental, because it's very easy to kick yourself that money that appears to come from 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 payer of palm tree NEXT swim shorts. And you can show them in adverts and go, "Gosh, that's brilliant. Look how we manage 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 U.K. 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 third -- they're 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 U.K. However, in the event that we don't have stock available in the halves, we are able to fulfill on a slightly longer lead time and a slightly higher cost. That's about a data delivery, to deliver direct from the U.K. So we still got the fallback of the U.K. stock even if the stock isn't available in the hubs. But availability in 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 the land orders from our U.K. 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 as we are merging into one warehouse through ZEOS, Zalandos, 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 U.K. 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 going to all go in Zalando packaging. And we will still be able to service our own website sales from the U.K. 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, I don't have to take in all of this. It's all in the pack, but just to explain, these -- 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 clothing market that is represented by those countries in which we provide that service. So for example, appropriate local sizing. This is -- for example, in France, we use EU sizing, but actually France have their own sizing convention, which is slightly different from EU sizing. And then in 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 out of 83 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 kind of chicken and egg situation where you don't take very much into in Japan, so you don't invest in all the work to have local sizing. I should stress, by the way, it's just changing the size to the Japanese equipment, not actually changing the stock, but 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 like a 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, and that of 700,000. We're not mechanizing all of the space in the new warehouse, only half it 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 Elmsall 3. Any rent rates, depreciation or mechanization, that was in 2023. And you can see we've got the operational half there. Where we are today and that the cost indexed to labor at 100 in 2023 was 167. Now we've opened the new mechanization, we will fill that to a maximum capacity. That lowers our labor cost CPU by around 25%. But obviously, the total cost has gone up since 2023 because all the new mechanization, depreciation, rent and rates on the new warehouse. So we're down against last year, but not down against 2023. When we -- we will then reverse back into the old mechanization that will push labor costs up but bring total costs down as we get leverage of the fixed overheads. When we fit out the new mechanization in the other half of the Elmsall 3 complex. And this is the important point, actually, is that we think that the labor saving will be greater than the cost of the depreciation on the new mechanization. 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. So -- but the elements that I'm most concerned about in terms of inflation or labor costs and they, as you can see, shrink as time goes on as percentage of the total costs. So inflation could sort of mess up this nice, smooth decent. 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 -- there's no way in detriment to the teams to implement. It was very, very difficult to implement, a brand-new warehouse in the run-up to Christmas. And if we haven't done it, we wouldn't have been able to service the 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. And the vast majority of failures in this are where we have order for five items, and one of them doesn't make it into pass and gets there the next day. It's not a disaster, but it's not the service we would like to offer. The normal run rate is around 6% and has been for many years. As we ramped up the new mechanization, it got to 12%. And in November, you can see we've colored it like a pimple on the beautiful phase of the next warehousing landscape. We had a big peak. Since then, we have made huge progress. And each week that we -- in 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 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 filter straight through into customer perceptions. This is our Trustpilot scores, and you can see after that peak, we dropped 4.1%. And as we've begun to rectify things, our trust built back up. Finally, on technology, nearly there. Technolog,y, our technology costs have almost doubled in the last 5 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 want 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 a much of software over the last 30 years, meant that a lot of it was out of date, we've had to modernize it all 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 a total platform, and we've delivered the new systems for Elmsall 3. Looking forward, the modernization program 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 it is a very -- that's a very high-risk project, and we're taking it very slowly. And so I wouldn't want to make light of that, but we are -- we have now done the majority of modernization 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 and we discussed in the presentation, they always 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. I 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 cost at the very least. We should be able to do that, because we've modernized so much of our software. We've got a much more experience in the group than we had 3 years ago. This is the percentage of people with more than 12-month service in the group. You see at worse, 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 the -- what I consider to be slightly unfortunately branded GitHub Copilot from Microsoft to start -- our software programs 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 really -- we're just starting this journey. We're only at 5%, but we're using Notebook LM to help document and accelerate the process of specification. And 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 along -- not far down that journey, and we haven't yet found the software that we want to use on deployment and maintenance of software. But we think, again, there's huge opportunities there for AI to spot problems before 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 neatly brings me to the end of the presentation, and I thought it was almost a reasonable time. Just to sort of in summary, NEXT is increasingly becoming too related but quite different businesses, product creation business and a platform business. And our ambitions in both businesses, we're very clear about our ambitions. Now you've got to be very careful of anyone making grand vision, 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 almost certainly be in that small group, Zara as well as Uniqlo. Our objective is to make sure that NEXT is one of those brands. So we kind of think a 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 U.K.'s first choice clothing and homewear retailer for our customers. That is where -- that is our ambition. Two caveats to that, really important caveats. And 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 First Choice local platform is not -- are not ambitious in themselves. Once we start to see these things as ambitions in themselves, you begin to make terrible mistakes. You think about, if you want to be a global brand, you've got to have stores in Ulaanbaatar. What global brand of any respectable wouldn't have stores in X, Y or Z location. You got to do -- 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, the aim to be a local -- 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 head starts in some of these things, we may be behind 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 U.K. And if we can 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 10:00, 1 hour and 15 minutes. We had a sweepstake earlier on, and I was engineering it so that I would win.

Richard, don't worry, you can just speak as [indiscernible] apparently.

I'm trying to speak to [indiscernible] I guess, one for me then to kick off, if that's alright. So you touched on the enhanced partnership with Zalando that's getting going in the second half. What have you built in, in terms of H2 guidance in terms of sort of sales uplift from the single 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?

I mean, the answer to 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 forecast? No. And nor should we, by the way, because -- No, and because it will be a big mistake, by the way, because -- and this is a conversation I've had many times with our operations teams is I cannot think of a single warehouse transition. You look at Elmsall 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 it'd be -- 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. With new stores that you're opening, are they all going to be in this new format going forward? And do you have to refit many of your existing estate over maybe a 10-year period for that new format? And with that, is it possible that 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?

Two good questions. I'll start with the first one, which is the new format. So first of all, the new format is not a new religion. You don't have to go around forcing conversion on everyone. It doesn't work either for religion or in-stock shop. So we will 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. I mean, 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 the -- so in terms of cost effectiveness, at the moment, it's much more effective to use security tags as RFID, gives us quick stop count, 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 costs dramatically.

Geoff Lowery, Redburn. 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 0 up to year 5. I wondered if that had changed very much over the years and whether you were seeing anything very different internationally to the U.K. in terms of that build after year 1 of acquisition?

Yes. So I think it's too early to say, it's the honest answer. And 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 4 years ago to predict what the customers we're recruiting today, many of whom are in different countries from the ones who recruited 4 years ago is -- 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 rather than if they come in to buy for his own. But we've got no meaningful information on that.

Will Woods 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 rough split between investing in the countries you're already spending in versus new ones? And I suppose to link to the previous question, are you seeing good repeat purchasing behavior from those that you've acquired? And I suppose does that -- if you talk about lifetime value or something like that, are you seeing a good return on that, not just on the ad spend?

Yes. So I think -- so in answer to the first question, the vast majority of the increase in spend -- of the spend full stop will come in existing territories. And where we got -- where we've already got most territories. The biggest percentage increases in spend will come in the newer territories, but it will still be relative to the -- 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 will 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.

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 yourselves being on third-party aggregators that you can use with your third-party brands on your website to drive that positive sales growth?

No, it's a good question. I think 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 stock of it because unlike our own websites, we don't have the fail safe of being able to deliver the stock from the U.K. 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 and logistics is, if the trial is successful this year and if we're able to add -- genuinely add value and cost savings and improve service for our 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 -- you're halfway 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...

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. So -- and I don't think we'll have any news on that, a meaningful news for 18 months to 2 years, because I think it will take us that long to get the 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.

It's Georgi Johanan from JPMorgan. 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 just a comparative level? And also in terms of like the cost of AI, 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?

Yes. Honest answer to that is, I don't know. Because one of our kind of -- one of the ways that we run NEXT is like we stay in our lane and we focus on where we're going. And we don't spend too much time looking over our shoulders what other people are doing unless there's something to learn from it. So I've got no idea how far we are down the journey compared to major competitors. And I'm not -- all 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're behind the pack, but it's possible.

John Stevenson, Peel Hunt. A quick question on the consumer. You've talked at 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?

Yes. So I mean, first of all, I think the buying fewer better garments is nothing to do with economics. I think, it will 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 there on average, they're spending 1% more in the U.K. 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 throwaway type stuff to buying fewer, more considered investment garments. But that has nothing to do with how the consumer is feeling. It's all to do with sort of macro fashion trends rather than any economic trends.

And does that feed through into, sort of, how you think about sort of good, better, best and the, sort of, structure of the way you gain?

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

Anne 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 upgrade in 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 then sorry, the 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 to one I can answer.

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

Okay. So I'll start with the question I can answer or I'm prepared to answer. The London office space is mainly for -- is 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 businesses. We don't ever discuss the relative performance of our different product areas other than a very high level like between wobble and NEXT, we'll talk about it. But otherwise, we don't discuss home versus other areas. I think, the only thing I would -- 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 2.5-year, 2-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? No. Sorry.

Can I ask on the third-party platforms where you sell the -- third-party aggregators where you sell in the NEXT brand. Do you sell the ranges that you are selling on them? Are there any different to what you're selling on the NEXT direct websites. And the same in reverse, on the third-party brands that was sold on the NEXT platform, how much are those excluded to NEXT? And are you actively working with these brands to develop exclusive ranges?

So in terms of the 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 kidswear sales. Others aren't dominated in the same way by kids. So it's those sorts of mix 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 other aggregators are the brands that we own, because obviously, the ones that we don't own tend to be trading already on our own account on those aggregators. If you're Nike, you go straight to Zalando or about you, you don't come to NEXT. So the third-party business is much smaller on our overseas business, and it is -- the growth is focused on the wobble brands.

Sreedhar Mahamkali 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 up nearly 200 basis points last couple of years. Can you talk through the midterm potential here? Because in 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 going up further in the mid to high teens and so on? Secondly, I think on surplus cash flow, given you've accumulated what you need to with GBP 250 million bond, and potentially no need to retain any of the surplus cash going forward. Should we assume 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 all the questions today, obviously. But -- so first of all, on margin, don't assume any -- don't assume that margins will go much higher than where we intend to get them to this. 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, because I 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 the 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 an argument to say that 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 4-, 5-year period rather than go out and borrow a great big slope of money and return all to shareholders. Because if we do the latter, the chances are we'll get the timing horribly wrong. And 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 rating, and that is the kind of red line for us.

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

Yes, 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 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 of 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, we are looking with our partner, Myntra. 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 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. Reiss makes a profit trading some stores overseas, but it's been tough there as well. But they do make a profit. So that -- it's not a -- 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 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.