NEXT plc ($NXT)

Good morning to everybody. Before I hand it over to Simon, just a few comments. 2 long-serving board members, Jane Shields and Jonathan [ Buse ] will be stepping down from our Board of Directors in May. Jane has worked for next more than 40 years. You don't see that much anymore more than 40 years and then on the Board of Directors since 2013. Jane's contribution to the success of the company has been substantial, both at the operational level and certainly at the Board level. And I would just say, I think Jane represents the best qualities of what we have at next to Plc. Jonathan Buse has been a Board member for 9.5 years, and he has been Senior Independent Director and Chairman of the Audit Committee and he's made significant contribution. So I'd say, Jonathan, many thanks for your work and your service on the Board. I would like to welcome 2 new Board members Neth Court and Jenny Mundy, who will be joining the Board. And that started on March 1, and Jenny will be started on April 1 and both will stand for election at the May AGM. As you've seen, the results for the year ended 2026 are very good. And it certainly reflects the broad strength of the group as we outperform in all areas, be it retail or online U.K. and certainly in the international markets. Before I turn it over to Simon, I would like to recognize and thank our more than 40,000 employees globally for their daily decision-making and basically making things happen for NEXT throughout the world. Simon?

Very much, Chairman. Right. Good morning, everybody. Slight change of order things today because I know some people like to slip away early, so I'm going to give you the punchline at the beginning. Punchline is about next year rather than all the state last year. And in terms of next year, the big news today was that there was no news. We've held our targets, and you could look at that 4.5%. And in fact, I think most people did look at it in January and I think that it was pessimistic. And if you had only looked at our U.K. sales in the 8 weeks in the run-up to our announcement, then you would definitely agree that, that was a pessimistic assessment. However, if you look at what's going on in the Middle East and the potential knock-on effects in the U.K., you could argue that it was optimistic. And just in terms of the Middle East, I suppose first thing to say in terms of the U.K. The numbers we had -- those first 8 weeks did not include the really big numbers we hit as the weather improved this time last year. We got some significant benefit from an early summer, and we're just about to hit those numbers now. In terms of the Middle East, it represents 6% of our total sales. We lost for the first week of the conflict, we lost virtually all the sales because it was -- our operations start working. We are now serving all of the territories in the Middle East. A few of them are slightly longer lead times. But because we've got a hub in the Middle East, we are able to service them directly from stock based in the Middle East, which means we're not dependent on air freight for anything other than replenishment. And we are shipping stock to the Middle East resin replenishment runs at the moment, but that comes at a cost. And in terms of the cost of the conflict, we have quantified that in and that's GBP 15 million for 3 months, assuming the current levels of surcharges, disruption oil prices last 3 months, that could be wildly optimistic or it could be we don't know. In terms of the breakdown of that cost, GBP 8 million of it comes from the outbound stock from the U.K. to our customers overseas. Of the GBP 8 million, GBP 5 million of it is Middle East costs. the rest of air freight surcharges to the rest of the world. We then got inbound costs. This is mainly the surcharge on container rates as a result of fuel price increases. That's around GBP 4 million. And then U.K. energy costs, we anticipate incurring additional costs of around GBP 3 million. What I should stress is that those numbers are very volatile, first of all, they're just throwing forward the costs we have today. And the second thing I should say is that we've offset all of them by cost savings or margin gains that we've identified since January, around GBP 8 million to GBP 9 million from margin gains and the balance from lower revenue expenditure mainly systems. The biggest difference between now and January is that we've brought our systems budget down by around GBP 6 million. In terms of -- but don't take that number and multiply it by 3 to get to the cost for the rest of the year because if it looks like this is going to persist, we will begin to pass through those costs to consumers, specifically in the affected regions, but also in the U.K. In terms of U.K. prices, that would mean prices were going up between 1% and 2% from where they are today in probably June, July, if things persist. The much bigger worry if you want things to worry about, which obviously you do, is the cost of goods because things like polyester and energy costs are a huge percentage energy cost is a big percentage of fabric as is obviously polyester. So I think you could see significantly larger increases in cost of goods coming through probably October, November is when those will begin to hit down again if the conflict persists. So that's sort of business affected costs and the potential impact on selling prices covered. The one thing I should say about that 4.5% is just a reminder that this time last year, we were -- our guidance was at 5%. So the 4.5% guidance does not limit our ability to outperform that number. Now I think with things in the world as AI, I think that's [indiscernible] But what I want to stress is a cautious approach to a sales budget because we're always buying markdown stock and we can eat into it. Of course, approach the sales budget always leaves us with the potential to beat budget if the demand is there. Moving on to last year and starting with the P&L. And just to remind you, this is all on a 52-week basis and not consolidated. Total group sales up 10.8%. Total full price net sales up 10.9%. In terms of the breakdown, retail store is up 3.5%. In many ways, that's the most remarkable number here. And we think that, that number is the one that is most flattered by the good weather in summer and the disruption to a major competitor. And we'll talk about each 1 of those as we go through. In terms of profit, profit up 13.9%. And the vast majority of the difference between the growth in sales and the growth in profit is about leverage over fixed overheads and some margin gains as a result of improved clearance of upstock through directory online. Profit before tax, up 14.5%. The drop in interest charge here is all about the fact that we didn't buy back shares during the year. So the cash that we accumulated during the year had interest on it, that can around GBP 8 million. So that reverses out in the year ahead. And obviously, you get back in earnings enhancement what you lose by way of P&L more than what you use from the P&L cost. In terms of the quality of earnings, good quality of earnings. There was a very big noncash gain from GBP 20 million release of our debt provision. That meant that our finance department worked even harder than usual to find looking every little nook and can of the business to check that all of our provisions were where they should be and that we had enough impairments for our small businesses, and we we've taken take another GBP 4 million of impairment costs there to offset that GBP 20 million has offset it, not to obviously. And then some foreign exchange gains just on the instruments that carry over from one side of the year to the other. Earnings per share up 17%. The main difference between last year's profit before tax and EPS is the boost from the previous year's share buyback. We didn't buy many shares back last year. Ordinary dividend up by 15%. That gets us back to a cover of around 2.8x is where we want to be and 30 return to shareholders by way of capital by B share scheme, and that is in place of the buyback because we were out of the market. We're now back in the market. Thank you very much for your help with that. And all of the numbers that we'll tell you today will be on the basis that we can continue to buy shares throughout the year. In terms of the cash flow on a consolidated basis, and this is looking at a 53-week year. GBP 147 million from profits, another GBP 24 million from the 53rd week of cash in terms -- not much change in depreciation, that's gone up much less than sales. CapEx up by GBP 17 million slightly less than we forecast in the half year, and that's all about the timing of store CapEx, so GBP 168 million last year. The real interesting number is the number this year because we've gone back and we significantly increased our estimate of what we will spend this year. And all of the increase is in warehouses. So I think we spent GBP 237 million this year. It's all about our self warehouse. I'm going to go into a lot of detail later on, which is something to look forward to. But just to say this is a good thing. This is because we are growing our sales faster than we expected. In terms of throwing that forward because this is a sort of 3-year investment program in warehousing, we're looking at CapEx at around the GBP 250 million level for the next 3 years, we think. You might look at that and worry that NEXT has become fundamentally more capital-consumptive business is entering a phase of strong capital consumption. Actually, this is our history of CapEx over the last 20 years. If you look at CapEx as a percentage of profit, which is the right measure. What you can see is that the 19.6% we're at this year is just below the last 20-year average. So fundamentally, the business is not more capital consumptive. It's just that in periods of strong growth, you have to invest more in the period follow years, you invest less. And I think the other really important thing that this graph demonstrates is that if you look at the data for long enough and hard enough, you can always find the number you want Working capital, up GBP 46 million. The real difference here is the GBP 19 million increase that our aggregated partners at us. That is all as a result of our sales increasing on their website. They keep -- they take the sales, take their commission hand on a month later bit. the sales. So there is a depth there. The faster that grows, the bigger debt growth. All the other movements in working capital are one-off. It was a one-off movement in the timing of aggregator payments. We got a benefit last year from this benefit this year. Cash in transit. This is a new accounting standard that we have rushed to embrace, and it's actually very sensible. It means in previous accounts, we had accounted for credit card sales as if they were cash and not accounted for 3 days that the credit card companies take to pay us. So this accounts for that confirms of new accounting standards. And also, I think for me, in the last 25 years, a bit of a landmark moment as well because this is the first change in the counties that I really agree with. In terms of surplus cash, GBP 129 million of surplus cash distribution to shareholders, GBP 221 million. The difference between that the GBP 93 million difference is that last year, or previous year before last, we were accumulating cash on the balance sheet, GBP 40 million of cash accumulation, in anticipation of paying down the bond. This year, we got the bond away and we've returned our leverage to its historic norms at [indiscernible] And so there is a cash of about 53 million more of debt funding that difference. In terms of stock, stock up 8.8%. The next stock as at week 52 is up broadly in line with our sales increase. You'll note for the last, I think, or 4 sets of results. We've shown stock increases much greater than sales. And what you can see from this is that those increases have stopped, but we haven't reversed them out. We're going to keep a little bit of extra cover in the business in anticipation of the sort of disruptions that we've seen over the last few years potentially happening again. We think it's better to have a little bit more cover mid and suffer from it last year. In terms of customer receivables, customer receivables up 2%. You would expect those to be up much more than 2% given the growth in our credit sales at 5.8%. The reason that we haven't got that growth is because our debtor days continue to reduce. They reduced by about 3.6%, which accounts for the difference in those 2 numbers. The reduction in debtor days is reflected in much lower rates of default. And what you can see, if you take a sort of precoorview, you can see that -- our default rates have dropped to 2.2% and is lower than the company has ever had, certainly as long as I work for the business. We've never seen default rates that low that 51% reduction is a little bit deceptive. It's not because 51% fewer customers are defaulting. Actually, the numbers of customers defaulting is around 8%. What's the big difference is the balance they're defaulting at. And this is the result of much tighter and better credit controls that we've implemented over the last few years. And one of the sort of advantages for some of the machine learning algorithms we've had and just greater vigilance. In terms of provisions, we're still comfortably but not over provided 6.9% as against default rate of 2.2%. So we've still got room for that to move the other way if it does. In terms of other debtors, I've talked about international aggregators talked about cash in transit. The GBP 20 million of interest-free credit is because last year, we switched to funding our own interest-free credit for furniture in stores that hadn't so previous year that didn't fully annualize until last year. So the tail end of that cash outflow is what you're seeing in that GBP 20 million. In terms of creditors, up 9%, broadly in line with sales, what you'd expect. In terms of net debt, net debt up 8%. I'm going to talk in a lot more detail about that in a moment. And then in terms of net assets, increase of GBP 26 million is only GBP 26 million, and that's what you'd expect because the vast majority of surplus cash we have rightly given back to shareholders. In terms of debt, the GBP 713 million was lower than where we targeted year-end debt. That's all about timing of payments. So we targeted GBP 739 million in debt and leverage of 0.63, which is where we -- we think is a good place for a retailer of our Type B. In terms of inflows in the year, we expect GBP 978 million of cash inflow. CapEx and dividends of GBP 27 million to GBP 300 million, respectively, GBP 500 million returned to shareholders through buybacks or other means. And that would get us back to the 0.63 leverage at GBP 790 million. In terms we've bought GBP 196 million to date, and our plan is to continue that evenly through the rest of the year. In terms of funding, started the year with GBP 1.2 billion of funding. This year, GBP 114 million of 2026 bond is repaid. That leaves us at peak with GBP 205 million of headroom. We think that's sufficient for the business. But if market conditions are right, which they're not at the moment, but if market conditions are right, we will almost certainly issue another bond between GBP 200 million and GBP 300 million or look to increase our RCF to give us a little bit more headroom. Moving on to retail. We saw had a good year. Total sales up 2.4%. Full price sales up. The difference was the fact that we pushed more of our clearance sales through online and at retail. New space gave us 1.2% underlying like-for-likes of 2.3% up, which is in the context of the last 10 years, a very good number. Our profit down 5%, which is given how strong the sales were a very disappointing number. When you look at the change in margin of 0.8 that all is down to 1 factor and 1 factor alone. If you look at the cost of National Insurance and the increase in National Living Wage and the numbers of the young people who moved on to the higher rate, the total cost of that was 1.4%. So had wages risen in line with sales than we would have seen flat margins, positive margins actually. In terms of new space, and there's a little bit of a story here. I softened you up for this 6 months ago. So there should be no surprise. We missed our sales targets on the stores that we opened by 12%. And this is not because we had 1 big store that missed it. This was, I think, 12 out of 15 stores missed their target. What that meant was that although we -- we're comfortably within our profitability target. We weren't. We missed our payback target. I don't think the miss in Target and the 24 -- the missing 24 months are entirely unrelated I think in reality, our sales team who put the estimates on the stores push the sales as far as they felt comfortable in order to hit those criteria to get the shops open. In hindsight, that was a mistake. But as it turns out, it was a very profitable mistake because if we look at the amount of profit those stores are making at GBP 6 million of profit, over 30% internal rate of return and if the landlords came back to us and said, I'll tell you what, you can have the shops back, and we'll give you all your capital back, do you want it one that will be no. So I think we've come to a bit of a big decision is that either we say that we're just in an environment where like-for-likes per square foot over the last 10 years, down 30% and shop the cost up 70%. We either have to say we won't take advantage of any opportunities to open new space or will change our criteria and we've opted to move the goalpost. We don't think these are crazy levels of risk. We said internal rates of return which equates to a payback around 30 months. And we think that's enough to be -- to get the sort of returns you need from stores to pay for the risk, but not so much to prevent us opening any shops going forward. In terms of the year ahead, we're expecting the one-off gain that we got in stores from a very good summer and competitive disruption to reverse out in the first half, we're expecting -- so total retail sales to be down 1.5% with 1.5% coming from space. Profit down 6%. That's around a GBP 12 million hit profit margins at 9.7%. So still comfortable retail margins. In terms of U.K. online and just to remind you, I'm going to show you our U.K. online sales separately from international sales because the dynamics of the business are very different. In terms of U.K. sales. Total sales were up 10.2%. Full price sales are at 8.7%. The difference was all driven by the increased warehouse capacity because we had more warehouse capacity, we were able to put more of our clearance stock online, both in the U.K. and overseas. That was more profitable than putting it through the retail store, but that's what accounts for the difference. In terms of the balance of trade, just over half our business online is now next brands and wholly owned brands, which are a full margin another 9% and then third party is around 1/3. In terms of the growth of those areas, what you can see is wholly owned brands and licenses had an exceptional year. I'm going to talk a lot more about that later. I think the exciting thing for us was the fact that the next brand, despite the increased competition from brands that we own, the next brand still managed to move forward, which for us is confirmation to some degree that we're not just competing with ourselves as we add new brands to the website. In terms of margin, margin moved forward to 18.2% in terms of where the margin gain was made, what this -- what these lines show is the difference between what's happened to the next brand margin and the non-NEXT brand margin. You can see pretty much all the game has come in the non-NEXT brands. So doing mental thematics where we sort of changed the axes and just walk forward the U.K. online next brand profitability. You see there's no school draw on gross margin. Warehouse and distribution is flat, but there are a lot of things going on there. Wage inflation erode would have eroded margin by 0.8%, but leverage over fixed overheads and some of the efficiencies that we're seeing from the new warehouse pay for that. And then Marketing and Technology slight leverage here. technology, we're now beginning to get to the point where our sales -- our costs are not rising anything like as far as the sales. That's good news. And marketing is a surprise that we have significantly increased our marketing budget but not by as much as sales. In terms of the next -- the non-NEXT brands, 2 things -- a gain of 0.5% on gross margin, 2 things going on there. The elimination of unprofitable brands where the commission rate was too low and weeding out some of the less profitable lines. And there, we said to our partners, basically has a choice, either we can't sit for it or we might have to put commission up a bit. On the whole, they opt the latter. And then because our wholly owned brands are growing much faster than third-party brands and we get more margin on them, that pushes the mix, the margin mix up big gain on warehousing and distribution here. And that's because wage inflation loss is lower on the branded goods because they're more expensive. So the labor content is lower. They're growing faster. So leverage over fixed overheads and the efficiencies are higher. And because we've weeded out some of the high returning low average selling price item as a result of that, we see another 0.4% improvement in margin. So non-nexbrand is still a long way behind NEXT Brand in terms of profitability, but they have moved forward significantly. In terms of the year ahead, we expect U.K. online growth to be 4.6%. Margin nudged forward to 18.8%. That's mainly about reversing out large staff incentive payments for this year as a result of having such a good year it's a cost. It's not an operational saving. In terms of the international business, international sales 35% of full price, 39% in total. Again, that's a reflection of increased capacity to sell markdown through the online channel. I'm going to do a bit of a ground or up of York story here and talk you up the hill and then back down. So what I would have said before the Middle East conflict is be aware of the first half numbers because the first half number is likely much better than the second half in the year ahead because last year, it dramatically increased the amount of particularly wobble brands we were selling on our overseas websites. And we've got a big step change increase in sales through Orlando as a result of consolidating our warehouse there. That reverses out -- that annualizes in the second half. So all things being equal, you would expect the first half to be stronger than the second, but obviously has been hit by Middle East disruption just before Eid. So that pretty much work that out, which you'll see later. In terms of third-party versus next websites, third party is around 1/3 of the business in terms of the growth on the next direct business, that was 29%, of which we estimate 22% was driven by increased marketing. Third-party aggregation up 46%, of which 10% came from the addition of new aggregators and in the existing aggregator business boosted by the consolidation in Zalando. In terms of distribution of the business across the world. Middle is still around 28%. That distribution hasn't changed dramatically. What is encouraging is that pretty conflict, we were growing pretty much in every territory. In terms of profit, dramatic increase in profit. partly driven by the sales and also an improvement in margin. In terms of bought-in margin, the increase here is about product mix and duty savings. Surprisingly, although we put a lot more markdown on our website, we actually improved the rate at which we cleared it. But I think that is a testament to the improvement that we've made in our online operations in terms of how we handle the clearance sites and the number of countries that we have pushed clearance stock to. A lot going on in warehousing, the same erosion of margin from wage inflation. Although because overseas selling prices are on average higher than the U.K., not as much as the 0.8% erosion it saw in the U.K. Then we get leverage over fixed overheads from sales growth. A slight increase in handling charge income. Well, in some countries where we weren't making enough margin, we pushed that handling charge up a little bit. And the same benefit on average selling price and returns rate through sort of forensically going through and removing high-returning low average selling price items. Marketing, big adverse movement here, but that is kind of the whole point and then leverage over technology cost centers and central overheads. The central overhead gain is a little bit of a one-off. It's not a one-off this year. It was a one-off costs last year, and that was the cost of closing the German hubs. I think the exciting thing about the margin walk forward is the fact that the significant increase in marketing has been paid for by the cost savings we've achieved elsewhere. In terms of the year ahead, we're anticipating sales of 14.3% on a marketing spend of increase of 25%. Margin forecast, broadly flat. In terms of customer analysis, and this is across all of our channels, U.K. and overseas, U.K. credit customers were up 6%. That number should be a surprise because that number has for the last 10, 15 years, being 1% or 2%. The big difference here has been the growth in the uptake of our [indiscernible] offer. [indiscernible] is where it's a liner type offer, where it can pay off all of the balance in 3 installments you pay no interest if you don't pay it off and you choose to extend it, and you pay a higher interest than you would have done on a revolving credit. That means the credit is growing much faster. It's not as profitable in terms of interest income as a traditional credit account, but it does significantly improve the amount of sales that we can make for those customers. So that's more of a sales benefit but that's driving more of a sales benefit than it is a credit income benefit. U.K. cash up 10% and then overseas 31%. I should say that this doesn't include any customers that we get from aggregated businesses because obviously, we don't have visibility of that. I think the other surprising number here is the growth in the average sales per customer overseas. You would normally expect with so many new customers coming in, you would expect that number to move backwards. That's what we expected at the beginning of the year. It hasn't. Largely, we think as a result of the improvements we've made on our website in terms of improving conversion and average order value, which I'll come on to later. In terms of total platform and equity partners. Total profit, GBP 90 million up GBP 13 million on last year. At the beginning of the year, I think we estimated that would be 5 or 6. So we have done significantly better in pretty much all the partner businesses than we were expecting. Equity profit, up GBP 9 million; service profit, up GBP 4 million. The big increase in service profit comes from the fact that the previous year, we haven't fully annualized the onboarding of fat rates from whom we get a big service income. In terms of that service income from a total platform, very healthy margins -- just around 20% profit on what we charge for clients. and around 6% profit on their sales and their online sales, which is kind of where we set out to be. And although total platform is looking very exciting at the moment in terms of its numbers. You shouldn't expect any big acquisitions or transactions this year. The simple reason, we haven't got the warehouse space to accommodate a big transaction this year, which I'll talk about later. In terms of return on capital, very healthy return on capital moved forward from 17% to 23%, largely there as a result of the return to profitability of jewels and the growth elsewhere. So [ Tom Gore ] in the audience, so thank you, Tom for that. GBP 9 million profit -- GBP 95 million profit forecast for the year ahead, an increase of GBP 5 million. Moving on to guidance for the full year. We've already talked about the 4.5%, so I won't talk more about that. Retail sales, we're expecting all the pain in the first half because that was the period we had the exceptional weather. And gains the most from competitive disruption. U.K. Online, we think will be a more even performance throughout the year. That's largely as a result of the performance. The reason we are as confident on the H1 number is because of the sales we've seen to date online in the U.K. In terms of total U.K., 1.3% in the first half, 2.9 in the second International, 14.7 million in the first half, 14% in the second. If we look at the 2-year growth, which removes any distortion from the timing of the Zalando transaction and the increase in wobble brands on the website. What you can see there is that we're anticipating 47% in the first half, and that is a reflection of the significant disruption we're getting in our Middle East trade and then a return to more normality in the second half. Obviously, a big health warning there. If the wall carries on at its current rate, we won't see the recovery in those sales that were in the Middle East that we're expecting. So total full pass sales up 4.5%. In terms of what that means for profit in the year ahead, online profit driving GBP 76 million of profit increase, GBP 11 million decline in retail profit as a result of negative like-for-likes. Total platform and partners adding GBP 5 million. Cost increases. Wage inflation is still the biggest cost increase here, but around 2/3 of what it was this time last year. The reason that is quite as high as it is actually, it would be around -- if it was just wage inflation it be nearer 35, there's still 2 months of the NIC that haven't annualized in the current year. Middle East conflicts, GBP 15 million of costs coming in there. High interest costs, which I mentioned earlier, that's all about the accumulation of cash last June low share buybacks. And we're anticipating in our marketing spend grows GBP 8 million faster than sales. In terms of cost savings, employee incentives, that's reversing out of large incentive payment this year for a great year. And then the margin gains are where we have already in our -- in the costings we've got, we already can see around 0.2% gain in margin for both spring/summer and autumn/winter. Normally, we've give that back and reinvest it though, given the circumstances, we're not going to do that. that would be GBP 10 million. And then versus last year, the difference of GBP 8 million is warehousing and distribution efficiencies of stores versus our January estimate, the GBP 7 million GBP 8 million is technology. That's why the that just GBP 1.2 billion of profit at year-end. In terms of earnings per share, we're expecting a smaller enhancements than last year. dividend yield of 2.3%. If you compare this year's expectations to last year's expectations, whilst the biggest difference is the delta in profit. You can see that the enhancement is significantly lower. The enhancement from dividends and buybacks this year than last year. An that's because last year in effect, we've got a double benefit. The shares that we would have bought back last year would have enhanced earnings this year. We didn't buy back shares when we gave all the money that last year. So actually, dividends and share buybacks together, we would expect to give returns are around 5% to 5.5% in a normal year. And that's what we expect it to be sort of going forward next year and beyond. So that's all to say on the sort of the numbers and guidance. In terms of the business itself, it's difficult to keep a handle on this because we've ever been going on in the world wasn't worried about more about Milestone about the business. But when you look at the business itself, it's actually very exciting because all the avenues of growth we had last year, we think are still there for the year ahead. There's more to do. And if we look at the GBP 550 million of growth and divide it U.K. overseas. What you can see is that actually, despite all the excitement coming from overseas, the U.K. delivered not a lot less in terms of actual growth Same is true between next products and non-Next-branded products. You can see they're exactly the same as [indiscernible] in reverse and next, although the growth percentages are very exciting on non-extra the next brand still deliver the lion's share of growth. And if you divide that into sort of 4 different businesses, next non-net, U.K. and overseas. You can see that those numbers are remarkably similar. And I think the message here is that the low growth in the big established businesses is delivering pretty much the same amount of growth as the very dramatic growth, 79% in our smallest in the non-net brands overseas. We think that each one of those quadrants will be positive in the year ahead, and there's more to do. And in terms of what's driving that growth, it comes down to 2 things: Overseas, it's about improved functionality services and most importantly, marketing. And in the -- and across the whole business, non-next and next, it's about better product ranges and broader product ranges. I'm going to start by talking about what we're doing to improve the most important part of the business which is the next brand. And that comes down to what I've mentioned before in terms of newness, quality and choice. And this is a drive that we've talked to you about, I think, now for 2 years. And it's one of those things I'm reluctant to talk to [indiscernible] there are no numbers and graphs that I can give you percentage newness and all that stuff because -- if I ask the policing for what percentage they're agency, they will give me whatever percentage I asked for because who's to say what's really new and what's not. But I think the key here is that where the buying teams have scout the well found the best trends. And then most importantly, back those trends with conviction and in depth, that is where we've seen the by far the bigger sales growth. And where we haven't done that, where we relied on last year's best sellers, a little bit of a tweak here and there, change the neck line, change the color. Those areas are the ones that have done worse. And that's pretty much universally true across not just the next brand, but other brands as well. The customer wants a units and done other days where you can say, we'll trial this new style this year. And then next year, we might do it in 3 colorways and really maximize the opportunity. If you wait and see, you've waited too long, you're dead in the water. So that's sort of newness. In terms of quality, there's a lot going on here. And the big thrust on quality is about fabric. That is the thing that in terms of customer perception, actually upgrading of the fabric, and the base materials, the yarns and net wear, that is where we've had the most success in increasing our fabric. And this is a -- represents a change in the way we work. in the -- not all areas, but more and more of the areas of NEXA now pushing further upstream and talking to mills, spinners, wash houses and developing yarns and techniques and fabrics. Long before they decide which garments they go into and what those garments will look like. And that process of pushing further upstream. I think it's got a long way to go in next I think it's very exciting for us. Other retailers do to it. So it's not rocket science, but I think it's exciting for us. I think the other sort of unintended benefit of this is that obviously, the mills have to see the fashion trends first because if they don't produce the fabric, you can't produce the trend. So the mills and the print house is often also a good indicator of which trends are coming and which ones are going to be strongest. I think this is also a very good time for us to be -- it's a very good time for us to be investing in quality because we can see a distinct trend over the last 3 years, and this is a gradual thing. It's not dramatic of customers buying slightly fewer, slightly better things. It's not that they're spending more on clothing. It's that they are choosing to spend that money on better products. And this bit, I can give you some numbers. So this is analyst delight here. What the numbers -- what these numbers show is the underlying inflation in like-for-like goods. So you produce the same 2 set last year this year. And obviously, we're doing less of that because all about the units. But if you look at those garments, then the price inflation we've seen over the last 3 years is negative or very modest. If you look at the sold mix, the total amount of cash we've taken versus the units that we've sold, the sold mix actually has moved forward. And we think that the difference represents the shift in consumer preference. If you -- any 1 year, that doesn't look quite very much. And I should say that the estimate for the year ahead is based on what we've bought, obviously, not what we sold because we don't sold yet. But if you add those all together, you get to numbers that do show a meaningful shift. And there are 2 things I should stress here. This isn't about just adding more expensive product ranges. Although we have increased. We have looked to stretch our price architecture and to sell some more expensive garments. But this is -- that's not been the main driver on this. And in fact, the biggest success we've had on improved quality is where we've significantly upgraded entry-level products to make them much better yards or fabrics, and that's where we've had the most success without increasing price or by increasing price, just a modest amount. In terms of non-Net product, first of all, same message is about newness, choice. Quality are coming through and all the brands that we can see that coming through in all the brands that we manage. The bigger increase was the less exciting percentage our third-party branded profit was up. And that is all about one thing, which is better ranges of our best brands. This is not about adding brands to websites about getting much better selection and better depth on bestsellers from the top 20 or 30 brands that we sell. In terms of the wholly owned brands and licenses, there's very exciting numbers at nearly 50% growth in the year. And I think there are a number of encouraging things that I kind of would like to share with you today about this relatively new business. What this shows the bar shows is the brands that we were already trading, the wholly owned brands that we had in 2022, '23. So it's GBP 177 million at that point. If we look at just those brands today, they are 53% up. That is an encouraging number in itself, but a really encouraging number is the fact that last year, those brands, those existing brands that we've owned for more than 5 years grew by 24%, and I think that will grow again in the year ahead. And for us, this was the acid test because relatively easy to come up with a new label and stick it in a clothing give it a bit of marketing, but actually having brands that are not flashes in the pain that can be developed and continue to grow in the long term is kind of what we're trying to achieve. And that looks like what we've delivered. And that number in a way is all the more impressive when you bear in mind that over the last 5 years, we've added another 29 wholly owned brands and licenses which have themselves that last year delivered GBP 116 million of margin on top. Again, the fact that those are growing in parallel and with the next brand, evidence, we think, that the brands we are providing are genuinely giving our customers something different and new. We're estimating that the [indiscernible] brands and licensed business grows by 22% in the year ahead. And what this all comes down to is -- apologies for the cheese analogy. We use these size for staff late as well, so it's multipurpose. But we really think that NEXT is an amazing place to start a new brand also to take an old brand and relaunch it. Because when you look at it, what you need to start a new brand on next is very different from what you needed to start a new brands 2030, even 10 years ago in terms of resources. What you need is a great product team a good idea and a sourcing base. And the investment, the total cost that you need to invest to launch a brand and is around GBP 3 million, and that's the cost of the people and the stock that you have to buy before you put anything on sale. So the sort of money at risk is around GBP 3 million. And the reason that, that is so low is because those brands can straightaway take advantage of the billions of pounds that we've invested over the last 20 or 30 years in building 16 million customer base that those brands have instant access to or the websites, technology, data security, product systems, warehousing, contact centers and relatively inexpensive funding. So in terms of an environment in which we can begin to develop new fashion brands, we think this is very exciting. All the more exciting if we can sell those brands overseas and what you can see from the international numbers is that we are getting good traction now with those brands overseas. Launch, we're launching 3 new brands is here a new [indiscernible] a new brand, but it's new to us, got BOM, which is more of a sort of continental style of [indiscernible] we'll be launching another womenswear brands. so top-end towards the end of the year. In terms of overseas, 35% growth. And the driver here is functionality in marketing. Start with functionality. Now there's a detailed table where lots of complex numbers that are hard to understand, so you can read through that at your leisure. The overall message is that we have significantly improved pretty much every part of the customer experience, both on the website, when they pay and delivery and returns in most of the areas. There's still more to do. And the results, again, here, we've got some numbers. If you look at the organic conversion rate, that's the conversion rate of non of customers coming to the website, not through marketing. The average order value and the frequency of orders -- those numbers have significantly increased year-on-year last year, and we think that's as a result of the improvements that we're making. The nice thing about those numbers is that they are cumulative. That if you get -- if every person lands on the website, if 9% more than order, they each order 3% more in that order. And they then visit you 17% more time the individual value of that customer visit significantly import increases. And that is what has driven the growth in marketing. The fact that these 2 things work hand in hand. It's not just about spending more money, but the more effective you can make your website, the more effective your marketing becomes. And one of the things that has driven the marketing. And 1 of the things that has allowed our returns to remain constant despite the dramatic increase in the amount we're spending is the fact that the website and services are so much better. And just to sort of dwell on those numbers a little bit. But the return that we measure here. And just to be clear, we don't talk about RAS. This is not a sales this is profit. This is the incremental profit on the incremental sales that we think we deliver from each and every campaign. They have to hit at least GBP 1.50. And you can see the returns last year, actually, despite the enormous increase in spend was slightly higher than the previous year. That's not just about functionality and services, it's also about the improvements we've made to our marketing and we continue to make to the marketing. There's a long list, and you can read it in the report. We have invested a lot of time, money and people in improving the way in which we market and we can see that paying dividends. Next year, I've mentioned already with Cantor marketing overseas by. Now you might look at that number at GBP 1.50 and say, oh, why do they need to be next are being very greedy, 50% return -- and you'd be right. If we believe that number, we would be being green, but there are 2 reasons to be cautious about it. The first is that it is based on incrementality, the incremental sales, and that requires an estimate. We've got to estimate how many of the customers who saw that adverse who then bought actually were stimulated by the advert and wouldn't have bought anyway. And what you'll find when you look at these incrementality tests that we do, is that the incrementality is surprisingly low. So it's a very important thing that we're unsure of, and we think we need fat margins to absorb that risk. The second and more important reason is that the profit we're talking about here is the marginal profit we assume that if we spend the marketing that the increase in sales doesn't result in any increase in HR costs, finance costs, product costs, it all goes into profit. If you said oh, actually, our fixed overheads are going to grow as fast as sales. That GBP 1.50 drops to GBP 1.01. And I think what this does is it brings home a fundamental truth about which will affect our growth going forward. And that is our ability to control our costs and our fixed costs to make sure that they don't rise that they actually fall as a percentage of sales as the fall in absolute terms, where they fall as a percentage of sales, our ability to control those costs will drive our ability to do marketing, which will drive growth in that. Actually, as a message for people in the business has been very positive. Normally, cost control has seen as a bit of a size. Cost control meeting that we have with all of our directors once every quarter is not their favorite meeting. But because I do think it's all just about squeezing more out of the sponge. But once people see actually, no, no, this is not just about squeezing more profit up the business, this is about driving growth. It's much easier to get that message across because people are more excited about growth than they are about cost saving. And the assumption that you might make about fixed overheads, by the way, being fixed is not necessarily correct. I do -- I remember my data in years and years and years ago that fixed costs only have fixed on the way down. And there's a little bit of truth hit. If you look at technology, product, finance, legal, HR, add them all together as a percentage of sales in 2006 and look at them today, not only have they not declined as a percentage of sales, they've actually overperformed. They have grown faster themselves. Now don't panic about that. The overall business -- the margins of the business have moved forward by 2% in that time. And there is none of that investment, say, investment spending and not that spending that I would regret if we haven't spent much more on technology, we wouldn't have websites, call centers, marketing campaigns. Our technology spend meant that we could stop producing GBP 65 million worth of catalog every year. if we're going to grow our product ranges. And next, in terms of the ranges we offer online today, they're probably 5 or 6x the size of the ranges we offer just in stores. you need more product people that we're going to have new wobble. We need new people going to have extra third-party brands and need someone to manage those relationships. So it's not that those investments were run, it's that going forward, we need to grow them buy less than sales if our marketing is going to be successful. Unfortunately, we are at, I think, the perfect time for saving money in those areas because the combination of the fact that we've modernized pretty much all of our software platforms with the exception of Finance over the last 6 years. The fact that we have transforms the way the company handles data. We've made sure that it's sort of universally accessible across the group, and it's consistent across the group. So a combination of modern software, high-quality items that we are well placed to adopt AI. And I know that there's going to be a grown. I can't actually hear it, but a grow Chief Executive started talking about AIS. So I'm going to apologize in advance, but I am going to talk about AI a little bit. And our approach to what we're doing with AI. And I think the first thing to say is that the degree of adoption that we're getting across the business is very different. The areas that have adopted it the most aggressively of technology, contact centers and e-commerce. Products on the use of AI to envisage product and forecasting has made some progress. And the other area is really, I put a little blue bar here, but that blue bar could be smaller if I wasn't so generous where we have invested, we are definitely seeing AI resulting and productivity gains that is translating directly into not just better software and better service in the call centers, but also lower costs. It means that what they show this graph shows is the percentage of sales represented by technology and call centers. And I think in both these areas, there's further to go, and I've written about that. In terms of our approach to AI, I think I thought it would be useful to share a little bit as to how we're approaching the whole issue there. And I think the most important thing for us is what we're not doing. We don't have a central department or a Chief AI Officer like Chao, I think it would be called. It sounds like a good buy and Italian.We don't have that. And the reason we don't have that is because the nature of what we do across the different functions of the business is so different that have one department trying to service all of those would be extremely unproductive because ultimately, the value of AI is not in the technology, it's in the applications it supports. And the design of those applications, what it does for the business can only be understood by the people who are running the business, not people who have access to the technology. And the best comparison I've heard is that it will be like having a central spreadsheet department. And as Chief Spreadsheet Officer spreadsheets are used by everyone in very different ways across the business same with AI. It's got to be application led. That's not to say we're doing nothing centrally. We do talk a lot about it. We encourage people to help them. Our IT department provides access to technologies. It ensures that the technologies we use are secure, most importantly. And it also monitors the cost of the AI tools that various departments are adopting, but we haven't adopted a one size fits all approach to this. And each director is very much going to have to be their own Chief AI Officer, if they want the part of the business to succeed. What I wouldn't underestimate here is the power of collaboration, and it is just the way that NEXT works. Is all -- pretty much all of our directors each other every week at our trading meeting at least once a week, if not more. And the people who -- the directors who are most advanced are actively working, not just in their department, but to help the other departments and show them the sort of things that AI can do for them and share people and technology providers with them. In terms of how far ahead we are in this, that graph looked quite impressive. But my -- even in the areas that we are the furthest ahead and my get is that we know we haven't restructured the surface. There is so much more to go out, not just in terms of cost effectiveness, but also productivity in terms of what people can do. So I think this is a huge opportunity. In terms of the areas that really haven't move forward much. I'm not sending out warehouse because they've done anything wrong and all because I isn't applicable to a housing actually think AI could be brilliant to warehousing in terms of handling all the operational management of the warehouse, reforecasting scenario planning optimization lots of variables that AI could really turbocharge the management of our warehouses. But they haven't had time quite rightly to worry about AI because the thing they've been most worried about is ensuring that we've got the capacity in warehousing that we need to grow. And that provides a slightly artificial but neat segue into the next subject, which is the last subject to be pleased to hear. The investments in our warehousing, this is where we were 2 years ago when we started to invest in [indiscernible] We were at 94% full in our old warehouses in 2023, where we thought we would be on 5% compound growth in sales was 80% full of the new extended complex. Sales have actually grown by, sorry, 28%. We're expecting -- we've actually grown at 28%. In addition to that, we've put more clearance into our online operation and we've increased our cover. That pushes up the stock in peak week and he's only talking peak weeks here to 84%. And we've decommissioned some of the oldest picking that actually turned out when we decommissioned it, we realized just how inaccurate and expensive so we don't want to recommission it. We had a slight drop in [indiscernible] which means that last year, we got to 87% full. If we look at this year, with the 8% planned growth in online business overall, we'll be at 94%. Now 94% sounds okay. It's not 94% at 94%, you begin to get a lot of congestion things slow down. One small breakage compared by breaking can hold up the whole operation. So that's uncomfortable. We're going to manage this year by taking some of our reserve stock. This is the high bay stock that can't be picked out of 5 day an ounce or 3 and move it into other warehouses owned by the group. That will be replenished in days, so it shouldn't affect stock availability for customers. There will be a slight increase in costs as a result of that. but that will be more than offset by leverage over the fixed overheads from using so much of the capacity. In terms of the year after, that's where we really get into trouble. If we go at another 8% next year or then we wouldn't have the capacity to do that. So we need to invest, and we need to start investing now in terms of what we're doing. And those of you who've been to the warehouse, you remember that we only occupy half of the new AMS3 complex, Chamber 1 and we don't occupy all of it, all of C1 is a little bit less. So Phase 1, which will be on stream in 2027 will give us 10% more capacity at a cost of GBP 48 million. Phase 2, which is the first half of the second chamber, that's more expensive because that chamber is a shell. So it's more expensive per percentage of capacity. It's GBP 134 million. And the final chamber, which will come on the following year 2029, is another 17% capacity at GBP 125 million. In terms of the P&L impact to that, you could look at that and begin to worry about what is -- are we going to see a big P&L impact as all this CapEx goes through? And the answer is you shouldn't because although the additional depreciation in year-end June 2028 and overheads will be in the order of GBP 5.4 million. We think the cost savings from moving from the old to new capacity will give us at least GBP 5.1 million of savings. So there should be as broadly cost neutral in that year. In terms of the full program, the GBP 307 million of CapEx, that will add around GBP 30 million of operating costs but we get GBP 22.6 million [indiscernible] GBP 22 million of savings, we think, from using that new capacity. That means that the net cost of all that new capacity is around GBP 7.3 million. And that's obviously, if sales don't grow at all. It shows the capacity that all of those projects together will give us around GBP 1.5 billion worth of turnover. So what you can see is that the cost of the increased space once it's at full capacity on once it gets to 3/4 half of the cost at capacity very small as a percentage of sales. So over time, these investments should result in our fixed cost and warehousing coming down as a percentage of sales. In terms of where it leaves us in terms of capacity for growth, that's the 8% trajectory with the new space added on. The maximum we could get to is compound growth of around 12% online. I think if we have that problem, I'll be delighted but I don't think we will. So we think that this program gives us comfortable capacity for the next 3 to 5 years. Next question you're going to say, I can see it instantly on your minds is like what do you do next? Here's the field. We've bought the field. The field, that's the warehouse that we have already got planning permission for. We have contracted for the land will complete, I think, in 2 or 3 days. And we'll start work on that getting foundations lab will start work on that sometime over the next 18 months. So we could have floor space available, if needed, maybe early '28 late '28. So we've got contingency. I think the important point there is that our model of centralized stock holding for the U.K. has got legs beyond [indiscernible] and that mercifully, is it almost. Just in terms of summary, hopefully, what you can see is that the avenues of growth that we had last year all of them still have legs in terms of overseas in terms of next product, in terms of non-NEXT product. We still got an awful lot that we can do and that the business still can push sales forward. We have got the means to control costs through the introduction of new software AI mechanization. But that means that doesn't mean the guarantee that we will, but we have got the means to do it. And we've got the capacity available planned to accommodate the growth if and when it comes. So if things go well, I think the position -- the business is really well positioned. What is I think really interesting when you kind of stand back from -- when we stand back from what we did at today and I think about the sorts of things that cross my date, desk and my colleagues, desks. In terms of your overseas new brands, new AI-driven marketing technologies with Google. All the things that are driving the business are completely different. So the sort of things I was doing 25 years ago. 25 years ago, it was still very exciting, but it was about stores and believe it or not, catalogs, getting more catalogs printed and printing those catalogs are central. And so what the business does today is unrecognizably different from what it was doing 5 years ago. The thing that really has not changed at all are the principles upon which that growth in that -- the ethos of the business. And those 2 things are, first of all, absolutely everything we do, everything we do, we have to hand on heart, believe that it is giving good value to our customers. We have to look and the test there is, would you recommend this product to your customers? Now not everybody is in the market for a mesh dress. I'm not -- but if you wanted a stress, could you recommend one from the next website. And so yes, that is the service you want from cast delivered next day, return to any store, you have to hand on heart believe that. And if you genuinely believe all of that, and you're delivering something that's great for the customers, then you can't go too far wrong. Whether you do the next brands or others. The second principle is that, that's fine to be doing things await for a customer, but they've got to make money. And the 2 things there is, first of all, we have to get a return on Capital is the fuel that drives the business forward. And the better return we get on the capital we have in the business, the faster we can grow, the more benefit we can share with our shareholders. And the second thing is margin. And this is the easy one to overlook, particularly when things are good. But every single business we do, it doesn't matter if we're selling Love and Ross brand in Peru. That brand in that country has to make a margin that is commensurate with the sort of risks involved in a fast-moving consumer and fashion business. And as long as we stick to those principles of do great stuff for our customers get high return on capital and make healthy margins. Then regardless of the environment you're in, you're going to be well placed to handle it. And we're making a trading statement in 6 weeks' time. But the one thing I'm pretty sure is that it's going to move. The guidance is going to move if I just don't know which way. But I think the point is that whichever way it moves, if the war peters out and things become more positive, then we are really well positioned to take advantage of continued growth the U.K. economy, continued growth overseas. And if things don't turn out and this will not be our first gig when things going wrong, COVID, financial crisis, cost of living crisis. If things don't turn out as we expect, then actually, the business is well placed to cope with that well and it's well placed to cope with it because of those margins because kind of there are 2 lessons about retail that are enduring, and you can -- this is sharing a wisdom. There are 2 lessons well is this like in the good years, don't get cocky. And in the bad years, don't go bust. And I think those 2 -- those 2 principles are really important. And that's the reason why when we've had a great year. We're not going into the next year with a huge estimate of what we can achieve again with conservative budgets. But whichever way things go, we've set the business up to cope with it. And on that line, I think it leaves you just waiting for the next trading statement. We'll go over to questions.

It's Anne Critchlow from Berenberg. I've got 2 questions, please. The first one is about the store payback target and extension of that. Have you considered taking into account the benefit of a new store in terms of providing a free pickup and returns point for online customers. And then secondly, on aggregator website, you say you don't have visibility on the customer numbers there. But what insights do you receive from aggregators to help you make decisions about marketing, for example?

So first of all, on the store benefits to online. We don't account for that. We don't, in any way, put any benefit in the online business on stores. And there's actually a good reason for that. and that is that although the store does definitely help the online business, it also hinders it because it's a competitor. And so where we've only done -- if there's only 1 store where we've shut and had no other stores anywhere near to pick up the business. And there, we're actually all the online business move forward because the GBP 2 million or so that we lost in the stores, some of that went online. So we don't, and we shouldn't account for online benefit of stores. In terms of customer insights into aggregation sites, we don't get very much in sight. And quite rightly, they don't share that with us, and we don't share it with our brands either. So what they do share with us is the returns on the marketing we do on their sites. And on somewhere like [ Zalando, ] we'll spend around 2% of our sales on marketing. We still have the same hurdles. We still have to get a return on that money but we can profitably spend money on aggregation sites, and we do and the insights we get are not about who's buying it, but the returns we get on the marketing that we spend with them.

Richard Chamberlain from RBC. A couple more related to the Middle East, if that's right. The cost savings you talked about, you've identified since the start of the year, GBP 15 million. How many of those -- or how much of that do you think might come back if demand is a little bit better of the war ends earlier than you're budgeting for? And the second one, can you just give us an idea of how the franchise stores in the Middle East have been holding up or not compared to the online offer there? Has there been any sort of big difference in trends?

Two good questions. So first of all, how much of the GBP 15 million will come back, I think, very little. In all honesty, I think there's a much bigger downside risk or number than there is an upside risk. So yes, it could come back. It might be that GBP 7 million of it doesn't materialize. We haven't yet incurred it. But I wouldn't I'm not getting excited about that. I think the downsides are much bigger, and they will have to go into cost. In terms of franchisees, I don't want to talk about that because it's not our business, but they have definitely been impacted.

Adam Cochrane from Deutsche Bank. First on the Middle East. Just a question in terms of logistically, how is it working? Are you able to fly your products to your warehouse in Dubai. In terms of the Dubai hub. So the Dubai hub traditionally, we would have airfreighted out of Dubai to other countries like Saudi Arabia?

At the moment, we're going by truck. And that's what's increasing the lead times to places like Saudi Arabia, Oman and Kuwait. Intermittently, we have seen that service come back on. And I think things are changing things are changing daily, but we're hoping to -- we're hoping to airplay back on available for Saudi Arabia but it does depend what happens in all. So the answer is to Dubai from the U.K., we are shipping by air, and we're getting replenishment in at the moment, albeit at a very high premium. So that's a big chunk of that increased operating costs. And then from Dubai hub to territory, we switched from our 2 trucks, which is adding 2 to 3 days to the lead time in most territories.

And the second question, in terms of international, are you progressing with -- or how are you progressing with other non-wobble brands, so third-party brands on your international side? Is that an area that you're still seeing more growth and more opportunity as brands would like to sell via the next platform?

Yes, we haven't actually it's detailed in there is detail on that in the pack and that there's 1 page of brilliant tables on it, which -- to show you that. I think the overseas -- the growth in third-party brands overseas and most of that is driven by what's driving the growth in third-party brands in , which is a better selection of our key brands. But in some areas, partner brands have agreed to allow us to put the product our overseas websites where they haven't in the past, and that's driven some growth as well.

Frederick Wild from Jefferies. So apologies, this is going to be quite a broad question, but on reasonably important topic was important to about 3 weeks ago. You've seen on AI to be talking a lot about cost savings near ability to run the business more efficiently. I suspect where at who has been in the market is more about the risks of disintermediation versus the potential benefits to your consumer proposition. So I'd love to get your sort of thoughts on outlook on almost the demand side of the organization.

It's a big question. I think the first thing to say is rightly wrongly. It's not something that we're overly concerned about at the moment. And I think the disintermediation that we're talking about would be the disintermediation of the website rather than any other part. At the moment, unless -- it'd be relatively sick so it's just a fraction of their data centers into out clothing warehouses and that would have the infrastructure. But at the moment, they don't. So you're really talking about the disintermediation of the shopping bag and the selection process. and there is an economic and just there's an economic and operational problem with autos yet to be solved. And the economic problem is that if you look at our average order value, net of returns be around GBP 70. The cost of delivery to the consumer is around GBP 5. That about 6%. If your virtual shopper bag takes things from 5 different retailers wherever they're shopping wherever that intermediate website goes. It's got to go to a number of retailers. If it comes to us, then finance just in the form of advertising. If it goes to more than one retailer, then let's see it to 4 retailers rather than one. You end up with that 6% being multiplied by 4. So the economics someone some ways got to pay for that additional 18% of costs that you'll get from splitting the order across multiple websites. I think the operational problem, which in many ways is more of a challenge and applies specifically to clothing. It's how you handle returns because you've got -- if you buy your. All of your online auditors to Job Lewis or to Marks and Spencer or to NEXT or to very exactly, you can take the whole order back to any one of their shops. Scanning items and your credited instrument in the way in which you pay. For an intermediary to do that, you've got nowhere to take the item back to, which is a Nike train or which of the sub-vendors do I take it back to how do I return it to them? And then how do they communicate with the intermediary that intermediaries got to repay me. So there are big customer service issues with it. So at the moment, it doesn't look -- it feels to me very much like what people were saying about marketplaces versus stocked retailers because the real asset in trading online clothing is the logistics infrastructure and the product, not the website. And so I think it's I think that is a direction they're likely to go in. And certainly, if you look at the difference in Google approach and the ChatGPT approach, Google is still taking the approach of passing the consumer straight through from their AI engine to one or other retailer. So it becomes a enhanced form of advertising. And I think to that extent, it's very exciting. I think basically, the breadth of search engines can find what customers are looking for, the more they'll buy, which has got to be good for the industry overall. So it was a long answer to a broad question, but I hope it covers second.

Jeff Larry Robert Chalineburn. You had a great year for customer acquisition in the U.K., both credits and cash. there was obviously some competitive disruption, et cetera, sitting behind that, whether all of those things. But can you talk a little bit about the behavior? Is this gross adds? Is this better retention of existing? What is actually driving that? And what measures do you have to sort of keep them active as some of your competitors normalize, et cetera, around?

I suppose, look, the reality is, and this comes back to this philosophy that everything has got to make a profit. And I think the risk here is saying the objective is to hold on to those customers not to make sure that all of our retention programs are profitable. And the amount we invest in retention program is makes a good return on the money we invest. So our objective is not to hang on to customers. It's to continue to invest profitably in retention. And our retention programs are performing in line with last year. There's no significant -- I can't see any significant difference at this point, although we've yet annualized the very strong weather last year, which may affect it and the competitive disruption. So the answer is we don't really know how they will perform. I think the key takeaway for shareholders is that we're not going to throw money at trying to hang on to customers that are profitable to keep.

Warwick Okines from BNP Paribas. Two questions about warehouse capacity, please Simon. Firstly, does the level of utilization that you've -- that you're sort of running up against, reduce the ability for the business to reduce the proportion of products not delivered in full and on time, which is something that you've been bringing down? And secondly, are there any options to reduce the proportion of products that are shipped from the U.K. out to international that could reduce the amount of capacity that you might need for the U.K. business?

Yes. Really good questions. In terms of not on time, delivered in full 6 they have. I didn't put it in a slide because I'm superstitious because it only just got better. But basically, since Christmas, we have seen that dropping from around 8% to around 6%, which is sort of -- and I think the lowest we got to is around 5%. So warehouse has made significant progress in terms of reducing the not delivered in full on time. rates, and we are happy with that for the moment. But I'm going to talk about it in 6 months' time if we can hold it because it's only been a few weeks, but the signs on that encouraging. I don't think there's anything I can see in this year's numbers that suggest that we won't be able to hold that, but it will depend on the effectiveness with which we fill the new mechanization and the effectiveness of which we can serve the main forward locations in the warehouse from the off-site reserve warehouses, which again, we haven't started doing that. But obviously, the risk there is that you've got something in reserve that you don't but if you don't get it exactly right. So I think there is a small risk to that, but it's not something hugely concerned about. And I'm pretty sure that we'll see year-on-year improvements. Certainly, that's what we're seeing at the moment. In terms of delivery to hub direct, we're not doing that to Germany. And the main reason for that is that actually, it's -- because it's so [indiscernible] it's very expensive. So we're trying to keep that on 6 weeks cover. We would normally have 12 to 14 weeks cover. So at the moment, we're not delivering direct to Germany, but it will be an option if we begin to hit capacity issues. I think the other issue with direct delivery, it's very hard to deliver much more than 20% to 25% of anticipated demand without getting it wrong because you never quite know what's going to sell in which territory. We are delivering direct to the Middle East, which obviously looks like a brilliant plan and our first -- our first cargo ships set off from the Middle East about, I think, from the Far East 4 or 5 weeks ago and have recently been turned back. from device. So that turned out to be a great plan implemented exactly the wrong time. But going forward, we would plan to deliver, I think, it's around 20%. I'm looking at Richard about 20% of Middle East requirement direct from manufacturer.

It's Andrew Hollingworth from Holland Advisors. NEXT historically, it's been very, very good at the home sort of mentality of sort of try stuff and do more of what works. So cost of coffee is years to go and all rest of it. wholly owned brands is obviously working extremely well. And I think in the statement or in your presentation, you described it sort of small business. What you've done up to now is sort of by I don't want to say the wrong thing, but sort of troubled U.K. businesses and you've sort of reenergized them and helped them and all the rest of it. But you've wanted them, I think, in past Q&A to sort of approve their work in terms of return on capital in the U.K. alone. We've now got a really powerful sort of wholly owned business internationally. What could this look like 3, 4, 5 years from now in terms of could we be buying Spanish brands or French brands or Italian brands? Or is it just going to be U.K. homegrown and see what we can do with it globally?

Yes. You know what looking even a year ahead is difficult in fashion, 3, 4 years out is absolutely impossible. Would we buy a fringe Italian brand? I don't think at the moment, no, because our business in those territories just isn't anywhere not big enough. . In Southern Europe generally isn't big enough to warrant the investment. The big advantage we provide from Northern European and U.K. brands, is that we can give instant access to a huge market. Actually, our penetration in Southern Europe is very low. So I think those countries that you mentioned, and France, although it sort of in the middle is sort of fashion-wise is quite sudden. I think it's unlikely. But I would never say no. because even just access through Zalando to those countries might 1 day give us an opposing to just [indiscernible]

I ask a follow-up. So do you think with obviously not mentioning any names in terms of how you think about this part of the business that there's still lots of brands that can be added to the portfolio within the sort of your sweet spot of the sort of things you want to buy.

Yes. Well, what we're looking for is great brands, preferably with good management or our ability to provide good management for it to it. We're looking for things that we can add value to through our customer base and platform and at the right price. And I cannot predict the fourth one. So I think there are lots of brands that I would buy for pound that I wouldn't buy GBP 100 million. and where the prices in between will depend will drive pretty much what we do, I think.

It's Georgina Johanan from JPMorgan. Two for me as well, please. Just first of all, sorry if I missed it, but what actually is the Middle East trading at the moment, like down at the moment, please?

Good start.

And then the second one was just a bit of a broader question on GLP-1s. If you could share anything that you're seeing in terms of how like the sizing mix is changing in the business or not as the case may be? And also just thinking about it longer term, like any insights were from particular customer cohorts, if they are sort of materially changing the sizes of what they're buying, like, is the spend increasing? Or is it steady? Just really any insight you can share would be great.

Yes. So on the Middle East numbers, the reality is very, very hard to read. And the reason it's hard to read is because of the timing of [indiscernible] because we are still in a period now where last year, people were ordering in the untreated was on Sunday that's done last year. This year, it was last Friday. So if we take the same days posted that we are today, that number is changing every day in terms of growth. In terms of GLP-1s, we have seen some subtle change in mix in sizing on womenswear. And we -- but where we've seen the most dramatic changes actually on the very large outside -- that's where you can see a change. In terms of reduction in participation these participations are tiny, but participations on the sort of 22 plus are definitely falling. Sorry, one last one.

I had 2 Marketing expenses, you're still talking to plus 25% or more. Are you repurposing some of the Middle East marketing into faster-growing Europe or rest of the world is something like that an option for you? And the second one, again, international. Within the rest of the world, are there a couple of markets that you really are excited about and you see significant potential for them to be meaningful within the next -- within the rest of the world in international?

Okay. So the second -- the answer to the second question is yes. The answer to the first question. I think the premise of the question is that we've got a marketing part and if it doesn't work in the Middle East, we'll move it somewhere else. And that's just not how we work. We don't have a marketing part. We have a hurdle rates of GBP 1.50 return and whichever territories give us more return than that -- we will continue to invest money and those that don't will reduce. And so the answer to your question is -- if I sort of stood back from it, do I think we will still be 25% up on what I've seen so far in marketing, Yes. But I think a lot will depend on the cost of airfreight to some of our most expensive territories because if the price of air freight goes up, the return on the marketing comes down, which constricts our ability to spend it. But overall, we've brought down our sales by around 2% overseas at the moment. So that's our best guess full impact but who knows. And we've kept the marketing budget where it is. And on that note, we really well finished. Thank you very much.