Pepco Group N.V. (PCO) Earnings Call Transcript & Summary

Hello, welcome to the Pepco Half Year Results Conference. I'd now like to hand the call over to your host today, Mr. Andy Bond. Please go ahead, sir.

Okay. Afternoon, everyone, and thank you for your time. Apologies for the slight delay in this presentation for technical issues beyond our control. I want to make a few introductory comments, then I'll hand over to Neil Galloway, who you're all familiar with now and then I'll come back to give you some closing remarks. So look, an introduction from me, I'd say these are a very pleasing set of results with some significant progress against the objectives we set out at the Capital Markets Day. What I highlight, our core Pepco business has delivered very strong profit growth in half 1 at around 40% EBITDA growth year-on-year with more to come in the second half, I believe. We still feel very confident that the future growth plan is in tax. We see a very large white space for growth into the future with our focus in the short term future being -- investing primarily in the CEE markets where we know most about how to deliver an excellent return on invested capital. Whilst we will focus on in the CEE short term, we are still very confident about Western Europe and are making progress on the things we need to do to create a more investable model. And we also feel confident that in the second half year, we'll start to see some recovery in the Poundland and Dealz businesses that have been significantly disrupted by the changes we made, although we think the vast majority of that look over will happen in FY '25. And finally, we're very pleased with the control and discipline we're starting to establish in our CapEx spend. First quarter, we still spent quite a lot of money, but that was a residual impact of commitments from FY '23. So the half as a whole, you'll see a significantly more disciplined CapEx and working capital model, which will allow us, over time, to deliver significantly better free cash flows. I'll come back and give you a few thoughts -- further thoughts on strategy at the end. But now I'll hand over to Neil to give us the financial review.

Thank you, Andy, and good afternoon to all. We just turn to Slide 4. I'll just run through the highlights, and then after that, give a bit more detail on the numbers. So record half 1 performance in revenue terms for the group, EUR 3.2 billion, up 14% year-on-year, 11% on a constant currency basis. That was principally driven by new store expansion while we still have challenges in our like-for-like performance, we'll talk a bit about that later, which was a negative 2.5% for the first half. Group gross margin was up 310 basis points to 43.1%, largely driven by Pepco where the gross margin improvement was 480 basis points and that was as expected and as we telegraphed, we expect to see coming through during the first half of this year. So that's pleasing that that's come as expected. That delivered a record underlying group EBITDA on an IFRS 16 basis of EUR 487 million for the half, 28% up on prior year, large again, largely driven by Pepco and at the Pepco OpCo level, EBITDA was up just under 40% year-on-year. We opened 289 net new stores in the first half, of which 86 in Q2, 203 in Q1. So again, as we telegraphed, we're much more disciplined focus on new store expansion, slowing down. And again, just to remind, we telegraphed a net new store opening target of around about 400 stores for the full year so we'll continue to see store growth but at a slower pace in the second half. And that drove a strong underlying operating cash flow of EUR 182 million, an increase of approximately EUR 100 million over prior year. So again, consistent with what we were aiming to do to drive better cash generation within the business. So that -- those are kind of the highlights. If we turn to next Slide 5, I'll just pick up a few additional points on a more detailed P&L. Firstly, just to comment, obviously, higher interest costs running through due to a higher gross debt level, that was really driven by, if you may recall, a refinancing of our Term Loan B last year with an inaugural bond issue at a higher quantum and at a higher interest rate during the summer. So that's driven a higher interest cost as a result of that. But that was important for us to deliver a high revolving credit facility to support larger working capital requirements in the business and a greater liquidity pool. Secondly, just to highlight the non-underlying items. As in prior years, we've continued to see elements related to the value creation plan and our ERP program running through that. The one incremental non-underlying items went through was in relation to the fishing incident we experienced in Hungary, which we announced a couple of months ago, which had about EUR 16 million impact, we've broadly finished the sort of investigations in relation to that and there's no untaken remedial actions around the control environment, et cetera. So that was a one-off incident, we do not expect to repeat. And then just a comment on tax, running at approximately 20% -- 27% in the first half. Now if we allow for prior year adjustments, the effective tax rate really should be close to 22% on an ongoing basis. So there was a prior year adjustment going through in the first half related to last year. And lastly to highlight, again, discontinued operations of EUR 51 million. That relates to our exit from the Austrian market, which, again, we announced a couple of months ago with the elimination of that business from the group. That was predominantly noncash related impact on the P&L. There was approximately 11 million of cash related to that exit. We then move on to Slide 6, just to touch on the revenue performance. Total company, I said up 11%. You can see first half but a like-for-like negative 2.5%. Pepco improving quarter-on-quarter. Poundland weakening slightly that was largely related to challenging execution of the transition to clothing and GM ranges in the U.K., whereas again, we telegraphed we were experience some challenges on that complete range into our Pepco product, which has had an impact on performance in Poundland particularly in the second quarter, but the first half overall. The total sales were largely driven by the newer store growth. And we do expect to see -- we've also had some impact from availability in the first half, in part due to Red Sea just in terms of stock arriving. So that -- those are some of the facts that impacted sales in the first half. If you turn to Slide 7, we've just set out the historic like-for-like performance over the last several quarters. And I think, in particular, just to highlight, we had a fairly challenging comparative period that we were lapping in half 1 this year, quarter 1 and quarter 2 for both Pepco and deals compared with prior years, which you can see there, we're expecting that to be a significantly less of a headwind going into the second half. And Andy will touch a bit on that later when he talks about the outlook for the business. It will be a little bit more challenging within Poundland and particularly in Q3. It benefited from last year from fairly strong weather and the coronation effects in the U.K. in the month of May. So again, it will be a slightly more challenging Q3 for Poundland. But overall, we expect for the group as a whole to see a better outlook from a like-for-like performance in the second half. If we turn to Slide 8, this year, we've moved, as telegraphed at the Capital Markets Day, to a slight change in our segmental reporting. So we've split out Pepco, Poundland and Dealz Poland. Before Dealz Poland included within the Poundland Group, they give more visibility on the 3 trading brands between each of those. And you can see Pepco driving approximately 62% of the group revenue, Poundland 33% and Dealz about 5%, although it was the fastest-growing segment but off a low base in Poland. And then if we turn to Slide 9, we've similarly slightly changed the segment reporting from a geographical perspective, particularly to highlight Western Europe, which is an area of particular focus and where there has been obviously significant growth and attention over the last couple of years. So while it's the smallest segment, Western Europe has been the fastest growing. It accounts for approximately -- Spain and Italy are the largest 2 markets within that accounting for about 85% of revenues in that segment. And then we have the rest of Central and Eastern Europe, Poland and U.K. and Ireland. So just to give a bit more visibility and we'll be reporting on that segmental basis going forward. If we then touch on turning to Slide 10. The key drivers in gross margin, which we had expected, we've indicated a bridge here from year-on-year from 40% up to 43%. The largest block in terms of our product margin, really driven by a combination of lower commodities better sourcing negotiations and average -- and pricing essentially coming through within the business has been the key drivers. Benefits we saw as the unwind of challenges in freight and duty, notwithstanding some incremental cost from Red Sea. We've still seen a good improvement with the other elements being markdown FX, stock loss and mix. So a strong performance in the first half. And you can see, particularly if you look at the chart on the right, the quarter-on-quarter performance, again, we saw that strengthening during Q2. We don't expect that pace of improved -- the pace of improvement to continue, but we do see continued room for improvement in the overall gross margin through the second half, again, as expected. If we then move to Slide 11, just to touch on the profit performance by unit. So the key driver being Pepco, we set up both the IFRS 16 and pre-IFRS 16 numbers there. So up 38%, just or 39% for Pepco year-on-year in IFRS 16 basis and there's weaker performance, largely driven to the poor transition to the new Pepco ranges and we are -- we will continue to work on improving those issues during the second half with an expectation FY '25, we'll see significant improvement in the Poundland business. Turning on to costs on Slide 12. The cost increase has largely been driven by the store growth, both rent and labor. So that's really what's been driving the overall cost increases. Labor increase in the U.K. in particular was further impacted by increase in National Living Wage, which came through on top of the store expansion. Poudland probably had its most significant store expansion this year for many years. We opened quite a number of stores, large relates to Wilko stores we took over in the first quarter of the year. So while we've seen -- and while we've seen good efforts on cost control, the miss on sales in terms of weak like-for-like promises member, the operating cost to sales ratio has deteriorated but we are seeing good cost control on an absolute basis as we look through the business, and that will continue to improve in the second half based on a number of our initiatives going on within the business. Then turning to cash flow performance on Slide 13. We've seen a significantly stronger pre-CapEx, underlying operating free cash flow improving by EUR 100 million. A combination of both better trading performance and improvements in working capital. That performance would have been even better but for some of the impact from the Red Sea where we had stock on ships for longer, particularly those stock that is heading for certain of our ports in the Mediterranean. So a good performance, but would have been better absent that. We paid down approximately EUR 90 million of our revolving credit facility to use both interest costs and negative carry. And while CapEx was ahead of prior year, and that was front-end loaded as expected, given the -- following the store development profile. And while we guided previously at full year CapEx of around EUR 300 million, that's likely to be below EUR 275 million on a full year basis, based on the current [ ASIC ]. On Slide 14, we've just provided a little bit more breakdown of where that CapEx is landing again. It's predominantly are driven both new openings and refits. Maintenance CapEx down slightly larger. We've got quite a lot of new stores in the base now. So maintenance CapEx slightly down on the half year, although there is some phasing in that and IT and supply chain really consistent year-on-year. At a gross number, we opened 346 new stores in half 1, and we completed 219 refits throughout Pepco during the half. And then finally, just moving on to touching a few of the items in the balance sheet on Slide 15. Just the main movements in the balance sheet, again, largely driven by the new store expansion and fit-outs both into increases in both the PP&E lines and the ROU and lease liabilities related to the sort of store leases, et cetera. We have a tighter stock discipline. You can see inventories are marginally up on prior year although I would expect that to be more challenged at the year-end as we intend to take in stock earlier for Christmas to improve availability. And given our financial year-end is at the end of September, which is just ahead of our peak trading season, it's entirely likely we'll see a higher stock at the year-end to put us in the strongest position for trading, but that's largely a timing issue rather than a general direction travel to have much tighter stock and working capital management within the business. And to that point, if you turn to Slide 16, you can see an improvement in stock days year-on-year dropping down over the period on a slightly elevated stock number. We've had a slight change in mix in the half. I think a combination of reasons for that. We, again, opened quite a lot of new stores on the Wilko conversions in the U.K., which are largely stores, and that's driven an increase in the FMCG range and we're slightly under on clothing, again, partly related to just timing difference and delivery of clothing, much of which is coming into the business actually in May. So that's just to give a little bit of context, but nothing materially changing otherwise in terms of the mix. And then if we look at the sort of trend position in working capital on Slide 17, you can see improvements in working capital in terms of inventory days and our working capital and cash conversion cycle through both improved inventory and payables management, which remains an area of focus for the business. And lastly, just to cover off on Slide 18, just a recap on our financing position. Term Loan B and the corporate bond, which have entered in April 26 and June 28. And again, just a reminder, we increased RCF to EUR 390, which is largely undrawn at this point in time. And so a very strong very strong liquidity and balance sheet position with access to over EUR 450 million in liquidity and well within our covenants leverage of 0.9x on an LTM basis through the end of March. And with that, I'll pass back to Andy for some updates on the strategic initiatives.

Thank you, Neil. So if we were to move to Slide 20, please. I'd like to sort of take a step back and give you my personal perspective on a few data points on the sort of strategic direction for the company. And the first slide here, Slide 20, so gives you a longer-term vision, which is I still think the business is very well set against its ambition to be Europe's biggest and best discount variety business. We've got a very clear compelling strategy, particularly in our core Pepco business and there's a lot to be pleased with in the progress we made in half 1. We're very confident both about executing a short-term plan, but equally confident about the long-term disciplined profitable growth plan for the business. And so we see a very significant opportunity for future growth in. If we now move to Slide 21, what are we focused on, on the short term? And I hope this is extremely repetitive to what we said at the Capital Markets Day. And I think this is in priority order. We have first got to rebuild the profitability of our core Pepco CEE business. Secondly, strengthen and maximize our position in each of our main markets. Three, review our underperforming and noncore areas of business and strengthen our cash generation and cost focus. And I'll address each of those in turn. So if we go to Slide 22, I mean, I think this slide very clearly demonstrates why the CEE is so important to us. I mean on the left-hand side, you can see from a sales point of view, it remains the majority -- the slight majority of our business, but the other pie chart, you can see how extraordinarily important as to the profitability of the company. On the right-hand side, I set out the Capital Markets Day, the ambition that by the end of this year, our run rate for all cash EBITDA per store would be back to pre-Covid levels. I'm very pleased with what the team has managed to do in the first half because we've actually got back to the pre-COVID levels of profitability at half year with more to come. It's also worthwhile recognizing that we have been very successful at reducing our CapEx per store as well as [ The Initiative's ] nihilist headline from a working capital point of view. Add that all together. And today, investing more in Eastern Europe is even more profitable and even better return on invested capital than it would have been pre-Covid. So we've reestablished that sort of justification and earning the right to grow particularly in Eastern Europe. If we then move to Slide 23, strengthening our position in our core markets. There's a bit of a breakdown here in terms of where we've opened stores in the first half. And then again, both myself and Neil have already mentioned this, but to highlight that the store-opening program was front-end loaded, substantially because we already had commitments, as I said. We see the sort of around 400 store openings this year. So the second half will be substantially lower than the first half, but they will be largely in CEE and therefore, will deliver an extremely good return on invested capital. To Slide 24 you can -- there's a little bit of a discussion here about where those stores are being opened. I think the most important thing I can highlight as we think about CEE is it's not yet a saturated set of markets for us. We still see some very good runway for future growth. And therefore, the fact that we're focusing most of our capital there now does not constrain us in terms of our growth ambitions. However, I think that within the next 12 to 18 months, we will have achieved the target of delivering a target operating model in Western Europe, particularly in Italy in Spain that will allow us to recommence store opening -- a significant store opening program in Western Europe, and that will be helped and facilitated by the distribution center opening later this calendar year in Spain. Slide 25, just a few headlines of things that we stopped doing. I made it very clear at the Capital Markets Day that we needed to do less to achieve more. I think we started on a good journey in that sense. And three things I'd highlight. First of all, in Western Europe, the significant progress I feel we're making there is based on focusing primarily on our core Pepco format. We are therefore discontinuing our growth plans for Pepco Plus and focusing our efforts purely on the Pepco single format model. Secondly, as Neil highlighted, I wouldn't necessarily use the word successfully, but we've exited Pepco Austria. That was an essential thing to do. Was leaking a lot of money, and we saw no opportunity to deliver a profitable business there. So that was the right decision to take. And finally, whilst we will have a refit program for the future, every business needs to remain contemporary. We will do it in a way in the future that significantly less CapEx intense and delivers a much better return on invested capital than the program we were doing. And finally, on Slide 26, the more disciplined approach to cash and cost. On the left-hand side, just a few headlines in here about CapEx. I think Neil has made the point already that we are now on track for a very significant reduction in overall CapEx spend year-on-year. And on the cost management side, we continue to invest in our IT systems and other technology in order to lower our cost. And whilst again, as Neil has already highlighted, the fact we've had some degree of negative leverage on the fact that our like-for-likes remain negative and we've opened some expensive stores, we see that cost initiative and cost program really driving some benefits into the second half of the year. If we now move to Slide 28, and I'll talk a little bit about the near-term outlook. First of all, it is worthwhile highlighting our negative like-for-likes have continued in the first few weeks of this half. However, I remain extremely confident that by the end of the year, we'll be exiting this year with a solid positive like-for-like growth that's sustainable in our core Pepco operating company. And I feel that's clear because we know the levers that we are pulling and making progress. Our price position is better. Over time, our inventory quality, which has been a major problem for the company is improving. And finally, the fact that we are doing less just means that operationally, we're managing our business much in a much more disciplined manner. So I'm confident we'll see an improving like-for-like trend in the second half. And again, as we both already highlighted, we see the recovery in gross margins continuing in the second half, not necessarily the amazing improvement from Q1 to Q2, but definitely continued improvement. And finally, we feel confident enough about the shape of the business to start reestablishing some guidance. And it's our view that we are confident of delivering around EUR 900 million on an IFRS 16 basis in the financial year that we're now in. So look, the final slide from me, Slide 20. Now I'm back to the summary of the first half. I feel that we -- whilst there's still a lot to do, we still have challenges in our like-for-like growth we still need to see significant benefits from the massive disruption we put into Poundland and Dealz. I think we've -- it's been a half of significant progress. Our core Pepco business has delivered 40% profit growth year-on-year. That's nothing to be sniffed at. And I see more of that come in the second half we are very clear where we can grow and deliver very strong returns and profitable growth, and we'll be doing that in the near term, as I've explained largely in CEE. I am confident that over the next number months, we will be able to reestablish our growth plans in Western Europe based on the progress we're making on the investment and operating model there. as well as start to see progress in Poundland and Dealz. Although I must emphasize, I think we'll see the majority of that improvement will land in FY '25 substantially based on the lead time of our product. And finally, we feel that we've established a much stronger discipline around CapEx and cash management, which will lead to much more robust disciplined free cash flow generation in the future. Okay. With that, we've got probably up to half now depending on what questions we have, we'll open it up to any questions that you may have.

[Operator Instructions] Our first question today is coming from Michal Potyra of UBS.

Firstly, congrats on the EBITDA performance, definitely above market expectations. But my question really goes therefore, into your full year guidance, which kind of implies that the second half will be worse. And I'm just wondering because that doesn't really correspond to what you've been saying about accelerating like-for-likes, carrying over the gross margin benefit, et cetera. So is the guidance then be like super conservative? Or are there other elements impacting your expected EBITDA for the full year?

Thank you, Michal. Thanks for teeing up a difficult question. Look, I think the answer is somewhat on what you've already said. I mean we've -- go back to September and we were catching a falling knife for want of a better term. I think we've done a lot to improve the quality of the business and the quality of our earnings. However, as I said, we are still in negative like-for-like territory, although I am confident that will improve, but sales remain a risk. With that in mind, we have, therefore, been somewhat prudent in our guidance to date, and we will be able and willing to update that again in the Quarter 3 update depending on how we see the shape of sales emerging over the next few weeks. So yes, I think that sort of answers your question substantially.

[Operator Instructions] We do have Michal Potyra calling with a follow-up question.

So let me then -- let me continue with the questions, please. So I'm just wondering if you could comment maybe a little bit more specific on Dealz. I understand this business is still kind of in a testing phase. But could you perhaps give a little bit more color on Dealz' profitability?

I'll sort of fill some time whilst Neil might choose to give you a more detailed answer. But while Neil's doing that, my -- my view, I'd just reiterate what was said at the Capital Markets Day. First of all, to remind you, and it's a very basic but important economic framework that Marcin highlighted where the investment model for this business from a -- requires a P&L of a 35% gross margin, 25% cost doing business and therefore, EBITDA margin and ultimately of 10%. That's the way we're managing the business towards the year-end. And as we said at the Capital Markets Day, we'll be making a strategic decision on where next the deal is dependent on how we turn out of the year-end. So I think it'd be premature to sort of talk about how we're feeling about that strategic review. It will be happening internally at sort of September, October time.

Yes, the only build I'd make on that, look, we obviously, the business has increased. We owned a lot of stores last year. The business is now a reasonable scale. It's got strong brand equity and recognition in Poland. We've seen improvements in the gross margin year-on-year. So directionally, it's moving -- it's not moving as fast as we would like during the year. It was handicapped, which I think we called out previously, but if not, just to remind on as with Poundland changed that, it's general merchandise range, which it was sourcing into a range being sourced through the Pepco commercial buying team to leverage some of the benefits we have from scale from that. And there were some delays in the implementation of that, which meant the category mix within Dealz during the first half of the year, it's been largely FMCG. So it hasn't had any of the margin uplift benefit from a better quality general merchandise range landing in it. So it has been handicapped during the first half due to some of that changeover from the availability of new general merchandise range. And we've taken some action steps to address that more short term. And those products are landing in the stores, and we aren't seeing margin improvements on that. So I think as we said at the Capital Market Days and Andy's just reiterated, it's a work in progress, we've put a challenge to the team around that. We want to see it deliver the right level of margin performance to give us forward-looking conviction to invest further and expand the business. So that's where we are at the moment. And we will obviously update it Q3 and then in the full year as to where that business has got to. But it has got a very strong brand recognition within Poland, and that's a good place to build for on.

Okay. Maybe I go with another question, please. Maybe if you could comment on your segment revenue. Actually, I'm looking at the geographical breakdown and I'm just looking at Poland materially outpacing the rest of CEE. And I'm wondering, was Poland doing so well or the rest of the CEE not yet not yet catching up? I'm just trying to...

A lot of that is essentially driven by the number of new stores opened in Poland relative to the rest. I mean, Dealz, I mean, a round number -- you've got to remember Poland is a geographic segment includes Dealz, which is in round number term double its store base over the last 18 months. And Poland has also added quite a few key stores. So that's really been the driver in terms of the where the rest of CEE encompasses a wide number of other countries where we've seen.

If you flip between our Slides 8 and 9. Dealz have 55% year-on-year growth in the first half. And that will obviously -- they're all -- that's all in Poland. And furthermore, Pepco opened quite a number of stores in Poland. So it's about store openings across both fronts, as Neil says.

Okay. Understood. So no like-for-like.

No, I don't need you to conclude that Poland's from a like-for-like basis, knocking it out of the park and everything else is in the toilet, not at all. I think that the sort of performance at the same-store level is reasonably uniform. And again, to reiterate, I think that we see that improving in the second half.

Thank you. And maybe a final question, if I may. I mean, always a difficult one, but perhaps you could comment a little bit on kind of on your competitors. There was a lot of noise, for example, regarding Sinsay, very ambitious, store opening plans in the CEE region. And obviously, we have the competition from [ Xian ] and Tmall, if you could maybe address that. Is that impacting your business? Or what do you expect?

Yes. Look, the great news -- I mean, first of all, I think there's some very good competitors out there, but I'm not going to spend my time dissing them. I think that we -- the great news is we have a lot of self-help mechanisms that if we get them right, we'll undoubtedly make our business performance better. Our inventory quality remains poor, but is improving. Our price position is improving. Our focus on more disciplined growth. These are all things that irrespective of the competition will make our like-for-likes and our gross margin and our EBITDA better. So I'm not overly worried about Sinsay and their respective companies since they do a nice job, but I think we can do a better job and [ Xian ] and I think it's a great business, but I think targets a different consumer. So in a different shopping occasions. So look, I don't think I genuinely think that the success or failure to us is not about whether they're good or bad competitors. We've got so many things in our business, we can make better. I'm very confident we can drive good like-for-likes and good profit improvement through self-help mechanisms.

We do have one question just popped up. It was coming from Rafal Wiatr calling from Citi.

Congratulations on the numbers. Could you comment a little bit on the sustainability of gross margins in the second half of the year? How we should think about it?

Yes. Well, look, first of all, as Neil has identified, I think remember there's the group gross margin and then there's the individual OpCos. In an individual OpCos by far the most significant improvement program has been in Pepco, although remember that now that Poundland and Dealz have Pepco general merchandising woven in now, there will be a read across there. You've seen in the waterfall, the very significant improvements from quarter 1 to quarter 2. And we made that -- on Slide 10, we've made that very visible. So quarter 2's gross margin at 44.4%. I think to reiterate what Neil and I said I'm not going to give you specific guidance, but to be clear, we see there being further improvement in the second half, but not at the rate of quarter on-board improvement we saw between Q1 and Q2. So we see that, that improvement both sustainable and maintainable is kind of potentially higher than that.

So assumption that Q3 and Q4 gross margin could be at the level of second quarter, is that too optimistic or not?

No, that's not too optimistic, still on that.

Okay. Okay. And one and I apologize, coming back at this maybe bizarre question, maybe not. Given the thought that you have and this unfortunate situation this morning, which put a little bit in our kind of thoughts in my mind, is everything okay, is everything under control in the company. Could you comment on what has been done differently and how you are making sure that this or something like this would never repeat again?

Yes. Look, I'll let Neil answer the point of the thought, but I want to make explicitly clear to everyone on the call. the issues of this morning were nothing to do with Pepco. They were to do with the regulator in the Warsaw Stock Exchange. So I think, first of all, I strongly refute the read across that, that says anything about our confidence. And people on this call should be thinking about the confidence in the regulator, not about us in the context this morning. However, your point about fraud is always -- look, we need to be self-reflective on that. And I'll let Neil answer that now, but I want to be absolutely clear this morning was nothing to do with Pepco. And with regard to fraud and what it means about our ability to manage the business, I'll let Neil answer that.

Yes. Look, specifically on Hungary, and we obviously made some comment at a time, and I'll say what I can in the context of sort of follow-up and investigation on the incident. There are external authorities involved in fairly detailed criminal investigations and so I can't comment beyond the [ certain amount ]. But we've obviously taken an extensive review of our control compliance procedures, training, and any sort of issues in terms of system access or intrusion. There is absolutely no evidence or -- and after that there's been any system intrusion anywhere into our systems. It's not a cyber event from that perspective at all. This was a sort of phishing attack, via fairly sophisticated and clearly targeted social engineering event that was targeted on specific individuals in the business in Hungary that unfortunately were duped into acting. And but we've taken an extensive review both in Hungary at a forensic level and taking lessons learned from that and apply that across the whole group with a fairly rigorous set of retraining and deep dives. So I'm confident at the moment based on all the work we've done, that, that should not be a repeat offense, absent intentional action from fraudulent actors within the business, which is a risk that every business has, and we've mitigated to the maximum extent possible.

Okay. And just the last one, assuming that you delivered this EUR 900 million and maybe even better given the margins and strong cash flow generation, what are your thoughts regarding the potential dividend next year?

Look, I think we telegraph, we're focused on greater discipline around capital allocation and cash generation and I think that's a question for the Board rather than one that Andy and I will answer or in a position to answer on this call. But I mean the choices will come down to with any excess capital generated in the business, whether we reinvested in the business because we believe that's a better turn or other forms of either distribution to shareholders or repayment of indebtedness. And I think that's that I think that would be a normal process, we'll evaluate at the time. But we will look at it through a lens of increased discipline around capital return.

As we have no further questions, Mr. Bond, I'd like to turn the call back over to you for any additional or closing remarks. Thank you.

Okay. Look, I don't want to repeat my commentary about what I feel good about. But just again, I think the half 1 has been a half of significant progress for the company. Still lots to do but we're definitely on the right track in terms of improving the company. Thank you for your time today, and I look forward to speaking to again probably the next time will be the quarter 3 announcement. So look forward to that. Thanks, everyone, for your time today.