Portmeirion Group PLC (PMP) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Portmeirion plc Full Year Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses, where it is appropriate to do so. Before we begin, I would like to submit the following poll. And I would now like to hand you over to CEO, Mike Raybould. Good morning, good afternoon to you.

Thank you. Good afternoon, everybody. We're delighted to have this opportunity this afternoon to present our update on our business, and thank you for joining us. In terms of what we're going to cover this afternoon, you have myself, Chief Executive; and Dave Sproston, our Group Finance Director. Let me talk firstly and give a brief overview recap of our business in terms of our business model. And then I'm going to spend the majority of the presentation doing a review of our 2023 results, which will include a deep dive into financials, some of our key markets and group divisions. And then thirdly, we will move on to our forward ambition for growth and improving operating margins and profitability. As Alex said, we would welcome questions. I know there's been some questions. That have been logged already, and we look forward to taking up any questions at the end. Okay. So moving into our first section. A few slides as a recap in terms of our company, what we do and how we go about things. So our group is built around 6 consumer homeware brands. We have a huge amount of collective history or heritage, over 750 years of history across those 6 brands. And we sell very widely. We're very geographically diversified in terms of how we sell across the world to over 80 markets. You can see a list of our key consumer goods brands on Slide 4. And again, our long track record, our youngest brand, 1980, is still over 40 years old, and we go back to the 1750 and the 1770s. And what that means is that our brands and our products are well known by our customers and our retail customers across the world and indeed by our consumer base. What makes our business? Well in our view it centers on those 6 or very well-known brands, which have been around for a long time, well loved by consumers around the world. We have 2 U.K. factories that manufacture around 40% of everything we sell. We sell across multiple channels, physical retail, omnichannel and online. We sell around the world to over 80 countries, and we see a significant opportunity in the long term to improve our sales, our top line, grow our business as well as improve the operating margins as well. We have a strong balance sheet. We generate cash, and Dave will come and talk about that in more detail as we go through today's presentation. Our vision and our ambition really focuses on these 3 things, that opportunity that we see for long-term, revenue growth, how we do that is by leveraging these brands that we have collected into the group across that global geography across all those different routes to market. And we have a very clear medium-term target of getting operating margins up to at least 10%. I thought it'd be worth looking at our longer term sort of 15-year track record, and you can see on this slide, top of the chart is revenue. Bottom it pretax. profit, a very clear and consistent track record of sales growth. And even the toughest of macro conditions and even in a year where COVID hits and shuts down our customer base, we've managed to always stay profitable business. Our opportunity and our strategy is focused on returning the company to those historic levels of operating margins and seeing that improvement in profitability. We're very proud of our customer list. We sell to some of the very best retailers around the world, and you can see many of them listed on this page on Slide 8. Physical retailers, omnichannel retailers and pure-play online retailers, all covered across our key markets, the U.S., U.K., Korea as well as many of the other markets that we are investing in and developing. So I'm now going to move to the second section of this presentation, which is a review and a deep dive into our full year 2023 results. I'm going to give some headlines, and then I'm going to hand over to Dave, our Group Finance Director, who will take you through some of the financials. So to start off in terms of an overview, our sales and underlying profit in the year came in, in line with our revised market expectations, albeit were below prior year levels. And that, in particular, was down to much tougher macro conditions and elements of destocking in key markets. In particular, we saw the challenges in the U.S., which is our biggest sales market, around up 40% of the business. And in Asia, which [indiscernible], our third biggest sales market conditions, macro conditions in those markets were particularly difficult. However, we were pleased that we made some really great progress on a lot of the areas that we can control in the last 12 months. Talk about many of these as we go through the presentation, but they include, again, strong growth in our Rest of World sales markets, a key part of our long-term strategy. A significant rebound in improvement in the sales levels in our Wax Lyrical division, an improvement of gross margin, about 130 basis points in our largest sales market in the U.S., much improved free cash flow, reductions in inventory, reductions in net debt, and Dave will talk to those in more detail. And then work we've done in the last 3 or 4 months to engineer a significantly leaner, tighter cost base, which means that going forward, we should have roughly 10% lower cost in our business. In the short term, the Board has decided to reduce dividends for FY 2023. And that's all about prioritizing further debt reduction and further interest cost reduction. Looking forward in terms of outlook, for the next 12 months, we expect to return to modest growth in key markets in the U.S. U.K. We expect to continue to grow in our rest of world markets. We expect our Wax Lyrical business to grow. However, we are cautious and do expect to see lower sales in South Korea, particularly in the first half of 2024. And throughout everything that we do and everything that we talk about today, our underlying focus is on improving our operating margins through 2024, '25 and '26. And we'll touch on that in much more detail later in the presentation. So that's a few headlines. I'm now going to let -- pass on to Dave, our Finance Director, and he will take you through some financials.

Thank you, Mike, and good afternoon to everyone on the call. So just moving through the financial slides. In terms of revenue performance, 7% sales reduction over the prior year. And as Mike has highlighted, that was largely due to destocking and macro conditions in the U.S. and South Korea. Although sales remain 11% ahead pre-COVID levels in 2019, there was a sales reduction which really led to reduction in operating profit margin. And a drop-through with the resultant decrease in headline profit before taxation, I'm focused on reducing inventory levels, and that allowed us to reduce our net debt by about 20% from GBP 10.1 million to GBP 7.9 million. In terms of prioritization of debt reduction and reducing interest costs, we've reduced our dividend payment in the short term. Okay, moving on to balance sheet. We continue to maintain a strong balance sheet, and increased focus on free cash flow. We actually had a free cash inflow of GBP 4.4 million against an outflow of GBP 8.7 million in the prior year, so a much improved performance. and that allowed us to reduce our net debt levels. And we expect a further positive free cash inflow in 2024 and a further reduction to net debt levels. And key driver in this was inventory reduction, GBP 41.1 million in the prior year, and we reduced that by 13% to GBP 36 million. And continue to maintain control within our pension scheme. We have a small surplus at the end of the year. We did have a technical noncash goodwill impairment on our Home Fragrance division. Mike will do a deeper dive into the performance of that division. But the key driver of that being an increase in the discount rate that was applied to future cash flows and also a slower sales rebound beyond the COVID pandemic, and we continue to maintain significant headroom within our borrowing facilities. Moving on to sales by key market. North America, both the U.S. and Canada were impacted by retailer destocking and difficult macroeconomic conditions. Although we did see...

Sorry, David, just to jump in, you have just frozen here. So what I'll do is I'll just refresh your browser and sorry about that. If I may just request control, Mike? Thank you very much. Okay, guys are back in the -- you're back in the room.

Thank you.

Go ahead, please.

So just to recap sales by market. I think we talked about North America, and we did have a good sell-through of our Christmas ranges, particularly in the second half of the year and still believe that we're continuing to improve market share despite difficult macro conditions. In the U.K. market, sales were up 9%, so resilient performance in that market. In South Korea, sales were down after a particularly strong year in 2022. Difficult conditions, particularly in premium department stores. And then in Rest of World, market sales were up 16%, which is a key part of our long-term strategy for growth. And then final slide on financials, sales by brands, difficult sort of North America, particularly Asia, market conditions have most impact on Portmeirion Nambé brand sales. Particularly pleasing that we have a chart on the left-hand side of this slide in terms of Spode which, despite a sales decrease in other brands continue to grow and is now 42% ahead pre-COVID 2019 levels. And as Mike will cover in a bit more detail, our Home Fragrance division returned to growth sales were up 24%, and we continue to see an improved performance in that division. Let's go hand back to Mike.

Thank you, Dave. I'm now going to do a deeper dive into our U.S. market, which is our biggest market by sales value. It accounts for nearly 40% of the group's sales. So starting on Slide 14. You can see on the chart on the right side that we recovered very well and fast from COVID in 2021 and '22. Good levels of sales of growth, but against that, in 2023, we lost around 13%. Why was that? Well, clearly, consumer spending was in a much tougher place, and that was compounded by key customers, key retailers wanting to destock across the board in order to reduce their own stock levels because of high cost of holding stock and higher interest rates. In particular, our Nambé brand, which is highly concentrated in the U.S. was the most impacted, and that was, again, the impact of lower footfall in premium department stores, lower spending power, but also decline in tourist footfall in southern states, including New Mexico where we have our own Nambé physical retail stores. What we can clearly see is this is about the market. We have not lost any market share, indeed, particularly around our Christmas programs. We've continued to take market share. And that gives us some reassurance that as consumer spending normalizes, then our sales in this market should improve. Similarly, Christmas season in quarter 4, we saw a very good sell-through in 2023, and that reassures us as well for this year. We continue to focus on gross margin. Although sales were off 13%, we were pleased to see gross margins advance by 130 basis points. In terms of things that we can do to help mitigate and still win business even the toughest of market conditions, I'll just add a few things here. But just to give you a flavor, we managed to take new listings and new business and new customers. And that includes a new Spode range. It's gone into the William Sonoma premium department store chain and that should grow further this year in 2024. We've rolled out our Spode Kit Kemp range into the restaurants of the Firmdale Hotel group. We're now into 4 hotels, I think, across New York and London, and we hope that, that might extend further in the coming years, and those ranges are also on sale in retail formats such as Macy's and Bloomingdale's. Our ever-popular Spode Christmas Tree range, again, we've increased further listings and ramspace. That's been aided by successful new product development. So putting all that together, what do we see for the U.S. market in terms of outlook? We're expecting this market to return to modest levels of growth, I think, in 2024 and similar further improvements in gross margin points, particularly as inflationary pressures subside. We remain cautious about the premium department stores and in particularly our Nambé brand, both in department stores and direct-to-consumer. And that's partly about market and partly about an ongoing reduction in tourist footfall in around New Mexico. We are reassured by bookings and advance orders that we're taking for this coming Christmas. This is a significant part of the profitability of our U.S. division. We had a good Christmas last year, and I'm pleased to report that at the moment, our order book for Christmas is up significantly on last year. I'm next going to move to Asia, in particular, our South Korea market. It's our third biggest market in the group and accounts for something like 15% to 20% of the group's sales. So again, you can see on the top right, a long-term sales chart, slightly up and down, but we had 2 good years and rebound out of COVID in 2021 and 2022, very strong sales in 2022, but sales fell back in 2023. And again, a similar message to the U.S., which was a significant slowdown in consumer spending, again, compounded by the fact that we sell-through distributors. And those distributors have a certain amount of stock they bought for us. It takes longer for that stock that's in the channel to sell through before they can reorder from us from Portmeirion. Portmeirion Botanical Garden is really our strong play in South Korea, and it remains one of the top 2 and leading brands by market share and online search within the Korean market. So we're confident, but again, some say in the future...

Apologies Mike, sorry to jump in again. You have just frozen. So what I will do is I'll just bring your camera down for the rest of the presentation, if that's okay.

Thank you.

Please go ahead. Yes, you can continue.

Thank you. So again, we are really sure that Portmeirion Botanic Garden remains one of our -- one of the leading brands in South Korea by market share. And as the markets normalize, we would expect our sales in this market to stabilize as well. We're looking forward to the next 12 months for South Korea. We do expect those tough conditions to continue, particularly through the first half of 2024. So we expect lower sales in the first half, albeit against a very tough comp in the first half of 2023. When we speak to retailers in the market, key big retailers group, they are, again, cautiously optimistic that the second half conditions should start to improve. In terms of what we can do while markets are tough, we're focused on taking new ranges and other brands into the market and looking to introduce those. And that includes what we're doing with the Spode Christmas Tree range with the Nambé brand. and new stone wear rains that we've just developed and launched as well as looking at new categories. I'm next going to turn to our home fragrance division, our business Wax Lyrical. As you may recall from previous presentations, this is a business that suffered and was hit hardest by COVID. A lot of its customer base was pushed -- was shut for a long period. It's taken longer to recover post-COVID than other parts of our business. So I'm delighted and pleased to see a very strong rebound performance. In 2023, sales grew 24% year-over-year. 2 real reasons for this. Firstly, full year impact of the AromaWorks acquisition that we did halfway through the previous year. But more importantly, we've developed a new set of price fighter ranges to target the grocery channel, and that was successful and went into ASDA for the first time in second half of 2023. The integration of our AromaWorks acquisition has been successful and completed, and now all of the production for that brand and its ranges are being done in our existing Wax Lyrical facility up in Cumbria with no additional resource or cost. As a result of both those factors, our profitability improved during 2023. And looking forward now into 2024 for Wax Lyrical, we expect with these new ranges that we've created any interest that they're getting particularly in the grocery channel for further growth, 15% to 20% top rate of growth in this division. And that will include a full year impact of the listings in ASDA as well as the range going into, we believe, Tesco in the second half. In addition to that, the team have worked on improving our Christmas gifting proposition. We have new products and new formats already to go for 2024. All those things together, we would expect in 2024 to deliver substantial improvement in the profitability of this division driven by that forecast sales growth. And the factories are now running clearly at a much more highly utilized level. As Dave mentioned, from a financial point of view and accounting point of view, it was a one-off noncash impairment against the brand, and that really was a result of the fact that it's taking this category of our products longer to recover post-COVID at a much higher discount rate being applied to future cash flows. So that completes our second section, which was a review of our financials, our performance in some of the key divisions and markets. I'm now going to turn to our ambition and forward strategy. As a recap, we're really focused as a management team on 2 particular things. One, how do we grow over the medium and long term our top line sales? Secondly, how do we radically improve and deliver consistent operating margin growth? So taking the first of those, the top line growth opportunity. And over the next 5 years, what are we focused on? 4 key things laid out on Slide 18. One is all about geography, leveraging geography, growing new markets, what we call rest of world sales markets. We were successful last year, indeed, the last 2 or 3 years, we've grown consistently our rest of world sales, and we hope that will continue and are focused on that. Secondly, online. We've made great progress in the last 2 or 3 years about deepening our exposure in online channels, not only our own websites, but also online platforms that retailers have, whether that would be in johnlewis.com or on macys.com or a retailer website in South Korea. So we made great progress. Our customer list continue to grow, and we expect our online sales over the next 5 years to continue to grow. In the short term, last year, our own e-commerce sales declined much as the market did as physical retail reawakened, but in terms of long-term trends, we've got good growth, and we expect over the next 3 to 5 years to see wider online penetration. Third key area for growth is about using new product to either extend our very successful and well-known heritage ranges or to develop and grow market share in a more contemporary giftware part of the market. And I've got a couple of slides coming up, where I'll talk about some examples of what we're doing in the next 12 months. And finally, on this page, in terms of growing top line, leveraging those 6 brands, the ranges that we have really across, a, the geography, the different channels and working on how we can make the most of things like Portmeirion Botanic Garden, Spode Christmas Tree, in all the different markets that we operate in and the markets where we have infrastructure. So that is our key drivers of sales growth for the next 5 years. In terms of operating margin growth, we've been very clear, I think, in recent sort of communications and we see our medium-term target to get operating margins back to 10% and long term to around 12%, 12.5%, and I'll talk a little bit more in a moment about how we intend to do that. Let me just go back though to the new product engine as a key driver of growth. And I've given some examples here. In terms of our heritage range, how do we leverage these heritage ranges that are really well known across key retail groups across the consumer base? How do we leverage that for further top-line growth in the next 3 to 5 years? So Botanic Garden, first of all, it's 50, 50-plus years old now. It's one of the most famous and long-standing ranges in the tableware category. So in terms of working that harder in the first half of this year 2024, we're pleased to launch a new range under Botanic Garden called Meadows. It's the picture of it in the top right. It creates and uses lots of different colors in terms of the border and the patterns. We're also expecting to take the Botanic Garden into new categories, starting with bedding and hopefully, that will launch and start shipping to customers in the third quarter. So that's Botanic Garden. Spode Christmas Tree is the next biggest heritage rent we have originally launched way back in 1938, very well known in the U.S. and it's often seen as being the leading what we call holiday tableware range. That's kind of the period from Thanksgiving through Christmas in the U.S. market. Again, I'm pleased to say that we've now had 3 successive years of growth of Spode Christmas Tree. We've got further extensions to that range coming for the U.S. market in 2024 as well as us focusing on how do we establish Spode Christmas Tree more successfully outside of the U.S. and the U.K., in South Korea and in Europe. And that will be aided by new U.K.-made special edition that we'll launch in the coming months. Thirdly, Spode Blue Italian. Again, over a couple of hundred years of heritage here. We're launching a new contemporary range [indiscernible] a picture on the right side. It can be mixed and matched with the original traditional range or can be bought as a stand-alone. So Botanic Garden, Spode Christmas Tree, Spode Blue Italian, 3 key heritage ranges that we're looking to push and grow around the world. And the third forward in terms of '25 and '26, we'll continue to look at and explore other category opportunities for these heritage ranges. Similarly, moving on to how do we take market share, more market share in the contemporary tableware, giftware markets. Again, 3 examples of things that are happening right now. Firstly, Portmeirion Minerals is a new stoneware range as a photo on the top right. That is launched in the last couple of months in John Lewis, physical stores, 33 stores and online in the U.K. right now. And over the second quarter and third quarter of this year rollout to other customers and we will also start going into the Korean market. So we're excited about that modern on-trend minerals stoneware range. In the middle of this page, the Spode Kit Kemp collaborations, the range we started last year. It's gone into the [ funded ] hotels and the restaurants, but it's also a consumer range on sale, and we're going to further widen the appeal, the product range and hopefully, the listings for that particular range. And then finally, on this slide, under our home frames business Wax Lyrical, as I said, we've created a new real price fighter range that can attack the very high footfall that is in the grocery channel for home fragrance. We were successful in getting listings in the last year in the second half of last year. The products sold through well. We now have good forecast from that customer and interest and forecast from other retailers like Tesco, and I think Boots for further rollout this year. We're adding fragrances -- new fragrances to the range, again, to keep it exciting and also to focus on Halloween and Christmas [ in style ] and fragrances. So 3 examples of things we're doing within the contemporary part of that market. Okay. So sales growth is something we're focused on. But actually, the most important thing we see over the next couple of years, we're focused on a management team is how do we grow and get our operating models back to kind of historic levels and indeed even beyond. So we've set up very clearly a target 10% in the medium term, and we've laid out on this slide. Slide 22, 3 key things that are going to influence our ability to reach that goal in the next 1 to 2 years. The first is reducing our operating gearing levels. So reducing our cost base. I talked about the work we've done in terms of getting to a leaner operating model. We think that's worth about GBP 4 million or 10% of our overhead cost. That can contribute up to 4% in terms of improvements in the group's operating margin in the next 12 to 24 months. Secondly, improving the profitability, in our home fragrance business, Wax Lyrical. That is a business that struggled as it came out of COVID because a lot of its customers were adversely impacted. It's recovered nicely in 2023. I talked about our plans for 2024. As we continue to grow that top line, as we continue to leverage the factory capacity that we have in that business, that we think can contribute 1% to even 2% of group operating margin improvement. And then finally, top-line leverage. As consumer markets stabilize, normalize macro conditions improve, our U.S. sales recover and we grow other parts of our business, the ability to then leverage our fixed cost, our infrastructure, our sales teams, our warehouses around the world, our factories that have spare capacity, our ability to leverage that again, we think it's worth up to 2% of operating margin incremental growth. And so, if you wrap that together and has a chart on the bottom of this slide, you can see our kind of road map in terms of our ambition for operating margin for the next 3 years to kind of go 7%, 8% to 10%. Okay. So that covers our forward ambition and our strategy, both in terms of top line sales growth and then operating margin improvement. I do want to turn to sustainability, energy and carbon, I was excited as a business when we launched last year our ambition of carbon net zero ambition by 2040, we launched internally and externally crafting a better future paper, which is about all things that we can do, recognizing our responsibilities in terms of our impact of carbon on the environment and sustainability. We have new processes and meetings and committees in place across our global group. We weren't successful last year in reducing our energy usage by around 8%, and that was impacted by investments into our factories and more energy-efficient automation through work we're doing in efficiency of our kilns and by looking at every bit of energy across the group. We expect that kinds of reduction to be something that we would have the ambition to continue to reduce in the next 2 or 3 years. So a lot of work continuing to go on the business, reducing energy usage, or looking at sustainable energy and also different packaging solutions and logistic solutions will reduce the carbon footprint that we have. So putting all of that together, I don't know we can move quite quickly in terms of the summary into the final slide we have, and then we'll be very happy to move to the Q&A part of the session. So in summary, 2023, clearly much tougher consumer markets. And particularly in the U.S., our biggest market in Asia, we saw tough, tough conditions. But in terms of what things we can control, we think we've made some really good progress. We're pretty pleased to see our Wax Lyrical division improve our sales and profit [ program ] pleased to see our rest of world markets continued to grow. Gross margins were up in the U.S. As Dave said, a much improved generation of free cash flow, inventory down, net debt down. We expect more of that to come in the next 12 months. And we've worked very hard to get to a leaner cost base that will impact our profit generation going forward. In terms of our outlook and what we see in the market, again, we remain cautious about the state of macroeconomic conditions. We expect modest growth. I think in the U.S. and the U.K. this year with improved levels of gross margin. Sales and profit should continue to grow in Wax Lyrical and in our rest of world sales markets. In Asia, and particularly in South Korea, we think that market conditions are going to remain challenging and tough. And therefore, we would expect sales to be down particularly in the first half of the year. Further, free cash flow, further inventory reduction further net reduction is what we are focused on. And as I said, a number of times, a lower cost base going forward. So we're excited by the ambition and the opportunity that we see to improve profitability. We're encouraged by our Christmas order books, which is a key part of our trading, key part of our profitability for the fourth quarter, and we're looking forward to getting on with 2024. So I hope that has been useful, and thank you. I think we're going to give a little bit of time now to do Q&A.

[Operator Instructions] While the company take a few moments to read those questions submitted today I would like to remind you that a recording of this presentation along with a copy of the slides and the published Q&A can be accessed via our investor dashboard. Mike, David, as you can see, we have received a number of questions throughout today's presentation as well as pre-submitted questions. And if I may now hand back to you and kindly ask you to read out the questions, give responses where it's appropriate to do so and I'll pick up after you at the end.

Thank you. Thank you very much, Alex. Right. I'm going to start with the pre-submitted questions. There were a number of questions -- quite a lot of questions. So what I want to do is I'll try and deal with rather than reading out every question word by word, I'll try and deal with the questions in groups, similar groups. And the first set of questions are really about sales and market, sales growth and market share. Questions centered around, can we give detail on challenges in the U.S. and South Korea. How long is it going to take to resolve? So as I think we've explained through this presentation, consumer sentiment, consumer spending power is impacted by high inflation, higher interest rates. And that was compounded by retailers willing to kind of destock, reduce their own stock holdings. What is the time frame for that to improve? I think that what we hear from our retail customers as they are cautious again for this year, markets are still tough. We will continue to focus on -- we can control talked about some of the new product, talk about something that we can do to mitigate. But we're cautious about the markets going forward. Premium department stores. So there was a question about premium department stores in South Korea, what happened in 2023? Well, Korea, like the U.K. and U.S. have to deal with inflation interest rate hikes, but also the devaluation of the local currency, one, all exacerbated the inflationary pressures on the consumer, and that particularly impacted the premium department store channel segment within South Korea. As I said, we're happy that our brands, our ranges still retain their love that people have for them and their market share, and we're going to have to wait for kind of conditions in that market to improve. Similarly on this track, there was a question around some of our competitors. Fiskars as mentioned and whether they had grown in Asia and how they meant to do that. Well, I can see the question that division [ feature ] I think it is, that covers tableware Glassware was broadly flat, I think, but was aided by a significant acquisition they made during the year, the [indiscernible] brand, I think, as I state somewhere in their results, if you exclude that, their like-for-like sales were down overall and certainly down in Asia. There's a question again about Portmeirion Botanic Garden, Spode Christmas Tree. The importance of those to the total group sale what are we doing to innovate, expand and broaden the market segments. So I have talked about some of that on the way through. We are focused on maintaining and indeed trying to grow the Botanic Garden, whether that would be new ranges like Meadows or whether you would be looking at other categories. And similarly, we Spode Christmas Tree, we still think this is growing. It's growing for 3 years. We think it's got a lot of headroom ahead of it. And we're innovating in that range as well. Portmeirion brand is really plans to grow the Portmeirion brand. Move to the next question. Portmeirion sales were down. You can see that in the table in 2023, and that was largely impacted by the reversal in the South Korean market. But we have well-developed plans for Portmeirion, and that includes what we're doing with heritage range like Botanic Garden and the contemporary new product like minerals that I've talked about as well. What is the potential of direct-to-consumer sales in our total sales? About 20% and that covers our own e-commerce and own physical stores. Then a series of questions around gross margins. I'll deal with those next question about pressures, recent pressures on profit margin. Generally, global trade environment and what are we doing to mitigate how does that impact sourcing? And what is our long-term view in terms of sustainability for sourcing? So fortunately, a lot of the cost pressures, inflationary cost pressures, particularly container freight, shipping today freight have subsided. Container freight rates went up from sort of $3,000 a container to $20,000 have come back down to $3,000 or $4,000. So that's good news, and they seem pretty stable. In terms of both moving through the Red Sea, clearly, there's well-publicized 2- or 3-week delays as people avoid the Houthi rebels and stuff, but that's not having too big an impact on our business right now. Energy prices is the other big thing that was inflationary. Dave, our Finance Director had a very good long-term hedging strategy in place that protected us from a lot of the kind of peak inflation that came to an energy is just increased or put in further hedges for the next 12 months through to, I think, March '25.