The Warehouse Group Limited (WHS) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by and welcome to the Warehouse Group FY '20 Interim Results Conference Call. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Ms. Joan Withers. Thank you. Please go ahead.

Good morning, and welcome to this The Warehouse Group's interim results presentation. I certainly appreciate given this period of unprecedented uncertainty and volatility that you've taken the time to join us this morning. With me, and I'm joined with us, Chair of the Warehouse Group, I have our group CEO, Nick Grayston; and our group CFO, Jonathan Oram.

Good morning.

Good morning.

I'll talk firstly about our performance for the half year, and the group has continued to deliver on the momentum of the second half of FY '19. And in this half, we've achieved both sales and profitability growth. We've achieved sales growth of 2.6% for the half relative to last year and gross profit margin improvement from our transformation initiatives, offset by an increase in the cost of doing business, but we've delivered a 16.7% growth and adjusted net profit after tax. The group traded well over the crucial second quarter that encompassed major trading events such as Black Friday, Christmas and Boxing Day. The closer proximity of Black Friday to Christmas this year did lead to changes in customer behavior over that period, but we are impressed with how the group responded and delivered a strong result. While the group result is heartening, there are aspects of the business operations that are being reviewed and addressed, particularly around fulfillment issues that resulted in online sales growth of 7 points -- 7% versus the same period last year, which was below our expectation. These issues were limited to The Warehouse and to Warehouse Stationery and the centralization of fulfillment at our North Island Distribution Center. Despite these issues, it was encouraging to see online sales growth of 39% in Noel Leeming and 32% in Torpedo 7. So online sales are now 7.9% of total group sales. I should point out, too, that this is the first result that reflects the group's adoption of NZIFRS 16, which impacts the way in which leases are accounted for in the group's financial statements. As a result of adopting NZIFRS 16, continuing net profit after tax attributable to shareholders was adversely affected by $0.5 million. For the purposes of comparability of profitability across financial periods, the impact of the adoption of NZIFRS 16 has been adjusted for where appropriate. Now I'll give you a little bit of an update on our transformation journey. And January 2020 marked the completion of our Rise transformation program, which has resulted in 275 initiatives being implemented across the group. Undertaking this program was essential and the disciplines that have been established in our people and processes will continue to benefit the business. Our commitment to developing a retail business that effectively delivers on customer expectations is ongoing. As such, we are working towards adopting agile ways of working across the group by August 2020. We are excited about the changes ahead. And while there will be challenges as the organization transitions between structures, we are confident in the group's leadership to support the planned implementation without hindering group performance. In our bottom line result, you will have seen that there is a significant investment in our transformation, which is treated as an unusual item. And the impact on our reported net profit after tax is $14.9 million. Now to our capital structure and bond refinancing. The group remains in a strong financial position with a net debt of $69 million and gearing ratio pre the NZIFRS 16 impact gearing us 12.6% due to debt plus equity. And that provides sufficient capacity to fund investment in growth and strategic initiatives. The maturity of the corporate bond, which is WHS020 is June 2020. The group values having access to diverse capital sources and is currently looking to reissue the bond on the NZX. Should the timing of a reissuance be impacted by COVID-19, the group has sufficient facilities to repay the bond. And just on COVID-19, as you will remember on the 26th of February, we gave a trading update, which provided some insights into the impact of COVID-19 on the group's operations. We are, of course, actively monitoring the situation and recognize that the impact of COVID-19 global pandemic on the group could manifest itself through 3 areas, namely people, supply chain and demand. To cover those off, firstly, people. The safety of our people and our customers is paramount. In China, the working and manufacturing situation is progressing back to some normality, and the focus is now on our New Zealand-, India- and Bangladesh-based employees. We currently have a number of travel restrictions and preventative measures to keep people safe and operating protocols, which are specific for this period. In our stores, we've put in place updated cleaning and sanitizing plans to ensure additional cleaning of high-frequency touch points. We've also clearly articulated to our teams and customers through signage and communications the action we are taking and reminding them of hygiene practices to minimize the virus spread. Now to the supply chain. The group sources product from a diverse range of channels and end markets, which includes direct sourcing from China, India and Bangladesh as well, of course, as the purchase of branded products that are manufactured or have components that are manufactured in China or other impacted countries. Since our announcement on the 26th of February, we've had further visibility on the impact of directly sourced product out of Asia. And as I said it earlier, most of our factories are now back in operation. And given the timing of Chinese New Year this year, we had taken early delivery and completed manufacturing of most of our product lines. Regarding branded products that are sold across the group and make up most of Noel Leeming's offering, we expect there will be a limited number of brands that have availability issues for some of their products. Now to demand. With the growing number of cases outside China, and specifically, as we speak, 8 cases in New Zealand, the size and duration of the impact to the New Zealand economy remains uncertain. How this impact translates into trading across the group brands is unknown at this point but could negatively affect group result in FY '20. This, of course, is an evolving risk. I can tell you though the group has comprehensive business continuity plans in place, which will be implemented as required as the situation develops. The potential effect on the economy and our business of measures the government may implement to control and mitigate the spread of COVID-19 could materially impact demand. And in our earlier release, we stated that we didn't expect to be a material impact on FY '20 financial results. As I've just said, we do, at the moment, continue to see positive momentum in our sales and operating performance. However, this could change dramatically as a result of COVID-19 impacts. I'll hand over to Nick now to talk us through our transformation journey.

Thank you, Joan. And moving on a little to talking about our transformation. Our transformation does continue to deliver. The first phase of Rise helped us to change our culture, but we need to continue to evolve how we work and think in order to be able to survive in a dynamic retail environment. I've said before that traditional business structures are too slow to provide a flexible platform to react at pace to changing customer dynamics. As such, we've recently announced that the group is working towards adopting agile ways of working and have established a leadership squad to support its adoption. Agile involves the development of co-located, self-managed teams that are empowered to deliver for rapidly evolving customer needs. Each team will have clear accountabilities and will collaborate quickly and effectively to deliver to customer expectations and business priorities. We set up front-runner teams late last year to test this new way of working and are pleased with the progress to date and the outcomes achieved. This is an exciting and necessary change for our organization. This change, however, does not alter our strategy of fix the retail fundamentals and invest in a digital future, which forms part of our wider strategy to develop a customer-centric ecosystem. In fact, it will only enhance our ability to be the first choice for Kiwis to solve their needs and wants. We continue to invest in the e-commerce capability of our brands. For example, the Noel Leeming app and the re-platforming of our e-commerce sites into a group platform. We are well on the journey to delivering a loyalty offer to customers and an MVP has been launched internally. Fulfillment remains a work in progress, but we are confident in our ability to turn it around and deliver H1 FY '21 online sales growth. To talk briefly to the highlights from each brand. In red, we saw 1% sales growth, but we are, however, very pleased with the margin improvement of 140 basis points. We saw good growth of The Warehouse app, but online has been a challenge due to fulfillment issues, which are being addressed and we believe will improve in H2. For blue, we've seen -- while we've seen moderate sales growth, we are very proud of our margin enhancement, demonstrating the benefits of our store-within-a-store integrations. With regards to The Warehouse and Warehouse Stationery centralized fulfillment, in June 2019, we deployed a new Warehouse Management System in our online fulfillment center to improve productivity, increase inventory accuracy and to enable more flexibility and responsiveness to customer needs. Concurrently, we changed our fulfillment model from multiple locations to a single location to enable a better customer experience by reducing the number of parcels per order and enabling faster shipping options. Post-transition, operational issues began to surface, impacting stock availability on The Warehouse and Warehouse Stationery websites as well as availability of The Warehouse and Warehouse Stationery products on TheMarket.com. These issues were exacerbated by TheWarehouse.co.nz being one of New Zealand's biggest retail websites, particularly in the lead up to the Christmas trading period over which online activity increases significantly. Measures to mitigate impacts on customers were put into place, but included reducing promotional activity on websites to reduce online demand, redirecting sales into stores and bringing forward the cutoff for online delivery before Christmas. A recovery team were deployed to address these challenges and early fixes have alleviated major issues. By the end of March, we anticipate that the majority of issues will have been addressed, and we expect to return to online sales growth in The Warehouse and Warehouse Stationery in H1 FY '21. Further looking at brand highlights. In Noel's, we continued to see very good sales and profit growth, particularly pleasing is to see the growth in tech solutions and online metrics. As discussed, T7 and 1-day, we saw strong sales growth both in same-store sales and new stores, in new market Tauranga and Rotorua and Torpedo 7. We are seeing big improvements under the direction of Simon West, and profitability remains a key focus. TheMarket is a key part of our ecosystem. And that launch, we hosted over 1,700 brands and over 1 million products. This is now built to 2 million products and over 3,000 brands. We are very happy with the trajectory of our growing customer base, especially the fact that we get at least 1 hour of engagement from our repeat customers per month. In November 2019, TheMarket launched TheMarket Club, a subscription service that provides free domestic and international shipping for orders over $45 as well as VIP exclusive offers. We are happy with its progress to date and excited about its capability of being a viable channel for our brands as well as local and international ones. In February this year, we celebrated our 1-year anniversary of being carboNZero-certified. We received the Accessibility Tick in December 2019. This partnership recognizes that we have committed to a journey to make The Warehouse Group more accessible for customers and team members. We will also be the first retailer in New Zealand to receive the Tick, which is a fantastic achievement. In February this year, we were the winner for the Access Alliance People's Choice Accessibility Awards for Business in the best accessibility retailer category. From November 2019, The Warehouse Limited is proud to be a member of the Better Cotton Initiative. Through the Better Cotton Initiative, farmers receive training on how to use water efficiently, care for the health of the soil and natural habitats, reduce use of the most harmful chemicals and apply decent work principles. The Warehouse Limited is committed to sourcing 50% of our cotton as Better Cotton by November 2024. I'm now going to hand you over to Jonathan Oram, who's going to take you through the group financials.

Thanks, Nick. Just as a note, as we go through the financial section of this presentation, when we are talking about financial performance, the FY numbers are presented pre any impact of IFRS 16, so that the comparison with FY '19 is on a like-for-like basis. As Joan and Nick have outlined, it has been a strong first half overall despite a couple of challenges with centralized fulfillment and the timing of Black Friday. Sales for the group were up 2.6% on last year, reflecting solid trading with all of our brands experiencing growth in sales. Particularly pleasing was the growth achieved in retail gross profit and gross margin, up 6.2% and 110 basis points, respectively. The growth in margin can be seen across The Warehouse, Warehouse Stationery and Noel Leeming. Cost of doing business was up 5.4% or up 80 basis points as a percentage of sales, and this reflects ongoing investment in TheMarket e-commerce platform as well as additional operating costs from store expansion program Torpedo 7, living wage increases and investments in our digital capabilities. There are good reasons for the increase in H1, and we are focused on improving CODB percentage over the short to medium term. Overall, retail operating profit increased 12.3% and adjusted NPAT from continuing operations increased 16.7%. It should be noted that the operating loss of TheMarket in H1 was $7.6 million versus $2.3 million last year. Backing out this investment would have resulted in a 20% growth in retail operating profit for the group. So looking at Slide 21, to better show the true underlying performance of the group, we adjust our reported earnings for unusual items and we base our dividend on this adjusted profit number. The 2 material adjustments that you see here are for: one, restructuring costs. These relate to the group transformation project's Rise and were $22 million versus the $18 million to $20 million guidance we gave at FY '19 year-end. This difference to guidance primarily relates to an extension of the engagement with our transformation partners by 4 months to the end of January. This engagement is now complete. The second material adjustment relates to IFRS 16. The impact on the P&L with IFRS 16 is to take our lease expense, which was recorded within operating profit and split it into depreciation of the right-of-use asset, still within operating profit and interest on lease liabilities below operating profit but within NPAT. The net impact of this is $0.5 million decrease in NPAT. Slide 22. Looking at the balance sheet, there are a few line items I'll call out here. The highlight of the balance sheet is where we sit with our gearing as measured in our covenants, which exclude IFRS 16. Our covenant gearing is 12.6% versus 24.5% last year and 12.6% is also down from our year-end gearing of 13.6%. Our net debt of $68.6 million includes the $125 million NZX-listed bond, which matures in June, and we will be looking to reissue. We have sufficient headroom in our banking facilities to repay the bond in full if this market becomes unavailable for a period of time. Inventory increased $38.5 million relative to last year primarily due to higher stock levels in The Warehouse, in part due to an early Chinese New Year and Torpedo 7 due to store network expansion. As Joan touched on, our inventory levels, in part, position us well to trade through any COVID-19 supply chain impacts. Trade creditors were up significantly due to working capital initiatives. The working capital benefit of this and its impact on debt was largely seen in FY '19, but has had some further benefit in H1. The impact of IFRS 16 is clear to see with the creation of a lease liability of $969 million and a right-of-use asset of $814 million. The net difference reduces retained earnings and explains a reduction in shareholders' equity of $114 million. Looking at cash flow, Slide 23. We already touched on the main benefits of our cash flow and our net debt position. A few other items to note, first of all, $11.8 million from the divestment of a land next to our SSO, our subsale support office. The profit from this was recognized in FY '19 and $7 million of higher dividend payment reflecting the additional $0.02 paid in FY '19 final dividend. Capital expenditure is $2.4 million above last year but well behind the guidance we gave at year-end of $100 million to $120 million. And turning to Slide 24, we have a bit more on our capital expenditure. Capital expenditure was weighted largely towards information systems, including re-platforming our e-commerce sites onto a group platform, continued investment in the Warehouse Management System and development of the group loyalty platform. We expected to have more -- spent more on core systems, but with the benefit of recent projects are focusing on master data management and middleware before doing so. Investment in stores includes the opening of Noel Leeming and Torpedo 7 stores at Westfield Newmarket market as well as new Torpedo 7 stores in Rotorua and Tauranga. Three SWAS stores were completed in H1 and new Warehouse stores in Lunn Ave and Rolleston are under construction. There has been significant investment in ways of working with Rise and now the people operating model through agile. Related costs to these programs are one-off investments for future benefits, but are not treated as capital expenditure. We expect CapEx for the full year to be in the range of $70 million to $90 million, down from the original guidance of $100 million to $120 million. Looking at divisional financial performance on Slide 26. I'll skip over the slide except to say that within the $18.4 million of other operating costs, we have $7.7 million loss relating to TheMarket in H1. Slide 27, The Warehouse. The Warehouse overall sales grew 1%, which is an improvement on H1 FY '19, which was flat. This was despite the dynamics of losing a week between Black Friday and Christmas, which, of all brands, most impacted The Warehouse. This dynamic and the centralized fulfillment issues in particular impacted Q2 sales growth, which was largely flat at 0.1% growth, but a big improvement on the decline experienced last year of 1.4%. The standout area of performance for The Warehouse was gross profit increasing 5.4%, while gross margin grew 160 basis points as a result of the work being undertaken to improve our terms of trade as well as benefits delivered by greater pricing discipline in an EDLP environment. Gross profit growth was seen across all major categories with standout categories being home, intimates & accessories and grocery. Total retail operating profit grew 28.4% to $59.8 million, and operating margin increased 140 basis points to 6.4%. Warehouse Stationery, on Slide 28, after a record year in FY '19, Warehouse Stationery continues the momentum with a very strong first half. Retail sales are up 0.8% on last year. But as with The Warehouse, the highlight is a 230 basis point improvement in gross margin. This includes the impact of later Back to School with relatively more sales delayed into the early weeks of February and H2. Three SWAS, store-within-a-store integrations, were implemented in H1, bringing the total to 13. Current performance is positive with early learnings used to refine implementation of future SWAS integrations, and we continue to proactively assess opportunities to undertake this integration across our portfolio of Red and Blue stores. Retail operating profit increased 57.3% to $9.3 million with an operating margin improvement of 250 basis points to 7%. The highlight in terms of categories is the print and copy centers with all other major categories holding relatively flat to last year. And GP growth was strong across all categories. Turning to Noel Leeming, Slide 29. Noel Leeming delivered another excellent result, with H1 sales increasing 5.2% on last year and same-store sales growth of 3.4%. The brand performed well through the major trade events of H1 with its best-ever Black Friday and Boxing Day sales periods. Gross profit increased 8.1% on last year through higher sales volumes and a meaningful improvement in gross profit percentage of 60 basis points. Operating profit increased 22.1% on last year to $21.4 million, which was a record H1 result. Top-performing categories with double-digit growth included Audio Visual, Small Appliances, Vacs & Personal Care and Whiteware. The Service division, as Nick called out, has also delivered pleasing results in H1 with protection, store services and tech solutions all seeing revenue growth of over 20%. Store count reduced by 1, reflecting the closure of the Takapuna store in H1 FY '20. In addition, the Broadway Newmarket store relocated to Westfield Mall. And finally, looking at Torpedo 7 on Slide 30. The Torpedo 7 group is made up of Torpedo 7 and 1-day. Torpedo 7 went through a tremendous amount of change in FY '19 and now under a new CEO, and Simon West is executing a plan towards profitability. Sales increased 9.4% and gross profit increased 9.7% on last year. This is a huge improvement on last year when we had a 6% sales decline in Q1 and half year growth of only 1.5%. Torpedo 7 experienced strong sales growth in bike, outdoor, water sport categories as well as additional sales from stores -- new stores. Cost of doing business increased 19.2%, and operating profit was a loss of $4.2 million. Higher operating costs were driven from our store expansion program and from the early investment in a number of areas to support future profitability. The net movement of 2 stores compared to last year reflects new stores in Tauranga, Rotorua and Westfield Mall Newmarket offset with the closure of the K-Road store. The overall performance of Torpedo 7 group is impacted by 1-day, where sales have been behind expectations despite -- being behind expectation despite the Black Friday promotion delivering the biggest ever sales week. Performance has been hindered by logistical problems that impacted availability and fulfillment at times over our peak period. The group is focused on addressing these issues in H2. And now I hand back to Joan for the outlook.

Thanks, Jonathan. So I'll just make a few comments in relation to the FY '20 outlook and to dividend, and then we'll open the line for questions. So as you know, the group has undertaken a significant amount of change, which has been critical in establishing a customer-first mindset and fixing the retail fundamentals of our business. This is now translating into strong financial performance and a balance sheet that provides flexibility to invest in growth initiatives and weather changes to economic conditions. We are energized about the changes the group is continuing to make in order to better serve customers and their evolving shopping behaviors. The focus of the second half will be the implementation of agile ways of working across our businesses. And the significance of making this adjustment cannot be overstated, and we are confident in our ability to execute and continue strong trading results over the remainder of the financial year subject to some caveats, which I'll mention in a moment. The group continues to assess the impact of the COVID-19 pandemic on financial performance, including stock availability from impacts to our offshore supply chain, potential impacts to our employees and operations in New Zealand and in Asia and of course, our customers. And just restating again what I said earlier. On 26th of February, we stated that we currently do not expect there to be a material impact on FY '20. And at the moment, we continue to see positive momentum in our sales and operating performance. However, this could change dramatically as a result of COVID-19 impacts. At this point in time, our FY '20 adjusted net profit after tax is expected to be in the range of $75 million to $77 million, subject to no material changes in trading conditions, and we are heavily caveating this expectation given the potential effect on the economy and our business of necessary measures the government may implement to control and mitigate the spread of COVID-19. The guidance that we're giving represents an increase of somewhere between 1% and 4% on the FY '19 adjusted net profit after tax of $74.1 million. That figure also includes the expected operating loss from TheMarket.com of $15 million to $17 million versus $6 million in the prior year. So the directors are pleased to declare an interim dividend for the first half of FY '20 of $0.10 per share, fully imputed, payable on the 17th of April 2020. And this is a $0.01 increase on the FY '19 interim dividend. So that's the conclusion of our walk-through of the results, and I will now open the line for questions. Thank you.

[Operator Instructions] Your first question today comes from the line of Guy Hooper from Forsyth Barr.

First one for me. Can you just give us a bit of sense on what your hedge and cover looks like? And what sort of headwind the New Zealand dollar at this level would provide?

Jonathan, you want to take that one?

Yes, sure. Look, at the moment, in terms of 12-month coverage, we're sitting at about 2/3 coverage of our U.S. dollar payments at about $0.65. In terms of headwinds, I think that's pretty well covered. So that will be something we'll be able to manage in the near term. Longer term, we'll just see how the cover rolls off and have what we have to factor through to actual pricing. But we don't feel -- I think the consideration there is we're not out of line with what we'd expect the rest of the market to be in terms of cover. So our competitors will all be in the same position from a hedge perspective.

And then on the -- in terms of the drop in CapEx guidance, could you just provide a bit more additional color? Is there -- as far as an element of delay driving that amid the uncertainty?

Yes. I'll take that initially. The main area of delay has been by choice. We were looking to be very aggressive in our implementation of an ERP system. We -- as we went through the process and encountered some problems that we mentioned around the implementation of our new Warehouse Management System, we decided to take a more considered approach. Part of what we learned through trying to implement using traditional methods is that it's really not as efficient as a modern agile implementation. So in the first instance, putting into place a new people operating model that will enable us to execute such things much more accurately, much more quickly. Secondly, as we did -- we got deeper in the planning of that. We realized that it was necessary to make some foundational infrastructural investments, specifically around cleaning and architecting of master data, back office input methodologies and also in our middleware. And those are some of the things that had hampered us in our prior implementation. So we purposely delayed that and we think it will be a better outcome. Once you spent $100 million, $150 million on an ERP and done it badly, that's a very bad outcome. So it's our choice to be much more considered on that aspect. Jonathan, do you want to add anything to that?

Yes. The only thing I'd add is, look, our CapEx plans haven't changed, but it's a timing question, as Nick has alluded to, in terms of how quickly we execute on some of those core system initiatives.

Great. And just one last question from me. Can you just provide any detail around transformation costs in the second half? Are we expecting more to come through?

In relation to the current engagement, no. We're currently going through a process of moving the business to an agile way of working, at least within the sale support office. And we'll assess those costs as we go through that process. But at this stage, we're not giving any guidance around that.

Your next question comes from the line of Andrew Steele from Jarden.

Just the first one for me is on current trading momentum. I note that you're seeing positive momentum in sales and operating performance. So if you're looking at the last 2 to 3 weeks, would you say that your trading is up year-on-year, week by week?

Yes. It is, yes. The last couple of weeks have been fairly strong. Not surprisingly, they've been in the sort of categories that you'd expect, heavy emphasis towards sort of cleaning products. But we've also seen some of the tech categories have spiked, particularly things like laptop computers. I think people are anticipating that there may be a lot more work from home and a lot of companies are testing that, schools potentially doing remote learning. So yes, overall, the trends have been relatively strong.

So I guess, I take from that tip, once the trade has been strong. You're seeing a mixed shift from what you're normally seeing. So taking that into account, how -- do you have a sort of sense how durable that currently would be?

Yes. The base levels of trade have remained pretty consistent. The spikes have come from those additional categories. So I don't think -- it's very hard to predict anything that's going to happen in the next weeks and months. But certainly, the base categories have continued to perform. If we get to a Paris to thought -- a situation like Italy, where the majority of stores are closed, then that change the whole outlook when you got mass isolation. But right now, base category is performing as normal, but getting a little bit of extra tailwind from some of those categories I mentioned, hand sanitizer, that sort of product.

That's excellent. That's very clear. And I guess, somewhat related to that question, I assume your guidance for the full year includes a payout of incentives -- staff incentives?

The guidance takes into account the ability to pay out incentive but doesn't assume a certain level of incentive, but we're comfortable with where the business has traded to date. That -- at the moment, given what we know, we could still be within that range that we're giving.

And we have accrued to the half, Andrew, in terms of STI provision as we see it at the half.

Okay. Sorry, just to be clear, so you haven't accrued.

No. We have.

Yes. We have.

We have accrued.

You have. Okay, sorry.

Yes.

And so where would profit need to fall to for that accrual to be reversed? And can you give a sense as to the size of it?

Circa $10 million to have an impact.

After tax.

After tax.

After tax.

Okay. So just to be clear, adjusted impact will need to be $10 million lower -- greater than $10 million. I assume that's because the after-tax impact will be -- incentives will be $10 million.

Yes.

Okay. That's clear. And just one last one for me. On the market, what's your current thinking as to when that business may be breakeven?

Well, the previous guidance we've given on that is we'd expect it to take 3 to 5 years to breakeven. And at this stage, it's still very, very early stage, 6 months and 7 months into execution of our business plan. We're still sticking to that time frame. Quite possibly could be at the shorter end of that 3 years, but we've said 3 to 5. These things do take time when you're setting up an online platform, getting the right momentum and volume onto it to reach that breakeven point. So comfortable at this stage with that.

Yes. The long, the short of it is, we're pleased with the initial uptake. As I mentioned, we launched TheMarket Club. That performed very much as we expected. The big variables are around cost per acquisition and stickability. And so we've been quite pleased with the repeat business. We do need to continue to scale it, continue to grow the breadth of offer. This is obviously a hosted business where there's no cost to holding inventory. And so being able to offer choice as part of a wider ecosystem, very, very important. But post-launch, we've gotten what we expected, and the business is on track. And this is something we're in for the long term, and we will be within guidance, we believe, in terms of the impact on the year.

[Operator Instructions] There are no further questions from the phones at this time. I would like to hand the conference back to today's presenters. Please continue.

Well, thank you very much, everyone, for attending this morning. As we've said during the presentation, we'll be watching things as they evolve very closely, and we'll update the market with any further information as it comes to hand. Thank you, again.