Ultimate Products Plc (ULTP) Earnings Call Transcript & Summary

Thanks, everyone, for being on the call today. So we're Ultimate Products. We are a branded consumer goods business. We supply typically into retail, although we do have -- we do sell via online platforms as well. And our mission is a beautiful product for every home. So every home because we want to be at that price point -- those price points that the households can afford. And we're a bit counterintuitive. Most branded businesses use their brand equity to increase the price of their products. And in increasing the price of their product, they increase their gross margin and therefore creates the space within that gross margin to spend on marketing their brands. We go do it the other way. We use our brand equities to drive volume and we use the productivity in the business in order to create the space to market those brands. So we want to be at price points for every home on or just above own label. And what we say -- what we mean by beautiful products is we talk entirely about the countertop tests. We want our products to pass the countertop test. Now what does that mean? That means that when you buy our products and you take it home and you put it on your countertop and your friends come around, the product needs -- do you keep the products on the countertop or do you put it in the cupboard before your friends arrive? If you put it in the cupboards, it's failed the countertop test, and that is products that we don't want to sell. Our brands are -- we have a number of brands, typically British heritage. But our two principal brands are Salter, famous for its scales and kitchen. Salter is the U.K.'s oldest housewares brands, dates back to 1760, older than the United States of America, and as we say to our French colleagues these days, founded before the French Revolution. Our other principal brands is Beldray, which is well known for its laundry and floorcare, and Beldray dates back to -- is over 150 years old, dates back to the 1870s, another beautiful British heritage brands. And between those two brands, we already feature in 80% of U.K. households. I'm often -- people are saying to me, I've never heard of your product. And then I'll often get a callback the next day where they say, "Actually, I went back home, I checked with my partner. And we've got a couple of your products in the cupboard or indeed on the countertop. We -- what is the investment proposition? Well, we offer four things. We offer an unusual mix of capital growth and income, capital growth because there are 1.5 billion kitchens in this world. We are still 2/3 U.K.-focused. In the short to medium term, we see the majority of our growth coming from Mainland Europe, but in the long, long term, as I said, the 1.5 billion kitchens globally. Secondly, we combine that with income. We are a capital-light model. That means we can grow and pay the dividends along the way. So an unusual combination. The third thing we offer is resilience. We are -- we have a very flexible commercial model, I think, we've evidenced in the period sort of since 2020. We can adapt commercially and operationally to almost whatever external challenges come our way. And finally, we offer a leading approach to ESG. For some people, this is important, for some people, less important from an investor perspective. But we use this commercially to sell. We have customers for whom ESG -- retailers for whom ESG is super important. And we can offer a solution to them, which helps Simon Showman, our Founder and Chief Commercial Officer, to sell into those -- into those blue-chip retailers. Looking at the presentation here on Page 2. Compelling customer proposition provides resilience. Established international online presence provides the opportunity for accelerated growth. Huge -- we're going to talk about this a bit later on, huge focus on automation and productivity. Really important to them at the moment is all of U.K. PLC has seen and will see escalating wage costs and, as mentioned before, a leading ESG strategy. If you move on to Page 3, please. So I'm not going to go through it. Quite a lot on this slide. I'll leave it to you to read at your leisure. On the right-hand side, we have -- these priorities are our five guiding principles that we've had since the end of 2013, when the group pivoted from being a sourcing business to a brand-led business. I'm just going to pick off the moment execution to B2B -- to have best-in-class execution, everything we do. I mean, this is going to be -- sound really boastful, but if you don't blow your own trumpet, no one else will. So we are the best, we believe, of what we do in the GM space. We believe when you look at all the elements of them -- of what we do, we are better than other people whether it's product development, supply chain, sourcing, product quality, account management, inventory management. We believe we are certainly best in U.K. and Europe and certainly up there globally. The one area where we've historically been not as good as our competition, but we are catching up rapidly is in our approach to branding and marketing. We appointed the Brand Director a couple of years ago, Tracy Caroll. We've recently rebranded Salter, one of our two main brands. And we're in the process of rebranding Beldray. Around that, a significant step-up in marketing efforts. So we've been learning a lot over the last couple of years in terms of branding. There's probably still a gap there between us and some of our direct competition. But that gap over the next couple of years will -- that gap is closing and over the next couple of years will be closed. If you move on to Page 4. So Chris is going to go into more detail around the FY '24 numbers. I just wanted to pick out, make a couple of points on this slide. We did have really from January '22 to December '23, 2 years of retailer destocking. Now for us, as a B2B business that supplies retail, when retailers were overstocked, it's really tough because they don't just reduce their orders, they stop their orders and they wait until their stock is normalized, and then they start ordering again. So for a 2-year period there, it was really quite challenging because retailers have built up excess stock bought off the back of really strong COVID demands. And when that COVID demand -- I mean that boom eased, they found they have too much inventory. Stock levels have been clean generally in retail since January this year. So that's behind us. But it did make for a challenging couple of years. In FY '23, that was mitigated by the air fry boom, which was really helpful. But in FY '24, when that boom started to come off we -- unfortunately, it did lead to a drop in revenue and a drop in profitability. Nonetheless, we have held our dividends under our policy of 50% of profit after tax. There was a debate about whether we should stay in line with that policy and reduce the dividend. But we are very confident in our prospects, and for that reason -- and also, of course, we have a strong balance sheet, strong cash and debt position. So the Board, I think, very sensitively made the decision to hold the dividend for FY '24. If you move on to Page 5, So I've kind of touched on this a bit earlier. We moved from a sourcing model in 2013 to be focused on -- rather than selling on product and price, we moved selling on brand, product and price with Salter and Beldray in the forefront of that change. We're moving into a different phase now, which is we're not just going to sell on brand, product and price. We're going to sell on capability, brand, product and price. We built an immense capability over the last couple of decades through sort of substantial investments in the business in terms of our systems and processes and automation, and we believe this really sets us apart from our competition. And it's that capability which retailers often always needs from their suppliers, particularly the larger retailers. You can see that on Page 6, the development of the last 10 years. 10 years ago, 50% of our revenues came from brands that we owned and a 25% came from our two principal brands. If you actually go back to FY '13, the numbers were even lower again. It was only 20% of our revenues came from brands that we owned. Now 80% of our revenues are from brands that we own and 60% come from those two principal brands, Salter, famous for its scales in the kitchen; and Beldray, our laundry and floorcare brands. And as you can see on the right-hand side, we've been really working hard on those brands over the last 18 months, rebranding Salter and at the moment so partly through the process of rebranding Beldray. Just move on to Page 7. Just -- I just want to talk about this capability point because it's the capability that builds strategic relationships with retailers. And I just want to -- for those of you who are maybe less familiar with the supply side, you might be more familiar with retail on the supply side of supplying into retail. It is very complex to supply retailers. I don't blame them, but they -- it may make it complicated for their suppliers because it makes it simple for them, which is exactly what I would do if I was in their shoes. So I always use a consumer -- I always use Ryanair, it's not a retailer, but it's a consumer-facing business as an example. If you want to buy a flight of Ryanair and pay by check, well, you can't. They define how you interact with them. And that's the case with many consumer-facing businesses. When you're supplying retailers, they define how you will interact with them. So for example, a large supermarket retailer that we're very proud to serve has 3 vendor manuals. Each of these vendor manuals maybe 100 to 200 pages long, and we have to comply with all of the requirements in those vendor manuals. And those requirements might vary from everything from their ethical process to how high you can stack the pallets. And so huge complexity, particularly when you multiply that across 300-plus retailers, all of whom need to be supplied differently. So we've built a machine to deal with this complexity. And the graphic on the screen is our way of articulating this. At the core, we have a culture of continuous improvement. And this culture is built upon our graduate development scheme. We're highly unusual in our space, both our geographic space in the Northwest and in terms of where we are in the supply chain in having a graduate development scheme, and it's been in place since 2012. And what that does is it gives us the human capital that has the desire to improve day after day and isn't afraid to point out the bits of our -- of what we do that can be a removed or automated. Built upon that foundation, we then look -- that generates automation ideas. Our process development team deliver that automation, that delivers increased productivity. About 2/3 of that over recent years has been recycled back into higher salaries. That in turn gives us better quality recruits and so on and delivers the virtuous circle. Now of course, the obvious benefits of this is control of OpEx. And also U.K. PLC is suffering from significant inflation and has done for a number of years now of the salary line. If you look at our results for '24 on OpEx, at roughly level with '23. And I think '25 would be similar again. So we've been able to mitigate these upward pressures on our cost lines and through the use of productivity and automation. But really, the big deliverables for me are the ones which -- is a bit more difficult to directly measure but are more commercial in nature. It means, for example, that we can invest in branding and marketing despite having super competitive price points. It means we should always be lowest cost. And this is the instructions to the business. When it comes to what we charge our retailers and what our consumers pay, we must be lowest price, spec to spec. If someone is a lower price because it's a poorer spec, I can't do much about that. Specs per spec, we've got to be the lowest cost. And if we recycle the benefits of increased productivity and automation into the sort of commercial benefits, then that in turn should deliver more revenue and improve our competitive positioning. If we go to Page 8 very briefly. What it means is we have all the bits in place to achieve what we need to achieve over the medium to long term. The work that's gone in over the last couple of decades is there and good to go. And for us, the big opportunity, we're going to on to Page 9, the big opportunity is -- we're relatively mature in the U.K. I still think there's further opportunity for growth via market share gains. But the big opportunity in the short to medium term is in Mainland Europe. We -- 35% of our revenue in FY '24 was from international sales, predominantly Mainland Europe. It's often 30% the year before. We expect in FY '25 that to be more like 40% to 45%. We have had a plan in place to grow in Europe. But plans are plans, and many investors are not unreasonably upset to us. Until you can show that you're delivering on that plan, we're going to keep valuing you as a U.K. cyclical, which I do understand. FY '25 is going to be the year when we will really start delivering on our European ambitions in terms of growth in revenue. But it is only just a start, and I'll talk about this a bit more as we go through the presentation. So Page 10. So we have -- the strategy for Europe is really quite simple. We're going to market ourselves in two -- we are marketing ourselves in two ways. The first way, we're going to -- the first thing we're going to do is we're going to market our brands on the Amazon EU platforms. Now the logic there is really simple. Amazon is the biggest GM retailer in Western Europe. If we can use the brands building tools that are within Amazon's marketing toolkits, and they are very effective and particularly cost-effective and we can drive awareness of those brands on that platform in those territories, it will drive wider awareness of our Salter and Beldray brands. So that's the first way that we plan to market ourselves into Europe. The second thing we have had to do is market our capability with -- by being the most effective supplier to our current European retailers. We're not exactly new to Europe. We have -- we serve retailers such as Kaufland in Germany; Lidl, which is sort of pan-European; Biedronka in Poland; and of course, Action. And Action is going to be, we feel, of particular importance in terms of marketing our capability. These are huge credible retailers. And as other European retailers see what we're doing in these other accounts, then that will, we believe, drive those retailers towards us. We have a European showroom in Paris to greet them with and we have an account management team there. And just possibly Action being the more important one for that group. Action is really a retailer or the retailers follow very closely. So we have a 5-step plan for marketing our capability. We're going to have products that some of them are pretty straightforward. We're going to have -- we're going to supply products that sell through, of course, and we're going to be the best supplier for quality, which is of ever increasing importance. We're going to help retailers manage their inventory, which is a service that very few suppliers offer. We're going to be the most responsive in terms of account management. And then we're going to market our successes when we do well. Okay. I'm going to come back a bit later on to talk about outlook. I'll hand over to Chris to talk about the FY '24 numbers.

Thanks, Andy. So obviously, a disappointing year with revenue down by 6.5%. As Andy mentioned earlier, there have been a period of 2 years where most retailers were overstocked. We started to see the end of that in FY '24. And the major component for us was our German supermarket customers remained overstocked. In FY '23, some of that overstocking was compensated by the air fryer boom that we saw. Now the air fryer boom was fantastic when it happened, and we thank Martin Lewis for that. We've been selling air fryers for a number of years. Sale levels of about GBP 5 million. During FY '23, they jumped up to GBP 26 million, which was fantastic at the time. But with all booms, you know that they are going to start coming down. So in FY '24, they came down to about GBP 15 million. So that was a GBP 10 million headwind to us, and that was especially in the first half of the year. When we started January '24, so halfway through the year, we came back with quite a lot of positivity because we thought we've got through the headwind of the overstocks. We got through the sort of like the hard comparatives in relation to air fryers, and we're starting to think that the U.K. consumer would start spending again. So the U.K. consumer has gone through a difficult period with the cost of living crisis. And by the time we got to January '24, people were starting to see their real living wages go up. So they have more money in that pocket because net inflation have come down and salaries were going up again. Now what's been really odd about the whole of FY '24 is that the U.K. consumer has not been spending. There's been a variety of reasons given flat during the year. For the first 3 months, it ended up being the weather. The weather in February, the weather in March, weather in April, that's starts to wear a bit thin. So then the excuses went on to the election, the election uncertainty. And then in recent times, it's actually moved on to budget uncertainty. Now I think all the things that is nobody really knows why the U.K. consumer at the moment is choosing to save more money than to spend. Various different reasons to be given about interest rates or rebuilding balance sheets or nervousness. There probably hasn't been enough research to give a definitive answer. And it's certainly true to say at the moment that, that softness that we saw in the U.K. consumer has continued into FY '25 at this moment in time. We are starting to see some very early signs of green shoots as we move into peak, but we really do need to see the consumers starting to spend more, and we hope for that over the sort of like the peak trading season over the next couple of months. Looking down in relation to gross margin. Gross margin remained remarkably steady at 26%. Now some of you who follow us will know that we've been speaking about freight rate rises quite a lot this year. So freight had a proper crisis a couple of years ago, where rates went up to $18,000. So it's a bit more of a mini crisis that we've had this year, which has been caused by the Red Sea being closed with freight being diverted around Africa instead. So that did cause shipping rates to spike over the summer. Now that didn't hit our margin during FY '24 because during that peak -- when we were shipping it over but haven't sold the goods yet. So what happens is you inventorize that, that goes on the balance sheet in stock. So that higher freight rate is actually going to hit profitability in the first half of FY '25 when those higher shipping rates come through. Now we do know that is a one-off effect because what we've seen is shipping rates rose very high during July and August. They have come back down now to a normalized rate. So that increase and decrease, that sort of triangle is about GBP 2 million of excessive freight costs that we will see coming through our income statement. As Andy has alluded to, admin expenses flat during the year. That's despite us having wage inflation and other cost increases. But we have squared that circle through our drive in relation to productivity. And that can actually be seen in the stat just above, that despite gross profit going down, our gross profit per employee is up 4% to GBP 118,000, which reflects the success of our efficiencies. So just moving on to Slide 12. We've got a very detailed breakdown of revenue here. I'm not going to go into all of these because you can get absolutely lost in all the detail. I think there's probably just two things that I want to pick up on that is that, firstly, Europe being up 7%, and that's despite having overstocked with the German supermarkets. And that's because we've seen a large amount of growth from European discounters in the year, and we expect to see that level of growth continue into FY '25. The other positive, which is probably more of a one-off, is in relation to our clearance division. Now the clearance division is actually the heart of UP. It is where we started. When Simon Showman founded the business, it was dealing with closeout packages. The overstock that we saw were not just the retailers, they were brands as well. So during the year where there were overstocks, which hit our branded products as well, there were abilities to buy some closeout packages and sell those on. So this actually shows the resilience of our business and the way that we trade incredibly hard to counter the weaknesses that we were seeing in demand. And in some ways, that clearance is a counter secular thing. So when there are overstocks, there are more opportunities for that clearance division. So we would not be expecting to see as many opportunities therefore that as overstocks have ended, and there are more opportunities for the rest of our brands to be sold instead. So on Page 13, I've tried to sort of like simplify what sort of like happened in relation to revenue to not have the complicated table but to simplify it. So you can see there the big GBP 11 million headwind in relation to air fryers; the headwind in relation to German supermarkets, which has now come to an end; and then showing that all of our other sales put together, up by that GBP 6.7 million. Moving on to the bottom end of the income statement, so on Slide 14. So adjusted EBITDA, down 11% to GBP 80 million; then further down, appreciation amortization, relatively flat; and finance expense up due to interest rates being higher. So we previously had some wonderful caps and swaps which we took out when interest rates were at 0%, which has held back our interest charge. Obviously, all good things must come to an end. We have those for a period of time. They've come off. So we are now seeing a higher effective interest rate on our finance expense. The tax rate has gone up in the U.K. from 19% to 25%, meaning that the tax expense, up 7%, despite sort by PBT falling which has left our statutory profit down by 16% to GBP 10 million. Now moving on to Slide 15. As Andy said, we have decided to maintain the dividend. So our policy is and will continue to be to pay out 50% of our profits, which would therefore indicate that the dividend should have gone down by 16%. But we decided to maintain it, and there's two reasons for that. First of all is that we have a new capital allocation policy, which is aiming for a 1x EBITDA net debt. At the end of the year, our net debt was at 0.6x. So we have plenty of headroom within our capital allocation policy. So there is that thing of returning more cash to shareholders. So therefore, we maintain the dividend for that perspective. And it's also because we have confidence in the medium-term prospects for the group as well. So we maintained that dividend at 7.38p. So moving on to the balance sheet, Slide 16. Now balance sheet has remained remarkably stable overall. So fixed assets, stable, working capital, stable accounting assets, relatively stable, net debt obviously down due to the profits that we have made during the period. So I think the one thing I want to bring out is a couple of those movements in the working capital. So you can see that the stock is up by GBP 8 million. Now that comes down to the shipping crisis. So one of the things that happens now is that the ships aren't going through the Red Sea Suez Canal, they're going around Africa. So that's added a significant amount of time, which means that we have more stock on the water because it is taking more days. So in the prior year, we had about GBP 5 million of stock on the water at year-end. This year, it's up to GBP 15 million that we have on the water that we were importing into the country. Now obviously, within that and within that sort of like stock balance, we do have that GBP 2 million of the excess freight charge, which obviously that has gone in there and that will flow through the income statement during H1 '25. So just moving on to Slide 17. You can see there how net debt has moved. So we went from GBP 14.8 million down to GBP 10.4 million, so 0.6x debt-to-EBITDA ratio so well within our sort of like 1x capital allocation policy. So you can see that some of the uses, not very much investments in working capital. And that basis over the year, I would be expecting as we grow in Europe and we grow with our European discounters, that we would be expecting to see investment in working capital. And that's why we do have quite a lot of working capital facilities. So in total, GBP 37 million of facilities that we have with HSBC, which is to fund working capital. Obviously, we did start a share buyback process during the year as well along with the 1x EBITDA. So at the moment, we're doing that to a level of about GBP 1 million per quarter. But that note could go up and down depending on the working capital requirements of the business. So that is a flexible item. So Andy, handing back to you for the outlook.

Yes. We're on Page 18. Thanks, Hannah. So obviously, it's quite -- it's very early on the year, which is at the end of Q1, and we do have the kind of usual sort of November, December period just ahead of us. There are, I would say, three factors influencing -- three major factors influencing the performance this year. One of them is known already and Chris has talked about, which is the GBP 2 million of additional shipping costs which will go through the P&L in H1. We don't see circumstances around this recurring next year. I think there's a particular set of circumstances for this year. So we do see this as a sort of known one-off hit. Obviously, very disappointing, but we were certainly one of the very earliest businesses to highlight this issue back in the summertime. The second factor is U.K. demand. Again, Chris made reference to this before. It has been particularly soft during this calendar year somewhat unexpectedly because consumers were expected to use the spare cash to spend and they have, in fact, used it to save, which is certainly unexpected outcome. I mean, in my lifetime, certainly, consumers are tended -- in the U.K. tended to spend rather than save. And I think your view -- and I have my view as to how this is going to play out. But you may well have your own views as to how this will play out. My view is it is going to be a headwind in Q1, H1. But we do think U.K. demand will firm up as we move through the second half of our financial year. We've seen some very early green shoots in terms of demand through what we call our near-term business like our online business and through our call-off business and through account switch, which tend to order more hand to mouth. So there is some very early green shoot. Having said all of that, November, December will be critical, I think, in signing the direction of travel for calendar year '25. If the consumer doesn't spend in November, December, they won't be spending in Jan, Feb, March. That's just a fact. If the consumer comes out over the next couple of months, in the months to Christmas, then there's a decent chance that, that momentum will continue into calendar year '25. I'd say we -- our view is that there will be a modest firming up of demand, no one's expecting some sort of consumer boom. But you may have a different view on that, and I think that view will be informed by what happens over the next couple of months. The third factor, again we've touched upon it already, is our European growth. We are seeing strong growth in H1, but we are seeing accelerated growth in our order book for H2. With our European customers, we get more visibility because they order further ahead. So that order book for second half is helpful in terms of that visibility. But yes, strong growth in H1, accelerated growth in H2. And I think for me, what's really exciting about this, the shipping -- the additional shipping costs and the softness of the U.K. consumer, we -- it's an FY -- these are FY '25 issues. The growth in our European business, we see as -- in FY '25, FY '26, FY '27, FY '28 trends, we do think that the strong growth we're seeing accelerate through FY '25 will continue on into future financial years as well. And that to me is really exciting because as a cyclical consumer goods business, the U.K. focused cyclical business, it's going to be very difficult to deal with the headwinds of escalating wage cost. And that's not just us, that's everyone in our sector, whether they're on the retail side or the supply side. And I don't want to refer to individual names but there have been plenty of examples of that in weeks and weeks and months in terms of people's announcements to the market. We have two ways to mitigate that. First of all, I said before, our relentless focus on productivity, which has already proven itself in terms of mitigating those headwinds; but secondly, our ability to find different markets, go into Europe and find additional volumes from a market where we're still in terms of market share incredibly, incredibly low. And just linking back to the point on the automation. I've talked a lot about how the automation has mitigated the headwinds that we've passed to our cost line. Or actually, we're going to see the big benefits as we grow our top line. It means that as we grow the top line, we -- the increase in our cost line should be relatively modest because of the automation that we've introduced into our processes. Okay. I hope that was useful to you all. Hannah, I think it's time for Q&A.

European sales reached a peak of 39% and rapid turnover in 2019. What are the challenges in trying to return to this level and beat it on a consistent basis?

Well, I think I've probably answered that one, I hope. We do see that share going to 40% to 45% in FY '25 and very much kicking on from there. And we do think in a couple of years, we'll be a majority non-U.K. revenue business.

What steps will you be taking to mitigate the effects of the budget? You've had 24 hours, Andy.

Well, maybe we got more than 24 hours because I think the increase in NII has been well flagged. Chris, you've done the -- you need to...

Back of the packet, sort of like it's about a GBP 400,000 hit to us. But as a business, we have been seeing sort of like wage inflation and cost increase over a number of years. So the way we mitigate that is through our continued productivity and the continued work that we're doing that, which has meant that admin expenses were flat FY '23 to '24. I'm still expecting them to be flat '24 to '25 because we will continue to invest in our productivity.

Just back to Europe, do you expect German sales to recover to their 2022 highs in the medium term? I think that's a specific country focus there. Or are there more fundamental issues with that market?

No. The decline was down to the overstocks, which did take longer to clear in Europe and Germany more specifically. So no, we do expect to see a recovery in that market. I would just say though, when I -- the kind of retailers that we're targeting are -- typically have a pan-European footprint. We're not looking to replicate what we have in the U.K., which is an offer where we serve retailers from the very -- from Tesco all the way down to a very small individual retailers. We are targeting the very large retailers over in Western Europe. So it maybe -- we will continue to analyze the revenue over there between France, Germany, et cetera, or it's the European segment as a whole and the revenue that accrues that should be more valuable going forward, if that helps.

Okay. Again, Europe. When you opened your showroom in Germany, the sales jumped but growth did not continue. I think you've just touched on that. But now you've moved to France, French sales have jumped. Do you expect the French growth to continue?

So the best way to think about our showroom is not as a French showroom, as our European showroom. And that showroom underpins the European business that's already a GBP 50 million revenue business. So that's how we think about it. I mean, so really what we did is we didn't close our German showroom and opened a French one. We moved our European showroom to Paris. And we moved there to Paris for a few reasons. First of all, in Germany, the retailers there at post-COVID versus pre-COVID were less willing to visit showrooms. They prefer now you to visit them. Whereas in France, it's still very much the culture of people visiting showrooms. The connectivity in Cologne degraded post-COVID versus pre-COVID, whereas the showroom -- the European showroom where is now 15-minute taxi ride from Charles de Gaulle is really accessible both for our people, who can literally travel out in the morning and back in the evening, if they need to, but also for our retailers across Europe for whom Paris Charles de Gaulle is much more accessible than in Cologne.

So the biggest orders that we have written in our Paris showroom have been to Dutch customer. So it is not that it is only about selling to French customers. It's about selling to everybody and having that accessibility of a showroom to see our beautiful products to all European supermarkets and discounters.

Can you expand on how you plan to track European prospects with inventory management? Is it mainly greater time lines? Or do you mean things like clearance as a service, too?

So what we really like with a retailer is we like data. We want their sales update and we want their inventory data. And most large retailers are very happy to share this with you. 1 or 2 are a bit reticent, should we say. But in the main, large retailers are happy to share the data with you. Now I think once we have this data, we've got a load of tools that we've developed internally to analyze this data and then contributes. Because I think that often the problem for retailers, they don't have the resource and maybe, to some extent, they don't have the tools in order to do the analysis work that we can do. So what we want to be, we want to be the sort of stock planners right-hand person, taking their data dropping it into the tools that we use to analyze it and then be able to go back to that stock planner and say, "Look, you may not have noticed because you're managing hundreds of lines. But this particular line is selling well. And if you don't reorder by this date, you're going to end up with an out of stock." Alternatively, we are, I think, one of the -- possibly the only supply that we'll do this, is possibly may be that the line is selling more slowly than was planned. At that point, we'll be wanting to speak to that stock planner and that buyer to say, "Look, this isn't going as well as we hoped. Let's maybe plan a promotional period." We might offer to make a financial contribution to that and see if we can find a way to accelerate sales back to the levels that were acceptable. Or maybe even say, and we really are the only supplier that does this, say to the retail, "Look. You've got another purchase order coming in on this. Why would you let us delay that purchase order?" So it's all of this kind of stuff really which we do that other suppliers don't do. And they don't do it for two reasons: first of all, they maybe don't have the tools to do it; and secondly, the idea of suppliers saying to a retailer, order less is a bit kind of culturally difficult for the supplier. Now to be fair, FMCG suppliers do this kind of stuff all the time. It's not something that is common on the GM side. But on the FMCG side, it's actually kind of core skill set. So that's why we're delighted to have Andrew Milne joining the Board from an FMCG background, and Jose Carlos joining the Board from an FMCG background as well. Because we do think there's lots for us to learn of top-quality FMCG suppliers.

Okay. Two questions here on Petra, which will just mirror each other. Are the big hopes for its future dashed? Where do you see it now? Will it ever be on a par with Salter and Beldray.

So Petra is -- we did make a decision earlier in the year to really double down on our focus on Salter and Beldray. If you look at where the growth has come from last decades, the key drivers have been those two brands. So we really, really want to kind of focus our investments, our attention, our marketing on those two brands. You will, however, see I think Petra grow into a fairly significant brands over in Europe. Even though we need to have our focus on Salter and Beldray, you always need some plan Bs. Because sometimes -- most of the time, that's what's going to work. But sometimes, for whatever reason, it could be channel management, it could be another reason where the retailer for every reason doesn't want to have the same product in their stores or the people -- you want to have a plan B. And we have some tremendous plan Bs. We have Progress, which is a Lancastrian, Bakeware brand, dates back to 1930s. We have Kleeneze, over 100 years old brand. And we have Petra, which is a bit of a varying -- originally coffee brands, switched over [indiscernible] created in the 1960s. So I think we will see Petra grow, but it will be on the basis really of -- our main focus is going to be in Salter and Beldray.

You're on silent.

So let's stick on that theme. So it's clear that some obvious good work with the Salter rebranding, which we can see in various retailers. I was surprised to see a decline in branded sales and a strong increase in own label. What were the reasons for this? And when do you expect to see the benefits from the rebranding?

I mean, Salter specifically as a brand, it's in relation to air fryers because we sold most of our air fryers -- about 99% of our air fryers was sold under the Salter brand. So really that is an air fryer story. And the clearance, I think I spoke about it quite a bit earlier. The clearance is our closeout business. And when there are overstocks, and overstocks mean that it is more difficult to sell our own branded goods, the flip side of it is because there are overstocks within the whole of the ecosystem, people are trying to get rid of them. And that's what we can do in our closeout business. Because we have multiple different channels that we're selling through, because we have relationships in different countries, we are incredibly useful for doing that. So what we can do is take a closeout parcel from a German supplier and we can clear it out to U.K. retailers. And actually, that's been incredibly useful this year because it opened up some doors with new accounts. So there's one U.K. supermarket chain who we have not been working with for a number of years, but we've opened the doors there with selling that closeout. But now we've got through that closeout. They've gone, "Oh, UP, great. We like your capability." And now we're moving them on to selling our own branded products there because you don't want that clearance to become a large part of your business because it does eat into your own branded goods and what we want to grow ultimately is the branded side of the business.

Okay. Will there be a material difference in the Salter and Beldray brand management and rebrand process in Mainland Europe versus U.K.?

No, I don't think so. I mean, it's possibly a question better answered at the interims. We're in the process of -- what I said before about marketing our brand particularly Salter and Beldray on the Amazon platform, we're in the process of writing up the marketing plan for that. So it's a great question. My initial response is possibly probably not. But I'm going to -- Tracy is going to be presenting to the Board in January on her plans for marketing Salter and Beldray in Europe via the [indiscernible] EU platforms.

Okay. A question here around the effects that you have seen from the TEMU effect and their offering. Is this having a material impact on yourselves?

No, it's not. But it is a threat that does need to be taken very seriously. We -- there's -- the product on the Temu platform is very cheap. But it's very cheap frankly because a lot of the time, it doesn't comply with U.K. regulations. And this is -- this should be a source of huge concern for governments. We've -- there's a lot being put on businesses at the moment like yesterday, and that's fine. We've got broad shoulders. But the quid pro quo is that governments has to ensure a level playing field for -- we're paying employees and -- well, the suppliers on Temu aren't. We're paying packaging taxes, suppliers and Temu aren't. We're compliant with U.K. regulations, workers' rights bill, and people on Temu clearly aren't. Now obviously the wheels of government -- regulation turn very, very slowly, as we all know. We're making representations along with other people in our industry on this issue. In the meantime, it really reinforces the importance of focusing on our brands. Going down on unbranded routes, and we get asked all the time to do own label, is -- that's the part that's going to be most exposed to the threat at Temu. We know from our market research that consumers want brands when they buy general merchandise. They want that. It's often different with food, where a retailer brand can be -- particularly a grocery brand can be just as attractive to them. But we know the brands really counts when it comes to the consumer. And all we can do in the short term to counter the threat of that is to double down on our brands, particularly Salter and Beldray.

I think what's terrible about the situation with TEMU is it probably is going to take a human tragedy to get government to move. I mean, almost with this, it's like, okay, fine, you buy a T-shirt for 99p and it doesn't fit it, you throw it to the bin. What we're probably now going back to is the 1970s where people are sort of like dying because their Christmas tree lights set on fire and set their house ablaze. What we're moving to now is people buying things which could risk their family's lives because they are dangerous, substandard and therefore, the plastics that you're using in your power pack. If that power pack sort of like fails, that plastics should not burn. Whereas if you're seeing kind of like cheap replacements, they aren't just sort of going to cause a problem, okay, it looks rubbish. It could actually become like-causing danger to your own.

We've seen some of this already with e-bikes, haven't we. People putting e-bikes in their hallway and maybe not from a decent brands. And then the battery -- batteries are really dangerous if they're not produced properly. You wouldn't put a kind of petrol in your hallway, and yet you've got an equivalent amount of power stored in that battery. And then, of course, you leave it in the hallway, which is your fire exits. So there's -- if you look at the -- if you Google at Daily Mirror Temu toys, you'll see an article last week where, according to a study -- a review that they've done, 80% of children's toys bought off Temu don't comply. Children's toys -- well, back to the 1970s, and I remember lead paint in kids' toys. No. It's -- and I think the difficulty is, Hannah, that we have become used to the fact that what we buy is safe. We didn't always take that for granted. But people are taking for granted that what they're buying off certain platforms are safe. And I think people need to be more careful, in my opinion.

I'll send Panorama around to chat with you, Andy. How long is the lag on freight prices both up and down? And do you spot prices or some form of hedging?

So we've already -- the crisis is behind us now. So the mini crisis is behind us. It's -- when we last updated, it was still a variable. We were predicting that it would come down to -- in time for about November. Thankfully, our predictions were correct. I did have my finger crossed, I must admit. And in fact, the freight rates have come down more quickly than we expected. So it's a known quantity. It's GBP 2 million. And it will be going through gross profits in H1 and FY '25.

Just on the specific question about the lag, normally for us it's about a lag of 3 months. So it's about the working capital cycle. But it takes between peaking, and it's starting to come for our income statement.

On the hedge point, the -- we do enter into certain fixed contracts. Shipping is an unusual industry, should we say. And you can contract to certain rates which overnight disappear, depending on what's going on in the general market. It's -- we hedge our interest rates. We hedge our currency. There is no really effective hedge on freight, unfortunately. We have to roll with the punches.

And we do, of course, bought at spot and what is happening to about the whole time. But probably the important thing to know is that we rarely pay spot and most people rarely pay spot. Because most people have some sort of like contracts going ahead. So it's only at the sort of like the margins that you end up paying the very high spot rates.

Okay. Understood. Can you explain reasons for a markedly high year-end inventories and payables and explain how this unfolds in FY '25?

So I think I've gone into that in terms of it being the stock and the freight. So given the fact shipping times have extended, so that has caused stock to go up. So probably not in any point to go to...

Yes, probably covered that one, yes. Online sales, after a down year in '24, when are they expected to hit the stated target of 30%.

So I think that it's -- yes, I mean, it was a disappointing year. Obviously, we grew by 60% in FY '23. An element of that was air fryers. We probably -- as a channel online is the biggest beneficiary of air fryers in '23. So there was a correction in FY '24. I think that we -- I suspect FY '25 will be flattish on online, and we'll return to growth in FY '26. In terms of when it will hit 30%, I think that's going to be quite a difficult one to answer, not least because of what might happen with our international revenues which will be largely retail focused. So I'll come back to you on that one.

As long as the pie is growing. Good. Well, that's it for the questions. So thank you both very much for your time today. And any closing remarks?

No, just to say thanks to everyone for the time. We do -- yes, Hannah knows I'm very fond of our retail base. I do like -- we really do value engagements and the interest which everyone shows in U.K. So thank you all, particularly the holders, but the nonholders as well who have been on the call.

Well, we look forward to further updates. Thank you both.

Thanks.

Thank you.