Watches of Switzerland Group PLC (WOSG) Earnings Call Transcript & Summary

Good morning, everyone. I'm Brian Duffy, the CEO of the Watches of Switzerland Group. Thank you for joining our presentation and call on the fiscal year '23 results for our group. Our agenda today is an update from me; then Craig Bolton, President of U.K. and Europe, will add more color and detail on the U.K. and Europe businesses; and David Hurley, President of North America and Deputy CEO, will do the same for his division; and then our CFO, Anders Romberg, will present the financial review of fiscal year '23 and our outlook for fiscal year '24, following which, we'll open the lines for your questions. So fiscal year '23 was a very gratifying year. We achieved record sales of GBP 1.543 billion, which was plus 25% on prior year. And a record EBIT of GBP 165 million, which was plus 27% on the prior year. We also continued to deliver excellent returns on capital employed, reflecting our ongoing investment in the business. Our ROCE for the year was 27.9%, which is 50 bps up on the prior year. We are very busy expanding our international network, opening 28 showrooms and upgrading and elevating our follow-up 13 showrooms. We have continued to execute our strategy well, and we're comfortably ahead of our long-range plan that we first presented to you all in July 2021. We've started a new financial year with real momentum, having already completed on a number of new showroom projects in the first quarter, coupled with a strong pipeline of further showroom projects to come in the balance of the year and into the next financial year. In addition to our exciting organic growth ambitions, we also continue to actively explore additional acquisition investment opportunities in both the U.S. and EU. Overall, the many avenues for growth that we can see leave us feeling confident about our prospects in both the short and medium term. As for the current market trends, these are pretty much in line with the second half of last financial year, and this was the basis of our previously announced fiscal year '24 guidance. Demand for luxury watches remains strong across all of our markets, and we continue to extend our registrations of interest lists. We are as ever focused on all areas of ESG and ensuring we optimize the impact we have. And I was delighted to see that our ambition and intent reflected in the recently announced AAA rating from MSCI. Turning to the market for luxury Swiss watches in the regions in which we operate. The market continues to deliver strong growth, but this is at a more normalized level versus the exceptional growth witnessed in the last couple of years. Swiss watch exports latest data for May year-to-date shows that the global #1 market, which is the U.S. And this market exports grew at 12% on prior year versus the record growth of 37% in the prior year. The U.K. is the #5 global market, but the #1 market in terms of domestic consumption per capita. Exports to the U.K. grew by 8%, whereas year-on-year growth in 2022 was 31%. In the EU, growth was also 8% this year and last year grew at 24%. Looking at the jewelry market. This chart shows the 6-year trends and the relative sizes of the U.S., U.K. and EU jewelry markets. Market growth has been very strong in the U.S. over the past 6 years and more moderate in both U.K. and EU. The U.S. is by far the #1 market on a per capita basis, and the U.K., the leading market in Europe. The long-term trend towards branded jewelry from commodity jewelry continues. We are very pleased with the consistency and sustainability of our results for the period from fiscal year '16 through to last year, which show our revenue growth CAGR of 19% and an adjusted EBIT growth CAGR of 37% over this period. This demonstrates the strength of our markets, our customer proposition and our operating leverage. And as shown on this slide, we have more than GBP 200 million ahead of our long-range plan after 2 years. This excludes the benefit of FX. We look forward to providing an update of our LRP, which we'll take out to 2028, and we'll present that during the autumn. Looking at a geographical split of our business, the U.S. is growing from 24% of sales in fiscal year '19 to now 42% of sales, and we expect that percentage to continue to grow over time. Where we are in terms of the proportion of revenues from the U.S. is well ahead of where we expected to be at the time we published our first long-range plan. And this speaks to the huge success that we've had and continue to have and expanding our presence in what is a fragmented and under-invested growth market in the U.S. The second line of the pie chart shows that we are a predominantly local resident business in the U.K. and U.S., although it's pleasing to see our airport business is clearly coming back. Our business model is based on the strength and quality of our brand partnerships, and this chart shows that the proportion of sales from the top 8 brands shown in the lower box increased to 77% in fiscal year '23. We continue to actively participate in the international watch and jewelry fairs. We work more and more with our brand partners, doing, for example, amazing hospitality events and exclusive product. And last year, we both participated in the GPHG awards judging and then exclusively exhibited the winning pieces in our New York showroom in SoHo. Our Xenia client experience program continues to develop positively, impacting conversion, repeat buying and referrals. As this chart shows, client feedback through questionnaires is extremely positive, and this is also reflected in the Google and Trustpilot ratings. Our marketing achieved fantastic impact in the U.K. with a monthly social media reach of nearly 60 million, total annual impressions of 4.4 billion and total campaign clicks of 36.8 million. In the U.S., where we focus heavily on PR, achieving amazing impressions of almost 10 billion annually, with monthly social impressions of 13.5 million and campaign impressions of almost 1 billion. Despite the broader experience within the retail sector, I've been delighted with the sustained strength of our online business as we continue to invest in our digital and technology offer for our clientele. Our virtual boutique have trained sales colleagues assisting clients, shopping and inquiring online continues to be a great success, achieving very good online conversion and very positive client feedback. We are building the team in Fort Lauderdale to provide the same service in the U.S. This contributed to a growth in our e-commerce sales of 3% against the prior year, and e-commerce now represents 6% of our group sales compared to 4% in the year prior to the pandemic. Additionally, our in-store staff support client shopping online through our web-enabled system, which continues to grow. Our preowned businesses in both U.K. and U.S. had a very strong year, and combined, almost doubled in sales versus the prior year. We were also able to maintain pricing and margins in contrast to the wider secondary market. We have had teams working closely with our friends in Rolex in the U.K. and U.S. to prepare for the launch of Rolex Certified Pre-Owned. This will go live next week in the U.S. and in September in the U.K. We are optimistic about the potential of CPO in future years, building on our long-standing partnership with Rolex. We have been very active on the ESG agenda. Our colleagues' engagement score's at 81%, very, very good for retail. And our colleagues are very active with our group, whether in listening forums or volunteering with our foundation programs. We applaud the watch and jewelry initiative 2030 and the leadership shown by Cyrille Vigneron of Cartier and Marie-Claire Daveu of Kering. We have joined this program as affiliate members, and we're encouraging all of our suppliers to join. We are utilizing the EcoVadis system to review and manage all of our suppliers. We are pleased that the great progress that we have made in all ESG matters resulted in a AAA rating from MSCI and positive progress on all other ratings. I'm also very proud of the continued work of the foundation. The Watches of Switzerland Group has donated GBP 6 million to the foundation to date and GBP 1.5 million in fiscal year '23. The foundation trustees have approved donations across the U.K. and the U.S. to a number of charities, including food banks, the Fuel Bank Foundation here in the U.K., Crisis For The Homeless, The Prince's Trust U.K. and U.S. and Habitat for Humanity in the U.S. I'll now pass over to Craig.

So thank you, Brian. Hello. My name is Craig Bolton, I'm the President for the U.K. and Europe, and I'd like to update you on the significant developments we've been executing here in the U.K. and in Europe. FY '23 was a busy period for new showroom developments and major refurbishments, having opened 15 new showrooms and refurbished an additional 12 within the fiscal year. It has also been a busy period for us developing a pipeline of major projects for FY '24 and beyond. Our focus remains on creating welcoming, nonintimidating browsable spaces within a modern, contemporary and luxurious design, with a clear focus on client experience and hospitality. We've continued the rollout of our Goldsmiths Luxury design, recently completing a significant development in Cribbs Causeway shopping center, Bristol. The images here show the scale of the transformation from what was our previous design to the new concept. The new showroom is anchored by a large Rolex-branded room, along with large branded areas for Omega, Hublot, Grand Seiko and Panerai. This development also allowed us to open new mono-brand boutiques for Breitling and Tudor within the mall. We completed the city of Bristol recently with the major relocation of our Goldsmiths and Cabot shopping center, additional to which we have now opened a Breitling boutique in the same location. The new Goldsmiths concept is continuing to trade well and transform how our clients experience our brands and products. We will continue this rollout into FY '24 with major transformations planned in malls such as the Trafford Centre in Manchester and Bullring Center in Birmingham. During FY '23, we developed a new design for Mappin & Webb, focused on more modern, contemporary design whilst respecting the great heritage of the brand. Here, you can see the previous location of Mappin & Webb in York, which was the last of the Fraser Hart showrooms we acquired yet to be refurbished. We have relocated on to Davygate in York, significantly increasing our footprint for this beautiful new showroom, accommodating a large Rolex room, a new fine jewelry gallery and branded areas for Cuda, Hublot and Bulgari. This new design, first of its kind, launched on the 30th of June. Early trading and client feedback is very pleasing. Further rollout of this new concept will take place during FY '24. In October 2022, we successfully opened in the new Battersea development with the Watches of Switzerland Showroom anchored by Rolex and Cartier as well as 4 mono-brand boutiques with our brand partners Omega, Breitling, Cuda and TAG Heuer. To date, trading has been in line with expectations. Following this launch, we have continued with the elevation of our Watches of Switzerland showrooms. Here, you can see the original showroom in the Stratford Mall, London, now expanded and relocated to this amazing presentation. The expansion of our U.K. mono-brand boutique division continued. In FY '23, we opened 14 new boutiques, including recently opening Breitling boutiques in York and Leicester. Total number of mono-brand boutiques in the U.K. at the end of FY '23 is 51 with further developments planned for FY '24. Work continues in progressing the design for the new Rolex boutique on Old Bond Street, London. The lease is signed and possession planned in October 2023, with opening in summer 2024. I'm also delighted to announce we will be expanding our current Rolex boutique in Glasgow with work commenced in April 2024. As recently announced, we plan to enter into a joint venture agreement with Audemars Piguet to open a townhouse in King Street, Manchester. This very exciting project is planned to open in autumn 2024. In Europe, FY '23 saw us open 6 new mono-brand boutiques. In Stockholm, we opened 2 boutiques with Breitling: 1 on the High Street and 1 in the Mall of Scandinavia. And in December 2022, we opened our first Omega boutique in Stockholm. In Copenhagen, we opened boutiques with Omega and Breitling. So more recently, we opened our first TAG Heuer boutique in Dundrum, the Republic of Ireland. Since the start of FY '24, we have now opened TAG Heuer boutiques in Mall of Scandinavia and in Berlin. I look forward to updating you further as we progress our refurbishment and expansion program in FY '24, both U.K. and in Europe. Travel Retail passenger numbers continue to improve towards pre-COVID levels at Heathrow and Gatwick, and our retail business continues to grow also. We still believe strongly in the Travel Retail business and remain optimistic that sometime in the future, a form of duty-free will return in the U.K. We continue to look for further opportunities to elevate our business at both Heathrow and Gatwick. To support Rolex, Rolex Certified Pre-owned and all luxury watches, we intend to further grow our capacity for aftersales and servicing by expanding our Manchester Service Center, as well as open a new service center facility in Leicester. Leicester Service Center will be operating by the end of calendar year 2023. The overall client experience continued to be a focus throughout FY '23 with a significant event program ranging from factory tours to watch manufacturer visits through to intimate dinners and money-can't-buy experiences. In total, we held 169 events and entertained over 7,500 clients. FY '24 will continue to see a focus on client experience and an elevation in our event program. All of the successes achieved could not be possible without a great team of colleagues in both retail and support services working fantastically well as a team and delivering on our strategic objectives. Now I'd like to hand over to David Hurley.

Thank you, Craig, and good morning, everyone. My name is David Hurley. I'm the President of North America and Deputy CEO, and I'll give you an update on our U.S. business. I'm very proud of our team's ongoing growth in the U.S. market. We've gone from just over $100 million to just less than $800 million of revenue in 5 years. Starting from the acquisition of Mayors and the takeover of luxury watch retail in the Wynn Las Vegas in FY '18 and our first stand-alone Watches of Switzerland stores in FY '19, we've grown the business consistently year-on-year through renovations, acquisitions, mono-brand expansion, e-commerce and new categories like Pre-Owned with our acquisition of Analog Shift. We've continued our mono-brand expansion into FY '23, opening Breitling and tag boutiques in Lenox, Atlanta. We already have Mayors and Audemars Piguet boutiques in Lenox, as well as an additional Mayors boutique in Alpharetta just outside the city and have further plans for expansion in the Atlanta market over the next few years. In August, we opened up Grand Seiko and TAG Heuer boutiques at Copley Square in the heart of Boston. And finally, Breitling and TAG Heuer boutiques in Boca Raton, where we've recently renovated and expanded our Mayors boutique. The integration of Betteridge is now successfully complete. Each of the markets we've entered, Greenwich, Vail and Aspen are very affluent, and we've embedded a new management team to lead the continued development in these markets. For the flagship Greenwich location, we've added an additional 2,500 square feet on the ground floor and another 2,000 square feet on the lower ground. The fully refurbished boutique will be anchored by Rolex and Patek Philippe, with Patek opening early next calendar year. In Plano, Texas, we have a new flagship corner space secured with Rolex and Cartier, adding to the current brand lineup. Our new Watches of Switzerland showroom opened at the start of the new fiscal year with Cartier due to open prior to the end of the first quarter. We've been really pleased by the initial sales and the strength of our team. We have also opened or relocated and expanded Dateline showroom anchored by Rolex and with new brand introductions for Cartier and Chanel. Our store development teams will continue to be kept busy through FY '24 with new mono brands in New Orleans and Salt Lake City, a relocation and expansion of our Rolex boutique in Orlando, our current New York Watches of Switzerland store and our [ Tampa ] Mayors boutique being expanded and relocated between Louis Vuitton and Tiffany. Vintage and Pre-Owned was our fastest growth category in FY '23, and that has continued into FY '24 with Rolex CPO launching in the U.S. next week. So lots to be delivered in FY '24 in the U.S. And with that, I'll pass you on to Anders.

Thank you, David. FY '23 was another year of record revenue. Sales came in at GBP 1.54 billion or plus 25% on FY '22. That is 19% in constant currency. This takes us north of GBP 200 million ahead of our long-range plan, which we shared with you during the summer of '21. Sales was driven by luxury watches with an increase in average selling price. Our adjusted EBIT of GBP 165 million or plus 27% on FY '22. We continue to leverage our cost base in spite of inflation and the benefit of U.K. rates holiday worth around GBP 5 million in FY '22. Our adjusted EBIT margin expanded to 10.7% or up 20 basis points in FY '22. Our free cash flow was GBP 146 million or plus 30% on prior year. Free cash flow conversion came in at 72%. Return on capital employed hit a new record level of 27.9%. Turning to the income statement in more detail. As mentioned, revenue grew by 25% or 19% in constant currency. Pricing contributed around 9% of our growth with most brands taking the recommended retail price up to offset cost pressure. Net margin percentage declined by 60 basis points due to product mix with luxury watches outperforming jewelry. We also had an adverse impact on the cost of interest-free credit as interest rates went up during the year. The margin pressure was partially offset by a reduction in promotional discounts. We continue to leverage our cost base, so adjusted EBITDA came in flat on prior year at 13.1% or plus 24%. Our adjusted EBIT margin expanded by 20 basis points, and adjusted EBIT for FY '23 came in at GBP 165 million. Our effective tax rate for the year was 21.4% or up 60 basis points on FY '22 due to a higher mix of group profits in the U.S. and increased U.K. corporate tax rates at the end of FY '23. Adjusted EPS at 52.7p or plus 26% on prior year. Our balance sheet is strong. Continued investment in expansionary capital to elevate the network and drive future growth remains a key component of our strategy. Inventory levels was up 18%, less than sales growth. The increase in inventory also was impacted by higher unit costs because of pricing from our suppliers. Worth to point out is that when wholesale prices go up, the recommended retail price moves in line. We also benefit from the stock on hand when prices increase as we have bought it in at a lower price, but we can sell it at a higher recommended retail price. We closed the year with net cash of GBP 16 million versus a net debt of GBP 14 million in FY '22. Our free cash flow for the year was GBP 146 million with a cash flow conversion of 72% or plus 300 basis points on FY '22. We continued our investment in elevation program and spent GBP 68 million of expansionary capital during the year. The acquisition is mainly related to the acquisition of 1 showroom from Bernie Robbins in New Jersey. On the 9th of May, we replaced our old facilities with a new revolving credit facility, increasing the liquidity headroom by GBP 55 million. There is no change to our guidance for FY '24. Our guidance is based on visibility of supply of key brands and includes confirmed projects but excludes any uncommitted projects and acquisitions. Sales are expected to come in between GBP 1.65 billion and GBP 1.7 billion or plus 8% to 11% in constant currency. Our adjusted EBIT margin is expected to be in line with FY '23. Product mix, we expect luxury watches to outperform; jewelry, and increased cost of interest-free credit are the main drivers of this. We expect further leverage on our cost base in FY '24. We will continue our investment program and expect to spend between GBP 70 million and GBP 80 million on capital in the year. Our cash conversion is planned to come in at circa 70%. With that, I will hand over to Brian for a summary.

Thank you, Anders. Thank you to Craig and David, 2 of your presentations. In summary, a great year, fiscal year '23. Record sales, record profits, record ROCE. Our growth strategies and business models are working in all markets. We have no change to our previously announced guidance. Long-range plan through fiscal year '28, we plan to present to you in the autumn. We're making great progress in ESG, making great progress in the Watches of Switzerland Group Foundation. And finally and most importantly, a massive thank you to our 2,800 colleagues for the great job they've done this year. Ever inspiring great work, and they deserve the credit for what's been a very successful year. And with that, I'll now hand over to questions.

Thank you very much, sir. [Operator Instructions] Our very first question today is coming from Antoine Bregeaut, calling from BNP Exane.

It's Antoine from BNP Exane. 3 questions, if I may. First of all, in the previous conference call, you had mentioned that the first quarter, which show a modest sales decline. So is that still the case? And to what extent you're, I don't know, a bit more optimistic or a bit less on that number compared to last time? Second question is about the dynamics of the waitlist. Here, I'm not talking about necessarily how long they are, but more how people react when they are called. I mean, are you still seeing some people maybe postponing about purchases. Any update on that? And finally, you have a guidance of flat margins. I've noticed that the -- not the only ones that the pound sterling has strengthened. So -- but yet, you're maintaining the guidance in values. So are there some sort of offsetting factors. And more in general, if -- what sort of top line is sort of required as a minimum to reach that flat margin guidance?

Thanks, Antoine. So we're not going to say anything more specifically on Q1 trading. We've confirmed our guidance overall. And if you recall, the -- what we'd indicated before about Q1 been modest decline was based upon delivery schedule from our key partners and some very tough year-on-year comp. So none of that has effectively changed, and we are confirming our guidance, and I can't really say anything else about Q1 overall at this point. [indiscernible] behavior hasn't changed either. We're still adding more people to the registration of interest list, and we're taken off. Demand remains very, very strong and positive. And consumer behavior really hasn't changed from anything I've indicated in the last couple of calls that we've had. Anders, do you want to talk about margins?

Yes, sure. So we expect, as we pointed out, margins to come in line with FY '23 or FY '24. And that's driven by a more solid growth in luxury watches than we expect to see come through in jewelry. And we're going to have a headwind from interest-free credit in the first half, and then we start annualizing higher interest rates in the second. So more impact in the first versus second. In terms of FX, obviously, we haven't changed the range from GBP 1.65 billion to GBP 1.7 billion. So we have covered to come in at current rates. We do reforecast our sales and profits on a weekly basis and are confident by our guidance.

All right. And maybe just a follow-up. I mean in terms of areas of cost where you could have some flexibility. Are there some -- are there wrong things like federal marketing or more structural cost savings that you could achieve in case the online environment would put a bit weaker than anticipated?

We obviously review our investment strategy as part of our trading meetings, which we again conduct on a weekly basis. So if there is pressure coming in terms of interest -- further interest rate hikes that we had planned for some coming through this year. Obviously, we will take the appropriate action to offset some of the effect of that.

Antoine, if I could just add that if you look at the year that we're reporting fiscal year '23, there was a lot of moving parts in the year. We start with our guidance the entire year. And we are prepared in terms of actions, in terms of contingency and that sort of thing to make sure that we've given out guidance that we feel confident we can deliver on it. So I think we're looking at a more stable situation than you would have said, what were the conditions that we experienced and had to respond to last year.

Our next question will be coming from Jonathan Pritchard calling from Peel Hunt.

Two, if I may. Firstly, on interest-free credit. Has the percentage of sales going through our interest rate credit changed? And how do you intend to sort of mitigate the impact of further interest rate why is this making that a more expensive offer? And secondly, on Europe, is there a pipeline at all? I know you've talked a lot about acquisitions. But just looking out sort of 18 or 24 months, is there a pipeline of stores that you can -- you have or are we sort of settling at 7 for the time being, having a look and hoping for acquisitions?

I'll take the interest rates. So we have planned for base rate increase in our guidance. If rates were to climb even further, obviously, we would take, as we pointed out, actions on our other cost base to offset that. We think that in the U.S., probably rates will not continue to move upwards. And so we don't see that as a risk here. In the U.K., clearly, there is a potential of further rate increases, and we have monitored that and come up with a list of offsets that we should take action on if that was to occur. In terms of the penetration of interest-free credit, remains pretty much in line with what we experienced last year.

On Europe, Jon, we're very kind of pleased with our progress in Europe with the stores that we've opened. An analysis of the market was that it was under invested in terms of retail and support of marketing. And I think we've proven that to be the case for the stores that we've opened in Stockholm and Copenhagen, and now you add to that Dublin and Berlin. So I think we've proven our contention. Our strategy was always to have full presence of our model in Europe, which would include representing all of our key brand partners. We think we would really achieve that effectively through acquisitions. So it's been a key part of our strategy alongside the development of mono brands. There are all opportunities for the mono brand development that we continue to look at, but we would like to be able to progress and deliver on an acquisition and obviously, we're actively working on it. Once we're fully present, then there's other opportunities of airport retail, there's e-com and fill sweep, if you like, of a flexible response of retailing that we could do for the market. So feeling positive about Europe and want to do more than we're doing at the moment.

We'll now go to Jon Cox calling from Kepler Cheuvreux.

I have some questions on the sort of the pre-owned market. You mentioned it doubled for you during the year. But can you give us an absolute figure in terms of group revenue, where you are? I'm guessing somewhere close to 10% of group revenue is maybe in the pre-owned watches. And then just a follow-on. I think it is really great news, the whole Rolex certification scheme. Can you just sort of talk through the dynamics? I guess you've had a lot of watches in that you've been buying. You sent them off to Rolex. And I'm just wondering about the lead times and the process. And I'm wondering if, ultimately, do you think you would actually be doing the certification? Because I understand there is quite a big bottleneck at Rolex at the moment, which obviously will cap potential sales from that scheme. And obviously, if you could do the certification, that would probably be very helpful.

So we're very pleased with our progress on pre-owned. So obviously, in the U.S., we bought Analog Shift, who are great guys and a great brand. And we've really built that very effectively here in the U.K. We've expanded our abilities to both procure and rework and present a pre-owned product. It's nowhere near 10%, though. It's -- we're not giving an exact number, but if you go back a couple of years, we're reporting that pre-owned, there's only 1% of our sales. So you're pretty far off at 10%. But we have very high ambitions for CPO with Rolex. Effectively, Rolex directing that whole activity to authorized retailers like us. It will increase the supply of Rolex effectively to our clients and representation in store. And you're right that just working all the logistics and processes are the key priorities right now. We have a good experience so far. We've given watches, they've been authenticated. They're back with us again, all been on schedule. There's been a great deal of preparation done. The first experience we're going to have is in the U.S. next week, and that will happen. And experience so far is watches given turnaround in the time frame that was indicated and back with us again, and we are now working on the in-store presentation and distribution. So we are not experiencing a bottleneck, but we have to see how all these logistics work. And we will authenticate and refurb the watches in time, it's our assumption that we will. Be able to happen quicker in the U.S. and the U.K. would be my bet, but it's -- as Rolex being appropriately careful as they always are and doing something that's significant to the market or just 100% making sure that everything as it should be. So they are doing all of the authentication and [ reform ]. Effectively, we've managed to take some work away from them by extending our capability of rework and so on for all the -- for new Rolex products that have been just serviced. So we've kind of created our own capacity. So we are feeling good about it all, and I think it's fair to say that we would anticipate at some point in the future that we would be doing the authentication and reform work and slow down -- and speed up rather that process of getting product back to market. But we feel very, very positive about the prospects for Rolex CPO and other brands in the years ahead, and it will feature obviously in our long-range plan.

So at the moment, if I walk into one of your stores with Rolex, I can sell it to you on the spot?

You always could.

Because I -- you always could, yes, exactly. Yes.

You always could and what we supplemented it with is we have a team doing online, a lot of this activity is digital. So we have a team doing valuations online. And in the U.K., all of our product today is coming directly from consumers. In the U.S., there are agents around that can supplement. But yes, you can walk in and we'll value your product, and we have people fully trained to do that, and then we have kind of centralized export -- experts, but it works very well.

Yes. But I'm just wondering, are you getting a load of people coming in with their Rolexes saying they want to sell it? And then obviously, it takes you a lot of time to turn it around, get the Rolex certification. Does this have an impact on your inventory? Or you're sort of like tying up cash for 6 months or 12 months until you can get it back into the store to sell it?

Honestly, I don't think the working capital element -- it's longer than getting supplied by the Rolex product and contacting people in a waiting list and selling it, obviously. But we're not really expecting it to be a significant working capital issue at all. We're working on the logistics. Rolex is very, very efficient in everything that they do. It's all getting done locally by the way. So here in the U.K., it's London. U.S., it's New York. So no, we're not expecting it to be a significant drain on working capital or buildup of stock at all.

Okay. And maybe just a follow-up, maybe more of a technical question. This is on the sort of new relationship you mentioned with Audemars Piguet, like a joint venture. A, I'm just wondering how do the financials work on that? Is that more like a royalty payment? Or does it come in at the associates line? And then as an add-on, obviously, AP is doing most of it now. In theory, in-house, is there room, given the changes in the management at AP to maybe bring back some of that business into this new model? And maybe do you see potential elsewhere with this model? Or is it not something you really want to pursue too much because maybe the profitability is not quite as good as the group?

The profitability is attractive, the return of investment is attractive. We really like to own 100% of the store rather than a significant minority, yes, but even a significant minority of an AP store is a valuable investment. And obviously, the proportion of the investment is relative to the proposed number of returns. So they are very good deals for us as a model that Audemars Piguet. Obviously, they'd be very clear in saying they don't really want to be in mono-brand situations, they don't want to be multibrand. But we were hopeful -- or we are hopeful of doing more projects like this with them. But this will be our first big -- and it's a big deal at Manchester. It's a beautiful store. It's a beautiful location. It's a great city, and we think we'll do really well. The change in the CEO, obviously, we're going to wait and see if that results in any change in strategy. I'm not anticipating that it would -- you never know that different CEOs might have different ideas, but it's a hugely successful brand, and its demand usually exceeding the supply. And this AP house that we'll be doing with them, I think it will be a really successful and exciting project.

The next question is coming from Natasha Brilliant calling from Credit Suisse.

Three for me, please. So firstly, M&A perhaps has been a bit slower than we might have anticipated. So just keen to understand why that might be. And it strikes me that both the U.S. and Europe are quite fragmented markets, lots of opportunities, perhaps even more in a tougher macro environment. So what might be the catalyst for us to see a bit more on the M&A side? And then a couple of questions for Anders. First of all, on -- you mentioned cost savings in the event of rate rises. So I just wanted to confirm that you'd only execute from those additional cost savings if rates were to be higher than you budgeted for. Or in other words, are there scenarios of potential cost savings or upside risk on the margin that you could roll out as the year goes on even if interest rates are as you expect? And then the second question, last question to Anders, just you rejoined the business. Any particular observations or anything that surprised you? Any thoughts to share with us?

The M&A, I mean we're actually ahead of what we've put in the long-range plan for M&A, but we did more upfront. Are we working hard on it today to do more U.K. -- U.S. and Europe? Yes, we are. And the opportunity and I think the compelling logic for scale and as you described it, I think it is obviously fragmented markets, U.S. and Europe. So it remains a big focus. We are not going to change our financial formula that we're using. Might there have been an element of some people are willing to sell in principle, but maybe I wanted to enjoy how super strong the market was a year ago. Yes, I think there could have been an element of that possibly. But we're working on it. I'll give you a full update on what we think the potential is when we do in the long-range plan. But nothing's changed in terms of the opportunity and our ambition.

In terms of cost savings, obviously, we're not wasting money, just to point that out. But obviously, we can have choices to make, whether or not we would engage with the third-party activity that we otherwise would have done and defer that out to a later stage and things like that. So it is in sort of those areas. We're not looking at conducting any restructuring or anything like that nature. We don't see any need for that. The business is performing really well, and we're in for the long haul. So no change in strategy at all in that sense. But it is more about being picky and choosy about which services we actually go out and acquire. And on your question on observations after my return, obviously, I really enjoy working in this company. That's why I'm back. So really fascinating to come back, I must say. A lot of things has remained the same with obviously progressing in the business. I think the recruitment process has been good. We've added some really strong talent in merchandising, which are really enjoying to see. Finance team remains super strong. So all of that has worked out really well. Business in the U.S. continues to grow. Fascinating. So I love being back.

I'd just maybe add from our standpoint, Anders seems a bit more relaxed and more sometimes, that's probably the main observation.

Our next question is coming from Kate Calvert calling from Investec.

A couple from me. The first question is could you comment on the amount of stock which has gone into your summer sale this year compared to last year and pre-COVID levels? Is it more or similar? My second question is on Mayors. Could you comment on how your refurbishments are performing in terms of payback? And how many have you got left to do? And a final question, a bit more technical. Could you just break out your mono-brand expansion issue, the 20-year opening by region, please?

Yes. Sale -- we are participating in the summer sale as you all have seen. And we've been reporting more or less flat customers, the jewelry market has been tougher than expected and tougher than what we had planned for when we obviously bought the stock. So we have a bit more jewelry stock than is ideal. We have some areas of watch discontinuations as well, where we have the stock and obviously, whatever changed through that effectively. So we are participating in the summer sale. Historically, we always did. In fact, the last couple of years, we did too, but we're participating a bit more than we've did over the last couple of years, but still overall, less than what we were doing historically pre-COVID. It's -- we've given reasonable discounts. It's not very profitable, averaging, obviously, that contributes to the aftersales performance. So -- and it's predominantly in the month of July. Mayors refits...

So we've done 7 out of the 13. So we have 6 to go in Mayors. And obviously, the payback on that acquisition has been significantly ahead of what we expected when we acquired them. The purchase price as disclosed was about 8x trailing EBITDA. And we haven't specifically said what the payback was but way beyond our wildest imagination.

Yes. And also, we would have done all the Mayors month 1, if we could have done. But it's -- a, we got -- when we are refurbing, we do more than refurbing, we tend to expand. We relocate like we did in Lenox, for example, we relocated. The Merrick Park, we relocated. So -- but look to do more with the stores, we'll look to get more brand representation. So -- and then with those Rolex design and -- everything takes a bit of time. And so we're looking forward to have all been done in the new format, really work, but there's no question, significant increases in traffic with maintained conversion. So that's where the sales upsides are coming from. On mono brands, I don't think we've given a split by region overall. I think it be hard to guess. I mean the return that we're looking at, it's not that different by region. So if you got it wrong or we [indiscernible] don't think it makes any difference to any models. But we continue to roll out. It's the same partners that we're rolling out and overall -- and it's got good momentum.

[Operator Instructions] We'll now go to Adrien Duverger calling from Goldman Sachs.

So the first one would just be on the visibility of the supply of products, particularly with the reopening of Asia and stronger tourism demand in Europe, especially related to the U.K. The second one is just within the U.K., do you see any difference in performance between London and the other cities? And do you see any softening of consumer demand or down trading by consumer price point? How like your same question regarding the U.S., so what do you see in terms of underlying trends? Anything to call out with regards to traffic or conversion in the U.S.?

Adrien, thanks for your questions. Supply of products, yes, they're back for sale. But we don't see when that happens in terms of supply as we get numbers at the start of the year from Rolex, from Patek, and those numbers are always honored in terms of units. And if it ever change, it's a change up, it's never down. And I don't think people are assuming that during lockdown, there was a huge reduction of what was going into China, and there's a huge increase. I really don't think those dynamics happened. I think as was the experience with us during lockdown, supply was maintained, and actually sales were reasonably maintained as well overall. So I guess, much less of a big deal with key brands and there might be for luxury overall. In terms of London Regional -- no great change. I mean I think London still doesn't have the full traffic back in terms of U.K. tourism coming into London, it's better western traffic overall, progressively getting better, but not at pre-COVID levels yet. People are still working full time here. I think there's a lot more 4-day working happening, 3 day, 4 day, but still not up to where it was before. And obviously, tourism pretty much disappeared when lockdown happened. There's a bit of it back. But of course, we have the bad situation here in the U.K. So even with tourists back, we will be getting the same impacts that we did previously because people could shop tax-free in Europe in a way that they can't do here. So we haven't experienced and we're not projecting any significant upturn in the split of our tourist business. And our business in the U.K. remains 70% -- 97% domestic. We have seen an uptake in the airport. And Heathrow is back and running, I think, pretty efficiently again from my experience, and really pleased for the people there. They've been through a lot and lot with lockdowns and systems issues and whatever. But they now get a good level of traffic. I think we're having a reasonably normal summer, but I mean kind of pre-COVID-type summer, overall. Good traffic, good efficiency, more been at the control issues in Europe won't negatively impact that overall. But traffic's good, retailing is good. Gatwick as well. Traffic good and retailing good and will be a bit better than we might have expected. In the U.S., I think we're very well positioned geographically. Florida has been -- has a great economic response to all of what happened in COVID, so the state is booming. And obviously, that's the biggest part of our business in the U.S. Vegas is also booming. It's -- a lot happening in Vegas, we've got a Formula 1 coming up in November. But apart from that, a lot of construction happening, still a lot of expansion. And hotel occupancy is very, very high. So Vegas has been great. New York, similar to London. You've still not got the number of people back working in New York as it was pre-COVID. New York actually is good, so traffic in Hudson Yards and so actually very good. And those stores have done wonderfully well for us since we opened up back in '18, '19. But -- so we're not seeing any real consumer -- what the consumer has done over the last couple of years and continues to do so is trade upwards. We're selling more gold, less sterling gold -- more sterling gold, less steel. So generally, the consumer is trading upwards. So there's a trend towards yellow gold in both watch and jewelry, which is positive for price points. So we haven't seen a trade downwards because of economic concerns amid.

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

Yes. Well, thanks, everyone, again for joining us. We are very pleased with the year -- fiscal year '23, record sales and profits and return on investment. So we're thrilled about that, and pleased to be maintaining our guidance. And we are working on a long-range plan, given a great deal of attention and when we present it to you in autumn, very much thought through it and our best view of what this 5-year period is going to give us. And we're very, very confident in our sector. As said, we're in a great place. It was a luxury watch category with jewelry and within that great place, clearly, our model is working very effectively. Very pleased in other areas too like ESG, where we made great strides, the work our foundation is doing, the engagement of our employees. And finally, just to our employees, to our colleagues, a massive thank you for the continued hard work and focus and positivity that they show. They are really an inspiration and they take a lot of credit for our performance that we managed to deliver. So positive all around, thank you for joining us, and we'll look forward to updating you with the quarterly update following Q1. Thank you.