Next Aktie

Good morning to everybody. Before I hand it over to Simon, just a few comments. Two long-serving Board members, Jane Shields and Jonathan Bewes will be stepping down from our Board of Directors in May. Jane has worked for NEXT more than 40 years. You don't see that much anymore, do you? More than 40 years and been on the Board of Directors since 2013. Jane's contribution to the success of the company has been substantial, both at the operational level and certainly at the Board level. And I would just say, I think Jane represents the best qualities of what we have at NEXT plc. Jonathan Bewes has been a Board member for 9.5 years, and he has been Senior Independent Director and Chairman of the Audit Committee, and he's made significant contribution. So I'd say, Jonathan, many thanks for your work and your service on the Board.

I would like to welcome two new Board members, Annette Court and Jeni Mundy, who will be joining the Board. Annette started on March 1, and Jeni will be starting on April 1, and both will stand for election at the May AGM. As you've seen, the results for the year ended 2026 are very good, and it certainly reflects the broad strength of the group as we outperform in all areas, be it retail or online U.K. and certainly in the international markets. Before I turn over to Simon, I would like to recognize and thank our more than 40,000 employees globally for their daily decision-making and basically making things happen for NEXT throughout the world. Simon?

Thank you very much, Chairman. All right. Good morning, everybody. Slight change of order to things today because I know some people like to slip away early, so I'm going to give you the punchline at the beginning. Punchline is about next year rather than all the stuff that last year. And in terms of next year, the big news today was that there was no news. We've held our targets. And you could look at that 4.5%. In fact, I think most people did look at it in January and think that it was pessimistic. And if you had only looked at our U.K. sales in the 8 weeks in the run-up to our announcement, then you would definitely agree that, that was a pessimistic assessment. However, if you were to look at what's going on in the Middle East and the potential knock-on effects in the U.K., you could argue that it was optimistic.

And just in terms of the Middle East, I suppose first thing to say in terms of the U.K., the numbers, we had -- those first 8 weeks did not include the really big numbers we hit as the weather improved this time last year. We got some significant benefit from an early summer, and we're just about to hit those numbers now. In terms of the Middle East, it represents 6% of our total sales. We lost -- for the first week of the conflict, we lost virtually all the sales because it was our operations stopped working. We are now serving all of the territories in the Middle East. A few of them are on slightly longer lead times. But because we've got a hub in the Middle East, we are able to service them directly from stock based in the Middle East, which means we're not dependent on airfreight for anything other than replenishment.

And we are shipping stock to the Middle East and replenishment runs at the moment, but that comes at a cost. And in terms of the cost of the conflict, we have quantified that at GBP 15 million, and that's GBP 15 million for 3 months, assuming the current levels of surcharges, disruption oil prices last for 3 months. That could be wildly optimistic or it could be pessimistic. We don't know. In terms of the breakdown of that cost, GBP 8 million of it comes from the outbound stock from the U.K. to our customers overseas. Of the GBP 8 million, GBP 5 million of it is Middle East costs. The rest of air freight surcharges to the rest of the world. We then got inbound costs. This is mainly the surcharge on container rates as a result of fuel price increases. That's around GBP 4 million.

And then U.K. energy costs we anticipate incurring additional costs of around GBP 3 million. And what I should stress is that those numbers are very volatile, first of all. They're just throwing forward the costs we have today. And the second thing I should say is that we've offset all of them by cost savings or margin gains that we've identified since January, around GBP 8 million to GBP 9 million from margin gains and the balance from lower revenue expenditure, mainly systems. The biggest difference between now and January is that we brought our systems budget down by around GBP 6 million. In terms of -- don't take that number and multiply it by 3 to get to the cost for the rest of the year because if it looks like this is going to persist, we will begin to pass through those costs to consumers, specifically in the affected regions, but also in the U.K. In terms of U.K. prices, that would mean prices going up between 1% and 2% from where they are today in probably June, July if things persist.

The much bigger worry, if you want things to worry about, which obviously you do, is the cost of goods because things like polyester and energy costs are a huge percentage. Energy costs are a big percentage of fabric as is obviously polyester. So I think you could see significantly larger increases in cost of goods coming through probably October, November is when those will begin to hit down again if the conflict persists. So that's sort of business affected costs and the potential impact on selling prices covered. The one thing I should say about that 4.5% is just a reminder that at this time last year, we were -- our guidance was at 5%. So the 4.5% guidance does not limit our ability to outperform that number.

Now I think with things in the world as they are, I think that's unlikely. But what I want to stress is a cautious approach to a sales budget because we always buy markdown stock and we can eat into it. A cautious approach to sales budget always leaves us with the potential to beat budget if the demand is there.

Moving on to last year and starting with the P&L. And just to remind you, this is all on a 52-week basis and not consolidated. Total group sales up 10.8%. Total full price net sales up 10.9%. In terms of the breakdown, retail stores up 3.5%. In many ways, that's the most remarkable number here. And we think that number is the one that is most flattered by the good weather in summer and the disruption to a major competitor. And we'll talk about each one of those as we go through.

In terms of profit, profit up 13.9%. And the vast majority of the difference between the growth in sales and the growth in profit is about leverage over fixed overheads and some margin gains as a result of improved clearance of upstock through directory online. Profit before tax, up 14.5%. The drop in interest charge here is all about the fact that we didn't buy back shares during the year. So the cash that we accumulated during the year had interest on it that came to around GBP 8 million. So that reverses out in the year ahead. And obviously, you get back in earnings enhancement what you lose by way of P&L more than what you lose from the P&L cost.

In terms of the quality of earnings, good quality of earnings. There was a very big noncash gain from GBP 20 million release of bad debt provision. That meant that our finance department worked even harder than usual to find looking every little nook and cranny of the business to check that all of our provisions were where they should be and that we had enough impairments for our small businesses. And we've -- so we've taken another GBP 14 million of impairment costs there to offset that GBP 20 million has offset it, not to offset it, obviously.

And then some foreign exchange gains just on the instruments that carry over from one side of the year to the other. Earnings per share up 17%. The main difference between last year's profit before tax and EPS is the boost from the previous year's share buybacks. We didn't buy many shares back last year. Ordinary dividend up by 15%. That gets us back to cover of around 2.8x, which is where we want to be and GBP 3.60 return to shareholders by way of capital by B share scheme, and that is in place of the buyback because we were out of the market. We're now back in the market. Thank you very much for your help with that. And all of the numbers that we'll tell you today will be on the basis that we can continue to buy shares throughout the year.

In terms of the cash flow on a consolidated basis, and this is looking at a 53-week year, GBP 147 million from profits, another GBP 24 million from the 53rd week of cash. In terms -- not much change in depreciation, that's gone up much less than sales. CapEx up by GBP 17 million, slightly less than the forecast in the half year, and that's all about the timing of store CapEx. So GBP 168 million last year. The really interesting number is the number this year because we've gone back and we've significantly increased our estimate of what we'll spend this year. And all of the increase is in warehousing. So I think we'll spend GBP 237 million this year. It's all about our Elmsall 3 warehouse. I'm going to go into a lot of detail later on, which is something to look forward to. But just to say this is a good thing. This is because we're growing our sales faster than we expected.

In terms of throwing that forward because this is a sort of 3-year investment program in warehousing, we're looking at CapEx at around the GBP 250 million level for the next 3 years, we think. You might look at that and worry that NEXT has become fundamentally more capital consumptive. The business is entering a phase of strong capital consumption. Actually, this is our history of CapEx over the last 20 years. If you look at CapEx as a percentage of profit, which is the right measure, what you can see is that the 19.6% we're at this year is just below the last 20-year average. So fundamentally, the business is not more capital consumptive. It's just that in periods of strong growth, you have to invest more. In the periods fellow years, you invest less.

And I think the other really important thing that this graph demonstrates is that if you look at the data for long enough and hard enough, you can always find the number you want. Working capital up GBP 46 million. The real difference here is the GBP 19 million increase that our aggregator partners owe us. That is all as a result of our sales increasing on their website. They keep -- they take the sales, take their commission hand on a month later the sales. So there is a debt there. The faster that grows, the bigger that debt grows. All the other movements in working capital were one-off. There was a one-off movement in the timing of aggregator payments. We got a benefit last year from that. We get this benefit this year.

Cash in transit, this is a new accounting standard that we have rushed to embrace, and it's actually very sensible. It means in previous accounts, we had accounted for credit card sales as if they were cash and not accounted for 3 days that the credit card companies take to pay us. So this accounts for that conforms with new accounting standards. And also, I think for me, in the last 25 years, a bit of a landmark moment as well because this is the first change in accounting standards that I really agree with. In terms of surplus cash, GBP 129 million of surplus cash distribution to shareholders, GBP 221 million. The difference between that, the GBP 93 million difference is that last year or previous -- year before last, we were accumulating cash on the balance sheet, GBP 40 million of cash accumulation in anticipation of paying down the bond. This year, we got the bond away, and we've returned our leverage to its historic norms at around 0.63. And so there is a cash about GBP 53 million more of debt funding that difference.

In terms of stock, stock up 8.8%. The NEXT stock as at week 52 was up 7%, so broadly in line with our sales increase. You'll note for the last, I think, 3 or 4 sets of results, we've shown stock increases much greater than sales. And what you can see from this is that those increases have stopped, but we haven't reversed them out. We're going to keep a little bit of extra cover in the business in anticipation of the sort of disruptions that we've seen over the last few years potentially happening again. We think it's better to have a little bit more cover, we didn't suffer from it last year.

In terms of customer receivables, customer receivables up 2%. You would expect those to be up much more than 2% given the growth in our credit sales at 5.8%. The reason that we haven't got that growth is because our debtor days continue to reduce. They reduced by about 3.6%, which accounts for the difference in those 2 numbers. The reduction in debtor days is reflected in much lower rates of default. And what you can see, if you take a sort of pre-COVID to now view, you can see that our default rates have dropped to 2.2%. That is lower than the company ever has certainly as long as I worked for the business. We've never seen default rates that low. That 51% reduction is a little bit deceptive. It's not because 51% fewer customers are defaulting. Actually, the numbers of customers defaulting is around 8%. The -- what's the big difference is the balance they're defaulting at and this is the result of much tighter and better credit controls that we've implemented over the last few years. And one of the sort of advantages of some of the machine learning algorithms we've had and just greater vigilance.

In terms of provisions, we're still comfortably but not over provided 6.9% as against default rate of 2.2%. So we've still got room for that to move the other way if it does. In terms of other debtors, I've talked about international aggregators, talked about cash in transit. The GBP 20 million of interest-free credit is because last year, we switched to funding our own interest-free credit for furniture in stores. That hadn't -- for the previous year, that didn't fully annualize until last year. So the tail end of that cash outflow is what you're seeing in that GBP 20 million.

In terms of creditors, up 9%, broadly in line with sales, what you'd expect. In terms of net debt, net debt up 8%, I'm going to talk in a lot more detail about that in a moment. And then in terms of net assets, increase of GBP 26 million. It's only GBP 26 million, and that's what you'd expect because the vast majority of surplus cash we have rightly given back to shareholders. In terms of debt, the GBP 713 million was lower than where we targeted year-end debt. That's all about timing of payments. So we targeted GBP 739 million of year-end debt and leverage of 0.63, which is where we think is a good place for a retailer of our type to be.

In terms of inflows in the year, we expect GBP 978 million of cash inflow, CapEx and dividends of GBP 237 million, GBP 300 million, respectively, GBP 500 million returned to shareholders through buybacks or other means. And that would get us back to the 0.63 leverage of GBP 790 million. In terms of buybacks, we've bought GBP 196 million to date, and our plan is to continue that evenly through the rest of the year. In terms of funding, started the year with GBP 1.2 billion of funding. This year, GBP 114 million of 2026 bond is repaid. That leaves us at peak with GBP 205 million of headroom. We think that's sufficient for the business. But if market conditions are right, which they're not at the moment, but if market conditions are right, we will almost certainly issue another bond between GBP 200 million and GBP 300 million or look to increase our RCF to give us a little bit more headroom.

Moving on to retail. We had a good year. Total sales up 2.4%, full price sales up 3.5%. The difference was the fact that we pushed more of our clearance sales through online and out of retail. New space gave us 1.2% underlying like-for-likes of 2.3% up, which is in the context of the last 10 years, a very good number. Profit down 5%, which is given how strong the sales were a very disappointing number. When you look at the change in margin of 0.8%, that all is down to one factor and one factor alone. if you look at the cost of national insurance and the increase in national living wage and the numbers of the young people who moved on to the higher rate, the total cost of that was 1.4%. So had wages risen in line with sales, then we would have seen flat margins, positive margins actually.

In terms of new space, and there's a little bit of a story here. I softened you up for this 6 months ago. So this should be no surprise. We missed our sales targets on the stores that we opened by 12%. And this is not because we had one big store that missed it. This was, I think, 12 out of 15 stores missed their target. What that meant was that although we were comfortably within our profitability target, we weren't, we missed our payback target. I don't think the miss in target and the 24 -- the missing 24 months are entirely unrelated. I think in reality, our sales team who put the estimates on the stores pushed the sales as far as they felt comfortable in order to hit those criteria to get the shops open.

And in hindsight, that was a mistake. But as it turns out, it was a very profitable mistake because if we look at the amount of profit those stores are making, it's GBP 6 million of profit. over 30% internal rate of return. And if the landlords came back to us and said, I'll tell you what, you can have the shops back and we'll give you all your capital back, do you want it? My answer to that would be, no. So I think we've come to a bit of a big decision is that either we say, look, we're just in an environment where like-for-likes per square foot over the last 10 years down 30% and shop costs up 70%. We either have to say we won't take advantage of any opportunities to open new space or we'll change our criteria. And we've opted to move the goalposts. We don't think these are crazy levels of risk. We said internal rates of return at 27%, which equates to a payback around 30 months. And we think that's enough to be -- to get the sort of returns you need from stores to pay for the risk, but not so much to prevent us opening any shops going forward.

In terms of the year ahead, we're expecting the one-off gain that we got in stores from a very good summer and competitive disruption to reverse out in the first half. We're expecting so total retail sales to be down 1.5% with 1.5% coming from space. Profit down 6%, that's around GBP 12 million hit to profit margins at 9.7%. So still comfortable retail margins. In terms of U.K. online, and just to remind you, I'm going to show you our U.K. online sales separately from international sales because the dynamics of the business are very different.

In terms of U.K. sales, total sales were up 10.2% full price sales were up 8.7%. The difference was all driven by the increased warehouse capacity. Because we had more warehouse capacity, we were able to put more of our clearance stock online, both in the U.K. and overseas. That was more profitable than putting it through the retail stores, but that's what accounts for the difference. In terms of the balance of trade, just over half our business online is now NEXT brands and wholly owned brands, which are a full margin at another 9% and then third parties around 1/3. In terms of the growth of those areas, what you can see is wholly owned brands and licenses had an exceptional year. I'm going to talk a lot more about that later.

I think the exciting thing for us was the fact that the NEXT brand, despite the increased competition from brands that we own, the NEXT brand still managed to move forward, which for us is confirmation to some degree that we're not just competing with ourselves as we add new brands to the website. In terms of margin, margin moved forward to 18.2%. In terms of where the margin gain was made, what these lines show is the difference between what's happened to the NEXT brand margin and the non-NEXT brand margin. You can see pretty much all the gain has come in the non-NEXT brands. So doing mental gymnastics where we sort of changed the axis and just walk forward the U.K. online NEXT brand profitability. You can see there's a no score draw on gross margin.

Warehouse and distribution is flat, but there are a lot of things going on there. Wage inflation eroded and would have eroded margin by 0.8%, but leverage over fixed overheads and some of the efficiencies that we're seeing from the new warehouse pay for that. And then marketing and technology, slight leverage here. Technology, we're now beginning to get to the point where our sales -- our costs are not rising anything like as fast as sales. That's good news. And marketing is a surprise there. We have significantly increased our marketing budget, but not by as much as sales.

In terms of the non-NEXT brands, two things, a gain of 0.5% on gross margin, two things going on there. The elimination of unprofitable brands where the commission rate was too low and weeding out some of the less profitable lines. And there, we said to our partners, basically the choice, either we can't sell a product or we might have to put commission up a bit. On the whole, they opt for the latter. And then because our wholly owned brands are growing much faster than third-party brands and we make more margin on them, that pushes the mix, the margin mix up.

Big gain on warehousing and distribution here. And that's because wage inflation loss is lower on the branded goods because they're more expensive, so the labor content is lower. They're growing faster, so leverage over fixed overheads and the efficiencies are higher. And because we've weeded out some of the high returning low average selling price items, as a result of that, we see another 0.4% improvement in margin. So non-NEXT brand is still a long way behind NEXT brand in terms of profitability, but they have moved forward significantly.

In terms of the year ahead, we expect U.K. online growth to be 4.6%. Margin nudge forward to 18.8%. That's mainly about reversing out large staff incentive payments for this year as a result of having such a good year. So it's not an operational saving. In terms of international business, international sales up 35% at full price, 39% in total. Again, that's a reflection of increased capacity to sell markdown through the online channel. I'm going to do a bit of a Grand Old Duke of York story here and talk you up the hill and then back down. So what I would have said before the Middle East conflict is be aware of the first half numbers because the first half numbers are likely to be much better than the second half in the year ahead because last year, we dramatically increased the amount of particularly wobble brands we were selling on our overseas websites.

And we got a big step change increase in sales through Zalando as a result of consolidating our warehouse there. That reverses out, that annualizes in the second half. So all things being equal, you would expect the first half to be stronger than the second, but obviously, we've been hit by Middle East disruption just before ED, so that pretty much wipes that out, which you'll see later. In terms of third-party versus NEXT websites, third party is around 1/3 of the business. In terms of the growth, on the NEXT direct business, that was 29%, of which we estimate 22% was driven by increased marketing. Third-party aggregation, up 46%, of which 10% came from the addition of new aggregators and existing aggregator business boosted by the consolidation in Zalando.

In terms of distribution of the business across the world, Middle East still around 28%. That distribution hasn't changed dramatically. What is encouraging is that pre-conflict, we were growing pretty much in every territory. In terms of profit, dramatic increase in profit, partly driven by the sales and also an improvement in margin. In terms of bought-in margin, the increase here is about product mix and duty savings. Surprisingly, although we put a lot more markdown on our website, we actually improved the rate at which we cleared it. But I think that is testament to the improvement that we've made in our online operations in terms of how we handle the clearance sites and the number of countries that we have pushed clearance stock to.

A lot going on in warehousing, the same erosion of margin from wage inflation, although because overseas selling prices are on average higher than the U.K., not as much as the 0.8% erosion we saw in the U.K. Then we get leverage over fixed overheads from sales growth, a slight increase in handling charge income, where in some countries where we weren't making enough margin, we pushed that handling charge up a little bit. And the same benefit on average selling price and returns rate through sort of forensically going through and removing high returning low average selling price items.

Marketing, a big adverse movement here, but that is kind of the whole point. And then leverage over technology, cost centers and central overheads. The central overhead gain is a little bit of a one-off. It's not a one-off this year. It was a one-off cost last year, and that was the cost of closing the German hubs. I think the exciting thing about the margin walk forward is the fact that the significant increase in marketing has been paid for by the cost savings we've achieved elsewhere.

In terms of the year ahead, we're anticipating sales of 14.3% on a marketing spend increase of 25%. Margin forecast, broadly flat. In terms of customer analysis, and this is across all of our channels, U.K. and overseas, U.K. credit customers were up 6%. That number should be a surprise because that number has for the last 10, 15 years, been 1% or 2%. The big difference here has been the growth in the uptake of our Pay in 3 offer. Pay in 3 is where, it's a credit type offer where if you pay off all of the balance in 3 installments, you pay no interest. If you don't pay it off and you choose to extend it, then you pay a higher interest than you would have done on a revolving credit. That means the credit is growing much faster. It's not as profitable in terms of interest income as a traditional credit account, but it does significantly improve the amount of sales that we can make for those customers. So that's more of a sales benefit. That's rather more of a sales benefit than it is a credit income benefit.

U.K. cash up 10% and then overseas, 31%. I should say that this doesn't include any customers that we get from aggregator businesses because obviously, we don't have visibility of that. I think the other surprising number here is the growth in the average sales per customer overseas. You would normally expect with so many new customers coming in, you would expect that number to move backwards. That's what we expected at the beginning of the year. It hasn't. Largely, we think, as a result of the improvements we've made on our website in terms of improving conversion and average order value, which I'll come on to later.

In terms of total platform and equity partners, total profit, GBP 90 million, up GBP 13 million on last year. At the beginning of the year, I think we estimated that would be GBP 5 million or GBP 6 million. So we have done significantly better in pretty much all the partner businesses than we were expecting. Equity profit up GBP 9 million, service profit up GBP 4 million. The big increase in service profit comes from the fact that the previous year, we hadn't fully annualized the onboarding of FatFace from whom we get a big service income. In terms of that service income from Total Platform, very healthy margins, just around 20% profit on what we charge the clients and around 6% profit on their sales and their online sales, which is kind of where we set out to be.

And although Total Platform is looking very exciting at the moment in terms of its numbers, you shouldn't expect any big acquisitions or transactions this year for simple reason we haven't got the warehouse space to accommodate a big transaction this year, which I'll talk about later.

In terms of return on capital, very healthy return on capital, move forward from 17% to 23%, largely there is a result of the return to profitability of Joules and growth elsewhere. So Tom Joule, there in the audience, so thank you, Tom, for that. GBP 94 million profit -- GBP 95 million profit forecast for the year ahead, an increase of GBP 5 million. Moving on to guidance for the full year. We've already talked about the 4.5%. I won't talk more about that. Retail sales, we're expecting all the pain in the first half because that was the period where we had the exceptional weather and gained the most from competitive disruption.

U.K. online, we think will be a more even performance throughout the year. That's largely as a result of the performance. The reason we are as confident on the H1 number is because of the sales we've seen to date online in the U.K. In terms of total U.K., 1.3% in the first half, 2.9% in the second. International, 14.7% in the first half, 14% in the second. If we look at the 2-year growth, which removes any distortion from the timing of the Zalando transaction and the increase in wobble brands on the website, what you can see there is that we're anticipating 47% in the first half, and that is a reflection of the significant disruption we're getting in our Middle Eastern trade and then a return to more normality in the second half. Obviously, a big health warning there. If the war carries on at its current rate, we won't see the recovery in those sales that we're -- in the Middle East that we're expecting.

So total full price sales up 4.5%. In terms of what that means for profit in the year ahead, online profit driving GBP 76 million of profit increase, GBP 11 million decline in retail profit as a result of negative like-for-likes. Total platform and partners adding GBP 5 million. Cost increases. Wage inflation is still the biggest cost increase here, but around 2/3 of what it was this time last year. The reason that is quite as high as these actually, it would be around -- if it was just wage inflation, it would be nearer GBP 35 million. There's still 2 months of the NIC that haven't annualized in the current year. Middle East conflict, GBP 15 million of costs coming in there. Higher interest costs, which I mentioned earlier, that's all about the accumulation of cash last year in lieu of share buybacks, and we're anticipating that our marketing spend grows GBP 8 million faster than sales.

In terms of cost savings, employee incentives, that's reversing out of large incentive payment this year for a great year. And then the margin gains are where we have already in our -- in the costings we've got, we already can see around 0.2% gain in margin for both spring/summer and autumn/winter. Normally, we'd give that back and reinvest it, but given the circumstances, we're not going to do that. So that would be GBP 10 million. And then versus last year, the difference of GBP 8 million is warehousing and distribution efficiencies and stores versus our January estimate, the GBP 7 million, GBP 8 million is technology. That's what it is. That gives us GBP 1.2 million of profit at year-end.

In terms of earnings per share, we're expecting a smaller enhancement than last year, dividend yield of 2.2%. If you compare this year's expectations to last year's expectations, whilst the biggest difference is the delta in profit, you can see that the enhancement is significantly lower. The enhancement from dividends and buybacks is significant this year than last year. And that's because last year, in effect, we got a double benefit. The shares that we would have bought back last year would have enhanced earnings this year. We didn't buy back shares and we gave all the money back last year. So actually, dividends and share buybacks together, we would expect to be to give returns of around 5% to 5.5% in a normal year. And that's what we expect it to be sort of going forward next year and beyond. So that's all to say on the sort of the numbers and guidance.

In terms of the business itself, it's difficult to keep a handle on this because with everything going on in the world, everyone is worried about more and worried about Middle East than they are about the business. But when you look at the business itself, it's actually very exciting because all the avenues of growth we had last year, we think are still there for the year ahead. There's more to do.

And if we look at the GBP 550 million of growth and divide it U.K. overseas, what you can see is that actually, despite all the excitement coming from overseas, the U.K. delivered not a lot less in terms of actual growth. Same is true between NEXT products and non-NEXT branded products. You can see there exactly the same pattern in reverse is that NEXT, although the growth percentages are very exciting on non-NEXT brands, the NEXT brand still delivered the lion's share of growth. And if you divide that into sort of 4 different businesses, NEXT, non-NEXT, U.K. and overseas, you can see that those numbers are remarkably similar. And I think the message here is that the low growth in the big established businesses is delivering pretty much the same amount of growth as the very dramatic growth, 79% in our smallest non-NEXT brands overseas. We think that each one of those quadrants will be positive in the year ahead, and there's more to do.

And in terms of what's driving that growth, it comes down to two things. Overseas, it's about improved functionality, services and most importantly, marketing. And across the whole business, non-NEXT and NEXT, it's about better product ranges and broader product ranges. I'm going to start by talking about what we're doing to improve the most important part of the business, which is the NEXT brand. And that comes down to what I've mentioned before in terms of newness, quality and choice. And this is a drive that we've talked to you about, I think, now for 2 years. And it's one of those things that I'm reluctant to talk to analysts about because there are no numbers and graphs that I can give you percentage newness and all that stuff because if I ask the product teams for what percentage of their age is new, they will give me whatever percentage I ask for because who's to say what's really new and what's not.

But I think the key here is that where the buying teams have scoured the world, found the best trends and then most importantly, back to those trends with conviction and in depth, that is where we've seen by far the biggest sales growth. And where we haven't done that, where we led on last year's best sellers, a little bit of a tweak here and there, change the neck line, change the color. Those areas are the ones that have done worse. And that's pretty much universally true across not just the NEXT brand, but other brands as well. The customer wants newness and gone are the days where you can say, we'll trial this new style this year. And then next year, we might do it in 3 colorways and really maximize the opportunity. If you wait and see, you've waited too long, you're dead in the water. So that's sort of newness.

In terms of quality, there's a lot going on here. And the big thrust on quality is about fabric. That is the thing that in terms of customer perception, actually upgrading of the fabric and the base materials, the yarns in knitwear, that is where we've had the most success in putting -- increasing our fabric. And this is a -- represents a change in the way we work. in the -- not all areas, but more and more of the areas at NEXT are now pushing further upstream and talking to mills, spinners, wash houses and developing yarns and techniques and fabrics long before they decide which garments they go into and what those garments will look like. And that process of pushing further upstream, I think it's got a long way to go at NEXT. I think it's very exciting for us. Other retailers too do it. It's not rocket science, but I think it's exciting for us.

I think the other sort of unintended benefit of this is that, obviously, the mills have to see the fashion trends first because if they don't produce the fabric, you can't produce the trend. So the mills and the print houses are often also a good indicator of which trends are coming and which ones are going to be strongest. I think this is also a very good time for us to be investing in quality because we can see a distinct trend over the last 3 years, and this is a gradual thing. It's not dramatic of customers buying slightly fewer, slightly better things. It's not that they're spending more on clothing. It's that they are choosing to spend that money on better products. And this bit, I can give you some numbers. So this is analyst delight here. What the numbers -- what these numbers show is the underlying inflation in like-for-like goods. So if you produce the same T-shirt last year as this year. And obviously, we're doing less of that because of all about units. But if you look at those garments, then the price inflation we've seen over the last 3 years is negative or very modest.

If you look at the sold mix, the total amount of cash we've taken versus the units that we've sold, the sold mix actually has moved forward. And we think that the difference represents the shift in consumer preference. And if you -- any 1 year, that doesn't look like very much. And I should say that the estimate for the year ahead is based on what we've bought, obviously, not what we sold because we haven't sold it yet. But if you add those all together, you get to numbers that do show a meaningful shift.

And there are two things I should stress here. This isn't about just adding more expensive product to our ranges, although we have increased -- we have looked to stretch our price architecture and to sell some more expensive garments. But this is -- that's not been the main driver on this. And in fact, the biggest success we've had on improved quality is where we've significantly upgraded entry-level products to make them much better yarns or fabrics, and that's where we've had the most success without increasing price or by increasing price, just a modest amount.

In terms of non-NEXT product, first of all, same messages about newness, choice, quality are coming through in all the brands that we can see that coming through in all the brands that we manage. The bigger increase was the less exciting percentage. Our third-party branded profit was up, and that is all about one thing, which is better ranges of our best brands. This is not about adding brands to the website. It's about getting much better selection and better depth on bestsellers from the top 20 or 30 brands that we sell. In terms of the wholly owned brands and licenses, very exciting numbers at nearly 50% growth in the year.

And I think there are a number of encouraging things that I kind of would like to share with you today about this relatively new business. What this shows, this bar shows is the brands that we were already trading, the wholly owned brands that we had in 2022, '23. It's about GBP 177 million at that point. If we look at just those brands today, they are 53% up. That is an encouraging number in itself. But the really encouraging number is the fact that last year, those brands, those existing brands that we've owned for more than 5 years grew by 24%. And I think they'll grow again in the year ahead.

And for us, this was the acid test because relatively easy to come up with a new label and stick it in a clothing and give it a bit of marketing, but actually having brands that are not flashes in the pan that can be developed and continue to grow in the long term is kind of what we're trying to achieve. And that looks like what we've delivered. And that number, in a way, is all the more impressive when you bear in mind that over the last 5 years, we've added another 29 wholly owned brands and licenses, which have themselves last year delivered GBP 116 million of margin on top.

Again, the fact that those are growing in parallel with the NEXT brand, evidence, we think that the brands we are providing are genuinely giving our customers something different and new. We're estimating that the wholly owned brands and licensed business grows by 22% in the year ahead. And what this all comes down to is -- apologies for the cheesy analogy. We use these slides for staff later as well, so it's multipurpose.

But we really think that NEXT is an amazing place to start a new brand or to take an old brand and relaunch it because when you look at it, what you need to start a new brand on NEXT is very different from what you needed to start new brands 20, 30, even 10 years ago in terms of resources. What you need is a great product team, a good idea and a sourcing base. And the investment, the total cost that you need to invest to launch a brand is around GBP 3 million, and that's the cost of the people and the stock that you have to buy before you put anything on sale. So the sort of money at risk is around GBP 3 million. And the reason that, that is so low is because those brands can straightaway take advantage of the billions of pounds that we've invested over the last 20 or 30 years in building 16 million customer base that those brands have instant access to all the websites, technology, data security, product systems, warehousing, contact centers and relatively inexpensive funding.

So in terms of an environment in which we can begin to develop new fashion brands, we think this is very exciting. All the more exciting if we can sell those brands overseas. And what you can see from the international numbers is that we are getting good traction now with those brands overseas. We're launching 3 new brands. I say new Russell & Bromley, obviously isn't a new brand, but it's new to us. Bhoem, which is more of a sort of continental style of brand, and we'll be launching another womenswear brand, top-end womenswear brand towards the end of the year.

In terms of overseas, 35% growth. And the driver here is functionality and marketing. I start with functionality. Now there's a detailed table with lots of complex numbers that are hard to understand, so you can read through that at your leisure. But the overall message is that we have significantly improved pretty much every part of the customer experience, both on the website when they pay and delivery and returns in most of the areas. There's still more to do. And the results, again, here, we've got some numbers. If you look at the organic conversion rate, that's the conversion rate of non -- of customers coming to the website, not through marketing. The average order value and the frequency of orders, those numbers have significantly increased year-on-year last year, and we think that's as a result of the improvements that we're making.

The nice thing about those numbers is that they are cumulative that if you get -- if every person lands on the website, if 9% more of them order, they each order 3% more in that order and they then visit you 17% more times, the individual value of that customer visit significantly increases. And that is what has driven the growth in marketing. The fact that these two things work hand in hand. It's not just about spending more money, but the more effective you can make your website, the more effective your marketing becomes. And one of the things that has driven the marketing and one of the things that has allowed our returns to remain constant despite the dramatic increase in the amount we're spending is the fact that the website and services are so much better.

And just to sort of dwell on those numbers a little bit, the return that we measure here, and just to be clear, we don't talk about growth, this is not sales, this is profit. This is the incremental profit on the incremental sales that we think we deliver from each and every campaign. They have to hit at least GBP 1.50. And you can see the returns last year actually, despite the enormous increase in spend, were slightly higher than the previous year. That's not just about functionality and services. It's also about the improvements we've made to our marketing and we continue to make to the marketing. And there's a long list, and you can read it in the report. But we have invested a lot of time, money and people in improving the way in which we market, and we can see that paying dividends.

Next year, I've mentioned already, we plan to grow marketing overseas by 25%. Now you might look at that number at GBP 1.50 and say, well, why do they need to be next to being very greedy, 50% return. And you'd be right, if we believe that number, we would being greedy. But there are two reasons to be cautious about it. The first is that it is based on incrementality, the incremental sales, and that requires an estimate. We've got to estimate how many of the customers who saw the advert who then bought actually were stimulated by the advert and wouldn't have bought anyway. And what you'll find when you look at these incrementality tests that we do is that the incrementality is surprisingly low. So it's a very important thing that we're unsure of. We think we need fat margins to absorb that risk.

The second and more important reason is that the profit we're talking about here is the marginal profit, we assume that if we spend the marketing that the increase in sales doesn't result in any increase in HR costs, finance costs, product costs, it all goes into profit. If you said, well, actually, our fixed overheads are going to grow as fast as sales, that GBP 1.50 drops to GBP 1.01. And I think what this does is it brings home a fundamental truth about -- which will affect our growth going forward. And that is our ability to control our costs and our fixed costs to make sure that they don't rise that they actually fall as a percentage of sales. It doesn't fall in absolute terms, but they fall as a percentage of sales. Our ability to control those costs will drive our ability to do marketing, which will drive growth.

And that actually, as a message for people in the business is very positive. Normally, cost control is seen as a bit of a side. Cost control meeting that we have with all of our directors once every quarter is not their favorite meeting. But because people think it's all just about squeezing more out of the sponge. But once people see that, actually, this is not just about squeezing more profit out of the business. This is about driving growth. It's much easier to get that message across because people are more excited about growth than they are about cost saving. And the assumption that you might make about fixed overheads, by the way, being fixed is not necessarily correct.

I do -- I remember my dad saying to me years and years and years ago that fixed cost to only have a fixed on the way down. And there's a little bit of truth there. If you look at technology, product, finance, legal, HR, add them all together as a percentage of sales in 2006, and look at them today, not only have they not declined as a percentage of sales, they've actually overperformed. They have grown faster than sales. Now don't panic about that. The overall business, the margins of the business have moved forward by 2% in that time. So -- and there is none of that investment, I say investment spending, none of that spending that I would regret. If we hadn't spent much more on technology, we wouldn't have websites, call centers, marketing campaigns. Our technology spend meant that we could stop producing GBP 65 million worth of catalog every year if we're going to grow our product ranges.

And next, in terms of the ranges we offer online today, they're probably about 5 or 6x the size of the ranges we offer just in stores. You need more product people for that. We're going to have new wobble. We need new people. We're going to have extra third-party brands to need someone to manage those relationships. So it's not that those investments were wrong. It's that going forward, we need to grow them by less than sales if our marketing is going to be successful.

And fortunately, we are at, I think, the perfect time for saving money in those areas because the combination of the fact that we've modernized pretty much all of our software platforms with the exception of finance over the last 6 years. The fact that we have transformed the way the company handles data, we've made sure that it's sort of universally accessible across the group, that it's consistent across the group. So the combination of modern software, high-quality data means that we are well placed to adopt AI. And I know that there's going to be a grown. I can't actually hear it, but a grown when chief executives start talking about AI because -- so I'm going to apologize in advance, but I am going to talk about AI a little bit and our approach to what we're doing with AI. And I think the first thing to say is that the degree of adoption that we're getting across the business is very different. The areas that have adopted it the most aggressively are technology, contact centers and e-commerce.

Product on the sort of use of AI to envisage product and forecasting has made some progress. And the other areas really, I put a little blue bar here, but that blue bar could be smaller if I wasn't so generous. Where we have invested, we are definitely seeing AI resulting in productivity gains that is translating directly into not just better software and better service in the call centers, but also lower costs. And these are -- what they show -- this graph shows is the percentage of sales represented by technology and call centers. And I think in both these areas, there's further to go, and I've written about that.

In terms of our approach to AI, I think I thought it would be useful to share a little bit as to how we're approaching the whole issue of AI. And I think the most important thing for us is what we're not doing. We don't have a central AI department or a Chief AI Officer, a CAIO, I think it would be called. It sounds like goodbye and Italian. We don't have that. And the reason we don't have that is because the nature of what we do across the different functions of the business is so different that to have one department trying to service all of those would be extremely unproductive because ultimately, the value of AI is not in the technology, it's in the applications it supports. And the design of those applications, what it does for the business can only be understood by the people who are running the business, not people who have access to the technology.

And the best comparison I've heard is that it will be like having a central spreadsheet department. And Chief Spreadsheet Officer. Spreadsheets are used by everyone in very different ways across the business. Same with AI. It's got to be application led. That's not to say we're doing nothing centrally. We do talk a lot about it. We encourage people help them. Our IT department provides access to technologies. It ensures that the technologies we use are secure, most importantly. And it also monitors the cost of the AI tools that various departments are adopting. But we haven't adopted a one-size-fits-all approach to this. And each director is very much going to have to be their own Chief AI Officer if they want their part of the business to succeed. What I wouldn't underestimate here is the power of collaboration. And it's just the way that NEXT works is that all -- pretty much all of our directors see each other every week at our trading meeting, at least once a week, if not more.

And the people who -- the directors who are most advanced are actively working not just in their department, but to help the other departments and show them the sort of things that AI can do for them and share people and technology providers with them. In terms of how far ahead we are in this, that graph looked quite impressive. But even in the areas that we are the furthest ahead, my guess is that we haven't, we're scratching the surface. There is so much more to go at, not just in terms of cost effectiveness, but also productivity in terms of what people can do. So I think this is a huge opportunity.

In terms of the areas that really haven't move forward much. I'm not singing out warehouse because they've done anything wrong and all because AI isn't applicable to warehousing. Actually, I think AI could be brilliant to warehousing in terms of handling all the operational management of the warehouse, reforecasting, scenario planning, optimization, lots of variables that AI could really turbocharge the management of our warehouses. But they haven't had time quite rightly to worry about AI because the thing they'd be most worried about is ensuring that we've got the capacity in warehousing that we need to grow.

And that provides a slightly artificial but neat segue into the next subject, which is the last subject you'll be pleased to hear, the investments in our warehousing. This is where we were 2 years ago when we started to invest in Elmsall 3. We were at 94% full in our old warehouses in 2023, where we thought we would be on 5% compound growth in sales was 80% full of the new extended complex. Sales have actually grown by, sorry, 28%. we're expecting 10%. We've actually grown at 28%.

In addition to that, we've put more clearance into our online operation, and we've increased our cover. That pushes up the stock in peak week, and he was only talking peak weeks here to 84%. And we've decommissioned some of the oldest picking that actually turned out when we decommissioned it, we realized just how inaccurate and expensive it was. So we don't want to recommission it. We've had a slight drop in box drop, which means that last year, we got to 87% full. If we look at this year, with the 8% planned growth in online business overall, we'll be at 94%. Now 94% sounds okay, it's not. 94% at 94%, you begin to get a lot of congestion, things slow down. One small breakage, conveyor belt breaking can hold up the whole operation. So that's uncomfortable. We're going to manage this year by taking some of our reserve stock. This is the high bay stock that can't be picked out of high bay and Elmsall 3 and move it into other warehouses owned by the groups. That will be replenished in day, so it shouldn't affect stock availability for customers.

There will be a slight increase in costs as a result of that, but that will be more than offset by leverage over the fixed overheads from using so much of the capacity. In terms of the year after, that's where we really get into trouble. If we grow at another 8% next year online, then we wouldn't have the capacity to do that. So we need to invest and we need to start investing now.

In terms of what we're doing, those of you who've been to the warehouse, you remember that we only occupy half of the new Elmsall 3 complex, Chamber 1, and we don't occupy all of it -- all of Chamber 1. There's a little bit left. So Phase 1, which will be on stream in 2027, will give us 10% more capacity at a cost of GBP 48 million. Phase 2, which is the first half of the second chamber, that's more expensive because that chamber is a shell. So it's more expensive per percentage of capacity. It's GBP 134 million. And the final chamber, which will come on the following year, 2029, is another 17% capacity at GBP 125 million.

In terms of the P&L impact to that, you could look at that and begin to worry about is are we going to see a big P&L impact as all this CapEx goes through? And the answer is you shouldn't because although the additional depreciation in year-end Jan 2028 and overheads will be in the order of GBP 5.4 million, we think the cost savings from moving from the old to new capacity will give us at least GBP 5.1 million of savings. So there should be -- that's broadly cost neutral in that year.

In terms of the full program, the GBP 307 million of CapEx, that will add around GBP 30 million of operating costs, but we get GBP 22.6 million, it's too precise, about GBP 22 million of savings, we think, from using that new capacity. That means that the net cost of all that new capacity is around GBP 7.3 million. And that's obviously, if sales don't grow at all.

If sales -- the capacity that all of those projects together will give us is around GBP 1.5 billion worth of turnover. So what you can see is that the cost of the increased space, once it's at full capacity or even once it gets to 3/4 full or even half full, the cost of that capacity is very small as a percentage of sales. So over time, these investments should result in our fixed cost and warehousing coming down as a percentage of sales.

In terms of where it leaves us in terms of capacity for growth, that's the 8% trajectory with the new space added on. The maximum we could get to is compound growth of around 12% online. I think, yes, if we have that problem, I'll be delighted, but I don't think we will. So we think that this program gives us comfortable capacity for the next 3 to 5 years.

Next question you're going to say, I can see it instantly on your minds is like what do you do next? Here's the field. We've bought the field. The field, that's the warehouse that we have already got planning permission for. We have contracted for the land. We'll complete, I think, in 2 or 3 days. And we'll start work on that, getting foundations laid. We'll start work on that sometime over the next 18 months. So we could have floor space available if needed, maybe early '28 -- late '28. So we've got contingency.

I think the important point there is that our model of centralized stockholding for the U.K. has got legs beyond Elmsall 3. And that mercifully is it almost. And just in terms of summary, hopefully, what you can see is that the avenues of growth that we had last year, all of them still have legs in terms of overseas, in terms of NEXT product, in terms of non-NEXT product, we still got an awful lot that we can do and that the business feels can push sales forward.

We have got the means to control costs through the introduction of new software AI mechanization. We got the means that doesn't mean guarantee that we will, but we have got the means to do it. And we've got the capacity available planned to accommodate the growth if and when it comes. So if things go well, I think the business is really well positioned.

What is, I think, really interesting when you kind of stand back from -- when we stand back from what we do day-to-day, and I think about the sorts of things that cross my days, desk and my colleagues' desks in terms of overseas new brands, new AI-driven marketing technologies with Google.

All the things that are driving the business are completely different to the sort of things I was doing 25 years ago. 25 years ago, it was still very exciting, but it was about stores and believe it or not, catalogs. Getting more catalogs printed and printing those catalogs was central. And so what the business does today is unrecognizably different from what it was doing 25 years ago.

The thing that really has not changed at all are the principles upon which that growth and the ethos of the business. And those 2 things are, first of all, absolutely everything we do, everything we do, we have to hand on heart, believe that it is giving good value to our customers. We have -- and the test there is, would you recommend this products to your customers.

Now not everybody is in the market for a mesh dress, I'm not. But if you wanted a mesh dress, could you recommend one from the next website and say, yes, that is the service you want. It's fantastic, delivered next day, return to any store. You have to hand on heart believe that. And if you genuinely believe all of that and you're delivering something that's great for the customers, then you can't go too far wrong, whether you're doing with NEXT brands or others.

The second principle is that it's fine to be doing things that are great for the customer, but they've got to make money. And the two things there is, first of all, we have to get a return on capital. Capital is the fuel that drives the business forward. And the better return we get on the capital we have in the business, the faster we can grow, the more benefit we can share with our shareholders.

And the second thing is margin. And this is the easy one to overlook, particularly when things are good, but every single business we do, it doesn't matter if we're selling Love & Roses brand in Peru, that brand in that country has to make a margin, that is commensurate with the sort of risks involved in a fast-moving consumer and fashion business.

And as long as we stick to those principles of do great stuff for your customers, get high return on capital and make healthy margins, then regardless of the environment you're in, you're going to be well placed to handle it. And we're making a trading statement in 6 weeks' time. The one thing I'm pretty sure is that it's going to move. The guidance is going to move. I just don't know which way.

And -- but I think the point is that whichever way it moves, if the war peters out and things become more positive, then we are really well positioned to take advantage of continued growth in the U.K. economy, continued growth overseas. And if things don't turn out, and this will not be our first gig when things going wrong, COVID, financial crisis, cost of living crisis. If things don't turn out as we expect, then actually the business is well placed to cope with that it's well placed to cope with it because of those margins because kind of there are 2 lessons about retail that are enduring.

And you can -- this is sharing wisdom. There are 2 lessons. One is like in the good years, don't get cocky. And in the bad years, don't go bust. And I think those 2 principles are really important. And that's the reason why when we've had a great year, we're not going into the next year with a huge estimate of what we can achieve going with conservative budgets. But whichever way things go, we've set the business up to cope with it. And on that cliff hanger, I think that leaves you just waiting for the next trading statement. We'll go over to questions.

It's Anne Critchlow from Berenberg. I've got 2 questions, please. The first one is about the store payback target and extension of that. Have you considered taking into account the benefit of a new store in terms of providing a free pickup and returns point for online customers? And then secondly, on aggregator website, you say you don't have visibility on the customer numbers there. But what insights do you receive from aggregators to help you make decisions about marketing, for example?

Yes. So first of all, on the store benefits to online, we don't account for that. We don't, in any way, put any benefit in the online business on stores. And there's actually a good reason for that. And that is that although the store does definitely help the online business, it also hinders it because it's a competitor.

And so where we've only -- there's only one store where we've shut and had no other stores anywhere near to pick up the business. And there, we actually saw the online business move forward because GBP 2 million or so that we lost in the store, some of that went online. So we don't and we shouldn't account for online benefit of stores.

In terms of customer insights into aggregation sites, we don't get very much insight. And quite rightly, they don't share that with us, and we don't share it with our brands either. So what they do share with us is the returns on the marketing we do on their sites. And on somewhere like Zalando, we'll spend around 2% of our sales on marketing. We still have the same hurdles. We still have to get a return on that money, but we can profitably spend money on aggregation sites, and we do. And the insights we get are not about who's buying it, but the returns we get on the marketing that we spend with them.

Richard Chamberlain from RBC. A couple more related to the Middle East, if that's right. The cost savings you talked about that you've identified since the start of the year, GBP 15 million, how many of those or how much of that do you think might come back if demand is a little bit better or the war ends earlier than you're budgeting for? And the second one, can you just give us an idea of how the franchise stores in the Middle East have been holding up or not compared to the online offer there? Has there been any sort of big difference in trends?

Yes. Two good questions. So first of all, how much of the GBP 15 million will come back? I think very little. In all honesty, I think there's a much bigger downside risk to that number than there is an upside risk. So yes, it could come back. It might be that GBP 7 million of it doesn't materialize. We haven't yet incurred it. But I wouldn't -- I'm not getting excited about that. I think the downsides are much bigger, and they will have to go into cost. In terms of franchise business, I don't want to talk about that because it's not our business, but they have definitely been impacted.

Adam Cochrane from Deutsche Bank. First of all, on the Middle East. Just a question in terms of logistically, how is it working? Are you able to fly your products to your warehouse in Dubai?

In terms of the Dubai hub, so the Dubai hub, traditionally, we would have air freight out of Dubai to other countries like Saudi Arabia and Oman. At the moment, we're going by truck, and that's what's increasing the lead times to places like Saudi Arabia, Oman and Kuwait. Intermittently, we have seen that service come back on.

And I think things are changing daily, but we're hoping to airfreight back on available for Saudi Arabia soon, but it does depend what happens in all. So the answer is to Dubai from the U.K., we are shipping by air, and we're getting replenishment in at the moment, albeit at a very high premium. That's a big chunk of that increased operating costs. And then from Dubai hub to territory, we've switched from air to trucks, which is adding 2 to 3 days to the lead time in most territories.

And the second question, in terms of international, are you progressing with -- or how are you progressing with other non-wobble brands, so third-party brands on your international site? Is that an area that you're still seeing more growth and more opportunity as brands would like to sell via the NEXT platform?

Yes, we have. And actually, it's detailed -- there is detail on that in the pack in that. There's one page with brilliant tables on it, which does show you that I think the overseas -- the growth in third-party brands overseas is around 22%. Most of that is driven by what's driving the growth in third-party brands anyway, which is a better selection of our key brands. But in some areas, partner brands have agreed to allow us to put their product on our overseas websites where they haven't in the past, and that's driven some growth as well.

It's Freddie Wild from Jefferies. So apologies, it's going to be quite a broad question, but it was on a reasonably important topic was important until about 3 weeks ago. You seem on AI to be talking a lot about cost savings and the ability to run the business more efficiently. I suspect where the debate has been in the market is more about the risks of disintermediation versus the potential benefits to your consumer proposition. So I'd love to get your sort of thoughts on outlook on almost the demand side of the AI proposition.

It's a big question. I think the first thing to say is rightly or wrongly, it's not something that we're overly concerned about at the moment. And I think the disintermediation that we're talking about would be the disintermediation of the website, rather than any other cost at the moment, unless -- it will be relatively they could switch just a fraction of their data centers into beautiful clothing warehouses and ChatGPT would have the infrastructure. But at the moment, they don't. So you're really talking about the disintermediation of the shopping bag and the selection process.

And there is an economic and just -- there's an economic and operational problem with that, that is yet to be solved. And the economic problem is that if you look at our average order value, net of returns, be around GBP 70. Cost of delivery to the consumer is around GBP 5. If -- that's about 6%. If your virtual shopping bag takes things from 5 different retailers, wherever the shopping -- wherever that intermediate website goes, it's got to go to a number of retailers. If it comes to us, then fine, it's just another form of advertising.

If it goes to more than 1 retailer, then -- let's say it go to 4 retailers rather than 1, you end up with that 6% being multiplied by 4. So the economics, someone somewhere has got to pay for that additional 18% of cost that you'll get from splitting the order across multiple websites. I think the operational problem, which in many ways is more of a challenge and applies specifically to clothing is how you handle returns because you've got -- if you buy your -- or all of your online order goes to John Lewis or to Marks & Spencer or to NEXT or to Very, you know, exactly you can take the whole order back to any one of their shops, scan the items and you're credited instantly in the way in which you paid.

For an intermediary to do that, you've got to know where to take the item back to, which is a Nike Train or which of the sub-vendors do I take it back to? How do I return it to them? And then how do they communicate with the intermediary, that the intermediary has got to repay me. So there are big customer service issues with it. So at the moment, it doesn't look -- it feels to me very much like what people were saying about marketplaces versus stocked retailers because the real asset in trading online clothing is the logistics infrastructure and the product, not the website.

So I think is -- I think that is a direction they're unlikely to go in. And certainly, if you look at the difference in Google approach and ChatGPT approach, Google is still taking the approach of passing the consumer straight through from their AI engine to one or other retailer. So it becomes an enhanced form of advertising. And I think to that extent, it's very exciting. I think basically, the better search engines can find what customers are looking for, the more they'll buy, which has got to be good for the industry overall. So it was a long answer to a broad question, but I hope it covers.

Geoff Lowery, Rothschild & Co Redburn. You had a great year for customer acquisition in the U.K., both credit and cash. There was obviously some competitor disruption, et cetera, sitting behind that, weather, all of those things. But can you talk a little bit about the behavior? Is this gross adds? Is this better retention of existing? What is actually driving that? And what measures do you have to sort of keep them active as some of your competitors normalize, et cetera, around you?

I suppose, look, the reality is, and this comes back to this philosophy that everything has got to make a profit. And I think the risk here is saying the objective is to hold on to those customers not to make sure that all of our retention programs are profitable. And the amount we invest in a retention program is -- makes a good return on the money we invest. So our objective is not to hang on to customers. It's to continue to invest profitably in retention.

And our retention programs are performing in line with last year. There's no significant -- I can't see any significant difference at this point, although we've yet to annualize the very strong weather last year, which may affect it and the competitive disruption. So we -- the answer is we don't really know how they will perform. I think the key takeaway for shareholders is that we're not going to throw money at trying to hang on to customers that aren't profitable to keep.

Warwick Okines from BNP Paribas. Two questions about warehouse capacity, please, Simon. Firstly, does the level of utilization that you're sort of running up against reduce the ability for the business to reduce the proportion of products not delivered in full and on time, which is something that you've been bringing down? And secondly, are there any options to reduce the proportion of products that are shipped from the U.K. out to international that could reduce the amount of capacity that you might need for the U.K. business?

Yes, really good questions. In terms of not on-time delivered in full statistics, they have -- I didn't put it in the slide because I'm superstitious because it only just got better. But basically, since Christmas, we have seen that dropping from around 8% to around 6%, which is sort of -- I think the lowest we got to was around 5%. So warehouse have made significant progress in terms of reducing the not delivered in full on time rates, and we are happy with that for the moment.

But I'm going to talk about it in 6 months' time if we can hold it because it's only been a few weeks, but the signs on that are encouraging. I don't think there's anything I can see in this year's numbers to suggest that we won't be able to hold that, but it will depend on the effectiveness with which we fill the new mechanization and the effectiveness with which we can serve the main forward locations in the warehouse from the off-site reserve warehouses, which again, we haven't started doing earnings. But obviously, the risk there is that you've got something in reserve that you don't have in forward if you don't get it exactly right.

So I think there is a small risk to that, but it's not something that I'm hugely concerned about. And I'm pretty sure that we'll see year-on-year improvements. Certainly, that's what we're seeing at the moment. In terms of delivery to hub direct, we're not doing that to Germany. And the main reason for that is that actually, it's -- because it's third party, it's very expensive. So we try to keep that on 6 weeks cover. We would normally have 12 to 14 weeks cover.

So at the moment, we're not delivering direct to Germany, but it will be an option if we begin to hit capacity issues. I think the other issue with direct delivery is it's very hard to deliver much more than 20% to 25% of anticipated demand without getting it wrong because you never quite know what's going to sell in which territory.

We are delivering direct to the Middle East, which obviously looks like a brilliant plan. And our first tanker -- our first cargo ships set off from the Middle East about, I think, from the Far East 4 or 5 weeks ago and have recently been turned back from Dubai. So that turned out to be a great plan implemented at exactly the wrong time. But going forward, we would plan to deliver, I think it's around 20%. I'm looking at Richard, about 20% of Middle East requirement direct from manufacturer.

It's Andrew Hollingworth from Holland Advisors. NEXT historically has been very, very good at the whole sort of mentality of sort of try stuff and do more of what works. So Costa Coffee is and all the rest of it. And wholly owned brands is obviously working extremely well. And I think in the statement or your presentation, you described it as sort of small business.

What you've done up to now is sort of buy -- I don't want to say the wrong thing, but sort of troubled U.K. businesses and you've sort of reenergized them and helped them and all the rest of it. But you've wanted them, I think, in past Q&A to sort of prove their worth in terms of return on capital in the U.K. alone. We've now got a really powerful sort of wholly owned business internationally. What could this look like 3, 4, 5 years from now in terms of could we be buying Spanish brands or French brands or Italian brands? Or is it just going to be U.K. homegrown and see what we can do with it globally?

Yes. You know what, looking even a year ahead is difficult in fashion; 3, 4 years out is absolutely impossible. Would we buy a French, Italian brand? I don't think -- at the moment, no, because our business in those territories just isn't anywhere big enough. In Southern Europe generally isn't big enough to warrant the investment.

The big advantage we provide for Northern European and U.K. brands is that we can give instant access to a huge market. Actually, our penetration in Southern Europe is very low. So I think those countries that you mentioned and France, although sort of in the middle, sort of fashion-wise is quite sudden, I think is unlikely. But I would never say no because even just access through Zalando to those countries might one day give us enough volume to justify.

Just a follow-up. So do you think with obviously not mentioning any names in terms of how you think about this part of the business that there's still lots of brands that can be added to the portfolio within the sort of your sweet spot of the sort of things you want to buy?

Yes. Well, what we're looking for is great brands, preferably with good management or our ability to provide good management for it to it. We're looking for things that we can add value to through our customer base and platform and at the right price. And I can't predict the fourth one. So I think there are lots of brands that I would buy for GBP 1, that I wouldn't buy for GBP 100 million. And where the price is in between will depend -- will drive pretty much what we do, I think.

It's Georgina Johanan from JPMorgan. Two for me as well, please. Just first of all, sorry if I missed it, but what actually is the Middle East trading at the moment -- like down at the moment, please?

Good spot. We didn't miss it.

And then the second one was just a bit of a broader question on GLP-1s. If you could share anything that you're seeing in terms of how like the sizing mix is changing in the business or not as the case may be? And also just thinking about it longer term, like any insights where from particular customer cohorts, if they are sort of materially changing the sizes of what they're buying, like is their spend increasing? Or is it steady? Just really any insights you can share would be great.

Yes. So on the Middle East numbers, the reality is it's very, very hard to read. So -- and the reason it's hard to read is because of the timing of it, because we are still in a period now where last year, people were ordering on their Ei'd. So it was on Sunday this time last year. This year, it was last Friday.

So if we take the same days post-Eid that we are today, that number is changing every day in terms of growth. In terms of GLP-1s, we have seen some subtle change in mix in sizing on womenswear. And -- but where we've seen the most dramatic change is actually on the very large outsized. That's where you can see a change in terms of reduction in participation, these participations are tiny, but participations on the sort of 22-plus are definitely falling. I would say -- sorry, one last one.

I had 2. Marketing expenses, you're still talking to plus 25% or more. Are you repurposing some of the Middle East marketing into faster-growing Europe or rest of the world? Is something like that an option for you? And the second one, again, international, within the rest of the world, are there a couple of markets that you really are excited about and you see significant potential for them to be meaningful for next...

Within the -- Within where?

Within the rest of the world in international?

Okay. So the second -- the answer to the second question is yes. The answer to the first question, I think the premise of the question is that we've got a marketing pot. And if it doesn't work in the Middle East, we'll move it somewhere else. And that's just not how we work. We don't have a marketing pot. We have a hurdle rate of GBP 1.50 return and whichever territories give us more return than that we will continue to invest money in, and those that don't, will reduce.

And so the answer to your question is, if I sort of stood back from it, do I think we will still be 25% up on what I've seen so far in marketing? Yes. But I think a lot will depend on the cost of air freight to some of our most expensive territories because if the price of airfreight goes up, the return on the marketing comes down, which constricts our ability to spend it. But overall, we brought down our sales by around 2% overseas at the moment. So that's our best guess as the full impact, but who knows. And we've kept the marketing budget where it is.

And on that note, we really well finished. Thank you very much.

Good morning, and welcome to the NEXT plc half year presentation. It is great to see all portions of our business moving forward in a positive way. Geographically, the business in the U.K., both retail and online and our international business are all moving forward in a meaningful way here. If you look at the data from another viewpoint, looking at our brands, our net brand, wholly owned brands and third-party brands are also very positive.

While we're very pleased about our broad-based growth, we maintained a balanced and cautious outlook for the future. Principally due to the external situation. Both here in the U.K. and around the world. And in spite of what the external world may hold for us, we believe that our strong management team, balance sheet and financial position leave us very well positioned to withstand any external events.

Before I turn it over to Simon, I would like to publicly recognize the retirement of a very important long serving and experienced executive. Her name is Seonna Anderson, and her final position at NEXT was both Corporate Secretary and Corporate Controller. Seonna always seem to wear at least 2 hats at next. She was a great asset to the Board and a great asset to the company.

And I think she really embodied the culture of NEXT, very hard-working, very smart, willing to take the lead when necessary, but also worked very well in a team to really meet our objectives. So shown them many thanks, and I'm sure any Board where you're an NED in the future, we'll be very glad to have you. Simon?

Thank you very much, Sean. I didn't know is doubling up as a recruitment consultant. Excellent. Yes. Thank you, Seonna.

So standing back from the numbers, really good first half. And I think there are -- the important thing to stress these numbers is that there is news that is genuinely very good news, and there's news that's not quite as good as it looks. And the news that's very good news is the overseas sales, it doesn't appear to us that there are any sort of external tailwinds that are helping that business.

But in the U.K., we think the first half was definitely boosted mainly by the weather. This year was a particularly good summer last year was particularly poor and competitive disruption definitely helped us towards the back end of that half, which is why we're not as optimistic for the second half as we have been or as our performance in the first half would indicate.

So moving on to those numbers. Total sales up 10.3%. Full price sales up just under 11%. Breaking that down in terms of U.K., U.K. up 7.6%. Online still ahead of retail, but perhaps the most exciting or most surprising number here is the U.K. retail number. That is driven 1% of that comes from new space. But the underlying strength, we think, is down to the weather where weather seems to have a disproportionate effect on retail when particularly when you get sudden changes, people want the product immediately.

Overseas up 28%, which was an unexpected, but very good performance. Profit before tax, up just under 14%. Tax rate, pretty much in line with last year and as we expect it to be for the full year. And then in terms of earnings per share, earnings per share up 16.8%, boosted by the share buybacks, mainly by the share buybacks we did last -- at the end of last year.

In terms of the dividend, 16% increase in the interim dividend, we'd expect the full year dividend to be broadly -- to increase broadly in line with whatever we deliver in terms of EPS, in terms of the total dividend for the year.

In terms of cash flow, and just to remind you all, we talk about profit and loss and sales. When we talk about that for the group, we report the percentage of the businesses that we own. So of the subsidiaries that we own, we report, we own 70% of the business we will report 70% of their sales, 70% of their profits.

In the cash flow and balance sheet, for reasons I don't quite understand, it's impossible to disaggregate it according to our finance department. So we'll show this on a fully consolidated basis. Cash flow from profit, GBP 62 million. In terms of capital expenditure, up marginally on last year in the half, just to reiterate where we are on CapEx, GBP 179 million, which is pretty much what we expected to spend at the beginning of the year.

In terms of where the growth is coming from, it's all coming from the increase in additional space. It's not maintenance CapEx. Maintenance CapEx in the stores ran at 17 -- will run at about GBP 17 million this year compared to GBP 20 million last year. And that's the sort of number that we would expect in terms of maintenance CapEx for the foreseeable future for the next few years.

In terms of the space expansion, we mentioned at the beginning of the year, Thurrock. Thurrock is a bit of a one-off. It's the sort of first of a kind. So we spent more on it than we would spend. Normally, it's GBP 19 million of that GBP 54 million. And the only news here really is that having opened it, it's hitting its targets. But I wouldn't want you to look at the payback on this store, I think that's what the next targets are going forward. It is very much a one-off.

In terms of the stores that we opened that weren't Thurrock, they missed their target. So far, they've missed their target by around 6%, 18% net branch contribution. So they've beaten the hurdle that we -- internal hurdle that we set of 15% profitability, but they missed the payback of 24 months, and we expect them to miss the payback of 24 months. And I think there is an important point to make here, and that is that it's going to be much harder to open retail space in today's environment than it was 10 years ago.

And it's just worth sort of spending a little bit of time explaining that. If you look at what our stores were taking on average per square foot 10 years ago being around GBP 300 a square foot.

Today, on a like-for-like basis, a store that was taking GBP 300 a square foot 10 years ago, today will be taking about 30% less. Now as it transpires, that's not as big a problem as it sounds because rents have come down on a like-for-like basis by pretty much the same amount. So we still got a profitable store portfolio. The issue is the cash generated per square foot versus the cost of fitting it out. So at, let's say, 25% cash contribution, adding back depreciation of around 25%.

We were generating GBP 75 a square foot. But today, that would generate GBP 53 a square foot. So if you look at the payback, very simple basis, it's deteriorated, not just because the cash per square foot has gone down, but because the cost per square foot of fitting out shops has gone up significantly, 32% in that interim period. So what would have been a 22-month payback is today 42-month payback on a like-for-like basis.

Now obviously, actually, our average pounds per square foot in the portfolio hasn't dropped by nearly as much as the like-for-likes. And that's because generally, we've opened smaller shops, losing a little bit of potential in locations, but in order to boost the pounds per square foot to attempt to pay for the shop fit. Nonetheless, we haven't hit the 24-month payback. And the question that we are asking ourselves that we haven't completely answered yet is looking at the portfolio that we've opened, 18% net branch contribution and 38% internal rate of return, payback and that's based on the assumption that the stores decline by 2% like-for-like each year after opening.

The question is would we today close those stores because they were performing like that? And the answer is no. And so what we need to do if we are to continue to open space, and there is a big if there, we're going to have to look at -- we won't be able to do it a 24-month payback, I don't think. And I think the answer is to come up with different hurdles and to raise the hurdle -- to reduce the risk of shops by raising the profitability hurdle, entering where we can into turnover rent arrangements or total occupancy cost arrangements to derisk shops.

And I think in those circumstances and only in those circumstances, we can afford to take a slightly longer payback. We're going to be thinking about -- we haven't come to a sort of definitive set of hurdles, but I wanted to give you a sense of as we move the goalposts, the direction in which we're moving the goalposts if and when it happens. I think one of the important things that will feed into our consideration is what happens to wage costs and the outlook for our employment equal pay case because if we think wages are going to continue to go up dramatically as a percentage of sales, then that will affect this decision also. So that's new stores.

In terms of working capital, GBP 18 million less. This is mainly about the timing of payments for staff incentives. Actually, it's all about the payment we made last year in respect of the previous year's performance, which was a very good performance. We pay the staff bonus, employee bonus in the financial year after it's been earned, which is why you sort of get this tail. So that's given us cash boost. Stock is up GBP 25 million, and we'll be talking more about that later.

So total surplus cash up GBP 87 million on last year. Buybacks up GBP 43 million. This isn't because we've consciously slowed down our buyback program. It's because for a lot of the last 6 months, we've been locked out of the market. Jonathan got annoyed when I say locked out of the market in the rehearsal because it made it sound like that somehow we weren't allowed to trade, we were, but we were above our internal hurdle for price. It looks like you very helpfully helped us with that today. But our intention will be to carry on buying back shares as and when we can. Net cash flow, up GBP 141 million.

Moving on to the balance sheet. Investments appears to have come down by GBP 17 million. This is all about the amortization of brands on the balance sheet. Stock, I need to talk a little bit about stock because our stock has gone up more than you would expect and in fact, more than we expected, and I need to explain that. And actually, in the NEXT brand, it's gone up by 16%.

Just to explain that, 2 years ago, we were on around 20 weeks cover of stock. That's the stock in the business and the stock on the water. Last year, we increased our cover to account for the additional time the stock was going to be on the water, which is about 2 and a bit weeks and because we were experiencing disruption in Bangladesh. So we moved to 23 weeks. We thought that was it. This year, we're on 26 weeks. And the reason for that is because last year, a huge amount of our stock still turned up late, mainly as a result of factory disruption, but also disruption in the world's logistics, the freight market.

And so this year, our teams belt embraced the decisions to buy and they ordered early. And I would stress this is ordering early rather than ordering more stock, but we clearly overdelivered. In addition, not only that, but because capacity has come out of the global supply network, it feels like that to us. Factories have actually been delivering early. They've got a window of 2 weeks, they can deliver early. And actually, freight times have taken slightly less than we have put into our calculations. So both of those good news in a way, but it means we've got much more stock in the business.

In terms of end-of-season sale and the total amount of stock we bought, we're not anticipating that our stock for the end of season will be any higher than the forecast we got for second half growth. So we think endfseason stock, combined with any mid-season stock, the total stock markdown in the year, we think will still be at or just below 4%. I think it is also worth mentioning there is a slight upside risk here on the sales numbers by having so much stock. This time last year, as we ran into Christmas, those delays were definitely impacting some of the sales on some of the products that we were selling. So it's a potential upside from having all that stock in the business.

In terms of customer receivables, customer receivables, this is the amount our customers owe us on their mail order accounts -- sorry, I'm going back in time there on the online accounts. Actually, credit sales to customers were up 5.2%, but we're continuing to see customers paying down their balances slightly faster. We think that's a very encouraging sign. It means consumers -- our consumers at any rate are not feeling squeezed.

In terms of default rates, they are the lowest levels that we've ever seen them at 2.3%. And we're still conservatively covered in terms of provisions at 7.6%. So we -- although we've released GBP 10 million of provisions this year, and we did the same thing last year in the first half, we are still, I would argue, adequately, but not overprovided for bad debt. I said the overprovided stuff just for the benefit of our auditors that are in the room who we have regular interesting conversations those.

Other debtors, GBP 56 million, that's 2 things going on. First of all, the growth in our aggregation business. Our aggregation business is largely on commission, which means that the aggregator, people like Zalando about you take the sales and a month later, give us those sales less their commission. So there's a month lag and that increases cash out by GBP 20 million. And about a year ago or just under a year ago, we stopped doing the interest-free credit in our stores on furniture with Barclays and took it in-house and finance ourselves, and that's what's sucking out that other GBP 19 million of cash.

Credit is up GBP 152 million. Big number here is stock, as I've explained. We've ordered more stock, so we owe more to our suppliers. The other 2 issues are payroll accruals and taxes. And both of those are fascinating subjects, upon which I can spend a lot of time speaking about. I don't want to deprive Jonathan any of the interesting questions you may give him afterwards. So please do speak to Jonathan about those in detail afterwards. They're basically technical.

Dividends, up 9%, in line with last year's earnings per share. Buyback is down 100 million buyback commitments. This is not buybacks. This is the -- last year, we put in place a 6-month buyback program. We haven't put in that program this year, partly because our share price was above our target. We will continue to do closed period buybacks, but you shouldn't necessarily expect us to do a long 6-month program of committed buybacks going forward.

So net debt down GBP 180 million, net assets up GBP 340 million, very strong balance sheet and very strongly financed. This was the -- our cash and facilities at the beginning of the year, our financing at the beginning of the year at GBP 1.2 billion. We repaid the 2025 GBP 250 million bond. We also bought back GBP 136 million worth of the GBP 250 million 2026 bond. That was funded by the issue of GBP 300 million bond.

You'll remember that we have been keeping our powder dry for a number of years now, accumulating cash in case we weren't able to go into the market or we thought the market wasn't a price that we had to pay. The market actually was fine. So we've refinanced those bonds through the market, and we pushed our RCF up by GBP 100 million. So we're still very comfortably financed as a business.

In terms of cash flow in the year and debt, we started at GBP 660 million, generating around GBP 870 million of cash, GBP 179 million of CapEx, GBP 280-odd million of ordinary dividends. And were we to land at exactly the same number at the end of the year, we'd be at GBP 400 million, we'd return around GBP 400 million of cash to shareholders. We think that GBP 660 million is beginning to look a little bit low.

We've always said that the company should maintain or intends to maintain investment grade, and we're way off the leverage that will put us close to the edges of investment grade. The company has been at more than 1.2x leverage. We started the year at 0.63. We think it will be wrong for us to continue to lower the leverage. So maintaining leverage at 0.63 means that year-end debt, we're now forecasting to be about GBP 720 million with GBP 470 million of cash to be returned to shareholders or invested in the meantime.

We've only spent GBP 119 million on buybacks so far. That leaves GBP 350 million to either buyback, spend on buybacks or special dividends or investments, although I should say, whilst we are talking to a number of potential investments at the moment, there are none of any significant size that will put a dent in that number. So basically, most of it will either be share buybacks or special dividends.

Moving on to retail. Retail sales up 3.7%. Full price sales up 5.4%. The big drop in markdown sales in store is all about the fact that we kept far more of our stock online and the online warehouses for the online sales, particularly overseas than we put into retail. We felt we could get a better return there. And it was one of the big advantages of having so much more capacity that we were able to retain more sales stock for the online sale. So underlying full price sales after deducting new space is around 4.2%.

Profit in stores down 1.4%, margins off by 0.5%. Obviously, in my normal way, I'll be going through in painful detail all the margin movements, but spoiler, this is all about national insurance. Basically, the entire -- all the erosion of margin is about national insurance, NIC and minimum wage is pushing up the cost of labor in stores. An margin nudged up a little bit with underlying margin up 0.2%. Remember, this is where we said we will put our prices up a little bit to help pay for the cost of NIC.

Markdown clearance rates, even though we had less stock in the stores, our clearance rates were a little lower. Payroll was a big cost. And here, actually, without the productivity improvements we were able to make, that number would have been 0.7%. Store occupancy costs, positive movement here, increase in like-for-like sales pushing wage costs down as a percentage of sales, new space, particularly stores actually we opened in the second half of last year, pushing up cost of space by point the same point, offsetting that, lower energy costs and no business rate refund this year, whereas we did have one last year.

Central costs, not a lot of movement here, a little bit more technology cost and retail's share of the marketing campaign that we did in March, April, the sort of newspaper campaign we did. So total movement minus 0.5% in retail.

Looking to the full year, assuming that our like-for-like sales are down 2% in the second half, we'd expect total sales to be down 0.6%. What that means is that we would expect margins for the full year to be at 9.8%, down 1.2% on the previous year, of which 1.1% comes from Nike and wages. And if you're wondering why the erosion is greater in the second half than the first half from the Nike and wages still, it's because it didn't come until April.

Moving on to online. Just to remind you, the online business now, we split in terms of our analysis, we split between U.K. and overseas because the economics are quite different in the 2 -- so starting with our online business in the U.K. Sorry, total sales up 11%. That was boosted by the additional stock that we had for sale that we kept back for sale. So underlying full price sales up 9.2%.

In terms of where that's come from, business now is just under half the business is non-NEXT brands. And in terms of where we're getting the growth, NEXT brand still growing online in the U.K., but you can see third-party brands and wholly owned brands and licenses delivering around 13%, 14% growth between them. That's important.

And one thing I should say is that wholly owned brands and licenses are a bit of a mouthful, so I will use the unfortunate acronym wobble as we go through here. But you can smile at that now. Please don't smile as I'm going through because it's embarrassing.

Profit, a really good number on profit in the U.K., up 17.7%. Margins are improved. NEXT brand, these numbers, I'm showing you these numbers, but they're not quite right because we've reallocated cost between our non-NEXT branded business and NEXT.

Over the past 2 or 3 years, we haven't added some of the technology and marketing costs. We attributed them all to the NEXT brand. But actually, when you look at the marketing, although most of it is focused on the NEXT brand, the reality is it does benefit the non-NEXT business too. So we were underallocating marketing and tech costs to the non-NEXT branded business.

If we just sort of walk both of those numbers forward, and I've swapped the columns and rows here so [ just as it is. ] The starting point is at the top, and that is without the adjustment in central overheads. If I count for the adjustment in central overheads, the underlying NEXT brand profit would have been at 20%, brands at 12.2%. What you can see is the NEXT brand has moved forward a smidge and the non-NEXT branded business has moved forward by around just under 2%. That's all about the item level profitability work we did to make sure that we weren't selling unprofitable third-party brands on the website.

And that really came down to mainly commission brands that were putting low value, high-returning items onto our website. And those items because they're low value and we're going out and coming back in large volumes, we're eating up all of their profit through operations costs. So we've weeded out those products in 1 of 2 ways. We've said to the brand either you can keep the items on the website, you have to pay a higher commission for them or you can take them off. And they've done a combination of both.

So in terms of the walk forward on margin, what you can see is bought in gross margin on brands up 0.7%. That's all about higher commission rates on those unprofitable lines. Markdown broadly in line with last year and actually a good number considering how much more stock we had on the website, how much more markdown stock we had on the website. And warehouse and distribution, big gain on the branded -- non-NEXT branded side of the business, and that was all about taking out these low-value, high-volume lines.

If full price sales in the U.K. online are up 3.6% in the second half, then we expect margins to move forward for the full year to around 0.8% with total margins around 21.5% in the U.K. for the full year online.

Moving on to our international business online. Total sales up 33%. We were able to put an awful lot more markdown stock onto our international websites. So the actual underlying full price sales were up only 28%. In terms of where the business is at the moment, around 1/3 of it is coming on third-party aggregators, likes [ Zalando or Bau, ] 70% from the NEXT direct websites in terms of growth, 26% on the NEXT Direct websites. We think of that 26%, we think around 2/3 of it, 17% is driven by marketing and 9% natural, word of mouth, et cetera.

On third party, the 33% is better than the underlying trend. We think new aggregators -- well, new aggregators added 9% of the growth and the existing aggregators grew broadly in line with our own website at around 24%.

In terms of the shape of the business globally, still dominated by Europe and the Middle East. In terms of growth rates, Europe grew the strongest. I think the most encouraging number actually on this page and in fact, in this section is the growth that we're getting in the rest of the world, where in many territories where we had no traction at all, we have begun to get good growth. And I'm going to talk a little bit more about that in the sort of focus section at the end.

In terms of profit, profit up 36% margins moved forward by 0.4%. There is a slight wrinkle here in that last year, we understated profits by around 0.7% in the first half. That reversed out in the second half. This is all about overproviding for duty in one of the territories where duty rules changed, and we were overly conservative in that. So actual like-for-like restated margin is broadly flat at around 15%.

Sorting gross margin up 0.4% underlying margin on NEXT goods up 0.2% and lower duty goods -- lower duty costs contributing 0.2% to margin. That's not because duties have come down, it's because we've become more effective at working out exactly what duty we should be paying and reducing admin costs.

In terms of markdown, this isn't really an erosion of profit. This is because we've got so much more -- so many more markdown sales on the website because we put more stock on. So it's more about pushing the top line up from the 28% to 33% than it is about pulling the profitability of the full price sales down.

Warehouse and distribution, inflationary cost in wages broadly offset by operating efficiency, leverage over fixed overheads and an increase in handling charges where the customer is paying for the delivery of goods.

Marketing is the big increase in cost, as you'd expect. So you can see that more than all of the margin erosion overseas was driven by our increasing marketing costs, which we see as a strong positive. And again, I'll talk about that in a little bit more detail later.

In terms of second half, we're forecasting the second half to be up 19%. You might look at that and go, that looks overly conservative given that we grew by 28% in the first half. In the first half, we grew our marketing by 57%. At the moment, we don't think we have the opportunity to increase marketing by much more than 25% in the second half. That's what -- that is why we are being cautious about that number. And it's still a big number, but relatively cautious. We will see how it goes.

If we are able to achieve better returns on our marketing, I wouldn't want you to think that, that budget is fixed. Each -- every few weeks, we review the performance of our marketing. If we do better than expected to get better returns, then we will increase that number. So margin forecast for the full year, we expect it to be up around 1% on the basis of those assumptions at just under 15% net margins.

Moving on to customers. grew customers across the board. U.K. credit up 4%, just under the 5% increase in credit sales. U.K. cash customers up 12%. We think this number was almost certainly temporarily boosted by the disruption to another retailer as we were -- during the year. So I think I wouldn't expect that number to continue for the full year.

International customers are broadly in line with sales, slightly more as you'd expect because the new customers likely to spend less than the existing customers. In terms of sales per customer, a move forward in the U.K., we think driven by the increased product offer we've got on our website and overseas, a reduction, but potentially by less than you'd expect given the increase in new customers that we've got on the international business.

And just to remind you that these numbers exclude aggregators because we don't know how many customers are shopping with us on aggregators. Now the sharp amongst you, which I'm sure is all of you will instantly be saying, hold on a second, that 10.3 million was significantly less than the 13.7 million he quoted at the year-end. And what -- how have they managed to lose all the customers.

Just to remind you, we switched at the end of last year, just talking about unique customers that order in the year rather than actives because it was the only way of getting meaningful sales per customer numbers. The 10.3 million is the number that's in the half year, not the full year. So we would expect the full year number to be more than 13.7 million unique customers in the year.

Moving on to full-year guidance. Full year guidance, we're expecting sales to be up 7.5%. That looks conservative. It looks like a 6-point swing in the second half if you just compare it to the first half. If you compare it to 2 years ago, it looks a little bit more realistic at 3.7%.

And remember that this year, we had an exceptional summer, competitive disruption in the first half, which boosted numbers. And we think the U.K. economy will get tougher as we move through the second half. What we're particularly concerned about is employment. If this is the -- you can see vacancies have continued to drop since 2022, and we can see no change in that trend. And that is beginning to be affected -- to affect payroll employee numbers. It hasn't yet affected unemployment numbers.

Our view is that it will. And what's interesting is that those numbers are reflected in our own numbers, which are much more dramatic. So if we look at the number of vacancies that we have in NEXT relative to 2 years ago, we've got 35% less vacancies. That's not because we are dramatically or even at all reducing our headcount. But by far, the biggest driver of this is a slowing in staff turnover. And we're seeing that across the board. And we think that is indicative of the absence of job opportunities elsewhere in the economy.

If we look at the applications that we're getting, unique applications that we're getting for those vacancies, they're up by 76%, even more dramatic in head office actually. And so the applicant per vacancy ratio is now at 17 per vacancy. That's up 2.7% on 2 years ago. So if you look at that the other way around, if you were to apply for a job at NEXT, your chances of being successful have reduced by over 60%.

I'm not saying that you will apply or that you have got good prospects, by the way, but nonetheless, the odds are worse. And we think that is indicative of what's happening in the wider economy. We think the reasons for that are very simple. They're threefold.

First of all, I should say at the entry level, we are seeing by far the most pressure. We think very obvious reason for that. If you look at the cost of national living wage has gone up 88% over the last 10 years compared to inflation at 38%. And if you look at the cost of part-time workers and factoring the Nike, the cost of a 16-hour part-time employee has gone up just over 100% versus 10 years ago. That has meant inevitably that companies have driven productivity. NEXT is no exception.

We've invested an enormous amount of mechanization because this hasn't just affected entry-level work. It's also affected the levels immediately above that as well, for example, in warehousing where we put a lot of mechanization in. So you've got increasing costs driving mechanization layer on top of that, AI making a lot of entry-level desk work much more productive and impending legislative barriers to employment. And we think what you're looking at is a big squeeze on employment.

Now how that -- no one knows how that will pan out. Our guess is that it won't pan out with some sort of cliff edge moment of sudden massive unemployment. I don't think that's going to happen. We think it's much more likely that companies will do what, in essence, we have done, which is as and when vacancies come up through natural turnover not to replace them. and particularly at the entry level where you tend to get higher levels of turnover as well.

So we think this squeeze is going to be felt by the people coming into the workforce or attempting to move job rather than those in the workforce, which goes some way to explaining the stability of our debtor book. So those -- that was a little section just to anyone who is looking at our H2 numbers and going, oh, they're way too soft. It's just to add a little bit of our caution to yours.

In terms of where we are for the full year, 7.5% sales growth, we think will deliver around GBP 1.1 billion of profit. I'm not going to walk this forward from last year. I'm just going to walk it forward from the estimate that we gave in March to just talk about the differences. So if we're at GBP 166 estimate in March.

In terms of the change, the lion's share of the change is driven by our increased expectations of sales mainly in the first half, GBP 34 million. Clearance sales have significantly improved. These are not the sales in the end of season sale. These are the sales that we get on the clearance tab of the website. And it's one of the big unseen benefits of having so much more capacity in that we've been able to put away and put up for sale in a much shorter time, all the stock that comes out of the end-of-season sale.

So our clearance tabs have had a very good -- clearance tab on the website has had a very good half year, and we expect that to continue right to the end of the year, that GBP 7 million of profit. Total Platform Partners, we've increased our estimates from there of their profits. and total platform profit from GBP 78 million to GBP 80 million. There may be a little bit more upside in that as the year progresses. And we're spending more on marketing as that marketing becomes more effective, we're increasing the amount we spend, so that pulls profit back a little bit to give you the GBP 1,105 million profit for the year-end. That would result in earnings per share up 12.5%, assuming we can buy back all the -- we can use all of our surplus cash to buy back shares in the second half.

If we can't, it won't affect TSR because we'll put it in special dividend. Add to that, dividend yield is around 2.5% and get to TSR around 15%, which we are -- we will be very pleased with if we can achieve that. Standing back from the numbers and just to talk about the shape of the business. NEXT has evolved slowly over the last 10 years into a very different business from the one it used to be. And in your pack, we've given a real analyst delight, I think, of the participation in every segment of our business by brand, by geography, given the participation, the sales growth in percentages and the sales growth in cash.

So hours and hours of fun with your spreadsheets, getting ever more granular predictions, but it does bring home that the business has changed and that the business is far less constrained by its core brand in its core market of the U.K. And it's a sort of story of quarters really.

If you look at the business now, we're taking nearly 1/4 of our sales. And by the end of the year, probably it will be 1/4 of our sales overseas. If we look in the U.K., we're taking just over 1/4 of our sales on non-NEXT brands. If you look overseas, where you'd expect the NEXT brands to be pretty much all our sales, it isn't actually. And we're getting -- we are getting some traction overseas with non-NEXT brands.

The difference between the non-NEXT branded business overseas and the U.K. is that overseas, our wobble business, the wholly owned brands and licenses are a much bigger percentage of that business. And when you think about it, that's -- there's an obvious reason for that. In overseas on all the other third-party brands or most of them, we are competing with other local often dominant aggregators for sales on those brands. But in the brands that we own that have much less exposure in those markets, we're pretty -- we're often the only source of those brands.

In terms of growth, what you can see is it's the peripheral, the smaller businesses that are outside of our core NEXT U.K. business that are delivering the growth. And if you look in cash terms, it's pretty even. Still the U.K. delivering the majority of our growth, NEXT brand in the U.K. delivering GBP 75 million of the growth, although that was boosted in the first half. So you would expect that number relative to the other numbers to be lower for the full year. And what's driving that growth is a combination. I'm going to just sort of focus on 4 things. There are lots of things we're doing. This is not a comprehensive list of all the things that we're doing to drive growth.

I'm going to focus on 4 things: product, the new warehouse and how that's going, our international websites where we've made a lot of progress and international marketing. Starting with product, breaking it down into 3 sections. Next, third-party brands and wholly owned brands and licenses. There's not -- the next brand is where I and most of my colleagues spend the vast majority of our time. And there's not a huge amount to say about it, but I wouldn't want the absence of a long expose to think that -- for you to think that it's not where we spend most of our time.

The emphasis here is, as I said, for the last 3 results on 3 things. First of all, really delivering newness, delivering new trends when they first appear as soon as possible with conviction. And where we've done that, it has definitely paid off. And it does seem to be a general trend that we're seeing across everywhere that newness and delivering the right newness pays off. And you can't do that old thing of saying, we'll try something this season and if it works, do a lot more of it next season.

Next season, it's too late. Secondly, is improving quality, improving the quality at every part of our -- every bit of our price architecture, improving the quality. The main thrust there has been improving fabric and yarn and working harder with mills before we necessarily decided which garments fabrics and yarns are going to go into to develop fabrics and yarns earlier in the product life cycle. And again, where we've done that, that has delivered, we think, much better product. And not just at the sort of mid and upper price points, but actually most -- in one case, in particular, most notably at the entry price point where we've really been able to -- through engineering fabric and yarns, we've been able to improve -- significantly improve the quality of our entry-level product.

And the third thing is pushing the boundaries of our price architecture into delivering more items at the top end of our price architecture. And it is worth saying we think that is the way that the market is going. It's not a dramatic effect. But if you look at the increase in our like-for-like product, the like-for-like product is up by around 1% in price, factory gate -- in essence, factory gate prices that we pass through to customers up around 1%.

The mix, what people are actually buying is up 4%. And we think consumers are buying slightly fewer, slightly better things. And that's certainly -- everything we can see from our sales data is telling us that.

In terms of third-party brands, third-party brands had a good season, up 16%, delivering GBP 67 million of growth. The thing that has really made the difference here has been focusing on our major brands. We spent a long time building our brand portfolio, adding new brands. We've gone back and really focused on getting the best offer from our biggest and most popular brands. And the story there is exactly the same as the story on the next brand. We have had to be braver with buying more of their new products than we have been in the past on wholesale.

And on commission, we've had to force them to be a little bit braver about putting things that they haven't had a lot of history, not force them, encourage them to be braver about putting more of their newer stock onto our website and being braver with the newness and making sure that we're backing that in depth. And I suppose that's the positive. The negative is not relying on last year's best-selling Blue Vine or white Polo to deliver exactly the same as it did last year this year. That is definitely not the way to be successful on the brand. So a bigger push for news there.

Two smaller things to talk about. We have got a very good sports business, but it's mainly athleisure parts of the ranges, people like Nike, adidas. We have performance items, but we really want to push the performance element to offer our customers more performance sports products. So we're adding brands like -- on Running this season, [indiscernible] next season, and we've sort of got a dedicated part of the website. This product is available generally on the website, but also if you want performance sports, as a dedicated sports club part of the website where we're grouping together all the performance sportswear.

We think that's a good opportunity for us in the longer term. And sort of an Acorn, and this is an Acorn, don't expect anything big from this. But this is the type of -- this is the way that NEXT grows. We don't ever spend vast amounts of money building new businesses. We start with small experiments that take us into new markets. And Seasons is a point in case. This is selling high top end of the premium market and luxury goods. It's a small business, but we are beginning to get traction on our premium website. It's a separate website from NEXT. What we are able to do is advertise those products or those brands on our website or to our customer base of 10 million customers and move them across the Seasons website.

So it's a slow burn business. Don't expect me to talk about it again for another 5 years, but it's just an example of how we sort of plant to feed that may or may not be a big business at some point in the future.

In terms of the wholly owned brands and licenses, this is, in many ways, the most exciting part of the business grew. Our wholly owned brands and licenses grew by nearly 100% overseas. They fall into 2 categories, just to remind you. Wholly owned brands is where we either buy a brand like MADE or [ Ken ] after administration and find a team to run it or where we start a new brand internally like Love & Roses and friends like these.

Brands you won't really hear of every day, but something like Love & Roses, both those businesses taking nearly GBP 100 million. So good small niche brands. And on the other side, licenses, this is where we take great brands who have got, let's say, great adult clothing range, but want to do children's wear or want to produce furniture or we use our sourcing expertise and our products, our skills at buying those products, quality standards and all rest of it in order to provide ranges for them for those brands that fulfill the ethos and look and feel of the brand, but give them exposure to different categories.

And the way that works is that we buy the stock and pay them royalty. So it's pretty much full margin less the royalty. In terms of where those brands sit relative to NEXT, you all have seen these graphs, these bubble graphs. We're not great fans of them. But if you say NEXT sits somewhere sort of towards the more extensive and more fashionable end of the general market, center next on that grid and show where all the brands and licenses that we have sit relative to NEXT brand in terms of price and fashion.

What you can see is that the weight of the brands is more fashionable -- slightly more fashionable in terms of weight, but definitely more expensive. So in terms of cash, 55% of them, for example, will be more expensive, 20% will be great -- more than 25% more expensive than NEXT. And we think this is a good thing for 2 reasons.

First of all, we think that it makes our website a more aspirational place to shop, potentially attracting new customers to the website. But as importantly, if not more importantly, attracting more brands to the website. We think it makes it a more attractive place for brands that want to go to an aggregator to come to NEXT.

And the other important point is that, of course, the higher the price point generally, the better the economics. because the unit costs of shifting a GBP 50, GBP 60 T-shirt are not much different from the unit cost of shifting a GBP 5 T-shirt. So we think sort of economically more advantageous. And you might look at that and think that the way that we've built this business is through very clever people in the boardroom coming up with a grid and posted notes and circles and having some sort of digital representation of it with market research. And nothing could be further from the truth for 2 reasons.

One is we don't have to other people in the boardroom. And so obviously exclude our nonexecutive who are here today. And the other is it's just not how the real world works. It's not how you create great brands for consumers through sort of market research. The way that these businesses have been built is really simple and opportunistic -- and it's basically about finding great people where we've got new brands, it's about finding brilliant people to drive those brands. And that is a truth that we know from our own business. At the end of the day, the best product is driven by the best people, and that's as true of the brands that we -- the new brands that we're starting and the ones that we buy in as it is our own brands.

And with licenses, it's about partnering with brilliant licenses. And licenses that can genuinely bring something different to the table, whether that be the print archive or the people that they currently employ or their point of view it's about having something that is genuinely great for the consumer that we can translate into product that those licenses couldn't produce for themselves, whether they're big existing businesses that might want to go to children's wear like Superdry and -- all Saints or whether they're very small businesses like Rocket St. George, that is a very small business that just hasn't got the capacity to produce everything from a side table to dress.

And the aim is to create a brilliant place, an environment, a brilliant place across all NEXT, Wobble and third-party brands, a brilliant place for product people to create great ranges. But if you were someone thinking I could go and start my own brand, actually doing it at NEXT, you've got all the resources of the business area that we've got our systems, the access to our sourcing base, all of the tech that we have around producing quality support, if you want that. So a great place to produce fashion.

And of course, the other big advantage is that instantly overnight, you get access to our consumer platform as well. So warehousing distribution, our U.K. website, international website, access to our international -- our network of international aggregators, our online marketing, all the technology that sits behind our website, you don't have to develop yourself. And of course, the cash that we're generating that can fund these businesses. So that is the objective.

There is, however, and it's very important that we're conscious of this, a risk in this. And we call this the sort of [ PAYGO or plastthene ] risk. And those of you who like me have young kids or 5-year-old [ PAYGO ] is beautiful stuff when you buy it. It's like smells disicious,'s squidgy and soft these vibrant colors, and that's how it looks on day 1. And after 2.5 weeks, it's basically a crusty pile of brown stuff. And it's all merged into one. And the risk of all sort of retail conglomerates, I think, is that they end up -- all the brands and product end up looking exactly the same. And we -- I can't guarantee that won't happen, but we are acutely aware of that risk and work very hard to prevent it.

And 3 things are central to that. First of all, it's all bought by separate teams. We don't say it's the next blouse buyer, go away and buy Love & Roses blouse and then buy cat kid and blouse. Those are bought either by dedicated licensing teams that are responsible for individual licenses or by completely separate teams in the case of Love & Roses, where it's their own team and often in a different location, not necessarily any either. They're not all the brands are -- this is a mistake we made when we first started these brands actually, they all assumed. We didn't say anything. It was like a board. It just happened.

No one -- everyone thought somebody else was moving the glass. We don't insist that they all conform to next quality standards are fit standards because if they did, the product would end up looking like. Of course, it has to be merchantable quality, but they don't have to have the same rub test store. The sofas don't have to have the same durability if they're high-end sofas because they're not going to be used as much. So it's down to those individual brands to come up with their own standards. It has to be merchantable quality, has to be brand -- has to be product that we are proud of, but it doesn't have to conform to next standards.

What it does have to do, obviously, is it has to conform to all of our ethical trading standards. We're not -- we don't want to be caught out by a brand that uses a factory that we wouldn't use as a group. The other really important thing is that we don't share data between the teams.

When we started, they used to all get each other's data and the first thing they did is look at each other's best sellers. And of course, after 18 months, what we end up with every brand came up with its version of the other brands' best sellers. So it's quite important to keep division between -- sort of data division between the teams and not think this is a wonderful opportunity to leverage our data, which is the temptation you start with.

In terms of the parts of the business supporting that, I just want to focus on 3. A quick return to the warehouse. This is the new Elmsall 3 warehouse, just so you know how it's going. Capacity is up and running. It's delivering more than a 40% increase in capacity on where we were 2 years ago. The cost savings that we were expecting from the warehouse are as we expected, in fact, slightly ahead of where we expected them to be. It's worth just sort of looking at that in terms of long-term sort of trends in cost per unit. This is cost per unit in real terms, so adjusting for inflation and wages.

And you can see that sort of since 2022, we have achieved a marked improvement in productivity in our warehouses. -- firstly, through new sortation equipment that we introduced in 2022, then through just having the additional space from L3 and this season through the ramping up of the mechanization and moving to more efficient automated picking within the warehouses.

We think we've got further to go on that as well. It is not quite as good as it looks because obviously, wages have gone up faster than we could become more productive, but not a lot faster than the average selling prices would have gone up across the group.

In terms of service, this is an amber tick so sort of good news and bad news here. In short, the good news is that we are delivering better service than last year. Last year, this was what we call the notif rate. The order is not delivered on time and in full. And it's not quite as bad as it looks. The vast majority of these are where customer orders, average number of items, say, 4, 5 items and the fifth one doesn't turn up next day. It turns up the day after.

So it's not castroph particularly towards the back end of last year, that was not a good place to be. As we've started to fire up the new mechanization, we have really since end of April, started to achieve much better service levels, but they are still not where we want them to be at 5%. The main reason for that has been the teething problems we've had integrating the new third-party warehouse control systems. These are the systems that actually control the cranes, so not our software. We have the warehouse management system.

The integration, you will always expect teething problems, but they have been slightly more challenging than we expected. We're not concerned by that. It's a question of time. We think we'll be at around 6% by the end of -- I say we're not concerned about that. Obviously, I'm jumping up and down in one way. But we do think that this is not structural. We work the problems as we've gone along are being solved, and we'll be at 6% by the end of the year, and we should get to 5% at some point in the first half of next year.

In terms of international websites, who can forget this table. Whenever I bring this table up, my colleagues grown because I think, oh, you're just showing masses of data and it's hard to read. This is a really important table. It's in your pack, so you have -- you can look at it at leisure. But basically, what this sums up is in Jan '25 at the beginning of this year, how many services we had in how many of the countries that we operate. So for example, we operated and still operate around 83 countries. We only had -- customers can only pay in local currency in 56 of those countries at the beginning of the year.

We've worked really hard over the last 6 months to improve that. And you can see that now all countries trade in their own currency. And you can see that pretty much every service, we've increased our coverage. Parcel shop is the only one that we haven't cracked yet, and we're really waiting for the transition to be complete before we move our systems teams on to that because we thought it was more important to prioritize the ZS transition than parcels shops.

And marketing spend is everyone where it's more than 5% of sales. In some ways, that's encouraging because it shows how much more potential we've got in terms of increasing our marketing spend. In terms of that -- what that means in terms of thesis is what the countries we serve are as a percentage of the total clothing market in those countries. And you can see on local currency, we've gone from 70% of the potential market to 100% of the potential market of the countries we serve.

There's still a way to go, and the numbers aren't quite as good as they look. So for example, on that top line local currency, although we weren't serving 30% of the market with local currency. Actually, in January 2022, only represented 0.2% of our sales. So what we've, in effect, done is we spent a long time investing in functionality and services in markets where we weren't taking a lot of money. And you could say that sounds like a bit of waste of time. But it hasn't been hugely expensive.

And there is a chicken and egg issue here. And if you don't invest in a website that has local currency and local language registration, how on earth can you expect to grow the business. So you'll never really know the potential of the countries that you haven't got traction in. So you do all of this. And the work we've done here is what explains the traction we're getting in that Rest of World segment that I showed you earlier on, the 28% growth we're getting there. And just to give you one example of that, just to sort of give a bit of color on this.

In Japan, we were marketing in Japan, spending a little bit of money on marketing in Japan spring/summer '24, but we were only getting GBP 1.19 back for every pound we spend. That's not nearly enough. We need to be at GBP 1.50 to really justify spending a lot of money on marketing. In the interim period, we've got local language registration. We've optimized our product listing page, which means that it's much more appropriate to local markets. We've got local sizing conventions, which means, for example, we -- very simple idea this actually.

In Japan, they do sizing by the height -- children sizing by the height of children in centimeters rather than age, which is actually I think since when we switched to the local sizing conventions. And we've improved conversion rate on the website as a result of that by around 6%. We've also made sure that we're paying the proper duty and we're getting the product into the country effectively, which is no mean feat. And we've increased our prices slightly. That's moved margin forward by 12% net margins moved forward by 12% on that website. It was sub 6%, and now it's in the mid-teens.

What that means is that our marketing has gone from 119 to 170. And as a result of the marketing activity, which has only really just started, sales are up 20% so far. So it's just -- it's a good example of that sort of chicken and egg is get the fundamentals right, increase the profitability of the website and then you can afford the marketing and then you get the growth.

In terms of marketing, not a lot to say here other than overseas, we've increased by 57%. That number in itself is not that remarkable. What is really remarkable is the fact that our returns have not only not eroded, they've edged forward very slightly. We think that is all about -- mainly about all the improvements in functionality and everything we've done to improve conversion rate on the overseas website and the product that we've added to those websites, particularly our own moble product.

But it's also about the ad technology that where we're getting better at using our existing main suppliers, the big people like Meta and Google are getting better at using them overseas. We're forging new regional partner media partnerships in countries where the big players in the U.K. are not necessarily -- don't have as much of the market as they do in other countries. And we're beginning to invest the time, the amount in human resource and people to start marketing and doing marketing programs in the smaller countries in which we operate.

So kind of when you pull all that together, we've got 4 things, and these are not exclusive, but that are driving growth. I think what's interesting about this is that marketing piece because what you need to realize is, yes, better product, of course, better warehouses and all the other services we wrap around that call center, the website functionality, all of those things do drive sales. But because they drive sales, they also reinforce marketing and they allow us to spend more on marketing because if the customer is more likely to buy when they get to the website, you can spend more money to get them there.

The final thing I want to talk about is cost control. You'll have gathered from the frequency with which we micromanage the allocation between our brands and NEXT and all the things we do to manage profitability that we are obsessed with profitability. And people often think that, that is just about -- when I say just about -- it's very important. They think it's just about our capital allocation and shareholder returns and derisking the business through having adequate margins. And it is about all of those things. But it's also about growth because if we can control our costs and make sure that every transaction that we undertake is profitable, that means that we can afford to spend the money driving the part of the business that is growing fastest.

And our control of costs and understanding of the profitability of every element of our business is one of the things that has done most to enable the marketing that is pushing growth forward. So whereas -- and in this respect and only this respect, our finance teams are heroes. Now you don't often hear that a fashion retail business, but it's true that the work we do on profitability is as important as all the other things.

I think what also becomes apparent when you look at these things is that none of them on their own are enough. And if you want to sort of look at NEXT and occasionally, people sort of terrify me by talking -- using the phrase well-oiled machine and all that sort of stuff. There's no well-oiled machine. There's no moat. There's no USP. There's nothing that can't be copied or done by others.

Success for us and the risk and the opportunity is all about execution. It's all about all of these areas being good. It's no good having great product ranges if you can't get them out of your warehouse. It's no good having great warehouses if your website doesn't work. So every single area of the business has to execute brilliantly. And if it does, it's mutually reinforcing. And if you don't, it is mutually undermining. So if you want to sort of look at NEXT and look at the risks and downside, the risks and downsides are all about execution.

I think what has changed and by the way, opportunities. I think what has changed from 10 years ago, all of these risks were there 10 years ago, exactly the same. What has changed about the business is that whereas 10 years ago, the runway -- our runway for growth was really constrained by our core brand in our core market. The difference between then and now is that the opportunity for growth outside of that core market has opened up, both in terms of the products we can develop and sell on our websites, the non-NEXT brand we can sell and in terms of the countries that we can develop in.

So in the report, we've said we recognize the challenges of the U.K. economy and the challenges of executing well. But on balance, we think that the opportunities outweigh any of those threats.

And on that uncharacteristically optimistic note, we'll go to questions. And I've been told to remind you that in this wonderful high-tech auditorium, you have microphones there. So you don't have to have people running to you, pick them up apparently and press the button. And not only can we all hear you, but it will be recorded for the transcript as well, so you'll be famous. So over to questions.

[Operator Instructions]. Warwick?

Warwick from BNP Paribas Exane. Two questions, please. Is the opportunity to develop the Wobble brand a bigger opportunity than signing more Total Platform customers? And should we sort of think of that as a bigger opportunity?

I think as it stands today, yes. I think the -- the thing about Total Platform is it's sort of -- it's the difference between macro fishing and whale fishing. The Total platform only make a difference where we make a big deal, and that's going to be pretty binary. So in the year that we do, do a big deal and as and when we do them, that will make a much bigger difference. I think Wobble is a much more reliable and steady source of growth than Total Platform, which is likely to be sporadic.

And secondly, you talked about still an opportunity to improve the delivery service out of A. Is that a sales opportunity for 2026? Or is it just about cost efficiency?

I think there is a cost element to it. Obviously, if you're delivering the fifth item separately, you've got the extra parcels, there is definitely a cost element to it. I don't think it's an immediate sales opportunity in a way that putting a brilliant range or not brilliant range is an opportunity and threat. I think it is about the slow and steady establishment of brilliant service.

And I think that, that takes years to deliver. So yes, it is a sales opportunity, but I don't think you should be building into your wonderful models x percent for warehouse improvements in terms of sales opportunities because I think it's much longer term -- great service is a longer-term opportunity to acquire and retain customers rather than immediate fill up.

It's Adam Cochrane from Deutsche Bank. There's been a lot of chat about business rates being changed in the U.K. particularly with regards to larger stores. Would this be of impact, do you think, to any of your larger stores? And would it change any way you look at them?

Yes. We very rarely have the opportunity to take larger stores. So the answer is yes, it would, but it's unlikely to be the defining characteristic on the appraisal. Just to sort of by way of background, we estimate that the net effect of the changes on rates overall will be GBP 5 million more cost in warehousing, GBP 3 million less cost in retail.

I think you are right. Yes, GBP 2 million. So it's a small number, depending on what rates will reach in the budget. I think if you take the mid-case, we think it's only about GBP 2 million.

That's great. And then a few years ago, we talked about increasing the number of brands and items online as being a real competitive advantage. You're now talking about sometimes removing or at least trying to change high-volume items. What's the overall outlook in terms of number of lines, brands, et cetera, that you're offering online and compared to where you would like to be or where you were?

That whole like to be thing. And that suggests that the business is somehow the result of my will, which mmciveully for you, it isn't. We will add lines as and when we can see they're incremental and profitable, take them off when we think they're duplicative and unprofitable. I think what is likely to happen is that you will see an increase in the amount of wholly owned brands and licenses on the website.

I think in the short term, we will continue with focusing on getting the best of our bigger brands rather than new brands on the website. There will be some new brands, but those new brands will be limited to the areas we're talking about performance sportswear and sort of luxury brands on the Seasons website. So I wouldn't want to make a prediction as to what the balance of those effects are going to be.

William Wood from Bernstein. The first one is just on the brand mix that you've been experiencing. So you've got positive momentum with higher ASPs versus like-for-like pricing. Excluding Seasons, how do you see that brand elevation or the increase in ASPs going forward? And do you think you've highlighted the PAYDO risk in brand -- the number of brands? Do you think there's also a risk in terms of average pricing that you're putting forward to your customers?

Well, again, I think -- first of all, we're very careful the word momentum. And my experience is very little momentum in retail. And I don't think we are getting momentum on average selling prices going up. It's just something that we're pushing and going faster and faster as we push it harder and harder. This is very much a pull. This is what the customer is choosing to buy.

And the way that we build our ranges isn't by deciding what we want our customers to buy. It is -- our job is to guess what they will themselves want. We don't make them want -- so who knows which way that trend is going to go. All I can say at the moment is that it appears to me that the most exciting products we're looking at are the slightly more expensive ones to make. So I think I can't see any change in that trend, but it will change at some point in these things wax and wane.

Great. And then the second question is just on international. I think in the report, you mentioned the opportunity to expand breadth and availability in international to support that growth. Can you give us some idea of what that looks like and what you're doing at the moment? Is it categories, SKU count, size availability, color availability, things like that?

In terms of availability, by far, the most important thing we're doing actually is in our aggregation business in Europe with the transition to Zios. And this is where we're moving the warehousing of our own direct websites into Zalando, which means that there's a shared stock pool.

And what that means is that both our website and their websites will have access to a bigger pool of stock, and we think that will increase availability for the aggregator. -- be less of a market effect for NEXT because we always drew on our U.K. warehouse where the European hub didn't have a stock available. So actually, the way the customer will experience it on our website will be about more things arriving sooner in parcel than coming in 2 parcels.

Richard Chamberlain, from RBC. A couple from me, please. First one is on sourcing, Simon. I wondered what's the current percentage of sourcing done in U.S. dollars? And how are you thinking about potential to reinvest those gains into next year? Are you thinking that's a good opportunity to, for instance, improve quality style and so on of the offer next year?

And the second one?

Second one is on international rest of world. You gave Japan as an example, talking about kids wear and so on. But is it still the case that rest of world is seeing a sort of broadening out more into women's and men's now in terms of the -- what's actually driving the growth of that segment?

Yes. Okay. Good question. So in terms of broad -- we're seeing that across the board, not just in Rest of World. We're seeing the parts of our range we sold the least are growing the fastest. So in territories where we were selling mainly children's wear, we're seeing men's and women's growing fastest. So -- and that trend continues, not just in the rest of the world, but in all the other territories, pretty much all the territories in which we're selling. In terms of sourcing and dollar gain, I think -- so most of the stock we buy is dollar-denominated. I'm going to guess around 80%, what was your bit higher lower anyone else in the bag.

So yes, it's a lot. I think you've got to be very careful about assuming that an improvement in the dollar rate translates straight into an improvement in the factory gate price because a lot of the costs are in local currency. And so if the dollar weakens as a result, if it's a dollar weakness, then actually, you don't get very many gains. If it's pound strength, then that's the only time you really get that translates through into factory gate prices. But in answer to your broad question, our aim and is that where we get increases in costs or decreases in costs in the good -- in the input cost of goods, we pass that straight through to the consumer.

We did increase our bing gross margin very slightly this year because of the NIC increase. But generally, our view is pass it through to the consumer. And here, I wouldn't want you to think, again, that it's cover people in the boardroom going, oh, we'll put that into quality or we'll put that into price or go higher end, lower end because that's not our decision.

The person will decide will be the shoe buyer or the blouse buyer, and they will decide do I slightly upgrade the fabric, do I put a better print in lower my price. It is all done at buyer level rather than boardroom level. So I wouldn't want to give you a steer as to how any gains we get are invested. My guess is that if we see at the moment, what those gains are being invested in is better quality, better designs, better prints, whether that's the same next year will depend on hundreds of people who work at the business.

Yes. Sreedhar Mahamkali from UBS. A couple of questions. Firstly, I think you've pointed to international marketing returns being extremely strong. If they're as strong as they are, why wouldn't it grow another 50% in the second half? So why only 25%? And the second one, you've talked about potentially or if you minded to potentially change the U.K. sort of return on stores, payback periods or heading in that direction at least anyway. What does that mean for ERR for buybacks or both capital allocation decisions?

It doesn't mean anything for ERR on buyback, obviously, at 8%, changing -- because I mean stores are only -- the retail business is only 20% of our business and the retail new space might account for 1% if we're lucky of retail sales. For us to change our ARR as a result of that, it would be -- wouldn't make sense. I think the important thing is that every investment decision we make, we're balancing 2 things, risk on the one hand versus return on the other.

I think the point I was making about the stores is if we are able to derisk the stores in one way or another, either through a higher hurdle on profitability or more flexible rents, then we will consider moving the payback out. But it won't affect our ERR.

And in terms of marketing, it might -- I'm not going to rule out it growing. I think very much to go by 57% because I think a lot of the gains we got were about these website improvements where we've already annualized some of them. versus last year. So I think it's very unlikely to be as high as 57%. Whether it's more than 25% will depend entirely on how we trade.

It's Georgina Johanan from JPMorgan. Just 2 really quick ones, please. Just first of all, in terms of the pressures obviously being faced by Marks & Spencers in the first half. Just wondering if there was any learnings from that for you really in terms of the customers that you are acquiring. Could you sort of leverage that in some way going forward?

And then second one, please, was just, obviously, you have a sort of lot data presumably on customers by income demographic given the debtor book. And just wondering if you could talk a little bit about how the different income demographics were performing in the half across your sales base, please?

Yes. The answer is we don't have income data about our customers because we have relatively light credit score. So we don't do -- there are a small number who are on the HE we do affordability checks on, but the vast majority, we don't know what our customers are earning. So I wouldn't want to give you any data on that.

And in terms of lessons from -- we don't know which customers -- customers when they come to us and say, I'm coming to you because I can't go on to somebody else's website. So in all honestly, there isn't -- there aren't any lessons that we have learned that I would be willing to share. And in truth, there aren't -- I don't think there are any that I know of.

Andrew Hollingworth from Holland. Can I just ask a couple of clarification questions from questions that will come up before? So just on your follow the money -- on your follow the money commentary this morning, which I think is sort of obviously a very sensible to go about things. The gentleman in front of me asked about the sort of wobble situation. Could you just talk about whether or not the success of the business overseas gives you more confidence in terms of wanting to commit capital to buy more brands, to innovate more brands internally and so on. I'm not expecting you to tell me what you're going to buy. Just yes, is a perfectly acceptable answer or no because is another answer. The answer is no.

I don't think so. I mean in reality, when you're looking at investing in a new brand or a new team or buying something, we're mainly looking at what the business currently does rather than what we think we can do with it because that is the only those are the returns that we look at most carefully. In terms of the upside, are we thinking overseas U.K. We're just thinking total online. The more we take online, the more the upside is there. So indirectly, yes. But we're not thinking this would be a brilliant brand to sell in Japan or Saudi Arabia, so let's go buy it because we would make a lot of mistakes that way.

Okay. Fair enough. And then on the international marketing question, is there -- I get the success orientated. But is there any reason why in 3 years' time from now, having done everything we've done overseas that we couldn't be spending multiples of what we're spending today. And it feels like the world is a big place. It feels like the people you use your marketing spend would be delighted if you'd spend 3x as much. Could you just tell us why that might not happen? Is there a limitation that I can't foresee?

I think it's all down to execution. we will only be able to spend more money on marketing if we continue to improve our websites. We continue to see -- depending on -- a lot will depend on convergence of global fashions, whether that continues at the pace we think it's happening at the moment. So it comes down to internal factors, product ranges, execution and service and external factors and the speed at which global fashion trends converge. And some of it's also third parties' willingness to trade with us.

But if you keep getting returns you're getting, you'd be happy to spend significantly more in the way that you have done in the first half?

We're not capital constrained. The reality is we're talking about we're returning GBP 350 million this year in one way or another, that we can't another over and above the GBP 11 million GBP 118 million we've already spent by way of returns. So we are not capital constrained as a business, we -- if something makes money, we will just carry on investing in it.

Geoff Lowery, Rothschild & Co Redburn. Could you help us understand a little bit more about the behavior of your customers in the U.K. who have a credit account? I'm not really talking about this half year, more this broad sweep of you continue to add customers with an account, but they seem to spend more with you, but they're less reliant on your provision of credit to them than they were. So what sort of triangulates all of this for us? And is that growth in credit customers a function of converting ones who were cash? Or is there something going on beneath the surface that we can't see in terms of the overall profile?

That's a good question. So I think, first of all, the vast majority of credit customers are not first-time customers. So it's a question of converting cash customers into credit customers. In terms of behavior, what we're seeing is -- in terms of delinquency and default rates, I think a lot of that is about how more and more credit is being joined up. if you default on your GBP 100 debt to next, you might not be able to get a mortgage. So I think that is what's driving a sort of consistent reduction in debt rates. And then I think also a lot of customers who are switching from -- some of the customers switching from cash, I think more of them, and I haven't got numbers for this, but I think more of them are just using it as a try and buy facility rather than a proper credit facility.

[indiscernible] from Citi. Just one. When we told your warehouse, you talked about potentially offering the spare capacity to other brands, Zalando, Esqu. Obviously, now you have maybe more capacity from shifting your stock to Zalando, but then you also talked about improving the performance and reliance of the brand. So is that still an opportunity?

Yes, I think so. It will depend on -- and we are talking to a number of people about that. So it's an ongoing discussion. It's not a huge margin business. So I don't think it's not -- it won't be -- it won't generate as much pounds profit as total platform, but it is a profitable business, and we're still talking to a number of people about offering that service.

David Hughes, Shore Capital. A couple of questions from me. First of all, on pricing and the broad in margin, obviously, you've increased that a little bit to offset some of the higher costs. Did you see any kind of customer reaction to this? And if there is a further increased cost either through the employment rights bill or another minimum wage increase next year, do you think there's more that you can do there to offset that cost? And then secondly, just on international, alongside the improvements you're making in the 83 countries, do you have any significant plans to expand that to cover kind of even more of the globe?

Yes. In terms of more of the globe, not really. There are countries that we -- the big countries that we're not in either Russia, either there are political reasons for not trading there or the market is just not ready. So I'm not expecting the number -- I'm not expecting that 83 number to change dramatically.

In terms of pricing, it's very difficult to see a response to 1% increase in price. So the honest answer is we don't know what the response to that was. I don't think there was any -- if you ask my gut feeling, I don't think there was any response because the 1% is still significantly less than consumer than wages are going up by. So actually, in sort of share of wallet terms, that 1% increase is a game for customers whose wages on the whole are going up by slightly more than that.

So I don't think that was a -- I don't think it's been a problem. And then in terms of our ability to pass on, I'm often asked about what's your ability to pass on the price? And the answer is that we print the tickets. We print the price ticket. So our ability -- we've always got the ability to do that. And our view is that you have to do it, you have to maintain the profitability of the business because if you don't, when you look at that, what would I have to gain by way of sales in order to sacrifice to make back the margin I'm sacrificing.

The answer always comes back, don't do it. And so our view is that where we get better prices from our manufacturers, we pass those through. And we've done that consistently for the last 20 years in real terms, the price of clothing generally, not just the mix has come down, giving better quality for less money. But where your costs go up, you have to cover them regardless of whether that has an adverse impact on your sales or not because it's more important to maintain the profitability of the business for all the reasons that we discussed than it is to maintain your top line.

Anubhav Malhotra from Panmure Liberum. A couple of questions from me, please. Firstly, I would like to understand how is the mix of the third-party brands you sell between wholesale and commission developing? And are you still making a concerted effort to move more into commission? And maybe the reverse of that as well, when NEXT sells on international aggregator platforms, are you doing that mostly on a commission basis or on a wholesale basis? And my second question is about...

That was 2 questions, 3 now.

All right. Sorry. The third one then is when you're thinking about developing products and you talked about developing what the customer actually wants. And then I'm looking at the lead times that you mentioned and those increasing now you're trying to -- you are having 26 weeks of cover almost. How do you balance those 2 requirements? Because fashion -- I mean, you don't want to probably get into fast fashion, but the fashion needs constantly evolve very, very quickly. Are you looking at more near-term sourcing?

I think it's about -- so in terms of the last point, which is a really important one is that -- and by the way, 26 weeks of cover doesn't necessarily mean 26 weeks lead time. lots of continuity product will have much longer lead to cover. There are products we can react to faster. And we are developing new sources of supply closer to home, which are giving us much faster lead times. we're growing our presence in Morocco at the moment.

So I wouldn't want you to think that, that increase in that all in stock early means that we're not pushing to develop product faster. But our universe experience is that it's not the time taken to make the garment that determines whether or not you are -- you capture the trend. It's the speed at which you go from seeing the trend to executing it with authority and a good quality. And that's where that is where we're focusing all of our time. And the whole thing about developing fabrics earlier because there are fabric trends that emerge before garment trends, that is critical to that process.

In terms of aggregator, pretty much all of the business we do with aggregators is on commission. And then in terms of wholesale versus commission, we're much more agnostic about that than we used to be. So we're not -- there was a point at which we were encouraging wholesale to move to commission. We're not really doing that anymore. We'll go with whichever way the brand goes.

And in terms of growth, we're not seeing significant difference in growth between the 2. If anything, the improved focus we've got on buying the right quantities of brands and getting and backing newness obviously benefits wholesale more than it does commission. So the big push has benefited wholesale more than commission.

And on that exciting note, we'll finish. Thank you very much, everyone. Have a good day.