Well, good morning and welcome to the Next Annual Report annual presentation. Just a few comments before I turn it over to Simon. With respect to the board, we've had several departures and we're gonna have several arrivals on the board. I just wanted to comment on those. First, after many years in the group, Amanda is stepping down. Amanda joined the company back in 1995, joined the board in 2012 as finance director, and after 12 years on the board, will depart in July. Amanda's made a huge contribution not only to the board but to the company over all these years, and she will be sadly missed. Second, Dianne Thompson, non-executive director, after nine years on the board will be stepping down. I wanna thank Diane for her great service during her time on the board.
In terms of new board members, we have two NEDs that will be standing for election in May. First, Venetia Butterfield. Venetia is the managing director at Cornerstone, which is a publishing company. And second, Amy Stirling, who is the CFO at Hargreaves Lansdown. Both of those NEDs will be standing for election in May. And finally, as an executive director, Jonathan Blanchard will be joining the board in July when Amanda steps down, and he'll be put for election next year in May. Jonathan has been the chief operational officer and CFO at Reiss, and we know him well, and we feel he'll be a great, great addition to Next. So those are the changes. The board, I think the work will be seamless.
We'll continue to support the direction of the group, and we look forward to, just a new board, with some new additions, but we'll continue to function very, very well. So Simon, over to you.
Right. Good morning, everybody. Welcome. I think the first thing to say, and this is that it's been at least 7, if not more years, since we've started a year looking at forecasting a profit growth as big as the one that we're forecasting today. And that leaves us with an enormous problem I've discovered. You know, sort of, you could almost call it a mistake in that not being pessimistic is being misinterpreted as optimistic. And I would hate for anyone in this room to think that we had suddenly become wild optimists. We're not. But this is a bit of a watershed, we think, for us, because for the first time, really, the weight of the structural change in our industry, pandemic, cost of living, looks like it won't affect us in the year ahead.
None of those will have a material impact on the year ahead, particularly the cost of living, the most recent problem, that really does look like it's easing. In fact, if anything, we might get a slight benefit from wages, running ahead of inflation, for the next sort of six or so months. We'll leave behind a much better than expected year, and we're looking at growth, albeit not spectacular. We're looking at growth, in the year ahead, driven by a number of factors. I'm gonna spend some time talking through the things that we think will drive the business forward, in the years ahead. Starting with last year, sales up 3.3% in the Next group. This excludes any contribution from subsidiaries. Full-price trade up 4%. That consisted of online up 6%, retail up 0.2%.
We weren't expecting retail to be up. We're expecting it to be down. We still think there's a little bit of catch-up from COVID coming through last year. And in fact, the number is slightly better than it looks because on a like-for-like basis, stores were up 1.8%. We closed stores representing around 1.6% of trade. So, in terms of the addition that acquisitions have made, GBP 370 million of sales from subsidiaries. I need to spend just a brief moment explaining how we're reporting profit and subsidiary and sales from our subsidiary businesses. We think the best way to represent the value that the subsidiaries represent to Next is by reporting our percentage of their profit. So we if we own 70% of the business, we'll report 70% of their profit in our headline number.
In order to make our margins consistent with our profits, we will be reporting our percentage of their sales in the same way. So if we own 70% of Reiss, we will report 70% of their sales in our top line. We think that keeps our profits and sales honest and commensurate with each other. Total group sales up 5.9%. Operating profit up 5.5%, accounting for lease interest. If we account for financial interest, financial interest was up more than sales. This is about the rise in interest rates affecting the floating-rate notes that we issue. We don't our bonds are fixed, but we swapped out around GBP 250 million of the debt into floating notes. Profit before tax up 5%.
Just to remind everybody that, again, in order to make the profits we report the most accurate reflection of the value the company is creating, we are not going to show in this line the amortization of brands. For clarity, it will include the amortization of software and other depreciation. Any asset that actually we expect to devalue, we will depreciate or amortize. We're not going into mad EBITDA world, but we don't think it's right that we depreciate brands that we've bought in the expectation that they'll actually become more valuable, not less. And again, anyone who looked at their numbers this morning, in the 918 and thought, "Oh, they've smashed it again," you know, we haven't. We were, you know, we were much more accurate than we said we would be than you might have expected. Sorry.
GBP 3 million ahead of the 905 on a pre-amortization basis, sorry, post-amortization basis. Just for clarity, last year we had around GBP 5 million of amortization in last year's profit number. Tax charge, not quite the 25% that the rate has gone up to, mainly because we only had 10 of the 12 months under the new regime in the last financial year. That increase in taxation has been compensated for by some buybacks to nudge earnings per share post-tax up 0.3%. Final dividend, 141p. Just a nod to the increase in underlying earnings per share. We have got an exceptional gain this year. It's GBP 109 million. It's not a real profit. There's no cash involved. Sorry, I shouldn't say that 'cause the audit is in the room.
Of course, it's a real profit, but it is just the reevaluation of, of Reiss, really, as a result of us buying it. So, on two counts, you could argue, that it's manufactured, but it's not cash. We just to warn you, we will have a similar non-cash item next year of around GBP 20 million, which I'll cover a little bit later. Depreciation up GBP 18 million. Around half of the increase in depreciation is about, the amortization of the software that we have been investing in over the last few years beginning to hit the P&L. On average, we depreciate software over about 4.6 years. I think that's right, Amanda. Yeah. So that, that will begin to hit the P&L as we go forward. Moving on to CapEx.
CapEx down nearly GBP 40 million on last year, as expected, just to put that in perspective. Drop in warehouse, stable on systems. The other areas, some of that is about the CapEx that we're now bringing onto our balance sheet in subsidiaries. About seven of that GBP 10 million of subsidiary and head offices is Reiss and other subsidiaries. New photo shoot studio, and a big upgrade to lighting in our stores where the investment in lighting will pay back on that investment in around two and a half years in terms of saving energy. Warehousing is where we've seen the big drop. This is all about the investment in E3, our new boxed online warehouse, beginning to come to an end as that comes on stream. That's cost us around GBP 200 million over the last four years.
We expect that to drop to around sort of 1 million in the year ahead. That project is now pretty much finished in terms of CapEx. There are other bits and bobs of warehousing that we will need to invest in over the year ahead, and we would expect warehouse CapEx to be in the order of GBP 60 million, going forward. Just in terms of software, you can see, this has stabilized at around GBP 50 million of CapEx, in software. We do expect that number to come down as we begin to complete the modernization programs we've been implementing over the last few years. So if we look at our CapEx going forward, and this assumes no big change, this will change if we suddenly get a huge Total Platform client.
Obviously, there'll be a lot more CapEx, but assuming no big addition on the Total Platform front, normal growth, we would expect CapEx to sort of come back to between GBP 130 million and GBP 150 million in the years ahead. In terms of working capital, a big swing here. It's just worth going through some of the lines. First of all, online receivables. Online receivables, sucking up much less cash than last year. This is not about the present year. This is really all about last year where GBP 92 million worth of cash went back into our debtor books as consumers built back their balances to more normal levels.
So what you can see is that, our debtor days, the number of days it on average takes consumers to pay down their debt, is 196 days, 195 days, and that number is commensurate, if not a little bit lower, than what we would have experienced pre-pandemic. Staff incentives, that's all about the timing of payments as is the ESOT. The ESOT, last year, there was a big outflow because the share price was low. Very few people exercised their options. This year, we had the reverse effect. Surplus cash, GBP 684 million. It's good to see our surplus cash coming back to the sort of GBP 500 million-GBP 650 million level that we would have expected as a percentage of profit sort of pre-pandemic.
What you can see is over the last few years, we've we've invested a lot of money in warehousing and software, and as that begins to come to an end, the cash generation of the business begins to come back to around two-thirds of the profit of the business, which is where we think it ought to be. In terms of how we've spent or returned that, you can see more investments, less buybacks, similar amounts of dividend. Going forward, if we find good investments to make, we will make them. If that's not enough to use up all of our surplus cash, we will return the rest to shareholders via buybacks. Moving on to the balance sheet.
And kinda before I go into this long and arduous balance sheet description, which will be super simplified, because the vast majority of the changes are all about the effect of bringing Reiss and FatFace onto our balance sheet. It's gone from a situation where we had only the money we'd paid for it on our balance sheet before consolidating none of their balance sheet to now only 70%, for example, of Reiss and having to consolidate all of it. And you can see that's affected brand acquisition number. Stock is up GBP 105 million, of which GBP 84 million comes from Reiss and FatFace. The underlying stock at NEXT stock, including Label, up 3%. So in line with our sales prediction for the year ahead. Customer receivables are up 1%, with credit sales, including interest income, flat on the previous year.
So customer receivables rising broadly in line with credit sales as you'd expect. And I should say that, you know, our credit business for a number of years has been a very good, healthy, but ultimately legacy business. We're not planning for any significant growth or any significant decline in our credit business going forward. Other creditors, these are the people that we owe money to. Again, lion's share of the increase there is about the money that Reiss and FatFace owe their suppliers, mainly for their stock. Staff incentives and capital accruals are all about timing. Pension surplus. This is a big drop.
Now, the main reason for this is because we are de-risking our pension fund, both for the defined benefit beneficiaries and also for the company through a process of buying in and buying out our pension fund. This is an extraordinarily interesting process, which if you want more detail on, Amanda can give you chapter and verse after. So please don't hesitate to ask as many questions as you'd like. But we've bought the insurance policy, so we've done the buy-in bit. That reduces our pension surplus on the balance sheet by a certain amount. And as we undertake the process of the buyout process over the next two years, we would expect that pension surplus number to drop to close to zero.
That process in the year ahead, the buyout process, will generate a non-cash exceptional charge of around GBP 20 million. Net debt down GBP 97 million. And that drop in debt was deliberate. We have consciously reduced the levels of debt in the business. In the year ahead, we expect to do so again by around GBP 75 million. So we'll generate GBP 780 million, spend GBP 165 million roughly. That's what we expect. And then pay it by way of dividends, share buybacks, or investments, up to a level of GBP 625 million. So keep GBP 75 million off the cash that we generate. The logic of that is if you looked at our balance sheet as it stands today, we are, you could argue that the balance sheet was a little bit lazy. Our peak borrowing requirements in August, sorry, October this year is gonna be GBP 800 million. So that gives us more than enough headroom.
The aim is to give us enough headroom that in October next year, when our bond has expired or the August 2025 bond has expired, the aim is that we don't have to refinance it. Now, that's not to say that we won't refinance it. We probably will, but we think market rates are high at the moment, and we don't want to be a hostage to the market. So if the market if we think we can get rates that are right for the company, then we will refinance the bond. And if we do that, it will be that money will be spent either on investments or buying back shares, and we'll get our gearing back to a level that's still very comfortably investment-grade but a little bit more aggressive than where it is today or the where it will be when this bond falls away.
Net assets up GBP 474 million, the vast majority of which is about FatFace and Reiss. Moving on to retail. Retail had a better-than-expected year. Sales flat. Like-for-likes up 1.8%. Interestingly, the growth that we experienced in our portfolio between city center, regional shopping centers, and retail parks has rather you know, there's very little difference. In fact, the differences that we're seeing, I don't think are big enough that you could say there was any sort of positive trends there. It's more about individual stores performing well and badly in those types of locations.
What's even more interesting is that when you look at the percentage of our trade that we take in different types of store, the left-hand graph shows 2019, the right-hand graph, 2023, you can see that actually, as a result of all of the upheaval and the various, you know, the growth in retail parks during the pandemic, the return of the city centers, we're pretty much back to square one. City centers taking a little bit less, retail parks and regional shopping centers taking a little bit more. And that, by the way, is not city centers across the board. It's that some city centers have been hit very hard, and others are pretty much back to where they were. Operating profit up 3%. I never thought I would hear myself saying this, but margins in retail up 0.3%, just in terms of how we got there.
Don't get used to that, by the way. Now how we got there, 0.4 of that was from bought-in gross margin. The lion's share of that increase was the fact that freight prices came down during the year much faster than we were expecting and lower than our costing rates. So there was, in effect, a positive slippage on margin as a result of us paying lower freight costed freight rates than we costed into our garments. Markdown, an improvement here, much less surplus stock in retail stores and improved clearance rates. We're expecting some of that to reverse in the year ahead, which will erode margin in the year ahead if it happens. Warehouse and distribution, a no-score draw.
Here, basically, efficient operating efficiencies in part paid for by the increased mix of higher-priced product, meaning the ASP went up, not on like for like goods, but the average sold price went up, which pushed up efficiencies in the warehouse. That was offset by wage inflation. Payroll in the branches, again, two things going on here. Good improvement in productivity of 0.4 but more than offset by the wage inflation of 0.9%. And again, we're expecting with National Living Wage going up 10% in the year ahead, that will happen again in the year ahead. In terms of store occupancy costs, lots of different things going on here to result in a no-score draw. Benefit on rates and rent, a little bit of rent, and a loss of rates as a result of the revaluation. Fully depreciated assets.
That is representing a sort of a real fundamental that our stores are sucking up less CapEx than they have done in the past. Those are offset by higher electricity bills and previous year credit. Looking at the lease renewals that we undertook during the year, we renewed 56 leases during the year. That resulted in an average occupancy saving of 31%, annualized cash saving of 6.7, and weighted average term of around 3.9 years. Just one sort of when we look forward to the year ahead, we're expecting the equivalent saving, percentage saving, to be nearer 16%. What we're seeing is there are two very different types of stores. There's the pre-2019 stores where the lease was agreed before the pandemic.
Those stores, we have seen last year and expect to see going forward a significant reduction in rent. There are those that we renewed since the pandemic, and there are quite a few of those coming up because a lot of the ones we'd signed during the pandemic, we only signed on two-year leases. So those stores, we're expecting little or no drop in rent. So it's not that the average will drop to 16, but that's not representative of what's happening underneath the bonnet, we don't think. In terms of next year, we're forecasting for -2% sales and operating margins to move back to around 10.5%. In terms of the online business, online had a good year, up 5%, 6% full price.
In terms of how that broke down UK and overseas, UK up 3%, with the Next brand growing more strongly than our label business. This is the first time that's happened for a long while, and that's partly because, we think we got a lot of our own ranges right in last year and partly because with label, we went through every item and every brand that we sold on label to check that it was profitable. And a lot of the higher sorry, lower selling price, higher returning items on closer inspection, and after adjusting for all the additional costs that the pandemic put into distribution, were not profitable. So we took them out, and that definitely served to depress our label sales a little bit. Moving on to overseas, a good performance on nextdirect.com, up 8% but an astounding performance through aggregators.
I should say that's not through the growth is not about adding new aggregators. It's mainly about like-for-like aggregators, selling more of our stock. Some of that growth, we think, is explained by us providing much better stock availability to our partners, but it's not enough to explain that number. So it's either very good news or very bad news. It's either a flash in the pan that could reverse out as fast as it came, or it's indicative that our brand is really beginning to gain traction in some of the overseas markets where it was very much peripheral. Take your pick. Let's hope it's the optimistic version.
The one thing that does give us some encouragement is that the areas that are growing fastest, the product categories that are growing fastest, are the ones that traditionally we haven't sold overseas. So traditionally, our biggest product area by far overseas is children's wear. The strongest growth we're getting at the moment is on women's and men's. In terms of customer numbers, overall customer numbers up 4%. Again, just when you're trying to reconcile these numbers with the sales numbers, remember that aggregator customers are not included here. This is only the direct customers and the UK customers. Credit customers broadly just edged up slightly. Cash customers, a healthy increase. Overseas customers, flat. So what's driving growth overseas, on our own side is the sales per customer rather than increasing numbers of customers. In the UK, credit sales are down 2%. Sorry, spend per customer's down 2%.
Overall credit sales down around 1%. Now, the sharp ones among you will instantly object to that because I've just told you on another slide that credit sales were flat. But the credit sales I was talking about before included interest income where we put the interest rates up, these are just product sales. The main reason for that drop in spend per customer and we can see this, we can quantify this, is because of the much reduced amount of sale stock that we had going into the end-of-season sale. And a lot of our biggest credit customers are also very big sale customers. Operating margins nudging forward to 0.8% by 0.8%, 16%. Just running through that. Same benefits online as we got in retail broadly of 0.3%, 0.4% from freight. The balance being driven by growth in overseas margin.
I'm gonna talk about that a little bit in a little bit more detail in a moment. Much less sale stock driving margin forward. Warehouse and distribution, all of this benefit comes from operating efficiencies in respect of our overseas business. In the UK, we did achieve a large number of operating efficiencies, but they were all offset by the increased rent and rates and depreciation from Elmsall 3 and rising underlying wage rates. So it's overseas that really drove that. Just one number to pick out here is marketing. I anticipate that marketing will become a bigger percentage of our costs moving forward, both in the UK and overseas. I think to some extent, this is a measure of the improved effectiveness with which we're doing marketing, particularly overseas.
But it's also a reflection of the fact that a lot of the major search engines now are demoting the natural search further and further away from what the customer first sees. So the business that we used to get for free through natural search is no longer free. We're now having to pay for it, which I suppose in the scheme of things is fair enough. In terms of margin, you can see broadly flat margins for NEXT UK and Label. A lot of the profitability work that we did in Label was offset by the rise in wages in our warehouse and a drop in the achieved margin in one of our wholly owned brands. Overseas, a big increase. And this is what we said we would do, so this shouldn't come as a surprise.
In terms of the positives, big improvement in warehousing and distribution. That is partly about parcel rates coming down to nearer pre-pandemic levels. So first of all, the pandemic, then the fuel prices pushed up, the cost of distribution overseas, air freight in particular. Those, those surcharges are beginning to come down meaningfully. The other important thing there is that the exercise we did on profitability, removing the low-value, high-returning lines from our overseas website, meant that our distribution costs came down because those low-value, high-returning items have a disproportionately high percentage of their cost has to be spent, shipping them backwards and forwards. Bought-in gross margin, an increase here. We've consciously gone back to the markets where we felt that we were underpriced. And rather than achieve the best possible value, we have pushed prices up a little bit.
We've invested that money in marketing, but that has given us a margin increase. In a lot of cases, the customers won't have seen a price increase. It will just have been about the underlying exchange rate where we would normally have reduced prices lower in local currency. We haven't if their currencies appreciated. And that's offset by staff incentives and bigger I nearly said bigger investment in marketing, but it is spending in marketing. I'm not gonna fall into that EBITDA-like trap either. Next year, we're expecting full-price sales up 5%, operating margins to head back to where they were last year. The biggest item there will be the return of markdown levels being more normal. Moving on to Total Platform and our investment business. In terms of client sales on Total Platform websites, they were up 35%.
This is mainly the result of new clients rather than underlying growth in existing clients. Our commission income was up by more than, say our client sales were up. This is because, Reiss in particular has a very low commission rate because it has a very high selling price. So as we brought on customers like Joules, those have much lower average selling prices, so the commission is higher as a percentage of sales. Cost-plus income went up a lot. Cost-plus income, just to remind you, is where we offer retail services and our Total Platform. This is where we're doing the Joules payroll and product systems. We charge for those services on a cost-plus basis. They've gone up a lot mainly as a result of Joules. And then recharges at cost. This is where we've got joint ventures, mainly Victoria's Secret.
We recharge some of our retail cost, costs at cost to the joint venture. Those are up 15%. So total income up 40.4%. Profit up 94%. And we're getting now to the levels of profit that we aimed at when we first set the business up. So when we first set Total Platform up, we said that we wanted to achieve margins of somewhere between 6%-7% of our clients' turnover and we're there at the moment. You can look at that, and say it's a very low-margin business, or you can look at how ultimately it's reported in statutory accounts and look at the profit as a percentage of the commission and say it's a very high-margin business. We leave you to you can pick and choose as you like.
Either way, we think those margins are commensurate with the levels of risk and investment that we're making in the business. In terms of the profit we're making on equity, that's moved forward by 53%. That is all about the acquisitions that we've made. The underlying profit of Reiss, for information, was up 11%. Forecast profit next year for Total Platform services and equity profit between them, GBP 77 million. And I should stress that although many of the future deals we do will involve businesses that we buy a stake in, maybe even as we FatFace, 97% of the business, we will still continue to run these Total Platform as a separate business, with its as a its own profit center. And our client businesses, we will continue to run as independent businesses. And that is to overcome that does two things.
First of all, it keeps us honest about the capital, and profit margins we're making on our infrastructure. It puts us on a level playing field with other third parties, so it ensures that we keep up to date and feel as ourselves as hungry competitors, not, potentially complacent central overheads. It also assures the autonomy of our independent businesses so that they create keep the unique selling point of their brands, their personality points of view, and don't get sucked into the corporate blob. Talking of the corporate blob, in terms of return on capital, which is very important to the corporate blob, return on capital broken down between the TP services and equity.
In terms of Total Platform, the way we calculate this relative very simple on the Total Platform services, total CapEx spent on getting the onboarding the client, on the bottom line, the profit with depreciation added back before tax profit before tax, the depreciation added back on the top line. That's at 55%. You could argue that was too high. It wouldn't be an unfair argument. The only thing I think you have to bear in mind is that a lot of the capital that has been invested in all of the systems that support Total Platform were paid for 20 years, 15 years, 10 years ago as part of developing Next. So it's not a reflection of the underlying value of the assets that we're deploying.
In terms of the equity profit, this we're calculating this by taking the total investment in equity shares plus any debt that Next lends the subsidiary, plus any startup costs, so if we're having to write off things in year one in order to get them onto Total Platform, minus any recovered profit recovered cash. And we're using profit after tax as a proxy for cash, which at the moment looks like a good proxy. Then on the top line, cash EBIT, plus any interest received on the debt that we've lent. That comes in at around 21%. Total return on capital, if you put the two together, around 25%. So, we don't know how strong a growth we'll be able to achieve in Total Platform.
We really, it will depend on whether we find the right businesses at the right price, whether we find clients who want our services. What we can say with some certainty now is that the business we've got is both profitable and makes a healthy return on the capital we invested. So we'll do as much of it as we can within the rules that we've set ourselves for responsible investment. So looking to the year ahead, start the year with total Next excluding subsidiaries sales growth of 2.5%. Word of warning here. We are expecting the first quarter to be much stronger than the second quarter. We're getting our excuses in early. But and we think this is very important because it's very hard to call the Q1, Q2 numbers.
I'm much more confident on the 2.5% for the first half year than I am on how it will pan out between the first and second quarter because last year, just to remind you, we saw a swing of over 7.5% between the performance of the first quarter and the second quarter. A lot of that was driven by perfect retail weather. Basically, it went to more than 20 degrees mid-April and stayed there right till the end of June with rain only occurring at night. Now, that is the retailer's dream, but it's very unlikely that it'll happen again in the UK. So, there was another effect, which was pay raises. And we don't know the balance between those two effects because they happened at the same time pretty much.
So, we're not expecting as big a swing between the first and second quarter, but we are expecting a swing. If we beat or miss that Q1 number, please expect us to put the difference into the second quarter. It wasn't meant to be a joke, Alistair. We're expecting retail to be down 2% and online up 5%, as said. Total sales we're expecting to be up 2.5%. Just to stress, we are expecting markdown stock levels to go back to their normal level, but we've been quite conservative about the impact on our P&L. We've assumed that that doesn't increase our top-line sales, i.e., it erodes margin. So that's GBP 140 million worth of full-price sales from Next. Add to that GBP 250 million of sales from investments.
Total increase of 6% in sales with profits up 4.6% is where we are with our current forecast. Looking forward from the 918, the full-price sales deliver GBP 36 million of profit. The equity partners deliver GBP 30 million of additional profit, mainly as a result of acquisitions. And TP services, we think, will add GBP 4 million. Just to highlight, this number is different from the GBP 6 million that we said in January. That's because we have more fairly and more accurately allocated costs and profits between TP services and equity profit than the forecast we gave in January. In total.
In total, it is the same. Embarrassing but true. Costs, big increase in costs. The lion's share of these cost increases coming from wage inflation, GBP 60 million. Of that, GBP 25 million is the result of the national living wage. So if we just awarded everyone in the company the 4% that we've awarded at head office and as general pay increase, that would have cost us GBP 25 million less than the GBP 60 million there. So we can quantify the effect of the national living wage, the national living wage growth over and above general wage inflation. Technology still coming through as a bigger cost, partly as a result of increased spend, but mainly as a result of the depreciation of the past few years beginning to hit the P&L more aggressively.
In terms of cost savings, staff incentives, we're not expecting to be as big next year as they were this year. This year, we beat our target. Next year, we wouldn't expect we're budgeting to hit target. Bought-in gross margin, we've nudged that forward by GBP 17 million to help pay for some of the national living wage increase. So we can't carry on pushing up wages for free. At some point, the consumer's gonna have to pay for that. So it is beginning to come into price. That's the bad news. Good news for the consumer is it doesn't mean prices on like-for-like goods are going to rise. We think prices in the first half are gonna be about on like-for-like goods will be down 2%.
And in the second half, as we begin to cost in the increased freight rates from the Suez crisis in particular, we expect rates to be down around, sorry, like-for-like prices to be down around 0.5%. There is an argument that we should have been more aggressive on margin and bought more of that profit erosion back into the balance sheet. We could have done that. We took the view that given the outlook for the group, we were better to, and I use the word loosely, invest in better value, and maintain our competitiveness than risk our competitiveness, and make a little bit more profit. So that, that is the view that we've taken right or wrong. In terms of other cost savings, electricity is the biggest single item there, the electricity bill.
We know we've locked into rates now that give us a GBP 12 million benefit, year-on-year in the year ahead. And that gets you to the profit of GBP 960 million, 4.6% increase in underlying profits, after accounting for the for any buybacks that we've done, or plan to do, increase of 6.3%. Hurrah. Taxman then takes away the balance with those painful two months of increased tax rates, undoing all the good work of our buybacks. But it means that we end up with earnings per share post-tax as we're aiming for somewhere around 5%, which, as I said at the very beginning of this presentation, is a much better much better outlook than we have given you for the last seven years, if not a little longer. So moving on to the big picture, I think it is worth saying.
It does feel as though Next is at something of a watershed. When you look back, things are very, very simple. How simple they were from 1997 to 2017 and, and 'cause in hindsight, that looked like plain sailing. We'd opened lots of new profitable space every year. We grew our directory. Oh, it was then our directory, not online customer base. We extended the breadth of our product offer, moving into new areas like home and within clothing, extending our reach into lots of accessory areas and other areas that we hadn't sold. That generated a compound annual growth in underlying profits of the business by 8.44%. If you add the effect of buying back shares and reinvesting dividends, that gives a compound annual growth of around 17.5%.
It's one of the great mysteries to me that cash generation and return of cash is so overlooked. I completely understand it 'cause ultimately, it's incredibly boring. There's not a lot to write about. But when you look at it and you say, "Actually, more than half of the compound annual growth of the business came as a result of returning cash to shareholders," you kinda go, "Actually, no. There's something there's definitely something in that." Anyway, so those were the glory years. And that, that was followed by, so you know, not wanting to be too biblical about it, but seven lean years, underlying profit up 2.2%. You know, we can look at that 2.2% and go, "Actually, that was in the circumstances pretty good." And, you know, pat ourselves on the back.
But nonetheless, a very different experience from the one that we had in the previous 20. I think the one thing I would say is that that number is so much better than the number we were expecting when we did those scary 15-year forecasts for you. But once again, the value of cash and returning it to shareholders took a very ordinary growth in underlying profit of the group to very respectable returns for equity. And when you look at the qualities or the capabilities of the group over the last 27 years, the thing that has got us has driven us in the good times and got us through the tougher times come down to three things. First of all, the cash.
and then two capabilities, our ability to produce wonderful product and the creation of a good-in-class or I would, you know, almost say best-in-class infrastructure to sell it. The nature of the brand and the product we're producing has changed beyond recognition from 1997, as has the infrastructure that we use to sell it. But in essence, retail comes down to three very simple things: produce great product, sell it effectively, and make sure that you are generating cash and not burning it. And if you can do those three things, you can keep the business moving forward. And where we are at the moment is it does look like we will be able to move the business forward. And I'd like to just focus on our approach to some of these sort of key capabilities as we move forward, most importantly, product.
I'm acutely aware that when a chief executive who doesn't know a lot about product talks about product, it can sound like a load of old nonsense. But what I'm gonna give you is a flavor of what we're doing to move the brand forward. And the one piece of assurance that I want to give you is that it's not me. You know, people start to say, "Oh, I see you're trying to move your price points up," or, "I see you're trying to go into this market." It's not me. That is not the way we manage our product ranges at Next. In our men's, women's, children's, home, women's accessories are all managed as separate, independent businesses by independent directors. I don't tell them what to put in the range. The board doesn't review the ranges.
It's down to their initiative. Actually, not those directors' initiative. It's down to the individual initiative of the individual teams producing the different product categories, the buyers, merchandisers, quality assurers, and designers that create those ranges. I said at the beginning, I was you know, we were very happy with the ranges that we produced last year. Well, there are always mistakes, always areas that could have done better. Generally, as a portfolio, I can't remember being much happier with the quality of selection that I've seen over the last year. That doesn't mean we can't move it forward. The lesson that we have learned from the people who have done this best, from the individual teams that have done this best, is they've all done three things.
The first is they've backed newness with conviction without having the evidence from last year that it will be a bestseller. The teams that are able to spot and predict, this ultimately comes down to talent, not science. And before you all panic like, I know what you're thinking. As soon as someone says newness and fashion, you'll think this is you summon up images like this, and you think, "Oh, no. They've all gone super high, fast fashion." I'm not talking about high fashion, and I'm not talking about fast fashion. I'm talking about the trends that we're seeing coming through that are wearable, accessible, normal trends, but very different from the bestsellers of last year. And on that front, what we've found is that in most areas, almost without exception, last year's bestseller is never this year's bestseller.
So the people who produce the best ranges are the ones who start with the new trends and the ranges that they want to build and then vitally go back and check it against last year's sales to make sure they're not throwing away any of the golden geese from last year's bestseller. But the starting point is this year's the range you want for this year looking ahead, not what you had last year with a bit of newness added on the top. So newness with conviction, of trends that are wearable and accessible to our customers. Secondly, breadth because you can back the bestsellers with conviction and still miss a lot. And I think there's definitely a risk. You know, when you're onto a surefire winner, you know, let's say and this is these are not, by the way, the trends of this season.
But I'm using these as an example. So please don't run away and go, "Oh, Next thinks sequins are gonna be big next year." They probably kinda had it, actually. I don't know. Richard, you're here. Nod. Yes? No? Yeah, they've had it. But let's say your big trends, think of Prints, Sequins, Boxy, and Boxy Fit Plains. It's easy just to fill your range up with more and more versions of the same thing and miss the fact that there are a whole load of looks out there for different customers that may not be this year's best trend, but they're definitely there, and customers definitely want them. And trends are moving faster. And they're moving faster for one very simple reason.
That is that whereas 20 years, 30 years ago, people would go off to the shops rarely to do their big shop in a location that was a long way away, Oxford Street, in buses. I can remember when I started out in the shops. Well, now, you can do your shopping 24 hours a day and get a level of choice and newness that puts Oxford Street or any shopping high street or any shopping center in the world to shame. That means that if customers want a new trend, if they wanted it last year, the chances are they bought it. They'll buy some of it next year, but not nearly as much as this year. So we need to make sure that we're covering as many of the new trends that we love and believe in.
And what is the aim of that, and it's something that I think our kids' wear active range does very well, actually, is target. It also opens us up to different types of customer. You know, the arty girl, the princess girl, the traditional, the sporty urban girl with different looks, different customer bases, different children, different parents. All want Next quality and Next prices, but they want different looks. And if we tackle lots of different looks, have lots of different looks in our ranges, we will, by definition, serve lots of different customers. And it's not just about breadth of offer. It's also about breadth of price. I've gotta be careful here because people think that, "Oh, Next. Someone a journalist said to me this morning, 'Oh, what, I see you're moving Next upmarket.'" We're not.
What we are doing and what we found is we've got a lot of success at our mid and upper price points. We think we can push the boundaries further, at the top end of our price architecture. It's not going to be the thing that makes the difference in success and failure, but it will slowly serve to improve the reach of the brand and, I think, also push our own aspirations for what we do with the rest of the range. While we are very proud of our quality and I think our customers say, you know, in terms of our fit, our wash and wear, Next quality is good. The one area I think we can move forward is particularly at the mid and upper price points is by investing in better quality fabrics.
And by investing, what I mean is really time and expertise and beginning to develop our core fabrics and yarns long before we start the process of selection, which is something we do a little bit at the moment, but we could do an awful lot more of that. And to that extent, we'll be investing both the people and the time and effort and the relationships to try and move the quality of our yarns and fabrics forward to exceed our customers' expectations of the brand. That will be all the more important, as the size of our market share in Next begins to become a constraint on growth. And this is just a mathematical reality that going from 1%-2% of market share is so much easier than going from 7%-14%.
We need to accept that, actually, as we grow in size in the UK, our opportunities for growth while we think they are still there and we grew you know, I mean, you saw we grew about online. We grew our brand last year and, and retail as well nudged it forward also. Whilst we grew the brand in the UK, ultimately, as exciting as the product might be, the math is maybe not so exciting. The good news is that the brand is now beginning to get traction overseas. If you look at the last four years, we've grown our overseas business by 71%. That is a, I won't say game of two halves, but that will be not quite right. A tale of two territories. 91% growth in Europe and the Middle East.
This is driven by improved awareness of the Next brand in markets that are closer to home and our ability to serve those markets relatively quickly and cost-effectively either from our hubs our warehouses in the UK or from our local distribution warehouses in Germany and Ireland. To that end, we have just opened a distribution hub in the Middle East where, up until now, our offer has been competitive because there haven't been a lot of local aggregators. We don't want to get to the point where the local aggregators begin to overtake us in terms of service. So we've opened a hub in Dubai. It'll be a fully stocked warehouse. And this just gives you a flavor of the improvement in delivery speeds we can achieve.
What this is, is the weighted average time by sales consumers are having to wait for their parcels at the moment or last year. And you can see the vast majority of customers are having to wait three to five days. The new hub is now open. The performance we're getting out of that for, for goods that are stocked in the warehouse is that 75% of customers are gonna get their goods within three days of orders. No one was getting their order next day. Nearly over a quarter, we think, we can deliver of our current customers we can deliver to next day in the Middle East. We can't put on our website next day delivery because in diff in any one country, different areas, different terri different locations will be served on different timescales.
But if you're in the big cities, in our biggest trading locations, then you'll be on Next Day. The other thing that is driving our local markets is marketing. And what we've done here is we've increased the amount we've spent on marketing. We're getting good traction, a very good return on the money that we're spending on marketing in terms of year-one profit. And we funded that in some territories, as I alluded to earlier, by raising prices. And the aim here is very simple. I think we made a mistake. When we priced our product overseas, we didn't look at the market as a whole. We just said, "What is the best price we can offer to make our target margin?" And that was the price. And in doing that, we created an enormous audience for Next product.
The value created an enormous audience that could not see us and had never heard of us. And what we think is better to do is to narrow the audience a little bit by pushing prices up and reinvest that money in allowing the customers in helping the customers find our products. Where we're doing that, we think we're getting traction. It's still at the stage of experimentation at the moment, but the outlook is that it's looking positive, and we will be investing much more in overseas marketing as we go into the following year in these local markets. In the further afield markets, not such a happy picture. Sales down 12%. Same brand. It's pretty much the same offer. But worse economics than the UK. Poor service. Less well known.
And the reason the numbers are down, we think, is because in those territories, Australia, America, Asia, there's been huge growth in local aggregators who can offer local quality service at local prices and local speeds. So in order to tackle these markets, we're going to do this through partnerships. These will be wholesale, franchise, licensed-type arrangements. They give us access to our partner's local retail infrastructure, including their stores. It gives us local service levels to compete head-on-head with any other aggregators in those territories. And it opens up the customer base that the partners have already got through their own retail operations. It's very much what we hope to do for overseas retailers in the UK through Label and Total Platform we're doing with others. The other thing we're doing with these partners is, obviously, we're shipping the stock directly to them, from territory.
We're at very early stages here, so I don't want anyone to get too excited about this. The trial we've done—we've done one trial with Nordstrom. It's been very encouraging. We've got another deal with a huge US retailer that we've signed but not yet announced. And we've signed a deal with an Indian partner for a franchise-type arrangement to develop both online and retail business in India, which we'll be announcing shortly. So lots of seeds being planted, but I think it will take five years for these businesses to become meaningful. And whilst this is a shortcut to success and it's very low risk, the vast majority of the stock risk is taken by the partners in a wholesale franchise arrangement. Even where we're doing commission, there's normally some guaranteed buy price for the leftover stock.
So it's low risk, but it's low margin. We've gotta share the margin with the local retailer, and we think that's fine. We would much rather have a small percentage of a big pie than a very healthy margin on a nonexistent business. So that's sort of product taking, the constraints of the brand within the UK and, busting them through growing overseas. We think our sort of constraints in the UK as far as the infrastructure is concerned, we can answer that challenge by using our infrastructure to serve other people. We've already talked a lot about Total Platform. I'm not gonna talk anymore about it other than to say that in the year ahead, we expect it to contribute around say 8% of our total profits.
There's one further opportunity that both of these capabilities drive, and that is the ability to seed new brands and licenses either through new wholly-owned brands like Love & Roses that's tackling that's reaching it to into a different place that the Next slightly more fashionable customer than the Next core customer, bought-in licenses like Cath Kidston that we acquired, and collaborations with third-party licenses to combine their design talent with our specialist sourcing skill in areas like children's wear, swimwear, underwear, and nightwear. So you kinda put all of these together. And the interesting thing about them all the sort of traditional capabilities and the new business opportunities is that they are all mutually reinforcing in that working with Total Platform clients, as galling as it is, they come up with lots of ideas to how we you know, the cheek of it.
They come up with lots of ideas to how we could improve our infrastructure, which we, you know, duly do 'cause they are, are important clients. And, of course, the improvements they suggest do benefit Next as well. The work we're doing overseas, to forge new partnerships and the traction that our own website is getting, our relationship with aggregators both near and far, can be used to leverage these new brands overseas and also help Total Platform clients leverage their brands in markets that we have access to that they don't. And the cash, of course, can be used that they're all these activities are generating can be used to fund the improvements in infrastructure necessary to drive the whole machine forward. And you'll be I, I could now spend an hour or so.
I mean, you know, I know this is what you would want, but I'm not going to do it despite popular demand for it. I'm, we could spend an hour talking about all the things we're doing to improve infrastructure. I'm going to focus on one, which is technology because there is not one new business activity that we're undertaking that doesn't in some way involve some piece of coding being written. And also, it has become a very big cost for us. It's pretty much doubled in the last five years, an increase of GBP 100 million. We now employ more people in our technology and support teams than we do in product. So this is a big, big ticket item for the group. And I want to talk about some of the things we're doing. First of all, that GBP 100 million.
You'll be asking, "How on earth can they spend another GBP 112 million?" Believe me, it's a question that I ask pretty much every week of our technology teams. A big part of it, to be fair to them, is about modernizing our software and moving from old, static, constrained network to the cloud. So if you look at this sort of increase, around 50% of it is about modernization and cloud technology. Just focusing on the modernization, just quickly to remind you, we have talked about this before. This is about taking all the legacy code we've got that has frankly, some of it's unsupported. A lot of it is undevelopable. It's so complex, that it's become undevelopable. So we are going through the process of rewriting all of our legacy code.
That process across all of our various business areas is pretty much now half complete. So we're really getting traction at this. And what I would say is that the team we are getting better at it as well. We're learning—we are learning how to do the modernization process. And the ones we've completed, with the exception of payroll, which you all heard about, have been completed without any operational glitches at all. So we're learning to modernize software, relaunch it without having any accidents along the way. We're half of the way through in terms of work and departments, but in terms of cash spend, we're only about 44% of the way through. That is because our finance system, which is the last system that we'll tackle in earnest, is gonna be the most expensive, GBP 40 million there.
You know, I take some pleasure in the irony that finance, who have been complaining to me for the last five years about how much we're spending on technology when it comes to their projects, GBP 40 million. But there we are. I thought I'd just quickly make that point. We are expecting this number to come down in terms of cash expenditure. There will be some tailwind from depreciation in terms of P&L effect, but we are expecting this number to come down for three reasons. First of all, the modernization already means that we can develop our legacy code faster. So the development work, the business-as-usual, new functionality we're developing should be faster and cheaper to develop, and we've proven that we can do that. more experience.
We've taken on so many people that over the last three years, we've had a huge amount of people who've had to learn both about the business and the systems that they're trying to rewrite. At one stage, nearly a third of our systems professionals had less than a year's experience in the business. That produces a big drag on productivity. And what you can see is that number is falling dramatically, partly because we are not expanding numbers anymore and partly 'cause the market for technology professionals has become a lot softer than it was. And finally, what we have called yin-yang development.
Now, I realize that it's a bit cheesy, but sometimes, in order to get a message across, and this is the presentation that has been done to our technology teams and will be done to our staff, so it has a purpose. The way you design and build systems and the way people collaborate can make an enormous difference to the cost and speed with which you deliver software. The best way of explaining that is through a project that we did. So we had a problem, and the problem was that we have always, as a business, said, online and retail customers have 28 days to return their goods, after which they can't get a refund for cash. We do give them a gift voucher.
Online, we've never really enforced that in store, which has meant that we're giving a lot of cash out where we would be giving stock, and it's obviously a lot cheaper to give stock out or a voucher for stock than it is to give cash out. So it's a big cost. More importantly, and this is the reason that we focused on it, it means that if people are sitting on stock that ultimately they don't want, you can't sell it. And getting those returns back into the business quickly is a big driver of growth. So that was the problem. The project that was presented by our brilliant technology and user teams was gonna save us GBP 3 million a year, or drive you know, both through increased revenues and set cost savings.
Elapsed time of 6 months, cost of GBP 1.1 million, and development time of 4.8 years. That's a developer-person years. And that looks fine, doesn't it? It's like it's a, you know, it's a 4-month payback. But when the director responsible stood back and said, "What do you mean you're going to spend GBP 1.1 million just doing what we already do in retail, relatively simple change?" it forced the technology teams and the users who'd specified the system to get together and work through every single line of the specification to work out where the cost was coming. And what they discovered was interesting is that there is a loophole. And the loophole is this: that I, online customer, return my goods in store, and I get my gift voucher. I can't use that gift voucher to pay down my account because that's the same as getting a cash refund.
But what I can do is I could buy something else, then you return that something else, get another gift voucher, and that gift voucher could be used to pay down my account. Now, frankly, if someone does that, good luck to them. But in order to stop that happening, every single gift voucher transaction that we did, every sale that we made, every return that came through, we had to look at what type of gift voucher had been used to buy that item, storing all that data, calling it back from the mainframe, writing all the algorithms to work out what if someone does a split. They buy it partly with one gift voucher, partly with another gift voucher. The complication of doing that added, and that we combined with a couple of other wrinkles, added 50% to the cost of the development.
Strip that out, and development still save GBP 3 million. That edge case is not costing us a lot of money. We halved the time it was gonna take to deliver the project, halved the cost and development time of doing it. And I think what it comes down to is collaborating because there is a risk that systems technology teams think of begin to think of themselves as almost like internal consultants and, "Oh, well, you, user, give me your specifications. You've gotta write it all down really neatly and exactly what you want. And if you miss something out, it's your fault, not ours." And then they write it, throw it back over the wall, and it does what they asked for, but it's very expensive, and actually, there could have been a better way. Now, I'm not saying that's how we did it.
I'm saying that's the extreme example. Our aim is to mimic the best practice at Next, which is to kinda break down that wall and to do this sort of yin-yang development where the business side of our sales, you know, our sales force, our retail team, our product teams invest in taking people out of the business whose job it is just to sit down and work with the systems professionals on new developments, to explain to the technology teams exactly not just what the requirement is but why the requirement is there, what is it that they're trying to achieve, the value of the application, and the value of each element of that functionality.
Then the technology people, their job is not just to do it but to inform the business side of the business of how what we're asking for could be done in a much better way, what new technologies there are out there, that the specification actually is while it achieves the aim, it could be much specified in a much better way on new technology using new ideas, AI, whatever it is, to deliver better technology. And this collaboration can deliver much cheaper, much better software. And that is, I think it's the way that we've always worked in a way, but I'm making it clear with so many new people in the department, nearly double the number of people in the department, we need to have another push on this to really make sure that we're developing the right software at the right cost. And so that's it.
Three traditional retail they've always been there: produce nice stuff, generate lots of cash, invest in the best possible infrastructure, but those three activities done in a way that is unrecognizable from how we operated 20 years ago. And with three exciting opportunities of growth, developing the Next brand overseas, developing our infrastructure for other people in the UK, and developing new brands to operate within this environment. It's a very exciting plan. It all makes complete sense to me when I read it. Whether or not it's successful will not depend on the quality of the plan. It will depend on the quality of the individual people executing the plan.
And I kind of I'm not really doing this for you, but I'm gonna repeating what I will be saying to our teams tomorrow and what I've been saying to them at every presentation for the last 5 years, 10 years. And that is that ultimately, our success is going to be delivered by their initiative. I can't tell you how big these opportunities on the right-hand side will be, partly because they're controlled by factors beyond our control, but mainly because I can't predict how innovative, clever, and talented the people will be who are executing them. So a big part of what we have to do is to develop brilliant teams. And I thought I'd just like to end on that note.
And obviously, also, we have to harness all the intelligence that we can, including the brilliant observations and questions of the retail analyst and investment community. And on that note, no pressure. We're gonna hand over to you for questions. We do have a mic if you need one, but you might not. On that high-pressure note, who's gonna go first? Richard. Do you want Mike? Yeah. We'll have Mike at the front here. Sorry. We'll have one person at the front, one at the back, and then we'll old style. Not like UBS, where you've all got your own mic, is it? So, we'll be back there next time, I think. Have we booked? We yeah. We've booked the room for next time. Sorry.
Yeah. Thank you. Richard Sheridan, RBC. Can I just kick off with a question on the? I was intrigued by your comments on the overseas business, Simon. And, and obviously, you've said that the, more further afield territories haven't been doing so well. And I just wondered if you can talk a bit more about the extent to which you intend to sort of share the stock risk with partners and whether there's a sort of risk there that those partners aren't currently or, or may not now sort of buy more into the sort of fashion-forward ranges 'cause I guess the risk is that they get very conservative if they're having to take all the all the stock risk. So I just wondered how you're sort of thinking about that, really.
Yeah. I mean, our view there is we gotta have the right partners.
Mm-hmm.
And, you know, again, we can't make them buy stock they don't want to. It is their risk. So the trick is to work with people who really understand their local markets. And it will be different from what from the things that we are most enthusiastic about. So we can't say, "Oh, no. You've got to take this denim, you know, skirts are all the rage," 'cause they may not be in wherever it is. So I don't think there is a way of managing that risk other than making it very clear upfront, as we have done, that this is part of what we want to do. We want to build an exciting brand. I think also that the partners we're working with understand that. They have got if they want to sell plain chinos or, you know, V-neck jumpers, they can do that handle.
They've already got those. They're really looking to our brand to add to their portfolio rather than replicate it.
Okay. And, sorry. And just to clarify, did you say that the overseas business at the moment is disproportionately weighted to kids' wear?
Yes.
But it's men's and women's that are actually outperforming or sort of catching up. Is that correct?
They're growing the fastest.
Okay.
No way. It's still kids are still our biggest PN overseas.
Got it. Okay. Thanks.
Yeah. Just in the middle there.
Hi. It's Georgina Johanan from JPMorgan. Two questions, please, both on pricing. Just first of all, on the point around like-for-like price has been down 2% in the first half. I think you had initially said last year that your best outlook for pricing was flattish. So just to understand, really, what's driven the change in your decision there, please, especially given that you're only talking about 0.5% increase in the second half. And I know you've talked about not liking that volatility in prices. And then the second, I guess, just more broadly, like, where you've seen a bit of consumers kind of appreciating quality more and maybe those higher price points, just really your view of why that's happening, please. Thank you very much.
Yeah. Okay, so I think the answer to the like-for-like price has come down. I think that is, we have been more aggressive in terms of our moving our sourcing. We've done more. I think the key, actually, has been we've done much more travel. I think, you know, during the pandemic, we all convinced ourselves that we could work from home, select products online, but I think getting back out into factories and into new factories and giving our existing supply base a little bit more competition, plus the fact that there are some territories where, you know, we are seeing significant local deflation, and that has been better or worse, from the, depending on whose perspective you're looking at, than we expected.
But it hasn't been a comeback. It's something it's not something I can sum up in what the companies have done. Our individual teams have traveled more and got better prices and been more aggressive about pushing product into new suppliers. And the second question was about, "Oh, the shift in consumer preferences." I don't know. You know, you get these sort of supercycles. And I feel if you look back over the last you know, really, from sort of 2015, 2014 onwards, you saw a diminishing interest in clothing in general, fast fashion, the rise of more interest in value. But basically, fashion moving down the pecking order. Suddenly, people weren't watching, you know, America's Next Top Model or how to look great naked or whatever it was. They were watching MasterChef and travel programs.
So I think people's, you know, interest in clothing waxes and wanes. And we appear to be at a stage where their interest is returning.
Thank you. May I just quickly follow up on the first?
At the very end.
Okay. Fair enough.
Yeah. Just there. And then over here, sorry. Next.
Yeah. Hi. Geoff Lowery at Redburn. Just one question. Can you help us understand your UK customer count online a little bit more, in particular, what you're seeing in terms of gross recruitment versus churn and whether the profile that you gave us a few years ago of sort of year one customer does GBP 100, year four customer does GBP 300 or whatever the numbers were, does the funnel still look the same once you've recruited them?
Yeah. It's the. There's been no material change. I will check this, actually. But there's been no material change in the performance of cash and credit customers in terms of their ongoing performance. Other than that, generally, their spend per customer has gone up. I think the big difference is the mix rather than the behavior. So we have been taking on more and more cash customers who where the attrition's higher, and the average spend is lower. But those cash customers themselves, we're seeing no material change. No, over here. Oh, we've got a fight. No.
Morning. Warwick Okines from BNP Paribas Exane. Just wondering if you could give us a bit more detail, perhaps, on your Nordstrom trial, what's been working well, what's the scope of it, and how much opportunity is there for some of your Total Platform clients to piggyback on the success that you have internationally?
I look, I mean, I'm not gonna discuss the Nordstrom trial because that is between us and them, ultimately. It's a very small trial. I think and all I can say is it's not proved unsuccessful. That, you know, it's proved as successful as we could have hoped for, I think. But it's a very small amount of stock, and it's very focused on kids' wear. So it doesn't tell us anything about how our other brands or other, or volume would perform even, even on kids. We will be trying it more going forwards. The people that we are talking to about Next, we're also talking with them about product from our other wholly owned brands. There's definitely interest, but there's not enough orders for me to really give you any super encouragement on that.
I think it's gonna take two or three years, really, for that overseas third-party business to, to form in terms of the shape of it, which products from Next work, which brands that we've got work. I think the one thing I can say is that Cath Kidston seems to have instantly gained traction, overseas in a way that many of our other brands haven't. I think that's probably the, the only piece of real information I can give you. I could make some other stuff up, but it wouldn't be worth it. Yeah. Andy. Yeah. You're next.
Hey. It's Adam Sheridan from Deutsche Bank. I've got two questions, please. Firstly, on the profit from equity investments, can you just run through? I can understand you've got a very good forecasting process sitting within Next. With those companies, can you just run through how you come up with that number? Do you review the budgets very tightly, very prudently? What's the risk to that number, both upside and potentially downside? And then secondly, when you're looking at those aggregators and the growth, how do you make sure that the Next brand equity is being presented consistently and how you'd like it to be done across those different platforms?
Is there a risk that you get excessive discounting, for example, or the way that you wouldn't be perceived in the UK that maybe trading on Zalando or something else, that they treat your brand differently to the way you do it yourself? Thanks.
Yeah. It's a good, good question. So, I think the risk of that number, we've de-risked it.
Okay.
We might not have de-risked it enough, but we don't just take the number they give us and plop it in our results. We take the number they give us and take a little bit of the shine off it. Actually, so far, our estimates have been better than the partners' taken as a basket. So I think that's reasonable. It's a really interesting thing in that the way that companies that work in private equity work in terms of their budget is very different to the way Next works. So we will work by saying, "Well, what's the budget we're at?" You know, we're as sure as we can be that we're gonna hit it. Private equity kinda works the other way around.
It's like, "Where could we get to?" And then the owners, I think the impression I get is the owners will sit there going, "Surely, you can do a bit more than this. You can put a bit more on that top line." As if somehow forcing the top line in the forecast up, it will actually make any difference to reality. And we have been very careful with the companies that we've dealt with to make it clear that what we want from them is an accurate forecast of what they think will really happen rather than something to keep us happy and, or to keep a prospective buyer happy. It's, you know, and I think the trick there is what we've done with their incentives is their incentives are on absolute profit growth over a long term.
So they will have a percentage the management in all these businesses have a percentage of the business they own. They have an option to sell that to us on a multiple of profits in five years' time. So it really doesn't do them any good to be overoptimistic this year. And the other thing is their annual bonuses are set against the targets that we agree with them. So any optimism in their budgets will cost them. What was the second half of the question? Excessive discounting. Well, actually, it's interesting. When we bought these businesses, they've all gone, "Oh, well, obviously, we have to stop discounting now." And they've all, you know, like Ouija boards. No one quite knows who's moving the cup. They've kind of just started doing things 'cause they think that's what we want.
Actually, we want them to maintain their own brand. And for some, you know, brands, actually, regular promotions are part of what they do. And we have to let them build up their own pricing and promotions strategy. As far as the customer's concerned, the customer doesn't know that Next owns Reiss or FatFace or Joules. As board members, we are keen for them to preserve and maintain and develop the value of the brand that we bought. So we, as board members and shareholders, we'd be upset if we saw excessive discounting. But we haven't tried to say, "Look, you gotta do it like Next does it," because that wouldn't be right.
I meant discounting of Next's product on third-party aggregators.
Oh, I said apologize. Yeah. I mean, to d obviously, legally, we can't do that. I think if we felt the brand was being significantly devalued, we would come off the aggregator. We keep a very close eye on it. And but most of the promotions that we see on our partner sites tend to be promotions about the order rather than the content of the order. So it's 10% off your first order rather than 10% off NEXT. Yep.
Hi there. It's William Woods from Bernstein. The first question is just on the different categories that are non-clothing. I think last year, you showed some kind of weakness in, I think, home, beauty, and sportswear relative to clothing. How is that going, and how do you think about that going forward? And then the second question's on the corporate blob. You were quite cautious about that last year. How do you think the progress internally has gone and culturally within the business? Thanks.
Yeah. So in terms of the culture, I think it's going really well. I mean, actually, I'm not the best person to ask because I would say that, wouldn't I? You know, that I'm the last to find out if things aren't going right. So, I think, you know, the best people to talk to are the people who are running those individual businesses. But I hope what they would say is, "Look, actually, having Next as a shareholder that understands retail but doesn't interfere too much is a good thing." That's our ambition. That I have seen nothing that suggests that that is not the culture that people are adopting. Because I think, ultimately, it's easy to get people to adopt a culture that they want in the first place.
No one really wants to be told what to do. You know, we can be demanding, we are demanding about some things, demanding about their financial reporting being right and being honest with us, all those sorts of good things. But in terms of the way they run the business, they've got to run it the way they see fit. In terms of home, beauty, sports versus clothing, the only thing I can say meaningful on that is that we have seen the home business now stabilize. So I think for the last 18 months, we've been seeing home moving backwards. And sort of it's taken a long time to recover from the bubble, that the COVID bubble. That does seem to be normalizing now. So, I'm more hopeful on home looking forward.
I think the other thing about home just while we're on the subject, I think it's an area where, partly because they have, it's been such a tough time for them, they have been much more adventurous about the breadth of offer that they're offering customers. I think if you go and have a look, browse through some of the products that we're selling, I think you might be pleasantly surprised. Maybe not. Okay. Yep.
Thank you. Sreedhar Mahamkali from UBS. Just to follow up on what Georgina Sheridan's question was around pricing, please. You say in the release, the like-for-like pricing is only referring to about 30% of sales, and you've referred to strengthening mid and upper-end price points. I know you don't necessarily talk about ASPs, but just curious how that evolves.
Yeah. No.
This year, next year. That's the first one.
Yeah. No, good. I'll just answer it and then let you ask your supplementary.
Yeah.
Well, the ASP have on the board ASP going forward, do you have that off?
An initial amount.
Yeah.
Yeah.
25, something like that?
No, no. The ASP.
The growth.
The growth. Yeah.
Growth, 3% or 4%?
Yeah.
Something like that?
So if we're looking at mix, and that includes mix between men's and women's, if the effect of mix on price is to take the -2% and push it to +3, +4. And so that is really evidence of that shift in consumer preference.
Yeah. But that's everything.
Yeah.
That's sales mix.
Yeah.
Everything.
Everything.
Yeah.
Cool. And then a maybe slightly longer-term picture, picking up on your point about the watershed moment, which you've referred to more than once.
Sorry about that.
Yeah. Yeah. It was an interesting one. But look, I think you've also talked about executing the plan. That's what kinda determines the success and things like that. But if you assume strong execution on a 3-5-year view, should we be expecting a material kind of step change in the earnings trajectory relative to what you've talked about last 6-7 years, acceptably good performance kind of thing? How should we think about it?
Look, I'm not going to tell you how to think. It's a really big mistake. But and I think there are two serious points. I think the first is I'll be very disappointed for our compound annual growth over the next seven years, assuming that there are no sort of, you know, train crashes or anything. But I'd be very disappointed if it wasn't higher than the 2.2% underlying profit growth that we've experienced over the last seven years. That would be. I'd be disappointed by that. In terms of aspirations for growth, I'm acutely aware that there are businesses that give long-term projections. You will have seen from our own ability to project even one year ahead that we often get it wrong.
I think it's very dangerous for us to make grand aspirations for the group as to what top line can be. I think it's very important that that is done by our investors, and, you know, and they're much cleverer at it than we are. But I think for us to do it is a mistake because the trouble is if I set a growth target or a number of TP clients, I'll definitely deliver it. And, do you know, if I set a target for overseas growth, no question we'll deliver it. We might not deliver it profitably, but we can definitely deliver top-line growth. TP deals can definitely do that. And they might even be profitable TP deals, but the risk inherent in those deals might be much bigger than is immediately apparent.
The very act of setting public-facing long-term targets could actually undermine the effectiveness of the business. What I can assure you is that each one of these opportunities, we will be growing as fast as we profitably can. But we're not gonna set—I'm not going to give you a sense of where that might be in five years' time, A, because we don't know, B, because the act of predicting it would potentially damage the business. And on that—oh, one more.
It's Anabel Sheridan from Liberum. Just wanted to ask on the outlook for the store portfolio. Now, last five years, you've probably closed close to 80 mainline stores. And most of the biggest reason given for that has been that you have not been able to achieve appropriate profitability under any conditions for those. And you have renegotiated a lot of those leases. Probably costs are coming down. Do you think you're through the worst of that? You're through the closure parts and now looking to develop portfolio store portfolio going forward? That's one. And then second, on the credit business, I know you mentioned you don't plan to increase or let it decline in any major proportions. But what do you think about taking the credit business to the Total Platform brands?
Yeah. Very good question. So in terms of Total Platform, I think our clients are—well, our biggest client, Reiss, is reluctant for us to put Next credit on their website. They think that so we are developing and trialing a white-label credit that will be like Fashion Pay. Whether that works or not, we don't know. But we will be trialing that. But it is a trial. Don't get excited about it. Then in terms of retail stores, there are some areas where we're actively looking at new sites. There are some stores that we think we're unlikely to reach agreement with landlords on rent. If I look at the sum total of what we expect in the year ahead in terms of opening and closures, in square footage terms, we're expecting no change.
On that informative but more but prosaic note, I think we'll finish. Thank you very much, everyone.