Good morning, everybody. Welcome to NEXT results. I think before I get into the numbers, there are really two big points I want to make. The first is that last year, throughout the year, we beat our expectations all the way through. I think a lot of that came back down to the fact that the consumer was much more exuberant than we expected. I think as much as that helped us last year, it has tempered our outlook for the year ahead. Actually, our view of the year ahead hasn't changed dramatically from where it was in January. I think what people thought of as being a very conservative outlook, that we gave in January now looks much more realistic. We have taken out some sales and a little bit of profit for the loss of our Ukrainian and Russian business.
Other than that, our central guidance for the year ahead is broadly in line with where it was in January. Sales last year were up 11% on two years ago. Full price sales were up 13% on two years ago. In terms of how that panned out for the full year, the 47% up online and the 23% down in retail are misleading. If we break those down into two elements and just look at the period of time for which the shops were shut, online sales were up 70%, total sales were only down 9%. As we've said in the past, this might appear to be that a lot of the trade that we lost in shops had simply transferred online. While the money spent did transfer, what consumers were spending it on changed dramatically.
Actually what we lost by way of women's and men's formal wear, we gained a lot of that on kids and homeware. As we came out of lockdown, we saw a return to more normal trends. Online grew at 42% on two years previous, retail -7%. That number of retail was much better than we were expecting throughout the year. In fact, it was slightly better than that because like for like stores were only down 5%. Looking back at the year, the only explanation we can really give for that was that by the time we reopened, a lot of the competition that we faced online two years previously had either shut some or all of their stores. We think one of the things that explains the strength of our retail stores is the change in the competitive landscape versus two years ago.
Operating profit up less than full price sales, up 6%, and we'll be going into the margins in detail later on. In terms of interest down around GBP 20 million. That breaks out into two different types of interest. The real interest, the interest on our debt is down to 27%. Our average debt throughout the year was about 50% down on where it was two years ago as a result of us having paid an awful lot of debt. The reason interest hasn't fallen as fast to that is because for a lot of the year, the money that we paid down debt with was on deposit, earning very low interest. It wasn't until we paid our bond off in October that we began to see those interest rate reductions really biting.
Profit before tax up 10%, profit after tax up 11%, a slight reduction in tax rate, and that's all about the introduction of super-deduction. Earnings per share up 12%. That's because of the share buybacks that we did at the beginning of 2020, reducing our outstanding shares. Looking at cash flow, GBP 74 million profit before tax resulted in a GBP 135 million outflow. There are three big factors that are driving the difference: increased capital expenditure, a big swing in working capital, and the other. Looking first of all at capital expenditure, increase of GBP 45 million. In terms of the increase, virtually all of that increase came in warehousing, GBP 37 million increase. What you can see is that the amount we're spending on our new Elmsall warehouse, GBP 71 million, is what's driving that increase.
We also had an increase in technology. We talked a lot about this six months ago, another GBP 16 million on technology CapEx. That needs to be put in the context of a total technology spend of in the order of GBP 120 million-130 million. We're still not capitalizing a lot of our technology spend. Just to remind you all that the reason we're capitalizing far more is because we're modernizing all of our systems. We're rewriting most of the code across most of our core systems. We're doing it piece by piece, module by module, but that's what's resulting in the CapEx spend on technology. All of the development of applications is still written off to revenue. Stores, about a GBP 10 million reduction in what we spent on stores.
Looking forward, we expect to continue to spend a lot on CapEx in the year ahead. Again, the vast majority of this being driven by technology and warehousing. We'll spend in the order of another GBP 70 million on Elmsall 3 in the year ahead. After that, we anticipate once that warehouse is built, our CapEx will begin to decline over the following two years. With an average around GBP 160 million CapEx over the next three years, and we anticipate that will be the sort of more normal run rate of the business going forward. Moving on to working capital. Working capital, GBP 111 million more outflow than two years ago. GBP 108 million on customer receivables.
Going back in time to January 2022, actually, the outflow in that year was only around GBP 27 million as our credit business was building quite slowly. This year, because we saw a swing back into credit after consumers paid down their balances the year before last year we saw a swing back into credit, so we've seen an outflow of GBP 108 million. Warehousing land and buildings. This is land and buildings that we've bought and plan to lease back. In the future, so this is held as stock, and I would expect some, if not all, of that GBP 53 million to reverse out in the year ahead as we lease back those assets.
About GBP 50 million of Total Platform investment, of which the lion's share going into Reiss, about GBP 40 million going as equity and debt into Reiss and then the balancing GBP 10 million on Victoria's Secret and Aubin. In terms of positive movements, timing of freight and VAT. On freight, because a huge amount of our stock was late, we also paid for it later, and so that gave us an inflow of GBP 51 million. The staff incentives number is the increase in bonus, the bonus that we will pay for last year across the business that has been earned but has not yet been paid, and that will come out of this year's cash flow. That's a positive for last year, but that will reverse out in the year ahead.
In terms of employee share option scheme, much higher charge than usual, and that's because last year we didn't buy any shares into ESOP. This year, in effect, we've had a double helping of ESOP shares, and we'd expect that number to be in the order of 30-40 million in the year ahead. After shareholder distributions, total cash flow for the group broadly in line with where it was two years ago, GBP 16 million outflow two years ago, GBP 10 million positive this year. In effect, we have funded the outflows into working capital CapEx and ESOP through reduced distributions to shareholders, which is about GBP 350 million last year compared to GBP 500 million. Moving on to the balance sheet. Goodwill and investments, GBP 41 million, and this is all about the equity investments that we've made that I just mentioned.
In terms of stock, the stock on our balance sheet as at January was 19% ahead of January 2020. Remember that is a two-year growth in stock, so it is broadly in line with our expectations for the year ahead versus our expectations as they were in January 2020. The difference in those expectations, around 4%, is down to the fact that this year we have ordered stock earlier than we would have done two years ago or last year to account for the additional time it's taken freight to get into the business. Those stock levels at 19% up are actually a little bit misleading when you look at the actual stock available to the business.
The graph that I'm about to show you shows that this is the levels of stock versus 2020, of stock that is available to the business, and the difference between the -2% that was available to the business in January and the 19% on our books was the amount of stock that was on the water and in transit waiting to get into the business. This is a reflection of the delays that we've been experiencing in the run-up to Christmas. That's NEXT branded stock in the blue line. In terms of total stock in the business, including all the LABEL stock that we had available to sell on third-party brands, total stock was up 7%.
You can see that our stock position on LABEL was significantly better than it was on our own brand, and that accounts for some of the growth in the LABEL sales over the last year. Some of the exceptional performance was down to the fact that stock that we didn't have in our own brand, we were able to transfer those sales to other brands. In terms of where we stand today, stock available to the business is broadly where we want to be, marginally up on last year. Moving on to debtors. Debtors down on two years ago, GBP 34 million. There's an awful lot going on here. Biggest single number, the customer receivables are down GBP 71 million on two years ago. I'm going to talk about how our debtor book has changed over the last two years when I talk about the finance business.
In summary, the reason why that number is down is because we had a big drop in the year ending January 2021, and a lot of that reversed out last year. In terms of things moving the other way, we got GBP 18 million commercial loans to TP partners, of which about GBP 10 million is to Reiss. International third parties, this is where we've sold stock on third-party aggregators, and they haven't yet paid us the money for those sales. The final one is about the timing of rent payments. Looking at our right-of-use assets and lease debt, you can see those two broadly match each other in terms of the swing in the values, which means our overall debt as against two years ago is down GBP 500 million.
That really is all about the opportunity that we took in the year ending January 2021 to pay down debt. Looking forward at the cash flow over the following year, we are expecting operational cash flow to be around GBP 740 million. I've already said we expect GBP 195 million of CapEx. Expect to invest around GBP 100 million in customer receivables. Other investments will actually result in an inflow of around GBP 5 million. Three things going on here. First of all, we're gonna exercise the option that we have to buy a further 26% of Reiss. We anticipate acquiring another GBP 32 million worth of property stock, mainly to develop warehousing. Against that, we anticipate that we will lease back warehousing, resulting in an inflow of around GBP 73 million.
We're going to return to paying dividends in the year ahead, and the first one will be in August, and that is announced in this set of results. We expect ordinary dividends to be in the order of GBP 240 million. To give you a sense of where our dividends are aiming, we intend to cover dividends around 2.8 times, which is where we were two years ago. The balance between the GBP 400 million and the GBP 600 million of debt, we don't believe that it's right that we further reduce the gearing of the company. We think our balance sheet is extremely strong at the moment, and we would anticipate our gearing moving forward in line with our profits.
Our guidance for profits in the year ahead to be up 3%, so we'd anticipate that year-end debt will be around GBP 620 million. The balance in GBP 220 million will either be buybacks, special dividends, or investments in other businesses, to be determined as and when we go through the year. Moving on to the online business. Online business had an exceptional year, up 45% on total sales. Full price sales up 47%. Three phases within this. You've got the period when the stores were shut, exceptional growth. You've then got between April and July, where we think that some of the lockdown trends, particularly on home, persisted, and there was a little bit of sort of restocking of the items that people hadn't bought during lockdown.
We had this quite euphoric period between April and July of being up 46% and then dropping back to 40% two-year growth in the H2 . In terms of how that 47% broke down by U.K. and overseas, you can see overseas and U.K. grew by pretty much the same amount. Looking at the U.K. sales, U.K. sales were hugely driven by LABEL. This, a set of third-party brands increased nearly 80% as against our own brand at 33%. That will have had an impact on margin, which we'll cover later. In terms of overseas sales, nextdirect.com did well at 36% up, but the really big increase came in the sale on third-party aggregation sites. The sites that we were already trading did well. They were up 117% like-for-like sites.
We added some new third parties, particularly [ZEOS] in some countries where we weren't trading with them, which contributed towards the balance in 60-odd% of growth overseas. Looking at sales in terms of cash versus credit. U.K. credit sales are up 27% in the period. U.K. cash up 116. Overseas, which is all cash, up 36%. Where that leaves the group is that means that overall, just over half our sales now are on credit, and the balance in one way or another are on cash. Looking forward, we anticipate that our cash business will continue to grow faster than our credit business. In terms of customer numbers, U.K. credit customers up 7%, cash customers up 75%, overseas customers up pretty much in line with sales at 37%.
What you can see from that is that a lot of the U.K. growth was driven by a growth in spend per customer. 19% on credit, 23% on cash. We think the vast majority of that is about the increase in offer that we have on our website versus two years ago. The obvious question is, well, how much of that is driven by lockdown? If we look at the period of time from the end of lockdown, so quarters two, three and four , what you can see is that even in those periods where the shops were open, we're still seeing significant increase in spend per customer across credit and cash customers, driven, we believe, by the improved offer. Looking at the margin. Margin online broadly flat with last year. In terms of the movements, lots going on in the movement.
First of all, a big drop in gross margin, 2.9%. Two-thirds of that was driven by the increase in LABEL mix. The LABEL product is at a lower margin than our own, so that reduces margin. The other third of that drop comes down to the unplanned freight cost. This is where we've costed our goods and priced them on the basis of freight being one price, and the market has moved away from us too quickly, and so we weren't able to reflect the increase in cost of the freight of goods in our prices. That cost us around 0.8%, which we took as a hit to margin. Much lower surplus gave us back 1.5%, so our achieved gross margin was down 1.4%.
Marketing photography gave us a big increase in margin, 1.7% increase in margin. Believe it or not, two years ago, we were still printing catalogs, so we've got a big saving from no longer printing catalogs. The costs of photography reduced largely because we couldn't travel overseas to take photography for our website, so that saved on photography costs. Digital marketing, we actually increased that faster than sales. Digital marketing budget was increased by more than 47% on two years ago. While that looks like an adverse movement against margin, it's a positive thing because we are still getting very high returns on the money that we're investing in digital marketing. In terms of warehouse and distribution, a slight saving here. Two different things going on.
Online returns were dramatically lower during lockdown, and that reduced our warehouse and distribution costs by around 0.9% of sales. However, air freight surcharges, and this is on the goods that we're delivering to customers overseas, increased dramatically. In many territories, we took the cost of that to our P&L rather than pass it on to our customers. That pretty much wiped out the benefit that we got from online returns. It's worth saying at this point, because it will become relevant when we look at the margins of our overseas and U.K. businesses, that the returns rate benefited the U.K. business, whereas the freight surcharges hit the overseas business. Although on our total online business, they net each other out, when you break it down by U.K. versus overseas, they have very different effects.
Other overheads, technology, we continue to increase that as a percentage of sales. Central overheads increasing as a percentage of sales, largely as a result of the fact that in the reported year, we will pay a bonus on the reported year, and two years ago, we paid no bonus at all. Just looking at the profitability by channel. This is the margin of the NEXT branded stock sold on our U.K. website. LABEL sold to the U.K. customers and overseas. Here we saw big swings in margin, big improvement in our NEXT U.K. business, driven by a combination of reducing markdown on our own stock and lower returns rates. LABEL flat.
What happened here is that the savings that we achieved through the returns rates were offset by the fact that we had some one-off costs in the year to set up new clients, which sort of wiped out those benefits. We see no change in the LABEL UK margin. Overseas, that's all about freight surcharges. Looking forward to the margins next year, we anticipate that the UK margins will see a reversal of the gain on markdown and a reversal of the gain on returns. That dropping back to in the order of around 21%. LABEL, we anticipate being broadly the same as it was, around 14%. Overseas, two things happening here.
One is that we think we will continue to have to bear the cost of some higher freight costs throughout the year, and of course, we'll be carrying some of the overheads that were paid for by the Russian and Ukrainian business, particularly the Russian business, where we have actually got fixed overheads in country. That will serve to erode our margins overseas next year. Okay, moving on to the finance business. Credit sales were up 13%. Now, for the sharp-eyed viewer, you'll remember that only a few minutes ago, I said credit sales were up 27%. Remember, all of the sales we were talking about before were full price sales. Full price credit sales were up 27%. However, we had much less stock, relatively much less stock going into our sale online. Markdown sales were only up 5%.
Retail credit sales are the sales where our retail customers can use their online account in stores. Those are down dramatically, largely as a result of the shops being shut for 10 weeks. Of course, the interest income, which also goes into the credit sales line, was down, and that was because we started the year with lower balances. Customer receivables actually down 10%. That looks contradictory, but the reason that there is a, an apparent contradiction is that the 13% increase in sales covers two years, and in those two years, the balance went down and then back up. To illustrate that, what this graph shows is the balances throughout up to January 2020, and you can see a dramatic drop in balance as we move through 2020 through COVID. From January 2021 onwards, you can see a return to more normal growth.
If you look at the average balance drops 10%. However, if you look at the balance in January 2021 compared to the balance in January 2022, that has grown by around 13%, to GBP 1.16 billion. Moving on to bad debt. Bad debt down 37%. This is all about the reduction in the observed default rate. We have seen a dramatic decline. Over the last two years, we've seen a dramatic decline in the observed default rate, drop of around 26%. The 3.2% you can see from the bars to the left-hand side actually is an historic low, and that's all about the savings that consumers accumulated during COVID. In terms of our bad debt provisions, we haven't actually reduced those by much.
In fact, when you look at our bad debt provisions, they are back up at around 9%. In essence, what we've done is that the provisions that we took for what we thought might be the defaults after COVID, we're hanging on to make allowances for the defaults we think we might get as a result of cost of living increases. Profit before funding down 6%. Overheads at GBP 49 million, actually higher than last year, despite the fact that receivables are lower, and that's because overheads are not driven by the amount we've got to collect, but the amount of customers that we're dealing with, and that is driven by credit sales. Overheads have gone up in line with credit sales and have increased as a percentage of our receivables.
Moving on to net profit after cost of funding, down only 3%, and that's because our cost of funding has dropped much faster than our receivables, and this is all about the lower average cost that NEXT is paying for it's debt as a result of reducing total group debt from GBP 1.1 billion to GBP 600 million. In terms of next year, we expect the finance business to make in the order of GBP 160 million of profit. Moving on to retail. Retail obviously had a very tough year with the closures. Total sales down 23%. Like-for-likes down 5%, which as we said earlier, was much better than we were expecting.
When I presented our results a year ago, we talked about the fact that for the time the shops were open in 2020, 2021, our retail parks did an awful lot better than the shopping centers and city centers. If we look at that same measure of performance over the last year, what you can see is that the performance is much more even and that retail parks and shopping centers are broadly in line with each other at -2%, and it's really only the city centers where you see a significant lag. Our belief is that as we continue to come out of lockdown, we will see a more even performance between the three different types of shopping locations. Operating profit down 54% at GBP 107 million.
That GBP 107 million, just to remind everyone, is actually overstated because it doesn't include lease interest, which appears in the group accounts. If you add the lease interest in, then the real profit that our retail business is making is around GBP 65 million. It's GBP 112 million down on the equivalent number 2 years ago. In terms of how that pans out, achieved gross margin was down pretty much in line with sales. Occupancy costs down pretty much in line with sales. The reason for that was because of the rates holiday that we got for the period the shops were shut, and also because while we were shut, we were able to save things like electricity, the consumption of plastic bags and things like that. Overall, occupancy costs went down broadly in line with sales.
Where we really had deleverage of the business was over payroll, warehousing, and central costs. Payroll moved backwards, not quite as much as sales. Obviously, we were able to furlough a lot of people during the closure period, but once the shops were open, it was much harder to manage the staffing in line with the sales decline. Where we really saw the big fixed cost was in central warehouses and distribution networks and central costs. Central costs actually made slightly worse by the fact that January 2020, there was no bonus whereas in the year reported, there was. Guidance for next year, we anticipate with the stores open, we'll make in the order of GBP 115 million of profits, in the order of sort of 7%-8% net margins in our retail business. Just focusing now on rents, rates, and service charge.
This is the actual cash charge during the year as opposed to the lease interest and depreciation. That came down around 7% against two years ago. In terms of the shops that we actually renegotiated in the year, we renegotiated the leases on 60 of our stores. The average reduction in occupancy cost in those stores was around 46%. The average lease term was just under 3 years, and total saving was GBP 9 million. Of those 60 stores, 19 of them were on flexible rents, where the rent is paid to the landlord as a percentage of the sales in those shops. Of those, 11 are total occupancy deals, and this is where we pay a fixed percentage of our sales to landlords in respect of rates, rents, and service charge.
Those are sort of, if you like, where the landlord is taking all the risk of deleverage. Looking at the year ahead, we anticipate that we'll renegotiate the leases on 72 stores. We think that the rent reductions we'll get will be in the same order, around 45%, and a quite big saving around GBP 17.5 million because there are some big shops in that number. We also expect that the average lease term we'll agree to will go up to around 4.5 years. This isn't because we're generally taking longer leases. It's because a number of the bigger stores within that 72, we have agreed or are in the process of agreeing a total occupancy cost deal.
Total occupancy cost means that the risk of trading that shop is much lower because the rents, rates, and service charge will vary as a percentage of the sales we take, so we're able to agree to longer lease terms in those shops, which is what we've done. Moving on to the outlook for the year ahead. In January, we gave our trading statement. We said at that time that we thought our sales in the year ahead would be around 7% up. We have moderated our sales expectations since then. The vast majority of that is about the loss of our Ukraine and Russian business, which we've assumed will be shut for the rest of the year. That has cost us 1.5% of the 2% we've lost.
As far as our UK business is concerned, our numbers to date are in line, if not slightly ahead of our expectations. The difference between the 1.5 we've lost in Russia and Ukraine and the 2% is all about reducing our expectations in other overseas territories. In terms of how that growth of 5% pans out over the year or how we're expecting it to pan out over the year, we're expecting the first quarter to deliver growth of around 21%. Q2, 0% as we come up against the sort of euphoric period of reopening last year, and then 1% in quarters three and four. Now, I should stress at this point that it is particularly difficult to forecast the next three quarters' trade.
There is an argument to say that actually Q3 and Q4, given all of the pressures that are likely to mount in the economy, could well be worse than Q2. The only thing that's weighing against that. Well, there are two things weighing against that. The first is that we anticipate we will be much better stocked in quarter three and quarter four than we were last year. The other thing to stress is that these are nominal growth. These are the growth in pounds in a till. Of course, in real terms, particularly if wages have moved forward 4% or 5%, then we're looking at a real decline, particularly in those last, latter quarters of the year. I think the important thing to stress is it's very difficult to look forward, but the numbers we're seeing at the moment would.
Are in line with the plan that we set at the beginning of the year. If we look at the numbers against three years ago, which is the only year we've got which is not affected by COVID, what you can see is that our compound annual growth from three years ago that we're expecting remains pretty much flat for the rest of the year. In terms of how we're expecting the business to break down between retail and online, in the first quarter, we expect online to be down around 9% and retail to be up a lot because for 10 of the 12 weeks last year, retail was shut. Looking at the remaining three quarters, we're expecting online to be up around 4.6%, retail to be down just under 7%.
In terms of what that means for profit, if we just take the growth in retail sales and apply our normal marginal profit on retail sales, we would get a profit. That GBP 160 million increase in sales would give us a profit around GBP 89 million, 55%. Because last year we had a number of one-off benefits, actually the increase in profit we think we'll get from retail on these numbers is nearer GBP 61 million. GBP 20 million of rates relief reverses out. Last year we had very low stock loss, 'cause if the shops are shut, people can't take the stock. We also saved money on energy and other store consumables during the lockdown period. If we look at online, we're expecting total sales across the year to be up by GBP 30 million, delivering a profit of just GBP 2 million.
On the face of it, that marginal profit on the online business looks far too low, and it's worth just explaining exactly how we've arrived at those numbers. Basically, we think there are two things that will happen. We think our third-party branded business will continue to move forward, and we're expecting to add around GBP 70 million of third-party brands in the year ahead. Our own brand, which was far more affected by the lockdown and closure of our own shops, we're expecting to move backwards. It's the fact that on our own brand, the marginal profit's 46% and third-party brands nearer 30%, which means that actually the difference in that delivers a profit that's broadly flat. In terms of finance business, we're anticipating GBP 18 million increase in profit in finance.
Total Platform. This is a combination of the margin we make on servicing our Total Platform customers and also the profit we make through the various equity shares that we have in the different partners' businesses to deliver around GBP 10 million. About half of that 10 million comes from the profit share and half from the Total Platform service. Looking at cost increases, this is where it gets a little bit scary. We're anticipating GBP 143 million of increases in the year ahead, 55 million from cost of living, that's wage increases. We're anticipating that we'll have more normal levels of surplus, and that will erode margin by around GBP 35 million. Energy cost inflation, we think, will cost us around GBP 20 million in the year ahead. We'll continue to increase the amount we spend on technology.
Of these numbers, this is the number that is the least bad. In fact, it's a good number. We think that we need to invest in technology, and we will continue to do so. Marketing photography, an increase here driven partly by the increase in the amount of items that we're photographing. We continue to increase the size of our ranges, and also the fact that we're now able to travel to some of those more expensive locations for the best photography that we weren't able to do last year. Finally, warehousing distribution. This is the addition of some fixed costs as a result of opening Elmsall 3, for example. We'll begin to pay some rent and depreciation on that building as we begin to use it through the year. In terms of cost savings, low incentive payments.
This is because the year that we've just passed, we think there was an exceptional level of bonus. Going forward, we expect more normal levels of incentive payments, so GBP 35 million benefit there. Last year, we were unable to cost in a lot of the increases in our freight, in the freight costs. In the year ahead, we have costed in the anticipated increase in freight costs, and that will recover around GBP 25 million of margin. Interest costs in the year ahead will be lower as we continue to benefit from the paying off of our bond last year. We're anticipating a saving on overseas parcel surcharges of around GBP 7 million.
Adding all those together, we get to a profit of around GBP 850 million, a 3.3% increase in total profit, with earnings per share driven by share buybacks rising by around 4.9%. That's a combination of the buybacks we have done in the past, but mainly the share buybacks we anticipate during the current year. That's the central scenario. As I said at the beginning, it is a particularly difficult year to forecast. Looking at our range, if we look at 3%, on 3% downside, we anticipate that at that level, we'd. Three percent less sales would result in profits falling from GBP 850 million to GBP 795 million.
On the upside, we think that the best we might do is about an 8% increase, and that would give us profit before tax of just under GBP 900 million, earnings per share growth of around 10.4%. We think that what we have, what we've put together is quite a. Well, at the beginning of the year, we thought it was a very conservative budget. As we stand today, we think that our central guidance is realistic, and what we've given here is where we think are the bookends to the performance. Moving on to the longer-term outlook. We've rerun our 15-year stress test. Now, there is an enormous amount of detail on this, in the report, that we've issued to you today. I'm not going to go through it in huge detail, just run through the headlines.
Just to remind you, the last time we did this, we were looking at cumulative net cash generation over a 15-year period of around GBP 12 billion. If we look at the assumptions that we used then, we assumed that retail like-for-likes would continue to decline at -10%, online sales would grow at 7.5%, and the annualized CapEx would be at around GBP 110 million. As we stand today, we've changed those assumptions slightly. We've assumed retail like-for-likes remain at -10%, although certainly in the near term, that figure now looks very pessimistic. Online sales, we've moderated the assumptions going forward because we think that the highest growth was going to be when the business was smaller.
Obviously, as time goes on, we're expecting that as the total online sales number grows, we would expect the sales increase to decline. Annual CapEx we've increased to GBP 160 million, as we've begun to see some of the increased capital costs of delivering online growth. Moving on to the online business. The assumptions we've made here is that, NEXT UK will be at 3.8%. LABEL, our third-party business, will be at 7.5%, and Overseas will be just under 10%, giving us total growth of 6.4%. We've assumed the margins, will remain as they are projected to be in the year ahead. That's 21% on NEXT UK, 13.6% on LABEL, 12% Overseas.
In terms of what that means for the model, the cash that generates, combined with the retail cash flow, gives total cash generation of around GBP 14.7 billion over the next 15 years, an increase of around GBP 2.7 billion on when we last ran the model in 2019. Just looking at the assumptions, I just want to make it clear that what we've done with the assumptions. Total compound annual growth for the group is forecast at 4.1%. That compares to 3% last time we did this. The increase is all about the fact that retail, which was moving backwards, is a smaller part of our business over the next 15 years than it was three years ago.
If we take the period of time that overlaps between the two models, the growth that we've forecast in this model, 2023 to 2034, is exactly the same as we had modeled in the last model. The change in the economics of the group is all about the reduction in the size of the retail business and the relative increase in the size of the online business. It's not that we've changed any of the assumptions on growth in either of those businesses in the periods from 2023 to 2034. We think that provides the group with a sort of solid foundation to move forwards. It doesn't include Total Platform, and I just want to stress, as we stressed last time, that this is a scenario that is there to inform shareholders what would happen to the company given certain growth rates.
It's not that those growth rates are a target for the business. Our job is to grow sales as much as we can across the whole group. It's not a plan, it's not a forecast, it's not guidance, but it is important because it gives shareholders a sense of the economic stability of the company and how that has changed over the last three years as we begin to move further into an online world and move further away from a world dominated by our retail shops. The aim of this section is to give investors a sense of how the business is evolving, the way that the different activities that we're undertaking are changing, and an insight into the way that we are beginning to think about the management of the business.
Now, you could look at this section and think NEXT is about to have a massive reorganization, and I want to stress that that is definitely not the case. The changes that I'm about to describe are changes that have happened and are happening. You're certainly not going to see any big changes in the way we run individual departments going forward or lots of new job titles. What you should get from this by the end of this section is a sense of how the group is simplifying the tasks that it's doing.
Because there's a risk that when you look at all the different activities we're undertaking, from Total Platform through to licensing the NEXT brand, when you look at all those activities, there's a risk that people within the organization could feel a smaller and smaller part of a bigger and bigger machine. The reality and what we're trying to achieve is exactly the opposite. We want to simplify what we're doing, explain exactly what the objectives of each part of the business are, understand the underlying economics so that the people within our organization are very clear about exactly what it is they've got to do, exactly what success looks like, and exactly how the decisions that they're making will transform the business going forward. Conceptually, when you look at an online business, traditionally, you thought about three basic functions.
Product teams that go out and source beautiful product, marketing team that builds the customer base, designs a beautiful website, optimizes sales on the website, and markets to those customers to maximize the sales. Finally, an operations side of the business, the warehouses, the call centers, the technology, the software, which traditionally have thought of themselves very much as being support functions or cost centers. As time has moved on, and we've begun to sell other brands. Our marketing function has begun to change. It's become marketing and aggregation. The assembly of all the different product offers that we have on our website has begun to feel like a function within itself that sits in the middle of the business. The marketing aggregation and operational side of the business begin to feel more and more like businesses in their own rights.
That people who work in software, warehousing, marketing, aggregation, begin to see their role not as support, or cost center, but as profit center, as that actually we are selling a software product. That's really important to how we think about the group, and I think a very positive thing for both sides, actually, of the business, 'cause you end up with a sort of buying side and a selling side. If we think a little bit more about the buying side of the business and what we're doing there, the buying side is all about creativity. It's about sourcing, design, stock control, quality control. Incidentally, when I say stock control, stock control could sound like a very sort of boring function, a controller's function. Actually, stock control is about the management of risk.
The investment, how much stock we invest in, and what returns we get on that investment. The buying side of the business has changed dramatically as a result of the internet. The reason for that is that suddenly it has become liberated from the four walls of our stores and the pages of our catalogs. In the past, buying teams have very much been designing ranges to fit into our stores. What that meant was that you couldn't introduce niche products because there just wasn't the space. They didn't earn their space in the stores. We just didn't have enough display space to keep increasing the size of our ranges. Even within the catalog, every item had to earn it's page.
As we begin to trade more and more of our business online, which in essence has an infinite amount of space, the amount of diversity our buying teams can put into the range, their ranges, has increased exponentially, and you can see that in the amount of options that the business is now selling. Now a lot of that increase is about increased diversity of print and colors, additional sizes that we're able to stock, stretching our price architecture. That has been the main driver of the increase in options in our own brand. In addition to that, we've been able to experiment and push the boundaries of our brand further than it's ever gone before, pushing into new product areas such as outdoor clothings, performance sportswear, pets clothing, children's bedroom furniture.
Areas that we hadn't been in before that we believe we're able to use our design and our sourcing base to deliver great product to our customers. We've taken that concept one step further and begun to draw on design inspiration from outside the group to augment our own designs. We've done this through collaborations with businesses like Scion or Morris & Co. We've partnered with various top-end mills. Got a collaboration with Loake on shoes. This is all about pulling in external sources of design and inspiration and wonderful prints and getting those onto product that is essentially still NEXT product. In addition to that, there are some areas we recognize where although we've got great design ideas, we haven't necessarily got the technical expertise to deliver those products to our customers, areas like, for example, wallpaper or paints or ski wear.
In those ranges, what we've done is we have licensed our brand and our designs to a third party. They've taken the stock risk, and we take a royalty on sales. We've taken that idea and also turned it on it's head and undertaken a number of licenses where we have taken the design expertise of other businesses and used our sourcing expertise to create ranges that neither of us could have created on our own. Collaborations with companies like Ted Baker on their childrenswear, Joules on men's suits, Laura Ashley on sofas. A very important point here is that we have to be absolutely sure that both we and our partners are really delivering value.
If these products end up looking like just NEXT items with somebody else's LABEL in the back of them or our sourcing and technological expertise are not delivering anything of value to the client, then this business will fall over. At the moment, it's a very exciting business. Finally, in markets where we feel that the NEXT brand isn't quite right, we have experimented with developing new brand concepts. Mainly this has happened through our Lipsy subsidiary, where we've developed brands like Friends Like These, Love & Roses, which is a sort of design boutique inspired brand, at affordable prices, Woah, where we've created our own, beauty range, and OWN Denim, where we've created a young women's fashion jeans brand.
Now, the jury is still very much out on all of these brands, but I think what it gives a sense of is how we're taking the product origination skills of the business and beginning to use them across a whole host of different areas. I think what that's doing is it's creating a very different sense of what the buying side of our business is all about. It's not that it hasn't lost anything from the days where it focused entirely on our NEXT retail ranges, but it's capabilities and it's horizons have expanded enormously. Actually, as a standalone business now feels much more exciting than it did five to 10 years ago. Moving on to the selling side of our business, we've still got lots to do on the selling side of the business through LABEL.
We can continue to improve the service we offer to our clients, and the main emphasis here will be on improving our systems and the integration we have with our clients. We recognize that we can make it easier and slicker for them to get product onto our website, for them to have better information and reporting from our website to further improve the service that we give them. Our aim is to continue to increase the profit they make on our website. To that end, we reduced our commission rate for fashion brands for the third time last year by 1%. As and when we're able to get economies of scale moving forward, our aim is to continue to keep passing back the benefits to the clients.
We need to make our profit, but once we've made our profit and our returns, our aim is to keep passing the benefit back to our clients. Because we recognize that ultimately, if we're going to be a great aggregator, it will only be with the support of our brands, the people have the equity in that stock. We will continue to add new brands in the year ahead. One of the biggest single things that we've done last year to increase our offer was to roll out our Platform Plus functionality. This is the functionality that allows our website to have visibility of stock that is not available in our warehouse but is available in our partner's warehouse. That stock can be ordered and is offered to the customer on a 48-hour, two-day promise.
The key here is that we pick up the stock from our clients' warehouses and deliver it through our network. From the moment that stock leaves our clients' warehouses, we have ownership of the service, and we're able to collate it with other items that the customer has ordered in order to deliver all of those items to the customer at the same time, which is an improved service for the customer and of course, significantly reduces the costs of distribution. The other thing we've begun to do is to use that Platform Plus system to tailor our own ranges. Where we can see we're consistently selling items from our partners' warehouses, rather than just call off the item that has been sold, we're beginning to call off in anticipation of the anticipated sales on items we are almost certain to sell going forward.
What we're doing is we're using the Platform Plus system to tailor the ranges, to improve the breadth of offer we have online and the speed at which we can deliver it to our customers. There are some items where actually it makes a lot of sense to deliver it directly from our partner's warehouse to the customer. Items like, you know, large sofas where our chances of consolidating the item are slim. The item may be on a long lead time anyway, so the benefit of bringing it into our network is limited. The problem with that type of direct dispatch business is that we don't have control of the service. What we've done is we've developed a what we're calling NEXT Direct Dispatch, where the product still goes from our partner's warehouse direct to the consumer, but it goes on a NEXT nominated carrier.
Again, from the moment it leaves their warehouse to when it gets on that carrier, we have complete ownership and visibility of the service that we're providing to our customer. As we've rolled that out across all of our biggest direct dispatch suppliers over the last year and will continue to push it out over our direct dispatch partners portfolio over the course of the year ahead. There is one other advantage to this, of course, and that is that normally we will be able to deliver the item cheaper than our partner could have, so that there's a saving in there that we can share with our partners and increase both their and our profitability.
That is the way the business is beginning to divide and some of the initiatives that we are beginning to see in both sides of the business. What I kinda hope people can see, and certainly I think what we're experiencing within the business, is that the increasing independence of the buying and selling side of the business is creating an environment in which both sides can begin to undertake activities, begin new businesses, take new initiatives that they couldn't possibly have taken, in the old days when they, these two sides of the businesses were joined at the hip through a catalog and a shop.
I think when you stand back from it, actually, both sides of the business, both the buying side and the selling side, look and feel like much more exciting places to work and create new ideas than they would have done five years ago. I think what it's also done is it's challenged us as a business to think about the profitability of all these different activities, and where and how we make profit and where, what sort of returns we make on the activities that we undertake. I just want to sort of develop that idea a little bit further. When you think about Total Platform, Total Platform actually cuts out the marketing and aggregation part of the business and takes those third-party brands and puts them directly on their website through our operations and fulfillment.
The margin we'll make on that in the year ahead is around 5%. The return on capital in that business on Total Platform is more than 20%. In the document, I've written a great deal about Total Platform, so I'm not gonna spend a long time talking here about Total Platform. I think what is important is to reiterate the objectives of this business, and that is that it will deliver to our clients lower costs, much better service, zero CapEx, and frictionless growth. For many of our clients, in fact, for all of the clients, a doubling of their turnover or tripling of their turnover would be only a small single-digit increase in our total NEXT Group turnover.
The absorption of very high rates of growth in our infrastructure is much easier than if each of these businesses were trying to manage it on their own. The final two benefits of Total Platform are actually more important than all four of those headings. That is that it gives our client brands the ability to focus on the things that they really enjoy. As I've said many times before, no one starts a fashion brand because they love warehousing and systems. It allows them to focus on producing the great products and build the brand that they love. It also takes a fixed cost, warehousing, distribution, call centers, and turns it into a variable cost. We charge just one percentage fee. We charge a commission on sales.
What that means is that as our clients rapidly expand their business, they never experience those huge step changes and lumpy costs that you would expect to see in a very rapidly growing business. More importantly, potentially, is that in the rare occasions that fashion businesses have a fashion accident, and all of us do every so often, all of their costs of operations are variable and will come down in line with sales. It provides a huge amount of stability to the risky business of being a fashion brand. The five percent also tells us something about our own profitability.
To explain that, I just sort of want to put the 5% that we make on our clients' turnover in the context of the 14% we make in LABEL, and the 21% we make on our own NEXT product sold online in the UK. Many of our investors actually have asked us, "Well, how come you're making such a small profit on Total Platform compared to LABEL?" The answer to that is that Total Platform. Well, really there are two answers there, actually. The first is, remember, this is the profit we make on their turnover. Actually, our turnover is the amount they pay us in commission. So actually, the commission on real sales rather than gross transaction value is much higher. The other thing is that Total Platform only services our clients' websites.
The reason the customer is there is because they've gone to buy the client stock. On LABEL, as soon as a third-party brand goes onto LABEL, it has exposure to the 8.2 million customers that we have invested an enormous amount in building over the last 20 years. When you look at the profit that LABEL makes and reverse out the part of it that is just infrastructure, and fulfillment, you end up with 9% profit of that 14%, which is really the profit in customer base and the profit in aggregation. The profit in aggregation is basically the profit that we make from putting all of the items in the same parcel.
It's much. We end up with a much higher average order value than any of our clients would get on their own website, and that means that there's a cost reduction, and we can take some of that cost reduction as profit. You then see that the LABEL business has a sort of 9% profit in aggregation and marketing. If you then look at the NEXT profit on our own stock of 21% and say, "Well, what if you reverse out the infrastructure profit from that?" Incidentally, the reason that you reverse out the infrastructure profit and not the LABEL profit is because, of course, people are coming to NEXT for the NEXT product. You can't. You couldn't say, well, in effect, NEXT is a client of LABEL. You could say it was a client of Total Platform.
If you did, the profit in product would be 16%. Take those three profits in context, and you've got two economically very different ends of the business. You've got Total Platform end of the business, which is low margin, high CapEx, and you've got the product side of the business, which is very high margin, and low CapEx. When you think about it, if you don't have to invest in any of your infrastructure and you contract that out to somebody else, and they make the 5%, the only investment a product business really has to make is in stock. On average, retailers holding maybe three, four months of stock, of which a month of which is financed by their suppliers. So in terms of the return on capital, you're looking at north of 100%.
You could look at that and go, "Well, hold on a second. Why are you interested in this high CapEx, low margin business?" The answer comes down to risk. The reason that the product side of the business needs to be a high margin business is because it's much, much higher risk. When you kind of think about that in the context of the last 50 years of retail history. If you think about the number of brands that have gone bust, some of them several times, you realize that actually fashion retail is a very risky business. It needs to make those returns. If you think of the number of distribution companies that have gone bust, it's hard to think of any. I think the point we want to make here is that both businesses are great businesses.
They have very different risk profiles, so they need to make very different profits. Our job as a business is to make sure that the profit each side makes is commensurate with the risk it's taking. In answer to the question, well, which side do you want to grow the fastest? The answer is whichever side we can, because as long as we get the economics of both sides of the business right, it doesn't matter which one grows the fastest. The overall mix will be what it is. If you get the economic foundations of every part of the business right and grow them all as fast as you can, then the total will take care of itself. That is what we're aiming to do as we push both the growth of our product and our infrastructure and our aggregation business forward.
It does beg the question. Well, hold on a second. If by looking at these businesses as separate businesses and managing them as separate businesses, why not split them up altogether? Putting to set aside the enormous cost of doing that, there are some huge advantages of the selling side of the business and the product side of the business being part of the same group. The first is the mutual self-interest. The fact that our marketing operations business in effect owns the product business gives it a huge incentive to really get that service right. For the product side of the business, understanding the requirements of the marketing operations side, making sure that the product side of the business behaves in a way that is commensurate to efficient operations is enormously beneficial to the marketing operations side of the business.
There is a sort of a dividend that you get from each side of the business having a strong interest in the other's success. Financially, there's also another very compelling reason why the two businesses sit very nicely together, and that's because the very high cash generation that our product business generates can find somewhere very productive in which to invest. With return on capital of greater than 20% on the marketing operations side of the business, that's still a great place to invest the money that the product business is generating.
At the same time, the marketing operations side of the business, because it has diversified it's risk across lots of different clients and lots of different brands, and we really saw the benefit of that last year when we made up for a lot of the business we lost in NEXT through selling client brands. That side of the business provides a level of stability and security to the product side of the business that it would never have as a standalone business. The product side provides cash to the selling side, and the selling side provides stability to the product side. The joining of those two benefits, we think is more valuable than separating them.
Convinced are we of this, that where we have got into partnerships with Total Platform clients, we have bought a stake in those clients because we see that actually, with us having that mutual self-interest, with us providing them with the shelter and stability that our group provides them, and with them generating the cash that the group can invest, we see that partnership as being a very powerful one. Not necessarily wholly owned, but enough of a stake to achieve all of these synergies. That is the end of the presentation. In summary, I think where we are today is we've had a great year. In many ways, the strength of last year has made the comparatives of the year ahead tougher than they would otherwise be.
In the short term and the long term, the finances of the group are looking very robust. If we are going to go into a downturn, then the group has the cash generation and the margin to withstand the vagaries of what may be a very difficult consumer market. We're going into that market with very realistic estimate of what we can achieve in terms of the top line. Standing a little bit further back from that, the long-term economics of the group through the stress test look better than they did three years ago, and the legacy cost of our retail business is beginning to diminish as it's rents go down and as the online side of the business increase in size.
Finally, the way that we are managing the business and the way that our selling and buying side are beginning to develop as independent business entities, as more independent entities, has generated a huge number of initiatives and ideas for new business and new activity that should stand the group in good stead as we move forward. You know, I understand that ultimately, the investor community is only really interested in what we've got to say about the next six months and the next year in terms of profit. Who knows what that will be because we're going into a very difficult and volatile environment.
When you stand back from that and look at the structure of the group, the way we've organized ourselves, and the number of opportunities open to us, if you set your sights as we do on the five to 10-year horizon, then as we stand today, NEXT is a much more exciting and potentially a company with far more opportunities than it was five or 10 years ago.