Polestar Automotive Holding UK PLC (PSNY) Q2 2022 Earnings Report, Transcript and Summary

Good morning, everyone, and thank you for joining the call. I hope you're keeping safe and well. I am Peter Pritchard, the Group CEO; and with me today is Mike Iddon, our Group CFO. We're pleased to share with you our interim results for our financial year 2022. The strong performance across our veterinary and retail operations during the last year have accelerated throughout the past 6 months. And today, our business has never been stronger. This is reflected in the results we are reporting today, and I'm pleased to say that our performance continues to be strong across the group, demonstrating the ongoing success of our pet care strategy. There are 4 key messages to take away from today. The first and most importantly, we now see a pathway to GBP 2.3 billion of customer revenues over the medium term, a substantial increase versus our previous assessment. Sustained and continued growth in the impact over the past 18 months beyond our previous expectations is increasing the size of our addressable market and has led to a material step-up in the growth opportunity ahead. We believe that we are not yet past peak pet. This has reflected the elevated levels of customer registrations across our loyalty clubs, subscriptions and new client registrations in our vet practices. The sign-ups to our bespoke Puppy and Kitten Club have more than doubled year-on-year. These customers are incredibly valuable to us. Not only do they spend more with us, they also stay with us for longer. We continue to register nearly 10,000 new clients across our vet practices every week, supported by our in-store referrals and our puppy and kitten program. And the number of subscription plans across the group has grown 45% year-on-year to over 1.4 million clients. company generated GBP 110 million in annualized recurring revenue, now representing 9% of total group revenue. Second, we are continuing to see strong growth across all key categories and channels. Our like-for-like group revenue increased by 22.2% year-on-year and 28.6% on a 2-year basis. All parts of the group are growing. In retail, our like-for-like grew by 21.9% year-on-year or 28.9% on a 2-year basis. And in our vet group, the like-for-like group on 26.2% year-on-year, that's a GBP 0.238 increase on a 2-year basis. In retail, our sales growth is broad-based with omnichannel revenue growth of 21.5% and like-for-like growth across stores of 21.1%. Strong sales growth translated into strong profit growth with profit before tax growing by over 77% to GBP 70.2 million. And today, we're also announcing a 72% increase in our interim dividend to 4.3p. Third, we are demonstrating the advantages of being a full-service omnichannel pet care business. And through these broad offerings of pet products and services across all our channels, Pets at Home is well placed to capitalize on full growth potential of the market. We're leveraging our growth in an in-house data capability, integrating analytics into our extensive pet data set to driving parallel insights that are increasing our share of wallet. This is now supporting our day-to-day decision-making because we're using intelligent data to support our decision-making across our longer-term strategic investments, which will drive sustainable, high-quality growth across our business. By combining the best of our unique pet care centers, supported by a best-in-class digital platform, we're giving customers a market-leading pet care proposition. We aim to have convenience of competitors, building on a base of 1-Hour Click and Collect, and contactless delivery -- I'm sorry, Contactless Collection and home delivery services, which are all performing well, we're now using our pet care centers as mini distribution hubs, improving capacity and reducing costs. Now the proximity of these centers to the vast majority of the pet and the population has enabled us to pilot the same-day delivery service, including the 2-hour home delivery service with plans to run nationwide in the second half of the financial year. We're driving practice maturity in our unique veterinary model, where strong sales growth has underpinned a significant uplift in profitability and cash flow. Best operating models across the industry haven't evolved for decades. And we've always been a disruptive player within this industry. We recently launched our new operating model, Pathfinder ] into 2 new pet care centers. Pathfinder ] is designed to optimize clinical resource and improve client engagement and practice economics. Early results are very positive. We're now fine-tuning and we plan to roll out at full pace. Fourth, we continue to execute on our strategic investments build on capacity and capability across all pet care platforms. We now at the build mode, the Polestar, our GBP 20 million investment, which is digitizing the pet care experience, making it even easier for our customers. The initial phases will land in early 2022. We'll continue to roll out our next generation of pet care centers through our store transformation project, with 5 new centers launched so far this year, including one in Balham ] as we continue to build our presence within the Greater London. Last week, we opened a brand-new pet care center in Brighton, which includes a significant number of environmental initiatives, which we plan to incorporate into our pet care centers as part of our pets, people and planet initiatives. And we continue with the development of our planned new storage and distribution facility in Stafford, which we broke around on early this year, and it remains on target to go live in 2023. So in conclusion, our performance of the first half further demonstrates the strength of our unique pet care strategy and the robustness of the U.K. pet care market. We start here today a far stronger pet care business, and we look to the future with a well-invested plan with and confidence. We focused on running a successful business, but we also focused on running a good business, too. We continue to do the right thing by all our stakeholders as we progress our journey to become the best pet care business in the world. And finally, I'd like to express my sincere thanks to all our colleague and partners across the group, their times, work and dedication. The last 6 months have been challenging as the country emerges from lockdown, and the strong results we're reporting today would not be possible wherever. So I'll stop there. I'm sure there's going to be plenty of questions and Mike and I are here to answer them. So I'll now hand back to our call operator, Tracy.

[Operator Instructions] We will now take our first question from Owen Shirley from Berenberg.

The first was just a straightforward one on your latest thoughts on what you think the pet population is growing at now? And perhaps any thoughts on the outlook for that? Secondly, could you talk a bit about the learnings from the deliver in-store or delivery-from-store trial that you've carried out? Specifically, have you been charging for it, what's the elasticity like if you -- this is the same-day delivery if you've been doing that yet? Is it helping conversion rates? And how much money, how much cost is it saving on distribution? And then the third question was, if we assume the freight costs normalize back down at some point, when that happens, should we expect that to reverse into a gross margin tailwind? Or could it get reinvested in price, for example?

Thanks,. Okay. Look, I'll deal with the first question on pet population and our learnings from delivering from store, and then I'll hand over to Mike to talk about freight. Well, I think the first thing is we haven't yet seen a slowdown in new pet registrations. And we do an exercise once a year where we actually collect all the market information to try and invest to oversize the pet population. So we haven't done that yet, but I'll talk to you about what we're seeing. So as we said, we are seeing Puppy and Kitten Club registrations year-on-year up by over 100%. And typically, that means a registering between 25,000 and 30,000 new booking kitten members in that program every single week. And within our vet business, we are seeing up to 10,000 new client registrations per week, which typically about 17% of those tend to be brand new pets. So you can see, actually, they are very solid numbers, the ones I talked about when we've been to the market 6 months ago. And that might be surprising to some. But I guess when you realize that most people are typically planning 8 to 12 months ahead to acquire a new pet because they're working for a breeder, they're on a waiting list, there is still a shortage of pet. That's, I guess, is not surprising that, that's the case. And of course, as you hear from us all the time, actually, our market is ready driven by one thing only, which is the number of pets in the country. And obviously, that continues to grow, that finds a really positive outcome for the future. When we think about the delivery from store, this for us is -- we think this is a game changer for a lot of different reasons. So what it allows us to do, is it allows us to use as many stores as we wish to become picking centers for the customer orders. And there's a whole series of benefits why that would be the case. The starting point is a typical store has over 6,000 SKUs in a store. So a lot of -- clearly has all our best sellers. And they typically, within a 15-minute drive time of that pet population, I look across the country, that means we're in the sort of 95% of the U.K. population is within access of pet stores. So that gives us proximity to a pattern up. And the benefits are actually are on multi-levels. As you mentioned, one of them is actually cost. So if you've got an order, where a customer is in [ other ] county, to pick, pack and dispatch from your nearby store, and therefore, [ cooking ] out some legs on your curry ] network, there's also an advantage in your freight costs. So this is one of the reasons why you did it. The second is, as you're growing your business and obviously, your central picking centers have a capacity level, it allows you to spill out capacity into your network and spread it, which is really good. The third is, if you got stores in your network that actually are larger stores and are taking average revenue, you can actually drive the density of those stores significantly harder because you put more product through them. Fixed costs the same, so you leverage your store estate in a different way. And the fourth and probably the most exciting is because you're close to customers, you can increase the number of service propositions that you have. So as we mentioned, in 35 stores last week, we launched the pilot to same-day delivery, but actually, that's a 2-hour delivery window. And because those customers who live within a 2.5-mile radius of their stores, it gives us a option for those customers to say, look, we'll get you our stock within 2 hours. And the very first order we have, by the way, which was in our Charleston store, from receiving the order to delivery was 20 minutes, which is in incredible, isn't it? We actually run what this does for us is actually increase our reach because when a customer shops online with us, either they were store-base customer, their spends don't shift, their spend doubles. So by offering more convenience options, actually, what we do is we come back to our primary goal of we drive share of wallet with customers. But using the whole network, we can route our orders to be the most commercial and economic we can in line with our customer promise. And by opening of more choices for customers, we believe will drive even more revenue. So they're all the benefits of what we're seeing. In terms of the premiums, it's off, still quite early days, but again, back to the point, we just see more share of wallet. I think a thing most people forget about our business is typically, we get about 37% share of wallet of our customers. Now 3 years ago, that was 33%. So it has grown considerably in that 3-year period. But the headroom ahead of us is greater than what we've already banked. So then just to grow our existing business with existing customers is really, really attractive to get the new pet owners, and it now puts us in a really strong and compelling position. So Mike, you want to take up the freight costs?

Yes. I mean you asked a question about freight costs. So overall, our group gross margin expanded actually in the half by over 100 basis points. That's in line with what we expected, driven by the growth in our Pet Group. But you're right to point out, weighing on our margin in our retail business, where the well publicized increases in freight rates. So for us, in the first half, they were around GBP 6 million. So in terms of group gross margin, that had an impact of about 90 basis points on our group gross margin. We're planning for pretty much the same level in the second half, actually, and that's all in our guidance for the full year. As we look into next year, we don't see any sign actually of those freight rates actually improving, so maybe they'll be here for a little while to come. You asked the question, though, with the -- if it reverse, what do we see an improvement in gross margin, and would we then invest that in better pricing? I wouldn't make the connection between our pricing decisions and the requirement for freight rates to reverse. We will remain competitive on prices regardless of what freight rates are. We're not going to give any oxygen to any of our competitors by being out of line on pricing. If the freight rates do go back to normalizing, and we would expect our gross margin to improve in our retail business. But don't make the connection between that being as putting our prices lower, being dependent upon freight rates getting lower. We look at those 2 things completely separately.

We will now take our next question from Manjari Dhar from RBC.

Firstly, on staff training for sort of the store pick model and the go-to store video functionality. What proportion of staff are trained for these? And then secondly, on cross-selling. I appreciate that, I think in the release that the 27% of VIP shopping more than 1 channel, but do you have any indication of how that varies by maybe at the level of cross-sell online and in-store for the retail business of that business and the [indiscernible]?

Manjari, I'll take the first question on colleague training. We have a very unique approach to how we reward our people. And that's, the more that you know, the more expertise you have, the more we pay you. And that's why 63% of our colleagues actually earn real living wage, not national living wage, real living wage, because as you complete your training, we pay you more money because you're actually really valuable to us. And this is a really interesting point. We actually don't sell this, and we actually don't think selling whatever is the right thing to do, but we believe in providing really good advice drive sales. So we ensure that our colleagues run on the shop floor. We don't allow colleagues effectively to interact with customers unless they are to what we call our step 1 standard of colleague knowledge. It means they can have a really sensible conversation with the customer about most pet subjects. And then on step 2, you do specialized there about nutrition or reptiles. So what we're able to do through our going store technology, is we're able to connect to customer query directly to one of our experts in store. And then due to about having so many people who are trained to such high standard, we can run those calls really effectively through to those people. And our early learning, actually, what we're seeing is in the basket premium on the back of it. The most popular part of going store, by the way, has been new pet owners, puppy and kitten owners, who what we can see there as we can [indiscernible] transactions. We've seen those customers actually offer a spending premium to us. So when we think about cross-selling, you're absolutely right. What we think about until we talk about [ plus 1 ] and [ plus 1 ] for us is a store customer who engages in at least one of the service subscription, growing pets. And that's -- it's got 27% participation of our VIP members engaged in at least 1 of the services, that's grown by 19% year-on-year. And I think this is really reflective of our approach, which is understand the pet customers need, help solve their problems, then direct in the right place to solve them. And actually, you will drive those pieces. But combining it with really good insight, this is where data really comes into its own. Our ability to segment customers, predict their needs and then introduce them to the services, is really helping us drive a very, very effective CRM campaigns and personalization. So we don't reveal the details of those plus 1s. But of course, all of our servers are -- all our services are a enhancing, which, of course, grow share of wallet and gross -- gross margin with our customers. And that model is -- will continue. I think when we get to Polestar next year, that's when for us, it gets really exciting, because the ability to really start to uber personalize a customer's experience on a digital platform gives us another room through to make sure that whenever I am on my app, we put recommendations in front of you that we know are absolutely appropriate for you, your pet, the way you like to receive and engage. And actually, that's 1 of the benefits, I think, as we move into next year, there is still yet to come.

We will now take our next question from Simon Bowler from Numis.

Three questions, if I may. First 1 is on marketing costs and a bit of the kind of marketing investment into gross margin as well. Do you remind, is that now a cost line is going to be structurally higher given that you understand much more about the opportunity and the returns on marketing spend? Or is unusually high at the moment just given the fundamentally a lot more new potential customers out there given what's happening in the kind of puppy and kitten populations?

You can all 3 questions, Simon. So that we can take.

Okay in my mind. And then second 1 was on one of your slides, it's quite interesting. I think it's a new piece of disclosure, Slide 23, I think you view some of your data to kind of look at the components of pet care spend over the lifetime of the pet. And I was just wondering if there's -- I imagine you've deliberately not given pet. But if there's any indication you can give around at sort of absolute numbers might go alongside that chart, I guess, particularly as you move through kind of the early years of the pet's life cycle, so Slide 23? And then the final question was just you've obviously up your customer sales opportunity today to that kind of plus 900 on the base. But your kind of medium-term guidance for the VAT ] free cash flow opportunity is unchanged at GBP 60 million. And so just like to understand why that would be the case? Are those 2 numbers kind of coincident given that both refer to medium term? Or is the -- is there something we're missing there?

Okay. Well, let me take the first question on cost. And Mike and I will then handle the questions around pet spend and VAT ] free cash flow. You're absolutely right. I mean when you look at gross margin in retail, might touch on freight cost, but one of the other comparison there is the discount cost associated to puppy and kitten, where we offer customers 10% of their free -- off their first shop. And we treat that as a discount to describe the marketing cost actually goes into gross a -- And for that's sort of really sensible approach to drive significant value creation with our customers because we see those customers spend premium. And we have seen elevated marketing costs this year for exactly as we've just been talking on this call, which is there are more new pets in this market and for us, that makes perfect sense to need to be elevating our marketing cost as long as you can continue to drive a sensible return on our investment. So , we're very pleased with the returns that we're seeing on our investments for us. But actually, that is now a continuation you're going to see further burst who was doing our puppy and kitten campaign in the second half of the year. So I think the question on marketing cost for us, always gone back down to actually do they deliver? And the way that we look at all our campaigns to make sure that as we are investing, that we're getting a sensible cost of acquisition for a customer return. And we continue to modify. So difficult to answer in this pure settings, but actually, we will continue to elevate marketing cost as long as they deliver -- as long as they continue to return, if they don't, they will adjust them. Mike do you want to the point around free cash flow?

Yes. We'll just build out on that point of marketing costs, Simon. So you're pointing out I think the gross margin chart, where we've shown 29 basis points of investment in gross margin or investing in new customer acquisition. That relates to discounts we offer new customers. So for example, Puppy and Kitten Club members get a 10% discount on joining. 29 basis points is about GBP 2 million year-on-year. So you put that into context with the fact we double the size of the club. You can start to see how efficient actually that marketing actually is. And to Peter's point, clearly, that's proven a very, very mechanic to recruit a lot of new customers.

On the free cash flow for [ vets ]?

Yes, you're quite right. We've always returned to the fact that on maturity, that is with all our practices have got the maturity curve, the free cash flow they will generate will be GBP 6 million. We still hold to that. I mean, just to context that last year, our practices did GBP 38 million. And this year, we we've got even quicker actually on maturities. You see actually with the numbers we've put in there for profitable practices. We know we only have, I think, 40 loss-making practices now. When you think a practice is planned to be loss-making in its first 4 years. And we have about 80 practices that are less than 4 years old, actually. I think it proves we're ahead of the maturity curve. So that GBP 60 million is obviously in sight -- And in the context of the growth opportunity, there is growth of that free cash flow beyond maturity because the practices continue to grow even when they are 10 years and older. I guess the key point, though, on releasing that cash flow is that the investment to deliver it, either in capital or OpEx, is largely already invested. So just driving our practices at that maturity curve, we'll deliver that free cash flow. But clearly, beyond the GBP 60 million, there's still a significant opportunity as those practices continue to grow.

Simon, I think of the question you had about Slide 23, . Those of you have a chance to look at it. This is a new chart. You like, this is a new piece of disclosure, which shows the share of customer wallet between retail and veterinary services over the life span of the pet. And that's based upon 4.1 million records that we've used basically, so what happens is over time, the amount of spend a customer has on veterinary actually grows. And that's not a surprise. We've always often talked about the smile of pet ownership, a big spend on retail start and end-of-life care, you tend to see more spend into pets actually. That really starts to sort of bring that thing to life. We haven't been any more disclosure around that, Simon, except to say this is one of the real benefits we now have of really bringing our data in-house is that we're getting quite sophisticated now in looking at how we look at our customer base. So while that represents all pets. I'll share with you something we've recently done looking at dogs. So we've used our entire history within our veterinary business to look at the lifespan factually by breed within vets. And actually, there were some industry numbers that have been previously published. And actually, we now know those industry numbers actually pretty much rubbish actually because we've been able to build that based upon every single breed by dog, and it gives us a lifespan by dog. By the way, you want a long-living dog, you get a Jack Russell. If you don't, get a Great Dane. But what that allows us to do quite effectively is then build a lifetime value by breed. And that's really important because actually, as we start to think about our business, and we know from our VIP database, the mix of breeds that we have, is that to allow us to more [indiscernible] and is allowing us to think about the journey of that particular breed about the things that are going to happen at certain points in their lives, and it allows us to do very targeted, very focused CRM. So the data itself is incredibly powerful. How you use it becomes even more powerful and therefore I think it reinforces our confidence that we have about this growth of this market over time because we're able to see the mix of dogs that we've got, the breeds of dogs, and have a pretty good indication of how that's going to play into their lifetime value and then our business. So absolutely, our new disclosure, no more information on top of that. But I think as we move forward, I think you'll start to see how we use this to better drive the insights and activities in the business.

Okay. Great. And 1 very quick follow-up just on the kind of that GBP 900 million target piece. I think when it had been GBP 600 million, you spoke to 1/3 of that coming from that, I know some bridges within the slides here, but is that in broad terms, still the right way to be thinking about the uplift is 2/3 retail, 1/3 to get to that GBP 900 million or is it slightly shifted?

Absolutely. I definitely think that's 1/3 back to retail.

[Operator Instructions] We will now take our next question from Matthew Garland from Deutsche Bank.

First question, in terms of, obviously, the second half of the year, from a sales perspective, your implied sales number of the customer opportunity for FY '22 seems to imply quite a large slowdown. Can you give any color, I guess, around trends that you're seeing in 3Q? Is there a concern? Like -- is there any concern, I guess, from an availability perspective? Or is it just some headwinds in terms of demand? And then in terms of my second question, can you give a further breakdown on what logistics can other additional one-off costs you're kind of building into the GBP 135 million FY '22 guidance, should we think of the kind of additional cost as being somewhere between GBP 20 million and GBP 25 million? And then finally, I guess, in terms of JVP partners, I can see that there's obviously some reduction in the number of JVPs and some of the -- some of those have shifted into company managed. I guess, is there anything that we should think about in terms of this shift given the very strong performance in vet practices for the half? And how do you think about that in terms of, I guess, this year's space growth and then space growth going forward, has that changed the number of practices you're expecting to open? Or how should we kind of think about that?

Great. Let me take the question around how we think about sales in the second half, and I'll talk to JVPs. And then Mike, you want to talk about the cost? I think, I guess one of the realities of life is the last 18 months worth of like-for-likes have been very bumpy and bouncy, what happened is, we've had different batches playing out. So when we think about the second half of the year, I think the starting post to remind ourselves, the comps will be stronger comps than they were in the first half of the year. And therefore, the read-through to the 2-year like-for-like is probably the most helpful in terms of overall guidance. And the way that -- the way that we're thinking about is whilst you'll see lighter 1-year -- like lighter 1-year applies in the second half of the year, actually, when you look at the 2 years, you'll see a real strength in terms of where that is. And I'll just allow you to read through. And we'll certainly be helping people read through that when we do future announcements, to see how all of them has played through. So for us, that real strength is in the growth of the overall pet population that we see. So that's the same thing we talked about, 13% more new VIPs, growth in Puppy and Kitten Club. They will still result through in stronger future growth, but the individual life lines will be a bit balanced as we annualize. I think the second point is on JVPs. In part, we've seen a reduction in JVPs partners as we've now concluded what we call Project Light ], which is where we address the challenges that we have in our vet business. And we naturally always expect to see some practices coming in and out of company ownership, but they tend to come into company ownership for a relatively small period of time until we then put them back out as JVPs. So actually, I wouldn't read anything into that at all, apart from that's just the natural ebb and flow that we see. If anything, as we move forward, we now have greater confidence, we're talking about restarting and reopening our vet pipeline in terms of new practices. And we've already opened 3 new projects in the last 3 months being Handforth, Guildford and Brighton. And what's very interesting is we always measure the amount of potential JVPs coming towards us for our future pipeline. And actually, this year, that pipeline has continued to strengthen. And in part, we put that down to the success that we're seeing in our business, the success does breed success. But also our competitors, well, really all be the same choice, which is being in a corporatized model. And of course, the real attraction for most JVPs is to having total freedom of clinical independence as well as been able to be better rewarded for their hard work and that's driving more vet than ever before. So you'll see in our future guidance, we're now talking about reopening that space. And our plan for most of those is to open them as JVP practices. But we're required and where necessary, we will open company-owned, but we often see them in the short-term measures before we move them back into JVP hands. So Mike, if I hand you over to talk about availability and logistics costs?

Yes, of course. And just to context, Peter's point on sales, Matt. First half last year, our comp was just over 5%. Second half last year, our comp was over 12%. So a real step up in terms of the comparable number that we're going to lap in the second half. So yes, headline like-for-like will be lower in the second half, but emphasize enough to point around looking at do like-for-like is a better indication of the progress we're making. So your question on costs, yes, you're about right actually with those numbers. So freight full year, around about GBP 12 million year-on-year increase. so which we've taken half of it in the numbers we're talking to this morning. In terms of COVID cost, we actually at the start of the year planned around GBP 9 million for our COVID costs. And that's a number we talked externally about. Actually, COVID cost are proving to be better than that. So compared that mine, we're probably planning full year on around GBP 5 million. So we've probably seen a saving in the first half of about GBP 2 million compared to where we're planning COVID costs. And we expect that it was no changes in the external environment around COVID to be about the same. Yes. So GBP 5 million for COVID costs one-off year-on-year, GBP 12 million for freight. So in total, the GBP 17 million of costs.

[Operator Instructions] We will now take a follow-up question from Simon Bowler from Numis.

I mean just a quick one, a follow-up on that kind of freight wind, which is, as you say, is a reasonably big number and not something at this stage you're expecting to change. I understand that your kind of retail pricing is set very separately to that, but presumably, if that was to become a more permanent fixture and more at least part of that is to come in more permanent fixture? Is that something that you would expect to ultimately be able to pass on in pricing? Or do you think they are best considered as entirely separate?

Inevitably, Simon, we're suffering those freight costs in the part of the industry and how we're managing, there will be price increases for those products that have brought over from overseas. Because that's just the sustained increase in the cost of acquisition of those products. But it wouldn't be the expense being uncompetitive in the marketplace. But clearly, those growth rates well publicized. It's not just us who have been in the impact of those. But we had to stay, we'd have to think very carefully about the pricing. And the sourcing actually of the products that we're bringing in from overseas.

Yes. I think the sad start, actually, we don't just look at product cost based on that, we actually look at all the costs that were in our business. So when we think about because not to resell, we think about rent. And actually, whilst we've got some inflation in freight lines, we actually have material reductions in others. So we always try and balance those off. And our price position has been really hard on over the last 2 years. And I think we do have a real opportunity around driving operational leverage around our business and throw back at that balance right. I think what Mike really alludes to is we're getting this balance to customers, balance to shareholders, balance for us, and navigating our way through thinking through the medium term of how we continue to grow our share of all the customers. I think just for anybody else's benefit, 80% of this actually is domestically-sourced. So our exposure to it freight is not quite the same sort of level of loss. And we're not a very seasonal business. So we pretty much bring the into our business every month. And therefore, we're not at the sort of stabilize exposure in the business may well be.

Great. I think that links into my kind of second or second half of the first question, which is the -- I know you don't give this, but it would, therefore, be fair to assume that, that kind of freightage cost and the impact on your kind of product gross margin is almost entirely around the accessories part of your business and food gross margins have been much more stable given the relative sourcing for those 2 categories?

You got in mind, we have before [indiscernible] accessories, food is pretty much all near-sourced.

There are presently no further questions. I would like to turn the conference back to Mr. Pritchard for any additional or closing remarks.

Great. Thank you, Tracy. And thank you for your questions and participation. It's always great, and to get these great questions. So I appreciate that. Let me be the very first to wish you and of course your pets a very Merry Christmas. And we'll speak to you hopefully in the coming weeks around on roadshow. Have a good day, everybody. Thank you.