Kogan.com Ltd (KGN) Earnings Call Transcript

[Audio Gap] the presentation, we'll have the slides and the numbers presented by Ruslan and David first and then we'll go into a Q&A session that I will moderate. If you want your questions asked, please put them -- type them into the Q&A and we'll cover them off after this presentation. I'll now hand over to Ruslan and David to present on the FY '22 results.

Good morning, and thank you for joining us today for our Full Year FY '22 Results Investor Briefing. My name is Ruslan Kogan, and I am the Founder and CEO of Kogan.com. Joining me here today is David Shafer, Kogan.com's Chief Financial Officer and Chief Operating Officer. Both David and I are pleased to present the group's operating and financial results. Following today's presentation, we will be happy to answer questions that you may have. In 2006, when I started Kogan.com, online retail was just a drop in the ocean. When I would speak to people, they would smirk at the thought of e-commerce being the future of retail. 16 years ago, my ambition and dream was considered a big bet, but here we are today. It is a bet that I will take again and again and again. And my certainty of that now is even stronger than it's ever been. Our team is delighting millions of Aussies and Kiwis affording them the opportunity to have the latest and greatest products and services. Over the past 16 years, our business has grown exponentially. Yet it's amazing to think more Aussies and Kiwis will be online shoppers tomorrow than today. The opportunities for us are endless. Millions of customers are discovering the benefits of shopping from any device and location they choose. There is no greater convenience than using your computer or phone to effortlessly search through a catalog of over 20 million products and then have them delivered to your door at great prices. As I reflect on the year that was and the challenges that the world is navigating, I feel incredibly proud of the company we have built and the resilience our team has shown. Despite lockdowns that never seem to end, supply chain disruptions and logistical nightmares, we continue to deliver on the most important thing, delighting our millions of Aussie and Kiwi customers. In the year ago sweet 16, we achieved our highest ever gross sales, won our fifth consecutive Australia Post People's Choice Award and were awarded the top Australian marketplace. These achievements are a result of our loyal customers placing their trust in us and turning to Kogan.com time and time again for the products they need at market-leading prices. Our achievements demonstrate our strength in the market, a market that continues to grow. IBISWorld has reported that the online retail market in Australia was worth $52.7 billion in FY '22 and it will grow to $56.2 billion next year. It puts into perspective the opportunity we have in front of us as more and more Aussies and Kiwis turn to the convenience of online shopping. I'm pleased to confirm that we've returned to positive operating cash flow this year by both driving our growth initiatives in Kogan Marketplace, Kogan First and Mighty Ape whilst also undertaking a number of initiatives to right-size our cost of doing business. These initiatives included reducing the scope of underperforming product categories, suspension of Kogan delivery services due to rising transportation and delivery partner costs and gradually aligning our team size to current trading conditions. At Kogan.com, we are focused on doing what we do best, delivering value. Our marketplace is a perfect example of this. For more than 3 years now, we have been improving our platform, creating more choice for our customers by offering millions of products from thousands of sellers. This year, we expanded Kogan Marketplace to New Zealand and further enhanced the platform to delight both our customers and community of sellers. And over the next 12 months, we are excited to be launching an advertising platform as an extension of our marketplace. This will allow us to continue improving the value and choice for our customers. Our Kogan First loyalty program currently has hundreds of thousands of subscribers who have received over $20 million worth of benefits in FY '22 alone. In order to continue to deliver this outstanding service, we need to increase the cost of access to Kogan First going forward. With the ongoing increase in evolution of subscriber benefits as well as the impact of inflation and delivery costs, the price of Kogan First will be increased to $79 per year. We will continue to enhance the benefits our Kogan First members get with ongoing investments in the program. This year marks the first full financial year of having Mighty Ape as part of the Kogan Group. Mighty Ape introduced a number of new initiatives during the year, delivered strong financial results. And we had the pleasure of announcing a new CEO for Mighty Ape. The 2 teams are working well together and synergies are continuously been progressed. Throughout the year, we continue to work through our high inventory levels across the Kogan business, in line with our updates to the market. In order to do so, we increased promotional activity and marketing, which has had an impact on our margins. Pleasingly, we achieved a significant unwinding of this excess inventory and returned to adjusted EBITDA profitability in the last quarter of the year. The volatility that has rocked the world through huge structural changes and crises these past couple of years has had an impact on virtually every part of the economy. For over a decade, e-commerce in Australia has grown at a steady and predictable rate. It meant that planning for the future was relatively straightforward. Almost overnight, our sales doubled due to the onset of the pandemic as shoppers relied on Kogan.com for their needs. It was only due to the strong foundations we've built over 16 years that we were able to continue delivering to the high standard we expect of ourselves and our customers expect of us. After a number of months of elevated sales, we were faced with a decision. Did we think this trend would continue and even grow further? Based on the data we had available to us at the time, we predicted the trend would not stop or slow. As a result, we made the decision to increase both our range and volume of inventory as well as our logistics network to support the volume. Hindsight is a beautiful thing and it turns out we were wrong. As the pandemic settled, e-commerce did not grow in the way many in the industry expected. This left us holding too much inventory and an associated increase in warehousing costs. The compounding factors of high inventory, increased associated costs and the marketing and discounting required to sell through this inventory has impacted profitability in FY '22. As we continue to discuss throughout this presentation, we have been recalibrating the cost of doing business in order to return to significant profit. The compound annual growth rate since FY '20 has been included to demonstrate the long-term growth of the business as we cycle significant growth in the prior year and drastically different trading conditions. Shortly, David will discuss these financial results with you in more detail. We obsess over delighting our customers every day. It's what drives our team. Winning awards is just the cherry on top. The fact that over 50% of orders are coming from customers who have previously shopped with us over the last 12 months is a strong endorsement of the value we provide to customers. Our customers are continually delighted and keep returning. As Kogan First becomes a larger part of our business, we expect this number to continue to grow. Once you have experienced our platform with now over 30 million products curated by our exclusive brands, third-party and marketplace divisions across the Kogan.com and Mighty Ape platforms, why would you choose to shop any other way? The sheer convenience and value has our customers delighted on returning for more. With a huge range, great value and first-class service, Kogan.com and Mighty Ape are well-positioned to continue delighting customers in Australia and New Zealand. Here at Kogan.com, we work to deliver a first-class shopping experience. As one of the pioneers of e-commerce in Australia, we have always risen to the challenge of developing industry-leading technology and feedback loops to improve the online shopping experience for millions of shoppers. We have also been developing the interfaces to our platform to make it easier for small businesses to both contribute their inventory to our platform and also purchase from our platform using APIs. This will enable us to scale at an even faster rate in the future as we become critical retail infrastructure. Behind the scenes, our team has developed systems that can be leveraged by our partners and integrate it into their business model. We use machine learning and AI at Kogan to ensure that our customers get the tailored shopping experience they deserve. Our proprietary algorithms and AI technology means that we are communicating the right product or service to the right person at the right time. All of this makes us stronger and smarter as a business and leads to the best deals for our customers and partners. As I mentioned earlier, we have strategically continued to invest in marketing to reach new customers and unwind excess inventory. By increasing our marketing activity to address fluctuating customer demand throughout the year, our ROI was impacted. As our inventory levels right-sized, marketing costs progressively reduced in the fourth quarter of FY '22 and this trend has continued into FY '23. Despite this increase in marketing activity, our platform and loyal customer base continue to drive most of our traffic. Owned and earned traffic sources still represent the vast majority of the visits to our websites, which demonstrates that satisfied customers continue to return to Kogan.com. This is a key metric for the platform we have built. Kogan Marketplace continues to rapidly grow. We achieved another year of record gross sales for the division. And we continue to onboard more and more sellers. Kogan Marketplace is a win-win. It delivers incredible range and choice for our customers without the need to invest capital. This enables us to scale infinitely into the future without corresponding capital requirements for warehousing and stock. It also enables thousands of small and medium-sized businesses to access millions of customers and grow their business. We are always looking to enhance the marketplace platform. And in FY '23, we are excited to launch a new advertising platform for marketplace sellers to get them [Technical Difficulty] customer experience. The strong performance of our marketplace has not gone unnoticed. We were proud to be awarded the top Australian Marketplace at a leading industry awards night. This award was no surprise given the caliber of our marketplace team who worked tirelessly to deliver a seamless shopping experience for both our customers and sellers. It's great to receive recognition, but for us, it's just the beginning of our marketplace platform journey. We are continuously developing technology that makes it easier for businesses around the country to list their products on our site. And then we curate the offering to make it quicker for our customers to find the products they need. As part of this, our platform group's identical products together from the thousands of sellers from the Kogan Marketplace and suggest the best value offer to our customers. No longer do you need to spend hours comparing prices for the same product. We do the hard work for you, ensuring that you buy the products you want at the lowest possible price. In addition, this drives internal competition among sellers, ensuring our millions of loyal customers get the products they want at market-leading prices. Kogan.com has 20 exclusive brands in its stable, offering the best value products available anywhere. This division is one of the pillars of our business and is the most efficient way to get a product from the point of manufacture to the customer and results in incredible value. Our Exclusive Brands division is the largest contributor to gross profit in the business and is a highlight of our customer offering. While cycling an incredibly strong period last year, Exclusive Brands continues to perform for our customers and our business. As part of the initiatives to reduce our cost of doing business, we are performing ongoing range reviews to ensure we are offering the most in-demand products at the most affordable prices. We continue to see a bright future for our Exclusive Brands division as we control the entire supply chain, which enables us to deliver customers incredible value across the most in-demand products. The Kogan First loyalty program has become an incredibly important part of our business because of the value it delivers to so many customers. It rewards our most loyal customers by providing free shipping exclusive deals on top of everyday discounts on our platform, Kogan First Rewards Credit and priority customer care. As of August 2022, we have 380,000 Kogan First subscribers and our medium-term goal is to reach 1 million subscribers. Our increasing renewal rate speaks volumes. Customers are delighted by the growing benefits they are receiving and the value of our loyalty program. Over the past year, Kogan First members received over $20 million of benefits. Anyone who considers themselves a smart shopper in Australia should be a Kogan First subscriber. We continue to deliver great value on essential services through our verticals. This year, we've worked with our partners to develop, improve and review these offerings, achieving growth across a number of our larger verticals. This includes a return to growth in active customers for Kogan Mobile Australia, our largest vertical. During the year, we launched ASMs and the trial of 5G on all large and extra-large plans. Moving into FY '23, we're extremely excited about the proposed integration with Telsa's rural towers, which will allow broader mobile connectivity throughout Australia. We also look forward to welcoming more international travelers, students and holidaymakers back to our shores, many of whom will likely experience the great value of Kogan Mobile. It's hard to believe that the Kogan.com and Mighty Ape team had never physically met until early 2022, all into the pandemic. It was great to finally visit the Mighty Ape headquarters where we spent a number of days getting to know our new extended family. We were able to experience the energy and passion that the Mighty Ape team are known for. It's exactly why we wanted them on our side. The Mighty Ape team delivered on a number of key initiatives. These include Jungle Express, which allows transparency of delivery for the customer as well as improved speed and quality of the delivery experience in New Zealand. We've also worked together on their range to expand their offering. This will continue to be an ongoing project as our 2 platforms grow. I'll also take this opportunity now to congratulate Gracie MacKinlay, who was appointed the new CEO of Mighty Ape. Gracie was previously the Chief Sales and Marketing Officer for 10 years at Mighty Ape and is a natural successor of Simon Barton. I thank Simon, the Founder of Mighty Ape for successfully leading the transition of the Mighty Ape business into the Kogan.com group over the past 18 months and for his ongoing dedication to the inspiring business he and his team have built. Simon will continue as Chief Financial Officer of Mighty Ape. David will now take you through the financial results in more detail.

Thank you, Ruslan. Over the past year, the company has worked hard to respond to changing levels of demand while navigating a high starting inventory position and large logistics network and the ongoing integration of Mighty Ape. Despite all the challenges of the pandemic, the effects of which are ongoing, we achieved our highest ever gross sales of $1.18 billion and are proud to have exited the financial year with a strong trajectory of improving adjusted EBITDA. The long-term health of the business is evident with the compound annual growth rate from FY '20 to FY '22 of gross sales and gross profit being 23.6% and 20.7% respectively. And the business looks to the future with confidence, given the strong long-term e-commerce growth trajectory and the rapid expansion of our loyal Kogan First subscriber base which provides the company with a solid foundation of repeat business. As mentioned, in FY '22, we achieved our highest ever gross sales of $1.18 billion, despite operational disruptions and fluctuations in consumer demand. Gross sales reflects the total transaction value of Kogan Retail, Kogan Marketplace and the Kogan verticals, whereas revenue reflects the accounting revenue of Kogan Retail and only the commission or seller-based fees received from Kogan Marketplace and the Kogan verticals. Revenue of $718.5 million reflects the contribution of Mighty Ape, the growth in Kogan Marketplace and our Kogan First loyalty program, which was partially offset by a decline in both our Exclusive Brands and third-party brands divisions, both of which had extreme growth in the prior year. The business grew group active customers year-on-year to 3,972,000 as at 30 June, 2022. Kogan.com had 3,189,000 active customers, while Mighty Ape active customers were 783,000. We are proud to have continued to delight our customers through the supply chain interruptions of FY '22 as demonstrated by all the awards that Ruslan mentioned. Exclusive Brands and third-party brands have cycled extreme growth in the prior year, with a decline in revenue of 17.6% and 35% respectively. However, Exclusive Brands revenue of $311.6 million in FY '22 had a compound annual growth rate of 15.7% since FY '20, reflecting the strong long-term growth trajectory of the division. We have focused on promotional activity to address the excess stock levels and associated holding costs, which impacted gross profit and gross margin across both exclusive and third-party brands in FY '22. As a result of these initiatives, total inventories at 30 June, 2022, were $159.9 million with $137.9 million in warehouse and $22 million in transit. This reflects a significant unwinding of inventories from total inventories of $227.9 million at the start of the financial year. Moving forward, we are continuing to refine our product range, focusing on in-demand items that delight our customers while achieving better operating metrics for our shareholders. The business has been performing extensive range reviews to improve its offering. By focusing on in-demand products and removing the inefficiencies in the long tail of the product range, the business will offer a curated range of in-inventory products at lower prices, driven by the efficiencies created. Kogan Marketplace gross sales increased by 20.3% year-on-year with a compound annual growth rate of 51.6% since FY '20. Sellers on the platform increased by 49.1% this year and there continues to be a strong pipeline of new sellers ready to be onboarded. We are continuously improving our proprietary marketplace platform, which enables the company to achieve ongoing growth without further investment in inventory. These improvements include a current investment in implementing an advertising platform for marketplace sellers to gain further reach within the Kogan website and improve the visibility of their best offers. The growth of Kogan Marketplace means that customers have more choice than ever and the business can become leaner without further reliance on ongoing investment in inventory to drive sales. Our medium-term goal is to reach 1 million Kogan First subscribers. We are investing in marketing and subscriber benefits to achieve this goal. The Kogan First loyalty program grew to over 372,000 subscribers as at 30 June, 2022, with revenue increasing to $15.5 million, an increase in 73.4% on the prior year. Kogan First subscribers enjoy incredible value with more than $20.5 million in benefits provided to members in FY '22 in addition to special access to deals and priority customer service. Growth of the program was underpinned by increase in renewal rates, which was 84.7% in FY '22, demonstrating strong and growing customer satisfaction with the program. It's important to appreciate that the growth of Kogan First represents a short-term investment by the business for long-term benefits. We have grown Kogan First through a strong investment in marketing and significant benefits to subscribers. Whilst we will continue the great benefits, the subscription model of Kogan First means we don't need to continue to market to their subscribers at the same pace as nonsubscribers. So we believe the economics of Kogan First for our business will improve over time and deliver for our business as well as our customers well into the future. We are already starting to see this dynamic play out as we have relied on our subscriber base to progressively reduce marketing costs in the fourth quarter of FY '22 and into the new financial year. Mighty Ape. Mighty Ape recorded FY '22 revenue of $163.4 million, gross profit of $39.1 million and adjusted EBITDA of $12.3 million in its first full year contribution to the group. Integration of both the team and the operations are progressing well with a lot more to do still. The product range of Mighty Ape has already expanded significantly and we have delivered logistics improvements to delight customers. We look forward to continuing to share knowledge between the teams and create further value for our Aussie and Kiwi customers. Variable costs. Variable costs consist of warehousing and selling costs. Costs have been elevated, reflecting the levels of excess inventory and increased logistics costs relating to pandemic interruptions. As excess inventory progressively unwinds, associated costs are reducing and we expect this to continue into FY '23. Statutory NPAT, adjusted EBITDA and adjusted NPAT. Statutory NPAT of negative $35.5 million was materially impacted by the various nonrecurring items. The main impacts arise from, firstly, unrealized losses of $2.2 million deriving from our 1 to 5 Technologies Inc. shares and foreign exchange contracts. Equity-based compensation expenses of $26.6 million, which are largely driven by the award of options after the company's AGM in November 2020. The provision for the likely payment of Mighty Ape tranches 3 and 4 purchase price installments as part of the sale agreement, which are contingent on the Mighty Ape Founder and CFO, Simon Barton, remaining with the business until the delivery of the financial year 2022 and 2023 results respectively. In line with the accounting standards, tranches 3 and 4 payments are considered as compensation for post-combination services and as such treated as employee remuneration for accounting purposes. The group is proportionately accounting for these expenses up until the respective payment dates. And finally, the sale of the Bitbuy domain for $5.1 million to Bitbuy Technologies, Inc. Adjusted EBITDA, which includes unrealized gains and losses, equity-based compensation and other one-off nonrecurring items, including the profit from the sale of the Bitbuy.com domain was $18.9 million. Please see annexure 2 of this presentation for a detailed reconciliation of all the adjusting items. On the next slide, we can see gross profit contribution by the business division. Exclusive Brands generated 33.1% of the group's overall gross profit and continues to deliver the largest gross profit contribution across the business. Mighty Ape is now the group's second largest contributor, accounting for 21.2% of the group's gross profit. Kogan Marketplace, third-party brands, Kogan First and Kogan Mobile are material contributors to the overall gross profit of the group. Kogan First reflects subscription revenues despite only launching in late FY '19. Kogan First is already contributing 8.4% of overall gross profit, indicating the growth opportunity in Kogan First. We grew active customers within Kogan Mobile AU, our largest vertical. And we have high hopes for this division over the coming year and beyond. Advertising income contributed 2.3% of our gross profit in FY '22. We anticipate significant growth of this division as we launch an advertising platform as an extension of our marketplace, which will allow us to continue providing great value back to our customers. We have always prided ourselves on our historically strong operating leverage. Due to the difficult trading conditions over the past year that Ruslan discussed earlier, we are now in a phase of consolidation to return to the levels of profitability and operating leverage that we previously delivered in the years between our IPO and the latter stage of the pandemic. We have undertaken a number of initiatives in the second half of FY '22 in order to return to profitability, which can be seen in the trading performance of the fourth quarter of FY '22. Our initiatives have included reducing underperforming product categories in order to reduce warehousing costs and refocus your capital on in-demand profitable items, suspension of Kogan delivery services due to rising transportation and partner delivery costs, revision of our proprietary marketing algorithm to improve ROI on marketing and a gradual reduction in team size in order to realign our head count to current trading conditions. The group had a strong capital position with net cash, which is total cash less loans and borrowings, of $31.2 million after having funded the tranche 2 payment in respect of the Mighty Ape acquisition of $29.9 million during the year and also repaid loans and borrowings of $49 million. The group held $137.9 million of inventory in warehouse at the end of the period. The total inventory was $159.9 million, which includes inventory in transit. And that reflects a decrease of 29.8% of inventory over the year since 30 June, 2021. The group continues to be focused on reducing inventory levels over the coming period. Financial assets reflect shares acquired from the sale of the Bitbuy.com domain along with a small portion of open forward foreign exchange contracts. Acquisition payables reflects a provision for the likely payment of tranches 3 and 4 of the Mighty Ape acquisition amount. During the year, we increased our net cash position, which is total cash less loans and borrowings, to $31.2 million from $12.8 million as at 30 June, 2021. The year included a return to positive operating cash flows of $61.8 million, following the significant unwinding of inventory and initiatives to reduce costs, as mentioned earlier in the presentation. I'll now hand back to Ruslan to discuss our outlook and some further detail on exciting things to come in FY '23. Thank you.

Thanks, David. We're excited for what FY '23 and beyond will look like as we navigate the changing online retail environment and continue to create a leaner, stronger and more profitable group. Consistent with prior years, the company will not be providing earnings guidance for FY '23. However, we will provide regular business updates during the year. The business looks forward to returning to positive operating leverage, having commenced the process of driving efficiencies in operating costs and returning to adjusted EBITDA profitability in the fourth quarter of FY '22. July 2022 unaudited management accounts showed group adjusted EBITDA of $1.5 million and operating costs reducing by 19.3% year-on-year. In FY '23, we expect the continued expansion of Kogan Marketplace and the anticipated launch of our advertising platform, continued with growth in Mighty Ape, further growth in Kogan First subscriptions heading towards our medium-term goal of 1 million subscribers, continued strong contribution from Exclusive Brands, the rollout of enhancements across a number of Kogan verticals and improved operating leverage, consistent with the company's long-term track record. Together with David and our Board, I am looking forward to FY '23 and the many opportunities the new financial year presents to our business. This concludes our presentation. David and I look forward to meeting with many of our shareholders over the coming days. For those of you who have any questions or are interested in hearing more, please stay with us for the Q&A. Thank you for your interest in Kogan.com.

Thank you, Ruslan and thank you, David. We've got a bunch of questions queued. And just to remind everybody, if you'd like to ask some questions, please type them in the Q&A and I will bring them up in this Q&A session. We'll start with Tim Piper. Tim's got 3 questions. Looking at the second half, e-commerce stock carried gross margin. The step-down half to half was about just over 400 basis points possibly. Is it possible to roughly quantify the magnitude of the impact on that step-down between shipping inflation, cost of inventory, i.e., producer price inflation, and 3, abnormal level of discounting to clear excess inventory?

Thanks for the question, Tim, always a pleasure. The vast majority of the step-down in margin was driven by discounting to clear excess inventory, so most of the inventory had been landed previously. So any cost impacts on logistics were not really apparent in the half. It was -- the overwhelming driver was that the resolution of the business to drive down excess inventory through promotional discounting. And we expect that to normalize as the level of inventory in the business approaches our desired ongoing level of inventory for the size of our current business.

Thanks, Dave. Next question from Tim on advertising income. Advertising gross sales appears to be trending higher half-on-half, but advertising gross profit is trending lower. Can you please explain the relationship between the 2 and how revenue to gross profit is recognized?

So gross sales of advertising income relates to cash receipts. So if an advertiser pays for placement on the website that is then delivered over the course of a year or 2, but pays us upfront, the booking of that cash upfront will give rise to the recognition of gross sales, but gross profit or revenue is only earned progressively as we deliver that advertising over the course of the contracted period. So any mismatch between gross sales and gross profit will be driven by the timing differential of when the advertising is actually booked or paid for and when it's actually delivered over the course of a period of time.

And last question from Tim on warehousing expense. There was a solid step-down as excess inventory cleared. Can we expect any further warehousing expense efficiencies to come? And in terms of relative to inventory and cost of goods sold, warehousing expense looks to have fully normalized now, is that correct?

Inventory has significantly reduced over the course of FY '22. We expect that to continue in the current half. I wouldn't say we're at the normalized level of warehousing costs yet. I think we'll -- it will still continue to reduce lower over the remainder of this half and then will be normalized towards the end of this half.

Just a follow-on question on inventories from Wei-Weng Chen. Can you speak to the carrying value of inventory and the possibility or not for write-downs?

So our inventory was thoroughly reviewed by management and by the audit team as at the end of the financial year. The carrying value of inventory in our accounts is after a significant provision that reflects the current value of that inventory. So we're extremely confident that the current value of inventory in the business reflects the realizable value of that inventory and is already embedded with any write-downs that are appropriate after having discussed with the auditors and the management team.

Thanks, David. A couple of questions from Wilson Wong. What are the estimated cost savings in FY '23 from each of the outlined initiatives?

We've always been reluctant to give forward-looking statements in relation to profitability or costs. We've given the broad buckets of cost improvements that we expect to deliver over FY '23. We have mentioned that those were part of the drivers of the performance of the business in the last quarter of FY '22 and that, that has continued into the first month of FY '23. Those are the themes that we will be delivering over the remainder of the year. There's an overall focus on efficiency improvement, return to profitability and becoming a leaner, more scalable business. In terms of how those actual cost drivers come out and what the quantities are at the end of the financial year, we'll need to wait and see and we'll be happy to discuss that after we've delivered them.

I might -- just before I ask Wilson's second question, I might just stay on the cost-out with Wei-Weng Chen. How should we think about the 19.3% reduction in costs in July? Is this the run rate we should think about for the rest of the year? If not, why not?

There's no one-off issues in relation to costs in July. There's nothing that is in any way special about the month of July. Again, we're very reluctant to give guidance as to what the forward run rate of cost reductions for the remainder of the year ought to be. But we're very happy to say that the figure for July does not reflect any one-offs or any aberrations from what we see as a normal trend.