Watches of Switzerland Group PLC

LSE:WOSG

Earnings Call Transcript 2021-Q2

[Hugh Brian Duffy, CEO & Director]

So good morning, everyone. Thanks for joining us for the presentation of the Watches of Switzerland Group half year results for the half year to October 2020. My name is Brian Duffy, I'm the CEO of the group.And just looking at our agenda for the presentation, I'll do an overview of the group performance. I'll be followed by Craig Bolton, who will give an update on the U.K. performance. David Hurley will then join us from New York to give an update on the U.S. business. And then our CFO, Anders Romberg, will review the financial results in some more detail and also a review of our guidance for the year. After our presentation, we'll be open to take any questions that you may have.If you look at the half year, overall, we're very happy with what we've achieved. Our strategies are clearly working, and we see no reason to change them at all. Our performance overall for the half year was a reduction in sales year-on-year of 2.6%. That was minus 7.4% in the U.K. and a positive 11% in the U.S. And that came from a strong second quarter. And you will recall that we updated the market after 10 weeks of the second quarter, when we were traveling at plus 20% year-on-year. We actually finished at plus 21.5% year-on-year in constant currency. So the last 3 weeks were even stronger, particularly in the U.K. And that plus 21.5% achieved by over 14% growth in the U.K. and over 42% growth in the U.S., so very, very strong second quarter for us overall. We clearly have been impacted by the pandemic. We've been dealing with lockdowns, U.K. and U.S.We've been dealing with hugely subdued international business of tourists and at the airports. And of course, we've been dealing with much reduced traffic into our shopping centers. And we've achieved these numbers despite all these headwinds. Overall, we estimate that we lost something like GBP 80 million of revenue directly as a result of all that we've had to contend with because of COVID-19.We achieved our good results through 2 main areas of focus. One has been our activity on digital. Overall, the other has just been the great spirit and performance of our teams. In terms of digital activity, big spend in digital marketing, a lot of social media support. Our CRM systems have been hugely valuable. And the most recent lockdown in the U.K., the click-and-collect facilities have worked really well, remote selling appointment taking a whole variety of things that we've been doing -- that we were able to do because of the technology that we've invested in, the resources and the expertise that we have within our company.Our cash performance was very, very good. Our debt was down at less than GBP 23 million. Overall, it's slightly flattered by the timing of month end. Anders, again, will talk to in his section. But whatever way you look at it, it was a very positive period for cash generation and for cash management, overall.Very, very proud of the performance of our teams. They really are inspirational, both in our support centers and out there in the stores. We were very proud to be able to fulfill our commitment of looking after our teams in terms of maintaining full employment, maintaining full salary, and our team certainly have repaid that favor with a great spirit that they've shown in the performance that they've delivered overall. So happy with the first half, and we think we're very, very well positioned for future growth.On this slide, we're showing you the year-on-year sales performance, the year-on-year profit performance. As mentioned previously, the sales year-on-year were down 2.6%. We delivered total sales in the first half year of GBP 414 million. In terms of profits, our adjusted EBIT for the first half is a total of GBP 41.5 million. Therefore, in terms of profitability, we've actually increased our profitability from 7.3% to 10%. Some of the reasons for that are temporary one-off relating to this year and others are ongoing cost reductions that we've managed to negotiate, particularly in areas of rent and occupancy costs.However, overall, looking at what was a strong quarter 2, what has been for the first 7 weeks, a strong quarter 3 where we're delivering a year-on-year growth in double digit. Again, Anders will talk through the detail. And looking at the profitability we achieved in the first half, all leads us to review our guidance for the year and to take us both our sales up and our profitability up. And again, Anders will go through the detail.Looking at where our sales came from, I think, clearly, the U.S. becomes a bigger and bigger proportion of our total sales. We see the U.S. in the first half now represented 29% of our total. We also want to call out the great performance that we've had in online -- our online business, which is all based in the U.K. at this point. 65% up in prior year, and our online share of our total group sales increasing from 4.3% to 7.3%.Looking at it from a product standpoint, then clearly, the penetration of luxury watches continues to increase, now representing 87.4% of our total sales. The most remarkable thing to look at here on this chart is the split of clientele. If we look at last year's first half, we can see that over 33% of our sales came from international business, be that tourist business land side or airport travel business. This year's first half, it was around 7.5%. So a huge deficit that we had to overcome, which we did by pivoting our business towards our domestic clientele, both in the U.S. and particularly in the U.K., where we can see the domestic clientele sales from the U.K. last year, making up 40% of our sales this year, making up 63.6% of our sales. So a huge pivot, and a tremendous job done by our teams.I mentioned digital. And for an old fashion marketeer like me, these numbers are just astonishing to look at what you can achieve in terms of getting messages out through the Internet these days and through various digital mechanisms. And we can see that our social media activity on Facebook and Instagram allowed us to talk to 42 million people per month. That's an astonishing number. Effectively, it's 2/3 of the population of the country, here in the U.K. Our digital campaign impressions or advertising that we've done and then amplified several times, throughout the Internet resulted in us talking to 1 billion people, again, just unbelievable numbers. And of those 10.7 million people effectively clicking through to our sites and many, many more people going to our stores. There's no question at all our success in digital marketing has been driving a good deal of our great performance that we've done.In the U.S., our emphasis is different on marketing, where we spend our budgets different. We're new -- in terms of Watches of Switzerland, at least, we're new to the U.S. market. And therefore, we're following our strategy of really getting our name out really, building an awareness and also building an image. So a great deal of our budget and activity goes behind events and collaborations, such as you can see here that David will talk about that we had with 50 Cent. And amazingly, when you look at the PR value of everything that we've done, again, we're looking at 1 billion people effectively in the half year, hearing about our group in one way or another in the U.S. market overall.I am sure there is interest in what Brexit might mean to us. It will mean less to us than that might mean to others. First of all, we are pretty confident that there won't be any disruption in our supply chain. Most of our product comes from outside the EU, from Switzerland, of course. And we checked with all of our major suppliers and are not expecting any disruption from a supply viewpoint.We have a number of EU citizens within our team of colleagues. We've been working with them for the last year, in fact, longer to make sure that all of their administration, documentation and everything is done and complete so that they can remain in the country, and we don't expect any problems from that. The hugely subdued amount of international business that we are doing today means that any exchange rate arbitrage that might result from an exchange rate movement following the implementation of Brexit will mean much less to us because simply, we have a much less international business currently overall.We have no transactional exposure from a foreign exchange viewpoint. We buy everything for the U.K. in sterling, everything for the U.S. in terms of luxury watches at least in dollars. So no transactional exposure overall. And finally, the proposed and the planned removal of duty-free sales from the U.K. Firstly, I would say, I think it's a big mistake, overall, of the government. We've obviously made representations on this. I personally think it's something that once the reality is experienced could well change in the future. But in the meantime, again, given the usually subdued international business that we have we are not expecting that the removal of duty-free sales will have a significant impact on our sales going forward.Finally, I'd just love this image here of our teams, and this is how they look when you get into the stores, this amount of positivity and happiness. They love what they do. They bring a great positivity to the whole experience with our clients. If there has ever been a down day, and there has not been many that we might have had here, just spending a little time in our stores you come out inspired and invigorated again. How these people have looked after themselves, looked after their colleagues and pretty much looked after the company has been a true inspiration to us all. A great deal of the thanks and appreciation of the good results we are reporting certainly should be enjoyed by this great team. With that I will now pass over to Craig

[Craig Bolton]

So good morning. My objective for the next few minutes is to update you on the key initiatives we have here in the U.K. I will weave in the impact of COVID-19 and our actions to mitigate it.The top of the chart shows you how we've been impacted since March of this year. Certainly, our first half year here has either been impacted by full lockdown, restricted trading or country-wide lockdowns as in the most recent case. Headwinds have remained strong throughout, particularly with vastly reduced footfall and a significant reduction in tourism business in London and the airports. We remain focused on the opportunities, though, in particular, these 4 key focus areas, which I will cover now.Throughout this period, our focus remained on our people, maintaining 100% of their salaries, looking after their well-being, finding new ways to engage with them and encouraging them to stay engaged with the business, completing over 25,000 e-learning modules. Our focus in parallel was to ensure we maintained a level of continuous trading. Our teams used the very best of our CRM tools to drive sales. Lockdown 1 and lockdown 2 both benefited from our teams' pre-selling luxury watches. Only difference in lockdown 2 was we had manned stores and our clients could use our click-and-collect facility to collect their watches.Our online business continued its excellent year-on-year growth during the first half. Sales spiked in June lockdowns, but also shown significant year-on-year growth even when the stores reopened. We were ambitious to with our product buys, meaning we have the best availability of core bestsellers and newness in the market. Both our online business and stores were supported by our extra investment in digital marketing.We had 2 key focus areas: online focus, during lockdown periods, both digital and more traditional channels, plus a full multichannel campaign during more normal trading periods. We have invested significantly more in digital market in this year, started earlier and achieving much greater reach.Like our marketing, our customer experience was enhanced by developments in technology. By personal appointment launched in July of this year, allowing much greater flexibility for our clients to interact with our business, we now have near 40% of our business managed through this service, achieving higher levels of conversion versus traditional walk-in business.Customer events were largely held in stores pre-COVID. We have now developed these into virtual events, proven to be a huge hit with our clients and very successful in achieving a pipeline of future sales. Most recently, this was further supported by the launch of our luxury watches virtual boutique, allowing clients to speak directly to our experts from online inquiries and has already shown improved conversion to sales.Investment in our estate remains a top priority for us. There is no slowdown in our capital program. If anything, we are looking for opportunities to fast track plans. As updated in quarter 1 review, we had completed these excellent mono-brand stores, all trading well ahead of expectations. Most recently, we have opened further significant stores, the most significant of which was our new flagship store opened in Broadgate, 6,000 square feet across 2 floors with the Rolex lounge, multiple luxury watch shop-in-shops including Audemars Piguet and Cartier, plus a separate Omega Boutique. The first 2 weeks trading have been well ahead of expectations. Watches of Switzerland Knightsbridge expansion and full refit reopened on the 2nd of December, including the new Rolex lounge with visibility on Brompton Road as well as a full refit of both floors and new brands added.Our mono-brand boutiques continue to develop with the relocation and opening of our Omega Boutique and Breitling Boutique in the Bluewater mall, both fantastic expressions of the brands and trading well. Our last store open in pre-Christmas will be the new Breitling mono brand store in Cardiff, opening later this month. Mono-brand store development remains a key strategic objective for our group. FY '21, we'll see our store numbers reach 26, and we believe there's opportunity to double this number again within the next 2 years and plans are formulating now for FY '22.As updated previously, following the purchase of the 4 Fraser Hart stores, we rebranded them pending full refurbishments. Early FY '22, we have planned 3 of the 4 ex-Fraser Hart stores to be fully refurbished. In the case of Mappin & Webb Kingston, this store has also been expanded. Mappin & Webb York is planned for expansion and relocation and will complete when a suitable location is found. All stores will benefit from full-brand finishes and increase in luxury brand portfolio.One of the most exciting projects launched in FY '22 is the elevation of the Goldsmiths brand. You can see on the screen, the current luxury finish for our Rolex showrooms. To briefly show you the new design, colorways and branding on the slide, we have taken the best of what we know from the U.K. brands in Watches of Switzerland and Mappin & Webb, but also our learnings from the rebranding of our Mayors stores in the United States. The new design will start to roll out early in FY '22 with all Rolex stores being fully refurbished within 3 years, taking opportunities to expand footprints where possible. Our remaining luxury stores will also benefit from the new rebranding as we continue with their refurbishments.So in summary, our people are highly motivated, committed, dedicated and energized. We continue to trade very well and make market share gains. Our teams continue to deliver an excellent customer experience, supported by technical advancements such as by appointment service, and we continue to elevate our estate, expanding where possible and accelerating our program of refits and new store openings. Thank you.

[David Hurley, Executive Vice President USA]

Good morning. So our focus in the U.S. remains consistent with the overall group. The health and safety of our colleagues and clients is a priority above all else. Our clients have been reassured by the controls we've put in place and the ability to choose how they interact, whether it's in-person or virtual appointments, researching and shopping online or a combination of. And we continue to provide great customer experiences and events, some of which I'll go through today.We've maintained our CapEx program. And as part of that, will have opened 8 new mono-brand stores by the end of this calendar year. We began to ramp up our investment in e-commerce, utilizing the overall group campaign across search, display and YouTube, with the support of our brand partners. And we continue to generate significant press and PR through compelling marketing.So a few slides on some of those customer experiences and events. The Tudor Black Bay Blue was one of the most successful time pieces released this year. And we held an Instagram Live on day of launch with Brian and Nick Sullivan, the Editor of Esquire, to discuss their love of Tudor. We partnered with Grand Seiko and Chef Morimoto, known as the Iron Chef, with a virtual dinner for our clients, delivering fresh fish from his restaurant and then having an interactive sushi-making demonstration.And we celebrated the acquisition of Analog Shift with the founder, James Lamdin. We're delighted to have them as the official vintage and preowned resource for the group. And it wasn't all virtual. We also held a series of in-person events. We opened Mayors Cafés adjacent to 4 of our stores and hosted our clients with about 20 days of one-on-one appointments. At the start of December, we offered our clients the opportunity to see the full breadth of the Patek Philippe assortment. Over 50% of the clients who attended have not purchased the Patek Philippe before and the vast majority of these clients were under 40 years old. Nobody from the U.S. was able to go to Geneva Watch Days. So we brought them to our clients in New York. We were the only destination in the U.S. where watch lovers could get to see all of these new releases in person.The Grand Seiko Nature of Time pop-up store opened in July on Spring Street in Soho. Originally only scheduled to last for 3 months, its performance has exceeded expectations, and we've extended it into 2021. As I said earlier, we'll have opened 8 mono-brands by the end of the year in partnership with Omega, Breitling and TAG Heuer in high-traffic malls such as King of Prussia and Roosevelt Field. And our e-commerce launch continues with the support of our brand partners, with Cartier being the latest brand to go transactional.In terms of marketing, we had a great private event with 50 Cent in our Soho flagship generating over 100 million press and PR impressions. And for the holidays, we've worked with the Berlin-based artist, Olivia Steele to design bespoke neon signage for all of our U.S. Watches of Switzerland stores, creating showstopping windows and certainly something unique in the watch world. We've also announced a major new jewelry campaign for Mayors in Women's Wear Daily. All of our jewelry partners have participated and we'll roll out at the start of January. And we were delighted that the actress and entertainer Taraji Henson wore our Only at Mayors Roberto Coin Collection in 4 of her 8 looks while hosting the American Music Awards.So the U.S. market remains fragmented, but we are generating strong momentum and remain focused on the opportunities to drive future growth, and we'll do that through continuing our refurb program, through new projects, replicating the success we've enjoyed in e-commerce in the U.K. And we still believe there are still further opportunities for acquisitions within the U.S. market. Thank you.

[Lars Anders Ragnar Romberg, CFO & Director]

So thank you, David. We're very pleased with the results of our first half. Sales in the half were impacted by a significant disruption due to store closures, mainly impacting our first quarter. In addition to this, traffic at the airports and tourism reduced the weight of these channels from about 33% last year to 7.4% this year. During this entire period, our e-commerce business has performed really very well, trading up 65% on last year. In spite of these headwinds, we are pleased to report sales being down only 3.4% in the half or 2.6% in constant currency. As previously reported, our sales in the first quarter were down 27.6% on last year. During the second quarter, sales picked up and we closed at plus 19.8% versus prior year or 21.5% in constant currency.Our top line performance was driven by strong performance in luxury watches while luxury jewelry has held up better than we had planned. Our product margin was down in the half because of higher penetration of luxury watches and mix within this segment. Continued good leverage on store costs, which came in at 17.4% on sales versus last year's 21.7%. Shifting sales from turnover-based locations like the air side to fixed rent locations in the U.K. as well as the U.S. improved productivity, has increased the leverage.We also benefitted from the rates holiday in the U.K. and the furlough support. Overheads were well-controlled but up 2.3% on last year. Our adjusted EBITDA came in at GBP 52.2 million versus GBP 41.2 million last year or an improvement of 26.5%. And margin improved to 12.6% from last year's 9.6%, so excellent. However, we have estimated that our half year revenues were adversely impacted by the disruptions experienced by about GBP 80 million, which would have put the growth rate pretty much at the run rate that we had when we entered into the pandemic.On that basis we have tried to calculate an illustrative adjusted EBITDA margin and that came out at about 11.1% versus the reported 12.6%. We came to this by taking out any impact of the government support in the first half and adding back the product margin from the lost sales as well as all variable costs associated with this sales increase. Our first half EBIT was GBP 41.5 million versus GBP 31.1 million last year, so all in all a very good first half.We continue to pursue our strategy to invest for future growth. Some of our planned capital projects have been delayed as a result of the pandemic. So in the first half we spent GBP 9 million of CapEx versus GBP 15.7 million in the first half of last year. We expect to catch up our capital plan through the balance of the fiscal year. The increase in goodwill is related to the acquisition of the Fraser Hart stores in March of 2020. These stores have been trading ahead of our expectations since opening up.Our inventory levels in the half were essentially flat versus last year. We successfully reduced our inventory of luxury jewelry as part of the repositioning of the range at Mayors, while increasing our holding of luxury watches. We have closed our in-house credit program in the U.S., which has been scaled back over the last year, as previously mentioned. In the half, we exited an amount of GBP 1.3 million of recourse from the incumbent provider at a profit of GBP 400,000 versus what we had on the books. Post closure of the half, we also managed to sell off the remaining balance to a third party at no gain loss. So today all of our receivables to clients are 100% outsourced.Trade payables were mainly driven by timing of stock intake and increased customer deposits. We closed the first half with a net debt of GBP 22.2 million versus the same period last year at GBP 92 million. At the start of the year, our net debt was GBP 129.7 million, so quite a good performance during the half.Our free cashflow improved by GBP 72 million versus last year and came in at GBP 116 million. Our free cashflow conversion was 222.6% in the half which we expect to see more normalized during the balance of the year. As a reference, last year the equivalent was 107.1%. Working capital improvement was the main driver of the cashflow benefit in the first half. Last year contains the interest for the final payment of the pre-IPO debt structure. Our expansion capital was below our original plan in the first half, but we do expect to catch up on projects through the balance of the year. At the half none of our RCF and ABL facilities were drawn.Our liquidity headroom at the end of the first half was GBP 229.9 million and we closed at a leverage of 0.25. We are in a very good position to support growth through either expansions and/or acquisitions for the future.Having a look at our financial KPIs, we're very pleased that they are all moving in the right direction. If you look at our return on capital employed, measured on an LTM basis, it improved by 140 basis points to 17.2% due to an improved LTM EBIT of 14.8% compared to the increase in average capital employed of 5.1%. Free cash flow improved, as mentioned before, by GBP 72 million. So we are very pleased with that and it puts us in a great position as I said before for further expansion and acquisitions.Our 4-wall EBITDA improvement in both the U.K. and the U.S. is very encouraging. The most pleasing part has been to see the improved leverage in the U.S. as we drive higher productivity. In the U.K., the reduced level of leases based on turnover is a great win. Our adjusted EBITDA at GBP 52.2 million were up 26.5% on last year in times like we experienced is very good.And now to current trading. Our Q3 has had a positive and stronger than anticipated start, albeit the trend has slowed down somewhat versus the second quarter as a result of our stores being closed in England for 4 weeks. Group revenue for the first 7 weeks has been plus 11.9% in constant currency or 11.2% in reported. We generated higher conversion which more than offset lower traffic across both the U.K. and the U.S. U.K. sales at plus 7.7% reflecting optimization of the business through e-com, CRM, clientelling, digital channels and a new click & collect service. We also opened up our new flagship in Broadgate and our refurbished store in Knightsbridge.U.S. sales came in at plus 22.7% for the first 7 even weeks in constant currency and this is the result of a continued strong momentum in Mayors in Florida and Georgia with a moderated trend in Las Vegas where we can see less tourism than what we have seen in the second quarter. As the result of a stronger than expected first half performance and a better start to our third quarter, we are upgrading our guidance today.On a pre-IFRS 16 and 53-week basis, we are now expecting revenue to come in between GBP 900 million and GBP 925 million for the year with an EBITDA/EBIT margin improvement of 1.5 to 2 points on last year. Depreciation and amortization is expected to come in between GBP 28.4 million and GBP 30.4 million on last year, while our tax rate is expected to land between 20% and 21.5%. Net debt at the end of the fiscal year is projected to come in between GBP 60 million and GBP 80 million.Our guidance assumes that the strong luxury watch market will remain in the U.K. and in the U.S., but we don't expect any significant change in current footfall trends, so we are remaining pretty conservative on that. We do expect to see some further disruption coming through in January/ February due to the virus situation that we are all faced with. And we do expect the current level of consumer demand to remain throughout the balance of the fiscal year. We are not expecting any improvement in airport traffic or for that matter in tourism in the U.K. and limited domestic tourism in the U.S. Our tax rate is expected to come in slightly lower because of better utilization of some carry-forward losses. Our guidance on depreciation has gone up as a result of us reassessing the useful life of some of our store assets, which has triggered a GBP 5.4 million write-off as a one-off this fiscal year. The Group intends to repay the furlough support received from the U.K. government during FY '21 subject to no further significant disruptions.So now I am going to hand over to Brian for some closing remarks. Thank you.

[Hugh Brian Duffy, CEO & Director]

So thank you, everybody, again for joining us, and thanks to David and Craig and Anders for their presentations, a particular thanks to our team for delivering on what I think was a very, very good first half overall. And now we'll happily move on to your questions.

[Operator]

[Operator Instructions] Our first question comes from Edouard Aubin from Morgan Stanley.

[Edouard Aubin, Head of Luxury Goods]

Yes. Congratulations on the results and congratulations for raising this sort of money. Two questions for me. Number one, you are obviously, as you mentioned, Brian, to a certain extent supply constrained so if you could give us an update of what you're expecting from the main brands you sell in terms of supply next year. Also you mentioned that some of the -- you are opening some mono-brand franchise stores for the likes of Omega and TAG Heuer. With the crisis I guess a number of brand retail stores have turned loss-making. So what is the willingness of some of these brands to move to a more capital-light model? And also to -- how and to what extent can you operate mono-brand stores better than the brands themselves?

[Hugh Brian Duffy, CEO & Director]

Edouard, thanks for your question. Obviously, as we regularly report to the market, a big part of our business is supply constrained and therefore supply driven. And we have good visibility of supply from those constrained brands through to the end of the year and a good indication of where we will be for the remainder of the year. So we don't disclose any of the specifics obviously, but simply to say that clearly our guidance has taken into account the indications that we have had overall and supply. That is a big influence on how we are calling the year overall.Mono-brands, we really believe in -- we have a good formula for mono-brands. We are doing generally smaller stores than might have been the case in the past that gives us the obvious economy there on rent and CapEx and staffing and so on, but also sharing back of house wherever we can do adjacent mono-brands. It gives another efficiency overall. And we're ahead in the U.K. We have -- at this stage, Craig, 26 mono-brands in the U.K. Even during this period of disruption and lockdown or whatever, they have continued to perform well, including the new ones that we have just opened in the first quarter.And we have now started on that venture in the U.S. literally a couple of weeks open overall. Once again despite reduced traffic, we're happy with the initial experience. It is a category we really believe in, to your last point. We do -- obviously, all we do is retail and we have been doing it for a long, long time. It gives us obvious expertise in systems, customer service, recruitment, training, store build and all of that. So we can bring all that to bear working with our partners, I think, to do what they obviously believe is an efficient retail proposition for them.

[Edouard Aubin, Head of Luxury Goods]

And if I can just have a follow-up on what you said on real estate. Given the real -- retail real estate crisis that we are facing today in the U.K. and elsewhere, to what extent could you see your rent coming down as a percentage of sales in the medium term? How material could that be potentially?

[Hugh Brian Duffy, CEO & Director]

Thanks again, Edouard. We have reduced our occupancy costs this year. We have particularly reduced by -- contrary to what might be happening with other tenants in retail. Our direction was to get out of turnover rents. We generally in the U.K. had a formula of fixed rents plus a reasonably significant top-up on turnover. And the success that we've had over the years meant that we were actually paying more in turnover rents than fixed. So we had progressively been getting out of or reducing these turnover rents. The circumstances sat down with all of our big landlords and generally we have got out of all turnover rents. We also have a reduced business at the airport, which again is entirely commission or turnover rent based. So we have not actually quoted the number in terms of the year-on-year saving, but we have reduced our occupancy costs. Obviously, for the future as well as this fiscal year.

[Operator]

Our next question comes from Richard Taylor from Barclays.

[Richard Michael Taylor, Analyst]

I appreciate a lots to do this year with the existing estate amid a reduced footfall, lockdowns and so on, but looking into next year, any update please on the pipeline for the U.S. estate in terms of white space, but also potential M&A. And then secondly, interested in any comments you have on Analog Shift and I realize it is very small at the moment, but how you may intend to develop that business and address any opportunities in the pre-owned market?

[Hugh Brian Duffy, CEO & Director]

Okay. Obviously, the formula or the format we have been using in terms of communication about the U.S. market has been that we point to a lot of growth opportunities that are there. That does include white space and new developments and the potential acquisition and the growth of e-com. They are all offering very attractive prospects for growth for us, but until we have got -- and mon-brands, I should throw into that list as well. But I'd tell we have agreed deal [indiscernible] informing the market yet. We are going to change that position, but actually working through we have now had the U.S. market studies in some depth. We can therefore be more specific about where we see the opportunities.And as a result we are working our ways through a longer-term plan and we will update the market with an overall market share objective that we would have over the next 3, 4, 5 years. We'll probably do that with our year-end numbers. In the meantime, we've obviously not announced anything beyond what you knew of already. The American Dream Project has obviously been a victim from a timing standpoint from the pandemic expectation. In fact, David, do you want to say what the latest expectation is on American Dream?

[David Hurley, Executive Vice President USA]

I can say the latest expectation on the part of American Dream is that they are talking about opening parks at the end of the calendar year. I will say that the non-luxury component has opened up and only with a limited number of stores to start off. I think about 75 stores in total that opened out of about 100 by the end of this calendar year. And the traffic and sales have been very strong. So we still very much believe in the project, but obviously the luxury section has been delayed because of this virus.

[Hugh Brian Duffy, CEO & Director]

So obviously we're working on opportunities constantly in the U.S. market and as and when things become finalized, we'll look forward to bringing this to the market and communicating. And as I say, we will do more of a general target from a market share standpoint in the U.S. and in the U.K. There are developments clearly happening in the U.K., but we start from a much higher base.Analog Shift, we have loved since we met the guys, since we met James Lamdin, who is the founder of Analog Shift. Real expertise on vintage products and are just out-and-out watch lovers. So we are delighted to bring them into our fold. It's an important element of building both vintage and the pre-owned business, which is disproportionately important on the e-commerce market in the U.S. And we're starting all of this together. As David mentioned in the presentation, we have just brought all the brands online. Cartier have been the latest in the U.S. We are now spending behind that and driving some good momentum.And the plan is to fully utilize Analog Shift's position, reputation and following to gently drive traffic onto our website and then specifically to use it to expand on pre-owned and vintage. So a small acquisition overall in terms of value, but we think it will make a big contribution going forward to our overall business in the U.S.

[Operator]

Next question comes from Greg Lawless from Shore Capital.

[Greg Lawless]

I wondered if you could give a little bit of flavor about the regional split in the U.K. in the first half. Obviously, London footfall down significantly because of the absence of tourists. I wondered if you could provide any color there. Just on the business rates and the furlough money, I wondered if you could potentially quantify that the kind of benefit there, please.

[Hugh Brian Duffy, CEO & Director]

The way our business clearly has changed significantly is pivoting away from international to domestic. That regionally results in us having a bigger regional increase in business than London because London was -- disproportionately had the international. It just goes to prove, as we have said all along, that we have huge demand out there for a lot of the products that we sell, Rolex in particular. And we now have happier customers who have waited a little less to get their hands on a Submariner or a Nautilus or whatever that we've had on our waiting list. So that is where it has come from and the best measure of it is what we have given to say that our international business last year over 33%, this year more like 7.5%. And that is the big shift overall in terms of client mix. We effectively now have 93% domestic U.K./U.S. and I think it has been a generally move overall in retail.Your second question was on the furlough money. So I mean our position on the furlough money is that we were eligible for it, clearly. We have found it a great source of comfort and a great project. When it was announced by the Chancellor, we were all very concerned about the future and how long the lockdowns would last and so. Having the furlough money back in March was a great comfort and it did help us do what we wanted to do which was look after our teams, keep them employed, keep them fully paid. As the year has gone on and in particular as we now look at the start of quarter 3, it is quite clear to us that within this year we do not effectively need the furlough money and therefore we are doing what we consider to be the right thing in returning it. We haven't quoted exactly the number, but if you look at the contribution of the furlough in the first half it is there in the detail. It was GBP 3.3 million.

[Greg Lawless]

Thanks. And just on the business rates, you obviously had the benefit this year. Just kind of thinking for next year and outwards, what sort of benefit have you had, please?

[Lars Anders Ragnar Romberg, CFO & Director]

As for business rates, obviously we have taken advantage of that in the first half, and we think certainly we are not planning to pay that back. We are nonessential, so obviously we have been closed. So the intent would not be to refund that and the holiday itself obviously commenced in April of last year and it will end at the end of March, as far as we know. Unless the Chancellor will announce anything further low.

[Hugh Brian Duffy, CEO & Director]

And the total value in the year?

[Lars Anders Ragnar Romberg, CFO & Director]

The total value for the year is about GBP 1 million.

[Hugh Brian Duffy, CEO & Director]

GBP 1 million.

[Operator]

We have a question from Kate Calvert from Investec.

[Kate Calvert, Retail Analyst]

Hope you can hear me. Three from me. The first question is that I know the brands are quite [indiscernible]. I would appreciate any thoughts on next year in terms of supply, timing of new product launches given the trade fairs have been cancelled and obviously we had much later launches of new product this year. I do not know if you have got any insight on how that might happen. The other 2 are more accounting ones. In terms of the GBP 80 million of lost group sales, could you split that between the U.K. and the U.S.? And The final one is in terms of the GBP 3.9 million of U.S. government PPP. You talk about it being a loan which converts into a grant. Can you tell us how that will pay out and how that is being accounted for?

[Hugh Brian Duffy, CEO & Director]

Okay. Kate, we heard you perfectly well. Thanks for your questions. We typically would not have the specific visibility on supply from key brands for next year. We actually have meetings in January as usual at which we'll learn the first indications about supply. I think it is safe to say that the brands are producing more for next year than last because they are assuming that there will not be a break in production. Obviously, there was lockdown in Switzerland impacting March/April and even in some cases into May. So the year-on-year production overall should be higher, but on the other hand, what is going to happen with their worldwide sales? Generally the U.K. and the U.S. markets have done well, which is great since those are the markets that we are doing business in, and we think they will be well supported from a supply standpoint. As we go into fiscal year '22, we'll obviously reflect that in the guidance that we give for fiscal year '22.New products should be positive overall, to your point. I think the brands have done a great job of introducing new products in the second half of last year, doing it all remotely through Zoom and Instagram and various other digital mechanisms. However, quite a lot was postponed so I think next year you are going to have a full year of what was intended for next year plus a carry forward of this. You even have specific brand situations. For example, with Omega they had new products associated with the Olympics, which has clearly now been delayed by a year and the Bond movie, which has now been delayed by a year. There are specifics that will positively build into next year's numbers. The fair again has been cancelled so it won't happen as scheduled in Geneva. There won't be a physically watch fair, but for sure the brands with the experience that they have had this year will be doing all these presentations remotely and maybe locally they will be doing them directly. All we are saying is we think it is going to be a good year for production overall and it is going to be a good year for new products within that. Anders, it's GBP 80 million on sales?

[Lars Anders Ragnar Romberg, CFO & Director]

Yes. The breakdown of the GBP 80 million is approximately GBP 55 million U.K. and GBP 25 million U.S. So that is the split that will come up based on the traffic and so forth that we have seen coming through. And then the second question that you had, Kate, was regarding the PPP in the U.S. It was a scheme that was put in place by the U.S. government to ensure that grants were paid and indeed people kept their employment. It was conditional in the sense that you had to use any grant that they are branding loans that you will give them to capital cost basis over a certain period of time which was 12 months. We achieved that within the first half, so we booked it in the first half and then [indiscernible].

[Operator]

[Operator Instructions] We have a question from Rogerio Fujimori from Stifel.

[Rogerio Fujimori, Director & Analyst]

I was wondering if you could talk about recent trends for average selling prices for watches in the U.K. and in the U.S. with the clientele mix shift to domestic clients and any thoughts on the outlook for price mix in the second half.

[Hugh Brian Duffy, CEO & Director]

It is a good question. An average selling price has increased quite significantly in the half and overall in the group we were up -- on luxury watches, we were up 16% in average selling price. In the U.S. we were up more like 5%. In the U.K. we did have the impact of pricing. There was a Rolex price increase came in start of January so that specifically flowed through to ASP in the balance of it. Effectively comes from mix overall, but it certainly talks to the overall health of the market that's there. We do not ever assume pricing going forward. There are lots of things that can influence it, including exchange rate, including costs incurred in Switzerland. For example, the price of gold may have an influence since that has clearly gone up significantly and plays a big part as a precious metal in a lot of what we sell. So we'll see. We haven't assumed any price increase at this stage, and we will not probably be assuming certainly any that we do not know about when we give the guidance. However, I think it is fair to say if you looked at the history of this market then there has been an average increase in average selling price around 3% for more or less the last 20 or 30 years. I think it is safe to assume that that will continue. And a good thing to look at is what might be happening to the cost bases in Swiss francs.

[Operator]

We have a follow-up question from Kate from Investec.

[Kate Calvert, Retail Analyst]

Just one on pricing of watches globally. Given we are at sort of sterling/dollar 1.35-1.36, how do watch prices compare in the U.K. versus Europe and the U.S. at the moment?

[Lars Anders Ragnar Romberg, CFO & Director]

The pricing in the U.S. is higher on average and that is because when the brands looked at their pricing strategy, they look at its [indiscernible] in Europe and they actually do not include the sales tax in the U.S. So the pricing is slightly higher in the U.S.

[Hugh Brian Duffy, CEO & Director]

But the differential is definitely reducing obviously as the dollar comes down and sterling is recovering. Sterling/euro is probably quite comparable. We are less fixated with it, Kate, I must say, since international is obviously a much smaller proportion of our business that we have been looking at. So the differential we were favorable by a few percentage points versus euro price in January. We are probably a bit closer now and in terms of retail price, we would still be cheaper than the U.S.

[Operator]

We currently have no further questions, so if you'd like to continue.

[Hugh Brian Duffy, CEO & Director]

Well, if there are no further questions, just thank everybody for joining us. I wish everybody a Happy Christmas, Happy Holidays. And I think we all look forward to a better 2021 than the World experienced in 2020. But we obviously have a couple of tough months to get through before they can look forward to that.But in the meantime, thanks for your support of the business. Thanks for your questions this morning, and I hope everybody has a good holiday season. Thank you.