ASOS Plc

everyone we're going to start sorry we're starting a little bit late but we're waiting for some more people to come but I understand it's a busy morning for you guys so there might be some some more people uh joining online so let me welcome everybody to to our fiscal year 24 results uh announcement and presentation uh this morning we're gonna be yep so we have more people coming okay okay okay no worries so this morning we're going to be covering basic did it more people coming okay i'm gonna wait okay let's start then welcome welcome again everybody uh as i said i i understand it's a busy morning for everybody so so we've been a little bit more flexible with timing and so on and so forth So we're going to be covering pretty much today three main blocks. We will go through a CEO update where I'm going to give you a little bit of an intro. And Michelle Wilson, our chief of staff and chief of strategy, she will be covering our performance over fiscal year 24, more from an operational and strategic point of view. Then Dave Murray, our CFO, will be covering our financial results for fiscal year 24. And then at the end, both Dave and myself will give you a little bit of the outlook for fiscal year 25 and a little bit of color behind that. And of course, at the end, we'll have time for Q&A as we always have. So let's crack on. You know, in ASOS, we have said repeatedly that our ambition is to be a fashion destination for fashion loving 20-somethings. That means that we have the goal to delight our consumers all the time, to make sure that we get more of their time, more of their love, and more of their passion spent, of course. Two years ago, we came here, probably to the very same place, to set out our driving change agenda. And in this agenda, we were sharing with you our plans to make ASOS a faster and a more agile and a more profitable, sustainably profitable business. And that require a certain set of adjustments of measures. This is what we call taking the medicine. And we started the journey of doing that two years ago. And obviously that has taken the last 24 months and obviously and especially the last 12 months to set up the foundations of this journey, to make sure that this journey was set on solid foundations. And that was a journey that had I'll try to summarize it. A lot of objectives, but if you want to try to summarize it in three, was like we wanted to transform our commercial model to make sure that we were always offering our customers the most relevant and hence attractive product. We wanted to develop stronger relationships with our customers and that stronger relationships based on inspiration and excitement and not necessarily on promotion and discounts. And we were bringing an obsession with continuous improvement and with delivery to make sure that our operations were efficient. And as I said, over the course of the last two years, we've been working on setting up the foundations for this year. Obviously, that has had an impact on financials that were not especially attractive, if you want, but it was necessary. It was necessary to have a solid starting point. And today, I'm very happy to say that we feel very confident that we have done a good job in this first step of the journey. In the last 12 months, we have seen relevant achievements that give us the confidence that we're in the right place to move into the step two of our journey. Let me very briefly try to summarize what I think we have achieved over the last 12 months. First of all, we have completely transformed our commercial model and our stock profile. When you're obsessed with selling newness and fashion ability to customers, it is important that this newness is, it's easy to find by consumers. And with this newness is surrounded by a mountain of older stock. It becomes very difficult to do so. That's why at the beginning of the journey, we said we were going to drastically reduce our stock. And, uh, in this journey of 24 months, we have reduced our stock from 1.1 billion pounds, approximately to 520 million pounds. That is a reduction of approximately 60 million units. Just look at the magnitude of the challenge. 60 million units is one unit per people in this country. That is a titanic change that we have undertaken over the last two years. And we have done it, transforming that into cash. We have not burned it. We have not shipped it anywhere. We have been turning that into cash. Obviously, that has an impact on our financials, but the journey is done. And we have done it while we were transforming our commercial model. We have changed the way we buy to buy faster, to buy better, and to clear as we go. And the reason we have changed the way we buy is to make this change sustainable. We don't want this to happen again. We don't want to sit on the same stock mountain again. And that was very important to do it. And that's why we have been doing both things at the same time. This new model is built on new ways of doing things. And I've been, over the course of the last 12 months, highlighting quite a few. I've been talking a lot about test and react. I've been talking about partner fulfills. There are more, but I think these two are quite relevant and worth mentioning. During the course of the last 12 months, we went from nothing to 10% of our sales being produced by test and react. So it is a remarkable achievement. And when we go to partner fulfills, hardly anything at the beginning of the year, today it's 5% of our sales of brand partners. It shows the magnitude of the transformation we have been undertaking over the course of the last 12 months. As a result of all these changes, we see that our stock profile is significantly improved. We have now more than 80% of our stock is younger than six months, and we have reduced the older stock by 75%. This change in our stock profile is having an impact on our performance. And we have seen that in the course of the last three months, the newest part of this stock is easier to spot by consumers. And then the performance has increased by 24% year on year with only 6% increase in stock, which means that our newest stock is turning 30% faster. And it's having an impact on our profitability. And in the same months, our profit per order has increased 19%. So obviously, all these facts give us confidence that we're in the right track and in the right path to deliver our ambitions. The second thing I wanted to highlight is that we have started to transform our marketing model. And we told you 12 months ago that we wanted to go from a more practical approach, that it was pretty much focused on the bottom of the funnel and on performance marketing. more strategic approach that it was more full funnel marketing and and trying new new new tools and new ways of of approaching our consumers so during the course of these 12 months we have worked very hard to improve the efficiency of our marketing of our lower lower funnel marketing we have increased during the last quarter of the year 18 percent are raw which is obviously have helped us to release resources to invest in the setup of a social marketing engine. We have created a way of working and every month we are working with more than 1,500 creators to bring to our consumers the excitement and the inspiration of our new collections. And last but not least, I would also like to highlight as an achievement of this year, the focus on continuous improvement. We have spent a lot of time revisiting a lot of our processes to become to become simpler and with this simplicity to become more resilient and more efficient. In the course of the last 12 months, we have reduced both our variable and our fixed costs to a point that we have been able to reduce our cost to serve in spite of the leverage of the loss of volume that we have experienced, which I think is a remarkable achievement. That has been achieved through many, many measures, but probably it's worth mentioning the efforts we have done on our supply chain and also on the reduction of our returns. With all that, we feel we're in the right moment to start talking about the phase two of our journey. The phase two that is about, as I said before, winning the love, the time, and the fashion spend of our consumers by delighting them every day in a sustainable way. And I think this is very important because from the very beginning, we said we want to turn ASOS into sustainable growth, sustainable profitable growth. Only profitability makes it sustainable. And the way to do it sustainable is to double down on what makes us different or on what we call our right to win, which is pretty much based on the four things you can see on the screen. We can win when we deliver the best and the most relevant product for consumers. We can win when we do it in a differential way so that we come a destination for style. We can do it when we engage our customers throughout their whole journey and when we offer them a competitive customer proposition. And this is what we're going to do over the course of the next month and next year, but obviously starting next month, we're going to focus on deliver the best product to them. Deliver the best product means we want ASOS to be a fashion first destination for our consumers, a place where they discover fashion. In order to do that, we will double down on the efforts we started this year, doubling down on test and react, doubling down on the new ways to bring more attractive brands to make sure that our consumers always have at their disposal the best possible assortment. We will also increase our efforts on becoming a destination for style. How do we sell to our consumers? During the course of this year, we have been investing in our visual language. We have been investing in the development of new features like By the Look. 14 million consumers have already interacted with By the Look during the course of the last 12 months. We are changing our tech and digital product setup to accelerate our capacity to deliver new features and new ways of interacting with our consumers during the course of the next months and moving forward. we want to accelerate in how do we engage with our consumers throughout the whole journey from the very beginning to the very end. As I told you, we have started the transformation of our marketing model. We're going to supercharge that change with the launch of our loyalty program, ASOS World, and that will bring more excitement. This is a loyalty program built on this idea of fashionability and inspiration to our consumers. And we will continue working on offering them a seamless customer proposition. We've worked a lot this year on improving the quality of our deliveries and also on reducing our non-value added returns, and we will continue working to improve our efforts in this direction. All this is always underpinned by our, if you want, obsession of a proper capital allocation and use of resources. And I, as you know, at the very beginning of this fiscal year, we did a big change in reaching a joint venture with our partner and investor Heartland on Topshop and refinancing all our convertible bonds. That has brought additional flexibility in our balance sheet that is going to create the right platform for all these changes. And we will always continue with this obsession of capital allocation. As a result of all that, I'm very confident on fiscal year 25 and to say that our ambition is to bring a significant improvement in our gross margin, 300 basic points, to land on a gross margin north of 46%. An improvement that will be fueled by our capacity to sell more full price. This improvement will generate an improvement of our EBITDA, a significant improvement of our EBITDA of at least 60%, taking our total EBITDA for the year to the ballpark of £130 to £150 million, which in absolute terms is more or less in the ballpark of our pre-COVID EBITDA, and we will be capable of producing a neutral free cash flow. So this is pretty much where we're going to be elaborating during the next minute in this morning. And now I'm going to hand it over to Michelle, who's going to give you a little bit more details on our achievements during the course of this . And I'll be back with you a little bit later.

Thanks, Jose. So looking in a bit more detail of what we've actually achieved this year, last October, we set off all three key priorities under the Back to Fashion strategy. Firstly, in terms of most relevant products, we committed to finishing the job and clearing through old stock and scaling both test and react and our flexible fulfillment models. In terms of stronger customer relationships, we wanted to reignite our brand's heat and build stronger connections with customers. And in terms of reducing cost to serve, we committed to more efficiency in all of our processes and minimizing cost to serve while also improving the customer experience. And over the next few slides, I'll take you through a bit more detail on each of those areas. So firstly, on best and most relevant products. ASOS is now fundamentally a faster and more agile, more efficient business when we started the driving change transformation two years ago. And product has very much been at the heart of that. We've really been on two journeys. The first journey was about dealing with the legacy of our old commercial model. So put simply, coming into FY23, we had too much stock. We had to reset. We had to take a step backwards before we could take steps forward. We cut intake to free up capacity to clear out that old stock. And that meant we temporarily had less newness and less excitement in our product offering. And we can be really proud to say that we've now completed that journey in FY24. We've halved stock levels from over a billion down to 520 million over the last two years. After clearing through as much as we could on site, We completed the journey in Q4 by taking a write-off. We wrote off the final 100 million of stock. And you can see now from the chart on the right-hand side, not only is stock down 50%, but it's much fresher. So 80% of stock that we now have has been on site for less than six months. The second journey is about scaling our new commercial model. So the new commercial model isn't rocket science, but it will very much transform how we operate going forward. It's fundamental to having the best and most relevant product. So what does it actually mean? It means being first to fashion. It means buying better to increase our hit rates and maximizing full price sell through minimizing waste. It means an uncompromising focus on quality. And it means disciplined stock management. So giving more visibility to newness and reducing the need for discounts. And we'll achieve all that by being faster and more agile We'll use more data to better understand trends. And by being closer to the point of purchase when we take buying decisions, that means we can be more accurate and have more relevant product onsite. So with our own brands, we can supercharge that through test and react. And with third-party brands, we're supercharging that by collaborating more closely with partners and rolling out models like flexible fulfillment. The improved speed and agility is all possible because of the long-term relationships that we build with suppliers. We've consolidated those relationships over the last few years to work more closely with long-term focus suppliers who can maintain high quality at speed. And we're delighted to recently announce Luis Lopez Rey, we can't pronounce that as well as Jose could, as our responsible sourcing and quality director. So Luis spent the last 23 years at Zara where he was responsible for building out their speed and optimizing their supply chain. We're really excited about the improvement, the further improvement he can deliver at ASOS. All of those actions will improve our hit rate and give us a greater opportunity to excite customers with every item on site. When an item doesn't resonate with customers, when it's slow moving, we'll clear it quickly. And that means we'll minimize the markdown needed to sell it through. And we'll also maximize the cash generated, which means we can reinvest into new products, more excitement, a better product for the customer. So it's worth reflecting on just how much of a transformation we've achieved in the last 12 months. When we started this journey two years ago, we had a lot of heavy lifting to do. Coming into FY23, around 50% of our stock was over six months old. We cut intake by around 30% to make room to clear through that excess stock. The heavy discounting has been a major drag on our growth margin over the first nine months of FY24 and had a negative impact on our unit economics as well. We've ended FY24 with the hardest of the work behind us now and stock in a really strong position. So we've reduced old stock by 75% year on year. We've created much more space than newness. The stock is new and fresh and we scale test and react and partner fulfills to facilitate that. 80% of stock that we have is now less than six months old. and it's selling through faster with a higher full price mix. So 15 percentage points better sell through and 30% faster stock turn. That underpins our confidence in delivering sustainable growth margin improvements in the year ahead. So moving on to our second priority, which is strengthening relationships with customers. We're incredibly proud that we have 20 million customers that have shopped with us in the last 12 months. That number has been higher in the past, and we've built impressive growth over the last two decades through an ambitious geographic expansion, but that created a wide base of customers globally with a relatively low share of wallets, and in some cases, unprofitable customer relationships. The growth engine that we're focused on in the future is about winning greater share of fashion spend from our core customers in our core market. And that means greater engagement and more excitement to take a greater share of wallets of our core demographic. In the UK, we already have some pretty impressive stats In total, customers spend on average £214 per annum with us and returning customers shop with us seven times a year. That's a very engaged customer base, but we know we can do even better. In the UK, during the initial stages of the transformation, we've experienced two clear headwinds in terms of order frequency and customer churn, which has had a negative impact on those engagement stats. So the 30% reduction in our intake meant that we had less exciting products and less newness for our core customers. And the high level of clearance activity detracted from the overall experience and attracted non-core transactional shoppers making one-off purchases. Over FY25, as we operate fully on the new commercial model, we'll see those headwinds reverse. And outside the UK, where our brand awareness is significantly lower, so is our order frequency and our average customer spend. And in those markets, we took more action to rebalance the customer proposition and invest into areas that really matter to the customer. So that's meant focusing more on product inspiration, things that customers love, and shifting away from differentiating through things like returns proposition and delivery. The journey there will take more time to bear fruit, but we believe that creating win-win relationships with customers means we can both improve profitability and drive growth. Those headwinds have also meant that our marketing initiatives are less efficient during the transition period. So we've been driving traffic towards a suboptimal customer experience. Instead, we focused on reducing our reliance on highly transactional performance marketing and transitioning into a marketing model that enables us to deliver our core brand messages. And that builds longer lasting relationships with customers. We're able to identify inefficient spend within paid social and affiliate channels. And that led to an increase in ROA or return on media advertising spend of 18% over Q4. And we've also been able to better deliver our brand messages by scaling our always-on influencer program. We now work with over 1,500 influencers per month by year end. Now that we've built that muscle, we're better placed in FY25 to deliver great customer experiences both on-site and off-site to our 20 million customers and beyond. Our final priority was reducing cost to serve through operational excellence. So a key part of the transformation has been simplifying processes, removing wasted time, removing wasted costs, and reinvesting into actions that really benefit our core customer. That focus has meant we've been able to reduce our variable cost of the potential sales by 90 basis points in FY24. That follows 110 basis point improvements in the prior year. And we've also been able to reduce fixed costs by 13% year on year. There's lots of initiatives driving that improvement. It's probably worth highlighting the work that we've done in logistics and returns, which has helped improve our distribution and warehousing cost ratios by a combined 200 basis points in 2024, while still improving the customer experience. And that's all despite the volume deleverage. We've optimized warehouses through increased automation, so we've reduced our labor costs per unit by 10%. We've also right-sized capacity to match our stockholding and that's reduced fixed costs by 25%. We've optimized delivery partners and we've renegotiated contract rates. We've increased our use of data to improve the quality of the delivery experience, halving the number of orders that fall outside of our planned delivery window. In return, we focus on improving quality and size and fit to reduce needless pain points for customers. There's still a lot more work we can do there, and you'll remember it's a key focus for us in 2025, but we're pleased to see the progress that we've made already in FY24, which has delivered an underlying improvement in our returns rate by one percentage point. A key underpin for that strategy has been efficient capital allocation, which allows us to invest behind our strengths in a disciplined way and relentlessly remove waste to invest into opportunity. In FY24, The reduction in stock levels meant that we could exit our Litchfield distribution center. And at the beginning of FY25, we announced 2T updates, which significantly increased our balance sheet strength and our financial flexibility. Firstly, we entered into a joint venture with Heartland to build the future of the Topshop and Topman brand. That means we can continue to play a lead role in the brand's future while also reducing the level of capital deployed. And then secondly, we successfully refinanced the balance sheet. reducing the net debt position by 130 million through extending our term loan and the majority of our convertible bonds out to 2027 and 2028, respectively. We'll continue to operate with rigorous commitment to generating strong return on any capital that we deploy. So to recap before I hand over today to run through the financials, in FY24, we've made significant progress in our transformation and really laid the foundation for sustainable, profitable growth. We're entering FY25 with our stock in a great position, right size with the right level of newness. We're really pleased with the performance of our latest collection, turning quickly and selling through at full price. We've hit our targets on scaling test and react and partner fulfills. We've improved our unit economics and reduced fixed costs to build strong possible foundations. And we've strengthened our balance sheet with a top shop and top management venture and refinancing. I'll hand over to Dave.

Bless you.