Farfetch Limited

Hello and welcome to Farfetch's fourth quarter and full year 2021 conference call. Joining me today to discuss our results are Jose Neves, our Founder, Chairman, and Chief Executive Officer, Elliot Jordan, our Chief Financial Officer, and Stephanie Fair, our Chief Customer Officer. Before we begin, we would like to remind you that our discussions today will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements, and forward-looking statements may today speak only to our expectations as of today. We undertake no obligation to publicly update or revise them. For a discussion of some of the important risk factors that could cause actual results to differ, please see the risk factor section of our Form 20F filed with the SEC on March 4th, 2021, and our annual report on Form 20F for 2021 to be filed with the SEC. In addition, we will refer to certain financial measures not reported in accordance with IFRS on this call. You can find reconciliations of these non-IFRS financial measures to the IFRS financial measures in our earnings press release and the slide presentation, both of which are available on our website at farfetchinvestors.com. And now, I'd like to turn the call over to Jose.

Thank you, Alice, and thank you all for joining us today. I will provide a brief review of 2021 before discussing how we've seen 2022 and beyond develop across our platform, marketplaces, and brand platform. Over the course of the COVID-19 pandemic, the luxury industry has once again proven its resilience, with most luxury houses reporting 2021 revenues above 2019 levels. During this time, the secular trend of the move from offline to online also accelerated, and we believe this shift is permanent. With digital sales mix expected to grow from an estimated 22% in 2021 to 30% by 2025, as the leading global platform for luxury, we see tremendous growth ahead for Farfetch. We exited 2021 with a business almost double the size in GMV as compared to 2019. This is on top of the ambitious targets we have been delivering on as we've exceeded our targeted 30% CAGR in each year since our 2018 IPO. And we expect to continue delivering on this targeted CAGR through 2022. I believe this is absolutely remarkable and unrivaled in the luxury industry at our scale. In achieving this strong growth, we also stayed disciplined as we navigated many external headwinds, including digital services taxes and the greater than expected impacts of Brexit, inflationary pressures across our cost base, and IDFA. The full cost of these amounted to tens of millions of dollars in 2021. This focused execution resulted in an expansion of our adjusted EBITDA profitability. And I am delighted to share Firefetch achieved an historical milestone with our first full year of profitability at the adjusted EBITDA level, following a decade of strong growth and reinvestment to build what is today the leading global platform for the luxury fashion industry. But what makes us most proud is the fact that we stood by our global fashion community, supporting our partners right from the start of the pandemic via initiatives such as our hashtag support boutiques campaign and leveraging our platform to enable the continuity of their businesses while their other channels were unavailable. They have reported that Farfetch is a crucial channel, particularly so throughout the unprecedented crisis, highlighting the very core of our mission to be the connector between curators, creators, and the global community of fashion lovers. We emerged from this pandemic stronger than ever, and in Farfetch style, an industry leader with more strategic brand relationships and an unmatched propositions for consumers. Our marketplace business is also healthier than in 2019. Like many luxury groups, we have taken the last two years as an opportunity to shift our business increasingly to full price sales away from markdown. This has been a deliberate strategy stated clearly by us in 2019 and executed brilliantly as we reported over 30% annual growth, even as we transitioned to a slower growth of markdown products. In Q4, 2021 full price GMV growth significantly exceeded overall digital platform GMV growth at 33% year on year. and 118% on a two-year stack. Markdown, by contrast, grew mid-single digits in Q4. And two-year full-price GMV growth for full-year 2021 grew a staggering five times as fast as Markdown GMV. As always, we take a long-term view and operate in alignment with luxury brands and have supported many brand strategies to move to full price only. Of the top 10 brands on our marketplace, five now follow a full price strategy for their reconcessions. And our own, brownsession.com, has eliminated all markdown sales for over one year and is now a 100% full price destination. In 2022, we expect to continue to deliver market share capturing digital platform GMV growth, while executing on our strategy to continue driving a much larger full price mix towards an even healthier business. With that, I would like to turn our focus to our long-term opportunities across our platform, our marketplace, and our brand platform. in pursuing our mission to be the global platform for luxury. First, our platform. In 2021, we made significant strides in our platform capabilities, including expanding our e-concessions as a service module, which Harrods has leveraged to significantly increase the number of SKUs they can offer from Gucci, Burberry, Brunello, Cucinelli, and Zegna, and announcing plans for a JV with Clipper logistics, to build out our Fulfillment by Farfetch proposition and offer a dedicated fulfillment solution for the broader luxury industry. And with respect to connected retail, where we continue to extend with Chanel, Thom Browne and Brown Session, we further broadened its use case via our boutique pilot that enables online to offline activations for our boutique partners. and signed on to design future retail experiences for Materazzo and Printemps, new luxury retail developments in São Paulo and Doha, respectively. Over the last six months, we've also acquired three small but exciting tech businesses aimed at further cementing us as the platform for the industry. Chetty, Luxclusive and Allure. These bring to bear respective capabilities in marketplace as a service technology, B2B expertise for luxury resale, and the virtual creation of higher quality or model images. The significant momentum behind our platform in combination with the fact that the industry has really taken notice of the unique capabilities of the Farfetch platform at a time when large companies are once again opened to significant technology partnerships to bolster their digital capabilities, leads me to feel increasingly confident that 2022 will be a transformational year for FPS. I want to spend a moment on the previously disclosed discussions with Richemont. Following our announcement on November 12th, 2021, Farfetch remains in discussions with Richemont about the potential expansion of our existing luxury new retail strategic partnerships. We're continuing to discuss a potential deal, which includes the leveraging of Farfetch platform solutions to power Richemont's Maisons and Uxnet-Aporté YNAB, the participation of Richemont's Maisons in Farfetch's marketplace, and a minority investment in YNAP by Farfetch. However, there can be no guarantee that we will be able to sign this deal or any of the options under consideration. We will make further announcements if and when required. In parallel, we are also in discussions on several other enterprise-grade FPS deals, in our exciting pipeline. Watch this space. Turning now to the marketplace. While it is the largest global destination for online luxury fashion, within the grand scheme of the $300 billion luxury industry, the marketplace represents less than 2% share of the personal luxury goods market. And we see significant growth potential behind this business. This incredible growth potential is also broad-based geographically, as we have a presence and aim to be a leader in all major luxury markets in the world. The US, our largest market, continues to be a huge opportunity and area of focus. In 2021, the US performed very well, growing above the average of our marketplace, driven by our unrivaled luxury range, which is especially appealing to the sophisticated American luxury consumer. In 2021, we also continued to gain customers and grow Mainland China GMV ahead of the marketplace, predominantly through our proprietary app. Although we are pleased to share that less than one year into our launch on Tmall, our newest channel already represents more than 10% of 2021 GMV in these markets. Our strong performance in China underscores the differentiation we offer through our cross-border supply, making available brands that are not readily available in China. This is an advantage that we plan to lean into, particularly in 2022, when international travel options out of China are expected to remain limited. Our third leg of our platform strategy is within Newguards, our brand platform. New Guards has a history of exciting collaborations, including creating one of Nike's most powerful collaborations ever, Nike Off-White. They are one of the few teams who have the DNA to bring a crossover of luxury and sports to life. We are tremendously excited about New Guards' recent addition of Reebok to its portfolio. via an agreement with Authentic Brands Group, ABG, to become the exclusive partner to create, curate, and bring to market luxury collaborations upon their announced acquisition of the brand, as well as a core operating partner for Reebok across Europe and distributor for all the brand's premium lines in over 50 countries, including US, Canada, and most of Europe. Reebok has an incredible heritage, and we have developed a fantastic rapport with ABG, who have a very strong strategy to reignite this iconic brand. The addition of the Reebok premium exclusive license is also a double down on our strategy for new guards to create significant buzz and organic traffic to the Farfetch marketplace, as well as additional business for FPS, which will power the digital sales under these licenses. As we approach the three-year anniversary of New Guard's acquisition, this strategy has been tremendously beneficial to Farfetch, as well as the individual brands themselves, with direct-to-consumer sales On Farfetch channels, growing from 2% of NGG revenues at acquisition to be by far the largest single channel for these brands to reach consumers globally. On the 28th of February, New Guards will stage a celebratory off-white show during Paris Fashion Week, honoring Virgil Ablou's unique contribution to the history of fashion. I will now hand over to Stephanie to update you on all things brand and customer. Stephanie.

Thank you, José. And hello, everyone. It's great to speak with you all today and give you an update on our progress on the demand side of our marketplace business. Over the past two years, we have acquired on average 500,000 new active consumers each quarter. And as we remain focused on retaining these customers, I'm pleased to share that in Q4 2021, we continue to see improved retention compared to 2019 levels. Our access loyalty program provides a framework for us to build a strong relationship with our customers. And in 2021, we saw customers upgrading tiers at a higher rate as compared to 2020. And as customers move up the tiers, we see increased average order values, frequency, and retention all the way up to our most valuable customers, our private clients. As we aim to continue to improve retention, some of our core initiatives are centered around leveraging our first-party data for a continued focus on personalization, including personalized communications, which have delivered a conversion rate 50% higher than non-personalized messages over the past few quarters. And we are also increasing access loyalty program engagement during early stages of the consumer lifecycle to drive repurchase rates, which have a high correlation with customer retention. More generally, I would like to spend some time today outlining three main areas of focus for 2022 on the customer front. Firstly, driving a balanced and efficient approach to performance marketing and brand investment. Secondly, driving advertising sales via our media solutions business unit. And thirdly, the launch of beauty. Starting with our approach to marketing. We want to be the most loved brand in the industry, building an emotional connection with our existing audience and acquiring new customers by playing to our only on Farfetch strength around choice, global community, our millennial Gen Z customer base, and as a marketplace, our ability to serve multiple points of view and stay on the leading edge of innovation. To do this, we continue to implement a full funnel marketing strategy, combining our performance marketing expertise with mid and upper funnel brand building activities. This strategy has delivered our highest ever brand preference and consideration in Q4 2021. And this is also reflected in the partnerships with brands who see us as a preferred marketing partner for product launches and exclusives, leveraging our editorial positioning, our global reach, access to multiple channels in China, and our innovation capabilities, thus creating a flywheel between our seller brands and our customers. Just yesterday, we partnered with Balenciaga to be their exclusive global multi-brand channel for the highly anticipated Yeezy Gap engineered by Balenciaga Collection. We're thrilled to be able to offer this much-hyped collab to far-fetched consumers around the world, including in China, where we also launched the collection on Tmall via Farfetch. These partnerships are as important as ever as the digital marketing landscape is changing, and we see the importance of balancing paid traffic with organic traffic generating initiatives. On our last call, we discussed these changes in the digital marketing landscape, including challenges related to IDFA, and laid out the initiatives we are taking to mitigate these headwinds. And as we had expected, these actions drove a sequential recovery in demand generation to 21% of digital platform services revenue in Q4, an improvement from 23% in Q3 2021. Specifically, we have continued to develop and enhance our digital marketing capabilities, leveraging our 1P data and tech resources to drive efficiencies across multiple channels, broadening our lower funnel channels, and increasing our investment in mid-funnel activities. In 2022, we plan to continue this approach to marketing, focused on being top of mind across different customer touchpoints with both paid and non-paid activities. This includes also leveraging our media solutions capabilities and brand partnerships, which in themselves provide valuable marketing moments to the customer. This leads me to the second area of focus for 2022, advertising sales via media solutions. As luxury brands increasingly recognize our 1P data capabilities and the value of our relevant community of luxury fashion shoppers, Media Solutions continued to gain traction in 2021. Throughout the year, we served campaigns for a diverse mix of over 85 partners, including brands such as Gucci and Prada, which run multi-part campaigns. Through these campaigns, customers are able to engage and interact with their favorite brands, while our partners amplify the reach and success of their collections, with one of our recent campaigns delivering a total reach of over 20 million visitors, more than double the monthly traffic estimated for some major brand.com sites. As an example of how brands leverage our innovation and editorial capabilities, In Q4, we partnered with Netflix and Balmain on the launch of their capsule collection for the release of the movie The Harder They Fall, which was exclusively launched on the Farfetch marketplace, Netflix shop, and Balmain's direct channels. The campaign included social content featuring 3D visuals woven into the recreation of the movie set pieces, combined with editorial elements highlighting the limited edition Balmain collection. This resulted in a 66% uplift in Balmain product listing page views during the campaign period. Additionally, 88% of campaign clicks were from new to Balmain visitors, with an average order value of more than $950, around 50% higher than our marketplace average. This year, we will continue to lean into our media solutions business, investing in developing our ad tech and programmatic capabilities, which will allow us to further scale our ad inventory, paving the way for media solutions to become a more material part of our business. Finally, on beauty, we remain on track to launch this category on the Farfetch marketplace in Q2. We will take a unique approach to beauty for both supply partners and customers, offering a differentiated experience and a curated offering. As you will have read in the ramp up to this launch, we recently announced the acquisition of Violet Grey, which will bring industry authority as well as a curated selection of products to the marketplace. Violet Grey is a cult favorite beauty destination with elevated content, which has built a devoted community who trust and love the brand for its expertise. Our overall strategy for this new category is to partner with beauty brands through an e-concession model, which differentiates us from other multi-brand online channels and aligns well with brands' own direct-to-consumer strategies. Combining this with our 1P business via Browns and Violet Grey, as well as exclusive supply from Mugards, we'll be able to offer a relevant mix of both larger established and indie brands. Our expansion into beauty will also provide brands an opportunity to reach our audience of tens of millions of targeted luxury visitors through co-branding and advertising sales opportunities. And now I'll hand the call over to Elliot to discuss our financial results and outlook.