Farfetch Limited

Good afternoon, and welcome to Farfetch Q4 2022 Results Conference Call. My name is Leila, and I will be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. Thank you. I'd now like to turn the call over to Alice Ryder, VP of Investor Relations. Ms. Ryder, you may begin your conference.

Hello, and welcome to Farfetch's fourth quarter and full year 2022 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 group president. Please note that during today's call, we will also be displaying a slide presentation throughout our prepared remarks, which can be accessed as part of a live webcast at farfetchinvestors.com. Following the call, the slide presentation will also be uploaded to the site. 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 made 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 factors section of our Form 20F filed with the SEC on March 4, 2022. 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, which is available on our website at farfetchinvestors.com. And now I'd like to turn the call over to Jose.

Hello, everyone. Thank you for joining us today. I'm pleased to report that in Q4, we delivered Group GMV in line with our expectations to achieve $4.1 billion of GMV and $2.3 billion of revenue for full year 2022. I want to highlight that In spite of unprecedented macro headwinds throughout the year, this result means Farfetch has continued to capture market share on a three-year stack basis with an approximate doubling of our GMV since the onset of the COVID-19 pandemic. Our Q4 results reflect higher-than-expected GMV from the marketplace, which was supported by strong supply growth from our luxury sellers. And while first-party remained a profitability headwind as we continued to clear through our inventory position, third-party gross margin improved year-over-year for the fifth consecutive quarter, and demand generation as a percentage of digital platform services revenue reached 16%, our lowest-ever level reported. These results reflect the disciplined approach we have implemented as we focused on improving profitability in 2022. 2022 was a year of profound reorganization and further cost rationalization across our business. I want to take a moment to walk you through these significant efficiency gains. These initiatives had two strategic objectives. First, to redesign our entire organization to support our mission of building the global platform for luxury and enable the incredible growth we have ahead of us, given our plan to hit $10 billion in GMV with a 10% to 13% adjusted EBITDA margin by 2025. As such, the marketplace's business pillar was overhauled with a new role of Chief Marketplace Officer being created as a single point of accountability. Our 1P businesses, which have reported to different branches of the organization historically, were also brought together with our 3P business to form a unified view of merchandising. And we now have a single chief fashion and merchandising officer overlooking both the breadth and depth of our supply across 3P concessions and 1P from Browns. All marketplace banners for specific categories such as Stadium Goods or Violet Grey were also consolidated under this single marketplace organization. We believe these changes will enable significant performance improvements for our 1P businesses by providing a better offer for our customers, as well as allow us to fully capitalize on our growth opportunities for the marketplace, as outlined in our recent Capital Markets Day presentation. Our two other business pillars, FPS and brand platform, are also organized with single points of strategic accountability, now reporting to the CEO. Finally, we've implemented a platform design in terms of our technology, operations, and business services functions, with an exec leading each of these platforms, reporting to me, and with clear SLAs to serve the three business pillars of marketplace, FPS, and brand platform. As a second objective in 2022, we also implemented cuts in our structural cost base for the marketplace core business, as well as the technology operations and business services functions. To date, we have taken actions to reduce our headcounts proactively to the tune of 17% of our starting 2022 headcount in this core part of our business. We have also initiated actions to reduce or eliminate up to 15 locations worldwide, in addition to reducing our retail footprint at Browns and Stadium Goods. What is particularly remarkable is that this was all implemented whilst we've also been servicing an 11% growth in marketplace orders, excluding Russia and China, an increase in overall active customers, and while of course also ensuring we built the platform foundations needed to deliver on key strategic enterprise deals in 2023. Altogether, these structural cost reductions are expected to deliver our targeted 2023 SG&A savings of $85 million, which would represent more than a 10% fixed cost reduction in our car business. Our restructured platform organization and recently signed projects are foundational to catapult Farfetch to the 10 billion GMV mark in 2025. In parallel, we have also been hiring specifically to support the growth plan for the FPS business and within NGG. These investments together represent over 100% of the expected SG&A growth in 2023, which will be partially offset by a minus 10% overall reduction in costs for the marketplace core business and supporting platforms to deliver a notable efficiency gain in light of our expectations for double digit order growth during the year. All of this means Farfetch begins the year as an even stronger and more efficient organization, which is why I'm more confident than ever about our prospects to deliver growth, profitability, and positive free cash flow in 2023 and beyond. This year, we will have the benefit of lapping the macro headwinds we faced in 2022, and I'm pleased to see that on top of this, we are also starting the year on a solid note. Our partnerships with Neiman Marcus Group and Ferragamo are on track to launch as expected in 2023 and our announced transaction with Richemont is currently progressing through the regulatory review process. The brand platform continues to deliver exciting content, including Off-White's iconic Chicago Bulls collab and Palm Angel's innovative partnership with the Haas Group of Formula One fame, as well as this week's unveiling of their spectacular collaboration with Moncler Genius during London Fashion Week. And we're in the final stages of preparing to launch Reebok in Q2 as planned. These plans solidify our targets for 2023. The investments we have made over the years to build out our platform infrastructure mean we now have the building blocks we need, which when combined with our galvanized teams means we have all the key elements to execute on our plan. As you would have seen from our 6K filing today, Elliot will be stepping down from his role of CFO at the end of the current year, after more than eight years at Farfetch. We will now start the search for his successor, and I look forward to working closely with Elliot, who will remain as Chief Financial Officer during 2023, to ensure a smooth transition. We are some way off from saying a proper goodbye to Elliot, but I want to thank him for his commitment to Farfetch and say he has been a fantastic CFO over the years and an important building block of our success. He will leave us with his legacy of the formidable finance and business services teams he's built to support a company that I believe is extremely well-placed to continue to lead the industry and drive profitable growth. Thank you, Elliot. With that, I'll hand off to Stephanie and Elliot to discuss further details of our progress in Q4 and 2023 outlook. Stephanie.