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Edited Transcript of ASC.L earnings conference call or presentation 16-Oct-19 8:30am GMT

Full Year 2019 ASOS PLC Earnings Presentation

London Oct 18, 2019 (Thomson StreetEvents) -- Edited Transcript of ASOS PLC earnings conference call or presentation Wednesday, October 16, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Alison Lygo

ASOS Plc - IR Manager

* Mathew James Dunn

ASOS Plc - CFO & Director

* Nicholas Beighton

ASOS Plc - CEO, Member of Executive Board & Director

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Conference Call Participants

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* Adam Gareth Cochrane

Citigroup Inc, Research Division - Director

* Andrew Hughes

UBS Investment Bank, Research Division - MD and Head of the Pan-European Non-Food Research

* Anne Critchlow

Societe Generale Cross Asset Research - Equity Analyst

* Charlie Muir-Sands

Exane BNP Paribas, Research Division - Research Analyst

* Georgina Sarah Johanan

JP Morgan Chase & Co, Research Division - Analyst

* John Stevenson

Peel Hunt LLP, Research Division - Analyst

* Michelle Wilson

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Olivia Townsend

UBS Investment Bank, Research Division - Analyst

* Rebecca Anne McClellan

Grupo Santander, Research Division - Equity Analyst

* Simon William George Irwin

Crédit Suisse AG, Research Division - Director

* Tushar Jain

Goldman Sachs Group Inc., Research Division - Research Analyst

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Presentation

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [1]

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Okay. Good morning, everybody, and welcome to ASOS, and specifically, welcome to the ASOS den. And welcome to all those people joining us on the -- live on the webcast this morning.

So I'm going to set out an overview of the results for last year and some of our key priorities for the year ahead. Matt will then take you through some of the business performance, and I'll talk you a little bit through the ASOS strategy, how we continue to build for the future and update on the work we're doing to strengthen our executive team.

So on to the results. Last year was a pivotal year for ASOS, during which we significantly enhanced our global platform capability to drive our future growth. We have built localized tech, coupled with in-country logistics and stockholding capacity.

Thank you, Alison. I'll do that again. So last year was a pivotal year for ASOS, during which we significantly enhanced our global platform to drive our future growth. We built localized tech, coupled with in-country logistics and stockholding capability in our key strategic markets. Clearly, the year didn't go as planned. It was way more disruptive to our business and our customers than we originally anticipated. We still grew by 13%, adding over GBP 300 million to our top line and acquiring 2 million customers, however.

I'll take you through our view on some of the key challenges and the progress over the next slides. But stepping back for a little bit, in spite of the huge disruption, pleasingly, P4 ended the year with a much better finish: visits, up 20%; and sales, up 15%.

Turning to our transformation and the disruption it caused us. While it was painful, but it was pain with a purpose. The rapid growth of our business over the recent years mean we needed to scale up our logistics and scale up our technology to establish a platform for our global growth. Most of this heavy lifting is now behind us, and we made good progress on fixing some of the issues and we've learned some important lessons along the way. With hindsight, we were overambitious in tackling 2 international warehouses at the same time. The scale of change broadly called 2 sets of issues: one, implementation problems with the warehouses themselves and then our focus being deflected on some of our core competencies.

On the warehouse transition, we have built a dedicated stock package in the U.S. for the warehouse, but demand, when we cut over, was way ahead of our expectations and we simply hit fulfillment problems. These operation issues were resolved in several weeks, but the subsequent building out of our stock package, predominantly in the width of our third-party brands, took a lot longer than we thought. These issues are now behind us, and we're building up our U.S. importer credential as well. We've made good progress towards rebalancing the products in the U.S. and believe we'll be back on track by the head of peak trading.

In Berlin, our work to expand and automate the Euro Hub had an encouraging start, and we're processing greater volumes than we originally expected. But it didn't scale up and we -- as planned, and we encountered a number of software-related issues that hit stock availability and delayed the extraction of operation and productivity benefits. These automation issues are now resolved and we've started to see availability and productivity improvements flow.

Turning to the deflection from our core competencies. In short, ASOS simply didn't look or feel as good as it should for our customers. This was felt in our product presence, our product width, our product newness and our product pricing. And it also rippled through to our social media. It's now clear that our internal capabilities and bandwidth simply weren't strong enough to take on this level of transformation and keep up with the day job. We should have worked harder to ensure that our capabilities in technology, logistics and our people bandwidth were strengthened in sync. This would have meant we will be better able to maximize the benefits from the change and minimize the risk of poor execution.

In April, I talked you through some of the missteps on product and customer engagement and set out the actions we were taking to address that. This work has continued in the second half, and we've seen encouraging signs feed through to our performance.

In summary, we're confident we have correctly diagnosed the issues and made good progress in addressing them while remaining mindful of the need to keep up our momentum. This was undeniably a painful year, but one we have built a foundation to now compete on the global -- as a global leading online retailer.

So turning to our priorities for FY '20. This year will be all about enhancing our fitness for the next leg of growth, focusing on our strengths, leveraging investments and rebuilding momentum. We're clear on these priorities and how these projects will achieve this and capitalize on the opportunity ahead of us.

Firstly, we're strengthening our organizational capability. This means both bringing in greater experience in core areas, refocusing our teams and building greater agility, more strategic alignment, enhancing both our financial and operational grip, which is critical for the next phase of growth. I'll talk you through later the changes to the management structure.

On costs. This year, we're looking more closely at costs than we've ever done. This means removing nonstrategic costs, going hard in other areas of cost to support growth and future profitability.

Next, and of course, it's all about great product. It's about increasing our choice, increasing our competitiveness of our pricing, beautiful presentation, great availability and tons of newness.

Since Q1, we've upweighted our investment in models. We've restyled, reshot our product presentation and enhanced both the velocity and quality of our momentum on social media. And we will continue to do more of this.

On product. Our propositions have always been -- our products and our propositions have always been our best customer acquisition mechanism. We're augmenting this approach with many more levers, using far more influencers, for example, optimizing existing levers in digital marketing and reinvigorating some old ones such as ASOS Premier.

Finally and fundamental for our future growth, we'll be ensuring we leverage the benefits of the logistics and technology platforms we have built.

I'd now like to hand over to Matt, who will run you through some of the business performance.

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Mathew James Dunn, ASOS Plc - CFO & Director [2]

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Thanks, Nick, and good morning, everyone.

Let me start first with our overall financial results. Whilst these results are clearly in line with or better than the guidance we gave back in July, clearly, F '19 was a disappointing year. All our key fit financial metrics have been impacted by the significant investment we undertook in order to effect the transition to a truly global platform and the consequent disruption we experienced.

I'll cover sales performance in more detail shortly looking at the underlying drivers by geography. But overall, we delivered a 13% increase in sales. Our gross profit increased by 8%, with gross margin declining by 240 basis points, driven by 3 principal factors: the shift to a local platform in the U.S. where we now incur inbound freight and duty; adverse product mix with the expansion of our high street offering; and adverse country mix as a consequence of the supply chain issues associated with the transition we have been undertaking. There was some incremental price and promotion investment which also impacted gross margin, but this was a relatively small factor when compared with the other drivers.

PBT was further impacted by a number of transitional impacts from the logistics transformation program. Overall transition costs including restructuring stood at GBP 50 million for the year, a year-on-year increase of some GBP 25 million.

Capital expenditure came in at GBP 195 million, a reduction year-on-year and reflecting the last year of elevated investment in support of the warehouse transformation program. This investment was the principal driver associated with the cash outflow and consequent increase in net debt for the year. I will also cover this in more detail shortly.

But turning now to our regional performance. In the U.K., we delivered a pleasing 15% sales growth for the year. This reflected a strong step-up in conversion as our proposition drove further improvements in the shopping behaviors of our loyal customer base.

As you can see from the quarterly chart, performance was pretty consistent throughout the year. However, as the year progressed, we saw both new customer acquisition and reactivations accelerate. This reflected the strength of our Spring/Summer product, the actions we have taken to improve presentation and engagement and a shift in our promotional stance as we introduce shorter, sharper, higher customer impact events. This did require some incremental investment, as I've already mentioned, but we continue to see that both the incrementality and impact of these events driving positive customer behavior.

As we look forward, we expect performance to be supported by the improvements we've made to our products and presentation, but in the context of an intense promotional environment. We will also watch consumer confidence carefully, particularly in the context of Brexit.

In the EU, we saw sales growth of 12%. These lagged our visits growth of 16%, largely as a result of the restricted product availability consumers experienced in P3 and P4. Although as you can see, this situation materially improved towards the very end of the year as we made progress in resolving the challenges we had faced with embedding automation. Our ABV was also impacted by stock availability from the transition with dresses in particular restricted, and hence, we felt a drag on ASP.

Sales growth in Sweden and the Netherlands was strong across the year following the introduction of new local language sites in FY '18 -- late in FY '18. We have recently launched new localized sites for Denmark and Poland. And whilst these are currently small territories in the context of Europe for us, we would hope to see a similar impact, particularly given the low levels of English penetration in Poland.

We also saw sales of cold-weather product accelerate earlier this year than last as we cited the prolonged hot weather in the prior year across Europe.

With the warehouse transition issues largely behind us, our focus is now on reactivating customers we may have disappointed this year as we head into the peak trading period. We will also start to fully leverage the opportunity from the automation, which should, in turn, generate further efficiencies and improve our customer proposition. We remain at a price premium to our competitors in Europe, and we'll review our pricing carefully as we start to realize these efficiency benefits.

U.S. sales growth of 9% was clearly disappointing. The sales impact of the disruption we experienced in P2 from the warehouse switchover is clearly evident in the chart. Unfortunately, some residual impact of the transition to our U.S. warehouse weighed on performance for the rest of the year. In particular, the range of available product, whilst improving, was below planned levels and certainly below that service that [advancely] in the prior year. This impacted all metrics, visits, orders and ABV, as the product offering was not as compelling as that which we had planned to deliver.

Whilst this improved through P4, the service issues in P2 had inevitably led to a mismatch in seasonal stock profile, which we sought to clear so we could enter Autumn/Winter in the right shape to maximize the opportunity around peak trading. This impacted our average selling price and hence our ABV. As the situation improved, customers in the U.S. reacted well to the implementation of Klarna Pay-in-4, which launched at the end of July, and quickly established a healthy share of payment mix. And the rollout of new customer trialed to discount codes on-site also worked well in the U.S. and drove a stronger new customer acquisition trend towards the end of the year.

Despite the challenges we have had in getting the warehouse operational, our U.S. hub is now serving us well and we have significant headroom for growth. As we look forward, we will continue to focus on reactivating our customer base as well as building awareness of our now market-leading proposition amongst a broader range of potential consumers.

The start of the year was disappointing in our Rest of World segment, impacted by a pull back on Black Friday promotional activity in a number of our key territories, notably Australia and Russia, reflecting capacity constraints in Barnsley ahead of the U.S. warehouse transition.

Following a disappointing P1, we saw really pleasing visits and sales growth for the rest of the year in our Rest of World territories. This growth was supported by a more local, more relevant promo calendar, with strong executions around Ramadan, for example, and more locally relevant payment methods, which we've seen deliver results across the geography. Both of these enhancements created a much better connection with our customer, and as a result, customers visited us more often and also put more items in their basket when they did so.

Looking now at the rest of our income statement. As I mentioned earlier, there were a number of factors that contributed to driving the decline in gross margin. We would expect the U.S. freight and duty impact to continue into next year, although the impact should be -- start to be cycled as we head into P3. The country mix impacts are obviously harder to predict, but with a more stable operating environment, we wouldn't expect these to continue. We will continue to grow our branded options in support of customer choice and relevance, although with ASOS Design performance improving, we would expect that impact to moderate somewhat. And as I have referenced, we expect the promotional environment to continue to evolve, especially given its increasing prevalence as a customer acquisition tool.

Moving down the income statement. We did start to see the delivery cost savings as expected from local U.S. fulfillment, and this worked to offset the incremental freight and duty incurred in gross margin. Warehouse costs were up largely due to transition cost impacts. As you will all be aware, transition costs encompasses both one-off costs we incurred in the transition as well as an estimate of the inefficiency we have in our facilities relative to the expected end state. We would, therefore, expect a significant proportion of these costs to fall away next year, with the rest falling away over time as we drive the efficiencies we expect from the EU automation in particular. These are, in part, a function of the capacity and throughput each warehouse has, which is why it is hard to be specific as to the exact timing of these benefits. It is worth bearing in mind that whilst these transition costs measuring Euro Hub inefficiency and U.S. ramp-up costs start to fall away, these facilities, in particular, the more manual U.S. warehouse, are less cost-efficient than Barnsley. So we will still experience an overall cost impact as a result.

Our other costs were all in line with or lower as a percentage of sales year-on-year. This reflected the first steps in our approach to evaluating our cost base, which I will cover in more detail shortly.

Finally, depreciation stepped up 30 basis points to 2.6% of sales as expected. Given the investment we have just completed, it will step up again in FY '20 to around GBP 100 million mark.

We closed the year with net debt of GBP 90.5 million, a little less than 1x EBITDA.

I'll now walk you through the key cash flows in a little more detail. Firstly, we saw some incremental working capital investment associated with the transition to 3 warehouses. We then invested total capital expenditure of GBP 224 million, with significant investment into our transformation initiatives. This includes payments associated with our FY '18 investment broken out on the slide as capital creditor contribution.

As you can see on this slide, we have tried to isolate the transformational elements of our capital expenditure, and they accounted for GBP 79 million of our total program spend of GBP 195 million. The balance of around GBP 120 million is a reasonable approximation of what we see as our core replacement capital expenditure. Therefore, as our spend returns back towards BAU levels, you can expect our programs to encompass this plus specific investment opportunities and one-off projects, for example, our TGR program in FY '20.

As Nick will cover shortly, we have invested to create significant incremental sales hedging for our business to grow into. We, therefore, anticipate our capital expenditure being around GBP 150 million on a run rate basis, but we will provide specific guidance on this for each financial year as we go, as the elements will no doubt evolve.

Before I turn to a series of more technical points, which I would like to provide clarity on, I wanted to spend a moment or 2 describing our approach to cost control and resource allocation. As you would expect, we have taken a long hard look at every cost or investment in our business as well as the process we use to manage our financial performance. This has identified a series of areas where we believe we are not getting the benefit or return we anticipated and therefore have identified an opportunity to remove these costs. Examples of this include: duplication and lower-return income statement investments, which have understandably risen as we have grown at pace; streamlining our organization to better fit our requirements going forward; nonworking marketing spend, which is here classified as spend, it doesn't have a direct impact on the consumer such as agency fees or commissions; and supply-chain efficiencies, whether in our footprint or in our partners. We have also sought to ensure that as we have invested to support our global growth, our partners are supporting us at an appropriate and competitively sensible level, reflecting the access to global growth, new markets and customers we provide.

We have a number of early actions in progress, and we hope that this will provide a source of future profitability for us as we move forward. As you would expect, these initiatives will allow us to improve our margin but also critically to create incremental fuel for growth as we invest into ensuring our proposition is as compelling as it can be for customers. We believe there is an opportunity to invest into both our customer-facing pricing and into supporting high levels of engagement. Both of these would enhance our consumer offering, which should support profitable growth going forward. At the same time, we are looking at opportunities to improve our tools and processes to ensure we optimize the return on whatever spend we choose to reinvest.

We have not provided guidance on either the nature or size of these opportunities for a number of reasons. Firstly, it is early days and we are just starting this work. Secondly, we need to retain flexibility in terms of what we reinvest for long-term growth versus enhancing our margin in the shorter term as we refine our approach. Given this, I thought it would be useful to clarify how we intend to manage our financial performance going forward with the rigor necessary to derive the appropriate benefits.

Firstly, we have already worked at improving our KPI dashboards to enable better inflight control, which should enhance short-term decision-making. We intend to complement this with a significantly greater degree of rigor in our performance management processes. This will not happen overnight, but it is clear that with the scale and complexity of the business now, we have work to do to ensure the right levels of accountability, decision-making and information flow across the organization. This will require new processes and ways of working.

We are also enhancing our focus on capital discipline and cash management. Keeping up with growth has historically been the priority. But with significant expansion with hedge room and more of a premium on cash given our net debt position, there are opportunities available to us. One example you may have already seen has been normalizing our supply payment terms where there was an opportunity to do so.

Turning now to accounting, technical and funding matters. As an incoming CFO, I have reviewed our approach to guiding the market and thought hard about what is right for the business and our stakeholders. And as a result, we have decided to make a change, which is reflected in both our statement and presentation today. We are conscious that some very specific guidance can be helpful, but on balance, I don't believe that the narrow and rigid financial guidance we've given in the past is helpful to us or our investors.

I think it's more useful to provide 2 things: direction on the key value drivers of our business, both operational and financial, and a clear set of priorities which you can measure and evaluate us against. This should create greater visibility and insight over time. And to support this, we are committed to providing transparency on the key financial and operational KPIs so that our progress can be measured and evaluated.

We will, however, provide guidance on technical matters, and in this respect, I have a couple of updates. As previously stated, we expect our CapEx to be circa GBP 150 million for the F '20 financial year following the completion of the warehouse investment program. We also expect our interest charge to be in the low single-digit millions of pounds.

I have also reviewed all of our accounting policies and believe them to be appropriate. However, I thought it might be worth covering our approach to CapEx in particular as I'm aware this has been the area of most debate.

As a reminder, we capitalize tangible assets in line with their expected lives. For intangible assets, we adopt a similar treatment, which means, in practice, where we are building systems or elements of our infrastructure which will last beyond 12 months, we capitalize the costs associated with the creation of these and then depreciate them over the life we anticipate they will have. We use a rigorous timesheet process to ensure we capture this spend appropriately. Having reviewed this approach and the type of assets we create, examples include features on our website, the facilities to accept a certain type of payment method and systems which enable us to manage our stock, cash and accounting, I believe it is absolutely appropriate to treat these in this way as it gives the most clarity to our financial statements.

We also provide extensive disclosure on our CapEx so investors can make adjustments should they wish to do so. Not adopting this treatment would lead to a significant mismatch between the costs we incur and the benefits we derive from them. I do not believe this would help the users of our accounts. This treatment is also in line with the vast majority of our peer set who use technology to sell product, so I also believe it creates comparability insofar as this is possible.

As a result, I have undertaken a review on whether we have the appropriate asset lives. I also believe these are appropriate, but we have changed them twice in 2 years and therefore commit to sticking with the current lives going forward. This will be balanced by a thorough impairment review process, which we are required to undertake under the relevant standard each year. Having performed this review, we have taken a small charge this year, for example.

In terms of new accounting policies, we will implement IFRS 16 next year. As you can see from the slide, we would expect this to have a relatively small impact on our income statement.

Turning now to Brexit and our preparations. Whilst we are a U.K.-based business, we have an increasingly global warehouse footprint and our EU customer orders are already filled -- fulfilled from our Euro Hub in Germany, for example. Therefore, the key risk to ASOS are predominantly increased duty on cross-border product flowing in or out of the U.K. depending on the final nature of the U.K.'s trading relationship as well as disruption at ports and any impacts on broader consumer sentiment. In these, we are not alone. We do not believe any of these threaten our ability to operate. And while the impact cannot be fully mitigated and we cannot fully insulate ourselves from potential disruption, we are as prepared as we can be and have already taken action to remove our reliance on key U.K. entry ports as well as looking at our supply footprint to ensure we minimize product flows which would incur incremental duty.

Finally, I want to cover our balance sheet, and in particular, our recent refinancing. We have put in place a GBP 350 million facility with 5 banks. This is priced attractively at 80 basis points margin and it has a term of financial years and a standard covenant set. We believe this provides appropriate flexibility as an instrument, given we only draw it if needed. It also provides adequate headroom for our working capital cycle, which is typically about GBP 100 million from peak to trough, and for any unforeseen surprises in the trading environment.

After all of that rather lengthy detail, I will hand back to Nick to take you through our plan and priorities for next year.

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [3]

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Thank you, Matt. So before I go on, I just like to take a step back and remind you what ASOS is all about. I set out on this slide an overview of our strategy. We have never lost sight of our mission or our significant opportunity. Our proposition, our focus and ability to win remains as firm a commitment as ever. As I said earlier, however, we do recognize there's far more that we need to do in terms of enhancing our capabilities to ensure we deliver against our ambitions and we can leverage the investments we've made.

So onto leveraging our investments. I'm now going to take you through the logistics infrastructure, which I'm pleased to say again is all working as planned. These facilities that we have built means that we have more than doubled our stockholding capacity and trebled our stockholding capacity since 2016. I might just pause and say that again. We have doubled our stockholding capacity and trebled our throughput. So throughput capacity is now 5 times greater than it was 5 years ago, moving from 2 million units a week to 10 million units a week. We often refer to the productivity link of these investments, i.e., CapEx investment, capacity enhancement, cost reduction and then customers seeing the benefits that drive sales and profitability to greater propositions.

The chart on the bottom right demonstrates just how transformational 2019 was. Picking out a couple of points. Our stockholding capacity has increased by almost 25 million units and we've added 4 million units to our weekly throughput. This enhanced capacity is also in our key strategic markets: the U.K., U.S. and EU.

In the Euro Hub, which is just outside of Berlin, the intake moves from the backdoor to the shelf in less than 15 minutes, and the fastest order is picked in just under 2 hours. And there's further to go here. Future productivity at peak through this facility is driving a similar throughput to Barnsley with 1,000 fewer heads. We've already started to leverage these benefits for our customers in this facility. We've pushed the express cutoff back to 4:00 p.m. for next-day delivery, and we have midnight cutoff in 28 German cities. This improvement in customer experience will drive future sales, and it's only the start of further enhancements to come.

In our U.S. warehouse in Atlanta, this is a 1 million square feet facility. It's been built initially on a semi-automated basis, and this facility has been working well now for several months. In its current state, it's able to double the size of our current U.S. business, and then we can further enhance our capability through extending the automation and mechanization as the demand ramps up. The enhanced U.S. logistics also complements our tech platforms that have landed in the U.S., which means customers in different U.S. geographies, different time zones get a localized offer reflecting their climates, their time zones, their state and county tax at checkout. We've also rolled out a highly competitive next-day delivery proposition across the U.S., particularly in New York, Philadelphia and Boston. And we're targeting other key cities and customer hotspots from the East to West Coast.

Finally, turning to our Barnsley facility in the U.K. The key development here was the ramp-up of our dynamic buffer. Just for information, the dynamic buffer is an AI-driven, predictive purchase-picking system, which is having a real impact on efficiency and returns handling. Barnsley now has a greater throughput at a lower cost than we originally scaled, and the success of this initiative is being replicated in the year ahead.

Just as a reminder, in high-growth e-commerce, efficient logistics platforms, capacity and scale are the key strategic advantage. And we now have that advantage in spades.

Just going to show you a quick video of our Euro Hub because I know most of you haven't seen it.

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [4]

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Okay. I hope that gives you a sense of the scale and capacity we've built in Berlin.

So moving on to our tech platform, where we have a global, scalable platform and we will continue to enhance this. This is a platform that copes with local differences and demands and spikes in volume like events like Black Friday.

As the chart demonstrates, we saw more than 2.3 billion visits through our tech stack during the last 12 months, an increase of 15%. That's more than 1 billion visits increase through -- since 2016. During our recent volume test, such as the flash sales and red pen events, we've proven our platform can comfortably handle more than 1 million orders in a day and a throughput of 70 orders per second.

Our IT systems are designed and deliver a friction-free, personalized and local experience on any device. We have 200 local experiences, 12 local languages, 19 currencies and we -- and 10 different payment methods. And we plan to scale this further during the course of the year.

We have almost 18 million active app installs, 12.8 million of these on i OS, where our customers have an average of 30 visits a year and a dwell time of nearly 10 minutes. We're working to improve process efficiency too and embed more automation across the business, e.g., embedded software in our returns processing centers, which will improve productivity by 10%.

There are some more changes to come with the implementation of our Truly Global Retail systems, which will be phased over the coming 12 months. This will help drive better and faster decision-making for our retail teams, give us the ability to effectively plan and trade by distribution center, which in turn will enable our growth, giving more improved visibility and greater flexibility across our product, our stockpile and our merchandise planning.

Turning on now to strengthening of our management team. As I said earlier, with hindsight, it was clear our internal bandwidth and structure had not kept pace with the growth and the increasing complexity of our business. This chart shows you how we've moved more decisively to address this. And I have to say I'm very excited about the caliber of people I've been interviewing and the caliber of people that have been applying.

We will be soon welcoming a new Chief Commercial Officer, who will take ownership of our execution of our retail strategy, from how the product is designed, sourced, all the way how it's presented in front of the customer. And we're currently at final interview stage on this appointment. The new Chief Growth Officer will take ownership of our global marketing strategy from the entirety of the customer journey, from acquisition to customer care. And this role is currently at offer stage. Our new Strategy Officer will be responsible for the orchestration of our future business development, our future strategy, horizon scanning and competitor analysis, ensuring alignment across the executive team. And we're on the shortlist for this role. Finally, a new Chief People Officer will support the transformation in our organizational design and our organizational culture, looking to harness the talent and the passion of our people in a more efficient manner. We're also at final interview stage for this role. We've been working hard on restructuring the team also below the exec level, and we'll continue to do so to ensure we have the right talent in the right places and the necessary capabilities and agility to support our future growth.

Turning to product now. The breadth of our product, the constant newness continues to differentiate ASOS and the ASOS proposition for all our fashion-loving 20-something customers. Our model is based on offering a balance between curation of product from the most relevant and popular third-party brands and the exclusive product from the ASOS family of brands. This ensures we maintain our appeal to a broad range of customers and customer styles and looks and can offer the right item for each key moment in your fashion life. We offer products from high-fashion to dressing down, from the working week to working out, from going out to going casual, so covering all fashion moments. And of course, it's not just clothing. It's footwear, it's accessories, and we now augment this with a growing face and body offer.

The ASOS edit covers more than 800 third-party brands, and we're constantly actively reviewing this portfolio to ensure relevance for our 20-something customers, brands including up-and-coming labels such as Never Fully Dressed, AYM, I'm sure you've all heard of those. And at the same time, of course, we have many of the world's biggest players across fashion, activewear, face and body. You can see some of the highlights of this year's 250 new brands on screen. This will give us more than 85,000 products on live, and don't forget the 160,000 products live on our ASOS Marketplace.

A couple of the highlights to pull out on the exclusive collaborations this year. In October, we had great success with LaQuan Smith, the collab from the New York designer known for his form-fitting, bodycon dresses and standout footwear. And in July, we had the Lion King collection launched alongside Disney's remake of the '90 s nostalgia with standout prints. Our multibrand offer means we have a really rich dataset and insight on how a customer shops, what they're searching for, what they buy and what they don't. This data is almost unparalleled in 20-something fashion space, and we use it to effectively work to constantly evolve our portfolio, and importantly, we use that data to help inform our exclusive collaborations, our brand positioning, and more importantly, the work on our own brands.

Moving onto our own brands. We have a collection of strong internal brands, all created in-house, with a distinct identity, offering everything from minimalist scandi to streetwear to tailoring. There's around 35,000 ASOS own-brand products on-site at any one time, and that's supported by a team of around 100 designers. These brands deliver already more than GBP 1 billion in revenues, and their growth rate has accelerated in the final months of the year. So ASOS Design remains at the very heart of our product offer, and we constantly evolve this portfolio.

Collusion is the newest addition to the ASOS Design family. This is focused on our youngest customers and created in collaboration with a number of Gen Z influencers. It was launched a year ago and has already delivered stellar performance through its first 12 months. It's comfortably established itself within the overall top brand portfolio, and has done exactly what we hoped it would do. The brand was searched almost 2 million times on site and we sold more than 150,000 items already, a testament to the internal strength of the ASOS Design.

I know we said earlier that part of the disruption effect was felt in ASOS Design earlier in the year and some of this -- have I lost it? There we go. Sorry, I think I've lost this. One minute. There we go. Sorry.

I know we said earlier in the year the disruption effect was felt in ASOS Design, where we did lose some of our traction. I'm pleased to say the corrective actions we took following Q1 have improved performance. You will note in the statement this morning that our P4 mix for ASOS Design increased to 40% from 36% for the whole of H1. And it's been particularly strong in the U.S. and EU. There's always more to do here, but I'm really pleased with the progress we've made so far.

Onto customer acquisition. ASOS' approach of acquiring and retaining and connecting with our customers also remains at the heart of what we do and how we drive sustainable growth. And it is a key strategic priority for us, and we have been good at it. We know where we fell short in this area this year and we've taken decisive action to correct that, and we're already seeing signs of improved engagement. Underlying customer momentum is improving. Visit growth accelerated in the second half as did our customer acquisition, and within that, an improved traction with our younger customers, our sweet spot.

So what have we done? We've realigned our product presentation where we have seen greater uplift in this product and we've refreshed. You might remember, I broke out a few examples in April. Progress there has continued. We increased the velocity and improved the content of our customer conversations in social media, and we focused on always-on content approach in H2, doubling the amount of content we have produced to an average of 1,000 pieces a month on the most important 20-something channels such as TikTok, IGTV. And this has helped our engagements rise almost fourfold in the same period.

We've been optimizing our user promo activity. You may have seen us experimenting with different promotions and mechanics over the last few months. Promo activity is a key tool for customer acquisition, and it's been particularly effective in reactivating some of the younger customers.

We've also been experimenting with influencers. You may have seen collabs with Madison Beer, Ovie and Swae Lee most recently. We've also worked very hard at restoring our SEO globally and we're making great progress in this area.

I'm now going to show you a short video that pulls together some of the design improvements, the presentation improvements and some of our social media improvements to give you a sense of the work we've been doing.

(presentation)

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [5]

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Thank you. So that's the work we've been doing to resonate and improve our product offer, our product presentation. If everybody wants that track, we'll give you the details later on and you can download it on your phones.

So on to Fashion with Integrity.

In 2010, ASOS launched the Fashion with Integrity program and we revitalized it again in 2015. We did this because it's the right thing to do. We care passionately about it and so do our customers. Fashion with Integrity is how we do fashion. It's embedded in all aspects of our business. We believe in having a clear stance where sustainability will be a clear driver of customer choice. And those that don't show this type of commitment will lose customer traction.

We have 3 strands to our Fashion with Integrity. Within product, we've made substantial investments in responsible sourcing and sustainable sourcing. ASOS Design products now have more than 80% sustainably sourced cotton, and we're confident of reaching 100% by 2025. We've made great progress in utilizing more sustainable recycled fibers, almost 40% of our product uses this now. We're pleased to be influencing positively on a global stage with our participation in the global fashion agenda to promote circularity in our supply chain.

On packaging, 100% of our boxes are made from recycled cardboard and are 100% recyclable. ASOS Design logo bags are 100% recyclable and currently made from 35% recycled material, and we're looking to increase this. We're working on reducing the amount of unnecessary packaging within the garments and with our supply chain generally. And we're currently piloting a paperless returns process in the U.K. and we'll look to extend this, which just removes more and more paper from the process.

On people, we aim to ensure that wherever the ASOS brand falls, the workers within our supply chain, the workers in our facilities have the correct working conditions, have the correct living wage, and we encourage freedom of association, so these things can be adhered to. This extends our reach not only to Camden to our warehouses in both Barnsley, Berlin, Atlanta and the 100,000 people globally who work on our garments. All our third-party brands are expected to sign up to 5 principal commitment.

So in summary. We are now through the last years of our heavy investment, and together with the disruption and additional costs that came with it are approaching an end. Our logistics operations are performing well and as planned. The heavy lifting in establishing our global platform is behind us with just TGR to go. We're addressing our cost base, removing nonstrategic costs and streamlining our operations and our structures. We're strengthening our internal capability and our internal management. Our focus now will shift to ensuring we have extra capabilities to drive customer benefits, improve the customer proposition, drive efficiencies and returns from the investments we've made. Despite the retail and political climate that is far from stable, we do remain confident of leveraging these investments and sustainably growing our business and increasing our profitability. We ended FY '19 in better shape and better position than we started it. This is in terms of our operational capabilities, our customer momentum and our sales momentum. And we've had a solid start to FY '20. We have a clear set of priorities set up for the year ahead and feel comfortable in our ability to navigate these challenges. And we look forward to the prize ahead of us with confidence.

Thank you very much, and I now hand -- like to hand over to questions.

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Questions and Answers

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Charlie Muir-Sands, Exane BNP Paribas, Research Division - Research Analyst [1]

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Charlie Muir-Sands from Exane BNP Paribas. Just 2, please. I appreciate on the guidance you want to maintain flexibility, but I wondered if returning to being free cash flow positive is an important strategic step you would hope to achieve this year.

And then secondly, the U.S. sales growth in the fourth quarter looked like it dipped back down again. I appreciate it's only a 2-month period, but I wondered if you could talk about whether we should read much into that or what underlying metrics give you confidence that the U.S. customer is coming back.

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Mathew James Dunn, ASOS Plc - CFO & Director [2]

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Yes. I'll answer both of those. So on U.S. sales growth, I think P4 was particularly impacted by the decision to kind of reset our seasonal stock profile. And because of the challenges found in P2, we effectively had become unbalanced so we effectively marked down a lot of product. And so I wouldn't read too much into the specifics of that.

In terms of your question about underlying performance, what we saw through the period was an acceleration in underlying visits growth and orders growth, but obviously, ABV impacted by the markdown.

In terms of free cash flow, as you quite rightly say, we haven't given specific guidance. But what I think you can see certainly in terms of market expectations currently is that when you look at kind of consensus EBITDA of about GBP 160 million, the CapEx guidance we've given today of around GBP 150 million, depending on what assumptions people do or don't make around working capital, you'll end up in a position that's either broadly cash flow neutral, slightly positive, slightly negative. So given the cycle and timing of working capital, it'd probably wrong for us to commit one way or the other, but you can see that we would expect our cash flow position to be materially better than it was in FY '19.

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [3]

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Adam? While you're on the same -- sorry, Simon, you've got the mic.

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Simon William George Irwin, Crédit Suisse AG, Research Division - Director [4]

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It's Simon Irwin from Crédit Suisse. Just 3 questions for you. Given the 2-year lag between making decisions and putting in new capacity, how far out do you think the current capacity will take you? What are your plans beyond that?

Secondly, can you just give us a flavor of the response you had to price investment, particularly in Europe, through the second half of the year? Inferring that you might need to do a bit more.

And thirdly, can you just talk a little bit about Black Friday? Obviously, I don't think you're going to publish your entire plans, but should we expect that Black Friday is going to become increasingly promotional going forwards? Or is it more a question of being practical?

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [5]

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So your first point is on capacity. You remember us talking about laying down capacity for at least GBP 4 billion of throughput. We've done that. And so that's what we've built already. You can see a substantial capacity and throughput in investments that we all -- and capacity that we built. So what we've got right now will take you through GBP 4 billion. At that point, we'll then be looking to enhance our facilities even further. So when that comes, we'll then guide you accordingly.

And on investments and pricing in Europe, we've not made any structural investments in our European pricing. We've taken the approach to expand with different promotional mechanics during the course of the last couple of months, and we had good reaction to those with our customers. Once we're through Black Friday, we'll have a really good look at how we think about our pricing and the investments we may or may not make into the second half.

And the third one was Black Friday. I -- you -- the mic swallowed your words, Simon. What was the question?

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Simon William George Irwin, Crédit Suisse AG, Research Division - Director [6]

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Just really asking as to kind of if you can give us at least some flavor as to how you're going to approach it this year and whether we should be now thinking about Black Friday as being increasingly promotional and margin dilutive, but something you have to do, or whether you think you can just be more tactical and trade your way through it.

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [7]

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Sure. Well, I can tell you we are set up better for this Black Friday than we were last year and so -- and we're confident -- we've been trialing a number of mechanics you will have seen over the last few weeks to see how we -- which are volume tests and things like that.

What do I think about Black Friday? It's going to be of increasing importance to customers if it isn't already, and we will play within it. The benefit for Black Friday for e-commerce is you gather data and it's one of the biggest customer acquisition moments in the year. So we will continue to participate in it.

Do you want to go over here somewhere? There? Sorry, Anne. There you go. You grabbed it.

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Anne Critchlow, Societe Generale Cross Asset Research - Equity Analyst [8]

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Okay. It's Anne Critchlow from SG. Two questions from me, please. You talked about ASOS Design being 40% of sales in P4. Does that include all of the own label that you've got, including Collusion, et cetera? And also, could you give us the number for the full year?

And then second question, on inventory, up 32% at the end of August. How clean was that? Can you give us an idea of percentage of currencies and stock within it?

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [9]

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Sure. I'll start with inventory. The -- depending what may or may not happen to the U.K. on the 31st of October, we took the decision to actively bring and accelerate a lot of our intake. So that's what you've seen at the end of August, and we've continued to do that during September.

In terms of the profile, you will remember in July, we said we were looking to rebalance the stock profile, particularly take some action in the U.S., what Matt's just referred to. We're happy with the profile of current and old stock at the end of August.

And in terms of ASOS Design, the 40% mix in P4, which is an acceleration in P4, which we're super pleased about, includes all the ASOS brands, including Collusion.

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Anne Critchlow, Societe Generale Cross Asset Research - Equity Analyst [10]

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And then a full year figure.

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [11]

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It doesn't include Collusion. So that's excluding Collusion. Sorry. My mistake. Thank you.

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Mathew James Dunn, ASOS Plc - CFO & Director [12]

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Anything with an ASOS name on it.

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [13]

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Yes, anything with an ASOS name on it.

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Anne Critchlow, Societe Generale Cross Asset Research - Equity Analyst [14]

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And the figure for the full year?

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Alison Lygo, ASOS Plc - IR Manager [15]

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13%. 13% (inaudible)

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [16]

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Thanks, Alison.

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John Stevenson, Peel Hunt LLP, Research Division - Analyst [17]

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John Stevenson of Peel Hunt. Three questions as well, please. First up, on marketing and engagement, can you talk about what you feel the right level of marketing investment should be for ASOS and how that -- I suppose the direction of that has changed in terms of what channels it's going into?

Secondly, just in terms of the European KPIs. I wonder if you can give a little bit more detail on what's been happening in Europe since Euro Hub 2 is back on form? Are we seeing improved conversion, actives and sort of maybe give a bit more color on the trend?

And finally, I suppose a difficult question. But at sort of scale of 1 to 10, I mean looking at front of house, it's been a really tough year. How would you rate the customer experience at the moment in terms of sort of product comms and everything else? How close are you being sort of to being back on your game at a peak?

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [18]

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Sure. Matt will do the first 2, John. I'll come back round to the third.

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Mathew James Dunn, ASOS Plc - CFO & Director [19]

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So I mean the marketing investment is one of those questions that can be a bit how long is a piece of string because I think -- but that -- from my point of view, I think if you look at the kind of level of reinvestment that we've got relative to sales, it feels that, that level has been broadly consistent, and I would expect it to stay broadly consistent, maybe tick up over time. I think what's much harder to be specific on is exactly how the balance of that investment sits because, as Nick mentioned in the presentation, we certainly see promo playing a bigger role in customer acquisition than perhaps it did before. So it feels like the overall level of investment is probably right as a percentage of sales. Clearly, we'd like to tick it up a little bit if we could do in the right ways and we'll look to do that, but I wouldn't be seeing a structural shift one way or the other, but maybe the mix within the P&L changing slightly over time.

And then I mean as it relates to the European KPIs, we have seen better stock availability drive ultimately better visits, so that's the first place you see it because the more attractive product drives more visits, which ultimately it should feed through into the other metrics. But effectively, that's the kind of what we start to see in P4 was that visits trend starting to accelerate. I think P4 benefited from a couple of one-off factors if you like. The first of those was the cold weather product that I referred to. So obviously, we're recycling an extremely hot summer in the prior year, and therefore, we saw cold weather accelerate earlier in Europe in particular. And then as stock availability improved, what you often see is you see a kind of initial spike with the improvement in stock availability, which is typically driven by where people have got product that they were waiting for or product that they've got saved in there, saved items. As that comes in, you sometimes see a bounce. But whichever way you cut it, improved stock availability should support sales growth going forward in Europe.

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [20]

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And on customer experience, during the course of last year, as I said in my script, the ASOS customer experience was just not as good as it should be and that ranged from presentation to velocity of units, to width. Now we've done an awful lot of work on that during the course of the year, and I'm delighted with the progress made. But there'll always be more. The day we lose focus on improving that customer acquisition, that customer experience is the day that we allow other people to have our customers. And again, we do not intend to do that.

I'm not going to give a scale of 1 to 10. But during the course of last year, the U.K. proposition was still great and we need to make it better and will. The European proposition got compromised by stock availability and fulfillment problems. All of those start to recover. One of the -- will start to recover. One of the key things that I'm particularly attached to is our net promoter score, our customer satisfaction score. That's one of the key measures that determine how we are serving customers. It wasn't great from a -- during the course of last year but starts to improve towards the back end, so we'll continue to keep on working at it. Thanks, John.

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Mathew James Dunn, ASOS Plc - CFO & Director [21]

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We'll go to Michelle, she's got the mic.

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Michelle Wilson, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [22]

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It's Michelle Wilson from Berenberg. Three questions from me, please. First of all, you mentioned building awareness in the U.S. or starting to build awareness in the U.S. Can you just talk through exactly how you intend to do that?

Secondly, you mentioned restoring SEO. Can you just talk us through what actually happened there with SEO and what the extent of that impact is?

And then thirdly, on TGR, could you just update us on where you are with that and what's still left to do?

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [23]

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Sure. So I'll start with building awareness in the U.S. Using our data, first of all, that we -- and the tech platform that we've built, we now know exactly where the key clusters are in the U.S. market, where most residents where customers are. So I talked about 3 cities where we've put next-day delivery in. That next-day delivery proposition is market-leading in those cities. We've done that because we know exactly where the highest concentration of our U.S. customers are. So we're targeting that through social media. We're targeting that through proposition. And we will target that with greater awareness as that builds. That's on top of greater product availability, building out third-party brands and then dialing up the overall DM at the same time. So I guess that's a combination of doing the things we're really good at and obviously using our new capabilities to target those hotspots.

On SEO, the simplest way to describe the SEO is, when we landed 200 websites, we broke some of the links and it took a lot longer to rebuild some of that SEO traffic than we originally planned. We've worked really hard on building up those product links, so you'll see on the website where it will go, you'll see all the brands. And we've had the most traction in the U.K., the most traction in some of the European markets and some traction in the U.S., but there's still loads more to do. So we also took out the mobile sites -- sorry, we changed the mobile site handles, so we've got the right handles now and we're building our capabilities towards it. So I'm pleased that that's had a great impact over the last 12 months. Somebody gave a survey recently that we are back on top on SEO again, so making good progress.

Lastly, TGR, what was your question?

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Michelle Wilson, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [24]

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Just what's being done so far through -- what kind of TGR is brought to the business so far and what's still left to do?

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [25]

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Okay. So TGR is merch planning, but also it's stock planning by global warehouses, which is a big deviation from what we have right now. That will give the retail teams the ability to track inbound, manage inbound and trade stock on 3 different stock pools. Now that starts to be earned, that -- the implementation starts over the next 12 months. We'll phase it accordingly. There's extended parallel runs. And we're looking very closely about where and when we deploy it. So it'll be a huge capability step forward for our merchandising retail teams.

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Olivia Townsend, UBS Investment Bank, Research Division - Analyst [26]

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It's Liv Townsend here from UBS. I've got 2 questions. Firstly, you mentioned after pay and pay later methods driving incremental sales in some markets. Can you give us an idea of what proportion of customers are using these alternative payments now and what the impact on baskets has been?

And then my second question is on, last year, you gave the breakdown of distribution costs by market. I think in the U.S., it was about GBP 12.50 per parcel. Now could you give us an update? Obviously, it was expected to be around $6 in the future. Could you give us an update on where you are now and where you would like to be next year?

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [27]

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Sure. Matt will take both, Olivia.

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Mathew James Dunn, ASOS Plc - CFO & Director [28]

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All right. So just on payment methods first. So given the kind of sense -- commercial sensitivity, I'm not going to give you any numbers, but let me talk about how -- what they do. So they drive -- our expenses, they drive incrementality in 2 ways. So in some markets, Australia will be a good example of that. They definitely drive incremental customers who are familiar with the proposition, the payment proposition. And once they use it and once we've got it, they'll use it, and that would be in markets where they are particularly kind of big branded propositions. In other markets, the greater range of payment methods is driving incrementality from our existing customers in the main. And to your question, it typically drives that in either bigger basket size, which is quite often the case, but also it's driving more frequent purchase through the course of the year. So typically, it's driving better incrementality from our existing customer base. So you've got both phenomenons and it will depend on the market and the payment method as to which one of those it is. But in general, I think it's bringing ultimately more sales into our site relative to other people who don't have those payment methods.

In terms of your question on delivery costs, again, I don't think it's right to give a specific figure, in part because it's so driven by the mix of delivery that's going on in any one territory. I think what we can say is that, if you look at our overall delivery costs and the way that they've trended down as a percentage of sales year-on-year, you could attribute that in large part to the fact that we are localizing our delivery in the U.S. and the benefits we're seeing from that.

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [29]

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Go, Adam.

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Adam Gareth Cochrane, Citigroup Inc, Research Division - Director [30]

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It's Adam Cochrane from Citi. One thing that came out in the statement, I love having 8 chiefs on your operating board, that is a first. But it made me think, how will driving cultural change be important to you? It's the first time we're seeing cost management, I suppose, so evident in terms of the slides and the way you're talking. Do you need to change that within the organization from where you've been in the last few years to make sure that cost is front of mind for the employees and the chiefs? In terms of what nonstrategic costs have you been addressing? How much is there to come in FY '20 compared with what you started in FY '19, I suppose, just to think about what can we expect to see?

And then finally, you haven't talked about product cycle and speed to market things. Is that something that you're working on in terms of looking at your product and your competitiveness? Have you managed to get some more quicker lead time product into the market?

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [31]

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Sure. Why don't you do the non-strategic costs and I'll follow up on culture and speed to market?

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Mathew James Dunn, ASOS Plc - CFO & Director [32]

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Yes, thanks. So I'm not sure I'm going to help you awfully much from what I've already said. So I think there are a number of different areas that we've referred to which I can revisit. So I think you'll have -- and some of it's in the public domain in terms of some of the stuff we've been doing to streamline our organization, negotiating with a number of our partners to make sure that, effectively, the economics are fairly shared between the 2. But we're also looking at each and every cost and does it drive the return we expect. And I don't want -- again, it's early days on what we're doing. You'll see this in restructuring costs in the year, so we've obviously done some stuff commensurate with that. But I don't -- I think there's more to do, and therefore, it's difficult to provide certainty. But also, as we create that opportunity, exactly what we choose to reinvest to drive long-term cash flow versus choose to support the margin in the short term, I think, is something we need to be open-minded to because it will depend as we go -- we'll learn and refine that as we go.

I'll give my perspective on cultural change before Nick. I think there are a couple of things. I think it is a mindset shift. It's a mindset shift that I think the organization is embracing, but it does require new processes and ways of working to do it at the scale and complexity we are now. And therefore, it's as much about making sure that we've got the disciplines and processes in place is -- which I think will support the cultural change. And then it's about making sure that, that focus and rigor is driven into all the conversations which for me is where the cultural change starts.

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [33]

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I've got nothing more to add to that on culture. I mean you have to always look after your costs, always look at how you're investing. And I just think we need to enhance what we've been doing in that area. So when you're driving growth, you sometimes get deflected. Actually, we just need to get back to that. So that's how I see that one.

On speed to market, I didn't mention it, Adam, you're absolutely right. We haven't changed our answer on that at all. We've got many initiatives on improving speed to market, such as AI-related design where a design can take a picture of a print, mark it up there and then, send it straight to U.K. manufacturing and it takes about 5 lead times out of it. That's in U.K. knitwear. We're looking at computer-aided fit technology that takes out sampling, which is not only the most costly, but it's also a big lead time. All of these will improve our sourcing lead times which is critical. Going forward, this is medium term. We'll be having a look at a U.S. manufacturing base. I mean it's not now, but to build a shorter lead time for ASOS Design product, that might be something we'll be having to look at, so speed to market is critical.

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Mathew James Dunn, ASOS Plc - CFO & Director [34]

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Final one at the back who's had his hand up a lot. Can we go around to the back because there's just someone who's had their hand up for a long time? I can't see who it is.

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Tushar Jain, Goldman Sachs Group Inc., Research Division - Research Analyst [35]

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This is Tushar from Goldman Sachs. I had 2 questions. One, I'm just looking at the basket size for next year where given the decline was mostly in the EU and the U.S. Can we expect basket size to start growing again for the group level and especially on those 2 tariff raise?

And second question on working capital. Trade receivables had quite a decent jump in fiscal year '19. I was just wondering what is the key driver behind that.

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [36]

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If you'll answer that.

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Mathew James Dunn, ASOS Plc - CFO & Director [37]

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Yes. Sorry -- I think I understood, but let me -- if I forgot it, you can tell me. So I think you're asking about basket size and the evolution of basket size. I think, again, there were so many moving parts that trying to give you guidance for next year is probably not that helpful. But I think what you can see in most of our geographies is the same sort of behavior, which is, typically people are balancing the price of what they're putting in their baskets and making sure that they're getting good value. And typically, over time, they're putting more things in their baskets. And what we find over time is that you've kind of got that behavior, which I think is probably kind of linked to consumer sentiment and economic feeling. What you then see in terms of our customer cohorts is as people stay with us longer, they put more and more things in their baskets. And I think that that's a fundamental long-term supporter of ABV as our customer profile just becomes -- longevity improves. What happens specifically next year with all of those things, I think it's very, very difficult to say.

With respect to working capital, we specifically, in effect, invested in working capital last year because as we've transitioned to 3 warehouses and we're trying to make sure that we've got good product coverage in all of those warehouses, inevitably, your level of safety stocks is probably the best that you need to hold to make sure that you've got good availability is somewhat higher. So it's a specific one-off investment. As Nick also mentioned, we have been driving stock towards the end of the year, which obviously drives the working capital requirement as well. That was driven by Brexit, wanting to support a strong start to the Autumn/Winter season and obviously trying to drive the right levels of availability in the U.S. and Europe. So I think, again, trying to be specific on what will happen next year, I wouldn't see that level of investment necessarily continuing because we've already transitioned to 3 hubs. But I think we need to be flexible about exactly what we want to be doing at this time effectively next year to make sure that we balance what we need to do for Autumn/Winter because that year-end effectively over -- coincides exactly with the start of the Autumn/Winter season.

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [38]

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Okay. Tony?

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Unidentified Analyst, [39]

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Tony [Schrip] from (inaudible). A couple of questions. First of all, I noticed from your executive team that there are not many people of female gender on it. I just wondered what your commitment is to gender diversity across your management groups.

Second thing. In terms of the composition of profitability around own label and third-party brands, I presume that the own label is profitable, much more profitable at the bottom line level. Just wondered in the context of your comments about the U.S., if you could give us some idea about whether you think the U.S. will ever -- will ultimately have the same sort of levels of ASOS brand as you're getting in your other territories to support profitability.

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [40]

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Okay. I'll start with the first one. Currently, the ASOS team is -- the ASOS exec team has not got the right gender diversity into it. Our commitment is very clear on that. The new roles I'm recruiting, we've got on the slate the right level of diversity coming forward. So that's very important to us. It's very important to our ASOS'. It's also very important to have the right level of point of view, the right level of difference within that exec team. So that's very clear in our commitment, Tony.

Your middle one on ASOS Design, ASOS Design is more profitable on a unit level than third-party brands on a percentage basis, not always on cash basis. So some of our third-party brands have a much higher cash profit such as the more expensive footwear or trainers or the expensive outerwear. But on a percentage basis, ASOS Design is more profitable. On ASOS Design in the U.S., it's always been a much higher mix in the U.S. ASOS Design was 40% in P4. ASOS Design for the group -- ASOS Design in the U.S. has normally been at about 60%, so it's a much bigger mix within the U.S. and always has been. Thank you.

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Rebecca Anne McClellan, Grupo Santander, Research Division - Equity Analyst [41]

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Yes. Rebecca McClellan, Santander. Just a couple of questions, please. Firstly, of the 4% decline in the average basket value in the U.S., how much of that can be attributed to the extensive clearance activity at the end of the year?

And secondly, of the GBP 15 million to GBP 20 millions of inefficiency sort of costs within the P&L, what level of growth does that depend on at the top line?

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Mathew James Dunn, ASOS Plc - CFO & Director [42]

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So the ABV in the U.S., there were 2 impacts that drove the ABV in the U.S. One was markdown, the other one was actually directly linked to what Nick just said. With the lower levels of branded product relative to what we would have liked, with branded outerwear and sneakers in particular drive a higher level. So both of those factors had an impact on ABV. Over the course of the year, the branded profile probably had a bigger impact than the markdown, but the markdown would have had a more profound impact in P4 if that makes sense. And so your second question was on inefficiency costs.

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Rebecca Anne McClellan, Grupo Santander, Research Division - Equity Analyst [43]

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And the level of sales growth. That's sort of correlated.

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Mathew James Dunn, ASOS Plc - CFO & Director [44]

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Yes, yes. So there are -- I'll -- let me talk about it in terms of KPIs. It's probably easiest. So what drives efficiency in the warehouses, which is where most of those transition costs are that we talk about, is ultimately the level of pick and pack KPIs that you have. So effectively, pick and pack demand. Now clearly, volume -- the amount of volume that's going -- the throughput that's going through the warehouse does drive those quite significantly because, obviously, the higher the level of throughput, typically the more. But they're not directly related, and therefore, we can drive efficiency by process improvement as well as by volume. So again, it's not an exact science and it's difficult to be specific between the 2 drivers. But it's not -- I guess the key point is it's not totally dependent on the volume growth to drive the efficiencies but even process efficiencies, will take, as the operation becomes more mature, the workforce becomes more established, you would expect to drive better efficiency into the operation over time, and then obviously, volume supports that because you get it more consistently throughout the year through the throughput. So my view is there will still be some inefficiencies in F '20. They definitely won't all disappear in F '20, and hence, why we've said a substantial proportion of transition costs are not all transition costs, but the exact flow-through of that, we'll have to wait and see and partly it will depend on how much process efficiency we can drive in that warehouse over time.

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [45]

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Okay. One more.

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Mathew James Dunn, ASOS Plc - CFO & Director [46]

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George has got the mic.

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [47]

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George, you've got the mic. So definitely, you can have the last one, Andy. Yes.

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Georgina Sarah Johanan, JP Morgan Chase & Co, Research Division - Analyst [48]

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It's Georgina Johanan from JPMorgan. Just 2 for me, please. First, you've obviously talked through the release and today about sort of increasing promotional activity to drive customer acquisition and so on. Can you just talk about how you think about that and balance that with your brand relationships, and particularly in light of sort of the recent comments from Nike and so on moving away from some distributors?

And then the second question was just on FX, please. Obviously, I think in the past, you used to talk about around 70%, 75% sterling settlement of costs. If you could give an update on that given the new warehouse and so on. And if there was any rule of thumb, I'm assuming the answer to this is no, but if there is any rule of thumb about how we should be thinking about FX transaction risks going forward, that would be incredibly helpful, please.

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Mathew James Dunn, ASOS Plc - CFO & Director [49]

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Do you want to take the brand and I'll...

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [50]

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Yes. So on brands, George, we tread very sensibly with our partners on that, and so the -- it's something that we are very clear about. The way we think about it, actually, it's almost a marketing mechanic, too. So it's almost like redirection of marketing spend on customer acquisition. So we think and we tread very carefully, however. In terms of comments with Nike, I saw that over the weekend as well. That was more -- that seemed to be more in relation to smaller brands, smaller outlets. We still have a very good working relationship with all our brands and I don't think that issue will affect us.

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Mathew James Dunn, ASOS Plc - CFO & Director [51]

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So I mean in terms of FX exposure, probably there are 2 things to say on that. I think, firstly, for most currencies, we're actually a net seller of currencies. So actually, our exposure is typically to -- is balanced towards the currency we're taking in rather than the currency we're taking out. That will have shifted slightly, particularly with the U.S. warehouse. So obviously, we've -- because we've now got a much more local currency balanced portfolio in the U.S. So I think, overall, we're more exposed to the strengthening of the pound rather than a weakening of the pound. In terms of how we manage that FX risk going forward, which is probably the most helpful thing I can say, we typically are looking to be as close to 100% covered 12 months out as we can be. And therefore, we've got a high level of predictability about the level of FX exposure that we're carrying one way or the other. And then in year 2, we are typically looking to be around 70% covered. And what we'll do then is depending on what level of volatility we see in FX, we'll kind of drift up or drift down on that depending on what we see. So I guess what we're trying to do is make sure that our operations are -- we have plenty of runway in terms of whether a currency strengthening or weakening for us to manage that through our P&L. That's how we approach it. And then typically, given our exposure is on input rather than output costs, we'll be obviously looking to how we manage that from the pricing over a much more longer period of time.

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [52]

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All right. Andy, do you want to pick it up one on one or do want to go for it? It's the last one. Is it a good one?

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Andrew Hughes, UBS Investment Bank, Research Division - MD and Head of the Pan-European Non-Food Research [53]

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Andy Hughes from UBS. Just back in August, there were some press articles about you trying to get a 3% supply rebate. Could you say how much progress you made on that and whether that applies -- I don't know, I assume it applies to FY '20 and not anything in FY '19, whether we should expect the gross margin to be up as a result of that or are you going to use that to fund some of the price investment that you mentioned like in the EU?

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [54]

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So I'm not going to comment on trading terms with any supplier. That would be wrong for many reasons. Just one point. It was prospective, not retrospective. So that's very different now. The press -- whatever the press was, I can't remember now, it was -- there was lots of it, but this was -- guys, this is where we're going with our business. We're looking to double our volumes from this point in time. Do you want to be part of that? So that was -- it was prospective rather than retrospective.

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Andrew Hughes, UBS Investment Bank, Research Division - MD and Head of the Pan-European Non-Food Research [55]

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The general plan would be to reinvest in price where possible?

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [56]

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Price, customer service. Exactly. All right? Thank you very much for joining us, guys. I think that wraps it all up. Look forward to seeing you again soon. Thank you.