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Edited Transcript of ASC.L earnings conference call or presentation 10-Apr-19 8:30am GMT

Half Year 2019 ASOS PLC Earnings Presentation

London Apr 16, 2019 (Thomson StreetEvents) -- Edited Transcript of ASOS PLC earnings conference call or presentation Wednesday, April 10, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Alison Lygo

* Greg Feehely

ASOS Plc - Director of IR

* Nicholas Beighton

ASOS Plc - CEO, Member of Executive Board & Director

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Conference Call Participants

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* Andreas Inderst

Macquarie Research - Senior Equity Analyst

* Anne Critchlow

Societe Generale Cross Asset Research - Equity Analyst

* Charlie Muir-Sands

Exane BNP Paribas, Research Division - Research Analyst

* David J. Gardner

Morgan Stanley, Research Division - Equity Analyst

* Emily Want

Redburn (Europe) Limited, Research Division - Research Analyst

* John Stevenson

Peel Hunt LLP, Research Division - Analyst

* Michelle Wilson

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

* Paul Jacques Philippe Bonnet

BofA Merrill Lynch, Research Division - Associate

* Rebecca Anne McClellan

Grupo Santander, Research Division - Equity Analyst

* Samuel Alexander Lourensz

Arete Research Services LLP - Analyst

* Simon William George Irwin

Crédit Suisse AG, Research Division - Director

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Presentation

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

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Good morning, and welcome. I hope you're enjoying our ASOS Design video, and you all will be compelled to write about animal print when you go back to base.

Anyway, good morning, and welcome. Thank you for attending our results presentation for the 6 months to the 28th of February 2019. And also welcome to all of those joining us live on the webcast, a recording of which, of course, will be on the website later on this morning.

So let's go through the H1 highlights. It's certainly be a challenging 6 months for us, and one of the most challenging we've seen in many years. Economic uncertainties, undermining consumer confidence. And during the period, we saw exceptional levels of discounting and promotional activity, particularly during Q1.

Our performance was undoubtedly also impacted by the large scale of transformation projects we are undertaking across the business. H1 PBT was GBP 4 million after a GBP 24 million of temporary transition costs.

The quantum of this change also led us through a number of actions that compromise some of our customer proposition. Notably, newness also in pricing, but also with engagement with our customers. In essence, we didn't put our best foot forward. You've seen the statement this morning, we've detailed the wide-ranging review we've undertaken. I've to best engage with our customers and we've already begun corrective actions.

This will restore the strength of the ASOS proposition. It'll lead to a much stronger H2 performance. Correspondingly, we've less full year guidance FY '19 unchanged.

We're also coming to the end of the current phase of significant investment. In terms of big projects, I'm pleased to confirm that the completion of Eurohub automation is coming in the next few weeks, at which point, a significant inefficiency drag falls away. Notwithstanding the unexpected start, Atlanta is now back and stabilized, and we can -- we will continue with the development -- with our development plans to re-engage with our U.S. customers.

These material supply chain investments will significantly prove our capability, our customer experience and our productivity. And these benefits are ahead of us and we're all now ready in a great position to capture them.

We have a strong efficient and localized operations now in 3 major markets: the U.K., Europe and U.S. with over GBP 4 billion of net sales capacity, positioning us well as we set our sights on the next stage of our growth.

In terms of liquidity, we're in a comfortable position. Net debt of GBP 50 million by the year-end will well -- be well within our facilities. And with this current investment phase draws to a close, we still anticipate this to be the only year of free cash outflow. And anticipating CapEx net share of circa GBP 150 million.

Over the last 3 years, we financed over GBP 0.5 billion of investment in future capability for ASOS, and we've done this with our own funds. We can and we will continue to do so. The addressable market for ASOS in the global online 20-something fashion market continues to grow. The power of our fashion brand and the reach of our platform and the enhanced infrastructure and technology we've now built gives us confidence in our ability to capture that.

So turning to consumer KPIs. This clear evidence here, pointing to areas we should and could have done better. We've correspondingly disappointed ourselves in the first half. Firstly, taking a step back from the numbers on the screen, what we've seen is a softness in organic -- thank you, Greg, I'll do that again. Firstly, taking a step back from the numbers on the screen, what we've seen is a softness in organic customer acquisition and in traffic over the last 6 months. There's a number of contributing factors here that I'll draw out later in the presentation, and it does vary by territory. In the U.K. first, our U.K. sales growth held up at 16%, and it does demonstrate a continued market share gain, and what has been a pretty soft and competitive market.

Our consumer level, we're seeing significantly improved demand from our existing customers with order growth of 20% from only a 4% increase in traffic and frequency up 11%. Active customer growth is still strong at 13%. But traffic is a key issue -- was a key issue for us. Our organic acquisition was much slower in H1, particularly in the younger demographic. Our average basket reduced marginally over the period, largely driven by ASP, which is the promotional activity in the first quarter and to a lesser extent continued trend of customers buying into lower price brands. Ad share icons and basket was up marginally over the period.

Growth in the EU segment was held back by weak demand in France and Germany. France and Germany account for 60% of this segment. The EU sales grew at 15%, France and Germany together was plus 11%, with the rest of Europe growing at 22%.

Our performance in France and Germany has been affected by the overall softer market over there, but also a number of decisions that we took that had a disproportionate impact on our demand. The Rest of World segment, pleasingly however, remained robust. With the completion of the next stage of Eurohub around the corner, this will provide us with loads of fuel for further investment in price, proposition and also lower our overall operating cost.

Transition cost will now -- had now started to fall away. To give you an example of the undying efficiency that we're expecting from the Eurohub, we're expecting a 3x improvement in picking. Picking is around 35% of our cost base. We'll deploy those benefits into enhanced -- into enhanced delivery propositions. We're actually targeting next-day delivery with the midnight cutoff to 25 German cities over the coming months.

In Netherlands and Sweden, where we launched our local language sites last year, both have had active customer growth of over 50%. Business increased by 30%, and orders were at around 50% too. We're planning to launch a similar enhancement for our customers in Denmark and Poland later this calendar year.

Within the U.S., we talked a lot about the U.S. on the Q2 conference call. So you know the largest drag in this segment was initial problems we faced when the Atlanta's warehouse went live. This was an unexpected surge in demand following the web to warehouse cutover. And I'll, again, talk more shortly about the -- more about the U.S. shortly. But I will mention here, we think it's been encouraging green shoot but -- and we know we got a long way to go in the U.S.

Notwithstanding the warehouse spend, we did see some underlying and an encouraging consumer dynamics, giving us an inkling of what's possible and is ahead of us. For example, during the initial cutover, conversion increased by 1 percentage points.

Final, Rest of World, our Russian customers responded more significantly to our improved trading stance in Q2 following our Black Friday hiccup. Active customers grew by 50% and app installs were up 78% year-on-year.

Moving to the U.S. So on the U.S. market, the opportunity for ASOS ahead is simply huge, and some of our recent experience has given us greater confidence in that. The U.S. clothing market was worth nearly GBP 400 billion last year, with online representing around GBP 80 billion. Online penetration is currently 21% in the U.S. and climbing quickly. With market forecast, this will be close to 29% within the next 4 years. There are almost 70 million 20- to 34-year-old girls and boys in the U.S., of which we're confident a sizable number are fashion-loving and potential customers for ASOS. In the U.S. we already have 2.6 million active customers, and we've grown our business to around $400 million already. And this has been done without deploying significant capital or -- in infrastructure or in technology.

Atlanta, and our clustering technology, signals a key change in that, and we'll start the next phase of our growth in the U.S. Some of you might have heard me talk about our plans and technology clustering in the U.S. before. Let me just set out what it means? In essence, we're using our technology to geo-target our customers and provide the best possible localized product content in social media. Up to now, we've treated the U.S. as one country, offering customers from New York to LA and Chicago to Texas the same experience, the same content and the same delivery propositions. Yet, there were 4 time zones, 9 climatic regions across 50 states, with dramatically different cultures, interest and expectations. We would never offer a uniform experience for our European customers, in France, in Italy, in Spain or Germany.

Our clustering technology will address this. We're offering initially up to 6 localized web experiences, mobile and website. And that -- we should be dependent and served up depending on your time zone zip code and climatic conditions.

Our clustering tech will be deployed in May. And from there on, we'll begin significantly enhance our delivery propositions. We're charging next-day delivery to Atlanta first, New York, LA, San Francisco and Austin in Texas. Our ASOS Design product has always over-indexed in the U.S. It was around 50% of the mix in the first half. And we're now focusing on building out a third-party platform -- third-party branded product too. The spike in the U.S. demand we saw in early February, when we switched over the warehouse, showed us the benefit of building a locally relevant stock pool with great availability.

In the U.S., we now have NIKE, New Balance, Polo Ralph Lauren for our U.S. customers with many more locally relevant brands to come.

As I said earlier, customer acquisitions -- our customer acquisition strategy will be based around acquiring fashion-loving, loyal customers, through a more targeted direct marketing, through PPC, based on your zIP codes and as part of this approach, we'll be offering a summer festivals program. This is a 6-month program awareness activity driven by influence activations at top music festivals across the U.S., including an exclusive retail sponsorship of the Life Is Beautiful festival in Las Vegas.

Moving onto sales growth. We grew total sales in the half by 14%. In today's trading environment it's not to be sniffed out. However, we entered the year expecting over 20%. November is a key month for us in half 1 and for us in e-commerce generally. Overall market demand in this month was soft and we saw and observed an extremely aggressive promotional stance, from not only our fellow e-commerce players, but also more traditional high-street brands, and that's a fact I think the dramatic shift from these players towards the catch demand, clear excess stock through unseasonably warm weather, which just stimulates sales was the biggest impact in our performance. Our promotional stance dreamlike Friday, in hindsight to 20%, didn't look quite just compelling for our customers. We also didn't offer the Black Friday promotion to our Russian, Australian customers, which was a trading error. And we lost an opportunity to enhance our customer acquisition.

Of the timely guidance we set in December, this was our narrative and key diagnosis. But standing back from that, we've had a real closer look at our offer during the period. We've concluded that ASOS simply didn't look or feel as great as we normally do. For example, our presentation of certain categories looked a little bit vanilla and less exciting, less engaging, less inspirational and certainly, not the ASOS customers normally expect. Within that product, our rate of newness had slowed particularly within the ASOS Design. And our natural traffic growth had stepped back significantly. Also, some of our -- some of the reasons behind that with substantial tech website design changes we deployed earlier in the year.

We've worked harder with key to correcting these errors, and thankfully, we're seeing green shoots to performance through acceleration from the changes we have made. Q2's saw reacceleration in the Rest of World category, a continued strong U.K. and a more stable EU growth, but a weaker U.S. growth profile. This was solely down for Atalanta warehouse change. The U.S. performance through the first 3 days quite simply blewed our estimates of demand. We were forced to take corrective action, Atlanta is now stabilized and we're working hard on the next stage of our growth.

On to gross margin. In H1, this was down 60 basis points at the retail level and 50 at the group level. I'll walk you through the bridge of the bottom first of all, and then walk you through the main movements in the regions. You can see, we have a small FX tailwind year-on-year and small improvements in the buying margin that the teams have worked through. These savings we invested in improvements in sourcing and improving -- and improvement in sustainable fibers into the ASOS Design product. This is a key strand of our ASOS Fashion with Integrity program. ASOS Design now has 80% of the cotton that goes into the products which is sustainably sourced, and we're targeting 100% by 2020.

We also have around 5% of the fibers used in ASOS Design come from recycled materials, and we're actively looking to increase this mix. An example of where we've done this, is during the period, we've developed an ASOS Design swimwear range, which is designed and manufactured using recycled fibers from fishing nets. Offsetting this was an increase in the branded sales mix, adverse country mix largely driven by slower growth in the U.S. and incremental freight and duty as we start to import into Atlanta.

Right. Just quickly going down the territories. U.K. margin was down 120 basis -- bps -- basis points in the half, so a good recovery in Q2. Key movements for the branded mix and promotional activity largely in Q1.

Within a year, the margin was up 190 basis points, driven by reduced markdown activities delayed and the timing of the France and German sales and slightly reduced clearance debt accordingly, and some of the price increases that we put through the European market accordingly.

Within the U.S., the margin was about 40 basis points as we began to incur incremental duty and freight cost from the importing stock in Atlanta warehouse. Finally, looking at the Rest of World, which is about 250 basis points year-on-year. This was largely due to increased markdown and promotion, and also in Australia, we absorbed the Australian sales tax for our customers.

Our full year retail guidance remains 150 basis points down, which covers the most of the increase direct from the U.S. freight and duty, but also gives us flexibility to invest greater in price for our European customers.

On to operating costs. Total operating cost percent of sales increased 170 basis points over the period, including GBP 24 million of temporary transition cost, which mostly fell in the warehouse cost line. As a result of the low growth trajectory this year, we've taken a very good look at our cost base and are streamlining our headcount over a number of functions accordingly.

On line-by-line basis now, distribution costs. Distribution cost were 20 basis points higher. This is mainly due to customers choosing faster delivery options. We expect to see this percentage to fall -- this percentage of sales fall in the second half, as we start fulfilling greater increase of orders from the U.S. warehouse. To give indications of the size, the benefit we see, U.S. distribution costs should move from over 22% of sales to 10% to 15% over the medium term.

In warehousing, this is the biggest part of operating cost increase year-on-year. This is mainly due to transition cost in Atlanta and Eurohub. Stripping these transition costs out, warehouse cost would have been 9.3% of sales, corresponding distributing last year 8.9%, so an underlying move of 40 basis points.

We're experiencing -- we're expecting significantly lower amount in transition cost in the second half, as Eurohub goes live and the Atlantic transition is behind us. In terms of payroll, this improved by 10 basis points, and we've adjusted headcount accordingly, as I mentioned. We expect further streamlining in H2. Marketing broadly flat year-on-year, but we expect to increase in H2. Other costs include payment processing fees, group legal fees, group travel, tech cost and, of course, rent and rates where we pay them. The main driver of the increase has been on our technology.

Depreciation, we've got some time now. Depreciation will be on the upper trajectory. H1 increased by 30 basis points around 2.5% of sales and we expect to be close to 3% for the full year.

Onto CapEx. The headline here is we're through the peak of our heavy investment phase. CapEx guidance for the current year is maintained at GBP 200 million, and we're expecting to reduce it next year FY '20 to around GBP 150 million.

The investments we're making in both across warehousing and tech will improve, has improved our capability, the ability to enhance customer experience and, of course, our productivity. We'll have even stronger, more efficient and better localized operations within all of our key markets.

As usual, the left-hand chart shows how we've deployed the GBP 103 million of CapEx during the period, and has been our case across major projects. On the right-hand side, we're doing some additional categorization, which I hope is helpful. Splitting our CapEx by lights on, efficiency, growth and transformation CapEx.

Within transformation, we refer the transformation projects as a 3-year program of major infrastructure and technology that provide a marked step change in our operating capacity. Projects in this program include TGR, our Truly Global Retail, which is new buying in merchandising systems; investments in the Eurohub, automation and mechanization; and building our Atlanta warehouse; and, of course, the expansion of the ASOS head offices.

These projects are setting us up for the next stage of our growth, and by their very nature we weren't expecting to repeat in the medium term. I will talk to you a bit more about the benefits flowing from the warehouse investment shortly, but a bit more color on our TGR, Truly Global Retail systems. At the conclusion of this program, we would invested around GBP 80 million in this capability. We'll have a complete replatform in all the buying of merchandising systems and many, many more. This is an absolutely necessary investment for a growth business, with multiple and global warehouses that deliver a whole host of benefits across the business. For example, small -- a benefit here is improve our sourcing lead times, allowing buyers to place orders at the point of contact with the supplier. It also allows to trade our product from multiple warehouses in multiple currencies on a localized basis.

Investment at growth CapEx covers customer facing tech developments, which we'll also touch on more in the tech slide, but also includes warehousing, office costs allow us to grow within our existing facilities. Efficiency, this is investment in driving productivity or cost savings across the business. For example, improvements in the warehouse systems, but also the outbound carry management system and the returns processing software.

Finally, lies from CapEx is investment that we know we need to make just to support the ongoing business. It doesn't talk to any specific growth or efficiency, it's just have to keep things moving forward.

Onto cash. We closed the year -- we closed the half with net debt of just under GBP 38 million, a reduction of GBP 86 million since August 2018, mainly driven by CapEx. Shortly before the half year, we successfully renegotiated our banking facilities and the group now is in place GBP 220 million of facilities until the end of August 2019. This then falls back to GBP 150 million, and it's committed to May 2021.

This provide more-than-sufficient financial flexibility during this period of heavy investment. As previously stated, we're expecting FY to be the only year of negative free cash flow and net debt position at the end of the year of around GBP 50 million. We expect to return to free cash flow positive in FY '20 and each year thereafter.

So moving toward summary of the areas of focus. As I said earlier in Q2, we had a good look at ourselves and a good look at ASOS through customers' eyes. And we simply didn't look or feel as good as we normally do or should do. And we've taken those actions accordingly. The areas of focus I've set out are on that slide, and I'll take you through some more detail going forward.

First of all, evolving our presentation. This is a key consistent pillar of our playbook and really important for fashion retail. It's about engaging and inspiring our customers through our presentation, and we've always been pleased at that. This is some of the -- these are 3 images here, same product, reshop, restyled and we've seen dramatic uplifts that you can see below.

The sales uplift and customer engagements also have been dramatic, and it's a bit more of the ASOS presentation our customers expect from us. This is just a selection there but I can assure you we've done many, many more and we've had equally compelling reactions. We've also had some amazing reactions on new younger trends such as neon, animal print and Safari. For those who don't know, Safari is just an iteration of animal print.

ASOS product, ASOS Design. As a reminder, ASOS Design is only available at ASOS. When we get it right, it's exciting, inspirational, great value and increasingly sustainably sourced. It's one of the largest brands on the planet, never to have a store, and this year we expect revenues to pass GBP 1 billion. ASOS Design is 36% of the total sales mix currently. If you add in sales from the other ASOS brands, like Collusion and venture brands all -- and which are all internally generated brands, the overall ASOS Design numbers are around 38%.

A key area of focus on ASOS Design is to profile like other brands on our apps. You should have seen a notable difference with the presentation that you've been following recently, and the ASOS Design campaign launched in February was one of those moments to reposition it.

During H1, the pace of our newness in ASOS Design and the width was behind what our customers normally expect, and we suffered some poor reactions accordingly, particularly in ASOS Design menswear. One of the key features of ASOS Design is that we can respond quickly here because on average we have much shorter lead times. We've replanned the newness, we're enhancing the width, and we're looking to deliver more consistent level of newness and demand and choice for our customers.

In France and Germany, we've also taken some price investment on a number of the ASOS Design lines. We've done this ahead of the Eurohub and benefit release and we expect to do more in the second half. The key change on that product top of an ASOS Design was the presentation of ASOS Design which has been pulled together as key trends, key collections, with a more compelling look. Utility, neon and Safari and animal print have seen all great uplifts by taking this approach, and we're doing the same treatment for many more collections.

I'd just like to call out Collusion. Collusion is being one of the most successful brands ever launched at ASOS. We launched it in October last year and sold over 1.5 million units since then and established itself firmly as a top 10 brand with full price sell-through above the group average.

Within the U.K., it's also the most searched term -- it's most searchable brand term for our customers. We're expecting to achieve around GBP 55 million sales this year, and it's the brand that was created for the younger generation or Generation Z, using collaborators to work directly with our ASOS Design team. And it will be -- it'd be reaching a size where it's becoming a business in its own right.

ASOS 4505 was launched last year as part of our activewear refresh. And we are now annualizing those sales and it's growing to over 100%.

Third-party brands. We continue to review and update our branded portfolio to ensure it remains exciting, relevant and engaging. Over the half, we've exited more brands than we normally do. We've exited over 280 brands, and have a 190 new ones. And it's a lot higher than normal because just thought some of these brands weren't resonating with our 2017 customers the way they should. And we're onboarding a newer mix, smaller, fresher, up and coming brands alongside some more established brands such as & Other Stories.

Globally, our face and body category continues to grow strongly at 47% year-on-year. Last year, we get GBP 60 million in sales, and we're expecting it, and it's from a standing start, and we're expecting to deliver over GBP 100 million this year. We launched 31 new face and body brands in the half, 4 of these from Estée Lauder range, and we now have around 14 brands from the overall Estée Lauder range.

Outlets, which is our off-price promotion is going well, and offers customers compelling choice of brands at great value. We're also very proud of our marketplace platform, which offers 700 boutiques globally and around 160,000 different products, largely small vintage brands. We're planning to make far more of this going forward.

Our marketing. We shouldn't lose sight of the fact we have a great brand and some pretty impressive awareness engagement stats. However, we've seen low organic customer acquisitions and softer traffic than we had hoped for in the year or in the half year.

Part of this was due to our pull back and promotional marketing to the back end of last year, and we felt the impact in the first half greater we anticipated, and we have also seen a reduction in awareness and buying consideration in the Europe -- in European markets, particularly in France and Germany.

We have seen underlying improvements in conversion and still some underlying improvements in frequencies I've touched on earlier. And that went someway to offsetting some of the traffic decline.

I'll run through some of the key things we're doing differently now. Firstly, we're outweighing our digital marketing, restoring and going beyond to where we were last year. We're also taking action to boost our awareness and consideration, and support organic customer acquisition. The first piece of activity here was the ASOS Design campaign that we're looking out on the way in.

We're also awaiting our influencer activity, and investment here will double year-on-year. And this will -- part of this is the U.S. summer festivals, but it will be 6-month campaign to outweigh our influencer activity. We're also making some changes on how we talk to our customers. We know they love us for our constant conversation we have with them. The inspiration, the hints, the tips. So we're increasing the velocity here. If you follow us on Instagram, you would have seen a notable step change over the recent weeks.

Onto warehousing capacity. Over the last few years, we developed a formidable logistics capacity or capability. And we're about -- this is about to start contributing to the customer experience in a different and increasingly potent way. Our facilities are in different phases. U.S. is now stabilized. EU automation about to go live. U.K. is in optimized -- is in an optimization phase, and the return centers are driving efficiencies.

In summary, we have 3 custom-built probably state-of-the-art fulfillment centers in 3 of our most valuable territories, U.K., EU and U.S. And several returns processing centers, mostly in lower cost operating territories and in an increasing efficiency and optimization phase.

All of this is capability to deliver a minimum of GBP 4 billion of sales capacity, and a footprint to go after far more, particularly in the U.S.

We will now start to leverage these investments, as I said earlier, to drive efficiencies and customer experience. The chart on the right shows some of the improvements in capacity and the efficiency we are targeting. The bottom chart are indexed off the Barnsley performance. So let me pick up a couple of key elements of how we're going to deploy these efficiencies. In the U.S. we will start with next-day delivery services; in Atlanta, this month; in New York, in May; in LA, in June; in Austin and San Francisco, later in the year. All key customer hotspots for us.

In Europe, the Eurohub, we're expecting the biggest step change in efficiency and capacity. We'll deploy these benefits -- deliver next-day delivery with midnight cutoff to 25 German cities. Matching the ASOS experience that our U.K. customers enjoy and expect from us.

In Barnsley, in CapEx terms, we've come to the end of our investment in Barnsley. We already invested GBP 105 million in total. We've recently added a dynamic buffer, which means product can go even faster to the warehouse, and we now driving out and optimizing that solution.

Let's focus a bit on technology. First, within transformation programs. Transformation accounts for around 26% of the H1 spend, the majority of which is in the Truly Global Retail program, on our major supply chain programs. Investment in lights on CapEx totaled 15% of the spend and covered upgrades to our finance systems and security systems. 17% of our tech spend was directed to improving efficiency with the majority direct towards logistics. This included new software to improve processing efficiency in our returns facility. We're expecting about 10% to 15% improvement in there and also outbound carrier management systems. Growth in customer experience, both developments represent about 40% of the tech spend, which was split across our e-commerce platforms and data platforms, including AI product enhancements, sizing, recommendations and greater AI personalization.

Highlights were in the rollout also include Fit Assistant, which control our apps, further development in recommendations and on our product and category pages, bag abandonment, back in stock, selling out fast and our boards feature. The boards feature is what I demonstrated 6 months ago. It's a bit like Pinterest maze (inaudible).

This has been one of the most successful, recent tech launches for us. With customers creating over 3 million boards and adding new boards at the rate of 130,000 a week.

Growth, our international-specific investments. So rollout of gift vouchers in all currencies to sit alongside the Sterling offer as well as 4 new currencies and new payment methods in Australia and Russia. We also deployed the U.S. sales tax at checkout that went earlier in the -- that went in February, providing the functionality to pass on sales tax on a state-by-state level for our customers.

Lastly, on tech, we haven't forgot about velocity. I think it's key to our digital platforms. We released 2,200 customer-enhancing releases during the half compared to 1,200 in the prior year.

Let's just have a quick look at our global opportunity. When you've had a difficult few months, it's sometimes easy to forget the opportunity or the addressable market ahead of us. We're not losing site on this prize. I thought it was worth reminding of a data I shared with you back in October. Our view of the total addressable market and the global opportunity for ASOS remains unchanged, and the shift on lines continues at pace. The online global market will be worth, at least, GBP 220 billion, and it will be rising. And we are confident that we're well positioned in the right channels and with the right capability to access our share of that market.

So in summary, our revised guidance is unchanged. We are confident of the stronger H2. We've conducted a thorough review of our business and taking corrective actions and they're underway. While on the edge of significant infrastructure and technology benefits, medium term, we're confidently maintaining our top line sales growth, restoring our EBIT margin and moving to greater free cash flow generation. Our long-term ambition for the potential of the business remains unchanged.

Thank you very much. I'd like to hand over to questions.

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Questions and Answers

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Anne Critchlow, Societe Generale Cross Asset Research - Equity Analyst [1]

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Anne Critchlow, SG. First of all, looking at Marketplace, which you said you're going to develop, is there a case of integrating that within the main site so that a search function would give results from right across your offer? And then secondly, on warehousing cost to sales, how low could that ratio go do you think in the medium term? Are we talking sort of 9%, 8%, if you could put a figure on that? And then thirdly, thinking about the medium-term growth rate, you said that ASOS can do more. Are we stuck at 15%? Or would you look for an acceleration into the [RTS]?

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [2]

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Okay. Thanks, Anne. First of all, Marketplace. The inspiration of Market place was around 9 years ago, where we developed Marketplace.

It was almost like an eBay, and we were following consumer behavior around the internet and seeing increasing trend of people buying our products, wanting to them remonetize their wardrobe. And we wanted to keep them in our ecosystem and provide that service for our customers. Over the last 2 years, we've seen -- and regrettably, we've forgotten about that, and then we repurposed it for vintage only small brand engagement. In terms of commercial impact, Marketplace is not meaningful. In terms of engagement with our customers, it's really meaningful. And we have a much higher resonance with our younger customers, particularly, students. So over the last few years, we've seen new marketplaces come to the force and the fastest app downloads are on the sort of marketplaces, such as the likes of depo. We've kind of forgotten that we have something that we've treasured, and it's a potential future gold mine for us.

So we just rolled investment to enhance the technology, improve the underlying functionality, and we'll be looking to see how we can offer those things for our customers where they can stay in our ecosystem. That might end up being integrated in a better way within the ASOS platform. We haven't figured that one out yet, but we are working on it. We do know it's a rich thing, we do know we want to facilitate those experiences for our customers. So just watch this space on that one, Anne. Was the second one warehouse costs?

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Anne Critchlow, Societe Generale Cross Asset Research - Equity Analyst [3]

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Yes.

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

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How low can it go? I've said before, I'm expecting around 8% to 9%.

So as the efficiency rolls through, the chart shows you the current level of inefficiencies. They're still very manual. That's about a flow through. But bear in mind, there is -- we also are leaders on the living wage for our people wherever they fall. So we look to -- we've moved significantly on all of those areas. So I've got 8% to 9% as our future operating level in there.

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Greg Feehely, ASOS Plc - Director of IR [5]

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Always stuck at 15%.

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Alison Lygo, [6]

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ASOS can do more.

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

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ASOS can do far more. I think it will be a little bit early for me to start going. We're now expecting 20% to 25% in the -- in FY '20, until we just restored our own confidence. So if you don't mind, can I leave that one for a later conversation? We're certainly confident on 15% for FY '20. What follows behind that, we'll have another look as we see our investments unwind.

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Greg Feehely, ASOS Plc - Director of IR [8]

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David?

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David J. Gardner, Morgan Stanley, Research Division - Equity Analyst [9]

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David Gardner, Morgan Stanley. Following up on the medium-term guidance. On the EBIT, does your 4% medium term still stand? And when you talk about restoring margins, where should we expect those to go to? Would you be in a position at the full year results to give us a more explicit guide on both growth and margin? And then secondly, can you just talk through what's driving the big cash inflow from the change in trade payables?

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [10]

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Sure. Greg, do you want to do payables?

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Greg Feehely, ASOS Plc - Director of IR [11]

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I'll come back just very shortly on that.

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [12]

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I'll give you time to think about it.

So the -- you have seen in my presentation, I talked about restoring our profitability, that means going back to 4%. If you remember 4% was our discipline, and it's what drives some of the key fundamentals in our business model. So we have no intention of coming off that target. This year, 2% -- so therefore, some things we were either ill-disciplined on or things were attacked differently. But our medium-term trajectory is to restore it to 4%.

On a terminal value, the -- whenever that is, we still believe the business could have a high single-digit endpoint margin.

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Greg Feehely, ASOS Plc - Director of IR [13]

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Let me just follow up on the payables. Nearly every question around this was moving from the old finance system to the new finance system. And I think, we told you maybe the Microsoft Dynamics was a little bit bumpy. So it just moved from one place in the balance sheet to the other. We'll come back to you with the exact detail on that, but it is driven by the change in that finance system.

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Paul Jacques Philippe Bonnet, BofA Merrill Lynch, Research Division - Associate [14]

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I'm Paul Bonnet from Bank of America. Two questions from me. The first one relates to the U.S. So in the previous statement that you guys put out, it was talking about never-seen-before levels of demand, and then more granularity was given in that statement saying 80% increase in the first 3 days. But then in the logistics section, you're talking about 2 to 4 days backlog, and if I'm not wrong, the warehouse went live at the beginning of February. So shouldn't we have seen some of the pickup by the back end of February because customers would have been delivered, is my first question. And then my second question is, on gross margin, you had FX tailwind into the first half. What do you expect for the second half of this year?

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [15]

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So you're entirely right. I didn't repeat all those stats in the presentation because we did a lot of that 3 weeks ago on Q2, but your recall is bang on.

The first 3 days, it was over 80% demand. It took us around 4 weeks to recover the backlog. And so we've started to see stabilization at the back end or early into March. The propositions are fully restored to where they should have been. But now, we're moving the propositions on again. So stability, first of all, restoring the propositions. And actually one of the -- it's -- it was really interesting is actually the power of the propositions when we added on 45 days, we saw demand go backwards at a rate of knots. So -- and we know that, but it also reminds us how important the delivery propositions are. They were back and restored sometime in March, and now we're moving the propositions on again. Does that...

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Paul Jacques Philippe Bonnet, BofA Merrill Lynch, Research Division - Associate [16]

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It's on the proposition...

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Greg Feehely, ASOS Plc - Director of IR [17]

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It's important in the U.S. that people always forget that you don't have weekend delivery like you do here, right? So depending on when you order, you've certainly got 2 more days than you would expect it to deliver it in the U.K., like (inaudible) maybe always forgets that one. Sorry, put on the FX with guidance next year broadly flat at the moment.

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Paul Jacques Philippe Bonnet, BofA Merrill Lynch, Research Division - Associate [18]

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And for the remaining half of this year?

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Greg Feehely, ASOS Plc - Director of IR [19]

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This year, second half of this year, I'll come back to you, but I don't think it's changed in terms of the overall guidance we've given you on that and that it wouldn't have done because of the long-term nature of the hedging.

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

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Andreas? Rebecca?

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Greg Feehely, ASOS Plc - Director of IR [21]

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Rebecca.

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Rebecca Anne McClellan, Grupo Santander, Research Division - Equity Analyst [22]

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Rebecca McClellan, Santander. Just in terms of the collection, how do you feel it happened that the collection went off-track? And sort of what are the lead times? And you sort of said that you'd reassessed everything since December. Do you feel that the collection is now sort of back as it should be? Or is there still work to do? And then the second question just on working capital. In the statement, you mentioned that the focus was on availability, which had an ultimate consequence on choice. If you're looking to improve choices, that means we should expect some changes in working capital?

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

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Okay. The -- it's sometimes difficult to isolate why the presentation changed, but it did.

It's more important to identify it and then get it back on trend. Now have we got everything where we want it to be? No, but we're working really had I said. And so the 3 images I showed you are just examples of how the presentation has just gone a bit more sizzled, a bit more engaging and actually what our customers want. And the impact from the customers was brilliant on the back of it. So sometimes more is more, more hair, more makeup, more presentation, more glamor. Internally, I've called it Project Glam. And so just climbing some of the presentation backup. And do you know what, we're famous for it. We're brilliant at it. We've just forgotten it a little bit.

If I was going to say, we got a -- it got a little bit vanilla of being self-worthy, I think that might be the part of it. But we're doing more work on the back of it. The other things around -- so that's the presentation piece. The other things around it is regrettably around the stock moods. We made a couple of decisions around newness and width to help us sustain those transitions. And so we cut some of the menswear width by 20%, and that compromised newness. And so that meant we went deep on some lines and we lost some of that appeal on the back of it.

We've replanned all of that, and this is ASOS Design specifically. And -- because the biggest proportion of our sales is ASOS Design, so you'd get a disproportionate impact. Will that increase working capital? Potentially, but it will also increase rate of sale. So it might offset it. So I will restore it fully. We've taken the actions, and we've already started to see it come through, and I think it's going to intensify over this month and next month and big months in the summer. So does that sort of answer? Tried to.

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

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Michelle from Berenberg. Three questions, please. First of all, on the price investments in France and Germany. Can you give us any indication of what you're seeing from those price investments if it's delivered any acceleration in growth in those markets in the early stages? On the automation of Berlin that's coming live over the next month, is there any risk of disruption from that automation? And then thirdly, on the labor cost per unit and the man pick hours that you've given us, Eurohub and U.S., how does that compare to the U.K.?

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

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Okay. So the first is, we started to deploy price investment in France and Germany. We'll wind back some of the prices that we had put in there earlier in the half around about February, and we did it on ASOS Design.

And so -- and I wanted to do that because there's a lead time for pickup. And I want to do that, start rebuilding momentum ahead of the cutover or we want to start doing that way. We're going to go again because one of the things that I think has changed on the back of it is some of that third-party brands have also moved their prices in those territories as well. And so we're having a good look at that. And we're seeing on an individual category level the price elasticity moves and all of that. So -- and we started to see some tick-up and so that's encouraging. But I know there's some more to go.

In terms of the second point was warehouse disruption. Always bound to be the potential for bumps on the road when you have the scale of change that we're all going through. It won't be the same potential risk that we saw in Atlanta because Europe's already a closed pole. And all we're doing is extending the second half of the warehouse. So Atlanta -- sorry, Berlin is around 450,000 square feet. We're opening up the second chamber, which has already got our product in it. And all we're doing is opening up the mechanization and the efficiency, and that's been significantly tested for several months. So I'm confident that there will be a different benefit, a different experience, but there's always a risk of something going wrong. So we'll let you know if that's the case. The last one was on labor cost per unit. Well, I've -- the chart shows an index on the back of it, so with Barnsley, GBP 0.60, Atlanta is 3x at a -- 2.7x at a -- at the moment and heading down. Does that help you?

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Michelle Wilson, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [26]

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Yes.

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Andreas Inderst, Macquarie Research - Senior Equity Analyst [27]

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Andreas Inderst, Macquarie. I have 3 questions.

Just the first one on, like you mentioned, a shift towards lower price points for other brands and also within ASOS. Do you think that's structural? It's the first one. The second one on CapEx. Just over a year ago, so you guided GBP 230 million, GBP 250 million CapEx for the medium term. Now you say the big investment program is over GBP 150 million, so why such a big delta? And what can we expect beyond 2020? And my last question is, you mentioned investments in software for your return centers and an efficiency pickup of 15%, maybe you can elaborate on that? What's behind there?

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [28]

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What was the first one?

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Alison Lygo, [29]

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Shift to lower price points for future.

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [30]

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Oh, sorry. The...

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Greg Feehely, ASOS Plc - Director of IR [31]

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Thank you, Alison.

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [32]

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Thanks, Alison. I don't know the answer to that. And the -- all I can do is observe customer behavior. The -- so is it structural, therefore, forever? I don't know. Is it...

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Greg Feehely, ASOS Plc - Director of IR [33]

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(inaudible) to a year though. It's been going on for quite some time.

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [34]

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So is it, do customers love value every day?

So do they also -- does value also mean price? No, it doesn't. And so certainly, the way we respond to customers is we offer them the most compelling brands, the most compelling price points and work hard at it. Do I think it'd be really important going forward? Yes, I do. Would it always be at that level? Don't know, highly likely.

The second one was CapEx?

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Greg Feehely, ASOS Plc - Director of IR [35]

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Yes.

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

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Right. So we did guide to around GBP 200 million, GBP 250 million for the medium term. We just had a closer look at all of those things. The investment program is coming to a close. Next year, the big change in the GBP 200 million, GBP 250 million is on warehousing predominantly and some of the software programs falling away. We're going to, therefore, work our assets a lot harder. It'll be certainly around GBP 150 million for FY '20. Going into the future, it will be somewhere between GBP 150 million and GBP 200 million, depending on warehouse build-outs and the next stage of our growth. But we've certainly got capacity with at least GBP 4 billion to -- in the warehousing, where we don't need another lumpy investment for -- during FY '20.

On the last piece, returns' efficiency. We've build 7 returns processing centers now, which can handle around 3.5 million returns a week. We've had a good look at the software, and all of those were replatformed with software, improved the functionality. And we're expecting 10% to 15% productivity improvement through better, more intuitive software, faster throughput, all of that helping the -- helping that cycle. That's really important because that's quite high-cost processing activity in our business.

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Greg Feehely, ASOS Plc - Director of IR [37]

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It's also tied to the lower CapEx, right? Because we're not going to need the next returns processing center as soon as we did before. Obviously, 12 months ago, we were predicting 25% revenue growth. It's now 15%, so there's a capacity correlation on that CapEx as well. I don't think there's nothing that we're not doing that we would have done, just potentially a different time.

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

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Efficiency-related CapEx is all right because it's -- if you get 10% to 15% throughput improvements, you won't need extra facilities, obviously, as soon.

Charlie?

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Charlie Muir-Sands, Exane BNP Paribas, Research Division - Research Analyst [39]

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Charlie from Exane. Three questions. Firstly, when you think about the midterm to recovery to objectives, what's more important? Getting sales over 20%, again, getting back to 4% margin and/or getting to -- getting and holding free cash flow positive? The second question...

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

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Three, Charlie. So...

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Charlie Muir-Sands, Exane BNP Paribas, Research Division - Research Analyst [41]

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If you have to choose -- the response of the customers is not sufficient to get all 3 simultaneously.

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [42]

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Right. So within that -- we have set our objectives for the medium term to maintain the current level of sales growth. We won't hold it back if it's there, but also our commitment to our shareholders is to restore our profitability, and we will do that. And the consequence of those 2 things and more efficiency and in having another look at our CapEx plans, we'll also drive free cash flow positive as well. So it's kind of sales and margin and optimizing our investments to drive free cash flow positive. It's not free cash flow positive lagging the dog if you -- if that helps you.

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Charlie Muir-Sands, Exane BNP Paribas, Research Division - Research Analyst [43]

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The second question -- sorry, I think, you said warehouse transition costs will gradually fade. I wondered, next year, whether we're still talking about a number over GBP 20 million. I know precise numbers might be a bit early. And then my last question was, I think, in the other OpEx, you called out GBP 3.1 million rebates. I appreciate it's not a big number in the context of your revenue base, but I just wondered whether you could explain what that was.

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [44]

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Sure.

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Greg Feehely, ASOS Plc - Director of IR [45]

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Well, actually the transition cost for next year because we haven't finalized those, but to give you a direction of travel, GBP 24 million in the first half of this year is likely to fall to GBP 12 million in the second half of this year. That's potentially helpful for you. We'll probably come back in more detail in October, with detailed line-by-line guidance for next year.

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [46]

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But it will half again in FY '20. It would be a guide now, the transition cost.

In terms of the GBP 3.1 million rebate, just working our costs harder, renegotiating on certain line categories, and we got a rebate, one of major on the back of it. We should rebate of cost we've previously paid.

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Greg Feehely, ASOS Plc - Director of IR [47]

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Let's take this side. Emily?

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Emily Want, Redburn (Europe) Limited, Research Division - Research Analyst [48]

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Just a quick one on active customers. So can you give us some color or comments on what you're seeing in terms of gross customer apps? So you've obviously hopefully given us all of the information on net customers, but I'm just interested in the trending growth, particularly, given that you were also talking about churn down.

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Greg Feehely, ASOS Plc - Director of IR [49]

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Exactly. So I think you can come to that conclusion yourself, right? Because we haven't really talked about churn rates before. We've put them in the statements, saying that improved. You see the net number so you can deduce that yourself.

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Emily Want, Redburn (Europe) Limited, Research Division - Research Analyst [50]

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And we -- can you tell us what the churn rate is?

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [51]

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Right. I think that was working out yourself, Emily. We're not going to give any more help than that.

Over here somewhere.

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John Stevenson, Peel Hunt LLP, Research Division - Analyst [52]

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John Stevenson at Peel Hunt. First up, just on that point, actually, in terms of customer loyalty, I mean, you talked about the proposition, it impacted natural traffic, it's impacted your ability to recruit new customers. And yet, the loyal customers seem to be reasonably loyal. I mean if you could sort of comment on that. What are you actually seeing amongst the loyal customers? And why, if the proposition is sort of softened a bit in terms of how you're betraying the product, why that's the case? Second question on brands. You've talked about the churn being higher because you're not resonating with the younger customers. Is that because the sell-through on those brands hasn't been good? Or is it actually the targeting of the sort of specific demographic, the younger demographic that hasn't been strong enough? And finally, just on that distribution capability and sweating and not optimizing. At what point, not as a sales point, do you actually need more warehousing to actually to deliver the improved proposition that you want to in the state?

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [53]

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Okay. Good questions.

The first one is, I think, our propositions are still market-leading or as good as local in most of the major territories. So I don't think that's been the main issue. I think the main issue on the slowdown in customer acquisition, particularly, the younger demographic, has been around our presentation: product width, product newness. And so that's what I mean by (inaudible) and not quite looking as good and feeling as good as it once did. So I think we're on that now. And we're seeing good reactions to it. So I don't think it's about propositions. I don't think it's around delivery of returns. We're certainly seeing customers choosing a different set of payment methods. And there's been an -- there's been a surge in pay now -- buy now, pay later, installment payment methods that are really compelling actually. Why wouldn't you? So we've launched a couple of new payment methods in the last few months, and we're going to do a lot more on that because it's resonating with the customer. If you can choose to pay something over 4 installment periods, it's great. So I think we may have been a little bit slower on some of those, but we're now on to that too. Does that answer the first point?

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John Stevenson, Peel Hunt LLP, Research Division - Analyst [54]

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Yes, I think so. I mean, I guess their loyalty, I guess, has been quite good. So obviously...

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [55]

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Our existing customer base -- we've increased our conversion, we've increased our orders from it. And so we're certainly engaging with our loyal customer base, but mission-critical, too, is growing new customers, too, at an increasingly young rate because then they get into the proposition, they stay with us for a while. So that's -- there's a bitter, sweet in those dynamics. I know we can do better on the younger demographic. We've got a lot of things going on to improve that. On the third-party brand point, we're just talking about the sell-throughs on some of them. Again, that's just not resonating, right? So we normally churn over about 200 -- 150, 200 a season. We've just gone a little bit harder on some of the brands going -- it's just not us, it's someone else's customer, not ours.

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Greg Feehely, ASOS Plc - Director of IR [56]

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And as we said that is the premium price point brands and the third-party ones, so it's the same kind of the thing we were saying earlier. Last point was about the GBP 4 billion or next warehouse, specifically, in the U.S., was it?

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John Stevenson, Peel Hunt LLP, Research Division - Analyst [57]

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I mean, you -- obviously, you said GBP 4 billion, but, I mean, I guess, the critical point might not be the sales line, it might be the actual service line.

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [58]

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Yes. So having 4 -- having 3 major fulfillment centers, custom-built, with great automation and fast throughput and low operating cost is real advantage.

Does that mean we'll be building warehouses in every market at the same rate? I don't know. So we'll be certainly looking at a different method of connecting and offering increasing choice with less capital intensity. I just need to get through the TGR development. That gives me some of the capability to access a different way. So this is -- that's not a pivot in the model. That's just looking at how to deliver choice for customers at a very different rate without necessarily having the same level of capital intensity. But when you've got those investments-based centers that we've built, they're very, very useful. And I've called out today some of the customer enhancements that we'll get on the back of it, such as next-day delivery in the U.S., which is definitely a first for us. But I don't know. It's not really that common in the U.S. market yet. But it should be because why would customers in the U.S. wait any longer than the European customer.

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Simon William George Irwin, Crédit Suisse AG, Research Division - Director [59]

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Simon Irvin from Crédit Suisse. Just 2 quick ones. Can you give us an update on U.S. sales taxes as to how many states are kind of getting themselves organized in terms of local states taxes so this can all be rolled out? And what are your kind of thoughts around timing, way you're passing it through, et cetera?

And then just a broader question about the ethical consumption as to which markets you're seeing it matters? And how customers are reacting? Are they buying more a product that is deemed to be ethical? Or are they just buying less because that's deemed to be the right thing? Or is it all talk and not much action?

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [60]

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In terms of sales tax?

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Greg Feehely, ASOS Plc - Director of IR [61]

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Yes. So that's gone live. We invest 32 states currently, Simon. I think the only big one that's meaningful to us is California that hasn't gone live yet, but we firmly expect it to. I suppose in terms of removing our forecast risk in the balance to achieve it's gone live now and being passed through, right? Say, if that was a margin risk to us, it's no longer there for the balance.

Not every state will do it because there will be some like Nevada. For example, there's are few states that don't have any sales tax, say, with -- 80% of the way they are now, I'd imagine, within 12 months, they'll all be there. But for us, it's all in place and being passed through us from February.

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [62]

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On your second point, Simon, interesting one.

Our approach to this is we will take care of the sustainability in terms of fabric sourcing for you, and we're 80% ASOS Designed already, and we'll be 100% shortly. There aren't many brands that are currently where they -- where we are. We'll also take care of the sourcing and make sure that the people making your garments are paid the right wages. They have freedom of association. They have access to the right working conditions. That's part of our modern slavery commitment. And we're also taking care of the packaging, too. So at the moment, ASOS plastic bags are 100% recyclable, and all the boxes are 100% recyclable and recycled. We've got around 35% of our plastic packaging at the moment is recycled. We're trying to work hard on sourcing increased levels of recycled virgin plastic.

So there's -- the view of that is, there's enough things for consumers to worry about. Those things they don't have to worry about by shopping at ASOS. We're also making sure we're pushing a number of our partners, and there's a 5-point plan as minimum thing that they should continue -- they should sign up to. And there'll be a moment where we'll have to push those compliance levels. And if people don't comply, we'll have to have different conversations with them.

Do I think it's dominating demand right now? No, but I think there's a tipping point. And the advent of social media, the younger customers are more connected, more aware of these things than ever before and that's right. I do not think they'll pay more for it, that I expect brands take care of it for them. And I think it'll become a defining feature of how people consume their fashion and many of the items. We're ready on that, we're on it. We're about to launch a new set of jeans that is 100% recycle material. Denim is one of them. Denim average pair of jeans consumes about 1,500 liters of water. Water is a key element of that. Cotton is a key element that goes into denim, of course. A 100% recycled jeans. And by just breaking down all denim, recycle it into new fabric and the way you go. So we're on it, customers know we're on it. We will weave this into our narrative far more. And I think there'll be a moment where it'd become a defining feature. It's not yet, but it will be.

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Greg Feehely, ASOS Plc - Director of IR [63]

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I'm very conscious of time. Should we take one more?

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Samuel Alexander Lourensz, Arete Research Services LLP - Analyst [64]

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Sam Lourensz, Arete. So you mentioned about growing your proposition for next-day delivery, and I think it's 25 German cities and select cities in the U.S. Can you maybe talk about some regions slightly further field? How you think you can maybe expand this offering? And also your thoughts on how you can stay competitive, given such a drastic cuts in CapEx, especially, given that you say delivery proposition is so important.

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [65]

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Which regions do you want to talk about? Because...

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Samuel Alexander Lourensz, Arete Research Services LLP - Analyst [66]

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Maybe the U.S. and Europe?

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [67]

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Right. So -- take this as a phase, first year, so during the course of the next few months, I've just set out our roadmap for Germany, first of all. It's the biggest, single market in territory in Europe, clearly. So that's where we're targeting first.

But we won't stop there, we'll keep on going. But we haven't set out which cities we'll do that yet. In U.S., we've picked off our hotspots and -- where we know we've got high customer concentration already. If you remember, a few -- 6 months ago, we talked about mapping our demographics where we know that there's a customer hotspot, we'll push stop there and then expand. So we -- the ones we're planning to do next-day delivery on are the ones where we know there's a customer base already waiting or wanting that. As we see more demand light up, we'll just point the propositions accordingly. But it would be foolhardy to go next-day delivery everywhere in the U.S. because the junk feed just wouldn't work.

So going forward, I fully expect, in the U.S., Atlanta, just being one part of that solution. And I expect, at some point, looking at more facilities or a different way to connect, then those propositions will have consumers. But it is not now. The Atlanta warehouse has got around 120 million unit capacity, which is about GBP 1.5 billion processing capacity. So I've got a 3x improvement within what I'm already doing in the U.S. So I don't need to do that just yet. I forgot your other question.

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Greg Feehely, ASOS Plc - Director of IR [68]

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It was about CapEx and local challenge with the GBP 150 million, it's still 4x, 3x, what it was 4 years ago. It's still a significant amount of money. We're certainly saying that's guidance for 1 year. So it's not guidance for every year, ad infinitum.

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Samuel Alexander Lourensz, Arete Research Services LLP - Analyst [69]

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Yes. But then you said in the medium term that CapEx would likely increase to between GBP 150 million to GBP 200 million, but if you're expecting that you do want to expand to further cities, then maybe in the medium term, it's actually going to have to increase again?

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Nicholas Beighton, ASOS Plc - CEO, Member of Executive Board & Director [70]

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No, we're not expecting. I appreciate my CapEx guidance hasn't been the most precise, but that's not what we're currently expecting.

Is that it? All right, guys. Thank you very much for joining this morning. I hope that was useful.