ASOS Plc (ASC) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to our H1 results presentation. Back in October, we discussed how in the previous 12 months, we've been focusing on strengthening the foundations for growth at ASOS. We then restated our ambition and mission to be the world's #1 destination for fashion-loving 20-somethings and how the ASOS brands, the ASOS platform and the ASOS experience will drive that ambition. Today, we set out our results and strategic progress for the last 6 months, and we're going to share some learnings with you. So let me turn to the key results during the half. We've had an exceptional first half with record PBT, which was more than 3x greater than last year. And even when adjusting for the COVID tailwinds, this has meant we have delivered double the profit we landed in H1 last year. We reported strong retail sales growth of 24%, with the U.K. delivering outstanding growth of 39% year-on-year. The U.S. market delivered solid growth of 16%, the EU grew 18% and the Rest Of World grew by 16%. We've added 1.5 million active customers in H1, and we've seen strong momentum on visits, particularly in the U.S. and in Germany. We ended the half with a positive net cash position of GBP 92 million after paying out GBP 266 million for the brand acquisition last month. During the period, we also successfully acquired and integrated these 4 brands into the ASOS venture brands table. We did both the acquisition and the integration in an exceptionally short space of time, with a customer relaunch taking place just 3 weeks after closing the deal. We're also progressing well for a 100-day integration plan, with more work to do on team structures, key processes and the supply base. I thought it was worthwhile reflecting on the last 12 months and what we've learned and sharpened during that time. You don't need me to point out the unprecedented disruption throughout the world from the pandemic and the economic consequences. In terms of our market sector, to shift to e-commerce has created a huge tailwind for ASOS, but the social restrictions have also created the headwind for us. Obviously, much of our product is tailored towards going out, buy now or wear now occasions. Either way, it's created a huge shift in the product demanded by our customers and our people have pivoted quickly to meet that need. The ASOS' resilience, commitment, creativity and passion has always been remarkable and a source of delight to me. Over the last 12 months, they've really shown up again and blown us away time and time again. Their commitment, resilience and professionalism has been unparalleled during a time when their lives have been turned upside down. This year will have taken its toll on the mental health of all our people, and we're working hard on this with them. As a necessity, we have built greater agility into our business model, our organizational decision-making and the mechanisms that we use to manage and run our business. This is most tangible in enabling us to pivot our product offer at short notice while also delivering enhanced product width in activewear, casual wear and Face + Body. We have literally stress tested the resilience, capability and flexibility of our tech, our operations and our processes, and we're delighted with the strong operational grip and execution discipline that's resulted. And lastly, the significant disruption over the last 12 months has forced us to metaphorically rip up the playbook and rethink and refocus on what we do and how we do it. This process has driven more innovation, and we've explored new ways of doing business that we are convinced will ultimately improve our business model, and we have built a more robust business overall. I'd now like to hand over to Mat, who will take you some more -- take you through the detailed financial performance.

Thanks, Nick, and good morning, everyone. Let me start by briefly taking you through our key financial metrics. We delivered total sales growth of 24%, with revenue just below the GBP 2 billion mark for the half year. We saw improvements in growth rates in both the U.K. and EU in P2, with the U.K. in particular posting an exceptional 46% growth as we capitalized on our strong position in our home market. Gross margin stepped back by 200 basis points in the period driven largely by COVID-related factors which I'll take you through in more detail shortly. In terms of profitability, we are now showing adjusted measures, which adjust for one-off items relating from the acquisition of the Topshop brands as well as any resulting amortization, and as a result, are more representative of underlying performance. Adjusted EBITDA also excludes noncash share-based payments in line with our peer set. We saw a marked step-up in adjusted EBITDA margin to 9.2%, which represents 320 basis points of margin expansion. This reflects strong cost discipline and operational grip as well as the profitability benefit we've seen from lower returns rates associated with COVID-related consumer behavior. We delivered record adjusted PBT for the half, and even after adjusting for the COVID-related tailwind of GBP 48.5 million is still double what we posted in the first half of last year. To date, we spent GBP 64.7 million of CapEx, with the majority of our investments geared towards the TGR rollout, the completion payments for the automation of Euro Hub, our new fulfillment center in Lichfield and additional tech infrastructure projects aimed at improving our overall customer experience. Lastly, we ended the period on a net cash balance of GBP 92 million after the investment of GBP 266 million into the Topshop brands and after the anticipated working capital unwind that we outlined at year-end. Turning now to gross margin and warehousing and distribution costs, which I'd like to take a moment to unpack. As I mentioned, gross margins stepped back by 200 basis points in the half. The continued growth in lockdown categories, with Face + Body showing exceptional growth of over 100%, and activewear and casual wear growing by 95% and 69%, respectively, continues to drive unfavorable mix. However, as you will all know, we see the corresponding impact in returns benefit in distribution and warehouse costs with a lower returns rate associated with these categories. We've also seen our freight costs remain elevated, largely as a result of COVID-related supply disruption across air freight and sea freight and associated rate increases. We have managed to mitigate a portion of these heightened costs, but given the extent of the inflation, we still see an overall impact on our gross margin. Gross margin was also impacted by foreign exchange. We've called this out for the first time, given the substantial strengthening of the pound in the first half of the year. In line with many companies, we net hedge FX, taking into account both sales and costs. And as a result, we typically see FX impacts associated with the strengthening of the pound hit gross margin, with any associated hedging benefits seen in operating costs. Together, these impacts account for a reduction in gross margin of 260 basis points. Excluding these impacts, and on an underlying basis, we have seen our gross margin increase largely as a result of improved buying margin. Conversely, warehousing and distribution costs both saw substantial improvements as a percentage of sales, benefiting significantly from our lower returns rate profile. Overall, COVID-related net benefits had a 70 basis point favorable impact on warehousing costs and 190 basis point favorable impact on distribution costs. Distribution costs were also impacted by adverse outbound freight, particularly in our Rest Of World markets, whilst underlying warehousing costs also benefited from the productivity improvements associated with the automation of Euro Hub. The GBP 48.5 million benefit we disclosed in relation to COVID consists of the cost benefits seen in warehousing and distribution and the adverse inbound and outbound freight I have mentioned here. Having covered gross margin, distribution and warehousing costs, let me briefly cover marketing and other operating costs. Last year, during the initial COVID lockdowns, we reduced our marketing investment to allow us time to pivot our business in response to COVID restrictions without further stimulating demand. And as a result, we reduced our marketing investment in FY '20 to 3.7% of sales versus our usual investment levels of around 4.5%. In this half, we've actively reinvested back into marketing to capture demand, and we expect marketing investment to remain elevated in the second half of the year as we continue to invest behind our growth in the U.S. in particular. However, we still anticipate that our long-term run rate will be similar to historic levels. Other operating costs showed significant improvement as a percentage of sales reflecting the hedging benefits I spoke about earlier, which partially offset the impact in gross margin, but also improved due to our efforts on nonstrategic costs. I spoke to you last year about our business-wide approach to removing nonstrategic costs, and we continue to drive these out wherever possible, whilst looking for further areas of opportunity. As a result, whilst we've already benefited from many of the quick win opportunities, we do continue to see substantial further opportunity. As a result, whilst we don't expect nonstrategic cost removal to continue at the same pace as we saw in 2020, we do continue to expect improvement. Key benefits in the half have been driven by focusing our marketing investment on more efficient channels, further alignment of our structures, including improvement in average spends and some delayering, along with some targeted capability investment; centralized procurement activity and increased efficiency across our returns, product reprocessing and customer care processes. Our overall cost base has also continued to benefit from the annualization of the benefits associated with the automation of Euro Hub. In time, we would expect to see similar benefits in our U.S. warehouse, given the investment we have commenced there. We've also begun investing into lean capabilities with an initial focus on our supply chain. I'm now going to take you through our performance by territory, starting with the U.K., where our performance has been outstanding. We believe our results in our home market reaffirm the strength of our customer proposition, which has allowed us to capitalize on the acceleration online retail penetration we have seen. Turning to Europe, where we continue to deliver strong growth, particularly in France, Germany also saw good results, especially when nonessential retail closed towards the middle of the half. As referenced previously, we benefited particularly where there were restrictions on both hospitality and retail as opposed to geographies where retail was open and hospitality was sharp but we saw more muted growth. However, and particularly pleasingly, we have seen in France our growth rates sustain even with the resumption of nonessential store trading. In the U.S., we posted pleasing growth of 16% for the half despite our higher exposure in the region to going out wear, with ASOS Design over-indexing in the mix. We continue to focus on improving our stock profile in the U.S., although port processes made this more challenging in the latter part of the half. The overall stock profile was further supplemented by the first phase of our flexible fulfillment rollout, which augmented the stock pool and drove additional availability from our warehouse in Barnsley. We continue to invest behind growth in the U.S., both to improve our relative awareness in the market and also to ensure our pricing remains competitive. We hope that the U.S. will be a particular beneficiary of the resumption of demand for going out wear, given our skew in the market, and we have seen some very early signs of this in recent weeks. Lastly, in Rest of World, we saw growth of 16%, with 5% growth in our active customer base. ABV grew by 10% as we shifted delivery thresholds to support our basket economics in the face of COVID flight disruption, and we saw the impact of this with a step back in orders of 2%. Particularly pleasing was the fact that we've delivered strong double-digit growth in Australia year-on-year despite significant disruption to our delivery proposition. Russia, however, declined, reflecting the continuation of weaker market conditions and aggressive competition. Turning now to our customer base across all markets. We've grown our active customer base by 12% to 24.9 million customers. Within this, we have seen an increase in churn rates with low frequency occasion wear shoppers dropping out of the base as a result of the lack of event-led reasons to shop. However, we've also seen strong customer engagement amongst our most loyal customer base as well as promising dynamics from customers newly acquired during lockdown. Turning briefly to cash flow, where our strong profitability has translated through to free cash flow despite the anticipated working capital impact of GBP 133.6 million outflow, which included the GBP 89 million working capital unwind that we referenced at year-end. Our cash CapEx investment of GBP 60.6 million spans investment in TGR, the commencement of the fit out of the force fulfillment center in Lichfield and our continued investment in tech transformation and our customer experience. Overall, we retained a net cash position following the Topshop acquisition. Turning our attention now to where we expect our outlook to land, and I wanted to start by going through what we have seen in terms of customer behavior over the past 6 to 12 months and where we expect it to go in the immediate future. We have consistently seen lower rate returns rates over periods of strict lockdown as consumers look to limit their returns through a more deliberate purchasing dynamic as well as a shift into casual and activewear products and Face + Body, all of which have lower returns rate. Given the likely easing in restrictions in many, if not all territories in the months to come, as we look forward, we do expect returns rates to normalize as vaccine rollouts proceed at pace and social restrictions lift. Associated with this opening up, we do expect to shift back towards going out and occasion wear, a shift which we are well placed to capitalize on. We have seen going out wear step back as a proportion of our product mix by 9 percentage points. However, as we gear up for the summer and as social restrictions looks set to lift, we expect the demand for occasion wear to return, albeit perhaps not back to historic levels. Looking at overall demand, we know that 2020 accelerated the underlying shift to online. And whilst we expect some of this demand to return to more traditional off-line channels, we don't expect the shift back to be as significant, with the demand for online retail stabilizing somewhere between 2019 and 2020 levels. As you can see, there are both positive and negative impacts for us as we look forward to a more normal trading environment. Many of these we are excited about as long-term opportunities which will benefit our business. But in the immediate term, as a result of these expected consumer shifts, we expect a much more muted impact from COVID in the second half of the year. Whilst we expect returns rates to normalize, the timing of this is uncertain, with the outlook on social restrictions changing almost weekly. However, we don't foresee any material changes to freight rates even with the listing of these restrictions in the short term, and as a result, expect them to remain elevated for the remainder of the year with a double-digit pound million cost impact. As a result, whilst we have positioned ourselves to capture event-led growth, we will remain cautious on the short-term outlook. Despite this short term uncertainty, we will continue to focus on the global opportunity available to us and are set to invest deliberately behind the U.S. and Europe in both the short and medium term. Taking all of these factors into account, we have increased our outlook to reflect our strong performance in the first half, but -- whilst leaving our expectations on sales and profit for the second half unchanged. As we've done throughout the last 12 months, we will keep you updated as things evolve and become more certain. I will now briefly cover some more specific pieces of guidance. Firstly, when we announced the acquisition of the Topshop brands, we guided you to expect roughly GBP 20 million worth of one-off integration and acquisition costs. Having made strong initial progress, we now expect this cost to be in the region of around GBP 10 million. We will also have amortization arising from the transaction, with GBP 6 million being incurred this year, which we expect to be about GBP 11 million on a full year basis going forward. On an underlying basis, we are still retaining our approach to Topshop performance for the year with any sales uplift being reinvested back to be EBITDA-neutral for the remainder of the year. Our Brexit guidance remains unchanged, as does our cash flow expectation. We still expect free cash flow to be positive in the second half, and we retain our CapEx guidance of GBP 190 million. As I mentioned at the beginning of my presentation, we've adopted adjusted measures going forward to better demonstrate underlying performance and aid comparability following the acquisition. We will continue to use this going forward in our presentations and in guiding the market where appropriate. We will adjust for any material one-offs as well as for acquired amort, with the aim of giving a clear view of underlying performance and momentum. Any adjusting items will be clearly called out, so you as analysts and investors can include or exclude whatever you choose. Lastly, I'm excited to announce that 2021 will mark the return over a broader series of capital market events at ASOS. We will be hosting a series of events throughout the year, kicking off on the 20th of April with an event showcasing our market-leading design capability. The event will be focused on our ASOS brands and introduce you to the retail team, with a fuller update on our broader business progress planned for the late summer. I will now hand you back to Nick to take you through an update on progress against our strategic priorities.

Thank you, Mat. So building on the strength of the strategic framework, you remember that I took you through these 5 priorities in detail at the year-end. Against a volatile backdrop of constant change and uncertainty we're living through, these priorities have continued to guide our business, guide our business decisions, and guide our allocation of resources. Coupled with the ASOS purpose, the ASOS vision and ASOS values, they serve as our true north. Today, I want to show you some key areas of progress which have helped deliver the results in the short term and will continue to drive the delivery of our growth ambitions into the medium and long term. Firstly, I'm thrilled to announce we're finally live with TGR. TGR is our new software management platform for end-to-end product management. Our teams have worked tirelessly on TGR. We conducted a full dual run for 6 months, starting in September. This was to identify any potential gremlins, and we launched it in 8 phases over a 5- week period, starting on the 20th of February and culminating a successful launch across the business a couple of weeks ago. TGR is an internal enabler to support our growth ambitions. And through this rollout, we've essentially delivered a seamless rewire of our entire internal architecture. The new tools and processes will allow us to restructure the way we plan, the way we trade our products so we can offer the best choice to our global customer. More accurate, more relevant, more timely information will enable better and faster decision-making, too. The improved visibility of our stock pool management and inbound planning will give us better visibility for our forward-looking product offer at each of our multiple fulfillment centers. And the system design overall will support better local pricing flexibility across each of our markets around the world. In a nutshell, TGR completely revolutionizes our internal systems to enable us to operate and trade at pace on the global scale. Building capability in tech and logistics is critical for high-growth business in our sector. We announced that at the year-end, we'll be opening a new warehouse in Lichfield to support our U.K. and Rest Of World territories. The first phase of this will be operational by the end of this financial year. Lichfield will initially be launched as a manual facility, with a total stock holding of 6 million units. Over the next 2 years, with the phased automation we have planned, it will nearly triple this capacity. We are currently in the design phase for the U.S. automation in Atlanta, and we expect the full launch to take place in the H2 financial year 2023, and this will double our throughput. Make no mistake here, we have a very ambitious plans for ASOS. And by creating this capacity well ahead of time and building on the solid operational tech platforms in our existing sites, we anticipate these projects will expand our throughput capacity by a further GBP 2 billion in net sales over the next few years to over GBP 6 billion throughput capacity. Our second priority, focus on growing our unique ASOS brands. This new and enhanced ASOS brand architecture, which includes our originally acquired brands, Topshop, Topman, Miss Selfridge and HIIT, is a really cool lineup of brands that are loved by fashion-loving 20-somethings globally. I'm going to talk a little bit more about the x Arcadia brand acquisition now. The ASOS deal team completed this acquisition in 6 weeks, placing others predominantly at the high level of confidence that was placed on our deliverability and our ability to move and integrate fast. We had a clear 100-day plan that was prepared prior to the completion of the deal to ensure we're prepared for a seamless integration of these brands into our business. As I said at the time, we're almost able to drop those brands onto the ASOS platform. 3 weeks after the acquisition, we relaunched the brands with a full digital social media campaign under the customer messaging, same icons, new home. This is our first significant acquisition and integration, and I'm proud of the approach, the speed and the commitment displayed throughout this process. And we're also making great progress against our milestones set out in our 100-day integration plan. One area that's been new to us have been the existing Topman, Topshop partner program. We've reviewed this strategy and trimmed the number of partners in line with our guiding principle of fewer, better and more digital. We're also delighted to it continue to be trading with Nordstrom's Zalando, YOOX' NET-A-PORTER and Global Fashion Group, with initial conversations underway with some other partners in key territories for us. You remember us discussing, in particular in the Nordstrom relationship, which continues to build. We're very excited about this, and we're in the process of developing a powerful partnership that will drive growth for both of us in the important North American market. It's still early days on the acquisition, but I'd like to give you a quick peek in some of the performance stats post the full customer relaunch on the ASOS platform. After the launch date, which was the 23rd of February, we saw site traffic to these brands increase by 226% year-on-year and remain on this level for the remainder of the month. We're seeing strong sales growth of triple digits across Topshop, Topman and the HIIT brand since relaunch, with Miss S posting sales growth of over 50%. Our TikTok campaigns have seen phenomenal success with 2 campaigns run across the U.K. and North America, with a reach of over 200 million and almost 3 billion video views, and we're really thrilled with the early results. From a regional perspective, sales growth has behaved as we expected, with strong growth in the U.K. and Germany, and exceptionally high-growth rates in the U.S. We knew from our data that these brands resonated well with the 20-something customers, especially in the U.K., in Germany and the U.S., and we're really pleased to see this translate into strong sales growth and sales momentum in line with our expectations. The ASOS Design category has always been dominated by a strong fashion product offer with going out gear and going out, out gear. So this category struggled through a lockdown. But we quickly pivoted the product offer to meet the change in customer demand. As the chart on the left shows, if you back out going out gear, ASOS Design delivered 24% growth year-on-year, which underlines the flexibility and resilience shown by design and buying teams to react and pivot to the changing customer trends. Over this half, we've seen a continuation of these trends towards casualization with going out wear continuing to move back in our product mix. As social restrictions reduce in some of our key territories, we're preparing ourselves with the turn of going out where. We expect this will be led by day wear first and then evening wear later down the line. We still expect this recovery in these categories to be dependent on the social restructures in place in each territory. So this recovery will have some continued uncertainty. During this uncertainty, flexibility will be vital for us. To enhance this flexibility, we've been focusing on optimizing our short lead time routes, [ up waiting ] our share of short lead time products and increasing our proportion of [ out to buy ] in these product areas. You will remember me discussing the forthcoming launch of the As You in October. As a reminder, this is a super glamorous brand for the Generation Me. It's sexy, it's for the sexy sassy customer who is unafraid to express itself. And as a reminder, we created this from design board to launch in 13 weeks. We're really looking forward to the summer and the shift of lockdown -- shift and easing of lockdown for the As You brand to really shine. On the next slide, I remind you what this brand has to offer, and we're expected to feature strongly as the shift back to occasion wear continues. [Presentation]

Thank you. I hope you enjoyed that. That's an exciting peek of what's to come. The new product development ranges with ASOS Design have also continued to perform well ahead of expectations, too. For example, ASOS 4505 has posted another period of 68% growth. The logo carrier product we offer has seen excellent performance. Weekend Collective has had a very strong start with over 200,000 units sold since its launch at October. Dark Future has also performed well with 140,000 units and is trading up triple-digit year-on-year. Adventure brands team have continued to perform exceptionally well. Collusion grew at 93% year-on-year and is now one of our top 3 womenswear brands. Collusion was the second highest searched term on the site, selling over 850,000 hoodies and joggers, which is enough for those who are interested, to dress the entire population of Newcastle. We also sold over 150,000 pairs of dad jeans and 120,000 pairs of denim flares. Reclaimed Vintage has also posted stellar performance with 92% growth year-on-year, and is now the 18th biggest brand on site, selling over 150,000 pairs of jeans and 140,000 hoodies. And with As You, we've expanded our product offering from 120 products initially to 600 products currently on offer, and we've sold over 200,000 units since launch, the majority of which are jersey tops and casual bottoms. As we said, As You was targeted at the Gen Z customer, with nearly 60% of those products coming through customers under 25 years of age. Developing a rich, compelling product offer for our platform is also key to our growth. We're exceptionally proud of the triple-digit growth that we have seen in Face + Body, with our beauty segment showing the strongest growth in the U.K., where almost doubled its share of the overall sales mix. Activewear and casual wear brands have continued their strong performance during the half as well. Enhancing flexibility and the seamless use and convenience of our multi-brand platform is another vital component to growth. During the half, we added 120 new brands to the platform. Many of these are smaller up-and-coming brands. We've made over 100 delivery improvements to our customer experience, including the extension of our electric vehicle delivery coverage on the U.K. Next-Day Delivery service in the W1, W2 postcodes within London. Whilst electric delivery vehicles in several large U.K. cities are all now wrapped in the ASOS white noise branding. We launched improvements to our express delivery propositions in 24 markets and improvements in standard delivery propositions in a further 5. We've also added 4,500 new Click and Collect locations launched in Australia, 10,800 in Poland and a further 3,000 in the U.K., giving us a total of over 160,000 Click and Collect locations globally. Flexible fulfillment enables us to optimize our stockholding, improve our product availability and ultimately will enhance our width without corresponding working capital increases. And it comes as 2 phases for us. Phase 1, which is unified stock pool, and we call it ASOS fulfills, and Phase 2, which is partner fulfillment. We are seeing really strong results as we roll out flexible fulfillment. We've already rolled out Phase 1, which gives us the capability to fulfill from any warehouse within our network. That means, for example, that we can fulfill to a U.S. customer from Atlanta, Barnsley or the Euro Hub. This capability has supplemented our core stock offering in the U.S. which have -- which has faced challenges from the port congestion in H1. The second phase enables partner fulfillment capability, whereby a third-party brand can fulfill from their warehouse directly to our customer. We expect this to be rolled out by the end of this calendar year, and we'll be trialing it initially in partnership with a limited number of brands. We'll give you further details of this as we continue to work on it and roll it out. Artificial intelligence and data science are now fundamental tools that we use to deliver a compelling customer experience. We've added 30 improvements to our customer experience in the half aimed at reducing friction, increasing personalization and ensuring a seamless experience, both on the website and the app. These include the launch of our ratings and review functionality. So far, we've collected 1 million reviews with an average rating of 4.1 out of 5 and promising early results around customer conversion. The New In recommendations now uses AI to ensure that the first products displayed on the New In page will be recommended to the customer on their preferred shopping behavior. We've also introduced a homepage countdown review, which lets users know how much time remains for them to buy at discounted prices, which has driven an overall increase in conversion rate. And lastly, we've rolled out a For You tab, which is powered by a new model that displays enhanced personalized recommendations. I'm thrilled that we now have a full exec leadership team in place with José joining us in January of this year to head up our commercial teams. However, I'm sad to announce after 9 years with ASOS, Mark Holland, our Chief Operating Officer, has made the decision to step down from his role at the end of April to begin the process of semiretirement. Happily, Mark's agreed to stay on as consultant, reporting directly to me, to advise us on the continued supply chain development. During his tenure, Mark has played a leading role in our growth, the development of our global proposition and the creation of a best-in-class supply chain organization, and the way in which the company has smartly responded and navigated itself during the pandemic. The strength in our exec team over the last year has also enabled us to realign responsibilities. Mat Dunn will take over the ownership of supply chain alongside his [ unit ] of group finance, M&A, investor relations, governance and insurance and corporate comms. Patrik Silén, our Chief Strategy Officer will now have the change in transformation program to his portfolio, and insights will move under Robert Birge, our Chief Growth Officer, alongside his responsibilities of customer care and marketing. Fashion with Integrity is a cornerstone of how we do business. We've had an incredibly busy 6 months pushing forward our sustainability journey. I'm going to call out a few highlights and key moments now. In September, we launched our first-ever Circular Design Collection, showcasing products designed to minimize waste and prioritize the reuse and recycling at the end of life. The collection was a great success, selling 8,000 units across the launch period and generating compelling social engagement with over 750,000 views and a reach of 3.3 million customers. And we've continued to increase our engagement with customers on sustainability topics over the half. We continue to lead the garment industry in raising sourcing standards. Over the period, we've supported our U.K. brand partners with implementing the enhanced requirements we set out in August 2020, including signing up to the fast forward auditing program and signing up to the transparency pledge. We've also taken further action to reduce emissions associated with our business. 75% of all ASOS operations are now powered by renewable electricity, and we also launched our electric vehicle Next-Day Delivery proposition in Berlin. And finally, as part of our continued commitment to supply chain transparency, we're proud to confirm that we're aiming to achieve supply chain disclosure from the manufacturing tiers of Topshop, Topman, Miss S and HIIT brands for the first time by the end of the calendar year 2021. And lastly, to summarize. We're delighted with the performance in the first half of 2021, with strong sales, record PBT and a net cash balance at the end of the half. I'm exceptionally proud of our people and the strong execution delivery that continues to be on display on a daily basis, with continued cost discipline in place and strong operational grip. We've increased both our focus and investment behind the global growth opportunity against the background of acceleration in the ongoing penetration and the consolidation in fashion retail. Our integration of the Topshop brands continues at pace, and is on track to deliver as per expectations. ASOS is well positioned to capture event-led demand when social restrictions ease. However, we retain a cautious, cautious tone on the near-term outlook in the face of the continued uncertainty. We've increased our investment back into price and back into proposition to improve our future competitiveness. Our FY '21 expectations have increased in line with our first half performance, with our outlook for the second half remaining unchanged despite this elevated investment. I'd now like to hand you over to questions with the usual pack drill, please. [Operator Instructions] Thank you very much. Looking forward to answering your questions now.

Good morning, everybody. So I don't think we've got anyone just come through the video route yet. So we'll start with a question on the tax. So first one is coming from Rocco at Arete. The share of the U.K. on retail sales climbed to 42%, which is the highest contribution since 2016, I believe. Can you talk about what's driving this? Is it brands like 4505? Collusion? Is there some sort of trickle-down effect to other regions?

So let me start with that one, Rocco, and good morning. We're delighted with the U.K. performance of just shy of 40%. That's been driven by strong brand performance from 4505 and Collusion, as you correctly call out, but also really strong brand awareness. In the U.K., as I said in my presentation, we've also seen an exceptional performance from our Face + Body category, and that's been most pronounced in the U.K. Mat, do you want to add anything on that?

No.

A question coming from someone without a name. Can you provide a bit more color on the Rest of World sales trends, in particular, the softness in Russia and the strength in Middle East and Australia?

Do you want to take that, Mat?

Yes, of course. So I think -- I mean I think in terms of Russia, firstly, we've seen a couple of dynamics in Russia. The first of those is we've definitely seen an overall weaker market, online market that is in Russia. And as a consequence of that, we've seen the competitive environment step up. And we've probably chosen to be less aggressive than some of the competitors in terms of some of the levels of promotional activity and competitive intensity that's been on display. But as I said, I think that's probably a function of the market. In terms of Middle East and Australia, I think our product offer and proposition continues to resonate. The challenge we have in both those territories in Australia probably in the most pronounced way is our delivery proposition, which is currently at a disadvantage to local players. But overall, I think our product traction in those markets has continued to be good. I would also bear in mind for -- particularly for P2, for those of you trying to calculate numbers for P2, that it's a -- being a stub period of only 8 weeks, there is some promotional timings that have gone into the numbers as well just in terms of where specific promotions fall within the year, which you should probably bear in mind as you think about the performance, in Rest of World specifically.

We've got our first question come through on video. So we'll hand over to that. It's Simon Bowler at Numis.

A couple of quick questions. First one, can you just give us a sense of what you're expecting to happen with regards to range in the U.S? If I remember correctly, I think TGR was part of kind of unlocking kind of third-party branded range and obviously kind of the flexible fulfillment piece coming in as well. Is there any sense you can give no how you think that moves the range forward? And also in the [indiscernible] pickup, you mentioned kind of a brief reference in price investment gains in that region as well as Europe.

So as we move forward, we're going to be moving to driving and focusing on greater growth in the U.S. and Europe. And part of that TGR strategy was to enable us to plan our stock better, have greater visibility and improve our ranging, particularly in North America. And so one of the things that Mat referred to earlier, we've also invested more in price in the U.S., too, improve our competitiveness. Our confidence in the U.S. growth coming forward is underpinned by the fact we've also started the automation in the U.S. So we're expecting much greater growth, much better ranging and a much better stock pool for our North American customer. And bearing in mind, part of our North American strategy will be anchored around the work we do with the Nordstrom brands. So we're looking at that to build a very powerful partnership for the Topman, Topshop brands initially, to drive more eyeballs to ASOS.com in North America. Mat, any points on that?

No.

We'll stick with a video question, and we've got the next one coming from Aneesha Sherman at Bernstein.

I have 2, please. The first one is in Europe, you mentioned the areas where nonessential retail was closed -- was open performed worse. Can you share some color on how much of a range you saw on the overall 18% on the retail open versus retail closed areas? And are you using that as a guide to how you expect the U.K. to perform once apparel stores reopen? And then I have a second question around partner fulfillment and the rollout that you're planning for end of year. How would you price that to partners? Would that be similar to a 3P platform pricing where you charge a commission off the top, sort of a 20% commission as you do on ASOS marketplace?

So Mat, why don't you take the first one?

Yes. So I think the -- I mean at its strongest, some of our European territories would have grown at a similar trajectory to the U.K. if they were in kind of a similar level of lockdown, not -- but it very much probably depends on our competitive positioning in the market and the overall kind of overall positioning in the market. At the lower end, you'd see growth rates, I guess more aligned to what you might have seen in the U.S. or Rest Of World. So it kind of gives you a feel for the range. And obviously, even within one territory, we've had periods where it's been open and periods where it's been closed. I think in terms of the read across to the U.K., I think yes, it is in our thinking for the U.K. But our market position in the U.K. is probably stronger than it is everywhere else, and we obviously are going to see hospitality, albeit, in limited form opening at the same time as nonessential retail. So one of the reasons we've been cautious, I guess, in our outlook is actually -- it's extremely difficult to predict what's going to happen, and probably we just need to see how it evolves in the coming -- well, from next week, ultimately in the U.K., assuming everything opens on the 12th as is currently planned.

So let me pick up the ASOS fulfillment question, Aneesha. So -- but first of all, on Marketplace, for the majority of the last 6 months, we've been offering commission-free to -- on the Marketplace. We've done this to support the small up and coming brands and designers we know our customers love, and actually to provide a platform for those small brands and smaller designers and smaller boutiques to showcase their product on the ASOS site. The usual commission rate is around 10%. In terms of our strategy behind flexible fulfillment, first of all, Phase 1 is to optimize our stock pool and make sure we use our own internal stock pool to fulfill demand and improve availability. The second phase we're building is to enhance, make sure we never let you down on availability, backfill the edit and use our partner stock pool to fulfill and never let the customer down. We haven't decided the pricing structure yet, but we'll probably most like to be commission-based on the sales, similar to the level you described. But we haven't finalized that yet, Aneesha, but that's what's in our thoughts.

We've got another question on video here now coming from Simon Irwin at Crédit Suisse.

Just some questions on TGR. Can you just talk a little bit about how you see the benefit from TGR flowing through in terms of kind of cost and operations once it's up and running, both what the magnitude is and kind of when you'd expect those to start flowing through?

I'll start with that. The -- Mat probably won't give you the timing of the benefit, Simon, but he will give you a flavor of where he sees it's coming. TGR fundamentally rewires our end-to-end stock management from -- the best way to describe it is from factory all the way to customer and from inbound for our third-party brands, all the way to the customer, and actually improving availability in the multiple stock pools we have through our fulfillment centers. It will give us real time visibility, enhanced visibility on where to direct that product so we get the product at the right place at the right time, with minimal transfers through the distribution centers. It will also help our teams react more quickly, make more fast decisions, plan and therefore, trade better. So we see that as a fundamental set of new tools to help our buying and merchandising teams, trade our operations and provide a much better service and availability for our customers. Mat, anything you want to add?

Nick, it is a fundamentally new tool kit for our retail teams. In terms of, therefore, when to expect the benefit, I think you have to expect it to take some time for them to become familiar, particularly with the planning benefits that we're expecting. And in terms of the pricing, we'll want to run some quite extensive testing. So I'm anticipating that the benefit will be an F '22 impact rather than an F '21. But I also wouldn't expect it all to kind of hit down on the first day of F '22. I would expect it to ramp up over time since the team's become more familiar, and we experiment with the technology. Just in terms of the lay down of the benefits, I guess it was implied in what Nick says. It isn't just a cost benefit. Actually, a lot of the benefit should be in supporting better availability and therefore, underpinning sales growth. And in terms of some of the pricing benefits, again, it could be supportive of sales but could also be supportive of gross margin. So in terms of where they will benefit in the P&L, it's likely to be further up the P&L rather than further down, if that makes sense, Simon.

[indiscernible]. Great. Just in terms of whether you can break down the benefits from -- sorry, the cost impacts from freight in terms of shipping and airfreight, and particularly whether it kind of...

Sorry, I lost the last bit of the question, particularly where -- and then I didn't hear what you said after that.

Sorry, I'm just getting some very odd delays here. But just in terms of where we're seeing the impact on freight, does it change the economics of your businesses, particularly in the Rest of World region, if air freight is going to be kind of structurally higher for longer?

Do you want me to answer that, Nick?

Yes.

So there were 2 -- I mean in terms of where it hits our business, clearly, we've -- there's an impact on inbound freight, which is mostly related to sea freight because most of our inbound supply chain is sea freight-driven. There is some airfreight. That obviously goes through -- it does affect the gross profitability of our sales, and you can see that in the numbers that I gave earlier in the presentation. And then in terms of airfreight, that does -- that affects the delivery costs, principally that you see being delivered to consumers. And as you say, mostly in Rest Of World. So it does affect the competitiveness of our offer, of the pricing of our offer. We've done 2 things in response that I mentioned. The first is we've put the minimum thresholds up to make sure that we're not shipping parcels that don't make sense. And you've seen in Rest Of World, the response to that with a higher ABV. So people are choosing to shop less frequently, but buy bigger parcels. So that's probably where it affects our economics and our consumer offer the most. In terms of the broader freight costs, in terms of our pricing, we've chosen to look through those. They are obviously being, at this point, more than offset by the returns benefit that we're seeing. And whilst the 2 things aren't directly correlated, they're clearly both related to COVID. And therefore, we've chosen not to affect our consumer offer for the broader inbound freight challenges that we're experiencing as we would expect them to ultimately [ defragment ] this -- particularly the sea freight market is running at an all-time high level, and you would expect it to normalize over time. I don't think that will happen quickly, but I do think it will happen.

Great. We'll go through a couple on the text now. So next question coming from Rocco again, Arete. Can you unpack the lower returns rate a bit more? Can you size the GBP impact on distribution costs and warehousing costs?

Go ahead.

Yes. So again, if you -- in terms of what I said in the presentation, and Rocco, I think your question came in before I spoke to it, so it may have already been answered. But if you take the basis point improvement that we saw in warehousing and distribution costs that I broke out in the presentation, you could calculate from that what the GBP amount is. So that's probably the quickest way to get at it. It is clearly a bigger number than the GBP 48.5 million overall benefit that we're calling out because it is offset by some of the freight challenges that we were just talking to Simon about.

Next one coming from Greg at Shore Capital. Given the initial success since February relaunch, do you have any further plans on bringing the Topshop brands back to the U.K. high streets?

Greg, let me take that one, first of all. You will have heard me say earlier that the main thesis for Topshop, Topman was to create a digital offer, enhance the digital offer, and actually also use some of the partners we acquired through the acquisition. But we've done that with a fewer, better, more digital predominantly. We've -- there's been much speculation about whether we would relaunch shops. You know as well as I do that ASOS is a digital offer only. Never say never on stores, but it's not in our immediate thinking or immediate plans.

Next question coming from Emily Cooledge at Redburn. What proportion of sales is ASOS product if you aggregate all of the own brand ranges, including bench brands, logo carriers? And how has that grown year-on-year?

Do you want to give that a go?

Yes. Okay. So Emily, it's not a number we've ever quoted. Obviously, the venture brands do make a contribution over and above ASOS Design, and it's a material contribution. And obviously, we will in time overlay the full contribution from the Topshop brands. So it's less than half of our portfolio, obviously. And obviously, it's swinging around at the moment because of COVID. But I would anticipate it being somewhere in the kind of 40% plus range on a steady-state basis, but below 50%.

I'm going to now hand over to a question on video, which is coming from Anne Critchlow at SocGen.

On the partner fulfillments, could you say whether this is just U.K. initially? Or whether you're going to introduce the territories? And potentially could it be global one day? Also, does the stock risk rest with the partner? And does this give you a chance to increase your sales by limiting the risk?

So we're building the capability to -- which will be live by the end of this calendar year initially, with 2 global brands. So we're intending it to be a global offer, and we expect it, over time, to increase our sales disproportionately to the amount of working capital investment. So we'll -- as I said earlier to Aneesha, it will be less stock risk, and we'll take commission on those sales. And actually -- but the main thesis here is to not let the customer down, to improve our availability. If our third-party partners have got the product, we will ship it to them so they don't have to worry about shopping elsewhere, and we keep them in the ASOS ecosystem.

I'm going to hand over now to take a couple more on text before we wrap up, I think. So a question coming from Rebecca McClellan at Santander. Is the -- oh, it's just moved. Is the FX benefit circa, I think, it says circa GBP 14 million in other costs?

Grab that?

Yes. I -- it's unfortunately, it's an easy question to answer. I'm not going to break out the number. So as I said, it's not -- the total margin contribution from the hedging is less than the total impact in gross profitability. But again, I don't think it's helpful to split it out because it will vary -- it's not a run rate number that's useful because it will change depending on our exact hedging and the movements in the foreign exchange in any point in time.

And then it looks like we've got 2 coming from John Stevenson at Peel Hunt. So first one, to what extent do you see the growth in Face + Body and activewear represents a pattern increase in market share that could be retained going forward?

John, thanks for the question. So I'm not going to do a prediction. But what we've seen over the last 12 months is an absolute acceleration in consumers choosing activewear and Face + Body products from our side. We think that's going to be a meaningful increase over the next period of time. And so we actually think it's more than just a temporary blip. We think that's going to be a feature that's here to stay. And it's a key element of us enhancing the multi-brand aspects of our platform. So we'll be investing heavily in both those categories.

And then the next one coming from John. On marketing, given the success of removing nonstrategic costs, is there an opportunity to more aggressively increase recruitment activity in the U.S. market?

Do you want to go for that?

So -- I mean the answer is yes, John. But I guess as we've always -- more broadly than that, nonstrategic costs has helped us to restore our profitability over the last couple of years. But our intent was always that once we've done that, that, that would give us the scope to reinvest in our business across multiple fronts, the U.S. being one of them. But in the results that we've announced today, you can see we've made quite a deliberate investment in European pricing, and we've also made some improvements to U.S. pricing. So I think our ambition for the nonstrategic cost program is that it helps to fund our growth going forward. Exactly what that will look like, I guess it will vary on a month by month, year-by-year basis, but absolutely, if it's successful, it gives us the scope to do that.

Just one fun fact on that, John. You heard me refer to the TikTok campaigns with Topshop, Topman. We've done 4 TikTok campaigns in September. Overall, we've had 15 billion views of our TikTok campaigns, of which the -- 1/3 of those have been in the North American market. So we're quite excited about the growth that we think we'll get from the work we've been putting in place for the North American market.

I think that's all of the questions out of the video room and we're out of time, essentially, so all good.

All right, guys. Thank you very much for joining us this morning. Thank you very much for your questions. Mat and Alison will be around with [ Taryn ], if you've got any further questions. So thank you very much. Have a good day, everyone.

Thanks, everyone.