ASOS Plc (ASC) Earnings Call Transcript & Summary

Good morning, everyone. Happy to see you again or to meet you, those of you that I don't know. And what are the to be in front of you, representing a digital retailer or a fashion company. We're living in interesting times. Still, I'm really excited and really honored to be here in front of you representing ASOS today in my first set of results as a CEO. I -- and the reason why I'm so excited is because I am a true believer that ASOS is a unique opportunity. And we have a unique capacity to deliver value, both to our consumers, but also to our shareholders, a value that is built on our unique customer model, on our fashion credentials, but also a value that is built on our very dedicated and passionate team. And before starting, I would really like to take a second to thank them for the amazing effort they made for the last 12 months, and I think it's worth recognition. So I think this is a great business, but it's -- there is a lot to do. And as we said in the RNS this morning, there is a lot to change. So today, we're going to be trying to unpack a little bit what is it that we mean with this change. Let me first start by introducing Katy, our interim CFO, and she's going to be the person that is going to walk us through the -- our results on fiscal year '22. And then after that, I'm going to be giving you a little bit more -- giving you a little bit more detail on this plan for change and why and how do we want to do it? So let's start, if I may. So okay, -- since I became CEO 4 months ago. So it's been a very long week of 4 months, I have spent a lot of time talking to people, talking to suppliers, talking to investors, talking to customers and also talking to a ASOSers to our colleagues to try to understand better the strength of ASOS, but also our challenges. And in all these conversations, there has been a very clear red thread. And the red thread is everybody thinks this is an amazing business, and it has a great future, but also everybody thinks there is a lot to change, if we really want to unlock this value. And that is even clearer when you analyze the performance of ASOS in the last years and especially in the last 12 months. And let me get a little bit into that and give you a little bit of the key messages that we would like to share with you today. First, like we see with -- it's very reassuring to see that the U.K. is still our core business. It's our fortress. So we see a very strong performance in the U.K., and Katy will elaborate more on that later. So I don't want to take a lot of time here. And it's also very reassuring when we look into some of our brands like Topshop to see the performance of Topshop and to see that, for instance, we more than doubled sales, which is even more -- even overcompensating our expectations when we acquired the brand back in February '21. But there are also very clear issues in our performance that I don't -- I want to be very, very honest and transparent and share with you all. The first 1 is if you -- unsatisfactory performance of our international business. It's quite clear that we're not happy with the performance, and I will elaborate more on all of them later. The second 1 is the reliance of our marketing and commercial model on markdowns, we could say, unhealthy reliance or whatever, but certainly certain level of reliance. The third 1 is that our operation model is not as efficient as flexible as we will need to really support a global operation. And I think something I will elaborate a little bit more later. The fourth 1 is the lack of sufficient leverage on our data and our digital native capabilities. And last but not least, that we need to refresh our team and our culture. So these are a lot of issues, actually. And that's why what we're bringing here today is a very clear plan to tackle those issues. A plan that will be impacted in 2 levels, 1 in the very short term for the first 12 months, to make sure that we simplify our operation, and we work and we make it more flexible and more resilient and that will be built on 4 blocks, the acceleration of our commercial model a very ambitious cost and profit boosting program to offset the cost headwinds that we're seeing, the third 1 is to make sure that we have the financial flexibility to implement all those changes and last but not least, refreshing our leadership team and our culture, as I mentioned before, but also, we are launching in parallel a comprehensive review of our end-to-end operations and how do we allocate capital across the different geographies. I'm going to elaborate more on that later. So don't you worry. These are very ambitious changes, as you see, as you can imagine. And I would like to highlight 2 very critical things that we are announcing in this RNS that are supporting those changes. The first thing is that we have proactively secured an agreement with our lenders to make sure that we have the financial flexibility, and Katy is going to give you much more color on that. And the second 1 is that we're also getting a lot of flexibility with the management of our stock that will come with very interesting and additional flexibility and cost impacts. So as you see, a lot to change. I'm pretty sure that there will be many questions in the end, so I'm going to try to go fast, and I would say, let's start first having a look at fiscal year '22. So I'm going to hand over to Katy.

Thanks Jose. Good morning, everyone. I'll start by taking you through the headline results for FY '22. Before I start, I'd like to clarify that all revenue growth numbers are stated in constant currency, and we have excluded Russia from FY '21 H2 to ensure like-for-like comparison. Total sales grew by 4%, with inflationary pressures increased in the second half, impacting customers' discretionary income. Gross margin declined by 180 bps to 43.6%, in line with the guidance we gave for the year of down 150 to 200 bps. Adjusted EBIT margin stepped back by 420 bps to 1.1% with an adjusted PBT of GBP 22 million and corresponding adjusted PBT margin of 0.6%. Cash CapEx closed at GBP 183 million, a saving of GBP 27 million versus guidance as we deferred some spend into FY '23. And lastly, we closed the year in a net debt position of GBP 153 million. Before I take you through the results in a bit more detail, I'd like to quickly call out some of the key operational highlights that we've achieved in FY '22. Topshop performed strongly, delivering revenue growth of 105% year-on-year and contributing to gross margin expansion. At a group level, Topshop jeans are now the leading women's wear jeans brand on site. We also recently launched the next chapter to Topshop and Topman on the 29th of September. This new collection is the first season that's conceived and created entirely under ASOS' ownership. We successfully launched partner fulfilled in the U.K. with Adidas and Reebok last November. Subsequently, we have expanded into Germany, France, Spain and Italy and had several new brand launches planned for the upcoming months. This is key to gaining flexibility and enabling us to offer a more locally creative collection of brands without the corresponding inventory impact. We have seen 12% growth in our global premier customer base, with premier customers shopping 3.5x more than an average age of customer. Our Premier offer is key to driving loyalty and engagement amongst our customer base as well as increasing our average customer value over time. We have continued to collaborate with our brand partners on new collections. Recent examples of this include our partnership with Netflix to launch Reclaimed Vintage and Stranger Things. This is a sellout with 10,000 units sold and it resonated strongly with our younger female demographics. Within sportswear, we collaborated with Nike to create a campaign that highlighted the best of Nike footwear styled with the curated edit of ASOS Design, Topshop and Collusion clothing. This leveraged our in-house creative and studio functions as well as the ASOS media group and led to an uplift in 90 campaign lines by 124% in the first week. And lastly, within the U.S., we launched a range of ASOS Design, ASOS Luxe and ASOS Curve dresses exclusively for the U.S. customers and have now launched U.S. design in 14 stores in the U.S. with an expanded collection available at Nordstrom.com. Looking at our operational KPIs, we've seen a growth in visits of 1%, which is a lower growth rate than in FY '21. The key driver of this increase is the board and browsing seen during the COVID lockdowns, driving high visits in the base period. The upside of this is that we saw a corresponding increase in conversion rate of 20 bps, reflecting an uptick in the percentage of engaged shoppers. Firstly, a reminder that we disclosed ABV net of returns. ABV declined by 3% year-on-year, driven by the step-up in returns rate. The returns impact was partially offset by price increases and higher mix of occasion wear driving increased ASP. As the premier customer base grows, we see NBV decline while frequency steps up, therefore, we look at ABV in conjunction with average order frequency, which are plus 5% more than offset the decline in ABV. And lastly, we saw a 2% growth in active customers as customer acquisitions slowed year-on-year. Jose will talk to this in a bit more detail later on. Turning now to our segmental performance. The U.K. grew by 7% for the full year despite a marked change in customer behavior from April due to accelerating inflationary pressure as referenced at Q3. This growth was underpinned by strong KPI performance. We saw a shift in demand into occasion are supporting ASP growth along with a 5% growth in active customers, 5% growth in average order frequency and 6% growth in premier customers. Revenue grew by 2% in Europe. We saw a decline in France year-on-year as demand shifted back to online channels and the slowdown in growth in Germany as customers were exposed to the cost of living pressures. From a KPI perspective, we saw 2% growth in average order frequency, 5% growth in active customers and a pleasing premier customer growth of 33%. The ABV stepped back by 4%, driven primarily by the step-up in return rates. The U.S. grew by 10% year-on-year, supported by wholesale expansion, Topshop growth and a more locally relevant offer. Visits fell by 8%, but we saw a 20 bps improvement in conversion. ABV grew by 4% as demand shifted in stressed and higher ASP categories. Average order frequency remained flat year-on-year and customer acquisitions slowed in the U.S. as we paused our broad-reaching marketing campaign in the second half. However, pleasingly, we grew our premier customer base by 19%. Within Rest of World, we saw a decline of 9%. The first half continued to be impacted by the continued delivery disruptions, however, we saw this use in the second half with a return to standard delivery propositions and the resumption of Premier in Australia. We saw most KPIs step back with declines in visits ABV and active customers. However, we saw a step-up in average audit frequency and the 208% growth in premier customers. Gross margin declined by 180 bps to 43.6%. This was primarily driven by increased markdown in elevated freight costs. The increase in markdown was primarily concentrated in H1 as we cleared through the later rising spring summer stock. We did, however, see an improvement year-on-year in H2 as we cycled a period of elevated markdown in the prior year. Turning to freight, we saw an impact of 180 bps year-on-year driven by higher rates in the market and an increased use of airfreight to circumvent supply chain disruption over peak in FY '22. The year-on-year impact improved slightly in the second half as we benefited from both a higher mix of air freight and improved contracted freight rates. These increases were partially offset by mid-single-digit price increases taken across age of brands as well as improvement in buying margin in the greater Topshop, which is a higher retail margin. Turning to operating costs. Distribution costs increased by 30 bps year-on-year, of which 100 bps was driven by the impact of the COVID-related returns benefit unwinding. Along with the increase in split or business we bought Lichfield online, this had a cost drag that provided a stronger experience to the customer who was able to access a greater selection of products. This was partially offset by supplier negotiations in the flexible carrier strategy, allowing us to dynamically allocate volume to the cheapest carrier. Warehouse costs increased by 170 bps, of which 80 bps was driven by the impact of the COVID-related returns benefit unwinding, along with an increase in labor costs and the launch of Lichfield as a manual facility, which was a cost drag. The elevated inventory levels also resulted in inefficiencies in our warehouses. Marketing costs increased by 60 bps as we launched our test and learn approach to broad reach marketing. We decided to pull back on this in the second half given the unfolding macroeconomic backdrop. However, we have incorporated learnings from the initial advertising campaign into the development of the new effort, which was launched towards the end of September. Operating costs, excluding depreciation, were 10 bps higher year-on-year as we worked hard to offset inflationary pressures through our operational excellence program. In total, across the P&L, we delivered 120 of operational efficiencies to largely mitigate and inflationary pressures. Other operating income was GBP 20.6 million for the year. This includes GBP 1.2 million of income seized following decision during the year to sublet part of [indiscernible] sites of Lichfield and a 19.3% gain from closing out the ruble hedges, which were no longer required following the decision to spend trade in Russia on 2nd of March. This gain was, however, more than offset by additional costs, including those incurred to clear through the resulting excess stock and fulfillment center inefficiency. There was a GBP 350 million cash outflow in FY '22, primarily driven by substantial working capital outflow associated with an increase in stock. This slowdown in demand, driven by global economic uncertainty in the second half. The timing impact of FY '21 stock that was received in FY '22 as a result of shipping delays, the earlier received peak stock for FY '23 and finally, the impact of increased returns in the second half of the year. Capital expenditure totaled GBP 183 million, of which we spent GBP 123 million on technology investments in support of the development of marketplace integration required to partner for fill, continued optimization of customer experience and investments in support of ASOS' progress against its data strategy. We also spent GBP 60 million on supply chain in support of the automation program in Lichfield and Atlanta. I'll now hand it back to Jose.

Thank you so much, Katy. So as I said before, a lot to change, and I'm going to start by changing 1 thing I forgot to click before. So maybe I was driving everybody crazy because I was talking about that slide that was not being shown. So my apologies. So a lot to change and a change that is going to start with our core operation, our Fortress, the U.K. And as Katy -- we really want to build upon these strengths. And as Katy highlighted before, it's an operation that has behaved with resilience in the last year, and we are satisfied with the performance. But if we look back in time, it has been a very consistent performance. It's not only last year. For the last 5 years, we have grown on average 20% and a growth that has taken us to be market leader in our segments in the U.K. with a market share of 10% more or less on the online U.K. market. I think it's north of 10%. So it's a significant one. And with a very consistent and relevant contribution to profit as we shared with you last year. So it's clearly as we say, our fortress. And it's a strength. It's a core operation that is pretty much built on the fundamentals of our business. There are the 3 that we mentioned also back in October last year is the fact that we are creators of fashion that we have our own brands, brands that can only be bought at ASOS and a good example is Topshop and what we shared today about the performance of Topshop and how it is growing and attracting new consumers and making them more sticky to the proposal of ASOS. The second 1 is that we're curators of fashion. We're not only selling our own brands. We are selecting the best of more than 850 brands of -- 850 of the most relevant brands in the planet, and we are making the selection because we want to offer the consumers the best of fashion. And by doing that, sometimes we have access to exclusive products or we have access earlier to other brands to products or we even are capable of creating our own visual assets on these specific products like the picture you see here on the range of Adidas and which have had a very, very positive reaction from our consumers. And last but not least, we are champions of style. And what we mean with that is that we have a unique capability to put together our brands and serve these to our brand partners. And we put them together in a context of fashion. And in fashion context is everything and the same dress with sneakers and very different methods at the same dress with high heels. And that is 1 of the things that makes such a great partner for some of our suppliers because we can do things like what you see here with Nike, and this is a real campaign. We took Nike and we put in context with our own brands in the context of fashion, in an outfit of fashion, and that opens the door for some of these brands into new consumers, in this case, feminine consumers, younger consumers and are also open the door to these brands into new occasions. They started thinking of Nike not just what you wear when you go to run in the park on Saturday morning, but as a part of a fashion outfit that you're going to take to a party. So I think that when you put the 3 together, when you see the power of the concept and what is underpinning our resilient performance in the U.K. However, we're not happy with our -- the level of performance we had in other markets. We have failed to reach the level of success that we are looking for. And that is if you want a little bit of the diagnostic I was sharing with you before. The first thing is, well, we think we have a complex and stretched footprint globally, and that is creating a certain level of dilution that seems to be behind the disappointing sales growth that we are seeing and disappointing, not because it's not growing, but it's not growing as much as we would like, especially when it's put into the context of the investments of the efforts we are making in those geographies. The second 1 is that we see that both our commercial and marketing models are really reliant or are reliant. So we see they are really reliant on markdowns too reliant maybe. And that is, on one hand, is weakening our gross margin because we end up selling more markdown than what we should. And on the other hand, is also creating a slow traffic because apparently, we're not getting enough quality engagement with our consumers and that we see that in the evolution of the traffic in some of these geographies. The third 1 is that we see that this global footprint has taken us to a complex end-to-end operation model that is not giving us the flexibility and efficiency we need to be really a winner in this industry. The fourth 1 is that we really want to -- we have to leverage more on our data capabilities and our native digital capabilities, and we are not doing that enough. And the fifth 1 is that we need to refresh our leadership and our culture to make sure that we bring the necessary level of drive and passion to make all these changes happen. So as I said before, a lot to change and there's no question. And that's why we are determined to make it happen. We are taking very firm action to build upon our core strengths because we believe that the value of our model is still there, but we have to build to make sure that we create a company that is different. That is built if you want on 4 specific pillars. Simplicity, speed to market. The speed to market is absolutely critical in fashion, operational excellence and flexibility and resilience. And these 4 mantras are pretty much in everything we are doing now, and we're going to do during the course of the next 12 months and several years. And I'm pretty sure that this is going to really position ASOS in a much better place not only to navigate the current uncertainty, but also to be in a better position to become and to emerge as one of the global winners after this crisis. This change program is going to be impacting 2 different levels. One more focus on the next 12 months and focused on simplicity in the business, but also making sure that we create the necessary level of resilience and flexibility in the business. We'll elaborate more on this one right now. But also another set of activities where we are going to look much more into our capacity to create long-term sustainable growth and it's going to imply a comprehensive program or a comprehensive review of our end-to-end operations and our capital allocation logic. So always with the ambition to really -- and that's why we put a star there to reach or not star, but is really to become this fashion destination that is global fashion destination. So let me give you a little bit of more color about the change program we are putting in place. And as I said, the first part of this program is more focused on the first 12 months on this financial year for us, and is built upon 4 pillars, as I indicated before, which are the renewal of our commercial model in place, a very strong and determined plan to offset the cost headwinds we are seeing coming from stronger order economics and also a cost optimization program, ensuring that we have a robust and flexible balance sheet, and I will elaborate a little bit more on that and with our refreshed leadership team. And the ambition, obviously, of this is to tackle some of the issues I shared with you before to improve our gross margin, to accelerate our time to market to make sure that we have a more profitable operation. So as you will see that there's a very clear rationale behind that. And it's a clear connection, I hope. So let me go one by one. On our renewed commercial model. And I always use 1 image, sorry, probably the lack of proper words in English forces me to use images and maybe it's not the most appropriate one, but still I'm going to use it. We sell fresh fish. And fresh fish is only relevant as long as it is fresh, the moment is fresh. It thinks -- just keep that image in mind and then you will understand what I mean here. We need to make sure that what we put in front of our consumers is relevant. It's contemporary it's the trend of the moment. Because if it's not, it's not fresh fish. And frozen fish is good, but it's not fresh fish, completely different business. So we have that very clear last year when we came in front of you in October, I think it was. And we talked to you about how we wanted to refresh our commercial model and that there were going to some changes coming. So what we are doing here is accelerating those changes. We already started the implementation of this model. We changed our organization back in January of this year with the ambition to really implement that. And as I said, we are accelerating that. We're accelerating the fact that we wanted to be able to put in front of the consumers, merchandise that is -- the merchandise of the moment, the merchandise that they have to buy now because it's not buy now pay later. It's buy now or cry later, that's probably more the motto of it. In order to accelerate that on top of these organizational changes that we -- that are already in place, what we are doing is we are also adding more flexibility to our teams in the way they buy. So that means more flexibility in how they buy our brand partners that is coming through direct-to-consumer or partner fulfills, as Katy shared before, but we also have the ambition to offer ASOS fulfill. So when we have the merchandise in our warehouse, but it belongs to our partners, but also with our own brands with this test and react. And this is something we already do, but we're going to -- as we said actually last year, we are accelerating and we're going to keep accelerating more and more to make sure that we get that. We're also changing our buying. We have already changed our value processes. So we are changing -- we are buying with a different logic with a logic that is much more built on return on purchase. Well, I will not lose you with that, but and with a logic that is much more focused on you have to return on what you get and return fast. Otherwise, you will not get your budget and with the idea that we increase the visibility of these relevant products on the site. That is also complemented with a more efficient stock management. And that means we have to clean faster. The merchandise is relevant and one that is not relevant we have to get rid of it. And that comes with a setup of faster routes to clear and more efficient routes to clear. And in order to accelerate that model is when we are going for a stock write-off as I think Katy mentioned before. Still write-off of somewhere between GBP 100 million and GBP 130 million to make sure that this model is in front of the ASOS consumer as fast as possible. It will happen during the course of the year. It's not happening one go, but that's why we're getting into that. That stock write-off will result in a reduction of stock, reduction of complexity, therefore, faster than to market and also the reduction of cost. So it's going to come with clear benefits for ASOS. The output of doing all that will be to increase our gross margin, but also to accelerate our time to market and to accelerate our stock turn, therefore, reduction on working capital. The second part of our program is a very ambitious plan to mitigate the cost headwinds we are seeing. Obviously, I mean, it's not a secret, but very clear cost headwinds coming from the inflationary pressures, and this program is built on 2 main pillars. The first 1 is that we want to reinforce our other economics, especially outside of our key strategic markets, and that means we are revisiting our positioning in those markets. That can be our pricing, that can be our sales risk levels that can be the prices of our service levels that can be our delivery services, but that is also reducing the split deliveries that is dragging our profitability with higher costs. And on top of it, we have also an optimization cost program. Very clear optimization cost program. We're launching a lot of initiatives. Let me just summarize some of them, but by no means this is exhaustive. We are going on our logistic costs. We are consolidating some of the ancillary warehouses, not the core warehouses, but some of the smaller warehouses that we're using to operate. We are using the opportunity to increase our operational efficiency and also the reduction of the stock will certainly help here, but we are also reducing our overhead costs. That is going to mean the simplification of processes and organization, the reduction of external support or the reduction of the rationalization of our assortment, therefore, the simplification of our operation. As I said before, you're going to hear the word simplification [indiscernible]. So my apologies already. And we will also benefit from the improvement on freight costs last year, as Katy shared before, there was a big negative shock. And this year, this is coming back to a certain extent. So that will also help in this program. The third pillar is that -- we have -- we want to have enhanced flexibility to make sure that this agenda of change takes place to make sure that this change happens and it happens now. And this is built on 2 things. The first 1 is that we have proactively negotiated our revolving credit facility. That's what RCF stands for. I'm sure you know, but I have learned that in the last weeks with a waiver of our covenants and that is giving us access to gross cash or committed facilities up to GBP 650 million. Ample room, more than enough room to maneuver and to make sure that the necessary changes happen. The second thing is that we are revisiting our CapEx. We are going to reduce our CapEx versus the ambitions we shared with you last year. So we will be moving on a smaller bracket or a lower bracket of GBP 175 million to GBP 200 million, and this is coming from the fact that we are going to delay some of our automation projects in some of our logistics facilities, while at the same time, we will protect as much as possible our investment in technology, because this is going to be one of the enablers of future growth for ASOS. And last but not least, we are refreshing our leadership and our culture. Obviously, we need the necessary drive to make all this change happen. This is a lot, and that is going to come through a new organization that we're going in place, an organization that is more focused on operations and commercial terms and it will not be a surprise simplicity means we're reducing layers in our organization. We're also ensuring that we have the best mix between internal and external talent. So there are going to be internal opportunities for our team, but we will also be bringing external talent to complement some of the capabilities we are lacking or they are not necessarily, they are not developed enough. And we want to ensure diversity and diversity from all points of view, obviously, from a gender point of view, from -- but also from an international point of view, if we -- and we do want to become an international player, we need more international talents, and last but not least, we are launching a program for our cultural refresh. We want to refresh our culture along the lines of surprise simplicity and transparency, but also of ownership and entrepreneurial spirits and excellence and innovation. And excellence is very important work. Excellence in operations. It's going to be one of our mottos as if you go back to the 4 pillars that I shared with you before. This program is going to happen in parallel with a comprehensive review of, as I said, our end-to-end operations and our resource allocation logic. I know that sounds a little bit abstracts. So I'm going to try to illustrate with some examples so maybe that will help better understand what I mean with that. We're going to -- we are reviewing our operating model, and that, for instance, means things like our end-to-end stock management. So we are in the process of reviewing and improving our end-to-end stock management with the ambition to have more capacity to act at any point of the value chain on our stock. For instance, we have stock ball in China that was going to be shipped to Germany, but we decided that it's better to ship it to the U.S. We want the capacity to act as fast as possible so that, that happens and we're in the process of doing that. We're also revisiting our logic of investment across geographies. That means having a wider toolbox when we invest in new geographies. Today, we go with 1 model fits all, and we are testing new models. For example, we are testing a wholesale model in the U.S., and that could be a new tool that we could use in certain geographies. We could be operating under our wholesale logic in some geographies. The third 1 is that we want to complement our customer acquisition strategy. As I said before, with pushing this new commercial model, we need to complement it, and we are exploring adding on top of what we did today things like a differential customer experience or more upper funnel activity. And last but not least, I also mentioned before our need to better leverage on our own data, and we are having very clear efforts on, for instance, personalization that is going to be one of the critical ones and it's already 1 of the critical ones. So that's just to illustrate a little bit so that it doesn't sound so abstract. I'm pretty sure that by putting these 2 plans together, we are driving the necessary change to have ASOS prepared, as I said, not only to navigate the current troubled waters, but also to emerge as one of the winners in this industry because our core business model is worth it, and that's why I told you I was so excited because I think the size of the opportunity is gigantic. All these plans are reflected in our guidance for fiscal year '23 as it is in our of this morning, but I want to try, I will not walk you through all the details. I'm going to think because I forgot my glasses, so I cannot even see it, but I will try to give you just the 3 or 4 critical messages. The first 1 is that as you know better than me, these are very difficult times, very competitive times and forecasting in these times is very difficult. Someone much brighter than me said recently, when it comes to forecasting, there are two types of people. The people who don't know and the people who don't know, they don't know. I want to try to be 1 of the first ones. So I don't know. So we are not giving you guidance in terms of sales of in that sense, but what we are assuming is that the market is not going to recover very fast. It's going to take some time. And in this sense, what we are doing is focusing on what we can control, right? I don't know what we cannot control. And what we can control is the evolution of our gross margin, and we are coming with a plan to increase our gross margin based on our new model, on the new margin logic and increased flexibility in our margins, reduction of markdowns, and also helped by the change in the freight cost trends. The second 1 is that, as I said before, we have a very ambitious plan in terms of order economics and cost to more than offset the cost headwinds. So this is clearly one of the highlights. The third 1 is that, as I said before, and as a result of the acceleration of this commercial model implementation we will be taking a write-off of between 100 million and 130 million bonds of stock, and that is going to create, as I explained before, very clear and positive side effects in terms of less complexity and less cost in our supply chain. And last but not least, even though we have anticipated a modest negative or 0 cash flow for the year, that actually is going to be accelerating during the course of the year. So it will be better H2 than H1 for sure. We are happy, and I will revisit again to share with you that we have secured -- proactively secured enough financing to give us ample room to maneuver and to make sure that this plan for change now happens and it happens in the way it shows. So I'm going to just finish with a summary. And even though if you think I didn't say enough some words, I'm going to repeat them 1 more time, so I make sure you get them. We have a very clear idea of what we need to change, and I hope that I was able to convey that message to you this morning. This change is going to start by leveraging our cooperation, our fortress that is the U.K., but it's going to evolve into an organization built on simplicity, on speed to market, on operational excellence and on flexibility and resilience that is impacting on 2 plans, 1 in the short term, as I said, focused on simplicity and flexibility, which is going to mean less stock, less cost, more cash and a refreshed leadership and culture. And in parallel, a comprehensive review of our resource allocation and our end-to-end operations. And with that, I'm going to simply finish the presentation and open for questions. Thank you very much for your patience.

Jose, and hi, everyone. So Adi has got a roving mic, which she will move around with and we'll also take questions on -- from the offline -- online participants. So Charlie, I see your hand shoots out first. If you don't mind us introducing yourself and saying which institution you come from.

It's Charlie Muir-Sands from BNP Paribas Exane. I've got a few questions, but I'll try and limit them. Firstly, with respect to the clearance of the inventory of the ASOS sites, can you just talk about the kinds of channels that you're considering and how you're going to protect the ASOS brand in that? Or is this mainly clearance of third-party brands and therefore, they want to be associated with you? Secondly, I wondered if you could just talk about where returns rates have settled in recent months. You obviously had that surprise spike. Are they still above the sort of pre-pandemic levels? Or are they kind of settling back down as consumers adapt to the new normal? And then thirdly, with respect to the wider review, do you contemplate that this could actually involve with significant withdrawal from many major markets that you're in, I think a year ago at the Capital Markets Day that you reported, for example, that U.S. was quite heavily loss-making. And presumably that's got a lot worse in.

Do you want to start?

Okay. Let me start with the clearance. So we have -- we are finalizing all the details of this clearance plan because, obviously, we're talking about a big pack and that is going to imply several channels. But we are protecting our brands, and we're protecting our operation because the vast majority of it is going to happen outside our channel that will imply working with third parties, and there are a myriad of these third parties. So it's not only geographies, there are a lot of third parties that we are going to move in order to do it. But clearly protecting not only our brands, but also our brand partners.

I'll do return. So that's a very simple one. Returns rates remained elevated above pre-pandemic levels since May. So we've sort of seen that elevate and consistently sort of stays life there at the moment.

Let me go for the last one. That is the withdrawal from markets. I think that requires probably a little bit of elaboration on my side, and thank you for the question, Charlie. I think what we are saying here is like I hope I will not say anything crazy. There are no sacred cow. We are going to have a look at everything. But this is not a binary decision. This is a decision of are there better models, smarter models to operate out there? There is no need to -- let me take the U.S. because you mentioned the U.S., there is no need to consider to withdraw the U.S. right now. There are a lot of different scenarios where we keep on operating in the U.S. with a reduced level of effort on our side. So I don't think we're talking about withdrawing the U.S. right now. But we want to have more tools in our belt for the U.S. and for other geographies. Eventually, we will see what happens, but I think the U.S. is -- we're not futile in the U.S. right now. I don't know if that answers your question, Charlie.

[indiscernible] from Morgan Stanley. I have three questions for me. Just asking on returns rates, you'd mentioned still elevated over the last couple of months and obviously, a few of your peers have decided to implement paid returns. And you've commented that they haven't seen a negative impact from the introduction of that. So just wondering your thoughts around that. And I know you mentioned sort of looking at the order economics. So just wondering where that fits into potentially using that as a lever to improve that? Then secondly, I guess there's been some reports in the last couple of days that some insurers have been pulling other for some of your suppliers. Just wondering if you could comment on that and just the conversations you're having with your suppliers at the moment and if there's been any change in any of your payment terms. And then thirdly, just if you could comment a bit on working capital. I know you gave a range on free cash flow of 0 million to GBP 100 million. If you could just sort of talk about what that implies at the upper and lower end.

Jose you want to.

Let me take the returns and then if you want to you take the payment terms on the working capital. So on returns, we have seen that some of our competitors are charging for returns as you name Roku and Zara timing for returns here in the U.K., we are not considering the charter returns in the U.K., to be very clear. We think that our current order economics are solid enough to keep our current model, and we consider these as critical part of our overvalue proposition. Whether they are seeing or not seeing a negative impact. I cannot comment, obviously, I don't know. So one, not sure if this is the case or not. It will be interesting to see, but obviously, we will see what happens at the time, but I cannot comment right now.

So on the trade credit insurance, clearly, the suppliers take out trade credit insurance, and we don't get any visibility of who's taken out what insurance with me to -- what we can say is we became aware in August that 1 of the providers was cutting exposure to ASOS. We haven't seen any impact on the business since, but we understand that they have quite an excess of coverage. But by cutting out always cutting dead wood out of the system, which is why we think that we haven't seen any impact. The support that we've now got from our banks, we think should give strong reassurance from, I guess, the trade credit insurance. So we are anticipating that we should not cause these issues moving forward. And then in terms of cash guidance. So the guidance that we've given is net working capital, it's total cash flow. It has caused some confusion. So let me just try and add a little bit of color to help that. We're not providing explicit commentary, but you need to think about the underlying EBIT, EBITDA and then take off CapEx in the nonunderlying items that we've laid out today, including the stock write-off even though the majority of these are noncash. The noncash elements and the moves we're making to tighten our stock turn, you need to assess what and how that reflects on working capital. As you'd expect from everything we said and the timing of the benefits in the new commercial operating model within FY '23, we are expecting a net working capital inflow. There are other moving parts that they largely offset. So we are expecting increased interest from prudent liquidity management, but that will be offset by higher D&A. So hopefully, that provides a little bit more context, but happy to go through also in lower time if that's helpful later.

Adam Cochrane, Deutsche Bank. On that stock write-offs. Can you just run me through exactly what you're doing. You've got the stock on your balance sheet that you bought half the price. The GBP 130 million, GBP 100 million to GBP 150 million is writing off below the price you paid for it. Then you're shipping it to a third party, who will then sell it. So you'll get an inflow from that GBP 130 million, but less than GBP 130 million. Is that correct, right? Right. But in terms of when you're talking to the banks about your covenants, did you consider renegotiating the length or the duration of the debt as well to give yourself a little bit more flexibility rather than having to do it again in the next 6 to 12 months. Or are you waiting to see anything? Maybe our performance will get a bit better. So when we go in to renegotiate, we'll have a better position from which to renegotiate in the second half of the year. In terms of the EBIT margin, I didn't really follow your math there at all, if I'm honest with you. I might be a little bit simplistic, but you're talking about gross margin being higher, we're talking about cost savings offsetting operational inflation. So other than deleverage on sales, should your EBIT margin be up year-on-year?

So marginally up, yes.

Yes.

So you want to elaborate on the...

And the second question as well.

On the length of that.

Yes, let me do the next to verify. I guess our focus was to make sure that we got -- we were able to get significant liquidity to underpin the plans that we've got for this financial year, and that was the focus of what we have achieved with the banks. You are right in terms of the [indiscernible] matures in July '24. So at some point in the next 6 to 12 months, we will be looking to extend that, but we've been doing that separately. What we've achieved in terms of covenant and 9 months is to give ourselves ample liquidity headroom to cover even after the most downside scenario.

If I may to complement on that, I think that probably was easier to split it into and the fact that we have reached this agreement that is giving us this flexibility is showing a big support from our banks and from our lenders in that sense. So a big support and a big level of confidence in ASOS as an operation. So I think it's a pretty good piece of news, if I like. Obviously, we need to have different conversations at certain moment in time, but it's something to celebrate.

Geoffroy De Mendez from Bank of America. I just have 2 questions, please. The first 1 is on your gross margin. There is an element in there that says that you're going to do less markdowns this year. Just curious to understand how you're going to do that if there is a lot of inventory in the channel, not just for you but for the industry in general. Does that mean that you're going to focus less on growth and say no to some sales that you could potentially make just to protect the gross margin. Is it the way you think about gross margin next year? And then the second question is on the U.K. market. I think you said that overall, you expect -- to come down in the next year. Can you remind us what you think it did this year when you did plus 7%. Just so that we can understand what could happen to ASOS U.K. next year relative to the overall market that would come down?

Okay. Let me take you on the first one, very I'm not sure what it is last year -- but anyway, on the left. I think it's a quite interesting question because -- and it's going to give me the opportunity to elaborate a little bit more on that. We're not saying we're running away for promotions or markdowns. What we were saying is we're going to have less markdowns, and it's going to be on merchandise that is more relevant, which means we will be offering markdowns for consumers, but less. The second thing that I would like to highlight is that we have a really wide range of price points as opposed to amount of brands. We are offering price points from very, very cheap to much higher, which always enables us to be able to offer to consumers relevant price points regardless of what they're looking for because they normally they can find everything. That's one of the advantages of having an assortment of more than 250,000 options. So we are not saying that we are going to reduce that. Obviously, we are cautious of the evolution of the market. We have seen a troubled water. It's not that we're focusing on less in growth is that maybe there is going to be less growth out there to chase this year than other years. I don't know if this is really answering your question, yes. On the market, I am not sure.

I can't remember what the market is doing it. But share-wise, we're sort of [indiscernible].

Yes, we've got a little bit of share in the U.K., but obviously, share in this market, this is -- other markets share total audited here is always difficult because, but I think with all that a little bit of share.

So another way to ask the question is like do you think that you're still able to grow in the U.K. if the market is coming down?

We think in the U.K., we'll have great opportunities to grow still. We are by no means we have not saturated the market.

Andy Wade from Jefferies. A couple of questions from me. First one, sort of looking at the new model sort of about speed to market and fast stock turn and newness and freshness mean that does sound like the old model, if you see, I mean, the ASOS the last 2 years, it was all about speed to market. It was all about getting fresh product in front of the customer. So I'm interested is the new model like previous old model? And how is it different if not? And the second one, in terms of building order economics internationally, I appreciate you talked about less split orders, but the majority of it sounded to be around pricing. So whether that be in product pricing or in delivery and how you charge for delivery, do you feel like you've got wiggle room in your price position in the market to have fire prices and still maintain or grow your share in those markets?

Thank you. Let me take the first one. That's a very fair question, whether the old model is like the -- well, sorry, whether it gives a new model, it's like the or model or not? Obviously, ASOS is a fashion destination, and that has not changed between all new. So having the ambition to have the right merchandise in front of the consumers is not different between now and then. So if I can say that, we are trying to take it much further in -- sorry, let me put it the old model line like to call it the old model and the new model anyway. In the old model, we would keep the merchandising our system for longer because we knew that we could sell it without a loss. That if you and the big change now that 1 of the changes now that we're saying like, we're not going to do that. I said that when in time, we will remove it out of the system because it's not relevant anymore. So that is one of the big changes. The other big changes are coming from what I said before about giving our teams greater flexibility in how do they manage their assortments. The fact that they can have with our third-party brands models like fulfillment, partner fulfill or fulfill gives them more flexibility and that gives them more capacity to change and the fact that we keep on accelerating on this test and react also gives them additional flexibility. So the ambition if you want is the same. I think that the mechanisms were in place are different.

And I guess second part of the question in terms of order economics internationally. I think medium to long term, we expect our -- all of our markets to restructure profile. In terms of pricing, our pricing strategy is relative to competition. So that would be how we would always think about the core price of the product, whatever market has been, but we have got opportunities in terms of the delivery options that we offer to still stay competitive, but to change those to more cost efficient. Look at the thresholds we do for free delivery as well, and premier pricing. And with all of those, we think we've got scope to execute changes while still being competitive.

Anne Critchlow from Societe Generale. Two questions from me, please. First one, really easy. What was the percentage of own label last year, including ASOS Topshop or brands, everything provision? And then secondly, thinking about the weak pound against the dollar, historically, and this was before you had the U.S. warehouse, a weak pound was very favorable for ASOS. So just wondering if there is any sort of net gain there and what you would do with it. So would you lower the prices in the U.S. will have less inflation in the U.S. to improve the proposition? Or would you maybe take it to the bottom line?

I'm not sure. I think it has not changed significantly the percentage of our own brands over the total sales of ASOS. So it still remains in the 45% of.

Circa 40%.

I don't have the number in the top of my head, sorry. But it has not changed significantly. On the [indiscernible] dollar, do you want me to ask.

Well, I guess, in terms of pricing, the pricing strategy is to stay competitive within the local market. So that we would execute. And in terms of currencies, we are 90% hedged for FY '23. So I don't expect too much volatility on the bottom line either.

If I can, we're trying not to think of pricing as exchange rate is more -- we have to be competitive in the markets where we're present. It's going to depend on what is the pricing dynamic in the U.S. If prices are remain flat in the U.S., we will remain flat. If prices increase in the U.S., we want to remain competitive because our obsession is not to be the cheapest. Our obsession is to offer fashion for value. And that's why we're not thinking a bit like the evolution of the pound versus the dollar we're thinking confident about the evolution of the American market.

Caroline Gulliver from Stifel. Just a couple of further questions, please. The first is on Premier customers, obviously seen a nice increase, but it was only a 6% increase in the U.K. which I think was to about GBP 1.9 million customers of the GBP 8.9 million. And I was just wondering whether you -- what you thought it would take to increase penetration of Premier customers further, both in the U.K. and internationally? And then the second question was just -- you mentioned 1 of the levers of growth in the U.S. with bespoke designs. And I just wondered if you could give a bit more color on how that fitted into the simplicity and how the efficiency of that works within the supply chain?