ASOS' (ASOMF) CEO Nick Beighton on Full Year 2016 Results - Earnings Call Transcript

| About: ASOS plc (ASOMF)

ASOS Plc. (OTC:ASOMF) Full Year 2016 Earnings Conference Call October 18, 2016 4:30 AM ET

Executives

Nick Beighton - CEO

Helen Ashton - CFO

Analysts

Claire Huff - RBC Capital Markets

Jamie Merriman - Bernstein

Anne Critchlow - SG Securities

Angus Tweedie - Bank of America Merrill Lynch

John Stevenson - Peel Hunt

Andreas Inderst - Macquarie

Adam Cochrane - UBS

Georgina Johanan - JPMorgan

Charlie Muir-Sands - Deutsche Bank

Michelle Wilson - Berenberg

Simon Bowler - Exane

Nick Beighton

Good morning, and welcome everybody. Great to see you. So, just going to take you through a brief introduction and then I’ll hand over to Helen.

So it’s been another strong results. We’ve accelerated momentum throughout the year and our financial performance has landed exactly where we expected it to be and slightly ahead of consensus. Total sales were up 26%, up from 21% in the half-one, and PBT growth on continuing basis up 37%. And you also see we closed the year very strongly with a 33% growth in the final two months.

Our mission is very clear and our objectives are building and enhancing the ASOS three Ds, i.e., desirability, differentiation and therefore defensibility is accelerating at a velocity greater than ever before. Our underlying profit growth this year has been very strong. It’s the output of our discipline. We've achieved this strong profit growth alongside a significant acceleration and the underlying customer investment in our product, in our prices, in our delivery and in our return solutions, also in our customer experience at content and our mobile experience.

The pace of change in logistics and tech is faster than ever before, and all our major logistics and tech programs remain firmly on track. Mobile traffic has led forward again this year and now accounts for nearly 70% of our group traffic worldwide and is comfortably ahead of 70% in the U.K.

As well as sticking to our mission, we've continued to focus on the small things that customers just love ASOS for. This has helped us accelerate our active customer base by 25% which is the fastest rate of new customers for two years. Specifically we've added a further 1.5 million new customers in the second half on top of the million we added in H1. We've seen - at the same time we've seen increase in frequency up 4%, increasing average basket of 3% and increase in conversion of 10%, all of which I'm delighted about.

We’re also up to over 19 million social media followers, which is more than 50% growth and underlying for continuing strength in our consumer engagement. Settling the legal dispute with Anson’s and Assos has cleared the doubts for us to actively target the attractive sportswear market, something we've been prevented from doing for the last five years, and again something I’m very excited about.

Before handing over to Helen to go through financials, I just want to highlight a couple of the successes and the progress we've made in some of our major markets. Helen will of course walk you through the sales and margin from these categories but first a tiny bit of color.

Within the U.K., our active customer growth has accelerated as the year progressed. It was 15% in H1 and you can see it’s 20% for the year as a whole. We've seen a 29% order growth from the 17% more visits and 8% improvement in average order frequency, and impressive 40 basis point improvement in our conversion despite the fact that nearly three-quarter of our traffic is now on a mobile device. Our Premier growth continues at pace to up nearly 50%, and as you know in February, we launched the ASOS A-List program.

Within the EU, we've seen active customer numbers grow by 34% and seeing 38% more orders from 32% more visits. While mobile penetration is behind the UK level, as you can see, it's growing fast. Conversion is ahead and Premier is also accelerating. While Premier is also - was not available for that year in France and Germany, we’ve also now launched it for our Spanish and Italian customers.

Within US, we’ve also grown our active customers by 36% and further accelerated from the 25% level we reported at half year. Our Premier offer is still in the early adoption stage but it’s grown by 35% over the year and we just reduced the annual price to $19. Order growth is running at 42% from 33% more visits, and a 20% improvement in conversion. Mobile traffic is also growing fast but you can see penetration is still at similar level to the EU.

These metrics are exciting and show the growth - exciting growth in all the major markets, even in the U.K. where we still are only 16 years young. If you just take a look at the bottom there, you’ll see the market shares, particularly in the EU and the U.S., and it should be very clear to you how much potential we have to go after in those major markets.

So let me now pass on to Helen to go through the financials.

Helen Ashton

Thanks Nick. Good morning and welcome everyone. I'd also like to say that I'm really pleased with our results. Firstly because the numbers were in line, and to some extent, marginally better than expectations, but also because we've continued our focus on disciplined execution of our investments and we’re executing well but also at pace, and we expect this good momentum to continue into the new financial year. So let me now take you through our full-year 2016 financial performance.

So first let's take a look at the high level metrics. As you’re aware, the last two years have been a period of reinvestment for us in to price and proposition across all of our regions, and as a result, our sales momentum has built strongly, particularly over the second half of the year, enhanced by the reinvestment of U.S. duty benefits and investment diverted away from China into our other major territories.

So Group revenues from continuing operations grew by 26%, and that’s slightly ahead of our 20% to 25% sales guidance. This was driven by growth in our major markets, as well as an improved performance from the rest of the world. Detailed analyses of our performance by reporting period is set out as usual in the appendices. Continuing profit before tax and exceptional items also came in slightly ahead of guidance at £63.7 million.

EBIT margin for continuing operations was 4.4%, 0.4% ahead of last year, driven by 50 basis points of operating leverage offset by 10 basis points of growth margin investment. We recognized a one-off legal settlement in our financial statements, and that’s in relation to two long-standing trademark disputes. As we’ve previously highlighted, this now allows us to expand into the sportswear market, which is really exciting for us. These settlements were accounted for in the 2016 results but were substantially paid after the year-end.

Finally, we discontinued our China operation in May 2016, and this resulted in an operating loss of £3.6 million and one-off closure costs of £6.5 million.

In terms of cash, return of investment capital, we generated £54 million of cash during the year and we closed the year with a balance of just over £170 million despite an acceleration of CapEx spend. Even after payments of the legal settlements in September, our cash balance remains robust. Return on invested capital from continuing operations came in at 46.8% compared to 30.7% last year as our investments continued to yield strong results.

So turning to our sales growth in more detail. Retail sales grew by 26%; delivery receipts by 35%; and third-party revenues by 29%, a strong performance all around. U.K. Retail sales, again was strong at 27%. This momentum continues to be driven by our great product, delivery innovation, customer engagement initiatives and we also launched our ASOS A-List rewards program in February. Growth in Premium membership has also been strong once again.

U.S. Retail sales grew by 50% or 40% on a constant currency basis. As discussed previously, we invested the tailwind from the change in US duty thresholds from half-two onwards into price and delivery proposition for our US customers, and this accelerated our growth rates accordingly.

EU Retail sales grew by 28% on both the reported and constant currency basis. This is by sheer coincidence by the way, and this performance is supported by further price investments during the year, as well as several key propositions improvements, most notably extending free returns to all remaining EU countries where this was not previously offered and this took effect from April of this year.

Performance in the rest of the world accelerated as the year progressed, with growth of 9% on a reported basis or 14% on a constant currency basis. We made several price and proposition improvements within this segment as well, and together with currency benefit, particularly in Russia, we saw a reacceleration in the sales trajectory as a result.

Finally, growth in delivery receipts was driven by an expansion of paid-for-delivery services offered as well as a 50% growth in our Premium membership, which we're really pleased with.

So turning next to our gross profit performance. Here, the retail gross margin was down 30 basis points to 48.5% and that's within our guidance of investment of up to 50 basis points. I'm delighted with the continued improvement in our full price mix as a result in our change in trading stance 18 month ago. This has allowed us to further invest in prices in Europe and in the U.S. Our margin has also benefited from the branded supply renegotiations completed at the end of the last financial year.

Offsetting this, we've introduced the A-List Loyalty Scheme in the U.K. and we've seen an increased branded sales mix, which increased to 56% from 52% last year. And as we've previously discussed, this mix is determined solely by what our customers want to buy with Sneakers and zonally [ph] priced bands both over-indexing during the year.

Finally, the growth in delivery receipts and third-party revenues, I mentioned earlier, offset the retail gross margin investment, and this meant that the Group gross margins only reduced 10 basis points year-on-year.

So at Capital Markets Day, I talked about our proven track record of reinvesting operational leverage back into driving the top line. We continue to successfully leverage our cost base, particularly through our larger cost lines, distribution, staff and warehousing cost, whilst continuing to reinvest in the business to further drive scale. As a whole, whilst our OpEx spend increased 25% year-on-year, it reduced as a percentage of sales by 50 basis points to 45.6%.

Looking at a couple other categories in a little more detail. Distribution costs, as you can see in the bottom left of the slide, have increased by 30 basis points to 14.9% of revenues during the year. However, within the total you can clearly see our reinvestment philosophy at work. The benefits that we've received from carrier price renegotiations and the change in US duty thresholds have been reinvested into reducing our standard delivery times in many countries including the U.S. reduction from six to four days, as well as expanding free returns to all EU countries and increasing the mix of orders sent using a track service.

Now over 95% off all orders are tracked, which our customers love but from our point of view also reduces our lost in-transit and customer care costs. In a similar way warehousing costs shown on the bottom right of the slide have reduced by 60 basis points to 7.9% of revenues. The benefits from our capital investments into automation technology in Barnsley are really clear and this has allowed us to offset wage inflation in the warehouse along with the expansion of Eurohub facility. Staff costs remain constant at 9.2% of sales, however the leverage from scale has been reinvested into up to 500 new roles to support tech, retail and customer care.

With respect to marketing, this cost line increased 40 basis points to 5.3% of revenues. This was based of the low comp last year as we focused on price reinvestments, but also we increased our digital marketing mix and shifted more towards mobile channels. The increased cost associated with these channels was partly offset by the reduction of our magazine editions from 10 to now four seasonal issues per annum. The reduction in other operating costs was driven principally by the non-reoccurrence of last year’s one-off tech fixed asset write-off of circa £5 million.

And lastly, depreciation increased due to our accelerated CapEx spend over the last few years, so standing back, you can see our continued success in leveraging and reinvesting, which helps to give us confidence of momentum into the new financial year.

So now taking you through the key P&L drivers behind our year-end results. I wanted to summarize out various profit before tax figures given a number of one-offs in the year’s financials. The first point to make is that our continuing operations for this year and last year remove all amounts relating to China. This means the continuing profit before tax and exceptional items of £63.7 million this year, that's a 37% growth year-on-year.

Exceptional items for 2016 relate to the legal settlement of £20.9 million in relation to our trademark disputes inclusive of associated legal fees. For 2015, the final fire reinsurance reimbursement is included in here too. After inclusion of these one-off items, reported continuing operations profit before tax was £42.8 million compared to £52.7 million in 2015.

For our discontinued operations in China, we reported operating losses up to the point of closure in May of £3.6 million, in line with guidance and compared to a full-year loss of £5.2 million in 2015. In addition, one-off exceptional closer costs of £6.5 million were incurred to wind down this operation, relating principally to the non-cash write-down of fixed assets of £4.3 million as well as redundancies and legal costs.

Investments that we would have made in China during the remainder of the year were diverted elsewhere into the business. Combining both our continuing and discontinuing operations, gives Group profit before tax before exceptional items of £60.1 million, and after including exceptional items, Group statutory profit before tax for 2016 is £32.7 million.

So the Group continues to enjoy robust financial position with net assets of circa £200 million, including a closing cash balance of £173 million prior to payment of our legal settlement. As you'll recall from our half-year results, we've seen a significant shift in the fair value of our outstanding hedges over the year, which reduced from an asset of £6.3 million last year-end to a liability of £36 million at half-one, increasing to £76 million at the year-end. This decrease is principally due to the sterling weakening against both the euro and the U.S. dollar.

This mark-to-market valuation of our derivatives values all of our outstanding forward contracts which are due to settle over the coming 24-month period at FX rates as of the August 31. It shows the currency valuation if they were to settle at currency spot rates, which of course they won't.

As we apply hedge accounting, this variance between the hedge rate and the spot rate is accounted for on the balance sheet during the life of the contracts. When the hedges mature, they will be recognized in our P&L at the hedged rate rather than spot rate which is already reflected in our future financial forecasts. Furthermore, we make more foreign currency sales than we incur foreign currency costs and a small proportion of this net currency cash inflow remains unhedged, therefore we will benefit from any further weakening of sterling.

Based on current economic forecast, we anticipate further net gains during the medium-term future, which we will of course reinvest to continue to drive the top line momentum in the business. As a result of our derivative contracts moving into a liability position, the deferred tax related to them has moved into an asset position of £13.3 million as these losses will provide a tax benefit in future years.

Finally in relation to our inventory position. The Group’s stock balance continues to be tightly managed and we excited the year with minimal hedge stock as a result.

So next turning to cash. The Group's cash balance increased by circa £54 million to £173.3 million at the year-end. This was driven by Group’s reported EBITDA of £63.7 million and working capital inflows are circa £70 million offset by capital expenditure of circa £80 million. Some £7 million of CapEx spend was settled post year-end.

Our working capital inflow was driven by a number of things. The legal settlement of £20.2 million which wasn't paid at the year-end; our average trade payable days increasing year-on-year following the extension of our supplying terms towards the end of the last financial year; increases in various trade-related accruals, particularly relating to the introduction of free returns in the EU and Australia; and also the timing of payments around the year-end. These increases were offset by a net stock outflow due to the earlier intake of our new season compared to last year.

So moving onto our CapEx spend in a little more detail. As planned, we continue to invest to support the future growth of the business. During FY16, we added £87 million to our fixed asset base, ahead of our initial guidance of £80 million, cover investments principally in our tech and logistics infrastructures. This expenditure enables us to deliver sustainably high growth rates in the future, delivers efficient seasoned leverage and further builds the resilience of our platforms.

As we continue to see opportunities ahead of us, coupled with continued strong disciplines around execution, we now plan to accelerate our capital expenditure in FY17 to be between £120 million and £140 million. During FY16, 70% of our spend was on technology projects, including our continued replatforming work, the benefits of which Nick will touch on later; commencement of our new planning buying a merchandizing program collectively known as Truly Global Retail, as well as projects to deliver further customer digital innovations. The remaining 30% was directed at our logistics infrastructure and covered our Eurohub 2 build and further automation and capacity at Barnsley.

So looking to our spend for FY17. Key programs to call out are: continuation of the Truly Global Retail program, alongside commencement of our global fulfillment and finance system replacement programs. The built of Eurohub 2 will continue, coupled with further automation at Barnsley; along with of course more investment into customer initiatives in digital experience and mobile.

In addition, we will commence a two to three-year refit project at our head office having recently renewed our lease for a further 15 years. Over this timeframe, we will invest up to £40 million in Greater London House to support the growth of the business in terms of capacity and facilities to provide the very-based environment for our people. Again, Nick will touch on this a little later.

Value driven by our capital expenditure has contributed to our Group return on invested capital for FY16 of 46.8%. This is a pleasing result and demonstrates our focus on investing in a disciplined manner. I would say that it's likely that this number is now to near-term peak as our capital expenditure program continues to accelerate.

So FY17 guidance. So moving onto our guidance for the coming year, as previously guided, we expect sales growth of between 20% to 25% during the next financial year. In relation to this guidance, what I would say is that it's early days. It’s pre-peak and the comps are tough as the year progresses and should we need to update on sales guidance, we have plenty of opportunity to do so as the year progresses.

In relation to margin, we expect both retail gross and EBIT margins to be broadly stable. We will use operating leverage and any FX tailwinds less any potential inflation in COGS to reinvest into our prices and proposition to continue to drive our top line momentum. Finally we anticipate spending between £120 million to £140 million on CapEx in the coming year. It's likely that this CapEx will be at least at the similar level in FY18. We also expect our tax rate to be up to 100 basis points above the prevailing U.K. rates.

So to wrap up, I'm really pleased with the results. We’re on track. The numbers for the year were in line, and in some cases, marginally ahead of expectations. We continue to execute well and at pace, and we expect this momentum to continue into the new financial year.

So thank you and I'll now hand back to Nick.

Nick Beighton

Thank you, Helen. All right, I'm just going to do a quick review of progress for the last six months against our four key pillars of our strategy, and then I'm going to go through some forward-looking statements of what's going to define the next leg of our journey. But before we do that, I think I'm going to show you a video.

[Video Presentation]

Thank you. Have you enjoyed that? So our strategy all starts with great fashion at a great price. Our mission here is pretty simple; offer the greatest choice of one of fashion at the best price whatever your shape or size. You know our product offer is truly unique. It combines ASOS own brand with the best curated edit of third-party brands and all that is moving at a velocity and pace greater than ever before.

We launch approximately 4,000 new styles each and every week, stocking over 85,000 product lines on the main site and every 100,000 on the marketplace. We launched the equivalent of a whole new store each and every week, and around 6% of our product is truly unique and truly exclusive to ASOS. The ASOS brand continues to offer an unparalleled width of product catering for all customers and had another great year.

Bridal has been a stand-out success. It was just seen on the video. And watch this space for the sportswear ranges coming in after Christmas. In the meantime, we just launched Looped, a new sneaker and style destination within the ASOS ecosystem for those who want to shop the freshest trainers and trainer-related and sportswear product, something sneaker had I’m very pleased and excited about.

Our branded edit is continually being evolved. This year we’ve added over 230 new names. Upcoming brands such as Young Bohemians, Sixth June, and more famous names like Kendall and Kylie. Each selection brings something new, something different and something relevant for our customers. The edit of brands has evolved to more than just being a selection. We now advice brands on product extensions and product developments, and we work with them to develop exclusives for us and for them. We can do this because our buyers have a unique view of trends in the marketplace backed up by data and customer feedback.

You can see that in the branded sales mix, we’ve grown that to 56% this year up from 52% the prior year. Zonal price has locked 230 brands, up from 113 a year ago, and of course the ongoing market strength and trends in the sneaker brands such as Nike, Adidas, Reebok and Puma would have contributed to that success.

So we’re entering the new financial year with exciting plan for continued growth of our specialist department in Womenswear and we’re launching Big and Tall ranges for Menswear this year, as well as gender fluid styling. We can also now fully realize the sportswear opportunities in the market and the categories with our own brand and third-party brands. We’re also expanding our gifting, beauty and grooming, lifestyle and loungewear ranges, so plenty of development and lots to look forward to.

Moving onto mobile. We’re already awesome at mobile and we’re going to get better over next 12 months. Our vision remains to fundamentally change the way our customers live and shop fashion on mobile. We’ve now got more than 10 million active downloads with 7.5 million downloads in the last 12 months alone.

On average, ASOS customers spend - sorry, use our app eight times a month and in August customers spent approximately 80 minutes on their mobile, up five minutes from six months ago, resulting in 69% of our traffic now comes through mobile device. Order frequency is rising, up 50%, and orders now are 51% on a mobile, up from 44% six months ago. This year we launched a brand new iOS ASOS mobile app incorporating a new home page, new design, easy navigation, more innovative features such as spotlight search and 3D touch.

We’ve also improved the quality of our imagery and the performance of our Video Catwalk. Customer feedback and engagement has been excellent. And with our new app earning another five-star rating in all the app stores worldwide. As part of our mobile checkout program, we've also rolled out a brand-new native checkout experience for Android users powered by are new digital platform. This allowed us to remove third-party proxies for language, therefore making the customer experience far more responsive and quicker.

This feature was introduced first to our Russian customers in June and are pleased to say that since the year-end, live our across our entire state. We once again plan to increase our investment in mobile delivering a number of initiatives to further enhance the customer experience. I’m just going to show you a short video now which is an update from the one we showed you at Capital Markets Day just so you can see the sort of changes we’ve done in the final quarter.

[Video Presentation]

Okay. So onto engaging content and experiences. You should be clear with this already by now. We understand our customers. Our ASOS team are our best customers. They are our best source of inspiration. We know what our customers are inspired by and what interests them. We reach to them by producing awesome content which sets us apart from just being a place to shop. We’re becoming a fashion destination offering a unique customer experience where we turn a simple sale into a loyal customer. We’ve seen some great engagement metrics this year, you can see at the bottom, visits up 22%, order growth up 30%, average basket up 3% and order frequency up 4%.

We’ve exited the year with active customers around 12.5 million, up 25% on the prior year. In the U.K., we’ve moved that again. We launched the ASOS A-List Loyalty program and customer engagement has been strong and we’ve starting to see increases in all the key metrics.

We continue to encourage participation across all our social platforms. We now have over 19 million followers, up 50% on the prior year, and we published over 60,000 pieces of inspirational fashion and lifestyle content each and every month. This builds brand engagement and brand awareness. With focus on being where our customers are and moving as quickly as they do, we’ve also been testing new formats during the year like Instagram Stories, Facebook Live Video and Snapchat filters and all our customers have responded extremely positively.

Other key highlights during the year include launching our first French and German editions of the ASOS magazine and we sent out around 60,000 editions to each territory. And the U.S. version will follow in November. And we’re also building local Snapchat channels which will go live for Australia, France, Germany and Menswear have gotten new Instagram account on the way.

Moving onto service. A few months ago we told you how much we’re going to invest into delivery solutions. I can tell you over the last 12 months we’ve made over 400 new changes in our delivery proposition for customers. We stepped up this pace of change and its being fantastic. The slide highlights a number of improvements we’ve made. I’m not going to call out all of them, just going to pick out a couple of them. We’ve improved our standard delivery times. We’ve got later cutoffs, more convenience of both outbound return parcels in the U.K.

Some of you’ve also noticed we’ve improved the speed of our standard delivery in the U.K. down from four days to three days. Internationally where the majority of the change has been, we’ve introduced a limited free next day deliveries for our French, German Premier customers. We now have next day delivery in all 28 EU member states and we launched free returns in the entire EU, as well as launching free returns in Australia which we did in the final month of the financial year. All these changes bring our proposition offered to our international customers much closer to the proposition in the home market. And finally, as noted earlier, this week we launched our Premier delivery service to both Italy and Spain.

Onto technology. I know you had a very detailed update from the CIO and his team at the Capital Markets Day but just so as you’re aware, our technology continues at a pace we’ve never seen before. Just for reference, over 500 consumer changes have been processed and launched over the last 12 months. Over the course of the year, we’ve completed the development of our new micro-service based architecture which deployed in the cloud. This delivers globally consistent high performance, high resilience, high business flexibility and supports complete freedom to innovate and react at the same way and same speed as our customers.

Every aspect of our customer experience from our identity to content to product to search to price to start to checkout to payment and order processing is now supported by independently deployable, independently enhanceable platform cloud-based services.

This agility will allow us to invest at pace in these new platforms delivering new customer experiences and innovations, and also critically allows us to bolt-in new technologies like AI payment methods, new tech delivery services, far more easily and far more quickly.

We have extensive plans to further invest in our mobile app and web experiences, personalization, community and content technologies, all of which will be underpinned by rich data insights. We’ve recently mobilized a global fulfillment program which will optimize our global stock management and our warehouse fulfillment plans also. During the next financial year, we’ll be increasing our investment in core operational systems too. These will include a new end-to-end buying a merchandizing system for our retail teams what Helen referred to earlier as a Truly Global Retail, plus new finance systems support the ability to buy, sell and account for stock in multiple locations and in multiple currencies. These new systems are multiyear investments and enable our teams to operate at even greater scale. We’ve also continued to grow our tech team this year by some 45%, giving us the strongest team we’ve ever had and [Technical Difficulty] this forward.

Onto warehousing. Within Barnsley, Barnsley continues to perform brilliantly. We’ve again hit new pick-and-pack records over the summer sale period, reaching over 3.3 million dispatches in one week alone. We’ve continued to improve productivity adding three further elevators, increasing the ability to pick, pack and put away stock on the newly build mezzanine level and the build of the second dispatched order is underway. Together with other investments, this will further increase our throughput capacity and service offering.

Our existing German Eurohub operation has continued to expand during the year in line with our plans, fulfilling more EU orders from Berlin and we exited the year holding just over 3.5 million units of stock and dispatching over 52% of our European orders from this site. Ground works at Eurohub 2 have progressed very much to plan during the year and we’re handed - the site was handed over to us last month and we remain confident and on track to launch full operations in March 2017.

In the U.S., our warehouse consistently fulfills over 25% of the U.S. orders. During the year you’ll be aware, we commenced a strategic review of the U.S. market with a purpose of redesigning our delivery capability. This will enable us to realize the growth potential in that market. The reviewers involved an in depth network analysis to determine the optimal fulfillment locations in order to provide the best-in-class service for our U.S. customers and surrounding market.

I’m pleased to say we’re in advanced stage of this review and we’re hoping to conclude it soon, and don’t worry, I’ll update you according when I’ve finished the work.

So on to ASOS and our people. Given the amount of noise around the Barnsley warehouse recently, it would be wrong for me not to touch on this briefly. Just so as you’re aware, I chose the Barnsley warehouse and I’ve overseen the development with Mark and his team over the last five years, and we’re extremely proud of the work we’ve build there and the part we’re playing out in local community.

80% of our employees live within a 10-mile radius of the facility, 81% of the hours worked are our permanent employees. We pay above the national living wage and we’ll go to the National Living Wage Foundation within - salaries within 18 months. Over the last five years, we’ve paid over £200 million of salaries into the area. We are now the largest private employer in Barnsley and we’ve undoubtedly played a major stimulus in a formerly deprived area.

Some of the more lured allegations that you’ve been reading it out about work environment are not responsible the best, they are distasteful and stem from an agenda of a third-party of which I’m sure you’re all well aware of. Don’t worry. We aren’t going to be blown of course by any of these things. We will continue doing the right things for our business, our customers and our people. Over the last five years, we invested over £81 million into this site and we’ll invest another 20-odd-million over the coming 12 months, that’s about productivity but it’s also about the working of our people and that productivity changes will come from automation and mechanization, not working people harder.

We used annualized hours scheme in Barnsley which is widely used in the industry and many government departments, as was approved in 2013 by ACAS, and in true ASOS Fashion we’ve continued to evolve that each and every year. It enables us to deal with the seasonality in the retail sector and means we can have more full-time employees rather than going down the agency route. If you haven't seen it already, please have a look at the full and factual statement that I issued a couple of weeks ago. You can find that on the plc website.

We have nothing to hide. We fully engage with the politicians on this and will continuing to remain so. We want to make a constructive debate - sorry, a constructive contribution to this debate.

As well as the 4,000 people in Barnsley, we employ around 2,000, mostly young people at our headquarters in Greater London House. I’m delighted that over the last few months we’ve signed another 15-year lease and we can expand our space substantially. So GLH will be the home for ASOS for another 15 years at least. We’ll be investing up to £40 million over the next two to three years in the office and technology to give us far better solution rather than moving to a new office location.

Over the period of the lease we can continue to build that special ASOS buzz in the working environment as well as state of the art technology for our people. It won't happen overnight, but I’m looking forward to welcome you all back to GLH when the dust settles literally.

So since I’m touching on people today, I thought I’ll talk briefly about people in our supply chain. The ASOS team and I, [Technical Difficulty] that the ASOS brand wherever it may fall incredibly seriously. We source and manufacture from 28 countries and that involves around 500 factories around the world and many thousands of people. A lot of that product is sourced from developing countries where label law is at best very weak. And the scope for factories that take advantages of vulnerable people is a big and constant issue. Turkey is a special case right now. It’s got over three million Syrian refugees and rising daily, all needing to work, live, the risks of things going is clear and very obvious.

It’s enormous issue that we and other responsible brands wrestle with each and every day and we have to make calls for the overall well-being of the territory and the overall well-being of these vulnerable people. We currently employ around 21 people in our ethical trading team, whose full-time focus is on managing our supply chain. They have a tiering system upgrading factories and rating them by our own ethical standards. There we see audits of each and every factory we source from, listen to them on the ground of the newly announced and most importantly, they have receive the remediation program for vulnerable people that they discover in any of these working bonds. That remediation includes putting young people back into fulsome education, funding them, regular family welfare visits and so they are qualified to work again.

We find that a collaborative approach working with the factories, working with the suppliers pays benefits over time. We’ve adopted this partnership approach which means we’re working within the systems to bring about positive change. Again taking Turkey as an example, we work with many of our suppliers there for over eight years, and some of those suppliers there are ones we first gotten our ASOS own brand with. That relationship has allowed us to work with them build to our standards and we’re really proud of that contribution. I’ve listed on the slide a number but far off from complete, of all the trade bodies and initiatives which ASOS is not a member of, including some of the environmentally focused. I believe we’re at the forefront of our industry in these areas and we remain totally committed to a supply chain that meets our values, our customers’ values and whatever the local law is.

I’d like to just bring this back to business for a while. As this space becomes ever more competitive, ASOS will continue to build its own special definition, its own special differentiation for us and our customers. We believe in ethics and fashion. We call that fashion with integrity and that’s how we say, back at pace. Our young customer care about what we do and they weren’t do with companies in the future that don’t walk the way we do. So we’re committed to this because we think it’s the right thing for our people, the right thing for our customers and the right thing for the future of our business.

Okay. Throughout the presentation, I hope you’d been struck by the acceleration of velocity throughout our business, maybe you haven't. Well, in a highly competitive fashion ecommerce world, where customers move fast are the most powerful change age in any business can encounter, we think the nimbleness and velocity are vital to stay ahead and continue to delight our customers. The significance of completing the replatforming of our legacy code into the cloud-based micro-service architecture is huge. Right now it offers more secure, faster experience for our customers. But going forward, it’s another step in enabling nimbleness in our technology, giving us the ability to fold in new technologies at pace. New technologies such as AI, digital search, voice search, all of this will be key elements to drive our future customer experience.

Interestingly, the ASOS customer experience is already very well connected with its customers and is powered a completely different way for customers to interact with businesses, interact with themselves, interact with ASOS. But here too, we haven't taken the opportunity to connect our end-to-end business, i.e., our supply chain, our upstream side supply chain in the same manner. We’re now planting the seeds to develop a greater connection with our supply base. This will include: shorter lead times; more U.K. manufacturing; more mutual manufacturing, the price being a high velocity of new product development, a high velocity of new product change and the total - the lowering of the total cost of handling of doing business together. That will pass on to our customers.

So velocity, nimbleness which have always been key features of customer experience and thinking are now features of our technology and we’re focusing our efforts upstream, connecting our supply chain, connecting with our supplier in a way that we’ve never considered before, very exciting.

Okay. Before summarizing, I just want to show you a slide I showed you in June at the Capital Markets Day. We’ve updated the numbers. You can see the opportunity for our business remains enormous. Just think what we could do when we replicate our experience internationally, the same experience we have in the U.K. As of August, we had 4.7 million active customers in the U.K. representing 29% of the addressable millennial population. In the EU, we had 4.3 million customers, representing just 5% of the addressable millennial population. In the U.S. the opportunity is even greater. We had 1.7 million customers, representing only 2% of the addressable millennial population. Whilst the apparel shift continues online at pace, you can see all three of our major markets, ASOS has grown significantly faster in the total online market.

So in summary, we’ve had a great year. We’re continuing to focus or define in differentiate ASOS, building and enhancing the ASOS three-Ds I referred to earlier. We’re being brave on making significant investments and decisions. We’ve done that during the course of the year and we’ll continue to do so. Our major programs in technology and logistics are delivering and the new programs are all on track. We have accelerated our growth in the year. We’ve improved our internal capability in the year and we’re stepping up our investment and we’re looking forward to the next 12 months and beyond with confidence in our business.

Thank you very much. I’d now like to open up to questions behind our very large desk.

Question-and-Answer Session

Q - Claire Huff

Hi. It’s Claire Huff from RBC. Three questions please. The first one just around marketing plans for the year ahead. I know you said before as you wrapped up, the Eurohub distribution that you'd start to look at increased marketing spend, so just some thoughts there please? The second one just whether you had given some guidance around how we should think about that transition from the Eurohub 1 to Eurohub 2 early next year, whether we should think of any dual-running costs or anything else to be aware of there? And then third one, if you could just update on where you think pricing differentials are now between the markets, whether we can expect more price investments or what magnitude and the year ahead?

Nick Beighton

Yes, sure.

Claire Huff

Thanks.

Helen Ashton

Yes, so in relation to the marketing spend, as I said, we've seen some acceleration in the past year. I don't envisage it being significantly higher than the percentage of sales that we’re seeing at the moment, so it will continue broadly at the levels that we have at the moment. We constantly review where we put that marketing spend to make sure that we are getting the right return. But for as Nick talked a lot around having the right price, the right proposition and only then going to marketing and there is still plenty that we can do around particularly proposition before we’d move to marketing. So I think we feel confident that the spent at current levels is broadly there. We continue to work that hard and get the best returns for it.

Nick Beighton

Yes, bang on. Claire, our best marketing is our customer experience and the advocacy, easy for me to say, that that gets. So I'll define that as a product, our delivery solutions, the price of that product, all of those things are our best marketing, and time and time again, that gives the best customer recruitment. Then when we’ve exhausted all those things, we dial up our digital marketing predominantly accordingly. And then - sorry, I missed out content. You’ve heard in my presentation where we’ve enhanced our content this year, so that's through to all the social media channels and we still got lots to do in the - particularly in Europe but also in the U.S.

Eurohub pricing. So we’ve invested massively in pricing this year, and as we told you, we would. We’ve got parity in the EU with the U.K. now, and so we’ve had a two-year program of price and proposition investment, so I’m delighted with where we are in the EU. We’ve got a few things that we’ll tweak in the U.K. We’ve done that during the course of the year, nothing major but a few things that we’ve reinvested in. Got a little bit more I want to do in both U.S. and Australia, but we’re looking to redeploy the benefits and growth from the currency weakness straight back into customer pricing both U.S. and Australia. They are the ones certainly in our sites.

Helen Ashton

So in relation to your question on transition of Eurohub 1 to Eurohub 2, there will be a transition across kind of early into the second half of the financial year and we will expect to see some dual-running costs, so we will expect to see warehousing costs move up slightly. But again within my guidance, I’m more than comfortable that we can cover that with other areas of leverage.

Claire Huff

Thank you.

Nick Beighton

Jamie? There.

Jamie Merriman

Thanks.

Nick Beighton

You got it.

Jamie Merriman

Jamie Merriman from Bernstein. Two questions. First, you talked a little bit about the supply chain and what you think you still can do in terms of speeding up the pace. But I guess, the question also comes, what about the cost. Do you think you still have an opportunity on own brand to reduce the cost with suppliers? Do you think you should still be shrinking the number of suppliers that you use? And then just a quick one on your page about initiatives still to come. In the U.S. you suggested next day delivery to store next year. What stores? Thanks.

Nick Beighton

I’ll decline the last one, but thank you. Well spotted. Let me talk about supply chain. So ASOS has built itself on the customers back and we focused on better experiences, getting product quicker, getting richer more deeper experiences, giving inspiration through content and product and delivering that at pace. And the connection that we have - that customers have with us and have with each other through those experiences now through mobile, through social media is breathtaking. We haven't actually sat back and gone how quickly connect our supply base in exactly the same way.

By doing that, I’m expecting faster velocity of newness, particularly product development. You heard me talk about how our buyers were advising brands on new product development too, so connecting with all of those means everyone can move far quicker. You’ve got better data, better connections with us and I think that will lower the cost of doing business with each other and improve the velocity of change, and that’s the price I’m going for. So this is going to be forever journey but it’s something that we’re applying far more focus to, and this will be helped by the new buying and merchandizing systems that enable us to connect more simply.

In terms of lowering the cost of doing business, I referred to this briefly. There is going to be a moment over the coming years where customers will say, if that’s too cheap, there is a reason why that’s too cheap. So we would do all we can to lower the cost of doing business with our suppliers in ASOS and we’ll pass that on to our customers. We’ll get leverage through the volume growth but there is a point where something can only be at a particular price. Does that help?

Jamie Merriman

Yes, thanks.

Nick Beighton

Good. Nearly, yes, you’ve got it.

Anne Critchlow

Thank you. It’s Anne Critchlow from SG. Two from me please. How do you see CapEx trending beyond the current year? So does that £120 million to £140 million keep going up? And then the second one about your earlier intake of inventory this year. Was that a deliberate decision in order to have the inventory there in case you had as sales uptick?

Helen Ashton

Yes. So I think as I've said just so the presentation there, from a CapEx perspective, I would assume in FY18 that the CapEx spends, there is at least at the levels that we are talking about in FY17 and not seen anything to suggest that that would reduce. Our stock at the year-end increased 33% year-on-year. That was as a result of the earlier intake that we brought in. It was particularly because we wanted to get the stock in ahead of Halloween and peak trade and over the cyber weekend, so it was proactively getting the stock in sooner so that we've got it all along ready for the peak trading periods, so it was very specific that we did that.

Nick Beighton

We’ve got some great Halloween outfits Anne, if you’re interested. Alex, I think over there.

Angus Tweedie

Hi, it’s Angus Tweedie from Bank of America. I suppose the first question is on conversion. You flagged up at the start. Can you remind us exactly how you calculate that onto customers? And why do you think you’re just lagging behind given the price investments you’ve made there?

Nick Beighton

Sure. It’s total visits over sales in that territory. That’s how we do the conversion but it’s all by each individual channel. So if you do it by unique visits, it’s obviously higher but it’s total visits that drive the conversion. The reason why it’s behind in Europe, ecommerce is behind in Europe relative to U.K. and U.S. Actually U.S. and U.K. have been the most penetration in ecommerce but the U.K. is much higher ahead on mobile than the U.S. and it’s similar in the Europe.

There is other factors going on within Europe, so we haven't got every European territory with language-specific, so that’s one of the big inhibitors within conversion. Even though with massively stepped up pricing, it’s more than just pricing that effects conversion. It’s also delivery solutions. We only enhanced all the delivery solutions in for Europe second half of this year, so I think some of that will play through.

Some of the speed of deliveries in Europe aren’t quite where they were in the U.K. You can order up to midnight in the U.K. for next day delivery, it’s around 3:00 PM for most European territories. So as we migrate our proposition closer to the U.K., which is what our mission is in that territory, we’ll see the conversion migrate.

Angus Tweedie

Thanks.

Nick Beighton

Okay. There.

John Stevenson

John Stevenson at Peel Hunt. Just a couple of questions. You’ve obviously got the review on U.S. distribution at the moment in terms of what and where. In terms of the when, given there is going to be gap, I guess, between Eurohub 2 phase one and two, is that when you’re going to actually sort of execute the U.S. and we should expect something to happen as we come into next year? Second question, just more general just in terms of the difference in shopping there, maybe you can talk a little bit about how your younger customers behave compared to some of the older guys? I don’t know is there a difference in terms of the KPIs and frequency in spending engagement?

Nick Beighton

Yes. So I’m expecting to conclude what we’re going to do with the U.S. in terms of downstream supply chain in the next two or three months, and so we’ll announce accordingly. And that’s more than where we’re going to plonk the shed, that is how we’re going to deliver, how we’re going to utilize the hubs, how much is going to be air-freighted, how fast we’re going to go, how we’re going to achieve later cutoffs and all of those things are considerations of when we’re deciding where to put the warehouse, obviously then finding the right partners and the right locations. So I’m expecting to include that in the next couple of months and we’ll let you know when we’ve done that. Was there anything else on the U.S.?

When we’re going to build it? So probably - it’ll probably start breaking ground on that unless it’s in a fully formed shed where you walk straight into sometime after Eurohub 2 is completed, so FY17 towards the backend I expect.

Helen Ashton

Yes, in the £120 million to £140 million, we haven't assumed any CapEx from the U.S. hub, it was always the view that the CapEx would be starting in FY18. So this year for us on CapEx it is about getting Eurohub 2 built out.

Nick Beighton

So when you talk about older customers, how old you’re talking John because 70% of our customers are sub-30. Do you mean over 30?

John Stevenson

I mean, no…

Nick Beighton

That’s old, right?

John Stevenson

Sort of the 20-year olds, sub-20, their shopping habits, is that different from the...

Nick Beighton

Yes, you tend to see high frequency, higher engagement in social media channels, low average baskets.

Helen Ashton

Much more mobile.

Nick Beighton

Much more mobile. The over 30, you get higher average baskets, less frequent, yes.

John Stevenson

Okay. And what does that tell you about how the business is going to develop and change your focus?

Nick Beighton

You cut out. Say that again?

John Stevenson

Sorry, what does that tell you in terms of how the business is going to develop as these customers actually have the cash to spend?

Nick Beighton

Well, that gives me great confidence. Over the last two years, we’ve recruited more customers sub-20 than any of the category. So those are people that can enjoy our experience for at least 10 years and more, so that’s something that gives us great confidence. Great. Go for it, over there.

Andreas Inderst

Andreas Inderst, Macquarie. I have three questions. The first one, you ramped up your CapEx guidance for the next three years, yet sales guidance is unchanged. Maybe you can elaborate on that? Second question, what’s actually - I understand your guidance for the full-year is in sterling and what is the actual underlying sales guidance for full-year ‘17? And my third question relates to the sportswear division. You indicated a lounge of Assos products in December. Maybe you can give a bit more insight, is that only clothing-related or also footwear-related and what’s your mid-term expectations on that, given it’s quite a crowded market there?

Helen Ashton

Okay. So yes, we’ve ramped up our CapEx guidance and that’s basically because firstly we’re executing really, really well. We’ve got great confidence in what we do in. I think as Nick has said, all of the work crisply doing in IT on the replatforming really enables us now to be confident to accelerate. We have the cash to do that as well. We believe we can get great returns on that spend, so I’m really comfortable to accelerate on the CapEx. From a sales guidance perspective, I said it in the presentation, it’s very early days with seven weeks into the year, we have exited last year very strongly. We’ve started this year. We’ve very confident with the momentum that we have and we have plenty of time to revisit that sales guidance as we go through the year and we get through peak trade and my sales guidance says in reported numbers. It’s in sterling.

I don’t give you the constant currency conversion on that. I think in the notes, I have given you a bit more information on how we translate into constant currencies, so the first time in P4 I’m now translating not based on spot but also a mix of hedged and spots. So I’m giving you a bit more of an indication of what my real translational rates actually are but I’m not going to give you a view of what my guidance is in constant currency but I will update it as we go through the year if I need to.

Nick Beighton

Unless you got some predictions on currency that we could factor in for you. Let me deal with sportswear. So it was really important move for us to settle the dispute with Assos and Anson’s this year, which we regret that came to market and we regret we haven't got to this place but IPR law, especially in the internet is very difficult to navigate.

The work we’ve done since then on envisaging what an Assos experience will look like for sports active wear is absolutely fabulous. Now you referred to as a crowded market but so is fashion, but there is no one doing sportswear in the way that we are envisaging it. It will start off with a selection of third-party brands. It will be more than just clothing. There will be sporting accessories too and that support the looks, support the experience and will then fold in our ASOS own label, own brand versions too. So I’m not going to give you guidance for that, but thank you for asking.

This is going to be a real big piece of significant change that our customers will love, done it in ASOS way, and I don’t think anyone else is doing that. So that’s something I’m super-excited about.

Adam Cochrane

It’s Adam Cochrane, UBS. In terms of you getting more and more brands on to the websites, more newness of products, how much do you think that’s benefited the sales growth in the last 12 months and how much further have you got to go in terms of expanding the number of lines that you actually offer to the 85,000 for example? And then as you’re getting more and more lines, how do you marry up - do you have to increase your personalizations, your customers to make sure they don’t get lost in this sea of Amazon esc choice [ph] and that you can find exactly what they are looking for. Do you have to sort of think more and more about that personalization for the consumers? And then finally you’ve come out with a new definition of broadly stable, I just wanted to check what that meant to you, if we can, please?

Nick Beighton

Go on, tell out an answer.

Helen Ashton

So for me broadly stable means plus or minus 30 bps, something like that, and as I go through the year, I’ll refine that as we go. On the basis of newness and number of lines, I think we’ve got 85,000. I don’t think we’re expecting that to get massively bigger. I think the team do a really nice job of continually reviewing that looking at what’s cool, looking at what isn't removing, what isn't bringing on, what’s new but actually we feel generally that number of lines kind of works for us but the personalization thing is something that we constantly are working on data-driven personalization I think is a great opportunity for us. So we continue to refine that because making sure that when somebody logs on and comes on to our sites, it’s relevant for them, it’s the right country, it’s got the right kind of products on there, it’s really specifically tailored, is absolutely where I would want to be. So regardless of the number of lines, we want to make that personalization as best as it can possibly be.

Nick Beighton

Good answer. And actually the things that I - you heard me refer to is, this is not a static 85,000 lines, it’s constantly evolving. So a brand - we were about 150 brands at the moment but we turned over about 230 - over 230 new ones this year which means some dropped off. Helen is right. Over the next five years, there will be more depth than width and growth that shadow its down but we continue looking for new brands and working to build those brands, so put new categories, new products and specialist wear is really important and it’s not particularly well covered in many areas. So, I mean, petite, small maternity, big, tall and versions of all of those things, so those are the things we’re looking at and expanding our ranges on.

I’m going to the U.S. next week to do the results and then I’m spending the backend of the week targeting new U.S. brands that we think are new to us anyway, that we think will be exciting. So I think it’s in constant evolution.

In terms of personalization, Helen is right. That’s the perpetual panacea, how do you make it more relevant, more personal? I once envisaged that there would be gazillions of websites and homepages that would be specific to you, but then AI and recommendations and digital and the digital systems is greater on that, so you see more of that through for our own technology. Does that help?

And the one other thing is it’s the pace of change and the constant evolution that’s more important for the 20-something customer. The new in pages are the most visited without shadow of a doubt are the one - like by immeasurably bigger and they are the ones that drive the highest engagement and the highest frequency and the high sales. So it’s that pace of change that’s the most compelling element of that model.

Adam Cochrane

When we think about the sales contribution of the new brands that you’re bringing on, is it a bigger sales contribution than that 233 brands out of 850 would imply, or are these brands generally smaller and more distinct than the ones that you’ve currently got on?

Nick Beighton

I can't categorize it like that because there is two or three high street staples that drive big chunks of revenue that are relevant. The rest of it is just about the excitement and the newness and typically - some of the average line buyers will be tiny but the reason we do it is because we want that product and we want to have that excitement, want to have that fresh newness that the customers respond to. And then I referred to some new brands earlier, those line buyers will be really small. We can do that because it’s an internet-only model with mobile applications and then we go, right, how is this resonating? Okay, well back it some back. We don’t do repeats. What is gone, it’s gone, and then we look to absolutely increase the velocity of new products similar or similar brands. That’s the thing that’s most compelling about our model. That’s the newness. That’s something that marks us out very different.

Adam Cochrane

Thank you.

Nick Beighton

Does that help? Good. Charlie, find the mike. Sorry, George, was it you? George off you go. I don’t want to rob you off the mike. You’d have to wait Charlie.

Georgina Johanan

Thank you very much. Georgina Johanan from JPMorgan. Three questions please. First of all, correct me if I’m wrong, but I think you’ve consistently said that you hedge on a rolling basis roughly 24 months in advance and you hedge 80% of your net cash flows. So, I guess, first question is if you can just clarify if that’s correct. And then second of all, just help us a little bit with our modeling. Could you clarify perhaps how - what proportion of your fiscal ‘17 net cash flows are hedged as you go into the year, i.e. is that 24-month rolling even over the periods? Second question was just on your CapEx spends at head office, obviously quite a big number. Could you just help us understand some of the areas where that’s going and perhaps break it down a little bit more, please? And then finally on the sourcing side. We’ve talked in the past about how you might start asking suppliers to deliver direct into the Eurohub. Can you just update us where you’re on that, please?

Nick Beighton

Sure.

Helen Ashton

Okay. So I’ll do the first three if you do the last one.

Nick Beighton

Was it three?

Helen Ashton

Yes, I think. So yes, we hedge over - you’re right, you listen. We hedge over 24-months into our net cash flows and the only thing that’s changed on that is post-Brexit. We took the decision to move the 80% up to 100% over first 12 months of that 24, so we could really look ourselves and then be just more certain of the benefits that we’re going to comment about, but other than that we absolutely carry on doing that led hedge approach and going into the new financial year that all of our cash flows are covered within that. There is always an amount of sales that we end up as unhedged because it’s much as our forecast sort of broadly accurate, there is always - you can always be out, so there is bit of fluctuation so same that’s related to spot. We always get - we tend to get a benefit because we’re long on our hedges, on our currencies, so we do generally get a benefit from that.

CapEx FY17, yes, there has been an increase. That’s really splits 60% technology, 30% warehouse, 10% into sort of office and fit-out. The office and fit-outs is the start really of the program within GLH. The technology are the programs that we’ve talked about really Truly Global Retail, the global fulfillment program, more on the front-end customer innovation and the warehouse and it’s building out to Eurohub 2 and there is also some automation in Barnsley in there as well.

Nick Beighton

Did you…

Georgina Johanan

Yes, it’s just more on the - sorry, if that was okay. Just on that head office CapEx.

Helen Ashton

Yes.

Georgina Johanan

If I’m sort of looking at the chart correctly, it looks like it’s £15 million to £20 million this year which it just sounds like quite a big number for head office, and I was just wondering if you could still give us some idea of where that was going?

Helen Ashton

Yes, so in total it would be about £40 million over two to three years. We are going to build a quite significant extension there. So we’ll build out another 32,000 square feet, so if anybody has been to GLH, he’ll know it’s kind of got a gap in the between so the first two floors we’re going to fill that gap and next spend out - so big extension, complete refit, everything planned air-condition, heating, plumbing, everything will be refreshed. From a cost perspective, it benchmarks absolutely sort of middle of the road but we do want to make sure that it’s absolutely hi-tech. It’s fit for purpose for what we want, much more agile working, much more in line with kind of the café coffee culture that our some things like to work in versus what you would see now within GLH. So it sounds a lot of money but from a benchmark perspective kind of broadly there and how do we move that of GLH and move somewhere else, it would have cost about the same to refit and also probably about third extra in rent as well.

So I think we’re really happy to stay within the building that we have it. It feels like us, doesn’t it?

Nick Beighton

It does feel like us. And we’re expecting to sort of say probably about nearly a doubling of our London headcount. What was your last point?

Georgina Johanan

It’s just on the sourcing from the suppliers direct into the Eurohub.

Nick Beighton

Yes, I can't remember the mixes right now but we’ve been doing that for the last six months and moved early up as from March onwards but again some of the minimums prohibited, so where we’ve been able to do it we’ve been doing it. Thanks.

Georgina Johanan

Thanks very much.

Nick Beighton

Sorry, Michelle, lost out to Charlie.

Charlie Muir-Sands

Thank you. Charlie Muir-Sands from Deutsche Bank. I’ve got a few more dollar FX questions.

Nick Beighton

Brilliant. I look forward to that.

Charlie Muir-Sands

The first one is, can you remind us now on percentage that you’re sourcing in each currency, the percentage which of your operating cost base which is in each currency. And then the third one is can you just help explain a bit better this revenue hedging - your plan going forward or to make it really simple for us, what is going to be at spot rates roughly the FX tailwind to reported revenues in the year ahead?

Nick Beighton

Why don’t you send in the spread sheet, and she will in fill it in for you, Charlie?

Charlie Muir-Sands

Well, I was hoping…

Helen Ashton

We always love to do your jobs for you. Okay, so I’m not going to give you the breakdown of all of our spends in two different currency but what I will say is that for this financial year we currently are around about 80% of our purchases are in pounds, that’s moved from about 85% 12 months ago, so we’ve made some good progress in our natural hedges. I’m not sure how much more clearly I can explain our hedging policy. It hasn’t changed. It’s been the same certainly as long as I’ve been here. We basically - we’re long on currency, so we get more currency sales than we payout in purchases. We therefore hedge on a net of our cash flows and we hedge out over a 24-month period on a tiered basis. So basically what that means is that we just manage the volatility through the business over a 24-month period, so any benefits that we see will see coming through but we’ll see it staggered over that period of time.

Many people now asked me why we build the hedge in because obviously with current exchange rates, we would be - have a great tailwind if we would, but a business of our size of course we’ve got to hedge, it’s absolutely the right thing to do and we will continue to do that. So am I going to give you our FX tailwind numbers? No, I’m now, but what I am going to say is we have got an FX tailwind. It’s not as big as some people would think because as I said we don’t translate to spot, we translate on a mix of our hedge grids amount of spot and I think in the presentation here as I said, in P4, I’ve tried to give you an indication of what kind of rate that looks like to try and give you a better indication of what realistically we’re seeing within the business.

Charlie Muir-Sands

And sorry, just a final on operating cost. I think a year ago you said 90% of your operating cost was still in sterling. Presumably that might have moved down a little bit with your German hub?

Helen Ashton

Yes.

Nick Beighton

Next question. It’s your turn Michelle now.

Michelle Wilson

Hi, Michelle Wilson from Berenberg. Just two quick ones for me. First of all, I think you recently set out a ROIC hurdle target for your CapEx spend, which I think was around 25%. Is that still the case for the current CapEx going forward? And then also in terms of your target revenue of 20% to 25% growth for the current year, what’s the flexibility in your inventory to be there? How quickly can you get excess stock if you see that your sales are coming ahead of that number?

Helen Ashton

I take the first and you take the second.

Nick Beighton

Yes.

Helen Ashton

Yes, so you’re right, we talked about ROIC floor of 25% at Capital Markets Day. I still think that that’s our long-term floor. As I said, I think that the year we’ve just had has been a near-term peak as we do start to accelerate our CapEx. But to be honest, I don’t see us getting anywhere the 25% anytime in the short to medium term, but it remains our longer term floor that we’d be working to.

Nick Beighton

In terms of reacting on product, it all depends where it is, where it falls. So we’ve got very short lead times on our jersey product, anything that’s heavy legs or appliqué or branded depending which brand we’re going to move as quickly as they can, but you heard me talk about accelerating our velocity. We’ve done that again this year and we’ll continue to do so. So we’ve got more and more flexibility this year than we’ve ever had but it all depends on the product.

Michelle Wilson

Well, could you give an average order time?

Nick Beighton

It’s meaningless. My aspiration is to move something towards a very large Spanish retailer but I’m nowhere near that right now.

Michelle Wilson

Okay.

Nick Beighton

Simon? Simon, you might be the last one.

Simon Bowler

Okay, I’ll try and finish on a high. With regards to your third-party brands, just wondering if you can tell us what you’re seeing in terms pricing that comes through from themselves, given what we’ve seen happen to sterling, are you expecting to see them put prices through.

Nick Beighton

Yes, I hadn't seen any so far.

Simon Bowler

Okay. With that being the case, then how do you think about your ASOS brands pricing because you mentioned ideally you can't look too cheap.

Nick Beighton

Yes.

Simon Bowler

So do you price it relative to those brands or we could see some price inflation coming back into over same brands or would you just try and keep in the increase that discount to the third-party brands?

Nick Beighton

I’m taking - well, I don’t look at it like that. So we don’t necessarily look at - well, we do in some respects. So there is two or three brands globally that we always benchmark our product against, and if they move, we have a good look and we think about moving too. So I’ve talked a few months ago about the biggest moves that we’ve seen over the last 12 months on brands. Right now we’re looking to maintain our prices, soak up the - inevitable cost inflation will come through, take the benefit of price elasticity in the export model and actually offer the ASOS products even better values and that’s how we’re setting our trading plan up.

Simon Bowler

Thanks.

Nick Beighton

Is that it?

Simon Bowler

Yes, that was all.

Nick Beighton

Brilliant. Right, thank you so much for joining us guys. I hope you found that useful. Helen would be around for questions and me maybe. Thanks very much.

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