AGM 2019

Nov 27, 2019

Okay. So good morning, ladies and gentlemen. Welcome to the Annual General Meeting of ASOS plc for the financial year ended 31 August 2019. As hopefully you all know, I'm Adam Crozier, Chairman of the company. It's now just after 12 noon, and I note the necessary quorum of at least 2 people entitled to vote is met and therefore declare the meeting open. We're live streaming, just so you know, this meeting onto our website again this year. Now, firstly, a few housekeeping matters. Kindly ensure that includes me, just remembering that your mobile phones are on silent. Should the fire alarm sound continuously, then we would need to leave the building and the nearest exit from here is on the left as you exit this room. There'll be farm wardens on hand to guide you if necessary. And the ASOS assembly point is at the top of Mornington Crescent. I'd now like to introduce the board, some of whom are new to you. On October, we announced a significant strengthening of the Board with the appointment of 4 new non executive directors. We've expanded the Board to reflect ASOS' increased size and scale and the significant growth that we're expecting skills and expertise that will be essential in guiding skills and expertise that will be essential in guiding the business through the next stage of our global growth. Let me introduce them to you now. We're delighted to welcome Karen Geary, Luke Jenssen and my Faith Byfield, who are here today. Eugenia Alsowich has not taken up her seat yet and will join the board early next year. The rest of the Board who you know are from my left Nick Batin, our Chief Executive Non Executive Directors, Hilary Riva, Rita Clifton and then Co Founder and Non Executive Director, Nick Robertson. Hilary is the current Chair of the Remco, as I'm sure you know, but she'll be stepping down with effect from 1st December and succeeded by Karen Geely. To my right is Matt Dunn, our Chief Financial Officer, who joined us in April and Ian Dyson, Senior Independent Director and Chairman of the Audit Committee. I'd also like to take this opportunity to thank Hilary and Rita who are approaching the end of their 6 year tenure as non executive directors and will step down from the board at the end of March of 2020. They have each made an enormous contribution to ASOS and on behalf of the board I'd like to thank them for all their hard work. Now before moving on to the business of the meeting I'd just like to say a few words about the past year. ASOS, as you know, is a British success story and one of the just a handful of retailers that can become truly global. In the last year, however, it's clear that the board are all too aware that the investment we've been putting in place to underpin the delivery of our ambitious growth plans has impacted on our financial and operating performance. In short, I think we've disappointed investors. The complexity of the transitioning to an international scale with the creation of 2 international warehouses was underestimated. Hindsight, I think, does show that the internal capabilities of company hadn't kept pace with the changing nature of the business. We are, however, to reassure you, very clear on the root causes of those operational challenges, and we have made very good progress in resolving them. Now to the business of the meeting and with your permission, I propose that we take the notice of the meeting as read. Are there any objections to that? Thank you. Now at this meeting, obviously, we address matters contained in the Please note that only registered shareholders, their proxies or appointed corporate representatives are eligible to vote and to speak at the meeting. The voting at this meeting will be conducted by poll as permitted by the company's articles of association and also widely recognized as best practice being proportionate to individual shareholders. I'll explain the poll procedure after taking questions on the business of the meeting. Before opening the floor, I'd just like to briefly run through the protocol for shareholder questions. Only those with a white poll card have the right to ask questions and may speak at the meeting. If you received a green guest card upon admission, you may only ask a question at my discretion. If you have a question on any of the resolutions or anything at all, please raise your card and wait for the microphone to arrive. And when asking your question, please, if you don't mind, clearly state your name, whether you're a shareholder, a proxy or a corporate representative, and where applicable, the name of the shareholder you're representing. Matter from the floor. Who would like to go first? Thank you. I only just wanted to ask, I haven't read the I haven't read the manifestors yet because I was washing my hair. So that was my excuse. I want to know whether there is anything in them or what your view is about the impacts of what seems an inevitable online tax? Well, I'm not sure it is inevitable. First of all, if you want my honest opinion. I mean, there's obviously a lot of issues in the retail marketplace per se at the moment. A lot of struggling retailers out there as the structural shifts take place from more traditional bricks and mortar retail to online. I think most good commentators and indeed a lot of the politicians you speak to do understand that that is progress. It's very difficult to turn the clock back on that. And the way to resolve problems for more traditional retailers isn't to penalize more modern retailers or indeed their customers. So I think there's a long way to go on that debate. And whilst things clearly do need to be improved on the business rate side, I don't think that necessarily means a part in lobbying for our position as an individual company and through various organizations and we'll continue to push our agenda through that. Okay. Any other questions? Yes, Robert. I'm a shareholder. 2 years I think it was 2 years back when somebody asked about dividends, said that, ASSOS and the Board could make better use of the dividends inside the company than paying them out. Since then, the price has collapsed from 77, was it, it got to a maximum. And then it's been down as low as 21. And then we hear that things are progressing, getting better. You've got an extensive board. You've got various experiences looking at the pedigree of the non executives. When are we going to get some good news to get the share price back to what it was and to start paying a dividend? Thanks for the question, Rob. So there's a couple of questions. One is around dividend, one is around the share price. From a share price point of view, I think, as I said earlier, we have clearly disappointed shareholders in the last year. But in the end, the share price will respond to the performance of the company. So what we have to focus on is the performance of the company and getting that back in shape. It's clear to me having come in over the last few months that the company took a very good positive decision, which was to say that if we wanted to continue to achieve these extraordinary levels of growth over a long period of time, we needed to have our best proposition in place in all the key markets around the world. And part of that is having this incredibly wide range of product to sell to people that people can order up till midnight, get it the next day, all wrapped up in great marketing and great logistics. That was the correct decision. And what that drove was a need that if we wanted to do that, we needed to have distribution centers in more than just the U. K. And they need to be properly automated and efficient. All of that was the correct thing to do. Unfortunately, as I said earlier, what we underestimated as a company, I think, at the time was the distraction from management in building all these and fitting these centers all at the same time. I think we underestimated the cost of it. Actually, when you look at the performance of those centers as they opened, having run distribution networks before, The performance was actually pretty good. Really, the teething problems were what we expected and should have expected. The issues we got wrong really were in and around making sure that we understood all the difficulties in recreating that stock pool in more than one center. And so we ended up in a position of not having the stock availability to sell and that impacted on our performance and our sales. So what we are reassuring shareholders of is that all of those issues needed to be fixed very quickly and we have largely fixed all of those. But underlying those problems was that we were missing some capability in the management, the senior management team to ensure that those issues don't occur again and that we're fit and able to drive the performance of the business over the next 5 to 10 years. Having resolved those problems, the performance of the business is improving and clearly a big part of that will be having a successful Black Friday week which we're just starting over the next sort of 24 hours or so. It's a big trading period for us. So I think so far so good in terms of turning around the performance of the business and that is the biggest input into the share price that we can make is restoring confidence in and amongst our shareholders that the company is performing as it should be. I know it sounds I get why you asked about the dividend. I think we do still believe that the company is better reinvesting into the company. We have a lot of growth ahead of us not just in the U. K, but internationally. And we want to keep investing in that performance. And so introducing a dividend is not something the board is looking at today. And I don't see that in the near term future. I don't think Nick does as the Chief Executive earlier, but it is something we will obviously bear in mind going forward. But for now, I think the right thing is to really focus on returning the performance to the company, getting the growth levels back in the right shape and also taking cost out of the business and making sure that where we have expense in the company is being focused on the areas that will fuel our growth rather than in non productive areas. Perhaps you can sorry, it's not great acoustics in here for me. I don't mind not having a dividend as long as you see the share price going up. Up to 2 or 3 years ago, it was, you could say generally, it went up the whole time. Yeah. It went up, down, but all in all, it went up year on year. Yeah. And you don't mind not taking the dividend then. When you get to such as my age, then you want to be looking at dividend when you hold the shares for a long number of years. And that's so what's jam tomorrow? Well, my age, I might not get any jam. Well, I don't think it's just someone of your age who wants the share price to go back up. Obviously, that's in everyone's interest. I think it started to move more in the right direction over the last few months. But actually again, that's because the performance is starting to improve and the company is beginning to deliver again. So for Nick and the team that's really the focus is get that performance right. The share price if we perform right the share price should follow and it will start to hopefully move up in accordance with that performance. We have your guarantee on that. You never have my guarantee. Unfortunately, I can't do that. But what we can do is make sure we do all the right things and get the company back into shape. And I am comfortable. I'm a Scot, so I tend to be pretty pessimistic about everything. But I'm comfortable that we are doing the right things to turn the company back around and get the performance into the right place. So if we continue to do that, then I'll be very pleased and we should see positive impacts of that. We'll take our assurance and hope next year will be a little bit different. Let's hope so. The other point was about how is the distribution handled and then the return handled? Say that again, sorry. How is the distribution handled? Who delivers for you? The distribution? Yeah. Although I'm not out in packages. Well, it's different if do you mind No, you're far away. It's different in each territory. Now take the U. K. For example. Yeah. In Barnsley, we've been there for 9 years. We as of today, there'll be 4,000 Yorkshiremen picking and packing our parcels, and they're distributed from Barnsley to most parts around the world. The returns, that's handled by a third party logistics provider called XBO, and they've been working with us for about 6 or 7 years. The returns get handled go back to distribution centers within the U. K, particularly also in South Yorkshire and Doncaster. Again, gets recycled, put back on-site, for sale. Within Germany, it's handled by our own distribution center and another set of third parties. We have distribution centers for sorry, return centers in Eastern Europe to handle returns there. And Atlanta, we have a similar structure as well. So is it delivered in bulk to the parcel depots and then goes out from there? So it comes in in bulk, it's broke it's then put away Yes. And Berlin and also Atlanta, and it's shipped out on an individual order basis per customer. So the returns, what about should they handle? Well, in the U. K, the returns will be handled in either Yorkshire or Selby sorry, in Doncaster or Selby, and then it goes back into Barnsley to be repopulated and distributed out again. That must be Clipper, isn't it? It is Clipper. On one of those sites is Clipper. And how much does it cost to handle the returns? It's always intrigued me that it's how you can do things by sending it out and you can send it back and the cost of getting it back and checking it, you'll have to check over some might have been worn or damaged? Yes. It is one of the most costly parts of our handling in the supply chain. I won't give out the cost because that's commercially sensitive to us. Yes. But it is one of the most costly parts of our process. Our work starts with making sure we put the right information for customers to choose the right product, the right size and get the best information for them at the start, and then we minimize the returns as best we can. So you can't tell us what percentage come back? Yes. The returns rate is around 30% to 40% for the entire group. It's different by territory. It's different in Germany, it's different in Italy, it's different in U. K, it's different in U. S. Because customers have a different attribute attitude to returning. That's fairly normal. For most online retailers, we'd expect a return on rate around that. And obviously, in the future, that's one of the because it is very expensive, as you rightly say. That's a cost that we have to continually look at how we improve the management of that, the cost of that. And indeed, using technology in the future, find a way to bring those return rate down. Who pays for the returns? Is it do you pay for it or does the customer pay for it? It's mostly free returns. Pam? Mostly free returns. You know, which is a key part of that. I see my granddaughter and her friends and they'll get 3 or 4 things and they'll send 3 back and keep one maybe. Well. And it seems to me a colossal waste of money. On average, they tend to keep more than they send back, Robert. And encourage your granddaughters to do that for us, please. Thank you very much. Any other questions? Yes, sir. David Anderson, shareholder. Chairman, we have now become a company which has borrowings. Is this to be the norm? Matt, do you want to take that? So I think the company has been cash flow generative for 17 of its 19 years. And I think the working capital profile is supportive of that. However, as Adam has alluded to, there were times when it's appropriate to invest warehouses being the obvious example. So for me, I wouldn't necessarily expect for us to be in a position where we have borrowings every year, but I do think that having an appropriate facility to allow us to borrow to invest when we need to invest for future growth is appropriate. So I think that's probably the best way to think about it. You should see us kind of using that to make sure that we're investing for future growth, but not necessarily consistently through time. I think I would just add one thing to that, which is I mentioned earlier about building all these new facilities at the same time. I think going forward we would want to take a more phased approach to that kind of thing. So you don't have these ultimate peaks in spending. I think easy to say coming in, but with hindsight I think that wouldn't be in a more sensible way. Of doing it. On the other hand, of course, I should also say that we will not regret whatever the teething problem, we won't regret having any of these facilities. We do need them because we're growing very fast and we have to have the facilities to handle all of that growth. So although we may not have liked the journey and how we got there, they are very important part of our future and we can nearly triple the size of the company using the facilities that we now have. So that gives us a lot of capacity to push a lot of sales and volume through. So again, not the best of processes just being very upfront with everyone, but in terms of where we are now that's not a bad place to be. Okay. Yes, sir. I'm a private shareholder. I was reading an article in the Telegraph this morning about the technology you have created with the profile of your customers. And I was wondering if that could be used to market other items apart from the clothing? Have you any idea if you are going towards that way Like in Amazon, but as far as. Thank you for referencing that. We're very proud of our technology, and we've been investing heavily in it for many years. So for example, our apps both Android and iOS, are consistently rated 5 stars by our customers, but we always want to make them better and better and better. So we're very pleased with our technology. And it's sometimes nice to get a positive article from the telegraph. In terms of our approach, we have picked a lane, which is 20 something fashion, and we've augmented that with beauty. By doing that, we think that's where we get the most traction, being more focused. That's where we will continue to win globally. We don't see a model where we'll augment it with homewares, other products whatsoever. We'll use that technology and the investment we've made on behalf of our investors to drive that particular customer, that particular segment harder and more global. Thank you. Do you mind waiting for the microphone? Sorry. Yes. Just talking thinking about the returns point and particularly with the youth and global warming, what's your view about recycling of clothes and the younger generation being less keen to buy new stuff because they're obviously very influenced by the potential impact of that? And is there any scope, a second question for say on the returns, if they're not perfect having this, I know it's maybe cannibalizing the business, but possibly recycling some of the clothes that are returned. So we have a strategy that you'll see that we're very proud of called Integrity. And Fashion Integrity has got several strengths. First of all, it's products, then it's packaging, and it's people. So start with people. Wherever the ASOS brand falls, we aim to ensure that the people working on our garments or working in our supply chain have the right working conditions, the right living wage, have the right access to remediation, and we encourage freedom of association to give those workers a voice. So that's very key to what we do, and it's one of our key strategies. Within our products, we're very proud that 80% of ASOS Design is already sustainably sourced cotton, part for the Better Cotton Initiative. And we're aiming to get 100% by 2025. Within packaging, we're working very hard on making sure all that packaging is slimmed down within the garments, within the outers. A year or so ago, we sent out over 60,000,000 orders in plastic bags. 35% of those plastic bags are from recycled material and 100% recyclable. All our boxes are recycled and recyclable. The reason for that is we believe our future customers and current customers will take that really, really responsibly and really will be a differentiator for where they tend to choose their spend their pounds, dollars, euros, whatever. Within the point you made on recycling and upselling, we have on our future strategy to complete the consumer offer to ensure we have a facility to augment their behaviors online where we're seeing an increasing trend of upcycling, reselling. We haven't got to that yet, though, but it's on our future thinking. Any other questions? Okay. Well, look, thank you for those questions. Really do appreciate it. And obviously, we're around at the end of the meeting if anyone has any further issues they did want to raise with us. A big one, Robert? Is there any chance of making the remuneration report much shorter, concise so that you can look at a page and there's 20 some pages of that. I know yours is much shorter than some of the other companies, but I sigh when I hear that question, not because it's not a good question, but because a lot of the changes that have been brought in over the last few years to on the face of it simplify the reports and to make it clearer to the reader what's actually being done and said. Actually, I think in many ways have made it much more complicated and they've made the report much longer. We have had the opposite effect to the one they were intending, which is rather than simplify. I think in some ways it's made it more complicated, not less. So I share your pain and we can always do better, but I'm not sure we can get it into the kind of state that you would probably more appreciate. We'll do our best. And the other point was we still have Pricewaterhouse as the auditors. Is there any chance of you getting one of the smaller ones? I had a very unfortunate experience with both our securities with Pricewaterhouse and them getting special administration and going to take the shares as to defray their expenses, which lasted for 6 months and was not an experience I'd want to go through again. No. I'm sorry to hear about that. I mean, Ian, do you want to just Ian, obviously, chairs our audit committee. So perhaps I'll get Ian to just Of course, yes. Look, we keep it constantly under review. We evaluate the performance of Pricewaterhouse to ensure that we're getting what we and with the discipline to which they approach the audit. So there are no plans currently. There will come a time when we have to go through a tender because PwC will have had will have been timed out. At that time, we will consider other firms. It is best practice to consider medium sized firms as well. So when that time comes, we will do that. But right now, we're very happy with Pricewaterhouse. It's something, obviously, we take very seriously and we keep under review, but we're very happy with them at the moment. Okay. It seems unfortunate that the majority of the 2 hundred the folks at 250 are all with the big four. And I'd much rather see some of the smaller ones. Yes. In some ways that would be healthy for the marketplace. On the other hand, the scale and the complexity of a lot of these businesses means you need a certain level of resource and standard resource. Is it the following question? It's a bit chicken and egg. It's harder for those smaller companies to get that resource without having the clients. So it's something I know there is actually I think there are 2 government reviews going on into the profession right now that are due to report soon and suggest come out and perhaps that will have some issues as to where we all go next. Thank you. Okay. Right. Okay. To the poll. So if you have the right to vote at this meeting, you will have received a white poll card on admission. If you don't have this, you may not participate the poll. If you hear as a proxy or as a corporate representative for more than one shareholder, you should have received one card for each shareholder you represent. Just to check, if you don't have a POLL card or need an additional POLL card or pen, please raise your hand now and someone can come and help you. I think everyone is organized. Good. That's very helpful. To vote, as always, please tick across the poll card in one of the spaces marked for or against or votes withheld. Remember, a vote withheld is not a vote in law and is therefore excluded when we calculate the votes for or against a resolution. If you wish to vote only on some of your shares on poll card. Many shareholders have obviously appointed me in advance as their proxy and I will vote as they have instructed. And where shareholders have granted me discretion, I shall be voting in favor of all the resolutions on their behalf. Shareholders who lodge proxies with the registrars by 12 noon on Monday, 25th November this year need not complete a poll card now unless you want to change your vote. Okay. I now formally put to each meeting put to the meeting rather each of the resolutions set out in the notice dated 23rd October 2019. Just for clarification, Resolution 1617 are special resolutions and require a minimum majority of 75% to be passed. For all the other resolutions, a simple bottom. And the poll will remain open for 15 minutes after the meeting ends. Any questions about completing your poll card or need any assistance, please speak to the registrars at the end of the meeting. Registrars, if you wouldn't mind just raising your hands. Thank you very much indeed to identify yourself. Thank you everyone. Once completed, please hand your call cards to the registers. On the screen, now you should hopefully see an indication of the proxy voting figures to date and the final results will be announced to the London Stock Exchange and published on the company's website as soon as practically possible following the meeting. And once again, on behalf of the board, thank you very much to everyone for coming to this morning's meeting, And I now declare the meeting closed. Thank you very much indeed. Thank you.