Q4 2022 Farfetch Ltd Earnings Call

Speaker 1: .

Speaker 2: All lines have been placed on mute to prevent any background noise.

Speaker 2: After the speakers remarks, there will be a question and answer session. Thank you.

Speaker 2: I'd now like to turn the call over to Alice Rider, VP of Investor Relations. Ms. Rider, you may begin your conference.

Speaker 3: Hello and welcome to Far Fetch's fourth quarter and full year 2022 conference calls. Joining me today to discuss our results are Jose Nevis, our founder, chairman and chief executive officer, Elliott Jordan, our chief financial officer, and Stephanie Fair, our group president.

Speaker 3: Please note that during today's call, we will also be displaying a slide presentation throughout our prepared remarks, which can be accessed as part of a live webcast at FarfetchInvestors.com.

Speaker 3: Following the call, the slide presentation will also be uploaded to the site.

Speaker 3: Before we begin, we would like to remind you that our discussions today will include forward-looking statements.

Speaker 3: Actual results could differ materially from those indicated in the fore-looking statements, and fore-looking statements made today speak only to our expectations as of today.

Speaker 3: We undertake no obligation to publicly update or revise them.

Speaker 3: For discussion of some of the important risk factors that could cause actual results to differ, please see the Risk Factors section of our Form 20-S filed with the SEC on March 4, 2022.

Speaker 3: In addition, we will refer to certain financial measures not reported in accordance with IFRS on this call. You can find recommendations of these non-IFRS financial measures to the IFRS financial measures in our earnings press release, which is available on our website at barfetchinvestors.com.

Speaker 3: And now I'd like to turn the call over to Jose.

Speaker 4: Hello everyone, thank you for joining us today.

Speaker 4: And please report that in Q4 we deliver the Group GMP in line with our expectations to achieve $4.1 billion of GMP and $2.3 billion of revenue for full EAR 2032.

Speaker 4: I want to highlight that in spite of unprecedented Marko headwinds while here, this result means Raffaich has continued to capture market share on a three-year stack basis with an approximate doubling of our GMV.

Speaker 4: since the onset of the COVID-19 pandemic.

Speaker 4: Our Q4 results reflect higher than expected GMV from the marketplace, which was supported by strong supply growth from our luxury sellers.

Speaker 4: And while first party remained a profitability headwind as we continued to clear through our inventory position,

Speaker 4: Third party gross margin improved year over year for the fifth consecutive quarter and the dimension generation as a percentage of digital platform services revenue reached 60% our lowest ever level reported.

Progressive as these macro headwinds throughout the year.

This result means <unk> has continues to capture market share on a three year stack basis with an approximate doubling of our GMB since the onset of the COVID-19 pandemic.

Speaker 4: This results reflect the discipline approach we have implemented as we focused on improving profitability in 2022.

Speaker 4: 2022 was a year of profound reorganization and further cost rationalization across our business.

Our Q4 results reflect higher than expected <unk> from the marketplace, which was supported by strong supply growth from our luxury sellers.

Speaker 4: I want to take a moment to walk you through these significant efficiency gains.

And while first party remains the profitability headwind as we continue to play it through our inventory position.

Speaker 4: This initiative had two strategic objectives.

Third party gross margin improved year over year for the fifth consecutive quarter and demand generation as a percentage of digital platform services revenue reached 16% our lowest ever level reported.

Speaker 4: First, to redesign our entire organization to support our mission of building the global platform for luxury and enabling credible growth we have ahead of us, give an hour plan to hit $10 billion in GMV with a 10 to 13 percent electricity bit imagined by 2025.

These results reflect the disciplined approach we have implemented as we focused on improving profitability in 2022.

Speaker 4: As such, the marketplace's business pillar was overhauled with a new role of chief marketplace officer being created as a single point of accountability.

2022 it was a year of profound reorganization and further cost rationalization across our business.

Speaker 4: Our 1D businesses, which have reported to different branches of the organization historically, were also brought together with our 3P business to form a unified deal of merchandising.

I want to take a moment to walk you through these significant efficiency gains.

These initiatives have two strategic objectives.

First to redesign our entire organization to support our mission of building a global platform for luxury and enabled incredible growth. We have ahead of us given our plan to hit $10 billion in gmg with 10% to 13% adjusted EBITDA margin by 2025.

Speaker 4: And we now have a single chief fashion and merchandising officer overlooking both the breadth and depth of our supply across three PE confessions and one PE from Browns.

Speaker 4: All marketplace vendors for specific categories such as stadium goods, all private grey were also consolidated and the single marketplace organization.

As such the marketplaces business pillar <unk> overhauled with a new role of Chief marketplace Officer being creative as a single point of accountability.

Speaker 4: We believe these changes will enable significant performance improvements for our 1P businesses by providing a better offer for our customers, as well as allow us to fully capitalize on our growth opportunities for the marketplace as outlined in our recent capital market state presentation.

Our <unk> businesses, which have reported two different branches of the organization. Historically were also brought together with our <unk> business to farm a unified view of merchandising.

And we now have a single chief fashion, and merchandising officer overlooking both the breadth and depth of our supply across <unk> concessions and when deep from Browns.

Speaker 4: Our two other business pillars, SPS and Grand Platform, are also organized with single points of strategic accountability, now reporting to the CEO .

All marketplace banners for specific categories, such as stadium goods <unk> Gray, we're also consolidated and the single marketplace organization.

Speaker 4: Finally, we've implemented a platform design in terms of our technology, operations and business services sanctions, with an exact leading each of these platforms, reporting to me, and with clear SLAs to serve the three business pillars of marketplace, FPS and brand platform.

We believe these changes will enable significant performance improvement for our <unk> businesses.

By providing a better offer for our customers as well as allow us to fully capitalize on our growth opportunities further marketplace.

Speaker 4: As a second objective in 2022, we also implemented cuts in our structural cost base for the marketplace car business as well as the technology operations and business services sanctions.

As outlined in our recent capital markets day presentation.

Our two other business dealers Fps and brand platform are also organized with single box of strategic accountability now reporting to the CEO .

Speaker 4: Today we have taken actions to reduce our headcount proactively to the tune of 17% of our starting 2022 headcount in this core part of our business.

Finally, we have implemented a platform design in terms of our technology operations and business services sanctions.

Speaker 4: We have also initiated actions to reduce or eliminate up to 15 locations worldwide, in addition to reducing our retail footprint at Browns and Stadium Goods.

And the exact leaving each of these platforms reporting to me and with clear <unk> to serve the three business dealers of marketplace Fps and brand platform.

As a second objective in 2022, we also implemented cuts in our structural cost base for the marketplace car business as well as the technology operations and business services sanctions.

Speaker 4: What is particularly remarkable is that this was all implemented whilst we've also been servicing an 11% growth in marketplace orders, excluding Russia and China, and increasing overall active customers, and while of course also ensuring we build the platform foundations.

To date, we have taken actions to reduce our headcounts proactively to the tune of 17% of our starting 2022 head count in these car part of our business.

We have also initiated actions to reduce or eliminate up to 15 locations worldwide.

The issue to reducing our retail footprint as Brown stadium goods.

Speaker 4: which will represent more than a 10% fixed cross-relection in our car business.

What is particularly remarkable is that this was all implemented whilst we've also been servicing and 11% growth in marketplace, others, excluding Russia, and China and the increase in overall active customers.

Speaker 4: Our restrictions platform organization and recently signed projects are foundational to catapult 5H to the 10 billion GMZ Mark in 2025.

And while of course also ensuring we build to the plasma and foundations needed to deliver on key strategic enterprise deals in 2023.

Speaker 4: In parallel, we have also been hiring specifically to support the growth plant for the SPS business and within NGG.

These investments together will present over 100% of the expected etch and egg growth in 2023, which will be partially offset by minus 10% overall reduction in costs for the marketplace card business and supporting platforms.

Altogether. These structural cost reductions are expected to deliver our target is 2023 SG&A savings of $85 million.

Which both represent more than 10% fixed cost reduction in our card business.

to deliver notable efficiency gain in light of our expectations for double digit other world during the year.

Our restructure the platform organization and recently signed projects are foundational to catapult farfetch to the $10 billion <unk> back in 2025.

All of this means Farfetch begins the year as an even stronger and more efficient organization, which is why I am more confident than ever about our prospects to deliver growth, profitability and positive free cash flow in 2023 and beyond.

In parallel we have also been hiring specifically to support our growth plans for the Fps business and within energy.

These investments together represent over 100% of the expected <unk> growth in 2023, which will be partially offset by minus 10% overall reduction in costs for the marketplace business and supporting platforms.

This year we will have the benefit of letting the Markle headwinds we faced in 2022, and I am pleased to see that on top of this we are also starting the year on a solid note.

Our partnerships with Neiman Markis Group and Terragago are on track to launch as expected in 2023.

We believer notable efficiency gains in light of our expectations for double digit order growth during the year.

And our announced transaction with Hishmo is currently progressing through the regulatory review process.

All of this means farfetch begins the year as an even stronger and more efficient organization, which is why I am more confident than ever about our prospects to deliver growth profitability and positive free cash flow in 2023 and beyond.

The brand platform continues to deliver exciting content, including off-white iconic Chicago Bulls Club and Palm Angels innovative partnership with the half-group of Fumble of Endgame, as well as this week's unveiling of their spectacular collaboration with more Virginians.

This year, we will have the benefit of lapping the macro headwinds we faced in 2022 and I am pleased to see that on top of these we are also starting the year on a solid note.

during Love and Passion Week.

And we're in the final stages of preparing to launch Reebok in Q2 as planned.

Our partnerships with Neiman Marcus roof, and Ferragamo are on track to launch is expected in 2023.

This plan will defy our target for 2023. The investments we have made over the years to build out our platform infrastructure, mean we now have the building blocks we need, which went combined with our galvanized teams, means we have all the key elements to execute on our plan.

And our announced transaction with <unk> is currently progressing through the regulatory review process.

The brand platform continues to deliver exciting content, including of <unk> iconic Chicago Bulls collateral and Palm Angels innovative partnership with <unk> group, a formula one claim as well as this weeks unveiling of the spectacular collaboration with more glad genius during 11 fashion week.

And we were in the final stages of preparing to launch <unk> in Q2 as planned.

the search for his successor and I look forward to working closely with Elliot who will remain as chief financial officer during 2023 to ensure a smooth transition.

These plans solidify our targets for 2023.

The investments we have made over the years to build out our platform infrastructure means we now have the building blocks, we need which when combined with our galvanized teams means we have all the key elements to execute on our plan.

We are some way off from saying a proper goodbye to Elliot, but I want to thank him for his commitment to Farfetch and say he has been a fantastic CFO over the years and an important building blog of our success.

As you will have seen from our 6K filing today.

He will leave us with his legacy of the formidable finance and business services teams he's built to support the company that I believe is extremely well placed to continue to lead the industry and drive profitable growth.

<unk> will be stepping down from his role of CFO at the.

The end of the current year.

After more than 80 is farfetch.

We will now start the search for his successor and I look forward to working closely with Elliott, who will remain as chief financial officer during 2023 to ensure a smooth transition.

Thank you, Elliot. With that, I'll hand off to Stephanie and Elliot to discuss further details of our progress in Q4 and 2023 outlook.

We are some way off from saying a proper goodbyes well it but I want to thank him for his commitment to Farfetch and say he has been a fantastic CFO over the years.

Stephanie. Thank you, Josie. Today I would like to provide an update on some of our key areas of focus, including first our customer performance and engagement from our highly profitable private client cohort, with plans for 2023 to capture even stronger growth in our private client business.

And an important building block of our success.

He will leave us with his legacy of the formidable finance and business services teams. He has built to support the company that I believe is extremely well placed to continue to lead the industry and drive profitable growth.

Secondly, an update on our industry partnerships, including market-based supply, and finally, our high-margin media solutions business with some exciting partnerships unveiled during Q4.

Thank you Elliot.

With that I'll hand off to Stephanie and Elliott to discuss further details of our progress in Q4 and 2023 outlook.

To begin, while 2022 was a challenging year, we were still able to grow active customers by 6%, whilst also driving a 7% reduction in demand generation spend, thanks to our ongoing focus on brand building and efficiency in acquiring customers through diversified channels.

Stephanie.

Thank you gentlemen.

Today, I would like to provide an update on some of our key areas.

Specifically, the Farfetch app, which is our most profitable and fastest-growing channel, and provides the direct means to reach consumers, which boasts well for long-term value, one of our key metrics for measuring customer value.

Including <unk>, our customer performance and engagement from our highly profitable private client calculate with plans for 2020 to capture even stronger growth in our private client.

Secondly, an update on our industry partnerships in key market paint supply and finally, our high margin <unk> business with some exciting partnerships Sundance during Q4.

And on that note, existing customer volumes on the marketplace grew double digits in almost every market excluding Russia and China year over year. And three months existing customer repurchased rates remained broadly in line with the previous

To begin 2022 was a challenging year, we were still able to grow active customers by 6%, whilst also driving a 7% reduction in demand generation spend thanks to our ongoing focus on brand building and deficiency and acquiring customers through diversified channels, specifically the farfetch app.

Our private clients continue to be our crown jewel, demonstrating the resilience of the industry. And we continue to expand this valuable consumer base in Q4, ahead of our overall consumer base.

In line with Q3, private client retention remained over 90%, and average order values were over $1,000 on continued strong demand for high price point items. As we look towards 2023, we're excited by opportunities we see to further strengthen and elevate our private client offer and experiences.

<unk> is our most profitable and fastest growing channel and provides the direct needs to reach consumer which bodes well for long term value one of our key metrics for measuring customer value.

And on that note existing customer volumes in the marketplace grew double digits in almost every market, excluding Russia, and China year over year and three months existing customer retention rate remained broadly in line with the previous year.

in partnership with our top brands. To further drive this customer segment, we have recently appointed Terry Pishon as SVT of Private Client, whose background includes Shalup Group, Gucci, Yui Ritual, and Netaprote.

Our private clients continue to be our crown jewel demonstrating the resilience of the industry.

And we're pleased to see the year is already off to a promising start with a connection of high-dew-repeases totaling over $600,000 purchased by a client in the US.

And we continue to expand this valuable consumer base in Q4 ahead of our overall consumable.

Nine Q3, private client retention remains over 90% and average order values with over $1000 on continued strong demand for high price point item.

We continue to maintain strong, ran relationships as evidenced in part by the fact that overall stock value on the Farfetch marketplace grew nearly 50% year on year to a record $5.9 billion. Thanks in part to strategic initiatives with our largest partners to deepen our integration, to further expand our inventory and rise speed to market.

As we look towards 2023 were excited by opportunities, we see to further strengthen and elevate our private client offering experiences in partnership with our top brands.

To further drive this customer segment, we have recently appointed <unk> as SVP of private clients, whose background and pizza.

Profetch also helps brand partners clear through inventory in Q4 as we saw increased participation during our markdown window compared to the previous year. Moving on to our media solutions business.

<unk> and networking.

And we're pleased to see the game is already off to a promising site with a collection of high tech pieces cutting over $600000 purchase by client in the U S.

Fourth quarter-meeted solutions revenue set another quarterly high, bringing full-year 2022 to our biggest year-on record, with more than 60% year-on-year growth driven by an increase in active meeted solutions clients and higher average annual investment per client.

We continue to maintain strong brand relationships as evidenced in part by the fact that overall stock value and the fact that market.

<unk> grew nearly 60% year on year to a record $5 $9 billion.

We believe this demonstrates the advantages of our 1P data, especially in light of increased privacy restrictions, that have reduced the ability to attribute marketing performance in the overall marketing landscape.

Thanks in part to strategic initiatives with our largest partners to deepen our integration to further expand our inventory and drive speed to market.

At the same time, Fraffett is emerging as a truly viable alternative, and our media solutions growth supports the notion that brands want to work with us because they value our targeted luxury audience and data.

<unk> also help <unk> inventory in Q4, and we still increased participation during a markdown when deal compared to the previous year.

Moving on to our media solutions business.

Fourth quarter <unk> set another quite any high bringing full year 2022, so our biggest year on record with more than 60% year on year growth driven by an increase in active negotiations time and higher average annual investment pipeline.

Calling out if you know where the paid brand campaigns launched during the quarter, for our FETs supported Valentina's full winter 22 pink TP collection featuring originally short shoppable content and gave private clients early access to the collection and exclusive products.

We believe this demonstrates the advantages of our <unk> data, especially in light of increased privacy restriction that have reduced EBIT to tribute marketing performance EMEA overall marketing landscape at.

This drove incremental performance for Venentino with more than an 80% uplift in private client engagement and an average order value of approximately $2,500. Following our announcement last year of a global strategic partnership with Verogamo, the brand revealed their new creative direction by Maximilian Davis with an exclusive spring

At the same time Farfetch is emerging as a truly viable alternative anti immediate solutions growth supports the notion that brands want to work with us they can see value at targeted nutshell again and data.

Calling out a few noteworthy paint brand campaign launched during the question Farfetch supported by Lumpiness fall Winter 2000, <unk> Pink Pp collection, featuring originally shot topical content and Keith private client any access to the collection and exclusive products.

owned the events in Hong Kong, Brazil, London and Dubai. The campaign generated 35 million impressions for the brand.

This drove incremental performance of <unk> with more than an 80% uplift in private client engagement and an average order value of approximately $2500.

Sarah Gomo came to us with a clear objective to capture a new and younger luxury customer, which far-fetched delivered.

Following our announcement last year is a global strategic partnership with Ferragamo the brand with the new creative direction by Max Megan Davis with an exclusive spring summer 2020 see capstone on phosphates.

Over 80% of campaign traffic generated on the Farfetch marketplace came from new visitors to the brand, and approximately half of campaign clickers fell into the Gen Z and Millennial co-boards.

The launch date, the farfetch audience virtual backstage access during the runway show incorporating responsive AIA imagery, thanks to our open innovation startup ecosystem.

The work we've done throughout 2022 and the year is prior investing in our customer and in our partnerships with brands and the industry puts us in a strong position to deliver on our 2023 goals.

This was followed by a preorder nice team and a series of private client owned the events in Hong Kong, Brazil, London antibody.

And now I'll hand the call over to Elliot to discuss her financial results and outlook. Thank you, Stephanie and hello to you all. I want to focus on the key points from a financial perspective and then leave plenty of time for Q&A. There are three takeaways to highlight.

The campaign generated 35 million impressions for the brand.

Ceragon that came to us with a clear objective to capture new and younger luxury customer, which farfetch generics.

Over 80% of the campaign traffic generated on the Farfetch marketplace came from new visitors to the brands and approximately half of campaign Kickers fell into the Gen Z and millennial cowboy.

First, our Q4 results for GMV and adjusted EBITDA margin are in line with our expectations, including digital platform GMV slightly better than expected, which means we have closed 2022 in line with the plan we outlined at our capital market stay in December .

The work we've done throughout 2022, and the years prior investing in our customer and in our partnerships with brands and boutiques puts us in a strong position to deliver on our 2020 <unk> and.

We're strong underline momentum going into Q1. Secondly, our expectations for 2023 are unchanged with a return to GMB growth, operating cost leverage and adjusted EBITDA profitability. Plus, we have several working capital initiatives in place. This will ensure we end the year with cash and cash equivalents.

And now I'll hand, the call over to Elliot to discuss our financial results and outlook.

Thank you Stephanie and Hello to you all I want to focus on the key points from a financial perspective, and then leave plenty of time for Q&A.

There are three takeaways to highlight first our Q4 results for GMB and adjusted EBITDA margin are in line with our expectations, including digital platform GMB slightly better than expected, which means we have closed 2022 in line with the plan, we outlined at our capital markets day in December .

in line with where we exited 2022. Finally, the four quarters of 2023 all have unique characteristics, making the financial results for each quarter different from our usual shape to the year. In particular,

With strong underlying momentum going into Q1.

we will still see the impacts of external headwinds across Q1 and Q2. We will comp headwinds and anticipate building momentum across our larger markets within the marketplace in Q3 and then Q4 we will see positive impact on GMV.

Secondly, our expectations for 2023 are unchanged with a return to GMB growth operating cost leverage and adjusted EBITDA profitability.

We have several working capital initiatives in place.

as we start going live with our new client operations in Q2 and throughout the second half across the brand platform and FPS.

This will ensure we end the year with cash and cash equivalents in line with where we exited 2022.

This means growth, profitability and cash generation is expected to be significantly higher in the second half than in H1.

Finally, the four quarters of 2023, all have unique characteristics, making the financial results for each quarter different from our usual shape to the year.

Let's look at the full year 2022 results, which despite the significant macro challenges we faced, we maintained GroupGMV of $4 billion, a slight 4% decrease year-on-year on a reported basis, but up 2% year-on-year on a constant currency basis.

In particular, we will still see the impact of external headwinds across Q1 and Q2.

We will call headwinds and anticipate building momentum across our largest markets within the marketplace. In Q3, and then Q4 and we will see positive impact on GMB as we start going live with our new client operations in Q2 banks throughout the second half across the brand platform.

We also achieved 4% growth and adjusted revenue, which was up 13% year on year on a constant currency basis.

Digital platform order contribution margin increased by 40 basis points to 32%. Despite an increasingly promotional environment across the latter part of the year, and our needs to take clearance action on stock ordered well before the global demand challenges we faced.

And if PFS.

This means growth profitability and cash generation is expected to be significantly higher in the second half than in H one.

Let's look at the full year 2022 results, which despite the significant macro challenges we faced we maintained group GMB of $4 billion.

In addition, our third party take rate for 2022 was 32.1% up 190 basis points a year on year, reflecting the strong value we deliver to our partners on the digital platform.

Slide 4% decrease year on year on a reported basis, but up 2% year on year on a constant currency basis.

We also achieved 4% growth in adjusted revenue, which was up 13% year on year on a constant currency basis.

We focused our efforts on moderating growth and our operating cost-bate, consistent of GNA and technology expenses. Despite continuing to build our platform to support new clients and new categories and added costs from acquired businesses.

Digital platform order contribution margin increased by 40 basis points to 32%, despite an increasingly promotional environment across the lesser part of the year and I'll need to take clearance action on stock ordered well before the global demand challenges we faced.

Overall technology and G&A costs came in at $850 million as guided. And we delivered a just-a-d bit-darm margin of minus 4.9% in line with our most recent guidance.

In addition, our third party take rate for 2022 was 33, 1%.

Turning 2Q4, Group G and V decreased 12% year on year to $1.1 billion, which is a decrease of 5% on a constant currency basis.

190 basis points year on year, reflecting the strong value, we deliver to our partners on the digital platform.

We focused our efforts on moderating growth in our operating cost base consistent of G&A and technology expenses, despite continuing to boost our platform to support new clients and new categories.

Revenue decreased 6% year on year to $629 million, which is an increase of 2% on a constant currency basis.

and adjusted EBITDA margin was minus 6.3%. Let's walk through the key drivers of this performance, starting with the digital platform.

And added costs from acquired businesses overall technology and G&A costs came in at $850 million as guidance.

And we delivered adjusted EBITDA margin of minus four 9%.

You can see on slide 14 that the performance of the digital platform in the fourth quarter was driven by strong underlying growth within the marketplace.

Along with our most recent guidance.

Turning to Q4 group <unk> decreased 12% year on year to $1 1 billion, which is a decrease of 5% on a constant currency basis.

characterized by positive year-on-year order growth, excluding Russia and China of 12%. This was slightly offset by our strategic decision to reduce the marginalization spend in the US. This was also the third consecutive quarter of lost GMV due to the closure of our Russian market.

Revenue decreased 6% year on year to $629 million, which is an increase of 2% on a constant currency basis.

And adjusted EBITDA margin was minus six 3%.

We saw suppressed growth due to ongoing COVID restrictions in China, and we saw currency impacts to our average order value, which was down 14% year on year, which is where you see the impact of the stronger US dollar on our financial results.

Let's walk through the key drivers of this performance.

<unk> with the digital platform.

You can see on slide 14 that the performance of the digital platform in the fourth quarter was driven by strong underlying growth within the marketplace.

By region, the Americas was flat year on year with a softer performance in the US following our decision to reduce our US marketing spend by 30%.

<unk> by positive year on year order growth, excluding Russia, and China of 12%.

This was slightly offset by our strategic decision to reduce demand generation spend in the U S.

Knowing that higher discounting from large bricks and mortar players would reduce payback on such spend

This was also the third consecutive quarter of lost GMB due to the closure of our Russian market.

We lost GMV as a result that maintained higher order contribution margins. We compensated for that lost GMV in the Americas by driving strong growth in Mexico and Brazil. Emea, excluding Russia, was also flat year on year with solid levels of growth coming from the Middle East and core European markets.

We saw some <unk> growth due to ongoing COVID-19 restrictions in China.

And we saw currency impacts to our average order value, which was down 14% year on year, which is where you see the impact of the stronger U S dollar on our financial results.

By region, the Americas was flat year on year with a softer performance in the U S. Following our decision to reduce our <unk> marketing spin by circa 30%.

Knowing that higher discounting from large bricks and mortar players would reduce payback on such spins.

Our fourth quarter third-party take rate was 32.4%.

We lost <unk> as a result, but maintained higher order contribution margins.

which was 200 basis points high year on year.

We compensated for that loss GMB in the Americas by driving strong growth in Mexico and Brazil.

This reflects our efforts to negotiate higher commissions, particularly from direct brand partners and continued growth in revenue of our high-margin media solutions product.

EMEA, excluding Russia was also flat year on year with solid levels of growth coming from the middle East and core European markets, such as France, Italy, and Spain. This was offset by weaker performance in the UK and in Eastern Europe .

On the bottom right, aside 16, you can see there were three contributing factors to the digital platform or the contribution margin movement year on year. First, continued strong third-party gross margin of 67.4% up five basis points year on year.

Asia Pacific <unk> was lower year on year, driven by an over 30% year on year decline in <unk> from mainland China.

A significant improvement in demand generation expenditure, down 25% year on year in absolute terms, and down 500 basis points year on year to 16% of digital platform services revenue.

Our fourth quarter third party take rate was 32, 4%.

Which was 200 basis points higher year on year.

This reflects our efforts to negotiate higher commissions, particularly from direct brand partners and continued growth in revenue of our high margin media solutions product.

This is our lowest reported level and is driven from further refining the customer engagement model towards more profitable orders.

These two positive factors were more than offset by autumn, winter 2022 clearance activity and provisioning across our first party business, which impacted on first party gross margins.

On the bottom right of Slide 16, you can see there were three contributing factors to the digital platform order contribution margin movement year on year.

First continued strong third party gross margin of 67, 4% up five basis points year on year.

As a result, digital platform water contribution margin decreased 95 basis points a year on year to 31.5% in Q422. Overall, I'm pleased with this result as we delivered five consecutive quarters of water contribution about 31%.

The significant improvement in demand generation expenditure down 25% year on year in absolute terms and down 500 basis points year on year to 16% of digital platform services revenue.

while navigating the unprecedented macro challenges and rapidly shifting patterns on global demands.

This is our lowest reported level and is driven from further refining the customer engagement model towards more profitable orders.

On top of this, our TV over-CAC has improved with our more recent Q22 and Q322 custom macombaorts having already paid back within six and three months respectively.

These two positive factors were more than offset by autumn winter 2022 clearance activity and.

Provisioning across our first party business, which impacted on first party gross margins.

Finally, a point on our first party business. We have completely revisited our first party order in plans, giving the ongoing challenges around first party self-route and therefore first party gross margins and adjusted EBITDA margin.

As a result digital platform order contribution margin decreased 95 basis points year on year to 31, 5% in Q4 22.

Overall I'm pleased with this result, as we delivered five consecutive quarters of order contribution about 31%, whilst navigating the unprecedented macro challenges and rapidly shifting patterns on global demand.

We expect this will have a significant positive impact on first-party gross margins as we trade through 2023 and into 2024.

Moving to the brand platform, where we saw software performance year on year, down 3% on a constant currency basis, with reported GMV of $100 million, which is down 15% year on year, and brand platform revenue of $98 million, down 16% year on year. As stated earlier, we have seen a shift in the scheduling of some deliveries to our brand.

On top of this our LTV over CAC has improved with our more recent Q2 'twenty two in Q3 22 customer cohorts, having already paid back within six and three months respectively.

Finally, a point on our first party business, we have completely revisited our first party ordering plans given the ongoing challenges around first party sell through and therefore first party gross margins and adjusted EBITDA margin.

We expect this will have a significant positive impact on first party gross margins as we trade through 2023 and into 2024.

Moving to the brand platform, we saw softer performance year on year down 3% on a constant currency basis with reported <unk> of $100 million, which is down 15% year on year and brand platform revenue of $98 million down 16% year on year.

through lower margin channels.

In 2023 we expect brand platform gross margin to be in the range of 48 to 50% over the full year.

Our Q4 operating cost base, consistent of GNA and technology expenses, was $226 million, which means we achieved our latest guidance of $850 million total spend for the full year, which is 42.6% of adjusted revenue.

As stated earlier, we have seen a shift in the scheduling of some deliveries through our brand platform wholesale partners from Q4, 2022 and to Q1 2023.

Although the brand platform gross margin of 44% was lower than the full year average of 49, 1% due to actions we have taken in Q4 to clear excess inventory levels through lower margin channels.

Whilst this overall result reverses our trend of achieving historical operating cost leverage each year, we have seen full year operating cost leverage in our technology, platform and brand expenditure.

In 2023, we expect brand platform gross margin to be in the range of 48% to 50% over the full year.

The actions we have taken to reduce SG&A spend across 2022 and into 2023 means we will cut our operating cost base on an underlying basis by 10% year on year in 2023 versus the 2022 total.

Our Q4 operating cost base consistent of G&A and technology expenses was $226 million, which means we achieved our latest guidance of $850 million total spend for the full year, which is 42, 6% of adjusted revenue.

delivering $85 million in savings and achieving a return to operating cost leverage across 2023 as a whole. We have already seen benefits from these actions with a quarter on quarter reduction in people costs, platform costs and technology costs in Q4.

Whilst the overall result, reverses our training of achieving historical operating cost leverage each year, we have seen full year operating cost leverage and our technology platform and brand expenditure.

Overall, our adjusted EBITDA was minus $35 million in Q4 2022 and we had a loss after tax of $177 million.

The actions, we have taken to reduce SG&A spend across 2022 and into 2023 means we will cost our operating cost base on an underlying basis by 10% year on year and 2023 versus the 2022 total.

We had $734 million in cash and cash equivalents at year end. We achieved a broadly neutral free cash flow position in Q4 as we largely offset our negative EBITDA position and capital expenditure with a $71 million favourable working capital movement within the quarter.

Delivering $85 million in savings and achieving a return to operating cost leverage across 2023 as a whole.

We are already seeing benefits from these actions with a quarter on quarter reduction in people cost platform costs and technology costs in Q4.

The working capital benefit was not as high as we forecast due to higher than expected inventory and receivable balances at year end and was lower versus Q421 due to the decline year on year in marketplace GMV, which means our trade and other payables balance reduced year on year.

Overall, our adjusted EBITDA was minus $35 million in Q4, 2022, and we had a loss after tax of $177 million.

We had $734 million in cash and cash equivalents at year end, we achieved a broadly neutral free cash flow position in Q4, as we largely offset our negative EBITDA position and capital expenditure with a $71 million favorable working capital movement within the.

Our working capital initiatives for 2023 are well underway and we expect to achieve strong free cash flow across the full year, helped by reducing inventory levels on an absolute basis, shortening terms on trade receivables and a return to growth in the marketplace.

which delivers favorable working capital dynamics. We ended 2022 with 394.8 million basic outstanding shares, a 4% increase from the prior year, and up from 300 million shares at the end of 2018, an increase of 95 million shares over the four year period. Driven by...

Quarter.

The working capital benefit was not as high as we forecast due to higher than expected inventory and receivable balances at year end and was lower versus Q4, 'twenty one due to the decline year on year and marketplace, GMB, which means our trade and other payables balance reduced year on year.

the acquisition of New Guards Group for 27.5 million shares, 22.8 million shares issued to receive investment from Strategic Growth Partners, and an average annual dilution from Exercise Employee Awards of just under 3% per annum, below our targeted annual cap of 5% per annum.

Our working capital initiatives for 2023 are well underway and we expect to achieve strong free cash flow across the full year helped by reduced inventory levels on an absolute basis shortening terms on trade receivables and a return to growth in the marketplace, which delivers favorable working capital.

Dynamics.

We ended 2022 with $394 8 million basic outstanding shares a focusing increase from the prior year and up from 300 million. She is at the end of 2018, an increase of 95 million shares over the four year periods driven by the.

Turning to our outlook, our expectations for the full year on a reported basis remain the same as those provided at our recent Capital Markets Day.

For full year 2023 we expect Group GMV of circa $4.9 billion, inclusive of digital platform GMV of circa $4.2 billion.

<unk> of New Guards group for 27 5 million shares.

Two 8 million shares issued to receive investment from strategic growth partners and an average annual dilution from exercise of employee awards of just under 3% per annum below our targeted annual cap of 5% per annum.

brand platform GMB of circa 0.6 billion dollars and in store GMB of circa 0.1 billion dollars.

I'd like to note that under the current reporting structure, results from our new Reebok partnership will be split between the digital platform and the brand platform.

Turning to our outlook.

Our expectations for the full year on a reported basis remain the same as those provided at our recent capital markets day for.

For 2023, we expect digital platform auto contribution margin to be in the range of 33 to 35%.

For full year 2023, we expect group GMB of circa $4 9 billion.

Operating costs are estimated to be circa $950 million. Adjusted EBITDA margin is expected to expand from minus 4.9% in 2022 to be in the range of plus one to 3% in 2023. And cash in cash equivalent.

Inclusive of digital platform GMB of circa $4 2 billion.

Brand platform GMB of circa <unk> six.

$6 billion.

And in store GMB of circa <unk> 1 billion.

are expected to remain in line with where we exited 2022.

I'd like to note that under the current reporting structure results from our new Reebok partnership will be split between the digital platform and the brand platform.

As mentioned earlier, one key financial takeaway to note is the shape of 2023. The first point to note is that we expect to maintain strong underlying growth reflected by the positive order growth we've seen across 2022. In 2022, this growth was impacted by three macro factors.

For 2023, we expect digital platform order contribution margin to be in the range of 33% to 35%.

Operating costs are estimated to be circa $950 million adjusted.

driving GMV down year and year.

These were the closing of Russia at the time out third largest marketplace market, COVID related restrictions in China, and a stronger US dollar impacting on reported growth.

Adjusted EBITDA margin is expected to expand from minus four 9% in 2022 to be in the range of plus 1% to 3% in 2023.

And cash and cash equivalents are expected to remain in line with where we exited 2022.

In Q1.23 we expect to continue navigating these three exceptional challenges, resulting in negative GMV growth on a reported basis. We will also continue our first party markdown initiatives, which will result in another quarter of pressure on our first party gross margin, with some offset by continued strength in third party performance.

As mentioned earlier, one key financial takeaways to note is the shape of 2023.

The first point to note is that we expect to maintain strong underlying growth reflected by the positive order growth we've seen across 2022.

In 2022 this growth was impacted by three macro factors driving <unk> down year on year.

The negative GMV and overall margin pressure will result in a negative EBITDA position in Q1. As we move into Q2, we will be annualising the Russia and China impact. We also expect contribution from the imminent launch of Ferragamo and then Reebok. This should see our GMV growth turn positive.

These were the closing of Russia at the time, our largest marketplace market.

Related restrictions in China, and a stronger U S dollar impacting on our reported growth.

In Q1, 'twenty three we expect to continue navigating these three exceptional challenges, resulting in negative GMB growth on a reported basis.

We will also continue our first party markdown initiatives, which will result in another quarter. Appreciate you on our first party gross margin.

With some offset by continued strength in food Paci performance.

The negative <unk> and overall margin pressure will result in a negative EBITDA position in Q1.

Marcus group during the second half of the year, with most of the incremental impact expected in Q4.

Finally, we expect positive adjusted EBITDA to track the stronger top line performance as we navigate through the year.

As we move into Q2, we will be Annualizing, the Russia and China impact.

We also expect contribution from the imminent launch of Ferragamo and then revoke.

These expectations outline will be a great year for all of us here at Farfetch. And we believe that the actions we have taken in 2022 to restructure the operations and build on our key partnerships will result in strong growth, margin expansion and positive free cash flow in 2023.

This should see <unk> growth turned positive.

Moving into Q3, the currency related headwinds from 2022 are expected to neutralize, allowing the underlying position to stop shining through once again and further improving our reported <unk> results.

and beyond. And with that, I'll turn it back over to Jose for some closing remarks. Thank you, Alex. Our long-term vision of building the global platform for luxury is more relevant and we're closer to it than ever.

We also expect to launch our new partnerships with Neiman Marcus group during the second half of the year with most of the incremental impact expected in Q4.

Finally, we expect positive adjusted EBITDA to track the stronger top line performance as we navigate through the year.

Our luxury platform flywheel, consisting of the three business pillars of marketplaces, FPS and brand platform, continues to deliver on this vision.

These expectations outline what will be a great year for all of US here at Farfetch and we believe that the actions we have taken in 2022 to restructure the operations and food on our key partnerships will result in strong growth margin expansion and positive free cash flow in 2023.

with strong underlying performance in spite of unprecedented macro headwinds in 2022.

We have taken the opportunity to overhaul our car business in a very strategic way. With a full reorganization as well as significant headcount reductions.

And beyond.

And with that I will turn it back over to Joe <unk> for some closing remarks.

Thank you Elliot.

within the car business of 17%, and cost savings which are expected to deliver our targeted savings of $85 million in H&A expenditure for the car business in 2023.

Our long term vision of building the global plasma <unk> is more relevant and we're closer than ever.

Our luxury platform flywheel, consisting of the three business pillars of marketplaces.

And brand platform continues to deliver on this vision.

Along the way, we've also continued to make progress towards launching announced deals with Farragamo, Reebok and Human Markets Group. All of these give us reasoned when the 2023 with healthy optimism. These favorable dynamics positioned us to return to growth, particularly as we will begin to calm the macro headwinds we navigated in 2022 by Q2 2023.

With strong underlying performance in spite of unprecedented macro headwinds in 2022.

We have taken the opportunity to overhaul our color business in a very strategic way.

With a full reorganization as well as significant head count reductions within the core business of 17%.

I believe our continuous focus on driving profitable growth while delivering operating cost efficiencies will also make 2023 a year of profitability and positive recast growth.

And cost savings, which are expected to deliver our targeted savings of $85 million in SG&A expenditure followed the car business in 2023.

Along the way. We've also continues to make progress towards launching announced deals with Ferragamo Reebok and Neiman Marcus group.

The luxury industry has proven to be resilient and it is becoming increasingly digitized.

As it navigates its current and future challenges, the industry will benefit from a global tech platform.

All of these gives us reason to enter 2023, we have healthy optimism.

These favorable dynamics position us to return to growth, particularly as we will begin to comp the macro headwinds we navigated in 2022 by Q2 2023.

And FATCH is the leading global platform for luxury. A unique positioning, which I believe will see this business grow to $10 billion in GMD and 10 to 13% adjusted EBITAB profitability in the next three years. And with that, I'd like to welcome up for your questions.

I believe our continued focus on driving profitable growth, while delivering operating cost efficiencies. We will also make 2023, a year of profitability and positive free cash flow.

Thank you. We will now move into our Q&A session. For those of you who are joining us via Zoom, if you would like to ask a question at this time, please raise your hand by clicking the Raise Hand button under Reactions at the bottom of your Zoom window.

The luxury industry has proven to be resilient and it is becoming increasingly digitized.

As it navigates its current and future challenges the industry will benefit from our global Tech platform.

And fast ACH is D.

Leading global platform for luxury.

Once called upon, please unmute your audio to ask to question. Please be mindful that only one question for analysts will be allowed. Thank you. To start, we'd like to take our first question.

Unique positioning, which I believe we will see this business grow to $10 billion in gmg and 10% to 13% adjusted EBITDA profitability in the next few years.

This question comes from Ike Baruchal from Wells Fargo. I feel free to unmute and ask your question. Hey everyone, Ellie, Ellie, best of luck, Jose. I guess I'm not sure who this is for, but just to take a step back, I mean, obviously the last 12 months have been shopping for you guys in the macro in general. How should we think about this year maybe being different, the guidance?

And with that I'd like to open up for your questions. Thank you.

We will now move into our Q&A session for those of you who are joining us via zoom. If you would like to ask a question. Please.

Please raise your hand by clicking the raise hand under reactions at the bottom of your same window.

One is called upon please mute your audience you're asking your question. Please.

Please be mindful that only one question per analyst with Iraq. Thank you.

To start we'd like to take our first question.

This question comes from Ike <unk> from Wells Fargo I associated when you ask a question.

Hey, everyone.

of unprecedented macro challenges with Russia and China effects.

Elliot best of luck.

Hum.

I guess I'm not sure who this is for but just taking a step back.

I'm actually very proud of how the team navigated these challenges.

Obviously, the last 12 months have been choppy.

Choppy for you guys in the macro in general.

How should we think about this year maybe being different.

We ended the year in spite of all of this with positive growth in GMV, 2% on constant FX, 13% on revenue, with a strong underlying business. So in terms of the underlying business, 12% are the growth excluding Russia and China.

The guidance, we're giving is very compelling if you guys can handle it I guess what gives you the confidence in the assumptions you're making for the next 12 months.

Hello, Hello, Mike.

So the here.

very solid take rates, other contribution. I think, you know, we've also taken the opportunity to restructure and further rationalize the business with a full re-arg with...

Look absolutely 2022 was wasn't a year of unprecedented macro challenges with Russia and China.

FX.

I'm actually very proud of how the team navigated these challenges.

a significant reduction in the headcount in the car business, strategically targeting the areas of the business where we thought applications and where we could see efficiencies, whilst preparing for the big launches that we have this year. So, all in all, we exit 2022 in a very solid position. As you could see,

We ended the year in spite of all of this with positive growth <unk>, 2% on constant FX.

13% on revenue.

The strong underlying business so in terms of the underlying business.

12% growth, excluding Russia and China.

Very solid.

Rates are the contribution.

You know, the marketplace actually performs slightly better than expected. And look, this team and this company has a very strong track record of execution. In terms of the big projects we have ahead of us, other enterprise deals that we've signed in the past. I'm thinking JD, the JD star, which we launched three months ago.

I think.

We've also taken the opportunity to.

Restructure and further rationalize the business with a full re arc.

<unk>.

A significant reduction in the head count in the card business.

<unk>.

Pachytene the areas of the business where.

Wherewithal to applications and where we could see.

<unk>, whilst preparing for them. These launches that we have this year. So all in all we exit.

'twenty two.

Solid position as you could see.

The marketplace actually performed.

And that gives us extraordinary confidence in this fantastic team and in the efficiencies that we've gained. And this gives me strong confidence of 2023, being a year of return to growth.

Frankly better than expected.

And look with this team and this company has a very strong track record of execution.

In terms of the big projects, we have ahead of us.

Other enterprise deals that we've signed in the past.

Im thinking JV, the JV star, which we launched three months in advance.

a year of profitability and a year of positive free cash flow. Our next question comes from Doug and from JPMorgan. Doug, you'll be asked your question. Great. Thank you for taking the questions.

GMO Star what which.

We also launched.

The schedule Harrods, which we believe is.

According to the testimony for Michael while the CEO of <unk>.

Absolutely on time on the day, and it's not supposed to be delivered and on budget.

You reiterated your 23 outlook for Group GMB of 4.9 billion. Does this still embed around 500 million from new deals and partnerships and therefore imply high single digit growth in the core business? And what are your assumptions as you're thinking about kind of China and the US and perhaps any early...

And that gives us extraordinary confidence in this fantastic team.

And in the efficiencies that we've gained.

And this gives me strong confidence of.

2023, being a year of return to growth.

Matrix or details you can share on China reopening as far. Thanks. Hey, Doug. I could speak to you. So, yeah, I mean, the outlook absolutely unchanged since capital markets day. 4.9 billion dollars of GMV for the year ahead.

Year of profitability and a year of positive free cash flow.

Thanks.

Our next question comes from Doug Anmuth.

From Jpmorgan.

If you ask your question.

Great. Thank you for taking my questions.

and as Jose was just outlining, you know, we have a track record of delivering on underlying business and on the new initiatives Obviously as you said 500 million dollars of GMV for new initiatives. That is still the number that we're expecting that is obviously Reebok split between the brand platform and digital platform the direct-to-consumer aspect of it going through the digital platform

You reiterated your 'twenty three outlook for group <unk> of $4 9 billion does this still embed around 500 million from new deals and partnerships and therefore imply high single digit growth in the core business and what are your assumptions as youre thinking about kind of China and the U S and perhaps any early.

<unk> metrics or details you can share on China reopening thus far thanks.

Hey, Doug.

Speak to.

So, yes, I mean, the outlook absolutely unchanged since capital markets day.

$4 9 billion of <unk> for the year ahead, and as Joe was just outlining we have a track record of delivering on our underlying business and.

The new initiatives, obviously as you say $500 million of GMB for new initiatives that is still the number that we're expecting.

of the year has gone well in terms of our expectations. We also saw the marketplace better than expected in Q4, in particular navigating what was a highly competitive US market. So we saw good results coming out of the year which means we're very confident on continuing to deliver that underlying

That is obviously revoke split between the brand platform and digital platform.

Direct to consumer aspect of going through the digital platform and Ferragamo.

And of course, the Neiman Marcus partnerships towards the backend of via so lots to look forward to it.

order growth position, it's up 11, 12 percent, a few exclude Russia and China and there's no reason for us to believe that won't change. I would point out as active consumer numbers, we're up quarter and quarter, up about 6 percent year on year and that's despite losing around 100,000 also customers from closing the Russian market. So customer base in a really good place. I'd also point out the stock number, highest level of stock available from third-party customers at about $5.9 billion.

In terms of new <unk>.

Business joining the platform over the next 12 months on the underlying underlying sort of things absolutely high single digits very confident about that.

<unk>.

As I said the <unk>.

Part of the year has.

Gone well in terms of our expectations. We also saw the marketplace basically than expected in <unk>.

Q4 in particular navigating what was a highly competitive U S market. So.

We saw good results coming out of the year, which means we're very confident on continuing to deliver their underlying order growth position, it's up 11, 12%.

Russia, and China, and Theres No reason for us to believe that won't change.

Would point out is active consumer numbers were up quarter on quarter up about 6% year on year.

And that's despite losing around 100000 of course, our customers from closing the Russian market. So customer base in a really good place I'd also point out the stock number our highest level of stock available from third party customers at about $5 9 billion.

terms of GMV, but then we'll be positive in Q2 and then growing across Q3 and Q4. To come back specifically to the US and the China market, we do expect our China numbers to be in growth again this year. The numbers that we've got in terms of delivering the high-single digit overall.

Again, that's really showing the strength of our partners and how they see farfetch in terms of being able to drive <unk> over the future.

It doesn't mean historical levels of China performance. We just need to be back ahead of last year to deliver solid numbers. And we're very confident about achieving that. And then in terms of the US, as I said, we actually were very pleased with our navigation of that market. We reduced our demand generation spend in that market significantly retreated from heavy promotions and competition. You saw the third party gross margin of Q4 stay up year on year 67%.

All of the factors are in the right place.

And as I sort of talked through just earlier around the shape of the year Q1, clearly still going to be impacted by the fact that we have to fully annualized Russia, and China and the U S dollar strength pushing down our reported numbers there will still be negative in terms of <unk>, but then we will be positive.

Q2, and then growing across Q3, and Q4 to come back specifically to the U S and the China market, we do expect our China numbers to be in growth again this year.

And that meant the order contribution for the full year was 32% and above 31% for the quarter. So that's five quarters in a row now above 31%. So, you know, we're navigating everything well. And as we look into the year ahead, you know, we expect that US to drive strength across the marketplace and, you know, see that strong underlying growth. I think most people have sort of missed in the last four quarters because of...

That we've got in terms of delivering the high single digit overall doesn't mean historical levels of China performance, we just need to be back ahead of last year to deliver solid numbers.

And we're very confident about achieving that and then in terms of the U S. As I said, we actually were very pleased with all navigation of that market, we reduced our demand generation spend in that market significantly retreated from heavy promotions and competition you saw the third party gross margin of Q4 <unk>.

the headline macro factors impacting on it. I'm really looking forward to seeing that strong underlying growth start to shine through as we move through 2023 back to very, very strong growth, which of course added to the focus on costs. We've got a significant cost reduction plans in place that will drive a 10% underlying saving on the cost base and that will move us from loss making EBITDA to positive EBITDA 1 to 3 to 3.

Year on year, 67% and that made the order contribution for the full year was 52% and above 31% for the quarter. So that's five quarters in a row now above 31% so.

We're navigating everything well and as we look into the year heads.

We speak that U S to drive strength across the marketplace and.

On top of that, the teams are very focused on our working capital plans to be able to turn assets on the balance sheet today, inventory, receivables, etc. into cash for the year ahead. So we're expecting strong, free cash flow and we'll end 2023 in terms of cash and cash equivalents at the same place we started it with over $700 million. So very excited plans for 2023 and very confident we can deliver the numbers. Thank you, Elliot. Our next question comes from Lauren Shanks from Morgan Stanley . Please go ahead, Lauren.

You see that.

Strong underlying growth that I think most people are sort of missed in the last four quarters because of.

So the headline macro factors impacting on it I'm really looking forward to seeing that strong underlying growth start to shine through as we move through 2023 back to very very strong growth, which of course added to the focus on costs. We've got a significant cost reduction plans in place that will drive a teen percent underlying.

Saving on the cost base and that will move us from loss, making EBITDA to positive EBIT of 1% to 3% on top of that the teams are very focused on our working capital plans to be able to tune assets on the balance sheet today inventory receivables et cetera into cash for the year heads. So we.

I was just wondering if you could help us think through the breakdown of Reebok between brand and digital platform. Just thinking about the 450 base going to 600. How much of that is core growth versus Reebok? Thank you. Hey Lauren, we're not breaking that out of the stage. If I sit earlier on, it is split between digital and brand.

We're expecting strong free cash flow and we will end 2023 in terms of cash and cash equivalents at the same place we started it with over $700 million. So very excited plans for 2023 I'm very confident we can deliver the numbers.

You know, I think the brand platform is going to grow quite strongly in Q1, as we saw said in the opening remarks, there have been some delays from Q4 into Q1, so we'll see the brand platform in growth and on an underlying basis. You know, we're very confident with the plans. We're not aggressive in that space though, so, you know, I think we're being cautious about success and focus on the producers, so the technical supports are updated by our squad and the kind of new brand. For sure, we have a lot of songs the most fun people have ever done, so that's

Thank you Ali.

Our next question comes from the line Schenk from Morgan Stanley . Please go ahead Mike.

Yes.

I was just wondering if you could help us think through the breakdown of rip off between brand and digital.

the retail position for the year ahead. So we're actually reducing our distribution to some retailers, shifting more of that, the brand sales from NGG across the direct channels. Obviously that drives improved order contribution, improved gross margins across the group, and also means we will be improving our stock turn by focusing on those inventory levels. So the brand platform is in a very good place, but some strategic initiatives means.

<unk> just thinking about the 450 base going to 600, how much of that is core growth versus remarks. Thank you.

Hey, Lauren we're not breaking that out at this stage as I said earlier on it is split between digital and brand.

I think the brand platform.

Is it going to grow quite strongly in Q1 as we sit in the opening remarks, there have been some delays from Q4 into Q1, So we will see the brand platform and growth.

And on the <unk>.

Underlying basis, we're very confident with the plans were not aggressive in that space, though so.

that it will not be growing, you know, the same sort of levels as maybe the marketplace on an underlying basis, but certainly with the addition of Reebok delivering strong growth. Great. Thank you. Our next question comes from Stephen Jew from Credit Suisse. Stephen, please go ahead. All right. Can you hear me? Yep. All right. Great. So.

I think we're being cautious about.

The retail position for <unk>.

The year ahead, so we're actually reducing our distribution to some retailers.

<unk> more of that.

The brand sales from <unk> across other direct channels, obviously that drives improved.

Or contribution improved gross margins across the group and also it means we will be improving our stock to them by focusing on those inventory levels. So the brand platform is at a very good place, but some strategic initiatives means that it will not be growing.

Hi, I wanted to revisit the question of pulling back on customer acquisition activity in the US. So I guess the implication here is that somebody is wanting to spend what they're spending on paid media auctions. So either their unit economics are better, or they're on the path to, you know, run through their cash potentially. So, you know, how does

At the same sort of levels as maybe the marketplace on an underlying basis, but certainly with the addition of reebok delivering strong growth.

The current environment feel versus what you were seeing in the first half of 2019, which recall was a very promotional period. And I think you know might have seen a lot of shall we see economically rational activity among some of the competitors. Thanks. Hey Stephen, great, great speaking to you. Yeah look the US market we did see it is very, very competitive. Driven a lot by sort of mark down promotional clearance activity from

Great. Thank you.

Our next question comes from Stephen Ju from Credit Suisse. Please go ahead.

Alright can you hear me okay great.

Alright, great.

Hi.

I wanted to revisit the question of pulling back on customer acquisition activity in the U S. So I guess the implication here is that somebody is willing to spend what they are spending on paid media options. So.

I would say sort of larger bricks and mortar retailers. And I think online people did spend into the demand generation spend and try and drive sales. I think that was because of inventory positions. They maybe not necessarily saw the economics at a customer level as strong, but when you also factor in the fact that retailers online and offline needed to shift excess stock holdings, they probably factor in that more on demand generation was better than...

Either their unit economics are better or they are on the path to grow through their cash potentially so how does the current environment feel versus what you are seeing in the first half of 2019, which I recall was a very promotional period and I think.

Might have seen a lot of shall we say economically irrational activity amongst some of the competitors. Thanks.

Hi, Steven Great Great speaking to you yeah look.

The U S market, we did see it is very very competitive.

terminal stock issues later on. So, you know, there's a lot going on in the market that means people will spend into it. We didn't want to take that approach in terms of demand generation. So you saw that significant reduction, 25% down on an absolute basis, year on year, in terms of spend. And yet we still were able to do better in the US than we thought. And actually our active customer numbers in the US was higher in the quarter just gone than it was in Q4 last Q4 21. So, you know, we were able to sort of navigate the environment quite carefully and still deliver much stronger order contribution economics as a result.

<unk>, driven a lot by sort of markdown promotional and clearance activity from.

I would say sort of larger bricks and mortar retailers.

And I think online people who did.

<unk> into.

The demand generation spend and try and drive sales I think that was because of inventory positions.

Maybe not necessarily sort of economics at a customer level as strong, but when you also factor in the fact that.

Retailers online and offline needed to shift excess stock holdings.

They probably effected in that more on demand generation was better than our terminals.

Terminal stock issues later on so there's a lot going on in the market that means people will spend into it we didn't want to take that approach in terms of demand generation. So you saw that significant reduction in 25% down on an absolute basis year on year, and Tim sustained and yet we still were able to do better in the U.

I think that will continue. Q1 inventory levels across the industry are still high. There's no exception there. You only have to look at our balance sheet to see that our first party business is carrying too much inventory. We will continue to mark down that inventory to clear it. As I said earlier on, Q1 will include a mark down there to move inventory and keep our pressure on the first party margins. But I think overall, there is still stock and inventory to navigate. Q1 his existing industry

And we thought and actually our active customer numbers in the U S was higher in the quarter just gone than it was in Q4.

Our next question comes from Canal Medical, from UBS. And I'll feel free to unmute. Okay, sorry. Thanks for taking my question. Just a quick one on 23 outlook. When we look at the increase in as.

Last Q4, 'twenty, one so we were able to sort of navigate the environment quite carefully and still deliver much stronger order contribution economics as a result.

That will continue in a Q1.

Inventory levels across the industry is still high we are now.

And there is no exception.

And if you look at our balance sheet, you'll see that our first party business is carrying too much inventory, we will continue to mark down that inventory to clear it as I said earlier on Q1 will include a markdown needed to move inventory and keep pressure on the first party margin, but I think overall, there is still stock and inventory to navigate.

the nature of the investments and can you also talk about how much of that expense you expect to capitalize in 23? Thank you. Hey, Kunal. So the bulk of that spend, yes, those numbers are absolutely right. It's exactly the same as we outlined in December , Capital Markets Day. But the numbers are more related to our Reebok operations than FPS.

Yeah.

Our next question comes from Kunal <unk> from UBS and also sit on mute.

Okay, Alright, thanks for taking my question.

Just a quick one on 2018 outlook when we look at.

The increase in SG&A costs from 850 to 950 that kind of implies high cost of about $185 million and macro something that you kind of attribute it to.

FPS is an extremely scalable business. It's utilizing the exact same technology as the rest of the platform that powers the marketplace and our existing FPS clients like Harrods. The team that runs FPS absolutely focused on very, very strong profitability. It's incremental to our order contribution profitability on the digital platform.

The Fps business as well as the new partnerships in the brand.

Ships, but you are going to spend can you talk about the nature of the investments and can you also talk about how much of that expense you expect to capitalize in 23. Thank you.

and incremental to our EBITDA margin position as well when we add new clients. And yet we are still delivering phenomenal value to those clients. You know, the clients that are existing on the platform are extremely happy with what we're achieving for them in terms of their digital solutions. And the new clients can't wait to start with FPS. So a great shout out to the FPS team there. In terms of the SG&A position, it is mostly Reebok. You know, we have additional costs of warehousing associated with bringing that product in.

He cut out.

So the bulk of that spend yes, those numbers are absolutely Roy it's exactly the same as we outlined in December capital markets day and.

But the numbers are more related to our Reebok operations benefit soon.

This is an extremely scalable businesses.

Utilizing the exact same technology as the rest of the platform that powers, the marketplace and our existing <unk> clients like Harrods.

The team that runs this piece.

Absolutely focus on very very strong profitability.

We will be building out our teams within NGG to deal with new vendors, with new distribution clients. We obviously want to ensure that we get merchandising and buying and design and styling right. The exciting thing about Reebok is as we expand into the luxury end of the space, and we're really looking forward to launching new initiatives. I wouldn't put too much in terms of financial numbers in for that this year, but certainly 2024. River Soon

Coming into two hour order contribution profitability on the digital platform and incremental to our EBITA margin position us well when we add new clients and yet we are still delivering phenomenal value to those clients.

The clients that are existing on the platform are extremely happy with what we're achieving for them in terms of their digital solutions and the new clients can't wait to start with <unk>, a great shout out to the team there.

and we want to make sure we've got a great team in place, they are under very, very strong leadership within New Guards Group. So those are what those costs are.

In terms of the SG&A position.

It is mostly reebok, we have additional cost of warehousing associated with bringing that product. Then we will be building out our teams within <unk> to deal with new vendors with new distribution clients.

Next question comes from Blake Anderson from Jeffries. Blake, please go ahead. Hi, I think at your investor day, you talked about the medium term guide being fairly conservative for new FPS deals. Kind of a high level question. Just wanted to see if you could talk about the pipeline there in any commentary on how you guys are thinking about.

We obviously want to ensure that we get merchandising and buying in design and styling right.

The exciting thing about <unk>.

As we expand into luxury the luxury end of the space and we're really looking forward to launching new initiatives I wouldn't put too much in terms of the financial numbers in for that this year, but certainly 2024, and we want to make sure we got a great team in place.

maybe what types of FPS deals you might see in this current environment over the next one to two years, how you're thinking about structuring them, just any commentary on the forward look there. Thank you. Hi, yeah, look, you know, like during capital markets day, we really wanted to focus the audience on the considerable power of the deals that we have signed and that we...

They are under very very strong leadership within new Guards group. So those are what those those costs are.

Yeah.

Our next question comes from Blake Anderson from Jefferies. Please go ahead.

Hi, I think at your Investor Day, you talked about the medium term guide being fairly conservative for.

New Fps deals kind of a high level question just wanted to see if you could talk about the pipeline there and any commentary on how you guys are thinking about maybe what types of FCS FCS deals you might see in this current environment over the next one or two years, how youre thinking about structuring them.

and that we have confirmed and that actually we're already in building phase. Of course, the Hishmone deal is planning regulatory approval, but we will be ready providing, we get that regulatory approval, we will be ready to enroll those and launch those websites starting with Kafka.com and then the NetApportate group very, very quickly. So we're very focused on executing on all these transformational multi-billion dollar.

Just any commentary on the forward look there. Thank you.

Hi, Yeah look in a life during capital markets day, we really wanted to focus the audience on.

On the considerable power of the deals that we have signed and that we.

enterprise clients. And that's why we wanted to focus the audience not on, you know, an hypothetical pipeline, but on an actual pipeline of signed deals because we wanted to be conservative in the guidance. Having said that, we're very excited. We think that FPS is coming of age. These enterprise businesses, SaaS businesses, you know, they grow with great clients.

And that we have confirmed and that's actually we're already in building.

And of course, the <unk> deal is pending regulatory approval.

But we will be ready.

I think we get that regulatory approval, we will be at.

<unk> to roll those and launch those websites, starting with Caf tier dot com and and then the net a Porter group.

and with the credibility that these leaders in the luxury industry like Richemont and Neiman Marcus group bring to our platform. So we're seeing more and more interest from very large clients which is where we're specialized but also medium sized companies and also the modularity that we are going to be rolling out. Obviously FPS has not just the end-to-end solution but we will be looking at rolling it out in a modular way in terms of global payments technologies.

Very very quickly so we are.

We're very focused on executing on all these transformational.

Multibillion dollar.

Enterprise clients.

And that's why we wanted to focus the audience.

On on NEPA tactical pipeline, but on the natural pipeline of signed deals.

Because we wanted to be conservative in the in the guidance.

Having said that we're very excited and we think that FBS is coming of age.

Enterprise business is SaaS businesses.

They grow with with great clients and and we the credibility that this <unk>.

Where far-fetched I believe has an absolutely unrivaled proposition with Our capabilities in China in the Middle East Latin America and other emerging markets As well as our connected retail capabilities e-con sessions of the service so there's you know plenty of opportunities for growth in these several modules and and a very very large time to address and we will be focused obviously on execution but also on extending that that you'll flow.

The leaders in the luxury industry likely small.

And Jim and Mac as group, bringing tools to our platform.

So we're seeing more and more interest from.

Very latch.

<unk>, which is where we are specialized but also medium.

Medium sized companies and and also the modularity that we are going to be rolling out.

Obviously fps.

It has not just the end to end solution, but we will be looking at rolling it out.

Our next question comes from Edward E. Drooma from Paper Sandler. Hey, good afternoon guys, thanks for taking the question. I guess just to follow up on the pullback in new customer generation spend in the US, just to be clear, is this more a transport phenomena given the promotion environment that you identified or is this kind of a signal that you have kind of a more mature market in the US? And then as a follow up on the NGG business, thank you for all the color. How quickly can you get kind of production side rationalized?

In a modular way in terms of global payments and logistics, which were five H I believe has an absolutely unrivaled proposition with our.

Our capabilities in China in the Middle East Latin America, and other emerging markets as.

As well as our connected retail capabilities E concessions as a service.

So there's.

Plenty of opportunities for growth.

In these several modules and in a very very large.

Tam to address and we will be focused obviously on execution, but also one extending that that deal flow.

I guess X Reeve opts so that you can kind of control some of the sex and demand for a condition given that this software demands. Thank you. Hi Ed, I'll take your question about the US and demand generation. I think, look, we've always said that demand generation is a tool that we use and lever that we use and we reserve the right to sort of lean in when it makes sense and pull back when it doesn't. And this was the case in Q4 and sort of throughout the tail end of the year where we really felt that it was important for us to lean into markets where we saw better efficiency, more profitable customers.

Our next question comes from Edward <unk> from Piper Sandler.

Hey, good afternoon, guys. Thanks for taking the question I guess just to follow up on the pullback in new customer generation spend in the U S.

To be clear is this more transitory phenomena given the promotional environment you identified or is this kind of a signal that you have kind of a more mature market U S. And then as a follow up on the energy business. Thank you for all the color.

and a better return on our spend. That said, what it goes to show, and I think this is to your question about the US, is that we have really built a solid business there where through diversifying our channels, and this is something I've been talking about for a quarter and a quarter now, over the last few years, where we've been investing in brand. If you remember, we worked on a number of rank campaigns targeted in the US. We've been investing in mid funnel, so that we really have the complete funnel of our marketing activities. It shows that diversification means that when we pull back in that channel, it doesn't actually look like a commensurate drop in sales, and in fact to Elliot's point.

How quickly how quickly can you get kind of a production site rationalize I guess ex.

B box.

Kind of controls and the inventory condition given.

Softer demand thank you.

Hi, Ed I'll take your question about the U S and demand generation and I think we've always said that demand generation.

Tools that we use a method that we use and we reserve the right to sort of lean in when it makes sense and pull back.

Catherine This was the case in Q4 and incentives to do that.

Yeah, well, we really felt that it was important for us to lean into markets, where we saw better efficiency and more profitable customers.

And and a better return on our spend that said what it goes to show and I think this is to your question about the U S is that we have really built a solid business. There were two diversifying our channels and this is something I've been talking about for quite some questions now on for the last two years, where we've been investing in brand if you remember we and.

We over-delivered, including to our own expectations in the US. So I think, you know, this shouldn't be something that you, you know, this percentage of demand generations isn't something that necessarily should be modeled out, but it is, I think, proof that we really are working to diversify our channels and that we will have a laser focus on profitability, efficiency, and really play to our strengths at FarFetch, which is that we have a diversified market and we're able to lean into markets that are doing very well, where the unit economics are extremely good. And just thought, I'll jump in on the NGG piece. Look, I think I'd probably just draw your attention back to what we talked about at the capital market today. We will be...

We worked on a number of bank campaigns Tiger count in the U S. We've been investing in mid funnel. So that we really have the complete funnel marketing activities.

It shows that you know that diversification means that when we pulled back in that channel. It Kathryn ask me look like a commensurate drop in.

Enhancements at any point.

Thank you, David including anti on expectations in the U S. So I think.

you know, gave you targets for 2025 where NGG overall will be continuing to deliver 20% plus EBITDA margins. And I think that shows you that the build out of Reebok and the continued growth of the underlying business plus new brands as the team develop them will continue to deliver very, very strong EBITDA margins and be a creative to the overall position within the next couple of years. So I'm very excited about what's happening there. Obviously this is a year of investment as Kunal noted in terms of SGNA for Reebok, but quite quickly next year and then 2025.

This shouldn't be something that you.

This percentage of demand generation isn't something that necessarily be modeled out but it is I think proof that we really are working.

Diversify our channels and that we will have a major focus on profitability efficiency and really play to our strengths at <unk> that we have a diversified market and we're able to lean into markets that are doing very well, where the unit economics are extremely good.

And just I'll jump in on the <unk> look I think I'll, probably just draw your attention back to what we talked about at the capital markets day, where we gave.

very strong EBITDA margins across the brand platform and the risk of the ingy-g business. Thank you. And the next and final question will come from Abhinav Singh in our from society general. Abhinav please go ahead. Thanks for taking my question. I have just one. Given that we are already two months down in the year, so what has been your observation in terms of the trading pattern in the various geographies or the regions that you operate? Yeah, I'll probably be very sure on this one. We're not giving in quarter.

Gave you targets for 2025, we are in GG overall will be continuing to deliver 20% plus EBITDA margins and I think that shows you that the.

The abboud out of Reebok and the continued growth of the underlying business plus new brands as the team develop them. We will continue to deliver very very strong EBITDA margins and be accretive to the overall position.

Within the next couple of years, so very excited about what's happening. There. Obviously this is a year of investment as crew now noted in terms of SG&A for Reebok, but quite quickly next year and then into 2025 very strong EBITDA margins across our brand platform and the rest of the <unk> business.

updates other than to say, you know, we've seen the year start well overall which gives us confidence about the guidance that we've reiterated today. But we're not going to paint any picture of different regions at this stage, we're obviously updating in, once Q1's over. Great. Well, I think with that we'll just conclude the call. Thank you all for dialing in today. We look forward to updating you on our progress. Next quarter.

Thank you.

And our next and final question will come from Avinash TNF from Society Generale. Please go ahead.

Hi, Thanks for taking my question I have just one.

Hi.

And given that we are already two months down in the yard. So what has been your observation in terms of the trading.

And then the various dollar piece or the regions that you operate.

Yeah ill probably be very short on this one.

Not giving quarter updates other than to say, we have seen the <unk>, well overall, which gives us confidence about the guidance that we've reiterated today.

We're not going to paint a picture of different regions at this stage, we obviously update.

<unk>.

And once Q1 over.

Great well I think with that we'll just conclude the call. Thank you all for dialing in today, we look forward to updating you on our progress next quarter.