ASOS Regulatory News (ASC)

30 Jun 2008 07:00

ASOS PLC

CHAIRMAN'S statement

for the YEAR ended 31 MARCH 2008

I have great pleasure in presenting another set of excellent results for ASOS plc. The company has produced record sales, up 90% to £81.0m and record profits (before tax), up 117% to £7.3m in a year when a number of retail businesses were reporting tough trading conditions.

The board's strategy of investment has been vindicated. The business increased its market share, out-performed its peers, and delivered more than double the growth of the overall online market. ASOS is now firmly established as the UK's premier online fashion business.

Dividend

With a number of organic initiatives and infrastructure reviews planned, some requiring capital investment, the board has again decided that no dividend will be paid. This policy remains under constant review.

Colleagues

On behalf of the board I would like to thank our colleagues for their continued enthusiasm and often superhuman efforts for the business. To win Retail Week's 2008 'Online Retailer of the Year' for the second year running was a fantastic achievement and of one which we are all very proud.

Our thoughts are also with the families and friends of Mick Roberts and John Blackhurst, two respected colleagues who sadly passed away during the year.

Outlook

The year has again started extremely well. Sales for the 13 weeks to 27 June 2008 are 95% ahead  year on year. This compares to 85% for the same period last year. Whilst it's too soon to suggest that this performance will continue for the full year, we are confident that 2008/09 will be another strong year for ASOS.

Lord Alli 

Chairman

ASOS PLC

Chief executive's statement

for the YEAR ended 31 MARCH 2008

Business Review

I am pleased to report on another strong year's trading and the continued investment in the ASOS brand.

Sales grew 90% for the year ending March 2008, and we have now achieved compound annual growth of over 75% per year for the last four years. Profits (before tax) for the year ending March 2008 grew by 117%. Both have been achieved on a purely organic basis.

Whilst the macro economic conditions appear to be deteriorating, I believe we have, and will continue to benefit from the significant migration to online shopping, especially amongst our core customer base. This is reflected in the record number of unique visitors we now receive to the website. In May 2008 we had 3.4 million unique visitors, a 60% increase year on year. 

According to Hitwise, ASOS is the second most visited website in the UK clothing and apparel category. Clothing is the fastest growing product category online and Verdict predicts that by 2010, 10% of clothes will be bought online, up from 4% in 2007. 

Product Choice 

Product choice is at the core of the ASOS proposition. At the end of May 2008, customers could choose from over 10,908 different lines - up from 4,324 in May 2007. The number of brands available on ASOS will increase from 255 in Autumn / Winter 2007 to around 600 by Autumn / Winter 2008. Our own label styles will also increase from 2,530 to around 5,000 over the same time period.

Currently we introduce over 500 new styles a week, up from 200 this time last year. Stock management is key and I am pleased to report our stock continues to turn very quickly at just over every 10 weeks.

During the year we introduced our petites range with 20 lines. This will be increased to around 200 lines this year. Similarly we introduced size 18 into our own label mix last year and we plan to introduce size 20 this year. We will also be introducing 3 additional leg lengths into our own label ranges as well as a full maternity range.

Our "Independent designer section", which we established to provide a shop window to new design talent, has been very successful, and we plan to add an additional 30 designers to the 16 designers with whom we currently work.

The most significant development in 2008/9 however, will be the launch of our branded clearance section, ASOS Red. eBay has proved that the internet can be a very efficient channel for clearing end of season and markdown stock. We also know from research that eBay and other sites, where this type of stock is available, are popular with our customers. We firmly believe that by applying the ASOS presentation techniques to this end of season stock we will be able to enhance the image of the brands and the product and provide an overall better customer experience.  The offer will initially consist of approximately 20 brands, expanding to around 50 brands within 6 months.

Presentation

The website is evolving constantly as we find better ways of presenting our products. In June 2008 we launched an application that allows our customers to 'virtually' try on our premium sunglasses. In Autumn / Winter we will be introducing catwalk for our premium men's ranges, and our shoes and bags will be visible online through 360 degrees. 

The ASOS magazine was voted 'Customer Magazine of the Year' in 2008 by the Periodical Publishers Association as well as receiving its first Audit Bureau of Circulation figure of 370,636.

In April 2008 we launched the first of three men's magazines scheduled for this year. 

Over the year, our twice weekly email to customers generated 9% of sales. We have now invested in Customer Relationship Management software (CRM) which means from August we will be able to manage our database much more effectively and our e-mails will become more targeted. Early trials have shown we can expect to see a significant return on the investment. 

Promotional tie-ups and associations are very important to ASOS. In June 2008 we launched our Limited 100 design collaboration with the London College of Fashion. A capsule collection of 100 one-off pieces each sold on the ASOS website. The promotion received fantastic media coverage including two full page features in the National Press. The collection sold out in minutes. 

Service 

Working with our logistics partner Unipart, we have been able to improve the speed and accuracy of our deliveries to customers. Today, 95% of all orders placed before 2.30pm leave the warehouse the same day, even if the customer has not opted for next day delivery. This has had the effect of moving our standard delivery terms from 3-4 days to 1-2 days.

In October 2008 we will introduce a number of new delivery options. These include a named day service, including Saturday and both a.m. and p.m. delivery options. We will also introduce a same day service within the M25. Further enhancements including text alerts are being trialled.

We have invested in a customer contact management system which will enable us to respond to our customer care emails quicker and more efficiently. We are also extending the customer care working hours to enable us to reduce the average response time from 60 minutes to 30 minutes.

Managing Growth

In light of our continued sales and profit growth, it is more important than ever that we continue to invest in the business to enable it to reach its full potential.

The management team

During the year we made a number of key appointments to strengthen the Operating Board. Stefan Pesticcio joined us from Debenhams as Buying Director for Menswear. Hash Ladha joined us from New Look as Marketing and Operations Director. Gary Mudie joined us from Borders Group as IT Director and Caren Downie joined us from Topshop as Buying Director Womenswear.

Warehouse and logistics 

In May 2008 we moved into our new 158,250 square feet facility at Hemel Hempstead. We believe the capacity of the new warehouse to be sufficient to satisfy annual sales of approximately £350m. The move, managed by Unipart was a complete success and we were able to fulfil all our customer delivery guarantees over the move period.

 London office

At the year end there were 196 employees in the London office. With a re-design, we have managed to accommodate 300 desks in the space and have taken a further 80 desks in serviced space locally to see us through the anticipated growth in 2008/9.

Systems and Infrastructure

As well as both the customer relationship and customer contact systems we are also implementing a new reporting suite to run across the business. The first release is scheduled for September 2008.

We are also extending our disaster recovery solution by splitting the website hardware across two locations.

The next generation of the website is already being developed by a dedicated internal team. We will also review other key functions such as buying and merchandising and finance to ensure we have the capacity for growth.

Summary and Prospects

Our continued record of sales and profit growth highlights the accelerating appeal of both online fashion, and ASOS as a leader within the sector.

Despite the economic conditions, we have experienced no noticeable slow-down in our business growth and sales for the 13 weeks to 27 June 2008 are 95% ahead of last year.

With three quarters of the year to go, including Christmas, it is too early to assess whether this performance will continue for the full year. That said I believe ASOS can look forward to another year of strong progress and business development. 

Nick Robertson

Chief Executive

ASOS PLC

FINANCE DIRECTOR'S REVIEW

for the YEAR ended 31 MARCH 2008

2007/08 has been another exceptional year for ASOS. Our investment in people, marketing, systems and warehousing have allowed us to continue to expand and improve our product ranges and to cope with a 60% increase in order volumes. Profit (before tax) for the year ended March 2008 increased from £3.4m to £7.3m, or by 115%. Our underlying profits increased by 176% from £3.0 million to £8.2 million.

Revenues

An analysis of revenues is shown below:

* Third party revenues arise from onsite advertising, marketing inserts into outgoing parcels and advertising in the ASOS magazine.

Trading during the year accelerated from the first half to the second. Having increased 83% in the first half, sales advanced 95% in the second half.

Third party revenues increased in line with sales.

Gross margin

Our Retail Sales margin improved from 44.3% to 47.6% in 2007/08 driven by better inventory management and improved terms with our suppliers. 

The total gross margin increased from 42.5% in 2006/07 to 46.0% in 2007/08.

During 2008/09, we are planning improvements to our delivery proposition, the cost of which we are not planning to pass onto our customers.

Operating costs

During the year there was a non recurring charge of £0.9m relating to a provision taken on our old warehouse to cover future rent and rates charges and the estimated cost of dilapidations. On an underlying basis, before the provision for our old warehouse, costs increased by £14.1 million to £29.4 million.

As planned, we strengthened all of the key disciplines across the business resulting in a 77% increase in payroll and staff costs. Our headcount increased from 124 at the start of the year to 222 at the end of the year.

We are planning further recruitment this year in order to support and maintain our growth rates. Headcount will rise to approximately 370 by the end of March 2009.

Warehousing costs before the warehouse provision increased by £3.6m from the prior year. The fixed element of warehousing costs rose from £0.6m to £1.3m as a result of taking on a new warehouse with six times the capacity of the old one. Efficiency within the warehouse operation improved and variable warehousing costs fell from 12.9% to 10.8% of Retail Sales.

Marketing costs rose significantly in the year, mostly as a result of an increased investment in our magazine. We increased the number of issues in the year from 5 to 11, the number of pages and its circulation. By March 2008 we were dispatching 400,000 copies per month. Marketing costs also include the cost of creating imagery for the web site and this rose in line with the increase in product choice over the year. Marketing costs represented 6.3% of sales.

Other operating costs include IT, head office costs and credit card fulfilment costs. The most significant change in 2007/08 resulted from a head office move in May 2007, when we increased our office space by nearly four times to 24,000 square feet. During 2008/09 we will require additional office capacity and have secured space on a short term licence in order to maintain our flexibility. Credit card fulfilment costs increased in line with Retail Sales.

Whilst we are mindful of the current economic background and the increasing costs for businesses, we are confident that we will be able to manage our growth and our costs as we have done in the past. In total we anticipate that our operating costs will increase broadly in line with Retail Sales in 2008/09 as we continue to invest in building and supporting our growing business.

Operating profit

Operating profit for the year ending March 2008 increased from £3.2 million to £7.0 million, or by 114%. However, adjusted for the provision for our old warehouse, underlying operating profit increased 176% to £7.9m. The underlying operating margin for the year amounted to 9.7%, which compares to 6.7% in the prior year.

Interest

Financial income increased from £0.1m in 2006/07 to £0.3m in the year ending March 2008.

Taxation

The effective tax rate for the group was 30.9%. 

Earnings per share

Fully diluted earnings per share grew by 100% to 6.6p. Fully diluted earnings per share on an underlying basis grew by 154% to 7.4p.

Capital expenditure

Capital expenditure in the year amounted to £4.7m and comprised:

The majority of this expenditure in 2007/08 related to the first phase of the fit out of our new warehouse in Hemel Hempstead. 

Capital expenditure for 2008/09 is expected to rise to approximately £7.5m of which £3.2m will be required for phase two of our warehouse fit out. Further investment will be required in future years in order to maximise the capacity of the site. 

We are also currently reviewing our IT systems and infrastructure in order to ensure we are in a strong position to maximise our growth potential, and exploit new opportunities as they arise. We have allocated £4.0m in 2008/09 for this purpose.

Cash flow and net cash

The Group continues to be cash generative and all investment continues to be funded from cash flow. Between 31 March 2007 and 31 March 2008, the Group's cash position increased by £5.0 million to £10.4 million. Major sources of cash inflow included cash from operations, which consisted of EBITDA of £7.9m and an increase in other creditors of £8.7m. We anticipate that half of the increase in other creditors will unwind during the current year.

During the period share options under the Group's share option schemes were exercised raising £0.2m.

Surplus funds are invested in short-term deposits with the objective of maximising fixed interest rate returns whilst providing the flexibility to fund on-going operations. It is not the Group's policy to engage in speculative activity or to use complex financial instruments. 

Reconciliation of statutory to underlying operating profits

Reconciliation of statutory to underlying profits before tax

Reconciliation of statutory to underlying net profit and EPS

Jon Kamaluddin

Finance Director

ASOS PLC

Consolidated INCOME STATEMENT

for the YEAR ended 31 MARCH 2008

ASOS PLC

Consolidated Balance Sheet

AS AT 31 MARCH 2008

ASos PLC

Consolidated Cash Flow Statement

for the YEAR ended 31 MARCH 2008

ASOS PLC

statement of changes in equity

for the year ended 31 MARCH 2008

  Notes to the financial information

BASIS OF PREPARATION

The financial information contained in this announcement does not constitute the Group's statutory financial statements within the meaning of Section 240 of the Companies Act 1985. The Group's auditors have issued an unqualified report on the statutory financial statements for the 12 months ended 31 March 2008 and have not made any statement under section 237(2) or (3) of the Companies Act 1985. A copy of the Group's statutory financial statements will be delivered to the Registrar of Companies in due course. Statutory accounts for the 12 months ended 31 March 2007, which were prepared under IFRS and on which our auditors expressed an unqualified opinion, have been filed with the Registrar of Companies. 

The directors approved this announcement on 27 June 2008.

This financial information has been prepared in accordance with International Financial Reporting Standards (IFRS) and the accounting policies set out in the Group's 2007 Annual Report. 

The Group has adopted IFRS 7, "Financial Instruments: Disclosures", in the period. This standard introduces new disclosures relating to financial instruments and does not have any impact on the classification and valuations of the Group's financial instruments, or the disclosures relating to trade and other receivables, taxation and trade and other trade payables. 

EARNINGS PER SHARE

Basic earnings per share amounts are calculated by dividing the profit attributable to equity holders of the parent by the weighted average number of ordinary shares in issue during the year.

Diluted earnings per share amounts are calculated by dividing the profit attributable to equity holders of the parent by the weighted average number of ordinary shares in issue during the year, adjusted for the effects of potentially dilutive share options.

The dilution effect is calculated on the full exercise of all ordinary share options granted by the Group, including performance-based options which the Group considers to have been earned.

The calculations of earnings per share are based on the following:

There have been no transactions involving ordinary shares between the reporting date and the date of the approval of these financial statements which would significantly change the earnings per share calculations shown above

Segmental Analysis

Revenue consists primarily of internet and advertising sales as well as postage and packaging receipts. Revenue is recorded net of returns, relevant vouchers, and value added tax when the significant risks and rewards of ownership have been transferred to the buyer.