1 ASOS Plc Annual report and accounts 2013 ASOS is a global fashion destination for 20-somethings. We sell cutting-edge ‘fast fashion’ and offer a wide variety of fashion-related content, making ASOS.com the hub of a thriving fashion community. We sell over 65,000 branded and own- brand products through localised mobile and web experiences, delivering from our UK hub to almost every country in the world. This year we grew revenue and profits across the world as we continued to develop our customer proposition, removed barriers in international markets, and strived for efficiency across the business. Amongst other successes we added new brands, launched a Russian website, re-designed our mobile experience, and opened marketing offices in key regions. Exciting new talent joined us at all levels. Our ambition remains to be the world’s no.1 fashion destination for 20-somethings. Overview 01 Financial and operational highlights 02 Our business model 04 How we delivered value this year 06 Our people 08 Chairman’s statement Governance 26 Board of Directors 28 Corporate Governance Report 32 Directors’ Report 37 Directors’ Remuneration Report 46 Statement of Directors’ Responsibility Operational review 10 Year in review 18 Corporate responsibility Financial statements 48 Independent Auditors’ Report to the Members of ASOS Plc 49 Consolidated Statement of Total Comprehensive Income 50 Consolidated Statement of Changes in Equity 51 Consolidated Statement of Financial Position 52 Consolidated Statement of Cash Flows 53 Notes to the Financial Statements 75 Independent Auditors’ Report to 76 Company Statement of Changes in Equity 77 Company Statement of Financial Position 78 Company Statement of Cash Flows 79 Notes to the Company Financial Statements 83 Five-Year Financial Summary (unaudited) the Members of ASOS Plc 85 Company information 2 FINANCIAL AND OPERATIONAL HIGHLIGHTS • Retail sales up 40% (UK retail sales up 34%, international retail sales up 44%) • Continued global expansion – international sales now 63% of total (year to 31 August 2012: 62%) • 7.1m active customers as at 31 August 2013 (31 August 2012: 5.0 million) • Improved technology platforms especially local language mobile sites – mobile accounts for over 30% of traffic • ‘First price, right price’ approach resulted in a higher mix of full price sales and a reduction in markdown spend REVENUE (£) GROSS PROFIT (£) 2013 2012 2011 769.4m 552.9m 403.0m +39% 2013 2012 2011 398.6m 282.9m 197.6m +41% PROFIT AFTER TAX* (£) OPERATING PROFIT* (£) 2013 2012 2011 40.9m 32.9m 22.5m +24% 2013 2012 2011 54.5m 45.6m 32.1m +19% DILUTED EPS* (p) NET ASSETS (£) 2013 2012 2011 49.2 39.6 27.9 +24% 2013 2012 2011 159.8m 106.0m 73.9m +51% *Underlying, excluding exceptional items All 2012 and 2011 comparatives are unaudited 1 ASOS Plc Annual report and accounts 2013 OUR BUSINESS MODEL ASOS is a global fashion destination for 20-somethings. Selling over 65,000 products, it’s also a forum where fashion lovers can discover trends, gain inspiration, share ideas and trade with each other. Engagement Service Product Through publishing relevant content, a constant social media dialogue and our curated ‘edits’, we’ve developed an emotional connection and earned credibility with 20-something fashion- lovers around the world. The monthly ASOS magazine is sent for free to almost 500,000 customers, while our Premier membership is hugely popular. We strive to offer an effortless online shopping experience from the moment a visitor arrives at ASOS.com, whatever device they are using and country they come from. We deliver for free, anywhere in the world, and offer hassle-free returns in our core markets. Our award-winning customer service team helps with any questions along the way. Our buyers scour the globe for the most relevant products at the best prices. Our 65,000 products include our own brand plus around 800 brands ranging from big names to up-and-coming designers. Each week up to 2,500 new styles go live, whilst ASOS Marketplace offers a further 145,000 products, ensuring our customers are never short of choice. 2.6m likes 2.2m followers 1m followers 540k followers 7.1m active customers* 2 * As at 31 August 2013; defined as having shopped in the last 12 months. Where we do it Returns processing centre Ohio (US) US Retail sales £77.7m +57% Central distribution centre: Barnsley, Yorkshire Additional IT support: Birmingham, West Midlands 24-hour customer care office: Hemel Hempstead, Hertfordshire UK Retail sales £276.0m +34% Payment accepted in 15 currencies 11 payment methods Marketing services office and press showroom New York (US) International growth 44% in 2013 Marketing services office Berlin (Germany) we ship to 237 countries and territories EU Retail sales £177.7m +51% RoW Retail sales £222.4m +35% Headquarters: Camden, London Global positioning according to Comscore* Our ranking in the Retail – Apparel category for monthly visitors aged 15-34 France #1 Australia #1 Denmark #8 #7 Germany #3 Hong Kong #19 India #8 Italy #1 New Zealand #4 Norway #9 #7 Sweden #1 United Kingdom #17 US Spain * August 2013 ASOS China trading operation Shanghai (China) Marketing services office Lille (France) Eight ASOS.com local country sites: UK, France, Germany, Italy, Spain, Australia, US, Russia (added 2013) and China (coming soon) Marketing services office Sydney (Australia) ASOS Plc Annual report and accounts 2013 3 HOW WE DELIVERED VALUE THIS YEAR Strategy We’re on our way to achieving our ambition to be the world’s no.1 fashion destination for 20-somethings through our strategy, which comprises three core pillars. Key performance indicators Most engaging experience: through our huge selection of relevant products, an optimised multi-device eCommerce experience, and inspiring regular content, we strive to be the one-stop destination of choice for all their fashion needs. • Enhanced mobile phone and tablet sites – these now account for 30% of visits • Launched ‘buy-the-look’ feature allowing customers to purchase entire outfits, rather than single products • Cut-off time for UK next day delivery extended to 9pm • Continually revising portfolio of 800 brands and expanded ASOS own-label ranges including Petite, Curve and Maternity • Reduced price of annual UK Premier subscription giving customers unlimited free next day delivery, early access to sales and free magazine (10 issues a year) 67,872 (+46%) Total visits* (‘000) 7,078 (+42%) Total active customers** (‘000) 21,260 (+13%) Total unique visitors (‘000) 2.74 (+1%) Average visit frequency * During August 2013 ** As at 31 August 2013, defined as having shopped in the last 12 months 4 Truly global: we are building on our famous free worldwide delivery to achieve scale in our international markets through localised websites (language, product offering, currencies and payment methods), in-country marketing teams, and removing barriers such as delivery speed. Highly efficient retailing: we are driving efficiency and excellence behind the scenes in everything we do to ensure we have the right enablers in place to sustain future growth and deliver fuel for the future. • Free world wide delivery and free returns in the UK, • Reviewed and streamlined our key suppliers France, Germany and the US • Introduced ‘First Price Right Price’ philosophy resulting • ‘In country’ marketing teams in France and Germany in reduced need for discounting joining those in the US and Australia • Launched a dedicated Russian website • Increased digital marketing spend • Rebuilding of key IT and web platforms to handle • Preparations for launch of a start-up Chinese business our future volumes • Roll-out of Premier membership to Australia, Germany • Key talent hires and focus on internal learning and and the US development programme 47,127 (+45%) Total visits – international* (‘000) 4,264 (+56%) Active customers – international** (‘000) 63% (+100bps) % of sales – international * During August 2013 ** As at 31 August 2013, defined as having shopped in the last 12 months £61.03 (-1%) Average basket value* 2.47 (+5%) Average units per basket £24.69 (-6%) Average selling price per unit* 19,372 (+43%) Number of orders (‘000) 63p (-11%) Labour cost per unit 7.1% (-110bps) EBIT margin** 51.8% (+60bps) Gross margin * Including VAT ** Excluding exceptional items ASOS Plc Annual report and accounts 2013 5 OUR PEOPLE We call our business culture ‘The ASOS Way’ – it means being passionate, collaborative and respectful, restlessly innovative, and customer- obsessed. These values and attributes underpin everything we do. WHO WE ARE As at August 2013 we employed a total of 1,352 people. This includes 1,334 full-time and 18 part-time employees. The overall ratio of women to men at ASOS is 2:1, while our Board of Directors has two women and five men. To support our operations, we have just under 150 customer care positions in Belfast and over 3,000 people at our Barnsley fulfilment centre, employed through outsourced partners. The four members of the Executive Board listed below are responsible for retail, supply chain, IT and marketing at ASOS. Here they explain key areas of the business that have undergone considerable change this year. Maria Hollins Retail Director Pete Marsden Chief Information Officer “Our technology team has had an outstanding year. Technology is vital to our business and we need a team that is passionate, engaged and continuously delivering new capability for our customers. In the last year the team supported our launch in Russia and launched seven new mobile sites for France, Germany, Italy, Spain, the US, Australia and Russia. We have a large programme of change in progress, including our impending launch in China.” Pete Marsden has over 25 years’ experience in IT, holding the role of CIO since 1997, at companies such as EGG Orange, the BBC and Royal Bank of Scotland. Pete joined ASOS in October 2012. Terri Westlake Marketing Director “Marketing has been through a significant transition in the last year. We have built our capability in digital marketing channels, driving global sales growth. In parallel we have built a strong team to deliver consistent, content-led marketing across social media in each of our key territories, growing customer engagement.” Terri qualified as a Chartered Management Accountant early in her career, whilst working for Sony Music. She then spent 12 years with Emap Consumer Media as Finance Manager, then Publisher Director, and latterly Digital Director before joining ASOS in 2008 as Head of Media. Terri became Marketing Director in July 2012. “Our Womenswear and Menswear teams have performed strongly during the year, expanding our specialist sizing areas and enhancing our offer of separates and casualwear. We have put greater emphasis on sourcing efficiencies with the hire of our new Sourcing Director, who is leading initiatives to reduce lead times and increase retail margins, whilst enhancing fashionability and quality.” Maria began her career in The Arcadia Group where she spent 18 years. During this time she worked in a number of brands across the Group, including Merchandise Director for Dorothy Perkins, Wallis and Topman. She held interim roles at Whistles and Fenn Wright Manson, before joining ASOS in November 2011 as Trading Director. In September 2013 Maria became Retail Director. Mark Holland Supply Chain Director “A lot has been going on this year. We made the transition to a new service provider, Norbert Dentressangle, at our Barnsley fulfilment centre. We also made significant developments at our logistics centres outside the UK. We relocated our Australian and American returns centres both to reduce costs and to provide capacity for future volume growth, and the new fulfilment centre in China is now established.” Mark has over 20 years of experience managing supply chains. He began his career in the Royal Navy before spending time in the chilled food industry. He joined Matalan in 1999 and was Distribution Director prior to his appointment to the Executive Board in 2004 as Logistics Director. He joined ASOS in October 2012 from House of Fraser where he had been Supply Chain Director since 2007. 6 AWARD HIGHLIGHTS July 2013 Platinum Quality Mark – Payroll Giving 2013 July 2013 International Award and The Judge’s Award – Internet Retailing Awards June 2013 Best Content Marketing / Best Social Media Marketing / Best Leading Edge Thinking – The Marketing Society June 2013 Cross-Border Award – European E-commerce Awards 2013 March 2013 Most Effective Payroll Giving Scheme at the Pay and Benefits Awards March 2013 Pure Play Etailer of the Year – Oracle Retail Week Awards 2013 February 2013 Best in the UK – Customer Service Awards February 2013 Best Retail PLC – UK Stock Market Awards 2013 November 2012 Larger Etailer of the Year and Growing Retailer of the Year – Drapers Awards 2012 October 2012 Winner of Most Innovative Promotional Partnership / Highly Commended for Best Relaunch of an Existing Scheme – National Payroll Giving Excellence Awards October 2012 Fashion Innovation – RSPCA Good Business Awards October 2012 Best Communication – AIM Awards 2012 October 2012 Large Etailer of the Year / mCommerce Strategy / Best Social Media Strategy – IMRG eCommerce Awards for Excellence September 2012 Pure Play Etailer of the Year – World Retail Awards September 2012 Online Retail Mobile Site of the Year – Online Retail Awards 7 ASOS Plc Annual report and accounts 2013 CHAIRMAN’S STATEMENT is a lot more opportunity to build on that. In July 2012, for the first time, ASOS was ranked number one in the Customer Satisfaction Index as compiled by the UK Institute of Customer Service. We have preserved that ranking since then; this evidences the continued great work of our Customer Care team and the strength of our logistics proposition. ‘THE ASOS WAY’ Delivering that customer proposition and service in a high-growth unique company requires everyone to be pulling in the same direction. To help achieve that, ASOS has certain core values that define who we are, what we do, and how we do it. We call those collective values ‘The ASOS Way’ and they represent the DNA of the company. They challenge our people to be continually customer-obsessed, restlessly innovative, passionate, collaborative and respectful. Some things change, but these aspirational, positive values don’t. EMPLOYEES Values such as those set out in ‘The ASOS Way’ are obviously important. But they are nothing without the right calibre of employees to apply them, and the dedication and commitment of ASOS’s workforce is impressive. It is their hard work in every area of ASOS’s business that delivers operational and financial performance. On behalf of the Board, I would like to thank all of them for their contribution. In the last financial year, we increased our total headcount by 318 colleagues, to continue to build on and expand our capabilities. ASOS will continue to invest in and nurture its people, to apply ‘The ASOS Way’ and deliver on the customer proposition and the ASOS strategy. INVESTMENT ASOS has consistently recognised that appropriate investment is critical to its success, and this has remained the case during the last financial year. The business’s continued growth has not diminished the opportunities available to it – on the contrary, our expansion continues to open up new avenues, whether that’s to build on the capabilities of our Barnsley fulfilment centre, or to expand in places like China. Such investment in those opportunities is of course relevant to the Company’s dividend policy and, as there are substantial growth opportunities with an attractive internal rate of return on investment, the Board remains of the view that it is in the Company’s best interests to continue to re-invest its cash. THE ANNUAL REPORT I would invite you all to read the Corporate Governance Report, which explains how ASOS is run. The Board is also aware of the current market focus on remuneration, and we share the investor community’s enhanced focus on making sure that high rewards only come with genuinely high performance. I would therefore urge you all to read the Directors’ Remuneration Report, which for the first time will be put separately to an advisory shareholder vote at our Annual General Meeting to enable more direct communication with our shareholders over our remuneration policy and the implementation of that policy. The Board takes a serious interest in corporate governance and maintains a best in class standard by voluntarily reporting corporate governance at a higher level than is required for an AIM listed company. In the previous Chairman’s Statement, Lord Alli said that I would have ‘an enviable role, with a unique opportunity in an incredible business’. He was not wrong. Everyone in ASOS enters 2013/14 intent on striving to become the world’s no.1 fashion destination for 20-somethings. Brian McBride Chairman It has been another excellent year for ASOS. This is obviously something that everyone connected with ASOS is proud of, and we are particularly pleased with our UK growth rate, our continued international expansion and our ever-expanding customer proposition. Rather than repeat the information in the Operational Review, since this is my first statement as Chairman of ASOS, I thought I would set out some things that have struck me since I joined the Board. STRATEGY As a director, it is always refreshing to come into a business that has a clear focus on what it wants to achieve. Everyone at ASOS believes that fashion can make people feel great. As a result, ASOS is centred on one aspiration – to be the world’s no.1 fashion destination for 20-somethings. Achieving that will require a number of things – being the best, not necessarily the biggest; staying relevant; executing well and moving fast – but all of them hinge on a razor-sharp focus on ASOS customers. Customers are genuinely at the heart of ASOS. CUSTOMER PROPOSITION AND SERVICE If ASOS is to be successful in keeping its customers at the heart of its strategy, then we need to make sure we continue to deliver on customer proposition and service. The sales growth rates in all territories are testament to the existing strength and relevance of ASOS’s product offering globally, and we all believe there 8 10 Year in review 18 Corporate responsibility ASOS Plc Annual report and accounts 2013 9 YEAR IN REVIEW The Group has performed strongly in the year, with revenues up 39% to £769.4m (2012: £552.9m) and profit before tax and exceptional items up 23% to £54.7m (2012: £44.5m) as we invested in future growth, particularly in our people, technology, logistics and marketing. Nick Robertson Chief Executive Officer Nick Beighton Chief Financial Officer 10 OUR FASHION Our product offer remains focused on our global, fashion-conscious 20-something customers and we constantly review both our own-label and branded ranges to ensure we lead fashion trends, are globally relevant, and offer appropriate price points. The global relevance of our product range is increasingly important and we have introduced specific ‘counter seasonal’ ranges as well as adding more locally relevant brands. Our ongoing investment in even better value for our customers has been well received and resulted in a higher mix of full price sales and a lower level of discounting, particularly during our Spring/Summer 2013 campaign. We were joined by our new Sourcing Director in August 2013 and during the new financial year will focus on rationalisation of our supplier base to drive further retail gross margin efficiency and reduce lead times, whilst enhancing fashionability and quality. Womenswear and Menswear have both performed strongly during the period. We continued to diversify our Womenswear offer through enhancements to our casual and separates ranges and an increased breadth of product in our specialist Petite, Maternity and Curve ranges in response to consumer demand. We also extended our size range across all product categories to increase relevance in our international markets, particularly in the US and Asia. We strengthened our own-brand range in both Womenswear and Menswear and this accounted for 52.3% of sales over the year (2012: 51.5%). We added new product categories including men’s underwear and women’s ‘Reclaimed Vintage’ and also launched several exclusive designer collaborations including Markus Lupfer for ASOS Black, Marios Schwab Lingerie, Antipodium Shoes, Elliot Atkinson Nightwear, Sophia Kokosolaki and Puma for ASOS Black Menswear. Third-party brands remain a key part of our business; our portfolio includes c.800 brands and we continually review the relevance of our branded offer. During the year we added new brands including New Look, Monki, Only, Boy London, Stussy and The Kooples and, following the year end, Jack Wills and Pull & Bear. OPERATIONS Technology We constantly enhance our websites to ensure we offer the most engaging customer experience, with particular focus on developing and improving our mobile sites and apps as these represent an ever- increasing proportion of our traffic and sales. Our goal is to offer our international customers the same mobile and tablet access that we offer our UK customers and we launched dedicated mobile sites in all markets where we already have local language websites during July 2013. In the UK we upgraded our mobile site in April 2013 and released our upgraded iOS apps and a new android app during October 2013. We will be launching US versions of our android and iOS apps during the first half of the new financial year, and our next focus will be on developing mobile apps to serve our other strategic markets. Customer Experience We added new functionality including ‘Buy-the-Look’, ‘Recently Viewed’ and larger product image sizes. We also launched our new women’s and men’s homepages featuring engaging live dynamic content including our daily feature, ‘This Just Happened’, which gives our customers a continuous stream of the latest fashion news. We continued to make structural changes to our checkout process to support our global expansion, and as part of this process introduced additional payment methods to serve our customers in Germany and the Netherlands, which are already driving increased sales in these territories. We have also seen a significant uplift in subscribers to our annual Premier membership scheme, supported by a price reduction in the UK and launch in the US, Australia and Germany. This entitles members to unlimited free express delivery, special offers, a monthly magazine, previews and priority access during sale periods. Delivery and returns We improved our delivery and returns experience through enhancements to our carrier network. In the UK we extended our next day delivery cut-off to 9pm and introduced a 15-minute delivery slot on these orders. Internationally we introduced a new express service for our Russian customers and reduced our express delivery lead-time by one day in 17 countries and our standard delivery lead-time by one day in the US, France and Germany. This was achieved alongside improved order tracking in the US and France, where 100% of our standard-delivery parcels are now tracked. Finally, we reduced our returns processing lead-time by four days for our customers in France and Germany and have seen a reduction in customer contact regarding returns in these territories as a result. We introduced a next day delivery option for our French customers early in the new financial year. Warehousing Our Barnsley fulfilment centre has shown further improvement in the year with labour cost per unit (LCPU) down 11% to 63p per unit (2012: 71p). Although subject to change as we build out our warehousing capability, our medium-term goal is to deliver an LCPU of 50p, and we progressed towards that target with the transition to a new service provider in August 2013 and the launch of our mechanised despatch sorter in October 2013. We also gained bonded warehouse status in January 2013 and commenced building work on extending the 530,000 sq. ft. site by 140,000 sq. ft., which will provide the storage capacity for the required unit volumes to exceed our £1bn sales target. We expect to launch our mechanised picking solution during the financial year ended 2015 and continue to review our medium-term warehousing One of our studios at Head Office, London requirements to ensure we have the capacity to meet our growth ambitions, including planned capital investment of £25m–£30m on our Barnsley hub during the year to 31 August 2014. Our international logistics strategy has continued to evolve. We relocated our Australian returns centre in March 2013, to reduce costs and provide capacity for future volume growth. During May 2013 we completed the transition from our existing US returns processing centre in Atlanta to a new and more advanced operation in Ohio. We are now fulfilling from returns in the US, and the new facility is the foundation for a full US logistics operation in the future. Finally, we established a logistics partnership in China and will shortly commence domestic distribution to our Chinese customers. Global expansion We deliver to 237 countries and territories and continue to improve our international proposition, particularly in our strategic country markets where we have dedicated websites and in-country teams, and offer locally-relevant products, payment methods, currencies and delivery options. In May 2013, we launched our dedicated Russian website, and have seen subsequent strong growth in this territory. We now have a team of Russian nationals based in our London headquarters to support this market and offer a proposition which is tailored to our Russian customers including local language customer care, dedicated marketing and social media activities and a dedicated express delivery solution. Our operation in the People’s Republic of China is now in final testing phase and will be launched imminently. We have a dedicated Chinese-language desktop and mobile site initially offering around 2,000 locally-relevant own-brand styles, an in-country multi-disciplinary team, dedicated delivery solutions and payment methods, local language customer care and a domestic distribution partner. Initial testing shows that these elements are all functioning effectively and will provide the foundations to maximise the long-term potential of the Chinese market. Our international focus during the next six months will be in further establishing and growing our Chinese operation and continuing to grow our proposition and market share in our key strategic country targets of the UK, US, France, Germany, Australia and Russia. 11 ASOS Plc Annual report and accounts 2013 YEAR IN REVIEW continued PEOPLE TRADING OPERATIONS The Group has achieved another strong performance during the year ended 31 August 2013, with growth in sales and profits across all territories. Revenue Year to 31 August 2013 (Unaudited) £’000s Retail sales Growth Delivery receipts Growth Third-party revenues Growth UK US EU RoW Total Group total International 276,027 77,678 177,708 222,394 477,780 753,807 34% 5,314 (25%) 3,579 7% 57% 51% 35% 44% 40% 1,456 2,212 3,028 6,696 12,010 39% 37% 65% 49% 3% – – – – – – – – 3,579 7% Group revenues 284,920 79,134 179,920 225,422 484,476 769,396 Growth 32% 56% 51% 35% 44% 39% Total Group revenue increased 39%, with total retail sales up 40% on the prior year, driven by strong growth in both the UK (34%) and in our international territories (44%). International retail sales now account for 63% of total retail sales compared to 62% last year. The UK’s performance was ahead of expectations, driven by a particularly positive response to our Spring/Summer 2013 proposition, following a strong peak Christmas trading period. We retained our first place position in the UK for unique visitors to apparel retailers in the 15-34 age range (Comscore, August 2013). We have further enhanced the strength and depth of our management team with the arrivals of our new Supply Chain Director, Chief Information Officer, Director of Finance, Performance Marketing Director, Sourcing Director and our in-country management team. These appointments ensure our senior team has the diversity of skills, experience, and capabilities to deliver our future growth ambitions. The Group’s total headcount increased by 318 employees during the year to 1,352, principally in our Womenswear, Merchandising, Marketing, Technology and Customer Care departments as well as in our in-country teams, including 17 employees who form our multi- disciplinary ASOS China team. During August 2013, ASOS appointed Ian Dyson as Senior Independent Non-Executive Director, replacing Peter Williams. Peter will step down from the Board with effect from the Company’s Annual General Meeting on 4 December 2013 and we are very grateful for his contribution to ASOS over the last nine years. Ian previously held both executive and non executive directorships at FTSE100 and FTSE250 consumer businesses including, most recently, Marks & Spencer and Punch Taverns, and brings a wealth of experience and knowledge of both the retail industry and of technology. Ian’s appointment took effect on 1 October 2013. On 16 July, Kate Bostock, Executive Director Product and Trading, resigned from the company and stepped down from the Board with immediate effect. Maria Hollins has since been promoted to the role of Retail Director and we have further strengthened her retail management team. As previously announced, Jon Kamaluddin stepped down from the Board in October 2013. Shaun McCabe joined the Executive Board of ASOS in September 2013 in the role of International Director, following six years in the role of Vice President: Finance at Amazon Sarl EU. 12 Our strongest growth was in our strategically important international markets. The US was the fastest growing segment with retail sales growth of 57%, following the establishment of our US in-country team early in the financial year and subsequent targeted investment in digital marketing and social media and improvements to our service proposition. Our EU retail sales growth of 51% was driven by strong performances in the countries where we have dedicated websites (France, Germany, Italy and Spain), and was further enhanced by the establishment of our in-country teams in France and Germany at the start of the year as well as the introduction of new payment methods tailored to our customers in Germany and the Netherlands. Retail sales in our Rest of World segment grew by 35%. This segment continues to be dominated by Australia, where growth slowed due to macro-economic factors and our improved stock management, as Australia has historically consumed a high proportion of markdown product. Despite this, we have comfortably maintained our first place Comscore ranking in this territory. Russia is a growing portion of this segment, with strong performance following the launch of our dedicated Russian website in May 2013. Despite retail sales growth of 40%, delivery receipts increased by only 3% since last year as an increasing percentage of our customers enjoy the benefits of our improved free shipping offers, particularly in the UK where we improved our free standard delivery offer from six days to four days and reduced the annual subscription charge for our ASOS Premier service. Third party revenues, which mainly comprise advertising revenues from the website and the ASOS magazine, increased by 7% as we continued to grow revenues from our existing platforms. Trading key performance indicators ASOS’s journey to becoming the world’s no.1 fashion destination continued as we surpassed 7m active customers1 for the first time, with 7.1m customers across the globe having shopped with us during the financial year. This represents a significant increase of 42% over last year. We also surpassed 4m international active customers for the first time, another key milestone in our international expansion. The 1% decline in average basket value was driven by a 6% reduction in average selling price following the restructuring and investment in our pricing architecture during the first half of the year, which was largely offset by a 5% increase in average units per basket. This reflects our quality, price and range improvements, new functionality such as our ‘buy-the-look’ feature, and well-received free international express delivery offers above a minimum spend threshold. Year to 31 August 2013 (Unaudited) KPIs UK US EU RoW Total Group total International Average basket value2 £63.69 £59.13 £59.88 £57.80 £58.93 £61.03 Growth Average units per basket Growth (1%) 2.41 5% 3% (2%) (2%) (1%) 2.47 9% 2.52 5% 2.55 3% 2.52 5% (1%) 2.47 5% Average selling price per unit2 £26.46 £23.95 £23.74 £22.69 £23.36 £24.69 Growth (6%) (5%) (7%) (5%) (6%) (6%) Number of orders (’000) 8,536 1,917 4,652 4,267 10,836 19,372 Growth 36% 58% 56% 39% 49% 43% Total visits (’000)3,4 20,745 9,015 18,849 19,263 47,127 67,872 Growth 47% 53% 52% 35% 45% 46% Active customers (’000)1 Growth 2,814 25% 897 57% 1,960 1,407 4,264 61% 48% 56% 7,078 42% 1 As at 31 August, defined as having shopped with ASOS during the last 12 months. 2 Including VAT. 3 During August. 4 Total visits previously included only website visits; now includes website and mobile visits. Prior year comparatives have been restated. Gross profit The Group generated gross profit of £398.6m during the year (2012: £282.9m), up 41% on last year. Year to 31 August 2013 (Unaudited) £’000s UK US EU RoW Total Group total International Gross profit Growth 136,235 46,447 91,055 124,843 262,345 398,580 33% 51% 53% 39% 46% 41% Retail gross margin 46.1% 57.9% 50.0% 54.8% 53.5% Change 120bps (180bps) 90bps 140bps 70bps Gross margin Change 47.8% 58.7% 50.6% 55.4% 54.2% 20bps (190bps) 80bps 150bps 70bps 50.8% 100bps 51.8% 60bps 13 ASOS Plc Annual report and accounts 2013 YEAR IN REVIEW continued During the year, retail gross margin increased by 100bps to 50.8% (2012: 49.8%), largely as a result of improved stock management which delivered substantial markdown improvements particularly during our Spring/Summer 2013 campaign. These impacts were partially offset during the first half of the year by significant investments in our own-brand product price points, which was most marked in the US as this segment traditionally consumes the highest proportion of own-brand products. Gross margin (including delivery revenues) increased by 60bps to 51.8% (2012: 51.2%). Investment in our operating resources The Group increased its investment in its operating resources and capability ahead of future sales growth, particularly in the areas of marketing, people and distribution costs. Overall, operating expenses increased by 45% to £344.1m, excluding exceptional items (2012: £237.3m) and the total operating costs to sales ratio increased by 180 bps. £’000s Distribution costs Payroll and staff costs Warehousing Marketing Production Technology costs Other operating costs Depreciation and amortisation Operating costs excluding exceptional items Operating cost ratio (% of sales) Year to 31 August 2013 (Audited) Year to 31 August 2012 (Unaudited) Change (115,172) (75,587) (44,302) (40,934) (4,360) (10,225) (40,061) (13,484) (344,125) 44.7% (79,076) (50,070) (32,702) (21,233) (3,780) (8,023) (32,167) (10,224) (237,275) 46% 51% 35% 93% 15% 27% 25% 32% 45% 42.9% (180bps) One of two catwalks at Head Office, London 14 We invested in increased marketing activities during the year, particularly in digital marketing, including pay per click and affiliate marketing, and in country-specific campaigns. Our digital marketing expenditure was targeted on the UK, US, Australia, France and Germany, and our marketing campaigns included our peak ‘Best Night Ever’ campaign in the UK, US and Australia, and local magazine partnerships in France and Germany. The results of these activities are already visible in the strong worldwide growth in sales and active customers during the year, and we expect continued returns on this investment in each of our strategic markets during the new financial year. Our total headcount has increased by 318 employees during the year to support our future growth plans. We also implemented a new ASOS Long-Term Incentive Plan for senior management and recognised an associated non-cash charge of £2.8m during the year. As a result of these investments in our people, our payroll cost ratio increased by 70bps to 9.8% of revenue (2012: 9.1%). We continued to invest in our customer delivery proposition, making improvements to our next day, express and standard options, with both reduced lead-times and improvements to our service levels including shorter delivery windows and an increased proportion of tracked parcels. We also offered free international express delivery above a minimum spend threshold. As a result, our distribution cost ratio has increased by 70bps to 15.0% (2012: 14.3%). We maintained tight cost control and delivered operating leverage in our warehouse, production and technology activities. The Barnsley fulfilment centre continued to perform strongly, with a decline in average labour cost per unit for the year of 11% compared with last year, resulting in an increase of only 35% in total warehouse costs compared to a 43% increase in the number of orders. Depreciation and amortisation costs increased by 32%, largely as a result of investment in our IT infrastructure. Group profit The Group generated profit before tax and exceptional items of £54.7m up 23% on last year (2012: £44.5m). £’000s Revenue Cost of sales Gross profit Year to 31 August 2013 (Audited) Year to 31 August 2012 (Unaudited) 769,396 (370,816) 398,580 552,854 (269,997) 282,857 (79,076) Change 39% 41% Distribution costs excluding exceptional items (115,172) Administrative expenses excluding exceptional items (228,953) (158,199) Operating profit before exceptional items 54,455 45,582 19% Finance income Finance expense 283 (68) Profit before tax and exceptional items 54,670 – (1,109) 44,473 (4,463) 40,010 (10,473) 23% 37% – 54,670 (13,744) 40,926 29,537 39% Exceptional items Profit before tax Income tax expense Profit after tax Exceptional items The transition to our new warehousing facilities was completed by 31 March 2012 and all related property provisions were utilised by 31 August 2012. There is therefore no exceptional cost or cash outflow during the year ended 31 August 2013. The main components of the exceptional charge to the profit and loss account were as follows: £’000s Dual site decollation costs Vacant property costs Impairment of assets Total Year to 31 August 2013 (Audited) Year to 31 August 2012 (Unaudited) – – – – (228) (1,435) (2,800) (4,463) Taxation Earnings per share The effective tax rate before exceptional items for the Group was 25.1%, 90bps lower than the prior year (2012: 26.0%), as a result of a reduction in the prevailing UK corporation tax rate. Going forward, we would expect the effective rate of tax pre-exceptional items to be around 150 bps higher than the prevailing UK corporation tax rate due to permanent disallowable items, including the charge in respect of the ASOS Long-Term Incentive Plan. Basic underlying earnings per share1 increased by 18% to 50.1p per share (2012: 42.5p), and diluted underlying earnings per share1 increased by 24% to 49.2p per share (2012: 39.6p). Basic earnings per share2 increased by 31% to 50.1p per share (2012: 38.1p), and diluted earnings per share2 increased by 38% to 49.2p per share (2012: 35.6p). 1 Underlying earnings per share has been calculated using profit after tax but before exceptional items. 2 Earnings per share has been calculated using profit after tax and exceptional items of £nil (2012: £4.5m). 15 ASOS Plc Annual report and accounts 2013 YEAR IN REVIEW continued Statement of financial position The Group enjoys a robust financial position including a strong cash balance and a clean stock position as we begin the new Autumn/Winter season. During the year, net assets increased by £53.8m to £159.8m (31 August 2012: £106.0m), driven by profit after tax for the year. The summary statement of financial position is shown below. £’000s Goodwill and other intangible assets Property, plant and equipment Deferred tax asset Non-current assets Working capital Net funds* Derivative financial assets Current tax (liability)/asset Net assets * Cash and cash equivalents less bank borrowings Year to 31 August 2013 (Audited) Year to 31 August 2012 (Unaudited) 39,686 30,031 8,902 78,619 12,257 71,139 225 (2,441) 23,236 27,293 8,111 58,640 19,038 27,884 – 425 159,799 105,987 Hanging instead of folding keeps selected ranges in better condition at our Barnsley fulfilment centre 16 Statement of cash flows The Group generated cash of £43.3m during the year (2012: £13.7m) and the closing cash balance was £71.1m at 31 August 2013, up from £27.9m at 31 August 2012. Net funds were £71.1m (31 August 2012: £27.9m). The summary statement of cash flows is shown below. £’000s Operating profit Exceptional items Operating profit before exceptional items Depreciation and amortisation Losses on disposal of assets Working capital Share-based payments charges Tax (paid)/received Other non-cash items Operating cash outflow relating to exceptional items Cash inflow from operating profit Capital expenditure Proceeds from issue of ordinary shares Net cash inflow/(outflow) relating to Employee Benefit Trust Acquisition of subsidiary Repayment of revolving credit facility Net finance expense paid Total cash inflow Year to 31 August 2013 (Audited) Year to 31 August 2012 (Unaudited) 54,455 – 54,455 13,484 298 5,391 4,005 (3,353) (104) – 74,176 (31,328) 299 160 36 – (88) 41,119 4,463 45,582 10,224 – (9,876) 953 1,883 – 48,766 (1,695) 47,071 (21,654) 463 (1,337) – (10,000) (842) Cash inflow from operating profit before exceptional items 74,176 Our investments are funded by operating cash flows, with additional short-term and medium-term facilities to support working capital movement and planned capital expenditure. At 31 August 2013, the Group had in place an undrawn revolving loan credit facility of £20.0m which includes an ancillary £10.0m guaranteed overdraft facility and is available until July 2015. The Group seeks to reduce exposures to interest rate, foreign exchange and other financial risks, to ensure liquidity is available to meet the foreseeable needs and to invest cash assets safely and profitably. Our hedging strategy seeks to hedge our future foreign currency exposure for between six and 12 months forward. We do not engage in speculative trading in financial instruments and transact only in relation to underlying business requirements. Surplus funds are invested in short-term deposits with the objective of maximising the return on surplus cash. Further information can be found in note 21 to the financial statements. 43,255 13,701 OUTLOOK Cash generated from operating profit before exceptional items increased by £25.4m, due to EBITDA improvements of £12.1m and a favourable working capital movement of £15.3m. This is the result of a one-off VAT and duty benefit of £6.7m as we gained approval to operate a bonded warehouse at Barnsley from January 2013, as well as timing of supplier payments. Capital expenditure increased by £9.7m on the prior year as we invested in our IT infrastructure to drive future growth. We have started the new financial year positively. Our £1 billion sales target is now firmly in our sights and we have stepped up our investment in people, technology, logistics and marketing to support the significant global potential of the ASOS business. Fixed asset additions £’000s IT Office fixtures and fit-out Warehouse Total Year to 31 August 2013 (Audited) Year to 31 August 2012 (Unaudited) 21,337 3,842 7,791 14,832 2,437 3,786 32,970 21,055 Nick Robertson Chief Executive Officer Nick Beighton Chief Financial Officer The majority of fixed asset additions were to enhance our websites and underlying IT infrastructure to support future growth and create a truly global platform, including the development of our ASOS China operation and Russian website. We also developed our new mechanised despatch sorting process and commenced the extension to our Barnsley fulfilment centre. During the next two years, we will significantly increase our investment in our IT and logistics infrastructure to c.£55m per year to support our future growth plans, including expenditure of £25m–£30m on Barnsley during the year to 31 August 2014. 17 ASOS Plc Annual report and accounts 2013 CORPORATE RESPONSIBILITY Fashion with Integrity 18 Our corporate responsibility programme, ‘Fashion with Integrity’, comprises four pillars: ethical trade, sustainable fashion, sustainable business and community. It is designed to help deliver our wider business strategy and embed sustainable working practices at all levels throughout the company. We became a signatory to the ten principles of the United Nations Global Compact in 2012. These principles, alongside valuable input from our stakeholders, are shaping the development of Fashion with Integrity, informing how we prioritise and tackle our biggest sustainability challenges, including: • reducing emissions from making and sending products overseas • creating lighter packaging and less waste • sourcing more sustainable materials for our products • ensuring all of our suppliers operate fair and safe working environments. Ultimately, we are working to balance our rapid global growth with our goal of reducing our environmental footprint, while continuing, with the support of the ASOS Foundation, to have a positive impact on our local communities. Highlights of the year • Published our first Corporate Responsibility report online • Training all of our buying and merchandising teams on sustainable fashion practices • Joined the Sustainable Clothing Action Plan (SCAP) which supports our efforts to reduce the environmental footprint of our supply chain • Won the RSPCA’s 2012 Good Business Innovation award for our animal welfare programme • Working with Beat, the eating disorders charity, to provide online support and advice to adults • Established the Stitching Academy to provide vocational training to young unemployed people in London • Launched Project Pipeline through the ASOS Foundation to provide essential amenities and training to young Kenyans Ethical trade 1 Interview with Alice Strevens, Ethical Trade Manager, ASOS Regardless of where we buy our products, we want to ensure that they are sourced from manufacturers who operate in a way that respects workers’ rights, maintains safe working conditions, upholds local employment laws and protects the environment. This is what our customers expect, and we believe that manufacturers with safe and fair working conditions produce the best quality goods. To support our ethical trade programme, we have standards, codes and policies defining the responsible sourcing principles we adhere to and that we expect our suppliers to comply with. We provide local support to help suppliers improve where needed and commit to reviewing and improving our own sourcing practices regularly, to ensure that our actions do not compromise a supplier’s ability to reach our standards. Working collaboratively with suppliers cements our working relationships and provides the opportunity to gather valuable feedback to further strengthen our ethical trade programme. PERFORMANCE • Implemented a new supplier assessment process to ensure we only work with factories that comply with our principles • Visited 256 supplier sites to monitor working conditions and give support • Expanded the ethical trade team from eight to eleven people in the past year • Trained all buyers and merchandisers on ethical purchasing practices • Trade creditor payment period for the Group for the financial period under review was 59 days (five months to 31 August 2012: 54 days); for the Company for the same period was nil (five months to 31 August 2012: nil) Why is ethical trade important for ASOS? To supply customers with high quality fashion we need a supply chain that is responsive and reliable and which will work collaboratively with ASOS to achieve long-term, sustainable change. At ASOS, ethical trade is a key ingredient of a well-managed supplier or factory. We believe that for suppliers to become more efficient they need to invest in the safety and welfare of their workforce, and we help them to identify ways to do this. What do ASOS’s ethical trade teams do? The UK-based ethical trade management team oversees the global ethical trade programme, liaises with buying teams to ensure the ethical performance of our suppliers has an increasing influence on sourcing decisions, and provides training. Meanwhile, our regional ethical trade team, with associates based in China, India, Turkey, Eastern Europe and UK, builds relationships directly with the suppliers and manufacturers and carries out site assessments to identify and address the root causes of any poor working conditions. How does the ASOS ethical trade programme benefit workers? Through our ethical trade programme we hope to make factory owners and managers more aware of the untapped potential of their workers. Our Code of Conduct and Ethical Standards set out the key principles for improving basic rights for workers. Training sessions, site visits and workshops then provide suppliers with more practical advice on how to embed these principles. In particular, the workshops provide a forum for our suppliers and manufacturers to get together to share best practice and learn from each other about the benefits of trading ethically and supporting their workers. We are confident that this approach will help to ensure safer, fairer and more secure employment conditions for people working in manufacturing sites supplying ASOS. 19 ASOS Plc Annual report and accounts 2013 CORPORATE RESPONSIBILITY continued ASOS AFRICA AND A NEW FACTORY IN KENYA The ASOS Africa range launched in 2009 in partnership with SOKO, the Kenyan clothing workshop which provides fair and safe employment and training for Kenyan women. In November 2012, amid growing demand for the ASOS Africa label, SOKO opened a new factory, doubling its previous capacity. ASOS’s contribution, which met half the cost of the factory, was funded by sales of the ASOS Africa collection which were then matched by the ASOS Foundation. The new factory has not only boosted production and provided more employment but also allows SOKO to work with other customers, further supporting local community development. Sustainable fashion We are using our global reach to PERFORMANCE champion environmental and ethical products through The Green Room, an online destination within ASOS.com, where customers can go to learn about and buy sustainable fashion Our creative and buying teams have a range of tools to help them design and source more sustainable products, including signposts that tag those items that already have a social or environmental benefit and master classes to help enhance the sustainable fashion credentials of our own-label clothing. ASOS firmly believes that animals should not suffer in the name of fashion or cosmetics. In 2012, we rewrote our animal welfare programme policy in line with industry best practice. We also educate our buyers, suppliers and customers so they can identify higher animal welfare products. • Trained our buyers and merchandisers on our product sustainability programme • Launched the ‘Sustainable Signpost’ system to highlight important features of our sustainable products • Won the RSPCA‘s 2012 Good Business Innovation Award for our animal welfare programme • Joined the Sustainable Clothing Action Plan (SCAP) who is supporting our efforts to lower our supply chain’s environmental footprint • Won the Retail Leader award at the Source Awards 2012 recognising our commitment to sustainability 2 20 Sustainable business 3 We believe in growing our company in a sustainable way, adding social value and minimising environmental impacts while ensuring ASOS’s long-term commercial viability. • The environment: we aim to make our operations and use of resources as efficient as possible. We have been CarbonNeutral™ since 2008 and we are continually changing how we make and receive deliveries to reduce our carbon footprint as we expand internationally. • Our people: we aim to attract the best creative talent by making ASOS a fast-paced, diverse and inspiring place for people to work. We reward our people through promotions, international placements, exciting secondments and a wide range of professional development prospects. We also have policies and programmes in place to ensure that everyone who works for ASOS is afforded the same rights, opportunities and protection. • Our customers: we aim to provide our customers with the best products and outstanding service, including continually improving our systems to prevent fraud and protect our customers’ data. We’re also engaging customers to help them make sustainable choices about the products they buy and how they use them, while promoting healthy, positive body images. PERFORMANCE • All of our boxes and bags are now 100% recyclable • Recycling messages are now included on boxes and customer communications • We launched a centralised HR information system, the People Hub, which helps employees to access our market-leading flexible benefits programme, information on ‘The Collection’ – our in-house training programme – as well as claim expenses, book travel, conduct performance reviews, update objectives, access payslips, revise personal details or simply book holiday leave • Worked with Beat, the eating disorders charity, to provide online support and advice for adults with eating disorders • In 2012/13 we answered 4.2m emails and 260,000 social media queries from our customers • Ranked no.1 of all UK organisations again for customer satisfaction in the Institute of Customer Service’s national satisfaction survey in January 2013 THE ENVIRONMENT ASOS is an online business, with offices in the UK and in strategic international locations. We do not have any ‘bricks and mortar’ stores but ship our products to 237 countries and territories from the UK. We began measuring our carbon footprint in 2008; this exercise has demonstrated that our biggest environmental impacts come from the carbon emissions resulting from customer deliveries, the running of our buildings, and packaging and waste. We are implementing systems that can measure our emissions from customer deliveries and from our premises more accurately so that we can set realistic but stretching targets to reduce our carbon footprint. Carbon footprint ASOS has been certified as a Carbon NeutralTM company since 2008. Our carbon footprint for 2012 was calculated to be 20,248 tonnes CO2. Our expansion overseas has led to a sharp rise in airfreight emissions from customer deliveries: these now make up 70% of our overall carbon footprint. Tackling emissions from deliveries We are working with our partners to minimise emissions by reducing packaging, introducing fuel saving technologies and researching low-carbon vehicles and fuels. We have started to review new delivery partners based on these sustainability requirements. We have also set up regional hubs in Australia and the US so that beginning in 2013 when items are returned from those countries, they can be shipped out to new local customers as new orders, thereby cutting emissions and delivery times. 21 ASOS Plc Annual report and accounts 2013 CORPORATE RESPONSIBILITY continued Interview with Robert Muldoon, Delivery Solutions Manager, ASOS What were your biggest environmental challenges in 2012/13? Our biggest environmental challenge as a rapidly growing business is how to manage our carbon emissions from customer deliveries. Two thirds of ASOS’s carbon footprint is attributable to overseas deliveries, most of it from air freight. We purchase a significant amount of packaging annually to help protect our products during transit, so we have a clear responsibility to use lighter packaging that can also be completely recycled by our customers. What solutions have you put in place for packaging? All boxes are made of 100% recycled material and both our boxes and bags have been designed so that customers can reuse them for returns or recycle them. We have increased the recycled content of our plastic delivery bags. We recycle all bags and boxes returned by customers. How can we reduce the impact of customer deliveries? We are currently talking to our suppliers about how they can contribute. Many have programmes in place to reduce their carbon footprints. For example DPD, one of our UK and European carriers, offsets for free, as part of their standard service, all of the emissions generated from ASOS deliveries. Many others are also reducing their own carbon footprints, for example by building new logistic hubs to make better use of energy-saving technology. What are your priorities for the coming year? We want to offer customers ‘drop’ locations such as shops or lockers. This would allow our carriers to drop a number of consignments at a single location instead of taking parcels to individual home addresses every time. We are also discussing with our UK suppliers the use of electric, multi-fuel and fuel saving technology. Energy efficiency Packaging and waste Our buildings generate approximately 20% of our carbon footprint. The energy efficiency measures we have put in place in our buildings over the last two years include installing more efficient lighting systems in the buildings we own, purchasing energy using a green energy tariff and developing a ‘green’ IT strategy. Our new fulfilment centre in Barnsley, Yorkshire has been rated ‘excellent’ by BREEAM (the Building Research Establishment’s environmental assessment method). We are working hard to address one of our biggest impacts, packaging by using lighter, bespoke packaging to help reduce emissions from customer deliveries, increasing recycled content, and minimising packaging ink coverage to improve recyclability. The amount of waste we send to landfill from our headquarters and fulfilment centre fell by 99% in 2012. Overall, we aim to meet our target of sending no waste at all to landfill during the next year, and have set ourselves a goal of increasing the amount of waste we recycle from 40% to 70%. 22 OUR PEOPLE Employees As at 31 August 2013, the Group employed 1,352 people (excluding employees at the Group’s warehouse and European language customer care employees who are employed through an outsourced contract). All of the Group’s employees and outsourced employees are central to the Group’s success. Employees working through outsourced arrangements are regularly included in Group communications and all receive access to employee discount benefits so that they are directly engaged with our products and brand, in a similar way to other ASOS employees. Equal opportunities ASOS is committed to eliminating discrimination and encouraging diversity amongst its workforce. ASOS aims that its workforce will be truly representative of all sections of society and that each employee feels respected and is able to perform to the best of his or her ability. ASOS aims to have a workforce which reflects its diverse customer base. ASOS will not make assumptions about a person’s ability to carry out their duties based for example on their ethnic origin, gender, sexual orientation, marital status, religion or other philosophical beliefs, age or disability. ASOS will not make general assumptions about the capabilities, characteristics and interests of particular groups that may influence the treatment of individuals, the assessment of their abilities and their access to opportunities for training, development and promotion. Should an employee develop a long-term health concern or disability whilst working for the Group, efforts are made to encourage their return to work with occupational health intervention including making any necessary adjustments within the workplace and retraining. Whilst being committed to enabling all employees to develop their careers irrespective of their gender, ASOS fully supports all initiatives to ensure the appropriate representation of all genders throughout all levels of the Company. Of the seven members of ASOS’s board, 29% are female and 71% are male. Overall, 68% of full-time employees are women and 32% are men (previous five months to 31 August 2012: 65% women and 35% men), whilst 93% of part-time employees are women and 7% are men (previous five months to 31 August 2012: 93% women and 7% men). In the last 12 months, the Company has completed the implementation of ‘People Hub’, its new Human Resources Information System which is integrated with payroll and up to six additional systems. Amongst other things, it will enable monitoring and reporting of key metrics including diversity and equal opportunities. This system was rolled out to all employees in September 2012. Learning and development Learning and development at ASOS are focused on delivering knowledge, skills and behavioural improvement for all employees in the business. Focus is on broader development, but, where training is required, it is predominantly designed and delivered in house covering compliance, business essentials and soft skills. Beginning with an in- depth induction programme, we equip new employees with everything they need to know and demonstrate how to be effective in their roles quickly (95% of new hires attended induction in the last financial year). Development within the role is critical for all employees as the business grows. In the past year, all senior leaders attended the ‘Leaders at ASOS’ programme in order to equip them with the best-in-class leadership skills they need. Employees can enrol in ‘The Collection’, our suite of learning and development courses which we launched in October 2012. Employee engagement Employees are kept informed of the performance and objectives of ASOS through regular briefings and emails, and ASOS’s open management style encourages employees to contribute to the development of the business. ASOS conducts an all-employee survey every two years and the next survey is scheduled to take place in March 2014. Health and wellbeing Our employees and people working on behalf of ASOS are entitled to a safe working environment. Health and safety risk assessments are carried out regularly and our policy is reviewed annually. Employee share ownership The Company believes that it is very important where possible to align employee incentives with the expectations of shareholders. Details on schemes to encourage employee share ownership are set out in the Directors’ Remuneration Report on pages 37 to 45. OUR CUSTOMERS We have 7.1m active customers in 237 countries and territories. To us, being a sustainable business means giving our customers the highest standards of customer care, including protecting their personal information, preventing fraud and promoting a positive body image. Customer care We are available 24 hours a day, 365 days a year to answer customer queries and offer help – mainly via email and social media – in a number of languages. No matter where in the world a customer is contacting us from, we want their experience to be personal, friendly and as ‘local’ as possible. We aim to respond to every contact quickly and to provide a quality of service that will encourage loyalty and keep customers coming back. Always looking for ways to improve our service, Customer Care has a new technology platform which gives customers more ways to get immediate answers to their questions – online, anytime, on any device. It also gives our advisors smarter information on customer queries all in one place, so we can provide even better care and support. Fraud and data security Protection from fraud and data security measures are some of the most important services we provide for our customers. We use an automatic anti-fraud system that reviews every order and selects 3% for manual review by the Profit Protection Team, who work to ensure threats are mitigated as efficiently and effectively as possible. We have technical and physical security controls to prevent unauthorised access to customer data. To reassure customers, we guarantee to use access restrictions, encryption of certain customer data, and alert systems. Positive body image We want to use our influence among young fashion-lovers to promote more responsible and healthy body images than are often seen in our industry. To this end we have: • adopted a Model Welfare policy and guidelines on digital manipulation to protect our models and customers • created clothing ranges and websites that celebrate and promote the diversity of our customers. The eating disorders charity Beat provided training on body image health to our Customer Care teams to help them to respond sensitively to customer questions about body image and eating disorders, and direct them to appropriate help where required. 23 ASOS Plc Annual report and accounts 2013 CORPORATE RESPONSIBILITY continued Employees in the community Our workplace giving scheme supports 60 individual charities. The ‘Give a Day Away’ programme, launched in 2012, encourages colleagues to take a paid day each year to volunteer at a charity of their choice. Performance • Launched Project Pipeline to bring water to 5,000 people in rural Kenya • Established The Stitching Academy to providing vocational training to young unemployed people in London • 16% of employees participated in Give a Day Away • Established a community investment programme in Barnsley, home of our fulfilment centre • End of life samples donated to Oxfam raised £98,000 for the charity • Improved SOKO’s workshop premises and, from Spring 2013, ASOS Foundation began supporting the wider community around SOKO with donations to a technical training college, a secondary school and a disabled craft group Our community programme aims to make a positive difference to young people’s lives in the communities where we operate. Our community programme is supported by the ASOS Foundation and our employees, who donate time, money – or both. During the year ended 31 August 2013, the Group made charitable donations totalling £211,370, which included donations made directly to charities, as well as those made via the ASOS Foundation. ASOS Foundation The ASOS Foundation, an independent charitable trust funded by ASOS, provides inspiration, support and training for disadvantaged young people to help them overcome barriers and change their lives for the better. Since 2009, the Foundation has been creating opportunities for young adults in partnership with charities such as The Prince’s Trust, Camden’s famous Roundhouse venue, Indian children’s homes provider Udayan Care and Kenyan social enterprise SOKO. In 2012, the ASOS Foundation launched two new initiatives – Project Pipeline, which provides essential amenities, equipment and training to young Kenyans, and the Stitching Academy in the UK, which has begun offering entry-level apprenticeships following the success of our Level 3 garment technology course. ‘Stitching Skills’ and at least forty young people are expected to secure employment, further education or additional apprenticeships as a result of the scheme. The ASOS Foundation supplies all technical equipment and machinery and matches contributions from Haringey Council for teaching costs. Community 4 THE STITCHING ACADEMY In July 2013, ASOS launched the Stitching Academy in partnership with social enterprise Fashion Enter Ltd. The Academy is an extension of the National Apprenticeship in Fashion and Textiles Apparel scheme and offers six-week internships to 120 young people at ‘The Factory’, a clothing factory which ASOS helped establish in North East London. Apprentices can gain a Level 1 qualification in 24 26 Board of Directors 28 Corporate Governance Report 32 Directors’ Report 37 Directors’ Remuneration Report 46 Statement of Directors’ Responsibility ASOS Plc Annual report and accounts 2013 25 BOARD OF DIRECTORS Brian McBride Nick Robertson Nick Beighton Jon Kamaluddin Chairman Chief Executive Officer Chief Financial Officer International Director Brian joined ASOS from Amazon.co.uk where he was Managing Director from 2006 to 2011. Brian is a member of the UK Government’s digital advisory board, which is helping deliver government services to the British people through digital means. He is also senior adviser at Scottish Equity Partners, is a Non Executive Director of the Board of the BBC, and a member of the advisory board of Huawei UK. Brian is the Senior Non Executive Director at Computacenter Plc, a member of the Advisory Board of Numis Plc, and a member of the Court (Governing Body) of the University of Glasgow. He was appointed Chairman of ASOS on 1 November 2012. Nick co-founded ASOS.com in 2000. His career began in 1987 at the advertising agency Young and Rubicam. In 1991 he moved to Carat, the UK’s largest media planning and buying agency. In 1995 he co-founded Entertainment Marketing, a marketing services business. Nick was awarded an OBE in 2011 for his achievements in the world of fashion retailing. Nick is a chartered accountant who qualified at KPMG, working in transaction services and within the strategic business management group. He joined Matalan in 1999 as Head of Finance and became Business Change and IT Director ahead of his appointment to the company’s retail board in 2003. In August 2005, Nick joined the board of Luminar entertainment group as Finance Director. Nick is a member of the EU eCommerce Task Force and the Future Fifty Programme Advisory Panel. He was appointed Chief Financial Officer of ASOS in April 2009. Jon qualified as a chartered accountant at Arthur Andersen, where he began his career working in corporate recovery. He left to join Marks & Spencer where he spent three years in a number of financial positions including Head of Finance for the Per Una brand. In 2004, Jon joined ASOS as the company’s Finance Director, before taking on the role of International Director in April 2009 to accelerate the international strategy for the business. As announced on 24 April 2013, Jon will step down from the ASOS Plc Board in October 2013 and will leave the company on 1 December 2013. 26 Peter Williams Karen Jones Mary Turner Ian Dyson Senior Independent Non Executive Director Peter joined the ASOS board in April 2006, and he chairs the Audit Committee and sits on the Remuneration Committee. Peter is currently a member of the Design Council, Chairman of OfficeTeam and Non Executive Director of Cineworld Group Plc, Sportech Plc and Silverstone Holdings. He has previously served on the boards of EMI Group Plc, Blacks Leisure Group Plc, JJB Sports Plc, Capital Radio Group Plc and GCap Media Plc. A former Chief Executive of Selfridges Plc, where he also acted as Chief Financial Officer for over ten years, Peter was also Chief Executive of Alpha Group Plc. Peter has a degree in mathematics from Bristol University and is a chartered accountant. As announced on 16 April 2013, Peter will step down from the Board of ASOS Plc with effect from 4 December 2013. Board changes that occurred during the year Non Executive Director Non Executive Director Non Executive Director Karen joined the ASOS board in September 2009 and is the Chair of the Remuneration Committee and a member of the Audit and Nomination Committees. Karen is the founder and Chairman of Food & Fuel Limited and a Non Executive Director of Booker Group Plc, Cofra Holdings AG, Firmenich International, Rex Restaurants Ltd and Royal National Theatre Enterprises as well as chairing Hawksmoor. Karen is the co-founder of Café Rouge and former Chief Executive of Spirit Group Limited. She is also a former Non Executive Director of HBOS Plc, Virgin Active Ltd, Gondola Holdings Plc and Emap Plc. Karen was awarded the CBE in 2006 for her services to the hospitality industry. Mary is Chief Executive of AlertMe.com, which has led the way in cloud-based ‘Smart Energy’ services. Mary joined the ASOS board in September 2009, and sits on the Audit, Remuneration and Nomination Committees. She was Managing Director and Chief Executive Officer of Tiscali UK Limited from 2001 to 2009. Prior to joining Tiscali, Mary was Chief Executive Officer of BTLineOne, the joint venture between BT and United News Media, and Senior Vice President Marketing (Europe) at CompuServe Information Services. She has also held the position of General Manager of Capital Sales at Innovation Group and prior to that, worked in sales and marketing at Avon Cosmetics and Elizabeth Arden. As announced on 7 August 2013, Ian Dyson will join the ASOS Plc Board with effect from 1 October 2013 as Senior Independent Non Executive Director. Ian will replace Peter Williams as the Chairman of the Audit Committee with effect from 4 December 2013. Ian has more than a decade’s experience in the public market arena and has held both executive and non executive directorships at FTSE100 and FTSE250 companies. He was Group Finance and Operations Director of Marks & Spencer Plc from 2005 to 2010, before becoming Chief Executive at Punch Taverns Plc in 2010. Prior to that, Ian was Group Finance Director of Rank Group Plc. Ian is currently a Non Executive Director and Chair of the Audit Committee at Betfair Plc, a Non Executive Director of Punch Taverns Plc and as of 1 September 2013 a Non Executive Director at Intercontinental Hotels Group Plc. Ian was previously a Non Executive Director and Chair of the Audit Committee at Misys Plc. Lord Alli Chairman (Resigned 31 October 2012) Lord Alli is Chairman of Silvergate Media Limited, a media company that specialises in children’s TV, publishing and merchandising. He is a Non Executive Director of Olga Productions, a patron of The Elton John Aids Foundation, Chancellor of De Montfort University, President of the National Youth Theatre and a Trustee of WNET Channel 13 in New York. Lord Alli was appointed to the House of Lords in 1998 where he takes particular interest in issues relating to equality and the media. Robert Bready Product and Trading Director (Resigned 10 October 2012) Robert began his career at River Island where he held a variety of merchandising roles across womenswear and menswear. In 1997, Robert moved to The Arcadia Group, where he spent eight years working across young fashion retailers Miss Selfridge and Topman, eventually becoming a senior executive for the Miss Selfridge brand. In 2005 Robert joined ASOS.com and in 2006 was promoted from Head of Merchandising to Product Director, and then to Product and Trading Director. Kate Bostock Executive Director, Product & Trading (Appointed 15 January 2013; resigned 16 July 2013) Kate joined ASOS after working at Marks & Spencer Plc for eight years, first as the Business Unit Director for Womenswear, then as Executive Director for General Merchandise after three years. Prior to that, Kate was clothing director for George at Asda, and Divisional Director for Childrenswear at Next Plc, as well as heading up the buying division at a mail order business and acting as Design Director for a large manufacturing company. 27 ASOS Plc Annual report and accounts 2013 CORPORATE GOVERNANCE REPORT The Board of the Company is committed to appropriate standards of corporate governance, as an important part of an innovative, effective and efficient approach to managing the Company, its subsidiaries and all its businesses (together ‘the Group’) for the long-term benefit of all shareholders. The Company’s policies are monitored to ensure that they are appropriate to the Company’s nature, status, size and circumstances, and are explained below. decision across eight scheduled meetings each year. It also delegates specific responsibilities to the Board Committees as detailed in this Report, with the role and responsibilities of each Committee set out in clearly defined Terms of Reference. Prior to the start of each financial year, a schedule of dates for that year’s Board meetings is compiled to accord THE BOARD power to the Board to appoint directors as far as reasonably practicable with the The Board’s primary tasks are to enhance shareholders’ interests by: and, where notice is given and signed by Company’s financial calendar, although this all the other directors, remove a Director may be supplemented by additional meetings from office. There is a formal, rigorous and as and when required. • reviewing and approving the overall Group transparent procedure for the appointment of strategy and direction • determining, maintaining and oversight of controls, audit processes and risk management policies (including treasury and dividend policy), to ensure the effective operation of the Company • approving of the financial statements, as well as revenue and capital budgets and plans • the approval of material agreements and non-recurring projects new directors to the Board. The Company’s Articles of Association require that one-third of the directors offer themselves for re-election annually in rotation. All directors will offer themselves for re-election at least once every three years, whilst any new Board directors appointed during a year are required to offer themselves for election at the next AGM following their appointment. This enables the shareholders to decide on the election of their Company’s Board. With regard to those directors who offer themselves for re-election at the next AGM, the Board unanimously The Board receives appropriate and timely information prior to each meeting, with a formal Agenda, and Board and Committee papers being distributed several days before meetings take place. Any director may challenge Company proposals, and decisions are taken democratically after discussion. Any director who feels that any concern remains unresolved after discussion may ask for that concern to be noted in the minutes of the meeting. Any specific actions arising from such meetings are agreed by the Board, and then followed up by the management. • reviewing and approving of remuneration believes that the contributions made by those The directors have access to the General policies. directors continue to be effective and that the Counsel and Company Secretary in order Company and its shareholders should support to support the performance of their duties As at 22 October 2013, the Board comprised the Chairman, two Executive Directors and their re-election. four Non Executive Directors. During the There is a clear division of responsibility at financial year to 31 August 2013, several the head of the Company. The Chairman Board changes took place: Robert Bready is responsible for the running of the Board resigned on 10 October 2012; Lord Alli and for ensuring appropriate strategic focus left effective from 31 October 2012; Brian and direction. The Chief Executive Officer McBride was appointed as Chairman effective is responsible for setting and implementing 1 November 2012 and Kate Bostock was the strategy approved by the Board and appointed to the Board on 15 January 2013 overseeing the management of the Company, and resigned on 16 July 2013. After the year through the running of the Executive Board. end Jon Kamaluddin stood down from the During the financial year to 31 August Board on 1 October 2013, Ian Dyson joined 2013, Peter Williams acted as the Senior the Board on 1 October 2013, and Peter Independent Director. With effect from Williams will step down with effect from 4 1 October 2013, Ian Dyson will take over December 2013. Short biographies of each of that important role. the Directors who served during the financial year or who have been appointed since are set out on pages 26 to 27. to bring independent judgement to bear on all matters, whether strategic or operational. The Board is satisfied that there is an effective The actions and decisions of all of the Non and appropriate balance of skills and Executive Directors who served during the experience across the members of the Board, year and up to the date of this report are including (without limitation) in the areas considered by the Board to be independent in as directors of the Company. There is also an agreed procedure to enable individual directors to take independent legal and financial advice at the Company’s expense, as and when necessary to support the performance of their duties as directors of the Company. Throughout their period in office, the directors are also updated on the Group’s businesses and the regulatory and industry specific environments in which they operate by way of written briefings and meetings with senior executives and, where appropriate, external sources. All directors are also offered appropriate training to develop their knowledge and ensure they remain up to date in relevant matters for which they have The Company also has effective procedures in place to deal with conflicts of interest. The Board is aware of the other commitments of its directors and changes to these commitments are reported to the Board. All directors are encouraged to challenge and responsibility as a member of the Board. of retailing, finance, international trading both character and judgement. The General Counsel and Company Secretary operations and IT/eCommerce. The Board met for scheduled meetings eight The Board takes decisions regarding the times during the year ended 31 August 2013. appointment of new directors as a whole. The Board manages the Company through The Company’s Articles of Association give a formal schedule of matters reserved for its has responsibility for ensuring that all Board procedures have been complied with. 28 Board Committees The Committee’s principal responsibilities Nomination Committee The Board is supported by Audit, Remuneration and Nomination Committees. Their specific responsibilities are set out below. Executive Directors are not members of these Board committees, although they may be cover: • financial reporting and external audit (including auditor independence) • internal control and risk management invited to attend meetings. • internal audit. Each committee has access to such information The Audit Committee met three times for and advice as it deems necessary, at the cost scheduled meetings during the year. Its activities of the Company, which also provides sufficient in that period included: a review of the five resources to enable them to undertake their months to 31 August 2012 announcement and duties. The Terms of Reference of each of the the Annual Report and Accounts; a review of committees are available on the Company’s the six months to 28 February 2013 website at www.asosplc.com. Each committee announcement; the oversight of the appointment is responsible for reviewing the effectiveness of and relationship with the external auditors, of its terms of reference, as appropriate, together with the assessment of their The Nomination Committee comprises three independent Non Executive Directors: Brian McBride (Committee Chairman), Karen Jones, and Mary Turner. With effect from 1 October 2013, Ian Dyson will join the Committee. Although the other Non Executive and Executive Directors are not members of the Committee, the Chief Executive Officer is invited to attend meetings unless he has a conflict of interest. Other directors, and the General Counsel and Company Secretary, are invited only as appropriate (unless they have a conflict of interest). The Committee is also assisted by executive search consultants as and when required, depending on the activity. and for making recommendations to the Board for changes where necessary. The independence; the consideration of reports from external auditors identifying any The Committee’s principal responsibility is to evaluate the Board’s requirements and ensure Company Secretary acts as secretary to all the accounting or judgemental issues requiring its that appropriate procedures are in place for committees. The minutes of committee meetings attention; review and consideration of reports the nomination, selection and succession of are circulated to all committee members, and on the work of the internal audit function; and directors and senior executives to meet those reports on each committee meeting are given review of the ASOS Anti-Bribery Policy and the requirements. The Committee met twice during by the relevant Committee Chairman to the Company’s Risk Register. the financial year ended 31 August 2013, Board. Audit Committee Remuneration Committee once for a scheduled meeting and once for an unscheduled additional meeting, in each case primarily with regard to the succession process The composition, responsibilities and activities for the role of Senior Independent Director. During the year, the Audit Committee of the Remuneration Committee are set out comprised three independent Non Executive in the Director’s Remuneration Report on Directors: Peter Williams (Committee pages 37 to 45, along with the Company’s Chairman), Karen Jones, and Mary Turner. remuneration policy and details of how that Although they are not members of the policy was implemented during the financial Committee, the Company Chairman, the Chief year to 31 August 2013. Executive Officer and the Chief Financial Officer are invited to attend meetings, unless Attendance at Board/Committee meetings they have a conflict of interest. Also invited to attend (unless they have a conflict of interest) are the General Counsel and Company Secretary, and the Director of Finance, as well as the external and internal auditors. The Board is satisfied that the Chairman of the Committee, Peter Williams, has recent and relevant financial experience. He is a chartered accountant, has held senior financial management positions in other companies, and has chaired audit committees in a number of other listed companies. The Committee’s other members, Karen Jones and Mary Turner have played an active role in all Committee meetings held throughout the year. With effect from 4 December 2013, Ian Dyson will take over as Chairman of the Committee, and the Board is also satisfied that he has recent and relevant financial experience, given his previous executive roles in financial positions. The table below shows the attendance record of individual directors at Board meetings and committees of which they are members. Board Meetings Committees Eligible to Eligible to Eligible to Eligible to attend Attended attend Attended attend Attended attend Attended Audit Remuneration Nomination Brian McBride Nick Robertson Nick Beighton Jon Kamaluddin Peter Williams Karen Jones Mary Turner Lord Alli Robert Bready Kate Bostock 6 8 8 8 8 8 8 2 1 3 6 7 8 7 8 8 8 1 0 3 – – – – 3 3 3 – – – – – – – 3 3 3 – – – – – – – 5 5 5 – – – – – – – 5 5 5 – – – 2 – – – – 2 2 – – – 2 – – – – 2 2 – – – As at 22 October 2013, the Board had met twice since the end of the financial year, 31 August 2013. The Remuneration Committee and the Audit Committee had also each met once each since 31 August 2013. 29 ASOS Plc Annual report and accounts 2013 CORPORATE GOVERNANCE REPORT continued EXECUTIVE BOARD The directors actively seek to build a mutual assessment of the Company’s significant risks. The Executive Board consists of the Executive Directors and key functional directors and meets weekly. Under the chairmanship of the Chief Executive Officer, the Executive Board is responsible for the day-to-day management of the Group’s business and the overall financial performance of the Group in fulfilment of the strategy, plans and budgets approved by the Board of Directors, as well as for managing and overseeing trading performance, key risks, management development, and corporate responsibility programmes. The Chief Executive Officer reports to the Board on issues, progress and recommendations for change which come out of the Executive Board’s activities. In terms of changes to the composition of the understanding of objectives with institutional The General Counsel and Company Secretary shareholders. Shareholder relations are has responsibility for the effective operation managed primarily by the Chief Executive of the risk management process, including the Officer, Chief Financial Officer, the Head of regular review and update of the Business Risk Investor Relations and the Director of Finance. Register, with a view to: The Company releases preliminary and interim results and also issues quarterly trading updates during the year. The Chief Executive • capturing all relevant risks faced across all parts of the business Officer and Chief Financial Officer make • ensuring a separate focus on identifying presentations to institutional shareholders and each risk and the possible consequences if analysts immediately following the release of such risk were to crystallise the full-year and half-year results. The Company communicates with its institutional investors frequently and regularly through a combination of formal meetings, participation at investor conferences and informal briefings with management. In addition, analysts’ notes and brokers’ briefings are also reviewed to achieve • assessing the likely impact of each risk in the context of the size and shape of the Group at that time • assessing the likelihood of each risk arising, in as predictive a manner as possible Executive Board during the financial year a wide understanding of investors’ views. communicating with its shareholders to ensure RISK MANAGEMENT AND INTERNAL that its strategy and performance are clearly CONTROL to 31 August 2013, ASOS hired a new Chief Information Officer and a new Supply Chain Director to strengthen the Group’s management capabilities. A new International Director also joined the Executive Board on 16 September 2013. RELATIONS WITH SHAREHOLDERS The Company recognises the importance of understood. This is achieved principally through the Annual Report and Accounts, preliminary and interim announcements, and the Annual General Meeting (AGM). A range of corporate information (including all Company announcements and presentations) is also available to shareholders and investors on the Company’s corporate website, www.asosplc.com. The Board recognises that the AGM is the principal forum for dialogue with private shareholders. The chairs of the Board and all Committees, together with all other directors, routinely attend the AGM and are available to answer questions raised by shareholders. The Company encourages all shareholders to attend and participate in the AGM. The Notice of Meeting is sent to shareholders at least 21 days before the meeting. • ranking all risks in order of potential effect The Board as a whole is kept informed of the on the Company views and concerns of the major shareholders by briefings from the Chief Financial Officer and Head of Investor Relations. The Non Executive Directors, including the Senior Independent Director, are available to meet • identifying the current mitigating actions being undertaken to manage that risk and assessing possible additional mitigating actions that could be considered with major shareholders if so requested to • appropriately incorporating risk discuss issues of importance to them. management and mitigating actions into the Group’s future strategy and planning. This risk management process is supplemented by the Company’s internal auditors reviewing and reporting to the Audit Committee on the The Board has overall responsibility for the Company’s management and handling of Company’s system of internal control and certain risks in key areas. Further details of the risk management, and for reviewing its principal risks the Company faces are set out effectiveness, whilst the role of the Executive on pages 32 to 35. Board and management is to implement the Board’s policies on risk and control and provide assurance on compliance with these policies. An ongoing risk management process is embedded in the business to identify, evaluate and manage significant risks faced by the Company, including risks relating to social, environmental and ethical matters. Such a system is, however, designed to manage rather Financial controls The Company has an established framework of internal financial control, the effectiveness of which is regularly reviewed by the Executive Board, the Audit Committee and the Board. The key elements of this are set out below. • The Board is responsible for reviewing and approving overall Company than eliminate the risk of failure to achieve strategy, approving revenue and capital business objectives, and can only provide budgets and plans, and for determining reasonable and not absolute assurance against the financial structure of the Company material misstatement or loss. including treasury and dividend policy. Monthly results, variances from plan and forecasts are reported to the Board. Shareholders vote on each resolution by a The internal control procedures are delegated show of hands, unless a poll is validly called, to Executive Directors and senior management and after each such vote the number of proxy in the Company operating within a clearly votes received for, against and withheld is announced. defined departmental structure. The Board regularly reviews the internal control procedures in the light of the ongoing 30 • The Audit Committee assists the Board in the discharge of its duties regarding • A corporate responsibility strategy AUDITOR INDEPENDENCE was approved by the Board, including the Company’s and the Group’s financial objectives and targets to address the statements, accounting policies and the impacts that the Group’s activities maintenance of proper internal business, have on the environment, workplace, operational and financial controls, marketplace and community, clear including the results of work performed by accountability and lines of responsibility at the internal audit function. The Committee Board and operational level and regular provides a direct link between the Board reporting back to the Board on corporate and the external auditors through regular responsibility. The Board is satisfied that the external auditors PricewaterhouseCoopers LLP (PwC) have adequate policies and safeguards in place to ensure that auditor objectivity and independence are maintained. The external auditors report to the Audit Committee annually on their independence from the Company. Periodic rotation of key audit partners is also required. There are no meetings. • The Board has established an high standards of health and safety in all as to the choice of external auditors. • The Board is committed to maintaining contractual restrictions on the Audit Committee organisational structure with clearly defined its business activities. These standards are lines of responsibility and approval controls set out in the Health and Safety Policy. All identifying transactions requiring approval notified accidents are investigated. The Board has also adopted a formal policy on the Company’s relationship with its auditors in respect of non-audit work. The auditors may • The Board approves environmental only provide such services provided that such objectives and specific targets which are set down and regularly reviewed by the advice does not conflict with their statutory responsibilities and ethical guidance. The Executive Board. • The Board is committed to ensuring appropriate standards among its suppliers and has approved and issued the ASOS Supplier Standards (which include and expand upon the Ethical Trading Code of Audit Committee Chairman’s pre-approval is required before the Company uses the auditors to provide non-audit services. The fees paid to the auditors in respect of non- audit services are shown in note 3 to the financial statements. Conduct). These Standards set out the core In line with its Terms of Reference, the Audit trading requirements it expects its suppliers Committee undertakes a thorough assessment to meet, and cover health and safety, of the quality, effectiveness, value and child labour, working hours, wage levels, independence of the audit provided by PwC freedom of association, discrimination and on an annual basis, seeking the views and environmental protection. feedback of the Board, together with other by the Board. The Chief Financial Officer is responsible for the functional leadership and development of the Company’s finance activities. • There is a comprehensive system for budgeting and planning and for monitoring and reporting the performance of the Company’s business to the Board. Monthly results are reported against budget and prior year, and forecasts for the current financial year are regularly revised in the light of actual performance. These cover profits, cash flows, capital expenditure and balance sheets. • The Company has established a uniform system of investment appraisal; executive management has defined the financial controls and procedures with which each business area is required to comply. • The Executive Board oversees the internal control procedures and the ongoing • The Company is committed to ensuring that its employees meet good standards of business integrity and competence. The Group has in place policies which cover the recruitment, training and development of employees, the acceptance of gifts and assessment of the Company’s significant corporate hospitality, the identification risks. Non-financial controls and reporting of connected parties and conflicts of interest, and the zero tolerance of the payment of any bribes by any representative of the Company. The Company has established a wide range of non-financial controls covering areas such as legal and regulatory compliance, business integrity, health and safety, environment, and corporate responsibility (including ethical trading, employment and business continuity). The effectiveness of these are regularly • All Group policies and procedures are communicated throughout the organisation, with training provided in key areas including anti-bribery and design rights. • All material contracts are required to be reviewed by the Procurement and Legal reviewed by the Executive Board, and Departments, and signed by a senior reported on to the Board. The key elements executive of the Company. are set out below. senior management. Following the most recent review, the Audit Committee has decided to recommend to the Board the reappointment of PwC. A resolution to reappoint PwC as auditors of the Company and to enable the directors to determine their remuneration will be proposed at the Annual General Meeting. 31 ASOS Plc Annual report and accounts 2013 DIRECTORS’ REPORT The Directors of ASOS Plc (‘the Company’) present their Annual Report to shareholders together with the audited financial statements of ASOS Plc and its subsidiaries (‘the Group’) for the year ended 31 August 2013. The purpose of the Annual Report is to provide information to members of the Company. The Annual Report contains certain forward- looking statements with respect to the operations, performance and financial condition of the Group. By their nature, these statements involve uncertainty since future events and circumstances can cause results to differ from those anticipated. Nothing in this Annual Report should be construed as a profit forecast. RESULTS AND DIVIDENDS Group profit after tax for the financial year to 31 August 2013 was £40.9m (five months to 31 August 2012: £9.9m), with revenue up 40% on the comparative period to £769.4m (five months to 31 August 2012: £238.0m). The directors do not recommend the payment of a dividend (five months to 31 August 2012: £nil). PRINCIPAL ACTIVITIES sections of the Annual Report which are PRINCIPAL RISKS AND UNCERTAINTIES incorporated into this report by reference: The Corporate Governance Report on pages The principal activity of the Company is that of a holding company. The principal activity • Chairman’s Statement on page 8 of its subsidiary undertakings is that of internet retailing, and details of the principal subsidiaries are set out on page 81. BUSINESS REVIEW The Companies Act 2006 requires the Company to set out in this Report a fair review of the business of the Group during the year ended 31 August 2013 including an analysis of the position of the Group at the end of the financial year. The information that fulfils these requirements can be found in the following • the Year in Review by the Chief Executive Officer and Chief Financial Officer on pages 10 to 17. Pages 32 to 36 inclusive (together with the sections of the Annual Report incorporated by reference) consist of a Directors’ Report that has been drawn up and presented in accordance with and reliant upon applicable English law and the liabilities of the directors in connection with that report shall be subject to the limitations and restrictions provided by such law. 28 to 31 describes the process through which the directors assess, manage and mitigate risks. The Board regularly reviews the risks faced by the Group, recognising that the profile of risks changes constantly and additional risks not presently known, or that are currently deemed immaterial, may also impact the Group’s business objectives. The Board has identified the following factors as the current major potential risks to the successful performance of the business. RISK MITIGATING ACTIVITIES Economic and market risks Economic outlook As a retailer, ASOS is sensitive to the economic climate, which continues to pose challenges in light of the ongoing financial • Regular review by the Company of the economic climate to ensure that any changes are factored into the business’s requirements and actions. difficulties particularly in Europe. Factors such as household disposable income, weather, seasonality of sales, sporting events, and changing demographics affect demand for the Group’s products. The ability to pass on increases in the price of input costs such as cotton and fuel to the customer affects the Group’s profit performance. • Continual efforts to deliver value to all customers via investment in quality and price, in light of the economic climate at any given time. • Development of extensive product ranges designed to meet the demands of different customers, with differing requirements and spend patterns. Competition Internet fashion retailing is global and highly competitive. Failure to compete effectively with high street retailers and other internet retailers • Adoption of a proactive approach to monitoring competitor activity and consumer trends, for example through increased comparison may affect revenues. shopping. • Adoption and implementation of a clear pricing positioning strategy versus the primary high street retailers and other internet retailers, which is regularly reviewed by management and the Board. • Buying and Merchandising functions continued to be enhanced to ensure appropriate price focus. 32 Market The retail fashion industry and market is subject to changing customer • Adoption of a proactive approach to monitoring consumer trends. tastes. ASOS’s performance is dependent upon effectively predicting and quickly responding to changing consumer demands and translating • Employment of experienced buyers and designers. market trends into saleable merchandise. • Regular attendance at all major fashion weeks to monitor trends. • Use of freelance fashion experts to refresh internal knowledge. • Executive Directors and senior management continually review the design and selection of the product range to ensure, as far as possible, that a well-balanced product mix is on offer and there is adequate stock available at the right time to meet customer demand. Over-reliance on one category/department The fashion market sub-divides into different categories • Continual efforts to deliver value to all customers across all (e.g. womenswear and menswear) and different clothing types or categories and departments via investment in quality and price. departments, and ASOS will need to compete effectively in most, if not all, categories in order to operate as a global fashion retailer. • Development of extensive product ranges across all categories and departments designed to meet the demands of differing customers. • Increased investment in less-established categories and departments to enhance category and department diversification. • Regular re-assessment and re-alignment of established categories and departments to ensure focus on customers. Product demand and supply forecasting To meet sales, ASOS is required to forecast the likely level of demand • Continued investment in merchandising expertise and capacity. and then order sufficient levels of product in order to meet that demand. An inaccurate forecast of that level of demand will affect the efficiency and effectiveness of ASOS’s retail operations. • Close levels of understanding and co-operation between the buying teams and the merchandising teams for each category and department, to ensure each understands the inter-relationship between those functions. Finance The Group has potential exposure to changes in interest rates and foreign exchange rates. • The Treasury department takes responsibility for reducing exposure to these and other financial risks, to ensure that sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. • Further information on the Group’s exposure to and management of capital, liquidity, credit, interest rate and foreign currency risk can be found in note 21 to the financial statements. Technological risks Failure or interruption of or denial of access to information technology systems and infrastructure The Group is dependent on its IT infrastructure and any system • Ongoing investment made in IT systems to ensure that they are performance issues (for example system or infrastructure failure, able to continue to respond to the needs of the business and do not damage or denial of access) could seriously affect our ability to trade. become obsolete. • Back-up facilities in place to ensure that business interruptions are minimised and internal and customer data is protected from corruption or unauthorised use. • Business recovery plans in place to minimise effects of damage or denial of access to infrastructure or systems. 33 ASOS Plc Annual report and accounts 2013 DIRECTORS’ REPORT continued RISK MITIGATING ACTIVITIES Failure to adopt technological innovations Internet retailing is based on rapidly changing technologies and failure • Proactive approach to adopting technological developments to to adopt new technological platforms to reach its target market could retain appeal within core customer market. impact ASOS’s performance. Supply chain risks Key suppliers • Proactive approach to collecting and analysing data from customer spend and site usage habits to try to establish any important trends. ASOS is an international retailer and has agreements with suppliers • Significant effort placed on working with suppliers to manage the throughout the world. The interruption, deterioration or loss of supply of potential risk of interruptions and delays in supply or distribution that core category products from these suppliers to the Group’s warehouse may adversely impact on trade. may affect the Group’s ability to trade. • Adoption of robust policies and practices for monitoring quality and ethical standards within the supply base, overseen by the Technical Services and Corporate Responsibility departments, to ensure product quality and standards are appropriate. • Contractual and other arrangements made with numerous third parties in support of business activities, although ASOS’s trading business is not considered to be fundamentally dependent on any single one of these arrangements. Logistics and fulfilment ASOS delivers to 237 countries and territories, and has agreements with several logistics providers to fulfil deliveries to customers. The interruption, • ASOS has multiple delivery routes and options, and uses multiple delivery service providers, to reduce level of dependency on any deterioration or loss of delivery services from these suppliers to the Group’s one provider. warehouse may affect the Group’s ability to complete sales. Warehouse disruption Any disruption to the Group’s warehousing facilities due to physical property damage, breakdown in warehouse systems, capacity shortages or poor logistics management would lead to significant operational difficulties in order fulfilment. • Warehouse managed by large multi-national company specialising in the provision of these services, in several locations and countries. • Continuous monitoring of service levels and warehouse handling to ensure goods are delivered in a timely manner. • Sufficient warehouse handling capacity in place to accommodate expected future volumes. • All products are on relatively short lead-times, with a steady flow of products into the warehouse, enabling supply chain to be diverted to alternative locations if necessary within a manageable timeframe. Reputational risks Brand name Internet-only businesses depend on their brand name, and supporting • The Company was first to use the ASOS brand name both for online online domain names, given that they are the primary mechanism retailing and on fashion clothing. by which the business connects with its customers, given the lack of physical shops and high street presence. • Robust strategy for actively pursuing and defending brand name and all supporting domain names and other intellectual property, in all key markets in all relevant classes. 34 RISK MITIGATING ACTIVITIES Quality of customer service Customers are key to the Group’s business and poor customer service • Investment in training of customer-facing teams to ensure high could adversely impact the Group’s reputation and brand. customer care standards for all customers. • Focus on improving customer proposition including offering various free delivery and returns options. Security of customer data Unauthorised access to ASOS’s customer data could lead to • Technical and physical security controls in place to mitigate reputational damage and loss of customer confidence. unauthorised access to customer data held on the Group’s servers, People risks Reliance on key personnel The performance of the Group depends on its ability to continue to attract, motivate and retain key staff. The retail sector is very competitive and the Group’s people are frequently targeted by other companies for recruitment. including access restrictions and encryption of customer credit card data. An alert system is in place in case of attempted unauthorised access. • ASOS employs an IT Security Officer dedicated to considering and mitigating IT security violations. • PCI Level 1 Certification obtained. • The Remuneration Committee monitors levels and structure of remuneration for senior management and seeks to ensure that they are designed to attract, retain and motivate senior management to run the Group successfully. • All employees are provided with the opportunity to have fulfilling careers through employment policies, competitive remuneration and benefits packages, and career development opportunities. Regulatory risks Regulatory compliance The Group must comply with regulatory requirements in relation to • Regular audits and reviews to ensure regulatory compliance. employment, competition and environmental issues, planning, pensions and taxation legislation. Failure to do so could lead to financial • Monitoring of regulatory developments. penalties or reputational damage. • ASOS employs specialists in relevant fields such as legal, company secretarial, HR, finance and tax, to provide direct knowledge and expertise in-house in these regulated areas. 35 ASOS Plc Annual report and accounts 2013 DIRECTORS’ REPORT continued DIRECTORS GOING CONCERN The names of the directors as at the date of The Group’s business activities together with STATEMENT ON DISCLOSURE OF INFORMATION TO AUDITORS this Report, together with biographical details, the factors that are likely to affect its future Having made the requisite enquiries, as far are set out on pages 26 to 27. developments, performance and position, as each of the directors is aware, there is The interests of the directors and their immediate families in the share capital of the Company, along with details of directors’ share options and awards, are contained in the Directors’ Remuneration Report on pages 37 to 45. At no time during the year did any of the Directors have a material interest in any significant contract with the Company or any of its subsidiaries. are set out in this Directors’ Report, and the no relevant audit information (as defined by Year in review of the Chief Executive Officer Section 418 of the Companies Act 2006) of and Chief Financial Officer. The finance which the Company’s auditors are unaware, section of this review also describes the and each of the directors has taken all the Group’s financial position and cash flows, steps he or she should have taken as a further information on which is detailed in director to make himself or herself aware of the financial statements. In addition, note any relevant audit information and to establish 21 to the financial statements includes the that the Company’s auditors are aware of that Group’s objectives, policies and processes information. for managing its capital; its financial risk The Company maintains directors’ and management objectives; details of its financial officers’ liability insurance which gives instruments and hedging activities; and its INDEPENDENT AUDITORS appropriate cover for any legal action brought exposures to credit risk and liquidity risk. The against its directors. The Company has Directors’ Report also highlights the main risks also provided an indemnity for its directors, and uncertainties facing the Group. PricewaterhouseCoopers LLP have expressed their willingness to continue in office as auditors of the Company. A resolution to which is a qualifying third-party indemnity provision for the purposes of section 234 of the Companies Act 2006. This was in place throughout the financial year under review and up to the date of approval of the financial statements. SHARE CAPITAL The Group continues to have a strong financial reappoint PricewaterhouseCoopers LLP as position which is supported by a revolving auditors of the Company and a resolution credit facility of £20.0m, which includes to enable the directors to determine their an ancillary £10.0m guaranteed overdraft remuneration will be proposed at the Annual facility, and which is available until July General Meeting. 2015. The facility was undrawn at 31 August 2013. The directors have reviewed current performance and forecasts, combined with ANNUAL GENERAL MEETING expenditure commitments, including capital The authorised and issued share capital of the expenditure. After making enquiries, the Company, together with the details of shares directors have a reasonable expectation that issued during the year to 31 August 2013 is the Group has adequate financial resources shown in note 18 to the financial statements. to continue its current operations, including The issued share capital of the Company at contractual and commercial commitments 31 August 2013 was 82,581,006 ordinary for the foreseeable future despite the current shares of 3.5p. uncertain economic outlook, and therefore they have continued to adopt the going The Annual General Meeting of the Company will be held at 10am on 4 December 2013 at the Company’s offices at Greater London House, Hampstead Road, London, NW1 7FB. The Notice of this year’s Annual General Meeting will be available to view on the Group’s website, www.asosplc.com, sufficiently in advance of that meeting. COMPANY’S SHAREHOLDERS statements. 22 October 2013. concern basis in preparing the financial This report was approved by the Board on The Company has been notified in accordance with the Disclosure and Transparency Rules of the Financial Services Authority that, as at 22 October 2013, the following shareholders owned more than 3% of the issued share capital of the Company. Holder Number Percentage as at date of notification Aktieselskabet af 5.5.2010 Nick Robertson The Nomad Investment Partnership LLP Standard Life Investments Limited Baillie Gifford & Co The Capital Group Companies, Inc 22,861,774 7,744,600 5,371,261 4,100,563 4,127,028 5,815,541 27.50 10.19 7.03 4.98 5.01 7.04 36 By order of the Board Andrew Magowan Company Secretary 22 October 2013 DIRECTORS’ REMUNERATION REPORT REMUNERATION GOVERNANCE The Remuneration Committee: composition The Remuneration Committee comprises three independent Non Executive Directors: Karen Jones (Chairman), Mary Turner and Peter Williams. Committee member Role Attendance record Karen Jones Non Executive (Chairman) Director 5/5 Peter Williams Senior Independent The remuneration of Non Executive Directors is determined by the Chairman of the Board and the Executive Directors. The full Terms of Reference for the Remuneration Committee are available on the corporate website, www.asosplc.com. The Remuneration Committee: advisers The Committee has engaged the external advisers listed in the table below to assist it in meeting its responsibilities. Director 5/5 Adviser Role Mary Turner Non Executive Aon Hewitt Director 5/5 Principal remuneration adviser Although the Chief Executive Officer and the Chief Financial Officer are not members of the Remuneration Committee, they are both invited to attend meetings as appropriate unless they have a conflict of interest. Also invited to attend (unless they have a conflict of interest) are the Company Chairman, the People Director, the General Counsel and Company Secretary, and the Company’s remuneration and tax advisers (as appropriate). PricewaterhouseCoopers Remuneration tax Slaughter & May advisers Remuneration legal advisers In addition, the Committee receives advice and assistance from the People Director, the General Counsel and Company Secretary, the Chief Executive Officer and the Chief Financial Officer as a matter of course. The Remuneration Committee: responsibilities The Remuneration Committee: main activities in 2013 The Remuneration Committee met five times during the financial year to 31 August 2013, at which the following key matters were considered. Salaries • Approving the 2013 salary increases of the Plc Executive Directors and Executive Committee members The Committee’s principal responsibilities are: • to determine and recommend to the Board the Company’s overall remuneration policy • to determine and recommend to the Board the remuneration of Executive Directors, other senior executives and the Chairman • to monitor, review and approve the levels and structure of remuneration for senior management, and, from that, the on-going effectiveness of the Group’s overall remuneration policy • to determine the targets for any performance-related bonus or pay schemes operated for senior executives • to review and approve any material termination payment. The Board and Remuneration Committee of ASOS aim to ensure that ASOS has the best possible team to drive continued success and creation of shareholder value. ASOS does this by rewarding high performance with high rewards, without rewarding failure. The Remuneration Committee, the Board and the Company share the views of the investor community on encouraging outstanding performance. In the case of ASOS, strong performance and enhanced shareholder value have been consistently delivered to date and, whilst this has resulted in substantial rewards this financial year, the Committee believes these rewards are consistent with the achievement of the Company’s objectives. The Committee is dedicated to ensuring that all future awards are suitably challenging, carry stretching targets and are aligned with the Company’s strategy. During the financial year to 31 August 2013, a number of key changes have been made to ASOS’s remuneration framework to ensure that the Company is equipped to deliver the aims of its stated remuneration policy. A new long-term incentive plan, the ASOS Long-Term Incentive Plan (ALTIP), was implemented after consultation with major shareholders, to ensure that our most senior executives are retained by the business and that their interests are aligned with the long-term interests of shareholders. In contrast with the previous Management Incentive Plan (MIP), the ALTIP encompasses a much wider group of participants, demonstrating the strengthening in depth and breadth of the management team. Shareholding guidelines have been introduced for the first time to ensure that Executive Directors demonstrate a clear belief in the Company’s future prospects, and a new bonus framework has been introduced to ensure that short-term variable incentives remain aligned to the Company’s and shareholders’ best interests. ASOS also introduced a new Share Incentive Plan (SIP), which was launched to supplement the Company’s existing Save-As-You-Earn (SAYE) Scheme enabling employees to have a stake in the Company’s future success. I am pleased to present the Directors’ Remuneration Report for the year ended 31 August 2013, which for the first time will be put separately to an advisory shareholder vote at the Annual General Meeting. Karen Jones Chairman of the Remuneration Committee 37 ASOS Plc Annual report and accounts 2013 DIRECTORS’ REMUNERATION REPORT continued Bonuses REMUNERATION POLICY Remuneration policy components • Approving the total Company bonus ASOS is focused on creating shareholder The Company’s remuneration policy contains payout for the five-month financial period value through the achievement of our strategic the following remuneration components. to 31 August 2012 • Approving the individual bonus payments to all Plc Executive Directors and Executive objectives, and our remuneration policy is central to translating that focus through to our executives and employees. Committee members for the five-month The overall aim of ASOS’s remuneration policy financial period to 31 August 2012 is therefore to attract, retain and motivate high • Approving the structure of the annual bonus scheme for the financial year to calibre and high performing executives, by providing appropriate incentives that: 31 August 2013 • encourage enhanced long-term performance Fixed remuneration components Fixed remuneration components play a key role in attracting, retaining and motivating high calibre and high performing executives. ASOS offers three broad components of fixed remuneration, as outlined below. • Approving the personal bonus objectives applicable to the bonuses of all Plc that achieves the Group’s strategic objectives and creates shareholder value Salary Executive Directors and Executive • reward individuals, over both the short and Committee members for the financial the long term, for their contributions to the year to 31 August 2013 success of the Group in a fair, consistent and reasonable manner Within all relevant frames of reference (including the salaries paid in FTSE-listed, AIM-listed and other retail and internet-based companies), it is intended that basic pay should be at or near the median. To assess whether Share plans • reward high performance with high that policy is met, salaries for employees are • Determining whether performance conditions had been met for the vesting of To develop that policy, ASOS has crafted five the 2009 and 2010 grants under the ASOS supplementary remuneration principles: Performance Share Plan other fixed remuneration components), firstly to identify any material changes in the scope of the relevant role, and secondly, in light of • that rewards should be fair, appropriate benchmarking data from other applicable rewards, but do not reward failure. reviewed once every financial year (along with • Approving awards to all eligible employees and reflective of the Group’s culture and roles internally and externally. The basic under the ASOS Performance Share Plan values and the ASOS Share Incentive Plan • that incentives should be strategically • Reviewing and approving the performance aligned with our shareholders, over both the conditions which are applicable to the short and the long term ASOS Performance Share Plan • that base pay should be competitive, with • Overseeing the implementation of the ALTIP decisions being informed by market data salaries of Executive Directors are determined by the Remuneration Committee and are not benchmarked on an annual basis, but rather as required. Discretion is available for the Company to pay above market median salaries where it is felt necessary in order to secure or retain any including seeking feedback from major shareholders with regard to the Plan, responding to questions raised, and then • that the total reward cost to the Company particular employee. should be affordable and sustainable approving awards under that Plan • that employee communications around pay Pensions Other matters • Reviewing the impact of lifetime allowances on the Company’s pension offering and rewards should be straightforward and effective. The Company operates a defined-contribution occupational pension scheme, with the The Remuneration Committee is satisfied that Company contributing up to a maximum this policy and these principles successfully percentage of salary for any employee who align the interests of Executive Directors, wishes to join the scheme. The maximum • Reviewing and ensuring the suitability of management and employees with those of percentage is dependent upon the employee’s the Committee’s Terms of Reference shareholders, by ensuring that a significant career level, and is matched to the level of • Reviewing the ASOS Expenses Policy proportion of total remuneration is directly contributions the employee chooses to make linked to the Group’s sustained performance to the scheme. For the Executive Directors, over both the short and long term. A copy of the Company contributes up to a maximum of this policy is available on www.asosplc.com. 15% of basic salary. In determining the practical application of the remuneration policy and principles, the Remuneration Committee takes into account all factors which it deems relevant, including packages offered in FTSE-listed, AIM-listed and other retail and internet-based companies, as well as local practices when recruiting employees internationally. 38 Other taxable benefits • Financial performance is defined as profit Long-term incentive and share option plans Executive Directors also receive taxable benefits including private medical insurance through the Company’s flexible benefits scheme, ‘ASOS extras’. The scheme offers all employees a fixed value depending upon the employee’s career level, which can either be used to purchase a variety of benefits, or before both tax and exceptional items, and targets are based on overall Company financial performance and divisional level financial performance, through the application of appropriate Company and department/division performance thresholds. The Company strongly believes that employee share ownership strengthens the link between employees’ personal interests and those of the Company and its shareholders, as well as strengthening employee retention and motivation. With this in mind, and with the aim of linking an individual’s remuneration alternatively be taken in cash. • Personal performance thresholds sit to Company performance over the longer Variable remuneration components alongside the financial performance term, the Company currently operates four thresholds, with increased weighting long-term, share-based incentive plans, as applied to personal performance where detailed below. Outstanding awards granted Variable remuneration components directly individuals are less able to directly affect under other historic share plans operated link an individual’s reward, over both the short financial performance. by ASOS under which previous awards and the long term, to their contributions to the success of the Group in a fair, consistent and reasonable manner. The ASOS Review System ensures that only high performance is rewarded with high reward, that any development needs or concerns are managed appropriately and that failure is not rewarded. • Any stretch incentive opportunity awarded over and above the target threshold is to be self-funding via a bonus pool accumulated as a percentage of additional profit delivered above the target, although remain outstanding are detailed on page 44, although no awards were made under those historic schemes during the financial year to 31 August 2013 and it is not proposed to make any future awards under those schemes. discretion is available for the Remuneration The amounts received by the Executive Committee to create a stretch bonus pool Directors under the long-term, share-based that is not self-funding in the event of incentive schemes and plans are detailed in Annual bonus plan exceptional circumstances. the remuneration implementation section of The annual performance-related bonus plan • Discretion is also available to make spot provides a link between remuneration and awards to exceptional performers in the both short-term personal and Company lower employee grades. this report. Non Executive Directors do not participate in any of the current long-term, share-based incentive schemes and plans. performance. This link is achieved by making the annual award of bonuses conditional upon the achievement of target and stretch performance thresholds which are set by reference to agreed Company financial • Individuals who are deemed not to have adequately performed throughout the year 1. Save-As-You-Earn (SAYE) Scheme as determined at their performance review ASOS introduced an HMRC-approved Save- are not eligible for a bonus. As-You-Earn share option scheme (the ‘SAYE performance measures and personal • Annual bonus awards are in all cases performance objectives. capped at a maximum of 100% of the This scheme is applicable to all employees, individual’s basic pay. Scheme’) on 1 July 2008, which is open to all eligible employees. Those employees who choose to do so (during a specified grant window selected by the Company) enter an including Executive Directors, in each case The amounts received by the Executive approved savings contract for a term of three with reference to a percentage of each Directors under the annual bonus plan are years. Under the rules of the SAYE Scheme individual’s salary. The extent to which detailed in the remuneration implementation employees can contribute between £5 and the financial performance measures and section of this report. Non Executive Directors £250 a month. On maturity, the employee has personal performance objectives for each do not participate in the annual bonus plan. the option to use the total savings at the end of the Executive Directors have been met is determined by the Remuneration Committee, with discretion being available for that Committee to adapt those measures and objectives appropriately to take into account exceptional items. The annual bonus plan applicable to all employees, including Executive Directors, is currently framed as follows (including and without limitation for the financial year to 31 August 2013). of the term to buy shares in the Company at the market value at the commencement date of the applicable three-year term less a 20% discount. In common with most schemes of this type, there are no performance conditions applicable to options granted under the SAYE Scheme and, if an employee leaves the Group (other than for the good leaver provisions as defined in the Scheme rules), their savings contract ends and their contributions are returned to them. 39 ASOS Plc Annual report and accounts 2013 DIRECTORS’ REMUNERATION REPORT continued 2. Share Incentive Plan (SIP) Under the PSP, selected employees may All shares that vest pursuant to that award, To ensure that as many employees as possible have a stake in the Company’s future success, ASOS introduced a new HMRC-approved Share Incentive Plan (SIP) during the financial year. Whilst not formally enshrined in the rules of the SIP, it is the intention of the Company that awards over a fixed number of free shares are made to all eligible employees, with this fixed number of shares depending upon a four-tier salary threshold. In keeping with the Company’s desire to strengthen the link between employees’ personal interests be awarded conditional entitlements to a depending on the extent to which the fixed number of free shares in the Company performance targets relating to that award (although participants in the ALTIP detailed have been met, are awarded to the participant below are not entitled to be granted awards as free shares. under the PSP during the period from the implementation of that plan until the end of its performance period). Individuals who have not adequately performed throughout the year are also not eligible to receive a grant. Participants in the plan and the amount of shares awarded are approved by the Remuneration Committee. Prior to August 2012, the Company explored the possibility of implementing a new HMRC- approved Company Share Option Plan (CSOP). The proposals were not deemed complementary to the ASOS remuneration policy, therefore the Company did not proceed with the implementation of this plan. As a result, the Company continues to rely on the PSP as its and those of its shareholders, and to enable The performance target condition for awards mechanic to link the personal interests of lower all employees to share in the growth of the granted under the PSP is measured over management and those of the Company and Company, the SIP is structured to provide the a three-year period. The Remuneration our shareholders, as well as to support retention largest awards under the plan to employees Committee has the ability to review the of key roles. earning less than £30,000 who would performance conditions each time new typically be in the lower career levels, with awards are granted under the PSP, and may awards progressively decreasing in size up impose different performance conditions 4. ASOS Long-Term Incentive Plan (ALTIP) to the highest employee grade. The amount for subsequent awards, provided that, in Following consultation with some of its major of the annual award is approved by the the opinion of the Committee, the different shareholders, the new ALTIP for Executive Remuneration Committee. performance conditions are not materially Directors and senior management was All employees are required to hold each award of free shares in trust for at least a three-year vesting period, to ensure that employees’ interests are aligned to the long-term success of the Company. It is intended that awards will be satisfied through the market purchase of the relevant number of shares by an onshore Capita Trust (rather than through the issue of new shares), although the Company retains discretion in this regard. 3. Performance Share Plan (PSP) less challenging in light of the Company’s implemented on 30 April 2013. The purpose of circumstances than those set for the initial the ALTIP is to support the strategy and business awards. The Remuneration Committee also plan for the three years from 1 September has discretion to amend the performance 2012 by incentivising and retaining the wider conditions applying to existing awards under ASOS senior management team. the PSP at any given time if an event occurs which causes the Committee to consider it appropriate to amend them, provided that, in the opinion of the Committee, the amended conditions are not materially less challenging in the changed circumstances than those originally set. The base value of each participant’s award is calculated as a fixed multiple of salary (as at 1 September 2012, or on joining, if later) and there is a maximum benefit restriction imposed on each participant. Under the terms of the ALTIP, awards may be structured in one or both of two ways. The structure used depends upon In the year, the Remuneration Committee whether the participants in the ALTIP make an In 2006, ASOS established the ASOS reviewed and imposed amended investment equivalent to the tax fair value of all Performance Share Plan (PSP). It was performance conditions for awards granted or part of their respective awards. designed to create a stronger link between from 1 September 2012, in light of the the interests of senior employees, and those Company’s performance. These are set out of the Company and our shareholders, and to in the table below. support retention in key roles. Annual compound fully diluted EPS growth of the Company over the performance period Vesting percentage of the shares subject to an award Less than 15% p.a. Equal to 15% p.a. Equal to 23% p.a. 0% 25% 70% Between 15%, 23% and 30% p.a. Between 25%, 70% and 100% pro rata Greater than or equal to 30% p.a. 100% on a straight-line basis Executive Directors are required to make a minimum investment of at least one-third of the tax fair value of their award. Senior management participants are invited to invest at their choosing, with a required minimum investment of one-third of the tax fair value of their awards. All participants also have the opportunity to increase the value of their investment voluntarily up to 100% of the tax fair value of their award. This upfront investment by ALTIP participants is designed to strengthen the link between their personal interests and those of the Company and its shareholders, providing a strong incentive to achieve the plan’s performance targets. In return, for that part of their award for which an investment is made, capital gains tax (and potentially 40 entrepreneur’s relief) should be payable by a • The ‘target’ performance level, which Shareholding guidelines participant on any gain made at vesting, as delivers a 70% maximum vesting (subject the invested award is purchased at the tax to any scale back as a result of the TSR fair value. However, these investments will be performance), will not be met unless the forfeited if the performance conditions of the compound rate of growth in fully diluted Alongside the ALTIP, shareholding guidelines have been introduced to ensure a continuing link between Executive Directors’ interests and those of shareholders following the ALTIP vesting. ALTIP are not met. The proportion of any participant’s award that is not covered by an upfront investment will be granted as conventional nil-cost options (Option Scheme Awards). Should a member of senior management choose not to make the minimum investment of one-third of the tax fair value underlying EPS (before exceptional items, but after the cost of the ALTIP) equals 23% per annum over the same period. This equates These guidelines require Executive Directors to to fully diluted EPS for the year to 31 August retain 50% of any shares acquired on vesting 2015 of 73.7p per share and implies sales of the ALTIP, and any subsequent share awards of £1.0bn, providing direct alignment with thereafter (net of tax), until the following our previously communicated strategy. shareholdings are achieved: of his or her award, the base value of that • The ‘stretch’ performance threshold, which • Chief Executive Officer: five times salary award will be reduced by 25%, to recognise delivers a 100% maximum vesting (subject the significantly lower risk profile, whilst still to any scale back as a result of the TSR • other Executive Directors: two times salary. providing a market-competitive award value. performance), will not be met unless the As at 31 August 2013, the Chief Executive At the end of the three-year performance period on 31 August 2015, awards under the ALTIP will vest in two tranches, subject to the achievement of the performance conditions (which are set out in more detail below): Option Scheme Awards will vest on 31 October 2015 up to a maximum value of compound rate of growth in fully-diluted Officer was already compliant with this policy. underlying EPS (before exceptional items, but The other Executive Directors will become after the cost of the ALTIP) equals or exceeds compliant when the ALTIP vests. 32% per annum over the same period. This equates to fully diluted EPS for the year to 31 August 2015 of 91.1p per share and Employee Benefit Trust implies sales of £1.3bn. The ASOS.com Limited Employee Benefit Trust 50% of a participant’s total award; and the The TSR performance condition requires investment, together with any remaining Option the comparison of TSR on an investment in Scheme Award, on 31 October 2016. ASOS with TSR on a notional investment in The ALTIP is subject to challenging, interdependent earnings per share (EPS) and total shareholder return (TSR) targets, which are aligned to the strategic plans of the Company and designed to ensure growth is delivered in a profitable way. The extent to which an award will vest will depend on those interdependent EPS and relative TSR performance targets, measured over a performance period from 1 September 2012 to 31 August 2015 (the performance period). While the performance targets will be tested separately, both hurdles must be achieved for the awards to vest. There are three performance levels under the EPS performance target, as set out below. a comparator group during the performance period. The comparator group comprises all of the companies in the FTSE All-Share General Retailers Index, as constituted at the commencement of the performance period, plus Mulberry Group plc. The TSR performance will be applied to the outturn from the EPS performance condition and may scale back (potentially to zero) whatever would have vested solely under the EPS condition. There will be no scale back to the EPS outturn if the TSR of ASOS is at the upper quartile or above. The award will be scaled back progressively in the event that the TSR of ASOS is below upper quartile, such that there will be a scale back of up to one-third if ASOS’s TSR is at median. • The ‘threshold’ performance level, which There will be zero vesting if ASOS’s TSR is delivers a 6.7% maximum vesting (subject below median. (EBT) and the Capita Trust (CT) are used to facilitate the acquisition of ordinary shares in the Company for the purpose of satisfying awards and options granted under the Company’s share schemes, in particular the PSP, SAYE Scheme and the SIP. The EBT is a discretionary trust, the sole beneficiaries being employees (including Executive Directors) and former employees of the Group and their close relations, who have received awards under the PSP and SAYE Scheme. The Trustee is Ogier Employee Benefit Trustee Limited, an independent professional trustee company based in Jersey. Under the terms of the Trust Deed, the Company funds the EBT to purchase on the EBT’s own account ordinary shares in the Company on the open market in return for the EBT agreeing to use the ordinary shares in the Company that it holds to satisfy certain outstanding awards and options made under the Company’s share schemes. The CT holds shares awarded under the SIP solely for to any scale back as a result of the TSR performance), will not be met unless the compound rate of growth in fully-diluted underlying EPS (before exceptional items, but after the cost of the ALTIP) equals 17% per annum over the three years ending 31 August 2015. This equates to fully Participants of the ALTIP will not receive any the benefit of current employees (including awards under the Company’s existing PSP Executive Directors) who participate in the from implementation until the end of the SIP. Under the terms of the Trust Deed the performance period. Shareholding guidelines Company funds the CT to purchase the shares were also introduced at the same time as the on the open market and retain those shares implementation of the ALTIP, as set out below. on behalf of the underlying beneficiaries until diluted EPS for the year to 31 August 2015 The actual operation of the ALTIP scheme is such time as they can be removed. of 63.4p per share and implies sales detailed in the remuneration implementation The EBT and CT are both recognised within of £0.9bn. section of this report. the Employee Benefit Trust reserve for accounting purposes. 41 ASOS Plc Annual report and accounts 2013 DIRECTORS’ REMUNERATION REPORT continued As at 31 August 2013 the EBT and CT REMUNERATION IMPLEMENTATION combined held 436,033 shares in ASOS Plc (31 August 2012: 505,374) to the value of £1,770,386 (31 August 2012: £2,464,000). The Group’s accounting policy is detailed within note 1 to the financial statements and movements are detailed in the Consolidated Statement of Changes in Equity on page 50. Service contracts Details of how the Company’s remuneration policy as set out above has been applied in the financial year to 31 August 2013 are set out below. The following information to the foot of this page has been audited. Directors’ remuneration table The remuneration of the directors for the year ended 31 August 2013 and five months to 31 August 2012 is set out in the remuneration table below. Executive Directors Year to Five months to All Executive Directors are employed under service contracts. It is the Company’s policy that all Executive Directors should have rolling service Director contracts with an indefinite term but a fixed period of notice of termination. The services of all Executive Directors may be terminated by the provision of a maximum of 12 months’ notice by the Company or the individual. The Company’s policy for Non Executive Directors is that, rather than having service Nick Robertson Nick Beighton Jon Kamaluddin Robert Bready1 31 August 2013 31 August 2012 Fixed remuneration Variable remuneration Base salary £ 500,000 350,000 300,000 283,192 Other taxable benefits £ 3,843 3,154 2,592 1,821 Pensions £ Bonus £ Total Remun- eration £ Total Remun- eration £ – 300,000 803,843 276,738 41,302 210,000 604,456 211,105 45,000 180,000 527,592 166,791 3,476 – 288,489 171,568 Kate Bostock 263,768 10,403 – 140,000 414,171 – 1,696,960 21,813 89,778 830,000 2,638,551 826,202 contracts with the Company, they have letters 1 During the financial year to 31 August 2013, Robert Bready was paid £74,873 in compensation for of appointment, providing for a maximum loss of office. of three months’ notice of termination by the Company or the individual at any time, with no pre-determined amounts of compensation. Non Executive Directors Year to 31 August 2013 Five months to 31 August 2012 Recruitment When recruiting any Executive Director or senior executive, the Company seeks to apply consistent policies on fixed and variable remuneration components. For example, it is the Company’s intention that salaries are set within benchmark parameters, and employee career levels are determined by a job evaluation process, with bonus entitlement, pension and flexible benefits allowance being Director Lord Alli1 Brian McBride2 Peter Williams Karen Jones Mary Turner 25,000 158,333 44,167 44,167 44,167 Base fee £ Additional fee £ Total £ – 25,000 – 158,333 Basis for additional fee Total £ Chairman of Board 62,500 Chairman of Board 6,000 50,167 SID and Audit Chair 5,000 49,167 Remuneration Chair – 44,167 – 19,167 18,750 16,667 117,084 315,834 11,000 326,834 1 Resigned 31 October 2012. 2 Appointed 1 November 2012. automatically determined by that career level. In accordance with his service agreement Brian McBride was granted 4,434 shares on The granting of payments or share awards on joining in order to secure the appointment of an 1 November 2012. This is the first of three share allotments as explained in the stock exchange announcement regarding Brian’s appointment. Executive Director or senior executive is limited. Payments to past directors However where in exceptional circumstances During the financial year to 31 August 2013, no payments were made to any past directors who such a payment or award might form part of are not identified in this report. a prospective employee’s package, it would require the prior approval of the Remuneration Committee for Executive Directors and members of the Executive Board, and of the People Director for all other employees. Directors’ bonuses Year to 31 August 2014 Year to 31 August 2013 Five months to 31 August 2012 Director Base Max bonus salary potential £ £ Base Max bonus salary potential £ £ Actual bonus £ Base salary £ Actual bonus £ Policy developments Nick Robertson 500,000 500,000 500,000 300,000 300,000 208,333 67,200 Nick Beighton 350,000 350,000 350,000 210,000 210,000 145,833 47,040 Any revisions to the remuneration policy Jon Kamaluddin1 300,000 Robert Bready Kate Bostock – – – – – 300,000 180,000 180,000 112,500 36,288 283,192 – – 115,875 37,377 263,768 158,261 140,000 – – set out above require the approval of the Remuneration Committee, to whom responsibility for the policy has been delegated by the Board of Directors. 1,150,000 850,000 1,696,960 848,261 830,000 582,541 187,905 42 1 Until resignation on 1 December 2013 Directors’ share options ASOS Long-Term Incentive Plan ASOS’s total shareholder return (TSR) Management Incentive Plan (MIP) In the financial year to 31 August 2013, the For the performance period from 1 April 2009 to 31 March 2012, the Company put in place a MIP, full details of which are set out in the Directors’ Remuneration Reports of the Annual Reports and Accounts for the year ended 31 March 2012 and the five months ended 31 August 2012. Under the MIP, participants became entitled on 31 May 2012 to a total of 4,000,822 newly issued shares in the Company, which they were able to trade in two tranches on 30 September 2012 and 30 September 2013 (in each case dependent on the individual remaining an employee of the Company at that date or being deemed to be a ‘good leaver’). Company granted awards under the ALTIP detailed above to Executive Directors and other senior managers. The base value of each participant’s award was calculated as a multiple of salary (as at 1 September 2012). The awards made to the Executive Directors are set out in the table below. Director Base award value Nick Robertson £5,000,000 Nick Beighton £3,500,000 Kate Bostock £4,000,000 performance for the three-month period ending 31 August 2013 compared with the three-month period ended 31 August 2012 currently ranks the Company in third place within the FTSE All-Share General Retailers Index. Growth in TSR over this period of ASOS and of that Index is illustrated in the chart below. There is a maximum benefit restriction imposed on each participant. Given that maximum benefit restriction, the Company expects the maximum dilution to existing shareholders due to awards under the ALTIP to be approximately 1.3 million ordinary shares (or c.1.5% of Upon her resignation from the Company, Kate issued share capital as at 31 August 2013). Bostock’s award under the ALTIP was returned to the Company, and her initial investment in 2,000,411 of these shares were traded by the ALTIP was refunded to her. participants during the financial year to 31 August 2013, following the expiry of the restrictions on trading those shares, as set out in the table below. Participants will become free to trade the remaining 2,000,411 shares issued in relation to the MIP on 30 September 2013, again as detailed in the table, and assuming that all eligible individuals remain an employee of the Company on that date or are deemed to be a ‘good leaver’ (and at all times subject to any close period share dealing restrictions). A nominee holds those shares until that date. Number of shares received by participant on 30 September 2012 Gain made by participant on 30 September 2012 Number of shares due to the participant (assuming still employed or a ‘good leaver’) 30 September 2013 Nick Robertson Nick Beighton Jon Kamaluddin Robert Bready 744,792 365,094 305,217 394,302 £15,942,650 £7,815,022 £6,533,325 £8,440,234 744,792 365,094 305,217 394,302 Total shareholder return performance1 ASOS 154% FTSE All-Share General Retailers Index 52% 1 Growth in total shareholder return for the three months to 31 August 2013 compared with the three months to 31 August 2012. Source: Datastream. 43 ASOS Plc Annual report and accounts 2013 DIRECTORS’ REMUNERATION REPORT continued Directors’ interests in all share plans (excluding Management Incentive Plan) Options held by directors under the Company’s SAYE Scheme, PSP, EMI Share Option Scheme and the other share option scheme are shown in the table below (see also notes below). Director Share option scheme Granted during the year to Lapsed during Exercised during the year to the year to Date 31 August 2012 31 August 2013 31 August 2013 31 August 2013 31 August 2013 no. of shares no. of shares no. of shares no. of shares no. of shares of grant Exercise price pence Exercise period Lord Allia Nick Robertson SAYE c 06/12/11 Other b 06/12/00 829,657 764 EMI d 30/07/04 140,000 EMI 11/07/05 500,000 EMI 04/07/06 200,000 2,700 – 764 SAYE 07/06/13 SAYE 18/12/09 SAYE 06/12/11 – – – – – – 250 – – – – – – – – (510) (829,657) – – – – (2,700) – (254) 140,000 500,000 200,000 – – 12.67 16/01/01 – 01/01/14 764 1,177.0 01/03/15 – 31/08/15 56.5 30/07/06 – 29/07/14 57.5 11/07/07 – 10/07/15 98.0 04/07/08 – 03/07/16 336.0 01/03/10 – 31/08/13 250 2,955.0 01/08/16 – 31/01/17 – 1,177.0 01/03/15 – 31/08/15 Nick Beightona Robert Breadya a) Lord Alli exercised 829,657 share options during the year, with a total value on exercise of £17,732,503 and share price on exercise of £21.50. Nick Beighton exercised 2,700 share options during the year, with a total value on exercise of £87,507 and share price on exercise of £35.77. Robert Bready exercised 254 share options during the year with a total value on exercise of £4,079 and share price on exercise of £27.83. b) The other share option scheme is a historical scheme, under which unapproved options were granted with no performance conditions attached and only being dependent on continued employment. The exercise price of the options granted under the scheme was set equal to the market value of the Company’s shares at the time of grant. All options granted under this scheme have now been exercised. c) SAYE Scheme option grants are settled on exercise through transfer of shares from the Employee Benefit Trust. Grants under the EMI Share Option Scheme and the other share option scheme are settled on exercise through the issue of new ordinary shares by the Company. d) The EMI Share Option Scheme is a historical scheme, with final options being granted under the scheme during the year ended 31 March 2009. The scheme awarded share options to Executive Directors and senior executives with vesting periods of between one and three years. Options granted under the EMI Share Option Scheme have no performance conditions attached and were only dependent on continued employment. The exercise price of the options granted under the scheme is set equal to the market value of the Company’s shares at the time of grant. The market price of ordinary shares at 31 August 2013 was £47.50 (31 August 2012: £18.30) and the range during the year to 31 August 2013 was from £17.96 to £50.19 (five months to 31 August 2012: £13.95 to £18.72). Long-Term Incentive Plans and Share Option Awards 1. SAYE Scheme 2. Share Incentive Plan (SIP) Since the introduction of the SAYE Scheme, the Company has opened six windows for During the year to 31 August 2013, awards employees to enter the scheme, further details of which are provided in note 22 to the accounts of free shares to be held in trust were made set out on page 71. Out of a total of 1,306 eligible employees, 639 currently participate in the under the SIP relating to a total of 17,372 SAYE Scheme. During the year to 31 August 2013, one new window for employees to enter the ordinary shares in the Company. Awards were scheme was opened. The Company aims to open another window for employees to enter the made of 26 shares to employees at the lowest scheme during the next financial year. During the year to 31 August 2013, one of the SAYE Schemes vested as set out below. SAYE Vesting – Grant 3 The vesting period for this grant was 1 March 2013 to 31 August 2013, during which time all of the participants exercised their options. There were 38 participants in the third SAYE Scheme at vesting. The average pre-tax gain for each participant in this grant (averaged over the six-month vesting window) is set out below. grade, declining in amount to awards of six shares to employees at the highest grade, although all Executive Directors and members of the Executive Board declined to take up their awards. 3. Performance Share Plan (PSP) During the year to 31 August 2013, awards were made under the PSP relating to a total of Exercise dates Saved £50 a month Saved £250 a month 49,001 ordinary shares in the Company. PSP 1 March 2013 1 August 2013 £13,063.78 £23,986.80 £65,318.94 £119,934.00 awards are granted at nil cost. 4. EMI Share Option Scheme There are no remaining participants with outstanding awards under this scheme, other than one Executive Director (Nick Robertson). 44 Directors’ shareholdings Additional remuneration perspectives The Directors who held office at 31 August 2013 had the following interests, including family interests, in the shares of the Company (excluding any entitlements that may become Growth in total directors’ remuneration, total employee costs and profit after tax and exceptional items1 due under the MIP). 1000% Ordinary shares 31 August 2013 800% Brian McBride Nick Robertson Nick Beighton Jon Kamaluddin Peter Williams Karen Jones Mary Turner 4,434 7,744,600 600% 2,700 – 400% 20,000 19,500 – 200% 2010 2011 2012 2013 Total directors’ remuneration Total employee costs Profit after tax (excluding exceptional items) 1 Data is included for 12-month periods only and excludes the five-month period to 31 August 2012 to give a consistent view of cumulative growth. Excludes gains made on exercise of share options. Growth in CEO salary and increase in total shareholder return (TSR)1 1800% 1600% 1400% 1200% 1000% 800% 600% 400% 200% 2010 2011 2012 2013 CEO Salary TSR. Source: Datastream 1 Data is included for 12-month periods only and excludes the five-month period to 31 August 2012 to give a consistent view of cumulative growth. By order of the Board Karen Jones Chairman of the Remuneration Committee 22 October 2013 45 ASOS Plc Annual report and accounts 2013 STATEMENT OF DIRECTORS’ RESPONSIBILITY The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare The directors are responsible for keeping financial statements for each financial year. adequate accounting records that are Under that law the directors have prepared sufficient to show and explain the Company’s the Group and Parent Company financial transactions and disclose with reasonable statements in accordance with International accuracy at any time the financial position of Financial Reporting Standards (IFRSs) as the Group and the Company and enable them adopted by the European Union. In preparing to ensure that the financial statements comply these financial statements, the directors have with the Companies Act 2006. They are also also elected to comply with IFRSs issued by responsible for safeguarding the assets of the International Accounting Standards Board the Group and the Company and hence for (IASB). Under company law the directors must taking reasonable steps for the prevention and not approve the financial statements unless detection of fraud and other irregularities. they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group and Company for that period. In preparing these financial statements, the directors are required to • select suitable accounting policies and then apply them consistently • make judgements and accounting estimates that are reasonable and prudent • state whether applicable IFRSs as adopted by the European Union and IFRSs issued by IASB have been followed, subject to any The directors are responsible for the maintenance and integrity of the Company’s corporate website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. By order of the Board material departures disclosed and explained Andrew Magowan in the financial statements. Company Secretary 22 October 2013 46 48 Independent Auditors’ Report to the Members of ASOS Plc 49 Consolidated Statement of Total Comprehensive Income 50 Consolidated Statement of Changes in Equity 51 Consolidated Statement of Financial Position 52 Consolidated Statement of Cash Flows 53 Notes to the Financial Statements 75 Independent Auditors’ Report to the Members of ASOS Plc 76 Company Statement of Changes in Equity 77 Company Statement of Financial Position 78 Company Statement of Cash Flows 79 Notes to the Company Financial Statements 83 Five-Year Financial Summary (unaudited) ASOS Plc Annual report and accounts 2013 47 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF ASOS PLC We have audited the Group financial statements of ASOS Plc for the year ended 31 August 2013 which comprise the Group Statement of Changes in Equity, the Group Statement of Financial Position, the Group Statement of Comprehensive Income, the Group Statement of Cash Flows, and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS financial statements. In addition, we read all the financial and non-financial information in As explained more fully in the Statement of Directors’ Responsibility set out on page 46, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards the Annual Report and Accounts to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices OPINION ON FINANCIAL STATEMENTS Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, In our opinion the Group financial statements: • give a true and fair view of the state of the Group’s affairs as at 31 August 2013 and of its profit and cash flows for the year then ended; in giving these opinions, accept or assume • have been properly prepared in responsibility for any other purpose or to any accordance with IFRSs as adopted by the other person to whom this report is shown or into European Union; and whose hands it may come save where expressly agreed by our prior consent in writing. • have been prepared in accordance with the requirements of the Companies Act 2006. MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. OTHER MATTER We have reported separately on the Parent Company financial statements of ASOS Plc for the year ended 31 August 2013. SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the OPINION ON OTHER MATTER PRESCRIBED BY THE COMPANIES ACT 2006 John Minards Senior Statutory Auditor for and on behalf of PricewaterhouseCoopers LLP In our opinion the information given in the Chartered Accountants and Statutory Auditors Directors’ Report for the financial year for St. Albans which the Group financial statements are 22 October 2013 prepared is consistent with the Group financial statements. 48 CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME For the year ended 31 August 2013 Note 2 3 5 6 7 Revenue Cost of sales Gross profit Distribution expenses Administrative expenses Operating profit Finance income Finance expense Profit before tax Income tax expense Profit for the period Net exchange adjustments offset in reserves Fair value gains on derivative financial assets Other comprehensive income for the period Year to 31 August 2013 £’000 769,396 (370,816) 398,580 (115,172) (228,953) 54,455 283 (68) 54,670 (13,744) 40,926 (45) 225 180 5 months to 31 August 2012 £’000 238,023 (117,892) 120,131 (35,906) (70,883) 13,342 – (97) 13,245 (3,341) 9,904 – – Total comprehensive income for the period 41,106 9,904 Profit for the period attributable to: Owners of the Parent Non-controlling interest 19 Total comprehensive income for the period attributable to: Owners of the Parent Non-controlling interest Earnings per share Basic Diluted 19 8 8 40,928 (2) 40,926 41,108 (2) 41,106 50.1p 49.2p 9,904 – 9,904 9,904 – 9,904 12.5p 11.9p ASOS PLC Annual report and accounts 2013 49 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 August 2013 Called up share Share capital premium £’000 £’000 Retained Benefit Trust Hedging Translation earnings1 reserve £’000 £’000 reserve £’000 reserve £’000 Note Employee Equity attributable to Non- owners of controlling interest the Parent £’000 £’000 Balance as at 1 April 2012 2,699 5,749 89,719 (2,932) Shares allotted in the period 155 356 Cash received on exercise of shares from Employee Benefit Trust Transfer of shares from Employee Benefit Trust on exercise Share-based payments charge Profit for the period and total comprehensive income Deferred tax on share options 14 Current tax on items taken directly to equity 7 – – – – – – – – – 9 (459) 459 – – – – – 344 9,904 (1,949) – 1,933 – – – – Balance as at 31 August 2012 2,854 6,105 99,492 (2,464) Shares allotted in the year 36 263 – – Net cash received on exercise of shares from Employee Benefit Trust Transfer of shares from Employee Benefit Trust on exercise Share-based payments charge Profit/(loss) for the year Other comprehensive income for the year Deferred tax on share options 14 Current tax on items taken directly to equity 7 – – – – – – – – – 160 – (534) 534 – 4,005 – 40,928 – – – 991 – 7,251 – – – – – – – – – – – – – – – – – – – – Total equity £’000 95,235 511 9 – 344 9,904 (1,949) 1,933 – – – – – – – – 95,235 511 9 – 344 9,904 (1,949) 1,933 – – – – – – – – – 105,987 – 105,987 – – – – 299 – 299 160 – 160 – 4,005 – – – 4,005 – 40,928 (2) 40,926 225 (45) 180 991 – – 180 991 – – 7,251 – 7,251 Balance as at 31 August 2013 2,890 6,368 152,133 (1,770) 225 (45) 159,801 (2) 159,799 1Retained earnings includes the share-based payments reserve. 50 CONSOLIDATED STATEMENT OF FINANCIAL POSITION Note 9 10 11 14 15 21 20 16 18 As at 31 August 2013 Non-current assets Goodwill Other intangible assets Property, plant and equipment Deferred tax asset Current assets Inventories Trade and other receivables Derivative financial assets Current tax asset Cash and cash equivalents Current liabilities Trade and other payables Current tax liability Net current assets Net assets Equity attributable to owners of the Parent Called up share capital Share premium Employee Benefit Trust reserve Hedging reserve Translation reserve Retained earnings Total Non-controlling interest Total equity 31 August 2013 £’000 31 August 2012 £’000 1,060 38,626 30,031 8,902 78,619 143,348 18,420 225 – 71,139 233,132 (149,511) (2,441) (151,952) 81,180 1,060 22,176 27,293 8,111 58,640 100,263 19,066 – 425 27,884 147,638 (100,291) – (100,291) 47,347 159,799 105,987 2,890 6,368 (1,770) 225 (45) 152,133 159,801 (2) 2,854 6,105 (2,464) – – 99,492 105,987 – 159,799 105,987 Notes 1 to 26 are an integral part of the financial statements. The consolidated financial statements of ASOS Plc, registered number 4006623, on pages 47 to 74, were approved by the Board of Directors and authorised for issue on 22 October 2013 and were signed on its behalf by: N Robertson N Beighton Directors 51 ASOS Plc Annual report and accounts 2013 Year to 31 August 2013 £’000 5 months to 31 August 2012 £’000 54,455 13,342 CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 August 2013 Note 3 3 Operating profit Adjusted for: Depreciation of property, plant and equipment Amortisation of other intangible assets Loss on disposal of non-current assets Increase in inventories Decrease in trade and other receivables Increase in trade and other payables Share-based payments charges Other non-cash items Income tax paid 7,005 6,479 298 (42,882) 787 47,486 4,005 (104) (3,353) Net cash generated from operating activities before exceptional items 74,176 Cash outflow relating to exceptional operating items Net cash generated from operating activities Investing activities Payments to acquire other intangible assets Payments to acquire property, plant and equipment Finance income Acquisition of subsidiary – 74,176 (21,770) (9,558) 240 36 2,542 2,511 – (19,689) 437 18,068 344 – – 17,555 (935) 16,620 (5,672) (2,345) – – Net cash used in investing activities (31,052) (8,017) Financing activities Proceeds from issue of ordinary shares Net cash inflow relating to Employee Benefit Trust Repayment of revolving credit facility Finance expense Net cash generated from/(used in) financing activities Net increase in cash and cash equivalents 20 Opening cash and cash equivalents Closing cash and cash equivalents RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS Note Net funds at beginning of the period Increase in cash and cash equivalents Decrease in revolving credit facility liability Net funds at end of the period 20 52 299 160 – (328) 131 43,255 27,884 71,139 Year to 31 August 2013 £’000 27,884 43,255 – 71,139 321 9 (5,000) (364) (5,034) 3,569 24,315 27,884 5 months to 31 August 2012 £’000 19,315 3,569 5,000 27,884 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 August 2013 1 ACCOUNTING POLICIES a) General information ASOS Plc (‘the Company’) and its subsidiaries (together, ‘the Group’) is a global fashion retailer. The Group sells products across the world and has websites targeting the UK, US, Australia, France, Germany, Spain, Italy, Russia and China. The Company is a public limited company which is listed on the Alternative Investment Market (AIM) and is incorporated and domiciled in the UK. The address of its registered office is Second Floor, Greater London House, Hampstead Road, London NW1 7FB. b) Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations, as adopted by the European Union, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. As at the year end these are the standards, subsequent amendments and related interpretations issued and adopted by the International Accounting Standards Board (IASB) that have been endorsed by the European Union. The financial statements have been prepared on a going concern basis as explained on page 36 of the Directors’ Report. New standards (i) New and amended standards adopted by the Group There are no IFRSs or IFRIC interpretations that were effective for the first time for the year beginning on or after 1 September 2012 that had a material impact on the Group. (ii) New standards, amendments and interpretations issued but not effective for the year beginning 1 September 2012 and not early adopted At the date of authorisation of these financial statements, the following standards and interpretations were in issue but not yet effective and were not applied in these financial statements: IFRS 7 (amended 2011) Offsetting of Assets and Liabilities IFRS 9 Financial Instruments IFRS 10 Consolidated Financial Statements Accounting convention The financial statements are drawn up on the historical cost basis of accounting, excluding derivative financial instruments held at fair value through profit and loss. The financial statements are presented in sterling and all values are rounded to the nearest thousand pounds except where otherwise indicated. The principal accounting policies, which have been applied consistently throughout both periods, are set out below. Basis of consolidation The consolidated Group financial statements include the financial statements of ASOS Plc, all its subsidiaries, its joint venture and the Employee Benefit Trust and Capita Trust up to the reporting date. All intercompany transactions and balances between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. (i) Subsidiaries Subsidiary undertakings are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one-half of the voting rights. A list of all the subsidiaries of the Group is included in note 3 of the Parent Company financial statements. All apply accounting policies which are consistent with those of the rest of the Group. Subsidiary undertakings acquired during the period are recorded under the acquisition method of accounting and their results included from the date of acquisition. The results of subsidiaries which have been disposed of during the period are included up to the effective date of disposal. Any non-controlling interest acquired on acquisition of a subsidiary is recognised at the proportionate share of the acquired net assets. Subsequent to acquisition, the carrying amount of non-controlling interest equals the amount of those interests at initial recognition plus the non-controlling share of changes in equity since acquisition. Total comprehensive income is attributed to a non-controlling interest even if this results in the non-controlling interest having a deficit balance. (ii) Employee Benefit Trust and Capita Trust The Employee Benefit Trust and Capita Trust (‘the Trusts’) are considered to be Special Purpose Entities (SPEs), where the substance of the relationship between the Group and the SPEs indicates that the SPEs are controlled by the Group. The activities of the Trusts are conducted on behalf of the Group according to its specific business needs in order to obtain benefits from its operation and, on this basis, the assets held by the Trusts are consolidated into the Group’s financial statements. 53 ASOS Plc Annual report and accounts 2013 NOTES TO THE FINANCIAL STATEMENTS continued 1 ACCOUNTING POLICIES (continued) b) Basis of preparation (continued) Basis of consolidation (continued) (iii) Joint ventures A joint venture is an entity in which the Group holds an interest on a long-term basis and which is jointly controlled by the Group and one or more other venturers under a contractual agreement. Investments in joint ventures are carried in the Group Statement of Financial Position at cost plus post-acquisition changes in the Group’s share of the net assets of the entity, less any impairment in value. The carrying values of investments in joint ventures include acquired goodwill. Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. If the Group’s share of losses in a joint venture equals or exceeds its investment in the joint venture, the Group does not recognise further losses, unless it has incurred obligations to do so or made payments on behalf of the joint venture. c) Business combinations The Group applies the acquisition method of accounting to account for business combinations in accordance with IFRS 3 (R), ‘Business Combinations’. The cost of an acquisition is measured as the aggregate of the fair values, at the date of exchange, of assets given, equity instruments issued and liabilities incurred or assumed in exchange for control of the acquiree. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the Statement of Comprehensive Income. Acquisition expenses are recognised in the Statement of Comprehensive Income as incurred. Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration is recognised in accordance with IAS 39 in the Statement of Comprehensive Income. d) Intangible assets Goodwill Goodwill represents the excess of the cost of acquisitions over the Group’s interest in the fair value of the identifiable assets and liabilities (including intangible assets) of the acquired entity at the date of acquisition. Goodwill is recognised as an asset and assessed for impairment at least annually. Any impairment is recognised immediately in the Statement of Comprehensive Income. For the purposes of impairment testing, goodwill is allocated to those cash-generating units that have benefited from the acquisition. If the recoverable amount of the cash-generating unit is less than its carrying amount, then the impairment loss is allocated first to reduce the carrying amount of the goodwill allocated to the unit and then to the other assets of the unit on a pro rata basis. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit and loss on disposal. Other intangible assets The costs of acquiring and developing software that is not integral to the related hardware is capitalised separately as an intangible asset. This does not include internal website development and maintenance costs which are expensed as incurred unless representing a technological advance leading to future economic benefit. Capitalised software costs include external direct costs of material and services and the payroll and payroll-related costs for employees who are directly associated with the project. Capitalised software development costs are stated at historic cost less accumulated amortisation. Amortisation is calculated on a straight-line basis over the assets’ expected economic lives, normally between three to five years. Amortisation is included within administrative expenses in the Statement of Comprehensive Income. Software under development is held at cost less any recognised impairment loss. e) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any provision for impairment in value. Cost includes the original purchase price of the asset and the costs attributable in bringing the asset to its working condition for its intended use. Depreciation is provided to write down the cost of property, plant and equipment to their estimated residual values, based on current values at the reporting date, over their remaining useful lives using the straight-line method. Assets under construction are not depreciated. Residual values and useful lives are assessed at each reporting date. The depreciation rates applicable are summarised as follows: Fixtures and fittings Computer equipment 20% on cost/over the lease term 20% – 33% on cost At each reporting date, property, plant and equipment is reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. When a review for impairment is conducted, the recoverable amount is assessed by reference to the net present value of expected future pre-tax cash flows of the relevant cash-generating unit or fair value, less costs to sell if higher. Any impairment in value is charged to the Statement of Comprehensive Income in the period in which it occurs. 54 1 ACCOUNTING POLICIES (continued) f) Inventories Inventories are valued at the lower of cost and net realisable value, on a weighted average cost basis. Cost of purchase comprises the purchase price including import duties and other taxes, transport and handling costs and any other directly attributable costs, less trade discounts. A provision is made to write down any slow-moving or obsolete inventory to net realisable value. The provision is £2.8m at 31 August 2013 (31 August 2012: £3.4m). g) Financial instruments Trade and other receivables Trade and other receivables are non-interest bearing and are initially recognised at fair value. Subsequently they are measured at amortised cost using the effective interest rate method less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. Any provision made against an impaired recievable is charged through the Statement of Comprehensive Income. Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. Trade and other payables Trade and other payables are non-interest bearing and are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method. Bank borrowings Interest-bearing bank loans and overdrafts are initially recorded at fair value, which equals the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Derivative financial instruments and hedging activities The Group holds derivative financial instruments to hedge its foreign currency exposure. These derivatives are classified as cash flow hedges. Derivatives are initially recognised at fair value; attributable transactions costs are recognised in the Statement of Comprehensive Income when incurred. Subsequent to initial recognition, derivatives are re-measured at fair value at the end of each reporting period. At inception of a hedging relationship, the hedging instrument and the hedged item are documented and prospective effectiveness testing is performed. During the life of the hedging relationship, effectiveness testing is continued to ensure the instrument remains an effective hedge of the transaction. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the Statement of Comprehensive Income. Changes in the fair value of cash flow hedges are recognised in Other Comprehensive Income and any ineffective portion is recognised immediately in the Statement of Comprehensive Income. If the firm commitment or forecast transaction that is the subject of a cash flow hedge results in the recognition of a non-financial asset or liability, then, at the time the asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in Other Comprehensive Income are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of an asset or a liability, amounts deferred in Other Comprehensive Income are recognised in the Statement of Comprehensive Income in the same period in which the hedged items affect net profit. h) Revenue Revenue consists primarily of internet and advertising sales as well as postage and packaging receipts. Retail sales and delivery receipts are recorded net of an appropriate deduction for actual and expected returns, relevant vouchers, and sales taxes and are recognised upon dispatch from the warehouse at which point title and risk passes to third parties. Advertising revenue earned via the ASOS magazine is measured at the fair value of the consideration received or receivable, net of value added tax, and is recognised when the magazine is delivered to customers, at which date the service is completed. The amount of revenue arising from sale of goods and provision of services has been disclosed in note 2 to the financial statements. i) Segmental reporting The Group’s operating segmental format is geographical by customer location, based on the Group’s management and internal reporting structure. Segmental performance is assessed based on revenue and gross profit after distribution expenses, excluding administrative costs. 55 ASOS Plc Annual report and accounts 2013 NOTES TO THE FINANCIAL STATEMENTS continued 1 ACCOUNTING POLICIES (continued) j) Pension costs The Group contributes to the personal pension plans of certain employees under a defined contribution scheme. The costs of these contributions are charged to the Statement of Comprehensive Income on an accruals basis as they become payable under the scheme rules. k) Leased assets Rental payable under operating leases, where substantially all the benefits and risks of ownership remain with the lessor, is charged to the Statement of Comprehensive Income on a straight-line basis over the lease term. l) Finance income Finance income receivable on cash and cash equivalents is recognised in the Statement of Comprehensive Income as it is earned. m) Finance expense Finance expense is recognised in the Statement of Comprehensive Income as incurred and as part of cash flows generated from financing activities in the Statement of Cash Flows. n) Share schemes ASOS Employee Benefit Trust and Capita Trust The shares held by the ASOS Employee Benefit Trust and Capita Trust are valued at the weighted average historical cost of the shares acquired. They are deducted in arriving at total equity and are presented within the Employee Benefit Trust reserve. Share-based payments The Group issues equity settled share-based payments to certain employees, whereby employees render services in exchange for shares or rights over shares of the Parent Company. Equity-settled awards are measured at fair value at the date of grant. The fair value is calculated using an appropriate option pricing model and is expensed to the Statement of Comprehensive Income on a straight-line basis over the vesting period after allowing for an estimate of shares that will eventually vest. The level of vesting is reviewed annually and the charge adjusted to reflect actual and estimated levels of vesting. In accordance with IFRS 2, ASOS.com Limited is required to recognise share-based payment arrangements involving equity instruments where ASOS.com Limited has remunerated those providing services to the entity in this way. ASOS Plc makes contributions to ASOS.com Limited equal to the charge for the share-based payment arrangement which is reflected as an increase in ASOS Plc’s investment in ASOS.com Limited. Share options granted prior to 7 November 2002 fall outside the scope of IFRS 2 and therefore no charge has been recognised within the Statement of Comprehensive Income. o) Taxation The tax expense included in the Statement of Comprehensive Income and Statement of Changes in Equity comprises current and deferred tax. Current tax is the expected tax payable based on the taxable profit for the period, and the tax laws that have been enacted or substantively enacted by the reporting date. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Current and deferred tax is charged or credited in the Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in which case the current or deferred tax is also recognised directly in equity. Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates (and laws) that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities and where there is an intention to settle the balances on a net basis. 56 1 ACCOUNTING POLICIES (continued) p) Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from proceeds. q) Foreign currency translation The trading results and cash flows of overseas subsidiaries are translated at the average monthly exchange rates during the period. The Statement of Financial Position of each overseas subsidiary is translated at year-end exchange rates. The resulting exchange differences are recognised in a separate Translation Reserve within Equity and are reported in Other Comprehensive Income. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the rates of exchange at the reporting date. Exchange differences on monetary items are recognised in the Statement of Comprehensive Income. r) Significant estimates and judgements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. Significant items subject to such assumptions and estimates include the useful economic life of assets, the measurement and recognition of provisions and the valuation of inventory and share options. Actual results could differ from these estimates and any subsequent changes are accounted for with an effect on income at the time such updated information becomes available. The most critical accounting policies in determining the financial condition and results of the Group are those requiring the greatest degree of subjective or complex judgement. These relate to inventory valuation, deferred tax balances on share-based payments, refund accruals, share option valuation and legal contingencies. Inventory valuation Inventory is carried at the lower of cost and net realisable value, on a weighted average cost basis, which requires the estimation of the eventual sales price of goods to customers in the future. Any difference between the expected and the actual sales price achieved is accounted for in the period in which the sale is made. Deferred tax balances on share-based payments The Group recognises a deferred tax balance which reflects the temporary differences between the carrying value of outstanding share-based payment options on the Statement of Financial Position and the tax base of these options, being the estimated future tax deduction expected to crystallise on exercise of the option. The tax base is calculated by reference to the Company’s share price at the reporting date and the number of share options which are outstanding and expected to vest. Refund accruals Accruals for sales returns are estimated on the basis of historical returns and are recorded so as to allocate them to the same period in which the original revenue is recorded. These accruals are reviewed regularly and updated to reflect management’s latest best estimates, however, actual returns could vary from these estimates. Share option valuation Critical estimates and assumptions are made in particular with regard to the calculation of fair value of employee share options using appropriate valuation models. The inputs and assumptions of the model are detailed in note 22. Legal contingencies Where legal proceedings are brought against the Group and material future economic outflow is considered possible but not probable, or cannot be reliably measured, the Group discloses the nature of the contingent liability in the notes to the financial statements but does not recognise a liability in respect of the contingency. A liability is recognised only when a future economic outflow is probable and the amount of that outflow can be reliably measured. Judgement is required in both the probability determination and as to whether the Group’s exposure can be reliably estimated. 57 ASOS Plc Annual report and accounts 2013 NOTES TO THE FINANCIAL STATEMENTS continued 2) SEGMENTAL ANALYSIS IFRS 8 ‘Operating Segments’ requires operating segments to be determined based on the Group’s internal reporting to the Chief Operating Decision Maker. The Chief Operating Decision Maker has been determined to be the Executive Board and has determined that the primary segmental reporting format of the Group is geographical by customer location, based on the Group’s management and internal reporting structure. The Executive Board assesses the performance of each segment based on revenue and gross profit after distribution expenses, which excludes administrative expenses. Retail sales Delivery receipts Third-party revenues Total revenue Cost of sales Gross profit Distribution expenses Segment result Administrative expenses Operating profit Finance income Finance expense Profit before tax Retail sales Delivery receipts Third-party revenues Total revenue Cost of sales Gross profit Distribution expenses Segment result Administrative expenses Operating profit Finance expense Profit before tax Year to 31 August 2013 UK £’000 US £’000 EU £’000 RoW £’000 Total £’000 276,027 77,678 177,708 222,394 753,807 5,314 3,579 1,456 2,212 3,028 – – – 12,010 3,579 284,920 79,134 179,920 225,422 769,396 (148,685) (32,687) (88,865) (100,579) (370,816) 136,235 46,447 91,055 124,843 398,580 (26,140) (27,804) (27,046) (34,182) (115,172) 110,095 18,643 64,009 90,661 283,408 (228,953) 54,455 283 (68) 54,670 5 months to 31 August 2012 UK £’000 US £’000 EU £’000 RoW £’000 Total £’000 81,658 22,036 50,855 76,685 231,234 3,035 1,617 86,310 (45,775) 40,535 (8,413) 32,122 512 – 22,548 (9,579) 12,969 (7,102) 5,867 719 1 51,575 (26,707) 24,868 (7,436) 17,432 904 1 5,170 1,619 77,590 238,023 (35,831) (117,892) 41,759 (12,955) 28,804 120,131 (35,906) 84,225 (70,883) 13,342 (97) 13,245 Due to the nature of its activities, the Group is not reliant on any individual major customers. No analysis of the assets and liabilities of each operating segment is provided to the Chief Operating Decision Maker in the monthly management accounts therefore no measure of segmental assets or liabilities is disclosed in this note. There are no material non-current assets located outside the UK. 58 3) OPERATING PROFIT a) Operating profit is stated after charging/(crediting) Depreciation of property, plant and equipment Amortisation of other intangible assets Loss on disposal of property, plant and equipment Loss on disposal of other intangible assets Cost of inventory recognised as an expense Adjustment to inventories to net realisable value Net foreign exchange (gains)/losses Operating leases b) Auditors’ remuneration: Audit and audit-related services Statutory audit of Parent Company and consolidated financial statements Statutory audit of the Company’s subsidiaries pursuant to legislation Total Other services: Fees payable to Company’s auditors for other services Taxation compliance All other services Total fees for other services Year to 31 August 2013 £’000 5 months to 31 August 2012 £’000 7,005 6,479 143 155 373,274 (563) (562) 4,539 39 148 187 29 231 260 2,542 2,511 – – 118,958 807 372 1,940 24 116 140 5 95 100 Costs relating to the audit and non-audit services of the Parent Company are borne by ASOS.com Limited. The policy for the approval of non-audit fees is set out on page 31. 59 ASOS Plc Annual report and accounts 2013 NOTES TO THE FINANCIAL STATEMENTS continued 4) STAFF COSTS INCLUDING DIRECTORS’ REMUNERATION By activity: Fashion Operations Technology Year to 31 August 2013 5 months to 31 August 2012 Number of employees Number of employees 386 638 140 1,164 321 549 123 993 The employee costs, including directors, for the Group during the current and prior period were as follows: Wages and salaries Social security costs Other pension costs Share-based charges (note 22) Year to 31 August 2013 £’000 5 months to 31 August 2012 £’000 50,251 4,600 1,102 4,005 59,958 14,311 1,501 349 344 16,505 The aggregate amount of salaries deemed to relate exclusively to capital projects was £4.6m (5 months to 31 August 2012: £1.5m). This amount has been capitalised and is not included above. The aggregate compensation to key management personnel, being the directors of ASOS Plc (Executive and Non Executive) plus the members of the Executive Board of ASOS.com Limited, was as follows: Short-term employee benefits Post-employment benefits Share-based payments charges Year to 31 August 2013 £’000 5 months to 31 August 2012 £’000 5,390 223 1,925 7,538 1,452 100 38 1,590 Three directors of ASOS Plc and one member of the Executive Board of ASOS.com Limited exercised share options during the period. Aggregate gains made by key management personnel on the exercise of share options during the period were £27.6m (5 months to 31 August 2012: £1.7m). In addition, four directors of ASOS Plc and one member of the Executive Board exchanged shares in ASOS.com Limited for shares in ASOS Plc under the terms of the Management Incentive Plan. Aggregate gains made by key management personnel as a result of this share exchange were £39.7m. The highest paid director made gains of £15.9m as a result of share exchange under the Management Incentive Plan and did not exercise any other share options during the year. Directors’ aggregate emoluments and pension payments are detailed in the Directors’ Remuneration Report along with share interests and share options during the year. 5) FINANCE INCOME Year to 31 August 2013 £’000 5 months to 31 August 2012 £’000 Interest receivable on cash and cash equivalents 283 – 60 6) FINANCE EXPENSE Year to 31 August 2013 £’000 5 months to 31 August 2012 £’000 Interest payable on bank overdraft 68 97 7) INCOME TAX EXPENSE Tax on profit Adjustment in respect of prior year corporation tax Total current tax charge Deferred tax – Origination and reversal of temporary differences – Effect of restatement of deferred tax opening balances to substantially enacted tax rate1 – Adjustment in respect of prior year Total deferred tax charge/(credit) Tax on profit Effective tax rate Year to 31 August 2013 £’000 5 months to 31 August 2012 £’000 13,633 (89) 13,544 285 (22) (63) 200 13,744 25.1% 3,525 – 3,525 (178) 1 (7) (184) 3,341 25.2% RECONCILIATION OF TAX CHARGE The tax on the Group’s profit before tax differs from the income tax expense as follows: Year to 31 August 2013 £’000 5 months to 31 August 2012 £’000 Profit before tax 54,670 13,245 Tax on profit at a standard rate of UK corporation tax of 23.6% (5 months to 31 August 2012: 24.0%) 12,891 3,179 Effects of: Expenses not deductible for taxation purposes Rate differences: overseas tax Rate differences: UK tax Deferred tax assets not provided Tax adjustments on share-based payments Unpaid consortium relief not paid for Adjustment in respect of prior years Tax on profit 926 16 (17) 34 55 (9) (152) 13,744 TAX ON RECOGNISED INCOME AND EXPENSES NOT INCLUDED IN THE STATEMENT OF COMPREHENSIVE INCOME Current tax credit on exercise of share options Deferred tax credit/(charge) on movement in tax base of share options Year to 31 August 2013 £’000 7,251 991 8,242 138 – 1 22 8 – (7) 3,341 5 months to 31 August 2012 £’000 1,933 (1,949) (16) These amounts have been recognised in equity and are included in the Consolidated Statement of Changes in Equity on page 50. 1 5 months to 31 August 2012: restatement of opening balances from 24% as at 31 March 2012 to 23% as at 31 August 2012. Year to 31 August 2013: restatement of opening balances from 23% as at 31 August 2012 to 21% as at 31 August 2013 where items are expected to be settled between 1 April 2014 and 31 March 2015, and to 20% where items are expected to be settled on or after 1 April 2015. 61 ASOS Plc Annual report and accounts 2013 NOTES TO THE FINANCIAL STATEMENTS continued 8) EARNINGS PER SHARE Basic earnings per share is calculated by dividing the profit attributable to the owners of the Parent Company by the weighted average number of ordinary shares in issue during the period. Own shares held by the ASOS Employee Benefit Trust and Capita Trust are eliminated from the weighted average number of ordinary shares. Diluted earnings per share is calculated by dividing the profit attributable to the owners of the Parent Company by the weighted average number of ordinary shares in issue during the period, adjusted for the effects of potentially dilutive share options. Weighted average shares in issue for basic earnings per share Effect of dilutive options Weighted average shares in issue for diluted earnings per share Earnings attributable to owners of the Parent (£’000) Basic earnings per share Diluted earnings per share Year to 31 August 2013 Number of shares 81,751,253 1,374,566 83,125,819 40,928 50.1p 49.2p 5 months to 31 August 2012 Number of shares 79,078,431 3,951,661 83,030,092 9,904 12.5p 11.9p 4,000,822 shares issued on 31 May 2012 under the Management Incentive Plan are included within weighted average shares in issue for basic earnings per share. At 31 August 2012, 2,405,723 of these shares were included in weighted average shares in issue for basic earnings per share and the remainder were included in weighted average shares in issue for diluted earnings per share. 9) GOODWILL Year to 31 August 2013 £’000 5 months to 31 August 2012 £’000 Carrying value at start and end of the period 1,060 1,060 Goodwill relates to the historic acquisition of ASOS.com Limited, a 100% subsidiary of ASOS Plc. Goodwill has been tested for impairment by comparing the carrying amount of each cash-generating unit (CGU), including goodwill, with the recoverable amount determined from value-in-use calculations. The CGUs comprise geographical business segments (UK, US, EU and Rest of World as described in note 2). The key assumptions for the value-in-use calculations include those regarding operating profit, discount rates and growth rates. Value-in-use was calculated from cash flow projections for five years using data from the Group’s latest results and financial forecasts approved by the Board. No reasonably possible change in assumptions could cause an impairment trigger in relation to goodwill. The budgeted cash flow assumes a growth rate which is higher than the long-term growth rate of the UK economy and this is based on the current performance expectations of the Group. Management has determined that no impairment was necessary in the current financial period (5 months to 31 August 2012: £nil). 62 10) OTHER INTANGIBLE ASSETS Other intangible assets Assets under construction £’000 £’000 Cost At 1 April 2012 Additions Transfers Disposals At 31 August 2012 Additions Transfers Disposals At 31 August 2013 Accumulated amortisation At 1 April 2012 Charge for the period Disposals At 31 August 2012 Charge for the year Disposals At 31 August 2013 Net book amount At 31 August 2013 At 31 August 2012 23,871 4,728 414 (469) 28,544 8,326 2,799 (606) 39,063 5,056 2,511 (469) 7,098 6,479 (475) 13,102 25,961 21,446 1,144 – (414) – 730 14,758 (2,799) (24) 12,665 – – – – – – – 12,665 730 Total £’000 25,015 4,728 – (469) 29,274 23,084 – (630) 51,728 5,056 2,511 (469) 7,098 6,479 (475) 13,102 38,626 22,176 Other intangible assets comprise capitalised software costs that are not deemed to be an integral part of the related hardware (which is classified within property, plant and equipment). The amortisation period for capitalised software costs is normally between three and five years. Assets under construction are not subject to amortisation until the asset is brought into use. Amortisation is included in administrative expenses in the Statement of Comprehensive Income. 63 ASOS Plc Annual report and accounts 2013 NOTES TO THE FINANCIAL STATEMENTS continued 11) PROPERTY, PLANT AND EQUIPMENT Fixtures and fittings £’000 Computer equipment £’000 Assets under construction £’000 Cost At 1 April 2012 Additions Transfers Disposals 23,322 1,656 130 – 14,469 273 385 (271) At 31 August 2012 25,108 14,856 Total £’000 38,956 2,141 – (412) 40,685 9,886 – (4,363) 46,208 11,262 2,542 (412) 13,392 7,005 (4,220) 16,177 1,165 212 (515) (141) 721 3,555 (943) (52) 3,281 5 141 (141) 5 (5) – – 6,209 943 (1,689) 30,571 4,608 68 – 4,676 5,117 (1,609) 8,184 122 – (2,622) 12,356 6,649 2,333 (271) 8,711 1,893 (2,611) 7,993 Additions Transfers Disposals At 31 August 2013 Accumulated depreciation At 1 April 2012 Charge for the period Disposals At 31 August 2012 Charge for the year Disposals At 31 August 2013 Net book amount At 31 August 2013 At 31 August 2012 22,387 20,432 4,363 6,145 3,281 716 30,031 27,293 Depreciation is included in administrative expenses in the Statement of Comprehensive Income. 12) INTEREST IN JOINT VENTURE Interest in joint venture Initial equity investment in joint venture Brought forward share of post-tax losses in joint venture Interest in joint venture 31 August 2013 £’000 31 August 2012 £’000 – – – 150 (150) – The Group previously held a 50% interest in the ordinary shares of one joint venture, the online retailer Crooked Tongues Limited (‘Crooked Tongues’), a company registered in the UK. On 31 May 2013, the Group acquired an additional 45% of the issued share capital of Crooked Tongues and hence, from that date, Crooked Tongues is accounted for as a subsidiary of the Group. See Note 13 for details. 64 13) ACQUISITION OF SUBSIDIARY On 31 May 2013, the Group acquired 45% of the issued share capital of Crooked Tongues in exchange for cash consideration of £1. Prior to this date, the Group held 50% of the issued share capital of Crooked Tongues and accounted for the joint venture under the equity method. The carrying value and fair value of the joint venture was £nil at 31 May 2013. Crooked Tongues is based in the UK and is an online footwear retailer. The controlling shareholding was acquired to allow the Group to exercise increased influence in developing the Crooked Tongues business. The following table gives details of the fair values of the assets and liabilities acquired and the total consideration paid: Recognised amounts of identifiable assets acquired and liabilities assumed: Cash and cash equivalents Property, plant and equipment Inventory Net receivables Current liabilities Total identifiable net liabilities Goodwill Total consideration Satisfied by: Fair value of original investment Cash consideration Amount of non-controlling interest Total Net cash inflow arising on acquisition: Cash and cash equivalent balances acquired Less: cash consideration Cash and cash equivalent balances acquired Fair value £’000 36 1 209 50 (296) – – – – – – – 36 – 36 Gross trade receivables as at the acquisition date amount to £49,711. The best estimate at the acquisition date of the contractual cash flows not expected to be collected is £nil. This is represented in the fair value of the identifiable assets listed above. There were no acquisition-related costs. The total contribution of revenue and operating loss to the Group’s results for the year to 31 August 2013 is £409,813 and £29,314 respectively. If the results of Crooked Tongues had been consolidated for the period of the Group’s full financial year, the total contribution of revenue and operating loss to the Group’s results for the year to 31 August 2013 would have been £1,785,878 and £65,110 respectively. 65 ASOS Plc Annual report and accounts 2013 NOTES TO THE FINANCIAL STATEMENTS continued 14) DEFERRED TAX ASSET Accelerated Share-based capital allowances £’000 payments £’000 At 1 April 2012 Credit/(charge) to the Statement of Comprehensive Income Effect of change of rate on deferred tax opening balances to 23%1 Charge to equity Effect of change of rate on deferred tax opening balances to 23%2 At 1 August 2012 (901) 303 38 – – (560) 10,462 (26) (23) (1,539) (410) 8,464 (Charge)/credit to the Statement of Comprehensive Income Effect of change of rate on deferred tax opening balances to 20/21%1 Credit to equity Effect of change of rate on deferred tax opening balances to 20/21%2 At 31 August 2013 1 Statement of Comprehensive Income. 2 Statement of Changes in Equity. (109) (167) 60 – – (609) (16) 1,354 (363) 9,272 Other £’000 315 (94) (14) – – 207 54 (22) – – 239 Total £’000 9,876 183 1 (1,539) (410) 8,111 (222) 22 1,354 (363) 8,902 The deferred tax assets and liabilities have been offset as they are due to reverse in the same jurisdiction. The Company has losses of £246,000 (5 months to 31 August 2012: £246,000) which are available for offset against future taxable profits. These have not been recognised at the year end. The Group has other losses which are available to be carried forward against future taxable profits of £508,000. The deferred tax asset on share-based payments is created by the temporary difference between the carrying value of outstanding share-based payment options on the Statement of Financial Position and the tax base of these options, being the estimated future tax deduction expected to crystallise on exercise of the option. The tax base is calculated by reference to the Company’s share price at the reporting date and the number of share options outstanding, which has decreased during the period to 31 August 2013. It is estimated that deferred tax assets of £717,103 (31 August 2012: £471,559) will be recovered within one year. The rate of corporation tax will change to 21% from 1 April 2014 and to 20% from 1 April 2015. As deferred tax assets and liabilities are measured at the tax rates that are expected to apply in periods of reversal, and we expect a portion of the above deferred tax assets and liabilities as at 31 August 2013 to be realised after 1 April 2014, where relevant, deferred tax closing balances have been restated using the above rates. The change of rate in the year to 31 August 2013 decreased the deferred tax asset by £363,000 (5 months to 31 August 2012: £410,000). 66 15) TRADE AND OTHER RECEIVABLES Trade receivables Provision for doubtful debts Trade receivables net of provision for doubtful debts Prepayments Receivables from related parties (note 26) Other receivables 31 August 2013 £’000 31 August 2012 £’000 4,967 (314) 4,653 3,419 – 10,348 18,420 2,896 (231) 2,665 5,482 791 10,128 19,066 Included in other receivables are VAT receivables of £7,220,387 (31 August 2012: £7,902,591). The fair value of trade and other receivables is not materially different from their carrying value. Trade and other receivables fall into the ‘loans and receivables’ category of the Group’s financial assets. At 31 August 2013 trade receivables with a gross value of £320,829 were individually determined to be impaired (31 August 2012: £1,080,219) and the provision for impairment of these trade receivables was £313,751 (31 August 2012: £230,916). Movements on the provision for impairment of trade receivables are as follows: At start of period Charged during the period At end of period Year to 31 August 2013 £’000 5 months to 31 August 2012 £’000 (231) (83) (314) – (231) (231) Movement in the provision for impaired receivables is included within revenue in the Statement of Comprehensive Income. Amounts are generally written off where there is no expectation of recovery. The other classes within trade and other receivables do not contain impaired assets. As at 31 August 2013, trade receivables of £466,495 were past due but not impaired (31 August 2012: £846,564). These relate to a number of independent third parties for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows: 3 to 6 months Over 6 months 31 August 2013 £’000 31 August 2012 £’000 354 112 466 684 162 846 Management believe that all unimpaired receivables are fully recoverable. All other receivables are non-interest bearing. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The Group does not hold any collateral as security. 16) TRADE AND OTHER PAYABLES 31 August 2013 £’000 31 August 2012 £’000 Trade payables Taxation and social security Accruals Other payables The fair value of trade and other payables is not materially different from their carrying value. 59,948 6,325 57,116 26,122 149,511 41,696 7,669 32,127 18,799 100,291 67 ASOS Plc Annual report and accounts 2013 NOTES TO THE FINANCIAL STATEMENTS continued 17) PROVISIONS At 1 April 2012 Utilised during the period At 31 August 2012 and 31 August 2013 Property £’000 935 (935) – The Group historically provided for excess property costs to be incurred in its vacant legacy warehouse until lease expiry. This provision was utilised during the five months to 31 August 2012. 18) CALLED UP SHARE CAPITAL Authorised: 31 August 2013 £’000 31 August 2012 £’000 100,000,000 (31 August 2012: 100,000,000) ordinary shares of 3.5p each 3,500 3,500 Allotted, issued and fully paid: 82,581,006 (31 August 2012: 81,524,877) ordinary shares of 3.5p each 2,890 2,854 During the year 1,051,695 (5 months to 31 August 2012: 402,820) ordinary shares of 3.5p each were issued as a result of exercise of employee share options. Total consideration received in respect of exercise of employee share options was £299,680 (5 months to 31 August 2012: £320,582). A further 4,434 shares were issued to the Chairman on his appointment. 19) NON-CONTROLLING INTERESTS At start of period Share of loss for the period At end of period 20) RECONCILIATION OF NET FUNDS Net movement in cash and cash equivalents Repayment of revolving credit facility Net movement in net funds Opening net funds Closing net funds Closing net funds comprises: Cash and cash equivalents 31 August 2013 £’000 31 August 2012 £’000 – (2) (2) – – – 31 August 2013 £’000 31 August 2012 £’000 43,255 – 43,255 27,884 71,139 3,569 5,000 8,569 19,315 27,884 71,139 27,884 The Group has in place a £20.0m revolving loan credit facility which includes an ancillary £10.0m guaranteed overdraft facility and which is available until July 2015. 68 21) FINANCIAL INSTRUMENTS Categories of financial instruments Financial assets Financial assets at fair value through profit and loss Loans and receivables Financial liabilities Amortised cost 31 August 2013 £’000 31 August 2012 £’000 225 86,140 – 41,468 (143,186) (100,291) Loans and receivables includes trade and other receivables and cash and cash equivalents, and excludes prepayments. Included in financial liabilities at amortised cost are trade payables, accruals and other payables. Risk management The Group’s Treasury function seeks to reduce exposures to capital risk, liquidity risk, credit risk, interest rate risk and foreign currency risk, to ensure liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. The Group does not engage in speculative trading in financial instruments and transacts only in relation to underlying business requirements. The Group’s treasury policies and procedures are periodically reviewed and approved by the Audit Committee. Capital risk The Group’s objectives when managing capital (defined as net funds1 plus equity) are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders through an appropriate balance of debt and equity funding, whilst maintaining a strong credit rating and sufficient headroom. The Group makes adjustments to its capital structure in light of changes to economic conditions and the Group’s strategic objectives. Liquidity risk The Group manages its exposure to liquidity risk by continuously monitoring short- and long-term forecasts and actual cash flows and ensuring it has the necessary banking and reserve borrowing facilities available to meet the requirements of the business. At 31 August 2013 the Group has an undrawn revolving loan credit facility of £20.0m which includes an ancillary £10.0m guaranteed overdraft facility and is available until July 2015. Borrowings under the revolving loan credit facility bear interest at a rate of 1.20% per annum above LIBOR plus 0.25% if between 33% and 66% utilised, and plus 0.50% if over 66% utilised. Borrowings under the overdraft bear interest at 1.40% above base rate. Commitment interest of 0.48% per annum is payable on the daily undrawn balance of the total facility. Any surplus cash is placed on deposit to maximise returns on cash balances. The Group’s financial liabilities all have remaining contractual liabilities of less than one year. Credit risk Credit risk is the risk that a counterparty may default on its obligation to the Group in relation to lending, hedging, settlement and other financial activities. The Group’s principal financial assets are trade and other receivables, bank balances and cash in hand. The Group’s credit risk is primarily attributable to its trade and other receivables. The amounts included in the Statement of Financial Position are net of allowances for doubtful receivables. An allowance for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of cash flows. The Group has a low retail credit risk due to transactions being principally of a high volume, low value and short maturity. The Group’s trade receivables are primarily with large advertising companies with whom the Group has a long-standing relationship, the risk of default is considered to be low and write-offs due to bad debts are extremely low. The Group has no significant concentration of credit risk, as exposure is spread over a large number of counterparties and customers. The credit risk on liquid funds is considered to be low, as the Board-approved Group Treasury Policy limits the value that can be placed with each approved counterparty to minimise the risk of loss. These limits are based on a minimum Standard and Poor’s credit rating of A-. Interest rate risk The Group is exposed to cash flow interest rate risk on its floating rate bank overdraft and revolving credit facilities. At 31 August 2013, the Group has no drawings under its revolving loan credit facility. The Group may draw down periodically on the revolving loan credit facility in the future if required but no drawdown will be long-term in nature and therefore the Group has not entered into interest rate derivatives to mitigate the interest rate risk. 1Cash and cash equivalents less bank borrowings 69 ASOS Plc Annual report and accounts 2013 NOTES TO THE FINANCIAL STATEMENTS continued 21) FINANCIAL INSTRUMENTS (continued) Foreign currency risk The Group operates internationally and is therefore exposed to foreign currency transaction risk, primarily on purchases and sales denominated in US dollars, euros and Australian dollars. The Group’s presentational currency is sterling therefore the Group is also exposed to foreign currency translation risks due to movements in foreign exchange rates on the translation of non-sterling assets and liabilities. The Group’s policy is to match foreign currency transaction exposures where possible. Where appropriate, the Group uses financial instruments in the form of forward foreign exchange contracts to hedge future foreign currency cash flows. The fair value of forward foreign exchange contracts recognised in the Statement of Financial Position within derivative financial assets at 31 August 2013 was £225,000 (31 August 2012: £nil). Cashflows related to these contracts will occur during the year to 31 August 2014, and gains or losses will be recognised in the Statement of Comprehensive Income during the same period. Sensitivity analysis At 31 August 2013, a 5% movement in sterling against the US dollar or euro, which is deemed to represent a reasonable possible change, would not be deemed to have a material impact on the profit before tax for the period or on total equity as at 31 August 2013. A 5% movement in interest rates, which is deemed to represent a reasonable possible change, would not be deemed to have a material effect on net interest costs based on the Group’s interest bearing liabilities as at 31 August 2013. 22) SHARE-BASED PAYMENTS Summary of movements in awards Number of shares Sharesave Schemes Performance Share Plan Share Incentive Plan EMI and other Total Weighted average exercise price Pence Outstanding at 1 April 2012 232,708 275,484 Granted during the period Lapsed during the period – (16,898) 9,800 (8,891) Exercised during the period (4,440) (89,643) Outstanding at 31 August 2012 211,370 186,750 Exercisable at 31 August 2012 – – – – – – – – 2,299,920 2,808,112 120.07 – 9,800 – (5,405) (31,194) 493.20 (402,820) (496,903) 66.46 1,891,695 2,289,815 126.69 1,891,695 1,891,695 46.50 Outstanding at 1 September 2012 211,370 186,750 – 1,891,695 2,289,815 126.69 Granted during the period Lapsed during the period Exercised during the period 83,376 49,001 17,372 (12,913) (43,141) (269) – – 149,749 1,645.26 (56,323) 262.64 (50,380) (73,925) – (1,051,695) (1,176,000) 40.94 Outstanding at 31 August 2013 231,453 118,685 17,103 840,000 1,207,241 390.51 Exercisable at 31 August 2013 – – – 840,000 840,000 66.98 In addition to the share options detailed above, certain Executive Directors and members of senior management have also been granted awards under the ASOS Long-Term Incentive Plan (ALTIP). The total face value of awards approved under the scheme is £33,600,946. The final number of ordinary shares required to satisfy the awards will depend upon both the extent to which the scheme’s performance conditions are met and the Company’s share price at the vesting date on 31 October 2016. Further details are provided below. The Group recognised a total expense of £4.0m during the year (5 months to 31 August 2012: £0.3m) relating to equity-settled share-based payment transactions. The weighted average share price at date of exercise of shares exercised during the year was 2,797p (31 August 2012: 1,773p). The weighted average remaining contractual life of outstanding options at the end of the year was 2.0 years (31 August 2012: 2.2 years). The aggregate fair value of options granted in the year was £3.1m (31 August 2012: £0.2m). 70 22) SHARE-BASED PAYMENTS (continued) Save-As-You-Earn (SAYE) Scheme Under the terms of the current SAYE Scheme, the Board grants options to purchase ordinary shares in the Company to employees who enter into an HMRC-approved SAYE Scheme for a term of three years. Options are granted at up to a 20% discount to the market price of the shares on the day preceding the date of offer and are normally exercisable for a period of six months after completion of the SAYE contract. Date of grant 18/12/09 08/12/10 06/12/11 12/06/13 1 September 2012 no. of shares Granted during the year no. of shares Lapsed during the year no. of shares Exercised during the year 31 August 2013 no. of shares no. of shares Exercise price pence Exercise period 48,816 57,244 105,310 – – – – (48,816) – 336.0 01/03/13 – 31/08/13 (3,905) (652) 52,687 1,073.0 01/03/14 – 31/08/14 (9,008) (912) 95,390 1,177.0 01/03/15 – 31/08/15 – 83,376 – – 83,376 2,955.0 01/08/16 – 31/01/17 211,370 83,376 (12,913) (50,380) 231,453 These option grants are settled on exercise through transfer of shares from the Employee Benefit Trust. The SAYE options granted during the period were valued using a Black-Scholes model. The inputs to the Black-Scholes model are as follows: Share price – pence Exercise price – pence Expected volatility Expected life – years Risk-free rate Dividend yield Weighted average fair value of options – pence No options were granted during the 5 months to 31 August 2012. Volatility has been estimated by taking the historical volatility in the Company’s share price over a three-year period. Year to 31 August 2013 4,032 2,955 44.4% 3 0.67% – 1,694 Performance Share Plan (PSP) Under the terms of the PSP, Executive Directors and selected senior executives may be granted conditional awards to acquire ordinary shares in the Company (in the form of nil cost options) which will only vest and become exercisable to the extent that the related performance targets are met. These performance targets are detailed in the Directors’ Remuneration Report on page 40. Date of grant 02/12/09 27/01/10 30/03/10 30/06/10 22/07/10 24/11/10 28/01/11 06/07/11 28/09/11 08/02/12 28/05/12 18/12/12 1 September 2012 no. of shares Granted during the year no. of shares Lapsed during the year no. of shares Exercised during the year 31 August 2013 no. of shares no. of shares Exercise price pence 11,111 15,642 3,184 65,658 3,391 15,294 3,726 35,530 15,584 7,830 9,800 – – – – – – – – – – – – (11,111) (534) (15,108) (265) (2,919) (23,570) (42,088) (692) (2,699) – – – – – (4,972) – (6,366) (5,041) (645) – – – – – – – – 10,322 3,726 29,164 10,543 7,185 9,800 47,945 – 49,001 (1,056) nil nil nil nil nil nil nil nil nil nil nil nil 186,750 49,001 (43,141) (73,925) 118,685 These option grants are settled on exercise through transfer of shares from the Employee Benefit Trust. Exercise period 02/12/12 27/01/13 30/03/13 30/06/13 22/07/13 24/11/13 28/01/14 06/07/14 28/09/14 08/02/15 28/05/15 18/12/15 71 ASOS Plc Annual report and accounts 2013 NOTES TO THE FINANCIAL STATEMENTS continued 22) SHARE-BASED PAYMENTS (continued) The PSP awards granted in the current and prior period have been valued using a Black-Scholes model. The inputs to the Black-Scholes model are as follows: Year to 31 August 2013 Year to 31 August 2012 Share price – pence Exercise price – pence Expected volatility Expected life – years Risk-free rate Dividend yield Weighted average fair value of options – pence 2,582 – 45.9% 3 0.53% – 2,582 1,709 – 46.2% 3 0.3 – 1,709 Volatility has been estimated by taking the historical volatility in the Company’s share price over a three-year period. Share Incentive Plan (SIP) Under the terms of the SIP, the Board grants free shares to every employee under an HMRC-approved SIP. Awards must be held in trust for a period of at least three years after grant date and become exercisable at this date. Date of grant 28/12/12 1 September 2012 no. of shares Granted during the year no. of shares Lapsed during the year no. of shares Exercised during the year 31 August 2013 no. of shares no. of shares Exercise price pence Exercise period – 17,372 (269) – 17,103 nil Post 28/12/15 These option grants are settled on exercise through transfer of shares from the Capita Trust. The SIP options granted during the year were valued using a Black-Scholes model. The inputs to the Black-Scholes model are as follows: Share price – pence Exercise price – pence Expected volatility Expected life – years Risk-free rate Dividend yield Weighted average fair value of options – pence Volatility has been estimated by taking the historical volatility in the Company’s share price over a three-year period. EMI Share Option Scheme Details of options granted under the Company’s EMI Share Option Scheme are shown below. Year to 31 August 2013 2,628 – 45.8% 3 0.45% – 2,628 Date of grant 30/07/04 29/04/05 11/07/05 26/04/06 04/07/06 30/04/07 1 September 2012 no. of shares Granted during the year no. of shares Lapsed during the year no. of shares Exercised during the year no. of shares 31 August 2013 no. of shares Exercise price pence Exercise period 140,000 61,440 500,000 100,000 200,000 60,598 1,062,038 – – – – – – – – – – – – – – – 140,000 56.50 30/07/06 – 29/07/14 (61,440) – 49.50 29/04/07 – 28/04/15 – 500,000 57.50 11/07/07 – 10/07/15 (100,000) – 93.25 26/04/09 – 25/04/16 – 200,000 98.00 04/07/09 – 03/07/16 (60,598) – 117.00 23/04/10 – 22/04/17 (222,038) 840,000 These option grants are settled on exercise through issue of new ordinary shares by the Company. For further details see note 18. 72 22) SHARE-BASED PAYMENTS (continued) Other share option scheme Details of options granted under another share option scheme are shown below. Date of grant no. of shares 1 September Granted Exercised 2012 during the year during the year during the year 31 August 2013 no. of shares no. of shares no. of shares no. of shares Lapsed Exercise price pence Exercise period 06/12/00 829,657 – – (829,657) – 12.67 16/01/01 – 01/01/14 These option grants are settled on exercise through issue of new ordinary shares by the Company. For further details see note 18. Management Incentive Plan (MIP) Under the terms of the ASOS MIP, Executive Directors and certain senior employees were given the opportunity to invest their own money to buy new subordinated shares issued in a subsidiary company, ASOS.com Limited (‘the Subsidiary’). The total number of shares acquired by employees in ASOS.com Limited at commencement of the scheme was 203,161. The MIP had a three-year performance period which ended on 31 March 2012. As a result of the performance against the scheme’s vesting conditions, upon the recommendation of the Remuneration Committee, the Company approved the exchange of eligible shares in the Subsidiary for 4,000,822 ordinary shares in the Company (after application of the maximum dilution cap) of an equal tax market value (based on an independent valuation of the Subsidiary) as at the average share price of ASOS Plc for the week ending on 18 May 2012. On 30 September 2012, participants became free to trade 2,000,411 of these new shares and participants will become free to trade the remaining 2,000,411 shares on 30 September 2013 (assuming that all eligible individuals remain an employee of the Company or are deemed to be a ‘good leaver’ and subject to any close period dealing restrictions). ASOS Long-Term Incentive Plan (ALTIP) The Company implemented a new long-term incentive plan on 30 April 2013, covering the performance period from 1 September 2012 to 31 August 2015. The base value of each participant’s award under the ALTIP is calculated as a fixed multiple of salary and will only vest to the extent that the related performance targets are met. These performance targets are detailed in the Directors’ Remuneration Report on page 37. There is also a maximum benefit restriction imposed on each participant. All awards granted to date under the ALTIP will vest on 31 October 2016. The final number of ordinary shares required to satisfy the awards will depend upon both the extent to which the scheme’s performance conditions are met and the Company’s share price on 31 October 2016. The face value of awards approved under the ALTIP was £33,600,946, of which £4,972,224 lapsed during the year. Participants can choose to make an upfront investment equivalent to the tax fair value of all or part of their award. Non-executive participants are offered a loan by ASOS.com Limited to fund their investment, of which 75% is non-recourse. All current participants have chosen to make an upfront investment equivalent to the tax fair value of their full award. The ALTIP awards granted in the current period have been valued using a Black-Scholes model. The inputs to the Black-Scholes model are as follows: Share price – pence Exercise price – pence Expected volatility Expected life – years Risk-free rate Dividend yield Weighted average fair value of options – pence Upfront investment 3,268 – 45% 3.5 0.36% – 2,233 Loan 3,268 686 45% 3.5 0.36% – 1,925 Whilst under the rules of the ALTIP there is no exercise price payable on vesting, investments made by participants via non-recourse loans from ASOS.com Limited are treated as an exercise price in the Black-Scholes valuation model. Volatility has been estimated by taking the historical volatility in the Company’s share price over a three-year period. These options will be settled on exercise through issue of new ordinary shares by the Company. 73 ASOS Plc Annual report and accounts 2013 NOTES TO THE FINANCIAL STATEMENTS continued 23) CAPITAL COMMITMENTS Capital expenditure contracted for at the end of the reporting period but not yet incurred is as follows: Fixtures and fittings Intangible assets 24) OPERATING LEASE COMMITMENTS 31 August 2013 £’000 31 August 2012 £’000 17,886 796 18,682 – – – At the reporting date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows: Within one year Within two to five years In over five years Total The Group’s operating leases relate to warehousing and office space. 25) CONTINGENT LIABILITIES 31 August 2013 £’000 31 August 2012 £’000 5,819 29,883 6,437 42,139 3,477 13,244 7,154 23,875 From time to time, the Group can be subject to various legal proceedings and claims that arise in the ordinary course of business which, due to the fast growing nature of the Group and its e-commerce base, may include cases concerning the Group’s brand and trading name. All such cases brought against the Group are robustly defended and a liability is recorded only when it is probable that the case will result in a future economic outflow and that that outflow can be reliably measured. As at 31 August 2013, there are no pending claims or proceedings against the Group which are expected to have a material adverse effect on its liquidity or operations. At 31 August 2013, the Group had contingent liabilities of £3.5m (31 August 2012: £6.7m) in relation to supplier standby letters of credit, rent deposit deeds and other bank guarantees. The likelihood of cash outflow in relation to these contingent liabilities is considered to be low. 26) RELATED PARTY TRANSACTIONS Transactions with key management personnel During the year, the Group received cash payments of £1,050,000 from Nick Robertson, £840,000 from Kate Bostock and £735,000 from Nick Beighton in respect of participation in the ALTIP. The cash received from Kate Bostock was returned to her after the reporting date as a result of her resignation from the Company. The Company also entered into aggregate loan agreements of £2,256,450 with seven other members of the Executive Board as a result of participation in the ALTIP. There were no other material transactions or balances between the Group and its key management personnel or members of their close family. Transactions with ASOS.com Limited Employee Benefit Trust During the year the Group made a loan of £21,283 (31 August 2012: £nil) to the ASOS.com Limited Employee Benefit Trust to acquire shares in the Company to satisfy grants made under the rules of the Group’s share schemes. This loan was offset by £181,752 (31 August 2012: £9,304) received by the ASOS.com Limited Employee Benefit Trust on exercise of employee share options. Transactions with other related parties At 31 August 2013 the amount due to the Group from related parties was £nil (31 August 2012: £791,000), of which £nil (31 August 2012: £788,000) was provided against. During the year the Group made purchases totalling £7,320,215 (5 months to 31 August 2012: £3,687,516) from Aktieselskabet af 5.5.2010, a company which has a significant shareholding in the Group. At 31 August 2013, the amount due to Aktieselskabet af 5.5.2010 was £198,702 (31 August 2012: £743,257). 74 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF ASOS PLC We have audited the Parent Company financial statements of ASOS for the year ended 31 August 2013 which comprise the Company Statement of Changes in Equity, the Company Statement of Financial Position, the Company Statement of Cash Flows, and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS As explained more fully in the Statement of Directors’ Responsibility set out on page 46, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices In addition, we read all the financial and non-financial information in the Annual Report and Accounts to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. OPINION ON FINANCIAL STATEMENTS Board’s Ethical Standards for Auditors. In our opinion the Parent Company financial This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with statements: • give a true and fair view of the state of the Company’s affairs as at 31 August 2013 MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or • the Parent Company financial statements are not in agreement with the accounting records and returns; or Chapter 3 of Part 16 of the Companies Act and of its cash flows for the year then • certain disclosures of directors’ 2006 and for no other purpose. We do not, ended; remuneration specified by law are not in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly • have been properly prepared in made; or accordance with IFRSs as adopted by • we have not received all the information the European Union; and and explanations we require for our audit. agreed by our prior consent in writing. • have been prepared in accordance with the requirements of the Companies Act 2006. OTHER MATTER SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable OPINION ON OTHER MATTER PRESCRIBED BY THE COMPANIES ACT 2006 assurance that the financial statements are In our opinion the information given in free from material misstatement, whether the Directors’ Report for the financial year caused by fraud or error. This includes an for which the Parent Company financial assessment of: whether the accounting policies statements are prepared is consistent with are appropriate to the Parent Company’s the Parent Company financial statements. circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. We have reported separately on the Group financial statements of ASOS Plc for the year ended 31 August 2013. John Minards Senior Statutory Auditor for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors St. Albans 22 October 2013 75 ASOS Plc Annual report and accounts 2013 COMPANY STATEMENT OF CHANGES IN EQUITY For the year ended 31 August 2013 Called up share capital £’000 Share premium £’000 Retained earnings £’000 Total £’000 Balance as at 1 April 2012 2,699 5,749 730 9,178 Shares allotted in the period Loss for the period and total comprehensive loss Share options credit 155 – – 356 – – – (244) 344 511 (244) 344 Balance as at 31 August 2012 2,854 6,105 830 9,789 Shares allotted in the year Profit for the year and total comprehensive loss Share options credit 36 – – 263 – – – (304) 4,005 299 (304) 4,005 Balance as at 31 August 2013 2,890 6,368 4,531 13,789 76 COMPANY STATEMENT OF FINANCIAL POSITION As at 31 August 2013 Non-current assets Investments Current assets Other receivables Cash and cash equivalents Current liabilities Other payables Net current assets Net assets Equity Called up share capital Share premium Retained earnings Total equity Note 31 August 2013 £’000 31 August 2012 £’000 3 4 5 7 11,055 2,205 633 2,838 (104) 2,734 13,789 2,890 6,368 4,531 13,789 7,050 346 2,491 2,837 (98) 2,739 9,789 2,854 6,105 830 9,789 Notes 1 to 8 are an integral part of the financial statements. The financial statements of ASOS Plc, registered number 4006623, on pages 75 to 82, were approved by the Board of Directors and authorised for issue on 22 October 2013 and were signed on its behalf by: N Robertson N Beighton Directors 77 ASOS Plc Annual report and accounts 2013 COMPANY STATEMENT OF CASH FLOWS For the year ended 31 August 2013 Operating loss Adjusted for: (Increase)/decrease in other receivables Increase in other payables Net cash (used in)/ generated from operating activities Investing activities Dividend income Net cash generated from investing activities Financing activities Proceeds from issue of ordinary shares Net cash generated from financing activities Net (decrease)/increase in cash and cash equivalents Opening cash and cash equivalents Closing cash and cash equivalents Year to 31 August 2013 £’000 5 months to 31 August 2012 £’000 (304) (1,859) 6 (2,157) – – 299 299 (1,858) 2,491 633 (200) 2,004 44 1,848 250 250 321 321 2,419 72 2,491 78 NOTES TO THE COMPANY FINANCIAL STATEMENTS For the year ended 31 August 2013 1 ACCOUNTING POLICIES a) Basis of preparation The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations, as adopted by the European Union, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. As at the year end, these are the standards, subsequent amendments and related interpretations issued and adopted by the International Accounting Standards Board (IASB) that have been endorsed by the European Union. The financial statements are prepared under the historical cost convention. The accounting policies have been applied consistently in the current period and prior year. The financial statements have been prepared on a going concern basis as explained on page 36 of the Directors’ Report. New standards (i) New and amended standards adopted by the Company There are no IFRSs or IFRIC interpretations that were effective for the first time for the year beginning on or after 1 September 2012 that had a material impact on the Company. (ii) New standards, amendments and interpretations issued but not effective for the year beginning on or after 1 September 2012 and not early adopted. At the date of authorisation of these financial statements, the following standards and interpretations were in issue but not yet effective, and were not applied in these financial statements: IFRS 7 (amended 2011) Offsetting of Assets and Liabilities IFRS 9 Financial Instruments IFRS 10 Consolidated Financial Statements b) Financial instruments Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. Financial assets and liabilities Financial assets and liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. c) Investments Investments in subsidiary companies are stated at cost and are subject to review for impairment. In accordance with IFRS 2, ASOS.com Limited is required to recognise share-based payment arrangements involving equity instruments where ASOS.com Limited has remunerated those providing services to the entity in this way. ASOS Plc makes contributions to ASOS.com Limited equal to the charge for the share-based payment arrangement which is reflected as an increase in ASOS Plc’s investment in ASOS.com Limited. d) Taxation Current tax is the expected tax payable based on the taxable profit for the period, and the tax laws that have been enacted or substantively enacted at the date of the Statement of Financial Position. e) Dividend income Dividend income is recognised when the right to receive payment is established. 79 ASOS Plc Annual report and accounts 2013 NOTES TO THE COMPANY FINANCIAL STATEMENTS continued 2) LOSS FOR THE YEAR The Company has not presented its own Statement of Comprehensive Income as permitted by section 408 of the Companies Act 2006. The loss for the year and total comprehensive loss attributable to shareholders was £304,000 (5 months to 31 August 2012: loss of £244,000). 3) INVESTMENTS Cost At 1 April 2012 Additions Disposals At 31 August 2012 Additions Disposals At 31 August 2013 Impairment At 1 April 2012 Disposals At 31 August 2012 and 31 August 2013 Net book amount At 31 August 2013 Investment £’000 Capital contribution £’000 3,575 190 (2,060) 1,705 1,706 (1,706) 1,705 1,766 (1,766) – 5,001 344 – 5,345 4,005 – 9,350 – – – Total £’000 8,576 534 (2,060) 7,050 5,711 (1,706) 11,055 1,766 (1,766) – 1,705 9,350 11,055 At 31 August 2012 1,705 5,345 7,050 Additions and disposals of investment balances during the year to 31 August 2013 are a result of internal group restructuring following the grant of the ALTIP and relate only to Group entities. Disposals during the period to 31 August 2012 related to investments in dormant companies which were dissolved. The impairment of £1,766,000 relating to one of these companies was reversed during the period to 31 August 2012. The Directors believe the carrying value of investments is supported by their underlying net assets. 80 3) INVESTMENTS (continued) At 31 August 2013, the Company’s subsidiaries were as follows: Name of company Country of incorporation ordinary shares held Nature of business Proportion of ASOS Intermediate Holdings Limited Mornington & Co (No. 1) Limited Mornington & Co (No. 2) Limited ASOS.com Limited Crooked Tongues Limited ASOS Marketplace Limited ASOS Global Limited ASOS US, Inc ASOS Germany GmbH ASOS France SAS ASOS Australia Pty Limited ASOS Brand Services Limited ASOS Canada Services Limited ASOS Transaction Services Limited UK UK UK UK UK UK UK US Germany France Australia UK Canada UK ASOS Transactions Services Australia Pty Limited Australia ASOS Projects Limited ASOS (Shanghai) Commerce Co. Ltd UK China 100% 100% 100% 100% 95% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Holding company Vehicle for implementation of ALTIP Vehicle for implementation of ALTIP Internet retailer Internet retailer Internet marketplace Employer of marketing staff based in Australia Employer of marketing staff based in the US Employer of marketing staff based in Germany Employer of marketing staff based in France Employer of marketing staff based in Australia Holding company Non-trading company Holding company Payment processing company Holding company Internet retailer All operating subsidiaries’ results are included in the consolidated financial statements. The accounting reference date of all subsidiaries of ASOS Plc is 31 August, except for ASOS (Shanghai) Commerce Co. Ltd which has an accounting reference date of 31 December due to Chinese statutory requirements. 4) OTHER RECEIVABLES Prepayments Receivables from subsidiary undertakings 31 August 2013 £’000 31 August 2012 £’000 24 2,181 2,205 16 330 346 The fair value of other receivables is not materially different to their carrying value. As at 31 August 2013, receivables from subsidiary undertakings of £2,181,000 (31 August 2012: £330,000) were fully recoverable. Receivables from subsidiary undertakings that are less than three months past due are not considered impaired. As at 31 August 2013, receivables of £2,649,000 (31 August 2012: £72,000) were more than three months past due but not impaired. These relate to subsidiary undertakings for which there is no history of default. The ageing analysis of these receivables is as follows: 31 August 2013 £’000 31 August 2012 £’000 3 to 6 months Over 6 months (30) 2,679 2,649 The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above. Management believe that all unimpaired receivables are fully recoverable. 3 69 72 81 ASOS Plc Annual report and accounts 2013 NOTES TO THE COMPANY FINANCIAL STATEMENTS continued 5) OTHER PAYABLES Accruals 104 98 31 August 2013 £’000 31 August 2012 £’000 All accruals are due within one year. 6) FINANCIAL INSTRUMENTS Financial assets Loans and receivables Financial liabilities Amortised cost 31 August 2013 £’000 31 August 2012 £’000 2,814 2,821 104 98 Loans and receivables includes cash and cash equivalents and receivables due from subsidiary undertakings, and excludes prepayments. Included in financial liabilities at amortised cost are accruals. 7) CALLED UP SHARE CAPITAL Authorised: 31 August 2013 £’000 31 August 2012 £’000 100,000,000 (31 August 2012: 100,000,000) ordinary shares of 3.5p each 3,500 3,500 Allotted, issued and fully paid: 82,581,006 (31 August 2012: 81,524,877) ordinary shares of 3.5p each 2,890 2,854 During the year 1,051,695 (5 months to 31 August 2012: 402,820) ordinary shares of 3.5p each were issued as a result of exercise of employee share options. Total consideration received in respect of exercise of employee share options was £299,680 (5 months to 31 August 2012: £320,582). A further 4,434 shares were issued to the Chairman on his appointment. 8) RELATED PARTY TRANSACTIONS During the period, the Company entered into transactions in the ordinary course of business with related parties as follows: Costs recharged by subsidiary undertakings Dividends received from subsidiary undertakings £’000 304 – £’000 200 (250) 82 FIVE-YEAR FINANCIAL SUMMARY (UNAUDITED) GROUP STATEMENT OF COMPREHENSIVE INCOME Revenue Cost of sales Gross profit Year ended 31 March 2009 £’000 2010 £’000 2011 £’000 2012 £’000 5 months to 31 August 2012 £’000 Year ended 31 August 2013 £’000 165,395 222,999 339,691 494,957 238,023 769,396 (83,184) (111,803) (173,042) (242,987) (117,892) (370,816) 82,211 111,196 166,649 251,970 120,131 398,580 Distribution costs Administrative expenses (10,512) (18,060) (34,959) (65,840) (35,906) (115,172) (57,764) (72,825) (102,840) (144,346) (70,883) (228,953) Operating profit before exceptional items 13,935 20,311 28,850 41,784 13,342 54,455 Exceptional items – – (12,943) (10,585) – – Operating profit after exceptional items 13,935 20,311 15,907 31,199 13,342 54,455 Share of post-tax losses of joint venture Finance income Finance expense Profit before tax Income tax expense (78) 268 – (69) 97 – (3) 16 – – (215) (850) – – (97) – 283 (68) 14,125 20,339 15,705 30,349 13,245 54,670 (4,116) (5,759) (4,856) (8,070) (3,341) (13,744) Profit for the period 10,009 14,580 10,849 22,279 9,904 40,926 Net exchange adjustments offset in reserves Derivative financial assets Other comprehensive income for the period – – – – – – – – – – – – – – – (45) 225 180 Profit attributable to: Owners of the Parent Non-controlling interest 10,009 14,580 10,849 22,279 9,904 40,928 – – – – – (2) 10,009 14,580 10,849 22,279 9,904 40,926 Total comprehensive income attributable to: Owners of the Parent Non-controlling interest 10,009 14,580 10,849 22,279 9,904 41,108 – – – – – (2) 10,009 14,580 10,849 22,279 9,904 41,106 Underlying earnings per share Basic Diluted Earnings per share Basic Diluted 13.6p 12.8p 13.6p 12.8p 20.0p 18.7p 20.0p 18.7p 27.3p 25.6p 14.6p 13.7p 39.8p 36.3p 29.3p 26.7p 12.5p 11.9p 50.1p 49.2p 12.5p 11.9p 50.1p 49.2p 83 ASOS Plc Annual report and accounts 2013 FIVE-YEAR FINANCIAL SUMMARY (UNAUDITED) continued GROUP STATEMENT OF FINANCIAL POSITION As at 31 March 2009 £’000 2010 £’000 2011 £’000 2012 £’000 As at 31 August 2012 £’000 As at 31 August 2013 £’000 Non-current assets Current assets 16,362 45,076 24,544 58,226 52,359 58,589 58,640 78,619 83,809 126,410 147,638 233,132 Assets of disposal group classified as held-for-sale – – 2,800 – – – Total assets 61,438 82,770 138,968 184,999 206,278 311,751 Equity attributable to owners of the Parent 25,709 45,478 72,120 95,235 105,987 159,801 Non-controlling interest Current liabilities Revolving credit facility Provisions for liabilities and charges – – – – – (2) 35,729 37,292 64,947 83,829 100,291 151,952 – – – – – 1,901 5,000 935 – – – – Total liabilities, capital and reserves 61,438 82,770 138,968 184,999 206,278 311,751 GROUP STATEMENT OF CASH FLOWS Year ended 31 March 2009 £’000 2010 £’000 2011 £’000 2012 £’000 5 months ended 31 August 2012 £’000 Year ended 31 August 2013 £’000 Net cash generated from operating activities after exceptional items 13,041 10,708 15,282 37,500 16,620 74,176 Net cash used in investing activities (8,172) (8,402) (25,727) (21,587) (8,017) (31,052) Net cash (used in)/generated from financing activities (1,651) (248) (521) 3,723 (5,034) 131 Net movement in cash and cash equivalents 3,218 2,058 (10,966) 19,636 3,569 43,255 Opening cash and cash equivalents 10,369 13,587 15,645 4,679 24,315 27,884 Closing cash and cash equivalents 13,587 15,645 4,679 24,315 27,884 71,139 84 COMPANY INFORMATION Directors Independent auditors Joint broker PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors 10 Bricket Road St. Albans Hertfordshire AL1 3JX Numis Securities Limited 5th Floor 10 Paternoster Square London EC4M 7LT Lawyers Lawrence Graham LLP 4 More London Riverside London SE1 2AU Financial adviser, nominated adviser and joint broker J.P. Morgan Cazenove 25 Bank Street London E14 5JP Financial PR College Hill Limited The Registry Royal Mint Court London EC3N 4QN Registrars Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU B McBride (Chairman) (appointed 1 November 2012) N Robertson N Beighton J Kamaluddin P Williams K Jones M Turner Lord Alli (Chairman) (resigned 31 October 2012) R Bready (resigned 9 October 2012) K Bostock (appointed 15 January 2013, resigned 16 July 2013) Company Secretary A Magowan Registered office Greater London House Hampstead Road London NW1 7FB Registered in England, number 4006623 ASOS PLC Annual report and accounts 2013 85