ANNUAL
REPORT
2019
Dear Shareholders:
Chapter 1 – our foundations
Our first 10 years saw us build leadership in full-price online luxury and take the position as the only
platform company at scale operating in the $300 billion luxury fashion industry. We grew from humble
beginnings of a tiny team in a cramped office in East London and also in Portugal, to a global team of
more than 4,500 Farfetchers now serving more than 2 million active consumers in 190 countries. And yet,
despite this growth, our vision remains the same as it was when we started back in 2008 - to create The
Global Platform for Luxury. I feel this vision is more relevant than ever and is becoming more nuanced in
its execution, as cultural relevance is now of greater importance, particularly amongst the Millennial and
GenZ audience.
The foundations we have built are incredibly strong and difficult to replicate. Everything we have
accomplished to date has created powerful network effects and a virtuous flywheel, which is spinning
faster as we move into our next chapter.
Chapter 2 – the evolution
2019 saw Farfetch enter its second decade - which I call Chapter 2 - with incredible momentum.
Our tech stack, infrastructure and global logistics capabilities are revolutionary and our investments in
those capabilities are ensuring we keep ahead of luxury brand and consumer expectations.
Our community of brands and boutiques keeps growing, with over 500 luxury brands directly using the
platform, alongside more than 700 luxury retailers and department stores such as Harrods, Lane
Crawford Group, Harvey Nichols, among others.
Our millions of consumers are becoming more emotionally engaged with our brand.
We have seven times the range of brands and curated products of our largest competitor, which attracts
more customers to our apps and sites. Our technology and logistics deliver a great customer experience,
which drives retention. Our data capabilities drive efficiencies and allow us to redeploy resources in
consumer acquisition. As we grow our business at scale, brands and boutiques are incentivized to
participate in a deeper and deeper way, which in turn creates even more buzz and drives more demand.
Never stand still
Whilst this incredible momentum is ensuring we capture market share at pace, we are not resting on our
laurels. A truly intelligent organization does not shy away from facing change as it evolves its strategy and
business model to drive further relevance. I believe that relevance drives more organic growth and leads
to sustainable profit. We are evolving our strategy to adapt to luxury’s zeitgeist, and crucially, to how
customers the world over are shopping luxury.
What the industry and the luxury customer demand, however, will keep evolving, and so will Farfetch.
The importance of cultural relevance
I believe that in luxury, value is built in two ways – by owning the traffic, and by being culturally relevant. I
see these two paths as one mission – with both factors mutually reinforcing.
Whilst our marketplace model has continued to ensure we increasingly “own the traffic” as we continue to
aggressively capture market share, our mission would not really be fulfilled and our potential maximized if
we didn’t also focus on becoming even more important for our consumers by building a brand which is
culturally relevant to them. Without cultural relevance, the investment needed to “own the traffic” would be
much, much higher. The defensibility of such a leadership position would also be weaker.
As luxury consumers increase the speed at which they move through product cycles driven by real-time
access to content and global commerce, this creates tremendous opportunities for new creatives and
brands, and with it, challenges for the incumbents.
This is creating a polarized landscape where a few “blockbuster” brands (in luxury, this is half a dozen
brands, the largest of which we believe accounts for only circa 4% of the global industry) continue to drive
momentum, but the rest of the traditional brands are forced to constantly reinvent themselves.
Alongside the blockbusters, the “new kids on the block” (brands such as Supreme, Off-White, Golden
Goose and Jacquemus) have been sharing most of the growth in the industry, collectively demonstrating
more than 50% growth in 2019 on the Farfetch Marketplace alone. Take New Guards Group (“New
Guards”), for example, a company which we acquired in August 2019. In aggregate, the New Guards
portfolio of brands sold more than any specific brand on Farfetch in 2019. This is independent of our
acquisition of the company, as until November 2019, New Guards brands’ were not sold direct-to-
consumers on the Farfetch Marketplace, only with stock supplied through our boutique network.
But New Guards did not exist just five years ago. Through its short history, it never raised any outside
money and it always turned a profit. This was only possible because New Guards correctly reads the
zeitgeist of this industry and has built a true platform, centralizing what is a common foundation at the
service of the best creative minds.
With this new world comes a challenge to retailers and brands, as the old success factors (access to
traffic for retailers and access to retail space for brands) are now commoditized.
With time, that would also apply to our marketplace model, had it not evolved from an aggregator of
curated content to a company shaping the global culture of fashion.
The primary reason why consumers choose Farfetch is the incredible range we have to offer, paired with
the unrivalled global shopping experience. Our consumers are able to find items that are only on Farfetch.
However, more and more, the primary reason why luxury customers choose certain brands and retailers
is their cultural relevance.
Take Gucci. Until Marco Bizzarri’s new strategy, Gucci was betting on its brand equity, heritage and
access to retail traffic – the traditional formula.
Marco, working alongside Creative Director, Alessandro Michele, brought cultural relevance to Gucci. As
a result, sales have doubled and (as at December 31, 2019) Kering went from a market cap of $25 billion
to $83 billion in the period. Cultural relevance alone built $58 billion of shareholder value in 5 years.
Farfetch is now the largest online luxury player for the “true luxury”, in-season segment. At $2.1 billion
GMV for the full year 2019, it is - put simply - one of the largest luxury multi-brand companies in the entire
world. And in 2019 we grew faster than any other global online or offline luxury retailer at scale.
I believe the scale and growth that our marketplace drives are also the reason why brands and creatives
will join us in the movement to lead in cultural relevance. In fact, in 2019 we grew our luxury seller base to
over 1,200.
This coming year, we will continue on our path to building a culturally relevant brand, which started with
our new content initiative, Farfetch Communities, and the work we commenced on our new brand
strategy and positioning, ‘Only On Farfetch’. ‘Only On Farfetch’ highlights Farfetch’s unique ability to give
luxury consumers access to products, brands, services and a community of the best curators in the world
through its boutique network, which can’t be found elsewhere in luxury fashion.
Delivering Our Platform Vision
At heart, Farfetch is still a tech company, a values-driven company working every day For the Love of
Fashion. We remain focused on the same mission – to build The Global Platform for Luxury.
This platform now has the ambition to be both the leader in transactions and the leader in cultural
relevance. These two ambitions are not a simple “add on”. The whole is more than the sum of the parts,
as achieving one objective makes the other much easier to achieve, and the whole more defensible.
In the next five years, we see a future where this global industry (by then expected to be $420 billion in
size) is led by prolific creative minds, attracting a new generation of customers globally.
By then we believe the fashion cycle will have moved from seasons to real-time. We predict customers
will expect real-time access to the entire world of fashion. From Paris to Shanghai. From Tokyo to Sao
Paulo.
This means incredible technology and logistics capabilities have to be developed, which we have been
building.
Physical experiences will continue to generate the majority of sales (expected to be 70% to 75% of the
mix of luxury revenue by 2025), but they will have been transformed and merged with digital experiences.
Data will become a key strategic advantage, as it drives personalization both online and offline.
As the global platform for luxury, I see Farfetch’s mission to be leading this future.
For the Love of Fashion.
José Neves
Founder and CEO
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
Commission file number 001-38655
Farfetch Limited
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
The Bower, 211 Old Street
London EC1V 9NR, United Kingdom
(Address of principal executive offices)
James L. Maynard
General Counsel & Executive Vice President Group Legal
Telephone: +44 (0) 20 7549 5900
Farfetch Limited
The Bower, 211 Old Street
London EC1V 9NR, United Kingdom
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered, pursuant to Section 12(b) of the Act
Title of each class
Class A ordinary shares, par value $0.04 per share
Trading
Symbol(s) Name of each exchange on which registered
FTCH
New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital stock or common stock as of the
close of the period covered by the annual report. 296,740,928 Class A ordinary shares and 42,858,080
Class B ordinary shares
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ☒ No ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒
Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Emerging growth company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by
check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards † provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting
Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements
included in this filing:
U.S. GAAP ☐
International Financial Reporting Standards as issued
by the International Accounting Standards Board ☒
Other ☐
If “Other” has been checked in response to the previous question indicate by check mark which financial statement
item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-
2 of the Exchange Act). Yes ☐ No ☒
TABLE OF CONTENTS
Page
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
PART I
Item 1.
Identity of Directors, Senior Management and Advisers
Item 2.
Offer Statistics and Expected Timetable
Item 3.
Item 4.
Key Information
A. Selected Financial Data
B. Capitalization and Indebtedness
C. Reasons for the Offer and Use of Proceeds
D. Risk Factors
Information on the Company
A. History and Development of the Company
B. Business Overview
C. Organizational Structure
D. Property, Plant and Equipment
Item 4A.
Unresolved Staff Comments
Item 5.
Item 6.
Item 7.
Item 8.
Item 9.
Operating and Financial Review and Prospects
A. Operating Results
B. Liquidity and Capital Resources
C. Research and Development, Patents and Licenses, etc.
D. Trend Information
E. Off-Balance Sheet Arrangements
F. Tabular Disclosure of Contractual Obligations
G. Safe Harbor
Directors, Senior Management and Employees
A. Directors and Senior Management
B. Compensation
C. Board Practices
D. Employees
E. Share Ownership
Major Shareholders and Related Party Transactions
A. Major Shareholders
B. Related Party Transactions
C. Interests of Experts and Counsel
Financial Information
A. Consolidated Statements and Other Financial Information
B. Significant Changes
The Offer and Listing
A. Offer and Listing Details
B. Plan of Distribution
C. Markets
D. Selling Shareholders
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3
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7
7
7
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14
14
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Item 10.
E. Dilution
F. Expense of the Issue
Additional Information
A. Share Capital
B. Memorandum and Articles of Association
C. Material Contracts
D. Exchange Controls
E. Taxation
F. Dividends and Paying Agents
G. Statement by Experts
H. Documents on Display
I. Subsidiary Information
Item 11.
Quantitative and Qualitative Disclosures About Market Risk
Item 12.
Description of Securities Other Than Equity Securities
PART II
Item 13.
Defaults, Dividend Arrearages and Delinquencies
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
Item 15.
Controls and Procedures
Item 16.
Reserved
Item 16A. Audit Committee Financial Expert
Item 16B.
Code of Ethics
Item 16C.
Principal Accountant Fees and Services
Item 16D.
Exemptions from the Listing Standards for Audit Committees
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Item 16F.
Changes in Registrant’s Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
PART III
Item 17.
Consolidated financial statements
Item 18.
Consolidated financial statements
Item 19.
Exhibits
SIGNATURES
CONSOLIDATED FINANCIAL STATEMENTS
2
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112
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F-1
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
We report under International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (the “IASB”). None of our consolidated financial statements were prepared in
accordance with generally accepted accounting principles in the United States (“U.S.”). We have historically
conducted our business through Farfetch.com Limited and its subsidiaries (“Farfetch.com”), a company incorporated
under the laws of the Isle of Man. In connection with our initial public offering consummated on September 25,
2018 (our “IPO”), we carried out reorganization transactions (the “Reorganization Transactions”) whereby
Farfetch.com became a wholly owned subsidiary of Farfetch Limited, an exempted company incorporated with
limited liability under the Companies Law (2018 Revision) of the Cayman Islands, as amended and restated from
time to time (the “Companies Law”). Following the Reorganization Transactions, our business is conducted through
Farfetch Limited and its subsidiaries. For additional information about the Reorganization Transactions, see below.
The Reorganization Transaction
To effect the reorganization, all holders of warrants over Farfetch.com shares, except a holder of 189,995
warrants that remained outstanding, exercised their warrants into the applicable class of shares, and the outstanding
shares of Farfetch.com were exchanged for shares of Farfetch Limited with equivalent rights. Following this
exchange, the ordinary shares, the restricted linked ordinary shares and the preference shares held by the
shareholders of Farfetch Limited were converted into ordinary shares of Farfetch Limited and subsequently
converted into for Class A ordinary shares and Class B ordinary shares, as applicable. Outstanding options of
Farfetch.com were also released in exchange for the grant of options with equivalent rights over Class A ordinary
shares of Farfetch Limited. The 189,995 warrants outstanding were all exercised in the year ending December 31,
2019.
General Information
Our consolidated financial statements are reported in U.S. Dollars, which are denoted “dollars,” “USD” or
“$” throughout this Annual Report on Form 20-F (“Annual Report”). Also, throughout this Annual Report:
•
•
except where the context otherwise requires or where otherwise indicated, the terms “Farfetch,” the
“Company,” “we,” “us,” “our,” “our company” and “our business” refer, prior to the Reorganization
Transactions, to Farfetch.com and, after the Reorganization Transactions, to Farfetch Limited, in each
case together with its consolidated subsidiaries as a consolidated entity;
the terms “€” or “euro” refer to the currency introduced at the start of the third stage of European
economic and monetary union pursuant to the treaty establishing the European Community, as
amended; and
•
the terms “pound sterling” or “£” refer to the legal currency of the United Kingdom (“UK”).
Key Terms and Performance Indicators Used in this Annual Report
Throughout this Annual Report, we use a number of key terms and provide a number of key performance
indicators used by management. These performance indicators are discussed in more detail in Item 3. “Key
Information — A. Selected Financial Data.”
Additionally, we use other terms in this Annual Report specific to us and our industry, which are defined as
follows:
•
•
•
“API” means our application programming interfaces that enable third parties to connect with our
platform.
“Articles” means our amended and restated memorandum and articles of association.
“brands” means the brands with whom we have a direct contractual relationship to display and sell
their products on the Farfetch Marketplace. Please refer to the definition of “retailers” below for the
3
•
•
•
•
•
•
•
•
•
•
•
•
•
•
difference between “brands” and “retailers,” both of which are a source of supply on the Farfetch
Marketplace.
“consumer” means a person who browses and/or completes a purchase on the Farfetch Marketplace
and/or the Stadium Goods Marketplace (as applicable).
“E-concession” means the retail distribution by brands via the operation of concessions on multi-brand
digital platforms, such as when brands sell directly to consumers via the Farfetch Marketplace.
“FPS” means Farfetch Platform Solutions, our comprehensive modular white-label business to
business e-commerce solution for brands and retailers.
“Farfetch Marketplace,” is as defined in Item 4. “Information on the Company — B. Business
Overview.”
“first-party sales” means sales on our platform of inventory directly purchased by us.
“Group” means Farfetch Limited and its consolidated subsidiaries.
“JD.com” means JD.com Inc.
“luxury sellers” means the retailers and brands with whom we have a direct contractual relationship to
display and sell their products on the Farfetch Marketplace.
“Marketplaces” means the Farfetch Marketplace and Stadium Goods Marketplace.
“New Guards” is as defined in Item 4. “Information on the Company — B. Business Overview.” It
refers to New Guards Group Holding S.p.A., which we acquired in August 2019.
“retailers” means the boutiques and department stores with whom we have a direct contractual
relationship to display and sell their products on the Farfetch Marketplace. Retailers buy wholesale
from multiple luxury brands to then sell to the end consumer. Brands (1) sell wholesale to retailers; (2)
operate concessions within the offline and online stores of retailers; and/or (3) sell to consumers
directly through a mono-brand store or website. Both “brands” and “retailers” sell via the Farfetch
Marketplace, but the distinction is not apparent to our consumer.
“Stadium Goods Marketplace” is as defined in Item 4. “Information on the Company — B. Business
Overview.”
“stock value” means the combined amount of all stock units available on the Farfetch Marketplace
and/or the Stadium Goods Marketplace by each item’s retail unit price.
“Third-Party Take Rate” means Digital Platform Services Revenue excluding revenue from first-party
sales, as a percentage of Digital Platform GMV excluding GMV from first-party sales and Digital
Platform Fulfilment Revenue. Revenue from first-party sales, which is equal to GMV from first-party
sales, means revenue derived from sales on our platform of inventory purchased by us.
Market and Industry Data
We obtained industry, market and competitive position data in this Annual Report from our own internal
estimates, surveys and research as well as from publicly available information, industry and general publications and
research, surveys and studies conducted by third parties such as public reports by Bain & Company (“Bain”).
Information contained in the Annual Report attributable to Bain, is from “Bain-Altagamma Luxury Study 2019”
(Spring 2019 or November 2019 update).
4
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains statements that constitute “forward-looking statements” within the meaning of
the U.S. Private Securities Litigation Reform Act of 1995. These statements are neither historical facts nor
assurances of future performance. Although we believe that these estimates and forward-looking statements are
based upon reasonable assumptions, they are subject to numerous risks and uncertainties some of which are beyond
our control, and are made in light of information currently available to us.
In some cases, these forward-looking statements can be identified by words or phrases such as “believe,”
“may,” “will,” “expect,” “estimate,” “could,” “should,” “anticipate,” “aim,” “intend,” “plan,” “potential,”
“continue,” “is/are likely to” or other similar expressions. Forward-looking statements contained in this Annual
Report include, but are not limited to, statements about:
•
•
•
our future financial performance, including our revenue, operating expenses and our ability to maintain
profitability and our future business and operating results;
our strategies, plans, objectives and goals; and
our expectations regarding the development of our industry, market size and the competitive
environment in which we operate.
These forward-looking statements reflect our current views with respect to future events and are not a
guarantee of future performance. Actual outcomes may differ materially from the information contained in the
forward-looking statements as a result of a number of factors, including, without limitation, the risk factors set forth
in Item 3. “Key Information — D. Risk Factors” of this Annual Report, including, but not limited to, the following:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
purchasers of luxury products may not choose to shop online in sufficient numbers;
our ability to generate sufficient revenue to be profitable or to generate positive cash flow on a
sustained basis;
the volatility and difficulty in predicting the luxury fashion industry;
our reliance on a limited number of retailers and brands for the supply of products on our Marketplace;
our reliance on retailers and brands to anticipate, identify and respond quickly to new and changing
fashion trends, consumer preferences and other factors;
our reliance on retailers and brands to make products available to our consumers on our Marketplaces
and to set their own prices for such products;
fluctuations in exchange rates;
our reliance on information technologies and our ability to adapt to technological developments;
our ability to acquire or retain consumers and to promote and sustain the Farfetch brand;
our ability or the ability of third parties to protect our sites, networks and systems against security
breaches, or otherwise to protect our confidential information;
our ability to successfully launch and monetize new and innovative technology;
our acquisition and integration of other companies or technologies, for example, Stadium Goods and
New Guards, could divert management’s attention and otherwise disrupt our operations and harm our
operating results;
we may be unsuccessful in integrating any acquired businesses or realizing any anticipated benefits of
such acquisitions;
our dependence on highly skilled personnel, including our senior management, data scientists and
technology professionals, and our ability to hire, retain and motivate qualified personnel;
our ability to successfully operate retail stores; and
José Neves, our chief executive officer and Co-Chair of our Board, has considerable influence over
important corporate matters due to his ownership of us, and our dual-class voting structure will limit
your ability to influence corporate matters, including a change of control.
5
The forward-looking statements contained in this Annual Report speak only as of the date of this Annual
Report. Except as required by law, we do not undertake to update any forward-looking statement to reflect events or
circumstances after that date or to reflect the occurrence of unanticipated events. You should read this Annual
Report and the documents that we reference herein and have filed as exhibits hereto completely and with the
understanding that our actual future results may be materially different from what we expect.
6
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
A. Selected Financial Data
We prepare our consolidated financial statements in accordance with IFRS as issued by the IASB.
The following selected historical consolidated financial data as of and for the years ended December 31,
2016, 2017, 2018, and 2019 and for year ended December 31, 2015 has been derived from our consolidated
financial statements and the notes thereto (our consolidated financial statements as of December 31, 2017, for the
fiscal year ended December 31, 2016 and for the fiscal year ended December 31, 2015 are not included in this
Annual Report). Our historical results for any prior period are not necessarily indicative of results expected in any
future period.
We have historically conducted our business through Farfetch.com and, therefore, our historical consolidated
financial statements prior to the Reorganization Transactions reflect the result of operations of Farfetch.com and,
following the Reorganization Transactions, reflect the results of operations of Farfetch Limited. Farfetch Limited’s
consolidated financial statements are the same as Farfetch.com’s consolidated financial statements, as adjusted for
the Reorganization Transactions. Following the Reorganization Transactions, we have retroactively reflected the
Reorganization Transactions in Farfetch Limited’s consolidated financial statements.
7
The financial data set forth below should be read in conjunction with, and are qualified by reference to Item
5. “Operating and Financial Review and Prospects” and the consolidated financial statements and notes thereto
included elsewhere in this Annual Report. Our historical results for any prior period do not necessarily indicate our
results to be expected for any future period.
Consolidated Statement of
Operations Data:
Revenue
Cost of revenue
Gross profit
Selling, general and administrative
expenses
(Losses)/gains on items held at fair
value
Share of profits of associates
Operating loss
Net finance (costs)/income
Loss before tax
Income tax credit/(expense)
Loss after tax
Loss per share attributable to owners of
the parent:
$
$
2015
Year ended December 31,
2017
(in thousands, except share and per share data)
2018
2016
2019
142,305 $
(69,702 )
72,603
242,116 $
(125,238 )
116,878
385,966 $
(181,200 )
204,766
602,384 $ 1,021,037
(561,191 )
(303,934 )
459,846
298,450
(130,073 )
(197,003 )
(295,960 )
(471,766 )
(869,609 )
-
-
(57,470 )
(4,265 )
(61,735 )
628
(61,107 ) $
(8,555 )
18
(88,662 )
7,402
(81,260 )
(199 )
(81,459 ) $
(3,300 )
31
(94,463 )
(17,642 )
(112,105 )
(170 )
(112,275 ) $
-
33
(173,283 )
19,866
(153,417 )
(2,158 )
(155,575 ) $
21,721
366
(387,676 )
15,150
(372,526 )
(1,162 )
(373,688 )
Basic and diluted
$
(0.35 ) $
(0.43 ) $
(0.50 ) $
(0.59 ) $
(1.21 )
Weighted average shares outstanding:
Basic and diluted
171,929,007 188,679,490 223,465,734 264,432,214 318,843,239
Consolidated Statement of Cash
Flow Data:
Net cash outflow from operating
activities
Net cash outflow from investing
activities
Net cash inflow from financing
activities
$
(37,258 ) $
(47,079 ) $
(59,320 ) $
(116,205 ) $
(115,383 )
(27,571 )
(16,961 )
(28,863 )
(63,538 )
(594,762 )
$
77,414 $
161,173 $
300,142 $
859,526 $
(15,249 )
2016
As of December 31,
2018
2017
(in thousands)
2019
Consolidated Statement of Financial Position
Data:
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Share capital and premium
Total equity
$ 180,904 $ 452,792 $ 1,199,410
151,983
1,351,393
194,158
28,804
222,962
784,294
$ 118,916 $ 396,903 $ 1,128,431
64,128
245,032
89,425
36,691
126,116
348,832
110,266
563,058
155,890
10,265
166,155
686,972
$ 645,330
1,582,549
2,227,879
467,998
422,049
890,047
891,591
$ 1,337,832
8
The financial data set forth below should be read in conjunction with, and are qualified by reference to Item
5. “Operating and Financial Review and Prospects”. Our historical results for any prior period do not necessarily
indicate our results to be expected for any future period.
Year ended December 31,
2015
2016
2017
2018
2019
(in thousands, except per share data and AOV)
Selected Other Data:
Consolidated Group:
GMV (1)
Revenue
Adjusted Revenue (1)
Gross Profit
Gross Profit Margin
Loss After Tax
Adjusted EBITDA (1)
Adjusted EBITDA Margin (1)
Earnings Per Share (“EPS”)
Adjusted EPS (1)
Digital Platform:
Digital Platform GMV (1)
Digital Platform Services Revenue
Digital Platform Gross Profit
Digital Platform Gross Profit Margin (1)
Digital Platform Order Contribution (1)
Digital Platform Order Contribution Margin (1)
Active Consumers (1)
Average Order Value - Marketplace (1)
Average Order Value - Stadium Goods (1)
Brand Platform:
Brand Platform GMV (1)
Brand Platform Revenue
Brand Platform Gross Profit
Brand Platform Gross Profit Margin
51.0%
$ 381,809 $ 585,842 $ 909,826 $ 1,407,698 $ 2,139,699
142,305 242,116 385,966 602,384 1,021,037
113,688 193,605 311,784 504,590 893,077
72,603 116,878 204,766 298,450 459,846
45.0%
$ (61,107 ) $ (81,459 ) $ (112,275 ) $ (155,575 ) $ (373,688 )
(95,960 ) (121,376 )
(47,375 ) (53,380 ) (58,079 )
(13.6%)
(19.0%)
(27.6%)
(1.21 )
(0.59 ) $
(0.56 )
(0.38 )
(0.35 ) $
(0.31 )
(0.50 ) $
(0.39 )
(0.43 ) $
(0.27 )
(41.7%)
(18.6%)
49.5%
48.3%
53.1%
$
61.8%
64.9%
$ 374,915 $ 573,174 $ 894,392 $ 1,392,103 $ 1,947,868
106,794 180,937 296,350 488,995 701,246
69,355 111,762 196,581 291,706 371,913
53.0%
$ 35,197 $ 63,381 $ 127,379 $ 194,411 $ 220,563
31.5%
2,068
608
315
39.8%
1,382
619 $
-
416
587 $
-
936
620 $
-
652
584 $
-
59.7%
33.0%
66.3%
35.0%
43.0%
$
$
- $
-
-
-
- $
-
-
-
- $
-
-
-
- $ 164,210
- 164,210
75,007
-
45.7%
-
(1)
See “Non-IFRS and Other Financial and Operating Metrics” below.
Non-IFRS and Other Financial and Operating Metrics
Changes to Metrics
We previously defined Active Consumers as active consumers on the Farfetch Marketplace. Following the
acquisition of Stadium Goods on January 4, 2019, which is now included in our consolidated results, we have
multiple marketplaces within our consolidated group. As a result, Stadium Goods is now included in Active
Consumers, and for completeness we now include BrownsFashion.com, a directly owned and operated site, within
Active Consumers as well. Active Consumers does not currently include those generated from New Guards owned
and operated sites.
We also believe it is more useful to present AOV for both Farfetch Marketplace and Stadium Goods, as they
operate at two different price points. We have presented these as separate metrics from January 4, 2019, being the
acquisition date of Stadium Goods.
In addition, we no longer believe “Number of Orders” on the Farfetch Marketplace provides a meaningful
view of business performance, and we will not report this metric going forward.
9
Following our acquisition of New Guards in August 2019 and its inclusion in our consolidated results, we
are reporting metrics related to our Brand Platform operations. Brand Platform GMV and Brand Platform Revenue
include revenue related to the New Guards’ operations less revenue from New Guards owned e-commerce websites,
direct-to-consumer channel via our Marketplaces and directly operated stores. Revenue realized from Brand
Platform is equal to GMV, as such sales are not commission based. As we acquired New Guards in August 2019,
our third quarter 2019 results only reflect two months of New Guards’ performance.
The introduction of the term “Digital Platform” with reference to GMV, Revenue and other metrics is
intended to distinguish between activities that occurred through our owned and operated e-commerce platforms (e.g.
Farfetch.com, BrownsFashion.com, off---white.com) and the Brand Platform operations of New Guards, where
GMV and Revenue are derived from the our transactions with independent third party retailers or wholesalers. Such
metrics were previously referred to as “Platform.” No changes have been made to how we calculate the Digital
Platform metrics from how we calculated Platform metrics.
Non-IFRS and Other Financial and Operating Metrics
We have included in this Annual Report certain financial measures not based on IFRS, including Adjusted
EBITDA, Adjusted EBITDA Margin, Adjusted EPS, Adjusted Revenue, Digital Platform Gross Profit Margin,
Digital Platform Order Contribution, and Digital Platform Order Contribution Margin (together, the “Non-IFRS
Measures”), as well as operating metrics, including GMV, Digital Platform GMV, Brand Platform GMV, In-Store
GMV, Active Consumers and Average Order Value.
Management uses the Non-IFRS Measures:
•
•
•
•
as measurements of operating performance because they assist us in comparing our operating
performance on a consistent basis, as they remove the impact of items not directly resulting from our
core operations;
for planning purposes, including the preparation of our internal annual operating budget and financial
projections;
to evaluate the performance and effectiveness of our strategic initiatives; and
to evaluate our capacity to fund capital expenditures and expand our business.
The Non-IFRS Measures may not be comparable to similar measures disclosed by other companies, because
not all companies and analysts calculate these measures in the same manner. We present the Non-IFRS Measures
because we consider them to be important supplemental measures of our performance, and we believe they are
frequently used by securities analysts, investors and other interested parties in the evaluation of companies.
Management believes that investors’ understanding of our performance is enhanced by including the Non-IFRS
Measures as a reasonable basis for comparing our ongoing results of operations. Many investors are interested in
understanding the performance of our business by comparing our results from ongoing operations period over period
and would ordinarily add back non-cash expenses such as depreciation, amortization and items that are not part of
normal day-to-day operations of our business. By providing the Non-IFRS Measures, together with reconciliations
to IFRS, we believe we are enhancing investors’ understanding of our business and our results of operations, as well
as assisting investors in evaluating how well we are executing our strategic initiatives.
Digital Platform Order Contribution and Digital Platform Order Contribution Margin are not measurements
of our financial performance under IFRS and do not purport to be alternatives to gross profit or loss after tax derived
in accordance with IFRS. We believe that Digital Platform Order Contribution and Digital Platform Order
Contribution Margin are useful measures in evaluating our operating performance within our industry because they
permit the evaluation of our digital platform productivity, efficiency and performance. We also believe that Digital
Platform Order Contribution and Digital Platform Order Contribution Margin are useful measures in evaluating our
operating performance because they take into account demand generation expense and are used by management to
analyze the operating performance of our digital platform for the periods presented.
10
Items excluded from the Non-IFRS Measures are significant components in understanding and assessing
financial performance. The Non-IFRS Measures have limitations as analytical tools and should not be considered in
isolation, or as an alternative to, or a substitute for loss after tax, revenue or other financial statement data presented
in our consolidated financial statements as indicators of financial performance. Some of the limitations are:
•
•
•
•
•
•
such measures do not reflect revenue related to fulfilment, which is necessary to the operation of our
business;
such measures do not reflect our expenditures, or future requirements for capital expenditures or
contractual commitments;
such measures do not reflect changes in our working capital needs;
such measures do not reflect our share based payments, income tax (credit)/expense or the amounts
necessary to pay our taxes;
although depreciation and amortization are eliminated in the calculation of Adjusted EBITDA, the
assets being depreciated and amortized will often have to be replaced in the future and such measures
do not reflect any costs for such replacements; and
other companies may calculate such measures differently than we do, limiting their usefulness as
comparative measures.
Due to these limitations, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Revenue should not be
considered as measures of discretionary cash available to us to invest in the growth of our business and are in
addition to, not a substitute for or superior to, measures of financial performance prepared in accordance with IFRS.
In addition, the Non-IFRS Measures we use may differ from the non-IFRS financial measures used by other
companies and are not intended to be considered in isolation or as a substitute for the financial information prepared
and presented in accordance with IFRS. Furthermore, not all companies or analysts may calculate similarly titled
measures in the same manner. We compensate for these limitations by relying primarily on our IFRS results and
using the Non-IFRS Measures only as supplemental measures.
We define our non-IFRS and other financial and operating metrics as follows:
“Active Consumers” means active consumers on our directly owned and operated sites and related apps. A
consumer is deemed to be active if they made a purchase within the last 12-month period, irrespective of
cancellations or returns. Active Consumers includes Farfetch Marketplace, BrownsFashion.com and Stadium Goods.
Due to technical limitations, Active Consumers is unable to fully de-dupe Stadium Goods consumers from Farfetch
Marketplace or BrownsFashion.com consumers. Active Consumers does not currently include those generated from
New Guards owned and operated sites. The number of Active Consumers is an indicator of our ability to attract and
retain an increasingly large consumer base to our platform and of our ability to convert platform visits into sale
orders.
“Adjusted EBITDA” means loss after taxes before net finance expense/ (income), income tax
(credit)/expense and depreciation and amortization, further adjusted for share based compensation expense, share of
results of associates and items outside the normal scope of our ordinary activities (including other items, within
selling, general and administrative expenses, and (losses)/gains on items held at fair value through profit and loss).
Adjusted EBITDA provides a basis for comparison of our business operations between current, past and future
periods by excluding items that we do not believe are indicative of our core operating performance. Adjusted
EBITDA may not be comparable to other similarly titled metrics of other companies.
“Adjusted EBITDA Margin” means Adjusted EBITDA calculated as a percentage of Adjusted Revenue.
“Adjusted EPS” means earnings per share further adjusted for share based payments, amortization of
acquired intangible assets, items outside the normal scope of our ordinary activities (including other items, within
selling, general and administrative expenses, and (losses)/gains on items held at fair value through profit and loss)
and the related tax effects of these adjustments. Adjusted EPS provides a basis for comparison of our business
operations between current, past and future periods by excluding items that we do not believe are indicative of our
11
core operating performance. Adjusted EPS may not be comparable to other similarly titled metrics of other
companies.
“Adjusted Revenue” means revenue less Digital Platform Fulfilment Revenue.
“Average Order Value” (“AOV”) means the average value of all orders excluding value added taxes placed
on either the Farfetch Marketplace or the Stadium Goods Marketplace, as indicated.
“Brand Platform GMV” and “Brand Platform Revenue” mean revenue relating to the New Guards
operations less revenue from New Guards’: (i) owned e-commerce websites, (ii) direct to consumer channel via
Farfetch marketplaces and (iii) directly operated stores. Revenue realized from Brand Platform is equal to GMV as
such sales are not commission based.
“Digital Platform GMV” means GMV excluding In-Store GMV and Brand Platform GMV. Digital Platform
GMV was previously referred to as Platform GMV.
“Digital Platform Gross Profit Margin” means Digital Platform Gross Profit calculated as a percentage of
Digital Platform Services Revenue
“Digital Platform Order Contribution” means Digital Platform Gross Profit after deducting demand
generation expense, which includes fees that we pay for our various marketing channels. Digital Platform Order
Contribution provides an indicator of our ability to extract digital consumer value from our demand generation
expense, including the costs of retaining existing consumers and our ability to acquire new consumers. Digital
Platform Order Contribution was previously referred to as Platform Order Contribution.
“Digital Platform Order Contribution Margin” or “Order Contribution Margin” means Digital Platform
Order Contribution calculated as a percentage of Digital Platform Services Revenue. Digital Platform Order
Contribution Margin was previously referred to as Platform Order Contribution.
“Gross Merchandise Value” (“GMV”) means the total dollar value of orders processed on our
Marketplaces. GMV across our platform is inclusive of product value, shipping and duty. It is net of returns, value
added taxes and cancellations. GMV does not represent revenue earned by us, although GMV and revenue are
correlated.
“In-Store GMV” and “In-Store Revenue” mean revenue generated in our retail stores which include
Browns, Stadium Goods and New Guards’ directly operated stores. Revenue realized from In-Store sales is equal to
GMV of such sales because such sales are not commission based.
“Order Contribution” means gross profit after deducting demand generation expense, which includes fees
that we pay for our various marketing channels to support the Digital Platform. Order Contribution provides an
indicator of our ability to extract consumer value from our demand generation expense, including the costs of
retaining existing consumers and our ability to acquire new consumers.
12
The following table reconciles Adjusted EBITDA to the most directly comparable IFRS financial measure,
which is loss after tax:
2015
Year ended December 31,
2017
2018
2016
2019
(in thousands)
Loss after tax
Net finance costs/(income)
Income tax (credit)/ expense
Depreciation and amortization
Share based payments (1)
Losses/ (gains) on items held at fair value (2)
Other items (3)
Share of results of associates
Adjusted EBITDA
(628 )
$ (61,107 ) $ (81,459 ) $ (112,275 ) $ (155,575 )
(19,866 )
4,265 (7,402 )
2,158
199
23,537
3,104 6,897
53,819
6,505 19,848
-
- 8,555
-
-
(33 )
(18 )
$ (373,688 )
(15,150 )
1,162
113,591
158,422
(21,721 )
16,374
(366 )
$ (47,375 ) $ (53,380 ) $ (58,079 ) $ (95,960 ) $ (121,376 )
17,642
170
10,980
21,486
3,300
649
(31 )
486
-
(1)
(2)
(3)
Represents share based payment expense.
Represents losses/(gains) on items held at fair value. There was a fair value remeasurement of contingent consideration of $8.5 million in 2016 and $3.3
million in 2017. In 2019, there was a net gain of $21.7 million related to the revaluation of liabilities held at fair value and impacted by movements in the
share price. The $21.7 million net gain resulted from a revaluation gain from the partnership with the Chalhoub Group, partially offset by a fair value
remeasurement charge for the shares issued in the acquisition of New Guards and our call option over the remaining non-controlling interest in
CuriosityChina,
Represents other items, which are outside the normal scope of our ordinary activities or non-cash items, including transaction-related legal and advisory
expenses of $0.5 million in 2015, $0.6 million in 2017 and $15.4 million in 2019. In 2019 there was also a loss on impairment of investments carried at fair
value, which was partially offset by a release of tax provisions. Other items is included within selling, general and administrative expenses.
The following table reconciles Adjusted Revenue to the most directly comparable IFRS financial
performance measure, which is revenue:
Revenue
Less: Digital Platform Fulfilment Revenue
Adjusted Revenue
2015
2016
Year ended December 31,
2017
2018
2019
(in thousands)
$ 142,305 $ 242,116 $ 385,966 $ 602,384 $ 1,021,037
(28,617 ) (48,511 )
(97,794 ) (127,960 )
113,688 193,605 311,784 504,590 893,077
(74,182 )
The following table reconciles Digital Platform Order Contribution to the most directly comparable IFRS
financial performance measure, which is Digital Platform Gross Profit:
Year ended December 31,
Digital Platform Gross Profit
Less: Demand generation expense
Digital Platform Order Contribution
2016
2015
2017
(in thousands)
$ 69,355 $ 111,762 $ 196,581 $ 291,706 $ 371,913
(48,381 ) (69,202 ) (97,295 ) $ (151,350 )
$ 35,197 $ 63,381 $ 127,379 $ 194,411 $ 220,563
(34,158 )
2018
2019
The following table reconciles Adjusted EPS to the most directly comparable IFRS financial performance
measure, which is Earnings per share:
13
2015
2016
2017
2018
2019
Year ended December 31,
Earnings per share
Share based payments (1)
Amortization of acquired intangible assets
Losses/ (gains) on items held at fair value
(2)
Other items (3)
Share of results of associates
Adjusted EPS
$
(0.35 ) $
0.04
-
(0.43 ) $
0.11
-
(0.50 ) $
0.10
-
(0.59 ) $
0.20
0.01
-
-
-
(0.31 ) $
0.05
-
-
(0.27 ) $
0.01
-
-
(0.39 ) $
-
-
-
(0.38 ) $
$
(1.21 )
0.50
0.17
(0.07 )
0.05
-
(0.56 )
(1)
(2)
(3)
Represents share based payment expense on a per share basis.
Represents losses/(gains) on items held at fair value. There was a fair value remeasurement of contingent consideration of $8.5 million in 2016 and $3.3
million in 2017. In 2019, there was a net gain of $21.7 million related to the revaluation of liabilities held at fair value and impacted by movements in the
share price. The $21.7 million net gain resulted from a revaluation gain from the partnership with the Chalhoub Group, partially offset by a fair value
remeasurement charge for the shares issued in the acquisition of New Guards and our call option over the remaining non-controlling interest in
CuriosityChina,
Represents other items, which are outside the normal scope of our ordinary activities or non-cash items, including transaction-related legal and advisory
expenses of $0.5 million in 2015, $0.6 million in 2017 and $15.4 million in 2019. In 2019 there was also a loss on impairment of investments carried at fair
value, which was partially offset by a release of tax provisions. Other items is included within selling, general and administrative expenses.
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
An investment in our Class A ordinary shares involves a high degree of risk. You should carefully consider
the risks and uncertainty described below, together with all of the other information in this Annual Report, including
our consolidated financial statements and related notes, before deciding to invest in our Class A ordinary shares.
Additional risks not presently known to us or that we currently deem immaterial may also impair our business and
operations. Our business, financial condition or results of operations could be materially and adversely affected by
any of these risks. The trading price and value of our Class A ordinary shares could decline due to any of these
risks, and you may lose all or part of your investment.
Risks Relating to our Business and Industry
Purchasers of luxury products may not choose to shop online, which would prevent us from growing our
business.
Our success depends, in part, on our ability to attract additional consumers who have historically purchased
luxury products through traditional retailers rather than online. The online market for luxury products is significantly
less developed than the online market for other goods and services such as books, music, travel and other consumer
products. If this market does not gain widespread acceptance, our business may suffer. Furthermore, we may have to
incur significantly higher and more sustained advertising and promotional expenditures or offer more incentives
than we currently anticipate in order to attract additional online consumers to the Farfetch Marketplace and convert
them into purchasing consumers. Specific factors that could prevent consumers from purchasing luxury products
from us include:
•
•
•
•
concerns about buying luxury products online without a physical storefront, face to face interaction
with sales personnel and the ability to physically handle and examine products;
preference for a more personal experience when purchasing luxury products;
product offerings that do not reflect current consumer tastes and preferences;
pricing that does not meet consumer expectations;
14
•
•
•
•
delayed shipments or shipments of incorrect or damaged products;
inconvenience and costs associated with returning or exchanging items purchased online;
concerns about the security of online transactions and the privacy of personal information; and
usability, functionality and features of the Farfetch Marketplace.
If the online market for luxury products does not continue to develop and grow, our business will not grow
and our results of operations, financial condition and prospects could be materially adversely affected.
We may not be able to generate sufficient revenue to be profitable or to generate positive cash flow on a
sustained basis, and our revenue growth rate may decline.
We cannot assure you that we will generate sufficient revenue to offset the cost of maintaining our platform
and maintaining and growing our business. Although our revenue grew from $602.4 million for the fiscal year ended
December 31, 2018 to $1,021.0 million for the fiscal year ended December 31, 2019, our revenue growth rate may
decline in the future because of a variety of factors, including increased competition and the maturation of our
business. We cannot assure you that our revenue will continue to grow or will not decline. You should not consider
our historical revenue growth or operating expenses as indicative of our future performance. If our revenue growth
rate declines or our operating expenses exceed our expectations, our financial performance will be adversely
affected.
Additionally, we also expect our costs to increase in future periods, which could negatively affect our future
operating results and ability to achieve and sustain profitability. For example, in 2019, we incurred significant costs
in connection with our acquisitions. We expect to continue to expend substantial financial and other resources on
acquiring and retaining consumers, our technology infrastructure, research and development, including investments
in our research and development team and the development of new features, sales and marketing, international
expansion, and general administration, including expenses, related to being a public company. These investments
may not result in increased revenue or growth in our business. If we cannot successfully earn revenue at a rate that
exceeds the costs associated with our business, we will not be able to achieve or sustain profitability or generate
positive cash flow on a sustained basis and our revenue growth rate may decline. If we fail to continue to grow our
revenue and overall business, our business, results of operations, financial condition and prospects could be
materially adversely affected.
We have experienced losses in the past, and we may experience losses in the future.
We experienced losses after tax of $112.3 million, $155.6 million and $373.7 million in the years ended
December 31, 2017, 2018 and 2019, respectively. Our ability to generate and sustain significant additional revenues
or achieve profitability will depend on, among other things, our ability to increase our levels of sales and attract
consumers cost effectively, and the factors discussed elsewhere in this "Risk Factors" section. We may continue to
experience losses after tax in the future, and we cannot assure you that we will achieve profitability and may
continue to incur significant losses in future periods. Moreover, if we do achieve sustained profitability, the level of
any profitability cannot be predicted and may vary significantly from period to period.
The luxury fashion industry can be volatile and difficult to predict.
As a global platform for luxury fashion, we are subject to variable industry conditions. Consumer demand
can quickly change depending on many factors, including the behavior of both online and brick-and-mortar
competitors, promotional activities of competitors, rapidly changing tastes and preferences, frequent introductions of
new products and services, advances in technology and the internet, macroeconomic conditions impacting
discretionary spending and other macroeconomic factors, many of which are beyond our control.
For example, in the fourth quarter of 2018 luxury retailers demonstrated a higher than expected level of
promotional activity, to which we responded by carefully adjusting our approach to promotions during that quarter.
This trend toward promotional activity intensified in 2019 (and is expected to continue at least through the second
quarter of 2020), as global luxury fashion online retailers significantly increased discounting and promotions,
15
including earlier and larger discounts and more aggressive promotions culminating in unprecedented promotional
activities in Summer 2019.
When competitors increase promotional activity, we can react to those promotions symmetrically by
increasing our promotional activity, as we did during 2019, which can have a material adverse effect on our results
of operations, in particular on our gross margins and order contribution metrics, our prospects and our relationship
with brands and retailers. Alternatively, we can decide not to match competitors’ promotional activity, which we
believe improves our relationships with brands and retailers and, in turn, supply on the Farfetch Marketplace, as we
began to do in the second half of 2019, but which may adversely impact on consumer demand across our platform,
which in turn may impact on our overall market share capture and have a material adverse impact our business,
results of operations and prospects. We may also decide not to incentivize promotional activity by our retailers by
not funding, by reducing our funding, or requiring our retailers to fund in whole or part, promotional events on the
Farfetch Marketplace, which could adversely impact our relationships with our retailers. When the luxury retail
market experiences increased promotional activity, we may not be successful in responding in a manner that does
not also adversely impact our results of operations.
Changes in consumer demand may also impact on our ability to deliver expected margin on owned inventory
within our first-party businesses. With this constantly changing environment, our future business strategies,
practices and results may not meet expectations or respond quickly enough to consumer demand, and we may face
operational difficulties in adjusting to any changes. Any of these developments could harm our business, results of
operations, financial condition and prospects.
We rely on a limited number of retailers and brands for the supply of products that we make available to
consumers on the Farfetch Marketplace.
We rely on a limited number of retailers and brands for the supply of products available on the Farfetch
Marketplace. In the year ended December 31, 2019, 16% of our GMV was from our top ten retailers, excluding
Browns. We cannot guarantee that these retailers and brands will always choose to use the Farfetch Marketplace to
sell their products. We also typically enter into one -year contracts with retailers and brands, and there is no
guarantee our retailers and brands will renew these contracts upon expiration, which currently automatically renew
every year unless either party serves 90 days’ notice of termination for partners operating under our standard
template. Other than brands in the New Guards portfolio, we cannot control whether a retailer or brand chooses to
make any of its supply available on the Farfetch Marketplace. Further, a small number of entities may, on their own,
take actions that adversely affect our business, such as creating their own marketplace that could directly compete
with us. Additionally, our business may be adversely affected if our access to products is limited or delayed because
of deterioration in our relationships with one or more of our retailers or brands, or if they choose not to sell their
products with us for any other reason. If we fail to successfully retain current, as well as acquire new, retailers and
brands on our platform, our business, results of operations, financial condition and prospects could be materially
adversely affected.
If our brands and retailers fail to anticipate, identify and respond quickly to new and changing fashion
trends in consumer preferences, our business could be harmed.
The luxury apparel, footwear and accessories available on our Marketplaces are subject to rapidly changing
fashion trends and constantly evolving consumer tastes and demands. Our success is dependent on the ability of our
retailers and brands, including Browns, Stadium Goods and the New Guards portfolio of brands, to anticipate,
identify and respond to the latest fashion trends and consumer demands and to translate such trends and demands
into product offerings in a timely manner. The failure of our retailers and brands to anticipate, identify or react
swiftly and appropriately to new and changing styles, trends or desired consumer preferences, to accurately
anticipate and forecast demand for certain product offerings or to provide relevant and timely product offerings to
list on the Farfetch Marketplace may lead to lower demand for merchandise on our Marketplaces, which could
cause, among other things, declines in GMV sold through the Farfetch Marketplace. If our retailers and brands,
including the New Guards portfolio of brands, are not able to accurately anticipate, identify, forecast, analyze or
respond to changing fashion trends and consumer preferences, we may lose consumers and market share, which
could have a material adverse effect on our business, results of operations, financial condition and prospects.
In addition, New Guards’ success depends in large part on the brands in its portfolio being able to originate
and define fashion product trends, as well as to anticipate, gauge, and react to changing consumer demands in a
timely manner. Their products must appeal to consumers worldwide whose preferences cannot be predicted with
certainty and are subject to rapid change, influenced by fashion trends and current economic conditions, among
16
other factors. This issue is further compounded by the increasing use of digital and social media by consumers and
the speed by which information and opinions are shared across the globe. We cannot assure that the brands in New
Guards’ current or future portfolio will be able to continue to develop appealing styles or successfully meet
constantly changing consumer demands in the future. In addition, we cannot assure that any new products or brands
that we introduce will be successfully received by consumers. In particular, the majority of New Guards’ existing
brands, including its largest brand, Off-White, are currently focused on streetwear and should consumer preferences
for streetwear decline that could have a significant impact on our business. Failures of brands in the New Guards
portfolio to anticipate, identify, and respond effectively to changing consumer demands and fashion trends could
adversely affect retail and consumer acceptance of their products and leave us with a substantial amount of unsold
inventory or missed opportunities. Conversely, if we underestimate consumer demand for these brands’ products or
if manufacturers fail to supply quality products in a timely manner, we may experience inventory shortages. Any of
these outcomes could have a material adverse effect on our business, results of operations, and financial condition.
Retailers and brands set their own prices for the products they make available on the Farfetch
Marketplace, which could affect our ability to respond to consumer preferences and trends.
We do not control the pricing strategies of our retailers and brands (other than Browns, Stadium Goods’
first-party sales and the New Guards portfolio of brands when sold direct-to-consumer via our Marketplaces), which
could affect our revenue and our ability to effectively compete on price with the other distribution channels used by
our brands and retailers, including e-commerce retailers and brick-and-mortar stores. Furthermore, inconsistent
pricing on the Farfetch Marketplace may adversely affect a customer’s shopping experience, which may encourage
them to shop through other online or offline retailers. Retailers and brands may determine that they can more
competitively price their products through other distribution channels and may choose such other channels instead of
listing products on the Farfetch Marketplace. Additionally, where permitted by law retailers and brands often
employ different pricing strategies based on the geographical location of consumers, which is accomplished online
through geo-blocking that blocks a consumer’s ability to access certain websites based on geography. European
Union legislation, which took effect in December 2018, prohibits geo-blocking in the European Union. As a result,
our consumers registered in the European Union can make purchases at the prices listed in different European
geographies irrespective of their country of residence in Europe which could adversely impact our business. In
addition, proposed legislation in Europe (Regulation (EU) 2019/1150) on promoting fairness and transparency for
business users of online intermediation services will enter into force on July 12, 2020. This regulation would require
marketplaces to disclose the main parameters they use to rank goods and services on their sites, and any advantage
they may give to their own products over others. This could adversely affect our business, results of operations,
financial condition and prospects.
Fluctuations in exchange rates may adversely affect our results of operations.
Our financial information is presented in U.S. dollars, which differs from the underlying functional
currencies of certain of our subsidiaries (including, following the New Guards acquisition, an increased exposure to
the euro), exposing the Group to foreign exchange translation risk on consolidation. This risk is currently not hedged
and therefore, our results of operations have in the past, and will in the future, fluctuate due to movements in
exchange rates when the currencies are translated into U.S. dollars. At a subsidiary level, we are exposed to
transactional foreign exchange risk because we earn revenues and incur expenses in a number of different foreign
currencies relative to the relevant subsidiary’s functional currency, mainly the pound sterling and the euro.
Movements in exchange rates therefore impact our subsidiaries and thus, our consolidated results and cash flows.
We hedge a portion of our core transactional exposures using forward foreign exchange contracts; however, we are
exposed to fluctuations in exchange rates on the unhedged portion of the exposures that could harm our business,
results of operations, financial condition and prospects. In addition, as our operational and financial forecasts drive
our hedging program, should our results of operations differ materially from those forecasts, our hedging program
may not be sufficient to adequately mitigate the exposure to currency risk across a given period.
17
We rely on information technologies and systems to operate our business and maintain our
competitiveness, and any failure to invest in and adapt to technological developments and industry trends
could harm our business.
We depend on the use of sophisticated information technologies and systems, including technology and
systems used for websites and apps, customer service, supplier connectivity, communications, fraud detection,
enterprise resource planning inventory management, warehouse management and administration. As our operations
grow in size, scope and complexity, we will need to continuously improve and upgrade our systems and
infrastructure to offer an increasing number of consumer-enhanced services, features and functionalities, while
maintaining and improving the reliability and integrity of our systems and infrastructure.
Our future success also depends on our ability to adapt our services and infrastructure to meet rapidly
evolving consumer trends and demands while continuing to improve our platform’s performance, features and
reliability. The emergence of alternative platforms, such as smartphones and tablets, and niche competitors who may
be able to optimize such services or strategies, may require us to continue to invest in new and costly technology.
We may not be successful, or we may be less successful than our competitors, in developing technologies that
operate effectively across multiple devices and platforms and that are appealing to consumers, which would
negatively impact our business and financial performance. New developments in other areas, such as cloud
computing providers, could also make it easier for competitors to enter our markets due to lower up-front
technology costs. In addition, we may not be able to maintain our existing systems or replace our current systems or
introduce new technologies and systems as quickly or cost effectively as we would like. Failure to invest in and
adapt to technological developments and industry trends may have a material adverse effect on our business, results
of operations, financial condition and prospects.
Our efforts to acquire or retain consumers may not be successful, which could prevent us from
maintaining or increasing our sales.
If we do not promote and sustain our brand and platform through marketing and other tools, we may fail to
build and maintain the critical mass of consumers required to increase our sales. Promoting and positioning our
brand and platform, as well as the Browns and Stadium Goods brands and the New Guards portfolio of brands, will
depend largely on the success of our marketing efforts, our ability to attract consumers cost effectively and our
ability to consistently provide a high-quality product and user experience. In order to acquire and retain consumers,
we have incurred and will continue to incur substantial expenses related to advertising and other marketing efforts,
including investments in our ACCESS loyalty program. We also use promotions to drive sales, which may not be
effective and may adversely affect our gross margins. Our investments in marketing may not effectively reach
potential consumers, potential consumers may decide not to buy through us or the spend of consumers that purchase
from us may not yield the intended return on investment, any of which could negatively affect our financial results.
The failure of our marketing activities could also adversely affect our ability to attract new and maintain
relationships with our consumers, retailers and brands, which may have a material adverse effect on our business,
results of operations, financial condition and prospects.
We may not succeed in promoting and sustaining our brand, which could have an adverse effect on our
future growth and business.
A critical component of our future growth is our ability to promote and sustain our brand, which we believe
can be achieved by providing a high-quality user experience. An important element of our brand promotion strategy
is establishing a relationship of trust with our consumers. In order to provide a high-quality user experience, we have
invested and will intend to continue to invest substantial amounts of resources in the development and functionality
of our platform, website, technology infrastructure, fulfilment and customer service operations. Our ability to
provide a high-quality user experience is also highly dependent on external factors over which we may have little or
no control, including, without limitation, the reliability and performance of our retailers and brands, suppliers, third-
party warehousing providers and third-party carriers. If our consumers are dissatisfied with the quality of the
products sold on our platform or the customer service they receive and their overall customer experience, or if we or
our service providers cannot deliver products to our consumers in a timely manner or at all, our consumers may stop
purchasing products from us. In addition, failures by any of New Guards’ brands to provide consumers with high-
quality products and high-quality customer experiences for any reason could substantially harm the reputation of
that brand and the New Guards portfolio of brands more generally, which could have a material adverse effect on its
business, results of operations, financial condition and prospects. We also rely on third parties for information,
including product characteristics and availability shown on the Farfetch Marketplace that may be inaccurate.
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Our failure to provide our consumers with high-quality products and high-quality user experiences for any
reason could substantially harm our reputation and adversely impact our efforts to develop Farfetch as a trusted
brand, which could have a material adverse effect on our business, results of operations, financial condition and
prospects.
There is also increased focus, including by consumers, investors, employees and other stakeholders, as well
as by governmental and non-governmental organizations, on social, environmental and sustainability matters. Our
reputation could be damaged if we or our suppliers do not (or are perceived not to) act responsibly regarding social,
environmental and sustainability standards or, if we fail to appropriately respond to concerns raised by our
consumers, investors and other interested persons, which could have a material adverse effect on our business,
financial condition and results of operations.
Any significant disruption in service on our websites or apps or in our computer systems, some of which
are currently hosted by third-party providers, could damage our reputation and result in a loss of
consumers, which would harm our business and results of operations.
Our brand, reputation and ability to attract and retain consumers to use our platform depend upon the reliable
performance of our network infrastructure and content delivery processes. We have experienced interruptions in
these systems in the past, including server failures that temporarily slowed down or interfered with the performance
of our websites and apps, or particular features of our websites and apps, and we may experience interruptions in the
future. For example, in 2020 and 2019 there were a total of 11 interruptions and outages on our website that ranged
in time from 26 minutes to five hours and 40 minutes, in which our customers experienced difficulties involving,
among others, the inability to use our payment systems, the unavailability of thousands of products and our product
catalogue and the inability to complete their checkout process. Interruptions in these systems, whether due to system
failures, human input errors, computer viruses or physical or electronic break ins, and denial of service attacks on us,
third-party vendors or communications infrastructure, could affect the availability of our services on our platform
and prevent or inhibit the ability of consumers to access our websites and apps or complete purchases on our
websites and apps. Volume of traffic and activity on our Marketplaces spikes on certain days, such as during a
“Black Friday” promotion, and any such interruption would be particularly problematic if it were to occur at such a
high-volume time. Problems with the reliability of our systems could prevent us from earning revenue or
commission and could harm our reputation. Damage to our reputation, any resulting loss of consumer, retailer or
brand confidence and the cost of remedying these problems could negatively affect our business, results of
operations, financial condition and prospects.
Substantially all of the communications, network and computer hardware used to operate our website are
strategically located, for convenience and regulatory reasons, at facilities in Portugal, the Netherlands, Russia, China
and Ireland. Our ability to maintain communications, network, and computer hardware in these countries is, or may
in the future be, subject to regulatory review and licensing, and the failure to obtain any required licenses could
negatively affect our business. We either lease or own our servers and have service agreements with data center
providers. Our systems and operations are vulnerable to damage or interruption from fire, flood, power loss,
telecommunications failure, terrorist attacks, acts of war, electronic and physical break-ins, computer viruses,
earthquakes and similar events. The occurrence of any of the foregoing events could result in damage to our systems
and hardware or could cause them to fail completely, and our insurance may not cover such events or may be
insufficient to compensate us for losses that may occur. Our systems are not completely redundant, so a system
failure at one site could result in reduced platform functionality for our consumers, and a total failure of our systems
could cause our websites or apps to be inaccessible by some or all of our consumers. Problems faced by our third-
party service providers with the telecommunications network providers with whom they contract or with the systems
by which they allocate capacity among their users, including us, could adversely affect the experience of our
consumers. Our third-party service providers could decide to close their facilities without adequate notice. Any
financial difficulties, such as bankruptcy or reorganization, faced by our third-party service providers or any of the
service providers with whom they contract may have negative effects on our business, the nature and extent of
which are difficult to predict. If our third-party service providers are unable to keep up with our needs for capacity,
this could have an adverse effect on our business. Any errors, defects, disruptions or other performance problems
with our services could harm our reputation and may have a material adverse effect on our business, results of
operations, financial condition and prospects.
19
Our failure or the failure of third parties to protect our sites, networks and systems against security
breaches, or otherwise to protect our confidential information, could damage our reputation and brand
and substantially harm our business and operating results.
We collect, maintain, transmit and store data about our consumers, retailers and brands and others, including
credit card information (and other payment information) and other personally identifiable information, as well as
other confidential and proprietary information about our business plans and activities.
We also engage third parties that store, process and transmit these types of information on our behalf. We
rely on encryption and authentication technology licensed from third parties in an effort to securely transmit
confidential and sensitive information, including credit card numbers. Advances in computer capabilities, new
technological discoveries or other developments may result in the whole or partial failure of this technology to
protect transaction data or other confidential and sensitive information from being breached or compromised. In
addition, e-commerce websites are often attacked through compromised credentials, including those obtained
through phishing and credential stuffing. Our security measures, and those of our third -party service providers, may
not detect or prevent all attempts to breach our systems, denial -of -service attacks, viruses, malicious software,
break -ins, phishing attacks, social engineering, security breaches or other attacks and similar disruptions that may
jeopardize the security of information stored in or transmitted by our websites, networks and systems or that we or
such third parties otherwise maintain, including payment card systems, which may subject us to fines or higher
transaction fees or limit or terminate our access to certain payment methods. We and such third parties may not
anticipate or prevent all types of attacks until after they have already been launched. Further, techniques used to
obtain unauthorized access to or sabotage systems change frequently and may not be known until launched against
us or our third -party service providers. In addition, security breaches can also occur as a result of non -technical
issues, including intentional or inadvertent breaches by our employees or by third parties. These risks may increase
over time as we grow our business, including as a result of acquisitions, and as the complexity and number of
technical systems and applications we use increases.
Breaches of our security measures or those of our third -party service providers or cyber security incidents
could result in unauthorized access to our sites, networks and systems; unauthorized access to and misappropriation
of consumer information, including consumers’ personal data, or other confidential or proprietary information of
ourselves or third parties; viruses, worms, spyware or other malware being served from our sites, networks or
systems; deletion or modification of content or the display of unauthorized content on our sites; interruption,
disruption or malfunction of operations; costs relating to breach remediation, deployment of additional personnel
and protection technologies, response to governmental investigations and media inquiries and coverage; engagement
of third -party experts and consultants; litigation, regulatory action and other potential liabilities. In the past, we
have experienced social engineering, phishing, malware and similar attacks and threats of denial -of -service attacks;
however, such attacks could in the future have a material adverse effect on our operations. If any of these breaches
of security should occur, our reputation and brand could be damaged, our business may suffer, we could be required
to expend significant capital and other resources to alleviate problems caused by such breaches, and we could be
exposed to a risk of loss, litigation or regulatory action and possible liability. We cannot guarantee that recovery
protocols and backup systems will be sufficient to prevent data loss. Actual or anticipated attacks may cause us to
incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees
and engage third -party experts and consultants. In addition, any party who is able to illicitly obtain a consumers
password could access the consumers transaction data or personal information, resulting in the perception that our
systems are insecure.
Any compromise or breach of our security measures, or those of our third -party service providers, could
violate applicable privacy, data protection, data security, network and information systems security and other laws
and cause significant legal and financial exposure, adverse publicity and a loss of confidence in our security
measures, which could have a material adverse effect on our business, results of operations, financial condition and
prospects. We continue to devote significant resources to protect against security breaches or we may need to in the
future to address problems caused by breaches, including notifying affected subscribers and responding to any
resulting litigation, which in turn, diverts resources from the growth and expansion of our business.
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We rely on retailers and brands, suppliers, third-party warehousing providers, third-party carriers and
transportation providers as part of our fulfilment process, and these third parties may fail to adequately
serve our consumers.
We significantly rely on retailers and brands to properly and promptly prepare products ordered by our
consumers for shipment. Failures by these suppliers to timely prepare such products for shipment to our consumers
will have an adverse effect on the fulfilment of consumer orders, which could negatively affect the customer
experience and harm our business and results of operations. We rely on third-party warehousing providers to
receive, store, pick, pack and ship merchandise. We also rely upon third-party carriers and transportation providers
for substantially all of our merchandise shipments, including shipments of items from our retailers and brands, to our
production facilities for processing, shipments returning these items to our retailers and brands and the shipments to
our consumers after purchase. Failures of our third-party providers to meet the service levels expected by our
consumers or to deliver merchandise in optimal condition could negatively impact the customer experience, our
brand reputation and our business.
In addition, New Guards sells a portion of its products to third-party distributors, which are thus responsible
for sales to end consumers. The reputation of New Guards’ brands’ products thus rests in part on compliance by all
distributors with New Guards’ requirements in terms of their approach to the handling and presentation of products,
marketing and communications policies and respecting brand image.
Our shipments are also subject to risks that could increase our distribution costs, including rising fuel costs
and events such as employee strikes and inclement weather, which may impact the third party’s ability to provide
delivery services that adequately meet our needs. If we needed to change shipping companies, we could face
logistical difficulties that could adversely impact deliveries, we would incur costs and expend resources in
connection with such change and we could divert management and technology personnel and time and attention to
implement the change. Moreover, we may not be able to obtain terms as favorable as those received from the
independent third-party transportation providers we currently use, which would increase our costs. Increases in
shipping costs or other significant shipping difficulties or disruptions or any failure by our retailers, brands or third-
party carriers to deliver high-quality products to our consumers in a timely manner or to otherwise adequately serve
our consumers could damage our reputation and brand and may substantially harm our business, results of
operations, financial condition and prospects.
We rely on third parties to drive traffic to our website, and these providers may change their search
engine algorithms or pricing in ways that could negatively affect our business, results of operations,
financial condition and prospects.
Our success depends on our ability to attract consumers cost effectively. With respect to our marketing
channels, we rely heavily on relationships with providers of online services, search engines, social media, directories
and other websites and e-commerce businesses to provide content, advertising banners and other links that direct
consumers to our websites. We rely on these relationships to provide significant sources of traffic to our website. In
particular, we rely on search engines, such as Google, Bing and Yahoo! and the major mobile app stores, as
important marketing channels. Search engine companies change their natural search engine algorithms periodically,
and our ranking in natural searches may be adversely affected by those changes, as has occurred from time to time.
Search engine companies may also determine that we are not in compliance with their guidelines and consequently
penalize us in their algorithms as a result. If search engines change or penalize us with their algorithms, terms of
service, display and featuring of search results, or if competition increases for advertisements, we may be unable to
cost-effectively drive consumers to our website and apps.
Our relationships with our marketing providers are not long term in nature and do not require any specific
performance commitments. In addition, many of the parties with whom we have online advertising arrangements
provide advertising services to other companies, including retailers with whom we compete. As competition for
online advertising has increased, the cost for some of these services has also increased. A significant increase in the
cost of the marketing providers upon which we rely could adversely impact our ability to attract consumers cost
effectively and harm our business, results of operations, financial condition and prospects.
21
We face significant competition in the global retail industry and may be unsuccessful in competing
against current and future competitors.
The global retail industry is intensely competitive. Online retail, including on mobile devices and tablets, is
rapidly evolving and is subject to changing technology, shifting consumer preferences and tastes and frequent
introductions of new products and services. We could face competition from technology enablement companies,
marketplace, platforms and luxury sellers. Technology enablement companies are those that enable commerce, such
as Shopify or Square, and white-label service providers that offer end-to-end solutions. Luxury sellers are typically
either larger more established companies, such as luxury department stores, luxury brand stores or online retailers,
or multichannel players that are independent retailers operating brick-and-mortar stores with an online presence, and
these luxury sellers may have longer operating histories, greater brand recognition, existing consumer and supplier
relationships and significantly greater financial, marketing and other resources. Additionally, larger competitors
seeking to establish an online presence in luxury fashion may be able to devote substantially more resources to
website systems development and exert more leverage over the supply chain for luxury products than we can. Larger
competitors may also be better capitalized to opportunistically acquire, invest in or partner with other domestic and
international businesses. We believe that companies with a combination of technical expertise, brand recognition,
financial resources and e-commerce experience also pose a significant threat of developing competing luxury
fashion distribution technologies. In particular, if known incumbents in the e-commerce space choose to offer
competing services, they may devote greater resources than we have available, have a more accelerated time frame
for deployment and leverage their existing user base and proprietary technologies to provide services or a user
experience that our consumers may view as superior.
Online retail companies and marketplaces, including emerging start-ups, may be able to innovate and
provide products and services faster than we can, and they may be willing to price their products and services more
aggressively in order to gain market share. In addition, traditional brick-and-mortar based retailers offer consumers
the ability to handle and examine products in person and offer a more convenient means of returning and
exchanging purchased products. If our competitors are more successful in offering compelling products or in
attracting and retaining consumers than we are, our revenue and growth rates could decline.
If we are unable to compete successfully, or if competing successfully requires us to expend significant
resources in response to our competitors’ actions, our business, results of operations, financial condition and
prospects could be materially adversely affected.
We are subject to governmental regulation and other legal obligations related to privacy, data protection
and information security. If we are unable to comply with these, we may be subject to governmental
enforcement actions, litigation, fines and penalties or adverse publicity.
We collect personal data and other data from our consumers and prospective consumers. We use this
information to provide services and relevant products to our consumers, to support, expand and improve our
business, and to tailor our marketing and advertising efforts. We store, handle, and process personal data on our own
information systems, as well as through arrangements with third parties and service providers. As a result, we are
subject to governmental regulation and other legal obligations related to the protection of personal data, privacy and
information security in certain countries where we do business and there has been, and will continue to be, a
significant increase globally in such laws that govern, restrict or affect the collection, storage, sharing or use of data
collected from or about individuals and their devices.
In Europe, where we have significant business operations, the data privacy and information security regime
recently underwent a significant change and continues to evolve. The collection and processing of personal data is
subject to increasing regulatory scrutiny in Europe and the United Kingdom. The General Data Protection
Regulation (“GDPR”), which came into force on May 25, 2018, implemented more stringent operational
requirements for companies, including retailers, around information practices, such as expanded disclosures to tell
our consumers about how we collect and process their personal data, increased controls on profiling consumers and
increased rights for consumers to access, control and delete their personal data. In addition, there are mandatory data
breach notification requirements and significantly increased penalties of the greater of €20 million or 4% of global
turnover for the preceding financial year. From the beginning of 2021 (when the transitional period following the
United Kingdom’s withdrawal from the European Union expires), we will have to comply with the GDPR and the
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UK GDPR, each regime has the ability to fine us up to the greater of €20 million (£17 million) or 4% of global
turnover for non-compliance. The relationship between the United Kingdom and the European Union in relation to
certain aspects of data protection law remains unclear, for example how data transfers between EU member states
and the United Kingdom will be treated and the role of the Information Commissioner’s Office following the end of
the transitional period. These changes will lead to additional costs and increase our overall risk exposure. The UK’s
Network and Information Systems Regulations 2018, which came into force on May 10, 2018, apply to us as an
online marketplace and place additional network and information systems security obligations on us, as well as
mandatory security incident notification in certain circumstances with penalties of up to £17 million.
In recent years, U.S. and European lawmakers and regulators have expressed concern over the use of third-
party cookies and similar technologies for online behavioral advertising, and laws and regulations in this area are
also under reform. In the European Union, regulators are increasingly focusing on compliance with requirements in
the online behavioral advertising ecosystem, and current national laws that implement the ePrivacy Directive will be
replaced by an EU regulation known as the ePrivacy Regulation which will significantly increase fines for non-
compliance. In the European Union, informed consent is required for the placement of a cookie on a user’s device
and for direct electronic marketing. The GDPR imposes conditions on obtaining valid consent, such as a prohibition
on pre-checked consents and a requirement to ensure separate consents are sought for each type of cookie or similar
technology. While the text of the ePrivacy Regulation is still under development, a recent European court decision
and regulators’ recent guidance are driving increased attention to cookies and tracking technologies. If regulators
start to enforce the strict approach in recent guidance, this could lead to substantial costs, require significant systems
changes, limit the effectiveness of our marketing activities, divert the attention of our technology personnel,
adversely affect our margins, increase costs and subject us to additional liabilities. Regulation of cookies and similar
technologies may lead to broader restrictions on our marketing and personalization activities and may negatively
impact our efforts to understand users’ online shopping and other relevant online behaviors, as well as the
effectiveness of our marketing and our business generally. Such regulations, including uncertainties about how well
the advertising technology ecosystem can adapt to legal changes around the use of tracking technologies, may have
a negative effect on businesses, including ours, that collect and use online usage information for consumer
acquisition and marketing. The decline of cookies or other online tracking technologies as a means to identify and
target potential purchasers may increase the cost of operating our business and lead to a decline in revenues. In
addition, legal uncertainties about the legality of cookies and other tracking technologies may , lead to regulatory
scrutiny, and increase potential civil liability under data protection or consumer protection laws. In response to
marketplace concerns about the usage of third-party cookies and web beacons to track user behaviors, providers of
major browsers have included features that allow users to limit the collection of certain data generally or from
specified websites, and the ePrivacy Regulations draft also advocates the development of browsers that block
cookies by default. These developments could impair our ability to collect user information, including personal data
and usage information, that helps us provide more targeted advertising to our current and prospective consumers,
which could adversely affect our business, given our use of cookies and similar technologies to target our marketing
and personalize the customer experience.
In the United States, which is also a significant market for our goods and services, federal and various state
governments have adopted or are considering, laws, guidelines or rules for the collection, distribution, use and
storage of information collected from or about consumers or their devices. For example, California has enacted the
California Consumer Privacy Act (“CCPA”) which went into effect on January 1, 2020. The new law imposes new
requirements upon companies doing business in California and meeting other size or scale criteria for collecting or
using information collected from or about California residents, affords California residents new abilities to opt out of
certain disclosures of personal information, and grants non-absolute rights to access or request deletion of personal
information, subject to verification and certain exceptions. In response to the CCPA, we have reviewed and
amended our information practices involving California consumers, as well as our use of service providers or
interactions with other parties to whom we disclose personal information. We have updated our privacy disclosures
to comply with the new law, including as these requirements pertain to our California-based workforce. We are
monitoring the California Attorney General’s forthcoming CCPA implementing regulations, which are expected to
be published later in 2020. We cannot yet predict the full impact of CCPA and its implementing regulations on our
business or operations, but the new law may require us to further modify our information practices and policies in
one of our largest markets, and to incur substantial costs and expenses in an effort to comply. It also remains unclear
what, if any, further modifications will be made to this legislation and its implementing regulations, or how the
statute or rules will be interpreted. Other states are considering enacting stricter data privacy laws, some modeled on
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the GDPR, some modeled of the CCPA, and others potentially imposing completely distinct requirements. The U.S.
Congress is considering comprehensive federal privacy legislation, such as the Consumer Online Privacy Rights
Act, which would significantly expand elements of the data protection rights and obligations existing within the
GDPR and the CCPA to all U.S. consumers.
In the People’s Republic of China (the “PRC,” for purposes hereof excluding Hong Kong, Macau and
Taiwan), data security has become one of the fastest growing areas for new legislation reflecting the evolving e-
commerce industry in the PRC. For example, the PRC Cyber Security Law that came into force on July 1, 2017,
along with other laws and regulations, govern the collection, use, retention, sharing and security of the personal
information in the PRC and provide an overarching regulatory basis for protection of personal information in the
PRC, and the E-Commerce Law that came into force on January 1, 2019, governs all aspects of online transactions
and includes a significant focus on the importance of data security in such transactions. In addition, although the
Personal Information Security Specification, which came into force on May 1, 2018 (the “China Specification”) is
not a mandatory regulation, it nonetheless has a key implementing role in relation to the PRC’s Cyber Security Law
in respect of protecting personal information in China, and in practice it has been adopted by PRC government
agencies as a standard to determine whether businesses have abided by the PRC’s data protection rules.
This China Specification has introduced many concepts and protection rules for personal information (“PI”),
such as “Data Controller” from GDPR. From the consent perspective the China Specification and GDPR are similar,
but the China Specification has broadened the scope of Personal Sensitive Information (“PSI”) as compared to
GDPR (including but not limited to phone number, transaction record and purchase history, bank account, browse
history, and e ID info such as system account, email address and corresponding password) and thus, the application
of explicit consent under the China Specification is more far reaching. Furthermore, following the issuance of the
China Specification, the data controller must provide the purpose of collecting and using subject PSI, as well as
business functions of such purpose, and, for purposes of collection of the PSI, the China Specification requires the
data controller to distinguish its core function from additional functions to ensure the data controller will only collect
personal information as needed. Our failure to comply with the China Specification, while not a mandatory
regulation, could attract attention of relevant PRC regulatory authorities and increase our burden to prove our
compliance of the requirements under the relevant PRC protection laws and regulations, and a finding by the PRC
government authorities of our failure to comply with these requirements could result in governmental enforcement
actions, litigation, fines and penalties, which could have a material adverse effect on our business, results of
operations, financial condition and prospects.
Furthermore, in 2019 the Cyberspace Administration of the PRC (“CAC”), the central internet regulator,
issued Draft Measures of Security Assessment before Cross-border Transfer of Personal Information (“Draft
Measures of Cross-border PI Transfer”) and Draft Administrative Measures of Data Security (“Draft Measures of
Data Security”) soliciting public comments. In the proposed Draft Measures of Cross-border PI Transfer, PI cannot
be transferred out of the PRC until a security assessment is conducted and approved by relevant CAC local branch.
When conducting a security assessment, CAC is expected to focus on whether PI has been collected and processed
in China in full compliance with applicable law and whether the overseas recipients have the same level of data
protection capability. The Draft Measures of Data Security Law further adopt certain technical specifications under
the non-binding China Specifications as legal norms. These two Draft Measures may be subject to further revisions
before being officially promulgated with legal effect. Once finalized and implemented, these two Measures are
likely to have a major impact on our data compliance performance.
In Brazil, the Brazilian General Data Protection Law (Lei Geral de Proteção de Dados Pessoais) (Law No.
13,709/2018) ("LGPD") that came into effect on July 8, 2019 implemented operational requirements for our use of
personal data in Brazil. The LGPD’s requirements are substantially similar to those of GDPR and we will have to
undertake similar compliance efforts regarding our Brazilian consumers and employee data, potentially requiring us
to incur substantial costs and expenses in an effort to comply and exposing us to an increased risk of non-
compliance.
Many data protection regimes apply based on where the consumer is located, and as we expand and new
laws are enacted the new laws due to come into force in India next year) or existing laws change, we may be subject
to new laws, regulations or standards or new interpretations of existing laws, regulations or standards, including
those in the areas of data security, data privacy and regulation of email providers and those that require localization
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of certain data (such as in Russia, where we have already undertaken localization), which could require us to incur
additional costs and restrict our business operations.
Failures or perceived failures by us (including our recently acquired businesses which are in the process of
being integrated into our privacy framework) to comply with rapidly evolving privacy or security laws such as the
China Specification, policies (including our own stated privacy policies), legal obligations or industry standards or
any security incident that results in the unauthorized release or transfer of personally identifiable information or
other personal or consumer data may result in governmental enforcement actions, litigation (including consumer
class actions), fines and penalties or adverse publicity and could cause our consumers to lose trust in us, which could
have a material adverse effect on our business, results of operations, financial condition and prospects.
The profitability of our Browns, Stadium Goods and New Guards businesses depends on our ability to
manage inventory levels and, if not managed successfully, our business and results of operations could be
adversely affected.
Browns and Stadium Goods purchase merchandise wholesale which they then sell via our Marketplaces or
in-stores. In addition, New Guards produces merchandise which it then sells via our Marketplaces, its brands’
websites or to retailers. As a result, our profitability depends on our ability to manage these businesses’ inventory
levels and respond to shifts in consumer demand patterns. Overestimating consumer demand for merchandise may
result in Browns, Stadium Goods or New Guards holding unsold inventory, which will likely result in the need to
rely on markdowns or promotional sales to dispose of excess inventory, which could have an adverse effect on our
gross margins and results of operations. Conversely, if Browns, Stadium Goods or New Guards underestimate
consumer demand for merchandise that could lead to inventory shortages, lost sales opportunities or negative
customer experiences that could adversely affect consumer relationships and our ability to grow in the future. In the
event that New Guards’ business, which was primarily wholesale focused prior to the acquisition, significantly
grows its e-concession and direct-to-consumer business, this may result in it will substantially increasing its
exposure to such inventory risks having only had limited prior experience managing such risks.
Browns, Stadium Goods and New Guards rely on various processes and systems for forecasting,
merchandise planning, inventory management, procurement, allocation and fulfilment capabilities. Our ability to
continue to successfully execute our strategies for these businesses or evolve such strategies with changes in the
retail environment could be adversely affected if such processes and systems are not effectively managed and
maintained. If any such systems were to fail, or if our physical inventory is inaccurate for any reason, we may not
derive the expected sales and profitability of our Browns, Stadium Goods or New Guards businesses, or we may
incur increased costs relative to our current expectations which could adversely affect our business, financial
condition, results of operations and prospects.
Our failure to address risks associated with payment methods, credit card fraud and other consumer
fraud, or our failure to control any such fraud, could damage our reputation and brand and may cause
our business and results of operations to suffer.
Under current credit card practices, we are liable for fraudulent credit card transactions because we do not
obtain a cardholder’s signature. We do not currently carry insurance against this risk. To date, we have experienced
minimal losses from credit card fraud, but we face the risk of significant losses from this type of fraud as our net
sales increase and as we continue to expand globally. Our failure to adequately control fraudulent credit card
transactions could damage our reputation and brand and substantially harm our business, results of operations,
financial condition and prospects.
We also accept payments for many of our sales through credit and debit card transactions, which are handled
through third-party payment processors. As a result, we are subject to a number of risks related to credit and debit
card payments, including that we pay interchange and other fees, which may increase over time and could require us
to either increase the prices we charge for our products or absorb an increase in our costs and expenses. In addition,
as part of the payment processing process, our consumers’ credit and debit card information is transmitted to our
third-party payment processors. We may in the future become subject to lawsuits or other proceedings for
purportedly fraudulent transactions arising out of the actual or alleged theft of our consumers’ credit or debit card
information if the security of our third-party credit card payment processors is breached. We and our third-party
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credit card payment processors are also subject to payment card association operating rules, certification
requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it
difficult or impossible for us to comply. If we or our third-party credit card payment processors fail to comply with
these rules or requirements, we may be subject to fines and higher transaction fees and lose our ability to accept
credit and debit card payments from our consumers in addition to the consequences that could arise from such action
or inaction violating applicable privacy, data protection, data security and other laws as outlined above, and there
may be an adverse impact on our business, results of operations, financial condition and prospects.
Use of social media, emails and text messages may adversely impact our reputation or subject us to fines
or other penalties.
We use social media, emails and text messages as part of our approach to marketing. As laws and regulations
rapidly evolve to govern the use of these channels, a failure by us, our employees or third parties acting at our
direction to abide by applicable laws and regulations in the use of these channels could adversely affect our
reputation or subject us to fines or other penalties. In addition, our employees, including employees of brands within
the New Guards portfolio, or third parties acting at our direction (including influencers) may knowingly or
inadvertently make use of social media in ways that could lead to the loss or infringement of intellectual property, as
well as the public disclosure of proprietary, confidential or sensitive personal information of our business,
employees, consumers or others. Any such inappropriate use of social media, emails and text messages could also
cause damage to our reputation, the reputation of our businesses, including Browns, Stadium Goods and any of the
brands in the New Guards portfolio, or the reputation of the designers or creative directors of the New Guards
brands.
Consumers value readily available information concerning retailers and their goods and services and often
act on such information without further investigation and without regard to its accuracy. Our consumers may engage
with us online through our social media platforms, including Facebook, Instagram, Pinterest and Twitter, by
providing feedback and public commentary about all aspects of our business. Information concerning us or our
retailers and brands, whether accurate or not, may be posted on social media platforms at any time and may have a
disproportionately adverse impact on our brand, reputation or business. The harm may be immediate without
affording us an opportunity for redress or correction and could have a material adverse effect on our business, results
of operations, financial condition and prospects.
If we are unable to successfully launch and monetize new and innovative technology, our growth and
profitability could be adversely affected.
We are constantly developing new and innovative technology, such as Farfetch Store of the Future. Our
ability to bring a product to market in a timely manner or at all, our ability to monetize these technologies and other
new business lines in a timely manner and operate them profitably and our ability to leverage these technologies to
drive customer engagement, depends on a number of factors, many of which are beyond our control, including:
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our ability to develop fast enough to meet customer changing needs and expectations;
our ability to manage the financial and operational aspects of developing and launching new
technology, including making appropriate investments in our software systems, information
technologies and operational infrastructure;
our ability to secure required governmental permits and approvals;
the level of commitment and interest from our actual and potential third-party innovators;
certain products facing significant competition, including from Chinese technology companies, and
our competitors (including our existing retailers and brands who may launch competing technologies)
developing and implementing similar or better technology;
our ability to effectively manage any third-party challenges to the intellectual property behind our
technology;
our ability to collect, combine and leverage data about our consumers collected online and through our
new technology in compliance with data protection laws; and
general economic and business conditions affecting consumer confidence and spending and the overall
strength of our business.
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We may not be able to grow our new technologies or business lines or operate them profitability, and these
new and innovative technology initiatives may never generate material revenue. In addition, the substantial
management time and resources that our technology development requires may result in disruption to our existing
business operations and adversely affect our financial condition, which may decrease our profitability and growth.
Our consumer concentration may materially adversely affect our financial condition and results of
operations.
For the year ended December 31, 2019, the top 1% of our consumers accounted for approximately 27% of
our Digital Platform GMV. Accordingly, our revenue, financial condition or results of operations may be unduly
affected by fluctuations in the buying patterns of these consumers. If we were to lose the business of some or all of
these consumers, it could materially adversely affect our business, results of operations, financial condition and
prospects.
Our operating results are subject to seasonal and quarterly variations in our revenue and operating
income, and as a result, our quarterly results may fluctuate and could be below expectations.
Our business is seasonal and historically, we have realized a disproportionate amount of our revenue and
earnings for the year in the fourth quarter as a result of the holiday season and seasonal promotions, and we expect
this to continue in the future, while our Brand Platform has historically seen higher levels of sales in January, May
and July. If we experience lower than expected revenue during any fourth quarter, it may have a disproportionately
large impact on our operating results and financial condition for that year. Any factors that harm our fourth quarter
operating results, including disruptions in our brands’ or retailers’ supply chains or unfavorable economic
conditions, could have a disproportionate effect on our results of operations for our entire fiscal year.
In anticipation of increased sales activity during the fourth quarter, we may incur significant additional
expenses, including additional marketing and additional staffing in our customer support operations. In addition, we
may experience an increase in our net shipping costs due to complimentary upgrades, split-shipments, and additional
long-zone shipments necessary to ensure timely delivery for the holiday season. At peak periods, there could also be
further delays by our retailers and brands in processing orders, which could leave us unable to fulfill consumer
orders due to “no stock,” or in packaging a consumer’s order once received, which could lead to lower consumer
satisfaction. In the future, our seasonal sales patterns may become more pronounced, may strain our personnel and
production activities and may cause a shortfall in net sales as compared with expenses in a given period, which
could substantially harm our business, results of operations, financial condition and prospects.
Our quarterly results of operations may fluctuate significantly as a result of a variety of factors, including
those described above. As a result, historical period-to-period comparisons of our sales and operating results are not
necessarily indicative of future period-to-period results. You should not rely on the results of a single fiscal quarter
as an indication of our annual results or our future performance.
We may not accurately forecast income and appropriately plan our expenses.
We base our current and future expense levels on our operating forecasts and estimates of future income.
Income and operating results are difficult to forecast because they generally depend on the volume and timing of the
orders we receive, which are uncertain. Additionally, our business is affected by general economic and business
conditions around the world. A softening in income, whether caused by changes in consumer preferences or a
weakening in global economies, may result in decreased revenue levels, and we may be unable to adjust our
spending in a timely manner to compensate for any unexpected shortfall in income. This inability could cause our
(loss)/income after tax in a given quarter to be (higher)/lower than expected. In addition, we have had no prior
history of operating New Guards prior to the New Guards acquisition. We may not accurately forecast costs of
operating the New Guards business, and we may not achieve cost synergies and other expected benefits of the New
Guards acquisition. We also make certain assumptions when forecasting the amount of expense we expect related to
our share based payments, which includes the expected volatility of our share price, the expected life of share
options granted and the expected rate of share option forfeitures. These assumptions are partly based on historical
results. If actual results differ from our estimates, our net income in a given quarter may be lower than expected.
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We depend on highly skilled personnel, including senior management and our technology professionals,
and if we are unable to retain or motivate key personnel or hire, retain and motivate qualified personnel,
our business could be harmed.
We believe our success has depended, and our future success depends, on the efforts and talents of our senior
management, particularly José Neves, our founder and chief executive officer, and all of our highly skilled team
members. Our future success depends on our continuing ability to attract, develop, motivate and retain highly
qualified and skilled employees. Our ability to do so can be impacted by a number of factors, for example volatility
of our share price may impact the attractiveness of our rewards package. In particular, our software engineers and
technology professionals are key to designing, maintaining and improving code and algorithms necessary to our
business. In addition, members of our Private Client team cater to some of our most important and highest spending
consumers. If employees in our Farfetch Private Client business leave Farfetch, this may impact on the ability of
Farfetch to retain consumers associated with such Farfetch Private Client team member.
The New Guards management team was historically responsible for discovering and developing new brands,
and we will continue to rely on their expertise to drive the expansion of the New Guards portfolio of brands. Certain
designers and creators, including Virgil Abloh, the Founder and Creative Director of Off-White, are also critical to
the success of brands within the New Guards portfolio, and their departure could have a significant impact on the
creative direction of the relevant brand which could have a significant impact on such brand and New Guards’
business.
Competition for well-qualified employees in all aspects of our business, including software engineers, data
scientists and other technology professionals, is intense globally. Our continued ability to compete effectively
depends on our ability to attract new employees and to retain and motivate existing employees. If we do not succeed
in attracting well-qualified employees or retaining and motivating existing employees and key senior management,
our business, results of operations, financial condition and prospects may be adversely affected.
We may not be able to manage our growth effectively, and such rapid growth may adversely affect our
corporate culture.
We have rapidly and significantly expanded our operations, including through the New Guards acquisition,
and anticipate expanding further as we pursue our growth strategies. Such expansion increases the complexity of our
business and places a significant strain on our management, operations, technical systems, financial resources and
internal control over financial reporting functions. Our current and planned personnel, systems, procedures and
controls may not be adequate to support and effectively manage our future operations, especially as we employ
people in 14 geographic locations. We are currently in the process of transitioning certain of our business and
financial systems to systems on a scale reflecting the increased size, scope and complexity of our operations, and the
process of migrating our legacy systems could disrupt our ability to timely and accurately process information,
which could adversely affect our results of operations and cause harm to our reputation. As a result, we may not be
able to manage our expansion effectively.
Our entrepreneurial and collaborative culture is important to us, and we believe it has been a major
competitive advantage and contributor to our success. We may have difficulties maintaining our culture or adapting
it sufficiently to meet the needs of our future and evolving operations as we continue to grow, in particular as we
grow internationally and through acquisitions like the New Guards and Stadium Goods acquisitions. In addition, our
ability to maintain our culture as a public company, with the attendant changes in policies, practices, corporate
governance and management requirements may be challenging. Failure to maintain our culture could have a material
adverse effect on our business, results of operations, financial condition and prospects.
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General economic factors, natural disasters or other unexpected events may adversely affect our business,
financial performance and results of operations.
Our business, financial performance and results of operations depend significantly on worldwide
macroeconomic economic conditions and their impact on consumer spending. Luxury products are discretionary
purchases for consumers. Recessionary economic cycles, higher interest rates, volatile fuel and energy costs,
inflation, levels of unemployment, conditions in the residential real estate and mortgage markets, access to credit,
consumer debt levels, unsettled financial markets and other economic factors that may affect consumer spending or
buying habits could materially and adversely affect demand for our products. In addition, volatility in the financial
markets has had and may continue to have a negative impact on consumer spending patterns. A reduction in
consumer spending or disposable income may affect us more significantly than companies in other industries and
companies with a more diversified product offering. In addition, negative national or global economic conditions
may materially and adversely affect our suppliers’ financial performance, liquidity and access to capital. This may
affect their ability to maintain their inventories, production levels and/or product quality and could cause them to
raise prices, lower production levels or cease their operations.
Economic factors such as increased commodity prices, shipping costs, inflation, higher costs of labor,
insurance and healthcare, and changes in or interpretations of other laws, regulations and taxes may also increase our
cost of sales and our selling, general and administrative expenses, and otherwise adversely affect our financial
condition and results of operations. Any significant increases in costs may affect our business disproportionately
compared to our competitors. Changes in trade policies, increases in tariffs and the imposition of retaliatory tariffs,
including those implemented by the United States and China in 2019, may have a material adverse effect on global
economic conditions and the stability of global financial markets and may reduce international trade. Natural
disasters and other adverse weather and climate conditions, public health crises, political crises, such as terrorist
attacks, war and other political instability or other unexpected events, could disrupt our operations, internet or
mobile networks or the operations of one or more of our third-party service providers. For example, the vast
majority of our production processes take place at our facility in Guimarães, Portugal. If any such disaster were to
impact this facility, our operations would be disrupted.
In December 2019, a novel strain of coronavirus (“COVID-19”) was reported to have surfaced in Wuhan,
Hubei Province, China. During January, February and March of 2020, COVID-19 has spread to other cities in
China, and also globally. In response to the COVID-19 virus, countries have taken different measures in relation to
prevention and containment. For example, beginning in late January 2020, in response to intensifying efforts to
contain the spread of the COVID-19 virus, many cities in Hubei Province including Wuhan were locked down and
business activities were banned in Hubei Province; including temporary suspension of delivery services in this area.
The COVID-19 virus continues to impact worldwide economic activity and pose the risk that we or our employees,
contractors, suppliers, customers and other business partners may be prevented from conducting certain business
activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by
governmental authorities or otherwise elected by companies as a preventive measure. In addition, mandated
government authority measures or other measures elected by companies as a preventive measures may lead to our
consumers being unable to complete purchases or other activities. Furthermore, its impact on the global and local
economies may also adversely impact consumer discretionary spending. COVID-19 may have an adverse effect on
trading and our operations and, given the uncertainty around the extent and timing of the potential future spread or
mitigation and around the imposition or relaxation of protective measures, we cannot reasonably estimate the impact
to our future results of operations, cash flows or financial condition.
In addition, rising global average temperatures due to increased concentrations of carbon dioxide and other
greenhouse gases in the atmosphere are causing significant changes in weather patterns around the globe and an
increase in the frequency and severity of natural disasters. Changes in weather patterns and the increased frequency,
intensity and duration of extreme weather events (e.g., floods, droughts and severe storms) could, among other
things, disrupt our logistics operations and our ability to source and distribute products in a timely manner, impact
the operation of our New Guards business’ supply chain, disrupt our brick-and-mortar retail operations, increase our
product costs and impact the types of fashion products that consumers purchase. As a result, the effects of climate
change could have short- and long-term impacts on our business and operations.
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We have acquired, and may continue to acquire, other companies or technologies, which could divert
management’s attention and otherwise disrupt our operations and harm our operating results. We may
fail to acquire companies whose market power or technology could be important to the future success of
our business.
We have acquired and may in the future seek to acquire or invest in other companies or technologies that we
believe could complement or expand our brand and products, enhance our technical capabilities, or otherwise offer
growth opportunities. Pursuit of future potential acquisitions may divert the attention of management and cause us to
incur various expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not they are
consummated. In addition, we may be unsuccessful in integrating our acquired businesses or any additional business
we may acquire in the future, and we may fail to acquire companies whose market power or technology could be
important to the future success of our business. For example, we acquired Browns in 2015, Fashion Concierge and
Style.com in 2017 and Stadium Goods, CuriosityChina, Toplife and New Guards in 2019.
We also may not achieve the anticipated benefits from any acquired business due to a number of factors,
including:
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unanticipated costs or liabilities associated with the acquisition, including unasserted claims or
assessments that we failed or were unable to identify costs or liabilities arising from the acquired
companies’ failure to comply with intellectual property laws and licensing obligations to which they
are subject;
incurrence of acquisition-related costs;
synergies attributable to the acquisition may vary from expectations;
diversion of management’s attention from other business concerns;
regulatory uncertainties;
harm to our existing business relationships with retailers and brands as a result of the acquisition;
harm to our brand and reputation;
the potential loss of key employees;
use of resources that are needed in other parts of our business;
failure to realize anticipated synergies in the timeframe or in the full amount expected; and
use of substantial portions of our available cash to consummate the acquisition.
In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired
goodwill, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield
expected returns, we may be required to take charges to our operating results based on this impairment assessment
process. Acquisitions also could result in dilutive issuances of equity securities or the incurrence of debt, which
could adversely affect our operating results. For example, half of the consideration we paid in connection with the
New Guards acquisition was paid in the form of shares, resulting in our issuance of 27.5 million Class A ordinary
shares or 9% of the Class A ordinary shares outstanding immediately prior to the acquisition. In addition, if an
acquired business fails to meet our expectations, this may have a material adverse effect on our business, results of
operations, financial condition and prospects.
We are involved in and may pursue strategic relationships. We may have limited control over such
relationships, and these relationships may not provide the anticipated benefits.
We are involved in various strategic relationships, including with JD.com and the Chalhoub Group, which
we expect will benefit our business and help us to achieve growth in China and the Middle East, respectively. For
example, in February 2019, we entered into agreements to strengthen our strategic relationship with JD.com, which
was driven by our aim to expand our presence in China. We also may pursue and enter into strategic relationships in
the future. Such relationships involve risks, including but not limited to: maintaining good working relationships
with the other party; any economic or business interests of the other party that are inconsistent with ours; the other
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party’s failure to fund its share of capital for operations or to fulfill its other commitments, including providing
accurate and timely accounting and financial information to us, which could negatively impact our operating results;
loss of key personnel; actions taken by our strategic partners that may not be compliant with applicable rules,
regulations and laws; reputational concerns regarding our partners or our leadership; bankruptcy, requiring us to
assume all risks and capital requirements related to the relationship, and the related bankruptcy proceedings could
have an adverse impact on the relationship; and any actions arising out of the relationship that may result in
reputational harm or legal exposure to us. Further, these relationships may not deliver the benefits that were
originally anticipated. Any of these factors may have a material adverse effect on our business, results of operations,
financial condition and prospects.
We sell certain merchandise via third-party platforms, and our inability to access consumers via these
platforms could adversely affect our business.
We sell certain merchandise via third-party platforms. In certain countries, some of our businesses
significantly rely on such sales channels. For example, in 2019 a significant portion of Stadium Goods’ sales in
China were made via Alibaba’s Tmall Global e-commerce platform. We are subject to, and must comply with, such
platforms’ respective terms and conditions for merchants and their terms of service for consumer rights protection.
Such third-party platforms retain the right to remove our merchandise from their platform or halt our sales on their
platform if they believe we have violated their terms and conditions, the law or the IP rights of other parties,
including, but not limited to, allegations that any goods we offer for sale are counterfeit. Such platforms can halt
sales or remove our merchandise at their complete discretion irrespective of the validity of any claims made against
us. Should such third-party platforms exercise such discretion in a market where we are substantially reliant on the
relevant platform it could negatively impact our growth and our GMV in that market, which could have a material
adverse effect on our business, results of operations, financial condition and prospects. Further, should such third-
party platforms’ actions become public it could impact our business and could substantially harm our reputation and
adversely impact our efforts to develop our brands, irrespective of the validity of the claims.
A failure to comply with current laws, rules and regulations or changes to such laws, rules and
regulations and other legal uncertainties may adversely affect our business, financial performance,
results of operations or business growth.
Our business and financial performance could be adversely affected by unfavorable changes in or
interpretations of existing laws, rules and regulations or the promulgation of new laws, rules and regulations
applicable to us and our businesses, including those relating to the internet and e-commerce, including geo-blocking
and other geographically based restrictions, internet advertising and price display, consumer protection, anti-
corruption, antitrust and competition, economic and trade sanctions, tax, banking, data security, network and
information systems security, data protection and privacy. As a result, regulatory authorities could prevent or
temporarily suspend us from carrying on some or all of our activities or otherwise penalize us if our practices were
found not to comply with applicable regulatory or licensing requirements or any binding interpretation of such
requirements. Unfavorable changes or interpretations could decrease demand for our services, limit our ability to
expand our product and service offerings, limit marketing methods and capabilities, affect our margins, increase
costs or subject us to additional liabilities or affect our ability to deliver our growth strategy.
For example, there are, and will likely continue to be, an increasing number of laws and regulations
pertaining to the internet and e-commerce that may relate to liability for information retrieved from or transmitted
over the internet, display of certain taxes and fees, online editorial and consumer-generated content, user privacy,
data security, network and information systems security, behavioral targeting and online advertising, taxation,
liability for third-party activities and the quality of services. For example, an aspect of the Revised Payment Service
Directive came into force, which (following an implementation period of 18 to 24 months) will require an additional
level of consumer authentication for certain transactions involving parties in the European Union completed on our
Marketplaces. This additional authentication may deter consumers from completing transactions online, which may
affect our business. Furthermore, the growth and development of e-commerce may prompt calls for more stringent
consumer protection laws and more aggressive enforcement efforts, which may impose additional burdens on online
businesses generally.
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Likewise, the SEC, the U.S. Department of Justice, the U.S. Treasury Department’s Office of Foreign Assets
Control (“OFAC”), the U.S. Department of State, as well as other foreign regulatory authorities continue to enforce
economic and trade regulations and anti-corruption laws, as applicable, across industries. U.S. economic and trade
sanctions relate to transactions with designated foreign countries and territories, which currently include Cuba, Iran,
North Korea, Syria and the Crimea region of Ukraine (“Crimea”) as well as specially targeted individuals and
entities that are identified on U.S. and other government blacklists, and those 50% or more owned, individually or in
the aggregate, by them or those acting on their behalf. Anti-corruption laws, including the U.S. Foreign Corrupt
Practices Act (the “FCPA”) and the UK Bribery Act (the “Bribery Act”), generally prohibit direct or indirect corrupt
payments to government officials (and, under certain laws, to private persons) to obtain or retain business or an
improper business advantage. Some of our international operations are conducted in parts of the world where it is
more common to engage in business practices that may be prohibited by these laws.
Although we have policies and procedures in place designed to promote compliance with laws and
regulations, which we review and update as we expand our operations in existing and new jurisdictions, our
employees, partners, or agents could take actions in contravention of our policies and procedures, or violate
applicable laws or regulations. As regulations continue to develop and regulatory oversight continues to focus on
these areas, we cannot guarantee that our policies and procedures will ensure compliance at all times with all
applicable laws or regulations. In the event our controls should fail, or we are found to be not in compliance for
other reasons, we could be subject to monetary damages, civil and criminal monetary penalties, withdrawal of
business licenses or permits, litigation, investigation costs and expenses and damage to our reputation and the value
of our brand.
As we expand our operations in existing and new jurisdictions internationally, we will need to increase the
scope of our compliance programs to adequately address risks relating to applicable economic and trade sanctions,
the FCPA, the Bribery Act and other anti-bribery and anti-corruption laws in particular. Further, the promulgation of
new laws, rules and regulations, or the new interpretation of existing laws, rules and regulations, in each case that
restrict or otherwise unfavorably impact the ability or manner in which we or our retailers and brands conduct
business could require us to change certain aspects of our business, operations and commercial relationships to
ensure compliance, which could decrease demand for services, reduce revenue, increase costs or subject us to
additional liabilities.
We are subject to trade and economic sanctions and export laws that may govern or restrict our business,
and we may be subject to fines or other penalties for non-compliance with those laws.
We are subject to U.S. laws and regulations that may govern or restrict our business and activities in certain
countries and with certain persons, including trade and economic sanctions regulations administered by OFAC and
the Export Administration Regulations administered by the U.S. Commerce Department’s Bureau of Industry and
Security (“BIS”). In March 2018, we determined that certain products purchased on the Farfetch Marketplace were
shipped to addresses associated with Crimea. In December 2014, the United States announced a near complete
embargo on exports of items from the United States to Crimea. On April 27, 2018, we submitted an initial voluntary
self-disclosure regarding these shipments to OFAC and BIS, and on October 24, 2018 we submitted our final
voluntary self-disclosure report (“Final Disclosure”) outlining the results of our review of this matter. As described
in the Final Disclosure, we determined that three products purchased on the Farfetch Marketplace from retailers or
brands in the United States were shipped to parties whose addresses are associated with Crimea and that on one
occasion, a retailer on the Farfetch Marketplace outside the United States shipped what appears to be a U.S.-origin
product to an address associated with Crimea. The combined value of the four shipments at issue in the Final
Disclosure was $391.24. Since March 2018, we have put in place measures designed to prevent the fulfilment of
orders associated with addresses in Crimea and these measures are described in the Final Disclosure. Both agencies
closed out the matter without assessing a monetary penalty. BIS issued a Warning Letter dated February 25, 2019,
and OFAC issued a Cautionary Letter dated March 27, 2019. If, in the future, we are found to be in violation of U.S.
sanctions or export control laws, it could result in fines and penalties for us, which could be substantial. Moreover,
notwithstanding the safeguards we have put in place to ensure compliance with U.S. sanctions or export control
laws, we cannot be certain that these safeguards will be effective in all cases. In the future, additional U.S. trade and
economic sanctions regulations, enacted due to geopolitics or otherwise, could restrict our ability to generate
revenue in certain other countries, such as Russia, which could adversely affect our business.
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We are subject to customs and international trade laws that could require us to modify our current
business practices and incur increased costs or could result in a delay in getting products through
customs and port operations, which may limit our growth and cause us to suffer reputational damage.
Our business is conducted worldwide, with goods imported from and exported to a substantial number of
countries. The vast majority of products sold on our Marketplaces are shipped internationally. We are subject to
numerous regulations, including customs and international trade laws, that govern the importation and sale of luxury
goods. Our consumers in certain countries, such as China and Russia, are also subject to limitations and regulations
governing the import of luxury goods. In addition, we face risks associated with trade protection laws, policies and
measures and other regulatory requirements affecting trade and investment, including loss or modification of
exemptions for taxes and tariffs, imposition of new tariffs and duties and import and export licensing requirements
in the countries in which we operate. This is particularly the case with respect to China, as new rounds of tariffs and
extended trade negotiations between the United States and China have led to increased costs and continued
uncertainty in trade relations, and in the United Kingdom, where an exit from the European Union could result in the
creation of additional restrictions or regulations concerning our operations in and outside of the United Kingdom.
There is also a concern that the imposition of additional tariffs by the United States could result in the adoption of
tariffs or trade restrictions by other countries (including the European Union) as well, that may affect the movement
of our goods, or potentially lead to a global trade war. Our failure to comply with import or export rules and
restrictions or to properly classify items under tariff regulations and pay the appropriate duties could expose us to
fines and penalties. If these laws or regulations were to change or were violated by our management, employees,
retailers or brands, we could experience delays in shipments of our goods, be subject to fines or penalties, or suffer
reputational harm, which could reduce demand for our services and negatively impact our results of operations.
Legal requirements are frequently changed and subject to interpretation, and we are unable to predict the
ultimate cost of compliance with these requirements or their effects on our operations. We may be required to make
significant expenditures or modify our business practices to comply with existing or future laws and regulations,
which may increase our costs and materially limit our ability to operate our business.
Our business depends on our ability to source and distribute products in a timely manner. As a result, we rely
on the free flow of goods through open and operational ports worldwide. Labor disputes or other disruptions at ports
create significant risks for our business, particularly if work slowdowns, lockouts, strikes or other disruptions occur.
Any of these factors could result in reduced sales or canceled orders, which may limit our growth and damage our
reputation and may have a material adverse effect on our business, results of operations, financial condition and
prospects.
Governmental control of currency conversion may limit our ability to utilize our cash balances effectively
and affect our ability to pay dividends in the future.
We are subject to governmental regulation of currency conversion and transfers, which may particularly
affect our subsidiaries in certain jurisdictions. For example, the Chinese government imposes controls on the
convertibility of the Renminbi (“RMB”) into foreign currencies and, in certain cases, the remittance of currency out
of China. Our revenue is partially derived from sales to consumers in China and earnings from our Chinese
operations, and substantially all of our revenue from such sales is denominated in RMB. Shortages in the availability
of foreign currency may restrict the ability of our Chinese operations to remit sufficient foreign currency to pay
dividends or to make other payments to us, or otherwise to satisfy their foreign currency-denominated obligations.
Under existing Chinese foreign exchange regulations, payments of current account items, including profit
distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies
without prior approval from China’s State Administration of Foreign Exchange (“SAFE”) by complying with certain
procedural requirements. However, for any Chinese company, dividends can be declared and paid only out of the
retained earnings of that company under Chinese law. Under Chinese laws, rules and regulations, each of our
subsidiaries incorporated in China is required to set aside at least 10% of its net income each year to fund certain
statutory reserves until the cumulative amount of such reserves reaches 50% of its registered capital. These reserves,
together with the registered capital, are not distributable as cash dividends. As a result of these laws, rules and
regulations, our subsidiaries incorporated in China are restricted in their ability to transfer a portion of their
respective net assets to their shareholders as dividends, loans or advances.
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Furthermore, approval from SAFE or its local branch is required where RMB are to be converted into
foreign currencies and remitted out of China to pay capital expenses, such as the repayment of loans denominated in
foreign currencies. Without a prior approval from SAFE, cash generated from our operations in China may not be
used to pay off debt in a currency other than the RMB owed by entities within China to entities outside China, or
make other capital expenditures outside China in a currency other than the RMB.
For us to receive dividends from our operations in China, repatriation of funds from China to the United
Kingdom will be required under our current structure. Insofar as such repatriation requires the prior approval of
SAFE or is deemed to not be in compliance with the authenticity and compliance requirements, we could be
delayed, restricted or limited in receiving dividends from our Chinese subsidiaries, which may limit our ability to
pay dividends to holders of the Class A ordinary shares or otherwise fund and conduct our business. Moreover, there
can be no assurance that the rules and regulations pursuant to which SAFE grants or denies such approval will not
change in a way that adversely affects our ability to receive dividends from our Chinese operations, which, in turn,
would restrict our ability to pay dividends to our shareholders or otherwise fund and conduct our business.
Application of existing tax laws, rules or regulations are subject to interpretation by taxing authorities.
The application of the tax laws of various jurisdictions to our international business activities is subject to
interpretation. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for
valuing developed technology or intercompany arrangements, including our transfer pricing, or determine that the
manner in which we operate our business does not result in the expected tax consequences, which could increase our
worldwide effective tax rate and adversely affect our financial position and results of operations.
Significant judgment and estimation is required in determining our worldwide tax liabilities. In the ordinary
course of our business, there are transactions and calculations, including intercompany transactions, royalty
payments and cross-jurisdictional transfer pricing, for which the ultimate tax determination is uncertain or otherwise
subject to interpretation. Tax authorities in any of the countries in which we operate may disagree with our
intercompany charges, including the amount of, or basis for, such charges, withholding taxes, cross-jurisdictional
transfer pricing, indirect tax liabilities and reclaims or other matters such as the allocation of certain interest
expenses and other tax items, and assess additional taxes.
As we operate in numerous taxing jurisdictions, the application of tax laws can be subject to diverging and
sometimes conflicting interpretations by tax authorities of these jurisdictions. It is not uncommon for taxing
authorities in different countries to have conflicting views, for instance, with respect to, among other things, whether
a permanent establishment exists in a particular jurisdiction, the manner in which the arm’s length standard is
applied for transfer pricing purposes, or with respect to the valuation of intellectual property. For example, if the
taxing authority in one country where we operate were to reallocate income from another country where we operate,
and the taxing authority in the second country did not agree with the reallocation asserted by the first country, we
could become subject to tax on the same income in both countries, resulting in double taxation. If taxing authorities
were to allocate income to a higher tax jurisdiction, subject our income to double taxation or assess interest and
penalties, it could increase our tax liability, which could adversely affect our financial position and results of
operations.
Although we believe our tax estimates and methodologies are reasonable, a taxing authority’s final
determination in the event of a tax audit could materially differ from our historical corporate income tax provisions
and accruals and/or, indirect tax and customs duty liabilities and claims in which case we may be subject to
additional tax liabilities, possibly including interest and penalties, which could have a material adverse effect on our
cash flows, results of operations, financial condition and prospects. Furthermore, taxing authorities have become
more aggressive in their interpretation and enforcement of such laws, rules and regulations over time, as
governments are increasingly focused on ways to increase revenues. This has contributed to an increase in audit
activity and harsher stances by tax authorities. As such, additional taxes or other assessments may be in excess of
our current tax reserves or may require us to modify our business practices to reduce our exposure to additional
taxes going forward, any of which may have a material adverse effect on our business, results of operations,
financial condition and prospects.
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Amendments to existing tax laws, rules or regulations or enactment of new unfavorable tax laws, rules or
regulations could have an adverse effect on our business and financial performance.
Many of the underlying laws, rules or regulations imposing taxes and other obligations were established
before the growth of the internet and e-commerce. Tax authorities in non-U.S. jurisdictions and at the U.S. federal,
state and local levels are currently reviewing the appropriate treatment of companies engaged in internet commerce
and considering changes to existing tax or other laws that could regulate our transmissions and/or levy sales,
income, consumption, use or other taxes relating to our activities, and/or impose obligations on us to collect such
taxes. For example, in 2019, the OECD launched a public consultation for taxing digital business on revenue
streams where there is a market presence including an online presence and, while these discussions are ongoing,
there are a number of jurisdictions (most notably Italy) where the provisions are already in force and other
jurisdictions have set dates for the provisions to be introduced. Based on the current law and information released by
the Italian tax authorities we expect Italian DST to apply to the group in 2020. Italian DST is levied at 3% of a
proportion of Farfetch’s marketplace revenue with that proportion being determined by the number of marketplace
transactions where either the buyer or the seller is located in Italy compared to the total number of marketplace
transactions. Such unilateral decisions have resulted in political debate and trading discussions that have led or could
lead to deferral, amendment or even withdrawal of the provisions implemented. At this stage we cannot accurately
predict the effect of current attempts to impose taxes on commerce over the internet. If such tax or other laws, rules
or regulations were amended, or if new unfavorable laws, rules or regulations were enacted, the results could
increase our tax payments or other obligations, prospectively or retrospectively, subject us to interest and penalties,
decrease the demand for our services if we pass on such costs to the consumer, result in increased costs to update or
expand our technical or administrative infrastructure or effectively limit the scope of our business activities if we
decided not to conduct business in particular jurisdictions. As a result, these changes may have a material adverse
effect on our business, results of operations, financial condition and prospects.
In addition, various governments and intergovernmental organizations could introduce proposals for tax
legislation, or adopt tax laws, particularly with regards to online marketplaces that may have a significant adverse
effect on our worldwide effective tax rate, or increase our tax liabilities, the carrying value of deferred tax assets, or
our deferred tax liabilities. For example, in October 2015, the Organization for Economic Co-Operation and
Development (“OECD”) released a final package of recommended tax measures for member nations to implement
in an effort to limit “base erosion and profit shifting” (“BEPS”) by multinational companies. Since then, the OECD
has continued to monitor key areas of action and issue additional reports and guidance on implementation of the
BEPS recommendations. Multiple jurisdictions, including some of the countries in which we operate, have
implemented recommended changes aimed at addressing perceived issues within their respective tax systems that
may lead to reduced tax liabilities among multinational companies. It is possible that other jurisdictions in which we
operate or do business could react to the BEPS initiative or their own concerns by enacting tax legislation that could
adversely affect us through increasing our tax liabilities.
In December 2017, the United States enacted significant changes to the U.S. tax system (informally titled the
“Tax Cuts and Jobs Act”). Among such significant changes, the Tax Cuts and Jobs Act reduced the marginal U.S.
corporate income tax rate from 35% to 21%, limited the deduction for net business interest expense, shifted the
United States toward a more territorial tax system, imposed a one-time tax on accumulated offshore earnings held in
cash and illiquid assets, and imposed new taxes to combat erosion of the U.S. federal income tax base. The Treasury
Department and the IRS have already issued and are expected to continue to provide guidance on the
implementation of the Tax Cuts and Jobs Acts. Based on our evaluation of the Tax Cuts and Jobs Act, we do not
expect these changes to have an adverse impact on our business, however, we cannot be certain that additional
guidance from the Treasury Department and the IRS or additional changes to other U.S. tax laws, rules or
regulations will not impact our business or results of operations in the future
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The application of value added tax (or similar taxes) and the impact of managing our business model
transition to a commissionaire structure could adversely affect our business and results of operations.
The application of value added tax (or similar taxes such as sales and use tax, provincial taxes, goods and
services tax), business tax and gross receipt tax, to our business and to our retailers and brands is a complex and
evolving issue. Significant judgment is required to evaluate applicable tax obligations. As a result amounts recorded
may be subject to adjustments by the relevant tax authorities. In many cases, the ultimate tax determination is
uncertain because it is not clear how new and existing statutes might apply to our business or to the businesses of
our retailers and brands. A number of jurisdictions globally have introduced (or are looking to introduce) additional
reporting, record-keeping or value added tax (or similar taxes) calculation, collection and remittance obligations on
businesses like ours that facilitate or perform e-commerce. Such requirements could require us or our retailers and
brands to incur substantial costs in order to comply, including costs associated with legal advice, local compliance,
tax calculation, collection, remittance and audit requirements, which could make selling in such markets less
attractive and could adversely affect our business.
For example, in certain jurisdictions, rules have already been introduced to hold the online facilitator of sales
of goods and services jointly and severally liable for the under or non-accounted value added tax (or similar taxes)
by the sellers. Such joint and several liability provisions will significantly impact our business where our retailers or
brands have not complied with the local provisions. In addition, new rules for retail and e-commerce sales are being
introduced, for example, across the EU from January 2021, online marketplaces will in certain situations (where
certain thresholds are met) be deemed for value added tax purposes to be the supplier of goods which will require
them to collect and pay VAT on sales via their platform. Further, in the U.S., states are able to tax their residents on
remote sales. Following the U.S. Supreme Court’s decision in 2018 in South Dakota v. Wayfair, a U.S. state may
require by way of ‘economic nexus laws’ an online retailer to collect sales taxes imposed by that state, even if the
retailer has no physical presence in that state, thus permitting a wider enforcement of such sales tax collection
requirements against non-U.S. companies that have historically not been responsible for state or local tax collection
unless they had physical presence in the U.S. customer’s state. We have historically operated under a “natural de-
coupling structure,” meaning that our business model currently involves a supply, which is the sale of goods to end
consumers, by our retailers and brands, and then a separate supply by us comprising the shipping of those goods to
the end consumers. However, the courts in the United Kingdom are currently considering the effectiveness of such a
structure from an indirect tax viewpoint and referrals were made to the European Court of Justice. The European
Commission also approved changes to the Principal VAT directive, to be effective from January 2021, expanding
the scope of distance selling. If this leads to a change in tax authorities’ approach or a change in interpretation of
current legislation, we could be assessed to additional amounts of value added tax.
Given the current complexities for online marketplaces, inconsistencies in interpretation and implementation
of local tax rules and the impact of non-recoverable VAT on returned goods, we are transitioning our business
model to one in which we will act as an “undisclosed agent” or “commissionaire” of our retailers and brands. Under
this model, for the purposes of calculating value added tax, our end consumers will contract with and be invoiced by
us and there will be a supply by us to the end consumer of goods and other related services, although the legal sale
of goods will continue to be between our retailers and brands and the end consumer. Such a transition is intended to
provide greater simplicity and certainty to our value added tax accounting position without materially increasing our
overall value added tax liabilities.
Our ability to achieve our business and financial objectives is subject to risks and uncertainties.
Implementing the new business model requires a considerable investment of technical, financial and legal resources.
If we are unable to successfully establish our new business model, our business, results of operations, financial
condition and prospects could be negatively impacted.
36
We may be subject to claims that items listed on our website, or their descriptions, are counterfeit,
infringing or illegal.
We occasionally receive communications alleging that items listed on our Marketplaces infringe third-party
copyrights, trademarks or other intellectual property rights. We have intellectual property complaint and take-down
procedures in place to address these communications. We follow these procedures to review complaints and relevant
facts to determine the appropriate action, which may include removal of the item from our website and, in certain
cases, discontinuing our relationship with a retailer, brand or other seller who repeatedly violates our policies.
However, our procedures may not effectively reduce or eliminate our liability. In particular, we may be subject to
civil or criminal liability for activities carried out, including products listed, by retailers or brands on our platform.
We may also face liability for infringements of third party intellectual property by virtue of our role as an e-
commerce marketplace where we actively contribute to the distribution of the goods of our brands and retailers. The
legal framework in this area is developing but it could mean a general increase in the scope of direct liability of
online platforms such as ours to the extent that we stock and deliver infringing goods of brands and retailers, even if
we do not have actual awareness of the infringing nature of the goods.
Regardless of the validity of any claims made against us, we may incur significant costs and efforts to defend
against or settle them and such claims could lead to negative publicity and damage to our reputation. If a
governmental authority determines that we have aided and abetted the infringement or sale of counterfeit goods, we
could face regulatory, civil or criminal penalties. For example, in China, listing untrue or inconsistent product
description or information, including the listing of counterfeit goods is considered as “false advertising” under PRC
Advertising Law, subject to an administrative fine up to RMB one million. Furthermore, consumers in China who
purchase items on our Marketplaces based on any alleged untrue or inconsistent product description or information
may bring a “fraud” claim against us, and should they be successful they would be entitles to three times the price of
the item as penalty compensation.
Successful claims by third-party rights owners could require us to pay substantial damages or refrain from
permitting any further listing of the relevant items. These types of claims could force us to modify our business
practices, which could lower our revenue, increase our costs or make our Marketplaces less user friendly. Moreover,
public perception that counterfeit or other unauthorized items are common on our Marketplaces, even if factually
incorrect, could result in negative publicity and damage to our reputation.
If our retailers and brands experience any recalls, product liability claims, or government, customer or
consumer concerns about product safety with respect to products sold on our Marketplaces, our
reputation and sales could be harmed.
Our retailers and brands, including the brands in the New Guards portfolio, are subject to regulation by the
U.S. Consumer Product Safety Commission and similar state and international regulatory authorities, and their
products sold on our platform could be subject to involuntary recalls and other actions by these authorities. Concerns
about product safety, including concerns about the safety of products manufactured in developing countries, could
lead our retailers and brands to recall selected products sold on our Marketplaces. Recalls and government, customer
or consumer concerns about product safety could harm our reputation and reduce sales, either of which could have a
material adverse effect on our business, results of operations, financial condition and prospects. If any New Guards
brand’s product becomes subject to a recall or government, customer or consumer safety concerns we could
experience an even more significant adverse effects or reputational harm, face product liability litigation and
governmental investigations and incur costs associated with any remediation actions.
Our global operations involve additional risks, and our exposure to these risks will increase as our
business continues to expand.
We operate in a number of jurisdictions and intend to continue to expand our global presence, including in
emerging markets. We face complex, dynamic and varied risk landscapes in the markets in which we operate. As we
enter countries and markets that are new to us, we must tailor our services and business model to the unique
circumstances of such countries and markets, which can be complex, difficult, costly and divert management and
personnel resources. In addition, we may face competition in other countries from companies that may have more
experience with operations in such countries or with global operations in general. Laws and business practices that
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favor local competitors or prohibit or limit foreign ownership of certain businesses or our failure to adapt our
practices, systems, processes and business models effectively to the consumer and supplier preferences of each
country into which we expand, could slow our growth. Certain markets in which we operate have, or certain new
markets in which we may operate in the future may have, lower margins than our more mature markets, which could
have a negative impact on our overall margins as our revenue from these markets grow over time.
In addition to the risks outlined elsewhere in this section, our global operations are subject to a number of
other risks, including:
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currency exchange restrictions or costs and exchange rate fluctuations;
exposure to local economic or political instability, threatened or actual acts of terrorism and security
concerns in general;
compliance with various laws and regulatory requirements relating to anti-corruption, antitrust or
competition, economic sanctions, data content, data protection and privacy, consumer protection,
employment and labor laws, health and safety, and advertising and promotions;
differences, inconsistent interpretations and changes in various laws and regulations, including
international, national, state and provincial and local tax laws;
weaker or uncertain enforcement of our contractual and intellectual property rights;
preferences by local populations for local providers;
slower adoption of the internet and mobile devices as advertising, broadcast and commerce mediums
and the lack of appropriate infrastructure to support widespread internet and mobile device usage in
those markets;
our ability to support new technologies, including mobile devices, that may be more prevalent in
certain global markets;
difficulties in attracting and retaining qualified employees in certain international markets, as well as
managing staffing and operations due to increased complexity, distance, time zones, language and
cultural and employment law differences; and
uncertainty regarding liability for services and content, including uncertainty as a result of local laws
and lack of precedent.
The United Kingdom’s proposed withdrawal from the European Union may have a negative effect on
global economic conditions, financial markets and our business.
We are a multinational company headquartered in the United Kingdom with worldwide operations, including
significant business operations in Europe. Following a national referendum and enactment of legislation by the
government of the United Kingdom (“Brexit”), the United Kingdom formally withdrew from the European Union
on January 31, 2020 and entered into a transition period during which it will continue its ongoing and complex
negotiations with the European Union relating to the future trading relationship between the parties. Significant
political and economic uncertainty remains about whether the terms of the relationship will differ materially from
the terms before withdrawal, as well as about the possibility that a so-called “no deal” separation will occur if
negotiations are not completed by the end of the transition period.
The withdrawal could lead to greater restrictions on the free movement of goods, services, people and
capital, and increased regulatory costs and complexities. Any such restrictions on the movement of goods and
services could have a material adverse effect on our operations. Increased complexities related to the import and
export of products, imposition of duties, transfers of personal data and changes in item pricing may impact customer
experience and have a material adverse effect on our business and results of operations. In addition, a possible
restriction on the free movement of people between the United Kingdom and the European Union could have a
material adverse effect on us, since we compete in these jurisdictions for well qualified employees in all aspects of
our business, including software engineers and other technology professionals. Any impact on our ability to attract
new employees and to retain existing employees in their current jurisdictions could decrease our competitiveness
and have a material adverse effect on our business and results of operations.
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These developments, the perception that any of them may occur and their potential consequences, have had
and may continue to have a material adverse effect on global economic conditions and the stability of global
financial markets and could significantly reduce global market liquidity and restrict the ability of key market
participants to operate in certain financial markets. Additionally, asset valuations, currency exchange rates and credit
ratings have been and may continue to be subject to increased market volatility. Lack of clarity about future UK
laws and regulations, including financial laws and regulations, tax and free trade agreements, immigration and
employment laws, could increase costs, depress economic activity, impair our ability to attract and retain qualified
personnel, divert management attention and have other adverse consequences. Any of these factors may have a
material adverse effect on our business, results of operations, financial condition and prospects.
We may be subject to general litigation, regulatory disputes and government inquiries.
As a growing company with expanding operations, we have in the past faced and may in the future
increasingly face the risk of claims, lawsuits, government investigations, and other proceedings involving
competition and antitrust, intellectual property, privacy, consumer protection, accessibility claims (including those
relating to our compliance with the Americans with Disabilities Act of 1990), securities, tax, labor and employment,
commercial disputes, services and other matters. The number and significance of these disputes and inquiries have
increased as the political and regulatory landscape changes, and as we have grown larger and expanded in scope and
geographic reach, and our services have increased in complexity. For example, in September 2019, following
periods of volatility in the market price of the Class A ordinary shares of Farfetch Limited, two putative class action
lawsuits were filed in the United States against us and certain of our directors and officers, among others, under the
U.S. federal securities laws. See Item 8. “Financial Information—A. Consolidated Statements and Other Financial
Information— Legal and Arbitration Proceedings.”
It is often challenging to predict the commencement or outcome of such disputes and inquiries with
certainty. Regardless of the outcome, these can have an adverse impact on us because of legal costs, diversion of
management resources, and other factors. Determining reserves for any litigation is a complex and fact-intensive
process that is subject to judgment calls. It is possible that a resolution of one or more such proceedings could
require us to make substantial payments to satisfy judgments, fines or penalties or to settle claims or proceedings,
any of which could harm our business. These proceedings could also result in reputational harm, criminal sanctions,
consent decrees or orders preventing us from offering certain products, or services, or requiring a change in our
business practices in costly ways or requiring development of non-infringing or otherwise altered products or
technologies. Litigation and other claims and regulatory proceedings against us could result in unexpected expenses
and liabilities, which could have a material adverse effect on our business, results of operations, financial condition
and prospects.
We are subject to regulatory activity and antitrust litigation under competition laws.
We are subject to scrutiny by various government agencies, including competition authorities. Some
jurisdictions also provide private rights of action for competitors or consumers to assert claims of anti-competitive
conduct. Other companies or government agencies have in the past and may in the future allege that our actions
violate the antitrust or competition laws of the European Commission or other countries or otherwise constitute
unfair competition. We do not control the pricing strategies of our retailers and brands (other than Browns, Stadium
Goods’ first-party sales and the New Guards portfolio of brands when sold direct-to-consumer via our
Marketplaces), and such pricing strategies may be subject to challenges from various government agencies including
competition authorities. An increasing number of governments are regulating competition law activities, including
increased scrutiny in large markets such as China. Our business partnerships or agreements or arrangements with
customers or other companies could give rise to regulatory action or antitrust litigation. In July 2017, Carré Couture,
a small European competitor, which was declared bankrupt in May 2018, filed a complaint with the European
Commission claiming that our retailer partnership agreements restrict competition because we ask retailers to
commit to the relationship and list their inventory with us and not on competing platforms. We have responded to
the allegations, and the complaint is pending. Complaints often remain open for a considerable period of time for
procedural reasons. The European Commission is under a legal obligation to assess complaints, and unless a
complaint is withdrawn, it must reject it by a formal decision where it takes the view that there are no grounds for
action. Due to this process, complaints often remain open for several years. Some regulators may perceive our
business to be used so broadly that otherwise uncontroversial business practices could be deemed anticompetitive.
Certain competition authorities have conducted market studies of our industries. Such claims and investigations,
even if without foundation, may be very expensive to defend, involve negative publicity and substantial diversion of
management time and effort and could result in significant judgments against us or require us to change our business
practices.
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Risks Relating to our Intellectual Property
Failure to adequately protect, maintain or enforce our intellectual property rights could substantially
harm our business and results of operations.
We rely on a combination of trademark, copyright, confidential information, trade secrets and patent law,
and contractual restrictions to protect our intellectual property. The protection offered by these has its limitations.
Despite our efforts to protect and enforce our proprietary rights, unauthorized parties have used, and may in the
future use, our trademarks or similar trademarks, including those of the brands in the New Guards portfolio, copy
aspects of our website images, features, compilation and functionality or obtain and use information that we
consider as proprietary, such as the technology used to operate our website or our content.
We do not have comprehensive registered protection for all of our brands, including the brands in the New
Guards portfolio, in all jurisdictions around the world. There is no guarantee that we will be the first to submit
trademark applications in all territories and/or classes for our brands and we have in the past experienced
professional “trademark squatters” actively registering our brands’ marks before we are able to in certain markets,
including China. We cannot guarantee that we will be able to preempt such bad faith actors doing this in the future,
and we may incur costs in challenging their marks or putting in place preventative measures. In addition, there is no
guarantee that our pending trademark applications for any brand will proceed to registration, and even those
trademarks that are registered could be challenged by a third party including by way of revocation or invalidity
actions. Our competitors have adopted, and other competitors may adopt, service names similar to ours, thereby
impeding our ability to build brand identity and possibly diluting our brand and leading to brand dilution or
consumer confusion. In addition, there could be potential trade name or trademark ownership or infringement claims
brought by owners of other rights, including registered trademarks, in our marks or marks similar to ours, including
FARFETCH, BROWNS, STADIUM GOODS and marks relating to brands in the New Guards portfolio. In
addition, we license, rather than own, certain intellectual property related to certain brands within the New Guards
portfolio, and we may not be aware of other third-party rights granted over such brands. Any claims of infringement,
brand dilution or consumer confusion related to our brands (including our trademarks) or any failure to renew key
license agreements on acceptable terms could damage our reputation and brand identity and substantially harm our
business and results of operations.
In addition to our registered trademark protection we have one issued patent in the United Kingdom. We also
have several published and unpublished patent applications in the United Kingdom, Europe and internationally, for
aspects of our proprietary technology and we may file further patent applications in the future. There is no guarantee
that these will result in issued patents, and even if these proceed to grant, they and our issued patent in the United
Kingdom could be vulnerable to challenge by third parties, or their claims could be narrowed in scope by the issuing
patent office such that they no longer adequately protect our proprietary technology. Further, we may decide not to
pursue a patent application for an innovation due to the high costs, diversion of management time, and publication
of the underlying innovation that arises from an application. The loss of our material intellectual property as a result
of any claims or challenges, or the natural expiry of our intellectual property registrations, could have a material
adverse effect on our business, results of operations, financial condition and prospects.
Domain names generally are regulated by internet regulatory bodies, and the regulation of domain names is
subject to change. Regulatory bodies have and may continue to establish additional top-level domains, appoint
additional domain name registrars or modify the requirements for holding domain names. We may not be able to, or
it may not be cost effective to, acquire or maintain all domain names that utilize the name “Farfetch” or other
business brands in all of the countries in which we currently conduct or intend to conduct business. If we lose the
ability to use a domain name, we could incur significant additional expenses to market our products within that
country, including the development of new branding. This could substantially harm our business, results of
operations, financial condition and prospects.
We rely on multiple software programmers (as employees or independent consultants) to design our
proprietary technologies and photographers (as employees or independent consultants) to capture the products sold
on our platform. Although we make every effort to ensure appropriate and comprehensive assignment or license
terms are included in the contracts with such third parties, we cannot guarantee that we own or are properly licensed
to use all of the intellectual property in such software or images. If we do not have, or lose our ability to use, such
software or images, we could incur significant additional expense to remove such assets from our platform or re-
engineer a portion of our technologies.
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Litigation or similar proceedings have been necessary in the past and may be necessary in the future to
protect, register and enforce our intellectual property rights, to protect our trade secrets and domain names and to
determine the validity and scope of the proprietary rights of others. Further, any changes in law or interpretation of
any such laws, particularly intellectual property laws, may impact our ability to protect, register or enforce our
intellectual property rights. Any litigation or adverse priority proceeding could result in substantial costs and
diversion of resources and could substantially harm our business, results of operations, financial condition and
prospects.
Assertions by third parties of infringement or misappropriation by us of their intellectual property rights
or confidential know how could result in significant costs and substantially harm our business and results
of operations.
Third parties have, and may in the future, assert that we have infringed or misappropriated their trademarks,
copyrights, confidential know how, trade secrets, patents or other intellectual property rights, and New Guards and
brands in its portfolio may be subject to similar claims. We cannot predict whether any such assertions or claims
arising from such assertions will substantially harm our business and results of operations, whether or not they are
successful. If we are forced to defend against any infringement or other claims relating to the trademarks, copyright,
confidential know how, trade secrets, patents or other intellectual property rights of third parties, whether they are
with or without merit or are determined in our favor, we may face costly litigation or diversion of technical and
management personnel. Furthermore, the outcome of a dispute may be that we would need to cease use of some
portion of our technology, develop non-infringing technology, pay damages, costs or monetary settlements or enter
into royalty or licensing agreements. Royalty or licensing agreements, if required, may be unavailable on terms
acceptable to us, or at all. Any such assertions or litigation could materially adversely affect our business, results of
operations, financial condition and prospects.
In 2008 and 2009, a party related to Farfetch founder José Neves (the “Related Party”) executed two
agreements (the “KH Licenses”) purporting to license certain know how (the “Know How”) from the Related Party
to two third-party LLPs (the “LLPs”). The Know How was a high level explanation of the Farfetch platform and
business model. The 2008 KH License expired in April 2018, and the 2009 KH License expired in April 2019. The
KH Licenses did not include a license of any software code. The LLPs granted intra-group sub-licenses of the
collective Know How under the KH Licenses, which was then further sub-licensed under two direct “Product and
Development and Marketing Support Agreements” with Farfetch in 2008 and 2009, respectively (the “Direct
Agreements”), in order for Farfetch to, among other services, develop the code, website architecture and brand that
comprised the original Farfetch offering (the “Developed IP”). Under the terms of the Direct Agreements, the third
party, rather than Farfetch, owned the Developed IP. In 2011, the licensing structure was amended and the intra-
group sub-licenses from the LLPs were superseded by licenses of the Know How granted by each of the LLPs to
Mr. Neves, who licensed such Know How (by way of a sub-sub-license) to Farfetch. Finally, in 2011, the Direct
Agreements were terminated, and the Developed IP was assigned from the third-party group to Farfetch. In 2013,
the Related Party executed a “Declaration regarding copyrights and intellectual property rights” (the “Declaration”),
which declared that, among other things, between the period November 16, 1996 to February 27, 2010, the Related
Party has not created any works or done anything which could originate intellectual property rights (defined to
include know how) in connection with any of the entities in the original license chain (including Farfetch); any
unknown intellectual property generated by the Related Party and used, licensed or in any other way exploited by
those entities (including Farfetch) is transferred in full to Mr. Neves; and the Related Party agrees that any
intellectual property in use by the above entities that were to become recognized by a court as belonging to the
Related Party shall be transferred to Mr. Neves for €500. On April 29, 2014, Mr. Neves assigned all of his
intellectual property rights and know how (including that obtained under the Declaration) to Farfetch.com. While
seemingly conclusive, it is possible that the Declaration could be challenged. Although we do not expect our right to
use the Know How to be successfully challenged, any such challenge could give rise to: (1) temporary injunctive
relief which could restrict the use of such Know How by Farfetch and therefore operations of our business; (2)
reputational damage; and/or (3) damages payable by Farfetch to the Related Party for any period of unauthorized use
of the Know How following expiry of the KH License(s), any of which could have a material adverse effect on our
business, results of operations, financial condition and prospects.
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Our use of open source software may pose particular risks to our proprietary software and systems.
We use open source software in our proprietary software and systems and will use open source software in
the future. The licenses applicable to our use of open source software may require that source code that is developed
using open source software be made available to the public and that any modifications or derivative works to certain
open source software continue to be licensed under open source licenses. From time to time, we may face claims
from third parties claiming infringement of their intellectual property rights, or demanding the release or license of
the open source software or derivative works that we developed using such software (which could include our
proprietary source code) or otherwise seeking to enforce the terms of the applicable open source license. These
claims could result in litigation and could require us to purchase a costly license, publicly release the affected
portions of our source code, be limited in or cease using the implicated software unless and until we can re-engineer
such software to avoid infringement or change the use of, or remove, the implicated open source software. In
addition to risks related to license requirements, use of certain open source software can lead to greater risks than
use of third-party commercial software, as open source licensors generally do not provide warranties, indemnities or
other contractual protections with respect to the software (for example, non-infringement or functionality). Our use
of open source software may also present additional security risks because the source code for open source software
is publicly available, which may make it easier for hackers and other third parties to determine how to breach our
website and systems that rely on open source software. Any of these risks could be difficult to eliminate or manage,
and, if not addressed, could have a material adverse effect on our business, results of operations, financial condition
and prospects.
Risks Relating to Our New Guards Business
New Guards may not be successful in discovering, promoting and sustaining the reputation of its brands.
New Guards is known for the brands in its portfolio, and the reputation of such brands relies on the quality
and exclusiveness of its products, their distribution networks, as well as the promotional and marketing strategies
applied. Products or marketing strategies not in line with brand image objectives, inappropriate behavior by brand
ambassadors, New Guards’ employees, distributors or suppliers, or detrimental information circulating in the media
may endanger the reputation of such brands and may adversely impact sales.
The growth of our New Guards business depends in part on our ability to discover, attract and acquire new
brands for its portfolio. Our ability to do so depends on our ability to identify the right designers, creatives and
brands with potential and offer them a compelling proposition, including attractive commercial terms to any
investors where New Guards acquires existing brands or their IP assets.
The majority of New Guards’ sales are from carefully selected third-party distributors. The reputation of
New Guards’ brands’ products thus rests in part on compliance by all distributors with such brands’ requirements in
terms of their approach to the handling and presentation of products, marketing and communications policies and
respecting brand image. New Guards’, or third-party distributors’, failure to provide consumers with high-quality
products and high-quality customer experiences for any reason could substantially harm the reputation of its brands,
which could have a material adverse effect on our business, results of operations, financial condition and prospects.
New Guards’ brands or products could be counterfeited or copied, which could have a material adverse
effect on its business.
New Guards’ brands, expertise and production methods could be counterfeited or copied. Its products may
be distributed in parallel retail networks, including online sales networks, without our consent.
Counterfeiting and parallel distribution have an immediate adverse effect on revenue and profit. Activities in
these or other illegitimate channels may damage the brand image of the relevant products over time and may also
lower consumer confidence, which could have a material adverse effect on our business, results of operations,
financial condition and prospects.
New Guards licenses, rather than owns, certain intellectual property related to certain brands within its
brand portfolio and it may not be successful in maintaining such intellectual property rights.
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New Guards licenses, rather than owns, certain intellectual property related to certain brands within its brand
portfolio, and such licenses generally include expiry dates and termination provisions. For example, New Guards’
license of the trademarks of the Off-White brand, which accounted for 75% of our Brand Platform GMV in the year
ended December 31, 2019, expires in 2035 and includes a right for either party to opt out of the agreement effective
as of January 1, 2026 subject to notice provisions. The agreement is also subject to standard termination rights
related to unremedied material breaches of the license agreement and insolvency events.
Any failure to maintain or renew key license agreements on acceptable terms could damage our reputation
and brand identity and could have a material adverse effect on our business, results of operations, financial condition
and prospects.
Our New Guards business is dependent on its production, inventory management and fulfilment processes
and systems, which could adversely affect its business if not successfully executed.
New Guards relies on various processes and systems for merchandise planning, inventory management,
procurement, allocation and fulfilment capabilities. If any such systems were to fail, we may not derive the expected
benefits to New Guards’ sales and profitability or may incur increased costs relative to our current expectations,
which could adversely affect our business, financial condition, results of operations and prospects. See Item 3D
“Risks Relating to our Business and Industry — The profitability of our Browns, Stadium Goods and New Guards
businesses depends on our ability to manage inventory levels and, if not managed successfully, our business and
results of operations could be adversely affected.”
Our New Guards business relies on contract manufacturing of its products. Our inability to
secure production sources meeting our quality, cost, working conditions and other requirements, or
failures by our contract manufacturers to perform, could harm our business and reputation.
In the year ended December 31, 2019, New Guards sourced all of its products from independent contract
manufacturers who purchase fabric and make its products and may also provide design and development services.
As a result, New Guards must locate and secure production capacity. We depend on contract manufacturers to
maintain adequate financial resources, including access to sufficient credit, secure a sufficient supply of raw
materials, and maintain sufficient development and manufacturing capacity in line with our asset light production
model and in an environment characterized by continuing cost pressure and demands for product innovation and
speed-to-market. In addition, we currently do not have any material long-term contracts with any of New Guards’
contract manufacturers. Significant difficulties or failures to perform by our contract manufacturers could cause
delays in product shipments or otherwise negatively affect our results of operations. As of December 31, 2019, New
Guards had contracts with seventy contract manufactures over five countries. Should we decide to consolidate our
production in the future we could incur additional costs doing so and increase our reliance on a smaller number of
contract manufacturers.
Using contract manufacturers means we incur certain costs. We are responsible for paying the customs
duties when shipping merchandise from its location of manufacture. Further, the prices we pay our contract
manufacturers for our products are dependent in part on the market price for raw materials used to produce them,
primarily wool and cotton. The price and availability of cotton or wool may fluctuate substantially depending on a
variety of factors, including demand, acreage devoted to cotton crops and crop yields, weather, supply conditions,
transportation costs, energy prices, work stoppages, government regulation and policy, economic climates, market
speculation and other unpredictable factors. Any and all of these factors may be exacerbated by global climate
change.
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A contract manufacturer's failure to ship products to us in a timely manner or to meet our quality standards,
or interference with our ability to receive shipments due to factors such as port or transportation conditions or
security incidents, could cause us to miss the delivery date requirements of our consumers on the Farfetch
Marketplace or our Brand Platform retail and wholesale customers. Failing to make timely deliveries may cause our
consumers or customers to cancel orders, refuse to accept deliveries, impose non-compliance charges, demand
reduced prices, or reduce future orders, any of which could harm our sales and margins. If we need to replace any
contract manufacturer, we may be unable to locate additional contract manufacturers on terms that are acceptable to
us, or at all, or we may be unable to locate additional contract manufacturers with sufficient capacity to meet our
requirements or to fill our orders in a timely manner.
We require contract manufacturers to meet our standards in terms of working conditions, environmental
protection, raw materials, facility safety, security and other matters before we are willing to place business with
them. As such, we may not be able to obtain the lowest-cost production. We may also encounter delays in
production and added costs as a result of the time it takes to train our contract manufacturers in our methods,
products and quality control standards. In addition, the labor and business practices of apparel manufacturers and
their suppliers have received increased attention from the media, non-governmental organizations, consumers and
governmental agencies in recent years. Failures by our contract manufacturers or their suppliers or subcontractors to
adhere to labor or other laws, appropriate labor or business practices, safety, structural or environmental standards,
and the potential litigation, negative publicity and political pressure relating to any of these events, could harm our
business and reputation.
Our New Guards business may be unable to maintain or increase sales through physical distribution
channels.
Revenue attributable to our Brand Platform change, which accounted for 16% of our total revenue in the
year ended December 31, 2019, is primarily derived from wholesale distribution of brands in the New Guards
portfolio to carefully selected third-party distributors. We may be unable to maintain or increase sales of New
Guards brands’ merchandise through these distribution channels for several reasons, including the following:
• We are unable to maintain the popularity of the brands in the New Guards portfolio or discover, attract
and acquire new popular brands;
•
•
the distributors may change their apparel strategies in a way that shifts focus away from luxury
streetwear and related categories or away from New Guards brands’ typical consumers; or
as other channels, including ecommerce sites (including the Farfetch Marketplace), account for an
increasing portion of consumers luxury fashion purchases, the distributors, including retailers, may
experience competitive pressure and decrease orders or experience financial difficulties or bankruptcy.
In addition, decisions we make with regard to our distribution strategy may impact our ability to retain or
gain new distributors. For example, we intend to reduce wholesale distribution of brands in the New Guards
portfolio and restrict the geographic distribution by other online retailers, as we move to favor our own direct-to-
consumer channels, which could impact our relationship with existing or future distributors.
If New Guards is unable to maintain or increase sales through its customary wholesale distribution channels
could have a material adverse effect on our business, results of operations, financial condition and prospects.
Risks Relating to Our Retail Stores
The operation of retail stores subjects us to numerous risks, some of which are beyond our control.
As of December 31, 2019, Browns operated two retail stores in London, Stadium Goods operated one retail
store in New York and New Guards operated two Off-White stores in Las Vegas and New York. Each of these
businesses expect to open new retail stores in 2020 – Brown’s new flagship store in London’s Mayfair, Stadium
Goods’ store in Chicago and new Off-White stores in Miami, Paris and London. In addition, New Guards has over
50 franchised retail stores across its various brands.
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The success of New Guards’ business is dependent on its ability to develop and execute its growth strategies,
which include the successful development, opening, franchising and operation of new retail stores for brands in the
New Guards portfolio. Successful execution of this strategy, and the success of the retail store operations across our
businesses more generally, depends upon a number of factors, including our ability (and in certain cases the ability
of the New Guards’ franchisees) to identify suitable sites for new stores, negotiate and execute leases on acceptable
terms, construct, furnish and supply a store in a timely and cost effective manner, accurately assess the demographic
or retail environment at a given location, hire and train qualified personnel, obtain necessary permits and zoning
approvals, integrate a new store distribution networks and build consumer awareness and loyalty. Construction,
development or refurbishment costs may exceed original estimates due to increases in materials, labor or other costs,
and we may experience permitting or construction delays, which may further increase project costs and delay
projected sales. These risks may be exacerbated to the extent the we engage third-party developers or contractors in
connection with such projects or are subject to approvals of regulatory bodies to complete the projects. As each new
store represents a significant investment of capital, time and other resources, delays or failures in opening new
stores, or achieving lower than expected sales in new stores, could materially and adversely affect our growth and
results of operations.
Furthermore, New Guards’ and Stadium Goods’ respective growth strategies may involve expansion into
additional geographical markets in the future. These markets may have different competitive conditions, consumer
trends and discretionary spending patterns than the markets in which it currently operates retail stores, which may
cause its operations in these markets to be less successful than operations in its existing markets.
Leasing real estate exposes us to possible liabilities and losses.
Our Browns, Stadium Goods and New Guards businesses lease retail properties including for existing and
under-development retail and consignment spaces. In connection with these properties, we are subject to all of the
risks associated with leasing real estate. In particular, the value of the assets could decrease, operating costs could
increase, or a store may not be opened as planned due to changes in the real estate market, demographic trends, site
competition, dependence on third-party performance or overall economic environment. Additionally, we are subject
to potential liability for environmental conditions, exit costs associated with disposal of a store, commitments to pay
base rent for the entire lease term or operate a store for the duration of an operating covenant. New Guards’
franchise business is subject to certain risks not directly within our control that could impair the value of our brands.
New Guards enters into franchise agreements with unaffiliated franchisees to operate Off-White stores in
Asia, the Middle East and Canada. Under these agreements, third parties operate, or will operate, stores that sell
apparel and related products under the Off-White brand name. New Guards may enter into similar agreements in
other countries or with regard to other brands in its portfolio in the future. The effect of these arrangements on New
Guards’ business and results of operations is uncertain and will depend upon various factors, including the demand
for these products in new markets internationally and New Guards’ ability to successfully identify appropriate third
parties to act as franchisees, distributors, or in a similar capacity. In addition, certain aspects of these arrangements
are not directly within New Guards’ control, such as franchisee financial stability and the ability of these third
parties to meet their projections regarding store locations, store openings, and sales. Other risks that may affect these
third parties include general economic conditions in specific countries or markets, foreign exchange rates, changes
in diplomatic and trade relationships, restrictions on the transfer of funds, and political instability. Moreover, while
the agreements we have entered into and plan to enter into in the future provide us with certain termination rights,
the value of the brands in the New Guards portfolio could be impaired to the extent that these third parties do not
operate their stores in a manner consistent with New Guards’ requirements regarding its brand identities and
customer experience standards. Failure to protect the value of New Guards’ brands, or any other harmful acts or
omissions by a franchisee, could have an adverse effect on our results of operations and our reputation.
Risks Relating to Ownership of our Class A Ordinary Shares
Our operating results and Class A ordinary share price may be volatile, and the market price of our
Class A ordinary shares may drop below the price you pay.
Our quarterly operating results are likely to fluctuate in the future in response to numerous factors, many of
which are beyond our control, including each of the factors set forth above.
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In addition, securities markets worldwide have experienced, and are likely to continue to experience,
significant price and volume fluctuations. This market volatility, as well as general economic, market or political
conditions, could subject the market price of our Class A ordinary shares to wide price fluctuations regardless of our
operating performance. Our operating results and the trading price of our Class A ordinary shares may fluctuate in
response to various factors, including the risks described above.
These and other factors, many of which are beyond our control, may cause our operating results and the
market price and demand for our Class A ordinary shares to fluctuate substantially. Fluctuations in our quarterly
operating results could limit or prevent investors from readily selling their Class A ordinary shares and may
otherwise negatively affect the market price and liquidity of Class A ordinary shares. In addition, in the past, when
the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action
litigation against the company that issued the shares. If any of our shareholders bring a lawsuit against us, we could
incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our
management from our business, which could significantly harm our profitability and reputation.
Our chief executive officer, José Neves, has considerable influence over important corporate matters due
to his ownership of us. Our dual-class voting structure will limit your ability to influence corporate
matters and could discourage others from pursuing any change of control transactions that holders of our
Class A ordinary shares may view as beneficial.
Our chief executive officer, Mr. Neves, has considerable influence over important corporate matters due to
his ownership of us. Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares.
Holders of Class A ordinary shares are entitled to one vote per share in respect of matters requiring the votes of
shareholders, while holders of Class B ordinary shares are entitled to 20 votes per share, subject to certain
exceptions. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder
thereof, while Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances.
Upon any transfer of Class B ordinary shares by a holder thereof to any person or other entity, other than an affiliate
of Mr. Neves, such Class B ordinary shares will be automatically and immediately converted into the equal number
of Class A ordinary shares. Due to the disparate voting powers associated with our two classes of ordinary shares,
Mr. Neves holds approximately 74.3% of the aggregate voting power of our company. As a result, Mr. Neves has
considerable influence over matters such as electing or removing directors, approving any amendments to our
Articles and approving material mergers, acquisitions or other business combination transactions. In addition, under
our Articles, our board of directors (“Board”) will not be able to form a quorum without Mr. Neves for so long as
Mr. Neves remains a director. This concentrated control will limit your ability to influence corporate matters and
could also discourage others from pursuing any potential merger, takeover or other change of control transactions,
which could have the effect of depriving the holders of our Class A ordinary shares of the opportunity to sell their
shares at a premium over the prevailing market price.
We qualify as a foreign private issuer and, as a result, we are not subject to U.S. proxy rules and are
subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent
than those of a U.S. domestic public company.
We report under the Exchange Act of 1934, as amended (“Exchange Act”) as a non-U.S. company with
foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act and although we
are subject to Cayman laws and regulations with regard to such matters and intend to furnish quarterly financial
information to the SEC, we are exempt from certain provisions of the Exchange Act that are applicable to U.S.
domestic public companies, including (1) the sections of the Exchange Act regulating the solicitation of proxies,
consents or authorizations in respect of a security registered under the Exchange Act, (2) the sections of the
Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for
insiders who profit from trades made in a short period of time and (3) the rules under the Exchange Act requiring the
filing with the U.S Securities Exchange Commission (the “SEC”) of quarterly reports on Form 10-Q containing
unaudited financial and other specified information, although we intend to provide selected quarterly information on
Form 6-K. In addition, foreign private issuers are not required to file their annual report on Form 20-F until 120 days
after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their
annual report on Form 10-K within 75 days after the end of each fiscal year and U.S. domestic issuers that are large
accelerated filers are required to file their annual report on Form 10-K within 60 days after the end of each fiscal
year. Foreign private issuers are also exempt from Regulation FD, which is intended to prevent issuers from making
selective disclosures of material information. As a result of all of the above, you may not have the same protections
afforded to shareholders of a company that is not a foreign private issuer.
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We may lose our foreign private issuer status in the future, which could result in significant additional
costs and expenses.
As discussed above, we are a foreign private issuer, and therefore, we are not required to comply with all of
the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private
issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter,
and, accordingly, the next determination will be made with respect to us on June 30, 2019. In the future, we would
lose our foreign private issuer status if (1) more than 50% of our outstanding voting securities are owned by U.S.
residents and (2) a majority of our directors or executive officers are U.S. citizens or residents, or we fail to meet
additional requirements necessary to avoid loss of foreign private issuer status. If we lose our foreign private issuer
status, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer
forms, which are more detailed and extensive than the forms available to a foreign private issuer. We will also have
to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders
will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act.
In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under
the listing rules of the New York Stock Exchange (“NYSE”). As a U.S. listed public company that is not a foreign
private issuer, we will incur significant additional legal, accounting and other expenses that we will not incur as a
foreign private issuer, and accounting, reporting and other expenses in order to maintain a listing on a U.S. securities
exchange. These expenses will relate to, among other things, the obligation to present our financial information in
accordance with U.S. GAAP in the future.
As we are a foreign private issuer and intend to follow certain home country corporate governance
practices, our shareholders may not have the same protections afforded to shareholders of companies that
are subject to all NYSE corporate governance requirements.
As a foreign private issuer, we have the option to follow certain home country corporate governance
practices rather than those of the NYSE, provided that we disclose the requirements we are not following and
describe the home country practices we are following, and we intend to rely on this “foreign private issuer
exemption” with regard to certain matters. Specifically, the NYSE rules require shareholder approval for equity
compensation plans and material revisions to those plans, which is not required under the Cayman Islands law. We
intend to follow home country law in determining whether shareholder approval is required. We may in the future
elect to follow home country practices with regard to other matters. As a result, our shareholders may not have the
same protections afforded to shareholders of companies that are subject to all NYSE corporate governance
requirements. See Item 16G. “Corporate Governance.”
As a public reporting company, we are subject to rules and regulations established from time to time by the
SEC regarding our internal control over financial reporting. If we fail to put in place appropriate and effective
internal control over financial reporting and disclosure controls and procedures, we may not be able to accurately
report our financial results, or report them in a timely manner, which may adversely affect investor confidence in us
and, as a result, the value of our Class A ordinary shares.
As a public company, we are required to report, among other things, control deficiencies that constitute a
“material weakness” or changes in internal controls that, or that are reasonably likely to, materially
affect internal controls over financial reporting. A “material weakness” is a deficiency, or a combination
of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that
a material misstatement of our annual or interim consolidated financial statements will not be prevented
or detected on a timely basis.
In our Annual Report on Form 20-F for the fiscal year ended December 31, 2018 (the “2018 Annual
Report”), we reported two material weaknesses in the design and operation of our internal control over financial
reporting that constituted material weaknesses. The control deficiencies resulted from (1) our technology access and
change control environment not supporting an efficient or effective internal control framework and (2) reliance on
manual processes. Whilst significant remediation work has been undertaken, these material weaknesses have not
been fully remediated, and we have concluded that material weaknesses existed as of December 31, 2019 related to
(1) the design and operation of effective controls over information technology systems, including restricting access
over those systems, setting up appropriate automated controls, managing system changes and the identification and
testing of system generated reports used in the execution of key manual controls; and (2) the design and operation of
effective controls over the ability of individuals to prepare and post journal entries without independent review. In
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addition, during the year ended December 31, 2019, we identified a further material weakness in connection with us
having insufficient personnel with an appropriate level of accounting knowledge, experience and training in order to
review, challenge and conclude on the interpretation of complex accounting matters and on the proposed treatment
of significant and unusual transactions.
Following the identification of these material weaknesses, we have taken steps to address these control
deficiencies and continue to implement our remediation plan, which we believe will address their underlying causes.
We are executing on our remediation plan for these material weaknesses by establishing more robust processes
supporting internal control over financial reporting, implementing formal access and change controls to our systems
and automation of a number of system interfaces to improve our information technology systems. In addition, we
have hired and will continue to hire additional accounting, finance and technology personnel. Despite the significant
remedial actions we have taken, further time and testing of these actions is necessary before our controls can be
determined effective and, therefore, we are unable to state that, as of December 31, 2019, we had effective
disclosure controls and procedures and effective internal control over financial reporting (each, as defined under the
SEC’s rules). See Item 15. “Controls and Procedures” for additional information of the identified material
weaknesses and our related remediation efforts.
If we are unable to remediate our material weaknesses or identify new material weaknesses, if we are unable
to implement and maintain effective internal control over financial reporting and effective disclosure controls and
procedures, or if we fail to satisfy other requirements as a public company, including the requirements of Section
404 of the Sarbanes-Oxley Act, we may be unable to accurately report our financial results, or report them within
the timeframes required by the SEC. The Sarbanes-Oxley Act requires us to evaluate and report on our internal
control over financial reporting and have our principal executive officer and principal financial officer certify as to
the accuracy and completeness of our financial reports.
As we continue to evaluate and work to improve our internal control over financial reporting, management
may determine to take additional measures, modify the remediation plan described above or identify additional
control deficiencies or material weaknesses. We cannot assure you that our remediation plan will be sufficient to
prevent future material weaknesses from occurring. There is no assurance that we will not identify additional
material weaknesses or deficiencies in our internal control over financial reporting in the future.
As our senior management is unable to conclude that we have effective internal control over financial
reporting or to certify the effectiveness of such controls, as our independent registered public accounting firm cannot
render an unqualified opinion on our internal control over financial reporting and, to the extent that, additional
material weaknesses or deficiencies in our internal controls are identified, we could be subject to sanctions or
investigations by the NYSE, the SEC or other regulatory authorities, investors may lose confidence in the accuracy
and completeness of our financial reports, we may face restricted access to the capital markets and our share price
may be adversely affected.
We will continue to incur increased costs as a result of operating as a public company, and our
management will be required to continue to devote substantial time to new compliance initiatives and
corporate governance practices.
As a public company we incur significant legal, accounting, insurance and other expenses . The Sarbanes
Oxley Act, the Dodd Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the NYSE
and other applicable securities rules and regulations impose various requirements on public companies, including
establishment and maintenance of effective disclosure and financial controls and corporate governance practices.
Our management and other personnel devote a substantial amount of time to ensure that we comply with all of these
reporting requirements, rules and regulations, and such requirements, rules and regulations increase our legal and
financial compliance costs and make certain activities more time consuming and costly. In addition, these laws, rules
and regulations also make it more difficult and more expensive for us to obtain certain types of insurance, including
director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage. These factors could also make it more difficult for
us to attract and retain qualified persons to serve on our Board of Directors, the committees of our Board of
Directors or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company,
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we could be subject to delisting of our common stock, fines, sanctions and other regulatory action and potentially
civil litigation.
Furthermore, as a publicly traded company, we are required to comply with the SEC’s rules implementing
Sections 302 and 404 of the Sarbanes Oxley Act, which require management to certify financial and other
information in our annual reports and provide an annual management report on the effectiveness of control over
financial reporting. We are required to disclose material changes in internal control over financial reporting on an
annual basis and are also required to complete an annual assessment of our internal control over financial reporting
pursuant to Section 404, and management’s report related to such assessment must be included in our annual reports
on Form 20-F. Additionally, we are required to include an attestation report on internal control over financial
reporting issued by our independent registered public accounting firm.
To achieve compliance with Section 404 and as part of our efforts to remediate the material weaknesses
identified, we have had to engage in a process to document and evaluate our internal control over financial
reporting, which has been both costly and challenging. In this regard, we have had to continue to dedicate internal
resources and adopt a detailed work plan to assess and document the adequacy of internal control over financial
reporting, continue steps to improve control processes as appropriate, validate through testing that controls are
functioning as documented and implement a continuous reporting and improvement process for internal control over
financial reporting. We continue to evaluate the adequacy of our accounting personnel staffing level and other
matters related to our internal control over financial reporting. If we are unable to remediate existing material
weaknesses and/or identify additional material weaknesses, it could result in an adverse reaction in the financial
markets due to a loss of confidence in the reliability of our consolidated financial statements. As a result, the market
price of our Class A ordinary shares could be negatively affected, and we could become subject to investigations by
the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require
additional financial and management resources.
We may not pay dividends on our Class A ordinary shares in the future and, consequently, your ability to
achieve a return on your investment will depend on the appreciation in the price of our Class A ordinary
shares.
We may not pay any cash dividends on our Class A ordinary shares in the future. Any decision to declare
and pay dividends in the future will be made at the discretion of our Board and will depend on, among other things,
our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our
Board may deem relevant. In addition, our ability to pay dividends is, and may be, limited by covenants of existing
and any future outstanding indebtedness we or our subsidiaries incur. Therefore, any return on investment in our
Class A ordinary shares is solely dependent upon the appreciation of the price of our Class A ordinary shares on the
open market, which may not occur. See Item 8. “Financial Information—A. Consolidated Statements and Other
Financial Information—Dividend Policy.”
Our shareholders may face difficulties in protecting their interests because we are a Cayman Islands
exempted company.
Our corporate affairs are governed by our Articles, the Companies Law and the common law of the Cayman
Islands. The rights of shareholders to take legal action against our directors and us, actions by minority shareholders
and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by
the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from judicial
precedent in the Cayman Islands as well as from English common law, which has persuasive, but not binding,
authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our
directors under the laws of the Cayman Islands are not as clearly defined as under statutes or judicial precedent in
existence in jurisdictions in the United States. Therefore, you may have more difficulty protecting your interests
than would shareholders of a corporation incorporated in a jurisdiction in the United States, due to the comparatively
less well-developed Cayman Islands law in this area.
A merger or consolidation may proceed under Cayman Islands law in one of two ways: by a
court-sanctioned scheme of arrangement or by a statutory merger: While Cayman Islands law allows a shareholder
objecting to a court-sanctioned scheme of arrangement to express a view that such scheme of arrangement would not
49
provide fair value for the shareholder’s shares, Cayman Islands statutory and common law in respect of schemes of
arrangement does not specifically provide for shareholder appraisal rights in connection with a merger or
consolidation effected by a scheme of arrangement of a company that has otherwise received the prescribed
shareholder approval. This may make it more difficult for you to assess the value of any consideration you may
receive in a merger or consolidation effected by a scheme of arrangement or to require that the acquirer gives you
additional consideration if you believe the consideration offered is insufficient. However, in the event of a merger or
consolidation consummated under the statutory merger regime, Cayman Islands law does provide a mechanism for a
dissenting shareholder to require us to apply to the Grand Court for a determination of the fair value of the
dissenter’s shares if it is not possible for the company and the dissenter to agree on a fair price within the time limits
prescribed.
Shareholders of Cayman Islands exempted companies, such as ours, have no general rights under Cayman
Islands law to inspect corporate records and accounts or to obtain copies of lists of shareholders. Our directors have
discretion under our Articles to determine whether or not, and under what conditions, our corporate records may be
inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it
more difficult for you to obtain information needed to establish any facts necessary for a shareholder motion or to
solicit proxies from other shareholders in connection with a proxy contest.
It should be noted that the Cayman Islands law has no legislation specifically dedicated to the rights of
investors in securities, and thus no statutorily defined private causes of action to investors in securities such as those
found under the Securities Act or the Exchange Act in the United States. Subject to limited exceptions, under
Cayman Islands law, a shareholder may not bring a derivative action against the board of directors. Class actions are
not recognized in the Cayman Islands, but groups of shareholders with identical interests may bring representative
proceedings, which are similar.
As a result of all of the above, our public shareholders may have more difficulty in protecting their interests
in the face of actions taken by our management or members of our Board than they would as public shareholders of
a company incorporated in the United States.
Anti-takeover provisions in our organizational documents may discourage or prevent a change of control,
even if an acquisition would be beneficial to our shareholders, which could depress the price of our
Class A ordinary shares and prevent attempts by our shareholders to replace or remove our current
management.
Our Articles contain provisions that may discourage unsolicited takeover proposals that shareholders may
consider to be in their best interests. Our Board may be removed by an ordinary resolution of our shareholders. In
addition, Board vacancies may be filled by an affirmative vote of the remaining Board members. Following the
conversion of the Class B ordinary shares the directors shall be divided into three classes designated as Class I,
Class II and Class III, respectively as determined by the chairman of our Board at the relevant time, and directors
will generally be elected to serve staggered three year terms. These provisions may make it more difficult to remove
management.
Our Board has the ability to designate the terms of and issue preferred shares without shareholder approval.
Our Articles contain a prohibition on business combinations with any “interested” shareholder for a period of
three years after such person becomes an interested shareholder unless (1) there is advance approval of our Board,
(2) the interested shareholder owns at least 85% of our voting shares at the time the business combination
commences or (3) the combination is approved by shareholders holding at least two-thirds of the votes attaching to
the ordinary shares that are not held by the interested shareholder.
Taken together, these provisions may discourage transactions that otherwise could involve payment of a
premium over prevailing market prices for our Class A ordinary shares.
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There may be difficulties in enforcing foreign judgments against us, our directors or our management, as
well as against the selling shareholders.
Certain of our directors and management and certain of the other parties named in this annual report reside
outside the United States. Most of our assets and such persons’ assets are located outside the United States. As a
result, it may be difficult or impossible for investors to effect service of process upon us within the United States or
other jurisdictions, including judgments predicated upon the civil liability provisions of the U.S. federal securities
laws.
In particular, investors should be aware that there is uncertainty as to whether the courts of the Cayman
Islands or any other applicable jurisdictions would recognize and enforce judgments of U.S. courts obtained against
us or our directors or our management as well as against the selling shareholders predicated upon the civil liability
provisions of the securities laws of the United States, or any state in the United States or entertain original actions
brought in the Cayman Islands or any other applicable jurisdictions courts against us, our directors or our
management, as well as against the selling shareholders predicated upon the securities laws of the United States or
any state in the United States.
Farfetch Limited is a holding company with no operations of its own and, as such, it depends on its
subsidiaries for cash to fund its operations and expenses, including future dividend payments, if any.
As a holding company, our principal source of cash flow will be distributions or payments from our
operating subsidiaries. Therefore, our ability to fund and conduct our business, service our debt and pay dividends, if
any, in the future will depend on the ability of our subsidiaries and intermediate holding companies to make
upstream cash distributions or payments to us, which may be impacted, for example, by their ability to generate
sufficient cash flow or limitations on the ability to repatriate funds whether as a result of currency liquidity
restrictions, monetary or exchange controls or otherwise. Our operating subsidiaries and intermediate holding
companies are separate legal entities, and although they are directly or indirectly wholly owned and controlled by us,
they have no obligation to make any funds available to us, whether in the form of loans, dividends or otherwise. To
the extent the ability of any of our subsidiaries to distribute dividends or other payments to us is limited in any way,
our ability to fund and conduct our business, service our debt and pay dividends, if any, could be harmed.
If securities or industry analysts do not publish or cease publishing research or reports about us, our
business or our market, or if they change their recommendations regarding our Class A ordinary shares
adversely, our share price and trading volume of our Class A ordinary shares could decline.
The trading market for our Class A ordinary shares is influenced by the research and reports that industry or
securities analysts publish about us, our business, our market or our competitors. If any of the securities or industry
analysts who cover us or may cover us in the future change their recommendation regarding our Class A ordinary
shares adversely, or provide more favorable relative recommendations about our competitors, the price of our
Class A ordinary shares would likely decline. If any securities or industry analyst who covers us or may cover us in
the future were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the
financial markets, which in turn could cause our share price or trading volume of our Class A ordinary shares to
decline.
We may be treated as a passive foreign investment company, which could result in material adverse tax
consequences for investors in the Class A ordinary shares subject to U.S. federal income tax.
We would be classified as a passive foreign investment company (“PFIC”) for any taxable year if, after the
application of certain look-through rules, either: (1) 75% or more of our gross income for such year is “passive
income” as defined in the relevant provisions of the Internal Revenue Code of 1986, as amended (the “Code”), or (2)
50% or more of the value of our assets, determined on the basis of a quarterly average, during such year is
attributable to assets that produce or are held for the production of passive income. Based on the currently
anticipated market capitalization, and composition of our income, assets and operations, we do not expect to be
treated as a PFIC for the taxable year that ended on December 31, 2019, or in the foreseeable future. However, our
status as a PFIC in any taxable year requires a factual determination that depends on, among other things, the
composition of our income, assets, and activities in each year, and can only be made annually after the close of each
51
taxable year. Therefore, there can be no assurance that we will not be classified as a PFIC for the current taxable
year or for any future taxable year. If we are treated as a PFIC for any taxable year during which a U.S. Holder (as
defined in “U.S. Federal Income Tax Considerations”) holds the Class A ordinary shares, the U.S. Holder may be
subject to material adverse tax consequences upon a sale, exchange, or other disposition of the Class A ordinary
shares, or upon the receipt of distributions in respect of the Class A ordinary shares. We cannot provide any
assurances that we will assist investors in determining whether we or any of our non-U.S. subsidiaries are a PFIC for
any taxable year. U.S. Holders should consult their tax advisors about the potential application of the PFIC rules to
their investment in the Class A ordinary shares. For further discussion, see Item 10. “Additional Information—E.
Taxation—U.S. Federal Income Tax Considerations.”
If a U.S. person is treated as owning at least 10% of our shares, such holder may be subject to adverse
U.S. federal income tax consequences.
Depending upon the aggregate value and voting power of our shares that U.S. persons are treated as owning
(directly, indirectly, or constructively), we could be treated as a controlled foreign corporation (“CFC”).
Additionally, because our group consists of one or more U.S. subsidiaries, certain of our non-U.S. subsidiaries could
be treated as CFCs, regardless of whether or not we are treated as a CFC (although there is currently a pending
legislative proposal to significantly limit the application of these rules). If a U.S. person is treated as owning
(directly, indirectly or constructively) at least 10% of the value or voting power of our shares, such person may be
treated as a “U.S. shareholder” with respect to each CFC in our group (if any), which may subject such person to
adverse U.S. federal income tax consequences. Specifically, a U.S. shareholder of a CFC may be required to
annually report and include in its U.S. taxable income its pro rata share of each CFC’s “Subpart F income,” “global
intangible low-taxed income” and investments in U.S. property, whether or not we make any distributions of profits
or income of a CFC to such U.S. shareholder. If you are treated as a U.S. shareholder of a CFC, failure to comply
with these reporting obligations may subject you to significant monetary penalties and may prevent the statute of
limitations with respect to your U.S. federal income tax return for the year for which reporting was due from
starting. Additionally, a U.S. shareholder that is an individual would generally be denied certain tax deductions or
indirect foreign tax credits that may otherwise be allowable to a U.S. shareholder that is a U.S. corporation. We
cannot provide any assurances that we will assist investors in determining whether we or any of our non-U.S.
subsidiaries are treated as CFCs or whether any investor is treated as a U.S. shareholder with respect to any of such
CFC, nor do we expect to furnish to any U.S. shareholders information that may be necessary to comply with the
aforementioned reporting and tax paying obligations. The United States Internal Revenue Service provided limited
guidance on situations in which investors may rely on publicly available alternative information to comply with their
reporting and tax paying obligations with respect to foreign-controlled CFCs. U.S. investors should consult their
advisors regarding the potential application of these rules to their investment in the Class A ordinary shares.
Risks Related to Our Indebtedness
Our indebtedness could adversely affect our financial health and competitive position.
Our indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in
respect of our indebtedness. It could also have effects on our business. For example, it could:
•
•
•
•
•
limit our ability to pay dividends;
increase our vulnerability to general adverse economic and industry conditions;
require us to dedicate a material portion of our cash flow from operations to make payments on
our indebtedness, thereby reducing the availability of our cash flow for working capital, capital
expenditures and other general corporate purposes;
limit our flexibility in planning for, or reacting to, changes in our business and the fashion
industry; and
limit our ability to borrow additional funds.
The indenture governing the $250 million in convertible senior notes we issued in February 2020 (the
“Indenture”) contains, and any agreements evidencing or governing other future indebtedness may contain, certain
52
restrictive covenants that will limit our ability to engage in certain activities that are in our long-term best interest.
For example, the Indenture limits our ability to incur additional indebtedness. We have not previously breached and
are not in breach of any of the covenants under the Indenture; however our failure to comply with covenants in the
Indenture or in agreements governing any future indebtedness could result in an event of default which, if not cured
or waived, could result in the acceleration of all of our indebtedness.
To service our indebtedness, we require cash, and our ability to generate cash is subject to many factors
beyond our control.
Our ability to make payments on and to refinance our existing and any future indebtedness, including the
Notes, and to fund planned capital expenditures will depend on our ability to generate cash in the future. This is
subject, to a certain extent, general economic, financial, competitive, regulatory and other factors that are beyond
our control.
We cannot assure you that our business will generate sufficient cash flow from operations or that future
borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other
liquidity needs. We may need to refinance all or a portion of our indebtedness on or before maturity, and we cannot
assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.
Failure to refinance our indebtedness on terms we believe to be acceptable could have a material adverse effect on
our business, financial condition, results of operations and cash flow.
Item 4. Information on the Company
A. History and Development of the Company
Corporate Information
We were incorporated as Farfetch Limited in the Cayman Islands on May 15, 2018 as an exempted company
with limited liability under the Companies Law. Exempted companies are Cayman Islands companies whose
operations are conducted mainly outside the Cayman Islands. Our principal executive offices are located at The
Bower, 211 Old Street, London EC1V 9NR, United Kingdom. Our telephone number at this address is +44 (0) 20
7549 5900. Prior to our incorporation in the Cayman Islands, we conducted our business through Farfetch.com
Limited, incorporated with limited liability under the laws of the Isle of Man with registered number 000657V, and
its subsidiaries.
For a discussion of our principal capital expenditures, see Item 5. “Operating and Financial Review and
Prospects — B. Liquidity and Capital Resources,” Item 4. “Information on the Company — D. Property, Plant and
Equipment” and Note 16 to our audited consolidated financial statements included elsewhere in this Annual Report.
Our agent for service of process in the United States is CT Corporation, whose address is 111 Eighth
Avenue, New York, New York 10011.
The SEC maintains an Internet site that contains reports, proxy and information statements, and other
information regarding issuers, such as the Company, that file electronically, with the SEC at www.sec.gov. Our
website address is www.farfetchinvestors.com. The information contained on our website is not incorporated by
reference in this document.
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Acquisition of Stadium Goods
In January 2019, we completed the acquisition of 100% of the outstanding equity interests of Stadium
Enterprises LLC, which does business as “Stadium Goods”, a premium sneaker and streetwear marketplace, for the
total consideration of $230.9 million. The consideration was split as $150.2 million of cash and 4.6 million Class A
Ordinary Shares with a value of $80.7 million based on the Farfetch share price at the acquisition date. See Note 5
(“Business combinations”) to our audited consolidated financial statements included elsewhere in this Annual
Report.
Acquisition of New Guards
In August 2019, we completed the acquisition of 100% of the outstanding shares of New Guards Group
Holding S.p.A, for the total consideration of $704.1 million. New Guards Group Holding S.p.A, is a platform that
uses a single common infrastructure model to incubate and grow emerging talent into highly sought-after brands to
our Group. New Guards is the parent company of subsidiaries that either own or are the exclusive licensee of global
luxury fashion brands, including Off-White, Heron Preston and Palm Angels. The consideration was split between
cash and Farfetch shares. Net of $102.8 million of acquired cash, total consideration included $256.1 million of cash
consideration and 27.5 million Class A Ordinary Shares with a value of $345.2 million based on the Farfetch share
price at the acquisition date. Purchase price allocations are expected to be completed in the first half of 2020,
following customary adjustments.
Segment Change
Following the acquisition of New Guards, in the fourth quarter of 2019, management determined that it had
three operating segments: (i) Digital Platform, (ii) Brand Platform and (iii) In-Store, given our new organizational
structure and the manner in which our business is reviewed and managed. In fourth quarter 2019, we realigned our
reportable operating segments to reflect how our Chief Operating Decision-Maker was making operating decisions,
allocating resources and evaluating operating performance. See “Operating Results by Segment” and Note 6
(“Segmental and geographical information”) to our audited consolidated financial statements included elsewhere in
this Annual Report for additional information about these segments.
B. Business Overview
Our Mission
Farfetch exists for the love of fashion. We believe in empowering individuality. Our mission is to be the
global platform for luxury fashion, connecting creators, curators and consumers.
Overview
Farfetch is the leading global platform for the luxury fashion industry.
Founded in 2007 by José Neves and launched in 2008, we began as an e-commerce marketplace for luxury
boutiques around the world. With $2,140 million of GMV and over 2 million Active Consumers for the year ended
December 31, 2019, Farfetch is the largest digital in-season luxury player in the industry. Farfetch’s businesses
include:
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The Farfetch Marketplace - the only global luxury marketplace at scale connecting, as of December
31, 2019, consumers in 190 countries with merchandise in over 50 countries from over 1,200 brands,
boutiques and department stores from all over the world, delivering a unique shopping experience and
access to the most extensive selection of luxury at a single destination.
Farfetch Platform Solutions (FPS) – our white-label enterprise offering to the luxury industry, which
builds and operates e-commerce and technology solutions for luxury brands and retailers, utilizing the
proprietary Farfetch platform.
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Farfetch Store of the Future - our retail innovation arm, which develops and implements technology
solutions to support the retail vision of brands and retailers in order to create new luxury experiences
by seamlessly connecting the digital and physical with the customer at the center.
Browns - an iconic British fashion and luxury goods retailer.
Stadium Goods - a premium sneaker and streetwear marketplace connecting sneakerheads around the
world with merchandise from consigners.
New Guards – a platform that uses a single common infrastructure and model to incubate and grow
emerging talent into highly sought-after brands. New Guards designs, manufactures and distributes
sought-after luxury fashion brands including Off-White, Heron Preston, Palm Angels and Marcelo
Burlon, among others.
We organize and report our business in three reportable operating segments: Digital Platform, Brand
Platform and In-Store.
The Digital Platform segment activities include the Farfetch Marketplace, FPS, BrownsFashion.com,
StadiumGoods.com, Farfetch Store of the Future, and any other online sales channel operated by the Group,
including the respective websites of the brands in the New Guards portfolio. It derives its revenues mostly from
transactions between sellers and consumers or customers conducted on our dematerialized platforms, and primarily
operates a revenue share model where we retain commissions and related income from these transactions. The
Digital Platform also includes direct-to-consumer sales of first-party and first-party own-inventory through Farfetch
Marketplace, where we retains the full GMV.
The Brand Platform segment is comprised of design, production, brand development and wholesale
distribution of brands owned and licensed by New Guards and includes franchised store operations.
The In-Store segment covers the activities of Group-operated stores including Browns, Stadium Goods and
certain brands in the New Guards portfolio. Revenues are derived from sales made in these physical stores.
The Farfetch Group
Farfetch operates an omni-channel approach across the digital and physical realms to serve our mission to
connect the world’s creators, curators and consumers, as the leading global platform for the luxury fashion industry.
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A good example of our omni-channel approach in practice is Browns, an iconic British fashion and luxury
goods retailer, acquired by Farfetch in 2015. Ownership of Browns has enabled us to understand the fashion
ecosystem through the lens of a boutique. Browns leverages our digital platform applications by selling through the
Farfetch Marketplace, the Browns website and the iOS apps (launched in 2019), which are powered and operated by
FPS. Browns also serves as an incubation space for Farfetch Store of the Future, testing and showcasing innovative
solutions to meet the needs of the multichannel, luxury consumer.
Our business has grown significantly, as evidenced by the following:
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As of December 31, 2019, we had 2,068,000 Active Consumers, up 50% since December 31, 2018. As
of December 31, 2018, we had 1,382,000, up 48% since December 31, 2017.
Our GMV for 2019 was $2,140 million, up 52% over 2018, and was $1,408 million in 2018, up 55%
from 2017.
Our revenue for 2019 was $1,021 million, up 69% from 2018, and was $602 million in 2018, up 56%
over 2017.
Our Digital Platform Services Revenue for 2019 was $701 million, up 43% over 2018, and was $489
million in 2018, up 65% over 2017.
For geographical and segmental revenue, see Note 6 of our audited consolidated financial statements.
See Item 5. “Operating and Financial Review and Prospects” for a description of the periods inclusive of
New Guards’ GMV and revenue.
Seasonality
Our business is seasonal in nature. Historically, our business has realized a disproportionate share of our
revenue for the year in the fourth quarter, attributable primarily to the impact of the year-end holiday season and
seasonal promotions. Our Brand Platform segment has historically seen higher levels of sales in January, May and
July.
In 2019, our revenues in the first, second, third and fourth quarters represented 17%, 20%, 25% and 38%,
respectively, of our total revenues for the year. In 2018, our revenues in the first, second, third and fourth quarters
represented 21%, 24%, 22% and 33%, respectively, of our total revenues for the year.
As a result of these factors, our financial results for any single quarter or for periods of less than a year are
not necessarily indicative of the results that may be achieved for a full fiscal year.
Our Strengths
We believe that the following strengths contribute to our success and are differentiating factors:
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Visionary, founder led management team. We are led by our founder, José Neves, who has a
unique combination of knowledge of, and passion for, the fashion industry and a deep understanding
of technology. Our management team’s clear sense of mission, long term focus, commitment to our
core cultural values and focus on transforming the luxury fashion industry through technology, and
how it serves the consumer, are central to our success.
Scalable proprietary technology. We have built scalable proprietary technology, which enables us to
grow the reach of our platform efficiently, while supporting the creation and development of new
applications. This benefits both the sophistication of the applications we develop, as well as the speed
with which we are able to deploy them and our ability to innovate. Our digital platform is built for
multi-tenancy and multi-client use. This allows the same infrastructure and services architecture to
support each of our Marketplaces, FPS and Farfetch Store of the Future. Our digital platform’s internal
services have a modular design, allowing us to evolve individual system boundaries independently or
replace components via integration with external modules.
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Unique data capabilities. Our business model allows us to collate large volumes of unique data from
touch points throughout the luxury fashion ecosystem. We believe this gives us multi-dimensional
insight into the entire luxury ecosystem. Our team of data scientists and specialist engineers utilize the
data to feed our proprietary algorithms to enhance our digital platform and inform decision making in
relation to New Guards, including production.
Established partner relationships. We are the partner of choice for many of the world’s leading
brands, boutiques and department stores. These relationships cannot easily be replicated and represent
a high barrier to entry. As of December 31, 2019, we had more than 1,200 partners including over 700
of the world’s leading luxury retailers and just over 500 brands. These relationships enable us to give
our consumers access to the widest selection, including unique and scarce inventory, as well as depth
of supply. Our relationships in the luxury industry go beyond our Marketplaces and FPS, including, for
example, our multi-year global innovation partnership with CHANEL, with whom we are piloting our
Farfetch Store of the Future solutions. As at December 31, 2019, we had retained all of the top 100
brands and retailers we had as of December 31, 2018.
The world’s largest selection of luxury with minimal inventory risk. We operate the only luxury
digital marketplace at scale. We believe we offer seven times more stock keeping units than the next
largest competitor to the Farfetch Marketplace. We achieve this by aggregating supply from a large
number of globally distributed sources, offering consumers both breadth and depth of luxury
merchandise whilst, through our marketplace model, having minimal inventory risk.
Fully integrated supply chain operations. We offer comprehensive supply chain capabilities to our
digital platform partners, from content creation to access to our global fulfilment network, which
integrate delivery partners in the 190 countries we serve in a single, efficient interface. Luxury fashion
inventory is located across a highly fragmented network of luxury sellers. Our fulfilment network is
based on a distributed inventory model, aggregating inventory from multiple stock points of our luxury
sellers in real time, giving us the capability to deliver shipments to consumers quickly and efficiently,
due to the proximity of the inventory to the consumer. We have invested significant resources in
building and developing this network, and this has created a significant competitive advantage and
economies of scale.
Our marketplace business model. Our marketplace model allows us to offer the broadest selection
of luxury fashion available online, while incurring minimal inventory risk and without capital intensive
retail operations. We believe the Farfetch Marketplace strategically aligns us with our luxury brand
partners by offering them the advantages of a direct-to-consumer e-concession model, including full
control over merchandising and pricing, as well as higher margins compared to wholesale distribution.
This allows for low capital expenditures, favorable working capital dynamics, minimal inventory
holding and an ability to drive stronger future margins than traditional inventory taking business
models.
Powerful network effects. Interactions among our consumers and luxury sellers on the Farfetch
Marketplace generate strong network effects. More brands, boutiques and department stores on the
Farfetch Marketplace increases the choices available to consumers, and more consumers on the
Farfetch Marketplace increases the potential sales for our luxury sellers through a self-reinforcing,
mutually beneficial network effect. We expect our acquisition of New Guards to further amplify this
network effect, as it gives us the ability to offer the broadest selection of, and exclusive access to,
merchandise from the New Guards portfolio of brands.
Culture of innovation. Innovation is intrinsic to Farfetch. For more than a decade, we have redefined
how the luxury fashion industry engages with consumers and technology. We believe that technology
will continue to enable a better luxury ecosystem, and we intend to continue to pioneer innovation, for
example by executing our vision for Augmented Retail, including Farfetch Store of the Future. In
addition, our open architecture allows other innovators to build on our digital platform and we actively
work with start-ups that are developing solutions for the future of e-commerce through our Dream
Assembly accelerator program. As a result of our investment and reputation, we expect that third
parties will continue to seek out Farfetch as their innovation partner, providing us with further
opportunity to extend our platform. For example, our Farfetch Store of the Future pilot is now live in
CHANEL’s flagship boutique at 19 rue Cambon, Paris.
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New Guards’ platform proposition. New Guards incubates and grows emerging talent into highly
sought-after brands (including Off-White, Heron Preston and Palm Angels, among others) and
provides us the ability to enhance the Farfetch Marketplace by offering exclusive access to
merchandise from the New Guards portfolio of brands. New Guards operates as a platform, using a
single common infrastructure and asset-light shared services model to procure manufacturing
resources based on demand. Quantities are produced to-order, and as a consequence, New Guards is
inventory-light.
Our Growth Strategies
The key elements of our growth strategies include:
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Building the Farfetch brand. While we have established a significant position in the fashion
industry, we believe we have an opportunity to further increase market share by growing our brand
awareness. We believe that with continued investment in brand marketing, data led insights and
effective consumer targeting, we can expand and strengthen our reach. We are building a unique brand
with strong cultural relevance by focusing our messaging on our “only on Farfetch” proposition while
also providing our consumer with the most widely available range. This is reinforced by our
acquisitions of Stadium Goods and New Guards which further enable us to offer the broadest selection
of luxury brands and most sought after product together with exclusive access to merchandise from the
New Guards portfolio of existing, and any new, brands.
•
Improving consumer economics and growing the Farfetch Marketplace consumer base
Increasing the lifetime value of existing consumers. We have cultivated our consumer base and have
strong consumer loyalty. We are committed to ensuring that through our curated supply, as well as our
comprehensive approach to data and analytics, we are able to offer our existing consumers the
merchandise that they want. We will seek to continue to refine our approach to data analytics, allowing
us to further optimize and improve our marketing approach and customer experience, with the
objective that existing consumers visit the Farfetch Marketplace more often, convert more efficiently
and have higher Average Order Values. Our strategy also includes optimizing our private client
offering.
Attracting new consumers. We are focused on growing our consumer base in all markets, with a
particular emphasis on emerging markets including China, the Middle East, Latin America and Eastern
Europe. Our expansion strategy includes offering consumers global access to luxury merchandise that
is tailored to local market trends and tastes, along with localized interfaces. For example, the rapidly
growing luxury industry in China represents a major opportunity for us, and we have invested in
people and technology locally to support growth. We are one of the very few Western e-commerce
companies which has demonstrated success in penetrating China, an important and growing market for
luxury, whose consumer base, according to Bain, is expected to grow to represent 45% of luxury sales
by 2025. We have local operations in China, including customer service, localized website and apps,
local servers and locally managed WeChat stores and WeChat Mini Programs, and have implemented
an effective cross-border solution which includes customs clearance to best serve the Chinese luxury
consumer. In 2019 we completed the acquisition of JD.com’s ‘Toplife’, obtaining ‘Level One’ access
on the JD.com app.
•
Increasing product supply and our luxury seller base for the Farfetch Marketplace
Increasing supply from existing luxury sellers. We believe that we can increase the depth of our
supply from our existing luxury seller base. We are seeing luxury sellers making available more of
their inventory on the Farfetch Marketplace and we continue to evolve our value proposition, including
data led insights, access to relevant demand and technological innovation.
Adding brands, boutiques, department stores and other partners. We plan to increase the number of
brands, boutiques and department stores and new types of retailers in order to expand the assortment
and availability of merchandise on the Farfetch Marketplace.
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Developing brands of the future. With the acquisition of New Guards in August 2019, we have added
to our portfolio of businesses a platform for the creation, design, production and distribution of luxury
“brands of the future.” The New Guards acquisition gives us access to a portfolio of profitable brands,
and resources and capabilities to launch successful new brands.
Expanding into new categories and offerings. We aim to enhance our product offering for consumers
and create additional opportunities for sellers on the Farfetch Marketplace by expanding into other
luxury categories and offerings, such as the expansion of our offering to include watches and fine
jewelry in 2018 (which has grown faster than the overall Farfetch Marketplace in 2019 by GMV) and
our investment in the streetwear category through our acquisition of Stadium Goods in January 2019.
According to Bain, streetwear has been one of the growing categories in the luxury market, and
Stadium Goods is largely incremental to our business. Our ability to expand into adjacent categories
within the personal luxury goods market will enable us to increase our penetration of a large and
robust total addressable market.
•
Investing in our platform with new technologies and innovation. We intend to continue to invest
in people, product and infrastructure to drive technological innovation in the luxury industry. This
includes continuing to enhance our platform for all participants through the application of data science
and machine learning technologies to facilitate further personalization and inspiring moments for
consumers. We also expect to continue to grow FPS and further develop and monetize Farfetch Store
of the Future. We may supplement the growth of our internal service offerings with external third party
providers that can build on our digital platform to offer complementary services to our consumers and
luxury sellers.
• Maximizing the synergies between our business units. We will continue to prioritize investing in
the growth of our organically developed businesses and targeted acquisitions in a manner that
maximizes synergistic effects. This means strategically driving interactions between the Farfetch
Marketplace, Browns, Stadium Goods, New Guards, FPS and Farfetch Store of the Future to optimize
supply, develop and promote exclusive merchandise, build our brands and leverage our technology
platform and logistics capabilities.
Our Businesses
Our Marketplaces
The Farfetch Marketplace
The Farfetch Marketplace is the largest digital luxury marketplace in the world, connecting two sides of the
luxury fashion market: consumers from 190 countries and luxury sellers in over 50 countries.
For consumers, we provide curated access to, as of December 31, 2019, over 3,400 different brands from
over 1,200 luxury sellers. Consumers are able to engage with us across our website and iOS and Android apps,
including on our iOS app developed specifically for our consumers in China.
For luxury sellers we facilitate connection to 2.1 million Active Consumers, as of December 31, 2019. We
believe the Farfetch Marketplace is the sole global in-season multi-brand luxury platform that can offer brands
direct-to-consumer distribution via an e-concession model. The proposition for brands includes full control over
merchandising and pricing together with higher margins than wholesale distribution.
The Farfetch Marketplace provides integrated logistics for luxury sellers, including content creation and end
to end logistics and a localized luxury experience and customer care for the Farfetch Marketplace consumers. In-
house content creation allows us to achieve a luxury product presentation with a consistent look and feel, with short
lead times and low cost. Our content creation process includes styling, photographing, photo-editing and content
management. We have invested significant resources in developing our fully integrated logistics network. We have
developed smart supply chain algorithms that are built around deep information sharing which make our supply
chain scalable, capital efficient and highly agile.
In 2019 we added localized sites for the Netherlands, Sweden and Denmark, bringing our total to 48
localized sites available in 15 languages.
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Stadium Goods Marketplace
Stadium Goods is a premium sneaker and streetwear marketplace specializing in new, never worn,
merchandise for resale. Farfetch acquired Stadium Goods in January 2019 and it continues to operate as a standalone
brand, increasingly leveraging Farfetch’s digital platform and expertise in technology, logistics, data, brand,
marketing and geographic reach.
Stadium Goods operates an online marketplace (stadiumgoods.com) and iOS and Android apps. Stadium
Goods’ stock is also available through third-party platforms including Amazon and eBay and is fully integrated into
and available on the Farfetch Marketplace in all geographies. Stadium Goods has a brick-and-mortar store in the
heart of New York City’s Soho neighborhood, and has announced plans to open its second store in Chicago in 2020.
Our Enterprise Solutions
Farfetch Platform Solutions
FPS is our enterprise offering to the luxury fashion industry, offering a modular suite of white-label
technology solutions and services for luxury sellers. FPS delivers global, multi-channel e-commerce solutions that
enable retailers and brands to drive growth and innovation, seamlessly interact with their customers, build stronger
and closer relationships while allowing them to focus on the creative aspects of their businesses. These solutions are
built on the Farfetch digital platform, providing the same capabilities and reach as the Farfetch Marketplace, and
benefitting from innovations and product developments on our digital platform. FPS partners can choose from
specific features or bundles of products and services or a full end-to-end e-commerce experience, tailored to their
customer and business requirements.
By building on our fully API-enabled digital platform, partnering with FPS allows for a flexible front-end
suite of products, comprising global websites, apps, WeChat stores and a shop-floor app, which helps in-store staff
manage global inventory to enhance customer service in-store. Our back-end infrastructure allows retailers and
brands to synchronize their websites in real time with in-store and warehouse inventory, both from mono-brand
stores and other suppliers in their distribution network, and facilitate customer-friendly services such as in-store
pick-up and returns.
In July 2018, Farfetch acquired CuriosityChina, a business that focuses on amplifying premium and luxury
brands across digital platforms in China. CuriosityChina augments the FPS proposition to include plug-and-play
access for luxury brands to expand rapidly in China via web, app, WeChat Store and WeChat Mini Programs.
FPS currently works with a number of brands across the luxury fashion industry. In 2019, FPS added Emilio
Pucci, Phillip Lim and, Nicholas Kirkwood as clients. In February 2020, FPS launched a new global e-commerce
platform for Harrods. Our strategic partnership allows Harrods to use and benefit from all of FPS’s core
components, including e-commerce management, operations, international logistics, and technical support.
In addition, the Browns and Off-White e-commerce channels are powered and operated by FPS, and we
intend to take this approach with other brands in the New Guards portfolio.
Augmented Retail and Farfetch Store of the Future
We believe the future of luxury fashion retail will be defined by the reinvention of the customer experience,
through online and offline integrations. We call this vision Augmented Retail, taking the magic of the physical store
experience and bringing it together with the advantages of the online and digital experience, underpinned by the use
of data.
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Our Augmented Retail vision was unveiled in April 2017, when we launched Farfetch Store of the Future.
Our Augmented Retail vision begins with the customer in mind. Customers enjoy the experience of being in-store,
building a relationship with the sales associate and experiencing merchandise in the luxury store setting, yet
technology has meant that consumers now expect ultra-personalized experiences, both in their real and digital lives,
and expect those worlds to be seamlessly connected. Our Augmented Retail vision reflects the retail experience of
the future by giving retailers visibility of their consumers’ preferences, both in-store and online, enabling them to
enhance the services they can offer. With this in mind, we have developed a range of services and technologies to
progress innovation in the luxury industry.
Farfetch Store of the Future is our retail innovation arm focused on Augmented Retail, which seamlessly
connects digital and physical experiences. We seek to develop and implement technology solutions which support
the retail vision of brands and stores, enabling meaningful interactions between customers and the brand by
leveraging data to empower the “Sales Associate of the Future”.
In February 2018, we announced a multi-year global innovation partnership with CHANEL. The pilot is now
live in CHANEL’s flagship boutique at 19 rue Cambon, Paris, showcasing Farfetch Store of the Future technologies
designed to augment the client and fashion advisor relationship, including a client boutique app and Fashion Advisor
app, plus a number of connected devices (such as digital fitting room mirrors and product sensors). Following the
success of the pilot, we are in discussions to expand the rollout of the Augmented Retail experience to additional
CHANEL boutiques.
Other Services
Fulfilment by Farfetch
We offer a luxury logistics solution with our four third-party logistics warehouses in Italy, the United
Kingdom, the United States and China, which luxury sellers can use to handle their fulfilment closer to the
consumer. We are using proprietary data insights to predict where the product should be sitting with stock stored in
strategically placed locations. This allows us to service consumers more efficiently, provides advantages for
consumers, and removes friction from the growth of supply for our luxury sellers.
Farfetch Media Solutions
Farfetch Media Solutions works with brand partners to deliver holistic digital marketing campaigns
optimized towards consumer engagement on the Farfetch Marketplace. While the offering is still in its early stages,
our advertising services allow our brand partners to reach our luxury fashion consumers in the course of their
decision-making journey on our digital platform. Farfetch Media Solutions enables strong partnerships with brands,
access to our high-intent consumer base and creates original content designed specifically to engage our consumers.
In the year ended December 31, 2019, Farfetch Media Solutions served over 100 campaigns across a diverse mix of
brand partners as well as content on Farfetch Communities (described below).
Dream Assembly
Dream Assembly is our accelerator program for commerce and fashion technology start-ups, which provides
access to mentorship, networking and support. It is designed to accelerate the growth of these start-ups, ensure
Farfetch is working with the brightest innovators, and identify potential new partners for Farfetch. As of December
31, 2019, it has now completed three cycles and incubated 26 companies. Stella McCartney and Burberry partnered
with us in supporting our Dream Assembly program in 2019.
Our Stores
While the proportion of luxury sales through e-commerce continues to increase, physical retail remains a
crucial part of the sales journey for the luxury customer. Bain estimates that in 2019, 88% of personal luxury goods
were bought in physical stores.
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We are taking advantage of the power of the physical realm, including leveraging the brand-building and
marketing opportunities afforded by a well-placed and well-presented store, with a number of our businesses,
including Browns, Stadium Goods and Off-White operating physical retail locations.
Browns
Browns is an iconic British fashion and luxury goods retailer with a heritage of introducing new fashion
labels and pioneering luxury fashion since the 1970s. As an example of its ability to identify new fashion talent,
Browns purchased the entire design school graduation collection of then unknown designer John Galliano,
championed other young designers such as Hussein Chalayan and Alexander McQueen from the outset of their
careers and, more recently, was the first to stock Christopher Kane. Browns, a culturally relevant voice in fashion
with two renowned stores in London, has continued to raise its profile in 2019 with the second installment of its
pop-up series, in Berlin, (the first was in Los Angeles with Fred Segal in 2018) and exclusive collections with
Fantastic Man and Sara Shakeel.
2020 will mark Browns’ 50th birthday and the anticipated opening of a flagship store in London’s Mayfair
which will have separate womenswear and menswear floors; a level for exclusive capsule collections, collaborations
and new brands; and another floor offering styling and concierge services for VIP consumers. The new store, which
will replace the existing Browns store in Mayfair, will continue to pioneer innovations developed under our
Augmented Retail strategy including Farfetch Store of the Future technology.
Stadium Goods
Stadium Goods’ flagship store, in New York City’s Soho neighborhood, is a destination for sneakerheads, as
well as a market center where sellers can bring inventory for Stadium Goods to authenticate and consign for sale.
In 2019, Stadium Goods launched pop-up shops at Fred Segal in Los Angeles, the Sole DXB event in Dubai
and, bringing together two members of the Farfetch family, as “Sneaker Beast” at the Browns East London store. In
December 2019, Stadium Goods announced it expects to open its second store and market center in Chicago in
Spring 2020.
Off-White
Currently, the most successful brand in the New Guards portfolio is Off-White. In order to reach a global
audience for its merchandise, Off-White is sold wholesale to third-party retailers online, through the Farfetch
Marketplace and its own, FPS powered, e-commerce channel, as well as in Off-White branded retail stores. As of
December 31, 2019, Off-White operates its own stores located in New York and Las Vegas, as well as more than 40
Off-White branded franchise stores primarily outside Europe and the United States. In 2020, Off-White expects to
open stores in Miami, Paris and London.
New Guards
In August 2019, we acquired New Guards. New Guards operates as a platform that uses a single common
infrastructure model to incubate and grow emerging talent into highly sought-after brands. New Guards designs,
manufactures and distributes luxury brands including Off-White, Heron Preston, Palm Angels and Marcelo Burlon,
among others through a shared services model. New Guards operates an asset-light model; it sources all of its
merchandise from independent contract manufacturers, procuring manufacturing resources based on demand, with
quantities produced to-order. As a consequence, New Guards is inventory-light.
We believe New Guards will continue to elevate the Farfetch brand and increase organic traffic and
consumer engagement, which will make Farfetch an even more attractive channel not just for consumers, but also
for our brand partners. The acquisition augments our strategy to be the global platform for luxury fashion,
empowering individuality, and connecting creators, curators and consumers.
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As a result of adding New Guards, we now have the capability to bring creative visionaries and designers’
ideas to fruition by offering infrastructure including strategy development, design studio, sourcing and production,
industrial capabilities, global distribution channels, merchandising, licensing, marketing and growth planning.
Farfetch will help existing and future portfolio brands maximize their potential by opening new e-concessions on the
Farfetch Marketplace and powering portfolio brands’ own e-commerce sites and other digital channels through FPS.
We believe this will create what we call “brands of the future.”
The addition of New Guards gives us the opportunity to develop and introduce new and highly attractive
brands to the Farfetch Marketplace, along with exclusive capsule collections and collaborations to further enrich the
customer experience and boost consumer engagement with the Farfetch brand.
Our Technology
Technology is at the core of our strategy, powering our operational capabilities and the sustainable
scalability of our digital platform. We believe that continuous investment in our technology has given us a
competitive advantage and enabled fast innovation. We operate a modular end to end digital platform purpose built
to connect the luxury fashion ecosystem worldwide. Our vision was to create a single operating system that could
address the complex demands of consumers and luxury sellers alike. Our digital platform is designed to deliver the
future of luxury retail by addressing the unique challenges faced by each participant in the ecosystem and to offer a
transformative luxury experience across both offline and online channels. Our digital platform is built on an API
enabled proprietary technology stack, which provides the foundation for our applications and services.
Marketing
Driving consumer demand and brand loyalty, with customer-centricity at the forefront
Our integrated marketing framework represents a core competency that we regard as essential to the success
of our marketplace model. We are focused on continuing to build brand recognition and a demand generation engine
that connects our consumers with our luxury sellers. Through driving high consumer demand, we aim to create a
better proposition for our luxury sellers.
We have invested in building a talented in-house marketing team, while also developing proprietary
technologies that enable us to build data driven and highly personalized campaigns that can scale globally.
Data Driven Approach
We collect and utilize a broad range of data from multiple touch points throughout the luxury fashion
ecosystem. This allows us to identify audience segments that are highly engaged in the luxury fashion category,
which enables us to focus both brand and performance marketing campaigns on those we believe have a high
propensity to purchase. Marketing costs are allocated across our global digital media portfolio using advanced
internal bidding algorithms, which are tuned to optimize return on investment.
We employ a scientific approach to marketing. We use our data insights to continuously optimize and
improve our marketing and product experiences to be responsive to our consumers’ needs and provide them with a
great customer experience. Our relentless focus on data driven testing enables us to innovate and optimize at a fast
pace.
We have an audience focused, rather than channel focused, approach to both brand and performance
marketing, which we manage as one integrated program. We use our rich audience insights to identify prospective
consumers who we believe have an interest in, and intent to purchase, luxury fashion. We have built our own
capabilities to deploy integrated campaigns that span the entire communications funnel, from awareness, to
consideration to purchase and retention. We leverage the audience-targeting capabilities provided by our online
media partners and other non-online sources, and we carefully monitor campaign reach based on propensity to buy
and overall engagement with the category. The efficiencies gained from effective audience targeting allow us to
build high frequency campaigns that drive awareness of our brand proposition.
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We use sophisticated media mix measurement and modeling techniques to evaluate marketing performance,
and we match our investment in audience and media to the predicted lifetime value that we believe each segment
will generate, optimizing on a market by market basis.
Global Scale
Our marketing team is comprised of a broad range of capabilities and disciplines and is responsible for the
development of all global performance and brand marketing campaigns. From a demand generation perspective, we
manage active marketing campaigns across 190 countries and utilize a hub-and-spoke operating model that enables
us to scale and rapidly deploy new campaigns across all markets, while also localizing messaging and creative
assets.
Our global approach enables us to make faster decisions as we can run more tests at scale and determine
outcomes faster. In addition, our local teams in Brazil, China, Japan, Russia, the United Arab Emirates and the
United States are responsible for working with local media channels and partners and localizing global creative
concepts while also running local initiatives that bring our brand personality to life.
Consumer Acquisition
We principally acquire consumers through online channels, including paid and organic search, metasearch,
affiliate partnerships, display advertising and social channels. We also sometimes use promotions to drive consumer
acquisition and sales on the Farfetch Marketplaces. We have channel experts who work with dedicated analysts, data
scientists and engineers. We have invested significant resources to establish systems that optimize paid search, and
our team is highly skilled at developing programs and algorithms to maximize our return.
Retention and Loyalty
We focus on building continuous dialogue with our consumers given their levels of engagement with luxury
shopping. We do this by creating inspiring content and developing personalized and tailored product
recommendations, which we distribute via email, push notifications, social media, display advertising and directly
on the Farfetch Marketplace. We also sometimes use promotions to drive consumer retention and sales. Our brand
marketing approach is to focus on offering products and services that consumers cannot find anywhere else, be that
exclusive capsule collections, exclusive products, items only available through our network of luxury sellers, access
to personal stylists for our most loyal consumers and more. We offer a host of luxury merchandise and services
available only on Farfetch.
We launched ACCESS, Farfetch’s new loyalty program, for a limited global test group and for consumers in
the United Kingdom in 2018. ACCESS provides consumers with benefits and rewards based on their annual spend
on the Farfetch Marketplace. Based on the success after first launching ACCESS, we have continued to invest in the
program throughout 2019, with rollout continuing at pace to further countries in that year, increasing the consumer
base enrolled by 63% between the third and fourth quarter of 2019. As of January 31, 2020, there were
approximately 1 million ACCESS members across five tiers ranging from Bronze to Private Client.
Farfetch Private Client
Farfetch Private Client caters to some of our most important and highest spending consumers. Our Private
Client proposition is to make Farfetch the only place these valuable consumers need to go to for all of their luxury
fashion needs.
We offer high end services such as a dedicated personal shopper, priority access to a customer service line
and Fashion Concierge services. Fashion Concierge allows Farfetch Private Client consumers to access exclusive
merchandise and to source merchandise from non Farfetch sellers via our stylists. We also provide Farfetch Private
Client consumers exclusive benefits, such as pre-order options, access to special items, events and experiences, early
access to coveted items and sales, free shipping and a Farfetch Private Client app.
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Farfetch Communities
Farfetch Communities provides updated daily editorial and community content, on the Farfetch Marketplace
site and on social channels, which brings to life Farfetch’s unrivalled range of luxury fashion and creates an ever-
changing, inspiring way to help our consumers discover the things they love. We named the initiative Communities
in celebration of our local-global Farfetch community of fashion-loving creators, curators and consumers and it is
designed to be an ever-changing content which features their influential taste, collections and fashion viewpoints.
Farfetch Communities is an innovative approach to telling our brand story by using content created by our
contributors, including our partners and consumers, in a manner which is highly relevant to consumers and the way
they use media today. It also enables us to highlight the vast global Farfetch community, which is made of fashion
lovers and consumers, influencers, and our brands and retailers, who are all incredible storytellers.
Positively Farfetch
Positively Farfetch is a 360-degree strategy to embed sustainability in and across our business. We want to
become the global platform for good in luxury fashion by empowering everyone we work with to think, act and
choose positively. The strategy has three key pillars, that each align with core business drivers.
Positively Cleaner is focused on environmental impact reduction, and is expected to help us become a more
cost-efficient business. In addition to rolling out sustainably sourced and fully recyclable packaging globally, in
2019 Farfetch signed both the G7 Fashion Pact and the UN Fashion Industry Charter for Climate Action. By joining
these initiatives, we will be working together with other global businesses to help find solutions to tackle climate
change; developing, and committing to bold shared targets in areas such as reducing emissions, increasing
renewable energy use and eliminating single use plastics.
Positively Conscious is focused on inspiring our consumers to make positive choices that consider the
impact on the environment, society and animal welfare, and help us become the global destination for more
conscious fashion consumers. We have teamed up with Good On You, an independent agency that rates the
sustainability of brands across these three areas. Based on these ratings, we have created 'Conscious Edits' for
Women, Men and Kids, 'Positively Conscious' labels and information on merchandise, and a Positively Conscious
filter. This is all aimed at helping our consumers make informed decisions about their purchases.
Positively Circular is focused on investing in new services that help extend the life of clothes and help drive
growth and consumer retention. For example, in 2019 we began piloting Second Life, a service which enables
consumers to trade in their pre-owned designer bags for Farfetch Marketplace credit. We also launched our Thrift+
and Farfetch partnership as a pilot in the United Kingdom, which allows consumers to donate used clothes which are
then sold, with one third of proceeds of sale donated to the consumer’s chosen charity. The consumer can then
choose to either donate a further third to charity or receive it as Farfetch Marketplace credit (Thrift+ retain one third
of the proceeds for administering the service).
Browns is also focusing on sustainability covering the same pillars of opportunity; Cleaner, with its
conscious packaging option and green local deliveries; Conscious, with clear on-site and in-store labeling of
products made with a more positive social and environmental impact; and Circular, with a partnership with
Armarium for luxury fashion rentals, as well as collaborations with designers that look at up-cycling and vintage.
Security and Data Protection
We are committed to the security and privacy of our consumers’ experience with Farfetch. We undertake
administrative and technical measures to protect our systems and the consumer data those systems process and store.
We have developed policies and procedures designed to manage data security risks. We employ technical security
defenses, we monitor servers and systems, and we use technical measures such as data encryption. We also use third
parties to assist in our security practices and prevent and detect fraud. Our consumers’ privacy expectations are very
important to us and we have a team tasked with responding to our consumer inquiries regarding their personal data.
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Competition
We operate in a competitive industry, and consumers have the option to purchase both online and offline.
While we believe that we do not have any direct competition with the Farfetch Marketplace, we have indirect
competitors in two primary categories:
Technology enablement companies:
•
Technology companies that may attract sellers by enabling commerce, such as Shopify or Square; and
• White label service providers, which offer end to end solutions.
Luxury sellers:
•
Online luxury retailers that buy and hold inventory and typically ship from a small number of
centralized warehouses;
• Multichannel players, which are independent retailers that have developed an online channel following
the success of their physical retail operations;
Niche multi brand and streetwear sites;
Luxury department stores; and
Luxury brand stores.
•
•
•
In addition, the brands in the New Guards portfolio of brands face competition from many different luxury
and streetwear brands.
Our Intellectual Property
Our intellectual property, including copyrights and trademarks, is an important component of our business.
We have registered trademarks in various international jurisdictions for FARFETCH, BROWNS and STADIUM
GOODS among other brands. Our intellectual property portfolio includes numerous domain names for websites that
we use in our business. We have one issued patent in the United Kingdom. We have several published and
unpublished patent applications in the United Kingdom, Europe and internationally, which, if issued, would cover
aspects of our proprietary technology, and the software code underlying our proprietary technology is also likely
protected by copyright.
New Guards owns, or is the exclusive licensee of, various intellectual property rights in the brands that form
the New Guards brand portfolio. The existing license agreements permit New Guards to, among other things,
manufacture, distribute, advertise and sell merchandise of the relevant brand in exchange for the payment of
royalties. Terms of the license agreements can vary. For example, New Guards has exclusive, worldwide licenses
for the use of the Off-White, Palm Angels and Heron Preston trademarks. In addition, the license for the OFF-
WHITE trademark expires in 2035 and includes a right for either party to opt out of the agreement effective as of
January 1, 2026 subject to notice provisions.
We control access to, use and distribution of our intellectual property through license agreements,
confidentiality procedures, non-disclosure agreements with third parties and our employment and contractor
agreements. We rely on contractual provisions with suppliers and luxury sellers to protect our proprietary
technology, brands and creative assets. We use a third-party enforcement tool to monitor online copyright and
trademark infringement across domains, social media and mobile applications for BROWNS, FARFETCH and the
brands in the New Guards portfolio, as well as a trademark watch service, which notifies us of potentially
conflicting trademark applications. We have also registered FARFETCH, BROWNSFASHIONSTORE and the
marks for the brands in the New Guards portfolios with a global domain name watch service and various domain
name protected lists to alert us to third party domain name registrations that could potentially be infringing or
cybersquatting.
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Government Regulation
We use consumer data to perform the services available on our platform and conduct marketing activities,
which may involve sharing consumer information with a third party, such as advertisers. Our activities involving the
use of consumer data are subject to consumer protection, data protection and unfair and deceptive practices laws in
jurisdictions in which we operate. In addition, as we accept credit cards transactions, we must comply with the
Payment Card Industry Data Security Standards. The United States and European Union as well as other countries in
which we operate are increasingly regulating certain activities on the internet and e-commerce, including the use of
information retrieved from or transmitted over the internet, are increasingly focused on ensuring user privacy and
information security, which will potentially limit behavioral targeting and online advertising, and are imposing new
or additional rules regarding the taxation of internet products and services, the quality of products and services as
well as the liability for third-party activities. Moreover, the applicability to the internet of existing laws governing
issues such as intellectual property ownership and infringement is uncertain and evolving.
In particular, we are subject to an evolving set of data privacy laws in the United States, European Union,
Brazil and other jurisdictions. As of May 25, 2018, GDPR went into effect. GDPR provides for a number of changes
to the previous regime, including more onerous requirements on companies that process personal data, including, for
example, expanded disclosures to tell our consumers about how personal information is to be used, increased rights
for consumers to access, control the use of and delete their data and object to marketing and profiling. Certain
breaches of GDPR may impose fines up to the greater of €20 million or 4% of the global turnover on a group basis.
In addition, specific EU legislation regulating privacy online, including the use of cookies and similar technologies
and online targeted advertising, is also under reform. In the United States, CCPA went into effect in California on
January 1, 2020. The new law, among other things, requires new disclosures to California consumers, affords
consumers new abilities to opt out of certain disclosures of personal information and new rights of data access and
deletions, and imposes significant fines and penalties for violations of privacy or data security provisions.
China
The State Administration for Market Regulation (“SAMR”) of China issued Regulations on Clearly Marking
the Prices and Prohibition of Price Fraud (“Draft for Comment”) (the “Draft Pricing Regulations”) on May 30, 2019,
seeking public comments until June 30, 2019. So far the Draft Pricing Regulations are still under the legislative
review and may be subject to further revisions before being officially promulgated.
According to the Draft Pricing Regulations, Farfetch would be required to show both VIP and non-VIP
prices on the same product display page within the same Farfetch China “trading premises” (including Farfetch.cn
and Farfetch China app). We have explored potential mitigation strategies if the Draft Pricing Regulations become
effective and obtained preliminary validation from the local law enforcement agency.
The Cyberspace Administration of China (“CAC”), the central internet regulator, issued Draft Measures of
Security Assessment before Cross-border Transfer of Personal Data (the “Draft Measures of Cross-border PI
Transfer”) and Draft Administrative Measures of Data Security (“Draft Measures of Data Security”) on June 13,
2019, soliciting public comments by July 13, 2019. The Draft Measures remain under legislative review and may be
subject to further revisions before being officially promulgated.
According to the Draft Measures, transfer of personal data out of China will be prohibited if disapproved by
CAC local branch after conducting a security assessment. When conducting a security assessment, CAC is expected
to focus on: (a) whether personal data is collected and stored in China in full compliance with applicable law; (b)
whether our data transfer technical design is in full compliance with applicable law; and (c) whether the overseas
direct recipients have the same level of data protection capability.
We are carrying out an internal assessment to ensure we meet the above requirements and to prepare to apply
to CAC Shanghai branch for security assessment and approval.
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Our operation of the Farfetch.cn website and the Farfetch China app in mainland China is subject to a value-
added telecommunication license, which we first obtained in December 2016 and then renewed in December 2019,
for another 3 years. Our value-added telecommunication license is issued by Shanghai Communications
Administration, which has its approval power delegated from the Ministry of Industry and Information Technology.
Many governmental authorities in the markets in which we operate are also considering alternative
legislative and regulatory proposals that would increase regulation on internet advertising. It is impossible to predict
whether new taxes or regulations will be imposed on our business and whether or how we might be affected.
In many jurisdictions in which we operate, operational licenses are required. In certain jurisdictions,
including China, these licenses must be reviewed annually.
C. Organizational Structure
Please refer to Note 22 to our audited consolidated financial statements for the years ended
December 31, 2019, 2018 and 2017 included elsewhere in this Annual Report for a listing of the Company’s
significant subsidiaries, including name, country of incorporation, and proportion of ownership interest.
D. Property, Plant and Equipment
Our Facilities
We have offices in Braga, Dubai, Hong Kong, Lisbon, London, Los Angeles, Milan, Moscow, New Delhi,
New York, Porto, São Paulo, Shanghai and Tokyo, and production centers in Guimarães, Hong Kong, Los Angeles
and São Paulo. In addition, Browns leases retail properties in London, Stadium Goods leases retail properties in
Chicago and New York and New Guards leases retail properties in Las Vegas, London, Miami, New York and Paris.
Our London office is our corporate headquarters, housing central support functions, and is leased for a term
of 12 years expiring in December 2027. It covers an aggregate of approximately 36,000 square feet, divided over six
floors.
Our two Porto offices together house our largest employee population, including finance and customer
support and operations. The two offices cover an aggregate of approximately 235,000 square feet and are leased for
periods of seven to eleven years, all expiring in 2025.
On April 8, 2019, Farfetch Portugal – Unipessoal, Lda, one of our subsidiaries, acquired approximately
70,000 square meters of land in Matosinhos, Portugal from Medida Gabarito, Lda. We intend to use this land to
build a campus for our employees based in Porto, to support our technology and operational functions as well as our
digital production studios. The total cost of the purchase was $18 million including taxes and fees. As of December
31, 2019, we had incurred additional expenditures of approximately $140,000 on the campus. We are in the
preliminary stages of planning and estimating the total cost for the buildout and fit of the campus and are evaluating
the most effective funding structure before proceeding with further expenditures.
Item 4A. Unresolved Staff Comments
None.
68
Item 5. Operating and Financial Review and Prospects
You should read the following discussion in conjunction with Item 3. “Key Information — A. Selected
Financial Data,” our historical consolidated financial statements and the related notes included elsewhere in this
Annual Report. This discussion contains forward-looking statements and involves numerous risks and uncertainties,
including, but not limited to, those described in Item 3. “Key Information — D. Risk Factors.” Actual results could
differ materially from those contained in any forward-looking statements.
On May 15, 2018, Farfetch Limited was incorporated under the laws of the Cayman Islands to become the
holding company of Farfetch.com Limited and its subsidiaries pursuant to the Reorganization Transactions.
Farfetch Limited has engaged solely in operations and activities incidental to its formation, the Reorganization
Transactions and the initial public offering of our Class A ordinary shares. Accordingly, financial information for
Farfetch Limited and a discussion and analysis of its results of operations and financial condition for the period of
its operations prior to the Reorganization Transactions would not be meaningful and are not presented. Following
the Reorganization Transactions, the historical consolidated financial statements of Farfetch Limited will include
the historical consolidated financial results of Farfetch Limited and its consolidated subsidiaries for all periods
presented. When we refer to the “Consolidated Group” or “Group” we are referring to Farfetch Limited and its
consolidated subsidiaries.
Business Overview
Our mission is to be the leading global platform for the luxury fashion industry, connecting creators, curators
and consumers.
Our core business is focused on generating income from transactions between sellers and consumers
conducted on our platform. Transactions generate GMV, which we collect and remit to sellers after deducting our
commission, fulfilment and other related income, which is based on a revenue-share model. With the acquisition of
New Guards in August 2019, a portion of our income is now generated from business-to-business transactions with
retailers. A lesser portion of our income is generated from sales made in physical stores that we operate. All these
activities enable us to operate across the global luxury ecosystem.
Business Highlights
On January 4, 2019, Farfetch Limited completed the acquisition of 100% of the outstanding shares of
Stadium Goods, the sneaker and streetwear marketplace for total consideration of $230.9 million. The Group
expects to benefit from Stadium Goods’ brand, access to supply, and a team who have joined the Group, bringing
with them a strong passion for, and knowledge of, luxury streetwear, further enhancing our marketplace and stores
offering. For further information, refer to Note 5 to our consolidated financial statements included elsewhere in this
Annual Report.
In August 2019, we completed the acquisition of 100% of the outstanding shares of New Guards for a total
consideration of $704.1 million. This acquisition of New Guards, which operates as a platform that uses a single
common infrastructure and model to incubate and grow emerging talent into highly sought-after brands, extends our
capabilities and further enables us to leverage our existing global consumer base, large boutique network and
significant data insights. New Guards further enables our support of the luxury ecosystem. The addition of New
Guards expands the Farfetch Marketplace proposition with a broad selection and increased supply from the New
Guards’ portfolio of brands, including Off-White, Palm Angels, Heron Preston, and Marcelo Burlon County of
Milan, along with exclusive capsule collections and collaborations to further enrich the customer experience and
boost consumer engagement with the Farfetch brand. Our consolidated financial statements include the revenue and
results of operations for the acquisition of New Guards for the period since acquisition date. For further information,
refer to Note 5 to our consolidated financial statements included elsewhere in this Annual Report.
69
Segment Change
Following the acquisition of New Guards, in the fourth quarter of 2019, management determined that it had
three operating segments: (i) Digital Platform, (ii) Brand Platform and (iii) In-Store, given our new organizational
structure and the manner in which our business is reviewed and managed. In fourth quarter 2019, we realigned our
reportable operating segments to reflect how our Chief Operating Decision-Maker was making operating decisions,
allocating resources and evaluating operating performance. See “Operating Results by Segment” and Note 6
(“Segmental and geographical information”) to our consolidated financial statements included elsewhere in this
Annual Report for additional information about these segments.
Sources of Revenue
Our revenue is derived from four streams:
•
•
•
•
Digital Platform Services Revenue, which primarily includes commissions and related income from
third-party sales and to a lesser extent revenue from first-party sales. The revenue realized from first-
party sales is equal to the GMV of such sales because we act as principal in these transactions, and
thus related sales are not commission based. Digital Platform Services Revenue was referred to as
Adjusted Platform Revenue or Platform Services Revenue in previous filings. Digital Platform
Services Revenue is included in our Digital Platform segment.
Digital Platform Fulfilment Revenue, which is revenue from shipping and customs clearing services
that we provide to our digital consumers, net of consumer promotional incentives, such as free
shipping and promotional codes. Digital Platform Fulfilment Revenue was referred to as Platform
Fulfilment Revenue in previous filings. Digital Platform Fulfilment Revenue is included in our Digital
Platform segment
Brand Platform Revenue, which is revenue relating to the New Guards operations less revenue from
New Guards’: (i) owned e-commerce websites, (ii) direct-to-consumer channel via our Marketplaces
and (iii) directly operated stores. Revenue relating to its owned e-commerce websites and its direct-to-
consumer channel are recognized as Digital Platform Services Revenue and revenue relating to its
directly operated stores is recognized as In-Store Revenue. Revenue realized from Brand Platform is
equal to GMV as such sales are on a first-party basis and are not commission based.
In-Store Revenue, which is revenue generated in our retail stores which include Browns, Stadium
Goods and New Guards’ directly operated stores. Revenue realized from In-Store sales is equal to
GMV of such sales because such sales are not commission based.
Refer to “Key Operating and Financial Metrics” below for a discussion of the key operating and financial
metrics we use and “Operating Results by Segment” for a discussion of segmental performance and revenues by
segment for the years ended December 31, 2019 and 2018.
For further information on our principal sources of revenue and how the different types of revenue are
classified in our consolidated statement of operations refer to Note 2.3 (e) to our consolidated financial statements
included elsewhere in this Annual Report.
For further information on our revenues by geography, refer to Note 6 to our consolidated financial
statements included elsewhere in this Annual Report.
Factors Affecting our Financial Condition and Results of Operations
Our financial condition and results of operations have been, and will continue to be, affected by a number of
important factors, including the following:
70
Growth and Quality of our Luxury Supply
Our marketplace business model allows us to offer consumers a broad and deep selection of luxury, with a
high stock value while incurring minimal inventory risk, by combining supply from a large number of globally
distributed luxury sellers. Our success depends on the participation of these luxury sellers on the Farfetch
Marketplace, their highly curated range of products and our ability to effectively sell these goods.
We have a rigorous framework to assess retailers and brands. Boutique selection is based on their brand
assortment, category focus, market reputation and strength of buying. Brand selection is based on demand and
trends, so that we offer our consumers access to the best, most current and most desirable products.
The selection of merchandise for sale on the Farfetch Marketplace must meet the needs of constantly
evolving consumer tastes and adapt to rapidly changing fashion trends. Therefore, our success is also dependent on
the ability of our luxury sellers to anticipate, identify and translate changing fashion trends and consumer demands
into timely and appropriately curated product offerings. We constantly provide our partners with fashion insight that
comes from our analysis of browsing, sales and returns data trends across the Farfetch Marketplace, as well as the
offline sales data points that come from our real-time integrations with our luxury sellers.
The breadth and depth of inventory available through the Farfetch Marketplace is reflected in our stock
value. Brands and designers typically have two primary seasonal collections per year, spring/summer and
fall/winter. We expect to continue to grow the stock value and stock units on the Farfetch Marketplace from existing
luxury sellers, adding luxury sellers from new geographies, large multi-brand retailers and new brands.
Our strong top-line performance highlights our success in leveraging our unique platform to go after the
$100 billion opportunity we see in online luxury. And with luxury brands increasingly moving to reduce wholesale
in favor of direct-to-consumer distribution strategies, our unique e-concession model has positioned Farfetch as the
multi-brand digital partner of choice. As a result, we nearly doubled the rate of direct brand partnership signings in
2019 with e-concessions on the Farfetch Marketplace accelerating to grow almost 40% to more than 500 at year-
end.
As of December 31, 2019, we had more than 1,200 luxury sellers on the Farfetch Marketplace, of which over
700 were retailers and more than 500 were brands who sell directly on the Farfetch Marketplace. As of December
31, 2018, we had approximately 1,000 luxury sellers on the Farfetch Marketplace, of which more than 600 were
retailers and just under 400 were brands who sell directly on our Marketplace. Both the mix of sales from brands
versus retailers and the mix of first-party sales versus third-party sales can impact our results of operations as each
attract different margins. As at December 31, 2019, we had retained all of the top 100 brands and top 100 boutiques
we had as of December 31, 2018.
Growth, Engagement and Retention of Our Consumer Base
Digital Platform
Digital Platform GMV and revenue primarily grow as a result of acquiring and retaining Active Consumers,
increasing the Average Order Value and the volume of orders.
As of December 31, 2019, we had 2,068,000 Active Consumers, up from 1,382,000 as of December 31,
2018.
We have been able to grow Digital Platform GMV from both new and existing consumers since launching
the Farfetch Marketplace in 2008. While we continue to acquire new consumers, the share of Digital Platform GMV
from existing consumers has also continued to increase over time, indicating we have retained existing consumers.
71
We define new consumers as those who placed their first order on the Farfetch Marketplace.
We expect growth in new consumers to be driven by further penetration of the luxury consumer market,
including growing our business in emerging markets, such as China, the Middle East, Latin America and Russia.
New Guards and Brand Platform
New Guards operates as a platform that uses a single common infrastructure and model including strategy
development, design studio, sourcing and production, industrial capabilities, global distribution channels,
merchandising, licensing, marketing and growth planning for brands in its portfolio. The success of our Brand
Platform segment is dependent on the popularity of the brands in the New Guards portfolio, and the incubation of
new brands, as New Guards has demonstrated historically. Luxury apparel, footwear and accessories are subject to
rapidly changing fashion trends and constantly evolving consumer tastes and demands, and success depends in large
part on the brands in our New Guards portfolio being able to originate and define fashion product trends, as well as
to anticipate, gauge, and react to changing consumer demands in a timely manner. Demand for our brands’ products
may fluctuate significantly from season to season, and while we continue to grow our brand portfolio organically or
by acquisition, including the acquisitions of Ambush and Opening Ceremony announced in January 2020, we face
competition from many different luxury and streetwear brands. The ability of the brands in the New Guards
portfolio to anticipate, identify, and respond effectively to changing consumer demands and fashion trends impacts
our revenue and profitability. In addition, although New Guards’ business has been historically inventory light, we
intend to grow the direct-to-consumer business of the brands in the New Guards portfolio, potentially increasing the
risk of unsold inventory. Conversely, if we underestimate consumer demand for the brands’ products, we may
experience inventory shortages.
We have begun to take actions to reduce wholesale distribution of New Guards brands and restrict the
geographic distribution by other online retailers, as we move to favor our own direct-to-consumer channels, similar
to the broader industry.
72
Cost of Consumer Acquisition and Engagement
Our Digital Platform financial performance also depends on the expenses we incur to attract and retain
consumers.
Demand generation expense consists primarily of fees that we pay our various media and affiliate partners.
We will continue to invest in consumer acquisition and retention while the underlying consumer unit economics and
customer lifetime value indicate the return on investment is strong. While we expect these expenses to increase as
we continue to grow, we expect such expenses to decrease as a percentage of Adjusted Revenue over time as we
continue to improve the efficiency of our demand generation activities and the percentage of our business related to
existing consumers increases. In particular, we continue to gain efficiencies in our performance marketing spend by
leveraging the large volume of product performance data that we have available to enhance our media bidding
decisions across paid search, meta-search and online display. We are focusing on developing our brand to
organically grow the traffic on our Marketplaces. We also expanded our network of active media partners, which
extended our audience reach and further diversified our overall media mix.
We also generate highly attractive consumer economics. While we are continuously focused on adding new
Active Consumers to the Farfetch Marketplace, we are also focused on increasing their purchase frequency and
Average Order Value after their initial purchase, while lowering retention expenditure. As a result, our existing
consumers have typically generated a higher Digital Platform Order Contribution Margin over time.
Fulfilment
To facilitate and grow our Digital Platform, we provide fulfilment services to Marketplace consumers and
receive revenue from the provision of these services, which is by and large a pass-through cost with no economic
benefit to us, and therefore we calculate our Adjusted Revenue excluding Digital Platform Fulfilment Revenue. We
offer our platform partners access to a fully integrated logistics network, which enables them to ship to consumers in
190 countries. This is an essential part of the consumer and luxury seller proposition and provides an unparalleled
luxury experience. We have developed a comprehensive cross-border network for delivery, provided by leading
third-party partners globally, which also provides the Farfetch Marketplace consumers with a free, simple and
efficient returns process.
Scaling our Global Platform
We will continue to invest in our smart supply chain management and luxury customer care to provide our
consumers with a differentiated global product offering but localized customer experience. Our end-to-end
operations include in-house content creation to achieve a luxury product presentation, localized interfaces,
multilingual customer service, secure payment methods and seamless customs clearance and tariffs navigation.
While we expect our operational expenses to increase as we continue to grow, we expect such expenses to decrease
as a percentage of Adjusted Revenue over time as we continue to achieve economies of scale and deliver operating
leverage.
Investments in Technology
We will continue to invest in people, product and infrastructure to maintain and grow our platform. Our
technology expense in the twelve months ended December 31, 2019 was $84.2 million, up 23.4% from $68.2
million in the twelve months ended December 31, 2018. Our technology expense has increased as we continue to
recruit additional personnel and to develop our technology expertise across the full spectrum of engineering,
architecture, infrastructure, data engineering, integrations, security, agile and project management, and information
systems and planning. As of December 31, 2019, we had 1,518 full-time data scientists, engineers and product
employees, representing 33.5% of our total headcount. We have adjusted the pace of our increase in technology
headcount, by using outsourcing to create a flexible and adaptable workforce to meet fluctuations in development
needs. We expect to increase our total number of data scientists and engineers, to approximately 1,850 people by the
end of 2020.
73
As announced previously, in 2019 we initiated a strategic partnership with Harrods, for which we increased
our investment in technology by approximately $10.5 million to accelerate developments which we believe will
allow us to continue to capture and expand the reach of our platform and generate future growth driving
technological innovation in the luxury industry.
Promotional Activity
The luxury market is subject to promotional activity. Promotions can be company-funded, partner-funded or
a mix of both. We use promotions to drive consumer acquisition, retention and sales. We may elect to engage in
promotional activity at times and at price levels we deem appropriate, or we may engage in promotional activity
when we see market peers doing the same, and our performance may be impacted depending on the level of
promotion and funding driven by the Company and the market condition.
In the fourth quarter of 2018 luxury retailers demonstrated a higher than expected level of promotional
activity. This trend toward promotional activity intensified in 2019, and is expected to continue at least through the
second quarter of 2020. This reflects global luxury fashion online retailers’ significantly increased discounting and
promotions, including earlier and larger discounts and more aggressive promotions culminating in unprecedented
promotional activities in Summer 2019.
When competitors increase promotional activity, we can react to those promotions symmetrically by
increasing our promotional activity, as we did in 2019. Alternatively, we can decide not to match competitors’
promotional activity, which we believe improves our relationships with brands and, in turn, supply on the Farfetch
Marketplace, as well as promoting the luxury nature of our brand, as we began to do in the second half of 2019.
Promotional activity also has the potential to impact supply; if we decide not to incentivize promotional activity by
our retailers by not funding, by reducing our funding, by requiring our retailers to fund promotions in whole or part,
or if we increase the mix of partner-funded promotions (as we did in the fourth quarter of 2019), it could adversely
impact our relationships with our retailers.
Investment in Innovation and Profitable Growth
We have historically invested in opportunities to advance our strategic objectives, including acquisitions,
investments in our customers, and investments to deliver technology and other resources. Whilst these investments
present various levels of risk and may result in lower profitability for the Company, we believe they will allow us to
both widen and leverage our platform and expand our consumer base and offering.
During 2019, we continued to innovate and invest in our existing consumers, completing the roll-out of our
loyalty program ACCESS which we believe has the potential to increase consumer engagement and ‘spend per
consumer’. As of January 31, 2020 there were approximately 1 million ACCESS members. This is a key investment
in our loyal consumers which we expect to impact our Contribution Margin, but we believe will deliver significant
returns in the medium-term by differentiating Farfetch as the preferred destination for luxury fashion online. We
also expect to continue to invest in our highest-value customers, continuing the investment we made in our private
client offering in 2019. Private Client represents our highest spending and most engaged customer segment, and in
2019, the top 1% of our customers represented 27% of our revenue. During the year, we expanded our resources to
serve this fast growing and highly valuable customer, to now have over 100 stylists servicing our VIPs in 20 cities
around the world.
In 2019, in an effort to drive profitable growth, we introduced Farfetch Second Life, a new initiative we are
piloting to give designer bags a second lease of life in exchange for credit to fund future purchases on our
Marketplace.
74
In 2019, the Company made multiple acquisitions:
-
-
-
-
-
In January 2019, we acquired Stadium Goods, a premium sneaker and streetwear marketplace.
In February 2019, we acquired Toplife, JD.com’s luxury platform and announced that as part of this
agreement, Farfetch will gain ‘Level 1’ Access on the JD.com mobile app.
In April 2019, we completed the previously announced acquisition of CuriosityChina, a leading
integrated marketing and social commerce company.
In July 2019, we completed the previously announced strategic partnership with Chalhoub Group to
further our expansion in the Middle East.
In August 2019, we acquired New Guards, a platform for the development of global fashion brands
that complements the Group's strategy to be the global platform for luxury fashion.
We also expect to continue to invest in innovation. In 2018, we created an internal accelerator program,
Dream Assembly. Selected startups go through a seven week series of workshops, inspirational talks, mentorship
meetings and pitch training sessions. As part of Dream Assembly, the selected startups will receive €30,000 in a
convertible note to help cover operating costs and expenses. As of December 31, 2019, we have had three cohorts of
the program. At December 31, 2019, we had $842,000 invested in these startups.
Other Factors Affecting Our Performance
Results of our operations are impacted by a number of other factors, including seasonality and foreign
exchange fluctuations:
Seasonality. Our business is seasonal in nature, broadly reflecting traditional retail seasonality patterns
through the calendar year. As such, GMV and revenue have been historically higher in the fourth calendar quarter of
each year than in other quarters. We believe seasonality may continue to impact our quarterly results.
Foreign currency fluctuations. The global nature of our business means that we earn revenue and incur
expenses in a number of different currencies. Movements in exchange rates therefore impact our results and cash
flows. Foreign exchange exposure is created by the currency received, determined by the consumer’s location, and
the currency we pay to the retailer and brand as determined by their location. This results in transactional foreign
currency exposure. Our general policy is to hedge this transactional exposure using forward foreign exchange
contracts. We do not hedge translation risk.
Mergers and acquisitions. We have acquired several businesses recently and we continue to evaluate
new opportunities as they arise. When we acquire new businesses, we are required to allocate the consideration
payable to the assets acquired. Some of these assets, such as brand names and licenses and customers lists, need to
be amortized over their estimated lives and hence we record an expense to reflect this. This expense impacts our
reported results and if we acquire more businesses, we would expect this expense to increase.
75
Key Operating and Financial Metrics
The key operating and financial metrics we use are set forth below. The following table sets forth our key
performance indicators for the years ended December 31, 2017, 2018 and 2019. In addition, we no longer believe
“Number of Orders” on the Farfetch Marketplace provides a meaningful view of business performance, and we will
not report this metric going forward. We also believe it is more useful to present AOV for both the Farfetch
Marketplace and Stadium Goods, as they operate at two different price points.
Year ended December 31,
2017
2019
2018
(in thousands, except per share data and AOV)
Consolidated Group:
Gross Merchandise Value ("GMV") (1)
Revenue
Adjusted Revenue (1)
Gross Profit
Gross Profit Margin
Loss After Tax
Adjusted EBITDA (1)
Adjusted EBITDA Margin (1)
Earnings Per Share (“EPS”)
Adjusted EPS (1)
Digital Platform:
Digital Platform GMV (1)
Digital Platform Services Revenue
Digital Platform Gross Profit
Digital Platform Gross Profit Margin (1)
Digital Platform Order Contribution (1)
Digital Platform Order Contribution Margin (1)
Active Consumers (1)
Average Order Value - Marketplace (1)
Average Order Value - Stadium Goods (1)
Brand Platform:
Brand Platform GMV (1)
Brand Platform Revenue
Brand Platform Gross Profit
Brand Platform Gross Profit Margin
$
$
$
$
$
909,826 $ 1,407,698 $ 2,139,699
1,021,037
602,384
385,966
893,077
504,590
311,784
459,846
298,450
204,766
49.5%
45.0%
53.1%
(373,688 )
(155,575 )
(112,275 )
(121,376 )
(95,960 )
(58,079 )
(13.6%)
(19.0%)
(18.6%)
(1.21 )
(0.56 )
(0.59 ) $
(0.38 )
(0.50 ) $
(0.39 )
894,392 $ 1,392,103 $ 1,947,868
701,246
488,995
296,350
371,913
291,706
196,581
53.0%
59.7%
66.3%
220,563
194,411
127,379
31.5%
39.8%
43.0%
2,068
936
1,382
608
620 $
315
-
619 $
-
$
-
-
-
-
- $
-
-
-
164,210
164,210
75,007
45.7%
(1)
See Item 3. “Key Information — A. Selected Financial Data — Non-IFRS and Other Financial and Other Operating Metrics” for a definition, explanation
and, as applicable, reconciliation these measures.
A. Operating Results
This section on operating results analyzes both the consolidated Group results and the results by segment.
76
Key Operating Results and Operating Metrics of the Group
The following tables shows our consolidated results of operations for the years ended December 31, 2017,
2018 and 2019 and as a percentage of revenue.
Revenue
Cost of revenue
Gross profit
Selling, general and administrative
(Losses)/ gains on items held at fair value
Share of profits of associates
Operating loss
Net finance income/(costs)
Loss before tax
Income tax expense
Loss after tax
Revenue
Cost of revenue
Gross profit
Selling, general and administrative
(Losses)/ gains on items held at fair value
Share of profits of associates
Operating loss
Net finance income/(costs)
Loss before tax
Income tax expense
Loss after tax
2017
2019
Year ended December 31,
2018
(in thousands)
$ 385,966 $ 602,384 $ 1,021,037
(561,191 )
459,846
(869,609 )
21,721
366
(387,676 )
15,150
(372,526 )
(1,162 )
$ (112,275 ) $ (155,575 ) $ (373,688 )
(303,934 )
298,450
(471,766 )
-
33
(173,283 )
19,866
(153,417 )
(2,158 )
(181,200 )
204,766
(295,960 )
(3,300 )
31
(94,463 )
(17,642 )
(112,105 )
(170 )
2017
Year ended December 31,
2018
(in percentages)
100.0 %
(50.5 )
49.5
(78.3 )
-
(0.0 )
(28.8 )
3.3
(25.5 )
(0.4 )
(25.9 %)
100.0 %
(46.9 )
53.1
(76.7 )
(0.7 )
(0.0 )
(24.3 )
(4.6 )
(28.9 )
(0.1 )
(29.0 %)
2019
100.0 %
(55.0 )
45.0
(85.1 )
2.1
0.0
(38.0 )
1.5
(36.5 )
(0.1 )
(36.6 %)
Comparison of Year Ended December 31, 2018 and 2019
Revenue
Revenue
Less: Digital Platform Fulfilment Revenue
Adjusted Revenue
Year ended December 31,
2018
2019
$ Change % Change
(in thousands)
$ 602,384 $ 1,021,037 $ 418,653
(97,794 ) (127,960 ) (30,166 )
$ 504,590 $ 893,077 $ 388,487
69.5 %
30.8 %
77.0 %
77
Revenue by type of good or service consisted of the following components:
Digital Platform Services Revenue
Digital Platform Fulfilment Revenue
Brand Platform Revenue
In-Store Revenue
Total Revenue
Year ended December 31,
2018
2019
$ Change % Change
(in thousands)
$ 488,995
97,794
-
15,595
$ 602,384
$ 701,246 $ 212,251
127,960 30,166
164,210 164,210
27,621 12,026
$ 1,021,037 $ 418,653
43.4 %
30.8 %
n/a
77.1 %
69.5 %
Revenue for the year ended December 31, 2019 increased by $418.7 million, or 69.5%, compared to the year
ended December 31, 2018. Adjusted Revenue for the year ended December 31, 2019 increased by $388.5 million, or
77.0%, compared to the year ended December 31, 2018.
The increase was primarily driven by 43.4% growth in Digital Platform Services Revenue to $701.2 million,
and the addition of Brand Platform Revenue following the acquisition of New Guards which contributed $164.2
million in the five months to December 31, 2019. Digital Platform Fulfilment Revenue increased 30.8% to $128.0
million driven by Digital Platform Services GMV. In-Store Revenue increased 77.1% to $27.6 million primarily due
to the addition of revenue from New Guards’ and Stadium Goods directly-operated stores as well as growth in
Browns stores.
The increase in Digital Platform Services Revenue of 43.4% was driven by 39.9% growth in Digital
Platform GMV, including 75.5% growth in first-party Digital Platform GMV, which is included in Digital Platform
Services Revenue at 100% of the GMV. This was partially offset by a decline in Third-Party Take Rate from 32.0%
to 30.7% year-over-year driven by an increased proportion of supply direct from brand partners in 2019. The
increase in Digital Platform GMV was primarily driven by increases in Active Consumers from 1,382,000 at
December 31, 2018, to 2,068,000 at December 31, 2019 (an increase of approximately 50%) year-over-year, driving
an increase in the volume of orders, partially offset by a decrease in the blended Marketplace and Stadium Goods
Average Order Values across the Digital Platform.
Digital Platform Fulfilment Revenue represents the pass-through of delivery and duties charges incurred by
our global logistics solutions, net of any Farfetch-funded customer promotions and incentives. Digital Platform
Fulfilment Revenue accounted for 12.5% of Revenue in 2019, down from 16.2% in 2018. While Digital Platform
Fulfilment Revenue would be expected to grow in line with the cost of delivery and duties, which increase as Digital
Platform GMV and order volumes grow, an increase in the level of Farfetch-funded promotions and incentives will
decrease Digital Platform Fulfilment Revenue, as Digital Platform Fulfilment Revenue is recorded net of such
promotions. Digital Platform Fulfilment Revenue increased 30.8%, a lower rate as compared to Digital Platform
Services Revenue growth, due to an increase in the number of promotions across the first three quarters of the year.
Cost of revenue, gross profit and gross profit margin
Cost of revenue
Gross profit
Gross profit margin
Year ended December 31,
2018
2019
$ Change % Change
(in thousands)
$ (303,934 ) $ (561,191 ) $ (257,257 )
298,450 459,846 161,396
(84.6 %)
54.1 %
49.5 %
45.0 %
Cost of revenue for the year ended December 31, 2019 increased by $257.3 million, or (84.6%), compared to
the year ended December 31, 2018, which was primarily driven by the increases in first-party GMV and the
associated cost of goods, delivery costs associated with order fulfilment, duties incurred on cross-border
transactions, cost of goods sold related to our increase in In-Store revenue and the addition of Brand Platform
following the acquisition of New Guards which contributed $89.2 million in the 5 months to December 31, 2019.
78
Our gross profit margin decreased from 49.5% to 45.0% for the year ended December 31, 2018 to the year
ended December 31, 2019. This was primarily driven by a lower Digital Platform Gross Profit Margin which
decreased from 59.7% for the year ended December 31, 2018, to 53.0% for the year ended December 31, 2019, due
to an increased mix of first-party sales, as well as an increase of brand partner third-party sales in our total third-
party sales mix, both of which have lower gross margin profiles, as well as the inclusion of the Brand Platform in the
five months to December 31, 2019, which has a lower gross profit margin. The impacts were partially offset by an
increase of In-Store gross profit margin, primarily due to the addition of New Guards’ directly-operated stores.
Selling, general and administrative expenses
Selling, general and administrative expenses consists of the following components:
Demand generation expense
Technology expense
Depreciation and amortization
Share based payments
General and administrative
Other items
Total
Year ended
December 31,
% of Adjusted
Revenue
2018
2019
% Change
2018
2019
(in thousands)
(55.6 %) (19.3 %) (16.9 %)
$ (97,295 ) $ (151,350 )
(68,224 ) (84,207 )
(9.4 %)
(13.5 %)
(23.4 )
(4.7 %) (12.7 %)
(23,537 ) (113,591 ) (382.6 )
(10.7 %) (17.7 %)
(53,819 ) (158,422 ) (194.4 )
(45.4 %) (38.7 %)
(51.0 )
(228,891 ) (345,665 )
(1.8 %)
n/a
- (16,374 )
n/a
(84.3 %) (93.5 %) (97.4 %)
$ (471,766 ) $ (869,609 )
Included within Other items are legal expenses related to acquisition activity and (gains)/losses on items held
at fair value through profit and loss.
Demand generation expense
Year ended
December 31,
2018
2019
$ Change % Change
(in thousands)
Demand generation expense
$ (97,295 ) $ (151,350 ) $ (54,055 )
(55.6 %)
Demand generation expense consists primarily of fees that we pay on various media and affiliate partners.
Demand generation expense for the year ended December 31, 2019 increased by $54.1 million, or (55.6%),
compared to the year ended December 31, 2018. Demand generation expense increased as a percentage of Digital
Platform Services Revenue from (19.9%) in 2018 to (21.6%) in 2019, due to a higher proportion of paid investments
in customer acquisition and retention efforts. This increase contributed to the higher volume of orders and Active
Consumers. We continue to gain efficiencies in our demand generation spend by leveraging data insights to be more
targeted in our digital marketing approach, and by scaling marketing operations globally.
Technology expense
Technology expense
Capitalized development costs
Total cash investment in technology
Year ended
December 31,
2018
2019
$ Change % Change
(in thousands)
$ (68,224 ) $ (84,207 ) $ (15,983 )
(50,978 ) (78,401 ) (27,423 )
$ (119,202 ) $ (162,608 ) $ (43,406 )
(23.4 %)
(53.8 %)
(36.4 %)
79
Technology expense consists of technology research and of development, staffing costs and other IT costs,
including software licensing. Technology expense for the year ended December 31, 2019 increased by
$16.0 million, compared to the year ended December 31, 2018. This was primarily driven by a 27.6% increase in
technology staff headcount from 1,190 to 1,518 during 2019, as we continued to develop new technologies and
enhance our digital platform features and services, as well as increased software, hosting and infrastructure
expenses, to support the continued growth of the business. We continue to operate three globally distributed data
centers, which support the processing of our growing base of transactions, including one in Shanghai dedicated to
serving our Chinese customers.
Total investment in technology amounted to $162.6 million during 2019, $78.4 million of which was
capitalized ($2.1 million relates to acquired intangible assets as part of the acquisition of CuriosityChina) as
compared to a total of $119.2 million during 2018, $51.0 million of which was capitalized.
Depreciation and amortization
Year ended
December 31,
2018
2019
$ Change % Change
(in thousands)
Depreciation and amortization
$ (23,537 ) $ (113,591 ) $ (90,054 )
(382.6 %)
Depreciation and amortization expense for the year ended December 31, 2019, increased by $90.1 million, or
(382.6%), compared to the year ended December 31, 2018, primarily driven by $68.9 million increase in our
amortization expenses from $16.2 million to $85.1 million year-over-year. Amortization expense increased
principally due to $55.4 million of amortization recognized on acquired intangible assets following the acquisitions
of New Guards, Stadium Goods and Toplife during 2019. We also continued our technology investments, where
qualifying technology development costs are capitalized and amortized over a three-year period, which contributed
$13.5 million to the increase in amortization expense year-over-year. Depreciation expense also increased by $21.2
million, primarily driven by the first-time adoption of the new leasing accounting standard, IFRS 16, on January 1,
2019, resulting in our recognition of $19.6 million of depreciation related to right-of-use assets in the year ended
December 31, 2019. In 2018, the comparative expense for operating leases was included in general and
administrative expense.
Share based payments
Share based payments
Year ended
December 31,
2018
2019
$ Change % Change
(in thousands)
$ (53,819 ) $ (158,422 ) $ (104,603 )
(194.4 %)
Share based payments for the year ended December 31, 2019 increased by $104.6 million, or (194.4%),
compared to the year ended December 31, 2018, which was primarily driven by the increase in employee grants due
to an increase in headcount, and the additional acquisitions related grants during 2019. The movement year-on-year
is also impacted by the share price trend, and the associated impact on cash settled share options and provisions for
employment related taxes. These are remeasured at each reporting date, whereas the equity settled plans are
measured at the grant date.
80
General and administrative expense
General and administrative
Year ended
December 31,
2018
2019
$ Change % Change
(in thousands)
$ (228,891 ) $ (345,665 ) $ (116,774 )
(51.0 %)
General and administrative expense for the year ended December 31, 2019 increased by $116.8 million, or
(51.0%), compared to the year ended December 31, 2018, which was driven by the additional expenses related to
Stadium Goods and New Guards, both of which were acquired during 2019, and an increase in headcount, excluding
technology staff which are included in the technology expense above, from 1,991 to 3,067, an increase of 54.0%.
We increased non-technology headcount across a number of areas to support the expansion of our business. Other
increases were due to facilities and office costs and other fixed overhead costs. This was partially offset by a lower
total employee cost per person and the impact of adopting IFRS 16 on January 1, 2019 as described above. General
and administrative costs as a percentage of Adjusted Revenue decreased from (45.4%) to (38.7%) reflecting the
impact of adopting IFRS 16, improved efficiency of our semi-variable and fixed costs, and the addition of New
Guards, which operates with lower general and administrative costs as a percentage of revenue.
Other Items
Transaction-related legal and advisory expenses
Impairment of investments carried at fair value
Release of tax provisions
Other items
Year ended
December 31,
2018
2019
$ Change % Change
(in thousands)
$
$
- $ (15,374 ) $ (15,374 )
(5,000 )
(5,000 )
-
-
4,000
4,000
- $ (16,374 ) $ (16,374 )
n/a
n/a
n/a
n/a
Other items represent items outside the normal scope of ordinary activities or non-cash items. Other items
totaled $16.4 million for the year ended December 31, 2019, consisting of $15.4 million of transaction-related legal
and advisory expenses and a $5.0 million loss on impairment of investments carried at fair value, partially offset by
a release of $4.0 million of provisions related to taxes
Gains on items held at fair value through profit and loss
Year ended
December 31,
2018
2019
$ Change
(in thousands)
%
Change
Change in fair value of put and call option liabilities
Change in fair value of acquisition related consideration
Gains on items held at fair value through profit and loss
$
$
$
- $ 43,247 $ 43,247
- $ (21,526 ) $ (21,526 )
- $ 21,721 $ 21,721
n/a
n/a
n/a
Fair value remeasurement totaled $21.7 million, resulting from a $44.8 million fair value revaluation gain
from the partnership with Chalhoub Group, due to the remeasurement of the fair value of the non-cash consideration
due to Chalhoub following the July 2019 completion of the previously announced partnership, partially offset by a
$1.6 million fair value revaluation loss from the consideration due for the subsequent acquisitions of the minority
interests in CuriosityChina, and a $21.5 million fair value remeasurement charge for shares issued in the acquisition
of New Guards. There were no such items in 2018.
81
Finance Income and Cost
Unrealised exchange gains
Interest on cash and cash equivalents and short-term deposits
Finance income
Unrealized exchange losses
Lease interest
Other interest expense
Finance costs
Net finance income/(costs)
2018
2019
$ Change % Change
(in thousands)
26,922
11,260
38,182
(17,779 )
-
(537 )
(18,316 )
22,856 (4,066 )
11,527
267
34,383 (3,799 )
(10,978 ) 6,801
(3,472 ) (3,472 )
(4,783 ) (4,246 )
(917 )
$ 19,866 $ 15,150 $ (4,716 )
(19,233 )
(15.1 %)
2.4 %
(9.9 %)
(38.3 %)
n/a
790.7 %
5.0 %
(23.7 %)
Unrealized exchange gains and losses fluctuate given the global nature of our business, where we earn
revenue and incur expenses in a number of different currencies. For our accounting policy for foreign currency
translations and how these are classified in our consolidated statement of operations, refer to Note 2.3(h) to our
consolidated financial statements included elsewhere in this Annual Report.
Lease interest expense for the year ended December 31, 2019 amounted to $3.5 million driven by the first-
time adoption of the new leasing accounting standard, IFRS 16, on January 1, 2019. For further information on the
impact of IFRS 16 and how leases are accounted for by the Group, refer to Note 17 to our consolidated financial
statements included elsewhere in this Annual Report.
Other interest expense for the year ended December 31, 2019, increased by $4.2 million, or (790.7%),
compared to the year ended December 31, 2018, primarily driven by costs associated with a senior secured loan
facility in place during 2019.
Adjusted EBITDA
Adjusted EBITDA
% of Adjusted Revenue
Year ended
December 31,
2018
2019
$ Change
(in thousands)
%
Change
$ (95,960 )
$ (121,376 )
$ (25,416 )
(26.5 %)
(19.0 %)
(13.6 %)
Adjusted EBITDA loss for the year ended December 31, 2019, increased by $25.4 million, or (26.5%),
compared to the year ended December 31, 2018. This was driven by an increase in general and administrative
expenses of $116.8 million, demand generation expense of $54.1 million and technology expense of $16.0 million,
partially offset by an increase in gross profit of $161.4 million, year-over-year, for the reasons described above.
Although there was an increase in the Adjusted EBITDA loss compared to the year ended December 31, 2018,
Adjusted EBITDA loss as a percentage of Adjusted Revenue decreased from (19.0%) to (13.6%), reflecting
operational synergies as we continued to scale our business and the impact of adopting IFRS 16 on January 1, 2019,
as described above, partially offset by a lower gross profit margin year-over-year.
Comparison of Year Ended December 31, 2017 and 2018
For a comparison of our consolidated results of operations for the years ended December 31, 2017 and 2018,
refer to pages 63 through 67 of our Annual Report on Form 20-F for the fiscal year ended December 31, 2018 filed
with the SEC on March 1, 2019.
82
Operating Results by Segment
Following the acquisition of New Guards, in the fourth quarter of 2019, we realigned our reportable
operating segments to reflect the manner in which the business had become organized and how performance had
become internally evaluated. Prior to this realignment, we had one reportable operating segment resulting from the
aggregation of four operating segments: (1) Farfetch Marketplace, (2) Farfetch Black and White, (3) Farfetch Store
of the Future and (4) Browns stores. As at December 31 2019, we have three operating segments (A) Digital
Platform, (B) Brand Platform and (C) In-Store. Historical periods presented in this Annual Report reflect our three
reportable operating segments.
Digital Platform
The Digital Platform segment activities include the Farfetch Marketplace, Farfetch Platforms Solutions,
StadiumGoods.com, Farfetch Store of the Future, and any other online sales channel operated by the Group,
including the respective websites of the brands in the New Guards portfolio. It derives its revenues mostly from
transactions between sellers and consumers conducted on our dematerialized platforms.
Brand Platform
The Brand Platform segment is comprised of business-to-business activities of the brands in the New Guards
portfolio. It includes design, production, brand development and wholesale distribution of brands owned and
licensed by New Guards, including the franchised store operations.
In-Store
The In-Store segment covers the activities of Group-operated stores including Browns, Stadium Goods and
stores for brands in the New Guards portfolio. Revenues are derived from sales made in the physical stores.
There are no intersegment transactions that require elimination. Order Contribution is used to assess the
performance and allocate resources between the segments. The operating segment disclosures required under IFRS 8
are provided in Note 6 (“Segmental and geographical information”) to our consolidated financial statements,
included elsewhere in this Annual Report. During the year ended December 31, 2018, we had reported only one
reportable operating segment.
The tables and discussion below set forth financial information and analysis of our three reportable operating
segments for the years ended December 31, 2017, 2018 and 2019:
Digital Platform:
Digital Platform:
Services Revenue
Fulfilment Revenue
Revenue
Less: Cost of revenue
Gross profit
Less: Demand generation expense
Order contribution
$
$
83
2017
296,350
74,182
370,532
(173,951 )
196,581
(69,202 )
127,379
Year ended December 31,
2018
(in thousands)
$
$
488,995
97,794
586,789
(295,080 )
291,706
(97,295 )
194,411 $
$
2019
701,246
127,960
829,206
(457,293 )
371,912
(151,350 )
220,562
Digital Platform grew across all measures of profitability reflecting the increased scale of our global
business, both from a supply and demand perspective. There has been significant organic growth as we continued to
expand our share of the online luxury market, further supplemented by our continued marketing efforts which
generated growth in new consumers and demand growth from existing consumers across international markets.
During 2019, the company made multiple acquisitions as described above including Stadium Goods, Toplife,
CuriosityChina, and New Guards which contributed to the continued scale and growth of our Digital Platform.
Digital Platform Services Revenue for the year ended December 31, 2019 increased by $212.2 million, or
43.4%, to $701.2 million, and for the year ended December 31, 2018 increased $192.6 million, or 65.0%.
This increase in 2019 was driven by 39.9% growth in Digital Platform GMV and 76.4% growth in first-party
Digital Platform GMV which is included in Digital Platform Services Revenue at 100% of the GMV. This was
partially offset by a decline in Third-Party Take Rate from 32.9% to 30.7% year-over-year driven by an increased
proportion of supply direct from brand partners in 2019. The increase in Digital Platform GMV was primarily driven
by increases in Active Consumers from 1,381,900 at December 31, 2018, to 2,067,500 at December 31, 2019 (an
increase of 49.6%) year-over-year, driving an increase in the volume of orders, partially offset by a decrease in
Average Order Values as a result of the acquisition of Stadium Goods.
The increase in 2018 was a function of growth in GMV of 55.7% partially offset by a decrease in Third-
Party Take Rate from 32.9% to 32.0% driven by changes in mix of supply between sellers with differing take-rates.
Growth in GMV was primarily driven by the orders increasing by over 50%. This was driven by growth in Active
Consumers from 936,000 to 1,382,000 (an increase of approximately 48%) over the same period, which reflects our
marketing efforts to generate continued growth in demand from existing consumers across international markets
together with an increase in new consumer orders.
Digital Platform Fulfilment Revenue represents the pass-through of delivery and duties charges incurred by
our global logistics solutions, net of any Farfetch-funded customer promotions and incentives. Whilst Digital
Platform Fulfilment Revenue would be expected to grow in line with the cost of delivery and duties, which increase
as Digital Platform GMV and order volumes grow, an increase in the level of Farfetch-funded promotions and
incentives will decrease Digital Platform Fulfilment Revenue, as Digital Platform Fulfilment Revenue is recorded
net of such promotions. Digital Platform Fulfilment Revenue increased 30.8% in 2019 and 31.8% in 2018, a lower
rate as compared to Digital Platform Services Revenue growth, due to an increase in the volume of orders including
free-shipping and other promotions.
Cost of revenue for the year ended December 31, 2019 increased by $257.3 million, or 84.6%, compared to
the year ended December 31, 2018, and by $121.1 million for the year ended December 31, 2018, compared to the
year ended December 31, 2017, which was primarily driven by the increases in first-party GMV and the associated
cost of goods, delivery costs associated with order fulfilment, duties incurred on cross-border transactions.
Our Digital Platform gross profit margin decreased from 59.7% to 53.0% for the year ended December 31,
2018 to the year ended December 31, 2019, and from 66.3% to 59.7% for the year ended December 31, 2017 to the
year ended December 31, 2018, due to an increased mix of first-party sales, as well as an increase of brand partner
third-party sales in our total third-party sales mix, both of which have differing gross margin profiles.
Demand generation expense for the year ended December 31, 2019 increased by $54.1 million, or 55.6%,
compared to the year ended December 31, 2018 and by $28.1 million or 40.6% for the year ended December 31,
2018 compared to the year ended December 31, 2017. Demand generation expense as a percentage of Digital
Platform Services Revenue moved from (23.4%) in 2017, (19.9%) in 2018 to (21.6%) in 2019, due to a period of
improved efficiencies in our spend and scalability in our marketing operations in 2018, followed by a period of
higher proportion of paid investments in customer acquisition and retention efforts in 2019 in our existing markets
and in our continued international expansion into emerging markets across all channels.
Digital Platform Order Contribution Margin fell over the period, from 43.0% in 2017 to 39.8% in 2018 and
to 31.5% in 2019 due to the shift in mix towards first-party Digital Platform sales and brand partner sales, both with
differing gross margin profiles, and increased investments in customer acquisition and retention efforts.
84
Brand Platform:
Brand Platform:
Revenue
Less: Cost of revenue
Gross profit or order contribution
2017
Year ended December 31,
2018
(in thousands)
2019
n/a
n/a
-
$
$
n/a
n/a
- $
164,210
(89,203 )
75,007
$
Brand Platform is a new segment in 2019, following the acquisition of New Guards in August 2019,
contributing with $164.2 million of Revenue and $75.0 million of Gross profit in the 5 months to December 31,
2019. Brand Platform expands the Farfetch Marketplace proposition with a broad selection from the New Guards’
portfolio of brands, including Off-White, Palm Angels, Heron Preston, and Marcelo Burlon County of Milan, along
with exclusive capsule collections and collaborations to further enrich the customer experience and boost consumer
engagement with the Farfetch brand.
In-Store:
In-Stores:
Revenue
Less: Cost of revenue
Gross profit or order contribution
2017
Year ended December 31,
2018
(in thousands)
2019
15,434
(7,249 )
8,185
$
15,595
(8,851 )
6,744 $
27,621
(14,695 )
12,926
$
In-Store segment Revenue increased 77.1% to $27.6 million in the period ended 2019, following a period of
growth stability and primarily due to the addition of revenue from New Guards and Stadium Goods directly-
operated stores as well as steady growth in Browns stores.
Changes in Accounting Policies and Disclosures
Amendments to Standards That Are Mandatorily Effective for the Current Year
During the year ended December 31, 2019, the Group has applied the below amendments to IFRSs issued by
the IASB that are mandatorily effective for an accounting period that began on or after January 1, 2019.
•
IFRS 16 Leases (effective January 1, 2019)
The adoption of this new standard has had a material impact on the disclosure and the amounts reported in
the consolidated financial statements. For further details, please see Note 2.4 and Note 17 to our consolidated
financial statements included in this Annual Report.
New and Revised Standards in Issue But Not Yet Effective
At the date of authorization of the consolidated financial statements, we have not applied the following new
and revised standards that have been issued but are not yet effective:
•
IFRS 3 Business Combinations (effective January 1, 2020)
‘Definition of a Business (Amendments to IFRS 3)’ clarifies the definition and application guidance for
when an entity assesses whether it has acquired a business or a group of assets. The amendments are effective for
business combinations for which the acquisition date is on or after the beginning of the first reporting period
beginning on or after January 1, 2020. See Note 2.4 to our consolidated financial statements included in this Annual
Report.
85
Critical Accounting Estimates and Judgments
Our consolidated financial statements are prepared in conformity with IFRS, as issued by the IASB. In
preparing our consolidated financial statements, we make assumptions, judgments and estimates that can have a
significant impact on amounts reported in our consolidated financial statements. We base our assumptions,
judgments and estimates on historical experience and various other factors that we believe to be reasonable under
the circumstances. Actual results could differ materially from these estimates under different assumptions or
conditions. We regularly reevaluate our assumptions, judgments and estimates. Our critical accounting estimates and
judgments are described in Note 3 to our consolidated financial statements included elsewhere in this Annual
Report.
B. Liquidity and Capital Resources
General
As of December 31, 2019, we had cash and cash equivalents of $322.4 million. Our cash and cash
equivalents consist primarily of cash in bank accounts and short-term deposits in money market funds.
Since our inception, we have financed our operations primarily through equity issuances and cash generated
from our operating activities. Our primary requirements for liquidity and capital are to finance working capital,
capital expenditures, business combinations and general corporate purposes. On February 5, 2020, we completed the
private placement of convertible senior notes to Tencent and Dragoneer, pursuant to which we received $250 million
and issued the notes to the purchasers. The notes will mature on December 31, 2025, unless earlier converted,
redeemed or repurchased in accordance with their terms. We believe that our sources of liquidity and capital will be
sufficient to meet our business needs in the next 12 months. Our capital expenditures consist primarily of technology
development costs, computer equipment and the fit out and improvements to our offices.
The following table shows summary consolidated cash flow information for the periods presented.
Net cash outflow from operating activities
Net cash outflow from investing activities
Net cash inflow from financing activities
Net increase in cash and cash equivalents
Net Cash Outflow From Operating Activities
2017
2019
Year ended December 31,
2018
(in thousands)
$ (59,320 ) $ (116,205 ) $ (126,642 )
(583,503 )
(15,249 )
$ 211,959 $ 679,783 $ (725,394 )
(63,538 )
859,526
(28,863 )
300,142
Net cash outflow from operating activities increased by $10.4 million to $126.6 million in the year ended
December 31, 2019 compared to $116.2 million in the year ended December 31, 2018. The increase is mainly due to
an increase in the loss after tax adjusted for non-cash items of $66.3 million, partially offset by a benefit in working
capital of $57.8 million.
Net cash outflow from operating activities increased to $116.2 million in the year ended December 31, 2018
from $59.3 million in the year ended December 31, 2017, an increase of $56.9 million, or 96.0%. The increase was
primarily due to an increase in the loss after tax adjusted for non-cash items of $14.3 million and the movement
across working capital of $36.7 million.
Net Cash Outflow From Investing Activities
Net cash outflow from investing activities increased to $594.8 million in the year ended December 31, 2019
from $63.5 million in the year ended December 31, 2018, an increase of $531.3 million. The increase was primarily
due to the acquisitions of Stadium Goods, CuriosityChina and New Guards. See Note 5 on Business combinations
for more details.
86
Net cash outflow from investing activities increased to $63.5 million in the year ended December 31, 2018,
from $28.9 million in the year ended December 31, 2017, an increase of $34.6 million, or 119.7%. The increase was
primarily due to our continued investment in technology development (increasing from $19.0 million to $51.0
million over the period). In line with headcount growth, we increased investments in office facilities and computer
equipment spend, increasing from $12.6 million to $21.1 million over the period.
Net Cash Outflow From Financing Activities
Net cash outflow from financing activities was $15.3 million due mainly to repayments on finance leases.
Net cash inflow from financing activities increased to $859.5 million in the year ended December 31, 2018,
from $300.1 million in the year ended December 31, 2017, an increase of $559.4 million. The increase in cash from
financing activities was primarily driven by our IPO in the third fiscal quarter of 2018 which raised $775.7 million,
net of issue costs. Other contributing factors include the series G funding round follow-on where the company raised
$82.3 million, net of issue costs.
Indebtedness
On February 5, 2020, we completed the private placement of convertible senior notes (the “Notes”) to
Tencent and Dragoneer (together, the “Purchasers”), pursuant to which we received $250 million and issued the
Notes to the Purchasers. The Notes will mature on December 31, 2025, unless earlier converted, redeemed or
repurchased in accordance with their terms. The Notes are our senior, unsecured obligations and bear interest at a
rate of 5% per year, payable quarterly in arrears on March 31, June 30, September 30, and December 31 of each
year, commencing on March 31, 2020. The Notes may be converted at an initial conversion price of $12.25. Upon
conversion, the Notes will be settled, at our election, in our Class A ordinary shares, cash, or a combination of cash
and Class A ordinary shares (subject to certain exceptions set forth in the Indenture). Holders of the Notes will have
the right to require us to repurchase all or some of their Notes for cash at 100% (or 150%, in the event of a change in
control, as defined in the Indenture) of their principal amount, plus all accrued and unpaid interest to, and including,
the maturity date, upon the occurrence of certain corporate events, subject to certain conditions.
We may not redeem the Notes prior to the fourth anniversary of the closing date, unless certain changes in
tax law or other related events occur. We may redeem all, but not less than all, of the Notes, at our option, four years
after the closing date, but on or before the 35th scheduled trading day immediately preceding the maturity date, at a
redemption price equal to 165% of the principal amount of the Notes to be redeemed, plus accrued and unpaid
interest to, and excluding, the redemption date.
Share Based Payments
Employees receive remuneration in the form of share based payments in the form of either equity or cash
settled depending on the scheme. For further details, See Note 2.3 (o), to our consolidated financial statements
included elsewhere in this Annual Report for further detail.
C. Research and Development, Patents and Licenses, etc.
See Note 10 to our consolidated financial statements included in this Annual Report.
D. Trend Information
Other than as disclosed elsewhere in this Annual Report, we are not aware of any trends, uncertainties,
demands, commitments or events since December 31, 2019 that are reasonably likely to have a material adverse
effect on our revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed
financial information to be not necessarily indicative of future operating results or financial conditions.
87
E. Off-Balance Sheet Arrangements
In the ordinary course of business, we enter into lease commitments and capital commitments. These
transactions are recognized in the consolidated financial statements in accordance with IFRS, as issued by the IASB,
and are more fully disclosed therein.
As of December 31, 2019, there were no off-balance sheet arrangements reasonably likely to have a material
effect on the Company.
F. Tabular Disclosure of Contractual Obligations
The following table sets forth our contractual obligations as of December 31, 2019:
Contractual Obligations
Operating Lease Obligations
Purchase Obligations
Total
Payments due by period
Total
Less than
1 year
1-3 years 3-5 years
more than
5 years
(in thousands)
$ 140,268 $ 24,065 $ 44,282 $ 34,705 $ 37,216
-
86,249 67,517 18,732
$ 226,517 $ 91,582 $ 63,014 $ 34,705 $ 37,216
-
The contractual obligations relate primarily to marketing, consulting, maintenance, license agreements, cloud
services, and other third-party agreements.
G. Safe Harbor
See the section entitled "Cautionary Statement Regarding Forward-Looking Statements" at the beginning of
this Annual Report.
Item 6. Directors, Senior Management and Employees
A. Directors and Senior Management
Executive Officers and Board Members
The following table presents information about our current executive officers and Board, including their ages
as of March 11, 2020:
Name
Executive Officers
José Neves
Elliot Jordan
Stephanie Phair
Board Members
Dana Evan(1)(2)
Jon Kamaluddin(1)
Dr. Jon Jainwen Liao, PhD
Natalie Massenet(3)
Danny Rimer(2)(3)
Michael A. Risman(1)
David Rosenblatt(2)(3)
(1)
(2)
(3)
Member of the audit committee.
Member of the compensation committee.
Member of the nominating and corporate governance committee.
Age
45
44
41
60
46
52
54
49
51
51
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Position
Chief Executive Officer and Co-Chair of the Board
Chief Financial Officer
Chief Customer Officer
Board Member
Board Member
Board Member
Co-Chair of the Board
Board Member
Board Member
Board Member
The current business addresses for our executive officers and Board is c/o Farfetch Limited, The Bower, 211
Old Street, London EC1V 9NR, United Kingdom.
Executive Officers
José Neves is our founder and has served as our Chief Executive Officer since 2008. He is also Co-Chair of
our Board. Mr. Neves has been involved in luxury fashion since the mid-1990s when he launched footwear business
SWEAR. Mr. Neves later founded SIX London, and in 2001, Mr. Neves opened the B-Store, which won the British
Fashion Award for Retailer of the Year in 2006. Mr. Neves served on the British Fashion Council board from 2016
to 2018. Mr. Neves currently serves on the boards of several private companies. Mr. Neves studied Economics at the
Universidade do Porto in Portugal.
Elliot Jordan has served as our Chief Financial Officer since 2015. Prior to joining us, Mr. Jordan was
Director of Finance at ASOS.com, before which he held various senior finance roles at J Sainsbury plc. Mr. Jordan
is a Non-Executive Board Member and Chair of the Audit Committee at HM Land Registry. Mr. Jordan holds a
degree from the University of Waikato and is a qualified chartered accountant with the Chartered Accountants of
Australia and New Zealand.
Stephanie Phair has served as our Chief Customer Officer since August 2019, prior to which she had served
as our Chief Strategy Officer since November 2016. Ms. Phair was previously founder and President of
TheOutnet.com and was part of the Executive team of the Net-a-Porter Group from 2009 to 2015. She has more than
20 years of luxury and e-commerce experience, having worked for Issey Miyake, American Vogue and at Portero in
New York. Most recently, she has consulted with a number of start-ups in the digital space and advised private
equity firms on investments. She is also an advisor for venture capital firm Felix Capital and sits on the board of
Moncler SpA. In May 2018, Ms. Phair was appointed as chairman of the British Fashion Council. Ms. Phair holds
an MA in Politics, Philosophy and Economics from Oxford University and speaks four languages.
Board Members
Dana Evan has served as a non-executive director since April 2015. Ms. Evan is a venture partner at Icon
Ventures and has invested in and served on the boards of companies in the internet, technology and media sectors
since 2007. Between 1996 and 2007, Ms. Evan served as Chief Financial Officer of VeriSign, Inc. Ms. Evan brings
over 25 years of executive leadership experience in global finance and operations management in the technology
and media sectors. Ms. Evan currently serves on the boards of Survey Monkey Inc., Domo Inc., Box, Inc. and
Proofpoint, Inc. Ms. Evan also serves on the board of a private technology company. Ms. Evan has also served on
the board of directors of Criteo S.A. from 2013 to 2017, Fusion-IO, Inc. from 2011 until it was acquired by SanDisk
in August 2014, Everyday Health Inc. until it was acquired by Ziff Davis, LLC in December 2016, and Omniture,
Inc., until it was acquired by Adobe Systems Inc. in 2009. In 2019, Ms. Evan was selected as the Director of the
Year by the National Association of Corporate Directors. Ms. Evan holds a B.S. degree in Commerce from the
University of Santa Clara and is a Certified Public Accountant (inactive).
Jon Kamaluddin has served as a non-executive director since June 2015. Mr. Kamaluddin brings over 16
years of executive experience in creative consumer brands and related enabling-technologies investment, e-
commerce and technology. Mr. Kamaluddin served as a member of the board of ASOS PLC between 2004 and
2013, while spending five years as the Financial Director and the Company Secretary before moving to the
International Director position. Mr. Kamaluddin serves on the boards of several private companies and as Chairman
of one such private company board. Mr. Kamaluddin holds a degree from the University of Bristol. Mr. Kamaluddin
is a Fellow of the Institute of Chartered Accountants in England and Wales.
Dr. Jon Jainwen Liao, Ph.D. has served as a non-executive director since February 2019. Dr. Liao is Chief
Strategy Officer of JD.com and oversees the development of JD’s global strategy, innovation, and corporate
development. Prior to joining JD.com in April 2017, Dr. Liao served as Professor of Strategy and Innovation and
Associate Dean at Cheung Kong Graduate School of Business. Dr. Liao currently serves on the board of several
companies, including China United Network Communications Limited, Yonghui Superstores Co., Ltd. and
Chongqing Tesilian Intelligent Technology Co., Ltd., among others. Dr. Liao holds a Ph.D. in Business
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Administration from Southern Illinois University, a master of arts in Foreign Economics and Management from
Renmin University of China and a bachelor of science in Industrial Engineering from Northeastern University.
Dame Natalie Massenet, DBE has served as a non-executive director and Co-Chair of our Board since
February 2017. Ms. Massenet is currently the Co-Managing Partner of Imaginary Ventures, whose portfolio
companies include Everlane, Reformation and Good American. In 2000, Ms. Massenet founded and launched her e-
commerce venture, Net-A-Porter, a luxury fashion online retailer. Ms. Massenet served as Executive Chairman until
September 2015, when she stepped down following the YOOX and Net-a-Porter merger. Ms. Massenet previously
served on the British Fashion Council as Chairman from 2012 to 2017. In 2009, Ms. Massenet was awarded an
MBE, and in January 2016, she was made a Dame Commander of the Order of the British Empire. Both awards
were in recognition of her contributions to the United Kingdom fashion and retail industries. Ms. Massenet holds a
degree from University of California, Los Angeles.
Danny Rimer has served as an observer since 2011 and as a non-executive director since February 2015.
Mr. Rimer has been a partner at Index Ventures, a venture capital firm, since 2002. Mr. Rimer currently serves as
non-executive director on the boards of several private companies. From 2008 to 2015, Mr. Rimer served on the
boards of Boku and British Sky Broadcasting Group plc, and from 2012 to 2015, he served on the board of Etsy Inc.
Mr. Rimer also previously held board positions with Betfair, Dropbox and Skype. He was appointed an Officer of
the Order of the British Empire (OBE) in 2017 for services to business and charity. Mr. Rimer holds a degree from
Harvard University.
Michael A. Risman has served as a non-executive director since April 2014. Mr. Risman is Managing
Partner and a founding member of Vitruvian Partners, having co-founded the firm in 2006. Prior to Vitruvian,
Mr. Risman spent ten years at Apax Partners where he was a Global Equity Partner and led their Information
Technology Investment Team in Europe. Between 2012 and 2016, Mr. Risman served as a non-executive director of
Just Eat plc, and he previously served on the board of Dialog Semiconductor Plc. Mr. Risman currently serves on
the boards of several private companies as non-executive director. Mr. Risman has a degree from the University of
Cambridge and an MBA from Harvard Business School.
David Rosenblatt has served as non-executive director since May 2017. Since 2011, Mr. Rosenblatt has
served as the Chief Executive Officer of 1stdibs.com and also serves on its board of directors. From 2004 through
2008, Mr. Rosenblatt served as the Chief Executive Officer of DoubleClick. Following Mr. Rosenblatt’s sale of
DoubleClick to Google in 2007, he served as Google’s President of Display Advertising until 2009. Mr. Rosenblatt
currently serves on the boards of Twitter and IAC/InterActive Corp, where he also serves on the Compensation
Committee. He has previously served on the board of Narrative Science, Inc. and was Chairman and co-founder of
Group Commerce, Inc. Mr. Rosenblatt has a degree from Yale University and a MBA from the Stanford University
Graduate School of Business.
Director Nomination and Appointment Rights
On June 21, 2017, Kadi Group Holding Limited (“Kadi Group”), a wholly owned subsidiary of JD.com,
completed the purchase of an equity interest in Farfetch.com. In connection with Kadi Group’s purchase of shares of
Farfetch.com, Kadi Group and José Neves entered into a commitment agreement, as amended, pursuant to which
Mr. Neves agreed to exercise all voting rights held directly or indirectly by him in favor of any shareholder
resolution proposing to appoint Mr. Liu, the Chairman and Chief Executive Officer and controlling shareholder of
JD.com, a former director on our Board, as a director of the Company and to use all reasonable endeavors to seek
commitment from certain other investors to support Mr. Liu remaining as a director of the Company. In February
2019, the parties entered into an amended and restated commitment agreement providing that Dr. Liao or another
senior executive of JD.com designated by JD.com serve on our board, provided that Dr. Liao or such other JD.com
designee be recommended for such Board service by our nominating and corporate governance committee. The
amended and restated commitment agreement is otherwise substantively similar to the original commitment
agreement and provides that Mr. Neves will exercise all voting rights held by him in favor of any shareholder
resolution proposing to appoint Dr. Liao, or other designated JD.com senior executive as a director of the Company
and to use all reasonable endeavors to seek commitment from certain other investors to support Dr. Liao remaining
as a director of the Company. This obligation is conditional on JD.com holding no less than 33,658,328 Class A
ordinary shares (subject to appropriate adjustment for any share split, consolidation or similar event). See Item 7.
“Major Shareholders and Related Party Transactions—B. Related Party Transactions.”
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B. Compensation
Compensation
We set out below the amount of compensation paid and benefits in kind provided by us or our subsidiaries to
our executive officers and members of our Board for services in all capacities to us or our subsidiaries for the year
ended December 31, 2019, as well as the amount contributed by us or our subsidiaries to retirement benefit plans for
our executive officers and members of our Board.
Executive Officer and Board Member Compensation
The compensation for each of our executive officers is comprised of the following elements: base salary, an
annual incentive tied to achievement of company and individual performance, contractual benefits, and pension
contributions. Total cash compensation paid and benefits in kind provided to our executive officers and members of
our Board for the year ended December 31, 2019 was $2,125,000. In addition, our executive officers and members
of our Board were granted an aggregate of 2,044,169 shares subject to stock options in the year ended December 31,
2019 pursuant to the 2018 Farfetch Employee Equity Plan (as defined below). These stock options are subject to
varying vesting schedules over a multi-year period. We have not set aside or accrued any amounts to provide
pension, retirement or similar benefits to our executive officers or members of our Board.
Executive Officer Employment Agreements and Board Member Service Agreements
Our executive officers each currently have an employment agreement providing for employment for an
indefinite period of time, subject to a three-month (in the case of Ms. Phair), six-month (in the case of Mr. Jordan) or
twelve-month (in the case of Mr. Neves) notice period upon termination of employment by either the executive or
us, other than terminations for gross misconduct. Andrew Robb, our former Chief Operating Officer, terminated his
employment agreement as of February 5, 2020.
We have also entered into written service agreements with each of Dana Evan, Jonathan Kamaluddin, David
Rosenblatt and Natalie Massenet, each of whom serves as director on our Board, providing for an indefinite period
of service and the grant of equity awards. These agreements provide for a three-month notice period upon
termination of service by either party (other than terminations for gross misconduct), but do not provide for any
other benefits upon a termination of service. We have not entered into written employment or service agreements
with any of our other non-employee directors in connection with such person’s service in such capacity. However,
we may in the future enter into employment or service agreements with such individuals, the terms of which may
provide for, among other things, cash or equity based compensation and benefits.
Long-Term Incentive Plans
Farfetch.com Limited Share Option Scheme
The Farfetch.com Limited Share Option Scheme (the “Share Option Plan”) allows for the grant of options to
purchase Farfetch.com ordinary shares to eligible directors or employees of Farfetch.com, or its subsidiaries. The
Share Option Plan is administered by our Board whose decisions on all disputes and matters concerning the
interpretation of the rules are final. Options granted under the Share Option Plan are governed by the rules of the
Share Option Plan and an option agreement entered into with each participant. The options generally vest over four
years from the date of grant of the option, subject to the participant’s continued employment by us. The Share
Option Plan is closed to any new grants.
Farfetch.com Limited 2015 Long-Term Incentive Plan
The Farfetch.com Limited 2015 Long-Term Incentive Plan (the “LTIP”) allows for the grant of options to
purchase Farfetch.com ordinary shares, restricted shares and linked awards to eligible directors or employees of it or
its subsidiaries. The LTIP is administered by our Board whose decisions on all disputes and matters concerning the
interpretation of the rules are final. No restricted shares have been granted under the LTIP. Options granted pursuant
to the LTIP vest over four years subject to the participant’s continued employment by us. The LTIP is closed to any
new grants.
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Pursuant to the LTIP, we entered into linked award deeds (the “Linked Award Deeds”) with certain
employees, which provide the employee with the simultaneous award of an option to purchase ordinary shares and
the issuance of restricted linked Class A ordinary shares (together a, “Linked Award”). The restricted Class A
ordinary shares are not transferable.
The restricted linked ordinary shares held by an employee converted into restricted Class A ordinary shares
immediately prior to the initial public offering in September 2018. On each occasion that the employee proposes to
realize the Linked Awards, a formula (as set out in the applicable Linked Award Deed) is applied to calculate how
many linked shares will cease to be subject to restrictions on transfer to deliver to the employee the “in-the-money
value” of the Linked Award (i.e., market value of our Class A ordinary shares less the exercise price). If the in-the-
money value of the vested Linked Award is delivered by the release of linked shares, the options purported to be
exercised will lapse. To the extent the employee does not hold a sufficient number of linked shares to deliver the in-
the-money value of the Linked Award being exercised, then the option will be exercised over Class A ordinary
shares. As at December 31, 2019, there were 3,323,725 restricted linked Class A ordinary shares.
Additional Individual Option Schemes
We have entered into letter agreements with certain employees in connection with the acquisition of Fashion
Concierge UK Limited (“Fashion Concierge”) on October 31, 2017, as subsequently amended in August, 2019.
Pursuant to such letter agreements, certain employees will receive a grant of our shares if they (1) are employed (and
have not yet served or been served a notice of termination) on certain specified dates or (2) cease employment due to
a good leaver termination prior to such date(s) (such grant of shares, the “Deferred Share Issuance”). These
employees receive an additional grant of shares pursuant to such letter agreements, (the “Conditional Share
Issuance”) if (1) they are employed (and have not yet served or been served a notice of termination) on
December 31, 2020, or prior to this date, ceased to be employed due to a good leaver termination and (2) for the
2020 financial year a minimum weighted average commission of 7% has been achieved by Fashion Concierge. The
number of shares issued under the Conditional Share Issuance varies depending on the net transaction value
achieved by Fashion Concierge for the 2020 financial year.
Each of these employees received 25% of the shares issuable to such employee pursuant to the Deferred
Share Issuance on June 30, 2019. These employees will be eligible to receive the remaining 75% of the shares
issuable under the Deferred Share Issuance at the same time as the shares under the Conditional Share Issuance are
granted to such employees, if any, subject to their continued employment through such date (or prior to such date, a
cessation of their employment due to a good leaver termination).
2018 Farfetch Employee Equity Plan
We have adopted the 2018 Farfetch Employee Equity Plan (the “2018 Plan”), under which we may grant
cash and equity-based incentive awards in order to attract, motivate and retain the talent for which we compete. The
material terms of the 2018 Plan, are summarized below.
Eligibility and Administration. Our employees, consultants and directors, are eligible to receive awards
under the 2018 Plan. The 2018 Plan is administered by our Board with respect to awards to non-employee directors
and by the compensation committee with respect to other participants, each of which may delegate its duties and
responsibilities to committees of our directors and/or officers (referred to collectively as the plan administrator
below), subject to certain limitations that may be imposed under stock exchange rules. The plan administrator has
the authority to make all determinations and interpretations under, prescribe all forms for use with, and adopt rules
for the administration of, the 2018 Plan, subject to its express terms and conditions. The plan administrator also sets
the terms and conditions of all awards under the 2018 Plan, including any vesting and vesting acceleration
conditions.
Limitation on Awards and Shares Available. The aggregate number of our Class A ordinary shares that is
available for issuance under awards granted pursuant to the 2018 Plan is equal to the sum of (i) 27,500,112 Class A
ordinary shares and (ii) an annual increase on the first day of each year beginning in 2019 and ending in 2028, equal
to the lesser of (A) 5% of the Class A ordinary shares outstanding (on an as-converted basis) on the last day of the
immediately preceding fiscal year and (B) such smaller number of Class A ordinary shares as determined by our
Board, provided, however, no more than 98,209,661 shares may be issued upon the exercise of incentive share
options. The shares may be authorized but unissued shares, or shares purchased in the open market. If an award
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under the 2018 Plan is forfeited, expires or is settled for cash, any shares subject to such award may, to the extent of
such forfeiture, expiration or cash settlement, be used again for new grants under the 2018 Plan. However, the
following shares may not be used again for grant under the 2018 Plan: (1) shares tendered or withheld to satisfy
grant or exercise price or tax withholding obligations associated with an award; (2) shares subject to a share
appreciation right, or SAR, that are not issued in connection with the share settlement of the SAR on its exercise;
and (3) shares purchased on the open market with the cash proceeds from the exercise of options.
Awards granted under the 2018 Plan upon the assumption of, or in substitution for, awards authorized or
outstanding under a qualifying equity plan maintained by an entity with which we enter into a merger or similar
corporate transaction will not reduce the shares available for grant under the 2018 Plan. The maximum amount of
the grant date fair value of equity-based awards and the amount of any cash-based awards granted to a non-
employee director pursuant to the 2018 Plan during any calendar year will be $1,000,000, increased to $1,500,000 in
the fiscal year of his or her initial service as a non-employee director.
Awards. The 2018 Plan provides for the grant of share options, including incentive share options (“ISOs”)
and nonqualified share options (“NSOs”) restricted shares, dividend equivalents, share payments, restricted share
units (“RSUs”), performance shares, other incentive awards, share appreciation rights (“SARs”) and cash awards.
No determination has been made as to the types or amounts of awards that will be granted to specific individuals
pursuant to the 2018 Plan. Certain awards under the 2018 Plan may constitute or provide for a deferral of
compensation, subject to Section 409A of the Code, which may impose additional requirements on the terms and
conditions of such awards. All awards under the 2018 Plan will be set forth in award agreements, which will detail
all terms and conditions of the awards, including any applicable vesting and payment terms and post- termination
exercise limitations. Awards other than cash awards generally will be settled in Class A ordinary shares, but the plan
administrator may provide for cash settlement of any award.
Certain Transactions. The plan administrator has broad discretion to take action under the 2018 Plan, as
well as make adjustments to the terms and conditions of existing and future awards, to prevent the dilution or
enlargement of intended benefits and facilitate necessary or desirable changes in the event of certain transactions
and events affecting our Class A ordinary shares, such as share dividends, share splits, mergers, acquisitions,
consolidations and other corporate transactions. In addition, in the event of certain non-reciprocal transactions with
our shareholders known as “equity restructurings,” the plan administrator will make equitable adjustments to the
2018 Plan and outstanding awards. In the event of a change in control of our Company (as defined in the 2018 Plan),
to the extent that the surviving entity declines to continue, convert, assume or replace outstanding awards, then all
such awards will become fully vested and exercisable in connection with the transaction. Upon or in anticipation of
a change of control, the plan administrator may cause any outstanding awards to terminate at a specified time in the
future and give the participant the right to exercise such awards during a period of time determined by the plan
administrator in its sole discretion. Individual award agreements may provide for additional accelerated vesting and
payment provisions.
Non-U.S. Participants. The plan administrator may modify award terms, establish subplans and/or adjust
other terms and conditions of awards, subject to the share limits described above, in order to facilitate grants of
awards subject to the laws and/or stock exchange rules of countries outside of the United States.
Claw-Back Provisions, Transferability, and Participant Payments. All awards will be subject to the
provisions of any claw- back policy implemented by us to the extent set forth in such claw-back policy and/or in the
applicable award agreement. With limited exceptions for estate planning, domestic relations orders, certain
beneficiary designations and the laws of descent and distribution, awards under the 2018 Plan are generally non-
transferable prior to vesting, and are exercisable only by the participant. With regard to tax withholding, exercise
price and purchase price obligations arising in connection with awards under the 2018 Plan, the plan administrator
may, in its discretion, accept cash or check, our Class A ordinary shares that meet specified conditions, a “market
sell order” or such other consideration as it deems suitable.
Plan Amendment and Termination. Our Board may amend or terminate the 2018 Plan at any time; except
in connection with certain changes in our capital structure. No award may be granted pursuant to the 2018 Plan after
the tenth anniversary of the date on which our Board adopted the 2018 Plan.
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Section 162(m) Reliance Period. The 2018 Plan provides that to the maximum extent permitted under
applicable law, all awards granted pursuant to the 2018 Plan shall be interpreted to qualify for any post-public
offering reliance period deduction limit exception set forth in U.S. Treasury Regulation 1.162-27(f) (or any
successor thereto). Under current law, for newly public companies, Section 162(m) offers a transition relief period
during which time the $1,000,000 deduction limitation does not apply to certain plans or arrangements that existed
before the Company became publicly held. A company may generally rely on this transition relief period until the
earliest of (i) the expiration of the plan; (ii) the material modification of the plan; (iii) the issuance of all employer
share and other compensation allocated under the plan; or (iv) the first meeting of shareholders at which directors
are to be elected that occurs after the close of the third calendar year following the calendar year in which the initial
public offering occurs or, in the case of a private company that becomes publicly held without an initial public
offering, the first calendar year following the calendar year in which the company becomes publicly held.
Indemnification
Our executive officers and Board members have the benefit of indemnification provisions in our Articles.
These provisions give our executive officers and Board members the right, to the fullest extent permitted by law, to
recover from us amounts, including but not limited to litigation expenses, and any damages they are ordered to pay,
in relation to acts or omissions in the performance of their duties.
Insofar as indemnification of liabilities arising under the Securities Act may be permitted to executive
officers and Board members or persons controlling us pursuant to the foregoing provisions, we have been informed
that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
C. Board Practices
Board of Directors
We currently have eight directors, six of whom have been determined by the Board to qualify as
“independent” pursuant to the rules of the NYSE. Mr. Neves and Ms. Massenet are the Co-Chairs of our Board.
Directors can be appointed and removed and/or replaced by an ordinary resolution of the shareholders. In addition,
directors may be appointed either to fill a vacancy arising from the resignation of a former director or as an addition
to the existing Board by the affirmative vote of a simple majority of the directors present and voting at a Board
meeting, which shall include the affirmative vote of Mr. Neves for as long as he is a director. A director may also be
removed by notice from all of the other directors, which shall require the affirmative vote of Mr. Neves for as long
as he is a director. Each of our directors holds office until he or she resigns, retires by rotation or is recused from
office.
Board Committee Composition
The Board has established an audit committee, a compensation committee and a nominating and corporate
governance committee.
Audit Committee
The audit committee currently consists of Dana Evan, Jon Kamaluddin and Michael Risman, with Jon
Kamaluddin serving as Chair. The audit committee consists exclusively of members of our Board who are
financially literate, and each of Mr. Kamaluddin, Ms. Evan and Mr. Risman has been determined to qualify as an
“audit committee financial expert” as defined by applicable SEC rules. Our Board has determined that Messrs.
Kamaluddin and Risman and Ms. Evan each satisfy the “independence” requirements set forth in Rule 10A-3 under
the Exchange Act and that the simultaneous service by Ms. Evan on the audit committee of four other public
companies would not impair her ability to effectively serve on our audit committee. The audit committee is
governed by a charter that is available on our website at www.farfetchinvestors.com. The information contained on
our website is not incorporated by reference in this Annual Report.
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The audit committee is responsible for, among other things:
•
•
•
•
•
•
•
the appointment, compensation, retention and oversight of the independent registered public
accounting firm and any accounting firm engaged for the purpose of preparing or issuing an audit
report or performing other audit services;
pre-approving the audit services and non-audit services to be provided by our independent registered
public accounting firm before the firm is engaged to render such services;
evaluating the independent registered public accounting firm’s qualifications, performance and
independence on at least an annual basis;
reviewing and discussing with the Board and the independent registered public accounting firm our
annual consolidated financial statements and quarterly earnings releases prior to the filing of our
annual report and the public disclosure of our quarterly earnings releases;
reviewing our compliance with laws and regulations, including any initiatives or major litigation or
investigations against us that may have a material impact on our consolidated financial statements, and
assessing our risk management, compliance procedures and hiring of independent registered public
accounting firm employees;
approving or ratifying any related person transaction (as defined in our related person transaction
policy) in accordance with our related person transaction policy; and
reviewing with management and the independent registered public accounting firm, at least annually,
our code of conduct and reviewing and reassessing the adequacy of the procedures in place to enforce
the code of conduct.
The audit committee meets as often as one or more members of the audit committee deem necessary, but in
any event meets at least four times per year. The audit committee meets at least once per year with our independent
registered public accounting firm, without our executive officers being present.
Compensation Committee
The compensation committee currently consists of Dana Evan, Danny Rimer and David Rosenblatt, with
Dana Evan serving as Chair. Under applicable SEC and NYSE rules, there are heightened independence standards
for members of the compensation committee. All of the members of our compensation committee members meet
these heightened standards. The compensation committee is governed by a charter that is available on our website at
www.farfetchinvestors.com. The information contained on our website is not incorporated by reference in this
Annual Report.
The compensation committee is responsible for, among other things:
•
•
•
•
•
identifying, reviewing and approving corporate goals and objectives relevant to the compensation of
our Chief Executive Officer and evaluating the Chief Executive Officer’s performance in light of these
objectives and goals;
reviewing and setting compensation for our other executive officers and members of our executive
team;
determining the long-term incentive component of our management’s compensation in line with the
remuneration policy and reviewing our management’s compensation and benefits policies generally;
reviewing and making recommending to the Board regarding director compensation; and
reviewing and assessing risks arising from our compensation policies and practices for our employees
and whether any such risks are reasonably likely to have a material adverse effect on us.
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Nominating and Corporate Governance Committee
The nominating and corporate governance committee currently consists of Natalie Massenet, Danny Rimer
and David Rosenblatt, with Natalie Massenet serving as Chair. The nominating and corporate governance committee
is governed by a charter that is available on our website at www.farfetchinvestors.com. The information contained
on our website is not incorporated by reference in this Annual Report.
The nominating and corporate governance committee is responsible for, among other things:
•
•
•
•
•
•
identifying individuals qualified to become members of the Board and ensuring these individuals have
the requisite expertise with sufficiently diverse and independent backgrounds;
reviewing and evaluating the composition, function and duties of our Board;
recommending nominees for selection to our Board and its corresponding committees;
making recommendations to the Board as to determinations of Board member independence;
leading the Board in a self-evaluation, at least annually, to determine whether it and its committees are
functioning effectively; and
developing and recommending to the Board our corporate governance guidelines and reviewing and
reassessing the adequacy of such corporate governance guidelines and recommending any proposed
changes to the Board.
Duties of Board Members and Conflicts of Interest
Under Cayman Islands law, our directors have a duty to act in good faith and in what they consider to be in
the best interests of the Company. Our directors are required to exhibit, in the performance of their duties, both the
degree of skill that may reasonably be expected from a subjective perspective determined by reference to each such
director’s knowledge and experience, and the skill and care objectively to be expected from a person occupying
office as a director. In fulfilling their duty of care to the Company, our directors must ensure compliance with our
Articles. In certain limited circumstances, a shareholder has the right to seek damages if a duty owed by our
directors is breached.
Under our Articles, directors who are in any way, whether directly or indirectly, interested in a contract or
proposed contract with our Company must declare the nature of their interest at a meeting of the Board or by notice
in writing to the members of the Board. If the majority of the Board determines that there is a conflict of any director
(or their affiliates) with the general business of the Company, then the Board may determine to exclude such director
from all further discussions of the Board and receipt of information, until such time as it is determined by the Board
that the director is no longer in such conflict. Subject to the foregoing, a director may vote in respect of any contract
or proposed contract notwithstanding his interest; provided that, in exercising any such vote, such director’s duties
remain as described above.
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D. Employees
Our People
As of December 31, 2019, we had a total of 4,532 employees, which included 231 Browns, 184 Stadium
Goods and 262 New Guards employees, and we had an additional 134 people working pursuant to freelance and
consultancy contracts. Our employees are based in 14 countries, and 51% of our employees were female and 49%
were male as of December 31, 2019. The table below sets out the number of employees by geography.
Geography
Portugal
United Kingdom
United States
Mainland China
Italy
Brazil
Russia
Japan
Hong Kong
United Arab Emirates
India
France
Mexico
Australia
Total
As of December 31,
2019
2,304
875
411
336
251
122
63
60
50
44
8
6
1
1
4,532
As of December 31, 2019, approximately 32% of our workforce consisted of technology and product
specialists. The remainder was focused on all other business areas, including marketing, operations, production and
other commercial and support functions. The table below sets out the number of employees, by category, as of
December 31, 2019, 2018 and 2017:
Department
Technology and Product
Operations
Browns
Marketing
Commercial
People
Finance and Legal
Data Department
Other
Total
As of December 31, As of December 31, As of December 31,
2018
2019
2017
802
759
133
157
114
100
95
-
127
2,287
1,241
1,017
177
207
146
125
130
-
189
3,232
1,465
1,801
-
222
213
184
233
92
322
4,532
We believe that we maintain a good working relationship with our people, and we have not experienced any
significant labor disputes or any difficulty in recruiting staff for our operations. Our employees are not represented
by any collective bargaining agreements or labor unions, other than our employees in Brazil who are represented by
two state-level labor unions, as required by law.
E. Share Ownership
For information regarding the share ownership of directors and officers, see “Item 7. Major Shareholders and
Related Party Transactions – A. Major Shareholders.” For information as to our equity incentive plans, see “Item 6.
Directors, Senior Management and Employees – B. Compensation – Long-Term Incentive Plans.”
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Item 7. Major Shareholders and Related Party Transactions
A. Major Shareholders
The following table sets forth information relating to the beneficial ownership of our Class A ordinary shares
and Class B ordinary shares as of January 31, 2020, for:
(a)
(b)
(c)
each person, or group of affiliated persons, known by us to beneficially own 5% or more of our
outstanding Class A ordinary shares or Class B ordinary shares;
each of our current executive officers and our directors; and
all of our current executive officers and our directors as a group.
For further information regarding material transactions between us and principal shareholders, see “Related
Party Transactions” below.
The number of Class A ordinary shares and/or Class B ordinary shares beneficially owned by each entity,
person, executive officer or Board member is determined in accordance with the rules of the SEC, and the
information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares over which the individual has sole or shared voting power or investment power as
well as any shares that the individual has the right to acquire within 60 days of January 31, 2020 through the
exercise of any option, warrant or other right and the release of restricted linked ordinary shares. Except as
otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all Class A ordinary shares or Class B ordinary shares held by that
person.
Unless otherwise indicated below, the address for each beneficial owner listed is c/o Farfetch Limited, The
Bower, 211 Old Street, London EC1V 9NR, United Kingdom.
Name of beneficial owner
Holders of 5% or Greater
Kadi Group Holding Limited (3)
Morgan Stanley (4)
Index Ventures V (Jersey), L.P. (5)
Farhold (Luxembourg) (6)
Tybourne Capital Management (HK) Limited (7)
Executive Officers and Directors
José Neves (8)
Elliot Jordan (9)
Stephanie Phair (10)
Dana Evan (11)
Jon Kamaluddin(12)
Dr. Jon Jainwen Liao, Ph.D. (13)
Natalie Massenet (14)
Danny Rimer (15)
Mike Risman (16)
David Rosenblatt (17)
Executive officers and directors as a group (10 persons)
(18)
Class A ordinary shares
Class B ordinary shares (1)
Number
Percent
Number
Percent
Combined voting
power (2)
42,366,665
38,984,008
27,780,375
19,047,241
18,071,377
14.3 %
13.1 %
9.4 %
6.4 %
6.1 %
-
-
-
-
-
2,191,076
725,836
490,348
686,875
302,985
-
788,460
-
-
295,211
* 42,858,080
*
*
*
*
*
*
*
*
*
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100 %
-
-
-
-
-
-
-
-
-
5,480,791
1.8 % 42,858,080
100 %
3.7 %
3.4 %
2.4 %
1.7 %
1.6 %
74.3 %
*
*
*
*
*
*
*
*
*
74.5 %
*
(1)
(2)
(3)
Indicates beneficial ownership of less than 1% of the total outstanding Class A ordinary shares.
The Class B ordinary shares are exchangeable for Class A ordinary shares on a one-for-one basis, subject to customary conversion rate adjustments for share
splits, share dividends and reclassifications. Beneficial ownership of Class B ordinary shares reflected in this table has not also been reflected as beneficial
ownership of Class A ordinary shares for which such Class B ordinary shares may be exchanged.
The percentage reported under “Combined Voting Power” represents the voting power with respect to all of our Class A and Class B ordinary shares
outstanding as of January 31, 2020, voting as a single class. Holders of our Class A ordinary shares are entitled to one vote per share, and holders of our Class
B ordinary shares are entitled to 20 votes per share.
Based on information reported on a Schedule 13G filed on November 27, 2018, each of Kadi Group Holding Limited, JD.com Investment Limited and
JD.com, Inc. have shared voting power and shared dispositive power over 42,366,665 of our Class A ordinary shares. All shares of Kadi Group Holding
Limited are directly held by JD.com Investment Limited, and all shares of JD.com Investment Limited are directly owned by JD.com, Inc. The business
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address of Kadi Group Holding Limited is Geneva Place, Waterfront Drive, P.O. Box 3469, Road Town, Tortola, British Virgin Islands. The business address
of JD.com, Inc. is 20th Floor, Building A, No. 18 Kechuang 11 Street, Yizhuang Economic and Technological Development Zone, Daxing District, Beijing
101111, The People’s Republic of China. The business address of JD.com Investment Limited is Offshore Incorporations Centre, P.O. Box 957, Road Town,
Tortola, British Virgin Islands.
Based on information reported on a Schedule 13G/A filed on February 14, 2020, Morgan Stanley has shared voting power over 31,251,334 of our Class A
ordinary shares and shared dispositive power over 38,984,008 of our Class A ordinary shares, Morgan Stanley Asia Limited has shared voting power over
6,952,188 of our Class A ordinary shares and shared dispositive power over 13,580,101 of our Class A ordinary shares and Morgan Stanley Investment
Management Inc. has shared voting power over 24,299,146 of our Class A ordinary shares and shared dispositive power over 25,403,907 of our Class A
ordinary shares. The business address of Morgan Stanley and Morgan Stanley Investment Management Inc. is 1585 Broadway New York, NY 10036. The
business address of Morgan Stanley Asia Limited is Level 46 International Commerce Centre 1 Austin Road West, Kowloon.
Based on information reported on a Schedule 13G filed on February 12, 2019, Index Ventures V (Jersey), L.P. has sole investment and dispositive power over
27,780,375 or our Class A ordinary shares, Yucca (Jersey) SLP has sole investment and dispositive power over 354,500 of our Class A ordinary shares and
Index Ventures V Parallel Entrepreneur Fund (Jersey) L.P. has sole investment and dispositive power over 225,055 of our Class A ordinary shares. Index
Venture Associates V Limited (“IVA V”) is the general partner of Index Ventures V (Jersey) L.P. and Index Ventures V Parallel Entrepreneur Fund (Jersey)
L.P. (together, the “Index V Funds”) and may be deemed to beneficially own the Class A shares held by the Index V Funds. Yucca (Jersey) SLP administers
the investment vehicle that is contractually required to mirror the Index V Funds’ investments, therefore, IVA V may be deemed to beneficially own the Class
A ordinary shares held by Yucca (Jersey) SLP. The principal address of the Index V Funds and Yucca (Jersey) SLP is 44 Esplanade, St Helier, Jersey JE4
9WG, Channel Islands.
Based on information reported on a Schedule 13G/A filed on February 10, 2020, each of Farhold (Luxembourg) S.à r.l., Vitruvian II Luxembourg S.à r.l., VIP
II Nominees Limited and Vitruvian Partners LLP has shared voting and dispositive power over 19,047,241 of our Class A ordinary shares. All shares of
Farhold (Luxembourg) S.à r.l. are owned by Vitruvian II Luxembourg S.à r.l. VIP II Nominees Limited, in its capacity as nominee for and on behalf of
certain English limited partnerships (collectively, the “VIP II Funds”), is the sole shareholder of Vitruvian II Luxembourg S.à r.l. Vitruvian Partners LLP
manages each of the VIP II Funds as its general partner and investment manager and is the sole shareholder of VIP II Nominees Limited. The business
address of Farhold (Luxembourg) S.à r.l. and Vitruvian II Luxembourg S.à r.l. is 21, rue Philippe II, L-2340 Luxembourg. The business address of VIP II
Nominees Limited and Vitruvian Partners LLP is 105 Wigmore Street, London, W1U 1QY, United Kingdom.
Based on information reported on a Schedule 13G filed on February 14, 2020, each of Tybourne Capital Management (HK) Limited (“Tybourne HK”),
Tybourne Capital Management Limited (“Tybourne Cayman”), Tybourne Kesari Limited (“Tybourne Kesari”) and Viswanathan Krishnan (“Mr. Krishnan”)
has shared voting and dispositive power over 18,071,377 of our Class A ordinary shares. The Class A ordinary shares are held for the accounts of private
investment funds for which Tybourne HK serves as the investment advisor. Tybourne Cayman serves as the manager to Tybourne Master Fund and the parent
of Tybourne HK. Tybourne Kesari is the parent of Tybourne Cayman. Mr. Krishnan is the principal and sole shareholder of Tybourne Kesari. In such
capacities, Tybourne HK, Tybourne Cayman, Tybourne Kesari and Mr. Krishnan may be deemed to have voting and dispositive power over securities held
for the private investment funds. The address of the principal business office of each Tybourne HK and Mr. Krishnan is 30/F, AIA Central, 1 Connaught
Road Central, Hong Kong, K3. The address of the registered office of each Tybourne Cayman and Tybourne Kesari is 190 Elgin Avenue, George Town,
Grand Cayman KY1-9005, Cayman Islands.
As to the number and percentage reflected under the columns “Class A Ordinary Shares,” represents for Mr. Neves (a) 426,863 Class A ordinary shares and
(b) 1,764,213 Class A ordinary shares underlying options and restrictive stock units (“RSUs”) that are currently vested and exercisable or that vest within 60
days of January 31, 2020. As to the number and percentage reflected under the columns “Class B Ordinary Shares,” represents for Mr. Neves 42,858,080
Class B ordinary shares held by TGF Participations Limited. José Neves exercises voting and investment power over the Class B ordinary shares held by TGF
Participations Limited and may be deemed to have beneficial ownership those Class B ordinary shares. The business address of TGF Participations Limited is
Grosvenor House, 66-67 Athol Street, Douglas, Isle of Man IM1 1JE. The amounts reported in the table above do not include 147,160 Class A ordinary
shares underlying vested stock option held by Mr. Neves’ spouse over which Mr. Neves may be deemed to have beneficial ownership but as to which Mr.
Neves disclaims such beneficial ownership.
Represents for Mr. Jordan (a) 500,056 Class A ordinary shares and (b) 225,780 Class A ordinary shares underlying options and RSUs that are currently vested
and exercisable or that vest within 60 days of January 31, 2020.
Represents for Ms. Phair (a) 263,360 Class A ordinary shares and (b) 226,988 Class A ordinary shares underlying options and RSUs that are currently vested
and exercisable or that vest within 60 days of January 31, 2020.
Represents for Ms. Evan (a) 10,000 Class A ordinary shares and (b) 676,875 Class A ordinary shares underlying options that are currently vested and
exercisable or that vest within 60 days of January 31, 2020.
Includes for Mr. Kamaluddin (a) 164,034 Class A ordinary shares and (b) 138,951 Class A ordinary shares underlying options that are currently vested and
exercisable.
Dr. Liao is an employee of JD.com and has no voting or dispositive power over the shares beneficially owned by JD.com.
Represents for Ms. Massenet (a) 150,000 Class A ordinary shares and (b) 638,460 Class A ordinary shares underlying options that are currently vested and
exercisable.
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15) Mr. Rimer is a partner within the Index Ventures group. Advisors within the Index Ventures group provide advice to the Index Funds. Mr. Rimer is involved
in making recommendations to the Index Funds but does not hold voting or dispositive power over the Class A ordinary shares held by the Index Funds. See
footnote 4 above.
(16) Mr. Risman is the Managing Partner and founding member of Vitruvian Partners LLP, which manages funds that are beneficial holders of our Class A
ordinary shares. Based on a Schedule 13G/A filed on February 14, 2020, Mr. Risman does not hold voting or dispositive power over the Class A ordinary
shares held by Vitruvian Partners LLP or its funds. See footnote 6 above.
Represents for Mr. Rosenblatt (a) 81,916 Class A ordinary shares and (b) 213,295 Class A ordinary shares underlying options that are currently vested and
exercisable. The amounts reported in the table above do not include 18,000 Class A ordinary shares held by Mr. Rosenblatt’s spouse over which Mr.
Rosenblatt may be deemed to have beneficial ownership but as to which Mr. Rosenblatt disclaims such beneficial ownership.
Includes 3,884,562 Class A ordinary shares underlying options and RSUs that are, as applicable, currently vested and exercisable or that vest within 60 days
of January 31, 2020.
(17)
(18)
To our knowledge, other than as provided in the table above, our other filings with the SEC and public
disclosure and this Annual Report, there has been no significant change in the percentage ownership held by any
major shareholder since January 1, 2017.
As of January 31, 2020, there were 297,017,774 of our Class A ordinary shares outstanding. To our
knowledge, 170,986,266 Class A ordinary shares, representing approximately 57.6% of our total outstanding Class
A ordinary shares, were held by 20 record shareholders with registered addresses in the United States.
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We are not aware of any arrangement that may at a subsequent date, result in a change of control of the
Company.
B. Related Party Transactions
The following is a description of our related party transactions since January 1, 2016.
Registration Rights Agreement
On July 21, 2017, we entered into a Registration Rights Agreement with Kadi Group, Condé Nast
International Ltd, Advance Magazine Publishers Inc., CN Commerce Ltd, Index Ventures V (Jersey), L.P., Index
Ventures V Parallel Entrepreneur Fund (Jersey), L.P., Yucca (Jersey) SLP, Farhold (Luxembourg) S.A.R.L., DST
Global IV, L.P., Sebatik Investments Limited, TGF Participations Limited, Republic Technologies Pte td, Advent
Private Equity Fund IV, Advent Industry L.P., Advent Management IV Limited Partnership, Newsight Investment
Holdings I Ltd, Newsight Investment Holdings II Ltd and Legendre Holding 51 SAS, pursuant to which such
investors have certain demand registration rights, short-form registration rights and piggyback registration rights in
respect of any Class A ordinary shares and related indemnification rights from us, subject to customary restrictions
and exceptions. All fees, costs and expenses of registrations, other than underwriting discounts and commissions, are
expected to be borne by us.
Relationship with Kadi Group Holding Limited and JD.com
On June 21, 2017, Kadi Group completed a purchase of 6,834,172 Series G Preferred Shares of Farfetch.com
for approximately $330.8 million and 1,366,834 shares of various classes from our shareholders that were re-
designated into Series G Preferred Shares for approximately $66.2 million.
Kadi Group is a wholly owned subsidiary of JD.com. Mr. Liu, the Chairman and Chief Executive Officer
and controlling shareholder of JD.com, previously served as one of our non-executive directors, and Dr. Liao is
JD.com’s Chief Strategy Officer.
Forward Purchase Agreement
In connection with Kadi Group’s purchase of shares in Farfetch.com, Kadi Group and Farfetch.com entered
into a forward purchase agreement, as amended, pursuant to which we agreed to issue and Kadi Group agreed to
subscribe for one-third of such number of shares upon our IPO (at a price per share equal to the initial price per
share in this offering) that would result in Kadi Group maintaining its percentage holding of our issued and
outstanding share capital on a fully diluted basis immediately following this offering. Kadi Group may assign this
right to purchase to any of its affiliates.
Payment Processing Agreement
On April 18, 2018, we entered into a Cross-Border Foreign Exchange Payment Agreement with Chinabank
Payment Technology Co. Ltd., a subsidiary of JD.com (“Chinabank Payment”) (the “Payment Processing
Agreement”), pursuant to which Chinabank Payment provides cross-border payment collection services to Farfetch
UK Limited on its Chinese e-commerce platforms of Farfetch.cn and Farfetch.com/cn. For providing such payment
collection service, Chinabank Payment charges us a transaction fee. The Payment Processing Agreement has an
initial term of 24 months and will automatically renew for successive 12-month terms unless either party has served
a written notice 90 days prior to the other to terminate. The Payment Processing Agreement is terminable by either
party if the other party breaches such agreement on at least five occasions in any three-month period.
Commitment Agreement
In connection with Kadi Group’s purchase of shares of Farfetch.com, Kadi Group and José Neves entered
into a commitment agreement, as amended, pursuant to which Mr. Neves agreed to exercise all voting rights held
directly or indirectly by him in favor of any shareholder resolution proposing to appoint Richard Liu as a director of
100
the Company and to use all reasonable endeavors to seek commitment from certain other investors to support
Mr. Liu remaining as a director of the Company. In February 2019, the parties amended and restated this
commitment agreement to provide that Dr. Liao or another senior executive of JD.com designated by JD.com serve
on our Board, provided that Dr. Liao or such other JD.com designee be recommended for such Board service by our
nominating and corporate governance committee. The amended and restated commitment agreement is otherwise
substantively similar to the original commitment agreement and provides that Mr. Neves will exercise all voting
rights held by him in favor of any shareholder resolution proposing to appoint Dr. Liao as a director of the Company
and to use all reasonable endeavors to seek commitment from certain other investors to support Dr. Liao remaining
as a director of the Company. This obligation is conditional on JD.com holding no less than 33,658,328 Class A
ordinary shares (subject to appropriate adjustment for any share split consolidation or similar event).
Asset Purchase Agreement and Merchant Agreement
On February 26, 2019, we entered into an Asset Purchase Agreement (the “APA”) with Shanghai Yuanmai
Trading Co., Ltd. as the Seller and Beijing Jingdong Century Trade Co., Ltd. as the Guarantor, pursuant to which we
agreed to purchase “Level 1 Access” to the JD.com app, Toplife customer data, certain intellectual property and
certain fixed assets from the Seller in exchange for $50 million in cash. We are also responsible for certain costs
associated with the Toplife business after deal closing, up to a cap of $3 million.
In connection with the purchase of the Toplife assets pursuant to the APA described above, on February 26,
2019, we also entered into a Merchant Agreement with JD.com International Limited (the “MA”), to create a
flagship store operated by Farfetch on the JD Haitun platform (a “FF JD Store”). JD.com International Limited has
agreed to grant the FF JD Store “Level 1 Access” (i.e. a prominent position on the JD customer interface for
specified categories of luxury goods) to the JD.com app with exposure to 3-4 million JD premium customers for a
period of 4 years, subject to certain key performance indicators linked to gross value of sales.
Relationship with Condé Nast
On February 14, 2013, Condé Nast International Limited (“CNI”) completed the purchase of an 8.37%
equity position of Farfetch.com for $11,999,996. On April 29, 2014 and February 13, 2015, CNI purchased further
equity of Farfetch.com, resulting in an equity position of 8.18%. On June 13, 2017, Farfetch.com issued further
equity to Advance Magazine Publishers Inc. (“Advance Magazine”) and CN Commerce Ltd (“CN Commerce,”
together with CNI and Advance Magazine, “Conde Nast”) in connection with the Asset Purchase Agreement
summarized below. Each of Advance Magazine and CN Commerce is an affiliate of CNI. Conde Nast ceased to be a
related party in March 2019.
Asset Purchase Agreement
On June 12, 2017, we entered into an asset purchase agreement (as amended, the “Asset Purchase
Agreement”), pursuant to which we purchased certain assets of the Style.com business (the “Style.com Assets”)
from Advance Magazine and CN Commerce, including trademarks, domain names and a customer database. The
consideration for the purchase of the Style.com Assets, which completed on June 13, 2017, was $12,411,000, which
was satisfied by the issuance of shares in the capital of Farfetch.com at a price per share of $48.40. The Asset
Purchase Agreement contains customary warranties in relation to the Style.com Assets from Advance Magazine and
CN Commerce and an indemnity in our favor in respect of pre-completion liabilities with regards to the Style.com
Assets and the business of Style.com.
Collaboration Agreement
In connection with the purchase of the Style.com Assets, we entered into a collaboration agreement with
Advance Magazine dated June 13, 2017 (the “Collaboration Agreement”), to create a content-to-commerce solution
by connecting Conde Nast, a provider of online and offline lifestyle content, to brands and retailers on the Farfetch
Marketplace through an online affiliate program. Pursuant to the Collaboration Agreement, Advance Magazine
provides us with certain services, including generation of promotional posts on social media networks and providing
content for the purpose of referring customers to the Farfetch Marketplace. In consideration for such services,
101
Advance Magazine earns a commission from the aggregate value of transactions concluded following the referral of
a customer to the Farfetch Marketplace from any website run by Advance Magazine or its affiliate companies. The
Collaboration Agreement has an initial term of five years.
Commercial Agreements
We currently have various commercial agreements with affiliate companies of Conde Nast in the ordinary
course of our business, which are on customary terms and which enable us to advertise our business or gain further
exposure through advertisements and content in publications produced by the Conde Nast group, such as Vogue
magazine. These agreements are on arms’ length terms, for fixed short-term periods and/or are one-off in nature.
Relationship with Platforme International Limited
Mr. Neves, the founder, Chief Executive Officer and a director of the Company, is also a director of, and
holds a beneficial ownership interest in, Platforme International Limited (“Platforme”).
E-Commerce Services Agreements
In October 2015, we entered into an FPS e-commerce services agreement with Platforme for the
development and hosting of the “Swear” branded website. Further, in the second quarter of 2017, we entered into
several of our standard e-commerce services agreements with Platforme, pursuant to which we make available for
sale, on the Farfetch Marketplace, products from each of Platforme’s “Swear,” “MySwear” and “B Store”
businesses. The agreements have all been entered into on our standard terms.
Relationship with ASAP54.com Limited
Mr. Neves holds a beneficial ownership interest in ASAP54.com Limited (“ASAP54”). Daniela Cecilio,
Mr. Neves’ wife, is also a director of and holds a beneficial ownership interest in ASAP54.
Share Purchase Agreement
On October 31, 2017, we entered into an agreement with ASAP54 for the purchase of the entire issued share
capital of Fashion Concierge UK Limited (and its wholly owned subsidiary, Fashion Concierge, LDA), a company
that runs an e-commerce solution, sourcing luxury items on behalf of Farfetch Private Client consumers (the “Share
Purchase Agreement”). The consideration for the purchase was $2,183,000, which was satisfied through the
issuance of shares of Farfetch.com at a price per share of $48.40. The Share Purchase Agreement contains
customary warranties and indemnities in favor of Farfetch.
Relationship with Daniela Cecilio
Consultancy Agreement
Following the purchase of Fashion Concierge UK Limited, we entered into a consultancy agreement with
Ms. Cecilio, founder of the Fashion Concierge business, on December 21, 2017 (the “DC Consultancy Agreement”).
Pursuant to the DC Consultancy Agreement, Ms. Cecilio will provide consultancy services. The DC Consultancy
Agreement had a fixed term of 12 months, and was ended in line with the agreement on November 9, 2018.
Share Incentive Agreement
Pursuant to the DC Consultancy Agreement, we entered into a share incentive agreement with Ms. Cecilio
on January 15, 2018 (the “Share Incentive Agreement”), pursuant to which, Ms. Cecilio could earn up to 104,780
shares in the capital of Farfetch Limited.
Relationship with Natalie Massenet
Natalie Massenet is a shareholder and a member of our Board.
102
Consultancy Agreement
We entered into a consultancy agreement with Natalie Massenet effective as of August 1, 2018, (the “NM
Consultancy Agreement”). Pursuant to the NM Consultancy Agreement, Ms. Massenet provides consultancy
services in relation to assisting with overall strategy, innovation initiatives, being a brand ambassador at specific
events and liaising with the Chief Executive Officer and Chief Commercial Officer with brands specific to our
initiatives. For providing such services, Ms. Massenet is eligible to receive an annual retainer of $120,000 under the
NM Consultancy Agreement. The NM Consultancy Agreement is terminable by either party upon three months’
notice.
Relationship with Alanui
Alanui S.r.L. (“Alanui”) is an associate of our subsidiary New Guards Group Holding S.p.A, which owns a
stake of 53% but it does not have control over the entity. Alanui is one of the brands in the New Guards portfolio.
New Guards owns the Alanui intellectual property, and produces and distributes Alanui merchandise. We
recognized sales of $291,000 during the post-acquisition period between August and December 2019. As at
December 31, 2019, the Group had trade receivables of $291,000 and trade payables of $188,000.
Agreements with Executive Officers and Directors
We have entered into employment agreements with our executive officers and service agreements with our
directors. Information on these agreements may be found in this Annual Report under Item 6. “Directors, Senior
Management and Employees—B. Compensation” and is incorporated herein by reference.
Indemnification Agreements
We have entered into indemnification agreements with our directors and executive officers pursuant to
which we have agreed to indemnify them against a number of liabilities and expenses incurred by such persons in
connection with claims made by reason of their being a director or executive officer of the company. A copy of the
Form of Indemnification Agreement is included as Exhibit 10.1 to the company’s Registration Statement on Form F-
1, as amended (File No. 333-226929), filed with the SEC on August 20, 2018, and is incorporated by reference
herein. In addition to such indemnification, we provide our board of directors and executive officers with directors’
and officers’ liability insurance.
Related Party Transaction Policy
Our Board has adopted a written related party transaction policy to set forth the policies and procedures for
the review and approval or ratification of related person transactions. This policy covers, with certain exceptions set
forth in Item 404 of Regulation S-K under the Securities Act, any transaction, arrangement or relationship, or any
series of similar transactions, arrangements or relationships, in which we were or are to be a participant, where the
amount involved exceeds $120,000 and a related person had or will have a direct or indirect material interest.
C. Interests of Experts and Counsel
Not applicable.
Item 8. Financial Information
A. Consolidated Statements and Other Financial Information
Consolidated financial statements
See Item 18. "Consolidated financial statements."
103
Legal and Arbitration Proceedings
From time to time, we may be involved in various claims and proceedings arising in the course of our
business and operations. The outcome of any such claims or proceedings, regardless of the merits, is inherently
uncertain. For example, in September 2019, following periods of volatility in the market price of our Class A
ordinary shares, two putative class action lawsuits were filed in the United States against us and certain of our
directors and officers, among others, under the U.S. federal securities laws. The lawsuits are captioned Omdahl v.
Farfetch Limited et al and City of Coral Springs Police Officers’ Retirement Plan v. Farfetch Limited et al, both
pending in the United States District Court for the Southern District of New York. The Omdahl lawsuit asserts
claims against us, certain of our current and former directors and officers, and the underwriters of our September
2018 IPO pursuant to Sections 11 and 15 of the Securities Act. The City of Coral Springs lawsuit asserts claims
against the same individuals under Sections 11, 12, and 15 of the Securities Act, and also asserts claims against us
and certain of our current and former directors and officers for alleged violations of Sections 10(b) and 20(a) of the
Exchange Act, and Rule 10b-5 of the Exchange Act. In each case, the named plaintiff seeks to represent a proposed
class of all persons who purchased or otherwise acquired our common stock during the period of September 21,
2018 to August 8, 2019. The complaints seek damages purportedly caused by alleged materially misleading
statements and/or material omissions by us and the individual officers regarding our growth potential and business
model. Our deadline to respond to these lawsuits has been stayed pending appointment of a lead plaintiff. We intend
to vigorously contest these claims. While the outcome of any complex legal proceeding is inherently unpredictable
and subject to significant uncertainties, based upon information presently known to management, we believe that the
potential liability, if any, will not have a material adverse effect on our financial condition, cash flows or results of
operations.
Dividend Policy
We have not previously paid dividends on our ordinary shares and do not anticipate paying dividends on our
ordinary shares in the foreseeable future. We intend to retain all available funds and any future earnings to fund the
development and expansion of our business. However, if we do pay a cash dividend on our ordinary shares in the
future, we will pay such dividend out of our profits or share premium (subject to solvency requirements) as
permitted under Cayman Islands law.
The amount of any future dividend payments we may make will depend on, among other factors, our
strategy, future earnings, financial condition, cash flow, working capital requirements, capital expenditures and
applicable provisions of our Articles. Any profits or share premium we declare as dividends will not be available to
be reinvested in our operations.
Moreover, we are a holding company that does not conduct any business operations of our own. As a result,
we are dependent upon cash dividends, distributions and other transfers from our subsidiaries to make dividend
payments.
Any dividends we declare on our shares will be in respect of both our Class A ordinary shares and Class B
ordinary shares and will be distributed such that a holder of one of our Class B ordinary shares will receive the same
amount of the dividends that are received by a holder of one of our Class A ordinary shares. We will not declare any
dividend with respect to the Class A ordinary shares without declaring a dividend on the Class B ordinary shares,
and vice versa.
We have not paid dividends in the years ended December 31, 2017, 2018 and 2019.
B. Significant Changes
Please see Note 32 to our consolidated financial statements included elsewhere in this Annual Report for
details regarding events subsequent to the reporting period.
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Item 9. The Offer and Listing
A. Offer and Listing Details
Our Class A ordinary shares commenced trading on the NYSE on September 21, 2018. Prior to this, no
public market existed for our Class A ordinary shares. Our Class B ordinary shares are not listed to trade on any
securities market.
B. Plan of Distribution
Not applicable.
C. Markets
Our Class A ordinary shares commenced trading on the NYSE on September 21, 2018 under the symbol
“FTCH.”
D. Selling Shareholders
Not Applicable.
E. Dilution
Not applicable
F. Expenses of the Issue
Not applicable.
Item 10. Additional Information
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
A copy of our amended and restated memorandum and articles of association is attached as Exhibit 1.1 to
this Annual Report. The information called for by this Item is set forth in Exhibit 2.4 to this Annual Report and is
incorporated by reference into this Annual Report.
C. Material Contracts
Except as otherwise disclosed in this Annual Report (including the Exhibits), we are not currently, nor have
we been for the past two years, party to any material contract, other than contracts entered into in the ordinary
course of business.
D. Exchange Controls
There are no Cayman Islands exchange control regulations that would affect the import or export of capital
or the remittance of dividends, interest or other payments to non-resident holders of our shares.
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E. Taxation
The following summary contains a description of certain of certain Cayman Islands, UK and U.S. federal
income tax consequences of the acquisition, ownership and disposition of Class A ordinary shares. The summary is
based upon the tax laws of the Cayman Islands and regulations thereunder, on the tax laws of the United Kingdom
and the regulations thereunder, and on the tax laws of the United States and regulations thereunder as of the date
hereof, which are subject to change.
Cayman Islands Tax Considerations
The following discussion is a summary of the material Cayman Islands tax considerations relating to the
purchase, ownership and disposition of our Class A ordinary shares. There is, at present, no direct taxation in the
Cayman Islands and interest, dividends and gains payable to us will be received free of all Cayman Islands taxes.
We have received an undertaking from the Government of the Cayman Islands to the effect that, for a period of
thirty years from the date of the undertaking, no law that thereafter is enacted in the Cayman Islands imposing any
tax or duty to be levied on profits, income or on gains or appreciation, or any tax in the nature of estate duty or
inheritance tax, will apply to any property comprised in or any income arising under the Company, or to the
shareholders thereof, in respect of any such property or income.
No stamp duty in the Cayman Islands is payable in respect of the issue of any Class A ordinary shares or an
instrument of transfer in respect of a Class A ordinary share.
United Kingdom Tax Considerations
The following discussion is a summary of the material United Kingdom tax considerations relating to the
purchase, ownership and disposition of our Class A ordinary shares.
The following statements are of a general nature and do not purport to be a complete analysis of all potential
UK tax consequences of acquiring, holding and disposing of Class A ordinary shares. They are based on current UK
tax law and on the current published practice of Her Majesty’s Revenue and Customs (“HMRC”) (which may not be
binding on HMRC), as of the date of this Annual Report, all of which are subject to change, possibly with
retrospective effect. They are intended to address only certain UK tax consequences for holders of Class A ordinary
shares who are tax resident in (and only in) the United Kingdom, and in the case of individuals, domiciled in (and
only in) the United Kingdom (except where expressly stated otherwise) who are the absolute beneficial owners of
the Class A ordinary shares and any dividends paid on them and who hold the Class A ordinary shares as
investments (other than in an individual savings account or a self-invested personal pension). They do not address
the UK tax consequences which may be relevant to certain classes of holders of Class A ordinary shares such as
traders, brokers, dealers, banks, financial institutions, insurance companies, investment companies, collective
investment schemes, tax-exempt organizations, trustees, persons connected with us or our group, persons holding
their Class A ordinary shares as part of hedging or conversion transactions, holders of Class A ordinary shares who
have (or are deemed to have) acquired their Class A ordinary shares by virtue of an office or employment, and
holders of Class A ordinary shares who are or have been our officers or employees or a company forming part of our
group. The statements do not apply to any holder of Class A ordinary shares who either directly or indirectly holds
or controls 10% or more of our share capital (or class thereof), voting power or profits.
The following is intended only as a general guide and is not intended to be, nor should it be considered to be,
legal or tax advice to any particular prospective subscriber for, or purchaser of, Class A ordinary shares.
Accordingly, prospective subscribers for, or purchasers of, Class A ordinary shares who are in any doubt as to their
tax position regarding the acquisition, ownership and disposition of Class A ordinary shares or who are subject to
tax in a jurisdiction other than the United Kingdom should consult their own tax advisers.
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The Company
It is the intention of the directors to conduct our affairs so that our central management and control is
exercised in the United Kingdom. As a result, we are expected to be treated as resident in the United Kingdom for
UK tax purposes. Accordingly, we expect to be subject to UK taxation on our income and gains, except where an
exemption applies.
Taxation of Dividends
Withholding Tax
We will not be required to withhold UK tax at source when paying dividends. The amount of any liability to
UK tax on dividends paid by us will depend on the individual circumstances of a holder of Class A ordinary shares.
Income Tax
An individual holder of Class A ordinary shares who is resident for tax purposes in the United Kingdom
may, depending on his or her particular circumstances, be subject to UK tax on dividends received from the
Company. Dividend income is treated as the top slice of the total income chargeable to UK income tax. An
individual holder of Class A ordinary shares who is not resident for tax purposes in the United Kingdom should not
be chargeable to UK income tax on dividends received from us unless he or she carries on (whether solely or in
partnership) any trade, profession or vocation in the United Kingdom through a branch or agency to which the
Class A ordinary shares are attributable. There are certain exceptions for trading in the United Kingdom through
independent agents, such as some brokers and investment managers.
All dividends received by a UK resident individual holder of Class A ordinary shares from us or from other
sources will form part of the holder’s total income for income tax purposes and will constitute the top slice of that
income. A nil rate of income tax will apply to the first £2,000 of taxable dividend income received by the holder of
Class A ordinary shares in a tax year. Income within the nil rate band will be taken into account in determining
whether income in excess of the nil rate band falls within the basic rate, higher rate or additional rate tax bands.
Where the dividend income is above the £2,000 dividend allowance, the first £2,000 of the dividend income will be
charged at the nil rate and any excess amount will be taxed at 7.5% to the extent that the excess amount falls within
the basic rate tax band, 32.5% to the extent that the excess amount falls within the higher rate tax band and 38.1% to
the extent that the excess amount falls within the additional rate tax band.
Corporation Tax
Corporate holders of Class A ordinary shares who are resident for tax purposes in the United Kingdom
should not be subject to UK corporation tax on any dividend received from us so long as the dividends qualify for
exemption (as is likely) and certain conditions are met (including anti-avoidance conditions). Corporate holders of
Class A ordinary shares who are not resident in the United Kingdom will not generally be subject to UK corporation
tax on dividends unless they are carrying on a trade, profession or vocation in the United Kingdom through a
permanent establishment in connection with which the Class A ordinary shares are used, held, or acquired.
A holder of Class A ordinary share who is resident outside the United Kingdom may be subject to non-UK
taxation on dividend income under local law.
Taxation of Capital Gains
UK Resident Holders of Class A Ordinary Shares
A disposal or deemed disposal of Class A ordinary shares by an individual or corporate holder of Class A
ordinary shares who is tax resident in the United Kingdom may, depending on the holder’s circumstances and
subject to any available exemptions or reliefs, give rise to a chargeable gain or allowable loss for the purposes of UK
taxation of chargeable gains.
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Any chargeable gain (or allowable loss) will generally be calculated by reference to the consideration
received for the disposal of Class A ordinary shares less the allowable cost to the holder of acquiring such Class A
ordinary shares.
The applicable tax rates for individual holders of Class A ordinary shares realizing a gain on the disposal of
Class A ordinary shares is, broadly, 10% for basic rate taxpayers and 20% for higher and additional rate taxpayers.
Non-UK Resident Holders of Class A Ordinary Shares
Holders of Class A ordinary shares who are not resident in the united Kingdom and, in the case of an
individual holder, not temporarily non-resident, should not be liable for UK tax on capital gains realized on a sale or
other disposal of Class A ordinary shares unless (i) such shares are used, held or acquired for the purposes of a trade,
profession or vocation carried on in the United Kingdom through a branch or agency or, in the case of a corporate
holder, through a permanent establishment, or (ii) where certain other conditions are met, the Company derives 75%
or more of its gross value from UK land. Holders of Class A ordinary shares who are not resident in the United
Kingdom may be subject to non-UK taxation on any gain under local law.
Generally, an individual holder of Class A ordinary shares who has ceased to be resident in the United
Kingdom for tax purposes for a period of five years or less and who disposes of Class A ordinary shares during that
period may be liable on their return to the United Kingdom to UK taxation on any capital gain realized (subject to
any available exemption or relief).
UK Stamp Duty (“stamp duty”) and UK Stamp Duty Reserve Tax (“SDRT”)
The following statements are intended as a general guide to the current position relating to stamp duty and
SDRT and apply to any holders of Class A ordinary shares irrespective of their place of tax residence.
No stamp duty will be payable on the issue of Class A ordinary shares.
Stamp duty will in principle be payable on any instrument of transfer of Class A ordinary shares that is
executed in the United Kingdom or that relates to any property situated, or to any matter or thing done or to be done,
in the United Kingdom. An exemption from stamp duty is available on an instrument transferring Class A ordinary
shares where the amount or value of the consideration is £1,000 or less and it is certified on the instrument that the
transaction effected by the instrument does not form part of a larger transaction or series of transactions in respect of
which the aggregate amount or value of the consideration exceeds £1,000. Holders of Class A ordinary shares
should be aware that, even where an instrument of transfer is in principle subject to stamp duty, stamp duty is not
required to be paid unless it is necessary to rely on the instrument for legal purposes, for example to register a
change of ownership or in litigation in a UK court.
Provided that Class A ordinary shares are not registered in any register maintained in the United Kingdom by
or on behalf of us and are not paired with any shares issued by a UK incorporated company, the issue or transfer of
(or agreement to transfer) Class A ordinary shares will not be subject to SDRT. We currently do not intend that any
register of Class A ordinary shares will be maintained in the United Kingdom.
U.S. Federal Income Tax Considerations
The following general summary describes the material U.S. federal income tax consequences to U.S.
Holders (defined below) of owning and disposing of our Class A ordinary shares. It does not purport to be a
comprehensive discussion of all the tax considerations relevant to U.S. Holders.
The discussion below applies only to U.S. Holders that hold the Class A ordinary shares as capital assets
within the meaning of Section 1221 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”)
(generally, property held for investment). The discussion below is based on the Code, existing and, in some cases,
proposed U.S. Treasury Regulations, as well as judicial and administrative interpretations thereof, all as of the date
of this Annual Report. All of the foregoing authorities are subject to change or differing interpretation, which change
or differing interpretation could apply retroactively and could affect the tax consequences described below. This
summary does not address any alternative minimum tax considerations, any estate or gift tax consequences or any
state, local, or non-U.S. tax consequences, nor does it address the Medicare contribution tax on net investment
income.
108
The following discussion does not address the tax consequences to any particular investor and does not
describe all of the tax consequences to persons in special tax situations such as, but not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
banks;
financial institutions;
regulated investment companies;
real estate investment trusts;
insurance companies;
broker-dealers;
traders that elect to use a mark to market method of accounting;
tax-exempt entities (including private foundations);
qualified retirement plans, individual retirement accounts and other tax-deferred accounts;
U.S. tax expatriates and certain former citizens and long-term residents of the United States;
persons holding Class A ordinary shares as part of a straddle, hedging, constructive sale, conversion or
integrated transaction;
persons that directly, indirectly, or constructively own 10% or more of the total voting power or value
of all of the Company’s outstanding stock;
persons that are resident or ordinarily resident in or have a permanent establishment in a jurisdiction
outside the United States;
persons who acquired Class A ordinary shares pursuant to the exercise of any employee share option
or otherwise as compensation;
persons subject to special tax accounting rules as a result of any item of gross income with respect to
the Class A ordinary shares being taken into account in an applicable financial statement;
persons holding Class A ordinary shares through partnerships or other pass-through entities; or
U.S. Holders whose “functional currency” is not the U.S. dollar.
THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET OUT BELOW IS FOR
GENERAL INFORMATION ONLY. PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR TAX
ADVISORS ABOUT THE APPLICATION OF THE U.S. FEDERAL TAX RULES TO THEIR PARTICULAR
CIRCUMSTANCES, AS WELL AS THE STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES TO THEM
OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR CLASS A ORDINARY SHARES.
The discussion below of the U.S. federal income tax consequences to “U.S. Holders” applies to a holder that
is a beneficial owner of the Class A ordinary shares and is, for U.S. federal income tax purposes,
•
•
•
•
an individual who is a citizen or resident of the United States as determined under U.S. federal income
tax rules;
a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or
organized in or under the laws of the United States, any State or the District of Columbia;
an estate whose income is subject to U.S. federal income taxation regardless of its source; or
a trust that (1) is subject to the supervision of a court within the United States and the control of one or
more U.S. persons or (2) has a valid election in effect under applicable U.S. Treasury Regulations to
be treated as a U.S. person.
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The tax treatment of an entity or arrangement taxable as a partnership for U.S. federal income tax purposes
that holds Class A ordinary shares generally will depend on such partner’s status and the activities of the
partnership. Prospective purchasers that are entities or arrangements treated as partnerships for U.S. federal income
tax purposes, or partners in such partnerships, should consult their tax advisers concerning the U.S. federal income
tax consequences to them and of the acquisition, ownership and disposition of Class A ordinary shares by the
partnership.
Dividends
Subject to the passive foreign investment company (“PFIC”) rules discussed below, the gross amount of
distributions made by us with respect to the Class A ordinary shares generally will be includable in a U.S. Holder’s
gross income as foreign-source dividend income in the year actually or constructively received by such U.S. Holder,
but only to the extent that such distributions are paid out of our current or accumulated earnings and profits as
determined under U.S. federal income tax principles. Distributions to a U.S. Holder in excess of current and
accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of the U.S. Holder’s
basis in the Class A ordinary shares and thereafter as capital gain. In the event we make distributions to U.S. Holders
of ordinary shares, we may or may not calculate our earnings and profits under U.S. federal income tax principles. If
we do not do so, any distribution may be required to be regarded as a dividend, even if that distribution would
otherwise be treated as a non-taxable return of capital or as capital gain. U.S. Holders should therefore assume that
all cash distributions will be reported as ordinary dividend income. The amount of any distribution of property other
than cash will be the fair market value of that property on the date of distribution. U.S. Holders should consult their
tax advisors to determine whether and to what extent they will be entitled to foreign tax credits in respect of any
dividend income received.
With respect to non-corporate U.S. Holders (including individuals, estates, and trusts), dividends received
with respect to our Class A ordinary shares may be considered “qualified dividend income” subject to lower capital
gains rates, provided that (1) the Class A ordinary shares are readily tradable on an established securities market in
the United States, (2) we are not a PFIC (as discussed below) for either our taxable year in which the dividend was
paid or the preceding taxable year and (3) certain holding period requirements are met. In this regard, the Class A
ordinary shares will generally be considered to be readily tradable on an established securities market in the United
States if they are listed on the NYSE, as we intend the Class A ordinary shares will be. U.S. Holders should consult
their tax advisors regarding the availability of the lower rate for the dividends paid with respect to the Class A
ordinary shares.
Dividends paid by us with respect to the Class A ordinary shares will generally constitute foreign-source
“passive category income” and will not be eligible for the dividends-received deduction generally allowed to
corporate U.S. Holders in respect of dividends received from U.S. corporations.
Sale or Other Disposition of Shares
Subject to the PFIC rules discussed below, upon a sale or other disposition of the Class A ordinary shares, a
U.S. Holder generally will recognize a capital gain or loss for U.S. federal income tax purposes in an amount equal
to the difference between the amount realized and the U.S. Holder’s adjusted tax basis in such Class A ordinary
shares. A U.S. Holder’s adjusted tax basis in shares generally will be such U.S. Holder’s purchase price for the
shares, unless we make distributions in excess of its current and accumulated earnings and profits. Any such gain or
loss generally will be U.S.-source gain or loss and will be treated as long-term capital gain or loss if the U.S.
Holder’s holding period in the Class A ordinary shares exceeds one year. Non-corporate U.S. Holders (including
individuals) generally will be subject to U.S. federal income tax on long-term capital gain at preferential rates. The
deductibility of capital losses is subject to significant limitations.
110
Passive Foreign Investment Company
We will be classified as a PFIC within the meaning of Section 1297 of the Code, for any taxable year if
either: (1) at least 75% of the gross income of the Company is “passive income” for purposes of the PFIC rules or
(2) at least 50% of the value of our assets (determined on the basis of a quarterly average) produce or are held for the
production of passive income. Passive income for this purpose generally includes dividends, interest, royalties, rents
and gains from commodities and securities transactions. For this purpose, we will be treated as owning the
proportionate share of the assets, and earning the proportionate share of the income, of any other corporation in
which we own, directly or indirectly, 25% or more measured by value of the stock. Under the PFIC rules, if we were
considered a PFIC at any time that a U.S. Holder holds Class A ordinary shares, we would continue to be treated as
a PFIC with respect to such holder’s investment unless (1) the Company ceases to be a PFIC and (2) the U.S. Holder
has made a “deemed sale” election under the PFIC rules.
Based on the currently anticipated market capitalization and composition of our income, assets, and
operations, the Company does not expect to be treated as a PFIC for U.S. federal income tax purposes for the taxable
year that ended on December 31, 2019 or in the foreseeable future. However, the market capitalization and the
expected income, assets and operations in the future could be significantly different from what is currently
anticipated. In addition, the PFIC determination must be made annually after the close of each taxable year.
Therefore, there can be no assurance that we will not be classified as a PFIC for the current taxable year or for any
future taxable year.
If we are considered a PFIC for any taxable year that a U.S. Holder holds Class A ordinary shares, any gain
recognized by the U.S. Holder on a sale or other disposition of the Class A ordinary shares, as well as the amount of
any “excess distribution” (defined below) received by the U.S. Holder, would be allocated ratably over the U.S.
Holder’s holding period for the Class A ordinary shares. The amounts allocated to the taxable year of the sale or
other disposition (or the taxable year of receipt, in the case of an excess distribution) and to any year before we
became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be
subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an
interest charge would be imposed on the amount allocated to that taxable year. For the purposes of these rules, an
excess distribution is the amount by which any distribution received by a U.S. Holder on its Class A ordinary shares
exceeds 125% of the average of the annual distributions on the Class A ordinary shares received during the
preceding three years or the U.S. Holder’s holding period, whichever is shorter. Additionally, dividends paid by us
would not be eligible for the reduced rate of tax described above under “—Dividends” if we are a PFIC in its taxable
year in which the dividend is paid or the immediately preceding taxable year.
If we are treated as a PFIC with respect to a U.S. Holder for any taxable year, certain elections may be
available to the U.S. Holder that would result in alternative treatments, such as mark-to-market treatment or
treatment as a qualified electing fund (“QEF”), of the Class A ordinary shares. However, we cannot provide any
assurances that we will assist investors in determining whether we or any of our non-U.S. subsidiaries are a PFIC for
any taxable year, nor do we expect that we will prepare or provide to U.S. Holders a “PFIC annual information
statement,” which would enable a U.S. Holder to make a QEF election.
If we are treated as a PFIC with respect to a U.S. Holder for any taxable year, the U.S. Holder will be
deemed to own shares in any of our subsidiaries that are also PFICs and generally be subject to the treatment
described above with respect to any distribution on or disposition of such shares. An election for mark-to-market
treatment, however, would likely not be available with respect to any such subsidiaries.
If we are considered a PFIC, a U.S. Holder will also be subject to information reporting requirements on an
annual basis. U.S. Holders should consult their tax advisors about the potential application of the PFIC rules to an
investment in the Class A ordinary shares.
U.S. Information Reporting and Backup Withholding
Dividend payments with respect to the Class A ordinary shares and proceeds from the sale or other
disposition of the Class A ordinary shares may be subject to information reporting to the IRS. In addition, a U.S.
Holder (other than exempt U.S. Holders who establish their exempt status, if required) may be subject to backup
withholding, currently at a 24% rate, on dividend payments and proceeds from the sale or other taxable disposition
of Class A ordinary shares made within the United States or through certain U.S.-related financial intermediaries.
111
Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer
identification number and makes any other required certification or who is otherwise exempt from backup
withholding. U.S. Holders who are required to establish their exempt status may be required to provide such
certification on IRS Form W-9. U.S. Holders should consult their tax advisors regarding the application of the U.S.
information reporting and backup withholding rules.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited
against a U.S. Holder’s U.S. federal income tax liability, and such holder may obtain a refund of any excess amounts
withheld under the backup withholding rules by timely filing the appropriate claim for refund with the IRS and
furnishing any required information.
Information Reporting by U.S. Holders
Certain U.S. Holders who are individuals and certain entities holding specified foreign financial assets,
including our Class A ordinary shares, with an aggregate value in excess of the applicable dollar threshold, may be
required to report information relating to the Class A ordinary shares, subject to certain exceptions (including an
exception for Class A ordinary shares held in accounts maintained by certain U.S. financial institutions), for each
year in which they hold such shares. U.S. Holders should consult their tax advisors regarding their reporting
obligations with respect to their ownership and disposition of the Class A ordinary shares.
FATCA
Provisions under Sections 1471 through 1474 of the Code and applicable U.S. Treasury Regulations
commonly referred to as “FATCA” generally impose 30% withholding on certain “withholdable payments” and,
subject to the proposed regulations discussed below, may impose such withholding on “foreign passthru payments”
made by a “foreign financial institution” (each as defined in the Code) that has entered into an agreement with the
U.S. Internal Revenue Service to perform certain diligence and reporting obligations with respect to the foreign
financial institution’s U.S.-owned accounts. Under recently proposed regulations, any withholding on foreign
passthru payments would apply to passthru payments made on or after the date that is two years after the date of
publication in the Federal Register of applicable final regulations defining foreign passthru payments. Although
these recent regulations are not final, taxpayers generally may rely on them until final regulations are issued.
The United States has entered into an intergovernmental agreement (“IGA”) with the Cayman Islands, which
modifies the FATCA withholding regime described above. It is not yet clear how foreign passthru payments will be
addressed under FATCA. The Company could be subject to these diligence, reporting and withholding obligations if
it were treated as a financial institution under FATCA or the Cayman IGA. Prospective investors should consult
their tax advisors regarding the potential impact of FATCA, the Cayman IGA and any non-U.S. legislation
implementing FATCA, on their investment in the Class A ordinary shares.
THE DISCUSSION ABOVE IS A GENERAL SUMMARY. IT DOES NOT COVER ALL TAX
MATTERS THAT MAY BE IMPORTANT TO YOU. EACH PROSPECTIVE PURCHASER SHOULD
CONSULT ITS TAX ADVISOR ABOUT THE TAX CONSEQUENCES OF AN INVESTMENT IN CLASS
A ORDINARY SHARES UNDER THE INVESTOR’S OWN CIRCUMSTANCES.
F. Dividends and Paying Agents
Not applicable
G. Statement by Experts
Not applicable.
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H. Documents on Display
We are required to make certain filings with the SEC. The SEC maintains an Internet website that contains
reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The
address of that site is www.sec.gov.
We also make available on our website, free of charge, our annual reports on Form 20-F and the text of our
reports on Form 6-K, including any amendments to these reports, as well as certain other SEC filings, as soon as
reasonably practicable after they are electronically filed with or furnished to the SEC. Our website address is
www.farfetchinvestors.com. The information contained on our website is not incorporated by reference in this
document.
References made in this Annual Report to any contract or certain other document are not necessarily
complete and you should refer to the exhibits attached or incorporated by reference into this Annual Report for
copies of the actual contract or document.
I. Subsidiary Information
Not applicable.
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Market Risk
Our operations are exposed to a variety of financial risks, including foreign exchange and liquidity risks. We
have policies in place for managing these risks, which our finance department implements and periodically review.
Please refer to Note 30 to our consolidated financial statements for the years ended December 31, 2019 and 2018
included elsewhere in this Annual Report for a fuller quantitative and qualitative discussion on the market risks to
which we are subject and our policies with respect to managing those risks. The policies are summarized below:
The Group’s activities expose it primarily to the financial risk of changes in foreign currency exchange rates.
The Group enters into derivative financial instruments to manage its exposure to foreign currency risk.
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because
of changes in foreign exchange rates.
The Group uses forward currency contracts to hedge its foreign currency risks. Where the criteria for hedge
accounting are not met, derivative financial instruments are initially recognized at fair value on the date on which a
derivative contract is entered into and are subsequently remeasured at fair value with movements recorded to the
statement of operations. Derivatives are carried as financial assets when the fair value is positive and as financial
liabilities when the fair value is negative. Where all relevant criteria are met, hedge accounting is applied to
minimize earnings volatility.
The fluctuation in foreign currency exchange rates expose the Group to foreign exchange translation risk on
consolidation. This risk is currently not hedged and therefore, our results of operations have in the past, and will in
the future, fluctuate due to movements in exchange rates when the currencies are translated into U.S. dollars. At a
subsidiary level, we are exposed to transactional foreign exchange risk because we earn revenues and incur expenses
in a number of different foreign currencies relative to the relevant subsidiary’s functional currency, mainly the
pound sterling and the euro. Movements in exchange rates therefore impact our subsidiaries and thus, our
consolidated results and cash flows.
Liquidity risk
The Group monitors its liquidity risk to maintain a balance between continuity of funding and flexibility.
This helps the Group achieve timely fulfilment of its obligations while sustaining the growth of the business.
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We believe that our cash and cash equivalents balance as at December 31, 2019, combined with the
additional $250 million received from our Notes are sufficient to meet our operating financing needs in the next 12
months and will support debt repayments and our currently planned capital expenditure requirements over the near
term and medium term.
To expand our business, we have made acquisitions of businesses, products, and technologies. Depending on
our future cash position and future market conditions, we might issue additional debt instruments to fund
acquisitions, maintain financial flexibility, and limit repayment risk. Therefore, we continuously monitor funding
options available in the capital markets and trends in the availability of funds, as well as the cost of such funding.
For more information about the Notes, see the Cash Flows and Liquidity sections.
Item 12. Description of Securities Other than Equity Securities
Not applicable.
114
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
PART II
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
Use of Proceeds
On September 25, 2018, we completed an IPO of our Class A ordinary shares, in which we sold at an initial
public offering price of $20.00 per share, 40,246,453 Class A ordinary shares (including 6,636,562 Class A ordinary
shares that were subject to the underwriters’ option to purchase additional shares), and the selling shareholders sold
10,633,858 Class A ordinary shares (including 6,636,562 Class A ordinary shares that were subject to the
underwriters’ option to purchase additional shares). The shares offered and sold in the IPO were registered under the
Securities Act pursuant to our Registration Statement on Form F 1 (File No. 333 2226929), which was declared
effective by the SEC on September 20, 2018.
The offering did not terminate until after the sale of all 50,880,311 Class A ordinary shares registered on the
registration statement. The aggregate offering price for the shares registered and sold was approximately $1,017.6
million. Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, Allen & Company LLC and UBS Securities LLC
acted as representatives of the several underwriters.
The IPO generated proceeds to us of approximately $758.6 million, net of underwriting discounts and
commissions of approximately $46.3 million and other offering expenses of approximately $11.9 million. The IPO
generated proceeds to the selling stockholders of approximately $200.4 million, net of underwriting discounts and
commissions of approximately $12.2 million. We paid out of Company proceeds all of our and the selling
shareholders’ fees, costs and expenses in connection with the IPO (excluding, in the case of the selling shareholders,
underwriting discounts and commissions and similar brokers’ fees and transfer taxes).
No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates),
persons owning 10% or more of our ordinary shares or any other affiliates.
There has been no material change in the expected use of the net proceeds from our IPO as described in our
final prospectus filed with the SEC on September 24, 2018 pursuant to Rule 424(b). As of the date of the filing of
this Annual Report, we have used all of the net proceeds from the IPO.
Item 15. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act that are designed to ensure that information required to be disclosed in the Company’s
reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our
Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of
our disclosure controls and procedures as of December 31, 2019. Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that, as a result of the material weaknesses in our internal control over
financial reporting described below, the design and operation of our disclosure controls and procedures were not
effective as of December 31, 2019.
115
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Our management
conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set
forth in “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of
the Treadway Commission.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim
consolidated financial statements may not be prevented or detected on a timely basis.
As disclosed in our 2018 Annual Report, we identified certain control deficiencies in the design and
operation of our internal control over financial reporting resulting from: (1) our technology access and change
control environment not supporting an efficient or effective internal control framework; and (2) reliance on manual
processes; both of which we considered constituted material weaknesses. Whilst significant remediation work has
been undertaken, these material weaknesses have not been fully remediated, and we have concluded that material
weaknesses existed as of December 31, 2019 related to (1) the design and operation of effective controls over
information technology systems, including restricting access over those systems, designing appropriate automated
controls, managing system changes and the identification and testing of system generated reports used in the
execution of key manual controls; and (2) the design and operation of effective controls over the ability of
individuals to prepare and post journal entries without independent review. Our remediation efforts for these
material weaknesses have included and continue to include: establishing more robust processes supporting internal
control over financial reporting; implementing formal access and change management controls to our systems; and
automation of a number of system interfaces to improve our information technology systems. In addition, we have
hired and will continue to hire additional accounting, finance and technology personnel. While we have initiated a
revised access and change control environment, further work is needed to demonstrate the operational effectiveness
of these controls on an ongoing basis. Additionally, whilst we have taken steps during 2019 to automate previously
manual processes, for example, by introducing automated procurement and consolidation systems, a key element of
automating our journal workflow process was not completed by December 31, 2019.
Furthermore, during the year ended December 31, 2019, we identified a further material weakness as a result
of us having insufficient personnel with an appropriate level of accounting knowledge, experience and training in
order to review, challenge and conclude on the interpretation of complex accounting matters and on the proposed
treatment of significant and unusual transactions. Since first identifying this material weakness, we have made
significant changes in this area, including formalizing a process for identifying complex accounting matters and
determining the necessary steps to ensure the appropriate accounting treatment, for example, engaging the assistance
of third-party specialists with expertise in these more complex areas and the preparation of technical accounting
memos which are then approved at the appropriate level of management. In addition, we have significantly
strengthened the technical resources within our finance team to enable stronger review and approval of all elements
of complex matters. Given that these improvements require additional time to assess their effectiveness, this
remained a material weakness as of December 31, 2019.
Management excluded from this assessment Stadium Goods and New Guards as permitted by the SEC rules
and regulations, as both were acquired during 2019. As of and for the fiscal year ended December 31, 2019, Stadium
Goods represented approximately 1% of our consolidated assets and 3% of our consolidated revenue, and New
Guards represented approximately 10% of our consolidated assets and 18% of our consolidated revenue.
Based upon the above evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as
a result of the material weaknesses described above, our internal control over financial reporting was not effective as
of December 31, 2019.
Attestation Report of Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited our
consolidated financial statements included in this Annual Report, has audited the internal control over financial
reporting as of December 31, 2019, as stated in its report on page F-2.
116
Changes in Internal Control over Financial Reporting
In addition to the remediation efforts described above taken to address the material weaknesses, during 2019,
Farfetch implemented SAP BPC as the Group’s consolidation system. The development was subject to an
implementation review process over the accuracy of the transitioned financial information. In addition, this
implementation resulted in the automation of a number of previously manual consolidation processes and, we
believe, has helped improve the control framework over financial reporting and the integrity of our financial
statements. Other than this item, there were no other changes in our internal control over financial reporting that
occurred during the period covered by this Annual Report that have materially affected, or reasonably likely to
materially affect, our internal control over financial reporting.
Item 16. Reserved
Item 16A. Audit Committee Financial Expert
Our Board has determined that Ms. Evan and Messrs. Kamaluddin and Risman each satisfy the
“independence” requirements set forth in Rule 10A-3 under the Exchange Act. Our Board has also determined that
each of Ms. Evan and Messrs. Kamaluddin and Risman is considered an “audit committee financial expert” as
defined in Item 16A of Form 20-F under the Exchange Act.
Item 16B. Code of Ethics
We have adopted a Code of Conduct that applies to all our employees, officers and directors, including our
principal executive, principal financial and principal accounting officers. Our Code of Conduct addresses, among
other things, competition and fair dealing, conflicts of interest, financial matters and external reporting, company
funds and assets, confidentiality and corporate opportunity requirements and the process for reporting violations of
the Code of Conduct, employee misconduct, conflicts of interest or other violations. Our Code of Conduct and
Ethics is intended to meet the definition of "code of ethics" under Item 16B of 20-F under the Exchange Act.
We intend to disclose on our website any amendment to, or waiver from, a provision of our Code of Conduct
that applies to our directors or executive officers to the extent required under the rules of the SEC or the NYSE. Our
Code of Conduct is available on our website at www.farfetchinvestors.com. The information contained on our
website is not incorporated by reference in this Annual Report.
Item 16C. Principal Accounting Fees and Services
PricewaterhouseCoopers LLP ("PwC") acted as our independent registered public accounting firm for the
fiscal years ended December 31, 2019, 2018 and 2017. The table below sets out the total amount billed to us by
PwC, for services performed in the years ended December 31, 2019, 2018 and 2017, and breaks down these amounts
by category of service:
Audit Fees
Audit Related Fees
Tax Fees
All Other Fees
Total
Audit Fees
2018
2019
(in thousands)
1,028 $
886
6
232
2,152 $
2,245
520
24
75
2,864
$
$
Audit fees for the years ended December 31, 2019 and 2018 were related to the audit of our consolidated and
subsidiary consolidated financial statements and other audit or interim review services provided in connection with
statutory and regulatory filings or engagements.
Audit Related Fees
Audit related fees for the year ended December 31, 2019 were related to services in connection to financing
activities. Audit related fees for the year ended December 31, 2018 were related to services in connection with our
IPO transaction.
117
Tax Fees
Tax fees for the years ended December 31, 2019 and 2018 were related to tax compliance and tax planning
services.
All Other Fees
All other fees in the years ended December 31, 2019 and 2018 were related to services in connection with
non-audit compliance and review work.
Pre-Approval Policies and Procedures
The advance approval of the Audit Committee or members thereof, to whom approval authority has been
delegated, is required for all audit and non-audit services provided by our auditors.
All services provided by our auditors are approved in advance by either the Audit Committee or members
thereof, to whom authority has been delegated, in accordance with the Audit Committee's pre-approval policy.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 16F. Change in Registrant’s Certifying Accountant
None.
Item 16G. Corporate Governance
We are a “foreign private issuer” (as such term is defined in Rule 3b–4 under the Exchange Act), and our
Class A ordinary shares are listed on the NYSE. We believe the following to be the significant differences between
our corporate governance practices and those applicable to U.S. companies under the NYSE listing standards. Under
the NYSE rules, NYSE listed companies that are foreign private issuers are permitted to follow home country
practice in lieu of the corporate governance provisions specified by the NYSE with limited exceptions. Accordingly,
we follow certain corporate governance practices of our home country, the Cayman Islands, in lieu of certain of the
corporate governance requirements of the NYSE. In addition, under the NYSE rules, listed companies of which
more than 50% of the voting power for the election of directors is held by an individual, group or other entity are not
required to have a majority of independent directors, as defined by NYSE rules, or to comply with certain other
requirements. Because Mr. Neves beneficially owns more than 50% of the voting power of the Company, the
Company is a “controlled company” within the meaning of the rules of the NYSE.
Under the NYSE rules, U.S. domestic listed, non-controlled companies are required to have a majority
independent board, which is not required under the Companies Law of the Cayman Islands, our home country. In
addition, the NYSE rules require U.S. domestic listed, non-controlled companies to have a compensation committee
and a nominating and corporate governance committee, each composed entirely of independent directors, which are
not required under our home country laws.
We currently follow and intend to continue to follow the foregoing governance practices and not avail
ourselves of the exemptions afforded to foreign private issuers or controlled companies under the NYSE rules. We
may in the future, however, decide to use other foreign private issuer exemptions with respect to some or all of the
other NYSE listing requirements. Following our home country governance practices may provide less protection
than is accorded to investors under the NYSE listing requirements applicable to domestic issuers.
118
The NYSE rules also require shareholder approval for certain matters, including without limitation the
opportunity to vote on equity compensation plans and material revisions to those plans, which is not required under
the Cayman Islands law. We intend to follow home country law in determining whether shareholder approval is
required.
Item 16H. Mine Safety Disclosure
Not applicable.
119
Item 17. Financial statements
We have provided consolidated financial statements pursuant to Item 18.
PART III
Item 18. Financial statements
The audited consolidated financial statements as required under Item 18 are attached hereto starting on
page F-1 of this Annual Report. The audit report of PricewaterhouseCoopers LLP, independent registered public
accounting firm, is included herein preceding the audited consolidated financial statements.
120
Item 19. Exhibits
List all exhibits filed as part of the registration statement or annual report, including exhibits incorporated by
reference.
Description
Form
File No.
Exhibit No. Filing Date Filed/Furnished
Incorporation by Reference
*
*
*
Exhibit
No.
1.1
2.1
2.2
Amended and Restated Memorandum and
Articles of Association of the Registrant as
currently in effect.
Registration Rights Agreement, dated as of
July 21, 2017 by and among Farfetch.com
Limited and certain shareholders of Farfetch.com
Limited.
Deed of Amendment related to the Commitment
Agreement, dated as of August 8, 2018 by and
among Kadi Group Holding Limited, José Neves
and TGF Participations Limited.
F-1 333-226929
4.1
8/20/2018
F-1 333-226929
4.2
8/20/2018
2.3
Form of Class A Ordinary Share Certificate.
F-1 333-226929
4.3
8/20/2018
2.4
Description of Securities.
2.5
Indenture, dated as of February 5, 2020, by
Farfetch Limited and Wilmington Trust, National
Association.
4.1†
Form of Indemnification Agreement.
F-1 333-226929
10.1
8/20/2018
4.2†
4.3†
4.4†
4.5
4.6
4.7
4.8
4.9
Amended and Restated Rules of the Farfetch.com
Limited Enterprise Management Incentive
Scheme, adopted July 17, 2013.
Rules of the Farfetch.com Limited Share Option
Scheme, adopted July 18, 2013.
Farfetch.com Limited 2015 Long-Term Incentive
Plan, adopted February 13, 2015.
Asset Purchase Agreement, dated as of June 12,
2017, among Farfetch.com Limited, Farfetch UK
Limited, Advance Magazine Publishers Inc. and
CN Commerce Ltd.
Collaboration Agreement, dated as of June 13,
2017, between Farfetch.com Limited, Farfetch
UK Limited and Advance Magazine Publishers
Inc.
Side Letter to the Asset Purchase Agreement,
dated as of July 7, 2017, between Farfetch.com
Limited, Farfetch UK Limited, Advance
Magazine Publishers Inc. and CN Commerce Ltd.
Share Purchase Agreement, dated as of
October 31, 2017, between Farfetch UK Limited,
ASAP54.com Limited and Daniela Cecilio.
Payment Processing Agreement, dated as of
April 18, 2018, between Chinabank Payment
Technology Co. Ltd. and Farfetch UK Limited.
F-1 333-226929
10.2
8/20/2018
F-1 333-226929
10.3
8/20/2018
F-1 333-226929
10.4
8/20/2018
F-1 333-226929
10.5
8/20/2018
F-1 333-226929
10.6
8/20/2018
F-1 333-226929
10.7
8/20/2018
F-1 333-226929
10.8
8/20/2018
F-1 333-226929
10.10 8/20/2018
121
Exhibit
No.
4.10
Description
Form
File No.
Exhibit No. Filing Date Filed/Furnished
Incorporation by Reference
Amended and Restated Forward Purchase
Agreement, dated as of August 8, 2018, between
Farfetch.com Limited and Kadi Group Holding
Limited.
F-1 333-226929
10.11 8/20/2018
4.11†
Consultancy Agreement, dated August 15, 2018,
between Farfetch UK Limited and Natalie
Massenet.
F-1 333-226929
10.12 8/20/2018
4.12†
Form of 2018 Farfetch Employee Equity Plan.
S-8 333-227536
4.6
9/26/2018
20-F 001-38655
4.14
3/1/2019
20-F 001-38655
4.15
3/1/2019
4.13
4.14
4.15
Acquisition Agreement, dated as of December 12,
2018 between Stadium Goods and Farfetch
Limited.
Amended and Restated Commitment Agreement,
dated as of February 27, 2019 between Kadi
Group Holding Limited and José Neves.
Sale and Purchase Agreement relating to the
Acquisition of New Guards Group Holding s.p.a,
dated as of August 2, 2019, between multiple
sellers, Farfetch Italia S.r.l. and Farfetch Limited.
4.16
Purchase and Sale Agreement, dated as of April
8, 2019 between Medida Gabarito, LDA. and
Farfetch Portugal – Unipessoal LDA.
8.1
List of Subsidiaries.
12.1
12.2
13.1
13.2
Principal Executive Officer Certification Pursuant
to Section 302 of the Sarbanes-Oxley Act of
2002.
Principal Financial Officer Certification Pursuant
to Section 302 of the Sarbanes-Oxley Act of
2002.
Principal Executive Officer Certification Pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002.
Principal Financial Officer Certification Pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002.
15.1
Consent of PricewaterhouseCoopers LLP,
independent registered public accounting firm.
101.INS XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation
Linkbase Document.
101.DEF XBRL Taxonomy Definition Linkbase
Document.
101.LAB XBRL Taxonomy Extension Label Linkbase
Document.
122
*
*
*
*
*
**
**
*
*
*
*
*
*
Exhibit
No.
Description
Form
File No.
Exhibit No. Filing Date Filed/Furnished
Incorporation by Reference
101.PRE XBRL Taxonomy Extension Presentation
Linkbase Document
*
*
**
† This document has been identified as a management contract or compensatory plan or arrangement.
Filed herewith.
Furnished herewith.
Certain agreements filed as exhibits to this report contain representations and warranties that the parties
thereto made to each other. These representations and warranties have been made solely for the benefit of the other
parties to such agreements and may have been qualified by certain information that has been disclosed to the other
parties to such agreements and that may not be reflected in such agreements. In addition, these representations and
warranties may be intended as a way of allocating risks among parties if the statements contained therein prove to be
incorrect, rather than as actual statements of fact. Accordingly, there can be no reliance on any such representations
and warranties as characterizations of the actual state of facts. Moreover, information concerning the subject matter
of any such representations and warranties may have changed since the date of such agreements.
123
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has
duly caused and authorized the undersigned to sign this annual report on its behalf.
SIGNATURES
Date: March 11, 2020
By:
Farfetch Limited
/s/ José Neves
José Neves
Chief Executive Officer
124
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated statements of operations for the years ended December 31, 2019, 2018 and 2017
Consolidated statements of comprehensive loss for the years ended December 31, 2019, 2018 and 2017
Consolidated statements of financial position as of December 31, 2019 and 2018
Consolidated statements of changes in equity for the years ended December 31, 2019, 2018 and 2017
Consolidated statements of cash flows for the years ended December 31, 2019, 2018 and 2017
Notes to Consolidated financial statements
F-2
F-7
F-8
F-9
F-10
F-11
F-12
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Farfetch Limited
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial position of Farfetch Limited and its
subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of
operations, comprehensive loss, changes in equity and cash flows for each of the three years in the period ended
December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”)
We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2019 in conformity with International Financial
Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company
did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2019,
based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because
material weaknesses in internal control over financial reporting existed as of that date related to (1) the design and
operation of effective controls over information technology systems, including restricting access to those systems,
designing appropriate automated controls, managing system changes and the identification and testing of system
generated reports used in the execution of key manual controls; (2) the design and operation of effective controls
over the ability of individuals to prepare and post journal entries without independent review; and (3) insufficient
personnel with an appropriate level of accounting knowledge, experience and training in order to review, challenge
and conclude on the interpretation of complex accounting matters and on the proposed treatment of significant and
unusual transactions.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements
will not be prevented or detected on a timely basis. The material weaknesses referred to above are described in
Management’s Report on Internal Control over Financial Reporting appearing under Item 15. We considered these
material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the 2019
consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control
over financial reporting does not affect our opinion on those consolidated financial statements.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it
accounts for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting, included in management’s report referred to above. Our responsibility is to express opinions on the
Company’s consolidated financial statements and on the Company's internal control over financial reporting based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of
F-2
material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting
was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded
Stadium Goods and New Guards Group from its assessment of internal control over financial reporting as of
December 31, 2019 because they were acquired by the Company in purchase business combinations during 2019.
We have also excluded Stadium Goods and New Guards Group from our audit of internal control over financial
reporting. Stadium Goods is a wholly-owned subsidiary whose total assets and total revenues excluded from
management’s assessment and our audit of internal control over financial reporting represent 1% and 3%,
respectively, of the related consolidated financial statement amounts as of and for the year ended December 31,
2019. New Guards Group is a wholly-owned subsidiary whose total assets and total revenues excluded from
management’s assessment and our audit of internal control over financial reporting represent 10% and 18%,
respectively, of the related consolidated financial statement amounts as of and for the year ended December 31,
2019.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated
financial statements that were communicated or required to be communicated to the audit committee and that (i)
relate to accounts or disclosures that are material to the consolidated financial statements; and (ii) involved
especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.
F-3
Impact of Internal Control over Financial Reporting
The completeness and accuracy of the consolidated financial statements, including the statements of financial
position, operations, comprehensive loss, changes in equity and cash flows, is in part dependent on (1) the design
and operation of effective controls over information technology systems; and (2) the design and operation of
effective controls over the ability of individuals to prepare and post journal entries.
The principal considerations for our determination that the impact of internal control over financial reporting is a
critical audit matter are there was a high degree of auditor judgment, subjectivity and effort in performing
procedures and evaluating audit evidence related to information systems and business processes, which affect the
preparation of the consolidated financial statements, and substantially all financial statement account balances and
disclosures. As described above in the “Opinions on the Financial Statements and Internal Control over Financial
Reporting” section, material weaknesses were identified as of December 31, 2019 related to (1) the design and
operation of effective controls over information technology systems, including restricting access to those systems,
designing appropriate automated controls, managing system changes and the identification and testing of system
generated reports used in the execution of key manual controls; and (2) the design and operation of effective
controls over the ability of individuals to prepare and post journal entries without independent review.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming
our overall opinion on the consolidated financial statements. These procedures included, among others, manually
testing the completeness and accuracy of system generated reports used in the execution of key manual controls and
evaluating the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements,
and as a result increasing the substantive work performed.
Goodwill Impairment Assessments, Specifically the Value in Use of Cash Generating Units or Groups of Cash
Generating Units
As described in Notes 2, 3 and 15 to the consolidated financial statements, the Company’s goodwill balance was
$341.1 million as of December 31, 2019. The goodwill has been allocated to cash generating units (CGUs) or groups
of CGUs as follows: $131.1 million to Marketplace, $188.0 million to New Guards Group, $19.0 million to Browns
and $3.0 million to Curiosity China. Management conducts a goodwill impairment test as of December 31 of each
year, or more frequently if circumstances indicate that the carrying value of goodwill may be impaired. Goodwill
impairment is determined by assessing the recoverable amount of each CGU or group of CGUs to which the
goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, a goodwill impairment
loss is recognized. The recoverable amounts of the CGUs are determined from value in use calculations based on
discounted cash-flow models. Management’s estimate of the value in use included significant judgements and
assumptions relating to (i) expected future revenue growth rates, including the terminal growth rate; (ii) anticipated
operating margins; and (iii) the discount rates to be applied to the estimated future cash flows.
The principal considerations for our determination that the goodwill impairment assessment, specifically the value in
use of each CGU or groups of CGUs is a critical audit matter are there was significant judgement by management
when developing the estimate of the value in use of the CGUs and groups of CGUs, including the related
assumptions. This in turn resulted in a high degree of auditor judgment, subjectivity and effort in performing
procedures to evaluate management’s cash flow projections and other significant assumptions, including the
expected future revenue growth rates, including the terminal growth rate, anticipated operating margins and the
discount rates applied to future cash flows.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming
our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of
controls relating to management’s goodwill impairment assessment, including controls over the discounted cash
flow models and assumptions therein. These procedures also included, among others, testing management’s process
for developing the value in use calculations; evaluating the appropriateness of the discounted cash flow models;
testing the completeness, accuracy, and relevance of underlying data used in the models; and evaluating the
significant assumptions used by management, including the expected future revenue growth rates, including the
terminal growth rate; anticipated operating margins and the discount rates applied to future cash flows. Evaluating
management’s assumptions related to expected future revenue growth rates, including the terminal growth rate and
F-4
anticipated operating margins involved considering (i) current and past performance of the CGUs, (ii) consistency of
expectations with external market and industry data, (iii) management’s historical forecasting accuracy and (iv)
whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with
specialized skill and knowledge were used to assist in performing procedures relating to the terminal growth rate and
discount rates applied to future cash flows.
Valuation of Acquired Intangible Assets
As described in Notes 3 and 5 to the consolidated financial statements, the Company completed the acquisitions of
Stadium Goods and New Guards Group in 2019 for net consideration of $178.8 million and $704.1 million,
respectively; resulting in $117.3 million and $830.2 million, respectively of intangible assets being recorded.
Management applied significant judgment in estimating the fair value of intangible assets acquired using a
discounted cash flow method of the income approach, which involved the use of significant estimates and
assumptions with respect to (i) expected future revenue growth rates; (ii) anticipated operating margins; (iii) the
useful lives of the acquired brand names; and (iv) the discount rates to be applied to the estimated future cash
flows. Management used specialists to develop these estimates.
The principal considerations for our determination that the valuation of the acquired intangible assets is a critical
audit matter are there was significant judgement and estimation by management in determining the key assumptions
used in the fair value estimates. This in turn resulted in a high degree of auditor judgment, subjectivity and effort in
performing procedures to evaluate management’s future cash flow projections and significant assumptions,
including expected future revenue growth rates, anticipated operating margins, the useful lives of the acquired brand
names and the discount rates to be applied to the expected future cash flows. As described in the “Opinions on the
Financial Statements and Internal Control over Financial Reporting” section, a material weakness was identified
related to sufficiency of personnel with an appropriate level of accounting knowledge, experience and training in
order to review, challenge and conclude on the interpretation of complex accounting matters and on the proposed
treatment of significant and unusual transactions.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming
our overall opinion on the consolidated financial statements. These procedures included, among others, (i)
evaluating the purchase agreements; (ii) assessing management’s process for estimating the fair value of acquired
intangible assets, including evaluating the appropriateness of the valuation methods used by management’s
specialists; (iii) evaluating the reasonableness of significant assumptions developed by management’s specialists,
including expected future revenue growth rates, anticipated operating margins, the useful lives of acquired brand
names and discount rates to be applied to the estimated future cash flows, and (iv) evaluating the scope, competency
and objectivity of management’s specialists based on the work they were engaged to perform. Evaluating the
reasonableness of the expected future revenue growth rates and the anticipated operating margins involved
considering the past performance of the acquired businesses, including historical forecasting accuracy, and
consistency of expectations with economic and industry data, and supplementing this work by conducting sensitivity
analyses. Professionals with specialized skill and knowledge were used to assist in performing procedures relating to
assessing the reasonableness of the discount rates applied to the forecasted cash flows and appropriateness of the
useful lives assigned to the acquired brand names.
Capitalized Development Costs
As described in Notes 2, 3 and 15 to the consolidated financial statements, the Company capitalizes costs relating to
the development of internal software and the Farfetch websites. Management applied significant judgment in
assessing whether the assets met the required criteria for initial capitalization, including the assessment of expected
future benefits from the projects to be capitalized, technical feasibility and commercial viability. The value of
development costs capitalized during the year ended December 31, 2019 was $78.4 million.
The principal considerations for our determination that capitalized development costs is a critical audit matter are
there was significant judgement by management in assessing whether the assets met the required criteria for initial
capitalization, including assessment of expected future benefits from the projects to be capitalized, technical
feasibility and commercial viability. This in turn led to a high degree of auditor judgment, subjectivity, and effort in
performing procedures to evaluate management’s judgement in assessing the capitalization criteria.
F-5
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming
our overall opinion on the consolidated financial statements. These procedures included, among others, (i) assessing
whether the capitalization criteria, including expected future benefits and feasibility of projects, have been met
through review of project budgets and roadmaps, consideration of historic unsuccessful projects, corroborating
information with the IT project leads and employees working on the projects, and interviewing project supervisors
and development personnel on the nature of each project and the time spent on projects by development team
members; and (ii) testing directly attributable costs to bring the asset to the condition necessary for it to be capable
of operating in the manner intended by management.
/s/PricewaterhouseCoopers LLP
London, United Kingdom
March 11, 2020
We have served as the Company’s auditor since 2015.
F-6
Consolidated statements of operations
for the year ended December 31,
(in $ thousands, except share and per share data)
Revenue
Cost of revenue
Gross profit
Selling, general and administrative expenses
(Losses)/ gains on items held at fair value
Share of profits of associates
Operating loss
Finance income
Finance costs
Loss before tax
Income tax expense
Loss after tax
(Loss)/Profit attributable to:
Equity holders of the parent
Non-controlling interests
Loss per share attributable to owners of the parent
Basic and diluted
Weighted-average shares outstanding
Basic and diluted
Note
4
8
5,30
9
9
10
11
2017
385,966
(181,200 )
204,766
(295,960 )
(3,300 )
31
(94,463 )
2,833
(20,475 )
(112,105 )
(170 )
(112,275 )
2019
2018
602,384 1,021,037
(561,191 )
(303,934 )
298,450
459,846
(869,609 )
(471,766 )
21,721
-
366
33
(387,676 )
(173,283 )
34,382
38,182
(18,316 )
(19,232 )
(372,526 )
(153,417 )
(2,158 )
(1,162 )
(373,688 )
(155,575 )
23
(112,275 )
-
(112,275 )
(155,575 )
-
(155,575 )
(385,297 )
11,609
(373,688 )
12
(0.50 )
(0.59 )
(1.21 )
12 223,465,734 264,432,214 318,843,239
The accompanying notes are an integral part of these consolidated financial statements
F-7
Consolidated statements of comprehensive loss
for the year ended December 31,
(in $ thousands)
Note
Loss for the year
Other comprehensive income/(loss)
Items that may be subsequently reclassified to the consolidated
statement of operations (net of tax)
Exchange differences on translation of foreign operations
Gains/ (losses) on cash flow hedges
Items that will not be subsequently reclassified to the consolidated
statement of operations (net of tax)
Impairment loss on investments
Remeasurement loss on severance plan
Other comprehensive income/(loss) for the year, net of tax
Total comprehensive (loss)/income for the year, net of tax
Attributable to:
Equity holders of the parent
Non-controlling interests
2017
(112,275 )
2018
(155,575 )
2019
(373,688 )
33,504
-
(24,142 )
436
(7,333 )
(3,384 )
18
-
-
33,504
(78,771 )
-
-
(23,706 )
(179,281 )
(100 )
(58 )
(10,875 )
(384,563 )
23
(78,771 )
-
(78,771 )
(179,281 )
-
(179,281 )
(396,172 )
11,609
(384,563 )
The accompanying notes are an integral part of these consolidated financial statements
F-8
Consolidated statements of financial position
(in $ thousands)
Non-current assets
Trade and other receivables
Deferred tax assets
Intangible assets, net
Property, plant and equipment, net
Right-of-use assets
Investments
Investments in associates
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Equity
Share capital
Share premium
Merger reserve
Foreign exchange reserve
Other reserves
Accumulated losses
Equity attributable to owners of the parent
Non-controlling interests
Total equity
Non-current liabilities
Provisions
Lease liabilities
Deferred tax liabilities
Other liabilities
Put and call option liabilities
Total non-current liabilities
Current liabilities
Trade and other payables
Lease liabilities
Put and call option liabilities
Other current financial liabilities
Total current liabilities
Total liabilities
Total equity and liabilities
Note
December 31,
2018
December 31,
2019
14
27
15
16
17
18
18
13
14
19
20
20
20
21
23
26
17
27
31
30
24
17
30
10,458
-
103,345
37,528
-
566
86
151,983
12,388
5,324
1,362,967
67,999
115,176
16,229
2,466
1,582,549
60,954
93,670
1,044,786
1,199,410
1,351,393
128,107
194,794
322,429
645,330
2,227,879
11,994
772,300
783,529
(23,509 )
67,474
(483,357 )
1,128,431
-
1,128,431
13,584
878,007
783,529
(30,842 )
349,463
(826,135 )
1,167,606
170,226
1,337,832
13,462
-
-
15,342
-
28,804
23,704
100,833
219,789
16,455
61,268
422,049
194,158
-
-
-
194,158
222,962
1,351,393
447,586
18,485
1,118
809
467,998
890,047
2,227,879
The accompanying notes are an integral part of these consolidated financial statements
F-9
Consolidated statements of changes in equity (in $ thousands)
Note
Share
capital
Share
premium
Merger
reserve
Foreign
exchange
reserve
Other
reserves
7,844 340,988
- (32,871 ) 19,857
118,917
(1 ) 118,916
Equity
attributable
to the
parent
Non-
controlling
interest
Total
equity
Accumulated
losses
(216,901 )
Balance at December 31, 2016
Changes in equity
Issue of share capital, net of transaction
costs
Loss for the year
Other comprehensive income
Share based payment – equity
settled
Transactions with non-
controlling interests
Balance at December 31, 2017
Changes in equity
Loss for the year
Other comprehensive (loss)/ income
Capital reorganization
Issue of share capital, net of transaction
costs
Share based payment – equity
settled
Balance at December 31, 2018
Changes in equity
Loss for the year
Other comprehensive (loss)
Issue of share capital, net of transaction
costs
Share based payment – equity settled
Share based payment- reverse vesting
shares
Transaction with non-
controlling interests
Non-controlling interest arising from a
business combination
Non-controlling interest call option
Balance at December 31, 2019
1,454 336,686
-
-
-
-
-
-
-
-
- 33,504
2,161
-
-
-
(112,275 )
-
340,301
(112,275 )
33,504
- 340,301
- (112,275 )
33,504
-
-
-
-
-
9,298 677,674
-
-
-
- 16,457
-
16,457
-
16,457
-
-
633 38,475
(1 )
(329,177 )
(1 )
396,903
1
-
- 396,903
-
-
-
-
652 (677,674 ) 783,529
-
-
- (24,142 )
-
-
436
-
(155,575 )
-
(155,575 )
(23,706 )
106,507
- (155,575 )
-
(23,706 )
- 106,507
20
2,044 772,300
-
-
-
-
774,344
- 774,344
- 28,563
11,994 772,300 783,529 (23,509 ) 67,474
-
-
-
1,395
29,958
(483,357 ) 1,128,431
-
29,958
- 1,128,431
-
-
-
-
-
-
-
(7,333 )
-
(3,542 )
(385,297 )
-
(385,297 )
(10,875 )
11,609 (373,688 )
(10,875 )
-
20
1,590 105,707
-
-
-
-
-
-
-
-
-
-
- 393,105
- 76,383
-
46,841
500,402
123,224
- 500,402
- 123,224
- (82,646 )
-
(82,646 )
-
(82,646 )
- (101,311 )
-
(101,311 )
- (101,311 )
-
-
13,584 878,007 783,529 (30,842 ) 349,463
-
-
-
-
-
-
-
-
-
(4,322 )
- 158,617 158,617
(4,322 )
(826,135 ) 1,167,606 170,226 1,337,832
(4,322 )
-
The accompanying notes are an integral part of these consolidated financial statements
F-10
Consolidated statements of cash flows
for the year ended December 31,
(in $ thousands)
Cash flows from operating activities
Loss before tax
Adjustments for:
Depreciation
Amortization
Non-cash employee benefits expense
Net loss/(gain) on sale of non-current assets
Share of profits of associates
Net finance income
Net exchange differences
Impairment of investments
Change in the fair value of derivatives
Change in the fair value of put and call option liabilities
Change in the fair value of acquisition related consideration
Changes in working capital
Increase in receivables
Increase in inventories
Increase in payables
Changes in other assets and liabilities
(Increase)/decrease in non-current receivables
Increase in other liabilities
Decrease in provisions
Other items
Income taxes paid
Net cash outflow from operating activities
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired
Payments for property, plant and equipment
Proceeds on disposal of property, plant and equipment
Payments for intangible assets
Interest received
Payments for investments
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from issue of shares, net of issue costs
Repayment of loan notes
Repayment of the principal elements of lease payments
Interest and fees paid on loans
Net cash inflow/(outflow) from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of year
Note
2017
2018
2019
(112,105 )
(153,417 )
(372,526 )
16,17
15
8
8
5
3,648
7,332
16,578
42
(35 )
(1,261 )
12,196
-
44
-
-
7,338
16,199
53,819
1,028
(33 )
(19,866 )
7,621
-
(506 )
-
-
28,536
85,055
138,195
(144 )
(366 )
(15,150 )
(842 )
5,000
(117 )
(43,247 )
21,526
(598 )
(35,163 )
47,406
(72,151 )
(10,345 )
57,432
(51,273 )
(29,723 )
113,721
(3,826 )
7,365
-
(591 )
(352 )
(59,320 )
(1,265 )
-
(701 )
(536 )
(822 )
(116,205 )
3,723
11,575
(4,252 )
(5 )
(16,328 )
(126,642 )
195
(12,616 )
-
(18,997 )
2,833
(278 )
(28,863 )
-
(21,137 )
-
(50,978 )
8,865
(288 )
(63,538 )
(461,691 )
(39,512 )
272
(72,985 )
11,259
(20,846 )
(583,503 )
322,097
(21,955 )
-
-
300,142
211,959
150,032
22,011
384,002
859,526
-
-
-
859,526
679,783
384,002
(18,999 )
1,044,786
8,654
-
(19,127 )
(4,776 )
(15,249 )
(725,394 )
1,044,786
3,037
322,429
The accompanying notes are an integral part of these consolidated financial statements
F-11
Notes to the consolidated financial statements
1.
Corporate information
Farfetch Limited (the “Company”) is an exempted company incorporated with limited liability under the
Companies Law (2018 Revision) of the Cayman Islands, as amended and restated from time to time (the
“Companies Law”). The principal place of business is The Bower, 211 Old Street, London, EC1V 9NR, United
Kingdom. Farfetch Limited and its subsidiary undertakings (the “Group”) is principally engaged in the following:
•
•
•
providing an online marketplace at Farfetch.com (and related suffixes) as well as the Farfetch app for
retailers and brands to be able to offer their products for sale to the public (including associated
services such as ‘production’, logistics, customer services and payment processing);
web design, build, development and retail distribution for retailers and brands to enable them to offer
their products to the public; and
operating the Company-owned (Browns, New Guards, Stadium Goods) and the branded stores (Off-
White).
Summary of impact of Group restructure and Initial Public Offering (IPO)
On September 21, 2018, the Company commenced trading its shares on the New York Stock Exchange. In
preparation for this IPO, the Group was restructured. The steps to restructure the Group had the effect of Farfetch
Limited being inserted above Farfetch.com Limited as the holder of the Farfetch.com Limited share capital. The
reorganization transactions have been treated as a capital reorganization. In accordance with International Financial
Reporting Standards, historic earnings per share calculations and the balance sheet as of December 31, 2017 have
been restated retrospectively to reflect the capital structure of the new parent rather than that of the former parent,
Farfetch.com Limited.
The Group is presented as if Farfetch Limited has always owned Farfetch.com Limited. The comparative
statement of operations and statement of financial position are presented in line with the previously presented
Farfetch.com Limited position. The comparative and current period consolidated reserves of the Group are adjusted
to reflect the statutory share capital and share premium of Farfetch Limited. A merger reserve arose as a result of the
restructuring of the Group and represents the difference between the equity of the acquired company (Farfetch.com
Limited) and the investment by the acquiring company (Farfetch Limited).
The steps taken to restructure the Group were as follows. On September 18, 2018, all holders of warrants
over Farfetch.com shares, except a holder of 189,995 warrants, exercised their warrants into the applicable class of
shares and the outstanding shares of Farfetch.com and were exchanged for shares of Farfetch Limited with
equivalent rights. Following the exchange, the £0.10 British Pound Sterling denominated ordinary shares and the
preference shares held by the shareholders of Farfetch Limited were converted into U.S. dollar denominated $0.20
ordinary shares of Farfetch Limited and subsequently exchanged, one for five, for $0.04 Class A ordinary shares and
Class B ordinary shares, as applicable. Outstanding options of Farfetch.com were released in exchange for the grant
of options with equivalent rights over Class A ordinary shares of Farfetch Limited.
2.
Significant accounting policies
2.1. Basis of preparation
The consolidated financial statements of the Group have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
The Directors have made an assessment of the Group’s ability to continue in operational existence for the
foreseeable future and are satisfied that it is appropriate to continue to adopt the going concern basis of accounting
in preparing the consolidated financial statements.
The consolidated financial statements have been prepared under the historical cost convention unless
otherwise stated.
F-12
Notes to the consolidated financial statements (continued)
The consolidated financial statements are presented in United States dollars (“U.S. dollars” or “USD” or
“$”). All values are rounded to the nearest thousand dollars, except where indicated. The tables in these notes are
shown in USD thousands, except where indicated.
In January 2019, the functional currency of Farfetch UK Limited, the Group’s primary trading entity,
changed from pound sterling to U.S dollars. This was a result of a gradual change in the primary economic
environment in which Farfetch UK Limited operates driven by the growth of consumers where the Group receives
U.S. dollars in settlement. This is combined with an increase in costs influenced by movements in the U.S dollar.
The Group’s corporate treasury function continually monitors the Group’s exposure to foreign currency movements.
Farfetch UK Limited is exposed to movements in several key currencies including the U.S dollar, euro and pound
sterling. Following review of Farfetch UK Limited’s expected receipts and expenses, the Group determined that U.S
dollars had become the dominant currency from January 2019. As a result this has triggered a change in functional
currency.
Effective January 1, 2019, we adopted the requirements of IFRS 16, Leases, (“IFRS 16”) as discussed below.
The consolidated financial statements provide comparative information in respect of the previous periods.
2.2. Basis of consolidation
The consolidated financial statements comprise the consolidated financial statements of the Group and its
subsidiaries. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement
with the investee and has the ability to affect those returns through its power over the investee.
Generally, there is a presumption that a majority of voting rights results in control. To support this
presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group
considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
•
•
•
The contractual arrangement with the other vote holders of the investee;
Rights arising from other contractual arrangements; and
The Group’s voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are
changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group
obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities,
income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated
financial statements from the date the Group gains control until the date control ceases. Profit or loss and each
component of other comprehensive income (“OCI”) are attributed to the equity holders of the parent of the Group
and to the non-controlling interests. When necessary, adjustments are made to the consolidated financial statements
of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group
assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the
Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of
control, is accounted for as an equity transaction.
2.3.
Summary of significant accounting policies
a)
Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is
measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of
any non-controlling interests in the acquiree. For each business combination, the Group measures the non-
controlling interests in the acquiree at the proportionate share of the acquiree’s identifiable net assets.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate
classification and designation in accordance with the contractual terms, economic circumstances and pertinent
conditions as at the acquisition date.
F-13
Notes to the consolidated financial statements (continued)
Any contingent consideration to be transferred by the Group is recognized at fair value at the acquisition
date. Contingent consideration classified as an asset or liability that is a financial instrument and is measured at fair
value with changes in fair value recognized in profit or loss.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and
the amount recognized for non-controlling interests over the net identifiable assets acquired and liabilities assumed
which are measured at fair value at the date of acquisition.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the
purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated
to each of the Group’s cash-generating units (“CGU”) that are expected to benefit from the combination, irrespective
of whether other assets or liabilities of the acquiree are assigned to those units. Annual impairment testing is
performed at every reporting date being December 31. Refer to Note 2.3m) for the Group’s policy on the
impairment of non-financial assets.
b)
Investment in associates
The Group recognizes an associate when the Group has a significant influence over that entity. Significant
influence is the power to participate in the financial and operating policy decisions of the investee, but is not control
or joint control over those policies. The Group’s investment in its associate, Farfetch Finance Limited, is accounted
for using the equity method.
Under the equity method of accounting, the investments are initially recognized at cost and adjusted
thereafter to recognize the Group’s share of the post-acquisition profits or losses of the investee in profit or loss, and
the Group’s share of movements in other comprehensive income of the investee in other comprehensive income.
c)
Current versus non-current classification
The Group presents assets and liabilities in the statement of financial position based on current/non-current
classification.
An asset is current when it is:
•
•
•
•
Expected to be realized or intended to be sold or consumed in the normal operating cycle;
Held primarily for the purpose of trading;
Expected to be realized within twelve months after the reporting period; or
Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least
twelve months after the reporting period.
All other assets are classified as non-current.
A liability is current when:
•
•
•
•
It is expected to be settled in the normal operating cycle;
It is held primarily for the purpose of trading;
It is due to be settled within twelve months after the reporting period; or
There is no unconditional right to defer the settlement of the liability for at least twelve months after
the reporting period.
The Group classifies all other liabilities as non-current.
F-14
Notes to the consolidated financial statements (continued)
d)
Fair value measurement
This section outlines the Group policies applicable to financial instruments that are recognized and measured
at fair value in the consolidated financial statements.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value measurement is based on the
presumption that the transaction to sell the asset or transfer the liability takes place either:
•
•
In the principal market for the asset or liability; or
In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use
when pricing the asset or liability, assuming that market participants act in their economic best interest.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data
is available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of
unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the consolidated financial
statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that
is significant to the fair value measurement as a whole:
•
•
•
Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2: Valuation techniques for which the lowest level input that is significant to the fair value
measurement is directly or indirectly observable
Level 3: Valuation techniques for which the lowest level input that is significant to the fair value
measurement is unobservable
For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the
Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization
(based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each
reporting period.
e)
Revenue recognition
Revenue is recognized in accordance with the five-step model under IFRS 15, which was early adopted by
the Group on January 1, 2017 on a fully retrospective basis:
1.
2.
3.
4.
5.
identifying the contracts with customers;
identifying the separate performance obligations;
determining the transaction price;
allocating the transaction price to the separate performance obligations; and
recognizing revenue when each performance obligation is satisfied.
F-15
Notes to the consolidated financial statements (continued)
Retailing of goods
Revenue, where the Group acts as a principal, is recognized when the performance obligation is satisfied
which is when the goods are received by the consumer. Included within sales of goods is a provision for expected
returns, discounts and rebates. Where these are not known, the Group uses historical data and patterns to calculate an
estimate.
Rendering of services
The Group primarily acts as a commercial intermediary between sellers, being the brands and retailers, and
end consumers and earns a commission for this service.
For these arrangements, the sellers determine the transaction price of the goods sold on the website, being
the purchase price paid by the consumer, with the Group acting as an agent for the sellers and the related revenue is
recognized on a net basis. The Group also charges fees to sellers for activities related to providing this service, such
as packaging, credit card processing, settlement of duties, and other transaction processing activities. These
activities are not considered separate promises to the consumer, and the related fees are therefore recognized
concurrently with commissions at the time the performance obligation to facilitate the transaction between the seller
and end consumer is satisfied, which is when the goods are dispatched to the end consumer by the seller. A
provision is made for commissions that would be refunded if the end consumer returns the goods, and the Group
uses historical data and patterns to estimate its return provision. There are no significant payment terms with the
Group taking payment in full from the consumer’s chosen payment method at the time the goods are dispatched by
the seller.
The Group also provides delivery services to end consumers, with the Group setting the transaction price, for
goods purchased on its platform. For these services, the Group acts as the principal and recognizes as revenue
amounts charged to end consumers net of any promotional incentives and discounts. Revenue for these services is
recognized on delivery of goods to the end consumer, which represents the point in time at which the Group’s
performance obligation is satisfied. No provision for returns is made as delivery revenue is not subject to refund.
Promotional incentives, which include basket promo-code discounts, may periodically be offered to end consumers.
These are treated as a deduction to revenue. Cash is collected by the Group from the end consumer using payment
service providers. Within two months of the transactions, this is remitted to the relevant seller (net of commission
and recoveries). Such amounts are presented within trade and other payables, unless the relevant seller is in a net
receivable position and is therefore classified within trade and other receivables.
f)
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.
Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the
consolidated 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 recognized for all
taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable
profits will be available against which deductible temporary differences can be utilized. Such assets and liabilities
are not recognized 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. Current and deferred tax is charged or credited in the statement of operations, except when it
relates to items charged or credited directly to equity, in which case the current or deferred tax is also recognized
directly in equity.
F-16
Notes to the consolidated financial statements (continued)
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 in accordance with laws that are expected to apply in the
period/jurisdiction when/where the liability is settled, or the asset is realized.
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.
g)
Foreign currencies
The Group’s consolidated financial statements are presented in U.S. dollars. For each entity the Group
determines the functional currency and items included in the consolidated financial statements of each entity are
measured using that functional currency. The functional currency of the Company is U.S. dollars.
h)
Foreign currency translation
Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional
currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities
denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting
date. Differences arising on settlement or translation of monetary items are recognized in profit or loss.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using
the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign
currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss
arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain
or loss on the change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is
recognized in OCI or profit or loss are also recognized in OCI or profit or loss, respectively).
On consolidation, the assets and liabilities of foreign operations are translated into U.S. dollars at the rate of
exchange prevailing at the reporting date and their statements of profit or loss are translated at average exchange
rates. The exchange differences arising on translation for consolidation are recognized in OCI.
i)
Property, plant and equipment
Property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment
losses, if any. All repair and maintenance costs are recognized in profit or loss as incurred.
Items of property, plant and equipment are depreciated with an expense recognized in depreciation and
amortization expense on a straight-line basis over their useful life.
The useful lives of these items are assessed as follows:
Leasehold improvements
Fixtures and fittings
Motor vehicles
Plant, machinery and equipment
Leased plant and equipment
Shorter of the life of the lease or useful life
Three to ten years
Four to eight years
Three to ten years
Three to eight years
The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed
at each financial year end and adjusted prospectively, if appropriate.
F-17
Notes to the consolidated financial statements (continued)
The determination of whether an arrangement is (or contains) a lease is based on the substance of the
arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is
dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset or assets, even
if that right is not explicitly specified in an arrangement.
j)
Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets
acquired in a business combination is their fair value at the date of acquisition. Following initial recognition,
intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses.
Internally generated intangibles, excluding capitalized development costs, are not capitalized and the related
expenditure is reflected in profit or loss in the period in which the expenditure is incurred. The useful lives of
intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment
whenever there is an indication that the intangible asset may be impaired. The amortization period and the
amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting
period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits
embodied in the asset are considered to modify the amortization period or method, as appropriate, and are treated as
changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the
statement of operations in the expense category that is consistent with the function of the intangible assets. Other
than goodwill, there are no intangible assets with indefinite useful lives.
Goodwill is not amortized but is reviewed for impairment at least annually. For the purpose of impairment
testing, goodwill is allocated to the relevant CGUs which are tested for impairment annually. If the recoverable
amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first
to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata
on the basis of the carrying amount of each asset in the unit. On disposal of a cash-generating unit, the attributable
amount of goodwill is included in the determination of the profit or loss on disposal. Refer to Note 2.3m) for the
Group’s policy on the impairment of non-financial assets.
Research and development costs
Research costs are expensed as incurred. Development expenditures on an individual project are recognized
as an intangible asset when the Group can demonstrate:
•
•
•
•
•
The technical feasibility of completing the intangible asset so that the asset will be available for use or
sale;
Its intention to complete and its ability and intention to use or sell the asset;
How the asset will generate future economic benefits;
The availability of resources to complete the asset; and
The ability to measure reliably the expenditure during development.
Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any
accumulated amortization and accumulated impairment losses. Amortization of the asset begins when development
is complete and the asset is available for use. It is amortized over the period of expected future benefit. Amortization
is recorded in administrative expenses. Development intangible assets under the course of construction are tested for
impairment annually or more frequently if events or changes in circumstance indicate that they might be impaired.
Once placed into service the asset is tested for impairment whenever events or changes in circumstance indicate that
the carrying amount may not be recoverable.
F-18
Notes to the consolidated financial statements (continued)
Subsequent costs
Subsequent costs are only capitalized when there is an increase in the anticipated future economic benefit
attributable to the assets in question. All other subsequent costs are recorded in the statement of operations for the
year in which they are incurred.
Amortization
Amortization is charged to depreciation and amortization expense on a straight-line basis over the estimated
useful life of the intangible assets, from the time that the assets are available for use. The useful lives of these items
are assessed as follows:
Development costs
Brand, trademarks & domain names
Customer relationships
Three years
Five to sixteen years
Three to five years
k)
Inventories
Inventories are carried at the lower of cost and the net realizable value based on market performance,
including the relative ancillary selling costs. The cost of inventories, calculated according to the weighted average
cost method for each category of goods, includes purchase costs and costs incurred to bring the inventories to their
present location and condition. In order to represent the value of inventories appropriately in the statement of
financial position, and to take into account impairment losses due to obsolete materials and slow inventory
movement, obsolescence provisions have been directly deducted from the carrying amount of the inventories.
l)
Financial instruments—initial recognition and subsequent measurement
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability
or equity instrument of another entity.
Financial assets
The Groups financial assets comprise cash and cash equivalents, receivables and derivative financial
instruments. Derivative financial instruments are comprised of forward exchange contracts, which are measured at
fair value through profit or loss, unless they are formally designated and measured as cash flow hedges.
Trade receivables are generally accounted for at amortized cost. The Group assesses on a forward-looking
basis the expected credit losses associated with its debt instruments carried at amortized cost.
Financial assets through profit or loss are measured initially at fair value with transaction costs taken directly
to the consolidated statement of operations. Subsequently, the financial assets are remeasured, and gains and losses
are recognized in the consolidated statement of operations.
Financial liabilities
The Group’s financial liabilities comprise trade and other payables, interest bearing loans and borrowings,
contingent consideration and foreign exchange contracts.
Trade and other payables are held at amortized cost.
All interest bearing loans and borrowings are initially recognized at fair value net of issue costs associated
with the borrowing. After initial recognition, interest bearing loans and borrowings are subsequently measured at
amortized cost using the effective interest rate method.
F-19
Notes to the consolidated financial statements (continued)
Contingent consideration and foreign exchange contracts are measured initially at fair value through profit or
loss with transaction costs taken directly to the consolidated statement of operations. Subsequently, the fair values
are remeasured and gains and losses from changes therein are recognized in the consolidated statement of
operations.
Derivatives and hedging activities
Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are
subsequently remeasured to their fair value at the end of each reporting period.
Where the derivative is not designated as a cash-flow hedge, subsequent changes in the fair value are
recognized in profit or loss. Such derivatives are classified as a current asset or liability.
The group designates certain derivatives as cash flow hedges to hedge particular risks associated with the
cash flows of recognized assets and liabilities and highly probable forecast transactions.
At inception of the hedge relationship, the Group documents the economic relationship between hedging
instruments and hedged items including whether changes in the cash flows of the hedging instruments are expected
to offset changes in the cash flows of hedged items. The Group documents its risk management objective and
strategy for undertaking its hedge transactions. Currently the Group has only designated cash flow hedges.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow
hedges is recognized in the cash flow hedge reserve within equity. The gain or loss relating to the ineffective portion
is recognized immediately in profit or loss.
When a hedging instrument matures, any gains or losses held in the cash flow hedge reserve are recycled to
the statement of operations or inventory on the balance sheet when the related hedged item is recognized in the
statement of operations or inventory on the balance sheet.
If a hedge no longer meets the criteria for hedge accounting, or the forecast transaction is no longer likely to
occur, the cumulative gain or loss reported in equity is immediately reclassified to profit or loss.
m)
Impairment of non-financial assets
The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If
any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s
recoverable amount. An asset’s recoverable amount is the higher of an asset’s, CGU’s or group of CGU’s fair value
less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the
asset does not generate cash inflows that are largely independent of those from other assets or groups of assets.
When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and
is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
In determining fair value less costs of disposal, recent market transactions are taken into account.
The Group bases its impairment calculation on detailed budgets which are prepared separately for each of
the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations cover a
period of five to ten years, according to the nature and maturity of each CGU. Impairment losses of continuing
operations, are recognized in the statement of operations in expense categories consistent with the function of the
impaired asset.
For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an
indication that previously recognized impairment losses no longer exist or have decreased. If such indication exists,
the Group estimates the asset’s or CGU’s recoverable amount.
F-20
Notes to the consolidated financial statements (continued)
Goodwill and intangible assets are tested for impairment annually as at December 31 and when
circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing
the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable
amount of the CGU is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to
goodwill cannot be reversed in future periods.
n)
Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past
event, it is probable that an outflow of resources embodying economic benefits will be required to settle the
obligation and a reliable estimate can be made of the amount of the obligation.
o)
Share based payments
Employees (including senior executives) of the Group receive remuneration in the form of share based
payments, whereby employees render services as consideration. The consideration is either equity or cash settled
depending on the scheme.
Equity-settled transactions
The cost of equity-settled transactions is determined by the fair value at the date when the grant is made
using an appropriate valuation model. That cost is recognized, together with a corresponding increase in other
capital reserves in equity, over the period in which the performance and/or service conditions are fulfilled in
employee benefits expense. The cumulative expense recognized for equity-settled transactions at each reporting date
until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the
number of equity instruments that will ultimately vest. The statement of operations expense or credit for a period
represents the movement in cumulative expense recognized as at the beginning and end of that period.
No expense is recognized for awards that do not ultimately vest.
Cash-settled transactions
For cash-settled share based payments, a liability is recognized for the goods or services acquired, measured
initially at the fair value of the liability. At each balance sheet date until the liability is settled, and at the date of
settlement, the fair value of the liability is remeasured, with any changes in fair value recognized in profit or loss for
the year.
Employment related taxes
Where the Group has an obligation to settle employment related taxes on share based payments received by
employees, these are provided for based on the intrinsic value of the vested share options at the end of the reporting
period.
p)
Cash and cash equivalents
For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on
hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original
maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value, and bank overdrafts.
The Group has classified amounts held in money market funds as cash equivalents because those funds are
short term in nature, highly liquid, readily convertible to known amounts of cash, and subject to an insignificant risk
of changes in value. The Group has determined this classification is appropriate because each of these EU-regulated
funds have the highest credit rating available.
F-21
Notes to the consolidated financial statements (continued)
2.4.
Changes in accounting policies and disclosures
Amendments to IFRSs that are mandatorily effective for the current year
In the year ended December 31, 2019, the Group has applied the below amendments to IFRS’s issued by the
IASB that are mandatorily effective for an accounting period that began on or after January 1, 2019.
IFRS 16 Leases
The Group has adopted IFRS 16 in accordance with the modified
retrospective transitional approach in the current year. The
application of the standard has resulted in almost all leases being
recognized on the balance sheet as the distinction between operating
and finance leases has been removed. Under the new standard, a
right of use asset and a financial liability to pay lease rentals are
recognized. The only exceptions are short-term and low-value leases
in accordance with the practical expedient allowed under the
standard. For more information, see Note 17.
New and revised IFRSs in issue but not yet effective
At the date of authorization of these consolidated financial statements, the Group has not applied the
following new and revised IFRSs that have been issued but are not yet effective:
IFRS 3 Business Combinations (effective
January 1, 2020)
‘Definition of a Business (Amendments to IFRS 3)’ clarifies the
definition and application guidance for when an entity assesses
whether it has acquired a business or a group of assets. The
amendments are effective for business combinations for which the
acquisition date is on or after the beginning of the first reporting
period beginning on or after January 1, 2020.
3.
Critical accounting judgments and key sources of estimation uncertainty
Certain accounting policies are considered to be critical to the Group. An accounting policy is considered to
be critical if, in the Directors’ judgement, its selection or application materially affects the Group’s financial
position or results. The application of the Group’s accounting policies also requires the use of estimates and
assumptions that affect the Group’s financial position or results.
Below is a summary of areas in which estimation is applied primarily in the context of applying critical
accounting judgements.
Critical judgements in applying group accounting policies
Intangible assets – development costs capitalization
Assessing whether assets meet the required criteria for initial capitalization requires judgement. This requires
an assessment of the expected future benefits from the projects to be capitalized, technical feasibility and
commercial viability. In particular, internally generated intangible assets must be assessed during the development
phase to identify whether the Group has the ability and intention to complete the development successfully.
Determining the costs of assets to be capitalized also requires judgement. Specifically, judgement and
estimation is required in determining the directly attributable costs to be allocated to the asset to enable the asset to
be capable of operating in the manner intended by management.
F-22
Notes to the consolidated financial statements (continued)
Recognition of a deferred tax asset
The Group has accumulated significant unutilized trading tax losses (Note 27). A deferred tax asset in
respect of these losses can only be recognized when it is probable that future taxable profits will be available to
utilize these against. The Group reviews this assessment on an annual basis
Farfetch UK Limited functional currency change – date of change
As disclosed on Note 2.1, in January 2019 the functional currency of Farfetch UK Limited, the Group’s
primary trading entity, changed from pound sterling to U.S dollar. While the trigger for the change was based on a
factual assessment as described in the aforementioned Note 2.1, the determination of the date of change required
judgement given the gradual change in the primary economic and business environment in which Farfetch UK
Limited operates. This was driven by the growth of consumers where the Group receives U.S. dollars in settlement,
as well as an increase in costs influenced by movements in the U.S dollar, throughout 2018 and crystalizing in Q4
2018. Guidance requires a change in functional currency to be reported as of the date it is determined there has been
a change and it is generally accepted practice that the change is made at start of the most recent period. Noting that
in accordance with IAS 21:35, when there is a change in an entity’s functional currency, the entity applies the
translation procedures applicable to the new functional currency prospectively from the date of the change,
management determined to enact this change effectively on January 1, 2019.
Key sources of estimation uncertainty
Business combinations
We use our best estimates and assumptions to accurately assign fair value to the intangible assets acquired at
the acquisition date. The estimation is primarily due to the judgmental nature of the inputs to the valuation models
used to measure the fair value of these intangible asset, as well as the sensitivity of the respective fair values to the
underlying significant assumptions. We use a discounted cash flow method of the income approach to measure the
fair value of these intangible assets and use specialists to develop certain estimates and assumptions. The significant
estimates and assumptions used are in respect to (i) expected future revenue growth rates; (ii) anticipated operating
margins; (iii) the useful lives of the acquired brand names; and (iv) the discount rates to be applied to the estimated
future cash flows.
During the measurement period, which may be up to one year from the date of acquisition, the Group may
record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the
corresponding offset to goodwill. The Group continues to collect information and reevaluates these estimates and
assumptions as deemed reasonable by management. The Group records any adjustments to these estimates and
assumptions against goodwill provided they arise within the measurement period. Upon the conclusion of the
measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever
comes first, any subsequent adjustments are recorded to the consolidated statement of operations.
We also use our best estimates and assumptions to accurately account for the value of put options over non-
controlling interests, when applicable:
i) a liability is recognized in the accounts when then non-controlling shareholders have a put option over
NCI;
ii) NCI is recognized at the time of acquisition when it is considered that the risk and rewards associated NCI
rests with non-controlling shareholders and not recognized if it is considered that the risks and rewards rest with
Farfetch.
For details of business combinations, please refer to Note 5.
Impairment of non-financial assets
Impairment exists when the carrying value of an asset CGU or group of CGU exceeds its recoverable
amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of
F-23
Notes to the consolidated financial statements (continued)
disposal calculation is based on available data from binding sales transactions, conducted at arm’s length, for similar
assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is
based on a discounted cash flow (“DCF”) model. The cash flows are derived from the budget and projections for the
next five to ten years, according to the development and maturity of each CGU. The significant judgements and
assumptions used in calculating the recoverable amount are (i) the expected future revenue growth rates, including
the terminal growth rate (ii) the anticipated operating margin, and (iii) the discount rates applied to the future cash
flows of the CGUs. These estimates are most relevant to goodwill and long-life intangibles recognized by the Group.
Intangible assets and property, plant and equipment – useful lives
The assessment of the useful economic lives and the method of amortizing these assets requires judgement.
Depreciation and amortization are charged to the consolidated statement of operations based on the useful economic
life selected, which requires an estimation of the period and profile over which the Group expects to consume the
future economic benefits embodied in the asset. The Group reviews its useful economic lives at the reporting date.
Revenue
4.
Revenue by type of good or service (in thousands)
Digital Platform Services Revenue
Digital Platform Fulfilment Revenue
Brand Platform Revenue
In-Store Revenue
Total Revenue
Digital Platform services
2019
2017
2018
$ 296,350 $ 488,995 $ 701,246
127,960
97,794
164,210
-
27,621
15,595
$ 385,966 $ 602,384 $ 1,021,037
74,182
-
15,434
Digital Platform Services Revenue includes commissions on third-party sales and revenue from first-party
sales.
Commission revenue is recognized on a net basis in the statement of operations because the Group acts as an
agent in these arrangements. The Group primarily acts as a commercial intermediary between sellers and end
consumers and earns a commission for this service. Revenue in relation to these obligations within Digital Platform
Services Revenue which have not been satisfied at the end of the 2019 reporting period is $691,000 (2018:
1,651,000, 2017: $1,067,000). In 2019, $1,651,000 (2018: $1,067,000, 2017: $330,000) of revenue deferred in 2018
(2017, 2016) was recognized as revenue.
In first-party sales arrangements, the Group sells its own goods on the platform where the Group is the
principal, and therefore related revenues are recognised on a gross basis. Revenue on the sale of these goods is
recognised when the goods are received by the end customer. For finished goods that have been ordered on the
platform but not yet delivered to the end consumer at the end of the reporting period, revenue is deferred until
delivery. At December 31, 2019, these deferred amounts were $1,766,000 (2018: $2,015,000, 2017: $1,135,000),
which the Group expects to recognize within 30 days of period end. In 2019, $2,015,000 (2018: $1,135,000, 2017:
$741,000) of revenue deferred in 2018 (2017, 2016) was recognized as revenue.
Digital Platform Service Revenue also includes fees charged to sellers for other activities, such as packaging,
credit card processing, and other transaction processing activities.
At checkout, end consumers are charged for delivery, if applicable, in addition to the price of goods in their
basket (refer to Digital Platform Fulfilment Revenue below for a discussion of delivery services). The Group is
responsible for the collection of cash from end consumers with payment typically taken in advance of completing its
performance obligations.
F-24
Notes to the consolidated financial statements (continued)
In arrangements where the Group acts as an agent, cash collections are remitted net to the sellers generally
within two months of collection.
Digital Platform Fulfilment Revenue
The Group also provides delivery services for products sold on the platform, for which revenues are
recognized when the products are delivered to the end consumers. Revenues for delivery services are stated net of
promotional incentives and discounts. Digital Platform Fulfilment Revenue also includes fees charged to sellers for
the settlement of duties which are recognized concurrently with commissions.
As discussed above, the promise with respect to delivery services is satisfied only when the goods are
delivered. Within Digital Platform Fulfilment Revenue, where the delivery performance obligation has not been
satisfied at the end of the reporting period, revenue of $851,000 (2018: $479,000, 2017: $436,000) has been deferred
and is expected to be recognized in under 90 days from the end of the reporting period. The transaction price for this
performance obligation is the delivery costs charged to the consumer as described above. In 2019 $479,000 (2018:
$436,000, 2017: $407,000) of revenue deferred in 2018 (2017, 2016) was recognized as revenue. As at the end of
the reporting period there were receivables from contracts with customers for the amount of $nil.
(2018 and 2017: none).
Digital Platform Fulfilment Revenue has previously been referred to as Platform Fulfilment Revenue.
Further detail can be found in Note 2.3 e) to the consolidated financial statements.
Brand Platform Revenue
Brand Platform Revenue includes revenue generated by New Guards operations less revenue from New
Guards’: (i) owned e-commerce websites, (ii) direct-to-consumer channel via Farfetch marketplaces and (iii) directly
operated stores. Sales are made in the form of first-party sales arrangements to wholesalers, and therefore related
revenues are recognized on a gross basis. Wholesale revenue is recognized when the goods are transferred to the
wholesaler. For finished goods that have been ordered, but not yet delivered to the wholesaler at the end of the
reporting period, revenue is deferred until delivery. At December 31, 2019, these deferred amounts were
$26,507,000 (2018: $nil).
In-store
The Group has a single performance obligation in respect to In-Store Revenue, which is the sale of finished
goods.
Business combinations
5.
Acquisitions in 2017
Fashion Concierge UK Limited
On October 31, 2017, Farfetch UK Limited, a wholly owned subsidiary of Farfetch Limited, acquired 100%
of the issued share capital of Fashion Concierge UK Limited and its subsidiary F&C Fashion Concierge, LDA
(“Fashion Concierge UK Limited”). The primary reason for the acquisition was for the Group to enhance its private
client offering.
Details of the purchase consideration, the net assets acquired and goodwill are as follows (in thousands):
Cash consideration
Ordinary shares issued
Total purchase consideration
2017
-
2,183
2,183
$
$
F-25
Notes to the consolidated financial statements (continued)
The fair value of the 45,000 shares issued as 100% of the consideration paid for Fashion Concierge UK
Limited ($2,183,000) was estimated based upon the Company’s most recent funding round as of the date of the
acquisition.
Net cash inflow arising on acquisition (in thousands)
Cash and cash equivalent balances acquired
Cash consideration
Net cash inflow
2017
195
-
195
$
$
The ordinary shares issued are non-cash investing activities
The Group recognized the following assets and liabilities upon the Fashion Concierge UK Limited
acquisition (in thousands):
Intangible assets
Tangible assets
Trade receivables
Cash and cash equivalents
Trade payables
Total net identified liabilities acquired
Goodwill
Total goodwill acquired
Net assets acquired
2017
1
4
301
195
(1,341 )
(840 )
3,023
3,023
2,183
$
$
The goodwill is attributable to the Fashion Concierge UK Limited reputation and the expected synergies and
efficiencies generated by the business combination. It will not be deductible for tax purposes.
Acquisition-related costs of $123,000 are included in selling, general and administrative expenses. These
costs were recorded in the year ending December 31, 2017.
Style.com
On June 12, 2017, Farfetch UK Limited, a wholly owned subsidiary of Farfetch Limited, acquired 100% of
the business of Style.com, a luxury e-commerce retailer, from Conde Nast. The primary reason for the acquisition
was for the Group to leverage customer relationships, the Style.com domain name authority and content to enhance
the Group’s marketplace business.
Details of the purchase consideration, the assets acquired and goodwill are as follows (in thousands):
Cash consideration
Ordinary shares issued
Total purchase consideration
2017
-
12,411
12,411
$
$
The fair value of the 258,265 shares issued as 100% of the consideration paid for Style.com ($12,411,000)
was estimated based upon the Company’s most recent funding round as of the date of the acquisition. The ordinary
shares issued are non-cash investing activities.
F-26
Notes to the consolidated financial statements (continued)
The Group recognized the following assets and liabilities upon acquisition (in thousands):
Inventories
Total net identified assets acquired
Goodwill
Customer relationships
Trademarks and domain name
Deferred tax liability
Total goodwill and identifiable intangible assets acquired
Net assets acquired
2017
1,856
1,856
7,050
1,178
3,046
(719 )
10,555
12,411
$
$
The trademarks and domain name are amortized over ten years and the customer relationships are amortized
over three years.
The goodwill is attributable to the Style.com reputation and the expected synergies and efficiencies
generated by the business combination. It will not be deductible for tax purposes.
There was no cashflow impact with purchase consideration being the issue of shares and there being no cash
acquired.
Acquisition-related costs of $557,000 are included in selling, general and administrative expenses. These
costs were recorded in the year ending December 31, 2017.
Revenue and profit contribution of acquisitions made in 2017
The results of operations for each of the acquisitions have been included in the Group’s consolidated
statements of operations since the respective dates of acquisitions. Actual and pro forma revenue and results of
operations for the acquisitions have not been presented because they do not have a material impact to the
consolidated revenue and results of operations, either individually or in aggregate.
Acquisitions in 2018
There were no business combinations in 2018.
Acquisitions in 2019
Stadium Goods
On January 4, 2019, Farfetch Limited completed the acquisition of 100% of the outstanding shares of
Stadium Goods, the sneaker and streetwear marketplace for total consideration of $230,900,000. The Group expects
to benefit from Stadium Goods’ brand, access to supply, and a team who have joined the Group, bringing with them
a strong passion for, and knowledge of, luxury streetwear, further enhancing the company’s marketplace and stores
offering. The consideration payable by the Group was in the form of cash consideration and Farfetch Limited shares.
The consideration payable was split as $150,200,000 of cash, and 4,641,554 Class A Ordinary Shares with a value
of $80,700,000 based on the Farfetch Limited share price as at the acquisition date.
The transaction is accounted for as a business combination under IFRS 3 and the purchase price allocation
accounting has been finalized. Of the $80,700,000 share consideration, $52,100,000 includes a service condition for
certain members of the Stadium Goods management team remaining with the Group over a four-year period. This
does not satisfy the IFRS 3 definition of consideration and will be recognized as an expense in the statement of
operations over the four-year service period as a share based payment expense. Therefore, under IFRS 3, the
consideration is $178,800,000 consisting of $150,200,000 cash consideration and $28,600,000 share consideration,
none of which is contingent on future performance or service conditions.
F-27
Notes to the consolidated financial statements (continued)
Details of the purchase consideration, the assets acquired and goodwill are as follows (in thousands):
Cash consideration
Ordinary shares issued
Total purchase consideration
Net cash outflow arising on acquisition
Cash and cash equivalent balances acquired
Cash consideration
Net cash outflow
2019
150,200
28,600
178,800
2019
1,678
(150,200 )
(148,522 )
$
$
$
$
The ordinary shares issued are non-cash investing activities.
The Group finalized its purchase price allocation in the first quarter 2019. The Group recognized the
following assets and liabilities upon acquisition of Stadium Goods (in thousands):
Intangible assets
Brand name
Tangible assets
Right-of-use assets
Other non-current assets
Inventory
Net working capital (excluding inventory)
Non-current liabilities
Total net identified assets acquired
Goodwill
Net assets acquired
2019
2,049
117,300
319
2,802
243
541
(3,642 )
(14,465 )
105,147
73,653
178,800
$
$
Goodwill consists of expected synergies to be achieved by combining the operations of Stadium Goods with
the Group, as well as other intangible assets that do not qualify for separate recognition under IFRS 3. Goodwill is
expected to be deductible for tax purposes. No deferred tax has been recognized however on the basis that
management did not consider there to be sufficient evidence at the time of the acquisition that suitable taxable
profits were expected to arise to support recognition.
As the transaction has been treated as an asset purchase for tax purposes, no deferred tax has been
recognized in respect of the brand name as there is no difference between the tax base and carrying amount at
acquisition as it is expected that the brand name will be deductible for tax purposes.
Acquisition-related costs of $3,987,000 were recorded in 2019, and comprised $2,493,000, which are
included in selling, general and administrative expenses, and $1,494,000, which are included in the merger relief
reserve.
Toplife
On May 28, 2019, Farfetch (Shanghai) E-commerce Co., Ltd, a wholly owned subsidiary of Farfetch
Limited, acquired 100% of the business of Toplife, a luxury e-commerce platform, from JD Group. The transaction
is being treated as a business combination. The primary reason for the acquisition was for the Group to leverage the
JD App Level 1 Access Button (Farfetch has replaced the Toplife JD Store with level 1 access being a prominent
position on JD App’s homepage) to further enhance the Group’s marketplace business.
F-28
Notes to the consolidated financial statements (continued)
Details of the purchase consideration, the assets acquired, and goodwill are as follows (in thousands):
Cash consideration
Ordinary shares issued
Total purchase consideration
No cash or cash equivalents were acquired.
2019
48,503
-
48,503
$
$
The Group has performed its preliminary purchase price allocation. Owing to the timing and terms of the
transaction, the Group is still refining its valuation assessment, mainly on account of TopLife inventory sales and of
shutdown costs to be borne by Farfetch, and is expecting these to be finalized in the first quarter of 2020. Details of
the purchase price allocation is below (in thousands):
Tangible assets
Inventory
Current liabilities
Level 1 access button
Total net identified assets acquired
Goodwill
Net assets acquired
2019
17
131
(1,605 )
9,058
7,601
40,902
48,503
$
$
Goodwill consists of expected synergies to be achieved by combining the operations of Toplife with the
Group, as well as other intangible assets that do not qualify for separate recognition under IFRS 3. Goodwill is not
expected to be deductible for tax purposes. The level 1 access is amortized over four years.
Acquisition-related costs totaled $686,000 and are included in selling, general and administrative expenses.
These costs were recorded in the year ending December 31, 2019.
CuriosityChina
On April 3, 2019, Farfetch China (HK Holdings) Limited, a wholly owned subsidiary of the Farfetch
Limited, completed the acquisition of 78% of the outstanding shares of CuriosityChina with total consideration of
$9,000,000. The Group expects to benefit from CuriosityChina's expertise in the China market including its
customer base and technological capabilities. The consideration payable by the Group was in the form of cash. The
Group has the obligation to acquire the remaining 22% of outstanding shares that it did not initially acquire. On
acquisition, the present value of this obligation amounted to $4,322,000 and was accounted for separately from the
business combination as a liability. In connection to the purchase obligation, the Group recognized a $1,606,000 fair
value revaluation loss in the statement of operations for the year ended December 31, 2019. The carrying value
related to the call option over the remaining non-controlling interest in CuriosityChina at December 31, 2019, is
$5,928,000.
The transaction has been accounted for as a business combination under IFRS 3.
Details of the total purchase consideration, the net assets acquired and goodwill are as follows (in thousands):
Cash consideration
Ordinary shares issued
Total purchase consideration
$
$
2019
9,000
-
9,000
F-29
Notes to the consolidated financial statements (continued)
Net cash outflow arising on acquisition
Cash and cash equivalent balances acquired
Cash consideration
Net cash outflow
2019
$
$
409
(9,000 )
(8,591 )
The Group finalized its purchase price allocation in the fourth quarter of 2019. The Group recognized the
following assets and liabilities upon acquisition of CuriosityChina (in thousands):
Tangible assets
Current assets
Current liabilities
Customer relationships
Backlog
Technology
Deferred tax liability
Total net identified assets acquired
Goodwill
Total net identified assets acquired and goodwill
Non-controlling interest
Net assets acquired
2019
$
$
78
1,879
(1,005 )
3,878
202
2,059
(921 )
6,170
3,039
9,209
(209 )
9,000
Goodwill consists of expected synergies to be achieved by combining the operations of CuriosityChina with
the Group, as well as other intangible assets that do not qualify for separate recognition under IFRS 3. Goodwill is
not expected to be deductible for tax purposes. The Customer relationships, Backlog and Technology are amortized
over ten, two and ten years respectively.
Acquisition-related costs totaled $350,000 and are included in selling, general and administrative expenses.
These costs were recorded in the year ending December 31, 2019.
New Guards
On August 2, 2019, Farfetch Italia, a wholly owned subsidiary of Farfetch Limited, signed a sale and
purchase agreement for the acquisition of 100% of the outstanding shares of New Guards and took control of New
Guards on the same date. The acquisition complements the Group's strategy to be the global technology platform for
luxury fashion. The consideration payable by the Group was in the form of cash and Farfetch Limited shares. The
total consideration payable was $704,088,000, split as $358,910,000 of cash, and 17,710,526 Class A Ordinary
Shares with a value of $345,178,000 based on the Farfetch Limited share price as at the acquisition date. With
respect to the share consideration, 3,554,855 of the shares reflected an estimate at the acquisition date of the shares
expected to be issued based on Farfetch Limited's volume adjusted average share price for the 10-day period ended
September 18, 2019 and classified as a liability.
The transaction is accounted for as a business combination under IFRS 3 and the preliminary purchase price
allocation accounting has been completed. The purchase price allocation is expected to be finalized in the first half
of 2020, following customary adjustments.
F-30
Notes to the consolidated financial statements (continued)
Details of the total purchase consideration, the assets acquired, and goodwill are as follows (in thousands):
Cash consideration
Ordinary shares issued
Ordinary shares to be issued
Total purchase consideration
Net cash outflow arising on acquisition
Cash and cash equivalent balances acquired
Cash consideration
Net cash outflow
$
$
2019
358,910
275,894
69,284
704,088
2019
$
$
102,835
(358,910 )
(256,075 )
The ordinary shares issued are non-cash investing activities.
The ordinary shares to be issued reflected the Group's best estimate of the shares it expected to issue as at the
acquisition date as noted above. These shares were issued on September 23, 2019 with a $21,500,000 debit
recognized in profit or loss on issue reflecting the fair value remeasurement of the shares on the date they were
issued.
The Group recognized the following assets and liabilities upon acquisition of New Guards (in thousands):
Intangible assets
Brand name
Tangible assets
Right-of-use assets
Deferred tax assets
Other non-current assets
Inventory
Net working capital (excluding inventory)
Non-current liabilities
Deferred tax liabilities
Total net identified assets acquired
Goodwill
Total net identified assets acquired and goodwill
Non-controlling interest
Net assets acquired
$
$
2019
1,382
830,150
2,714
10,727
3,451
2,694
36,757
32,027
(13,698 )
(231,729 )
674,475
188,020
862,495
(158,407 )
704,088
Goodwill consists of expected synergies to be achieved by combining the operations of New Guards with the
Group, as well as other intangible assets that do not qualify for separate recognition under IFRS 3. Goodwill is not
expected to be deductible for tax purposes.
Acquisition-related costs totaled $4,090,000 and comprised $2,086,000, which are included in selling,
general and administrative expenses, and $2,004,000, which are included in the merger relief reserve. These costs
were recorded in the year ending December 31, 2019.
Revenue and profit contribution of acquisitions made in 2019
The results of operations for each of the 2019 acquisitions have been included in the Group’s consolidated
statements of operations since the date of acquisition. Actual and pro forma revenue and results of operations for the
F-31
Notes to the consolidated financial statements (continued)
acquisitions of Stadium Goods, Curiosity China and Toplife have not been presented because they do not have a
material impact to the consolidated revenue and results of operations, either individually or in aggregate. Actual
revenue and results of operations for the acquisition of New Guards for the period since acquisition date were
$182,989,000 and $23,142,000 respectively. Pro forma revenue and results of operations for the acquisition of New
Guards as though the acquisition date had been the beginning of the year is impracticable because of the lack of
financial information at the end of the reporting periods as the acquired entity’s reporting periods were misaligned
with Farfetch's reporting periods.
Segmental and geographical information
6.
Segmental information
The Group has identified three reportable operating segments. This assessment is based on information
reported to the Group’s Chief Operating Decision Maker, which is deemed to be the Chief Executive Officer, for the
purpose of assessing segmental performance and resource allocation.
Following the acquisition of New Guards, in the fourth quarter of 2019, we realigned our operating segments
to reflect the manner in which the business had become organized and how performance had become internally
evaluated. Prior to this realignment, we had one reportable operating segment resulting from the aggregation of four
operating segments: (1) Farfetch Marketplace, (2) Farfetch Black and White, (3) Farfetch Store of the Future and (4)
Browns stores. As of December 31, 2019, we have three reportable operating segments (A) Digital Platform, (B)
Brand Platform and (C) In-Store. Historical periods presented in this Annual Report reflect in these three reportable
operating segments.
There are no intersegment transactions that require elimination. Order Contribution is used to assess the
performance and allocate resources between the segments.
The results of our three reportable operating segments is as follows (in thousands):
2017
2018
2019
Digital Platform
Services Revenue
Fulfilment Revenue
Revenue
Less: Cost of revenue
Gross profit
Less: Demand generation expense
Order contribution
Brand Platform
Revenue
Less: Cost of revenue
Gross profit or order contribution
In-Stores:
Revenue
Less: Cost of revenue
Gross profit or order contribution
$ 296,350 $ 488,995 $ 701,246
127,960
829,206
(457,293 )
371,913
(151,350 )
$ 127,379 $ 194,411 $ 220,563
97,794
586,789
(295,083 )
291,706
(97,295 )
74,182
370,532
(173,951 )
196,581
(69,202 )
2017
2018
2019
n/a
n/a
$
- $
n/a
n/a
164,210
(89,203 )
- $ 75,007
2017
2018
2019
$ 15,434
(7,249 )
8,185
$
$ 15,595
(8,851 )
6,744
$
$ 27,621
(14,695 )
$ 12,926
F-32
Notes to the consolidated financial statements (continued)
Geographical information
The Group believes it is relevant to disclose geographical revenue information on both a supply basis,
determined by location of the Farfetch contracting entity, and on a demand basis, determined by location of
consumer.
The Group’s UK revenue, based on location of the Farfetch contracting entity, was $619,326,000 (2018:
$492,495,000, 2017: $335,345,000).
The Group’s revenue from external consumers, based on consumer billing location, and information about
its segment assets by geographical location are detailed below (in thousands):
Revenue from external consumers
Americas
Europe, Middle East and Africa
Asia Pacific
Total Revenue
Non-current assets
Americas
United Kingdom
Europe, Middle East and Africa
Asia Pacific
Total Non-current assets
2017
2018
2019
$ 111,349 $ 175,060 $ 277,712
377,944
240,662
365,381
186,662
$ 385,966 $ 602,384 $ 1,021,037
156,507
118,110
2018
2019
$
6,089 $ 506,130
214,213
796,974
65,232
$ 151,983 $ 1,582,549
118,374
21,500
6,020
In 2018, the Group revised its methodology for determining the geographical location of revenue from being
based on consumer shipping location to consumer billing location. In addition, the Group previously disclosed first-
party sales based on the location of the seller. In 2018, the Group revised this to being based on the consumer billing
location which is consistent with third-party based sales. Revenue by geographical location for the year ended
December 31, 2017 was also revised to reflect this change in methodology.
No single consumer amounted for more than 10% of Group revenues (2018: none, 2017: none).
7.
Employees and directors
Included within employees and directors expenses are (in thousands):
Wages and salaries
Social security costs
Other pension costs
Share based payments (equity settled)
Share based payments (cash settled)
Share based payments (employment related taxes)
Total employees and directors expenses
2019
2017
2018
$ 88,164 $ 140,298 $ 206,092
36,314
2,569
150,333
10,675
(2,586 )
$ 123,331 $ 220,484 $ 403,397
24,976
1,391
34,668
10,355
8,796
12,783
898
16,667
3,807
1,012
These amounts are included within the selling, general and administrative expenses line in the consolidated
statement of operations.
F-33
Notes to the consolidated financial statements (continued)
8.
Operating expenses
Included within selling, general and administrative expenses are (in thousands):
Demand generation expenses
Technology expenses
Depreciation and amortization
Share based payments
General and administrative
Other items
Total selling, general and administrative expenses
2017
2019
2018
$ 69,202 $ 97,295 $ 151,350
68,224
84,207
113,591
23,537
158,422
53,819
345,665
228,891
16,374
—
$ 295,960 $ 471,766 $ 869,609
31,611
10,980
21,486
162,032
649
Demand generation expense consists primarily of fees that we pay our various media and affiliate partners.
Other items in the current year is mostly comprised of transaction-related legal and advisory expenses.
Included within losses/(gains) on items held at fair value through profit and loss are (in thousands):
Change in fair value of put and call option liabilities
Change in fair value of acquisition related consideration
Losses/(gains) on items held at fair value through profit and loss
2017
2018
2019
$ 3,300 $
-
$ 3,300 $
- $ (43,247 )
21,526
-
- $ (21,721 )
Change in fair value of put and call option liabilities in the current year relate to the revaluation of liabilities
arising as a result of the acquisition of CuriosityChina ($1,600,000 revaluation loss) and the partnership with
Chalhoub ($44,800,000 revaluation gain). Change in fair value of acquisition related consideration relates to the
remeasurement charges for shares issued in the acquisition of New Guards.
2017
2018
2019
$
- $ 26,922 $ 22,856
11,526
34,382
(10,977 )
-
(3,472 )
(4,783 )
(19,232 )
$ (17,642 ) $ 19,866 $ 15,150
11,260
38,182
(17,779 )
-
-
(537 )
(18,316 )
2,833
2,833
(18,902 )
(1,572 )
-
(1 )
(20,475 )
9.
Finance income and costs
Included within finance income and costs are (in thousands):
Unrealised exchange gains
Interest on cash and cash equivalents and short-term deposits
Finance income
Unrealised exchange losses
Interest on borrowings
Lease interest
Other interest expense
Finance costs
Net finance (costs)/ income
10. Material Loss or Profit
F-34
Notes to the consolidated financial statements (continued)
The group has identified a number of items which are material due to the significance of their nature and/or
amount. These are listed separately here to provide a better understanding of the financial performance of the group
(in thousands):
Note
2017
2018
2019
Leases (2017 and 2018: operating leases)
Research and development costs expensed
Loss/(Gain) on disposal of non-current assets
Amortization—Intangible assets
Right of use assets depreciation
Transaction related legal and advisory expenses
Change in fair value of put and call option liabilities
Change in fair value of acquisition related consideration
15
17
$ 18,162 $ 19,244 $ 9,449
66,024
(144 )
85,055
19,564
15,374
(43,247 )
21,526
12,455
1,028
16,199
-
-
-
-
5,102
42
7,332
-
680
3,300
-
Following the adoption of IFRS 16 by the Group from January 1, 2019, lease contracts are accounted for by
recognized a right-of-use asset and a corresponding liability and are then charged to profit and loss via depreciation
and finance cost, as described in Note 2. Therefore, the leases disclosed in the table above as an expense in profit or
loss, arise from payments associated with short-term leases and leases of low-value assets, recognized in profit and
loss on a straight-line basis. Short-term leases are leases with a lease term of 12 months or less, while low-value
assets comprise IT-equipment and small items of office furniture.
11.
a)
Taxation
Income tax expense (in thousands)
Current tax:
Corporate tax
Prior year adjustments
Total current tax
Total deferred tax
Income tax expense
2017
2018
2019
$
$
805 $
132
937
(767 )
170 $
2,208 $ 15,676
(1,652 )
14,024
(12,862 )
1,162
(50 )
2,158
-
2,158 $
F-35
Notes to the consolidated financial statements (continued)
b)
Reconciliation of income tax expense to tax payable
The tax on the Group’s loss before tax differs from the theoretical amount that would arise using the
weighted average tax rate applicable to profit of the consolidated entities as follows (in thousands):
Loss before tax
Tax at the UK tax rate of 19.00% (2018: 19.00%, 2017: 19.25%)
Tax effects of:
Sundry temporary differences
Sundry permanent differences
Entertaining
Loss utilisation
Share based payment
R&D and Investment Tax Credit
Release of deferred tax liabilities on acquisition
Deferred tax on timing differences
Taxes paid overseas and rate difference
Foreign exchange rate differences
Prior year adjustments
Unrecognized deferred tax asset arising from timing differences relating
to:
Share based payment
Non-current assets
Accrued bonus and other expenses
Losses carried forward
Income tax expense
2017
$ (112,105 )
(21,580 )
2018
$ (153,417 )
(29,149 )
2019
$ (372,526 )
(70,780 )
(599 )
1,965
27
(85 )
1,518
-
-
-
(144 )
192
132
-
4,355
37
(334 )
3,195
-
-
-
(599 )
(6 )
(50 )
-
1,895
29
(1,126 )
8,123
(1,826 )
(12,853 )
(9 )
3,853
-
(1,652 )
2,204
463
-
16,077
170
$
(7,522 )
361
-
31,870
2,158
$
13,305
1,624
(215 )
60,794
1,162
$
The Finance Act 2015 reduced the main rate of UK Corporation Tax, “CT” from 20% to 19% for the 2017
tax year, with the rate set at 19% for the 2018 and 2019 tax years. The Group has used a tax rate of 19.00% for the
2019 financial year. The Finance Act 2016 has set the CT rate for the 2020 tax year as 17%. In November 2019, the
Prime Minister announced that he intended to cancel the future reduction in corporate tax rate from 19% to 17%.
This announcement does not constitute substantive enactment and therefore unrecognized deferred taxes at the
balance sheet date continue to be tracked at the enacted tax rate of 17%. However, it is possible that the corporation
tax rate remains at 19% after 1 April 2020.
There is no income tax relating to the components presented within other comprehensive loss.
12.
Loss per share
Basic loss per share is computed using the weighted-average number of outstanding shares during the period.
Diluted loss per share is computed using the weighted-average number of outstanding shares and excludes all
potential shares outstanding during the period, as their inclusion would be anti-dilutive. The Group’s potential shares
consist of incremental shares issuable upon the assumed exercise of share options and warrants, and the incremental
F-36
Notes to the consolidated financial statements (continued)
shares issuable upon the assumed vesting of unvested share awards. The calculation of loss per share is as follows
(in thousands):
In $ except share and per share data
Basic and diluted
Loss attributable to equity holders of the parent
Shares used in calculation
Weighted-average shares outstanding
Basic and diluted loss per share attributable to owners of
the parent
2017
2018
2019
$
(112,275 ) $
(155,575 ) $
(385,297 )
223,465,734 264,432,214 318,843,239
$
(0.50 ) $
(0.59 ) $
(1.21 )
Potential dilutive securities that are not included in the diluted per share calculations because they would be
anti-dilutive are as follows (in thousands):
Employee options
Warrants
Contingently issuable shares
13.
Inventories
Finished goods
Total inventories
2017
6,675
3,303
994
2018
14,649
125
-
2019
9,105
-
-
2019
2018
60,954 $ 128,107
60,954 $ 128,107
$
$
The total cost of inventory recognized as an expense in the consolidated statement of operations was
$232,624,000 (2018: $87,416,000). The total provision against inventory in order to write down the balance to the
net recoverable value was $13,282,000 (2018: $4,182,000).
14.
Trade and other receivables
Details of trade and other receivables consist of the following at December 31 (in thousands):
Current
Trade receivables
Other current receivables
Sales taxes
Prepayments and accrued income
Current tax assets
Derivative financial assets (Note 30)
Total current trade and other receivables
Non-current
Other receivables
Total non-current trade and other receivables
$
2018
2019
2,727 $
45,558
10,352
34,342
-
691
93,670
34,363
120,450
16,868
18,216
1,873
3,024
194,794
10,458
10,458 $
12,388
12,388
$
The carrying amount of other receivables approximates their fair value. The maximum credit risk at the
balance sheet date is considered to be equivalent to the carrying value of other receivables.
Non-current other receivables increased to $12,388,000 in 2019 (December 31, 2018: $10,458,000) due to
the incorporation of the new acquisition New Guards and to the expansion of the Company’s global office presence.
F-37
Notes to the consolidated financial statements (continued)
The balance is comprised mainly of deposits for office leases and services, and operations related deposits, which
the Company is not expecting to recover within the next 12 months.
Other current receivables as at December 31,2019 totaled $120,450,000 (December 31, 2018: $45,557,000)
and comprised mainly of advances to boutique partners, first-party product suppliers and other suppliers, mainly on
Farfetch UK for the Marketplace with $42 million (December 31, 2018: $37.4 million), Browns with $41 million
(December 31, 2018: $3.6 million), Fashion Concierge with $2.5 million (December 31, 2018: $2.1 million) and
New Guards $5 million (December 31, 2018: nil), as well as deposits with the payment service providers with $10
million (December 31, 2018: nil), and bank deposits as collateral that are not readily available within 90 days with
$12.5 million (December 31, 2018: nil).
Trade receivables increased to $34,363,000 in 2019 (December 31, 2018: $2,727,000) as a result of the trade
operations of Browns, Stadium Goods and mainly New Guards.
15.
Intangible assets
Intangible assets consist of the following at (in thousands):
Brand,
trademarks &
domain names
Goodwill
Customer
relationships
Development
costs
Total
Cost
At December 31, 2017
Additions
Transfers
Foreign exchange movements
At December 31, 2018
Additions
Transfers
Foreign exchange movements
At December 31, 2019
Accumulated amortization
At December 31, 2017
Amortization for year
Transfers
Foreign exchange movements
At December 31, 2018
Amortization for year
Transfers
Foreign exchange movements
At December 31, 2019
Net book value
At December 31, 2018
At December 31, 2019
$ 38,449 $
-
-
(2,406 )
36,043
305,526
-
(502 )
341,067
7,289 $
-
-
(443 )
6,846
958,407
-
64
965,317
87,059
38,937 $
2,384 $
50,978
50,978
-
166
166
-
(7,596 )
(4,602 )
(145 )
85,479 130,607
2,239
78,401 1,346,212
3,878
-
-
(492 )
(107 )
6,010 163,933 1,476,327
-
53
-
-
-
-
-
-
-
-
-
(1,604 )
(459 )
-
123
(1,940 )
(55,044 )
12
(42 )
(57,014 )
(565 )
(1,057 )
-
96
(1,526 )
(260 )
-
-
(1,786 )
(10,849 )
(14,683 )
-
1,736
(23,796 )
(29,751 )
-
(1,013 )
(13,018 )
(16,199 )
-
1,955
(27,262 )
(85,055 )
12
(1,055 )
(54,560 ) (113,360 )
36,043
4,906
$ 341,067 $ 908,303 $
713
61,683 103,345
4,224 $ 109,373 $ 1,362,967
Included within development costs is $1,156,000 (2018: $205,000) of assets that are under the course of
construction. Amortization of this will commence once they have been brought into use.
Development costs relate to capitalized development expenses relating to development of internal software
and developments of the Farfetch websites.
F-38
Notes to the consolidated financial statements (continued)
Additions to goodwill, brands, trademarks & domain names and customer relationships in 2019 arose due to
the business combinations described in Note 5, and the incorporation of $1.9 million of brands, trademark and
domain names from the acquisition of New Guards.
Amortization for all intangible assets is recorded in selling, general and administrative expenses.
Goodwill reflects the amount of consideration in excess of the fair value of net assets of business
combinations. The Group tests goodwill annually for impairment, or more frequently if there are indications that
goodwill might be impaired. Goodwill has been allocated to the following CGUs or group of CGUs. For details
regarding additions to goodwill refer to Note 5. The goodwill amounts for each CGU or group of CGU consists of
the following at December 31 (in thousands):
CGU
Marketplace
Browns – Platform
CuriosityChina
New Guards
Total Goodwill
2018
2019
$
$
16,368 $ 130,993
19,015
19,675
-
3,039
188,020
-
36,043 $ 341,067
The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions
for the value in use include (i) expected future revenue growth rates, including the terminal growth rate; (ii)
anticipated operating margins; and (iii) the discount rates to be applied to the estimated future cash flows.
Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of
money and the risks specific to the CGUs and the group of units. The growth rates are based on industry growth
forecasts.
The Group prepares cash flow forecasts derived from the most recent financial budgets approved by
management for the next five to ten years, according to the nature and maturity of each CGU. The Group believes
this period range is appropriate to capture the high growth rates seen in the markets in which our CGUs operate.
The key assumptions for the value in use calculations are the long term growth rate applied to year five or
ten onwards and the pre-tax discount rates. The Group extrapolates the cash flows in the fifth or tenth year based on
an estimated growth rate of 2% (2018: 2%). This rate does not exceed the average long-term growth rate for the
relevant markets. The pre-tax discount rate used to discount the forecast cash flows ranges from 7.7% to 11.7%
(2018: 9.7% to 11.8%). The pre-tax discount rate applied is derived from a market participant’s estimated weighted
average cost of capital. The assumptions used in the calculation of the Group’s weighted average cost of capital are
benchmarked to externally available data.
Management has performed sensitivities on key assumptions and based upon these believe that there are no
indicators of impairment.
The recoverable amount of each CGU would equal its carrying amount if the key assumptions were to
change as follows:
Browns
–
Marketplace
(30 )
8
(8 )
Platform CuriosityChina
(11 )
5
(7 )
(3 )
2
(3 )
New
Guards
(13 )
6
(10 )
Budgeted revenue growth (change in pp)
Pre-tax discount rate (change in pp)
Long term growth rate (change in pp)
F-39
Notes to the consolidated financial statements (continued)
16.
Property, plant and equipment
Property, plant and equipment consist of the following (in thousands):
Freehold
land and
buildings
Leasehold
improvements
Fixtures and
fittings
Motor
vehicles
Plant,
machinery
and
equipment Totals
Cost
At December 31, 2017
Additions
Disposals
Transfers
Foreign exchange movements
At December 31, 2018
Additions
Disposals
Transfers
Foreign exchange movements
At December 31, 2019
Accumulated depreciation
At December 31, 2017
Depreciation for year
Disposals
Transfers
Foreign exchange movements
At December 31, 2018
Depreciation for year
Disposals
Transfers
Foreign exchange movements
At December 31, 2019
Net book value
At December 31, 2018
At December 31, 2019
$
- $
-
-
-
-
-
17,948
-
-
(130 )
17,818
23,453 $
16,086
(1,489 )
(1,156 )
(1,830 )
35,064
10,633
(322 )
(2,109 )
(131 )
43,135
5,516 $
2,083
(211 )
889
(501 )
7,776
3,424
(35 )
1,824
(21 )
12,968
-
(28 )
-
(5 )
109
117
(30 )
-
(3 )
142 $ 6,563 $ 35,674
3,318 21,487
(61 ) (1,789 )
101
(166 )
(525 ) (2,861 )
9,396 52,345
9,809 41,931
(409 )
(2,100 ) (2,385 )
(424 )
(139 )
193 16,944 91,058
(22 )
-
-
-
-
-
-
-
-
-
-
-
(4,008 )
(4,091 )
562
-
375
(7,162 )
(3,994 )
219
579
(159 )
(10,517 )
(1,862 )
(1,196 )
136
11
129
(2,782 )
(1,995 )
31
-
86
(4,660 )
(112 )
(14 )
28
-
4
(94 )
(23 )
16
-
1
(100 )
35
(11 )
230
(2,996 ) (8,978 )
(2,037 ) (7,338 )
761
-
738
(4,779 ) (14,817 )
(2,960 ) (8,972 )
282
579
(131 )
(7,782 ) (23,059 )
16
-
(59 )
-
$ 17,818 $
27,902
32,618 $
4,994
8,308 $
15
4,617 37,528
93 $ 9,162 $ 67,999
Included within leasehold improvements and computer equipment is $774,000 (2018:$6,312,000) of assets
that are under the course of construction. Depreciation will commence once they have been brought into use.
Depreciation for all property, plant and equipment is recorded in selling, general and administrative
expenses.
17.
Right-of-use assets and lease liabilities
This note explains the impact of the adoption of IFRS 16 Leases on the Group’s consolidated financial
statements and discloses the new accounting policies that have been applied from January 1, 2019.
The Group has adopted IFRS 16 retrospectively from January 1, 2019 but has not restated comparatives for
the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The
reclassifications and adjustments arising from the new leasing rules are therefore recognized in the opening balance
sheet on January 1, 2019.
The Group's leasing activities and how these are accounted for:
F-40
Notes to the consolidated financial statements (continued)
The Group leases various offices, retail stores and cars. Lease contracts are typically made for fixed periods
of 3 to 8 years but may have extension options. Lease terms are negotiated on an individual basis and contain a wide
range of different terms and conditions.
Until financial year 2018, leases of property, plant and equipment were classified as either finance or
operating leases. Payments made under operating leases (net of any incentives received from the lessor) were
charged to profit or loss on a straight-line basis over the period of the lease.
From January 1, 2019, leases are recognized as a right-of-use asset and a corresponding liability at the date
at which the leased asset is available for use by the group. Each lease payment is allocated between the capital
borrowed and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a
constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is
depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities
include the net present value of the following lease payments:
- fixed payments (including in-substance fixed payments), less any lease incentives receivable;
- variable lease payments that are based on an index or a rate;
- amounts expected to be payable by the lessee under residual value guarantees;
- the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
- payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
Where it can be determined lease payments are discounted using the interest rate implicit in the lease. If that
rate cannot be determined, the lessee’s incremental borrowing rate is used, being the rate that the lessee would have
to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with
similar terms and conditions.
Right-of-use assets are measured at cost comprising the following:
- the initial measurement of the lease liability; - any lease payments made at or before the commencement
date less any lease incentives received;
- any initial direct costs; and
- restoration costs.
Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line
basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value
assets comprise IT-equipment and small items of office furniture.
Adjustments recognized on adoption of IFRS 16
On adoption of IFRS 16, the Group recognized lease liabilities in relation to leases which had previously
been classified as ‘operating leases’ under the principles of IAS 17 Leases. These liabilities were measured at the
present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of
January 1, 2019. The lessee’s incremental borrowing rate applied to the lease liabilities on January 1, 2019 was
3.8% on average.
For leases previously classified as finance leases the Group recognized the carrying amount of the lease asset
and lease liability immediately before transition as the carrying amount of the right of use asset and the lease
liability at the date of initial application. The measurement principles of IFRS 16 are only applied after that date. See
below details (in thousands):
F-41
Notes to the consolidated financial statements (continued)
Operating lease commitments disclosed as at December 31, 2018
Discounted using the lessee’s incremental borrowing rate of at the date of initial application
Less short-term leases recognized on a straight-line basis as expense
Less Lease committed to at December 31, 2018 but not commenced at January 1, 2019
$
Lease liability recognized as at January 1, 2019
Of which:
Current lease liabilities
Non-current lease liabilities
Lease liability recognized as at January 1, 2019
$
2019
103,034
78,937
(1,552 )
(8,074 )
69,311
12,655
56,656
69,311
The associated right-of-use assets were measured at the amount equal to the lease liability, adjusted by the
amount of any prepaid or accrued lease payments relating to that lease recognized on the balance sheet as at
December 31, 2018. The Group have used the practical expedient in IFRS 16 that allows a lessee to determine
whether a right-of-use asset is impaired through performing an IAS 37 onerous lease assessment. There were no
onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial
application.
The recognized right-of-use assets & liabilities relate to the following types as at the transition date and
December 31, 2019 (in thousands):
Properties
Vehicles
Total right-of-use assets
Properties
Vehicles
Total right-of-use liabilities
January 1,
2019
December 31,
2019
$
$
$
$
67,272 $
469
67,741 $
68,842 $
469
69,311 $
114,618
558
115,176
118,760
558
119,318
In the year ended December 31, 2019, a depreciation charge of $19,564,000 was recognized in relation to the
right-of-use assets. In the year ended December 31, 2019, a finance cost of $3,472,000 was recognized in relation to
right-of-use liabilities.
In year ended December 31, 2019, cash outflow relating to leases was $19,127,000. Additions to right of use
assets in the year ended December 31, 2019 was $41,397,000.
During the year end December 31,2019, a charge of $9,449,000 was recognized in relation to short-term and
low value leases.
In applying IFRS 16 for the first time, the Group has used the practical expedients permitted by the standard:
- the accounting for operating leases with a remaining lease term of less than 12 months as at January 1,2019
as short-term leases; and
- the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial
application.
The Group has also elected not to reassess whether a contract is, or contains, a lease at the date of initial
application. Instead, for contracts entered into before the transition date, the Group relied on its assessment made in
applying IAS 17 Leases and IFRIC 4 Determining whether an Arrangement contains a Lease.
F-42
Notes to the consolidated financial statements (continued)
Investments
18.
Equity investments
The investments of the company are comprised of minor equity interests, convertible loan notes, and senior
secured promissory loan notes, with a net book value as of December 31, 2019 of $16,229,000 (2018: $566,000), of
which $5,529,000 are carried at fair value with changes in fair value recognized within other comprehensive income
and $10,700,000 are held at amortized cost. In 2019 the Group acquired $20,800,000 of minor equity interests,
convertible loan notes, and senior secured promissory loan notes, and recorded a loss on investments carried at fair
value of $5,100,000 ($5,000,000 was recognized in the statement of operations and $100,000 in other
comprehensive income).
Investments in associates
The table below (in thousands) illustrates the summarized financial information of the Group’s investments
in Farfetch Finance Limited and Alanui S.r.l. The investment in Alanui S.r.l. arose as a result of the Group’s
acquisition of New Guards (see Note 5 for further details). The Group’s shareholdings in these entities and their
principal activities can be found in Note 22.
At December 31, 2017
Share of profit after tax
At December 31, 2018
Additions due to business combinations
Share of profit after tax
At December 31, 2019
19.
Cash and cash equivalents
Share of
associates
net assets
$
$
58
28
86
2,014
366
2,466
For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on
hand, deposits held at call with financial institutions, cash held by payment service providers, other short-term,
highly liquid investments with original maturities of three months or less that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Cash and
cash equivalents consist of the following at (in thousands):
Cash held in banks
Money market funds
Short-term deposits
Amounts held by payment service providers
Total cash and cash equivalents
December 31,
2018
December 31,
2019
$
$
49,935 $
739,330
225,209
30,312
1,044,786 $
170,468
99,362
12,328
40,271
322,429
F-43
Notes to the consolidated financial statements (continued)
Share capital and share premium
20.
Ordinary shares issued and fully paid as at December 31, 2019 (in thousands, except number of shares):
Number of shares
Class
296,740,928 Class A ordinary shares
42,858,080 Class B ordinary shares
339,599,008
Par
value
$
Share capital
Share
premium
Merger
reserve
Total
0.04 $
0.04
$
11,870 $ 832,498 $ 783,529 $ 1,627,897
1,714
47,223
13,584 $ 878,007 $ 783,529 $ 1,675,120
45,509
-
During 2019, 39,742,008 shares were issued. All were fully paid and newly issued Class A ordinary shares.
The nominal value of all shares issued is $0.04 each. Out of the total shares issued, 4,641,554 Class A ordinary
shares were issued in relation to the acquisition of Stadium Goods, and a total of 27,521,418 Class A ordinary shares
were issued in relation to the acquisition of New Guards. Transaction costs recognized directly in equity amount to
$1,494,000 for Stadium Goods and $2,004,000 for New Guards. Additionally, 7,579,036 Class A ordinary shares
were issued in respect of share options and warrants that were exercised, and RSUs that have vested.
Ordinary shares issued and fully paid as at December 31, 2018 (in thousands, except number of shares):
Par value
$
0.04 $
0.04
$
Number of shares
256,998,920 Class A ordinary shares
42,858,080 Class B ordinary shares
726,791 $ 783,529 $ 1,520,600
47,223
772,300 $ 783,529 $ 1,567,823
10,280 $
1,714
11,994 $
Share capital Share premium
299,857,000
Merger
reserve
45,509
-
Total
Class
During 2018, 67,410,405 shares were issued. All were fully paid and newly issued Class A ordinary shares
principally relating to the IPO and concurrent private placement in September 2018 where 41,608,088 Class A
ordinary shares were issued. The nominal value of all shares issued is $0.04 each. Transaction costs related to the
IPO and recognized directly in equity amount to $11,914,000. Additionally, 14,961,544 shares in respect of warrants
and share options were exercised prior to the IPO and 361,343 share options were exercised following the IPO. In
January 2018, there was a series G funding round follow-on where 8,502,500 Class A ordinary shares were issued.
Transaction costs recognized directly in equity amount to $36,000. The Browns earn-out was also settled through
the issuance of 1,976,930 shares in April 2018 which had previously been recognized as a financial liability as the
number of shares was variable based on the earn-out mechanism, rather than being a cash-settled liability.
Prior to the IPO, the Group was restructured. The merger reserve resulted from the restructuring. Further
detail can be found in Note 1.
Each ordinary share and preferred share shall rank equally for any dividends paid. On a liquidation event the
holder of preferred shares will have the priority on the available assets. Each ordinary and class of preferred shares
shall rank equally in relation to voting rights.
F-44
Notes to the consolidated financial statements (continued)
21.
Reserves
Other reserves consist of the following (in thousands):
At December 31, 2016
Transactions with non-controlling
interests
Share based payments - equity settled
At December 31, 2017
Movement in cash flow hedge reserve
Share based payments - equity settled
At December 31, 2018
Shares issued - acquisition of a
subsidiary
Movement in cash flow hedge reserve
Share based payments - equity settled
Share based payments - reverse
vesting shares
Exercise of warrants
Transaction with non-controlling
interests
Impairment loss on revaluation of
investments
Remeasurement loss on legally
required severance plan
At December 31, 2019
$
Warrant
reserve
Changes
in
ownership
$ 747 $ (8,666 ) $ 27,776 $
Share
based
payments
Cashflow
hedge
reserve
Merger
relief
reserve
Other
- $
Total other
reserves
- $ 19,857
-
-
-
-
- 16,457
747 (8,666 ) 44,233
-
-
- 28,563
747 (8,666 ) 72,796
-
-
- $
-
-
-
436
-
436
2,161
-
2,161
-
-
2,161
-
-
-
-
-
- 76,383
-
- (3,385 )
-
- 393,853
-
-
2,161
-
- 16,457
- 38,475
-
436
- 28,563
- 67,474
- 393,853
(3,385 )
-
- 76,383
-
(747 )
- (82,646 )
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- (82,646 )
(747 )
-
- (101,311 ) (101,311 )
-
(100 )
(100 )
-
(58 )
- $ (8,666 ) $ 66,533 $ (2,949 ) $ 396,014 $ (101,469 ) $ 349,463
(58 )
-
-
-
-
The warrant reserve represents the cumulative expense of the shares to be issued where the Group has issued
warrants. On exercise, the cumulative warrant expense is reclassified to accumulated losses. During 2019, all the
warrants were exercised.
The changes in ownership reserve represents transactions with former non-controlling interests of the Group.
The share based payments reserve represents the Group’s cumulative equity settled share option expense. On
exercise, the cumulative share option expense is reclassified to accumulated losses.
The cash flow hedge reserve is used to recognize the effective portion of gains or losses on derivatives that
are designated and qualify as cash flow hedges.
The merger relief reserve represents the excess over nominal share capital where there has been share
consideration as part of a business combination.
The transaction with non-controlling interests represents the initial recognition of the Chalhoub partnership.
22. Group information
At December 31, 2019, the Company’s subsidiaries were as follows:
Direct Holdings
Name
Country of
incorporation
% equity
interest
2018
2019
Principal activities
Farfetch.com Limited
Isle of Man
100 100
Holding company
F-45
Notes to the consolidated financial statements (continued)
Indirect Holdings
Farfetch UK Limited
Country of
incorporation
% equity
interest
2018
2019
England & Wales 100 100
Brazil
100 100
Brazil
USA
Portugal
Hong Kong
100 100
100 100
100 100
100 100
England & Wales 100 100
100 100
100 100
Japan
Japan
Principal activities
Marketing, providing editorial and
merchant services
Import & Export Agent for Farfetch
E-commerce, marketing and
editorial services
E-commerce and marketing
Back office support
Holding Company
Retail
E-commerce and marketing
E-commerce and marketing
Hong Kong
100 100
Holding company
China
Hong Kong
100 100
100 100
E-commerce services
E-commerce and marketing
Portugal
England & Wales 100 100
England & Wales 100 100
100 100
England & Wales 100 100
100
80
100 100
Isle of Man
Mexico
USA
India
UAE
Italy
Australia
USA
Hong Kong
England & Wales
USA
USA
USA
Russia
100 100
100 100
100
80
100 100
100 100
100 100
100 100
25
25
100 100
- 100
- 100
- 100
China
England & Wales
England & Wales
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
-
78
- 100
- 100
- 100
- 100
75
-
69
-
61
-
80
-
-
53
- 100
F-46
Dormant
E-commerce services
Dormant
E-commerce services
Holding company
Back office support
E-commerce services
Back office support
Back office support
Back office support
Back office support
Holding Company
E-commerce services
Finance
E-commerce services
E-commerce services
E-commerce services
Back office support
E-commerce services
Holding Company
Holding Company
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
FFBR importacao e exportacao
LTDA*
Farfetch.com Brasil Servicos
LTDA**
Farfetch.com US LLC
Farfetch-Portugal Unipessoal LDA
Farfetch HK Holdings Limited
Browns (South Molton Street)
Limited
Farfetch Japan Co Ltd
LASO.CO.LTD
Farfetch China (HK Holdings)
Limited
Farfetch (Shanghai) E-Commerce
Co. Ltd
Farfetch HK Production Limited
Farfetch Store of the Future
Limited
Fashion Concierge UK Limited
F&C Fashion Concierge, LDA
Farfetch Black & White Limited
Farfetch International Limited
Farfetch México, S.A de C.V***
Fashion Concierge Powered By
Farfetch, LLC
Farfetch India Private Limited****
Farfetch Middle East FZE
Farfetch Italia S.R.L.
Farfetch Australia Pty Ltd
Farfetch US Holdings, INC
Fashion Concierge HK Limited
Farfetch Finance Limited
Stadium Enterprises LLC
SGNY1 LLC
Kicks Lite LLC
Farfetch RU LLC
Beijing Qizhi Ruisi Information
Consulting Co., Ltd
Farfetch UK FINCO Limited
Hulk Finco plc
New Guards Group Holding S.p.A
County S.r.l.
Off-White Operating S.r.l.
Venice S.r.l.
Unravel Project S.r.l.
Heron Preston S.r.l.
Alanui S.r.l.
APA S.r.l.
Notes to the consolidated financial statements (continued)
Heron Preston Trademark S.r.l.
KPG S.R.L.
Off-White Operating Milano S.r.l.
Off White Operating Holding,
Corp.
Off-White Operating Paris S.à r.l.
Off White Operating Soho, LLC
Off White Operating Miami, LLC
Off White Operating Vegas, LLC
Off White Operating Los Angeles,
LLC
Off White Operating London
Limited
Italy
Italy
Italy
USA
France
USA
USA
USA
USA
UK
-
-
-
-
-
-
-
-
51
75
75
75
75
75
75
75
-
75
-
75
*
Owned by Farfetch.com Limited (99.9%) and Farfetch UK Limited (0.1%)
** Owned by Farfetch.com Limited (99.9995%) and Farfetch UK Limited (0.0005%)
***
**** Owned by Farfetch.com Limited (0.1%) and Farfetch UK Limited (99.9%)
Owned by Farfetch.com Limited (1%) and Farfetch UK Limited (99%)
23.
Non-controlling interests
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
On January 11, 2017, the Group acquired the remaining 0.1% of FFBR importação e exportação Ltda that it
did not already own.
The effect of changes in the ownership interest of the Group on the equity attributable to owners of the
company during the year and prior year is summarized as follows (in thousands):
Balance at January 1, 2019
Non-controlling interest arising from a business
combination
Profit for the year attributable to non-controlling interests
Dividends paid
Balance at December 31, 2019
% of non-controlling interest
24.
Trade and other payables
Farfetch
International
Limited
(IOM)
New
Curiosity
China
$
- $
Guards Total
- $
-
- $
209
200
-
409
-
1,225
-
1,225
158,408 158,617
10,184 11,609
-
-
168,592 170,226
22 %
20 % 0%-49%
Trade and other payables consisted of the following at December 31 (in thousands):
Trade payables
Other payables
Social security and other taxes
Income tax payable
Deferred revenue
Accruals
Derivatives financial liabilities
Total accruals and deferred revenue
F-47
2019
$
2018
96,176 $ 180,270
350
11,062
6,194
12,741
1,514
28,289
4,145
29,966
85,779
179,657
5,601
-
$ 194,158 $ 447,586
Notes to the consolidated financial statements (continued)
Accruals increased to $179,657,000 during the year ended December 31, 2019 (December 31, 2018:
$85,779,000) due to the incorporation of the new acquisition New Guards and to the expansion of the Company’s
global office presence. At December 31, 2019, accruals comprised mainly of $44,366,000 of goods received but not
invoiced (December 31, 2018: $10,015,000), $34,799,000 of employee benefits accruals (December 31, 2018:
$14,858,000), $29,136,000 of marketing services accruals (December 31, 2018: $14,435,000) and $18,557,000 of
shipping services accruals (December 31, 2018: $9,426,000).
25. Warrants
During 2016, the Group issued warrants, which are linked to the $20 million of promissory notes issued in
2016, which were subsequently repaid in 2017.
Date of issue
October 3, 2016
August 1, 2016
December 23, 2016
Number of shares Warrant price
122,935 $
33,530 $
33,530 $
6.15
6.15
6.15
Expiration date
12 years from issue date
12 years from issue date
12 years from issue date
In the year ending December 31, 2019, all warrants above were exercised.
26.
Provisions
Provisions consist of the following at December 31 (in thousands):
Dilapidations
provision
Share based
payments
employment
taxes provision
2019
Provision for
witholding
taxes
Other
Provisions
Total
2019
2019
2018
2018
$ 2,165 $ 2,515 $ 2,977 $ 10,947 $
2018 2019
- $
2018 2019 2018
- $ - $
- $ 5,142 $ 13,462
-
-
1,263 1,015 6,614 6,820
-
- 2,182
-
(815 ) (190 )
(20 )
-
32
(98 )
-
- (4,583 )
- (5,729 )
524
$ 2,515 $ 3,352 $ 10,947 $ 7,979 $
(826 )
- 16,000
-
-
-
-
- 16,000
- 873 7,877 8,708
-
-
-
(815 ) (8,773 )
- (4,000 )
- (6,249 )
(500 )
-
-
556
-
- $ 11,500 $ - $ 873 $ 13,462 $ 23,704
- 2,182
-
-
-
-
-
-
-
(924 )
At January 1
Recognised on acquisition of
subsidiary
Additional provision in the year
Transfer to trade and other
payables
Release of provision in the year
Utilized provision in the period
Foreign exchange
At December 31
The dilapidations provision reflects the best estimate of the cost to restore leasehold property in line with the
Group’s contractual obligations. Based on a detailed analysis the Group has estimated a liability of $3,352,000
(2018: $2,515,000). In estimating the liability the Group has made assumptions which are based on past experience.
Assuming the leases are not extended, the Group expects the economic outflows to match the contractual end date of
the leases. The leases have an average lease term of seven years with an average of four years remaining.
F-48
Notes to the consolidated financial statements (continued)
The share based payments employment taxes provision reflects the best estimate of the cost to settle
employment related taxes on the Group share based payments based on the most recent share price and the number
of share options expected to vest where the Group has an obligation to settle employment related taxes. The Group
has estimated a liability of $7,979,000 (2018: $10,947,000).When a share option is exercised, the liability for
employment related taxes crystalizes. During 2019, $5,729,000 (2018: $2,182,000) was transferred from provisions
to trade and other payables. As at December 31, 2019, nil amounts transferred to trade and other payables were
utilized (2018: $nil). We expect the provision to be fully utilized in 9.79 years (2018: 9.54 years) being the weighted
average remaining contracted life of options outstanding at year end. It is likely that this provision will be utilized
over a shorter period. However, this is dependent on when the option holder exercises which the Group is not in
control of.
27.
Deferred tax
As a result of the purchase price allocation exercise arising from the acquisition of Style.com a deferred tax
liability of $719,000 has been recognized in 2017 as a temporary difference. A deferred tax asset was recognized in
2017 following the acquisition of Style.com equal to and to fully offset the deferred tax liability. Deferred tax assets
have been offset against deferred tax liabilities when they are in the same jurisdiction. Refer to Note 5 for more
information.
As a result of the acquisition of New Guards, Farfetch Group recognized a deferred tax liability of
$231,652,000 on the New Guards acquired intangible assets. As a result of the acquisition of New Guards, the
Group has recognized deferred tax assets of $5,324,000 mainly related to an inventory write off provision. The
deferred tax release as at December 31, 2019 is equal to $12,800,000 following the amortization process. Following
the acquisition of Curiosity China, the Group also recognized a deferred tax liability of $921,000.
Deferred tax assets and liabilities consist of the following at December 31 (in thousands):
Deferred tax assets
At January 1
Deferred tax recognized
Foreign exchange
Released to profit or loss
At December 31
Deferred tax liabilities
At January 1
Deferred tax recognized on acquisition
Foreign exchange
Released to profit or loss
At December 31
Deferred tax, net liability
At December 31
2018
2019
$
$
1,079 $
-
(52 )
(282 )
745
$
745
5,324
(24 )
(721 )
5,324
Note
2018
2019
$
5
$
745
1,079 $
232,573
-
(24 )
(52 )
(282 )
(13,505 )
745 $ 219,789
$
-
$ 214,465
F-49
Notes to the consolidated financial statements (continued)
Unrecognized deferred tax assets
Unutilized trading tax losses
The Group has accumulated unutilized tax losses carried forward as at December 31, 2019 of $629,000,000
(2018: $382,000,000). A net deferred tax asset is only recognized where it can be shown that it is probable that
future taxable profits will be available against which the Group can utilize the asset. Subject to specific legislation
regarding changes in ownership and the nature of trade, trading losses are available to be either carried forward
indefinitely or for a significant time period.
UK trading losses
US Net Operating Losses (“NOL”)
Brazil trading losses
Japan trading losses
Hong Kong trading losses
Local
currency
2018
Local ‘m
GBP
USD
BRL
JPY
HKD
259
34
49
274
14
2018
$’m
2019
Local ‘m
2019
$’m
331
34
13
2
2
382
404
80
66
343
8
529
80
16
3
1
629
UK trading losses are available to be carried forward indefinitely. Legislation has been introduced with
effect from April 1, 2017 whereby losses arising after April 1, 2017 can be set against total profits of the company.
The amount of total profits that can be offset by brought forward losses is restricted to the first £5,000,000 of profits,
and an additional 50% of profits that exceed £5,000,000.
US NOL as at December 31, 2019 ($80,000,000) are available to be carried forward for a period of 20 years.
The carry forward NOLs start to expire in different years, the first of which is December 31, 2030. NOLs generated
after January 1, 2018 have an indefinite carry forward period but are subject to an 80% limitation per year.
Brazil, Japan and Hong Kong trading losses as at December 31, 2019 are available to be carried forward
indefinitely but utilization of losses in respect of Brazil and Japan are restricted to 30% and 50% respectively against
taxable income in future taxable periods. Japanese NOLs carryforward incurred during fiscal years starting on or
after 1 April 2018 can be carried forward only for ten years.
Unutilized future tax deductions on employee share option gains
The Group has an unrecognized gross deferred tax asset of approximately $109,740,000 in respect of a
future tax deduction on share options that are unexercised as at 31 December 2019 that when exercised will result in
a gain and a potential deduction for corporation tax purposes. A net deferred tax asset ($19,000,000 as at 31
December 2019) is only recognized where it can be shown that it is probable that future taxable profits will be
available against which the Group can utilize the asset.
Unutilized future tax deductions on Goodwill
The Group has an unrecognized deferred tax asset of approximately $5,313,000 (2018: nil) in respect of
goodwill recognized on the acquisition of Stadium Goods. The unrecognized deferred tax asset results from the
future tax deductions available in relation to this item of goodwill exceeding its statement of financial position
value. A net deferred tax asset is only recognized where it can be shown that it is probable that future taxable profits
will be available against which the Group can utilize the asset.
F-50
Notes to the consolidated financial statements (continued)
Commitments and guarantees
28.
Consolidated
From 1 January 2019, the group has recognized right-of-use assets for all lease contracts, except for short-
term and low-value leases, see Note 17 for further information.
Future minimum lease payments under leases (2018: operating leases) as at December 31 were (in
thousands):
No later than one year
Later than one year not later than three years
Later than three year not later than five years
Later than five years
Total future lease payments
$
2018
15,820 $
26,599
22,584
38,031
2019
24,065
44,282
34,705
37,216
$ 103,034 $ 140,268
The Group’s leases (2018: operating leases) relate to motor vehicles and property leases for the various
office, production and retail stores that the Group has. There is no contingent rent (2018: none). Several lease
agreements include a right to renew at the end of the lease term.
Our contingent liabilities at December 31, 2019, are described at Note 31 (2018: none).
29.
Related party disclosures
Platforme International Limited is a related party of J M F Neves. The Group generated commission of
$460,000 (2018: $557,000) from Platforme International Limited. The Group had a $80,000 payable as at the end of
December 31, 2019 (2018: $13,000 receivable).
Total compensation and benefits in kind (excluding share fulfuFbased payments) to key management
personnel amounted to $1,793,000 (2018: $1,284,000). In addition to this, there was share based payment
compensation of $26,376,000 (2018: $7,869,000).
Up until July 8, 2019, when it disposed of its investment in the Group, Conde Nast was a related party by
virtue of its shareholding in the Group. In 2019, there were no transactions with Conde Nast. In 2018, the Group
incurred marketing expenditure of $346,000 and had a $19,000 payable.
Up until October 21, 2017, when Fashion Concierge UK Limited was acquired, the Group made sales
totaling, $110,000 to Fashion Concierge UK Limited. This was a related party of J M F Neves.
Alanui S.r.L. is a related party of New Guards Group Holding S.p.A, due to it being an associate of the
Group. New Guards owns a stake of 53% but it does not have control over the entity. The Group recognized sales of
$291,000 during the post-acquisition period between August and December 2019. As at December 31 2019, the
Group had trade receivables of $291,000 (2018: nil) and trade payables of $188,000 (2018: nil).
The Group’s ultimate controlling party is J M F Neves by virtue of holding the majority of voting rights in
the Group.
30.
Financial instruments and financial risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns.
At December 31, 2018 and December 31 2019, the capital structure consisted solely of equity and the Group was not
subject to any externally imposed capital requirements.
The Group has identified two principal risks being market risk (foreign exchange) and liquidity risk.
F-51
Notes to the consolidated financial statements (continued)
Details of the significant accounting policies and methods adopted (including the criteria for recognition, the
basis of measurement and the bases for recognition of income and expenses) for each class of financial asset,
financial liability and equity instrument are disclosed in Note 2.
Categories of financial instruments
Financial assets (in thousands)
Current
Trade and other receivables
Cash and cash equivalents
Non-current
Other receivables
Total
Foreign currency forwards - held at FVTPL
Foreign currency forwards - held as cash flow hedges
Derivative financial assets
Financial liabilities (in thousands)
Trade payables
Other payables
Total
Amortized
cost
2018
Amortized
cost
2019
$
48,285 $ 154,813
322,429
1,044,786
10,458
12,388
$ 1,103,529 $ 489,630
2018
2019
$
$
255 $
436
691 $
587
2,437
3,024
Amortized
cost
2019
Amortized
cost
2018
96,176 $ 180,270
11,062
96,526 $ 191,332
350
$
$
Foreign currency forwards - held at FVTPL
Foreign currency forwards - held as cash flow hedges
Derivative financial liabilities
2018
2019
$
$
- $
-
- $
255
5,346
5,601
Contingent consideration
Total contingent consideration
Financial risk management objectives
$
$
Fair value
through
profit or loss
2018
Fair value
through
profit or loss
2019
62,386
62,386
- $
- $
The Group’s Corporate Treasury function provides services to the business, co-ordinates access to domestic
and international financial markets and monitors and manages the financial risks relating to the operations of the
Group through internal risk reports which analyze exposures by degree and magnitude of risks. These risks include
market risk (including currency risk, interest rate risk and price risk), credit risk, liquidity risk and cash flow interest
rate risk.
The Group seeks to minimize the effects of these risks, where appropriate, by using derivative financial
instruments to hedge these risk exposures. The use of financial derivatives is governed by the Group’s policies
F-52
Notes to the consolidated financial statements (continued)
approved by the board of directors, which provide written principles on foreign exchange risk, interest rate risk,
credit risk and the use of derivatives. The Group does not enter into or trade financial instruments, including
derivative financial instruments, for speculative purposes.
Market risk
The Group’s activities expose it primarily to the financial risk of changes in foreign currency exchange rates
(see table below, in thousands). The Group enters into derivative financial instruments to manage its exposure to
foreign currency risk.
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because
of changes in foreign exchange rates.
The Group uses forward currency contracts to hedge its foreign currency risks. Where the criteria for hedge
accounting are not met, derivative financial instruments are initially recognized at fair value on the date on which a
derivative contract is entered into and are subsequently remeasured at fair value with movements recorded to the
statement of operations. Derivatives are carried as financial assets when the fair value is positive and as financial
liabilities when the fair value is negative. Where all relevant criteria are met, hedge accounting is applied to
minimize earnings volatility.
Forward foreign exchange contracts
Forward foreign exchange contracts
Liquidity risk
Fair value through profit or loss
Asset
Liability
2018
2019
2018
2019
$
255 $
587 $
- $
255
Cashflow hedges
Asset
2018
2019
436 $ 2,437 $
$
Liability
2018
2019
- $ 5,346
The Group monitors its liquidity risk to maintain a balance between continuity of funding and flexibility.
This helps the Group achieve timely fulfilment of its obligations while sustaining the growth of the business.
The table below (in thousands) analyses the Group’s financial liabilities into relevant groupings based on the
remaining period from the reporting date to the contractual maturity date. Amounts due within 12 months equal their
carrying balances, as the impact of discounting is not significant.
Trade and other payables
Contingent consideration
Total current
Contingent consideration
Borrowings
Total non-current
Less than
one year
2018
Less than
one year
2019
$ 96,526 $ 191,332
1,118
-
$ 96,526 $ 192,450
More than
one year
2018
$
$
More than
one year
2019
61,268
-
61,268
- $
-
- $
F-53
Notes to the consolidated financial statements (continued)
All derivative financial instruments included in trade and other payables have a maturity of less than 12
months.
The contingent consideration is the liability associated with the non-controlling interests arising from the
transactions with CuriosityChina and Chalhoub. The non-current contingent consideration is comprised of $1.1
million and $60.2 million expected to mature by the end of 2021 and 2022, respectively. See Note 23 for further
information.
Credit risk
Credit risk is the risk that financial loss arises from the failure of a consumer to meet its obligations under a
contract. Due to the nature of operations the Group does not have significant exposure to credit risk.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime
expected loss allowance for all trade receivables. The Group applies a loss allowance to trade and other receivables.
As at December 31, 2019 all trade and other receivables were considered current being due within 30 days. The
expected loss rate the Group applies for trade and other receivables is 0.5%.
The expected loss rates are based on the payment profiles of sales over a period of 36 months before
December 31, 2019 or January 1, 2019 respectively and the corresponding historical credit losses experienced within
this period which were not significant. The historical loss rates are adjusted to reflect current and forward looking
information on macroeconomic factors affecting the ability of the consumers to settle the receivables. The Group has
identified the GDP and the unemployment rate of the countries in which it sells its goods and services to be the most
relevant factors, and accordingly adjusts the historical loss rates based on expected changes in these factors.
The majority of the Group’s cash and cash equivalents balance is held in money market funds which are
regulated by securities and market authorities. These consist of AAA rated mutual investment funds which are
permitted to diversify portfolio investments through high quality debt securities meeting regulatory mandated
requirements. As such, the Group is not exposed to any material credit risk in relation to the cash and cash
equivalents balance.
Capital risk management
The Group’s objective when managing capital is to safeguard the Group’s ability to provide returns for
members and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of
capital. At December 31, 2019, the Group holds restricted cash of $12.5 million (2018: $nil).
The Group is not subject to any externally imposed capital requirements. The capital structure is as follows
(in thousands):
2018
2019
Total borrowings
Less: cash and cash equivalents
Net cash
Total equity
Total
$
- $
(1,044,786 )
(1,044,786 )
1,128,431
-
(322,429 )
(322,429 )
1,337,832
83,645 $ 1,015,403
$
The main purpose of the Group’s financial instruments is to finance the Group’s operations.
The main risks from the Group’s financial instruments are currency risk and liquidity risk. The Board
reviews and approves policies, which have remained substantially unchanged for the year under review, for
managing these risks.
F-54
Notes to the consolidated financial statements (continued)
Hedge accounting classification and impact
The Group designates certain forward foreign exchange contracts as cash flow hedges of forecast foreign
currency revenue and costs. During the current year, losses of $7.9m (2018: $nil) were removed from the cash flow
hedge reserve. A gain of $0.5m (2018: $nil) was taken to revenue, a loss of $0.2m (2018: $nil) was taken to cost of
revenue and a loss of $8.1m (2018: nil) was taken to selling, general and administration expenses. A loss of $0.1m
(2018: $nil) was added to inventories in the statement of financial position.
The Group uses a qualitative method for assessing hedge effectiveness. The hedge is assessed at inception
and throughout the life of the hedge. Effectiveness between the hedged item and hedging instrument is tested by
comparing the critical terms of both items and concluding that they are offsetting.
Fair value hierarchy
The Group recognizes the following financial instruments at fair value:
•
•
derivative financial instruments, measured using a Level 2 valuation method; and
contingent consideration, measured using a Level 2 valuation method.
In the year ended December 31, 2019, all contingent consideration was settled through the issue of shares.
The valuation of contingent consideration was based upon the share price of the Group, which is deemed to be
observable.
There have been no significant changes in the measurement and valuation techniques, or transfers between
levels of the fair value hierarchy used in measuring the fair value of financial instruments, or changes in the
classification of financial assets and liabilities. The carrying amount of the Group’s financial assets and financial
liabilities are the same as their fair value.
Contingent consideration
The Group records contingent consideration arrangements at fair value based on the present-value of
probability-weighted future cash flows related to the performance criteria and the fair value of our common stock at
each reporting date.
We classify our contingent consideration liability in connection with investment related activity in 2019
within Level 2 of the fair value hierarchy as the lowest level inputs used to develop the estimated fair value are
directly or indirectly observable. The estimated fair value of our contingent consideration liability is based on the
present-value of probability-weighted future cash flows related to the performance criteria and the fair value of our
common stock at each reporting date. Changes in the fair value of the contingent consideration liability subsequent
to the acquisition date, such as changes in the probability assessment and the fair value of our common stock, are
recognized in earnings in the period when the change in the estimated fair value occurs. During the year ended
December 31, 2019, we recognized initially contingent consideration liabilities of $105,586,000. Subsequently we
recognized a decrease in the fair value of our contingent consideration liability of $43,200,000, in gains on items
held at fair value in our consolidated statement of operations, primarily due to a decrease in the fair value of our
common stock.
Financial instruments sensitivity analysis
In managing currency risk the Group aims to reduce the impact of short term fluctuations on its earnings. At
the end of each reporting year, the effects of hypothetical changes in currency are as follows.
F-55
Notes to the consolidated financial statements (continued)
Foreign exchange rate sensitivity analysis
The table below (in thousands) shows the Group’s sensitivity to U.S. dollars strengthening/weakening by
10%:
10% appreciation of United States dollars
10% depreciation of United States dollars
Increase/
(decrease)
in profit
or loss
2019
Increase/
(decrease)
in profit
or loss
2018
29,169 $ (21,661 )
(35,651 ) $ 26,475
$
$
This analysis reflects the impact on the statement of operations due to financial assets and liabilities held at
the balance sheet date and is based on foreign currency exchange rate variances that the Group considers to be
reasonably possible at the end of the reporting year. The analysis assumes that all other variables, in particular
interest rates, remain constant.
31. Other non-current liabilities
Other non-current liabilities consist of the following at December 31 (in thousands):
Equity-settled awards liability
Cash-settled awards liability
Employee severance liability
Other
Total non-current liabilities
2018
$
- $
15,342
-
-
15,342 $
$
2019
12,139
3,120
1,048
148
16,455
The employee severance liability arises from a legally required severance protection program for the
employees of our Italian subsidiaries at the time of their departure from the Group.
The Group has four equity settled share option plans (section a) and a cash settled share option plan (section
b).
a. Equity settled
During the year ended December 31, 2019, the Group had four equity settled share based payment plans
which are described below.
Type of
arrangement
Date of first grant
Number granted
Contractual life
Vesting conditions
EMI approved share
option plan
Unapproved share
option plan
July 1, 2011
11,332,835
10 years
November 1, 2011
5,505,600
10 years
Varying tranches of
options vesting upon
defined years of
service
Varying tranches of
options vesting upon
defined years of
service
F-56
LTIP 2015 plan
LTIP 2018 plan
September 9, 2015
38,174,980
10 years
September 20, 2018
17,051,417
10 years
Varying tranches of
options vesting
upon defined years
of service with
certain awards
having non-market
conditions
Varying tranches of
options and
Restricted Stock
Units (RSU) vesting
upon defined years of
service
Notes to the consolidated financial statements (continued)
Movements on the share options were as follows:
Options at beginning of year
Options granted
Options exercised
Options forfeited
Options at end of year
Options exercisable at end of year
Weighted average exercise prices were as follows:
2017
Number of
options
2019
Number of
options
2018
Number of
options
17,522,365 32,307,010 44,218,814
15,666,155 18,209,410 13,585,502
(198,525 ) (3,032,571 ) (7,503,814 )
(682,985 ) (3,265,035 ) (10,716,644 )
32,307,010 44,218,814 39,583,858
12,551,425 16,830,409 10,360,642
2017
2018
2019
Options at beginning of year
Options granted
Options forfeited
Options exercised
Options at end of year
Options exercisable at year end
Weighted average remaining contracted life of options outstanding
at year end
$
$
$
$
$
$
2.01 $
7.10 $
6.71 $
0.08 $
4.43 $
1.59 $
4.43 $
9.84 $
7.31 $
2.38 $
6.15 $
2.33 $
8.00 years 9.54 years
6.15
8.94
5.70
1.25
8.23
6.40
9.79
years
2017
Number of
options
2018
Number of
options
2019
Number of
options
Exercise price of options outstanding at year end
$0.00 to $0.08
$0.09 to $0.56
$0.57 to $3.52
$3.53 to $5.73
$5.74 to $7.39
$7.40 to $20.00
$20.01 to $27.09
Weighted average fair value of options granted in year
5,868,735 4,416,525 8,545,400
27,340
5,581,825 2,126,540
6,302,505 4,595,104
629,730
8,589,445 6,257,690 3,225,120
5,964,500 7,890,495 5,873,001
- 18,932,460 17,402,097
- 3,881,170
-
32,307,010 44,218,814 39,583,858
15.54
$
2.41 $
4.17 $
Weighted average share price at the date of exercise for options exercised during the year ended December
31, 2019 was $22.62 (2018: $20.00).
Inputs in the Black Scholes model for share options granted during the year and prior year were as follows:
Black Scholes model
Weighted average share price
Weighted average exercise price
Average expected volatility
Expected life
Risk free rate
Expected dividends
2017
2018
2019
$
$
9.87
7.10
20%
4 years
1.85%
$nil
$
$
11.83
9.84
23%
4 years
2.75%
$nil
$ 21.73
8.94
$
36%
4 years
2.15%
$nil
F-57
Notes to the consolidated financial statements (continued)
Expected volatility was determined with reference to historical volatility of publicly traded peer companies.
The expected life in the model has been adjusted, based on management’s best estimate, for the effects of
non-transferability, exercise restrictions, and behavioral considerations.
The Group recognized total expenses of $150,333,000, $34,668,000, and $16,667,000 related to equity-
settled share based payment transactions in 2019, 2018 and 2017 respectively. In 2019, as part of the New Guard’s
acquisition, we recorded a $12,139,000 liability for equity settled awards.
b. Cash settled
Since 2016 the Group issues to certain employees share appreciation rights (“SAR”s) that require the Group
to pay the intrinsic value of the SAR to the employee at the date of exercise. The Group has recorded liabilities of
$3,120,000 in 2019 ($15,342,000 in 2018) through the grant of 137,000 SARs (2018: 769,000 SARs).
The fair value of the SARs is determined by using the Black Scholes model using the same assumptions
noted in the above table for the Group’s equity-settled share based payments. The fair value of the liability is then
reassessed at each reporting date. Included in the 2019 expense of $10,675,000 (2018: $10,355,000, 2017:
$3,807,000), is a revaluation loss of $2,161,000 (2018: gain of $6,079,000). The total intrinsic value at
December 31, 2019 was $3,361,000 (2018: $19,425,000) of which $2,443,000 is fully vested (2018: $8,722,000).
32.
Events after the reporting year
On February 5, 2020, Farfetch completed the private placement of convertible senior notes (the “Notes”) to
Tencent and Dragoneer (together, the “Purchasers”), pursuant to which Farfetch received $250 million and issued
the Notes to the Purchasers. The Notes will mature on December 31, 2025, unless earlier converted, redeemed or
repurchased in accordance with their terms. The Notes are senior, unsecured obligations and bear interest at a rate of
5.00% per year, payable quarterly in arrears on March 31, June 30, September 30, and December 31 of each year,
commencing on March 31, 2020. The Notes may be converted at an initial conversion price of $12.25. Upon
conversion, the Notes will be settled, at Farfetch’s election, in Class A ordinary shares, cash, or a combination of
cash and Class A ordinary shares (subject to certain exceptions set forth in the Indenture). Holders of the Notes will
have the right to require Farfetch to repurchase all or some of their Notes for cash at 100% (or 150%, in the event of
a change in control, as defined in the Indenture) of their principal amount, plus all accrued and unpaid interest to,
and including, the maturity date, upon the occurrence of certain corporate events, subject to certain conditions.
Farfetch may not redeem the Notes prior to the fourth anniversary of the closing date, unless certain changes
in tax law or other related events occur. Farfetch may redeem all, but not less than all, of the Notes, at its option,
four years after the closing date, but on or before the 35th scheduled trading day immediately preceding the maturity
date, at a redemption price equal to 165% of the principal amount of the Notes to be redeemed, plus accrued and
unpaid interest to, and excluding, the redemption date.
F-58
2019
ANNUAL REPORT