ICR Conference€¦ · Source: Farfetch GMV in 2017, offices and sites from Company information;...
Transcript of ICR Conference€¦ · Source: Farfetch GMV in 2017, offices and sites from Company information;...
ICR ConferenceJanuary 15, 2019
Elliot Jordan, CFO
IMPORTANT NOTICE
This presentation, and the accompanying oral presentation, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this presentation and the
accompanying oral presentation that do not relate to matters of historical fact should be considered forward-looking statements, including, without limitation, statements regarding future financial performance, development of the
luxury market, future industry dynamics, as well as statements that include the words “expect,” “intend,” “plan,” “believe,” “project,” “forecast,” “estimate,” “may,” “should,” “anticipate” and similar statements of a future or forward-
looking nature. These forward-looking statements are based on management’s current expectations. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other
important factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but
not limited to: 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 Marketplace and to set their own prices for such
products; 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 dependence on
highly skilled personnel, including our senior management, data scientists and technology professionals, and our ability to hire, retain and motivate qualified personnel; Mr. Neves’ considerable influence over important corporate
matters due to his ownership of us, and our dual-class voting structure’s limit on your ability to influence corporate matters, including a change of control; and the other important factors discussed under the caption “Risk Factors”
in our final prospectus under Rule 424(b) filed with the U.S. Securities and Exchange Commission (“SEC”) on September 24, 2018 in connection with our initial public offering as such factors may be updated from time to time in
our other filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. In addition, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for
our management to predict all risks, nor can we assess the impact of all factors on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any
forward-looking statements that we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this presentation and the accompanying oral presentation are
inherently uncertain and may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Accordingly, you should not rely upon forward-looking
statements as predictions of future events. In addition, the forward-looking statements made in this presentation and the accompanying oral presentation relate only to events or information as of the date on which the statements
are made in this presentation and the accompanying oral presentation. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information,
future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. Unless otherwise indicated, information contained in this presentation concerning our industry,
competitive position and the markets in which we operate is based on information from independent industry and research organizations, other third-party sources and management estimates. Management estimates are derived
from publicly available information released by independent industry analysts and other third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data, and
our experience in, and knowledge of, such industry and markets, which we believe to be reasonable. In addition, projections, assumptions and estimates of the future performance of the industry in which we operate and our
future performance are necessarily subject to uncertainty and risk due to a variety of factors, including those described above. These and other factors could cause results to differ materially from those expressed in the estimates
made by independent parties and by us.
This presentation, and the accompanying oral presentation include certain financial measures not presented in accordance with the International Financial Reporting Standards (IFRS) including but not limited to, Adjusted
EBITDA, Adjusted Revenue, Platform Services Revenue, Platform Gross Profit and Platform Order Contribution. These financial measures are not measures of financial performance in accordance with IFRS and may exclude
items that are significant in understanding and assessing the Company’s financial results. Therefore, these measures should not be considered in isolation or as an alternative to loss after tax, revenue, gross profit] or other
measures of profitability, liquidity or performance under IFRS. You should be aware that the Company’s presentation of these measures may not be comparable to similarly-titled measures used by other companies, which may
be defined and calculated differently. See the appendix for a reconciliation of these non-IFRS measures to the most directly comparable IFRS measure.
The trademarks included herein are the property of the owners thereof and are used for reference purposes only. Such use should not be construed as an endorsement of the products or services of the Company.
>1,000
supply partners
1.2m
active consumers
1 China Renaissance, Cowen, Credit Suisse, Deutsche Bank, Exane BNP, Goldman Sachs, JPMorgan, UBS, Wells Fargo as at January 10, 2019.
2 Consumer is deemed to be active if they made a purchase on the Farfetch Marketplace within the last 12-month period.
1
2
$610 AOV (9 months to Q3 2018)
$1.4bn 2018E GMV (Analyst Consensus)
at a Glance
GLOBAL END-TO-END
LOGISTICS OFFERING
PARTNER
RELATIONSHIPS
TECHNOLOGY
PLATFORM
We are the world’s only marketplace for luxury at scale with powerful network effects
Introducing Farfetch
Farfetch’s 3 Original Insights
Digital will transform the luxury industry
There needs to be a global platform for
curated aggregation of the best brands
and retailers
Existing platforms are not tailored to
service the modern luxury consumer and
not compatible with luxury brands
Revolutionize the luxury
shopping experience
Empower and connect
consumers, curators and
creators through technology
Manage customer
experience end-to-end
1
2
3
Luxury Industry Overview
Craftsmanship
and Heritage
Strong Focus
on Brand Image ScarcityControl
10,000s of smaller brands and independent designers
144 144 142151
164177
190188
174
197
220
245 250259
289 288300 307
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E
ResetChinese GrowthEntry of ecommerce Luxury Crisis Dawn of
the Digital
Era
M A R K E T S I Z E ( U S D b n )
Source: Bain & Company, “The Future of Luxury: A Look Into Tomorrow to Understand Today (November 2018)”. Data converted from EUR to USD at an exchange rate of 1.1815 (2018 average).
Phases of Development of the Luxury Market
Online Share
9%8%
10%
Attractive Industry Dynamics
Emerging Market Growth Generational Shift Luxury Purchases Online
32%
46%
2017
2025F
Share of Chinese Consumers (by Nationality)
in Personal Luxury Goods Sales
32%
45%
2017
2025F
Gen Y and Z Share in Global Personal
Luxury Goods Sales% Online Penetration
10%
25%
2018E
2025F
~$430bn Global Personal Luxury Goods Market by 2025F
Note: “E” = estimate; “F” = forecast as per Bain & Company. Source: Bain & Company, “The Future of Luxury: A Look Into Tomorrow to Understand Today (November 2018)”. Data converted from EUR to USD at an exchange rate of 1.1815 (2018
average).
9%2017
Farfetch Platform Growing 2x as Fast as the Online Luxury Market
$375
$573
$894
$1,365
2015 2016 2017 2018Analyst Consensus
P L A T F O R M G M V ( U S D m )
1 China Renaissance, Cowen, Credit Suisse, Deutsche Bank, Exane BNP, Goldman Sachs, JPMorgan, UBS, Wells Fargo as at January 10, 2019.
1
Marketplaces
Store of the Future
Integrated Tools for
Luxury Sellers
Black & White
PhotographyInventory
ManagementPayments Fulfilment
TechnologyPlatform
Marketplace: The Value Proposition
Network Effects
LUXURY
SE
LL
ER
S
RETAILERS
CONSUMERS
BR
AN
DS
Industry Leading
Logistics & Tech Platform
100% Control
Plug & Play Tech and Logistics
Innovation Partner
Incremental Global Demand
DataAccess
World’s Largest Selection of
Luxury Fashion
Personalized Discovery and Shopping
~10x More SKUs Than the Closest
Competitor to Our Marketplace1
Rapid Delivery,
Localized Service
$2.7bnSeller’s Stock Value2
3 LayerCuration of Supply
1 As of May 31, 2018. 2 Combined value of all stock units available on our Marketplace multiplied by each item’s retail unit price. Autumn / Winter 2018 as at September 30, 2018.
CONTENT
CREATIONTHE SELLER SENDS
THE PRODUCT
SAMPLE FOR
PHOTOGRAPHY
SECURE
PAYMENTS
PRODUCT LIVE ON
MARKETPLACE
CONSUMER DISCOVERS,
SHOPS AND MAKES
PAYMENT ON FARFETCH
SELLER
RECEIVES
THE ORDER
SELLER PREPARES
FOR DELIVERY
IN FARFETCH
PACKAGING
PREFERRED CARRIERS
COLLECT THE ITEMS
FROM SELLER
CONSUMER
RECEIVES THE
PRODUCT
LOCALIZED MULTI-
LINGUAL CUSTOMER
SERVICE
FREE
RETURNS
CUSTOMER LOYALTY
PROGRAMME
CENTRALIZED
DIGITAL
MARKETING AND
ANALYTICS
STRICT SELLER
GUIDELINES FOR
CONSISTENT
CUSTOMER
EXPERIENCEAVERAGE 3.4-DAY
DELIVERY1
SAME DAY DELIVERY IN
19 CITIES
F90 MINUTE DELIVERY
IN 10 CITIES
FARFETCH TAKES
CARE OF CUSTOMS
CLEARANCE & DUTIES
PRODUCTION MARKETPLACE AND FULFILMENT
CUSTOMER SERVICE
1 As of September 30th, 2018.
We Control Every Step of the Luxury Experience
DATA-DRIVEN
DEMAND GENERATION
With a Compelling Economic Model for Brands and Retailers
PRODUCT
COST
PRODUCT
COST
PRODUCT
COST
BRAND
MARGIN
BRAND
MARGIN
BRAND MARGIN
RETAIL MARGIN
RETAIL
MARGIN
LUXURY
INDUSTRY
RETAILER ON
FARFETCH
BRAND ON
FARFETCH
Compared to
traditional
channels,
Farfetch
offers
superior
demand
generation
with
attractive
economics
Cost $20 Brand $45 RRP $100
Source: Company information
Note: Represents illustrative example of channel economics
Illustrative Example of Unit Economics
Luxury Industry Overview
Note: Red represents luxury houses with brands on Farfetch marketplace and/or a B2B solution partner.
Understanding the Farfetch Customer
Average Age
66 : 34
FEMALE / MALE
36 years>50% customers are
Millennials
AVERAGE AGE1
$1,000+
AVERAGE ANNUAL
SPEND WITH
FARFETCH
Key Factors when Shopping for Fashion Online
Range of brands Quality & authenticity Luxury service
Farfetch survey as at March 30, 2018.
1.2m
# ACTIVE
CUSTOMERS (LTM TO Q3 2018)
Hottest & unique products
1 Farfetch survey as at March 30, 2018.
AMERICAS
Farfetch is a Global Platform
Farfetch office
Localized site2
Source: Farfetch GMV in 2017, offices and sites from Company information; industry demand from Bain & Company.1 For the year 2018E excluding RoW which is 5%. Data split by location of consumers. 2 Localized indicates a site with local language and/or currency. 3 Industry demand, according to Bain & Company, based on Europe only. 4 Industry demand, according to Bain & Company, based on Mainland China, Japan and Rest of Asia.
% Industry demand1
% Farfetch GMV
32%
40%
32%
35%
EMEA3
APAC4
31%
25%
Feedback
Data Insights Benefit Brands, Boutiques and Consumers
Source: Company information
INPUT
OUTPUT
More Value for Consumers More Value for Luxury Sellers
Traffic Data
Returns Data
Marketing Data
Pricing Data
Consumer View
Shipping Data
Product Trends
Inventory Data
Operating Experience
Consumer InteractionsTransactional Data
Omnichannel Integration
Personalization
More Relevant Products
Enhanced Luxury Experience
Faster, BetterDelivery
Inventory Management
Product Improvement
Enhanced Consumer View
Better Pricing
Tailored Marketing
ONLINE OFFLINE
PLATFORM
Retail Experience
Our Growth Strategy
Continuing to invest
in new technologies
and innovation
Building Farfetch
brand awareness
Increasing product
supply and our
luxury seller base
Leverage strong
consumer
economics
• Marketplace
• Black & White
• Store of the Future
• Brand marketing
• Performance
marketing
• B2B marketing
• Increasing supply from
existing luxury sellers
• Adding brands,
retailers, department
stores, other partners
• Expanding into new
categories
• Increasing lifetime
value of existing
consumers
• Attracting new
consumers
• Global expansion
TECHNOLOGY BRAND SUPPLY DEMAND
PLATFORM AS AN ENABLER
Drive GMV growth and continue to capture market share as the category leader
Continue to drive attractive unit economics in our consumer base
Scale the business to drive operating leverage
Invest in technology and marketing to deliver sustainable growth with a clear path to
long-term profitability
Deliver Platform-level EBITDA margins, with favorable WC dynamics and low capital
expenditure
Our Finance Strategy
($32)
$43
$65
$106
$106
$306
$306
$2
$22
$4
$4
(50) 0 50 100 150 200 250 300 350
Revenue (IFRS)4
Platform Services Revenue
Adjusted EBITDA (Group)
2
Fulfilment Browns In-StorePlatform
(Technology Expense)
GMV (Group)
Platform GMV
1
1
Q 3 ’ 1 8 ( U S D m )
Order Contribution (Group)
Platform Gross Profit
Gross
Margin6
62%
Platform
Order
Contribution
41%
Results of Operations (Farfetch P&L)
1 GMV is inclusive of product value, shipping and duty and net of returns, value added taxes and cancellations. Platform GMV includes First-Party and Third-Party Platform GMV. 2 Excluding other items (non-recurring and one-off items). 3 Non-IFRS financial
measures. Reconciliation to IFRS measures in the Appendix. 4 100% of First-Party GMV drops through to revenue; Third-Party revenue determined based on Third-Party Take Rate. 5 Platform Services Revenue was previously referred to as Adjusted Platform
Revenue in the Company’s SEC filings and other disclosures. 6 Defined as Platform Gross Profit (which is defined as gross profit, excluding Browns In-Store Gross Profit) as a percentage of Platform Services Revenue.
(General and Administrative)
(Demand Generation Expense)
(Cost of Revenue)
3,5
3
3
3
AOV
$585
Take Rate
31.9%
Demand
Generation %
Platform GMV
7%
Technology
Expense
% Adj. Revenue
17%
Demand Generation Costs Driving Attractive Unit Economics
Source: Farfetch internal data 1 Includes Affiliates, Display, PPC 2 Includes SEO, Email, Direct, Referral.
~ 50%
D E M A N D G E N E R A T I O N % O F P L A T F O R M G M V
L I F E T I M E V A L U E O F A C O N S U M E R T O C O N S U M E R A C Q U I S I T I O N C O S T R A T I O S
+82 bps
2 0 1 8 G M V ( U S D ) B Y C H A N N E L
Low Cost /
Organic
Channels2
Higher Cost
/ Paid
Channels17%
As at Q3 2018
2015 Cohort
2016 Cohort
2017 Cohort
1.42 x
1.81 x
2.71 x
1.53 x
2.04 x
1.77 x
LTV / CACafter 6 months
LTV / CACafter 12 months
LTV / CACafter 24 months
Bringing Together The Best Team from Tech and Fashion
José NevesFounder,
Chief Executive Officer,
Co-Chairman
FASHIONTECHNOLOGY
Giorgio BelloliChief Commercial Officer
John VeichmanisChief Marketing Officer
Holli RogersChief Executive Officer,
Browns
Stephanie PhairChief Strategy Officer
Sara WoodVice President
Product
Stat HR
Sian KeaneChief People Officer
Luis TexeiraChief of Supply Chain
Operations
Cipriano SousaChief Technology Officer
Andrew RobbChief Operating Officer
James MaynardGeneral Counsel
Sandrine DeveauxManaging Director Store of the Future
Elliot JordanChief Financial Officer
Kelly KowalManaging Director
Farfetch Black & White
Farfetch exists for the Love of Fashion.
We believe in empowering individuality. Our mission is to be the
global technology platform for luxury fashion, connecting
creators, curators and consumers.
Our Mission
APPENDIX
Reconciliation of Non-IFRS Measures
• Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Revenue and
Platform Services Revenue are supplemental measures of our performance
that are not required by, or presented in accordance with, IFRS. Adjusted
EBITDA, Adjusted EBITDA Margin, Adjusted Revenue and Platform
Services Revenue are not measurements of our financial performance
under IFRS and should not be considered as an alternative to loss after tax,
revenue or any other performance measure derived in accordance with
IFRS
• We define Adjusted EBITDA as loss after tax before net finance costs /
(income), income tax expense / (credit) and depreciation and amortization,
further adjusted for share based compensation expense, other items and
share of results of associates. We define Adjusted EBITDA Margin as
Adjusted EBITDA calculated as a percentage of Adjusted Revenue. We
define Adjusted Revenue as revenue less Platform Fulfilment Revenue. We
define Platform Services Revenue as Adjusted Revenue less Browns In-
Store Revenue
• We caution investors that amounts presented in accordance with our
definitions of Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted
Revenue and Platform Services Revenue may not be comparable to similar
measures disclosed by other companies, because not all companies and
analysts calculate Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted
Revenue and Platform Services Revenue in the same manner
C O M M E N T A R Y
(USDm) Q3’18
Revenue $132
Less: Platform Fulfilment Revenue (22)
Adjusted Revenue 110
Less: Browns ln-store Revenue (4)
Platform Services Revenue2 106
(USDm) Q3’18
Loss after tax ($77)
Net finance costs / (income) (1)
Income tax expense / (credit) 1
Depreciation and amortization 6
Share based payments1 39
Share of results of associates 0*
Adjusted EBITDA (32)
1 Represents share based payment expense. 2 Platform Services Revenue was previously referred to as Adjusted Platform Revenue in the Company’s SEC filings and other disclosures.
* Numbers are rounded to the nearest million
Reconciliation of Non-IFRS Measures (cont’d)
• Adjusted Platform Gross Profit Margin is defined as Platform Gross
Profit (which is defined as gross profit, excluding Browns In-Store
Gross Profit) as a percentage of Platform Services Revenue. Platform
Order Contribution Margin is defined as Platform Order Contribution
(which is defined as Platform Gross Profit less demand generation
expense) as a percentage of Platform Services Revenue. Platform
Gross Profit, Adjusted Platform Gross Profit Margin, Platform Order
Contribution and 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 Platform Gross Profit, Platform Services Gross Profit
Margin, Platform Order Contribution and 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
platform for the periods presented. We also believe that Platform
Gross Profit, Adjusted Platform Gross Profit Margin, Platform Order
Contribution and Platform Order Contribution Margin are useful
measures in evaluating our operating performance within our industry
because they permit the evaluation of our platform productivity,
efficiency and performance.
C O M M E N T A R Y
1 Browns In-Store Gross Profit is Browns In-Store Revenue less the direct cost of goods sold relating to Browns In-Store Revenue.
(USDm) Q3’18
Gross Profit $67
Less: Browns In-Store Gross Profit1 (2)
Platform Gross Profit 65
Less: Demand Generation Expense (22)
Platform Order Contribution 43