11 Failure to comply with legislation or regulation 12 Engagement, capability, and retention of talent
Risk movement
↕ Risk movement
↕
Risk owner General Counsel & Company Secretary Risk owner Interim Chief People Officer
What’s the risk? What’s the risk?
Strategic expansion into new business sectors creates new legal, Inability to retain and keep talent with the relevant capabilities and
regulatory and governance complexities. Our existing markets are calibre engaged due to increased workloads, increased external
subject to complex and increasing regulatory or legislative changes progression opportunities, and inflationary pressures on pay, could
and policies across a range of areas including digital, product, impact our ability to successfully achieve our objectives and lead to
supply chain, technology, payments, consumer protection, financial, a loss of institutional knowledge. Although we have seen a reduction in
data privacy, climate and environmental, corporate governance attrition rates during FY23, significant changes in leadership combined
(including ongoing reforms), and taxation (including indirect taxes). with the amount of ongoing organisational development could cause
It is sometimes difficult to anticipate and plan for such changes before short-term uncertainty and a potential spike in attrition.
resulting requirements are clear. All of this increases our risk exposure.
How do we manage the risk?
The speed and severity of evolving requirements requires robust
• Putting processes in place for assessing ASOSer leadership
processes to identify and monitor upcoming changes, model their
capabilities and behaviours, taking actions to retain top talent,
impacts and identify appropriate and timely responses. These
and understanding present and potential future leadership gaps
developments could lead to increased operating and compliance costs
and progression needs.
and other financial impacts, including in relation to our competitiveness
and market share, as well as exposure to potential fines, litigation, • Workstreams to amplify our Employer proposition around DEI,
business disruption and reputational damage if emerging risks are not reward, development, culture and dynamic working.
adequately managed or mitigated. • Workforce planning and sourcing activities for both current and
future requirements.
As part of a broader review of environmental claims used across the
fast fashion retailer sector, in July 2022, the UK Competition and • Continue to manage employee sentiment through engagement and
Markets Authority (CMA) opened an investigation into ASOS and two culture surveys with resulting action plans and engagement with
other fashion retailers in relation to environmental claims used in our ASOSers.
connection with the promotion and sale of fashion products (CMA
Green Claims Investigation). ASOS continues to co-operate with the
CMA Green Claims Investigation.
How do we manage the risk?
• Our Governance Working Group is in place to monitor, review and
manage wider governance risks across the ASOS business, and
ensure ASOS is disciplined in its business activities.
• Horizon scanning processes (which include the Horizon Scanning
Working Group that meets bi-monthly) which aim to identify
upcoming legislative and regulatory change, and identify key risks
and the required actions needed to ensure ASOS remains compliant.
• Clear policies and procedures in place and regularly reviewed and
updated to ensure ASOS complies with legislative and regulatory
requirements.
• Providing regular training to ASOSers on relevant legislative or
regulatory requirements, including an annual compliance passport
which all ASOSers are required to undertake to ensure they are
aware of their responsibilities.
Risks on our horizon • The accelerated use of Artificial for the start of our FY26 period. As for
Intelligence and Machine Learning across many affected businesses, based on
A key part of our Risk Management approach all industries with both free and cost- current understanding the changes
is identifying, monitoring and planning effective off-the-shelf tools coming to ASOS must make are both complex and
mitigation or response for risks on our market. Whilst there are opportunities significant. An effective transformation
horizon. The complex and challenging macro from using such technology there are also approach will be needed to ensure we
economic landscape including inflation and potential risks, including with the can meet our future obligations. Changes
cost-of-living crisis continues to evolve, Intellectual Property rights of data are also still subject to the outcome of
shifting necessary focus and response uploaded or created, and cyber security consultation so some requirements could
needed. We expect this to continue to and data privacy implications. still be subject to change.
impact supply chain, people, operations
and customer behaviours as these events • Economic and financial pressures including • Fast-paced technological change and
progress and continue to interact. We will the cost-of-living crisis could increase development could lead to unexpected
continue to monitor the related risks over the ASOSer, third-party supplier, and disruption including through changes in
coming year to ensure we are prepared to customer motivation or perceived how customers interact with us, how we
respond proactively and adapt to these justification for fraud, two of the three must do business, and what customers
increasing challenges. elements of the fraud triangle. We are want, if we are not prepared.
monitoring data and reporting for possible
In addition to the areas of significant increases in fraudulent activity.
uncertainty already discussed in this report, • Under the latest timetable, upcoming
we are also mindful of the following emerging changes to Corporate Governance
risks and opportunities and continue to requirements by the Financial Conduct
monitor them: Authority must be implemented by ASOS
ASOS PLC ANNUAL REPORT AND ACCOUNTS 2023 51
STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS
Long-term
viability statement
The group’s prospects are assessed primarily through its strategic The forecasted cashflows across the assessment period were tested
planning process, which covers a period of five years, and is reviewed against the single covenant of £90m minimum liquidity.
by the Board with involvement throughout from both the CFO and CEO.
Whilst the Board reviews a five year plan, the final two years are In the latter stages of the assessment period, the Group’s two key
indicative movements, with the initial three years considered an financing arrangements expire or require renewal. Details of the
appropriate time period for the Group’s long-term plan as it facilitates financing arrangements are as follows;
an appropriate balance between the short-term characteristics • £500m convertible bond issue maturing in April 2026, which the
of the business, such as uncertain demand cycles and changing Group does not expect to be exercised based on the conversion
consumer behaviour, and the need for longer term planning in relation price of £79.65.
to financing, investment and supply chain planning. • £275m debt facility with a specialist lender, comprising of a £200m
The Group considers the following in the assessment of the strategic term loan and £75m revolving credit facility (“RCF”). This agreement
planning cycle and the long-term assessment of the business: is due for renewal in April 2026, with an option to extend if certain
• the principal risks and opportunities associated with the Group, conditions are met.
and identification of new or changing emerging risks and how the The Group also estimated the impact of severe but plausible downside
Group responds to these; scenarios aligned to the Group’s principal risks and opportunities,
• macroeconomic trends within the global economy, geopolitical identifying the principal risks from pages 46 to 51 which could have
events, increasing costs, and market share; a significant impact on the viability of the Group. These were then
• changes in customer and competitor behaviour, driven particularly stress-tested using a combined scenario where the below risks were
by the potential wider consequences of reduced disposable income modelled as materialising over the three-year period. Available
(from increased interest rates and inflation); and mitigating actions were considered as part of the assessment.
These include deferring capital investment spend and enhancing cost
• scope for further cost mitigation. management practices in order to support a sufficient level of liquidity
headroom during the viability assessment period.
i. The assessment period:
ASOS continues to adopt a three-year assessment period to assess In the unlikely scenario of additional risks materialising, ASOS has
the Group’s viability. The Board has determined that this assessment control measures in place and additional mitigations that in practice
period to 31 August 2026 is appropriate because: would prevent or nullify the impact of any such occurrences.
• The Group does not earn revenue from long term contracts. Reviewing the forecasted liquidity across the viability assessment
Therefore changes to the Group’s long term plan are predominantly period, the Group would be required to refinance to replace
as a result of changes to sales and cost assumptions which are a proportion of the liquidity lost upon the convertible bond expiry
inherently more difficult to predict beyond three years. Both have under both the base case and severe yet plausible downside case.
been stress-tested as part of the viability assessment.
Based on these assessments and other matters considered by the
• This period is also consistent with the Group’s long-term planning Board, on the assumption that additional funding is secured ahead
cycle as detailed above, and the structure of the long-term of the convertible bond maturity, the Directors confirm that they
incentive scheme for senior management. have a reasonable expectation that the Group will continue in
operation and meet its liabilities as they fall due through the three
ii. Assessment of viability:
year viability period ending 31st August 2026.
The assessment of the Group’s viability commenced with a review of
the liquidity headroom as at 3 September 2023, available through the iii. Going concern:
Group’s cash, cash equivalents and debt facilities, utilising a three- The Directors considered it appropriate to adopt the going concern
year forward forecast (the base case). Sales growth rates utilised for basis in preparing the financial statements which are shown on
the first year of the base case reflect year-on-year declines of (5)% pages 99 to 165.
to (15)%, with subsequent periods thereafter returning to double digit
year-on-year growth. The base case also assumes modest year-on-
year improvements in adjusted gross margin during FY24, with up to
c300bps growth vs FY23 for the remainder of the assessment period.
52 ASOS PLC ANNUAL REPORT AND ACCOUNTS 2023
Scenario Associated principal risk Description
Macroeconomic downturn Macroeconomic changes A global economic downturn began in FY22 following the invasion of Ukraine
and loss of market share and has continued into FY23, forecast to continue into late FY24. More
Strategic programmes fail to recently, increased levels of inflation and interest rate increases have led
deliver required outcome to a reduction in disposable income for the Group’s core customer group,
Market dynamics and impact contributing to a contraction in consumer demand, driving like-for-like declines
on our business across the business.
Management have applied a downside scenario with suppressed trading due to
the economic uncertainty experienced during the last 12 months. The scenario
reflects an uncertain consumer outlook which reduces the projected annualised
like-for-like sales growth contained within the base case during the 3-year
period under review by 7% per annum, resulting in Year 3 of the assessment
being 20-25% lower than base case. The severe downturn in sales modelled
reflects the volatile and uncertain nature of the macro-economic environment.
Gross Margin Performance Macroeconomic changes A degradation in gross margin of c.200bps vs the base case across the
assessment period due to:
Strategic programmes fail to
deliver required outcome • Increased discounting required to satisfy consumer spending habits if the
challenging macro economic impact was prolonged
Market dynamics and impact • Increased requirement for stock clearance in the transition to the new
on our operating model, if sales were not to meet the base plan
Management has applied a downside scenario to reflect a potential increase
in discounting and stock clearance in the event of the macro economic
environment not improving throughout the assessment period. A lack of
improvement could result in both the consumer demand being geared towards
discounted product, but also a slower sell through of existing stock resulting
in increased levels of clearance being required.
Working capital cash Data breach An incremental working capital outflow of up to £100m has been modelled,
impact constituting an outflow of cash in Year one of the assessment period. This
Cyber security incidents would capture any potential impact of regulatory fines or impacts in relation
Market dynamics and impact to potential data breaches, cyber security events or any other events
on our business impacting the Group’s ongoing working capital.
Climate change Sustainability and climate The Group’s transition to being a lower carbon business and the physical
change effects of global warming could potentially impact the business, in particular
through changes to regulations, legislation and resulting requirements, the
need to implement low-carbon technology, changing customer preferences,
and increases in the cost of raw materials and capital. Areas of the Group’s
operations and supply chain are also exposed in varying degrees to the risks
associated with extreme weather events in the longer-term, which include
drought, heat stress, and flooding. The business has a range of possible full
or partial mitigations available for these risks. Further details are provided
in the Task Force on Climate-related Financial Disclosures section on page 19.
The Group is in the final stages of developing and embedding its new
commercial model and is updating its FWI Strategy, metrics and targets.
These activities could affect the Group’s current understanding of the
potential risks, the details of possible mitigations, and so the inputs and
assumptions needed to accurately calculate potential quantitative outcomes.
Due to this the Group has not been able to model a specific scenario in relation
to climate-related risks but note that the impact of the risks outlined above
would be to reduce revenue or gross margin, or to increase operating costs,
and hence are covered by other assessments above.
The Strategic report has been prepared in accordance with the requirements of the Companies Act 2006, has been approved and signed
on behalf of the Board.
José Antonio Ramos Calamonte
Chief Executive Officer
31 October 2023
ASOS PLC ANNUAL REPORT AND ACCOUNTS 2023 53
STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS
Board of Directors
01 02 03 04
Jørgen Lindemann José Antonio Ramos Mai Fyfield William Barker
Chair Calamonte Senior Independent Director Non-executive Director
Chief Executive Officer
05 06 07 08
Wei Gao Marie Gulin-Merle Natasja Laheij Jose Manuel Martínez
Independent Non-executive Independent Non-executive Independent Non-executive Gutiérrez
Director Director Director Independent Non-executive
Director
09 10 11
Nick Robertson Anna Maria Rugarli Emma Whyte
Founder and Non-executive Independent Non-executive General Counsel & Company
Director Director Secretary
54 ASOS PLC ANNUAL REPORT AND ACCOUNTS 2023