Company Quick10K Filing
Farfetch
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 -0 $-0
20-F 2020-03-11 Annual: 2019-12-31
20-F 2019-03-01 Annual: 2018-12-31
FTCH 2019-12-31
Part I
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on The Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional 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 Accounting 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. Change in Registrant's Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
Part III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
EX-1.1 ftch-ex11_350.htm
EX-2.4 ftch-ex24_140.htm
EX-2.5 ftch-ex25_11.htm
EX-4.15 ftch-ex415_142.htm
EX-4.16 ftch-ex416_144.htm
EX-8.1 ftch-ex81_141.htm
EX-12.1 ftch-ex121_9.htm
EX-12.2 ftch-ex122_13.htm
EX-13.1 ftch-ex131_10.htm
EX-13.2 ftch-ex132_6.htm
EX-15.1 ftch-ex151_7.htm

Farfetch Earnings 2019-12-31

FTCH 20F Annual Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
GRSH 409 16 0 0 3 5 -1 -0.2 1%
LGC 308 12 0 0 2 3 -1 -0.3 0%
LFAC 162 7 0 0 1 2 -0 -0.2 1%
MCHX 119 24 78 37 -4 2 -52 47% -21.0 -3%
STNL 356 18 0 0 3 3 -0 -0.1 1%
TMCX 360 20 0 0 1 3 -0 -0.1 0%
FTCH 1,351 223 0 0 0 0 -50 0%
LHC 206 11 0 0 -1 -1 -0 0.0 -1%
NFC 292 7 0 0 1 1 -3 -2.2 0%
PRTH 452 558 418 0 -30 39 457 0% 11.7 -7%

20-F 1 ftch-20f_20191231.htm 20-F ftch-20f_20191231.htm

 

 

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

Trading Symbol(s)

 

Name of each exchange on which registered

Class A ordinary shares, par value $0.04 per share

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

3

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

5

 

 

 

PART I

 

 

 

 

 

Item 1.

Identity of Directors, Senior Management and Advisers

7

 

 

 

Item 2.

Offer Statistics and Expected Timetable

7

 

 

 

Item 3.

Key Information

7

 

A. Selected Financial Data

7

 

B. Capitalization and Indebtedness

14

 

C. Reasons for the Offer and Use of Proceeds

14

 

D. Risk Factors

14

 

 

 

Item 4.

Information on the Company

53

 

A. History and Development of the Company

53

 

B. Business Overview

54

 

C. Organizational Structure

68

 

D. Property, Plant and Equipment

68

 

 

 

Item 4A.

Unresolved Staff Comments

68

 

 

 

Item 5.

Operating and Financial Review and Prospects

69

 

A. Operating Results

76

 

B. Liquidity and Capital Resources

86

 

C. Research and Development, Patents and Licenses, etc.

87

 

D. Trend Information

87

 

E. Off-Balance Sheet Arrangements

88

 

F. Tabular Disclosure of Contractual Obligations

88

 

G. Safe Harbor

88

 

 

 

Item 6.

Directors, Senior Management and Employees

88

 

A. Directors and Senior Management

88

 

B. Compensation

91

 

C. Board Practices

94

 

D. Employees

97

 

E. Share Ownership

97

 

 

 

Item 7.

Major Shareholders and Related Party Transactions

98

 

A. Major Shareholders

98

 

B. Related Party Transactions

100

 

C. Interests of Experts and Counsel

103

 

 

 

Item 8.

Financial Information

103

 

A. Consolidated Statements and Other Financial Information

103

 

B. Significant Changes

104

 

 

 

Item 9.

The Offer and Listing

105

 

A. Offer and Listing Details

105

 

B. Plan of Distribution

105

 

C. Markets

105

 

D. Selling Shareholders

105

1


 

E. Dilution

105

 

F. Expense of the Issue

105

 

 

 

Item 10.

Additional Information

105

 

A. Share Capital

105

 

B. Memorandum and Articles of Association

105

 

C. Material Contracts

105

 

D. Exchange Controls

105

 

E. Taxation

106

 

F. Dividends and Paying Agents

112

 

G. Statement by Experts

112

 

H. Documents on Display

113

 

I. Subsidiary Information

113

 

 

 

Item 11.

Quantitative and Qualitative Disclosures About Market Risk

113

 

 

 

Item 12.

Description of Securities Other Than Equity Securities

114

 

 

 

PART II

 

 

 

 

 

Item 13.

Defaults, Dividend Arrearages and Delinquencies

115

 

 

 

Item 14.

Material Modifications to the Rights of Security Holders and Use of Proceeds

115

 

 

 

Item 15.

Controls and Procedures

115

 

 

 

Item 16.

Reserved

117

 

 

 

Item 16A.

Audit Committee Financial Expert

117

 

 

 

Item 16B.

Code of Ethics

117

 

 

 

Item 16C.

Principal Accountant Fees and Services

117

 

 

 

Item 16D.

Exemptions from the Listing Standards for Audit Committees

118

 

 

 

Item 16E.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

118

 

 

 

Item 16F.

Changes in Registrant’s Certifying Accountant

118

 

 

 

Item 16G.

Corporate Governance

118

 

 

 

Item 16H.

Mine Safety Disclosure

119

 

 

 

PART III

 

 

 

 

 

Item 17.

Consolidated financial statements

120

 

 

 

Item 18.

Consolidated financial statements

120

 

 

 

Item 19.

Exhibits

121

 

 

 

SIGNATURES

124

 

 

 

CONSOLIDATED FINANCIAL STATEMENTS

F-1

 

 

2


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.

 

 

 

Year ended December 31,

 

 

 

2015

 

 

2016

 

 

2017

 

 

2018

 

 

2019

 

 

 

(in thousands, except share and per share data)

 

Consolidated Statement of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

142,305

 

 

$

242,116

 

 

$

385,966

 

 

$

602,384

 

 

$

1,021,037

 

Cost of revenue

 

 

(69,702

)

 

 

(125,238

)

 

 

(181,200

)

 

 

(303,934

)

 

 

(561,191

)

Gross profit

 

 

72,603

 

 

 

116,878

 

 

 

204,766

 

 

 

298,450

 

 

 

459,846

 

Selling, general and administrative expenses

 

 

(130,073

)

 

 

(197,003

)

 

 

(295,960

)

 

 

(471,766

)

 

 

(869,609

)

(Losses)/gains on items held at fair value

 

 

-

 

 

 

(8,555

)

 

 

(3,300

)

 

 

-

 

 

 

21,721

 

Share of profits of associates

 

 

-

 

 

 

18

 

 

 

31

 

 

 

33

 

 

 

366

 

Operating loss

 

 

(57,470

)

 

 

(88,662

)

 

 

(94,463

)

 

 

(173,283

)

 

 

(387,676

)

Net finance (costs)/income

 

 

(4,265

)

 

 

7,402

 

 

 

(17,642

)

 

 

19,866

 

 

 

15,150

 

Loss before tax

 

 

(61,735

)

 

 

(81,260

)

 

 

(112,105

)

 

 

(153,417

)

 

 

(372,526

)

Income tax credit/(expense)

 

 

628

 

 

 

(199

)

 

 

(170

)

 

 

(2,158

)

 

 

(1,162

)

Loss after tax

 

$

(61,107

)

 

$

(81,459

)

 

$

(112,275

)

 

$

(155,575

)

 

$

(373,688

)

Loss per share attributable to owners of the parent:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(37,258

)

 

$

(47,079

)

 

$

(59,320

)

 

$

(116,205

)

 

$

(115,383

)

Net cash outflow from investing activities

 

 

(27,571

)

 

 

(16,961

)

 

 

(28,863

)

 

 

(63,538

)

 

 

(594,762

)

Net cash inflow from financing activities

 

$

77,414

 

 

$

161,173

 

 

$

300,142

 

 

$

859,526

 

 

$

(15,249

)

 

 

 

As of December 31,

 

 

 

2016

 

 

2017

 

 

2018

 

 

2019

 

 

 

(in thousands)

 

Consolidated Statement of Financial Position Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

$

180,904

 

 

$

452,792

 

 

$

1,199,410

 

 

$

645,330

 

Non-current assets

 

 

64,128

 

 

 

110,266

 

 

 

151,983

 

 

 

1,582,549

 

Total assets

 

 

245,032

 

 

 

563,058

 

 

 

1,351,393

 

 

 

2,227,879

 

Current liabilities

 

 

89,425

 

 

 

155,890

 

 

 

194,158

 

 

 

467,998

 

Non-current liabilities

 

 

36,691

 

 

 

10,265

 

 

 

28,804

 

 

 

422,049

 

Total liabilities

 

 

126,116

 

 

 

166,155

 

 

 

222,962

 

 

 

890,047

 

Share capital and premium

 

 

348,832

 

 

 

686,972

 

 

 

784,294

 

 

 

891,591

 

Total equity

 

$

118,916

 

 

$

396,903

 

 

$

1,128,431

 

 

$

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)

 

$

381,809

 

 

$

585,842

 

 

$

909,826

 

 

$

1,407,698

 

 

$

2,139,699

 

Revenue

 

 

142,305

 

 

 

242,116

 

 

 

385,966

 

 

 

602,384

 

 

 

1,021,037

 

Adjusted Revenue (1)

 

 

113,688

 

 

 

193,605

 

 

 

311,784

 

 

 

504,590

 

 

 

893,077

 

Gross Profit

 

 

72,603

 

 

 

116,878

 

 

 

204,766

 

 

 

298,450

 

 

 

459,846

 

Gross Profit Margin

 

51.0%

 

 

48.3%

 

 

53.1%

 

 

49.5%

 

 

45.0%

 

Loss After Tax

 

$

(61,107

)

 

$

(81,459

)

 

$

(112,275

)

 

$

(155,575

)

 

$

(373,688

)

Adjusted EBITDA (1)

 

 

(47,375

)

 

 

(53,380

)

 

 

(58,079

)

 

 

(95,960

)

 

 

(121,376

)

Adjusted EBITDA Margin (1)

 

(41.7%)

 

 

(27.6%)

 

 

(18.6%)

 

 

(19.0%)

 

 

(13.6%)

 

Earnings Per Share (“EPS”)

 

$

(0.35

)

 

$

(0.43

)

 

$

(0.50

)

 

$

(0.59

)

 

$

(1.21

)

Adjusted EPS (1)

 

 

(0.31

)

 

 

(0.27

)

 

 

(0.39

)

 

 

(0.38

)

 

 

(0.56

)

Digital Platform:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Digital Platform GMV (1)

 

$

374,915

 

 

$

573,174

 

 

$

894,392

 

 

$

1,392,103

 

 

$

1,947,868

 

Digital Platform Services Revenue

 

 

106,794

 

 

 

180,937

 

 

 

296,350

 

 

 

488,995

 

 

 

701,246

 

Digital Platform Gross Profit

 

 

69,355

 

 

 

111,762

 

 

 

196,581

 

 

 

291,706

 

 

 

371,913

 

Digital Platform Gross Profit Margin (1)

 

64.9%

 

 

61.8%

 

 

66.3%

 

 

59.7%

 

 

53.0%

 

Digital Platform Order Contribution (1)

 

$

35,197

 

 

$

63,381

 

 

$

127,379

 

 

$

194,411

 

 

$

220,563

 

Digital Platform Order Contribution Margin (1)

 

33.0%

 

 

35.0%

 

 

43.0%

 

 

39.8%

 

 

31.5%

 

Active Consumers (1)

 

 

416

 

 

 

652

 

 

 

936

 

 

 

1,382

 

 

 

2,068

 

Average Order Value - Marketplace (1)

 

$

587

 

 

$

584

 

 

$

620

 

 

$

619

 

 

$

608

 

Average Order Value - Stadium Goods (1)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

315

 

Brand Platform:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Brand Platform GMV (1)

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

164,210

 

Brand Platform Revenue

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

164,210

 

Brand Platform Gross Profit

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

75,007

 

Brand Platform Gross Profit Margin

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

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.comoff---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:

 

 

Year ended December 31,

 

 

 

2015

 

 

2016

 

 

2017

 

 

2018

 

 

2019

 

 

 

(in thousands)

 

Loss after tax

 

$

(61,107

)

 

$

(81,459

)

 

$

(112,275

)

 

$

(155,575

)

 

$

(373,688

)

Net finance costs/(income)

 

 

4,265

 

 

 

(7,402

)

 

 

17,642

 

 

 

(19,866

)

 

 

(15,150

)

Income tax (credit)/ expense

 

 

(628

)

 

 

199

 

 

 

170

 

 

 

2,158

 

 

 

1,162

 

Depreciation and amortization

 

 

3,104

 

 

 

6,897

 

 

 

10,980

 

 

 

23,537

 

 

 

113,591

 

Share based payments (1)

 

 

6,505

 

 

 

19,848

 

 

 

21,486

 

 

 

53,819

 

 

 

158,422

 

Losses/ (gains) on items held at fair value (2)

 

 

-

 

 

 

8,555

 

 

 

3,300

 

 

 

-

 

 

 

(21,721

)

Other items (3)

 

 

486

 

 

 

-

 

 

 

649

 

 

 

-

 

 

 

16,374

 

Share of results of associates

 

 

-

 

 

 

(18

)

 

 

(31

)

 

 

(33

)

 

 

(366

)

Adjusted EBITDA

 

$

(47,375

)

 

$

(53,380

)

 

$

(58,079

)

 

$

(95,960

)

 

$

(121,376

)

 

(1)

Represents share based payment expense.

(2)

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,

(3)

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:

 

 

 

 

 

 

 

Year ended December 31,

 

 

 

2015

 

 

2016

 

 

2017

 

 

2018

 

 

2019

 

 

 

(in thousands)

 

Revenue

 

$

142,305

 

 

$

242,116

 

 

$

385,966

 

 

$

602,384

 

 

$

1,021,037

 

Less: Digital Platform Fulfilment Revenue

 

 

(28,617

)

 

 

(48,511

)

 

 

(74,182

)

 

 

(97,794

)

 

 

(127,960

)

Adjusted Revenue

 

 

113,688

 

 

 

193,605

 

 

 

311,784

 

 

 

504,590

 

 

 

893,077

 

 

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,

 

 

 

2015

 

 

2016

 

 

2017

 

 

2018

 

 

2019

 

 

 

(in thousands)

 

Digital Platform Gross Profit

 

$

69,355

 

 

$

111,762

 

 

$

196,581

 

 

$

291,706

 

 

$

371,913

 

Less: Demand generation expense

 

 

(34,158

)

 

 

(48,381

)

 

 

(69,202

)

 

 

(97,295

)

 

$

(151,350

)

Digital Platform Order Contribution

 

$

35,197

 

 

$

63,381

 

 

$

127,379

 

 

$

194,411

 

 

$

220,563

 

 

 

The following table reconciles Adjusted EPS to the most directly comparable IFRS financial performance measure, which is Earnings per share:

 

13


 

Year ended December 31,

 

 

 

2015

 

 

2016

 

 

2017

 

 

2018

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

$

(0.35

)

 

$

(0.43

)

 

$

(0.50

)

 

$

(0.59

)

 

$

(1.21

)

Share based payments (1)

 

 

0.04

 

 

 

0.11

 

 

 

0.10

 

 

 

0.20

 

 

 

0.50

 

Amortization of acquired intangible assets

 

 

-

 

 

 

-

 

 

 

-

 

 

 

0.01

 

 

 

0.17

 

Losses/ (gains) on items held at fair value (2)

 

 

-

 

 

 

0.05

 

 

 

0.01

 

 

 

-

 

 

 

(0.07

)

Other items (3)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

0.05

 

Share of results of associates

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Adjusted EPS

 

$

(0.31

)

 

$

(0.27

)

 

$

(0.39

)

 

$

(0.38

)

 

$

(0.56

)

 

(1)

Represents share based payment expense on a per share basis.

(2)

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,

(3)

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,

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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

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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.

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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.

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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.

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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 c