TEMPLE & WEBSTER GROUP LTD — Interim / Quarterly Report 2020

Feb 17, 2020

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H1 FY20 Results Presentation

Mark Coulter CEO Mark Tayler CFO

Page 1

Summary

H1 FY20 Revenue H1 FY19 Revenue $74.1m $49.4m

• Temple & Webster is the online market leader in furniture & homewares

50% Growth YoY

H1 FY20 EBITDA H1 FY19 EBITDA $2.3m $1.0m

Dec-19 Cash Jun-19 Cash

$15.7m

13.5m

• Large addressable market, of which only 4-5% moved online

• Business is now profitable with strong top-line growth and a debt free balance sheet

Both FY19 and FY20 results take into consideration the new leases accounting standard AASB16

Sources: Euromonitor International Limited; Home Furnishings and Homewares System 2018 edition. IBISWorld Industry Report OD4176 Online Household Furniture Sales in Australia.

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H1 FY20 Business Update

• 50% revenue growth

High growth in a recovering housing market

• 45% active customer growth

• Record weekend driven by Black Friday and shift of retail spend into November

• Shift to online driven by demographic changes independent of macroeconomic factors

• Temple & Webster positioned as “affordable beauty”, appealing to value conscious shopper

• Furniture & homewares is a $13.9b market (excluding appliances and DIY)

Market leader in a large, growing market

• Temple & Webster is the online market leader

• High growth has allowed us to forge closer partnerships with our suppliers and accelerate investment in key differentiating areas e.g. technology, experience

• Cashflow positive business model as ~80% of sales do not require holding inventory

Strong balance sheet, cash flow positive business model

• Contribution margin (margin after all variable costs including advertising and customer service costs) remains on target

• Range increased to 180,000+ live products

Key H1 FY20 Actions

• Launch of first beta mobile app (testing by real customers)

• Established data team to better leverage our data (eg personalisation, customer acquisition)

• Closed Melbourne pop up showroom (December) to focus on online channel

Sources: Euromonitor International Limited; Home Furnishings and Homewares System 2018 edition. IBISWorld Industry Report OD4176 Online Household Furniture Sales in Australia.

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Temple & Webster is the leading online retailer for furniture & homewares

Page impressions (NOV) ~14m Website users (NOV) ~1.8m

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Email subscribers ~2.1m

Social media reach ~610k

Source: www.templeandwebster.com.au only. Google analytics, Social media platforms, T&W systems All metrics are as at Dec-19, excluding page impressions, and website users Active customers are the number of unique customers who have transacted in the last twelve months (LTM).

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Active customers (LTM) ~335k

Product listings ~180k

Sub-categories ~193 Average time to dispatch ~1.5 days

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Our core furniture and homewares category is a $13.9 billion-dollar market, with only 4-5% migrated online

Furniture and Homewares Market (AUS)

Furniture and homewares online penetration rates by country

2018 Data

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2018 Data
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Source: Euromonitor International Limited; Home Furnishings and Homewares System 2018 edition. Sales in 2018 in retail value (inc. sales tax), current terms, and is to scale.

Source: Euromonitor International Limited; Home and Garden system 2018 edition. Internet sales as a percentage of the total retail sales value (inc. sales tax) for home furnishings and homewares in Australia, UK and US. Current terms..

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Demographic and structural changes will drive strong market growth for years to come

1 Millennials are entering our core demographic

Structural changes 2 in our favour

Hypothetical distribution of homewares and furniture spend by age

• Faster internet and mobile speeds eg. NBN, 5G

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Millennials
Age 23 - 38
35 65
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• New market entrants accelerating online shopping take-up eg. Amazon

• New technologies improving experience and conversion eg. augmented reality

• Offline exits/store closures

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Our strategy is based on range, inspiration and service

Our Core Belief

• We believe everyone wants to live more beautifully.

Our Vision

• Our vision is to make the world more beautiful, one room at a time.

Our Mission

• Our mission is to deliver beautiful solutions for our customers’ homes and work spaces, and for all of our other stakeholders, including suppliers and shareholders.

Our Strategic Pillars

• We want to be famous for having the largest range in our category, the most inspirational content and the best delivery experience & customer service .

• Our foundations are built on data-driven marketing, world-class technology and exceptional execution by an amazing team.

• We believe if we can deliver the above, Temple & Webster will become the first

• Our Goal place Australians turn to when shopping for their homes and work spaces.

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It’s all about the customer

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Net Promoter Score (score range: -100% to 100%)

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61%
59%
57%
55%
53%
51%
49%
47%
45%
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Best pureplay finalist 2019
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Key initiatives to further drive customer satisfaction

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Taking more control
over delivery experience
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Enforcing quality
Category experts within
standards across
customer care team
supplier base
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Active customers up 45% year on year

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Active Customers
360,000
310,000
260,000
210,000
160,000
110,000
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Repeat and First Time Orders
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
First Time Repeat
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NB. Active customers are the number of unique customers who have transacted in the last twelve months (LTM). All numbers are Temple & Webster only and exclude Milan Direct.

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Customers metrics remain strong

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12 month Marketing ROI
Revenue per Active Customer [2] Conversion Rate [3]
holding at ~2.6x [1]
2.8
$390 3.0%
2.4
$380
2.0 $370 2.5%
$360
1.6 $350 2.0%
$340
1.2
$330 1.5%
0.8 $320
$310 1.0%
0.4
$300
0.5%
0.0
As at 30 June 2019 As at 31 December 2019
Customer
Acquisition $43 $44
Cost (CAC)
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1. Marketing ROI = Margin $ / CAC

• Margin = Revenue / Active Customer as at 31 Dec 2019 x Delivered Margin % for CY19

• CAC = Total marketing spend for CY19 x 77% (being the estimated percentage of marketing spent on new customer acquisition, i.e. excludes estimated spend on repeat customers). divided by the number of First-Time customers during CY19

2. Revenue per active customer = Last 12 months revenue divided by Active Customers

3. Conversion rate = number of transactions divided by number of unique visitors (source: Google Analytics)

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Our Trade and Commercial (B2B) division grew 75% year on year

Our B2B Customer Proposition

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B2B Sales
$’000s.
$2,800
$2,400
$2,000
$1,600
$1,200
$800
$400
$0
Sales/revenue is pre deferred revenue and refund accounting adjustments
Repeat and First Time Orders
2,800
2,400
2,000
1,600
1,200
800
400
0
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First Time Trade & Commercial Customer Orders Repeat Trade & Commercial Customer Orders

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H1 FY20: Beta launch of Mobile App

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Content rich homepage, with integrated shoppable editorial

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High resolution images, fast native shopping experience

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Easy and prominent use of “favourites” functionality helping customers save items for later purchase

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We are pursuing a high growth strategy

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Short-mid term Longer term
Leverage scale /
High Growth / Win the market
grow profit
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		g Growt / Wn te maret		grow profit
Revenue	•	High growth due to accelerating online	•	Continue to take advantage of longer-term
		market penetration and market share		online market penetration
		gains
Contribution	•	Focus on growing contribution dollars	•	Leverage scale and strategic moats to
margin		(versus contribution margin %)		grow contribution margin %
	•	Use price, promotions, marketing to deliver	•	Smarter pricing; better supplier terms due
		high growth		to scale; more personalised promotions
Fixed Costs	•	Invest in longer term growth plays e.g.	•	Slow investment in fixed costs
		Trade & Commercial and mobile app	•	Take advantage of operating leverage in
	•	Invest in capabilities to build strategic		our business model
		moats around business e.g. technology,	•	Disciplined investment in next horizon
		brand awareness, delivery experience, size		growth businesses (e.g. international
		of catalogue, private label range, data and		expansion)
		personalisation
Profit	•	Maintain profitability	•	Focus on growing profit $ (and %)

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H1 Results vs LY

H1 Results	vs LY
A$m	H1FY19	H1FY20
Revenue	49.4	74.1
Cost of Sales	(27.4)	(41.3)
Gross Margin	22.0	32.8
	44.6%	44.3%
Distribution	(6.9)	(10.7)
Delivered Margin	15.1	22.1
	30.5%	29.7%
Advertising & Marketing	(5.4)	(8.3)
Customer Service &
	(1.5)	(2.4)
Merchant Fees
Contribution Margin	8.1	11.4
	16.5%	15.3%
Wages	(5.9)	(7.0)
Other	(1.3)	(2.1)
EBITDA	1.0	2.3
	2.1%	3.1%
Share Based Payments	0.6	0.4
Adjusted EBITDA	1.6	2.7
	3.2%	3.6%

• Revenue growth for the half of 50%, primarily driven by an increase in active customers

• Delivered margin growth for the half of 46% was driven by top line revenue growth, offset by shipping cost increases on bulky freight which came in Nov-18.

• Delivered margin remains on target at ~30%

• Marketing spend tracking in line with historical averages at 11.1% of revenue, albeit with significant $ spend increases

• Contribution dollars grew 41% to $11.4m, with contribution % remaining within internal targets

• Fixed costs (excl share based payments) as a % of revenue were down 12%, albeit with investments into Technology & Data, Mobile App, Trade & Commercial, Private label and Logistics

• As a result, EBITDA for the half was $2.3m ($2.7m excluding non-cash share based payments)

• Both current and comparative periods include the impact of the new accounting standard AASB16. The H1 FY19 impact of AASB16 is a decrease of $0.2m on the “Other” expenses line and a corresponding increase in EBITDA and Adjusted EBITDA for the same amount.

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High growth strategy is already translating into operating leverage

	operating leverage	operating leverage
	Revenue 100% 100% 100% 100% Gross Margin 42.7% 44.1% 44.6% 44.3% Delivered Margin (after all distribution costs) 27.6% 31.0% 30.1% 29.7% Customer Service Staff & Merchant Fees 4.7% 3.3% 3.3% 3.3% Advertising Costs 12.6% 11.3% 10.9% 11.1% H1FY20 FY19 FY18 FY17
	Contribution Margin 10.3% 16.4% 15.9% 15.3% Fixed Costs (ex share based payments) 20.3% 16.1% 13.3% 11.7%
	Adjusted EBITDA (10.0%) 0.3% 2.6% 3.6%

Fixed costs as a % of revenue decreasing, albeit with ~25 new people added across the following capabilities over CY19:

• Technology & data

• Mobile App

• Trade & Commercial

• • Private Label

• Logistics

Note full costs of H1 investments will materialise in H2

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Capital light/cash flow positive business model

A$m	30-Jun-19	31-Dec-19
Assets
Cash & Cash Equivalents	13.5	15.7
Inventories	3.5	5.5
Other current assets	1.7	1.8
Intangibles, (inc. goodwill)	7.6	7.7
Right-of-use assets	0.0	1.1
PPE	0.5	0.4
Deferred tax assets	3.5	4.3
Total Assets	30.3	36.5
Liabilities
Trade and other payables	8.9	10.1
Employee accruals and provisions	1.9	2.3
Deferred revenue	4.3	4.4
Lease liabilities	0.0	1.2
Total Liabilities	15.1	18.0
Net Assets	15.2	18.5
Equity
Contributed capital	76.6	76.6
Reserves	2.6	3.0
Retained earnings	(64.0)	(61.1)
Total Equity	15.2	18.5

• Balance sheet position remains strong with a closing cash balance of $15.7m and no debt

• Cash flow positive half of +$2.2m was driven by a positive EBITDA result and benefits from the group’s cash flow positive business model, offset by investments into Private Label inventory

• Inventory and creditor metrics (WOC/DPO/Ageing profile) all continue to track within target ranges

Closing cash by half

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18,000
16,000
14,000
12,000
10,000
8,000
6,000
H2 FY17 H1 FY18 H2 FY18 H1 FY19 H2 FY19 H1 FY20
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Page 17

Strategy & Outlook

Page 1818

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Given the growth opportunity, our focus is on Australia

Key Addressable H1 FY20 TPW Market categories market size Revenue Share Furniture, B2C homewares, (Residential home ~$25b ~$69m ~0.5% & home office) improvement, appliances B2B Furniture, (Trade & ~$3b ~$5m <0.5% Commercial homewares; customers) office fit-out

Future phases of growth include International (e.g. NZ / SE Asia); offline; new business lines

NB: Relative sizes of market opportunities are indicative only; addressable market sizes are TPW estimates; B2C market includes 100% furniture/homewares/fixed flooring and 25% of Australian DIY and 25% Australian appliance sales - ABS Retail Sale data May 2019 TPW market share % based on annualized revenue for TPW

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Our plan to grow our leadership in the online B2C furniture and homewares market

Add depth and Leverage scale to breadth across our core obtain cost advantage categories (including and exclusivity on new DIY); expand private product ranges label offering Innovate our offering: Continue pilot of mobile app, our own delivery van personalisation, network to solve augmented reality bulky delivery

Increase brand awareness from 31% to +80% through digital and non-digital channels Add design help for all customers (chat, voice, online, in-store)

Brand awareness survey conducted by independent marketing agency in June 2019

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Our plan to grow our market share of the B2B furniture and homewares market

Add Trade & Add inbound sales staff Continue pilot of Commercial exclusive (onshore & offshore); Sydney by product ranges and outbound appointment business development showroom managers Continue to improve Innovate offering Grow brand awareness fulfillment model leveraging B2C tech through trade (consolidation; white (augmented reality; marketing activities glove service) personalisation)

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Trading update & outlook

The second half has started well with YoY revenue growth of 55% (to Feb 17).

Temple & Webster is committed to a high growth strategy to take advantage of the structural shift towards online, however we do remain watchful of the competitive and macroeconomic environment.

TPW will be reinvesting short term operating leverage into growth initiatives as outlined, while remaining profitable.

This reinvestment strategy supports Temple & Webster’s stated goal of becoming the first place Australians turn to when shopping for their homes and work spaces

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