TEMPLE & WEBSTER GROUP LTD — Investor Presentation 2020

Jul 27, 2020

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TEMPLE & WEBSTER GROUP LTD

ABN 69 608 595 660

REGISTERED OFFICE AND PRINCIPAL PLACE OF BUSINESS: Unit 1, 1-7 Unwins Bridge Road St Peters NSW 2044

ASX ANNOUNCEMENT

28 July 2020

FULL YEAR 2020 INVESTOR PRESENTATION

Temple & Webster Group Ltd attaches an Investor Presentation for the full year 2020 results.

This document has been authorised for release by the Board of Directors.

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FY20 Investor Presentation

Mark Coulter CEO Mark Tayler CFO

Page 1

Summary

FY20 Revenue FY19 Revenue $176.3m $101.6m

74% growth YoY

FY20 EBITDA FY19 EBITDA $8.5m $1.5m

483% growth YoY

Jun-20 Cash Jun-19 Cash $38.1m $13.5m

Pre Audit

• H2 revenue up 96% vs pcp; Q4 revenue up 130% vs pcp

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

• Large addressable market with accelerating online adoption

• Business is profitable with strong topline growth and a debt free balance sheet

Sources: Euromonitor International Limited; Home Furnishings and Homewares System 2019 edition. IBISWorld Industry Report OD4176 Online Household Furniture Sales in Australia.

FY20 metrics contained in this presentation are pre-audit and subject to change. Jun-20 cash balance excludes proceeds from recent $40m placement Both FY19 and FY20 numbers take into consideration the new lease accounting standard AASB16.

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Executive Summary

• Furniture & homewares is a $14.6b market (excluding appliances and DIY)

Significant growth opportunity

• Online adoption in Australia lags US/UK markets

• Shift to online driven by demographic changes accelerated by the COVID-19 crisis

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

• Temple & Webster best positioned to capture shift of offline spend to online

Best positioned to win

• Natural advantages of being online market leader and scale benefits, including: forging closer relationships with suppliers for better terms, exclusive product and promotional support; and greater investment in technology, digital capabilities, private label (import) and marketing

• FY20 Revenue up 74% to $176.3m vs pcp

Financial Update

• H2 revenue growth of 96% vs pcp with Q4 delivering 130% revenue growth vs pcp

• • FY20 EBITDA up 483% to $8.5m vs pcp

• Cash at June 30: $38.1m (excludes proceeds from recent $40m placement)

• Second half focused on scaling up business to meet customer demand

Operational Update

• Successful transition to working from home

• Achieved record customer satisfaction levels

• Completed successful placement of $40m to strengthen balance sheet

• Small investment into an AI based interior design start up

Sources: Euromonitor International Limited; Home Furnishings and Homewares System 2019 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 (JUNE) ~32m Website users (JUNE) ~3.8m Email subscribers ~2.5m

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Social media reach ~735k

Source: www.templeandwebster.com.au only. Google analytics, Social media platforms, T&W systems All metrics are as at June-20,

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Active customers (LTM) ~480k Product listings ~180k

Sub-categories ~200 Average time to dispatch ~1.8 days

Page 4

Active customers are the number of unique customers who have transacted in the last twelve months (LTM).

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Our core furniture and homewares category is a $14.6b market, with accelerating online adoption

Furniture and Homewares Market (AUS)

Hypothetical adoption curve for online penetration in the furniture & homewares market: Australia lags US/UK markets

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2019 Data
Total
$14.6b
Online
$744m
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UK: 16.6% (2019)
US: 15.2% (2019)
AUS: Now?
AUS: 5.1% (2019)
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Time

Source: Euromonitor International Limited; Home Furnishings and Homewares System 2019 edition. Sales in 2019 in retail value (inc. sales tax), current terms, and is to scale.

Source: Euromonitor International Limited; Home and Garden system 2019 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

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Millennials
Age 24 - 39
35 65
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• Offline exits/store closures

• New consumer habits forming during lock downs

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

• New market entrants accelerating online shopping take-up eg. Amazon

• New technologies improving experience and conversion eg. augmented reality

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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 biggest and best range in our category, the most inspirational content and services 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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Active customers up 77% year on year

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Active Customers
510,000
460,000
410,000
360,000
310,000
260,000
210,000
160,000
110,000
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Repeat and First Time Orders
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
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).

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Customer 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 30 June 2020
Customer
Acquisition $43 $46
Cost (CAC)
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1. Marketing ROI = Margin $ / CAC

• Margin = Revenue / Active Customer as at 30 June 2020 x Delivered Margin % for FY20

• CAC = Total marketing spend for FY20 x 78% (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 FY20

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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Market leadership and scale are leading to market share growth

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relationships Closer We are growing our market share –
with suppliers Average from April/May vs pcp
with better
terms
More Bigger 136%
inspirational investment in
content & technology
services and platform
54% 49%
Market
share
Deeper growth Faster brand
integrations awareness
with logistics NAB Online Sales Index (all NAB Online Sales Index TPW Gross Sales Growth
partners growth NAB Online categories) (homewares & appliances)NAB Online Temple &
Sales Index Sales Growth Webster
(Homewares & Revenue
Appliances –
Greater stock domestic
security Bigger and
including better range, sales)
growing with more
import exclusives
division
Source: NAB Online Retail Sales Index (April 2020) and NAB Online Retail Sales Index (May 2020)
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Source: NAB Online Retail Sales Index (April 2020) and NAB Online Retail Sales Index (May 2020) Percentages displayed above reflect the average for April and May 2020.

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H2 was focused on scaling the business while keeping a high level of customer satisfaction

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Working with all key
Business vendors to ensure
Continuity continuity of critical
Planning services (eg freight,
technology, marketing)
Working with onshore
and offshore suppliers to Securing
secure stock to support Stock
high growth
Moving to Moving onshore and
Working offshore teams to working
From from home, and hiring ~180 new FTE to meet
Home customer demands
Raising $40m to Securing
strengthen balance sheet Balance
and provide capital for
strategic investments Sheet
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We grew our customer satisfaction scores to our highest levels while adding record volumes of first time customers

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

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70%
65%
60%
55%
50%
45%
40%
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Page 11

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We continue to innovate our digital offering

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iOS App approved during H2 by Apple; launch deferred to Q1 FY21

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Data integration with each freight carrier to enable full end to end tracking of deliveries, and enable proactive issue resolution

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AI generated room idea collections helping customers to navigate our huge range and complete their looks (coming)

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Our Trade and Commercial (B2B) division had a great year despite the challenging conditions

• Trade & Commercial grew revenue by 68% yoy, despite

• 1 facing a challenging second half

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$’000s.
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$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
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• We continue to improve our service model, including the

• 2 expansion of styling and install services to QLD. Repeats are growing strongly

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4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
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First Time Orders Repeat Orders
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• 3 We have set up sector specific teams and increased our range of trade specific products. For example, our developer focused team has launched complete design and install package solutions for display suites and furnished apartments

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Revenue is pre deferred revenue and refund accounting adjustments

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Drivers to continue growing market share from a position of strength

Add depth and Expand digital breadth across our core capabilities: data, and adjacent personalization, AI, categories; grow private augmented reality label (import) division Focus on exceptional Add inspirational customer service and a content and service: great delivery video; 3D; AR/VR; experience to drive design help repeats

Increase brand awareness from 35% to +80% through digital and non-digital channels Continue to build out Trade & Commercial division competing on range, value and a fullservice offering

Brand awareness survey conducted by independent marketing agency in May 2020

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FY20 Financial Results

Mark Tayler CFO

Page 15

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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	•	Market leader takes a disproportionate share	•	Continue to take advantage of longer-term
		of accelerating online penetration		online market penetration
	•	Pursue organic and inorganic growth
		opportunities
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; higher brand awareness
Fixed Costs	•	Invest in longer term growth plays e.g. Trade &	•	Slow investment in fixed costs
		Commercial and mobile app	•	Take advantage of operating leverage in our
	•	Invest in capabilities to build strategic moats		business model
		around business e.g. technology, brand	•	Disciplined investment in next horizon growth
		awareness, delivery experience, size of		businesses (e.g. international expansion)
		catalogue, private label range, data and
		personalisation
	•	Continue to manage fixed costs base tightly
Profit	•	Focus on growing profit $	•	Focus on growing profit $ and %

Page 16

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Profit and loss

Pre Audit

A$m	FY19	FY20
Revenue	101.6	176.3
Cost of Sales	(56.3)	(97.7)
Gross Margin	45.3	78.6
	44.6%	44.6%
Distribution	(14.7)	(24.7)
Delivered Margin	30.6	53.9
	30.1%	30.6%
Advertising & Marketing	(11.1)	(21.0)
Customer Service &
	(3.3)	(5.9)
Merchant Fees
Contribution Margin	16.2	27.0
	15.9%	15.3%
Wages	(12.0)	(14.8)
Other	(2.7)	(3.7)
EBITDA	1.5	8.5
	1.4%	4.8%
Share Based Payments	1.0	0.9
Adjusted EBITDA	2.5	9.4
	2.5%	5.3%

• Revenue growth for the year vs pcp was 74% with H2 delivering growth of 96% vs pcp and Q4 130% vs pcp

• Delivered margin (gross margin after distribution costs) remains on target at ~30%

• Marketing spend as a % of revenue increased YoY driven by a (pilot) Free-to-air (Syd, Mel, Bris) & National Foxtel TV campaign run May/June

• Contribution dollars grew 67% to $27.0m, with contribution % remaining within internal targets (~15%)

• Operating leverage being driven by tight management of fixed costs, now at 10.5% of revenue vs 14.5% LY (incl share based payments)

• As a result, EBITDA for the year grew by 483% to $8.5m ($9.4m excluding non-cash share-based payments)

For comparability purposes, both current and comparative periods include the impact of the new accounting standard AASB16. The FY19 impact of AASB16 is a decrease of $0.4m on the “Other” expenses line (from $3.1m to $2.7m) and a corresponding increase in EBITDA and Adjusted EBITDA (from $1.1m to $1.5m and from $2.1m to $2.5m respectively). However, as the Group adopted AASB16 using the modified retrospective method, the same amendment to the FY19 numbers will not be made in the FY20 Annual Report

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High growth strategy is already translating into operating leverage

Pre Audit

	Revenue 100% 100% 100% 100% Gross Margin 42.7% 44.1% 44.6% 44.6% Delivered Margin (after all distribution costs) 27.6% 31.0% 30.1% 30.6% Customer Service Staff & Merchant Fees 4.7% 3.3% 3.3% 3.3% Advertising Costs 12.6% 11.3% 10.9% 11.9% FY19 FY18 FY17 FY20	Revenue 100% 100% 100% 100% Gross Margin 42.7% 44.1% 44.6% 44.6% Delivered Margin (after all distribution costs) 27.6% 31.0% 30.1% 30.6% Customer Service Staff & Merchant Fees 4.7% 3.3% 3.3% 3.3% Advertising Costs 12.6% 11.3% 10.9% 11.9% FY19 FY18 FY17 FY20
	Contribution Margin 10.3% 16.4% 15.9% 15.3% Fixed Costs (ex share based payments) 20.3% 16.1% 13.4% 10.0% Adjusted EBITDA (10.0%) 0.3% 2.5% 5.3%

Despite investment into the below capabilities, fixed costs as a % of revenue continues to decrease:,

• Technology & data

• Mobile App

• Trade & Commercial

• Private Label

• Logistics

Page 18

All periods include the impact of the new accounting standard AASB16.

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Capital light/cash flow positive business model

Pre Audit

Closing cash by half

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$000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
H2 FY17 H1 FY18 H2 FY18 H1 FY19 H2 FY19 H1 FY20 H2 FY20
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• Strong balance sheet position with no debt

• Closing cash balance of $38.1m (excludes proceeds from recent $40m placement)

• Cash flow positive year +$24.6m was driven by the positive EBITDA result and benefits from the group’s cash flow positive business model

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

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