Temple & Webster Group Ltd (TPW) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Annual General Meeting for Temple & Webster. My name is Stephen Heath, and I'm the Chairman of the Board of Directors. It is now 10:30, and as I'm advised that a quorum is present, I declare this meeting opened. Today's meeting is being held as a virtual AGM. We are holding the meeting as a virtual meeting in the interest of the health and safety of our shareholders, advisers, management and Board. I'm joined in person today by Conrad Yiu, Co-Founder and Non-Executive Director; Mark Coulter, Co-Founder, Managing Director and Chief Executive Officer; Michael Egan, our Company Secretary; and Mark Tayler, Chief Financial Officer; and Sue Thomas, Non-Executive Director, are attending virtually. Also attending is Graham Leonard, a partner at EY and the company's auditor, who is available to answer questions on the accounts at the appropriate time. The prepared AGM speeches from the CEO and me have been released to the market. While it's disappointing that we are not together physically, we do encourage shareholders to participate in the meeting online or over the phone. You'll be able to participate in real time, submit questions and cast your votes. I would like to outline the technology and procedural matters for this meeting. As advised in the letter attached to the Notice of Meeting, an online virtual meeting guide, which explains how shareholders may participate in the meeting, is on the company's website, templeandwebstergroup.com.au/Investor-Centre/. If you are participating via the AGM online platform, you will see a screen showing a photo of the presenter on the left and presentation slides on the right. At the bottom of the screen, there are 3 boxes. These allow you to get a voting card, ask a question and download relevant documents. Thank you to those shareholders who submitted questions prior to the meeting. We will speak to those when we arrive at the relevant item of business. If you have a question that you would like to ask today, you may type questions into the online platform. [Operator Instructions] Questions that are relevant to the business of this meeting will be advised to me. We may aggregate questions if we receive multiple questions on the same topic. We will address each question when we arrive at the relevant item of business. I will now summarize the voting procedures. All items of business will be voted on by a poll, which is now opened. If you did not cast your vote prior to the meeting, you may cast a live vote using the online platform. Click get a voting card and follow the prompts. You may now cast your live vote at any time during the meeting. Link Market Services is the returning officer for this meeting. Live voting on the online platform will close 5 minutes after the close of the meeting. You must be logged in to the online platform to cast a live vote. I confirm that where undirected proxies have been given to me, the Chairman, I will vote in favor of the resolution to the extent permitted. During the meeting, we will display on the presentation slides, the number of direct and proxy votes received prior to the meeting on each resolution. The final results will be released to the market as soon as they are available. If you experience any difficulties using the online platform, a help line number is displayed at the top of the page. After my introductory remarks, Mark Coulter, our CEO and Managing Director, will take you through the 2020 financial year in more detail, including a year-to-date trading update. We will then proceed with the formal business of the meeting to vote on the resolutions. The financial year ended June 30 was a year that will be marked as one of tremendous change for corporate Australia and indeed for most Australians personally. Company Boards and management teams have needed to respond to circumstances never previously experienced nor contemplated, and we're required to do so at a challenging pace. Our company has been amongst the fortunate who have management teams that have demonstrated a capacity to adapt and pivot nimbly to change, and the business has benefited from the structural shift in how people have worked and shopped during the changes that have occurred. Key highlights for the year included having been able to mobilize the entire team to work from home productively, safely and securely without any interruption to customer service or experience. A record full year revenue of $176.3 million, which was up 74% on the year before. This growth increased during the year with the second half growing 96% and the fourth quarter up 130% versus the prior comparable period. Accelerated operational leverage delivered 483% growth in EBITDA to $8.5 million versus the prior comparable period, with adjusted EBITDA margin improving from 2.5% in FY '19 to 5.3% in FY '20. The strong bottom line result, combined with the negative working capital nature of the business model, allowed us to finish the year with $38.1 million in cash and 0 debt. That excludes the proceeds from the $40 million capital raise conducted at the beginning of FY '21. The strength of our balance sheet will not only protect us in any downside scenario, but also allows us to pursue strategic opportunities as they arise. On behalf of the Board, I would like to thank Mark and his entire management team for their ongoing commitment and hard work during this period. But in particular, for the speed at which the human resources and occupational health and safety frameworks and IT access and cybersecurity infrastructure and the staff engagement communication programs were implemented to allow a seamless remote working environment during a time of tremendous change. Our continued growth in customer satisfaction are a testament to their efforts. I'd also like to extend a thank you to my fellow Directors, Sue Thomas and Conrad Yiu; and Company Secretary, Mike Egan, for their contribution throughout what can only be described as an extraordinary year. And finally, to our fellow shareholders, thank you for your continued support. We look forward to being able to continue to deliver a profitable high-growth business into the future. I will now hand over to Mark for his address.

Thank you, Stephen, and good morning, everyone. From the worst bushfire season on record to fighting a global pandemic, FY '20 was an incredibly tough period for the country. Temple & Webster's core belief has always spoke of desire for humans to have a safe, beautiful spaces in which to live and work. We are proud that we've been able to keep helping our customers achieve that during these challenging times. If we go to the slide which was focused on scaling. I'm not sure if you can see the slide presentation. Yes. Great. Most of our efforts during the second half concentrated on scaling the business during these unprecedented times. We worked hard to ensure all of our key vendors were stable. We deployed our buying teams to work with onshore and offshore suppliers to secure stock. We added 180 people across the business, all while moving to a work-from-home environment, both onshore and offshore. We also raised $40 million in July to secure our balance sheet and provide us the flexibility to act on strategic plays as they develop. And while our active customers grew 77% year-on-year to almost 0.5 million customers, with growth across both first time and repeat customers, I'm proud of the fact that we were able to achieve this growth while significantly improving our customer satisfaction, which is running at record levels. We want to ensure customers who are trialing online shopping for their homes for the first time have a great experience with us, and therefore, come back. On the next slide, you can see that the good news is that we are growing our market share, even as our competitors take online more seriously. The NAB Online Sales Index suggests our category grew around 57% during the month of April to July, while we grew around 150% for the same period. We believe this is due to the increasing benefits of scale as we get larger. We are forging closer relationships with our suppliers as we become a more significant part of their business, which allows us to obtain stock security, better terms and exclusive product ranges. We're also making larger investments in areas such as technology and data, brand awareness and our private label products. And we can produce more content by having more creative resources. In effect, the bigger we get, the better and stronger our customer proposition becomes, which is a virtuous cycle. On the next slide, which is the market size slide. It is important to reiterate that we operate in a big market with Temple & Webster's core furniture and homewares retail market worth around $15 billion. While the Australian online retail market continues to grow, it remains underpenetrated compared to the other markets. Lockdowns and forced off-line retail closures have no doubt accelerated the adoption of online shopping in our category. However, we believe these trends were already at play as the oldest millennials enter their prime furniture buying years, which are 35 to 65 years old. This generation of shopper has already adopted online shopping to a high degree in other categories such as fashion and appliances, and we believe that furniture and homewares is the next category. On the slide title, We continue to innovate our offering, you can see some other highlights of the year include: During the second half, we received approval from the iOS store for the launch of Temple & Webster's first mobile app, which is now live in the App Store and is being piloted to understand usage before pushing further into the space. We already see that more than half of our traffic is coming from mobile devices to use our mobile-optimized website, so a mobile app is the next step to capitalize on the shift in consumer behaviors. One of the main projects completed this year was the data integration with our freight carriers, which allows us to provide end-to-end tracking of each order, allowing a better customer experience and early identification and resolution of problems. We also completed a small investment into an offshore AI-based interior design start-up, along with a long-term commercial partnership. We are working on the first product launch being an AI-generated room idea, so artificial intelligence, allowing customers to complete a room look based on the product they are browsing. Shopping for your home can be tricky, and our job is to make it easy and as risk free as possible for our customers. Tools such as these can only help with that goal. On the slide titled, Trade and Commercial B2B division, you can see that that division had -- grew a healthy 68% over the year despite a tough Q4 in which many businesses reduce their capital spend. Over the half, the team launched our full-service offering in Queensland, which includes preparing design concepts, installing and assembling the product and then finishing by styling the space. We also reorganized ourselves into sector-specific teams, which allows a greater focus on the clients' needs and ensures we have the right products for that vertical. We remain bullish about the long-term potential of this area of the business. Our growth strategy, which is you can see on the slide titled, Our Growth Strategy, is simple. We will keep improving our range to ensure it remains the biggest and best, including expanding our private label range. We will continue to drive our digital advantage, including making better use of our immense amounts of data through initiatives such as personalization. We will continue to march towards national brand status to ensure we are the first place Australians turn to when shopping for their homes across both online and offline channels. One of our key pillars is inspiration, and this year, we're increasingly turning to 3D, and we're in the process of building our 3D model library and adding resources and tools to make use of those assets. We will continue to improve our customer experience through better training and platforms for our care team and adding more delivery options such as after hours and weekend delivery to improve our offer. And of course, trade and commercial provides another growth opportunity outside of our core B2C market, and we'll invest into our team, range and service proposition to win market share in this segment. Even though the world is in uncertain times, we remain committed to our longer-term strategy of investing to ensure Temple & Webster is the brand for the next generation of furniture shoppers. We want Temple & Webster to be the first place Australians turn to when shopping for their homes and workspaces. We believe that online shopping habits are being formed right now, and provided we keep on putting the customer at the heart of everything we do, those habits will remain. Turning to the slide titled, Trading Update. FY '21 has started strongly with high growth continuing to deliver operating leverage. Year-to-date revenue, which is 1st of July to the 19th of October, was up 138% versus pcp. Q1 FY '21 EBITDA was $8.6 million, greater than the full year FY '20 EBITDA. October revenue growth is still in excess of 100%, which is pleasing given we have entered our peak trading months and therefore, comping big periods. Contribution margins continue to run ahead of our 15% target. Customer satisfaction remains at record levels with our Net Promoter Score around 70% and cohorts continuing to perform better than their historical comparisons. Finally, we are committed to a high-growth strategy to take advantage of the structural shift towards online, capitalizing on both organic and inorganic opportunities. This year, the adaptability and resilience of the Temple & Webster really shone through. Doubling the size of the business in the space of a few months while dealing with the pain that goes from working from home is no mean feat. I'm proud of the entire team to stepping up during this time and delivering our customers a great experience. Finally, thank you to all of our shareholders. We continue to believe Temple & Webster will become the first place for the next-generation of furniture and homewares buyers turn to and shopping for the homes, which should deliver growth for many, many years to come.

Thank you, Mark. We will now move to considering the formal matters as set out in the Notice of Meeting. As set out in the explanatory statement for today's meeting, as Chair, I intend to vote all undirected proxies in favor of each resolution. Item 1. Reports. As required by the Corporations Act, the financial report, director's report and auditor's report for the year ended June 30, 2020, are set out in the annual report. There is no requirement to approve these reports. Shareholders have been asked to lodge questions to Graham Leonard partner at EY, the company's auditor, about the conduct of the audit and the preparation and content of the independent auditor report. There were no questions received prior to the pre-meeting deadline. However, I now offer an opportunity to those online to ask questions now. In fairness to everyone, I'll just wait 30 seconds to allow people to type questions. Okay. There've been no questions through the online portal. We'll now move to the first resolution for consideration today, which is the remuneration report. Resolution 1 is for the adoption of the company's 2020 remuneration report. That the remuneration report included in the director's report provided to the shareholders as part of the annual report of the company the year ended 30 June 2020, be adopted. Proxy votes are shown on the screen. Does anyone have any questions in relation to this resolution? Again, I'll wait for 30 seconds to give people an opportunity to type their questions. Okay. There's been no questions come through the online platform. We'll now move to Resolution 2, which is the reelection of Mr. Conrad Yiu as a Director. To consider and, if thought fit, to pass the following resolution as an ordinary resolution: That Mr. Conrad Yiu, being a Director seeking reelection in accordance with Article 68 of the Constitution of the Company and being eligible, offers himself for reelection, be hereby reelected as a Director of the company. Proxy votes are shown on the screen. Does anyone have any questions in relation to this resolution? Again, I'll wait 30 seconds to give you an opportunity to type questions. Okay, there've been no questions come through the online portal, we now move to the next resolution, which is the ratification of issue of shares. To consider and, if thought fit, to pass the following resolution as an ordinary resolution: That for the purposes of ASX Listing Rule 7.4 and all other purposes, the issue of a total of 7,017,544 ordinary shares in the company on 8th of July 2020 and 10 July 2020, is approved and ratified. Proxy votes are shown on the screen.

We have received pre-prepared questions on this resolution, and the question was why existing retail shareholders were not offered the opportunity to participate in the recent capital raising. The capital raising was relatively small at $40 million and well within the 15% placement limit and only 7% of the company's issued capital under the listing rules. The placement was made during the COVID-19 period to strengthen the balance sheet and to provide flexibility to capitalize on additional organic and inorganic growth opportunities. And the placement was completed and settled extremely fast, within 7 days. We did consider the retail component. However, if that had been included in the capital raise, the company would have incurred additional significant cost in the preparation of a retail offer booklet and other associated costs and the additional time in the settlement of the funds. Directors believe that the cost to offer retail shareholders the opportunity to participate in the placement may have outweighed the funds that may have been raised from the retail participation itself. So therefore, it was decided to stick with the structure that we pursued. I will give the opportunity for more questions now. I'll wait 30 seconds.

There has been one additional shareholder question on the same topic, and I think you've covered that.

Okay. Thanks, Mark. Hopefully, I have covered that question adequately. No other questions? Okay. Given that there are no other questions on that resolution, we'll now move to Resolution 4, the renewal of proportional takeover bid provisions in the Constitution. And to consider, and if thought fit, pass the following resolution as a special resolution: That for the purposes of sections 648G and 136(2) of the Corporations Act, and for all other purposes, the company's Constitution be modified such that the proportional takeover bid provisions contained in Rule 36 of the company's Constitution be renewed for a further period of 3 years commencing from the date of this meeting. Proxy votes are shown on the screen. Does anyone have any questions in relation to this resolution? I'll wait 30 seconds for questions to come through. Okay, there have been no questions submitted on the online portal. As previously noted, the results of the polls will be released on the ASX market announcements platform later today. Before closing today's meeting, are there any other questions in relation to any of the resolutions or Mark's presentation? Okay, there are no further questions. Therefore, there being no further business, I now declare the meeting closed. And thank you all for your attendance and your continued support. Thank you.