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

Good morning, everybody. Can I ask you to grab a seat and we'll get about starting? Okay, before we start, a quick story. So this morning, I was printing out my speech and my daughter says to me, "What are you printing?" I said, "My speech for today." She goes, "You got to read off paper?" I said, "Well, yes." She's, "No, no. Read off your phone." So I'm over there and I'm talking about, I'm going to read off my phone. And 2 ladies go, "You're going to read off your phone?" Classic generational story, right? So anyway, so I'm going to read off my phone, we'll see how we go. We'll see who's right. Good morning, ladies and gentlemen, and welcome to the 2022 Annual General Meeting of Temple & Webster Group Ltd. My name is Stephen Heath, and I'm the Chairman of the Board. It's 11:00. And as we have a quorum present, I declare the meeting open. Thank you for attending today. In accordance with usual practice, cameras and recording devices are not to be used during the meeting. And I'd like to point out that in case of a need to evacuate, we'll adjourn the meeting and leave the building using the exits either behind you, which is the way you came in, or to your left in the corner of the room. Before we begin, Temple & Webster Group would like to acknowledge the Traditional Owners and Custodians of Country throughout Australia. We recognize their enduring connection to the lands, the waterways and the skies. We acknowledge the Gadigal and Wangal people on whose lands our corporate head office is located as well as our other First Nation countries we operate across. We pay our respects to Elders past and present and to all Aboriginal and Torres Strait Islander peoples. I'd like to start by introducing the members of the Board and our Company Secretary. I'm joined in person by Managing Director and CEO, Mark Coulter; Co-Founder and Chief Executive -- Chief Experience Officer, Adam McWhinney, he's also with us. Thanks for coming, [ Mark, Adam ]. Temple & Webster staff, thanks for coming. Our other Directors, Belinda Rowe, Conrad Yiu, Sue Thomas; and our Company Secretary, Lisa Jones, in the front. The company's auditor, Graham Leonard from EY is in attendance and will be available to address any questions you may have about the audit of the financial statements later in the meeting. I also welcome Emma Khoury and Rushad Bachana from Link Group (sic) [ Link Market Services ], Temple & Webster's share registry provider, who will conduct the final voting poll. The purpose of today's meeting is to deal with the formal business as set out in the Notice of Annual General Meeting, and I will deliver the Chairman's report. Then our CEO, Mark, will present a report on the financial year 2022, and provide an update on our broad strategic intent and future growth prospects. We'll then consider the resolutions set out in the Notice of Meeting. I will outline voting arrangements ahead of that section. There will be an opportunity for shareholders to ask questions during the formal items of business as they relate to the resolutions being considered. Good morning, everyone, and welcome again to our first Annual General Meeting held at our new headquarters. We've only been in this space for a little over a month, so we're very pleased to be able to invite you all here today. 2022 financial year similar to '21 was another period of ups and downs for us all, as lockdowns and self-isolation requirements gave way to us living with COVID. We've had to deal with a host of new challenges, including rising interest rates, growing cost of living pressures and falling real estate values. At the same time, many trends that emerged or accelerated during the pandemic looks set to stay, at least for the foreseeable future. And working from home or hybrid working arrangements and the use of online platforms for everyday activities are good examples of these trends. Pleasingly, Temple & Webster's proven ability to adapt to rapidly evolving conditions once again enable us to keep meeting our customers' expectations while continuing to drive profitable growth. Moving into the numbers and as a result of lockdowns and the resultant shift in consumer spend between online and off-line retail over the last 2 years, I feel it's worth considering the revenue and earnings numbers on a 2-year combined annual growth rate basis in an attempt to eliminate some of the significant peaks and troughs that occurred during the period. Adopting that approach, revenue for the year ended 30 June 2022 was $426.3 million, which is a 55% increase on a 2-year combined annual growth rate basis, which is a real highlight for the company. EBITDA for the period was up 38% on a 2-year annual compound growth rate basis to $16.2 million, and EBITDA margin was 3.8%, which was at the high end of our stated 2% to 4% range, which is also a pleasing result. From a balance sheet perspective, we ended the year with $101 million in cash, and we remain debt free. The strength in this balance sheet provides us with the flexibility to invest in our future growth horizons, accelerate inorganic opportunities and consider capital management strategies where it makes sense to do so. It also ensures we have the financial strength to navigate any potential challenging macro conditions that may arise. Whilst the Board is happy with these results, we believe it is just the start of what we can achieve as the markets we operate in continue to grow. Our total addressable market in Australia is now valued at more than $30 billion. This includes our core furniture and homewares market, which is worth around $16 billion annually and is a sector that has proven to be very stable, delivering growth over the past 30 years, even during periods of high interest rates, high inflation, recession and housing market declines. We also know that online penetration of Australian furniture and homewares market significantly lags that of other countries such as the U.S. and the U.K. And we see no reason why the Australian market penetration can't eventually match that of the U.K. and the U.S. over time and why Temple & Webster can't be at the forefront of that penetrated shift. In the U.S., for example, the online market leader Wayfair tripled its share of the entire furniture and homewares market from 2% to 6% in 5 years to become one of the largest furniture and homewares retailers out front. Although we take a more asset-light approach to Wayfair, one could argue that the market dynamics, including margin profile and competitive dynamics are actually better in Australia than the U.S., which highlights the enormous opportunity ahead of us. This potential, along with our already strong online market position is why the Board believes that despite any short-term uncertainty due to macro conditions, Temple & Webster can continue to be a high-growth business for many years to come. Whilst we met our FY '22 financial objectives of delivering a profitable, high-growth business, we continue to target further improvements in our unit economics, marketing efficiency and our cost of doing business. And we'll continue to invest in key areas such as home improvement, business to business, expansion of our private label ranges and in leveraging our data and analytical capability. As I mentioned earlier, we recently completed the fit-out and move into our new headquarters here at St Peters. The site consolidates multiple offices, studio spaces and warehouses and represents an exciting development in our history and is a great place for our teams to collaborate and work. We have negotiated a long lease on this site with options to expand our footprint and tenure as we grow. So we expect to be welcoming you back here for many more AGMs to come. This year saw several board changes. Temple & Webster's Co-Founder and Non-Executive Director, Conrad Yiu, has been elevated to the newly created role of Deputy Chair of the Board. Congratulations, Conrad. As Deputy Chair, Conrad will assist me with Investor Relations, work with management to assess inorganic growth opportunities and chair board committees as needed. In March, the Board farewelled Company Secretary, Michael Egan, who retired after almost 7 years in the role. Our new Company Secretary, Lisa Jones, is a corporate lawyer and corporate governance professional with more than 20 years' experience in commercial law and corporate affairs and is a tremendous resource for the Board. We're also sad to farewell Non-Executive Director and Chair of the Audit and Risk Committee, Sue Thomas, who retires as a Director of the company at the conclusion of today's AGM. Sue joined the Board in early 2016 and has carried out her duties with diligence and integrity and has assisted me in my role as Chairman greatly. I would like to take this opportunity to extend the Board's sincere gratitude to Sue, and we wish her well for the future. As a result of these changes, the Board is actively recruiting 2 new directors. Conrad will act as Interim Chair of the Audit and Risk Committee until a new director is appointed into that role. I'm also pleased to note that our CEO, Mark Coulter, has agreed to a new multiyear remuneration package, which is heavily weighted to adding long-term shareholder value. Since joining the business in 2016, Mark and his team have grown revenue sevenfold to record levels, significantly improved the profitability metrics and have made sound operational and strategic investments to create a platform of sustainable growth that positions Temple & Webster as the leading pure-play online retailer in the category. Mark is without a doubt one of the best e-commerce CEOs in Australia, and we are pleased to have Mark at the helm as we enter Temple & Webster's next growth phase. On behalf of the Board, I'd like to thank Mark; Chief Financial Officer, Mark Tayler; and our broader management team for their hard work and dedication in what has proven to be another challenging yet successful year to Temple & Webster. I'd like to extend my thanks to my fellow directors, Conrad Yiu and Belinda Rowe; our Company Secretary, Lisa Jones; and our retiring Director, Sue Thomas, for their expertise, commitment and stewardship. And finally, I'd also like to thank you, our shareholders, for your continued support. I'll now hand over to Mark for his address. Thank you.

Thank you, Stephen. Although, I still cringe every time I hear that sentence about being one of the best CEOs. Making it up, like the rest of us. So welcome, everybody, to our brand new space. This looks great. So glad you could be all here. As Stephen outlined, revenue for the year was up to $426 million, which is a 55% increase as a CAGR, of a 2-year CAGR. The good part of this result is that it's not just active customers or revenue per active customer, both were up. So our active customers are up 20% year-on-year and revenue per active customer was up 6%. So not only are we getting bigger but our customers are spending more with us as we do so. Pleasingly, 55% of our customers were returning orders for the year. It's very positive as repeat orders have a lower marketing cost than those for new customers, and that's going to be a key driver for lowering our ad cost over time as more and more of the business becomes big businesses for big customers. The other good thing about that is that the happy customer base is a strategic moat around the business. As you heard, our EBITDA was 3.8%, margin was 3.8% for the year. Importantly, this result was after our investment of $1.7 million into the build, which is our new home improvement site. It also included investments in areas that help us maintain our competitive advantage, including technology and data, logistic services, content and merchandising capabilities. We also accelerated our investment in sectors adjacent to our core furniture and homewares business, including our B2B segment and home improvement, as you just heard. We believe these areas will deliver significant growth for our business in the years to come. Now while we are constantly innovating, I think it's worth calling out some of our notable achievements for the year. We increased our investment into our Israeli start-up partner, Renovai. We used Renovai's AI, artificial intelligence, interior design tool to showcase our products in an inspirational way that gives customers even more confidence to shop with us. You'll see the [ mood board ] there on screen. This functionality is supporting increases in our average order value and our conversion rate. As mentioned, we also -- the big initiative for the year was that we did launch The Build, which is our first brand new site. This will help us capitalize on the significant opportunity presented by the $26 billion home improvement market, of which we have identified about $16 billion is in scope for us. The Build leverages our core technology platform, our digital marketing and data expertise, and features about 20,000 products a day across 40 categories. Our goal is to make The Build into Australia's first stop shop for all things DIY and home improvement. The Build actually reminds the Co-Founders, we talk about it, as the early days of Temple & Webster back in 2011. The traction today is actually surpassing expectations. An important part of the Temple & Webster culture is that we're entrepreneurial and it's really great to see the next generation of our management team step into those entrepreneurial roles and embrace that opportunity. The site helped our home improvement category grow 61% year-on-year. Our trade and commercial division continues to deliver strong results, growing 39% year-on-year. This is despite the commercial sector experiencing significant disruptions due to the pandemic. We are still very big believers in the B2B market, which has attractive market dynamics and is another market ripe for disruption. This year, we made considerable progress on our commitment to make the world more beautiful from an environmental and social point of view. We developed a materiality assessment to identify key risks and opportunities to create positive outcomes and established our sustainability road map to guide and prioritize future actions. We hired a full-time Sustainability Officer to oversee our sustainability initiatives. In the environmental sphere, we completed our FY '22 carbon inventory and are investigating reduction initiatives. We committed to meeting Australia's 2025 National Packaging Targets by becoming a signatory to APCO, which is the governing body around that. In social space, we established our Reconciliation Action Plan working group to develop our own RAP. We continue to invest in employee well-being and development through training, upskilling and support programs. We've also launched our own dedicated delivery fleet, which services the catchment areas around our third-party warehouses. Again, and really importantly, we have chosen asset-light strategy to do this and have contracted a logistics company to run this fleet for us. While diversifying our carrier partner mix, it also has the added benefit of enabling us to fully control the delivery experience for those customers. Early high Net Promoter Score, which is a measure of customer satisfaction, has shown the benefits of this initiative. Finally, as Stephen mentioned and I alluded to at the start of this speech, we're delighted to have moved into our brand new headquarters in St Peters. After the lockdowns and remote working arrangements for the past few years, it's great to have our team back under the one roof, albeit a few days a week. We are a young, vibrant company that thrives in collaboration, creativity and innovation, and it's important that our team can work together in person. We believe this office will also be an important part of our employer value proposition to attract and retain talent, which is so important for our growth. So where to from here? So as we head towards the second half of FY '23, we understand there could be turbulent times for Australia due to the prevailing economic conditions. Fortunately, we do have several factors on our side to help combat potential volatility. The most important of these is the strength of -- the financial strength of the business. We have a strong balance sheet, we are profitable. And this will safeguard against us against a negative downturn in the macro environment. Furthermore, we are the market leader in a sector that we believe will still grow substantially over time. About 12% to 15% of furniture and homewares is currently sold online in Australia, but we expect that market penetration to grow what's, we think, above 50% over time, which will reflect other retail categories. Additionally, our investments in complementary markets such as home improvement and trade and commercial will help to diversify our revenue streams. We also believe our product price proposition delivers great value for our customers, especially compared to some of our off-line competitors. This is going to become even more important as economic conditions get tougher and customers look for more value-oriented channels and products. Our flexible business model also helps us to withstand market pressures. We can use a variety of variable performance levers to ensure we remain profitable, including phasing our longer-term investment profile, improving the efficiency of our marketing spend, optimizing margins and reducing our cost of doing business. We also have very good diversity across the supply chain, which allowed us to stay ahead of many of the supply chain issues that many retailers continue to face. And we're starting to see improvements in pricing, the freight costs and the price of wholesale product, which will be beneficial for us if these trends continue. So importantly, our strategy hasn't changed. We are a retailer, which means everything starts with product and price. We want to be known for having the biggest and best range of furniture and homewares and home improvement now and be the go-to place for quality products at affordable prices. The increased use of our balance sheet to expand our private label program remains a key project, along with strengthening our relationships with our key drop shippers. We want to inspire people to make their homes more beautiful with inspirational content and services. And the continued rollout of tools such as Renovai will differentiate our offering and allow us to deliver inspiration at scale. We want to create an exceptional customer experience at every step of the journey from browsing to accepting a delivery. And the key initiative for the year will be to expand our third-party warehouse footprint and our Temple & Webster's delivery network to continue to improve the delivery time and experience of our customers. Finally, we want to achieve this with a strong foundation of data-driven marketing, world-class technology and exceptional execution from our team. We will also keep investing in the complementary markets we've identified future growth, including trade and commercial and home improvement. On a personal note, I am extremely pleased to have been asked to continue to lead Temple & Webster's next phase. Temple & Webster is an exceptional success story. It's an exceptional success story, and I feel privileged to be part of the team. I really do feel privileged, and thank you, Board and shareholders for having me along this journey with you. As previously flagged -- in terms of our trading update, as previously flagged, H1 was going to be the toughest period for year-on-year comparisons due to timing of lockdowns during FY '22. This resulted in an overall decline in revenue of 14% for the period 1st July to the 27th of November 2022. Now that's the bad news. The pleasing news is that we've begun the trajectory back to growth. And Q2 quarter-to-date, which was the 1st of October to 27th of November was only down 3% versus the same period last year. And the month of November to the 27th of November is actually running slightly ahead of November last year. So we're through the bottom and back into the growth trajectory. This is a good sign as November is usually the busiest sales period due to Black Friday. And this suggests, as we alluded to in our full year results, that we will be returning to double-digit growth during the financial year. Inventory levels remain strong across both our drop ship network and our own private label range, and deflationary signs appearing first time in a while, are appearing on both factory and container costs. While a return to year-on-year growth is important, equally important in this environment is a focus on our unit economics and our bottom line profitability. And the group reiterates its stated 3% to 5% EBITDA margin range for full FY '23. Our cash remains in excess of $100 million, providing the group with the ability to accelerate organic and inorganic initiatives to drive both revenue growth and accretion in EPS. I'd like to say a huge thank you to the Tempster teams, some of you are here today. Dealing with everything the pandemic has thrown our way hasn't been easy. As always, you've shown incredible resilience, approaching every challenge with energy, drive and dedication. We've managed to deliver another amazing set of results that has put us in an extremely favorable position for FY '23 and beyond. Finally, I would like to say a big thank you to Sue Thomas, who joined the Board, to be honest, at quite a challenging time in our company's history. Sue showed incredible loyalty and grit by staying with us through these times and has constantly challenged us to be a better business and a better Board. I personally have learned a lot from Sue and can hand on my heart say that our strategic planning, financial processes, risk management, technology road map and general good governance would not be in the great state they are today without Sue's hard work and commitment. Sue, on behalf of the Co-Founders and the broader shareholder group, I thank you for your hard work and wish you all the best for the future. I'd like to hand back to Stephen to take you through the formal items of business.

Suffering now, I just apologize. I've just got, for some reason, a very sore throat all of a sudden. All right, we'll push through. Thanks, Mark. I now welcome questions or comments on the reports given by myself and Mark from shareholders holding a yellow or blue card. And before asking a question, please state your name and whether you're a shareholder in your own right or whether you're attending as a proxy of one or more shareholders. If you are attending as a proxy, please, can you also provide the name of the proxy (sic) [ shareholder ] that you're representing? Are there any questions at this point? There will be opportunity for questions, obviously, as we get to each of the resolutions, but that's specifically relating to our presentations. No? Great. All right. Thank you. So let's move to the formal part of the meeting. As set out in the Notice of Meeting and explanatory statement, there are 5 items of business today, which are displayed on the screen behind me. Item 1 is for consideration only and no vote is required. All other items involve ordinary resolutions and require a shareholder vote. Upon registering this morning, you will have received either a yellow, blue or red colored card. Those who received a yellow or blue admission card may speak and ask questions. The person entitled to vote are all shareholders, representatives and attorneys of shareholders and proxy holders who hold yellow voting admission cards. If you're attending in more than one of those capacities, you will have been issued with as many yellow voting admission cards as you have separate capacities. If anyone believes they're entitled to vote in any capacity and does not have a yellow voting admission card please raise your hand now and a member of Link will assist you. Everyone is okay. If you're a proxy holder, a summary of the votes to which you're entitled has been attached to the yellow voting admission card. If you've already voted, you'll have been given a blue nonvoting admission card. Red cards have been assigned to visitors other than shareholders and do not carry rights to speak or ask questions when the business of the meeting is being conducted nor the right to vote. If you have a question, please hold up either your yellow or blue admission card and state your name prior to the question being asked. Please direct any questions you may have to me as the Chairman, and I'll do with the questions personally or ask someone who is better placed to respond. We will do our best to answer all relevant questions raised. As Chairman of the meeting, it's my intention to cast any undirected proxy votes in favor of all resolutions. I declare the proxies held by me at the start of each resolution by showing them on the screen. As you'll see from the Notice of Meeting, the Board recommended voting by direct vote for all resolutions. Direct voting enables shareholders to vote without attending the meeting or appointing a proxy. Voting on all items of business will be conducted by poll. The vote by poll will be conducted by Link Group, and I now declare the poll open for each of the resolutions in the Notice of Meeting. Emma Khoury of Link Group will conduct the poll as Returning Officer. Your voting card will be collected by Ms. Khoury at the conclusion of the formal business. If you need to leave early, please complete your voting card and present it to a staff member of Link Group at the doors as you exit. As the Chairman of the meeting, I will ensure that there are opportunities for separate deliberation concerning each of the items of business. Questions will be invited on each of the items separately. It is important, however, that comments and questions are succinct and restricted to the subject matter of the business and resolutions set out in the Notice of Meeting. Details of proxy and direct votes for each resolution will be shown on the screen after all questions and comments raised on that resolution have been addressed. A copy of the Notice of Meeting and explanatory statement containing the resolutions to be considered today were provided to shareholders last month. I will take that Notice of Meeting as read. I'll now move to the formal agenda of the meeting. The first item of business is to receive and consider the annual financial report of the company for the financial year 30th of June 2022, together with the declaration of the directors, the directors' report, the remuneration report and the auditor's report. The reports are contained in the annual report, which was released to the ASX on the 16th of August 2022. I'll take the reports as read and now formally lay them before the meeting. Shareholders were invited to submit questions in advance of today's meeting to our auditor on the conduct of the audit, the preparation and content of the auditor's report and accounting policies adopted by Temple & Webster relating to the preparation of the financial statements and the independence of the auditor in conducting the audit. Are there any questions on the annual report or audit opinion for either the auditor or the Board? No? Okay. We now move to the items of business, which require a formal resolution. Resolution 1 is an advisory nonbinding resolution required by the Corporations Act in relation to the adoption of the remuneration report, which forms part of Temple & Webster's annual report released on the 16th of August 2022. The remuneration report is set out on Pages 33 to 48 of the 2022 annual report and provides information concerning executive and director remuneration. The resolution is displayed on the screen. I'll now be happy to answer any questions or receive any comments you may have on the remuneration report. No? Details of the direct and proxy votes that have been received are displayed on the screen. And I hold 24,623 undirected proxies. And as previously advised, I'm voting in favor of the resolution. I now move on to resolution 2. Resolution 2 concerns the reelection of Mr. Conrad Yiu. The resolution being considered is displayed on the screen. Conrad's credentials have been outlined in the explanatory statement attached to the Notice of Meeting and are outlined in the annual report. Would anyone like to ask a question or express a view on this resolution? No comments? Okay. Thank you. Details of the direct and proxy votes that have been received are displayed on the screen. And I hold 32,164 undirected proxies. And as previously advised, I'm voting in favor of the resolution. I'll now move on to resolution 3. Resolution 3 seeks shareholder approval for the issue of options under the Employee Share Option Plan to Mark Coulter, and the provision of benefits to Mark in connection with any possible future termination of his employment. The resolution being considered is displayed on the screen. Further details have been outlined in the explanatory statement attached to the Notice of Meeting. Would anyone like to ask a question or express a view on this resolution? No? Details of the direct and proxy votes that have been received are displayed on the screen. And I hold 24,477 undirected proxies. And as previously advised, I'm voting in favor of the resolution. As this next resolution relates to a grant of NED rights to myself, I'd like to hand the chair to Belinda Rowe to move on to resolution 4. Thanks, Belinda.

Resolution 4 is issue of restricted rights to Mr. Stephen Heath. Resolution 4 seeks shareholder approval for the issue of restricted rights, the issue of 12,204 fully paid ordinary shares in the company under the company's Non-Executive Director Equity Plan to Mr. Stephen Heath. Further details are set out in the explanatory statement attached to the Notice of Meeting. Would anyone like to ask a question or express a view on this item? Okay. There's no comments or questions. So details of the direct and proxy votes that have been received are displayed on the screen. The chair holds 24,477 undirected proxies. The resolution has been passed. I'll now hand back to the Chair to move to resolution 5.

Thanks, Belinda. Resolution 5 seeks shareholder approval for the issue of restricted rights for the issue of 4,436 fully paid ordinary shares in the company under the company's Non-Executive Director Plan to Ms. Belinda Rowe. Further details are set out in the explanatory statement attached to the Notice of Meeting. Would anyone like to ask a question or express a view on this resolution? No? Okay. Details of the direct and proxy votes that have been received are displayed on the screen. I hold 25,303 undirected proxies. And as previously advised, I'm voting in favor of the resolution. I'll now move to resolution 6. Resolution 6 seeks shareholder approval for the issue of restricted rights for the issue of 17,288 fully paid ordinary shares in the company under the company's Non-Executive Director Equity Plan to Mr. Conrad Yiu. Further details are set out in the explanatory statement attached to the Notice of Meeting. Would anyone like to ask a question or express a view on this resolution? No? Okay. Details of the direct and proxy votes that have been received are displayed on the screen. I hold 25,303 undirected proxies. And as previously advised, I'm voting in favor of the resolution. I now ask shareholders, proxy holders and corporate representatives holding yellow voting cards to complete the card. If you've not already done so, to finalize your poll votes. Emma, would you like to come forward and collect voting cards? [Voting]

If anyone needs a pen, you can just grab one from the guys at Link. Okay. Before we move, does anyone -- I just want to ask again, does anyone believe they should be able to vote and doesn't have a voting card? No? Okay. Is anyone still holding a yellow voting card that Emma hasn't collected? Okay. Right. I think we've got all voting cards. Anyone still got a yellow voting card in their hand or on the seat next to them? No? Great. Okay. Okay. That being the case, I now declare the polls on the resolutions closed. Link Group will now count the votes, and the results will be available on the ASX platform later today. As you can see from the direct and proxy votes received previously displayed on the screen, all resolutions will pass by a majority. Does anyone have any final questions before we close the meeting? No? Great. I'd like to thank you all for attending today. And in particular, I'd like to thank our shareholders and our customers, the executive leadership team and the staff of Temple & Webster, the company's advisers and auditors and Link Group. Ladies and gentlemen, that concludes our business for today, and I declare the meeting closed. Thank you.