Articore Group Limited

Thank you for standing by. Welcome to the Articore 1H FY24 results. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Virginia Spring, Vice President, Investor Relations. Please go ahead.

Good morning to our Australian participants and good afternoon and evening for those joining us from the Northern Hemisphere. My name is Virginia Spring and I am responsible for investor relations at Articore. With me today I have the Articore Group CEO and Managing Director Martin Hosking and Group CFO Rob Doyle. Martin and Rob will provide an overview of our first half FY24 results shortly and we will then open up the lines for questions. The key information for today's call is contained in the ASX announcement and investor presentation released to the market this morning. I would like to call your attention to the safe harbour statement in our ASX release regarding forward booking information. That safe harbour statement also applies to this investor call. The session is being recorded and a transcript will be released to the ASX. We'll now pass over to Martin.

Thank you, Virginia. First, I would like to thank everyone for their patience and understanding over the last week. We decided to push our results back a few days to enable me to travel to the UK to attend a close friend's funeral. I am grateful that I was able to do this and appreciate the sentiments received from a number of investors. Before we get into results, I want to highlight that this is our first results announcement since we changed the group's name to Article late last year. We made this change to reflect our new operating structure. which clearly defines the two marketplaces Redbubble and TPublic and the Group. This has been an immensely positive change which has cleared up any confusion internally about how the different functions operate and interact. We now have greater insight into how each marketplace is performing and are increasingly sharing knowledge and expertise across the two businesses. Reflecting this change, we have moved to segment reporting and are providing more information on the individual performance of Redbubble and TPublic which you can see throughout the materials we released today. First, let's start by looking at the group's overall performance. The group has delivered a remarkable turnaround in this half. The last 12 months we have been focused on driving profitability and you can see that in our results today. Gross profit increased 7% to $108.4 million in the first half of the financial year and our gross profit margin increased 660 basis points to 41.6%. This uplift was driven by a number of recently implemented initiatives focused on maximising unit economics. We expect the benefit of these initiatives will be sustained going forward. Gross profit after paid acquisition, or GPAPA, increased 24% and the Group's GPAPA margin increased 670 basis points. This improvement was driven by the uplift in gross profit as well as more efficient paid marketing spend. We realised the full benefit of the cost reduction initiatives we implemented in FY23 and maintained our strong cost discipline during the half. As a result, gross profit, GPAPA and operating EBITDA were all significantly above the Group's pre-COVID results, delivering $8.8 million of underlying cash flow, up $36.4 million on the H1 2023 results. While we are happy with our results today, there is no shying away from the fact that there is still work to do. We need to return the Group to profitable revenue growth. Solid unit economics provides the foundation, but it is only the starting point. Delivering this for each marketplace, utilising our existing resources, is our primary objective going forward. On the next slide, we have provided a snapshot of each marketplace's performance during the half. Both marketplaces have contributed to the Group's significant improvement in profitability and delivering positive underlying cash flow. The turnaround has been particularly significant for Redbubble. In first half FY23, the marketplace operating EBITDA was negative $13 million. This half, its operating EBITDA increased nearly $25 million to $11.8 million. The primary difference in the two marketplaces' performance relates to the top line. TeePublic has been able to drive margin expansion while also improving marketplace revenue. However, Redbubble's marketplace revenue declined by 18%. This divergence is highly correlated to each marketplace's paid marketing activities. Both Redbubble and TeePublic set their paid marketing to be first order profitable. So we want paid marketing to be as high as possible as every sale contributes to the bottom line. During the half, TeePublic was able to find more opportunities to do this, scaling their paid marketing expense in line with revenue. Optimising paid marketing activities is a key focus area for Redbubble in the second half and a good example of where we can leverage the skills and expertise from one marketplace to the other to address an identified issue. Turning to the individual marketplace performance. On slide five, we've provided a summary of Redbubble's key strategic achievements this half. Our intention is to share this dashboard with a consistent set of metrics for each marketplace every six months going forward. We have selected three operational metrics as they provide a good indication of marketplace health. If selling artists, customers and designs sold are all going up then the flywheel is operating efficiently which should translate into solid financial returns for the marketplace. The number of selling artists on the Redbubble marketplace increased during the half to more than half a million independent artists. This is a positive sign and reflects our recent focus on improving artist experience, particularly for pro and premium artists. Total artist earnings decreased this half, reflecting the introduction of fees for standard accounts and overall marketplace revenue decline. Pleasingly, the amount taken home by pro and premium artists was largely flat. The number of customers and designs sold during the half were down, which explains the decrease in marketplace revenue. The decline in customers is primarily caused by a decrease in the number of new customers coming to the site. The drop in new customers is correlated to the decline in paid marketing spend. For individuals who have never bought a product in the marketplace, this is a primary entrance point. Fewer customers and a reduction in volume certainly contribute to less designs being sold. In addition, we believe the reduction in design sold is a short-term response to some of the measures we have taken to improve the content library on the marketplace. We are confident that the long-term benefits outweigh the costs. Having less content and improving the overall quality of the content library enables buyers to have a better experience on-site and improves off-site marketing. Returning the Redbubble marketplace to profitable revenue growth is our primary focus. To do this, we are focused on optimising the marketplace's flywheel. Over the last 12 months, we have made significant progress, addressing issues that were inhibiting the flywheel. We have dramatically improved the quality of content being uploaded to the marketplace, following a surge of low-quality content flooding the site, as I have highlighted in previous calls. This clogged the making it difficult for customers to find designs that excited them, leading to disengagement and in turn frustration from TOT artists that their work was not being discovered. We are now confident that we have fixed this issue. This is highlighted by the proportion of uploads from pro and premium artists increasing to 56% in December 2023, compared to 15% in December 2022, and also up in absolute terms. We have also made progress in improving our margins. We launched a dynamic order routing system in March last year. This half was the first holiday period that it was in use. Fulfillers now have greater awareness on how orders are routed and some have chosen to reduce their pricing to increase the amount of volume that our platform routes to their sites. We have also been able to reduce shipping costs across the Group. As a result of these initiatives, COGS were down 8% in December 2023 compared to the prior competitive period. The next part of the firewall we are concentrating on is how to attract new customers to the marketplace and turn existing customers into repeat purchasers. As I've highlighted throughout this presentation, we're particularly focused on Redbubble's paid marketing strategy. Having strong off-site promotion also helps attract new customers. and it also reminds customers who have previously bought a product about Redbubble and increases the likelihood of a repeat purchase. In December 2023, paid marketing spend was down 22% compared to the PCP. This decline is fairly similar to the reduction in NPR, which is not a coincidence. As I highlighted earlier, our paid marketing is profitable on first order, which is why increasing spend in this area is a good thing. We have done a lot of work recently to better understand the profitability of individual products in different geographies which gives us confidence that we can increase our spend without compromising our profitability. TeePublic has delivered a strong set of results this half with profitable revenue growth. The metrics on this slide highlight that TeePublic's flywheel is operating more efficiently than Redbubble's. with a number of selling artists and designs sold both increasing. Improving the artist experience has been a focus area for TeePublic. Last year we introduced two account categories on the site, Artisan and Apprentice. Artisan accounts are giving more prominence on-site in search results as well as in off-site marketing. The amount they earn for each product sold is also higher. Introducing this distinction in artist account categories has been well received by the most valuable artists. There was a decline in artist earnings in the first half. This primarily reflects a decrease in artist earnings from apprentice accounts. The number of customers declined slightly during the half. This reflects a reduction in new customers in a tough economic environment. Pleasingly, we continue to see growth in repeat customers. In 2020, repeat purchases represented just 32% of total NPR. In 2023, it was 47%. We further optimised the supply chain by increasing allocation of volume to lower-cost third-party fulfillers. We also adjusted order priority. Previously, third-party fulfillers worked on a first-in, first-out principle. without taking into account how far the product needed to be shipped. We've now updated this logic so that third-party fulfillers print products yet have further to travel first, reducing the need to express ship to meet the promised delivery date. A focus for TeePublic in the last half was enhancements to the website to improve customer experience. We know that historically visitors that search on the site have a much higher conversion rate than visitors that do not. So our upgrades were focused on introducing new experiences that allow visitors to browse content and expose them to the depth and breadth of the marketplace catalogue without relying on them to initiating a search. The first enhancement was the introduction of categories the buttons directly below the search bar. This feature is targeted at individuals who come to the site and don't know where to start. To determine the categories, we used two different approaches. First, we considered what historically are the most popular searches on the marketplace. We also used AI to review the vast content library available to the marketplace and identify categories with the most relevant designs. We are pleased with the impact of the introduction of categories had during the holiday period. the bounce rate on the homepage more than half compared to the prior year, highlighting the improvement to customer experience. This reduction also drives higher Google ranking for key searches, helping us reach new customers. We also launched a gifting module in October 2023. Often people find themselves on the site wanting to buy a gift for a friend or family member, and this helps them to very quickly narrow down their search results by focusing on a particular product and design category. For example, I want to buy a t-shirt for a sports fan. From there, I can further narrow down the search results to different types of sports and even further to finally looking at the marketplace's broad range of retro football t-shirts. For individuals engaged with the gifting module, the conversion rate was 87% higher during the holiday period than the individuals who did not. I'll now hand you over to Rob to take you through a more detailed review of the financial results.