annual report 2019 Annual Report 2019 Contents Page Contents 4 Year in Review 5 Highlights and Commentary 7 Chair’s Letter 8 CEO’s Review 10 Directors’ Report 25 Auditor’s Independence Declaration 26 Remuneration Report 46 Consolidated Financial Statements 85 Directors’ Declaration 86 Independent Auditors’ Report 91 Shareholder and other ASX Required Information 93 Corporate Information Founded in 2006, the Redbubble Group incorporates Redbubble Limited and its subsidiaries, including TP Apparel LLC (TeePublic). The Redbubble Group owns and operates the leading global online marketplaces hosted at Redbubble.com and TeePublic.com, powered by over one million independent artists. The Redbubble Group’s community of passionate creatives sell uncommon designs on high-quality, everyday products such as apparel, stationery, housewares, bags, wall art and so on. Through the Redbubble and TeePublic marketplaces, independent artists are able to profit from their creativity and reach a new universe of adoring fans. For customers, it’s the ultimate in self-expression. A simple but meaningful way to show the world who they are and what they care about. This report covers Redbubble Limited as a consolidated entity consisting of Redbubble Limited (referred to in this report as Redbubble or the Company) and its controlled entities. Redbubble is a company limited by shares, incorporated and domiciled in Australia (ACN 119200592). Its registered office is at Level 3, 271 Collins Street, Melbourne VIC 3000. Redbubble is listed on the Australian Securities Exchange (ASX:RBL). Through the use of the internet, the Company ensures that our corporate reporting is timely, complete and available globally. All press releases, financial reports and other information are available on the Redbubble Investor Centre at shareholders.redbubble.com 2 3 Redbubble Annual Report 2019 Year in Highlights & Review Commentary FY2019 Financial Performance FY19 FY18 Change Key financial highlights (year on year comparison) $’m $’m % Key financial measures for the consolidated Redbubble Group (“RB Group”) in FY2019 (with year on year (“YoY”) growth Restated (1) rates, where applicable) are: Total reported revenue from services 307.0 218.7 40% • Marketplace Revenue of $257 million, up 41% (up 34% on a constant currency basis). Less Artists’ margin (50.1) (35.9) 40% • Gross profit of $95 million, up 48% (up 41% on a constant currency basis). Marketplace revenue 256.9 182.8 41% • Gross profit margin up 1.8pp to 36.8% (based on Marketplace Revenue). • Cash operating expenses of $64 million, up 25% (up 20% on a constant currency basis). Gross profit 94.5 63.9 48% • Operating EBITDA profit of $3.8 million, an improvement of $7.7 million from a FY2018 loss of $3.8 million. Gross profit margin on Marketplace revenue 36.8% 35.0% 5% Paid acquisition costs (marketing) (27.1) (16.8) 61% • EBITDA loss of $4.7 million, an improvement of $2.7 million from a FY2018 loss of $7.4 million. • Income tax expense of $15.2 million resulting predominantly from Management’s position to write off the deferred tax Gross Profit After Paid Acquisition costs (GPAPA) 67.5 47.1 43% asset as communicated at the time of the July Appendix 4C. GPAPA % (on marketplace revenue) 26.3% 25.8% 2% • Net loss after tax of $27.7 million compared to $10.0 million in FY2018, mainly due to the write off of the deferred tax asset. Operating expenses (63.7) (51.0) 25% Operating EBITDA 3.8 (3.8) 200% Operating EBITDA % (on marketplace revenue) 1.5% (2.1%) 172% FY2019 Cashflows Other income/expenses (8.5) (3.5) 143% The total cash balance for FY2019 increased by $7.8 million compared to a $6.6 million decrease in FY2018. The closing cash balance at 30 June 2019 was $29.0 million. Aggregate operating and investing cash outflow (negative free cash flow) EBITDA (loss/profit) (4.7) (7.4) 36% was $3.1 million in FY2019, improved by 56% compared to $6.9 million in FY2018. The RB Group has no debt. (1) On 1 July 2018 the Group adopted AASB 15 - Revenue from Contracts with Customers using the full retrospective method of adoption. Prior year comparatives have been restated to align the accounting treatment across both periods. Business Update The RB Group continues to make progress in areas of strategic investment that are critical to long term marketplace growth and profitability. FY2019 metrics are reported below and outlined in the July Investor Presentation: • Product revenue1 from authentic sellers2 at Redbubble grew by 39% and represented 76% of Redbubble product revenue • Marketplace revenue from members grew by 109%, equating to 29% of Redbubble marketplace revenue • The RB Group has on-boarded a total of 48 brands, with 25 new brands in 4Q FY2019. In addition, licensed content increased 46% from 3Q totaling 350,000 works • Five new products were launched resulting from re-platforming work enabling efficient and fast new product launches • 140% growth in marketplace revenue from the iOS app. Work has commenced on the development of the Android app 1 Product revenue is the portion of Marketplace revenue derived from Product sales. It excludes Shipping revenue. 2 Defined as those artists that tend to upload high quality, original works which resonate well with customers. Data Science work during 2018 has helped identify this critical segment at Redbubble and significant development investment has been focused on increasing the output of this group. TeePublic’s artists are yet to be segmented. 4 5 Redbubble Annual Report 2019 Highlights & Commentary Chair’s Letter (continued) Looking Forward We are pleased to present the Redbubble Group’s of our talented and committed Executive team and 2019 Annual Report. the strong contribution from the hard-working employees of Redbubble and TeePublic around The RB Group is targeting long term growth in a large addressable market. The priorities remain: The Redbubble Group’s mission is to bring more the globe. We also thank artists, content partners, creativity into the world. That guides everything we • Grow customer base and increase loyalty through personal “creative adventures” and member experiences customers and fulfillers for their continued support in do. We are proud of our ever-expanding community the past year. • Launch and sell products that artists want to design for and customers will love of authentic artists and the quality of art and design • Build deeper relationships with authentic artists by increasing their commercial success work they bring to the Redbubble and TeePublic I would personally like to thank my fellow board marketplaces. members for their guidance and counsel. It is a • Launch and expand partnerships with the world’s leading fan art brands strong board who are experienced, knowledgeable Overcoming the adverse impact of changes that and strategic. We are delighted with the contributions • Maintain strong growth and synergy value of TeePublic, leveraging new product, on-boarding content partnerships and Google made to their display algorithms, the that our newer board members, Anne Ward and geographic growth opportunities Redbubble Group delivered strong financial results Jenny Macdonald, have both made since they this year and invested for the future. We are proud of • Persist in current discipline to improve the Group’s take rate, extract maximum value from marketing channels, and joined in early 2018. Their broad experience in ASX, our achievements during the period, including: maintain operating expenses and cash discipline commercial, operating and governance areas have This strategic work will underpin reaching the milestone of $1 billion in sales. • generating our first positive Operating EBITDA enhanced the board. We thank our departing board since IPO, without compromising on strategic members, Grant Murdoch and Hugh Williams, for the investments for the long term; terrific contributions they have made during their tenure. • completing the acquisition of TeePublic and taking early advantage of business synergies; Finally, many thanks to you, our shareholders. We will continue to focus on building a company of enduring • transitioning successfully to a new CEO and CFO, value and look forward to rewarding you for your Barry Newstead and Emma Clark, who have both support. made strong starts in their roles; and • Redesigning our executive compensation structures to better align with our strategy and long-term value creation. Details are set out in the Remuneration Report. We are particularly excited about the potential of Yours faithfully, our Fan Art licensing initiatives. We have achieved a remarkable number of new content partnerships. Richard Cawsey We look forward to realising the potential of this key segment so our artists can capitalise on their new freedom to create fan artwork and our customers can enjoy innovative art based on their favourite brands. The Redbubble Group continues to make a positive contribution to the community in many ways. In addition to our success in bringing more creativity into the world, our employees have engaged in some wonderful community initiatives in the last 12 months such as ‘Create Some Good’ and the Community Collective, further described in this Report. We thank the Redbubble Group employees. The Group’s ability to grow, evolve and deliver against its purpose would not be possible without the work 6 7 Redbubble Annual Report 2019 CEO’s Review CEO’s Review (continued) This year the Redbubble Group achieved an First, we are the artist & content leader that is a Redbubble’s iOS app. Members are provided with business with all of the advantages of some of the best important milestone. The Group delivered its first magnet for authentic artists. The 24 million strong deeply personalised experiences via improving marketplaces on earth. positive Operating EBITDA since IPO, in the amount back catalog of content is evergreen, generating recommendations, personalised service, enhanced As part of my first year as CEO, it was a priority to of $3.8 million.