MYSL.L Regulatory News (MYSL)

Interim Results

MySale Group plc (AIM: MYSL) (the 'company' or the 'group') is pleased to announce its Interim Results for the six months ended 31 December 2015.

H1 Financial Highlights

· A positive first half with underlying EBITDA of A$1.5 million; a A$12.9 million improvement on the prior year

· Good revenue momentum; overall growth of 4% at an accelerating rate through the period

· Strong gross profit growth of 15% driven by 250bp margin improvement

· Performance building well in South-East Asia with 8% revenue growth and gross profit increased 187%

· Group overheads now at materially lower level of 24% of revenue (2014: 28%)

· Strong balance sheet with cash balance of A$30 million and an underlying cash position of A$52.2 million, representing c 17 pence per share

· This position follows an investment in H1 of A$17.2 million, representing c 6 pence per share, into additional inventory levels to support margin improvement

· Good trading momentum has continued into the second half with 20% revenue growth in the first six weeks

H1 Operational Highlights

· Focus on improving gross margins and activating customers with higher lifetime-value

· Average order value increased 17% to A$84 (2014: A$72)

· Average revenue per active member increased 6% to A$293 (2014: A$278)

· Further growth in mobile which now represents 59% of orders (2014: 55%) with over 5.5 million mobile apps now downloaded

· Active members reduced, as planned, by 10% in H1 to 731,000 as growth in gross margin was prioritised and unprofitable postage promotions from a year earlier curtailed

· Active member numbers have returned to growth in H2

· Increase in own-buy inventory in-line with strategic plan to grow gross margin

· Returns rate remains steady at c 5-6%

· Technology improvements; enhanced search functionality across the platform to drive customer engagement; and more efficient logistics to reduce unit costs

· Acquisition of Australian online retail business completed after the period end

Carl Jackson, Chief Executive Officer, commented

''The group had a good start to FY2016 as the planned strategic initiatives have delivered both improved financial performance and positioned the group for further, profitable, growth.

Our focus for the first half of the financial year was to restore the business to profitability and to re-focus around our simplified strategy. This was successfully achieved and we were also able to grow our revenues once again.

Gross margin has increased in all regions and whilst currency headwind has constrained this growth in our core ANZ market, our focus on providing exceptional value and a wider range of product for our customers is proving effective. Our recently announced bolt-on acquisition in Australia provides a cost effective way of growing our active customer base and widening our proposition.

Further afield, the hard work undertaken in South-East Asia to localise our offer has delivered great results and means traction is beginning to build in these exciting markets.

We are pleased with the start to the second half of the year as we have seen good momentum in revenue growth. There is still a lot of hard work ahead, but we have a well invested technology, marketing, buying and distribution platform capable of supporting a much bigger business, so we look to the future with confidence. ''

Strategy

The group's planned strategic initiatives have delivered improved financial performance in the first half and positioned the group for further, profitable, growth in the second half and beyond. To maintain the momentum in performance the group is focused on the following key strategic aims:

1. Drive increased activity levels with our existing customers

2. Grow our active customer base

3. Improve our gross margins

The tactics that have or will be adopted to achieve these strategic aims include:

1. Deploy proven digital marketing and engagement tactics - acquire loyal customers and frequent customers

· The group has established and proven marketing capability that is almost exclusively dedicated to digital channels.

· This digital acquisition of customers provides measurable returns on the initial marketing investment and the targeting of those prospective customers with most propensity to become repeat buyers and generate attractive returns.

· Use of social media channels with both prospective and existing customers to maintain reach and relevance and build engagement.

2. Use technology to improve conversion, engagement and each customer's journey - drive conversion, and activity

· The group has focused on development of mobile commerce and data capabilities to provide improved customer experiences and thus improve frequency and volume of purchases.

· The customer's mobile commerce experience has been at the heart of the group's strategy for many years and generates the majority of orders. Our mobile technology roadmap includes live personalisation, trending recommendations, intelligent notifications, enhanced images, wish lists, credit card capture and an Apple Watch App.

· The group now has a dedicated team of data scientists focused on utilising live data streams and statistical models to drive business KPI's, identify business insights and deliver personalisation and trending recommendations. The group's capture and analysis of data allows for delivery of increasingly personalised shopping experiences to customers which improves engagement.

3. Focus on geographies with better growth prospects - drive active customer base

· Expansion into territories where the group can achieve higher long-term growth rates, such as South-East Asia and United Kingdom has been successfully achieved and is a key element of future growth and diversification from the home ANZ market.

· The deployment of a localisation plan including; merchandising, pricing payment and delivery brings local relevance to our internationally sourced product range.

· S-E Asia offers a large addressable population, increasing disposable income, lack of off-price competition and high mobile penetration. This region is well served by the group's strong value, branded sales offer and exceptional mobile commerce capability.

· As the UK has a large and well developed online marketplace where engaged and active consumers can be acquired successfully and, given there is no online flash sale operator of scale, the group has targeted becoming a leading operator in the country.

· Expanding the active user base further will allow economies of scale to be achieved

4.  Utilise our international sourcing capability - drive frequency and volumes

· Access to European and USA brands means the group is able to offer great product selection to consumers in ANZ and S-E Asia which in turn helps drive customer engagement and frequency.

5. Owning more stock - drive activity and gross margin

· Whilst the majority of our activity shall be conducted on a consignment inventory basis we are selectively increasing the proportion of inventory that we own as this gives the group access to a wider range of products, improving customer engagement, and enhances gross profit margins.

· Strengthens relationships with brands which in turn can lead to exclusive supply arrangements.

6. Adding new categories and more products - drives activity and gross margin

· Development of new categories and channels, both organically and by acquisition, will expand range of merchandise available to customers and enhance engagement and frequency of purchase.

· New categories and expanded product ranges will be undertaken predominantly on a consignment, drop-ship or third party supplier basis so that group has an efficient working capital structure.

7. Selective bolt-on M&A - drives active customer base and expands range of merchandise

· The group has a robust, scalable international ecommerce platform which allows for the swift and cost effective expansion by way of bolt-on acquisitions.

· As illustrated by the recent acquisition of Australian online business this can provide a step change in active customer numbers and immediate access to significant numbers of new suppliers and products.

· M&A activity is and shall be focused on existing and complementary product categories and particularly those in which the group has experience of high-margin and strong repeat purchase metrics.

· Such activity is targeted within existing territories where the group can leverage existing assets and infrastructure and de-risk the integration, as illustrated by the acquisition of Cocosa in the United Kingdom.

· The group's core flash sales heritage has built expertise in a range of categories and products and as such the group's flexible logistics infrastructure will support a wide variety of product categories.

*Definitions

EBITDA: earnings before interest, tax, depreciation and amortisation

Underlying EBITDA: EBITDA before non-recurring and non-cash items (see note 5. to the financial statements)

Underlying cash balance: is the cash balance and trade and other receivables balance at the period end

Active Member: a member who has ordered in last twelve months

Average Order Value: product sales divided by number of orders

Revenue per Active Member: average total product spend, per active member, in last 12 months

ANZ: Australia and New Zealand

South-East Asia: Hong Kong, Malaysia, Singapore, Philippines and Thailand

ROW: United Kingdom

Enquiries:

About MySale Group

MySale is a leading international online retailer with established sales websites in Australia and New Zealand (ANZ), South-East Asia (SEA) and the United Kingdom, with over one million customers. Founded in 2007, the group provides members with access to outstanding products at exceptional value whilst providing a unique route for brand partners to manage excess inventory from the Southern Hemisphere.

The websites host both membership based, time limited, flash sales and open retail sales in each of its three territories across many product categories including fashion, ladieswear, menswear, childrenswear, health, beauty and homewares.

The group's online sales are supported by an international network of supply chain infrastructure and technology that enables MySale to source products from around the world for sale and delivery to members.

As a result of this exceptional inventory management solution, MySale has built a unique international brand portfolio and sourcing capability and is able to source product from over 3,500 brand partners.

Business Review

MySale Group Plc ('group') has made good progress in the first half of the current financial year; the planned strategic initiatives have delivered improved financial performance and positioned the group for further, profitable, growth.

In the six months to 31 December 2015 the group's revenue rose 4% to A$128.2 million and gross profit increased 15% to A$32.7 million following a 250bp improvement in gross margin, to 25.5% (2014: 23%).

The rate of revenue and gross profit growth progressively strengthened during the first half and it is anticipated this will continue into the second half of the financial year driven by the group's clear strategy to provide exceptional value and choice to our customers and supported by the group's proven digital marketing channels, efficient international operations and flexible technology platform.

The improved trading performance combined with the previously reduced overhead base saw the group generate positive underlying EBITDA of A$1.5 million for the period, in line with expectations and, in contrast to the significant losses (-A$11.4 million) incurred in the first half of last year.

During the first half the group continued the strategic plan to prioritise growth of gross margins and secure higher lifetime-value customers in all territories and, unlike a year earlier, the use of aggressive, yet ultimately unprofitable, postage promotions to drive activity was curtailed.

This strategy has translated into improved financial performance, from fewer active members, as gross profit margin increased 15% driven by a 250bp increase in gross margin, to 25.5%. Importantly the plan has delivered increases in both average order values and average annual spend per active member to A$84 (+17%) and A$293 (+6%) respectively.

The planned reduction in active customers, by 10% to 731,000, over the first half of the financial year came from the decision not to repeat the postage promotions from a year earlier. Looking forward, we have now passed the anniversary of the implementation of this trading strategy and growth in active customer numbers has resumed.

All territories have increased revenue and gross profit however it is in South-East Asia that the group has seen the most notable rate of growth as gross profit and gross margin percentage increased by more than 100%.

The refocus on the core business instigated in early 2015 is also delivering good results in the United Kingdom, where the group trades under the Cocosa brand, and following refinement to the operations here, the first signs of encouraging growth and performance are evident.

Australia & New Zealand

Within this operating territory the group has successfully implemented its strategic initiatives and improved gross profit, by 5% to A$27.9 million and gross margin to 25.5% whilst also growing revenue by 3% to A$109.5 million. An improved merchandising offer has seen average order value increase 15%, in line with the group trend, to A$83.

The improvement in gross margin has been achieved despite the challenge of weaker AUD exchange rates increasing the local cost of internationally sourced goods.

While the group's operation in ANZ is long established, it continues to provide attractive growth possibilities due to both the lower levels of internet penetration, versus territories such as the United Kingdom and the USA, and this region's relative lack of off-price retailers.

This region shall benefit from the recent acquisition of three online retail websites which is described in more detail below.

South-East Asia

During the period this region had revenue growth of 8% to A$15.5 million and an excellent 187% increase in gross profit to A$3.9 million, principally driven by a doubling of the gross margin percentage to 24.9%. The growth in profitability has been supported by the group's localisation plan for each territory which ensures that merchandising, pricing, payment and shipping solutions are all tailored to the needs of local consumers. A 33% rise in average order value to A$91 is testimony to the relevance of the group's online retail offer in this region.

The significant improvement in the rate of gross margin has been achieved by the localised plan, an expanded range of merchandise, including own-buy inventory, and fewer delivery promotions and this increased rate represents the group's expectation for future performance.

The group's strategy for this territory has been to firstly grow the active member base and then to build gross profitability and, with a more profitable model now established, South-East Asia reinforces its position as a key element of the group's growth strategy.

In the medium to long term this region is anticipated to be increasingly significant as the group grows the member base and demand for branded products, particularly European and USA brands, is expected to grow. With a substantial addressable population, increasing disposable income, lack of off-price competition and high mobile penetration this region is well served by the group's strong value, branded sales offer and exceptional mobile commerce capability.

Rest of World

This segment comprises the group's nascent operations within the United Kingdom, re-launched in H2 2015 and trading under the Cocosa brand which provides members compelling value in premium branded products. Cocosa had a positive first half with sales increasing by more than 50% to A$3.3 million and gross profit rising more than twofold. These are encouraging results and position the business for increased growth in the second half of the year.

Whilst currently a relatively small part of the group's overall activities, this business operates in the UK's large and well developed online marketplace where engaged and active consumers can be acquired successfully. Given there is no online flash sale operator of scale in the UK the group has targeted becoming a leading operator in the country.

Group

The basis of the group's improved trading and financial performance in this half-year has its roots back in FY2015 when the group re-focused the business on its core aims of providing exceptional value branded products to our customers and exceptional inventory management solutions to our brand partners within the group's three core territories. Whilst there is still work to do momentum has increased and the first half just closed represents another step on the path of profitable growth.

The improved trading performance and gross profit has combined with lower rates of overhead cost (circa 24% of revenue) and delivered underlying EBITDA of $1.5 million for the half, in sharp contrast to the EBITDA loss of A$11.4 million loss incurred in the first half last year. A cost saving programme saw the rate of costs in staff and marketing costs notably lower than the same period in the prior year. The group has however increased investment into its technology capabilities and has a robust and scalable platform on which to grow the business.

During the period the group continued to dedicate nearly all its marketing spend, which was circa 6% of revenue in the period, into measurable digital channels and has seen the loyal and engaged members continue to spend with reliable regularity and with increasing order sizes.

Many new brands, including a number from Arcadia, have joined our roster, attracted by the group's excellence in inventory management and our ability to efficiently dispose of their surplus products. The group's unique international distribution capability is a particular point of difference for European and USA brands.

The group implemented its strategy to increase the proportion of inventory that is own-buy, rather than on a consignment basis, and that now represents circa 13% of online activity and that in turn supports higher gross margins and wider product selection for customers. Own-buy activity is concentrated into staple, branded goods. We are now a little over 12 months into the plan to re-focus our buying teams and have seen the benefits begin to accrue as relationships with brands and suppliers strengthen and deepen and, in the period, a number of exclusive sourcing arrangements were concluded.

The combination of the group's sourcing, compelling consumer value and reliable service means that returned goods remain at industry leading levels of only 5-6% overall.

The group has over 29,000 square metres of warehouse space which house the digital studios and distribution centres and these have the capacity to absorb significant growth. The processes of these operations are continually refined to deliver the most efficient workflows and ensure the group's customers receive the products they select within the timeframes they expect. During this period improved technology deployment in this area reduced unit processing costs by around 20% and dispatch times by around 7%.

Balance sheet, cash and working capital

The group's closing cash balance was A$30.0 million versus A$39.9 million at the year-end and this reduction is largely a reflection of the increase in inventory during the first half. This increase arises principally from the group's investment into own-buy inventory, in line with the strategic plan, together with opportunistic, seasonal purchases made towards the end of the half-year.

Inventory is now at a closer level to that which will support the continued growth of the group's own-buy business. We would expect further growth in inventory levels to be more in line with the overall growth of the business.

The group anticipates that working capital balances will unwind in the second half of the year as the seasonal and opportunistic inventory is reduced.

Capital expenditure during the period was A$225,000, lower than the prior period, and principally represents equipment in the group's distribution centres. The investment into intangibles of A$1.3 million represents expenditure on the group's technology platform.

Acquisition of Australian online retail websites

The group completed the acquisition of three Australian online retail websites, on 31 January 2016. The acquisition includes the domain names 'OO.com.au'; 'dealsdirect.com.au'; and 'topbuy.com.au' and all associated customer databases, intellectual property, trademarks and goodwill. 

This acquisition provides an online retail opportunity that is highly complementary to the group's core flash sale model and it will facilitate one of the broadest customer reaches of an Australian based online retailer; widen the product selection for customers and leverage the groups existing infrastructure.

The three websites all fit with MySale's hard discount strategy and offer compelling value to consumers, principally across the key MySale categories of Home and Fashion but also low price unbranded, fun Gifts. The group will realise a number of strategic benefits from this acquisition;

· The average monthly visitors to these websites will double the 4.1 million visitors to the group's existing Australian websites.

· It will significantly increase the Australian active customer base and whilst having little overlap with MySale's existing customer base the customers are of a similar profile.

· The ability to offer the enlarged customer base access to a significantly expanded range of merchandise. An increase to over 200,000 available SKU's is targeted in the first phase. Of the expanded product range it is anticipated over 90% will be supplied on a drop ship basis.

· By establishing an Australian low-inventory online retail offer, which complements the group's core flash model, we will be positioned to achieve further strategic growth into a marketplace solution. 

· Once fully established this online retail model will be capable of export and replication in the group's other operating territories.

· The group's existing marketing, technology, logistics and back-office systems can be deployed to support this online retail offer and the increased scale of the operation shall allow efficiencies to be achieved throughout the supply chain.

Outlook

The group had a good start to FY2016 as the planned strategic initiatives have delivered both improved financial performance and positioned the group for further, profitable, growth.

In the first half improved trading in all our territories is testimony to the focus and hard work of all the teams over the last 12 months. That our South-East Asian operation saw such strong growth in revenue and gross profit is evidence that our strategy is working in this market and we aim to develop this significant market opportunity to further diversify the group's future income streams.

The positive momentum of first half trading has carried into the opening months of the second half with double digit revenue growth to date. The Board is confident the group is on track to meet its expectations for the financial year as a whole and will continue to focus on driving profitable growth.

The acquisition of the online retail business in Australia from Grays eCommerce is a great opportunity to add customers, scale and efficiency to the business and the integration will be completed during the second half of the financial year.

Our focus for the second half is to deliver on the strategic aims; grow the active customer base, increase activation levels and continue increasing gross margins.

The above statements of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes

The above balance sheets should be read in conjunction with the accompanying notes

The above statements of changes in equity should be read in conjunction with the accompanying notes

The above statements of cash flows should be read in conjunction with the accompanying notes

Note 5. EBITDA reconciliation (earnings before interest, taxation, depreciation and amortisation)