MySale Group plc LON:MYSL the leading international online flash sale retailer today issues a pre-close trading update ahead of the announcement of the Group’s results for the year to 30 June 2015.
-- Revenue increased by 5% to A$235 million for the year to 30 June 2015. -- At least break even underlying EBITDA for H2 as per previous guidance. -- Positive exit rate with profitable Q4 and improving trend.
— Action to improve gross margins in H2 by more focussed promotional stance and increased own buy.
-- Successfully reduced fixed costs in H2.
— Strong balance sheet with year end cash balance A$40m reflecting A$40m investment in working capital which will partially reverse in current year.
— Today announcing the appointment of Iain McDonald as non-executive Chairman with immediate effect.
-- Further non-executive director appointments to be announced in due course.
Carl Jackson, Chief Executive, commented: “MySale is focussed on profitable growth and we are pleased with the progress achieved over the last six months. We are delighted that Iain McDonald has joined as chairman bringing a wealth of online retail and significant UK capital markets experience.”
Appointment of new non-executive Chairman
The Group has told DirectorsTalk that today, Iain McDonald has been appointed as the Group’s new non-executive Chairman. Based in London, Iain has a wealth of experience of high growth, online businesses and capital markets which the Board believes will be of great benefit to the Group. Iain is a partner with the William Currie Group of Companies (“WCG”), a family office founded by financier Bill Currie to invest primarily in technology and e-commerce companies. Iain has worked with WCG for seven years now during which time WCG has built upon its already strong track record in the sector, having invested in the early stages of development of companies including Asos, The Hut Group, Metapack, Eagle Eye Solutions and Anatwine. As well as working on the investment side of the business, Iain is a non-executive director at The Hut Group, Anatwine, Atterley Road and Houseology.com and was nominated as a NED of the year in 2015 by the Sunday Times NED Awards.
Alongside his appointment, the Company has today granted Iain McDonald 3,000,000 options over the ordinary share capital of the Group each with an exercise price of 53p (the “Options”). 1,000,000 Options will vest when the Group’s share price reaches GBP1.50, a further 1,500,000 shall vest when the Group’s share price reaches GBP2.26 and a further 500,000 shall vest when the Company’s share price reaches GBP2.75.
Trading and Outlook
In the year under review Group revenue grew by 5% to approximately A$235 million and for the second half of FY2015 EBITDA was breakeven. As previously announced, following the challenging first half to the financial year, the Group took action to improve Gross Profit margins, and a reorganisation to reduce fixed costs. As a result the Group has seen momentum build during the second half which resulted in the Group returning to underlying EBITDA profitability in the fourth quarter. During the second half, management has increased the proportion of own-buy activity and investment into inventory to improve brand selection and increase gross profit margin.
MySale’s financial position remains strong and the Group has a robust balance sheet with A$40 million net cash at the end of June 2015 and investment in working capital of $40 million. It is anticipated cash balances shall increase through the current financial year as the investment in working capital partially reverses.
The Group anticipates that the positive momentum of the second half FY2015 shall continue into the current financial year with increasing revenues, improving gross profit margins and careful control of costs delivering an expected return to EBITDA profitability in the coming year.
Change of Nominated Advisor
The Group has appointed Zeus Capital as Nominated Advisor and Sole Broker to the company with immediate effect.
Having successfully guided the Group through a period of substantial growth and an IPO the Group’s non-executive Chairman, David Mortimer AO, who is based in Australia, is to remain on the Board as a non-executive director but will step down from his chairmanship with immediate effect.
The Group’s other Australia based non-executive Director, Adrian MacKenzie, will leave the board with immediate effect in order to dedicate sufficient time to his other business interests.
Carl Jackson, Chief Executive, commented: “The last 18 months have been exceptionally busy for the Group and in some respects quite challenging but we look to the future with renewed confidence; the momentum of restoring profitability continues into the current year and in the long term we shall benefit from the strong foundations we have laid.
“We would like to place on the record our appreciation of the support and guidance that David and Adrian have given us as Chairman and non-executive director respectively.
“Finally may I thank each and every member of our global team for their hard work and dedication in helping us achieve our objectives.”
Iain McDonald, non-executive Chairman, commented: “I am delighted to be joining the board of MySale. The Group possesses many fundamental strengths – notably its product sourcing skills, experienced management team, cash rich balance sheet, robust tech platform and substantial customer base. There is enormous potential to leverage these strengths and I look forward to working with the team to drive maximum shareholder value from these advantages.”
Analyst John Wilson at Zeus Capital said:
We anticipate that MySale has achieved break-even EBITDA for the second half of the year on FY sales growth of 5%, which is in line with management’s expectations, as outlined at the end of February. We are encouraged that the management action plan to resolve issues encountered in H1 continues to progress, in particular with the announcement of today’s changes at board level. Strong momentum and profitability returned in Q4 as the business focused on growth and successfully executed a reduction in fixed costs. We expect profitability to return in FY16.
- The anticipated break-even EBITDA figure for H215 and profitable Q4 comes as a result of improved gross margins and reduced costs (achieved by the removal of one off promotions and a reduction in the headcount across all regions). As a result of these corrective actions, momentum was seen to build throughout the half with EBITDA profitability reported in Q4. Although EBITDA break-even for H2 was in line with management’s expectations, full year adj. EBITDA loss of c.(A$11.2m) was slightly below our previous FY expectations of (A$7.8m). At this stage, we have also decided to take a more cautious and prudent view to the upcoming year, and as a result we are reducing our FY16 sales growth expectations to 5.1%, from 9.8%, which has the effect of reducing our sales figure from A$265m to A$247m. We now model a more conservative return to profitability with EBITDA forecasts for FY16 reducing from A$9.9m to A$4.7m. We note however that there is potential for positive surprises as the year progresses.
- The appointment of Iain McDonald as non-executive Chairman will bring fresh ideas and his considerable experience of the UK online retail market will be complementary to the existing management team. This will help the business capitalise on the huge UK market. Iain has been a successful investor in technology and e-commerce companies such as ASOS as a partner with the William Currie Group over the past seven years, and sits as a NED on the board of various companies including The Hut Group. As well as being incentivised to lead a recovery in the share price, Iain will bring his extensive experience in the e-commerce sector and a fresh perspective to the business at board level that will help to drive growth and profitability to MySale’s well-established platform.
- Less promotional activity and product discounting, as well as higher mix of own buy product versus consignment has helped a recovery in the gross margin during H215. The business has refocused on achieving profitable margin through well-known branded product campaigns every day, which is getting back to what they do best. Also, where valuable opportunities present themselves, MySale will be increasing the mix of own-buy “off price” inventory primarily sourced from Europe and the UK. As well as supporting the gross margin, investment into inventory will also help improve brand selection to customers.
- Management team now fully focused on execution. The group is focussing its marketing spend on proven digital channels, while continuing to invest in technology to drive efficiencies in the warehouse and distribution costs, data and mobile technology. The business can lever its strong balance sheet and relationships with key industry brands through Sir Philip Green to secure supply of product, which should continue to drive long term growth in the geographies that MySale is already established.
- For FY17 we are maintaining a conservative outlook and model just 5% sales growth for the group giving sales of c.A$260m. We expect a recovery in the gross margin to 27.9% as more product continues to be sourced from Europe and the investment in inventory continues, giving EBITDA of A$7.5m. We also note the potential to leverage the technology, buying and distribution platform and the cash rich balance sheet gives a lot of flexibility and opportunity in this regard. MySale is a business that generates substantial revenues that is currently valued on an EV/Sales multiple of just 0.3x; if the average FY2 EV/Sales multiples for the US listed flash sales businesses Zulily and VIPShop were applied to MySale the price would be 93p, while the wider e-commerce peer group trades on an average FY2 EV/Sales multiple of 2.0x, which if applied to MySale would equate to 164p.