Half Yearly Report

MySale Group plc ("MySale" or the "Company" or the "Group") today issues its Interim Results for the six months ended 31 December 2014.

H1 Financial Highlights:

• Revenue increased 8% to A$123.3 million (2013: A$114.6m)

• Revenue increases by segment; S-E Asia +30%; ANZ +3% , launch of UK operation

• Gross Profit of A$28.3 m (2013 : A$32.0m)

• Gross Profit margin of 23.0% (2013: 27.9%)

• Intake product gross margin increased to 40% (2013:39%)

• Underlying EBITDA* loss of A$11.4m (2013 : Underlying EBITDA profit of A$5.0 m)

• Period end cash balances of A$59.4m (2013 : A$18.9m)

H1 Operational Highlights:

• 862,000 active members an increase of 14% YOY (Asia + 47% YOY; ANZ + 7% YOY )

• Average product revenue per active member was A$129 (2013 : A$133)

• Mobile channel now represents 55% of orders (2013 : 48%)

• Successful launch of new websites in United Kingdom and Hong Kong

• Launch of Cocosa premium branded website in ANZ and United Kingdom

• Sports Direct partnership development complete, ready for H2 launch

• Action taken to reduce fixed costs base

• US and South Korea websites closed as part of re-focus on key markets

* Note 1: Underlying EBITDA: see note 5. In the notes to the financial statements

Outlook

During the second half, management will continue to deliver against its strategy, focusing on improved marketing and promotional investment efficiency, further optimising the cost base and converting new members acquired into active customers. The fundamentals of the Group's flash sale business model remain robust - low inventory, negative working capital and acquisition of new members through proven digital channels. The business is well capitalised and has A$59.4m of cash.

The actions taken in December have already had a positive impact on the gross profit margin as well as reducing expenses. As a result, management expect the Company to generate at least breakeven EBITDA in the second half of the year.

Carl Jackson, Chief Executive, commented:

"During the first half we focussed on the growth of the business and member acquisition. As we now have a membership base of more than 15 million we were able to take action to reduce marketing and promotional costs and capitalise on our international product mix and larger membership. The underlying business is strong and the actions taken in December position the group to benefit from anticipated margin growth in the second half. Our cash position is strong and we are excited by the great long term opportunities in our core ANZ region, South-East Asia and the UK."

Strategy

The fundamentals of our business are strong. We have a clear focus of delivering our members access to international brands and incredible value whilst providing inventory management solutions to our brand partners.

The Group benefits from the strength of the long established ANZ segment, which continues to grow, and the opportunity to achieve significant long term growth in S-E Asia, both of which are supplemented by the growing scale of the UK operations.

We have six strategic targets for growth that underpin our business fundamentals and these are:

· continuing to grow the active membership base;

· implement initiatives to increase member activation, repeat purchase, average basket and retaining members;

· broaden and deepen supplier base and online flash sales events;

· continue to invest in the mobile platform;

· expand into new geographies; and

· pursue acquisitions and joint venture partner opportunities.

The Board will take a balanced approach to costs and in line with previous years of significant growth, the Group aims to invest in marketing, personnel and resources in a measured way, ahead of the curve, in order to sustain growth and ensure operational resilience. The business model has relatively light fixed capital requirements, low inventory requirements, due to the majority of trade being on a consignment basis, and a negative working capital cycle.

During the first half we have invested heavily in new member acquisition, marketing, promotions and also international expansion, including the opening of new websites in the UK and Hong Kong. Having driven the business very hard in H1 we now have over 15 million members and are concentrating our efforts on operational execution and efficiencies, remaining focussed on our core ANZ segment and exploiting further opportunity in the S-E Asia and other markets. We now have an e-commerce platform that is stronger, simpler and better for both customer and stakeholders.

We have made excellent progress in developing new channels of distribution with international and domestic partners. Our partnership with Sports Direct Group has been finalised with inventory now in our distribution centres allowing us to target the lucrative ANZ sportswear market. We will continue to pursue opportunities to provide new channels of distribution in new markets.

The websites have a strong branded merchandise mix which has reduced the reliance on shipping and promotional campaigns. We have cut the cost base and re-focused our marketing investment to the proven digital acquisition channels. MySale has executed its mobile strategy as planned and has continued strong adoption in mobile shopping with approximately 55% of orders now coming from mobile devices in the period under review (2013: 48%). The integration of Cocosa as the Groups premium branded vertical is now complete with the website now launched in the UK, Australia and New Zealand.

Following the challenges of the first half we are now back on track, we have great branded product at great prices and are very confident that the business is well placed to execute its H2 operational plan.

We will continue to invest in the business. Our strong balance sheet and negative working capital business model means that we can take advantage of the buying opportunities that arise from the glut of excess global inventory. Such buying opportunities will result in a higher sales mix from our owned inventory which will underpin the improvement in gross margins, as well as achieving improved delivery times to our customers.

We remain focussed on our core ANZ region, however we believe long term shareholder value will be delivered by the Group's continued development of the huge S-E Asian opportunity. Having launched our first website in South East Asia in 2010 we now operate in five Asian countries and have built the platform with which to exploit the region's potential. We understand the consumer and the key business drivers, which means that, underpinned by the investment we have made in the international supply chain, warehouse and logistics, we are now in a unique position to become a dominant off-price retailer in the region. This provides a significant long term opportunity as the flash sale market has limited competitors of scale.

Enquiries:

MySale Group plc

Jamie Jackson, Executive Director and Vice-Chairman

Carl Jackson, Chief Executive

+61 (0) 414 817 843

+ 44 (0) 7895 161 153

Graeme Burns, Corporate Development

+44 (0) 777 585 4516

Nominated Adviser and Joint Broker

Macquarie Capital (Europe) Limited

+44(0)20 3037 2000

Ken Fleming

Nicholas Harland

Financial Public Relations

Maitland

+44 (0)20 7379 5151

Neil Bennett

Dan Yea

Notes to editors:

MySale is a leading online retailer with established flash sales sites in Australia, New Zealand, South-East Asia, and the United Kingdom providing a complete B2B solution for brands to dispose of excess inventory. The Company was founded in 2007 by Jamie Jackson and now has over 15 million members and operates websites in 8 countries, employing more than 500 people. The MySale websites (which operate under the 'OzSale', 'NZSale', 'SingSale', 'MySale', 'Cocosa' and 'buyinvite' brands) are available in Australia, New Zealand, the United Kingdom, Singapore, Malaysia, the Philippines, Thailand and Hong Kong. The Group sources product from over 3000 brands and suppliers and hosts flash sales that run for three days in each core market across ladies wear, menswear, children's wear, health, beauty and home wares. Only MySale members can access sales. Membership is free. The MySale online sites are supported by an international network of supply chain infrastructure that enables the Group to source products from around the world.

Business Review

MySale Group Plc (the Group) had 862,000 active members during the six months to 31 December 2014. During this period, the Group recorded Revenue of A$ 123.3 m, an increase of 8% on the previous period and the seventh consecutive year of Revenue growth. The increase in Revenue was principally driven by the increasing number of active members who, on average, spent A$129 on products.

Gross Profit was $28.3m, a decrease on 2013. Gross Profit margin in the period was 23.0% compared to 27.9% in 2013. The factors influencing Gross Profit are described later in this review.

The Australia and New Zealand (ANZ) region represents the majority of the Group's Revenue and Gross Profit although its proportion of the Group total is reducing as South-East Asia (S-E Asia) grows and the fledgling UK operation gains traction. Revenue grew by 3% in the region, less than anticipated due to the effect of a combination of postage discounts, which resulted in a reduction in the average customer spend, a slight tightening in ANZ macroeconomic conditions and some sub-optimal merchandising.

Within the S-E Asia segment are the websites operations serving Hong Kong, Malaysia, Singapore and the Philippines where the Group is well established. This segment saw a 29% increase in revenue. Again this segment experienced some drag on revenue growth due to the postage discount promotion and merchandising.

Rest of the World represents revenues generated in the United Kingdom and the USA, both of which began trading in summer 2014. The UK generated circa A$1.8 m of the A$2.2m Revenue reported in this period. The US and South Korean websites were subsequently closed following a review of performance at the end of the period, as the Company decided to focus on its core and most attractive markets.

Gross Profit was lower than the prior period in both ANZ and S-E Asia principally as result of heavily discounted postage being used as a promotional lever. Beneath this headline, however, intake (product) margins of c. 40% were slightly ahead of the prior period but the negative margin arising from postage promotions reduced net Gross Profit to levels below the prior period.

The Gross Profit margin in the United Kingdom was 20% in line with the anticipated levels expected for such a territory in its first year of operation.

In addition there were aspects of the mix of brands and brand merchandising for sale which were not fully optimised. A short period of suboptimal merchandising during the half, principally excess weighting of un-branded versus branded products in the sales mix, led to a reduction in the repeat and first time buyer growth rates for part of the six months under review. Merchandising was sharpened, including better brand prominence, and these two member groups returned to growth during the second quarter.

Closure of Certain Operations

During 2014 the Group developed the technological and logistical infrastructure to commence the operation of four new member websites in Hong Kong, South Korea, the United Kingdom and the USA, each of which launched in summer 2014.

Following a review of first half performance, the Company decided to focus on its key markets of Australia and New Zealand ("ANZ"), its high growth S-E Asian operations, and the UK, where it has enjoyed strong member activation and revenue growth since launch.

In the US, active member acquisition costs were higher than expected as conversion rates were lower. As a result, the Company has closed its US website for the time being. The group will retain buying and warehouse capabilities in the US, which fulfil US sourced product globally. The Company also decided to withdraw from the South Korean market for similar reasons and therefore its South Korean website was also closed until further notice. These two closures result in a significant reduction in the Company's cost base, whilst enabling it to focus on its most attractive growth markets. The financial results of these two operations are excluded from Underlying EBITDA.

H1 Promotions, Marketing and overheads

During the six month period, the Group experienced a number of issues which had a one off negative effect on profitability. Immediate action was undertaken at the end of the first half to ensure that the impact of these issues would be curtailed.

As noted above, the Group ran a number of promotional campaigns offering discounted postage charges for members, which had a negative effect on the overall gross profit % being earned as postage income reduced. In addition, the mix of products was weighted more to internationally sourced items, with associated additional delivery costs, and the overall average product spend per active customer was slightly lower. As a result both sales and gross margin were below expectation and this had a negative effect on profitability.

The Group also implemented a significant above the line (ATL) marketing campaign, at a cost of c. A$3.2m. The results of this marketing activity were disappointing and did not deliver the customer response planned. This activity has been curtailed and the Company has refocused the marketing budget for the second half of the year on the digital activity which has served it reliably in the last few years. In addition, further planned marketing spend of some A$2.7m was brought forward to stimulate revenue growth, which increased the loss for the first half.

Following a review towards the end of the period, the Company implemented swift action to correct the issues identified above. These issues related to operational decisions and execution, rather than structural or market issues, so the Board expects profitability to be restored in the second half.

At the same time as curtailing the postage promotion and the above the line marketing spend the Board took action to reduce the fixed cost base of the Group, principally by way of headcount reduction. As the Group has grown significantly over a number of years it planned to invest in personnel and resources ahead of the curve to ensure operational resilience. As growth was lower than anticipated during the period under review the Group was able to respond and realign the resources and cost base to reflect current growth rates.

The Company has refocused its marketing efforts for the acquisition of new members almost entirely to digital channels. In the first half, as noted above, the Company introduced an above the line campaign in ANZ which did not increase acquisition or activation rates sufficiently to warrant further such marketing investment. In total, the Group invested, circa 11% of sales on marketing spend, a significant increase on prior periods when 6 - 8% has been invested. The Group plans to return to these previous levels of marketing investment in future periods. All digital marketing is carefully planned and delivered to obtain the optimum balance between lower CPA's and the acquisition of quality members with the correct attributes to become active, regularly spending, members.

Balance Sheet and Cashflow

The Group is well capitalised and funded with A$80.2 m (2013: -A$33.4m) of shareholders funds and $59.4m (2013: A$18.9m) of cash at the period end date.

Capital expenditure in the period of A$2.2m (2013: A$1.4m) was spent on the technology platforms of the business together with capital equipment for use in the distribution centres and buying offices. The Group's infrastructure is modern and has significant capacity for future growth.

Inventories were A$14 m at the period end of which approximately A$8.4m is the Group's own-buy inventory and the balance is inventory passing through the distribution centres to fulfil consignment sales.

A tax loss asset of A$10.7m is recognised and carried on the balance sheet and there is a further A$11m, at average corporate tax rates, as yet unrecognised and it is anticipated that both should be available to relieve future period's profits.

The Group's consignment model has a negative working capital requirement and the increased volumes and revenue during the period resulted in a working capital movement in the Group's favour.

The movement in Operating Liabilities shown on the Statement of Cashflows refers to the Company's Long Term Incentive scheme.

Solid Core

Despite challenges to profitability during the first half the core activity of the Group's flash sale business model remains sound.

The Group continues to attract members in increasing numbers and the cohorts of members acquired are exhibiting long term spending behaviour consistent with prior experience. Within their respective segments, the latest cohorts show trends and phasing of activation and propensity to spend over time that is aligned with our experience over the last few years.

The business model remains materially biased to consignment rather than own buy inventory resulting in low inventory risk and positive working capital. However, when opportunities present themselves the Group may take advantage of global surplus inventory, utilising cash on the balance sheet and buying off-price inventory, which will result in a shift in the sales mix between own-buy and consignment as well as underpinning gross margins.

The Group maintains its existing relationships with key brands and added many new relationships, including Jaeger, Kookai and Morgan during the period. The Group's intake (product) margins are relatively stable, showing slight improvement to 40% in this half year, and should improve in the long term as relationships with brand partners become more established and a higher proportion of product is sourced from the UK and USA. Within the core ANZ and S-E Asia segments the Group's level of product returns remains consistent and, at around 7-8%, is low compared to the wider industry. During the period under review the group also launched Cocosa websites in ANZ and the UK. Cocosa is a premium flash sale brand which the Group acquired in the previous financial year. Once established in ANZ the plan is to launch this brand into S-E Asia.

The stability in the core operating model gives the Group the confidence to continue with its proven marketing strategy where there is consistency with previous performance in the initial acquisition costs (CPA) of each new member. Average CPA for digital marketing during the period was around A$4.50 with long term trend in CPA showing modest increases.

The Group has made significant investment over the past years to design and develop IT systems that provide responsiveness, reliability and international scalability. The Group is committed to improving its data and mobile capabilities and will continue its investment in both these areas.

We have executed our mobile strategy as planned on IOS, Android and Windows across all our websites and have continued strong adoption in mobile shopping with approximately 55% of orders coming from mobile devices in the period under review.

The Board continues to see significant growth opportunities in each of the Company's core markets:

· While ANZ is long established it continues to provide attractive growth prospects due to lower levels of internet penetration at c 7% versus UK and USA c 11% together with relative lack of off-price retailers.

· The S-E Asian segment is anticipated to be an increasingly significant part of the business in the medium to long term. Demand for branded products is expected to grow and consumers' disposable incomes rise while they also become more familiar with and trust online retailing. In addition, the prevalence of smart-phones continues to grow and delivery solutions improve, thereby fuelling the demand and improving the service available to members.

· Whilst currently a small part of the business, the United Kingdom operations are present in a large and well developed online marketplace where engaged and active consumers can be acquired successfully.

Sourcing and Logistics

A core strength of the business is the ability to source product in Europe, the UK and the USA for sale in the ANZ and S-E Asian markets. Underpinning this unique sourcing model is our warehouse infrastructure and logistics capabilities, which provides our brand partners with a complete turn-key solution for their excess inventory. UK and European fashion brands are now becoming more familiar with the uniqueness of our business model. Whilst their product may be end of season in the UK or Europe, because of the Northern and Southern hemisphere counter seasons, it is new season product in the ANZ and Asia regions and in the long term this will allow pricing to support our intake margins.

In the last few years, the Company has invested significantly in developing the buying and logistics infrastructure required to operate the business as one of the few truly international flash sale websites. During the period under review, the Group's products were principally sourced from ANZ 43% and ROW 57%. This compares to 100% sourced from ANZ only three years ago and it is anticipated that the current mix will remain broadly similar in the future. Within the ROW the UK operation will continue to grow as it develops increasingly deeper relationships with UK brand partners.

Where valuable opportunities present themselves, we will be increasing the mix of own-buy "off-price" inventory primarily sourced from Europe and the UK. The lower value product will be warehoused in the ANZ region taking advantage of reduced duty rates and mitigating low value orders being shipped internationally.

The Group has implemented a continual process improvement system for its logistics operations and as a result has seen global average dispatch days reduce by c. eight days to 11 days and improved supplier delivery lead times. During the period the Group dispatched approximately 5.3 million units to members.

Brand Partners

During the period the Group ran sales campaigns with over 2,000 brands and currently has more than 3,000 total client brand relationships. Brands within the Top 50 most consistent performers, a segment which contributed approximately 7% of revenue, includes brand partners such as Calvin Klein, Guess and Pandora.

The client brands that the Group works with are attracted by our counter cyclical offering our ability to deliver turn-key solutions and flexible business inventory management. With the UK experiencing some unseasonal warm weather in late 2014 there are some high levels of Autumn / Winter inventory available and the Group will make use of its substantial cash resources to be an active buyer of inventory where prices are attractive. The Group has a number of close relationships with prominent UK based brands, including Arcadia and Sports Direct, which the Board is focused on turning into increased revenue. The Group's partnership with Sports Direct has been in development during H1 and shall be launched to ANZ members in the second half of the current financial year.

Strategy

The fundamentals of our business are strong. We have a clear focus of delivering our members access to international brands and incredible value whilst providing inventory management solutions to our brand partners.

The Group benefits from the strength of the long established ANZ segment, which continues to grow, and the opportunity to achieve significant long term growth in S-E Asia, both of which are supplemented by the growing scale of the UK operations.

We have six strategic targets for growth that underpin our business fundamentals and these are:

· continuing to grow the active membership base;

· implement initiatives to increase member activation, repeat purchase, average basket and retaining members;

· broaden and deepen supplier base and online flash sales events;

· continue to invest in the mobile platform;

· expand into new geographies; and

· pursue acquisitions and joint venture partner opportunities.

The Board will take a balanced approach to costs and in line with previous years of significant growth, the Group aims to invest in marketing, personnel and resources in a measured way, ahead of the curve, in order to sustain growth and ensure operational resilience. The business model has relatively light fixed capital requirements, low inventory requirements, due to the majority of trade being on a consignment basis, and a negative working capital cycle.

During the first half we have invested heavily in new member acquisition, marketing, promotions and also international expansion, including the opening of new websites in the UK and Hong Kong. Having driven the business very hard in H1 we now have over 15 million members and are concentrating our efforts on operational execution and efficiencies, remaining focussed on our core ANZ segment and exploiting further opportunity in the S-E Asia and other markets. We now have an e-commerce platform that is stronger, simpler and better for both customer and stakeholders.

We have made excellent progress in developing new channels of distribution with international and domestic partners. Our partnership with Sports Direct Group has been finalised with inventory now in our distribution centres allowing us to target the lucrative ANZ sportswear market. We will continue to pursue opportunities to provide new channels of distribution in new markets.

The websites have a strong branded merchandise mix which has reduced the reliance on shipping and promotional campaigns. We have cut the cost base and re-focused our marketing investment to the proven digital acquisition channels. MySale has executed its mobile strategy as planned and has continued strong adoption in mobile shopping with approximately 55% of orders now coming from mobile devices in the period under review (H1 FY14: 48%). The integration of Cocosa as the Groups premium branded vertical is now complete with the website now launched in the UK, Australia and New Zealand.

Following the challenges of the first half we are now back on track, we have great branded product at great prices and are very confident that the business is well placed to execute its H2 operational plan.

We will continue to invest in the business. Our strong balance sheet and negative working capital business model means that we can take advantage of the buying opportunities that arise from the glut of excess global inventory. Such buying opportunities will result in a higher sales mix from our owned inventory which will underpin the improvement in gross margins, as well as achieving improved delivery times to our customers.

We remain focussed on our core ANZ region, however we believe long term shareholder value will be delivered by the Group's continued development of the huge S-E Asian opportunity. Having launched our first website in South East Asia in 2010 we now operate in five Asian countries and have built the platform with which to exploit the region's potential. We understand the consumer and the key business drivers, which means that, underpinned by the investment we have made in the international supply chain, warehouse and logistics, we are now in a unique position to become a dominant off-price retailer in the region. This provides a significant long term opportunity as the flash sale market has limited competitors of scale.

Outlook

During the second half, management will continue to deliver against its strategy, focusing on improved marketing and promotional investment efficiency, further optimising the cost base and converting new members acquired into active customers. The fundamentals of the Group's flash sale business model remain robust - low inventory, negative working capital and acquisition of new members through proven digital channels. The business is well capitalised and has A$59.4m of cash.

The actions taken in December have already had a positive impact on the gross profit margin as well as reducing expenses. As a result, management expect the Company to generate at least breakeven EBITDA in the second half of the year.

Introduction

We have been engaged by the company to review the consolidated set of financial statements in the half-yearly financial report for the six months ended 31 December 2014, which comprises the consolidated statements of profit or loss and other comprehensive income, consolidated balance sheet, consolidated statement of changes in equity, consolidated statements of cash flows and notes to the financial statements. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities 

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the AIM Rules for Companies which require that the financial information must be presented and prepared in a form consistent with that which will be adopted in the company's annual financial statements.

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The financial statements included in this half-yearly financial report have been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our responsibility

Our responsibility is to express to the company a conclusion on the financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the AIM Rules for Companies and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the financial statements in the half-yearly financial report for the six months ended 31 December 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the AIM Rules for Companies.

PricewaterhouseCoopers LLPChartered Accountants

1 Embankment Place

London

WC2N 6RH

27 February 2015

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

The interim financial statements of MySale Group Plc (company number 115584) were approved by the Board of Directors and authorised for issue on 27 February 2015. They were signed on its behalf by:

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

Operating segment information

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

Note 6. Income tax benefit