Trading Update

11 December 2018

Trading Update

MySale Group plc (AIM: MYSL) (the ''the group''), the leading international online retailer, today provides the following update on current trading and group strategy.

Summary

· The group has experienced challenging conditions during its peak, second quarter, trading period, and as a result the board now believes that revenue and profits for the financial year to 30 June 2019 will be significantly below market expectations.

· The group now expects a small underlying EBITDA loss for the first half of the financial year. Performance in the second half is expected to be significantly improved, following measures taken to reduce costs and improve margins, resulting in a small underlying EBITDA profit for the full year.

· The principal challenge has been greater than anticipated market disruption arising from changes to general sales tax (GST) regulations in Australia, the group's largest market, which has been exacerbated by the product mix and an insufficient proportion of the 1P (own-buy) inventory being located in the local distribution centre. 

· Action is being taken to improve the product mix and inventory availability with immediate effect. All senior management and product teams are being centralised in the Sydney head office to facilitate more local sourcing and margin improvement.

· Working capital performance in the period has been good and, as anticipated, cash balances have increased.

Trading Update

Changes to Australian GST legislation, in respect of the reporting of e-commerce import transactions of less than A$1,000, were introduced on 1 July 2018. The group had plans in place to accommodate this change by a combination of input cost savings, supply chain changes and selective price increases and made allowance for some disruption. In Q1 the business traded in line with expectation, however in Q2, the peak trading period, the ongoing disruption caused by these legislative changes has been more acute than anticipated and there has been a negative impact on the group's revenue and particularly gross profit as the additional costs arising have been absorbed.

Revenue has also been adversely affected by selective price increases, which have now been reversed, reducing transaction volumes as price competition and comparison increased. This together with the product mix resulted in higher levels of discounting and postage promotions being deployed in order to mitigate lower demand. The challenge with the product mix arose in part because an insufficient proportion of the group's 1P (own-buy) inventory was located in its local Australian distribution centre.

Additionally, gross profit has been affected by the product mix being overweight in categories with lower gross margins and underweight in 1P (own-buy) inventory which delivers higher margins. This imbalance was magnified by the peak trading volumes of November and higher levels of discounting. The group's plans now assume that the gross profit percentage earned on certain product categories will permanently be lower.

Actions are being taken to restore revenue and gross margin including; changes to the product mix to remove lower priced goods in certain categories; increase the weighting of higher price-point categories and products; locating all 1P (own-buy) inventory in local facilities; sourcing more inventory from the domestic market; and reducing freight costs by centralising inventory.

The group has invested heavily in its, proprietary ecommerce platform that supports increased automation, increased efficiency and the lower cost base that is needed for a lower margin environment. As previously announced the ecommerce platform, together with the ANZ First strategy, initiated in FY18 unlocked significant cost reductions in the current financial year. The technology platform's automation capabilities and more locally sourced product will result in lower overall costs including significant freight savings.

Whilst there have been challenges to profitability in the current period the group has a strong balance sheet, and, as anticipated, working capital improvements have increased cash balances in the period.

The board currently expects the outcome of FY19 to be significantly below market expectations, with a small underlying EBITDA loss in the first half. However it is anticipated that the measures taken to reduce costs and improve margins will result in significantly improved performance in the second half of the year, delivering a small underlying EBITDA profit for the full year.

Strategy Update

The group's overall strategic aims, which now include tactics necessary to address the changes in the Australian marketplace, remain as before and are to;

· provide the group's large online customer base with exceptional value, brands, choice and service;

· provide the ecommerce platform of choice to domestic and international brands in ANZ

· leverage the significant strength and efficiency of our proprietary technology platform and international logistics network.

As previously announced, the group has, since the beginning of the current financial year, focused on its activities and opportunities in the ANZ region, through its 'ANZ First' strategy. This strategy aims to optimise the group's significant scale, resources and market position in this region.

The group has commenced a review of its operations in the United Kingdom and South East Asia in order to assess how best to deliver maximum long term value to shareholders, including consideration of strategic disposals. Collectively these regions represented c.15% of group revenue in the last financial year. The board will update on the outcome of this review in due course.

In addition, as previously announced the group has been preparing for deployment of its Ourpay 'buy-now, pay-later' platform with third party customers, and is pleased to confirm it has now completed the technology integration and is undertaking a live trial on the Australian website of a UK retailer. This is an important step in the commercialisation of the Ourpay platform, for use by third parties, and initial experiences have been encouraging. The trial period continues and further updates shall be provided in due course.

At the same time the Ourpay platform continues to grow its penetration within the group's own customer base and now represents in excess of 20% of transaction volumes.

Carl Jackson CEO commented;

''We are very disappointed in the performance during this year's peak trading period. In response to this underperformance we have significantly accelerated and expanded our existing plans to streamline the business, reduce the cost base and make changes to the product strategy. The results of these actions will be realised in the second half of this financial year.

''Whilst we are experiencing a short term dip in revenue and profitability we anticipate the actions initiated shall deliver a return to growth in underlying EBITDA in the second half of the current year.

"The group has strong balance sheet and the anticipated improvements in working capital are being achieved and cash balances are increasing.

''The reconfigured business will be stronger, more efficient and continue to provide a compelling consumer offer and deliver unique solutions to our brand partners.''

The information contained within this announcement is deemed to constitute inside information for the purposes of article 7 of the Market Abuse Regulation (EU) no. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

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About MySale Group

MySale is a leading international online retailer with established retail websites in Australia, New Zealand, South-East Asia and the United Kingdom. Founded in 2007, the Group provides customers with access to outstanding brands and products at discounted prices whilst simultaneously providing brand partners unique international inventory and sales solutions.

The Group provides a flexible marketplace solution in ANZ, SE Asia and the UK for domestic and international brands The Group offers a number of solutions for brands including 1P, 3P (strategic partners, managed and self-managed). The core product categories are womenswear, menswear, footwear, sports, health & beauty, homewares, technology and personalised gifts

Customers' shopping experiences are enhanced by the Group's deployment of leading edge technology to ensure personalised and localised product offerings. The customer experience has been at the heart of the Group's technology development since the earliest days and now mobile commerce is the Group's main sales channel. Proprietary technology innovations deployed include the Ourpay 'buy-now, pay-later' solution which has proved popular with over 130,000 customers using the solution.

The Group's online sales are supported by a robust and flexible network of in-house supply chain infrastructure and technology that enables MySale to offer products from around the world for sale and delivery to customers in each territory.

As a result of these exceptional capabilities in inventory management and international sales MySale has built an enviable portfolio of over 2,500 brand partners from whom products are sourced.

The Group operates websites under a number of different brands all of which operate on a uniform technology platform and a single international logistics infrastructure.

The Group operates 24 websites in eight countries; OzSale and BuyInvite in Australia; NzSale in New Zealand; SingSale in Singapore; MySale in Malaysia, Thailand, the Philippines, the United Kingdom and Hong Kong, and Cocosa in the United Kingdom, Australia and New Zealand; whilst the Group's retail websites are Deals Direct, OO.com and Top Buy in Australia and Identity Direct in Australia and New Zealand.