Thank you for standing by and welcome to the Temple & Webster Group Limited 2022 full year results investor conference call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you'll need to press star key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Mr. Mark Coulter, Chief Executive Officer. Please go ahead. Thank you. Good morning, everyone. Once again, it gives me great pleasure to be presenting Temple & Webster's annual results, this time for the financial year 2022. I'm joined this morning by our CFO, Mark Tayler, and we will be taking you through the investor deck uploaded to the ASX this morning. To begin, I would like to acknowledge the traditional owners and custodians of country throughout Australia. We acknowledge the Gadigal and Wangal people as well as other First Nation countries we operate across. We pay our respects to Elders, past, present, and emerging, and to all Aboriginal and Torres Strait Islander people. Temple & Webster has delivered another set of strong results with record revenue of AUD 426 million, which is up 31% from last year and 142% on a two-year period. This equates to a 55% 2-Year CAGR, which is the way we prefer to look at it, given the turbulence of the COVID impacted years. The EBITDA result of AUD 16.2 million is up 38% on a 2-Year CAGR and at 3.8% of revenue is at the high end of our stated 2%-4% range. This result included an investment of AUD 1.7 million into our new home improvement site, The Build. These results demonstrate our continued ability to deliver profit and cash flow despite volatile macro conditions in the second half. We remain the largest online pure-play retailer in our category. We are profitable with attractive customer unit economics. We have a very healthy balance sheet, and we have a large total addressable market ahead of us. Before I get into the details of the year, I would like to take a step back and give you a summary of where we're at. We are a stronger business with a larger growth runway than we were 12 months ago. However, everyone is aware of the challenges businesses are facing around the world, supply chain headaches, inflation, interest rate rises. In our case, a shift away from discretionary spend on the home to categories such as travel as the world opens up again. We are not immune to such challenges, which are largely external and out of our control. What is in our control is our management of margins, the speed of our investment into longer term growth areas, and the general management of our cost base. As a result of our more prudent management choices, we have upped our EBITDA margin guidance to 3%-5% from 2%-4%. Even with the top line volatility, now we are lapping COVID lockdowns. Again, this is after our investment into The Build. You can see on page 3 that this is not exactly a new strategy. Since Mark and I took over the reins in FY 2017, our communicated strategy has been consistent. We want Temple & Webster to take advantage of the once in a generation shift from offline to online. However, we also want to deliver profitable growth. Our business model can deliver durable, sustained growth at attractive unit economics, generate cash flow to self-fund investments, maintain a conservative capital structure, and deliver improved margins. While FY21 was clearly an outlier, given the speed the market grew, allowing for outsize returns, you can see that the trend line is relatively consistent. We also have a long-term plan to optimize profitability, which Mark will take you through shortly. Ultimately, the fundamentals of our business haven't changed. The market opportunity hasn't changed, our strategy hasn't changed, and importantly, our aspirations haven't changed. While there will be periods of above and below trend growth, our long-term North Star is for Temple & Webster to be a much, much bigger business. We know we have significant untapped growth potential in online market penetration and our market share, and we're adding new addressable markets such as home improvement and B2B furniture, which will allow us to grow further. We are comfortable that our business model and market will create significant operating leverage and a highly profitable business down the track. For those new to the Temple & Webster story, our one-page strategy is set out on page four. We wanna be known for having the best range in our category. We want customers to see us as a place to go to for quality products at affordable prices. We want to inspire people to make their homes more beautiful with inspirational content and services. We wanna create an exceptional customer experience at every step of the journey, from browsing to checkout and delivery. We want to achieve all of this with a strong foundation of data-driven marketing, world-class technology, and exceptional execution from our team. Now, some of the highlights for the year included. Revenue growth was driven by an increase in active customers, up 21%, as per page five. Revenue per active customer was up 6%, as per page six. This revenue per active customer growth was a function of both growth in average order values and the repeat rate and is the eighth consecutive quarter of growth of this metric. Speaking of which, repeat customers now make up the lion's share of our orders, which goes to the quality of the cohorts we've acquired over the last few years. While we saw some inflation in our cost per first time customer, our very strong customer economics has partially offset that customer acquisition cost increase. The net effect is that our marketing ROI, which we measure as the delivered margin dollar an average customer makes divided by the cost of acquiring that first-time customer, remains at around 2, which we consider is still quite high, especially for an e-commerce company. Our conversion rate trend continues to be positive, and while the entire business has conversion rate as a KPI, some of the larger initiatives that we prioritized during the year are set on page seven. The first of these is the continued integration of our Israeli technology partners' tools throughout the site. Renovai is a startup in which we've invested and is one of the few companies we have found building sophisticated tech tools in the interior space. The mood board, which you can see on this page, is actually AI-generated and takes into account the product a customer is browsing, the customer's browse history itself, and then it suggests appropriate cross-sell products based on the look, style, interiors taste, and budget of that customer. So far around 20% of our traffic is seeing this tool, and we have plans to penetrate the other 80% by extending the tool's reach into other categories and rooms. We have increased our investment in Renovai, which gives you an indication of the results of these initiatives and aligns with our strategy of differentiating our proposition partly through technology. This year, we also accelerated our enhanced product page by creating more images, videos, 3D assets, better product information descriptions, romance copy, and dimension data. The result is significantly better product pages for our best sellers, which will drive conversion rate for these products. Customer obsession is built into our DNA, and as a co-founder-led business remains a key priority. After a turbulent couple of years dealing with domestic and global disruptions in our supply chain, the good news is that we're back to our target for our NPS, with FY 2022 ending close to our target of 65%. FY 2023 well on the way to achieving our stretch target of an NPS of 70%. Note, this score would put us in the elite camp of world-class retailers. We continue to invest in our teams, technology, and processes to allow us to manage growth and deliver these outcomes. Now, while there is much growth left in the core B2C online furniture and homewares business, by the time the business needs the next growth rise, it's almost a truism to say it's too late. It is with this mindset that we have set up 2 independent teams to chase the growth plays set out on pages 9 and 10. This year, our Trade & Commercial, which is our B2B division, grew 39%. This is despite some sectors, such as the commercial sector, is experiencing significant disruptions due to the pandemic and lockdown. B2B now represents around 8% of our total business, with considerable potential to grow. The key areas of focus were the development of partnership packages for high-value builder developer customers, including display designs, furniture packages, and marketing selling incentives. Home improvement is the newest kid on the block, and revenue associated with these categories grew 61% across the year. As a quick refresher, the Australian home improvement market is worth around AUD 26 billion, of which AUD 16 billion is relevant to our business. Currently, this market lags furniture and homewares in terms of online penetration. However, we believe we'll see similar market dynamics to those we're already seeing in furniture and homewares. This includes a shift to online shopping as a channel of choice for shoppers who have grown up buying everything online and are now buying, decorating, and renovating their homes. To further capitalize on this opportunity, we launched a new online-only store for the home renovator, The Build by Temple & Webster, which is thebuild.com.au. This site leverages our core technology platform, our digital marketing expertise, and data capabilities. The Build features an initial range of more than 20,000 products across 40 categories. Our goal is for it to become Australia's top shop for all things DIY and home improvement. I'm sure many of you are wondering how The Build is going. Well, it's early days and, we only launched for trading during May. However, we're seeing very encouraging signs. For example, it is growing at a rate significantly faster than Temple & Webster did in its first year. Of course, we know a bit more now than we did 11 years ago. While we do not wanna get in the habit of putting our guidance specifically for The Build, we have included our estimated first 12-month revenue of AUD 10 million-AUD 15 million to show its initial strong take-up. Before handing over to Mark, I'm very excited to announce our new headquarters is on track and is ready to be deployed or moved in during the first half of FY 2023. This has been quite the labor of love and has been a project in the works for many years. Managing a high-growth business is easy on paper, but practical questions, such as where is everyone going to sit, needs answers. At the moment, we are operating over multiple sites, and our new office consolidates our entire city team into a single building. We've secured a cost-effective long-term lease at a site in the inner west and have multiple options to expand both in time and space. Critically, we were able to redesign the office to take advantage of our new flexible working arrangements. Our current operating rhythm is that the entire office is in for a few days a week. As such, there are lots of breakout spaces, creative hubs, and communal areas to encourage in-person meetings, along with a fully spec'd-out office to allow the hybrid office of the future. I'll now hand you over to Mark Tayler to take you through the numbers in more detail. Thank you, Mark. Good morning, all. Yeah, very exciting about the new office. Look, I'm gonna start on page 13 of the investor deck, which highlights the group's profit and loss results for FY 2022. Look, pleasingly, we have been able to deliver on what we set out to achieve, being above-market revenue growth, positive cash flows, and investment into key areas and new growth opportunities, and profitability within a 2%-4% range, all of which we delivered plus more. Starting with revenue, as Mark mentioned, revenue for the year was up 31% for FY 2021 and up 142% for FY 2020, which equates to a 55% two-year CAGR. This revenue growth was driven by both active customer and revenue per active customer growth. Now, in the face of some inflationary pressures and slowing consumer demand during Q4, we took some swift action in the following areas. We focused on improving delivered margin levels, negotiating better outcomes with suppliers, and increasing pricing points where there are opportunities to do so while remaining super competitive. We focused on proven ROI marketing channels, which ensured our 12-month marketing return remained stable. The substantial step up in people during FY 2021 and the first half of FY 2022 enabled us to slow some of our longer-term investments in the second half to ensure profitability metrics remained strong. This was evident with Q4 being higher in terms of profitability than Q4 in FY 2021. These actions helped deliver an EBITDA result of 3.8%, which is at the high end of our stated 2%-4% range, and this result was inclusive of all the investment in The Build of AUD 1.7 million. Now, one question Mark and I get asked quite often is what is a sustainable and achievable long-term margin profile? Which is a difficult question to answer given where we are in our life cycle. We've always answered this question, pointing to other retailers, usually larger, more mature players in our category, and reference the type of margins they do, which invariably shows a category that is relatively high in margins, both gross and bottom-line margins. Page fourteen of the deck attempts to put a bit of meat on the bone here by plotting out the areas we think leverage will materialize and the reasons why. Firstly, margins. Now over time, yes, competition will become stronger in our category, no doubt. We firmly believe the benefits of scale, making our logistical model more efficient and the benefits of increasing private label and potentially made to order as a percentage of revenue far outweigh these potential competitive dynamic changes. Also, we know as we scale, our marketing spend as a percentage of revenue should come down in percentage terms as more of our orders come from repeat customers as opposed to new customers. Knowing repeat customers are a lot cheaper to reengage than to acquire new customers. Also, over time, the brand component also of our marketing spend should become more fixed as opposed to variable as we scale. We should also see some good leverage coming through in the merchant fee and customer care line as we increase efficiency and automation in the care area, and also leverage our scale with our payment providers. Our fixed cost base will be a key area of operating leverage in the coming years. We know Temple & Webster can drive much larger revenue with existing resources, much higher than where we are today, and the recent step up in people will certainly help this equation. Now, going forward, we expect the relationship of revenue to wages to become less linear and to become a true fixed cost as opposed to the variable nature of this line over the last few years as a result of some of the growth initiatives or growth investments. This year a longer-term margin of over 15% in the longer term. A margin profile which we think and we believe is achievable. Most importantly, these are longer-term targets, and the one thing we have learned is the path to our North Star or our vision of becoming Australia's largest retailer of furniture and homewares is never direct and always differs to what you predict. We incorporate this into everyday thinking with agile forecasting and having adaptive mindsets. Page 15 highlights the strength of the group's balance sheet and the cash flow generative nature of the business. Cash increased from AUD 97.5 million to AUD 101 million, primarily driven by cash from operations and the benefits of the group's dropship negative working cap model. These inflows were offset by further investment in inventory to support our private label aspirations. Investment into our Israeli startup, Renovai, taking our ownership percentage to just over 30% and fit out costs of our new head office in St. Peters, consolidating multiple office space into one, as Mark mentioned. One of the other questions we may get or we do get is what are we gonna do with the surplus cash that we have on the balance sheet? Which is a really good question. Look, firstly, most importantly, the cash balance provides us with balance sheet strength heading into FY 2023. This position, coupled with our capital light business model, enables us to navigate potentially difficult conditions which may challenge traditional business models. We think having a strong balance sheet into FY 2023 is vitally important. Secondly, this position provides us with flexibility to fund our organic growth initiatives, which may be more capital in nature. And thirdly, it provides us with a strong position to consider attractive acquisitions. Now in terms of housekeeping metrics to assist in modeling out TPW, I'd call out the following in respect of FY 2023. Depreciation, amortization to come in between AUD 4.5 million-AUD 5.5 million. CapEx to come in between AUD 2.5-3, which is a little bit higher than historical levels, due to the final payments of the fit out, and an effective tax rate of around 30%. Thank you, all. I will hand you back to Mark. Thank you, Mark. Now, while FY 22 was a strong year, we believe it's just a fraction of what we can achieve as the online market for furniture and homewares continues to grow. In Australia, the market is worth around AUD 16-17 billion, of which only around 15% has moved online. This is well behind other markets such as the US, which is around 30% online penetration, with significant growth ahead of it. As we've already mentioned, we are also continuing to expand our activities in B2B and home improvement, and this increases our total addressable market to more than AUD 30 billion. While the underlying tailwinds of the structural shifts in retail will help our growth for many years, we also believe there is a significant opportunity to increase our market share. Online retailers around the world are now overtaking their offline peers to become some of the largest retailers in their categories. Page 19 is a new page we have added this year. It is a reminder that not all categories are created equally. We are well aware that some investors have questioned the long-term sustainability of e-commerce companies, especially as many companies have returned to loss-making after the COVID sales bump. 11 years ago, when my fellow co-founders and I were scoping Temple & Webster, along with a general love of the category and gap in the market, we looked at the fundamentals of the furniture and homewares market. While having higher average order values and better margins than many other categories is an obvious benefit, some of the other benefits are not immediately apparent. This includes that much of the category is sold under the retailer's brand as opposed to branded goods. This allows for better differentiation and a bigger role for margin and creative projects such as private label. The logistics around bulky goods is hard, both moving goods around and into the country. This reduces the level of competition and is a reason that Australia has some of the highest margin furniture retailers in the world. We believe these dynamics will ensure the long-term sustainability and profitability of Temple & Webster. Our flywheel and growth strategy are set out on pages 20 and 21. Given the consistency of these pages, I'm gonna skip them and go straight to the trading update on page 22 to give more time for questions. In response to the FY 2023 cyclical headwinds, and as we've already said, we've accelerated some of our margin optimization and cost management programs. As such, I'm gonna reiterate that we're upgrading our EBITDA margin percentage guidance for FY 2023 from a range of 2%-4% to a range of 3%-5%. Importantly, this profitability range is after our investment into Build, which demonstrates the increasing operating leverage of the core business. Unfortunately, the timing of lockdowns during FY 2021 and 2022 will make year-on-year growth comparisons volatile during the first half, and we're expecting a bumpy start in the new financial year. This can be seen with July trading down 21% year-on-year and August fourteenth trading, seventeen percent down year-on-year. Really importantly, though, this trading is actually ahead of our internal estimates. Looking at month-to-month seasonality and how the business is currently flying across the last few months, we are confident of a return to double-digit growth during FY 23 once we finish lapping COVID lockdowns from the year before. If this happens as we're forecasting, then with the work we've done around our cost base and margins, FY 23 should be more profitable than FY 22, even with this top-line volatility. We remain committed to our profitable growth strategy. We're confident to have the people, platforms, brand, and business model to achieve our North Star of becoming Australia's largest retailer of furniture and homewares. Our results also reflect the incredible resilience of our team and the determination to keep delivering beautiful solutions to our customers, no matter what the pandemic throws at us. This has contributed not only to the growth of our business over the past year, but to bringing happiness into the lives of hundreds of thousands of Australians who have bought our products. I'd like to say a huge thank you to the Temple team for their energy, passion, and drive. We will now take any questions you may have. Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Tim Piper from UBS. Please go ahead. Mentioned, and then also, then the outlook. Sorry to interrupt you. We were not able to hear you. May I request you to repeat your question from the beginning, please? Can you hear me now? Yes. Okay. Sorry about that. Thanks, Mark. The first question is around the shift towards profit margin maximization or optimization, sorry, in the near term. I mean, when going through that strategy, is this in reaction sort of to what you're seeing in terms of the cyclical headwinds? I mean, if we sort of work our way down the P&L, it kind of assumes that fixed cost growth is static from here effectively. Are you through sort of the headcount expansion, et cetera? Look, I think it's a good question. I wouldn't say we've switched into profit optimization. I think that chart that Mark Tayler put, which is long-term, profit margin aspiration of 15%+, that is when we're entering profit optimization. I think what we have been doing for the last couple of years is being very clear that we think that this is a you know, a generational change in shopping behaviors, and we wanted to make sure we were investing ahead of the curve so that we could win those customers as they come online. Whether that be through fixed cost investment or, you know, in marketing or anything, you know, investment in Renovai, et cetera. I think we've made, and you can see that in our fixed cost base. It's stepped up over the last couple of years quite significantly. If we hadn't actually made that step-up, our profitability this year would look better. We did make that investment. We're quite clear. We updated the market in terms of what our new, you know, profit guidance would be, which to give us the leeway to make those investments. I think what we're seeing now is that, yes, we've slowed some of the hires. Yes, we're taking maybe a little bit of a longer-term look with initiatives like the build. You're seeing natural leverage as we take advantage of those fixed cost step-ups over the last couple of years. You know, our marketing, we just redeployed to the channels we know better, which is the digital ones, so away from some of the longer-term brand ones or some of the more expensive ones like you know, brand on social. That is naturally improving our kind of ad costs and our efficiency of marketing. You know, we've always stated that we want private label to be a big part of the business. That has a higher margin profile. Basically just what we're doing and just being a bit you know, a bit more prudent around kind of what we're doing is seeing we're seeing that natural operating leverage increase. We're still investing, we're still hiring to The Build, we're still adding resources, but just at a much slower rate than we have before. It is that natural kind of benefits of the operating leverage in a technology business that we're starting to see and will play out this year. I wouldn't say we're switching to optimization. We're still about growth. It's just there is natural operating levers coming into the model. Okay, got it. You mentioned July, August sort of ahead of internal estimates. Any sort of sense you can give us on the cadence of the return to double digit growth in terms of timing? Well, as we said in the announcement, I mean, we look ahead, we kind of know, like, you know, at our size and the month-to-month, you know, seasonality, you know, into June, July, August, et cetera, gives us a relatively good prediction about how the rest of the year's gonna go. That's why when we look ahead, we know we will pop out into a double-digit growth during the year. We're relatively confident on that. It really, as we said in the announcement, we need to finish lapping COVID. You know, Melbourne was in lockdown still in October. It's kind of the next few months and the start of this year will be volatile, but we will, as soon as we pop out, we're pretty confident on the growth path. Like second half FY 2023? We're saying during this year, but as I said, the lockdowns ended this half last year. Okay, got it. Just one last one, and then I'll jump back into the queue. Just around cash flow from here. I mean, obviously you're now sort of down year-over-year, negative working capital's sort of nice when you're growing. Are you sort of expecting a cash drag as you cycle some of these comps? You're obviously paying tax, cash tax now as well. How are you thinking about cash flow into the next half? Yeah. Good question, Tim. Look, no, I think, as always, there'll be overs and unders, right? Per our comments, we're saying we're gonna be profitable, so obviously that's gonna have a positive impact. The negative working capital model does unwind once things go negative, but we are seeing a return to growth throughout this year. If it's a flat year, for instance, then obviously that won't have much of an impact in terms of cash flow. It really has to be significantly negative for a sustained period for it to start, you know, really dragging on the cash flow. No, we expect this year to be cash flow positive, and we expect future years to be cash flow positive as well, even with some of the investments that we're making in inventory, and other assets as well. You know, we wanna maintain that cadence. Got it. Sorry, last one, promise. Just quickly on margins. Obviously the guidance looks like you're assuming the gross margins will rise through 2023. Is it possible to grow gross margin through a tougher macro? Look, I think it is, Tim. I think, you know, a lot of the work that we're doing around optimizing pricing points, you know, we're taking a very close look at all the promotions that we've been running, and there's definitely a little bit of leakage there in terms of some of the promotions that we've been running. We're definitely seeing, which has been interesting over the last sort of couple of months, we are definitely seeing some suppliers leaning into us in terms of trying to clear some stock. We've got direct inventory feeds into all of our suppliers, so we know what levels that they're sitting on. Some of the promotional support and some of the COGS that are coming through at the moment are telling us that, you know, suppliers are definitely using us as a channel to be clearing some of the inventory. I think, you know, you're gonna have some inflationary pressures keep persisting, I would assume, throughout FY 2023, but I think there'll be some offsetting factors as well. You've got to also remember, we haven't really been optimizing margin to date. It's been more about revenue growth. There's certainly some opportunities from a pricing perspective, particularly on the private label, to optimize margins further. Okay, thanks. I'll leave it there. Thank you. Your next question comes from Aryan Norozi from Barrenjoey. Please go ahead. Hi, guys. Hope you're well. Just my first one, please, just around the expected investment for The Build in FY 2023. I think, a few months ago, you called out about AUD 8 million of investment in total. Is that still the case for FY 2023, please? Yeah. One of the things, Aryan, that we said in May of this year was it was gonna be a sort of AUD 10 million investment over the course of 2022 and 2023. Obviously there's been AUD 1.7 million come into FY 2022. There's been a bit of working cap investment there as well. Not all of that AUD 10 million is OpEx. What we've said was around 20% was inventory or working cap, 80% was OpEx. Which essentially implies a sort of AUD 5-6 million investment in FY 2023. When we say investment, we're talking about the net loss that that business will be running during this period. All the numbers that we're talking about today include that investment. However, the one thing I would say is it's more than likely given the conditions that we think will present themselves in FY 2023. As Mark mentioned, we'll more than likely take a you know, slightly more prudent approach to the investment profile in FY 2023 of The Build. It may actually come in a little bit lower than what we initially put out. Yeah. Okay. Just to reiterate, AUD 5-6 million of OpEx investment in FY 2023, which is basically the loss The Build will run, and then it might come in a bit lower given you're taking a bit more of a prudent approach to that. Is that right? That's correct. In fact, Yeah. I'd be pretty confident to say it would be coming in lower than that. Yeah. Yeah. Okay. Cool. Just in terms of, I mean, how do we think about it in terms of your revenue was about AUD 426 million in fiscal 2022. Moving into fiscal 2023, at what point does the 3%-5% EBITDA margin target not work, basically? What does revenue need to fall by before you guys actually, the operating leverage takes over the sort of, the cost management? Just trying to see the sensitivity as to when those margins actually decline and at what revenue point. Yeah. Look, it's a good question. Look, at the end of the day, no one knows how FY 2023 is going to play out. I think the key thing for us is ensuring that we've got a number of levers up our sleeve to react to whatever conditions are, you know, present themselves. By us essentially freezing the fixed cost base in this year by slowing those longer term investments, it does give us an opportunity to use those levers throughout FY 2023. Those levers that we usually talk about are above the contribution margin line. Delivered margin. We talk about what we can do from a pricing perspective, from promotional perspective, and also from a marketing perspective as well. We've got levers above the contribution margin line that we can push and pull based on those conditions that are in front of us. That will help us sorta get back to, you know, the profitability levels that we're looking to achieve in FY 2023. Essentially by slowing those longer term investments, it does give us some leverage there to, you know, push and pull based on conditions. Yeah. Perfect. Last one, or second last one. Just the bridge between FY 2022 to 2023 EBITDA margin. So what's the biggest driver of that? Well, should we basically assume your marketing as a percentage of sales will remain pretty similar year-over-year and all of the growth will or all of the benefit will just be fixed costs? Is that fair? From 2022 to 2023? Was that the question? Yeah. Yeah. Look, I think there'll be a couple of components, and most of those components will sit above contribution. I think, you know, what we're seeing at the moment by optimizing margin levels, we are seeing a higher delivered margin coming through. And that is both on the product side by leveraging the supply base that we have, extracting better terms, from that supply base and working hand in glove with them. But it's also on the freight side as well. Our team's done a lot of work in optimizing, our inbound freight, but also our localized logistics as well to help drive, you know, an incremental margin level there. I think also, we have dropped our marketing spend or our ad cost levels a little bit given the environment that we're in. Those two factors there should actually drive a contribution percentage, which is actually, you know, a few points higher than where we've been trending. Essentially you take a fixed cost base with a little bit of inflation there, and that's kinda how you get back to your numbers. Perfect. Last one. Just the new headquarters. How much of the I mean, you're obviously paying rent on that cost, but the rent cost doesn't go through the EBITDA line. What is the total annualized rent cost for that business, and when does that actually hit the P&L or the cash flow statement, please? Look, it's. Yeah, you're right. That will sit under EBITDA, and there's none of those re-rent costs coming through at the moment because we haven't moved in yet. Those rental costs will come through. Essentially those rental costs for FY 2023 will offset a number of facilities and office spaces that we have at the moment. We're operating out of a number of offices and a number of warehouses that have our studio where video content, photo content is shot and so forth. Essentially what we're doing, we're consolidating all of those different leases into one site, which will have a number of benefits. In the short term, there will be some costs where there will be some latent space because this facility is being built to facilitate us as a much, much larger business. Certainly there'll be a little bit of extra space there in the short term. You know, over the course of the coming years, that will start to fill up pretty quickly. The lease cost there, yes, there'll be a slightly higher lease cost, but it is consolidating a number of existing leases. The net lease cost increase, I mean, is it AUD 2 million, AUD 4 million, AUD 5 million? Is there a magnitude you can provide us, please? No, it's much less than that. Yeah. It's much less. Okay. Yeah. Yeah. Perfect. Thanks. Thank you. The next question is from the line of Grant Saligari from Credit Suisse. Please go ahead. Good morning. Thanks. A couple of questions, if I could. Just first on your conversion rate chart, page 7. Are you able to give me the average conversion rate for the second half 2022 and second half 2021? It's just a bit difficult to get that off the chart. We haven't disclosed conversion rate by half. This is the chart that we put in. You can kind of just look at the peaks and troughs, though, and you'll get a sense of the increase. It looks like it. Okay, I'll eyeball. It looks like it's up about 10% if I sort of look at those periods. If I'm way off, let me know. The other thing I noted was the average customer growth was about 20%, so I guess in the second half. I guess what I'm trying to do the math on is how you get to a revenue increase of 16% in the second half. Sorry, can you repeat your question? Well, it looks like the conversion rates are, let's go, you haven't disclosed the number, but eyeballing the chart about 10%, let's say, thereabout. It looks like your average number of active customers are up about 20% and revenue was up 16% second half on second half. I'm just trying to work out. It implies revenue per active customer fell in the second half, I guess. No. I mean, the conversion rate relates to traffic as opposed to active customers. How we get to active customers is we go, you how much traffic did you get, what's the growth in traffic, times your conversion rate. Now, if traffic has fallen because of lockdowns, whatever, then conversion rate will make that up, and that then ends in another number of customers. Obviously you have some of those customers repeating, so they're not unique customers, so that doesn't relate directly to the active customer number. To get to the revenue, you times basically your active customer growth times your revenue per active customer growth, and that'll get to the revenue. You can't necessarily link conversion rates directly to active customers. Okay, we'll do it another way then. Active customers are up about 20% and revenue was up about 16% in the second half. Does that imply revenue per active customer was down? Well, active customers are full year, 12-month customers, yeah? They're not half. Well, maybe the direct question, was revenue per active customer down in the second half or up? Revenue per active customer, you can see is by quarter on that page. You can see that it's been growing over the quarter. On page six, that chart is like. On page six. Yeah. Page six is that's by quarter. Yeah, I know. It just doesn't seem to reconcile with your revenue figure. Anyway, I might take that offline. Just second question, if I could. I think the key thing, Grant, which Mark mentioned, is the active customer growth that you're referencing, that's the full year. That's not half. Yeah. Okay. Yeah. Okay. The 21% is a full year number. The half will be a lower number than that. Okay. That's helpful. Thanks. I'll maybe just noodle that offline. The second question I had was just around the customer acquisition cost, which was up nearly 20% year-over-year. I'm sort of wondering, is that sort of a function of that formula that you apply, where you sort of allocate 75% of the cost? Or is it really going up that much in underlying, you know, in underlying terms to acquire a new customer? If so, I mean, 20% is a big increase. I'm just sort of wondering what's actually driving that increase in customer acquisition costs. It's a few things. I mean, basically our CPCs are getting back to kind of historical levels that they were before COVID. I think during that first year after COVID. When COVID hit, so the end of FY 21, there was actually quite a drop in CPCs because there were so many people coming to market. That's why a lot of online retailers were able to, you know, post healthy marketing numbers. Over the next years, offline retailers redistributed their spend out of store into online, and online kinda kind of became a, you know, a channel, a must-have channel for a lot of retailers. You saw a lot of marketing dollars go back into kind of digital marketing, and those CPCs kinda then went back up. You've seen that kinda cost per customer increase. Now, we have also at the same time have been doing brand marketing, doing TV, investing more into things like social, which has a longer payback period. There's a bit of actually just the cost per customer will average up as we go into more expensive channels. We've been pushing our ad cost as well. You know, running an ad cost of our historical 11% is very different to running an ad cost of 13%, and every incremental cost to acquire a customer becomes a bit more expensive. As we push up, so will the cost per customer go up. Now the good news is, as we pull back into the channels we know and kind of redeploying our marketing budget a bit more efficiently, we can see the reduction in our cost of first-time customers. Look, I think there's a bit of CPC inflation as people have deployed into Google. It's kinda more in line with historical pre-COVID. There's a bit of what we're doing. But we've always said anything around 2 we'd be quite happy with. This is like we're still pretty happy with it, with ROI around 2. Yeah. Okay. Just one last- Just to add one additional point there. The CAC, customer acquisition costs, first-time CAC, at the end of the first half was AUD 66. In terms of the second half, there really hasn't been a material movement from the first half to the second half. Yeah. Yeah. It was only AUD 43 in FY 2019, though, so it has sort of been the line that's been trending up. But anyway, it's what it is. Just final one. On the FY 2023 outlook, are you expecting your marketing spend to be up or down in absolute terms on FY 2022? Yeah, I'll take this one, MC. If you look at the guidance that we've put out, it would suggest a level in terms of percentages to be lower than FY 2022. Because it's a variable cost, depending on the revenue level that you're taking, Grant, if you're taking, say, a flat revenue level, but there's an implication there that the marketing percentage, well, the marketing in percentage terms is lower year-on-year, then yes, that would imply a slightly lower marketing spend in dollar terms relative to FY 2022. Okay. All right. That's very helpful. It does kind of depend on the revenue level that you're aiming as well. Sure. I just wanna make one point on the CAC inflation, which it's a good challenge. I think it's really important. It's a really important point to note that when Mark talks through his longer term margin profile, profit margin profile of the business and the reduction in ad costs, we're not assuming a deflation in CAC in that forecast. All of that benefit from 13%-10% is literally just the business switching to a higher repeat business, and we know how much it costs to re-engage. Yeah, we're actually now long-term modeling, assuming that we'll have some inflation on CACs as we go up, but that it doesn't change the underlying story around what's gonna happen to ad cost. Okay. Well, I appreciate the color. Thank you. No problem. Thank you. The next question is from the line of Wei-Weng Chen from RBC Capital Markets. Please go ahead. Hi, guys. Just a couple of questions from me. Your comment around July and August coming in negatively versus the PCP, but you're still expecting a return to double-digit growth. Do you mean double-digit growth overall for FY 2023, or do you mean sort of on a month-by-month basis you'll return to kind of double-digit growth? No, we mean, at that point, at that month, we'll return to double-digit growth. Yeah. Okay. It won't pop out. Um, and then- The full year will determine a little bit how the next few months go and at what point we return to a growth. Yeah, just a question, I guess, you know, obviously you're cycling, you know, these COVID lockdown months, which were, you know, a tailwind for the business, before kind of coming off. How meaningful were July, August, you know, all the way to potentially October for, I guess, your full year FY 2022 results? Yeah. Good question. Sorry. Yeah. I'll jump on this one. Q1 is typically and Q3, they're our two quarters from a seasonality perspective. They're our lowest two quarters in terms of revenue, and then obviously that you know that drops down to the bottom line. Yes, obviously they're important, but they're certainly less important than Q2 and Q4, which are our two largest quarters, both in terms of revenue and bottom line profitability. Yeah. Okay. I guess another way to ask the question is then, is a lockdown Q1 kind of equivalent to a Q2, or is Q2 still materially way above like a lockdown benefited Q1? Can you repeat? I'm not sure I get the question. What's the question there, Wee? Oh. Yeah, I'm just saying, Q1 was obviously locked down last year, which gave you guys kind of a bit of a benefit. I was saying is a locked down Q1 kind of, you know, getting sort of in line with, you know, Q2 and Q4, which are your traditionally stronger months or is it still- The simple answer is probably. It's a difficult one because we've been on such a growth curve over the last sort of few years, and then obviously with the volatility of the COVID period as well, the seasonal sort of floating quarter to quarter is actually really difficult to see in the underlying numbers because of the growth profile. I'll just go back to original point. If you try to normalize the lockdowns, you know, unique situations, then typically Q1 and Q3 are the lower quarters. Q2 and Q4 are the higher quarters, both in terms of profit and revenue. We definitely didn't see that last financial year. Lockdowns definitely helped Q1 and changed that kind of profile. Which is why if we're, you know, doing negative, these kind of negative growths during the toughest quarter to comp, that's why we're kind of feeling more confident about the rest of the year. Yeah. Okay. Just a question, I guess, how July and August this year kind of look versus pre-COVID PCP? Up. Definitely up. Yeah. Okay. Last one just on margins. You've talked about a 15% sort of long-term EBITDA margin. Can you kind of give an indication of, I guess, the scale that's required to achieve something like that? Like ballpark, you know, what are you thinking the top line needs to be to be able to achieve that 15% margin? Yeah. Look, it's a good question. I think, you know, for us, these margin profile aspirations should be and are in alignment with what our overall aspirations are, right? To be the largest retailer in our category. For us to be the largest retailer in our category, it would imply a revenue level above AUD 2 billion. That's at today's level. You know, going forward, it would imply a number north of that number. That's our aspiration. Now, do we need to be doing those sort of revenue numbers to be extracting out a margin profile at that level? No, look, we don't. But are they in alignment with those levels? They are. I think one of the things that does kind of give us a bit of confidence in achieving those longer-term profile or achieving that longer-term profile is if you look at FY 2021, the first half of FY 2021, we ran a 9.2% EBITDA number in that half. Now, that half was definitely assisted by some macro conditions, positive macro conditions on the supply and demand side. But even at that scale point, we could already start to see the leverage coming through. If you start working through all the different points that I mentioned, it does give us confidence that we can achieve those numbers. It's not necessarily contingent on us achieving huge revenue numbers in the future, but those numbers are certainly in line with our overall vision of becoming the largest retailer in our category. Okay. Yeah, thanks so much, guys. Thank you. Once again, if you wish to ask a question, please press star and one on your telephone and wait for your name to be announced. Next question is from the line of Wei-Weng Chen from RBC Capital Markets. Please go ahead. Thank you. Last one then, I guess, from me. You mentioned macro impact in FY22. Can you maybe provide a bit more color on what exactly you saw? I guess the follow-up question is, to what extent are they still persisting in Q1 this year? Are they abating or is it kind of the same or is it even getting worse? Look, it's a tough question to answer because it's hard to disentangle, you know, all the potential effects on the business, especially as we're lapping COVID. We definitely saw Q4 deteriorate as the quarter went on, from April, May to June. However, as Mark said, you know, with the work we're doing, it was actually more profitable year-on-year. It's, you know, part of our drive to be more prudent during this time, ensure that, you know, no matter what the world throws at us, Temple will still be fine. You know, it could be part, it could be partly, that as well. Either way, the quarter did decline a bit over the quarter, and you can see that into the first half. I think though, as I said, when we look at the seasonal flow of the business and the drop off from June, the normal seasonal drop off from June, July, and the step up from July to August, you know, the underlying trends look really positive. It actually looks like, you know, we're on a, you know, we'll pop out at a healthy growth number. You know, AOV look healthy, our margin profile looks healthy. You know, yes, well, the world is a very uncertain place. I still think those underlying trends of, you know, the shift from offline to online, the flight to value during these type of times, you know, those broader trends, you know, counteract to a large part. You know, in most downturns that we've seen actually trump those trends. We're well-placed to take advantage of those trends. We're an online retailer, right? We're in the eye of the storm. We do have market share gains ahead of us. We have strong financial position. Our competitors, especially the online ones, will be pulling back 'cause, you know, they'll be going through a bit of a tough period as well. Look, I think it's always swings and roundabouts. You know, yes, there are definitely macro headwinds. I think we need to wait until we come out of this COVID period to understand how much of an impact they're going to be having on Temple & Webster. Okay, thanks. Just quickly actually a question on [uncertain]. Just confirming you guys pay for things in Australian dollars. Is that correct? The majority is paid in AUD. Obviously, the private label component of the business, which makes up 27% of the revenue. The inventory that you see on the balance sheet is actually paid in US dollars. We hedge, we have a hedging policy that sort of covers about the majority of those purchases. The 27% is USD. The rest of the business is all in AUD as we work with local wholesalers and distributors. Okay. Great. All right. That's all for me. Thanks. Thank you. The next question is from Scott Hudson from MST. Please go ahead. Yeah, morning, gents. Can you hear me okay? Yes. Yeah, thanks. Just a couple of quick ones. You've previously talked about, I guess, a medium-term margin of 2%-4%. Do we see a reversion to that, I guess, range post FY 2023? Is that how you're thinking about things now? Hey, Scott. Yeah, look, it's a good question. I think one of the things I did say, you know, in my remarks was that the road towards our vision or our North Star is never certain, right? Mm-hmm. You know, there's definitely going to be a little bit of lumpiness along the way in terms of that road towards that margin profile. I think we need to wait and see. Certainly, you know, our preference from this point forward is to just, you know, slowly, incrementally increase that margin profile, you know, over the coming years. It will obviously be contingent on the conditions that are in front of us, and obviously the opportunities that present themselves as well. You know, if there's an opportunity there that makes total strategic sense, then we would look at it, and we'd react accordingly. You know, I think from our perspective, given all the investment that's gone into FY 2021 and FY 2022 in terms of platforms, in terms of people, it sets us up well now for FY 2023 going forward to just, you know, just slowly start to show that leverage coming through. Okay, great. In terms of the, I guess, the timeframe to see The Build, I guess, turn to profitability, is that sort of pushed out a little bit given your comments that the FY 2023 investment might be a little bit lighter than what you'd previously said? Not necessarily, I think. I mean, it's only been trading for a few months, right? It's hard to make long-term, you know, predictions about a business that just doesn't have the history. You know, as I said, it started really well. We're actually exceeding what we thought the business, The Build would do. You know, if our sales continues to beat our internal forecast, then even with a slower investment, we may reach profitability sooner. We don't want it to get to profitability, you know, in the next year or two. This is a big business. We wanna make sure we're treating it like any other startup in the world, which you do give it a time to breathe, to grow, to find its feet before you start optimizing margin. I don't think it's necessarily because we're slowing. We will push that point back. I don't think it's as linear as that. Yeah. Your comment on use of cash included capital management, I think, for the first time. Is that something that you're thinking about more given the current environment? Yeah. Look, it's definitely a lever that's there, Scott. You know, it's certainly nothing. We're certainly not saying there's anything imminent. You know, based on a variety of different things, it's certainly a lever that we can pull. Now look, we're in an enviable position. There's certainly some surplus cash there on the balance sheet. I think going into 2023, it's prudent to be in a very strong position at the moment in terms of the cash and the balance sheet strength. We're comfortable going into this period probably with some surplus cash to what we need, or in fact definitely some surplus cash to what we need. Certainly there's a number of capital placement options there that are available to us, you know, if we think the conditions are right. Okay. Just lastly on, I guess, growth opportunities. You obviously talked about B2B and home improvement as, I guess, second and third growth horizons. Is there anything else that you're considering, or is it sort of focused on those two for the sort of near to medium term? I mean, look, if we can get to even a few% of all those markets, I think it's happy days in the short to midterm. Let's, I think we've just we've got our you know, really strong core in B2C furniture and homewares. We've leveraged that into B2B furniture and homewares, and now we leverage everything we've done into a very similar adjacent market, home improvement online. They're big markets at a very early days in terms of penetration. We have lots of share gains ahead of us in different you know, phases of each of those three markets. I would be strongly encouraging us to focus on these for a while. Brilliant. Thanks very much, guys. Thank you. Next question is from Tim Piper from UBS. Please go ahead. Hey, guys. Sorry, I hit the star one when there was still 5 minutes left. I'll be real quick. Just on the slide 14 around the margin profile longer term, that contribute to delivered margin, sorry, of greater than 33%. If we sort of ignore pricing levers, can you talk to the impact of changing mix towards private label as part of that, and remind us of what the differential in delivered margin between private label and dropship, broadly speaking? Yeah, it's a good question. Tim, look, historically, there hasn't been a huge differential, I have to say. It's because of the focus on top line growth, and conversion has been the primary driver over the last sort of few years. The overall difference in margin, once you overlay distribution costs, there really hasn't been too much of a difference. What we've seen over the last half is we have been taking private label, you know, definitely more seriously, and we've increased our inventory levels to support that. We have been increasing our pricing points a little bit to combat obviously some of the inflationary impacts. Even still, we're seeing really strong conversion on private label. I think when we look at it on a relative basis, those private label, the private label range relative to what's in the market, it's super competitive in terms of pricing. I think, you know, longer term, I think there's an opportunity just on the competitive dynamics to be increasing pricing points, but also as we scale, we should be able to leverage better input prices as well. Yeah. Got it. Sorry. Just squeeze in one last one on revenue. I know sort of we've done this to death, but just thinking about the trajectory from here, I mean, we can roughly back out what July and August was in dollar terms. I mean, the macro is clearly changing. I mean, sort of talking a lot to returning to year-on-year based on sort of what you did a year ago and, you know, the environment's changed. Should we not be sort of just taking July and August and applying the regular kind of seasonality from those numbers across the half? On that basis, you know, 1H 2023 could be sort of negative, you know, year-on-year for the half revenue. That's not our seasonality. We look at. I mean, obviously you have to look at pre-COVID. The last couple of years, seasonality was out of the window because it was all about lockdowns and timing, timings of that, openings up, et cetera. Do not look at the seasonality of FY 2021, FY 2022. Really look at seasonality pre that to give a clearer sense of what our true month to month seasonality is. You'll get a different result than that. Okay. No worries. Thanks Thanks for taking the follow-ups. No problem. Thank you. There are no further questions at this time. I will now hand back to Mr. Coulter for closing comments. Thank you everyone for your time this morning. As you can see, FY 2022 has been another strong year. We're entering FY 2023 with better fundamentals in place. Our core is in a great position. Our growth plays are firing, and we've upped our EBITDA margin guidance. Our margins and cost base are looking good, and we have a clear line to returning to double-digit growth during the year. We're looking forward to another great year for Temple & Webster. Thanks, all. Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.