14 15 Redbubble Annual Report 2020 Director’s Report Your Directors present their report on the consolidated entity, consisting of Redbubble Limited (the Company or Redbubble) and the entities it controlled during the financial year ended 30 June 2020 (referred to hereafter as the RB Group or Group). Directors The following persons were Directors of the Company during the 2020 financial year and to the date of this Report: Anne Ward Chair, Non-executive Director Martin Hosking CEO and Managing Director (reappointed effective 18 February 2020 following earlier appointments as Non-executive Director, Executive Director and first appointment as CEO and Managing Director) Jennifer (Jenny) Macdonald Non-executive Director Greg Lockwood Non-executive Director Ben Heap Non-executive Director (appointed effective 20 April 2020) Richard Cawsey Former Chair, Non-executive Director (resigned effective 30 March 2020) Barry Newstead Former CEO and Managing Director (ended effective 18 February 2020) Grant Murdoch Non-executive Director (resigned effective 23 October 2019) Principal activities RB Group, through its websites at Redbubble.com and TeePublic.com, owns and operates the Redbubble and TeePublic online marketplaces. These marketplaces facilitate the sale and purchase of art and designs on a range of products sold by independent creatives to consumers. The products are produced and shipped by third party service providers (i.e. product manufacturers, printers and shipping companies) referred to as fulfillers. There was no significant change in the nature of RB Group’s activities during the year. Review of operations FY2020 Financial Performance The RB Group’s FY2020 financial result reflects a positive shift to online retail reporting the following core metrics with year on year (YoY) growth rates (1) , where applicable: • Marketplace Revenue of $349 million, up 36% (29% on a constant currency basis (2) ); • Gross profit of $134 million, up 42% (36% on a constant currency basis); • Gross Profit After Paid Acquisition costs (GPAPA) of $95 million, up 40% (34% on a constant currency basis); • Operating EBITDA of $15.3 million, up 141% (123% on a constant currency basis); • EBITDA of $5.1 million, up 358% (886% on a constant currency basis); • Free cash inflow of $38 million (3) , compared to an outflow of $0.2 million in FY2019 (4) , resulting from the Group’s increasing profitability and working capital advantage; and • Closing cash balance at 30 June 2020 of $58 million. Marketplace Revenue growth was evident across both marketplaces, particularly in 4Q. This top line growth has been achieved with strengthening margins, efficiency of paid marketing spend and controlled operating expenses resulting in a record Operating EBITDA profit of $5.1 million. Gross profits strengthened in the period with the onboarding of additional fulfillment capacity in Europe, Canada and the United States. The strength of the network across 37 fulfillers, 10 countries and 41 locations allowed products to be produced close to consumers, keeping shipping timelines and costs competitive. The RB Group expanded its paid social channels within the year to include podcast advertising, Twitch, and TikTok, in addition to existing social channels. RB Group’s marketing efforts maintained efficiency with FY2020 marketing spend at 11.4% of Marketplace Revenue. Operating expenses for the period were $79.3 million, however, within this cost base is a $2.2 million restructure provision as a result of the organisational restructure announced on 25 June 2020. This restructure aligns teams to the strategic activities within the organisation. The design commits the Group to deliver against a smaller set of core activities whilst aggressively pursuing profitable growth. FY2020 was the first full year of TeePublic’s inclusion in the RB Group’s Financial Statements. Redbubble made a $7.1 million ($4.8 million USD) deferred consideration payment in May 2020, as required by the Equity Purchase Agreement. The deferred consideration payment was net of agreed actual and contingent liabilities in respect of the period pre-completion of the transaction. At year end, the RB Group retained a cash balance of $58 million, an increase of $29 million ($7.8 million in FY19) demonstrating the Group’s powerful working capital advantage as aggregate operating and investing cash flows were positive for the first time in FY20. (1) FY2020 YoY growth rates based on TeePublic contributions from 1 Nov 2018. (2) “Constant currency basis” reflects the underlying growth before translation to Australian dollars for reporting purposes. Redbubble sources about 94% of its Marketplace Revenue in currencies other than Australian dollars. TeePublic sources about 89% of its Marketplace Revenue in US dollars. (3) Aggregate operating and investing cash flows excluding consideration for TeePublic. (4) The AASB 16 change also increased FY2020 free cash flows by $3.6 million. The FY2019 comparative figures have been adjusted upwards by $2.9 million to apply the same treatment to the prior period.