Announcement PDF Appendix 4E Redbubble Limited ABN: 11 119 200 592 Year ended 30 June 2023 (Previous corresponding period: Year ended 30 June 2022) Results for announcement to the market Marketplace revenue Artist revenue Total revenue from ordinary activities Profit / (loss) from ordinary activities before tax attributable to members (2) Profit / (loss) from ordinary activities after tax attributable to members (2) Net profit / (loss) for the year attributable to members (2) Year ended 30 June 2023 $’m 467.5 87.6 555.1 (51.6) (54.2) (54.2) Year ended 30 June 2022 $’m 482.6 90.8 573.4 (22.3) (24.6) (24.6) Movement Down Down Down Up Up Up Change $’m (15.1) (3.2) (18.3) (29.3) (29.6) (29.6) Change % (1) (3.1%) (3.5%) (3.2%) (131.4%) (120.3%) (120.3%) (1) Change % calculations are based on numbers to nearest thousand dollars ($000). (2) Profit / (loss) results include redundancy costs of $4.2m for cost saving initiatives that were enacted during the year and capitalised development costs of $2.8m that were derecognised and expensed during the financial year. Dividends Redbubble Limited has not paid and does not propose to pay dividends for the year ended 30 June 2023 (2022: Nil). There are no dividend or distribution reinvestment plans in operation. Net tangible assets per security Net tangible assets per security (1) (1) 30 June 2023 cents 30 June 2022 cents (6.5) 11.5 Net tangible assets include right-of-use assets recognised under AASB 16 Leases. Other information Detailed analysis of the results for the year ended 30 June 2023 is contained in the Redbubble ASX release and Investor Presentation announcing the full year financial results, and the review of operations in the Directors’ Report accompanying the attached Consolidated Financial Statements. Other information requiring disclosure to comply with Listing Rule 4.3A is contained in and should be read in conjunction with, the Consolidated Financial Statements for the year ended 30 June 2023. This report is based on the Consolidated Financial Statements for the year ended 30 June 2023 which has been audited by Ernst & Young with the Independent Auditor’s Report included in the Consolidated Financial Statements. 1 Contents Page number Directors’ Report 3 Auditor’s Independence Declaration 22 Letter from the People, Remuneration and Nomination Committee 23 Remuneration Report 25 Consolidated Financial Statements 48 Notes to the Consolidated Financial Statements 54 Director’s Declaration 90 Independent Auditor’s Report 91 Corporate information 96 2 Directors’ 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 2023 (referred to hereafter as the Redbubble Group or Group). Directors The following persons were Directors of the Company during the 2023 financial year and to the date of this Report: Martin Hosking Group CEO and Managing Director (appointed effective 27 March 2023, following a period as a Non-executive Director) Anne Ward Chair, Independent Non-executive Director Jennifer (Jenny) Macdonald Independent Non-executive Director Ben Heap Independent Non-executive Director Greg Lockwood Independent Non-executive Director Bob Sherwin Independent Non-executive Director (appointed effective 1 November 2022) Principal activities The Redbubble Group owns and operates the leading global online marketplaces, Redbubble.com and TeePublic.com. These marketplaces facilitate artists’ design and sale of a range of products printed with the artists’ artwork to their customers worldwide. 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 Redbubble Group’s activities during the year. Review of operations A summary of financial results (with year on year (YoY) growth rates, where applicable) is set out below: ● ● ● ● ● ● ● Marketplace Revenue of $468 million, down 3% from FY22 Gross Profit of $174 million, down 5% from FY22 Gross Profit after Paid Acquisition (GPAPA) of $98m, down 9% from FY22 An EBITDA loss of $41 million, compared to a loss of $11 million in FY22 A net loss after tax (NPAT) of $54 million, compared to a loss of $25 million in FY22 An operating cash outflow of $37 million, compared to an inflow of $3 million in FY22 A closing cash balance as at 30 June 2023 of $36 million 3 Directors’ Report A reconciliation of reported results to non-IFRS numbers in this Directors’ Report is set out below. Non-IFRS measures are presented to provide readers a better understanding of the Redbubble Group’s financial performance. The non-IFRS measures are unaudited, however, they have been derived from the audited financial statements. Non-IFRS measures are presented to provide readers a better understanding of Redbubble’s financial performance. The non-IFRS measures are unaudited, however, they have been derived from the audited financial statements. (1) (2) For presentation purposes, numbers have been rounded to millions of dollars, however calculations and totals are based on unrounded numbers. (3) Artists’ expenses comprise artists revenue less marketplace fees and charges recovered from artists. 4 Directors’ Report FY23 was a challenging year for the Group, as the business responded to an evolving consumer landscape and continued uncertainty in the operating environment. Marketplace revenue for FY23 was slightly below FY22, primarily driven by weak trading conditions in the US, the Group’s largest market. There was also notably less demand for more discretionary products, such as homewares, in an uncertain economic environment. At the beginning of the financial year, the Group continued to invest in internal capacity and capability, particularly within the product and engineering teams, and a brand awareness project. Unfortunately, this investment coincided with a softening of consumer demand in the months that followed, and it became apparent that this level of investment would not deliver a commensurate return in the near term. This investment, combined with the reduction in Marketplace Revenue led to the Group’s full year EBITDA loss. In January, the Group announced a number of cost-reduction measures to substantially reduce the Group’s operating expenditure to assist the Group to return to sustainably positive underlying cash flow1. In May, further steps were taken to accelerate this. Together, these initiatives are expected to reduce operating expenditure by $45 million on an annualised basis, with the full benefit expected to be realised from the start of FY24. During the second half of the financial year, the Group focused its efforts on a narrow set of priorities which were expected to drive a financial benefit in the near term, further detail on this is provided below. Importantly, the 4QFY23 GPAPA was 13% higher than the prior corresponding period and the GPAPA margin was 28.5%, up 550 basis points, on the prior corresponding period. This focus, alongside the cost reduction initiatives, enabled the Group to achieve neutral underlying cash flow in July 2023, providing a stable financial footing to commence FY24. Building upon this cash position will remain a priority going forward. The Group holds $36 million in cash as at 30 June 2023, and has no debt on the balance sheet. The Group has also put in place a number of measures to reduce the amount of non-additive content being uploaded to the Redbubble marketplace, following a surge in low-quality content uploads during the pandemic. This content was not particularly unique or creative, and given the volume, it negatively impacted customers' overall experience. During the second half, the Group put in place further measures to address this issue, including increased friction to the artist signup process. Now, before a new artist's content becomes discoverable on the marketplace, the artist's account must be reviewed by human eyes. This has enabled the Group to reduce the amount of non-additive content appearing on the marketplace. 1 Underlying cash flow defined as operating EBITDA less payments for capitalised development costs, leases and property, plant and equipment (PPE). 5 Directors’ Report Business strategies and future developments Throughout the second half of the financial year management took decisive action to reposition the Group. Some of the key initiatives are as follows: ● In May, the Group rolled out artist account tiers on the Redbubble marketplace, and an associated fee for some accounts. This initiative contributed $1.7 million to FY23 Gross Profit in the two months since it was implemented. On the TeePublic Marketplace it also introduced artist accounts to enable it to differentiate its service fee. ● Improving search and discovery to ensure relevant and engaging content is surfaced to customers was a primary focus during FY23. The Group is increasingly using AI to help improve this function. ● Considerable work has also gone into scaling the Group’s marketplace fulfilment capabilities. This included rolling out a dynamic order routing system for the Redbubble marketplace in the US. The improved margins during the year are assisting the Group to improve its underlying cash flow. The Group also announced an organisational restructure to more clearly define the Group function and two operating companies, Redbubble and TeePublic. The expectation is that this new structure will enable each marketplace to have a greater focus on their individual strengths and unique value propositions, which has become increasingly important in the Group’s evolving operating environment. The new structure is effective for FY24. While the Group significantly reduced its cost base this year, the business was careful to maintain adequate resources to allow continued investment in areas that are expected to drive growth over the long term. During the year, Chief Executive Officer (CEO) Michael Ilczynski resigned on 27 March 2023. Upon his resignation, the Group appointed the Group’s co-founder and largest shareholder, Martin Hosking, to the role of Group CEO and Managing Director. Chief Financial Officer (CFO), Emma Clark, also left the organisation during the year and Rob Doyle was appointed the Group’s CFO in March 2023. Prior to joining the Group, Rob was CFO of Domain Group, an S&P/ASX 200 company, which operates a leading property marketplace in Australia. The Group also welcomed a new Director, Bob Sherwin, to the Board in FY23. Bob was appointed after an extensive external search to identify a Director with experience in scaling e-commerce marketplaces, particularly in North America the Group’s largest market, to complement the existing Director’s skill set. Based in the US, Bob is currently Chief Marketing Officer of Wayfair, one of the world’s largest online destinations for home furnishings, housewares and home improvement goods. Looking ahead, the Group remains optimistic about the future. The Group currently comprises two established marketplaces with tremendous growth potential and is entering the new financial year on stable footing, focused on continuing to drive improvements in operating margins and maintaining strong cost discipline. The Group is confident that it has established the foundation for a return to growth and sustainably positive underlying cash flow. 6 Directors’ Report American Depositary Receipts Program The Group has terminated its Level 1 American Depository Receipts Program (ADR Program) due to the Group’s ongoing focus to reduce its operating expenditure and reflecting the modest take up by investors. The Group’s nominated depository bank, the Bank of New York Mellon (BNYM), has advised ADR holders on the termination process, including how to convert ADRs into RBL ordinary shares. Significant changes in the state of affairs In the Directors’ opinion, there have been no significant changes in the state of affairs of Redbubble Group during the 2023 financial year. Significant events after end of the 2023 financial year In the Directors’ opinion, other than set forth below, there have been no matters or circumstances arising since the end of the 2023 financial year that has significantly affected, or may significantly affect: ● Redbubble Group's operations in future financial years; ● the results of those operations in future financial years; or ● Redbubble Group's state of affairs in future financial years. In July 2023, the Group’s subsidiary, Redbubble Inc., received two favourable decisions from the United States Court of Appeals for the Ninth Circuit in ongoing litigation commenced by Brandy Melville and Atari Interactive, Inc., relating to alleged intellectual property infringement. In the Atari Interactive case, the Ninth Circuit upheld the district court’s judgement in Redbubble Inc.’s favour. In the Brandy Melville case, the Ninth Circuit agreed that Redbubble Inc. cannot be held contributorily liable when third parties misuse its services to infringe without its knowledge, and remanded the case to the district court to decide any remaining issues under that legal standard. These rulings reflect the significant investment that Group continues to make in its processes to protect the interests of artists and rights holders on its marketplaces. In August 2023, the Group renegotiated its current San Francisco office lease and signed a new lease agreement for a term of four years and six months. As a result of this lease modification, the Group will recognise a right of use asset of $3.2m and a lease liability of $3.2m subsequent to year end. Dividends No dividends were paid or declared since the start of the 2023 financial year. Given the opportunities to invest in key initiatives, coupled with the uncertain future macro environment, the Board does not expect to pay a dividend in the short to medium term. Environmental Regulations and Performance Redbubble Group’s operations are not regulated by any significant environmental regulation under a law of the Commonwealth of Australia or of a State or Territory. 7 Directors’ Report Environmental, Social and Governance (ESG) Delivering positive social impacts is inherent to the Group’s marketplaces: economically empowering artists, supporting freedom of expression, and advancing the arts. These core outcomes directly correlate with the Sustainable Development Goals of the United Nations (SDG 8 - Decent Work and Economic Growth) and Universal Declaration of Human Rights (Articles 10 and 27). With this in mind, ESG is understandably a part of our ethos and the way in which we operate. Our three ESG pillars (Prosperity, People, Planet) provide a framework we use to set, track and report on the social and environmental impacts of our marketplaces. Following a commitment we first made in 2021, we published our first standalone ESG report in October 2022 https://shareholders.redbubble.com/site/esg-information, which outlines the Group’s ESG strategy, focus areas, and commitments. This year, to reiterate the alignment of our ESG strategy with our broader business objectives, we have decided to integrate our ESG report into our annual report (to be released later this year). ESG highlights this year, which will be detailed further in our annual report, include: ● Artists earned $86m on the Redbubble and TeePublic marketplaces ● Endorsement of United Nations Women's Empowerment Principles ● Membership into the Business for Social Responsibility ● Maintained strong record of pay parity by gender ● Onboarded Climate Neutral Brand Emissions Estimator ● Redbubble and TeePublic invested in REDD+ Rainforest Preservation Project ● Product return (waste) rate improvements (1.3% CY22 to 1.1% CY23 YTD) ● 28 third-party fulfillers who participate in the Redbubble and TeePublic marketplaces scored highly enough to receive Workplace Conditions Assessment (WCA) awards Risk Management The Redbubble Group seeks to ensure that a consistent and integrated approach to managing risk is established at all levels and is embedded in its processes and culture. This enables the Group to take on and manage risk in ways that will generate and protect shareholder value. The Board recognises that an overly cautious approach to risk management may adversely impact the achievement of strategic and operational objectives. Accordingly, the prudent assumption of risk in a manner that balances the risks of action versus inaction is encouraged. The Board is ultimately responsible for ensuring risk management processes are in place and operating effectively, while the Audit and Risk Committee is responsible for overseeing the Group’s ongoing risk management program framework and any key supporting policies and procedures. The Group CEO and the Executive Team are responsible for managing and embedding risk management practices throughout the Group. 8 Directors’ Report The Group continuously reviews its risk management framework to ensure that it remains fit for purpose and provides assurance to the Board that risk is being managed effectively throughout the Group. Principal risks The following are key risks that may impact the Group’s financial and operating results in future periods: ● Competition risk - The Group’s marketplaces operate in a competitive landscape alongside other online marketplaces and e-commerce websites with competing offerings and geographically diverse presences. There is the potential for the Group's business to be disrupted by new technologies or business models in the market segments in which it does business, such as new or existing user-generated content platforms and online marketplaces. The Group manages these risks in various ways, including by focusing on ensuring that its marketplaces provide a competitive offering for artists and their customers. ● Risk from macroeconomic uncertainty and shifts in consumer trends - The Group is subject to macroeconomic and environmental risks that may affect global supply chains and consumer demand, including sustained or short-term reductions in demand for online shopping generally or the product categories available to be sold on the Group’s marketplaces. As a result of global events (including those related to the COVID pandemic, war, environmental changes, and political and economic instability), key geographies are experiencing, or may experience in the future, supply chain disruptions and economic slowdowns of uncertain severity and duration, which may affect discretionary consumer spending and consumer disposable income. The print-on-demand industry is characterised by rapidly changing technology, new service and product offerings, industry consolidation and evolving consumer demands, and the Group relies on consumer trends toward de-branded, made-to-order creative and personalised products and consumer demand for the type of content and products sold by artists on the Group’s marketplaces. Although these risks are largely outside of the Group’s control, it manages them in various ways, including by seeking diversity in product mix, geographic presence and the third-party fulfilment network. ● Dependence on third parties who provide services on the Group’s marketplaces - The Group’s online marketplaces depend on a network of third-party payment processors and fulfillers, which are independently operated businesses that participate in its marketplaces. The Group’s marketplaces depend on third-party fulfillers to produce products that artists want to print their art on and sell, but the Group does not enter into manufacturing contracts with fulfillers and does not control them or have complete visibility into their business activities, including their upstream supply chains, their labour practices, and the raw materials and product blanks they choose to source. The Group manages these risks in various ways, including by setting clear expectations with fulfillers that promote safe products and ethical labour practices, engaging independent labs and auditors to conduct periodic safety testing and ethics audits for the marketplaces, and limiting or terminating fulfiller participation in its marketplaces when they do not meet marketplace expectations. ● Dependence on scaling of underlying platform technology and related third-party services - The Group relies on platform technology infrastructure and the services of third-party service providers to operate its business at scale, including for providing artists with the continuous ability to upload their content and sell products, store the library of artist images and related data, enabling search and discovery of content by artists’ customers, facilitating the 9 Directors’ Report resolution of customer service issues for artists and customers, providing availability of native apps to mobile users, facilitating onsite and offsite marketing for artists, routing of orders to third-party fulfillers, and processing of sales transactions. The technology underlying the Group’s marketplaces is expensive and complex, and internet service providers operate much of the platform infrastructure. The Group is reliant on the relationships with these service providers but lacks detailed visibility and control of these providers’ business activities. The Group manages these risks in various ways, including by conducting diligence on service providers and by consistently investing in eliminating platform and technology constraints. ● Offsite promotion risk - The Group’s marketplaces obtain a significant number of visits via web search engines. The algorithms and ranking criteria applied by these search platforms are unknown to the Group, subject to change at any time, and outside of its control, and it does not have access to complete information on the methods used to rank its marketplaces and webpages. Similarly, the Group facilitates artists’ offsite promotion via third-party advertising platforms and social networks. Increased competition for limited advertising space could increase the cost of acquiring customers for artists and reduce the effectiveness of acquisition spend, and the Group may be unable to develop or maintain a meaningful presence on important social networks. The Group manages these risks in various ways, including by focusing on improving user and crawler navigation experience and site speed, and diversification of customer acquisition sources to reduce reliance on third-party search engines. ● Litigation risk - The Group is the owner and operator of online marketplaces through which it provides online facilitation services to third parties. The Group regularly receives notices alleging infringement of third-party intellectual property rights or similar rights, or breach of consumer protection laws by the Group or by sellers on the marketplaces, and a number of these complaints have resulted in litigation. The Group manages these risks in various ways, including by maintaining a compliance program that covers compliance with applicable online intermediary safe harbour laws, intellectual property laws, privacy and consumer laws, and other similar laws in relevant jurisdictions; responding expeditiously to takedown notices from intellectual property rights holders; engaging in collaborative relationships with rights holders to help enforce and monetize their rights; developing automated platform software to manage content at scale; holding appropriate levels of insurance; and building Group’s litigation capabilities. ● Data security and cyberattack risk - The Group collects, transmits, and stores personal and financial information provided by artists, their customers and other website users. The Group also transmits personal and financial information of artists, customers and other website users to various third-party suppliers of services, including 'Software-as-a-Service' and 'Infrastructure-as-a-Service' providers and other cloud-based technology providers. Furthermore, the Group’s technology platforms may be disrupted by cyberattacks, targeted hacking attacks, distributed denial of service attacks, malware or ransomware, or other disruptive attacks. The Group’s marketplaces are also exposed to the risk of disruption of internet services generally, including failure or disruption of the systems of external service providers and other third parties, like payment processors, advertising platforms, and infrastructure services. The Group manages these risks in various ways, including by conducting data security diligence on third party service providers; developing and testing disaster recovery capabilities and procedures; implementing high availability infrastructure and architectures; continually monitoring its systems for signs of poor 10 Directors’ Report performance, intrusion or interruption; and maintaining appropriate data management, security and compliance policies, procedures and practices. ● Breach of privacy, consumer, and data protection laws - The Group is subject to applicable privacy and data protection laws worldwide, including the General Data Protection Regulation in the EU, California Consumer Privacy Act and the Australian Privacy Act 1988. The Group manages these risks in various ways, including by maintaining a global legal and regulatory compliance program and implementing appropriate privacy and data security measures, including preventative, detective and responsive capabilities, such as a data breach response plan. ● Failure to attract and retain talent - The Group's future success depends, to a significant extent, on its ability to attract and retain skilled and experienced personnel, particularly those with expertise in e-commerce, online platforms, engineering, supply chain, product management and other technical positions. There is substantial competition for personnel with this expertise and the Group may incur increasing costs to attract and retain them. The Group manages these risks in various ways, including by making ongoing investments in employee engagement, as well as reviewing the employee value proposition and adjusting compensation for key talent roles. ● Inability to attract and retain artists and their customers - The Group's revenues and success of its growth initiatives depend upon attracting and retaining artists who upload content that adds value to the marketplaces and that consumers want to purchase and upon attracting customers for artists who convert into new and repeat purchasers. This is dependent on having and maintaining a brand and marketplace experience that are appealing and satisfying to these artists and their customers. The Group manages these risks in various ways, including by continuing to ensure there is a strong value proposition for artists to join and remain in the marketplace due to quality of the service offered and through the resultant sales they can generate. ● Loss of marketplace trust - It is important to the Group’s mission that its marketplaces remain trustworthy to the public, the artists, their customers, third-party fulfillers, regulators, and to those with whom we have commercial relationships. Marketplace trust could be undermined by negative publicity, the upload of offensive, illegal or allegedly infringing content, a decrease in the proportion of content that adds value to the marketplaces and that consumers want to purchase, an increase in fraudulent account activity or transactions, or inability to implement and administer policies that foster trust. The Group manages these risks in various ways, including by moderating usergenerated content that violates Group’s policies or the law, terminating accounts that repeatedly violate Group’s policies or the law, investing in anti-fraud software, and continuously improving Group’s policies and how those policies are administered. ● Risk from global legal compliance - The Group is directly or indirectly affected by continuously evolving, and sometimes conflicting, laws and regulations in Australia, the United States, Canada, Europe and other relevant jurisdictions around the world – at the country, region, state and local levels – including laws and regulations that pertain to intellectual property, e-commerce marketplaces, online intermediaries, user-generated content and censorship, online safe harbours from liability, consumer protection, seller verification, taxation, treatment of deferred losses, privacy, email marketing, web accessibility, online payment systems, and data protection. The 11 Directors’ Report Group manages these risks in various ways, including by participating in industry and legislative policy groups to stay abreast of new and evolving laws and by maintaining a global legal and regulatory compliance program. ● Tax risk - The application of indirect taxes – such as goods and services tax, sales and use tax and value added tax – to online marketplaces, sellers and their customers is a global, evolving and complex issue. At any given time, one or more jurisdictions (whether state or federal) may review or investigate compliance with withholding laws, indirect tax laws, and other tax laws, seek to impose additional reporting, record-keeping, indirect tax collection obligations, or other tax-related requirements on the Group’s online marketplaces. The Group manages these risks in various ways, including by maintaining robust tax compliance and governance systems and procedures, engaging external advisers for expert advice where appropriate and monitoring global taxation developments relevant to the Group. ● Foreign exchange risk - The Group’s financial performance is denominated and reported in Australian dollars. Accordingly, the Group is exposed to exchange rate movements in the currencies (other than the Australian dollar) in which it r