Investor presentation May 2014
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Uniquely positioned to grow
Attractive growth fundamentals of Australian online shopping market
Dual acquisition and organic growth strategy
Scalable infrastructure in place
Large, growing, loyal customer base
Established business operating for 10 years with experienced Board and management
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Australian online shopping - attractive growth
Strong growth in online retail to date is expected to continue Australian online retail has been growing consistently over the last few years
– Increased online sales in absolute terms – Online retail increasing relative to
traditional retail
Spending in the Australian online market expected to reach as much as $21.7bn in 2015
Historical Australian online retail growth
Source: Shoply, Frost & Sullivan & PWC Joint Research.
3%
5%
7%
9%
11%
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Jan-08 Feb-12 Aug-12 Feb-13 Aug 13 Feb-14
Online sales (12MAT, $bn)Non-food online %
Forecast growth in Australian Online Shopping
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Source: Morgan Stanley Research, NAB / Quantium.
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DealsDirect in the Australian retail landscape
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Source: Morgan Stanley Research.
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Australian Retail sales (ex-cafes / restaurants) $225bn
Online Retail $14.1bn
6.3% of retail sales
Instore retail $210.9bn
93.7% of retail sales
ebay asos
amazon.com StrawberryNET
wiggle
International $3.4bn
ebay DealsDirect Graysonline
Kogan The Iconic
CatchoftheDay
Domestic $6.5bn
Woolworths Coles
JB Hi-Fi David Jones
Harvey Norman Cotton On
Domestic $3.8bn
Nordstrom Saks Fifth
Avenue B&H
International $0.4bn
Pure play online retailers $9.9bn
70% of online retail
Bricks & Clicks retailers $4.2bn
30% of online retail
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DealsDirect in the competitor landscape
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Operating in the “sweet spot” of home & lifestyle goods over $50
Strong IP in logistics & fulfillment in handling bulky goods, providing a point of difference from overseas competitors
Full end-to-end service – 7 day a week customer support from operations
in the Philippines
High speed delivery – Over 80% of orders
dispatched within 24 hours
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Website: www.dealsdirect.com.au
Over 14,000 unique items in a range of categories
Over 800,000 email subscribers – c. 350,000 active1 customers
20,000 sqm warehouse in Ingleburn NSW – Fulfills up to 20,000 items per day in peak periods
Recently completed transformation strategy to better align business with its market and customers
DealsDirect
A leading Australian online department store
1 Active refers to subscribers who have opened an email in the last 3 months
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Product composition
DealsDirect merchandise covers a broad range of household items Product margins vary across categories
– Average product margins for DealsDirect are approximately 35%
Deals direct currently ships all products from Australia and all orders incur full GST
DealsDirect product mix
Furniture16%
Other15%
Outdoors11%
Manchester11%
Appliances8%
Rugs7%
Toys & Games7%
Computers5%
Electronics5%
Sports & Fitness
4%
Tools & Auto4%
Baby4%
Wine, Beer, Spirits
3%
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Dual acquisition and organic growth strategy
By leveraging existing operations, capability and e-commerce experience, Mnemon has the ability to realise benefits of scale:
– Significant number of targets exist for consolidation
– Unleash value from roll-up of sub-scale ecommerce businesses
– Become dominant online destination
Mnemon is an industry consolidator, well positioned to create Australia’s largest listed e-commerce group
Key acquisition target criteria include – Large active customer base – Revenue over $10m – Operating synergies – Cross-sell opportunities – New verticals / category expertise – Value accretive
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Progresses M&A strategy
Acquisition of TopBuy
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Additional revenues over $10m in FY15
Over 85% of consideration in MNZ shares
Over 10% of consideration is based on the achievement of performance criteria
Co-founders will continue in key roles within the senior management
of the TopBuy business
Transaction overview
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Acquisition of TopBuy
for $2.25m on
7th May 2014
Synergy benefits in 1H FY15 expected to cover initial cash outlay
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Acquisition of TopBuy
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Cross-sell opportunities
Strengths in Electronics &
Fashion
Operating synergies with
DealsDirect
Over $10m revenue
China direct fulfillment capability
200,000+ active
customers
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“This is the first step in our ongoing acquisition strategy with MNZ continuing to look at a range of opportunities in the e-commerce industry” - Michael Rosenbaum, MNZ CEO F
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Acquisition of TopBuy
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TopBuy range enhances DealsDirect’s offering – strengths in fashion and electronics
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Acquisition of TopBuy
Cross promotion of databases (combined 600k active customers)
Synergies
Centralised distribution centre in Western Sydney
Asia direct to consumer shipping capabilities will path the way for the inventory light model
Cross-promotion of DD product on TopBuy & vice versa
Combined freight savings
Staffing synergies
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China / Hong Kong Operations
Product merchandising
Supplier relationship management
Central distribution facility (int 250m2, ext 10,000m2)
High value HK/CN products shipped direct from factory
Acquisition of TopBuy 2
TopBuy ‘virtual warehouse’ model paths the way for the group’s ‘Inventory Light’ model
TopBuy inventory to sales ratio currently c. 4% (less than $400k) compared to c. 10% for DealsDirect
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Acquisition of TopBuy
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DealsDirect TopBuy Combined
Active customers 350,000 250,000 600,000
Products 14,000 36,000 50,000
Monthly UVs 1,000,000 200,000 1,200,000
Revenue (FY14) $65m $10m $75m
Distribution centres Sydney 20,0000sqm Shenzhen, China Sydney + China
Key verticals Home & Lifestyle Electronics & Fashion Home & Lifestyle + Electronics & Fashion
Headcount 60 10 70
Group position following acquisition
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Scalable infrastructure in place
Ingleburn (NSW) 20,000sqm Distribution Centre
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Scalable infrastructure in place
Infrastructure and facilities are in place and positioned to scale quickly Fixed costs rationalised in 2013/14 and are scalable over more customers and volumes
Margin enhancement anticipated through increased scale
Warehouse running at c. 60-65% capacity
– Expected to reach c. 80% at peak (September - December)
Ability to dispatch up to 20,000 parcels / day
Next day dispatch on over 80% of orders dispatched from Sydney DC
Shenzhen direct to consumer fulfillment capability via TopBuy infrastructure
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Scalable infrastructure in place
30+ seat operation in Manila has been scaled up over the past two years Additional back office operation is currently being set up in Cebu to provide further efficiencies and scalability All customer service and a portion of finance, administration and marketing facilitated Variable cost model Scalable seven day a week operation Canstar Blue Outstanding Customer Service award won in 2012, 2013
Offshore back office operation
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Canstar Blue customer satisfaction survey awarded DealsDirect the only 5 star rating amongst online department stores DealsDirect provides extended hours of customer support from a Philippines support centre, 9am – 9pm, 7 days per week
Customer experience
Canstar Blue: Best Online Department Store
Source: Canstar Blue http://www.canstarblue.com.au/retailers/online-department-stores/
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Large, growing, loyal customer base
1,300,000 opt-in customers across the group
600,000 active customers across the group
Over 40% of revenue derived from customer database
Customers acquired over the past 10 years
High customer satisfaction creates stickiness
– Major competitive advantage for DealsDirect
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Established business operating for 10 years
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DealsDirect Group founded by Paul Greenberg & Michael Rosenbaum
2004 Acquisition of stake in DDG by Ellerston capital
2011 2013 Acquisition of TopBuy
2014
Relocated to Ingleburn warehouse and offices
2008 New investment from CVC Ltd, CVC Private Equity and Sun Hung Kai
2013 Listed on ASX
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2013 Restructure
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Restructure of business to focus on core offer
Focus on core offer on www.dealsdirect.com.au
Day-to-day management returned to co-founder Michael Rosenbaum F
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Experienced Board and management
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Naseema Sparks Non-Executive Chairperson
Elliott Kaplan Non-Executive Director
Michael Rosenbaum Interim Chief Executive Officer Co-Founder, DealsDirect
David Leslie Non-Executive Director
Peter Xie General Manager TopBuy Co-Founder, TopBuy
Mark Tayler Chief Financial Officer
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Strategic priorities
Focus on industry roll-up strategy – Acquisition of sub-scale e-commerce businesses to drive scale – Focus on synergies and cross-sell opportunities from TopBuy acquisition
Roll out of second offshore operations facility in Cebu, Philippines – Enhance customer service whilst reducing the cost of operations
Implementation of new verticals and services – Click2Collect and DealsDirect Photo launched May 2014, DealsDirect Travel due Q1 FY15
Channel optimisation and Customer Retention Program – Offering multiple sales channel options and enhancing the customer experience
Migration to Magento e-commerce platform to provide scalability & efficiencies
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Financial snapshot
After the successful restructuring of the group’s operations, DealsDirect returned to profitability in 1H14 through the implementation of the following initiatives in late FY13:
– Closure of non-performing business units which resulted in significant “one off” expenses in FY13 – Significant reduction in headcount including the relocation of customer service to Manila which has
resulted in a c.40% reduction in overall employment costs – Refocusing of marketing spend to strong “Return on Investment” based initiatives and the
insourcing of key functions resulting in a c.25% saving in marketing expenditure – The implementation of additional strategies to reduce both fixed and variable expenses in relation
to IT costs, warehousing costs and consultancy costs
DealsDirect 1H14 trading results – Total revenue $36.4m (down 23% on 1H13 - 1H13 includes discontinued operations) – EBITDA $0.2m (compared to EBITDA loss of $3.7m in 1H13) – Positive operating cash flows of $1.5m (compared to $0.1m in 1H13) – Closing inventory levels of $6.6m (down 37% on December 2013)
Mnemon Limited FY14 Forecast revenue c. $65m
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Note: As the reverse acquisition of DealsDirect was completed on the 17th January 2014, the results released as part of the Mnemon Half Year Financial Report do not include the trading results of DealsDirect.
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Summary
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Attractive growth fundamentals of Australian online shopping market
Acquisition and organic growth strategy
Scalable infrastructure in place
Large, growing, loyal customer base
Established business operating for 10 years with experienced Board and management
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DISCLAIMER Some of the information contained in this presentation contains “forward-looking statements” which may not directly or exclusively relate to historical facts. These forward-looking statements reflect Mnemon Limited current intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors, many of which are outside the control of Mnemon Limited. Important factors that could cause actual results to differ materially from the expectations expressed or implied in the forward-looking statements include known and unknown risks. Because actual results could differ materially from Mnemon Limited current intentions, plans, expectations, assumptions and beliefs about the future, you are urged to view all forward-looking statements contained herein with caution.
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ppendix
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Capital structure
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Substantial shareholders at 14 May 2014
CVC 21.2%
Ellerston Capital 10.4%
Sun Hung Kai Strategic Capital 6.4%
Total substantial holders 38.0%
Capital Structure as at 14 May 2014
Shares on issue m 19.1
Share price $ 1.28
Market Cap $m 24.4
Debt (31 March 2014) $m -
Cash (31 March 2013) $m 5.6
Enterprise Value $m 18.8
Source: IRESS, ASX announcements as at 14 May 2014.
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Group snapshot
Reverse listing Mnemon Limited (“MNZ”) was a listed entity that had sold all operating subsidiaries MNZ acquired the DealsDirect Group (“DealsDirect”) with DDG assuming control of the group
– acquisition completed on an equity for equity basis
– simultaneous capital raising of $6.2m to make funds available for acquisitions in the e-commerce space and to fund working capital
Transaction was a strategic opportunity to create a listed e-commerce entity with a mandate to consolidate e-commerce assets which can leverage DealsDirect’s scale and operating capability
Group structure
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Mnemon Limited
DealsDirect Group Pty Ltd
DealsDirect Pty Ltd
TopBuy Australia Pty Ltd
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