MySale Group (LON:MYSL) has released a trading update for the six months ended 31 December 2018. As previously announced (11 December 2018), trading in H1 has been adversely impacted by the combination of changes to Australian Goods and Services Tax (GST) along with product mix and delivery cost factors. Revenue for the first six months of FY19 is down 17% to A$126m with gross profit 35% lower at A$29.5m. Management have taken swift action to address these issues with annualised cost savings in excess of A$10m anticipated. Strong working capital management resulted in a better than expected net cash position of £2.7m at 31 December 2018, an improvement of A$8.9m on net debt of A$6.2m at 30 June 2018. The board remain confident that execution of the Group’s action plan will deliver improved performance in the second half and expects full year results to be in line with current market expectations. Our forecasts are unchanged today.
Trading update: In the six months to 31 December 2018 revenue decreased 17% to A$126 million (H1 FY18: A$152 million), with online revenue was down 13% YOY to A$120 million (H1 FY18: A$138 million). Sales volumes have been impacted by changes to GST, effective 1 July 2018, which applied a 10% sales tax on e-commerce imports with a value below A$1,000 (previously these items were exempt from GST). Gross profit of A$29.5m is down 35% YOY (H1 FY18: 45.6m) with Gross margin 680bps lower at 23.4% impacted by adverse product mix and higher delivery costs due to inventory location and promotional activities undertaken in an effort to mitigate reduced demand. This resulted in a H1 underlying EBITDA loss of approximately A$5.0 million (H1 FY18: A$5.5 million profit). Active customer numbers were down 7% to 0.9m however average order values and order frequency remain stable.
Action plan: In reaction to adverse trading seen in H1, the Group has implemented several action plans anticipated to deliver annualised cost savings in excess of A$10m. These include actions to accelerate the Group’s cost saving programme through increase use of technology platform efficiencies and changes to the product mix and availability to meet competitive pressures. In particular, changes have been made to remove lower priced goods in certain categories and increase the weighting of higher price point products. Management expect these initiatives to result in a significantly improved performance in the second half, translating into a small underlying EBITDA profit for the full year.
Forecasts and valuation: Today’s confirmation that the Mysale Group continues to trade in line with full year expectations means we leave our forecasts unchanged. Headwinds faced in H1 FY19 of the year are in contrast to steady growth and improved profitability achieved over recent years. Management’s immediate action to counter these pressures, a better than expected net cash position of A$2.7m and confirmation that trading remains in line with full year expectations is reassuring. Measures taken should result in a stronger and more efficient business capable of returning to profitability.
