FY23 Annual Report Creative brands. Redbubble Group • FY23 Annual Report One group. Redbubble Group • FY23 Annual Report CONTENTS 01 FY23 Highlights 02 Comparing our Marketplaces 04 Chairman’s Message 06 FY23 CEO Review 08 Redbubble 10 TeePublic 12 Environmental, Social and Governance 20 Board of Directors 22 Group Executive Leadership Team 24 Directors Report 36 Auditor’s Independence Declaration 37 Letter from the People, Remuneration and Nomination Committee 38 Remuneration Report (audited) 55 Financial Report 89 Directors’ Declaration 90 Independent Auditor’s Report 95 Shareholder Information 98 Corporate Information Important Information This Report covers Redbubble Limited as a consolidated entity consisting of Redbubble Limited and its controlled entities (referred to in this report as the Redbubble Group or the Group). The Redbubble Group is a company limited by shares, incorporated and domiciled in Australia (ACN 119 200 592). This Report is a summary of the Group’s operations and activities for the 12-month period ended 30 June 2023 and financial position as at 30 June 2023. This Report covers the Group’s global operations, including subsidiaries, unless otherwise noted. A reference to the Group, the Company, we, us and our and similar expressions refer collectively to Redbubble Limited and its related bodies corporate. Forward-looking statements This Report contains forward-looking statements in relation to the Redbubble Group, including statements regarding the Group’s intent, belief, goals, objectives, initiatives, commitments or current expectations with respect to the Group’s business and operations, market conditions, results of operations and financial conditions, products in research, and risk management practices. Forward-looking statements can generally be identified by the use of words such as “forecast”, “estimate”, “plan”, “will”, “anticipate”, “may”, “believe”, “should”, “expect”, “project,” “intend”, “outlook”, “target”, “assume” and “guidance” and other similar expressions. The forward-looking statements are based on the Group’s good faith assumptions as to the financial, market, risk, regulatory and other relevant environments that will exist and affect the Group’s business and operations in the future. The Group does not give any assurance that the assumptions will prove to be correct. The forward-looking statements involve known and unknown risks, uncertainties and assumptions and other important factors, many of which are beyond the control of the Group, that could cause the actual results, performances or achievements of the Group to be materially different to future results, performances or achievements expressed or implied by the statements. Factors that could cause actual results to differ materially include: changes in government and policy; actions of regulatory bodies and other governmental authorities such as changes in taxation or regulation (or approvals under regulation); the effect of economic conditions; technological developments; and geopolitical developments. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as at the date of the presentation. The Group disclaims any responsibility for the accuracy or completeness of any forward-looking statement. Except as required by applicable laws or regulations, the Group does not undertake any obligation to publicly update or revise any of the forward-looking statements or to advise of any change in assumptions on which any such statement is based. Any projections or forecasts included in this Report have not been audited, examined, or otherwise reviewed by the independent auditors of the Group. Non-IFRS financial information References to AASB refer to the Australian Accounting Standards Board, and IFRS refers to the International Financial Reporting Standards. There are references to IFRS and non-IFRS financial information in this Report. Non-IFRS financial measures are financial measures other than those defined or specified under any relevant accounting standard and may not be directly comparable with other companies’ information. Non-IFRS financial measures are used to enhance the comparability of information between reporting periods and enable further insight and a different perspective into the financial performance. Non-IFRS financial information should be considered in addition to, and is not intended to be a substitute for, IFRS financial information and measures. Non-IFRS financial measures are not subject to audit or review. Redbubble Group • FY23 Annual Report Designed and sold by: Usmate Velate You Light My Fire Poster Redbubble, 2023 Group employee numbers (as at 30 June 2023) 88 Australia 142 USA 15 Europe FY23 HIGHLIGHTS Financial Highlights Financial Highlights Artist Revenue $87.6m FY22 -4% $90.8m Marketplace Revenue $467.5m FY22 -3% $482.6m Gross Profit $174.2m FY22 -5% $183.1m GPAPA margin 20.9% FY22 22.1% Gross Profit After Paid Acquisition $97.6m FY22 -9% $106.7m Operating EBITDA1 -$31.8m FY22 -$3.6m Closing Cash Balance $35.7m 30 June 2022 $89.1m Operational Highlights Selling Artists2 0.7m Customers 7.5m Designs Sold3 6.2m 1. Operating EBITDA is calculated as EBITDA excluding share based payment expenses and foreign exchange gains and losses. 2. Number of artists who sold a product printed with their art during FY23. 3. Number of artists’ designs that have sold on at least one product during FY23. Third-Party Fulfiller Sites 50 North America Gross transaction value 71% May represent multiple third-party fulfillers. Europe & UK Gross transaction value 22% Australia & NZ Gross transaction value 6% 01 Redbubble Group • FY23 Annual Report COMPARING OUR MARKETPLACES Marketplace Revenue Product Diversity $290.7m Marketplace Revenue 62% of Group 50% Apparel $176.8m Marketplace Revenue 38% of Group 93% Apparel 02 Redbubble Group • FY23 Annual Report Designed and sold by: thuyhang121296 I’m With The Banned Tote Bag Redbubble, 2023 Geographic Diversity Core Demographic Gen Z 11-26 year olds and their families Gen Y 27-42 year olds Gross Transaction Value 60% United States Gross Transaction Value 93% United States Redbubble Group • FY23 Annual Report 03 CHAIRMAN’S MESSAGE FY23 was a challenging year for the Group, as we responded to a weakening consumer landscape and continued uncertainty in our operating environment. I am pleased with how the Group faced these challenges and the progress we have made in restoring the Group’s financial position. At the beginning of the financial year, we decided to increase our investment in the Group. Unfortunately, in the months that followed, consumer demand, particularly in the US, weakened and it became apparent that we could not maintain this level of investment. In January, we substantially reduced the Group’s operating expenditure to assist the Group to return to cash flow positive by the end of the calendar year. In May, we decided to accelerate this timeframe and took steps to further reduce the Group’s cost base. I am pleased to see the substantial improvement in the Group’s operating margins as we exit the financial year, and that we have achieved underlying neutral cash flow in July 20231. We understand shareholders’ frustrations with the Group’s recent performance. We remain confident in the Group’s potential and are committed to ensuring the Group is on a strong financial footing and able to unlock shareholder value going forward. Change in leadership During the year, we farewelled Chief Executive Officer (CEO) Michael Ilczynski. Michael joined the Group during the COVID-19 pandemic and led the Group through a turbulent period, as we adjusted to a post-pandemic operating environment. Michael can be proud of what was accomplished during his tenure. In particular, under Michael’s leadership, we significantly improved our technical foundations. He also oversaw the substantial step-up in our content moderation capabilities on the Redbubble marketplace, which has enabled us to secure a number of partnerships with prominent rights holders. On behalf of the Board, I would like to thank Michael for his dedication to the Group and wish him all the best for his future endeavours. We were in the fortunate position that the Group’s co-founder and largest shareholder, Martin Hosking, was available and willing to assume the role of Group CEO and Managing Director immediately on a permanent basis, following Michael’s resignation. The Board is impressed with the progress Martin has made in the relatively short time since being appointed, most notably, returning the Group to an underlying neutral cash flow position, as I mentioned earlier, and laying the foundation for growth within the two operating companies and for the Group overall. We also welcomed a new Director, Bob Sherwin, to the Board in FY23. 1. Underlying cash flow defined as operating EBITDA less payments for capitalised development costs, leases and property, plant and equipment (PPE). 04 Redbubble Group • FY23 Annual Report Ongoing commitment to ESG This year we decided to integrate our ESG report into our Annual Report, rather than produce a standalone document. This is reflective of how the Group approaches ESG – it is an integral part of our business and the way in which we operate. Our ESG goals are aligned with the expectations of artists, their customers and our shareholders and drive commercial outcomes over the short and longer term. We continued to make progress towards our ESG targets this year. We have started measuring our emissions using Climate Neutral’s Brand Emissions Estimate (BEE) tool. Better understanding our current emissions is the critical first step as we work towards meeting our target of Net Zero for Scope 1 and Scope 2 emissions and marketplace shipping emissions by 2025. This year, we committed to supporting the United Nations Women’s Empowerment Principles (WEPs), which provide businesses with guidance on actions that advance and empower women in the workplace – a long- standing goal of the Redbubble Group. I am proud of our efforts in this space. In FY23, we continued to achieve gender diversity across our employee group and to meet our target of 40% or greater representation of women in senior leadership. Outlook As we look ahead, we remain optimistic about the Group’s future. The Group currently comprises two established marketplaces with significant growth potential. We are entering the new financial year on a stable financial footing, focused on continuing to drive improvements in operating margins and maintaining strong cost discipline. We are confident that we have established the foundation for a return to growth and sustainably positive underlying cash flow. In closing, I would like to thank my fellow Directors, the Group Leadership Team and the Group’s employees for their dedication. I would also like to acknowledge the team members who left the Group this year. We value your contribution and wish you all the best for the future. I would also like to thank all our artists who contribute their designs to our marketplaces, Redbubble and TeePublic. Supporting your creativity remains our core purpose. And finally, thank you to our shareholders for your ongoing support of the Group. Anne Ward Chairman 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 Directors’ skill set. Based in the US, Bob has over 20 years of experience growing and scaling organisations, and spent the past 10 years at Wayfair, one of the world’s largest online destinations for home furnishings, housewares and home improvement goods, where he served as the Chief Marketing Officer and helped increase sales by more than twenty times. He is currently in the process of leaving Wayfair. Bob’s expertise is already evident in his contributions to Board discussions and will be invaluable going forward. Improving the health of the Redbubble marketplace During FY23, improving the quality of the content on the Redbubble marketplace and ensuring artists’ customers can easily find content they find engaging was a key area of focus. The marketplace continued with its substantial efforts to identify and remove unwanted content, and this year, added more friction at the sign-up process to stop bad actors from joining the marketplace at the outset. We also improved search and discovery, through the use of AI, and increased the website speed. We implemented a significant change to the marketplace in May 2023 with the introduction of artist account tiers. The Redbubble marketplace is now of a significant scale that it made sense to take this step. The initiative is designed to reward and recognise artists who positively contribute to the marketplace and it is already driving the behaviours we are after, with a substantial increase in ‘Premium’ and ‘Pro’ account uploads since the program’s launch. Combined, these efforts are driving higher customer engagement on the Redbubble marketplace. Designed and sold by: ToyoYukimura Texas Sun • Bauhaus Homage Poster Redbubble, 2022 Redbubble Group • FY23 Annual Report 05 FY23 CEO REVIEW It is with pleasure that I present the CEO’s Review for the Redbubble Group’s FY23 Annual Report. I am delighted to have been appointed CEO again. I am confident in the Group’s tremendous potential and am committed to creating long-term shareholder value. While I was disappointed that Michael Ilczynski resigned in March 2023, the timing of his resignation coincided with my being ready to reassume a full-time executive position, after a period pursuing personal and philanthropic projects. When the Group was founded, there were a small number of e-Commerce entry points and the market was dominated by large online retailers. This has changed, particularly, with the explosion of social media. Strategic review When the Group exited the COVID-19 pandemic, it did not adjust its strategy rapidly enough to the new reality. We had expected consumer demand to plateau at the higher levels observed during the pandemic and had increased the Group’s cost base to align with this. We also invested in a brand awareness project. As it transpired, demand declined, and combined with our higher cost base, this had a significant negative financial impact. While the traditional incumbents continue to have a commanding position, the new distribution channels have created opportunities for smaller businesses and niche brands, who are increasing their market share. Consumers’ desire for meaningful products is enduring and, if anything, has been heightened by the rise of social media, with customers looking to buy products that authentically align with their values and which express their personal point of view. We have learnt from these mistakes and have taken decisive action to reposition the Group. This includes narrowing our focus to initiatives that will drive margin improvement, reducing our cost base and restructuring the Group. I provide more detail on these initiatives below. I have accepted the CEO position on a permanent basis and am excited to have the opportunity to lead the Group as it returns to profitability and growth. My incentives and motivations are aligned with the Group’s long-term potential and I am committed to its powerful mission of serving artists and their customers. Evolving operating environment Since March, I have spent a considerable amount of time getting up to speed on the business, as the Group, and its operating environment, have significantly evolved over the past few years. 06 Redbubble Group • FY23 Annual Report New Group structure and leadership changes In May, we restructured our business to more clearly define the Group function and two operating companies, Redbubble and TeePublic. We expect 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. To support the new structure, we formed a new executive team, the Group Leadership Team (GLT), which comprises the head of each operating company and core Group functions. Further information on the composition of the GLT is provided on pages 22 and 23. As part of this change, Chief Technology Officer, Siebert Lubbe, and Chief Product Officer, Nicole Brolan, left the Group. I would like to acknowledge both Siebert’s and Nicole’s contribution to the Redbubble marketplace and wish them well for the future. Chief Financial Officer (CFO), Emma Clark, also left the Group during the year. Emma played a significant role in stewarding the Group during the COVID-19 pandemic for which I am grateful. We wish Emma all the best in her new role. In March, Rob Doyle was appointed the Group’s CFO. 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. We are delighted to secure a CFO of Rob’s calibre and experience. Strengthening our financial footing My primary focus since being appointed CEO has been returning the Group to cash flow positive. Shortly after I started, we implemented further cost-saving measures to those undertaken in January. We continued to focus on maximising our Gross Profit After Paid Acquisition (GPAPA) in the second half and I was pleased to see that our GPAPA margins increased to 28.5% in 4QFY23, 550 basis points higher than 4QFY22. This focus, alongside our cost reduction initiatives, enabled us to achieve neutral underlying cash flow in July. Building on this position, to return to positive underlying cash flow will remain a priority going forward. Our revenue result was in line with our guidance, slightly below FY22. to return to an underlying cash flow neutral position in July 2023. As I mentioned above, we also introduced artist account tiers to the Redbubble marketplace in May 2023. Already, we are seeing this initiative drive behaviours that benefit all marketplace participants. In June 2023, monthly uploads from ‘Pro’ and ‘Premium’ accounts had increased to 40%. Outlook We exited the year on a stable financial footing, achieving underlying neutral cash flow in July 2023, a seasonally lower revenue month. While we significantly reduced our cost base this year, we were careful to maintain adequate resources to allow us to continue to invest in areas that we expect will drive growth going forward. We believe that there are still opportunities for our business to deliver profitable growth over the medium term by focusing on the fundamentals of the marketplace. Finally, I would like to emphasise how pleased I am to be leading the Group. The Group’s future remains bright and I am excited for what we can achieve. Thank you to our shareholders for their ongoing support, and all employees for their passion, dedication and skill. Martin Hosking Co-Founder, CEO and Managing Director In May, we 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. TeePublic marketplace TeePublic has had strong MPR growth since the Group acquired it in 2018. The MPR compound annual growth rate (CAGR) over this period was 36%. It now contributes approximately 38% of Group revenue. Reflecting our focus on maximising GPAPA, we were pleased to see TeePublic’s Gross Profit and GPAPA growth outpace its revenue growth this year. The improvement in margins has been driven by a number of improvements this year, including growth in customer retention, optimisation of the supply chain and the introduction of account categories. Redbubble marketplace The Redbubble marketplace did not perform as strongly as TeePublic in FY23. In part, this was driven by product mix, as there was notably less demand for more discretionary products, such as homewares, in an uncertain economic environment. Improving search and discovery to ensure we are surfacing relevant, engaging content to customers was a primary focus during FY23, and we rolled out a number of initiatives to address this objective. This included upgrading our frequently visited pages and leveraging AI to improve search algorithms and recommendations. We also increased the website speed. Together, these initiatives have driven higher search engagement. We also rolled-out a dynamic order routing system in the US during the second half of the year. For each order, the system selects the lowest cost fulfilment and shipping option that will reach the customer by the promised delivery date. The increased transparency around how orders are routed to which fulfiler has led to fulfilers reducing their prices and supporting promotions on the marketplace. This initiative contributed to the improved margins during 4QFY23 and assisted us Redbubble Group • FY23 Annual Report 07 Designed and sold by: saevity Tao & Elle from Heartstopper Art Print Redbubble, 2023 08 Redbubble Group • FY23 Annual Report Designed and sold by: rosiemoonart Mod Pattern – Trippy Retro Design Apron Redbubble, 2023 Designed and sold by: Planet Cat Art Rainbow Cats Cap Redbubble, 2023 Redbubble Group • FY23 Annual Report 09 Designed and sold by: Wonder22 Anime Dragonborn Classic Tee TeePublic, 2023 10 Redbubble Group • FY23 Annual Report Redbubble Group • FY23 Annual Report 11 ENVIRONMENTAL, SOCIAL AND GOVERNANCE Delivering positive social impacts is inherent to the Redbubble and TeePublic marketplaces. Namely, through the economic empowerment of artists, support of freedom of expression, and advancement of art. These impacts directly overlap with the United Nations Sustainable Development Goals (SDG 8) and Universal Declaration of Human Rights (Articles 10 and 27). Building upon these core outcomes, we shared our formal ESG strategy last year, which included seven specific, measurable 2025 social and environmental commitments. FY23 Highlights Prosperity Artists earned $85.9M in income on Redbubble and TeePublic marketplaces 94% of fulfiller sites audited by an independent auditor; more than half received Intertek’s Workplace Conditions Assessment award for a score above 85% People Endorsed United Nations Women's Empowerment Principles Joined Business for Social Responsibility Maintained strong record of pay parity by gender Planet Onboarded Climate Neutral Brand Emissions Estimator Invested in REDD+ Rainforest Preservation Project Reduced waste through product return rate improvements (1.3% CY22 to 1.23% in 2HFY23) This year, we are pleased to share the results of our efforts since our last report. It has been a challenging year for the Group, and the impact that the cost-saving measures had on people across the organisation was significant. Marketplace participants, such as artists and employees of third party fulfillers have also felt the impact of the broader economic downturn. Through this turbulent period, we chose not to walk back from our ESG ambitions, both because we recognise they provide us a licence to operate with our stakeholders and, ultimately, conducting business in a way that addresses human rights and the environment is simply the right thing to do. When we first set our ESG commitments, we noted where targets were exclusive to either the Redbubble or TeePublic marketplace or were Group wide. For example, the waste/return rate goal is currently exclusive to the Redbubble marketplace, whereas social responsibility supply chain metrics are for the Group. While operating company goals may evolve in the future, we expect they will continue to share a common backbone of the Group’s ESG strategy we introduced in FY21: Prosperity, People, Planet. One subtle nuance you might notice this year is that we reordered the ESG pillars to acknowledge that our business model begins with artists and supply chain workers (Prosperity). Our employees (People) work to support those artists, supply chain workers, their customers, and – in turn – address the environmental impacts of those group’s collective activities (Planet). 12 Redbubble Group • FY23 Annual Report Designed and sold by: Creativeaxle Modern Abstract Digital Painting 19 Watercolor Illustration Boho Poster Redbubble, 2023 Redbubble Group • FY23 Annual Report 13 ENVIRONMENTAL, SOCIAL AND GOVERNANCE continued Designed and sold by: Movepencilmove Hermit Desk Mat Redbubble, 2023 The need to change artist earnings reflected the increased cost that each marketplace has had as the number of new accounts and content has increased significantly on our marketplaces. As the marketplaces have grown, increasingly we have invested in resources to operate the marketplace and support our artist community and their customers. When developing the new account structures, a guiding principle was to ensure artists continue to earn a fair profit from selling their products through our marketplaces. Throughout the release of the new account structures we listened to artists and invited them to share feedback, which we have addressed, where possible. This included providing a mechanism for artists to request re- reviews of their accounts. We want artists to move up to a higher tier, as this indicates that artists are positively engaging with the marketplace. Since launching the program, more than 12,000 artist accounts have been promoted to Premium from Standard on the Redbubble marketplace. Prosperity PROMOTE SUSTAINED, INCLUSIVE AND SUSTAINABLE ECONOMIC GROWTH, FULL AND PRODUCTIVE EMPLOYMENT AND DECENT WORK FOR ALL We aim to empower and protect people who design, sell, make and use products from our marketplaces. This is fundamental to our business as we are committed to providing a platform that artists and their customers trust and that aligns with their values. Our Commitment FY22 FY23 2025 Target 100% of RBO and TPO third-party fulfillers aligned to our Social Responsibility Manual 100% increase in total artist earnings on RBO and TPO marketplaces N/A 94% 100% $91m $86m $182m Status Progressing to Target Behind Target Artists The people who make their art available on Redbubble and TeePublic are the cornerstone of our business. Our marketplaces economically empower hundreds of thousands of artists and creatives – some seeking a side hustle and others who leverage our marketplaces as a primary source of income. This fundamental social impact of our business differentiates the Redbubble Group and we are constantly seeking ways to support the people who use our marketplaces to sell products printed with their art. In FY23, artists earned $86 million on our marketplaces. This is slightly lower than last year, which primarily reflects Redbubble’s softer marketplace revenue. Consequently, we did not make progress toward our 2025 goal of increasing earnings by 100% from $91 million in FY22. This goal will be reviewed in FY24 to reflect evolving market conditions and our ongoing commitment to support those who use our marketplaces to sell products printed with their art. Artist account tiers In FY23, we introduced new artist account categories on both our marketplaces to reward and recognise artists who demonstrate positive marketplace behaviours and upload high-quality designs which showcase their unique creative skill. As part of this change, we also introduced artist account fees for Standard accounts on the Redbubble marketplace and reduced artist earnings for Apprentice accounts on the TeePublic marketplace. There are no fees for accounts classified as Pro or Premium on Redbubble or changes in the fee structure for Artisan accounts on TeePublic. 14 Redbubble Group • FY23 Annual Report Fulfiller Profile: Products such as the Classic Tee on the Redbubble marketplace is fulfilled by small independently- run businesses such as Stakes Manufacturing in Eastlake, Ohio. Stakes has implemented a program to train, hire, and support people with mental and physical disabilities. We are also bringing more transparency to this space on product detail pages. For example, rather than using generic terms such as ‘responsibly sourced’, which are not specific enough to help customers make informed shopping decisions, we are providing information about marketplace participants who are members of the Fair Labor Association and Better Cotton Initiative. We believe calling out these two globally recognized, non-profit initiatives will provide more value to our customers. We will continue to look for opportunities to share the work that marketplace participants are doing without adding too much detail that it becomes confusing to artists’ customers – many who simply want assurance that the people behind the products are treated with dignity and respect. Social Responsibility / Supply Chain Employees of third-party fulfillers print artists’ designs or products and ship them to the artists’ customers. Like artists, they are not employed by the Group, however, we still feel like we have an obligation to ensure the fulfillers who employ them respect their fundamental human rights. This includes that they are treated with dignity, compensated fairly, and work in a safe environment. The primary way we share our expectations with fulfillers and then evaluate whether those expectations are being met is through independent, third party audits performed by Intertek, a multinational assurance, inspection, product testing and certification company headquartered in London. Across the Redbubble marketplace and TeePublic marketplace supply chains, 28 third-party fulfillers locations scored highly enough to receive Intertek’s Workplace Conditions Assessment (WCA) award based on their most recent audit. As at 30 June 2023, 47 active fulfiller sites have been independently audited, with three scheduled to be audited by the end of the calendar year. Redbubble Group • FY23 Annual Report 15 ENVIRONMENTAL, SOCIAL AND GOVERNANCE continued People ACHIEVE GENDER EQUALITY AND EMPOWER ALL WOMEN AND GIRLS REDUCE INEQUALITY WITHIN AND AMONG COUNTRIES We aim to enable our people to positively impact our culture and community. Employees want to work for companies they trust and have purpose, so they feel proud about the work they are doing knowing they are contributing to environmental and social good. Our Commitment FY22 FY23 2025 Target Ensure employees across the Group feel a sense of belonging 85% 83% 100% Continued 40% or greater of women in senior leadership across the Group 40% 44% >40% Maintain zero gender-based salary discrepancy across the Group 0 0 0 Status Behind Target Meeting Target Meeting Target Empowerment Principles (UN WEPs) – a set of globally recognized guidelines promoting gender equality and women’s empowerment in the workplace. The WEPs are grounded in the recognition that businesses have a stake in, and a responsibility for, gender equality and women’s empowerment. The UN WEPs are also the primary vehicle for businesses to deliver on the gender equality dimensions of the United Nations Sustainable Development Goals, which map to our two ESG commitments on gender diversity. On International Women’s Day, we were honoured to host leaders from the United Nations who spoke to our employees and took questions about the WEPs and tools we will be using to measure and report on our progress. United Nations Women’s Empowerment Principles We remain committed to our diversity goals. Shortly after being appointed Group CEO, Martin Hosking, immediately reaffirmed the Redbubble Group’s commitment to gender diversity by becoming a signatory, among 8,000 others, to the United Nations Women’s 16 Gender balance across the Redbubble Group is 49% Female 2% Non binary 49% Male 245 Employees across the group as of end of FY23 96% FT • 4% PT New hires in FY23 Employees taking parental leave 84 15 Work locations 5% Berlin 37% Melbourne 26% San Francisco 32% New York Redbubble Group • FY23 Annual Report Designed and sold by: DingHuArt A Frog and His Son Classic Tee Redbubble, 2023 Belonging During FY23, we made the difficult decision to significantly reduce our workforce. Those impacted were great colleagues, and friends – each of whom in their own way made the Redbubble Group a better place for artists, customers, and other team members. Through this difficult period, we did our best to embrace our core value of compassion – treating each individual employee with dignity and respect – and put in place a number of measures to support those impacted, such as extending healthcare coverage for employees in the US. Maintaining diversity, across all levels of the Group, was also an important consideration when we undertook the organisational restructure during FY23. As at 30 June 2023, the proportion of women in senior leadership positions at the Group was 44%, 400 basis points, higher than at 30 June 2022 and our representation of female and non-binary people across the Group was 51%. Employee Engagement Survey We are committed to creating and maintaining an inclusive workplace where all our employees feel a strong sense of belonging and are able to perform at a high level. The reduction in our workforce during 2HFY23 has had an impact on all employees, which was reflected in our May 2023 engagement survey, which was conducted across the entire Group. Overall, engagement decreased from 75% favourable in November 2022 to 48% favourable in May 2023. On the positive side, we were pleased that our teams continued to express positive sentiments around questions of feeling like they are respected (86% favourable), valued (83% favourable), and belong (74% favourable). We have put in place a Group wide Communication and Engagement program to address issues raised in the survey and will conduct another survey in November 2023 to monitor progress. Business for Social Responsibility One of the ways we are working to make progress in this space is through our recent Business for Social Responsibility (BSR) membership. Achieving our ESG ambitions – especially as a small company – means working alongside experts and peers to learn and share best practices. In 2023, we joined BSR, which is a sustainable business network and consultancy that provides member companies insights, advice, and collaborative initiatives to help them see a changing world more clearly, create long-term value, and scale impact. As a member of BSR, the Group now has access to sustainability expertise and insights on a variety of topics, including climate, equity and inclusion, human rights, sustainable supply chains, and overall sustainability management. In FY24, we will be working with BSR on a project to benchmark industry leaders when it comes to employee well-being and identify opportunities to properly measure and promote an environment where all employees feel safe and included. Designed and sold by: Wonder22 Cats 02 Classic Tee TeePublic, 2023 Redbubble Group • FY23 Annual Report 17 ENVIRONMENTAL, SOCIAL AND GOVERNANCE continued Planet ENSURE SUSTAINABLE CONSUMPTION AND PRODUCTION PATTERNS TAKE URGENT ACTION TO COMBAT CLIMATE CHANGE AND ITS IMPACTS We aim to protect planet Earth and address environmental impacts both within our direct and indirect control. We will work with third-party carriers, for example, to offset and reduce emissions from product shipping on the marketplace. Our Commitment CY20 CY21 CY22 2025 Target 0 5,290 mT CO2e 6,949 mT CO2e 2,821 mT CO2e N/A 1.3% 1.3% 1.1% Designed and sold by: Isa-bee Woke up today... Mouse Pad Redbubble, 2023 Status Progressing to Target Behind Target Net Zero Scope 1 & 2 emissions, and net zero marketplace shipping emissions Reduce waste, with a focus on reducing product return rate on RBO by 15% from 2021 baseline 18 Carbon In FY23, we onboarded a carbon emissions software tool called the Brand & Emissions Estimator (BEE) Tool, which was developed by Climate Neutral, a non-profit helping companies assess and address emissions. As a next step, we are developing a glide path to net zero during the first half of FY24, which will identify opportunities to decarbonise based on the most significant drivers and lowest lying opportunities. We expect that we will continue to refine our estimates based on new data sources and our ability to access physical emissions data – particularly within scope 3, the greatest contributor to our overall footprint. Estimated CY 2022 Greenhouse Gas Emissions Scope 1 Scope 2 Scope 3 Direct emissions from our offices. Indirect emissions from purchased energy. Marketplace shipping emissions. 32 mT CO2e 156 mT CO2e 2,633 mT CO2e Redbubble Group • FY23 Annual Report Governance Redbubble Group values sustainable and responsible business activities as an important long-term driver of performance and stakeholder value. Governance of ESG within the Group sits with the following personnel: • The Board has ultimate oversight of, and accountability for ESG within the Group, which includes approving the ESG strategy, reporting, materiality assessments, and action plans. • The Vice President of ESG is responsible for developing and executing the Group’s ESG strategy. • Executive Team members reporting to the Group CEO are accountable for the Group’s ESG targets. • Senior Leaders reporting into the Executive Team are responsible for executing initiatives that ladder up to the ESG targets. ESG risks are assessed and managed in accordance with Redbubble Group’s enterprise risk management framework. More information on our approach and accountability is provided in Redbubble Group’s Corporate Governance Statement. Redbubble Group’s governance policies and statements, including on the topics of diversity and modern slavery, are available on our website. Concerns can be raised through the Redbubble Group Whistleblower Policy or directed to esg@redbubble.com. REDD+ Pacajai Rainforest Program For the fifth consecutive year, we offset 100% of measured shipping emissions (2.6mT CO2e) through an investment in the REDD+ Pacajai Project. The project, established under a UN framework, empowers local residents through training and support, securing land-use permits and official titles for villages engaged in forest protection. We are committed to reducing our overall emissions in our effort to reduce our company’s carbon footprint to net zero, alongside the use of carbon offsets which will and should continue to play a role in our strategy – particularly given the nature of our marketplace model. Earth Day To deepen our understanding of the impact of carbon emissions and mobilise our workforce, we organised an Earth Day event this year for all our employees, which included talks by representatives from Climate Neutral and showcased artists such as Rob Price, Rohan Chakravarty, and Priya Subberwal who dedicate their talent to environmental causes. As we progress our ESG strategy, we will continue to seek opportunities to connect our efforts with artists. Waste Product returns lead to waste – whether the result of a low resolution art file, manufacturing error, or a customer ordering the wrong size. One metric that contributes to approximately 60% of returns are product defects. Product defects cause returns which, in turn, lead to physical waste, unnecessary shipping/emissions, disappointed customers, and increased costs. We work diligently each day to measure and identify opportunities to reduce product defects. The product defect rate (total defects/total shipped units) improved from 0.81% in CY21 to 0.77% in CY22 and further improved to 0.62% in CY23 YTD. That translates to tens of thousands of defective products prevented from entering the waste stream. This result is the direct reflection of the hard work and investments made by the Redbubble marketplace and community of third-party fulfillers to improve product quality. More broadly, the product return rate (total returns/total shipped units) stayed flat year on year at 1.3%, 20 basis points above our 2025 target of 1.1%. We are starting to see an improvement in CY23, with the product return rate so far in line with our 2025 target of 1.1%. Beyond product defects, we will continue to evaluate other contributors to product returns to meet our 2025 target. Designed and sold by: Rohanchak Dugong and Seaweed Tote bag Redbubble, 2023 In FY23, Redbubble added a simple drop down menu for phone cases to prevent customers from unknowingly choosing a default option that was the wrong size. Redbubble Group • FY23 Annual Report 19 BOARD OF DIRECTORS Ms Anne Ward Jenny Macdonald Ben Heap Independent Non-Executive Chairman Independent Non-Executive Director Independent Non-Executive Director Appointed: 22 February 2018 Appointed: 20 April 2020 Board Committees: Audit and Risk (Chair); People, Remuneration and Nomination; Disclosure Board Committees: Audit and Risk; People, Remuneration and Nomination (Chair); Disclosure Jenny Macdonald brings extensive expertise in corporate finance, accounting, and auditing, coupled with a strong focus on and understanding of market trends, customer and consumer behaviour. She has a proven track record in developing and implementing strategy with a focus on risk management, growth, and value creation. Jenny spent her executive career in customer-facing organisations primarily in technology, retail, travel services and manufacturing, where she was responsible for strategic turnaround and digital transformation. Her last executive role was CFO and interim CEO at Helloworld Limited, where she oversaw the merger with AOT Group to create the second-largest integrated travel distribution business in Australia and New Zealand. Prior to that, Jenny was the CFO and General Manager International of the REA Group, with responsibility for the financial growth strategy and execution for operations in South East Asia and parts of Europe, having delivered record revenue and net profit for the company. Ben Heap is a Sydney-based non-executive director. He has chaired a range of organisations and served as an advisor, particularly with respect to technology and innovation investment. He finished his full time executive career in 2013 as CEO of UBS Global Asset Management based in Sydney, Australia having previously served as a managing director and regional leader with UBS in New York. Ben has wide-ranging experience in asset and capital management roles in the finance sector and in technology and digital businesses. He is also a founding partner of H2 Ventures, a privately held venture capital investment firm, and recognised for his extensive experience with entrepreneurial founders and high growth companies. He has a bachelor’s degrees in science (mathematics) and commerce (finance) from the University of NSW and is a graduate of the Australian Institute of Company Directors (GAICD). Directorships of other listed entities in the last three years: Directorships of other listed entities in the last three years: Pendal Group Ltd (ASX:PDL) March 2022 to January 2023 Star Entertainment Group Ltd (ASX:SGR) May 2018 to March 2023 (Held role of Chair from 1 June 2022 to 31 March 2023) Site Minder Ltd (ASX:SDR) October 2021 to present Healius Ltd (ASX:HLS) November 2020 to present (Has held role of Chair since 16 September 2022) Bapcor Ltd (ASX:BAP) September 2018 to October 2022 Australian Pharmaceutical Industries Ltd (ASX:API) November 2017 to March 2022 Appointed: Non-Executive Director from 22 March 2018, Chairman from March 2020 Board Committees: Audit and Risk; People, Remuneration and Nomination; Disclosure (Chair) Anne Ward is a highly experienced company director with extensive experience in business management, strategy, finance, risk and governance across a range of industries including financial services, technology, healthcare, government, education and tourism. In addition to chairing Redbubble, Anne is independent Chairman of Symbio Holdings Ltd (ASX:SYM), an independent director of The Star Entertainment Group Ltd (ASX:SGR), a Director of the Foundation for Imaging Research, and a Governor of the Howard Florey Institute of Neuroscience and Mental Health Institutes. Anne was formerly Chairman of Colonial First State Investments Ltd, Chairman of Qantas Superannuation Ltd, Chairman of Zoos Victoria and a director of MYOB Group Ltd, Flexigroup Ltd (ASX:HUM), the Transport Accident Commission, Epworth Hospital and the Brain Research Institute. Prior to becoming a professional director, Anne was a commercial lawyer for 28 years and was General Counsel for Australia at the National Australia Bank and a partner at Minter Ellison in Melbourne. Anne holds a Bachelor of Laws and a Bachelor of Arts from the University of Melbourne and is a Fellow of the Australian Institute of Company Directors and a Life Member of ASFA. Directorships of other listed entities in the last three years: The Star Entertainment Group Ltd (ASX:SGR) November 2022 to present Symbio Holdings Ltd (formerly MNF Group Ltd) (ASX:SYM) July 2021 to present Crown Resorts Ltd (ASX:CWN) October 2021 to June 2022 20 Redbubble Group • FY23 Annual Report Greg Lockwood Martin Hosking Bob Sherwin Independent Non-Executive Director Co-Founder/Group CEO/ Managing Director Independent Non-Executive Director Appointed: 1 June 2015 Appointed: 10 April 2006 Appointed: November 2022 Board Committees: Audit and Risk, Disclosure Board Committees: Disclosure Board Committees: Nil Greg Lockwood was appointed as a non- executive Director with effect from June 2015. Greg is a partner of Piton Capital, which is a shareholder in Redbubble. In 1999, Greg founded UBS Capital’s early stage venture investing activities in Europe. Subsequently, he co-founded Piton Capital, the London-based venture capital fund specialising in marketplaces and business models with network effects. Prior to his venture capital activities, Greg worked in telecommunications corporate finance with UBS in London and Zurich and held operating roles in classified media publishing in Toronto. Greg has an Honours Business degree from the University of Western Ontario, and a Master’s degree in management from the Kellogg Graduate School of Management. Directorships of other listed entities in the last three years: Nil Martin Hosking is a co-founder of Redbubble. He first became the CEO and Managing Director in July 2010. Martin resigned from executive duties and commenced as a non-executive Director on 1 October 2018. Martin was then appointed interim CEO and Managing Director on 18 February 2020, before resuming as a non-executive Director upon Michael Ilczynski’s appointment as CEO on 27 January 2021. He returned as Group CEO and Managing Director on 27 March 2023 upon Michael’s resignation. Martin has spent over 25 years scaling Australian technology companies. Previously, Martin was the chair of Aconex, a SaaS provider to construction firms, and Southern Innovation, a digital pulse processing solution. He was instrumental in the development and subsequent listing on the NASDAQ of search company, LookSmart. Martin started his career as a diplomat with the Australian Department of Foreign Affairs and Trade before joining McKinsey & Company, serving clients focusing on emerging technologies. Martin is also a director on the Board of the Melbourne Theatre Company and sits on advisory committees at Melbourne and Monash University. Bob Sherwin was appointed a Director in November 2022. Bob is a highly accomplished executive with significant experience in marketing, omni-channel retail, and scaling online marketplace businesses. Bob has spent the past 10 years at Wayfair Inc, one of the world’s largest destinations for home furnishings, housewares and home improvement goods, where he served as the Chief Marketing Officer and oversaw global marketing strategy and execution, physical retail, sales, and other consumer-facing functions, this includes managing more than USD1B of advertising spend as of 2022. Bob is currently in the process of leaving Wayfair. Prior to joining Wayfair in 2013, Bob was a strategy consultant at McKinsey & Co., where he worked across a wide range of consumer industries and functions, including strategy, sales, marketing, technology and operations at insurance, travel, finance, teleco, CPG and retail focused organisations. Bob holds his bachelor’s degree from the College of William and Mary in Finance and Economics, and Master’s degrees from Northwestern’s Kellogg School of Management and McCormick School of Engineering. Directorships of other listed entities in the last three years: Directorships of other listed entities in the last three years: Nil Nil Redbubble Group • FY23 Annual Report 21 GROUP EXECUTIVE LEADERSHIP TEAM Martin Hosking Rob Doyle Meahan Callaghan Group Chief Financial Officer Group People + Culture Officer Meahan Callaghan joined Redbubble in October 2021 as Chief People and Culture Officer. Meahan was most recently Chief People Officer at Afterpay, before that MessageMedia and earlier she spent 10 years in the same role at SEEK Ltd. Meahan has experience leading global P&C Functions supporting teams in the US, Canada, Europe, South America, Asia and Africa. Meahan holds a Bachelor of Business (HR Management) and a Post Graduate Diploma in Psychology. Rob was appointed the Group’s Chief Financial Officer (CFO) in March 2023. He was previously CFO of Domain Group, a S&P/ASX 200 company, which operates a leading property marketplace in Australia. Rob was appointed as Domain Group CFO prior to the separation of the business from Fairfax Media and the listing of Domain on the ASX. Prior to this, Rob was Group General Manager, Finance at Fairfax Media where he led a Finance Transformation program as well as contributing to the broader Fairfax business transformation. Earlier in his career Rob held several senior finance positions at Vodafone Group in the UK and Vodafone Hutchison Australia, having qualified as a Chartered Accountant with audit firm Kingston Smith in London. Rob is a Fellow of the Institute of Chartered Accountants in England and Wales (ICAEW) and is a member of the Australian Institute of Company Directors (AICD). Co-Founder/Group CEO/ Managing Director Martin Hosking is a co-founder of Redbubble. He first became the CEO and Managing Director in July 2010. Martin resigned from executive duties and commenced as a non-executive Director on 1 October 2018. Martin was then appointed interim CEO and Managing Director on 18 February 2020, before resuming as a non-executive Director upon Michael Ilczynski’s appointment as CEO on 27 January 2021. He returned as Group CEO and Managing Director on 27 March 2023 upon Michael’s resignation. Martin has spent over 25 years scaling Australian technology companies. Previously, Martin was the chair of Aconex, a SaaS provider to construction firms, and Southern Innovation, a digital pulse processing solution. He was instrumental in the development and subsequent listing on the NASDAQ of search company, LookSmart. Martin started his career as a diplomat with the Australian Department of Foreign Affairs and Trade before joining McKinsey & Company, serving clients focusing on emerging technologies. Martin is also a director on the Board of the Melbourne Theatre Company and sits on advisory committees at Melbourne and Monash University. 22 Redbubble Group • FY23 Annual Report James Toy Vivek Kumar Group General Counsel Chief Executive Officer, TeePublic Vivek joined Redbubble Group in June 2022 as CEO, TeePublic. Vivek has more than 20 years of ecommerce, direct to consumer, and digital marketing experience. Vivek has led ecommerce businesses across retail, consumer goods, digitally native, and marketplaces spanning companies including Barnes & Noble, Newell Brands, UrbanStems, and UPS. In his early career, Vivek worked in technology consulting for several years. Vivek has an electrical engineering degree and an MBA from the University of North Carolina. He is based in New York. James Toy leads the legal, policy, governance, information technology, and security teams at Redbubble Group and advises across all of its global businesses and markets. James joined Redbubble in 2014, serving as Assistant General Counsel and most recently as Deputy General Counsel before being appointed to Group General Counsel in 2022. Prior to Redbubble, James practised law in the San Francisco Bay Area offices of Covington & Burling LLP and Simpson Thacher & Bartlett LLP, where he advised high-growth tech companies in strategic partnerships, intellectual property licenses, mergers and acquisitions, and securities offerings, with an aggregate deal value of over $20 billion. James holds a Bachelor of Arts in Economics from the University of Memphis, where he graduated magna cum laude, and a Juris Doctor from the Duke University School of Law, where he was an editor of the Duke Law Journal. Redbubble Group • FY23 Annual Report 23 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 Greg Lockwood Bob Sherwin Independent Non-executive Director Independent Non-executive Director 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 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. 24 Redbubble Group • FY23 Annual Report Table 1: Reconciliation of reported results to non-IFRS(1) numbers Marketplace revenue Artists’ revenue Total reported revenue from contracts with customers Artists’ expenses(3) Fulfiller expenses Gross profit Gross profit margin on Marketplace revenue Paid acquisition costs Gross Profit After Paid Acquisition costs (GPAPA) GPAPA% (on Marketplace revenue) Employee and contractor costs (excluding share-based payments expense) Marketing expenses (excluding paid acquisition costs shown above) Operations, administration and technology expenses Operating Earnings Before Interest, Tax, Depreciation and Amortisation (Operating EBITDA) Share-based payments expense Other expenses (excluding interest expenses) Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) Depreciation and amortisation Earnings before interest and tax (EBIT) Interest expenses Interest income Total profit/(loss) before income tax Income tax benefit/(expense) Reported total profit/(loss) for the year FY2023 $’m(2) FY2022 $’m(2) 467.5 87.6 555.1 (85.9) (295.0) 174.2 37.3% (76.6) 97.6 20.9% (82.4) (9.3) (37.8) (31.8) (5.6) (3.3) (40.7) (10.7) (51.4) (0.3) 0.2 (51.6) (2.6) (54.2) 482.6 90.8 573.4 (90.8) (299.5) 183.1 37.9% (76.4) 106.7 22.1% (70.3) (4.0) (36.1) (3.6) (6.9) (0.7) (11.2) (10.7) (21.9) (0.4) 0.0 (22.3) (2.3) (24.6) (1) 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. (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. 25 Redbubble Group • FY23 Annual Report DIRECTORS’ REPORT continued 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 sign-up 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. 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. 1. Underlying cash flow defined as operating EBITDA less payments for capitalised development costs, leases and property, plant and equipment (PPE). 26 Redbubble Group • FY23 Annual 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. 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 27 Redbubble Group • FY23 Annual Report DIRECTORS’ REPORT continued 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. 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 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. 28 Redbubble Group • FY23 Annual Report • 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 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 user-generated 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 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. 29 Redbubble Group • FY23 Annual Report DIRECTORS’ REPORT continued • 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 receives revenues and/or incurs costs, especially because the United States of America is its largest market. The Group’s financial position, as measured by the assets and liabilities it carries on its balance sheet, is denominated and reported in Australian dollars. Some of the underlying assets and liabilities may, however, be recorded in other foreign currencies. The Group manages these risks in various ways, including by settling liabilities in the native currency of the transaction, creating a partial natural hedge, and converting foreign currency cash balances where needed to match expected funding requirements. Key management personnel during the 2023 financial year and since the end of that financial year The “Key Management Personnel” for the purposes of the FY23 Remuneration Report have been determined to be the current Redbubble Limited directors and the following members of the Redbubble Executive Team: • Martin Hosking – Group CEO and Managing Director from 27 March 2023 • Rob Doyle – Group Chief Financial Officer from 27 March 2023 • Michael Ilczynski – Chief Executive Officer until 27 March 2023 • Emma Clark – Chief Financial Officer until 23 December 2022 • Mark Hall – Interim Chief Financial Officer from 5 December 2022 to 24 March 2023 Information on Directors At the date of this report, the Board comprises five Independent Non-executive Directors and one Managing Director, who collectively have a diverse range of skills and experience. Details of current Directors, their experience, qualification, special responsibilities and directorships of other listed entities are set out below. Directors’ qualifications and experience Ms Anne Ward Independent Non-Executive Chair Appointed: Non-Executive Director from 22 March 2018, Chair from March 2020 Board Committees: Audit and Risk, People, Remuneration and Nomination, Disclosure (Chair) Anne Ward is a highly experienced company director with extensive experience in business management, strategy, finance, risk and governance across a range of industries including financial services, technology, healthcare, government, education and tourism. In addition to chairing Redbubble, Anne is independent Chair of Symbio Holdings Ltd (ASX:SYM), an independent director of The Star Entertainment Group Ltd (ASX:SGR), a Director of the Foundation for Imaging Research, and a Governor of the Howard Florey Institute of Neuroscience and Mental Health Institutes. Anne was formerly Chairman of Colonial First State Investments Ltd, Chairman of Qantas Superannuation Ltd, Chairman of Zoos Victoria and a director of MYOB Group Ltd, Flexigroup Ltd (ASX:HUM), the Transport Accident Commission, Epworth Hospital and the Brain Research Institute. Prior to becoming a professional director, Anne was a commercial lawyer for 28 years and was General Counsel for Australia at the National Australia Bank and a partner at Minter Ellison in Melbourne. Anne holds a Bachelor of Laws and a Bachelor of Arts from the University of Melbourne and is a Fellow of the Australian Institute of Company Directors and a Life Member of ASFA. Directorships of other listed entities in the last three years: The Star Entertainment Group Ltd (ASX:SGR) – November 2022 to present Symbio Holdings Ltd (formerly MNF Group Ltd) (ASX:SYM) – July 2021 to present Crown Resorts Ltd (ASX:CWN) – October 2021 to June 2022 30 Redbubble Group • FY23 Annual Report Martin Hosking Co-Founder, Group CEO and Managing Director Appointed: 10 April 2006 Board Committees: Disclosure Martin Hosking is a co-founder of Redbubble. He first became the CEO and Managing Director in July 2010. Martin resigned from executive duties and commenced as a non-executive Director on 1 October 2018. Martin was then appointed interim CEO and Managing Director on 18 February 2020, before resuming as a non-executive Director upon Michael Ilczynski’s appointment as CEO on 27 January 2021. He returned as Group CEO and Managing Director on 27 March 2023 upon Michael’s resignation. Martin has spent over 25 years scaling Australian technology companies. Previously, Martin was the chair of Aconex, a SaaS provider to construction firms, and Southern Innovation, a digital pulse processing solution. He was instrumental in the development and subsequent listing on the NASDAQ of search company, LookSmart. Martin started his career as a diplomat with the Australian Department of Foreign Affairs and Trade before joining McKinsey & Company, serving clients focusing on emerging technologies. Martin is also a director on the Board of the Melbourne Theatre Company and sits on advisory committees at Melbourne and Monash University. Directorships of other listed entities in the last three years: Nil Jenny Macdonald Independent Non-Executive Director Appointed: 22 February 2018 Board Committees: Audit and Risk (Chair), People, Remuneration and Nomination, Disclosure Jenny Macdonald brings extensive expertise in corporate finance, accounting, and auditing, coupled with a strong focus on and understanding of market trends, customer and consumer behaviour. She has a proven track record in developing and implementing strategy with a focus on risk management, growth, and value creation. Jenny spent her executive career in customer-facing organisations primarily in technology, retail, travel services and manufacturing, where she was responsible for strategic turnaround and digital transformation. Her last executive role was CFO and interim CEO at Helloworld Limited, where she oversaw the merger with AOT Group to create the second-largest integrated travel distribution business in Australia and New Zealand. Prior to that, Jenny was the CFO and General Manager International of the REA Group, with responsibility for the financial growth strategy and execution for operations in South East Asia and parts of Europe, having delivered record revenue and net profit for the company. Directorships of other listed entities in the last three years: Site Minder Ltd (ASX:SDR) – October 2021 to present Healius Ltd (ASX:HLS) – November 2020 to present (Chair of the Board from September 2022 to present) Bapcor Ltd (ASX:BAP) – September 2018 to October 2022 Australian Pharmaceutical Industries Ltd (ASX:API) – November 2017 to March 2022 Ben Heap Independent Non-Executive Director Appointed: 20 April 2020 Board Committees: Audit and Risk, People, Remuneration and Nomination (Chair), Disclosure Ben Heap is a Sydney-based non-executive director. He has chaired a range of organisations and served as an advisor, particularly with respect to technology and innovation investment. He finished his full time executive career in 2013 as CEO of UBS Global Asset Management based in Sydney, Australia having previously served as a managing director and regional leader with UBS in New York. Ben has wide-ranging experience in asset and capital management roles in the finance sector and in technology and digital businesses. He is also a founding partner of H2 Ventures, a privately held venture capital investment firm, and recognised for his extensive experience with entrepreneurial founders and high growth companies. He has a bachelor’s degrees in science (mathematics) and commerce (finance) from the University of NSW and is a graduate of the Australian Institute of Company Directors (GAICD). Directorships of other listed entities in the last three years: Pendal Group Ltd (ASX:PDL) – March 2022 to January 2023 Star Entertainment Group Ltd (ASX:SGR) – May 2018 to March 2023 (Chair of the Board from June 2022 to March 2023) 31 Redbubble Group • FY23 Annual Report DIRECTORS’ REPORT continued Greg Lockwood Independent Non-Executive Director Appointed: 1 June 2015 Board Committees: Audit and Risk, Disclosure Greg Lockwood was appointed as a non-executive Director with effect from June 2015. Greg is a partner of Piton Capital, which is a shareholder in Redbubble. In 1999, Greg founded UBS Capital’s early stage venture investing activities in Europe. Subsequently, he co-founded Piton Capital, the London-based venture capital fund specialising in marketplaces and business models with network effects. Prior to his venture capital activities, Greg worked in telecommunications corporate finance with UBS in London and Zurich and held operating roles in classified media publishing in Toronto. Greg has an Honours Business degree from the University of Western Ontario, and a Master’s degree in management from the Kellogg Graduate School of Management. Directorships of other listed entities in the last three years: Nil Bob Sherwin Independent Non-Executive Director Appointed: 1 November 2022 Board Committees: Nil Bob Sherwin was appointed a Director in November 2022. Bob is a highly accomplished executive with significant experience in marketing, omni-channel retail, and scaling online marketplace businesses. Bob is currently Chief Marketing Officer of Wayfair Inc, one of the world’s largest destinations for home furnishings, housewares and home improvement goods, where he oversees global marketing strategy and execution, physical retail, sales, and other consumer-facing functions, this includes managing more than USD1B of advertising spend as of 2022. Prior to joining Wayfair in 2013, Bob was a strategy consultant at McKinsey & Co., where he worked across a wide range of consumer industries and functions, including strategy, sales, marketing, technology and operations at insurance, travel, finance, teleco, CPG and retail focused organisations. Bob holds his bachelor’s degree from the College of William and Mary in Finance and Economics, and Master’s degrees from Northwestern’s Kellogg School of Management and McCormick School of Engineering. Directorships of other listed entities in the last three years: Nil Board and Committee Meetings – attendance during FY23 The Board met 19 times during the year ended 30 June 2023. Board and Committee attendance is set out in the table below. All Directors may attend Board and Committee meetings even if they are not a member of the particular Committee. The table does not include attendance of Directors at meetings of Committee of which they are not a member. Board Audit and Risk Committee (ARC) People, Remuneration and Nomination Committee (PRNC) Held whilst in office Attended whilst in office Held whilst an ARC member Attended whilst an ARC member Held whilst a PRNC member 19 19 19 19 14 19 19 19 19 19 13(3) 19 6 – 6 6 – 6 6 – 6 6 – 6 5 4(2) – 5 – 5 Attended whilst a PRNC member 5 4 – 5 – 5 Anne Ward(1) Martin Hosking Greg Lockwood Jenny Macdonald Bob Sherwin Ben Heap (1) Anne Ward is a member of the PRNC ex-officio by virtue of her position as Board Chair. (2) Martin Hosking ceased being a member of the PRNC upon his appointment as Group CEO. (3) Bob Sherwin was granted a leave of absence for the Board meeting he did not attend. 32 Redbubble Group • FY23 Annual Report Directors’ interests in shares and options Name Anne Ward Martin Hosking Ben Heap Greg Lockwood Jenny Macdonald Bob Sherwin Total interests Shareholdings Options outstanding 270,000 50,714 40,000,000 500,000 6,465,131 278,048 – – – – – – 47,513,179 50,714 Retirement, election, continuation in office of Directors Under the Company’s constitution, Directors cannot serve beyond three years or the third AGM after their appointment, whichever is longer, without submitting for re-election by the Company. A retiring Director is eligible for re-election without needing to give any prior notice of an intention to submit for re-election and holds office as a Director (subject to re-election) until the end of the general meeting at which the Director retires. Company Secretaries Redbubble Group’s Company Secretary is Ms Carlie Hodges (appointed 31 October 2022). Carlie is an Executive Director at cdPlus Corporate Services, which provides outsourced corporate governance and company secretarial services to both private and public companies in Australia. In addition, she is a Senior Associate at Coghlan Duffy Lawyers. Carlie is also the Company Secretary of Top Shelf International Holdings Limited, Bod Science Limited and Damstra Holdings Ltd. Carlie holds a Bachelor of Science and Bachelor of Laws from Deakin University, a Master of Arts in Medical Ethics and Law from King’s College London, a Graduate Diploma of Applied Corporate Governance from the Governance Institute of Australia and is admitted as a solicitor in the state of Victoria. The following individuals also held the position of Company Secretary during the year: • Martin Bede (until 23 August 2022) • Peter Friend (from 23 August 2022 to 31 October 2022) 33 Redbubble Group • FY23 Annual Report DIRECTORS’ REPORT continued Details of share options, share appreciation rights and performance rights The following table shows the total numbers of ordinary shares in the Company subject to options, share appreciation rights or performance rights as at the date of this Report: Type of Equity Security Share Options Share Appreciation Rights(1) Restricted Stock Units(2) Total Number Outstanding Last Expiry Date 5,616,260 01-December-2030 6,069,588 01-June-2029 5,773,636 17,459,484 (1) Share Appreciation Rights (SARs) entitle the holder to equity equal to the appreciation of the Group’s share price over a defined period. There is not a 1 to 1 relationship with the number of SARs on issue and the number of shares that will be issued upon exercise. (2) Restricted Stock Units (RSUs) granted do not have an expiry date. Ordinarily these vest and are settled according to a participants’ vesting schedule, and any outstanding restricted stock units are otherwise forfeited when a participant no longer satisfies the service conditions in their agreement. Holders of options, share appreciation rights or restricted stock units do not, by virtue of their holdings, have any pre-emptive right to participate in any share issue of the Company or any related body corporate. The Financial Report contains details of the total number of ordinary shares in the Company issued following exercise of options and vesting of restricted stock units during the 2023 financial year. The following table shows the total number of ordinary shares in the Company issued following exercise of options and vesting of restricted stock units since the end of the 2023 financial year, to the date of this Report: Settlement of vested restricted stock units Exercise of options Total Number 314,602 268,456 583,058 Exercise price paid $ – – – No amounts remain unpaid in respect of the shares issued, as outlined above. Indemnification and insurance of officers The Company has entered into Deeds of Indemnity with all its Directors in accordance with the Company’s constitution. During the 2023 financial year, the Company paid a premium to insure the Directors, Officers and Managers of Redbubble Group entities. The insurance contract requires that the amount of the premium paid is confidential. Proceedings against entities within the Group Although the Group is strictly an online intermediary that provides online facilitation services to third parties via its marketplaces, and Group does not sell or manufacture the products sold by artists through its marketplaces, it periodically receives notices alleging infringement of third-party copyright, trademarks, other intellectual property rights or publicity rights or breach of consumer protection laws. This is not uncommon for marketplaces that host user-generated content, nor is it uncommon within the United States of America business environment where the majority of such claims arise. As at the date of these financial statements, there are current lawsuits filed against the Group that relate to alleged intellectual property infringement and/or breach of consumer laws. As at reporting date, there is no certainty that the Group either holds any obligations in relation to these actions and/or there is any likelihood of outflows (or inflows from insurance recoveries where applicable) of cash or other resources in respect of them, should any of the actions ultimately be successful (at first instance or on appeal, as applicable). The Group does not currently consider that any of the current proceedings are likely to have a material adverse effect on the business or financial position of the Group. The Group is not aware of any other material threats of civil litigation proceedings, arbitration proceedings, administration appeals, or criminal or governmental prosecutions in which entities within the Group are directly or indirectly concerned. Group CEO and Group CFO declaration The Group CEO and Group CFO have provided a written statement to the Board in accordance with Section 295A of the Corporations Act. With regard to the financial records and systems of risk management and internal compliance in this written statement, the Board received assurance from the Group CEO and Group CFO that the declaration was founded on a sound system of risk management and internal control, and that the system was operating effectively in all material aspects in relation to the reporting of financial risks. 34 Redbubble Group • FY23 Annual Report Remuneration Report The Remuneration Report is set out on pages 38 to 54 and forms part of the Directors’ Report for the financial year ended 30 June 2023. Rounding of amounts The amounts contained in the Financial Report have been rounded to the nearest $1,000 (where rounding is applicable) where noted ($000) under the option available to the Company under ASIC Legislative Instrument 2016/191. The Company is an entity to which the Legislative Instrument applies. Auditor Ernst & Young was appointed as the Group’s Auditor on 25 November 2014 and continues in office in accordance with section 327 of the Corporations Act 2001. To the extent permitted by law, the Company has agreed to indemnify Ernst & Young, as part of the terms of its audit engagement agreement, against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the end of the 2023 financial year. Non-audit services During the year Ernst & Young performed other services in addition to its audit responsibilities. The Directors are satisfied that the provision of non-audit services by Ernst & Young during the reporting period did not compromise the auditor independence requirements set out in the Corporations Act. All non-audit services were subject to the Group’s External Audit Policy and do not undermine the general principles relating to auditor independence set out in APES 110 Code of Ethics for Professional Accountants as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Group, or jointly sharing risks and rewards. Details of the amounts paid to the auditor of the Group and its related practices for non-audit services provided throughout the 2023 and 2022 financial years are set out below. Non-audit services Fees to Ernst & Young (Australia) 2023 $ 2022 $ Category 3: Fees for Other Assurance services and Agreed Upon Procedures: Other assurance services and agreed upon procedures 64,480 – Category 4: Fees for Non-Audit services: Assistance in developing the Group’s ESG strategy Taxation services Fees to overseas member firms of Ernst & Young (Australia) Taxation services Total 113,300 197,944 6,000 68,150 – 21,505 183,780 287,599 Fees for Audit services Details of the amounts paid to the auditor for audit services provided throughout the 2023 and 2022 financial years are set out in Note 25 to the Consolidated Financial Statements. Auditor’s Independence Declaration A copy of the Auditor’s Independence Declaration, as required under section 307C of the Corporations Act, is set out on page 36. The Auditor’s Independence Declaration forms part of the Directors’ Report. The Directors’ Report is made in accordance with a resolution of the Directors of the Company. Anne Ward Chair 22 August 2023 35 Redbubble Group • FY23 Annual Report AUDITOR’S INDEPENDENCE DECLARATION 36 Redbubble Group • FY23 Annual ReportA member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards LegislationErnst & Young8 Exhibition Street Melbourne VIC 3000 AustraliaGPO Box 67 Melbourne VIC 3001Tel: +61 3 9288 8000Fax: +61 3 8650 7777ey.com/auAuditor’s independence declaration to the directors of Redbubble Limited As lead auditor for the audit of the financial report of Redbubble Limited for the financial year ended 30 June 2023, I declare to the best of my knowledge and belief, there have been: a.No contraventions of the auditor independence requirements of the Corporations Act 2001 inrelation to the audit;b.No contraventions of any applicable code of professional conduct in relation to the audit; andc.No non-audit services provided that contravene any applicable code of professional conduct inrelation to the audit.This declaration is in respect of Redbubble Limited and the entities it controlled during the financial year. Ernst & Young Ashley Butler Partner 22 August 2023 LETTER FROM THE PEOPLE, REMUNERATION AND NOMINATION COMMITTEE Dear Shareholder, On behalf of the Board, I am pleased to present our FY23 Remuneration Report. A challenging year During the financial year, the Group faced challenging market conditions and softer consumer demand, particularly in the US, its largest market. In this economic environment, it became apparent that the Group’s investment in growth initiatives were unlikely to deliver the expected financial returns in the short term. As a result, we made the difficult decision to significantly reduce the Group’s cost base to accelerate the Group’s return to sustainably positive underlying cash flows. While a number of roles were removed from the organisation we maintained our talent capability, built up as a strategic priority over recent years. Leadership changes In March 2023, the Group’s Chief Executive Officer (CEO) Michael Ilczynski resigned. We wish him well for the future. We were pleased that co-founder and former CEO, Martin Hosking, was available and willing to accept the position of CEO again. Martin’s vision and passion for the Group is unwavering and Martin has committed to the CEO position for the foreseeable future. This is reflected in his remuneration package, which is heavily weighted to long-term incentives. Chief Financial Officer (CFO), Emma Clark, also departed during the year and we wish her well in her future career. We are delighted with the appointment of Rob Doyle as CFO in March 2023. Rob is a highly-experienced executive, most recently CFO of Domain Group, a S&P/ASX 200 company, which operates a leading property marketplace in Australia. We are pleased that we were able to recruit a CFO with Rob’s expertise. I would also like to thank interim CFO, Mark Hall, who assisted the Group through the half–year reporting period, until Rob was available to commence. Driving high-performance across the Group The senior leaders in the Group continue to promote high engagement and high performance across our team. We see this dual focus as being critical to the Group’s future success. The discipline of setting Objectives and Key Results (OKRs), and reviewing performance against these OKRs regularly, has successfully lifted the bar on internal performance and accountability processes. Diversity We remain committed to fostering an inclusive environment at the Group, where all team members feel they belong and are able to succeed. Maintaining the Group’s diversity, across all levels, was an important factor, when undertaking the organisational restructure during the year. We also maintained our strong track record of pay parity. Shareholder engagement and alignment After the 2022 AGM, I had the opportunity to meet with a number of investors. The majority of these investors did not raise any concerns with the Group’s remuneration strategy and, in the case of those who had voted against last year’s Remuneration Report, their vote reflected broader frustrations with the Group’s performance, which we have sought to address in the Directors’ report. The core principle of our remuneration strategy is the alignment of shareholder interests with executive remuneration outcomes. As such, and after reviewing our remuneration structure, the Committee will introduce a short term incentive, to drive individual and collective performance. The Committee will implement this change in FY24 in order to better align the Redbubble Executive Compensation Model to the evolving Group strategy and structure. The Committee also reviewed the fees paid to non-executive Directors during the year and resolved to reduce the fees by 20%, effective 1 June 2023. This decision reflects the cost discipline applied throughout the business and the smaller market capitalisation of the Group. Ben Heap Chair of the People, Remuneration and Nomination Committee 37 Redbubble Group • FY23 Annual Report REMUNERATION REPORT (AUDITED) Introduction This Remuneration Report (Report) sets out the Group’s executive remuneration framework, as well as the remuneration arrangements for the Group’s key management personnel (KMP) for the year ended 30 June 2023. The Report has been prepared and audited based on the requirements of the Corporations Act 2001 (Cth) (The Corporations Act) and its Regulations. Contents 1. Remuneration Report Overview 2. Remuneration Strategy 3. How Remuneration is Governed 4. Company Performance in FY23 5. Executive Remuneration 6. Non-Executive Director Remuneration 7. Statutory Reporting for FY23 8. Other Information In this Remuneration Report the following definitions are used: • Redbubble Group or the Group means Redbubble Limited (ACN 119 200 592) and its controlled entities; • Board means the Board of Directors of Redbubble Group; • Committee means the People, Remuneration and Nomination Committee of the Board of Redbubble; • Executives means the members of the Group Executive team; • NED means the Non-executive Directors of the Group; and • RECM means the Redbubble Group Executive Compensation Model. 38 Designed and sold by: anycolordesigns YeeHaw Away From Your Problems Classic Tee TeePublic, 2023 Redbubble Group • FY23 Annual Report 1. Remuneration Report Overview The Directors present the Remuneration Report (Report) for the Group for the financial year ended 30 June 2023 (FY23). This Report forms part of the Directors’ Report and has been audited in accordance with section 300A of the Corporations Act 2001. The Report details the remuneration arrangements for Key Management Personnel (KMP), those persons who have authority and responsibility for planning, directing and controlling the activities of Group. The table below outlines the KMP of Group during FY23: Classification Name Position NED Anne Ward Ben Heap Martin Hosking Greg Lockwood Independent Non-executive Chair Independent Non-executive Director Non-executive Director (until appointment as Group CEO on 27 March 2023) Independent Non-executive Director Jennifer (Jenny) Macdonald Independent Non-executive Director Rob (Bob) Sherwin Independent Non-executive Director (appointed on 1 November 2022) Executive KMP Martin Hosking Group CEO and Managing Director (appointed on 27 March 2023) Rob Doyle Group CFO (appointed on 27 March 2023) Former KMP Michael Ilczynski CEO (ceased on 27 March 2023) Mark Hall Emma Clark Interim CFO (appointed on 5 December 2022 and ceased on 24 March 2023) CFO (ceased on 23 December 2022) 2. Remuneration Strategy Our remuneration strategy is designed to support the Group’s business strategy and drive sustainable outperformance over the long term. The remuneration strategy is subject to ongoing improvement to ensure it maintains the strongest alignment possible with shareholder experience and with contemporary executive compensation philosophy and practice. The RECM applies to the Group’s senior executives and provides a strong foundation to attract and retain talent and align them with building long-term value for shareholders. The RECM structure is positioned to be competitive when looking to attract and retain key talent, with a focus on internationally based (US) Executives, where our current target talent pool, operations and key competitors are primarily based. The objectives of the RECM are to: • Attract and retain exceptional talent in highly competitive, highly mobile global markets; • Align executive performance with Group’s financial goals with a long term incentive (LTI) heavily aligned to the creation of long-term value for shareholders; and • Attach performance expectations of the leadership team to shared Objectives and Key Results (OKRs) that ensure delivery of the Group corporate strategy. Shareholder alignment is continually demonstrated through the RECM model, with Executives having considerable and direct alignment with that of the shareholders. We are committed to engaging with our shareholders and other key stakeholders in relation to the Company’s remuneration strategy and to continuously improving the effectiveness of our remuneration arrangements. Voting on the Remuneration Report at the 2022 Annual General Meeting (AGM) At the 2022 AGM the Group received a vote of 61.33% in favour of the adoption of the remuneration report and 38.67% against. As more than 25% of the votes were cast against the resolution, this constitutes a first strike for the purposes of the Corporations Act. In response to this, Directors sought feedback from a number of shareholders who voted against the resolution to understand key concerns. Shareholders generally indicated that their concerns were largely unrelated to remuneration, but reflected broader frustrations with the Group’s performance. To address these concerns, the Group has undertaken a number of initiatives in FY23. These include: • Implementation of cost-reduction measures to substantially reduce the Group’s operating expenditure and assist the Group in returning to sustainably positive underlying cash flow • An organisational restructure to more clearly define the Group function and two operating companies, Redbubble and TeePublic • Focusing the Group’s efforts on a narrower set of priorities which were expected to drive a financial benefit in the near term Further information on these initiatives can be found in the Directors Report within the Review of operations and the Business strategies and future developments section. 39 Redbubble Group • FY23 Annual Report REMUNERATION REPORT (AUDITED) continued 3. How Remuneration is Governed 3.1 People, Remuneration and Nomination Committee Role The role of the Committee is to ensure that the Group has appropriate remuneration and retention strategies to attract and retain high-quality talent, both locally and globally, to enable the Company to execute its purpose, vision and mission, in order to build long-term value for shareholders. The members of the Committee during FY23 were: • Ben Heap Independent Non-Executive Chair; • Anne Ward Independent Non-Executive Member; • Jenny Macdonald Independent Non-Executive Member; and • Martin Hosking Non-Executive Member (until 27 March 2023). Redbubble Group Board • Overall Responsibility for the remuneration strategy and outcomes for executives and non-executive directors • Reviews and approves recommendations from the People, Remuneration and Nomination Committee People, Remuneration and Nomination Committee (PRNC) • Three Non-Executive Directors make recommendations to the Board on remuneration strategy, governance and policy for Executive KMP and Non-Executive Directors • The Committee is responsible for reviewing and advising the Board on remuneration policies and practices. This Committee also reviews and advises the Board on the design and implementation of performance packages, superannuation entitlements, termination entitlements and fringe benefits policies. The Committee also manages the nomination process of Board members and the selection of the CEO • The remuneration of Directors, the CEO, KMP and other Executives is reviewed by the Committee which then provides recommendations to the Board. Management Remuneration Advisors Provides information to the PRNC in relation to: • Incentive targets and outcomes • Remuneration Policy • Short and Long-term incentive participation eligibility • Individual remuneration and contractual arrangements for executives • Annual performance reviews and target setting • Provide external independent advice, information and recommendations relevant to remuneration decisions • The Committee periodically engages the services of independent external consultants to provide insights on KMP remuneration trends, regulatory and governance updates, pros and cons of possible alternatives, and market data. No remuneration recommendations as defined in Section 9B of the Corporations Act 2001 were obtained during FY23 40 Redbubble Group • FY23 Annual Report 3.3 Remuneration Benchmarking The quantum of both fixed salary and the total remuneration package are positioned having consideration for benchmarking data, relevant market conditions and sentiment, the trajectory of the company’s growth, strategic objectives, competency and skill set of individuals, scarcity of talent, changes in role complexities and the geographical spread of the company and of the relevant talent pool. Benchmarking is conducted by using reliable market surveys that are appropriate for our business and where not available, is undertaken independently and set with reference to market capitalisation, and with reference to industry sector and levels of business complexity, as determined by external advisors, in collaboration with the Committee each year. 3.4 Clawback of Remuneration In the event of serious misconduct or a material misstatement of Group’s financial statements, the Board has the discretion to reduce, cancel or clawback any unvested equity or other long-term incentives. 3.5 Standard Employment Arrangements Executives are employed on open-ended individual employment agreements that set out the terms of their employment. Each Agreement varies according to the individual Executive but typically includes: • Termination provisions incorporating six-month notice periods (to manage business continuity risk during any executive transition); • The Board may in certain circumstances apply discretion to approve payment of up to six months’ salary in lieu of notice; • Performance, Intellectual Property and confidentiality obligations on the part of both the employer and employee; • Limited non-solicitation and post-employment restriction provisions; and • Eligibility to participate in the Group RECM (or other transitional compensation plans). 4. Company Performance in FY23 4.1 Performance against Financial Metrics Key indicators(1) Total Revenue ($’m) Marketplace Revenue ($’m) Artist Revenue ($’m) Gross profit (GP) ($’m) Gross profit after paid acquisition (GPAPA) ($’m) Earnings before Interest, taxes, depreciation and amortisation (EBITDA) ($’m) Cash balance ($’m) Share price at year end ($) FY2023 FY2022 FY2021 FY2020 FY2019(2) CAGR(3) 555.1 467.5 87.6 174.2 573.4 482.6 90.8 183.1 657.3 553.3 104.0 222.7 416.3 348.9 67.4 134.4 307.0 256.9 50.1 94.5 97.6 106.7 151.5 94.5 67.5 (40.7) 35.7 0.37 (11.2) 89.1 0.90 52.7 98.7 3.61 5.1 58.1 2.06 (2.0) 29.0 0.91 16% 16% 15% 17% 10% NA 5% (20%) (1) The non-IFRS metrics in the table above such as GP and GPAPA are defined in table 1 on page 25 of the Directors’ Report. The non-IFRS measures are unaudited, however, they have been derived from the audited financial statements. (2) On 1 July 2019 the Group adopted AASB 16 – Leases using the full retrospective method of adoption. EBITDA for FY19 onwards includes the impact of this new standard. (3) Compound Annual Growth Rates (CAGR) are shown for the period since FY2019. Meaningful growth rates cannot be provided for metrics that have moved from a negative to a positive amount. 41 Redbubble Group • FY23 Annual Report REMUNERATION REPORT (AUDITED) continued 5. Executive Remuneration 5.1 Remuneration Objectives and Strategy The Group’s vision is to scale the business and deliver an enduring organisation that creates value for shareholders over the long term. The Group operates in four highly competitive global talent markets – Melbourne, San Francisco, New York and Berlin. Attracting and retaining talent in these markets must be supported by a compelling remuneration strategy. The RECM is designed to attract, motivate and retain proven, global executive talent who will successfully execute the Group’s vision and strategy in a manner that aligns with the company’s values. The RECM recognises compensation needs to be positioned to extract mid-career executives on a strong earnings trajectory from roles in companies that provide them with the experience that the Group needs. The practice of setting annual OKRs for Executives continues and performance is tracked against these. Performance against these objectives, along with total company performance and operating company performance informs annual compensation reviews for all Executives. Executive remuneration levels are reviewed regularly by the Committee with reference to the Group’s remuneration strategy, company performance, talent competitor market activity and external benchmarks. Link executive performance with RB Group’s financial goals Motivate executives to create sustainable, long-term value for shareholders Align the leadership team by providing consistent goals which encourage a long-term focus Attract & Retain exceptional talent in globally competitive, highly mobile markets 42 Redbubble Group • FY23 Annual Report 5.2 Elements of Remuneration The following remuneration mix summarises the key components that make up the RECM. Martin Hosking (Group CEO & Managing Director – appointed on 27 March 2023) Fixed Salary Base Equity (BE)(1) Long-Term Incentive (LTI)(1) $400,000 inclusive of superannuation $200,000 (50% of fixed salary) $600,000 (150% of fixed salary) (1) Martin Hosking has been allocated BE and LTI which are subject to shareholder approval at the Annual General Meeting. Rob Doyle (Group CFO – appointed on 27 March 2023) Fixed Salary Base Equity (BE) Long-Term Incentive (LTI) Sign-on Bonus (Zero Priced Options) $600,000 plus superannuation $300,000 (50% of fixed salary) $600,000 (100% of fixed salary) $250,000 (upon commencement) 50% vests at 12 months and 50% at 24 months from commencement Michael Ilczynski (Former CEO – ceased on 27 March 2023) Fixed Salary Base Equity (BE) Long-Term Incentive (LTI) $832,000 inclusive of superannuation $416,000 (50% of fixed salary) $832,000 (100% of fixed salary) Mark Hall(1) (Former Interim CFO – appointed on 5 December 2022 and ceased on 24 March 2023) Fixed Salary Base Equity (BE) Long-Term Incentive (LTI) $107,500 plus superannuation Nil Nil (1) Mark Hall was employed on a part time basis and was not granted equity during his term. Emma Clark(1) (Former CFO – ceased on 23 December 2022) Fixed Salary Base Equity (BE) Long-Term Incentive (LTI) $463,500 inclusive of superannuation Nil Nil (1) Emma Clark was not granted BE and LTI in October 2022 due to her resignation during the year. Fixed Salary Fixed compensation includes allowances, retirement benefits and other benefits. 43 Redbubble Group • FY23 Annual Report REMUNERATION REPORT (AUDITED) continued FY23 Base Equity (BE) BE ensures immediate alignment between Executives and shareholders and creates an owner mindset in Executives. There is also a longer-term retention mechanism employed, with the BE granted in a given year also required to be held for one-year post vesting to ensure there is a continued focus on sustainable share value appreciation. The BE component of the RECM operates as outlined below: BE instrument Restricted Stock Units (RSUs) for US-based executives and US citizens resident in Australia or Germany. RSUs are rights to be issued Redbubble shares upon satisfaction of the applicable vesting conditions. Zero-priced options (ZPOs) for Australian-based (non-US resident) Executives. ZPOs are call options to acquire Redbubble shares, with a zero exercise price to convert the option into shares. Grant quantum The grant quantum of the BE award to Executives is calculated as a percentage of fixed salary. Grant date Vesting date Grants are made on 1 October of the relevant year following the setting of total compensation for the year and Board approval except for the Managing Director whose grants have to be approved at the AGM. Grants vest after 12 months, subject to the executive remaining in service with the Group at the vesting date. The Board has unfettered discretion to determine any adjustment to awards at the time of vesting. Disposal restriction period The disposal restriction period ends 12 months following vesting. The holding period remains in place even if employment ends. Officers and Executives of the Group are subject to the Group’s share trading policy. Termination Clawback If terminated (including resignation), Executives forfeit grants that have not vested. Holding periods remain on foot. The Board has unfettered discretion to award pro-rata vesting in the event of an employee’s termination. In the event of serious misconduct or a material misstatement of the Group’s financial statements, the Board has the discretion to reduce, cancel or clawback BE to the extent that the law will allow. Change of Control The early vesting of any unvested awards may be permitted by the Board in other limited circumstances such as a change in control of the Group. In these circumstances, the Board will determine the timing and proportion of any unvested awards that vest. FY23 Long-Term Incentive (LTI) Compensation that rewards senior leaders for creating appreciation in the value of the Group for shareholders. Share Appreciation Rights (SARs) have no value unless the Executive remains with the business for a minimum of three years and enterprise value grows at a rate that provides shareholders with attractive returns. The LTI component of the RECM operates as outlined below: LTI instrument Share Appreciation Rights (SARs) Grant quantum The grant quantum of the LTI award to Executives is calculated as a percentage of base salary. Grant date Grants are made on 1 October of the relevant year following the setting of total compensation for the year and Board approval except for the Managing Director whose grants have to be approved at the AGM. Vesting date & conditions The LTI’s vest on the earlier of either the third, fourth, or fifth anniversaries following the grant date subject to: • The Executive remaining employed at Group (time vesting) • The achievement of a compounding target of 10% Total Shareholder Return (TSR) per annum on either the third, fourth or fifth anniversaries following the grant date. The compounding return target is to be determined based on a 10% per annum Total Shareholder Return (TSR) from the time of grant. TSR is calculated as the total of the share price appreciation plus any dividends paid during the period. TSR has been chosen as the appropriate target so that Executives are fully aligned with shareholders. Disposal restriction period The disposal restriction period ends 12 months following vesting. The holding period remains in place even if employment ends. 44 Redbubble Group • FY23 Annual Report Termination Should a participant exit during the LTI vesting period, participants will retain pro-rata retention of LTI awards that have yet to vest. Pro-rata retention has the following conditions: • The employee must have been part of the RECM LTI program for at least three years • The employee must not be considered a ‘bad leaver’ • The employee must have served at least 12 months of a grant’s vesting period to be entitled to a pro-rata portion • The award retained will be pro-rata for the number of months since that award was granted and the employee’s resignation, divided by the total number of months until first testing of that award • The pro-rata award remains subject to all testing, disposal restriction and other conditions • Once an award has achieved its TSR hurdle and has vested, the (former) employee will have 90 days to exercise before the equity expires The Board retains complete discretion in these matters. Strike price Strike price is set on 1 October based on a 30-day volume-weighted average price (VWAP). SARs valuation is used for the allocation of equity The Board retains Board discretion in respect of adjusting the strike price if it considers there have been unusual trading circumstances within the 30-day period. For FY23 the strike price was $0.7570. The dollar amount of equity is converted to SARs at the fair market value determined at the beginning of the grant period based on a Black Scholes valuation of the SAR. The Black Scholes valuation will use the 30 (calendar) day VWAP calculated on 1 October and be calculated on an ‘unhurdled’ basis i.e. valued for the purposes of equity allocation as if there was no performance hurdle. The accounting valuation of the award for expensing purposes is governed by AASB 2 – Share-Based Payment. A Monte Carlo simulation model is used that takes into account the probability of performance hurdles being achieved. Expiration The SARs expire six years from the grant date and therefore the SARs must be exercised by this point or they lapse. Hedging Clawback Change of Control Upon resignation or termination, the exercise period for SARs ends 90 days following the date of resignation or termination unless the Board decides otherwise. Executives are prohibited from hedging under the Group’s Share Trading Policy and clawback under existing rules. In the event of serious misconduct or a material misstatement of Group’s financial statements, the Board has the discretion to reduce, cancel or clawback LTI’s to the extent that the law will allow. The early vesting of any unvested awards may be permitted by the Board in other limited circumstances such as a change in control of Redbubble. In these circumstances, the Board will determine the timing and proportion of any unvested awards that vest. 45 Redbubble Group • FY23 Annual Report REMUNERATION REPORT (AUDITED) continued Vesting and exercise periods of the LTI Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Period 1 Period 2 Period 3 Period 4 Period 5 Share price of 133% of strike price Executive can exercise if year 3 conditions are met Legend Exercise condition testing period Exercise condition achieved Exercise condition not achieved Exercise condition requirement (10%CAGR) Share price of 146% of strike price Executive can exercise if year 4 conditions are met Share price of 161% of strike price Executive can exercise if year 5 conditions are met 5.3 LTI Outcomes No LTI awards for Executive KMP have vested during the year. The current LTI program commenced in FY21 and the first possible vesting date for equity under this plan is in FY24 (the grants have a minimum 3-year vesting period). 5.4 CEO Employment Arrangements The employment of Mr Hosking, our Group CEO, is governed by an Employment Agreement that commenced 27 March 2023. The table below summarises the compensation arrangements of Mr Hosking: Remuneration Element Contracted Annual Remuneration Fixed Salary Base Equity (BE)(1) Long-Term Incentive (LTI)(1) $400,000 inclusive of superannuation $200,000 (50% of fixed salary) $600,000 (150% of fixed salary) (1) Martin Hosking has been allocated BE and LTI which are subject to shareholder approval at the Annual General Meeting. Refer to section 5.2 for former CEO Michael Ilczynski’s remuneration details. 46 Redbubble Group • FY23 Annual Report 6. Non-executive Director (NED) Remuneration 6.1 NED Remuneration Policy The Group seeks to attract and retain high-calibre Non-Executive Directors who will provide good governance, strong oversight, independence, a range of skills and alignment of interests with long-term share price appreciation. During FY23, the Committee reviewed the level of Board fees paid to NEDs and resolved to reduce fees by 20% effective 1 June 2023, to be reviewed at a later date. The table below shows the annual remuneration amounts effective 1 June 2023. Position Chair(1) Member Board $ AUD $212,000 $96,000(2) Audit & Risk Committee $ AUD $24,000 $12,000 People, Remuneration & Nomination Committee $ AUD $24,000 $12,000 (1) The Chair of the Board receives no additional remuneration for being a member of any committee. (2) US resident NEDs are paid Board fees of USD $96,000. All Board fees are paid entirely in cash and therefore, no deferred equity grants were made to NEDs in FY23. The above fees apply to all of the Group’s NEDs, except for Mr Lockwood and Mr Hosking. Mr Lockwood is a partner with Piton Capital, a private equity firm with a shareholding in the Group. Mr Lockwood receives no remuneration from the Group, in accordance with Piton Capital’s policy that their partners do not accept remuneration for external board positions. Mr Hosking has historically declined to accept remuneration for his role as a NED, and after his appointment to Group CEO on 27 March 2023, Mr Hosking remains on the Board, but receives no remuneration for his role as Managing Director. His current salary package is for the role of Group CEO. Mr Sherwin also receives remuneration of USD $30,000 per annum for additional services provided to the Group. These services include additional advice, counsel and mentoring to executives domiciled in North America. Mr Sherwin does not participate in management functions or decisions. The Directors are satisfied these additional services do not impact Mr Sherwin’s independence. 6.2 Maximum Aggregate NED Fee Pool The total amount paid to all Directors for their services must not exceed in aggregate in any financial year the amount fixed by shareholders in a general meeting, currently set at $1,200,000 which has remained unchanged since the Company’s IPO in 2016. Any changes to this amount in the future will require approval by shareholders in a general meeting in accordance with the ASX Listing Rules. 6.3 Other Information NEDs are reimbursed for all reasonable travel and other expenses properly incurred by them in attending Board meetings or any meetings of committees of the Board, in attending any general meetings of the Group or otherwise in connection with the business or affairs of the Group. NEDs may be paid additional or special remuneration if they, with the approval of the Board, perform any extra services or make special exertions for the benefit of the Group. There are no retirement benefit schemes for Directors. The remuneration of the NEDs in FY23 is set out in detail in section 7.2. 47 Redbubble Group • FY23 Annual Report REMUNERATION REPORT (AUDITED) continued 7. Statutory Reporting for FY23 7.1 Executive KMP remuneration for the year ended 30 June 2023 The following table shows details of the nature and amount of each element of remuneration paid or awarded to Executives for services provided during the year while they were Executive KMP. Executive Director Martin Hosking(9) (appointed as Group CEO on 27 March 2023) Former Chief Executive Officer Michael Ilczynski (resigned as CEO on 27 March 2023) Other Executive KMP Robert Doyle (appointed as Group CFO on 27 March 2023) Mark Hall (appointed as interim CFO from 5 December 2022 to 24 March 2023) Emma Clark (resigned as CFO on 23 December 2022) Total 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 Short term benefits Post-employment benefits Cash salary(1) $ Non-monetary benefits(2) $ Superannuation(3) $ 104,260 – 585,311 812,947 90,503 – 127,385 – 189,087 446,570 1,096,546 1,259,517 – – – 20,529 – – – – – – – 20,529 10,233 – 27,500 27,500 8,844 – 13,169 – 21,203 27,500 80,949 55,000 (1) Includes base salary, excess superannuation (refer to footnote 3) and short term compensated absences, such as annual leave entitlements accrued. (2) Non-monetary benefits include wellness benefits available to all executives. For Michael Ilczynski the amount also includes fringe benefits tax payable by the Group on the limited recourse loan. (3) Staff can elect to have their superannuation capped at $27,500 (2022: $27,500), with any amount above this included in cash salary. (4) Australian executives are entitled to annual leave (refer to footnote 1) and long service leave. The annual charge reflects long service leave accrued (or lapsed) during the period. (5) The accounting standard, AASB 2 – Share Based Payment, requires limited recourse loans for the purchase of shares to be treated (for accounting) as an option. Amounts disclosed represent the deemed in-substance option cost for the limited recourse loan provided to Michael Ilczynski to acquire Redbubble shares. Please see section 8.2 and 8.6 for further details. The fair value of in-substance options is ascertained using the Black-Scholes model and is amortised over the loan period. Michael Ilczynski’s resignation in FY23 resulted in the in-substance option grant being forfeited. All previously recognised expense relating to in-substance option grant for his services as a KMP is reversed in FY23. (6) Amounts disclosed reflect the value of remuneration consisting of options, based on the value of options expensed during the year. The fair value of options is ascertained using the Black-Scholes model and is amortised over the vesting period. (7) Amounts disclosed reflect the value of remuneration consisting of share appreciation rights (SARs), based on the value of SARs expensed during the year. The fair value is ascertained using the Monte Carlo options model and is amortised over the vesting period. (8) Share appreciation rights with a performance condition are all considered to be performance-related remuneration, based on their nature at grant date. (9) Martin Hosking was a non-executive director of the Group until his appointment as Group CEO and Managing Director on 27 March 2023. The remuneration shown in this table is for his services as Group CEO only. Martin has been allocated share options and share appreciation rights which are subject to shareholder approval. For accounting purposes in this table the instruments have been accounted for under AASB 2: Share based payments using the 30 June 2023 share price as a value proxy until shareholder approval is received. The accounting values will be updated at that time. (10) NM refers to not measurable. Performance related remuneration for former CEO and CFO is not measurable due to their resignations during the year. 48 Long-term benefits Share-based payments Limited recourse Share appreciation Long service loan (In-substance Share options rights (Performance Total leave(4) share options)(5) (Time based)(6) based)(7) remuneration Performance -related(8)(10) $ 135 – 81 – – – (6,496) 3,642 (8,094) 5,154 21,551 27,462 163,641 (1,814) 1,512 (212,067) 159,927 104,712 460,047 (459,955) 370,529 43,687 1,852,991 86,514 27,462 213,404 $ – – – – $ – – – – – – – – 60,667 235,084 273,444 695,131 (319,501) 229,939 (724,532) 600,468 (212,067) 159,927 $ – – – – $ – – – 140,554 (55,040) 942,735 506,246 2,795,726 % 17% -% NM 20% 13% -% -% -% NM 24% Redbubble Group • FY23 Annual Report 7. Statutory Reporting for FY23 7.1 Executive KMP remuneration for the year ended 30 June 2023 The following table shows details of the nature and amount of each element of remuneration paid or awarded to Executives for services provided during the year while they were Executive KMP. Executive Director Martin Hosking(9) (appointed as Group CEO on 27 March 2023) Former Chief Executive Officer Michael Ilczynski (resigned as CEO on 27 March 2023) Other Executive KMP Robert Doyle (appointed as Group CFO on 27 March 2023) Mark Hall (appointed as interim CFO from 5 December 2022 to 24 March 2023) (resigned as CFO on 23 December 2022) Emma Clark Total 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 Short term benefits Post-employment benefits Cash salary(1) benefits(2) Superannuation(3) Non-monetary $ – – – 104,260 585,311 812,947 90,503 127,385 189,087 446,570 1,096,546 1,259,517 $ – – – – – – – – – – 20,529 20,529 $ – – – 10,233 27,500 27,500 8,844 13,169 21,203 27,500 80,949 55,000 (1) Includes base salary, excess superannuation (refer to footnote 3) and short term compensated absences, such as annual leave entitlements accrued. (2) Non-monetary benefits include wellness benefits available to all executives. For Michael Ilczynski the amount also includes fringe benefits tax payable by the Group on the limited recourse loan. (3) Staff can elect to have their superannuation capped at $27,500 (2022: $27,500), with any amount above this included in cash salary. (4) Australian executives are entitled to annual leave (refer to footnote 1) and long service leave. The annual charge reflects long service leave accrued (or lapsed) during the period. (5) The accounting standard, AASB 2 – Share Based Payment, requires limited recourse loans for the purchase of shares to be treated (for accounting) as an option. Amounts disclosed represent the deemed in-substance option cost for the limited recourse loan provided to Michael Ilczynski to acquire Redbubble shares. Please see section 8.2 and 8.6 for further details. The fair value of in-substance options is ascertained using the Black-Scholes model and is amortised over the loan period. Michael Ilczynski’s resignation in FY23 resulted in the in-substance option grant being forfeited. All previously recognised expense relating to in-substance option grant for his services as a KMP is reversed in FY23. (6) Amounts disclosed reflect the value of remuneration consisting of options, based on the value of options expensed during the year. The fair value of options is ascertained using the Black-Scholes model and is amortised over the vesting period. (7) Amounts disclosed reflect the value of remuneration consisting of share appreciation rights (SARs), based on the value of SARs expensed during the year. The fair value is ascertained using the Monte Carlo options model and is amortised over the vesting period. (8) Share appreciation rights with a performance condition are all considered to be performance-related remuneration, based on their nature at grant date. (9) Martin Hosking was a non-executive director of the Group until his appointment as Group CEO and Managing Director on 27 March 2023. The remuneration shown in this table is for his services as Group CEO only. Martin has been allocated share options and share appreciation rights which are subject to shareholder approval. For accounting purposes in this table the instruments have been accounted for under AASB 2: Share based payments using the 30 June 2023 share price as a value proxy until shareholder approval is received. The accounting values will be updated at that time. (10) NM refers to not measurable. Performance related remuneration for former CEO and CFO is not measurable due to their resignations during the year. Long-term benefits Share-based payments Long service leave(4) $ Limited recourse loan (In-substance share options)(5) $ Share options (Time based)(6) $ Share appreciation rights (Performance based)(7) $ Total remuneration $ Performance -related(8)(10) % 135 – (1,814) 1,512 81 – – – (6,496) 3,642 (8,094) 5,154 – – (212,067) 159,927 – – – – – – (212,067) 159,927 21,551 – 104,712 460,047 27,462 – (459,955) 370,529 163,641 – 43,687 1,852,991 86,514 27,462 213,404 – – – 60,667 235,084 273,444 695,131 – – – (319,501) 229,939 (724,532) 600,468 – 140,554 – (55,040) 942,735 506,246 2,795,726 17% -% NM 20% 13% -% -% -% NM 24% 49 Redbubble Group • FY23 Annual Report REMUNERATION REPORT (AUDITED) continued 7.2 NED Remuneration for the year ended 30 June 2023 Non-executive directors Ben Heap Martin Hosking(2) Greg Lockwood(3) Jenny Macdonald Anne Ward Bob Sherwin(4) Total Short term benefits Post- employment benefits Director Fees(1) $ Other Fees(5) $ Superannuation $ Total $ 146,833 143,322 – – – – 146,833 143,322 235,822 237,759 115,192 – 644,680 524,403 – – – – – – – – – – 29,528 – 29,528 – 15,417 14,332 162,250 157,654 – – – – 15,417 14,332 24,761 23,776 – – 55,595 52,440 – – – – 162,250 157,654 260,583 261,535 144,720 – 729,803 576,843 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 (1) All Board fees are paid in cash. (2) Martin Hosking was a non-executive director until his appointment as Group CEO and Managing Director on 27 March 2023. The remuneration shown in this table is for his services as a non-executive director only. In FY22 and FY23, Mr Hosking did not accept remuneration as a non-executive director. (3) Greg Lockwood is a partner with Piton Capital, a private equity firm with a shareholding in Redbubble Ltd. Mr Lockwood receives no remuneration from the Group, in accordance with Piton Capital’s policy that their partners do not accept remuneration for external board positions. (4) Bob Sherwin was appointed effective 1 November 2022. (5) Bob Sherwin also receives remuneration for additional services provided to the Group. Refer to section 6 for further details. 8. Other Information 8.1 Minimum Shareholding Expectation The Board has set minimum shareholding expectations for the Directors and Executives to promote alignment between their interests and those of shareholders. Details of Directors shareholdings are shown in table 8.4. In the case of Executives, the design of the RECM ensures that all Executives progressively acquire shares or other equity instruments, so that they are aligned in building long-term value for shareholders. The RECM operates to ensure that over time the Executives will acquire an equity exposure equal to or greater in value than 100% of their annual base salaries. In the case of NEDs, who are paid entirely in cash and do not participate in any incentive program, the Board has introduced a minimum shareholding expectation. NEDs are expected to progressively acquire shares over a three-year period from the date of their appointment (or, for existing directors, within three years from the 1 November 2020 commencement of this requirement) and within this timeframe are expected to hold shares equal in value to their annual base fees at the time of their appointment. Direct and indirect shares and equity instruments (such as RSUs, ZPOs and SARs) count towards this minimum shareholding target. 50 Redbubble Group • FY23 Annual Report 8.2 Options and Share Appreciation Rights The tables below disclose the number of share options and share appreciation rights granted, exercised, vested or forfeited during the year. Option holdings Share options do not carry any voting or dividend rights, and can only be exercised once the vesting conditions have been met, until their expiry date. Balance at the start of the year Granted during the year as compensation Exercised during the year Cancelled during the year Expired during the year Balance at the end of the year Vested and exercisable at the end of the year Unvested at the end of the year Vested during the year 2023 Non-Executive Directors Greg Lockwood Jenny Macdonald Anne Ward Ben Heap Bob Sherwin(1) Executive Director Martin Hosking(2) Former Chief Executive Officer – – 50,714 – – – – – – – – – – – – – – – – – – – – – Michael Ilczynski(3) 144,890 1,028,848 (144,890) (1,028,848) Other Executive KMP Emma Clark(4) Robert Doyle(5) Mark Hall(6) Total 55,331 46,283 (55,331) (46,283) – – 871,999 – – – – – 250,935 1,947,130 (200,221) (1,075,131) – – – – – – – – – – – – – – – 50,714 50,714 – – – – – 871,999 – – – – – – – – – – – – – – – – – – – – – 95,502 – 55,331 871,999 – – – 922,713 50,714 871,999 150,833 (1) Bob Sherwin was appointed effective 1 November 2022. (2) Martin Hosking was a non-executive director until his appointment to Group CEO and Managing Director on 27 March 2023. Martin has been allocated 222,060 share options which are subject to shareholder approval and as such are not included in this table. However, for accounting purposes in remuneration report table 7.1, the instruments have been accounted for under AASB 2: Share based payments using the 30 June 2023 share price as a value proxy until shareholder approval is received. The accounting values will be updated at that time. (3) Michael Ilczynski resigned from his role as CEO on 27 March 2023. The table above reports activity for his period of service as KMP up until 27 March 2023. (4) Emma Clark resigned from her role as CFO on 23 December 2022. The table above reports activity for her period of service up until 23 December 2022. (5) Robert Doyle was appointed as Group CFO on 27 March 2023. (6) Mark Hall was appointed as interim CFO on 5 December 2022 and ceased as interim CFO on 24 March 2023. The table above reports activity for his period of service up until 24 March 2023. 51 Redbubble Group • FY23 Annual Report – – – – – – – – – – – 973,664 – – – – – – – REMUNERATION REPORT (AUDITED) continued Share Appreciation Rights holdings Share appreciation rights do not carry any voting or dividend rights, and can only be exercised once the vesting conditions have been met, until their expiry date. Balance at the start of the year Granted during the year as compensation Exercised during the year Cancelled during the year Expired during the year Balance at the end of the year Vested and exercisable at the end of the year Unvested at the end of the year Vested during the year 2023 Executive Director Martin Hosking(1) – – – – Former Chief Executive Officer Michael Ilczynski(2) 466,508 1,643,294 – (2,109,802) – – Other Executive KMP Emma Clark(3) 1,330,351 Robert Doyle(4) Mark Hall(5) Total – 973,664 – – – – – – (352,053) (978,298) – – – – 973,664 – 1,796,859 2,616,958 – (2,461,855) (978,298) 973,664 – 973,664 (1) Martin Hosking was a non-executive director until his appointment to Group CEO and Managing Director on 27 March 2023. Martin has been allocated 973,664 share appreciation rights which are subject to shareholder approval and as such are not included in this table. However, for accounting purposes in remuneration report table 7.1, the instruments have been accounted for under AASB 2: Share based payments using the 30 June 2023 share price as a value proxy until shareholder approval is received. The accounting values will be updated at that time. (2) Michael Ilczynski resigned from his role as CEO on 27 March 2023. The table above reports activity for his period of service as KMP up until 27 March 2023. (3) Emma Clark resigned from her role as CFO on 23 December 2022. The table above reports activity for her period of service up until 23 December 2022. (4) Robert Doyle was appointed as Group CFO on 27 March 2023. (5) Mark Hall was appointed as interim CFO on 5 December 2022 and ceased as interim CFO on 24 March 2023. The table above reports activity for his period of service up until 24 March 2023. Limited recourse loan share option holdings(1) Limited recourse loan share options do not carry any voting or dividend rights, and can only be exercised once the vesting conditions have been met, until their expiry date. Balance at the start of the year Granted during the year as compensation Exercised during the year Cancelled during the year Balance at the end of the year Vested and exercisable at the end of the year Unvested at the end of the year Vested during the year 2023 Former Chief Executive Officer Michael Ilczynski 289,161 Total 289,161 – – – – (289,161) (289,161) – – – – – – – – (1) Under the requirements of AASB 2 – Share Based Payment the shares purchased by Michael Ilczynski with a limited recourse loan were considered to be options until the loan was repaid. Michael Ilczynski resigned from his role as CEO during the year resulting in the forfeiture of the options grant because he did not meet the service period vesting requirements. 52 Redbubble Group • FY23 Annual Report 8.3 Shares issued on exercise of options/rights 2023 Nature of grant Former Chief Executive Officer Number of ordinary shares on exercise of options/rights Exercise price per option Share price per share at exercise/ settlement dates Value at exercise/ settlement dates(1) Michael Ilczynski(2) Options 144,890 $0.00 $0.49 $70,272 Other Executive KMP Emma Clark(3) Total Options 55,331 200,221 $0.00 $0.48 $26,282 96,554 (1) For options, value at exercise/settlement date is calculated as share price on exercise date less exercise price paid, multiplied by number of options exercised. (2) Michael Ilczynski resigned from his role as CEO on 27 March 2023. The table above reports activity for his period of service as KMP up until 27 March 2023. (3) Emma Clark resigned from her role as CFO on 23 December 2022. The table above reports activity for her period of service up until 23 December 2022. 8.4 Shareholdings of Directors and Executive KMP Balance at the start of the year Received on exercise of options/SARs Purchase of shares Sale/transfer of shares Balance at the end of the year 2023 – Redbubble Limited ordinary shares(1) Non-Executive Directors Ben Heap(2) Greg Lockwood(3) Jennifer Macdonald Anne Ward(4) Bob Sherwin(5) Executive Director Martin Hosking(6) Other Executive KMP Emma Clark(8) Robert Doyle(9) Mark Hall(10) Total 200,000 6,465,131 223,048 220,000 – 40,000,000 – – – – – – 253,411 55,331 – – – – 47,493,929 200,221 405,000 300,000 – 55,000 50,000 – – – – – – – – – – – – – – – – – 500,000 6,465,131 278,048 270,000 – 40,000,000 277,229 308,742 – – 48,099,150 Former Chief Executive Officer Michael Ilczynski(7) 132,339 144,890 (1) Includes shares held directly, indirectly and beneficially by KMP. (2) The shares attributable to Ben Heap are held by Eighty Two Capital Pty Ltd, formerly known as Jackson Alexander Capital Pty Ltd. (3) The shares attributable to Greg Lockwood are held by Piton Capital Venture Fund II LP and Piton Capital Investments Cooperatief B. (4) The shares attributable to Anne Ward are held in her personal name and by Walros Pty Ltd as trustee for the Anagnostou Super Fund. (5) Bob Sherwin was appointed effective 1 November 2022. (6) Martin Hosking was a non-executive director until his appointment to Group CEO and Managing Director on 27 March 2023. The shares attributable to Martin Hosking are held in his personal name and by Jellicom Pty Ltd as trustee for the Three Springs Family Trust and by Three Springs Foundation Pty Ltd as trustee for the Three Springs Foundation. Martin was appointed as Group CEO and Managing Director on 27 March 2023. (7) Michael Ilczynski resigned from his role as CEO on 27 March 2023. The total balance represents his shareholding at the date he ceased to be a KMP. Michael Ilczynski also held 289,161 shares funded buy a limited recourse loan from the Group which were forfeited as he did not meet the service period vesting requirements. Under AASB 2 – Share based payment these shares are not shown in this table. Refer to section 8.2 for further details. (8) Emma Clark resigned from her role as CFO on 23 December 2022. The total balance represents her shareholding at the date she ceased to be a KMP. (9) Robert Doyle was appointed as Group CFO on 27 March 2023. (10) Mark Hall was appointed as interim CFO on 5 December 2022 and ceased as interim CFO on 24 March 2023. The total balance represents his shareholding at the date he ceased to be a KMP. 53 Redbubble Group • FY23 Annual Report REMUNERATION REPORT (AUDITED) continued 8.5 Details of equity awards granted Former Chief Executive Officer Grant date # of options/ rights granted Type of equity Vest date(1) Expiry date(2) Exercise price Unit value at grant date Total Value at grant date(3) Michael Ilczynski(5) 19-Jul-22 479,310 Options(4) 19-Jul-23 & 19-Jul-24 19-Jul-28 $0.00 $1.00 $479,310 01-Oct-22 549,538 Options 01-Oct-23 01-Oct-28 01-Oct-22 1,643,294 SARs 01-Oct-25 01-Oct-28 Other Executive KMP Robert Doyle 01-Apr-23 333,090 Options 01-Apr-24 01-Apr-29 01-Apr-23 538,909 Options(4) 27-Mar-24 & 27-Mar-25 01-Apr-29 01-Apr-23 973,664 SARs 01-Oct-25 01-Apr-29 Emma Clark(6) 19-Jul-22 46,283 Options(4) 19-Jul-23 & 19-Jul-24 19-Jul-28 Total 4,564,088 $0.00 $0.76 $0.00 $0.00 $0.46 $0.00 $0.66 $362,695 $0.38 $624,452 $0.45 $149,891 $0.45 $242,509 $0.27 $262,889 $1.00 $46,283 $2,168,029 (1) The vesting of equity is subject to the KMP remaining in service with Redbubble as at the vest date and, in relation to the SARs, the total shareholder return hurdle being satisfied. (2) For options and SARs, if the KMP leaves Redbubble service then the expiry date is brought forward to be 90 days after the employment end date. (3) The value at grant date for options has been determined using the Black-Scholes valuation model. The value for share appreciation rights has been determined using the Monte Carlo valuation model. For presentation purposes, share price has been rounded to two decimal places, however the value at grant date has been calculated based on unrounded numbers. (4) 50% of options vests on 12 month anniversary and the remaining 50% on 24 month anniversary subject to the KMP remaining employed by a Redbubble Group company as at the relevant vesting date. (5) Michael Ilczynski resigned from his role as CEO on 27 March 2023. The options and SARs granted to Michael Ilczynski during the year were subsequently forfeited on 30 June 2023 as he did not meet the service period vesting requirements. (6) Emma Clark resigned from her role as CFO on 23 December 2022. The options granted to Emma Clark during the year were subsequently forfeited on 23 December 2022 as she did not meet the service period vesting requirements. 8.6 Other Transactions with Executive KMP – Legacy Item In FY21, Redbubble Limited and Mr Ilczynski, CEO, entered into a limited recourse loan arrangement with a loan amount of $1,600,000. Mr Ilczynski used the loan amount plus $400,000 of his own funds to purchase Redbubble Limited shares on-market in the trading window that followed the release of Redbubble’s half-year 2021 results and Appendix 4D. In accordance with the terms of the loan agreement, the loan lapsed on Mr Ilczynski’s resignation and last day of employment, 30 June 2023. All shares purchased through the loan will be sold on-market at Redbubble’s direction and in accordance with the loan agreement terms, and all proceeds of sale will be remitted to Redbubble in full satisfaction and discharge of Mr Ilczynski’s obligation in respect of repayment of the loan. 54 Redbubble Group • FY23 Annual Report FINANCIAL REPORT CONTENTS 56 Consolidated Statement of Comprehensive Income 57 Consolidated Statement of Financial Position 58 Consolidated Statement of Changes in Equity 60 Consolidated Statement of Cash Flows 61 Notes to the Consolidated Financial Statements 89 Directors’ Declaration 90 Independent Auditor’s Report 95 Shareholder Information 98 Corporate Information 55 Redbubble Group • FY23 Annual Report CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the Year Ended 30 June 2023 Revenue from contracts with customers Marketplace revenue Artists’ revenue Notes 2023 $’000 2022 $’000 467,516 482,582 87,606 90,811 Total revenue from contracts with customers 3 555,122 573,393 Operating expenses Artists’ expenses(1) Fulfiller expenses(2) Employee and contractor costs Marketing expenses Operations, administration and technology expenses Depreciation and amortisation Total operating expenses Other income(3) Other expenses(4) Profit/(loss) before income tax Income tax (expense)/benefit(5) Total profit/(loss) for the year attributable to owners Other comprehensive income/(loss) Items that will be reclassified subsequently to profit or loss Gain/(loss) on foreign currency translation Total other comprehensive income/(loss) attributable to owners Total comprehensive income/(loss) for the year attributable to owners Profit/(loss) per share attributable to the ordinary equity holders of the company Basic profit/(loss) per share Diluted profit/(loss) per share (85,917) (90,811) (295,049) (299,454) (87,984) (77,177) (85,818) (80,414) (37,762) (36,068) 4 5 6 14, 15 & 16 (10,748) (10,676) (603,278) (594,600) 159 35 (3,613) (1,101) (51,610) (22,273) (2,570) (2,315) (54,180) (24,588) 1,877 1,877 3,454 3,454 (52,303) (21,134) Cents (19.59) (19.59) Cents (8.96) (8.96) 7 8 9 9 (1) Artists’ expenses comprise artists revenue less marketplace fees and charges recovered from artists. (2) Fulfiller expenses comprise product and printing, shipping and transaction costs. (3) Other income includes finance income. (4) Other expenses include interest on lease liabilities, losses recognised on derecognition of assets, and net foreign exchange losses. (5) A portion of the income tax benefit applicable to the Group is recorded directly in equity. Please see note 8 for further details. The above Consolidated Statement of Comprehensive Income should be read in conjunction with accompanying notes. 56 Redbubble Group • FY23 Annual Report CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2023 Current assets Cash and cash equivalents Other receivables Prepayments Current tax assets Other assets Total current assets Non-current assets Property, plant and equipment Intangible assets Right of use assets Prepayments Deferred tax assets Other assets Total non-current assets Total assets Current liabilities Trade and other payables Unearned revenue(1) Employee benefit liabilities Provisions Lease liabilities Total current liabilities Non-current liabilities Lease liabilities Employee benefit liabilities Provisions Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Contributed equity Treasury reserve Share based payments reserve Foreign currency translation reserve Accumulated losses Total equity Notes 2023 $’000 2022 $’000 10 11(b) 12 8(b) 13 14 15 16 12 8(d) 13 17 3 18 16 16 18 8(d) 19(b) 19(b) 35,721 3,396 7,417 571 4,173 89,133 5,314 4,581 2,226 4,770 51,278 106,024 2,288 75,170 5,764 29 45 144 3,069 70,746 8,085 618 1,401 677 83,440 84,596 134,718 190,620 53,341 12,286 1,822 2,095 3,215 59,619 13,023 2,443 1,749 3,117 72,759 79,951 3,791 6,508 92 56 784 4,723 77,482 57,236 149 55 – 6,712 86,663 103,957 164,458 162,526 (2,104) (4,005) 14,329 1,923 13,347 46 (121,370) (67,957) 57,236 103,957 (1) Unearned revenue represents the value of goods paid for by customers that are not yet delivered. The above Consolidated Statement of Financial Position should be read in conjunction with accompanying notes. 57 Redbubble Group • FY23 Annual Report CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the Year Ended 30 June 2023 for the year ended 30 June 2023 Notes Contributed equity $’000 Treasury reserve(1) $’000 Share based payments reserve $’000 Foreign exchange translation reserve $’000 Accumulated losses $’000 Total $’000 Balance as at 1 July 2022 162,526 (4,005) 13,347 Profit/(loss) for the year Other comprehensive income/(loss) Total comprehensive loss for the year Exercise of share options Transfer to issued capital(2) Share based payments expense 19(b) 19(b) 4 – – – 4 4,732 – – – – – – – Shares issued to Employee Share Trust Shares issued/allocated to participants(3) Receivable for limited recourse loan settlement Payment of withholding taxes(4) Income tax benefit recognised directly in equity for Employee Share Trust deductions(5) Transfer to accumulated losses(6) 19(b) 1,170 (1,170) 19(b) (3,718) 3,718 19(b) 19(b) 19(b) 19(b) – (256) – – – – 120 (767) – – – – (4,732) 5,607 – – 107 – – – 46 – 1,877 (67,957) 103,957 (54,180) (54,180) – 1,877 1,877 (54,180) (52,303) – – – – – – – – – 4 – 5,607 – – 107 (256) 120 – – – – – – – – 767 Balance as at 30 June 2023 164,458 (2,104) 14,329 1,923 (121,370) 57,236 (1) The Group operates an Employee Share Trust (the Trust) for the purpose of issuance of shares to participants on exercise of options/restricted stock units. The balance in the treasury reserve represents the book value of shares held by the Trust for future issue to participants on exercise of options/restricted stock units. The Treasury Reserve also includes shares used as security for the limited recourse loan provided to the former CEO in FY21. (2) Transfer to issued capital on issuance of shares for exercised options/restricted stock units. (3) Shares issued/allocated to participants from the Employee Share Trust. (4) Payment of withholding taxes to US tax authorities on issuance of restricted stock units funded by shares withheld. (5) A tax benefit was recognised directly in equity for income tax benefits relating to contributions to the Employee Share Trust in excess of the associated cumulative remuneration expense. (6) The balance transferred to accumulated losses represents the income tax benefit recorded in the reserve for equity rights that were converted into shares in the current period. The above Consolidated Statement of Changes in Equity should be read in conjunction with accompanying notes. 58 Redbubble Group • FY23 Annual Report for the year ended 30 June 2022 Notes Balance as at 1 July 2021 Profit/(loss) for the year Other comprehensive income/(loss) Total comprehensive loss for the year Exercise of share options Transfer to issued capital(2) Share based payments expense Shares issued to Employee Share Trust Shares issued/allocated to participants(3) Payment of withholding taxes(4) Income tax benefit recognised directly in equity for Employee Share Trust deductions(5) Transfer to accumulated losses(6) Contributed equity $’000 Treasury reserve(1) $’000 Share based payments reserve $’000 Foreign exchange translation reserve $’000 Accumulated losses $’000 Total $’000 162,552 (7,351) 11,414 (3,408) (47,339) 115,868 – – – 1,459 4,954 – 19(b) 19(b) 4 – – – – – – – – – – (4,954) 6,887 19(b) 10,120 (10,120) 19(b) 19(b) 19(b) 19(b) (15,283) 15,283 (1,276) – – 2,153 (3,970) – – – – – – (24,588) (24,588) 3,454 – 3,454 3,454 (24,588) (21,134) – – – – – – – – – – – – – – 3,970 1,459 – 6,887 – – (1,276) 2,153 – Balance as at 30 June 2022 162,526 (4,005) 13,347 46 (67,957) 103,957 (1) The Group operates an Employee Share Trust (the Trust) for the purpose of issuance of shares to participants on exercise of options/restricted stock units. The balance in the treasury reserve represents the book value of shares held by the Trust for future issue to participants on exercise of options/restricted stock units. The treasury reserve also includes shares used as security for the limited recourse loan provided to the former CEO in FY21. (2) Transfer to issued capital on issuance of shares for exercised options/restricted stock units. (3) Shares issued/allocated to participants from the Employee Share Trust. (4) Payment of withholding taxes to US tax authorities on issuance of restricted stock units funded by shares withheld. (5) A tax benefit was recognised directly in equity for income tax benefits relating to contributions to the Employee Share Trust in excess of the associated cumulative remuneration expense. (6) The balance transferred to accumulated losses represents the income tax benefit recorded in the reserve for equity rights that were converted into shares in the current period. The above Consolidated Statement of Changes in Equity should be read in conjunction with accompanying notes. 59 Redbubble Group • FY23 Annual Report CONSOLIDATED STATEMENT OF CASH FLOWS For the Year Ended 30 June 2023 Cash flows from operating activities Receipts from customers Payments to artists Payments to fulfillers Payments to other suppliers and employees Payments of interest Receipts of interest Income taxes received/(paid) Net cash provided by/(used in) operating activities Cash flows from investing activities Payments for property, plant and equipment Payments for development of intangible assets Net cash provided by/(used in) investing activities Cash flows from financing activities Payments for lease liabilities Proceeds from exercise of share options Payment of withholding taxes to US tax authorities on settlement of restricted stock units funded by shares withheld Net cash provided by/(used in) financing activities Net increase/(decrease) in cash and cash equivalents held Cash and cash equivalents at beginning of year Effect of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of the financial year Notes 2023 $’000 2022 $’000 613,311 636,324 (81,387) (87,497) (294,892) (296,619) (275,410) (249,510) (343) 163 1,465 (410) 23 484 (37,093) 2,795 14 (402) (12,223) (12,625) (2,303) (8,892) (11,195) 16 19(b) 19(b) (3,425) (3,473) 4 1,459 (256) (3,677) (1,276) (3,290) (53,395) (11,690) 89,133 98,686 (17) 35,721 2,137 89,133 The above Consolidated Statement of Cash Flows should be read in conjunction with accompanying notes. 60 Redbubble Group • FY23 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the Year Ended 30 June 2023 Notes Page 1. Basis of preparation 2. Changes in significant accounting policies Performance 3. Revenue from contracts with customers 4. Employee and contractor costs 5. Marketing expenses 6. Operations, administration and technology expenses 7. Other expenses 8. Income tax 9. Earnings per share Cash 10. Cash and cash equivalents 11. Financial risk management Assets 12. Prepayments 13. Other assets 14. Property, plant and equipment 15. Intangible assets 16. Leases Liabilities 16. Leases 17. Trade and other payables 18. Employee benefit liabilities Equity 19. Contributed equity and reserves Group Structure 20. Interests in subsidiaries 21. Parent entity financial information Unrecognised Items 22. Commitments and contingencies Others 23. Share-based payments 24. Related party transactions 25. Remuneration of auditors 26. Segment information 27. Events occurring after the balance sheet date 28. Other significant accounting policies 62 63 63 63 63 64 64 64 67 68 69 72 72 72 74 76 76 77 77 78 80 80 81 82 84 85 85 85 86 Designed and sold by: classycreeps 7 Minutes In Hell Classic Tee TeePublic, 2023 61 Redbubble Group • FY23 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued For the Year Ended 30 June 2023 1. Basis of preparation The consolidated financial statements of Redbubble Limited and its controlled entities (the Group) for the year ended 30 June 2023 were authorised for issue by a resolution of the Directors on 22 August 2023. Redbubble Limited (the Company or the parent), the owner of global online marketplaces for independent creatives, is a for profit company incorporated and domiciled in Australia and whose shares are publicly traded on the Australian Stock Exchange. The Group, through its websites at Redbubble.com, TeePublic.com and three foreign language Redbubble.com websites, owns and operates the Redbubble and TeePublic online marketplaces. 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. These financial statements: • are general purpose financial statements; • cover Redbubble Limited and its controlled entities as the consolidated Group. Redbubble Limited is the ultimate parent entity of the Group; • have been prepared in accordance with Australian Accounting Standards (AASBs) and interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001; • comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB); • have been prepared on a going concern basis under the historical cost convention; • are presented in Australian dollars with all values rounded off in accordance with the Australian Securities and Investments Commission 2016/191 Legislative Instrument, to the nearest thousand dollars or in certain other cases, nearest dollar, unless otherwise stated; and • apply significant accounting policies consistently to all the years presented, unless otherwise stated. Comparatives are also consistent with prior years, unless otherwise stated. The preparation of financial statements requires the use of certain critical accounting estimates and exercise of significant judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement and use of estimates are disclosed in the relevant notes. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under circumstances. The Group makes estimates and assumptions concerning the future which may not equal the actual results. Going Concern This financial report has been prepared on a going concern basis, which contemplates the continuity of normal business activities and realisation of assets and discharge of liabilities in the ordinary course of business. At 30 June 2023, the Group had total net assets of $57.2m (2022: $104.0m) and a net current asset deficiency of $21.5m (2022: surplus of $26.1m). In assessing the going concern basis, the Group considered the following: • In the second half of FY23 the Group announced a number of cost-reduction measures to substantially reduce the Group’s operating expenditure and assist in returning the Group to profitability. These measures are expected to reduce operating expenditure by $45m on an annualised basis, with the full benefit expected to be realised from the start of FY24. • The Group derives a working capital timing benefit from its operating model, whereby funds are received from consumers for the sale of goods by artists before the goods are produced by third party fulfillers. Cash outflows to fulfillers occur at a later date, usually within 30 days. This assists in providing the Group with short term cash liquidity. • The Group operates two online marketplaces and invests in these marketplaces to generate future economic benefits. The payments for these investments reduce the cash balance of the Group within current assets. These investments are expected to deliver long term benefits, but in the short term they have contributed to the Group’s net current asset deficiency as the investment is recorded as a non-current asset. • Included in the net current asset deficiency are items that are not a cash liability of the Group or items that are not expected to be paid out in the short term. These include: – $12.3m of unearned revenue that is not a cash liability of the Group. This will be recognised in the Statement of Comprehensive Income as revenue in the next financial year. – $3.2m of lease liabilities disclosed in current liabilities. The Group is required to report the corresponding right of use asset as a non-current asset. – $1.8m of employee benefit liabilities that are not expected to be paid out as a lump sum, but will be paid out in line with normal salary and wage payments as employees take leave. – Artist payables of $20.2m are not expected to be paid out as a lump sum. Amounts are paid monthly only once an artist’s account balance exceeds $20. Balances below $20 and more than $2 are paid annually in January each year. • Forward cash flow forecasts show the Group will continue to be able to fully pay its debts as and when they become due. The Directors have reviewed the current financial position of the Group along with forward budgets and cashflow forecasts and have satisfied themselves that the continued application of going concern basis is appropriate as it is expected that the Group will be able to fully pay its debts as and when they become due. 62 Redbubble Group • FY23 Annual Report 2. Changes in significant accounting policies There are no new or amended accounting standards that required the Group to change its accounting policies for the 2023 financial year. 3. Revenue from contracts with customers The Group provides internet-based marketplace platforms and associated services to facilitate the design and sale by artists of goods printed with the artists’ art to their customers worldwide. Artists use a suite of online tools to design products printed with their art and to display digital product previews on online listing pages via the Group’s websites. The Group facilitates the artists’ promotion of their products by aggregating demand from buyers and by leveraging platform scale to support favourable commercial terms for artists and their customers from third party suppliers, fulfillers and drop shippers, who participate in Group’s marketplaces. Under AASB 15 Revenue from Contracts with Customers the Group is the principal for accounting purposes in the sale of goods bearing artists’ designs. Artists’ revenue from their sales is included in total revenue, and is recognised as artists’ expenses in operating expenses, net of any marketplace fees incurred by the artist. The Group has concluded that there is only one performance obligation for goods bearing the artists’ designs. Both the artist and the Group are involved in satisfying the performance obligation. The performance obligation is satisfied (and therefore revenue is recognised) when control of the goods is transferred to the customer, which is deemed to be when the product is delivered. Amounts disclosed as revenue are net of trade discounts, returns, rebates, sales taxes, and transaction fraud relating to stolen or unauthorised use of credit cards. Critical accounting estimates and judgements All of the unearned revenue balance of $13.0m as at 30 June 2022 was recognised as revenue during the FY23 year. Of the $12.3m unearned revenue balance at 30 June 2023, $8.1m is expected to be recognised as revenue within the following month with the remaining balance expected to be recognised in FY24. Where possible the Group uses delivery tracking information to calculate the volume of goods in transit at the end of the reporting period. When delivery tracking information is not available the Group estimates the likely delivery timeframe using average delivery times and information from third-party shipping fulfillers. For information regarding disaggregated revenue from contracts with customers refer to note 26. 4. Employee and contractor costs Salary costs Contractor costs Share-based payments expense(1) Superannuation and other pension related costs(2) Redundancy costs Total employee and contractor costs 2023 $’000 59,352 14,703 5,607 4,166 4,156 2022 $’000 51,517 15,461 6,887 3,312 – 87,984 77,177 (1) Includes reversal of forfeited share based payments of $4.9m (2022: $1.6m) due to departure of employees during the year. (2) Includes contribution to 401K funds, which is the superannuation equivalent for the US subsidiaries, and contributions to pension funds in Germany. 5. Marketing expenses Paid marketing(1) Other marketing expenses(2) Total marketing expenses (1) Paid marketing represents search and social paid marketing costs, paid on a per click basis. (2) Other marketing expenses in FY23 include initial costs for the Group’s brand awareness project. 2023 $’000 76,565 9,253 85,818 2022 $’000 76,432 3,982 80,414 63 Redbubble Group • FY23 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued For the Year Ended 30 June 2023 6. Operations, administration and technology expenses Technology infrastructure and software costs Other operations and administration expenses Total operations, administration and technology expenses 7. Other expenses Interest expense(1) Loss on derecognition of assets(2) Net foreign exchange loss Total other expenses 2023 $’000 27,849 9,913 37,762 2023 $’000 343 2,833 437 3,613 2022 $’000 22,610 13,458 36,068 2022 $’000 410 65 626 1,101 (1) Includes interest expenses on lease liabilities. (2) Refer to Note 15 for further details on the capitalised development costs that were derecognised during the year. 8. Income tax Recognition of tax expense/(benefit) The tax expense recognised in the statement of comprehensive income relates to current income tax expense plus deferred tax expense (being the movement in deferred tax assets and liabilities and unused tax losses during the year). The tax effect of share based payment awards granted is recognised in current income tax expense, except to the extent that the total tax deductions are expected to exceed the cumulative remuneration expense. In this situation, the excess of the associated current or deferred tax is recognised in equity and forms part of the treasury shares reserve. Current and deferred tax is recognised as income or an expense and included in the income statement for the period except where the tax arises from a transaction which is recognised in other comprehensive income or equity, in which case the tax is recognised in other comprehensive income or equity respectively. Current tax Current tax is the amount of income taxes payable/(recoverable) in respect of the taxable profit/(taxable loss) for the year and is measured at the amount expected to be paid to/(recovered from) the taxation authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Current tax assets and liabilities are offset where there is a legally enforceable right to set off the recognised amounts and there is an intention either to settle on a net basis or to realise the asset and settle the liability simultaneously. Deferred tax Deferred tax is provided on temporary differences which are determined by comparing the carrying amounts of tax bases of assets and liabilities to the carrying amounts in the consolidated financial statements. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets are recognised for all deductible temporary differences and unused tax losses to the extent: • it is probable that future taxable profits will be available against which the deductible temporary differences and losses can be utilised; • the likelihood of achieving appropriate continuity of ownership levels and continuing to meet the relevant definitions of “same business” are met; and • there are no changes in tax legislation that adversely affect the ability to realise the deferred tax asset benefits. Deferred tax assets and liabilities are offset where they relate to income taxes levied by the same taxation authority and the intention is to realise the assets and settle the liabilities simultaneously in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. 64 Redbubble Group • FY23 Annual Report Critical accounting estimates and judgements Current and deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue, expense and equity items, the incurrence of tax losses and entitlement to non-refundable tax offsets. In evaluating the Group’s ability to recover deferred tax assets within the jurisdiction from which they arise, the Group considers all available positive and negative evidence, including probability of achieving appropriate continuity of ownership levels, likelihood of meeting relevant definitions of “same business”, expected reversals of temporary differences, projected future taxable income and results of recent operations. This evaluation requires significant management estimates and judgements. The Group has in aggregate $173.9m (2022: $123.4m) of unrecognised losses, $12.6m (2022: $10.6m) of unrecognised R&D tax offsets and $1.5m (2022: $nil) of unrecognised timing differences. All of these items relate to the Australian tax jurisdiction. An unrecognised deferred tax asset of $65.2m exists as at 30 June 2023 (2022: $47.7m), in relation to these items. These losses will be recognised at a future point in time when sustainable taxable income can be reliably estimated. (a) Income tax expense/(benefit) recorded in the Statement of Comprehensive Income Recorded in the Statement of Comprehensive Income 2023 $’000 2022 $’000 Current tax Current tax expense/(benefit) Under/(over) provision in prior years Deferred tax Deferred tax expense/(benefit) Under/(over) provision in prior years Total income tax expense/(benefit) recorded in the Statement of Comprehensive Income (b) Current tax assets/(liabilities) The current tax asset is comprised of the following Current tax expense recorded in the Statement of Comprehensive Income Tax benefit recorded in equity(1) Tax instalments made and refunds due for prior years Total current tax asset 390 23 2,113 44 2,570 2023 $’000 (390) 120 841 571 605 191 1,479 40 2,315 2022 $’000 (605) 2,153 678 2,226 (1) The tax effect of share based payment awards granted is recognised in current income tax expense, except to the extent that the total tax deductions exceed the cumulative remuneration expense. The excess of the associated current or deferred tax is recognised in equity and forms part of the treasury shares reserve. (c) Numerical reconciliation of income tax expense/(benefit) to prima facie tax payable Profit/(loss) from ordinary activities before income tax expense/(benefit) Income tax calculated @ 30% Tax effect of amounts that are not deductible/(taxable) in calculating income tax: Tax effect of foreign jurisdictions’ different tax rates US income tax benefit due to exercise/disposition of employee stock options Net Australian income tax benefit from funding the employee share trust Tax effect of share based payment deduction recognised in equity Research and development Other non-deductible/non-assessable items Effect of movements in foreign exchange Under/(over) provision in prior year Unrecognised tax losses and R&D tax offsets Income tax expense/(benefit) attributable to loss from ordinary activities 2023 $’000 2022 $’000 (51,610) (22,273) (15,483) (6,682) (488) 457 10 120 (339) 136 1,496 67 16,594 2,570 210 (375) (1,964) 2,153 (120) (1,426) 67 231 10,221 2,315 65 Redbubble Group • FY23 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued For the Year Ended 30 June 2023 8. Income tax continued (d) Deferred tax asset/(liability) Classification of deferred tax assets/(liabilities) Deferred tax assets Deferred tax (liabilities) Net deferred tax asset/(liability) The balance comprises temporary differences attributable to: Amounts recognised in profit or loss: Employee benefits Property, plant and equipment Lease assets and liabilities Unrealised FX Intangible assets US carried forward tax losses Other items Net deferred tax (liability)/assets Movements: Opening balance at 1 July Credited/(debited) to the consolidated statement of comprehensive income Exchange differences Closing balance at 30 June 2023 $’000 45 (784) (739) 2022 $’000 1,401 – 1,401 2023 $’000 2022 $’000 741 (122) 203 501 (200) 286 2,902 3,331 (4,228) (3,205) 137 (372) (739) 1,401 (2,157) 17 (739) 848 (160) 1,401 2,717 (1,519) 203 1,401 (1) Deferred tax assets (DTAs) are recognised in relation to temporary differences that arise in jurisdictions where the Group is generating taxable income as it is probable that the tax benefit associated with these DTAs will be realised. As noted above, the Group has unrecognised DTAs for tax losses which remain available for use but for which recognition is not currently supportable. These DTAs may be recognised at a future point in time when there is sustainable evidence of taxable income in the relevant jurisdiction. 66 Redbubble Group • FY23 Annual Report 9. Earnings per share Basic earnings per share (EPS) Basic EPS is calculated by dividing the profit attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the financial year. Diluted EPS Diluted EPS is calculated by dividing the profit attributable to ordinary equity holders of the Company (after adjusting for the after income tax effect of interest and other financing costs associated with the dilutive potential ordinary shares) by the weighted average number of ordinary shares outstanding during the financial year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares. Basic and diluted earnings per share The following table reflects the profit/(loss) and share data used in the basic and diluted EPS calculations: Profit/(loss) attributable to the ordinary equity holders of the company used in calculating basic and diluted earnings per share Weighted average number of shares used as the denominator 2023 $’000 2022 $’000 (54,180) (24,588) 2023 Number(1) 2022 Number(1) Weighted average number of shares used as denominator in calculating basic earnings per share 276,619,241 274,393,330 Adjustments for calculation of diluted earnings per shares: Add: Options Add: Restricted stock units Add: Share appreciation rights – – – – – – Weighted average number of shares used as denominator in calculating diluted earnings per share 276,619,241 274,393,330 (1) None of the options, restricted stock units and share appreciation rights that could be considered as potential ordinary shares have been included in determination of diluted EPS, since they are anti-dilutive. Due to losses incurred, inclusion of potential ordinary shares in weighted average number of shares would increase the denominator used in calculating diluted EPS and thereby reduce the loss per share. There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of authorisation of these financial statements that would significantly impact the above calculations. 67 Redbubble Group • FY23 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued For the Year Ended 30 June 2023 10. Cash and cash equivalents Cash at bank and on hand Total cash and cash equivalents 2023 $’000 35,721 35,721 2022 $’000 89,133 89,133 (a) Reconciliation of profit/(loss) for the year to net cash inflow/(outflow) from operating activities Profit/(Loss) for the year Non-cash items (Recognition)/de-recognition of net deferred tax asset Depreciation and amortisation Amortisation of share-based payments Net exchange differences Notes 8(d) Net loss on the disposal/derecognition of property, plant and equipment and intangible assets Income tax benefit recognised directly in equity for Employee Share Trust deductions 8(b) Change in operating assets and liabilities Net decrease/(increase) in trade and other receivables, prepayments and other assets Net increase/(decrease) in current tax liabilities Net increase/(decrease) in trade and other payables, employee benefit and other liabilities and provisions Net increase/(decrease) in unearned revenue Net cash provided by/(used in) operating activities (b) Changes in liabilities arising from financing activities Lease liabilities Opening balance at 1 July Cashflow from principal repayments New leases Interest expense incurred over rent free period Foreign exchange movement Closing balance 30 June Notes 16 16 16 2023 $’000 2022 $’000 (54,180) (24,588) 2,157 10,748 5,607 1,519 10,676 6,887 512 (3,736) 2,833 120 801 1,655 66 2,153 (911) (956) (6,609) 10,897 (737) (37,093) 788 2,795 2023 $’000 9,625 2022 $’000 6,002 (3,425) (3,473) 649 – 157 6,675 40 381 7,006 9,625 68 Redbubble Group • FY23 Annual Report 11. Financial risk management This note explains the Group’s financial risk management and how the exposure to these risks affects the Group’s future financial performance. The Group’s risk management framework is maintained by senior management through delegation from the Board of Directors. The Board oversees and monitors senior management’s implementation of the Group’s risk management framework. This is based on recommendations from the Audit and Risk Committee, where appropriate. The risk management framework includes policies and procedures approved by the Board and managed by the Legal and Finance functions. Financial assets Cash and cash equivalents Other receivables Security bonds Total financial assets Financial liabilities Fulfiller payables Artist payables Staff payables Other payables Lease liabilities Total financial liabilities Notes 10 11(b) 13 Notes 17 17 17 17 16 2023 $’000 35,721 3,396 402 2022 $’000 89,133 5,314 1,027 39,519 95,474 2023 $’000 19,795 20,187 2,622 7,402 7,006 2022 $’000 24,203 15,928 4,238 11,498 9,625 57,012 65,492 The carrying value of the assets and liabilities (excluding lease liabilities) disclosed in the table equals or closely approximates their fair value. Refer to note 16 for more information on lease liabilities. (a) Market risk Foreign exchange risk The Group collects funds from customers in five currencies (USD, AUD, EUR, CAD and GBP) and maintains bank accounts in these currencies. The Group has liabilities to fulfillers, artists and other suppliers in these currencies. Where possible, the Group settles its liabilities in the native currency hence creating a partial natural hedge. Any surplus funds are converted into the required currencies’ operating accounts when management feels it is prudent to do so. The net exposure to foreign currency financial instruments (expressed in AUD) held by the Group, which are largely held by the US subsidiaries whose functional currency is USD and Redbubble Ltd whose functional currency is AUD, are as follows: Net exposure asset/(liability) (expressed in $’AUD) 30 June 2023 30 June 2022 GBP $’000 (323) 15,794 USD $’000 (1,181) 11,036 EUR $’000 (262) 16,613 The aggregate net foreign exchange gains/(losses) recognised in profit or loss were: Net foreign exchange loss included in other expenses Total net foreign exchange losses recognised in profit/(loss) before income tax for the year CAD $’000 7,502 5,103 2023 $’000 (437) (437) Total $’000 5,736 48,546 2022 $’000 (626) (626) 69 Redbubble Group • FY23 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the Year Ended 30 June 2023 11. Financial risk management continued (a) Market risk continued Foreign currency sensitivity The following table demonstrates the sensitivity to a reasonably possible change in exchange rates with all other variables held constant. The impact on the Group’s profit before tax is due to changes in the fair value of monetary assets and liabilities. Year 30 June 2023 30 June 2022 Change in FX rate + 10% - 10% + 10% - 10% Effect on profit before tax (amounts shown in AUD) GBP $’000 32 (32) 1,579 (1,579) USD $’000 118 (118) 1,104 (1,104) EUR $’000 26 (26) 1,661 (1,661) CAD $’000 750 (750) 510 (510) Total $’000 574 (574) 4,854 (4,854) (b) Credit risk Credit risk is the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group faces primary credit risk from potential default on receivables by payment service providers. The Group receives payments of the balance due from two of the three service providers, every day, two to three days in arrears. The credit risk of balances held with the third party service provider is managed by regularly sweeping funds out of the provider accounts into a portfolio of managed banking facilities held with highly rated and regulated financial institutions. Amounts owing from payment service providers, which have a historic and expected minimal rate of default, are not recognised as cash at reporting date. Cash and bank balances/other financial assets As at 30 June 2023, the Group holds $20.3m (2022: $14.2m) of cash in interest bearing bank deposits that attract interest at normal rates and $15.4m (2022: $74.9m) in non-interest bearing accounts. The Group’s bank accounts are predominantly interest bearing accounts. The other financial assets include certain other operational deposits over and above the deposits placed with banks as security. The banks with which securities are held are reputable financial institutions and hence, the credit risk is considered low. Other receivables The Group is not exposed to any significant credit risk on account of other receivables. The Group accepts payments either via credit card platforms, PayPal, Amazon Pay, Apple Pay or Buy Now Pay Later (BNPL) platforms. The other receivables balance as at 30 June 2023 represents amounts receivable from these payment service providers and other non-trade receivable balances. It is believed that the credit risk from collections from payment service providers is low. Receivables from payment service providers Other non-trade receivables Total other receivables(1) 2023 $’000 1,934 1,462 3,396 2022 $’000 1,824 3,490 5,314 (1) None of the other receivables are impaired or past due date. The Group does not hold any collateral in relation to these receivables. The Group encounters credit card fraud typical of the industry in which it operates, representing less than 0.1% (2022: less than 0.1%) of marketplace revenue. 70 Redbubble Group • FY23 Annual Report (c) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash in accordance with forecast cash usage. Due to the dynamic nature of the underlying business, flexibility in funding is maintained by ensuring ready access to the cash reserves of the business. All financial liabilities (excluding lease liabilities) are current and anticipated to be repaid over the normal payment terms, usually 30 days for trade and other payables (excluding Artist payables) and within 12 months for other financial liabilities. Artist payables are paid to an Artist once their balance exceeds $20. Balances below $20 and more than $2 are paid annually in January each year. Maturities of financial liabilities Financial liabilities owed by the Group at 30 June 2023 are $57.3m (2022: $65.9m). These items are based on contractual undiscounted payments. The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments: Year ended 30 June 2023 1 to 3 months 3 to 12 months 1 to 3 years > 3 years Total (1) Excludes sales taxes. Year ended 30 June 2022 1 to 3 months 3 to 12 months 1 to 3 years > 3 years Total (1) Excludes sales taxes. Trade and other payables(1) $’000 Lease liabilities $’000 Total $’000 50,006 941 50,947 – – – 50,006 2,576 3,433 335 7,285 Trade and other payables(1) $’000 55,867 – – – Lease liabilities $’000 908 2,528 4,918 1,663 2,576 3,433 335 57,291 Total $’000 56,775 2,528 4,918 1,663 55,867 10,017 65,884 (d) Capital management The Group’s policy is to maintain a capital structure for the business which ensures sufficient liquidity, provides support for business operations, maintains shareholder confidence and positions the business for future growth. The Group manages its capital structure and makes adjustments in light of changes in economic conditions. The ongoing maintenance of the Group’s policy is characterised by ongoing cash flow forecast analysis and detailed budgeting which is directed at providing a sound financial positioning for the Group’s operations and financial management activities. The Group is not subject to externally imposed capital requirements. 71 Redbubble Group • FY23 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued For the Year Ended 30 June 2023 12. Prepayments Consolidated Admin/Corporate/Operating(1) Licenses, dues and subscriptions Total prepayments Current Non-current 2023 $’000 5,932 1,485 7,417 2022 $’000 2,673 1,908 4,581 2023 $’000 2022 $’000 29 – 29 618 – 618 (1) Includes a prepayment of $2.5m to a technology infrastructure and software provider under a long term contractual arrangement. Refer to note 21(b) for further details. 13. Other assets Consolidated Security bonds Goods in transit(1) Total other assets Current Non-current 2023 $’000 258 3,915 4,173 2022 $’000 350 4,420 4,770 2023 $’000 2022 $’000 144 – 144 677 – 677 (1) Goods in transit represents the cost of goods that have been manufactured but are in transit to customers. 14. Property, plant and equipment Plant and equipment is measured on a cost basis and carried at cost less accumulated depreciation and any accumulated impairment losses. Depreciation The depreciable amount of all fixed assets is depreciated on a straight-line basis over the asset’s useful life to the Group commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The depreciation rates used for each class of depreciable asset are shown below: Class of Fixed Assets Leasehold improvements Computer equipment Furniture and equipment Useful life Life of the applicable lease 3 years 2-5 years At the end of each annual reporting period, the depreciation method, useful life and residual value of each asset is reviewed. Any revisions are accounted for prospectively as a change in estimate. 72 Redbubble Group • FY23 Annual Report Cost Balance at 1 July 2022 Additions Disposals Exchange differences Balance at 30 June 2023 Balance at 1 July 2021 Additions Disposals Exchange differences Balance at 30 June 2022 Accumulated depreciation Balance at 1 July 2022 Charge for the year Disposals Exchange differences Balance at 30 June 2023 Balance at 1 July 2021 Charge for the year Disposals Exchange differences Balance at 30 June 2022 Net book value As at 30 June 2023 As at 30 June 2022 Leasehold improvements $’000 Furniture and equipment $’000 Computer equipment $’000 Total $’000 10,470 402 4,276 226 (1,526) (3,810) 187 3,163 3,281 895 (56) 156 317 7,379 7,977 2,303 (56) 246 5,029 108 (1,908) 101 3,330 3,899 1,091 – 39 1,165 68 (376) 29 886 797 317 – 51 5,029 1,165 4,276 10,470 (3,492) (517) 1,908 (77) (2,178) (2,942) (406) – (144) (3,492) 1,152 1,537 (751) (127) 356 (25) (547) (568) (147) – (36) (751) 339 414 (3,158) (671) 1,526 (63) (2,366) (2,539) (541) 17 (95) (3,158) 797 1,118 (7,401) (1,315) 3,790 (165) (5,091) (6,049) (1,094) 17 (275) (7,401) 2,288 3,069 Critical accounting estimates and judgements At the end of each reporting period, the Group assesses whether there is any indication that any property, plant and equipment asset may be impaired. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs to dispose, and value in use, to the asset’s carrying amount. Any excess of the asset’s carrying amount over its recoverable amount is recognised immediately as a loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. No items of property, plant and equipment have been impaired in the financial year ending 30 June 2023 (2022: $nil). 73 Redbubble Group • FY23 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the Year Ended 30 June 2023 15. Intangible assets Recognition and measurement Capitalised development costs Development expenditure is capitalised when future economic benefits are probable. The Group capitalises internal engineering time spent on development of the Redbubble and TeePublic marketplace websites. Expenditure during the research phase of a project is recognised as an expense when incurred. All costs for Software as a Service (SaaS) are expensed. Goodwill Brand name Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses. All of the goodwill held by the Group is attributable to the TeePublic cash-generating unit (CGU). The brand name asset is measured at cost less accumulated impairment losses. The brand name asset is attributable to the TeePublic cash-generating unit (CGU). Amortisation Amortisation is calculated to write off the cost of intangible assets using the straight-line method over their estimated useful lives and is recognised in profit or loss. Goodwill is not amortised. The estimated useful lives for current and comparative periods are as follows: Capitalised development costs: Goodwill (attributable to the TeePublic CGU) Brand name asset (attributable to the TeePublic CGU): 2–3 years Indefinite Indefinite The brand name asset is considered to have an indefinite useful life as it is expected to contribute to future economic benefits as the Group continues to facilitate the sale of products under the brand name indefinitely. Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if deemed necessary. Critical accounting estimates and judgements Key assumptions used in value in use calculations and sensitivity to changes in assumptions The Group assesses the recoverability of its goodwill and brand name in the TeePublic CGU annually. Recoverable amounts have been determined based on a value in use calculation using cash flow projections over a 5 year period. The key assumptions in the calculation are as follows: (a) Growth rate The business growth rate in year 1 is based on the next financial year’s budget. Growth in years 2 to 5 is based upon Management’s experience with the historical growth of the business and expectations about future performance. Cash flows beyond the forecast period are projected using a growth rate of 3.3% (2022: 3.3%). (b) Gross margins Gross margins are based on historical values and expectations about future performance. These values are increased over the forecast period for anticipated efficiency improvements as the business scales. (c) Discount rates The pre-tax discount rate applied to cash flow projections is 10.1% (2022: 10.0%). Discount rates represent the consideration of the time value of money and the individual risks of the underlying assets. The discount rate calculation is based on the specific circumstances for the CGU and is derived from its weighted average cost of capital (WACC). Adjustments to the discount rate are made to factor in the specific amount and timing of the future tax flows in order to reflect a pre-tax discount rate. Impairment The Group performed an impairment test as at 30 June 2023. Using the above assumptions, it was concluded that the carrying value of the Group’s CGUs does not exceed its value in use and therefore no impairment charge has been recognised. Sensitivity analysis has been completed which considered a range of possible scenarios. There is no reasonably possible change in key assumptions used to determine the recoverable amount that would result in impairment. 74 Redbubble Group • FY23 Annual Report Cost Balance at 1 July 2022 Additions Derecognition(1) Exchange differences Balance at 30 June 2023 Balance at 1 July 2021 Additions Disposals Exchange differences Balance at 30 June 2022 Accumulated amortisation Balance at 1 July 2022 Charge for the year Exchange differences Balance at 30 June 2023 Balance at 1 July 2021 Charge for the year Disposals Exchange differences Balance at 30 June 2022 Net book value As at 30 June 2023 As at 30 June 2022 Capitalised development costs $’000 Brand name $’000 Goodwill $’000 Total $’000 51,677 121,997 63,417 11,352 (2,829) – – 11,352 (2,829) 2,250 – 1,985 71,940 54,035 9,618 (236) – 63,417 (51,251) (6,349) – (57,600) (45,227) (6,206) 182 – (51,251) 53,662 132,770 47,352 107,713 – – 4,325 51,677 – – – – – – – – – 9,618 (236) 4,902 121,997 (51,251) (6,349) – (57,600) (45,227) (6,206) 182 – (51,251) 6,903 – – 265 7,168 6,326 – – 577 6,903 – – – – – – – – – 7,168 6,903 14,340 12,166 53,662 51,677 75,170 70,746 (1) As part of the cost saving initiatives enacted in May 2023 the Group refocused its capitalised development work and derecognised projects to the value of $2.8m in the financial year ended 30 June 2023. 75 Redbubble Group • FY23 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued For the Year Ended 30 June 2023 16. Leases (a) Group as a lessee The Group leases various offices in Australia, the United States and Germany. Rental contracts are typically made for fixed periods of between 1 to 5 years (2022: 1 to 5 years). Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. Set out below are the carrying amounts of right-of-use assets and lease liabilities and the movements during the period: Right of use assets Balance at 1 July Additions Depreciation and amortisation expense Exchange differences Balance as at 30 June Lease liabilities Balance at 1 July Additions Interest expense Lease liability repayment Exchange differences Balance as at 30 June Classification of lease liabilities Current Non-current Total lease liabilities Amounts recognised in the statement of cashflow Operating – payments of interest Financing – payments of principal Total cash (outflow) relating to leases 2023 $’000 8,085 649 2022 $’000 4,466 6,747 (3,084) (3,376) 114 5,764 2023 $’000 9,625 649 341 248 8,085 2022 $’000 6,002 6,675 385 (3,766) (3,818) 157 7,006 2023 $’000 3,215 3,791 7,006 2023 $’000 (341) (3,425) (3,766) 381 9,625 2022 $’000 3,117 6,508 9,625 2022 $’000 (345) (3,473) (3,818) The Group has several lease contracts that include an extension option. Management exercises significant judgement in determining whether these extension options are reasonably certain to be exercised. Set out below are the undiscounted potential future rental payments relating to periods following the exercise date of extension options that are not included in the lease term: Extension options not reasonably certain to be exercised 9,925 4,945 14,870 Within five years $’000 More than five years $’000 Total $’000 76 Redbubble Group • FY23 Annual Report 17. Trade and other payables Fulfiller payables Artist payables Staff payables Sales tax payables Other payables(1) Total trade and other payables 2023 $’000 19,795 20,187 2,622 3,335 7,402 53,341 2022 $’000 24,203 15,928 4,238 3,752 11,498 59,619 (1) Other payables consist of operations, administration and marketing payables. 18. Employee benefit liabilities Wages, salaries, annual and long service leave A provision is made for the Group’s liability for employee benefits arising from services rendered by employees to the end of the reporting period. Employee benefits that are expected to be settled within one year represent the amounts expected to be paid when the liability is settled. Employee benefits expected to be settled more than twelve months after the end of the reporting period have been measured at the present value of the estimated future cash outflows to be made for those benefits. In determining the liability, consideration is given to employee wage increases and the probability that the employee may satisfy service period requirements. Cash flows are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity that match the expected timing of cash flows. Employee benefits are presented as current liabilities in the balance sheet if the Group does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date regardless of the classification of the liability for measurement purposes under AASB 119 Employee Benefits. Changes in the measurement of the liability are recognised in the income statement. Defined contribution schemes Obligations for contributions to defined contribution superannuation plans are recognised as an employee benefit expense in the income statement in the periods in which services are provided by employees. Annual leave Long service leave Total employee benefit liabilities Current Non-current 2023 $’000 1,545 277 1,822 2022 $’000 2,169 274 2,443 2023 $’000 2022 $’000 – 92 92 – 149 149 77 Redbubble Group • FY23 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued For the Year Ended 30 June 2023 19. Contributed equity and reserves (a) Share capital Ordinary shares(1) Issued and fully paid Total share capital Consolidated and parent entity 2023 Shares 2022 Shares 2023 $’000 2022 $’000 277,720,223 275,920,223 164,458 162,526 277,720,223 275,920,223 164,458 162,526 (1) The holders of ordinary shares are entitled to participate in dividends and the proceeds on winding up of the Company. On a show of hands at meetings of the Company, each holder of ordinary shares has one vote in person or by proxy, and upon a poll each share is entitled to one vote. The Company does not have authorised capital or par value in respect of its shares. (b) Movements in ordinary share capital and treasury reserve Share Capital Balance at 1 July 2021 Exercise of options Settlement of restricted stock units (RSUs) Transferred from share based payments reserve Shares issued to Employee Share Trust Shares allocated to participants from the Employee Share Trust Payment of withholding taxes to US tax authorities(1) Balance at 30 June 2022 Exercise of options Settlement of restricted stock units (RSUs) Transferred from share based payments reserve Shares issued to Employee Share Trust Shares allocated to participants from the Employee Share Trust Payment of withholding taxes to US tax authorities(1) Number of shares $’000 273,620,223 162,552 – – – 2,300,000 – – 1,459 – 4,954 10,120 (15,283) (1,276) 275,920,223 162,526 – – – 1,800,000 – – 4 – 4,732 1,170 (3,718) (256) Balance at 30 June 2023 277,720,223 164,458 (1) Represents payment of withholding taxes accounted for as a deduction from equity in accordance with AASB 2 Share-based Payments. 78 Redbubble Group • FY23 Annual Report Treasury Reserve Balance at 1 July 2021 Number of shares (1,471,319) $’000 (7,351) Shares issued to Employee Share Trust and held in Treasury Reserve (2,300,000) (10,120) Shares allocated to participants from the Employee Share Trust and released from treasury reserve 2,788,239 15,283 Income tax benefit for contributions to the Employee Share Trust in excess of the associated cumulative remuneration expense Transfer of the income tax benefit to accumulated losses for equity rights that were converted to shares in the current period Balance at 30 June 2022 – – 2,153 (3,970) (983,080) (4,005) Shares issued to Employee Share Trust and held in Treasury Reserve (1,800,000) Shares allocated to participants from the Employee Share Trust and released from treasury reserve 1,718,014 Income tax benefit for contributions to the Employee Share Trust in excess of the associated cumulative remuneration expense Transfer of the income tax benefit to accumulated losses for equity rights that were converted to shares in the current period – – (1,170) 3,718 120 (767) Balance at 30 June 2023 (1,065,066) (2,104) (c) Dividends No dividends were declared or paid during the year (2022: $nil). The Group’s franking account balance is $nil (2022: $nil). (d) Nature and purpose of reserves Share based payments reserve The share-based payments reserve arises on issue of share options/restricted stock units as payment for services to board members and employees (including senior executives). Foreign currency translation reserve Exchange differences arising on translation of the foreign controlled entities are recognised in the foreign currency translation reserve within other comprehensive income. The cumulative amount is reclassified to the income statement when the foreign controlled entity to which it relates is disposed of. Treasury reserve The treasury reserve is used to hold the book value of shares held by the Employee Share Trust for future issue to participants on exercise of options/restricted stock units. It also includes a limited recourse loan provided to the Group’s former CEO in FY21 to purchase Redbubble shares on-market. The tax effect of tax deductions for contributions to the Employee Share Trust in excess of the associated cumulative remuneration expense is recorded directly in equity and forms part of the treasury shares reserve. Amounts are transferred out of this reserve and into accumulated losses when the relevant equity rights are converted into shares. 79 Redbubble Group • FY23 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued For the Year Ended 30 June 2023 20. Interests in subsidiaries Information about subsidiaries The consolidated financial statements of the Group include: Name of entity Country of incorporation Principal activities Redbubble Incorporated USA Provider of global sales, marketing and distribution facilitation services in respect of the Redbubble marketplace Redbubble UK Limited UK Marketing and distribution facilitation services in Europe Redbubble Europe GmbH Germany Marketing and distribution facilitation services in Europe Redbubble Canada Processing Ltd(1) Canada Payment processing facilitation services relating to Canadian dollar transactions TP Apparel LLC USA Provider of global sales, marketing and distribution facilitation services in respect of the TeePublic marketplace (1) Redbubble Canada Processing Ltd was incorporated on 10 January 2023. Equity holding 2023 % Equity holding 2022 % 100 100 100 100 100 100 100 100 – 100 21. Parent entity financial information The financial information for the parent entity, Redbubble Limited, has been prepared on the same basis as the consolidated financial statements except for investments in subsidiaries. They are recognised at cost in the financial statements of the parent entity. (a) Summary financial information Statement of financial position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Equity Contributed equity Share based payment reserve Treasury reserve Accumulated losses Total equity Profit/(loss) and other comprehensive income Profit/(loss) for the year Total comprehensive profit/(loss) 80 2023 $’000 2022 $’000 8,448 48,943 81,600 19,242 57,391 100,842 18,853 2,969 21,822 8,875 4,142 13,017 164,465 162,533 14,410 13,347 (2,104) (4,005) (141,202) (84,050) 35,569 87,825 (57,921) (23,173) (57,921) (23,173) Redbubble Group • FY23 Annual Report (b) Commitments At 30 June 2023, the parent entity had contractual commitments of $17.2m (2022: $55.4m) that are not recognised as liabilities. This includes a contractual commitment with a key technology infrastructure and software provider ending in June 2026 that requires a total minimum usage spend over a 5 year contract period. The minimum usage spend amount was renegotiated during the period. The services to be provided under the long-term contract are recognised on an annual basis as the services are received by the Company. The supply contract requires any shortfall in minimum usage on a per annum basis to be paid for in accordance with the contract. Any shortfall payment can be carried forward and used as a prepayment against future usage over minimum spend levels in any contract year before expiry of the contract. A shortfall payment of $2.5m was made during the year in relation to the contract period to 30 June 2023 and has been recognised as a current prepayment. In assessing recoverability of any shortfall payment, the Company estimates its future usage of the services across the remaining contract years in comparison to the minimum spend requirements. Should any shortfall exist at the end of the contract term, it is non-refundable to the Company. At reporting date, the Company does not expect any shortfall to exist at the end of the current contract term. The total commitment under the remaining term of this contract is $16.6m. (c) Guarantees entered into by the parent entity A bank guarantee of $0.9m exists as security for the Melbourne office lease. No liability is expected to arise. The parent entity did not enter into any new guarantees for the financial year ended 30 June 2023 (2022: $0.9m). (d) Contingent liabilities of the parent entity Although the Group is strictly an online intermediary that provides online facilitation services to third parties via its marketplaces, and Group does not sell or manufacture the products sold by artists through its marketplaces, it periodically receives notices alleging infringement of third-party copyright, trademarks, other intellectual property rights or publicity rights or breach of consumer protection laws. This is not uncommon for marketplaces that host user-generated content, nor is it uncommon within the United States of America business environment where the majority of such claims arise. As at the date of these financial statements there are current lawsuits filed against the Company that relate to alleged intellectual property infringement and/or breach of consumer laws. As at reporting date, there is no certainty that the Group either holds any obligations in relation to these actions and/or there is any likelihood of outflows (or inflows from insurance recoveries where applicable) of cash or other resources in respect of them, should any of the actions ultimately be successful (at first instance or on appeal, as applicable). 22. Commitments and contingencies (a) Commitments Other than the commitments mentioned in note 21(b), the Group has contractual commitments of $3.5m (2022: $7.3m) over the next 2 years with technology infrastructure and software providers that are not recognised as liabilities. (b) Contingent liabilities/assets of the Group Legal claim contingencies Although the Group is strictly an online intermediary that provides online facilitation services to third parties via its marketplaces, and Group does not sell or manufacture the products sold by artists through its marketplaces, it periodically receives notices alleging infringement of third-party copyright, trademarks, other intellectual property rights or publicity rights or breach of consumer protection laws. This is not uncommon for marketplaces that host user-generated content, nor is it uncommon within the United States of America business environment where the majority of such claims arise. As at the date of these financial statements there are current lawsuits filed against the Company that relate to alleged intellectual property infringement and/or breach of consumer laws. As at reporting date, there is no certainty that the Group either holds any obligations in relation to these actions and/or there is any likelihood of outflows (or inflows from insurance recoveries where applicable) of cash or other resources in respect of them, should any of the actions ultimately be successful (at first instance or on appeal, as applicable). (c) Guarantees Other than the bank guarantees mentioned in note 21(c), the Group has a bank guarantee of $0.25m as security for office premises (2022: $0.25m). No liability is expected to arise. 81 Redbubble Group • FY23 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued For the Year Ended 30 June 2023 23. Share-based payments The Group operates equity-settled share-based payment employee share and option schemes. The fair value of the equity to which employees become entitled is measured at grant date and recognised as an expense over the vesting period, with a corresponding increase to an equity account. The fair value of options with a strike price and share appreciation rights are ascertained using industry standard valuation models. A Black-Scholes pricing model is used for options and the Monte Carlo simulation model is used for share appreciation rights. The amount to be expensed is determined by reference to the fair value of the options or shares granted. This expense takes into account any market performance conditions and the impact of any non-vesting conditions but ignores the effect of any service and non-market performance vesting conditions. Non-market vesting conditions are taken into account when considering the number of options expected to vest and at the end of each reporting period, the Group revisits its estimate. Revisions to the prior period estimate are recognised in the income statement and equity. The fair value of zero priced options and restricted stock units approximates the fair market value of a Redbubble Ltd share at the grant date. Critical accounting estimates and judgements Some of the inputs to the pricing models require application of significant judgement. The Black-Scholes and Monte Carlo simulation pricing models require inputs for the expected share price volatility of Redbubble Limited shares for a period similar to the expected life of the options. The Group has used its historical share price volatility to estimate expected future volatility. Options over ordinary shares Redbubble Equity Incentive Plan for Australian and German employees The “Redbubble Equity Incentive Plan” has been established to grant options over ordinary shares to Redbubble Limited employees (including senior executives under the RB Group Executive Compensation Model (RECM)). The options are subject to service conditions and have a predetermined time-based vesting schedule. The grantees of options under this Plan may exercise vested options at any time before the earlier of: (a) a specified expiry date (generally 6 years from the grant date); and (b) 90 days after ceasing to be an employee or contractor for the Group. Some of the options have a zero exercise price, so as to be akin to performance rights or restricted stock units. 2014 Option Plan Options to employees/contractors of the US subsidiaries are granted under this plan. The vesting conditions and expiry period under this plan are akin to the Redbubble Equity Incentive Plan. Limited recourse loans for the purchase of shares The granting of limited recourse loans to purchase Redbubble shares is considered to be an in-substance option grant in accordance with AASB 2 Share Based Payment. An option pricing model is used to determine the fair value of the in-substance option and expensed in the financial statements over the service period. In FY21 a limited recourse loan was provided to the former Chief Executive Officer (CEO). The former CEO does not have a beneficial interest in the shares until the loan is repaid. The repayment of the loan principal plus accrued interest represents the exercise of the option, and returning the shares as settlement of the loan is the expiry of an unexercised option. The resignation of the former CEO in FY23 resulted in the in-substance option grant being forfeited. All previously recognised expense relating to the in-substance option grant is reversed. At 30 June 2023, a receivable was recorded for the settlement of the loan. Restricted Stock Units (RSUs) Restricted Stock Units are granted under the Restricted Share and Performance Rights Plan to certain employees including senior executives and consultants. Once granted, the rights have a predetermined time-based vesting schedule. All the restricted stock units are subject to service conditions. Share Appreciation Rights (SARs) Share appreciation rights have been granted to the Group Chief Executive Officer and the Executive team. 82 Redbubble Group • FY23 Annual Report (a) Movement The table below summarises the movement in the number of options, restricted stock units and share appreciation rights during the year: Options over ordinary shares Outstanding at 1 July Granted during the year(2) Exercised during the year Forfeited during the year Expired during the year Outstanding at 30 June Exercisable at 30 June Restricted stock units Outstanding at 1 July Granted during the year Settled during the year Forfeited during the year Outstanding at 30 June Share appreciation rights (SARs)(3) Outstanding at 1 July Granted during the year Exercised during the year Forfeited during the year Expired during the year Outstanding at 30 June Exercisable at 30 June 2023 Number 2023 WAEP ($)(1) 2022 Number 2022 WAEP ($)(1) 3,805,508 8,512,891 (941,470) (4,318,269) (965,567) 6,093,093 2,265,147 1,403,913 8,208,154 (1,178,137) (2,179,400) 6,254,530 5,658,416 8,204,276 – (6,115,029) (1,805,452) 5,942,211 – 3.17 6,771,996 – 1,004,450 0.00 0.00 1.15 0.25 0.68 (2,161,917) (1,126,450) (682,571) 3,805,508 2,631,587 – – – – – – – – – – – – 1,465,053 1,266,984 (868,480) (459,644) 1,403,913 4,523,698 1,490,626 (127,662) (178,246) (50,000) 5,658,416 1,805,452 0.90 – 0.67 0.79 1.54 0.70 0.94 – – – – – – – – – – – – (1) WAEP stands for Weighted Average Exercise Price. (2) 8,512,891 options granted during the year have a zero exercise price (2022:1,004,450). The expiry period for options and RSU grants made during the current and prior year is 6 years. (3) SARs do not have an exercise price, however they do have a base share price from which any share appreciation is measured. The weighted average base share price of all outstanding SARs is $1.17. (b) Modifications to the awards The table below details modifications to a number of options/restricted stock units (RSUs)/share appreciation rights (SARs) during the year. Accelerated vesting of unvested options/RSUs/SARs over ordinary shares upon cessation of employment Total 2023 Number 2022 Number – – 310,147 310,147 83 Redbubble Group • FY23 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued For the Year Ended 30 June 2023 23. Share-based payments continued (c) Additional disclosures Weighted average fair value of Share price at the date of exercise of options/settlement of restricted stock units during the year Share options granted during the year Share appreciation rights granted during the year Restricted stock units granted during the year Weighted average remaining contractual life of Share options outstanding at the end of the year Inputs to pricing models for options and SARs granted during the year (weighted average) Expected volatility (%)(1) Risk-free interest rate (%) Expected life (years) Expected dividend yield (%) Fair market value of share price ($)(2) 2023 $ 0.60 1.07 0.74 1.36 2022 $ 3.49 3.83 2.21 3.54 2023 (years) 5.06 2022 (years) 5.82 2023 75.52 3.60 4.46 – 0.64 2022 70.91 1.30 4.47 – 3.95 (1) The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may not necessarily be the actual outcome. The range of exercise prices for options outstanding at the end of the year is $nil to $1.56 (2022: $nil to $1.56). (2) The fair market value of a share has been calculated using the closing price on grant date. 24. Related party transactions (a) Compensation of the key management personnel of the Group Short-term employee benefits Post-employment benefits Share-based employee benefits(1) Other long-term benefits Total transactions with key management personnel 2023 $ 2021 $ 1,770,754 1,804,449 136,544 107,440 (663,155) 1,455,526 (8,094) 5,154 1,236,049 3,372,569 (1) Includes the reversal of former CEO and CFO forfeited share-based employee benefits of $1m due to their resignations during the year. (b) Transactions with key management personnel During the year Bob Sherwin (Non-executive Director) was paid $29,528 as remuneration for additional services provided to the Group. Michael Ilczynski (former CEO) had a limited recourse loan arrangement with the Group. Please refer to note 23 for further details. There were no other transactions with key management personnel in the current year and prior year. (c) Transactions with related parties There were no other related party transactions in the current and prior year. 84 Redbubble Group • FY23 Annual Report 25. Remuneration of auditors Fees to Ernst & Young (Australia) Category 1: Fees for Audit services 2023 $ 2022 $ Fees for auditing the statutory financial report of the parent covering the group 411,687 331,791 Category 3: Fees for Other Assurance services and Agreed Upon Procedures: Other assurance services and agreed upon procedures 64,480 – Category 4: Fees for Non-Audit services Taxation services Assistance in developing the Group’s ESG strategy Remuneration of Ernst & Young Australia Fees to other overseas member firms of Ernst & Young (Australia) Category 4: Fees for other services: Taxation services Remuneration of other overseas member firms of Ernst & Young Australia Total auditor’s remuneration 6,000 68,150 113,300 197,944 595,467 597,885 – – 21,505 21,505 595,467 619,390 26. Segment information AASB 8 Operating Segments allows for the aggregation of operating segments where they exhibit similar economic characteristics. The Group considers the Redbubble and TeePublic marketplaces to have similar economic characteristics and therefore have been aggregated to form a single reportable operating segment. Geographical information required per AASB 8 and disaggregated revenue reporting is detailed below: Australia United States United Kingdom Rest of the world Total 2023 2022 Revenue $’000 34,161 395,967 47,245 77,749 Non-current assets(1) $’000 19,296 63,710 – 216 Revenue $’000 38,202 396,856 56,013 82,322 Non-current assets(1) $’000 16,601 64,828 – 471 555,122 83,222 573,393 81,900 (1) Non-current assets for this purpose consist of property, plant and equipment, intangible assets and right of use assets. 27. Events occurring after the balance sheet date 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 the 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. The financial report was authorised for issue on 22 August 2023 by the Board of Directors. Other than the above, there have been no further significant events after the balance sheet date that require disclosure. 85 Redbubble Group • FY23 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued For the Year Ended 30 June 2023 28. Other significant accounting policies (a) Principles of consolidation Subsidiaries are all entities over which the Group has control. Control is established when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the relevant activities of the entity. Subsidiaries are fully consolidated from the date on which the Group gains control. They would be deconsolidated from the date that control ceases. A list of the subsidiaries is provided in note 20 to the financial statements. Intercompany transactions, balances and unrealised gains or losses on transactions between Group entities are fully eliminated on consolidation. Accounting policies of subsidiaries have been aligned where necessary to ensure consistency with the policies adopted by the Group. (b) Business combinations and goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in operations and administration expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of AASB 9 Financial Instruments, is measured at fair value with the changes in fair value recognised in the statement of profit or loss in accordance with AASB 9. Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests and any previous interest held over the net identifiable assets acquired and liabilities assumed). If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill has been allocated to a single cash-generating unit (CGU) and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained. 86 Redbubble Group • FY23 Annual Report (c) Foreign currency transactions Functional and presentation currency The functional currency of each of the Group’s entities is the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency. Transactions and balances Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. At the end of the reporting period: • Foreign currency monetary items are translated using the closing exchange rate; • Non-monetary items that are measured at historical cost are translated using the exchange rate at the date of the transaction; and • Non-monetary items that are measured at fair value are translated using the exchange rate at the date when fair value was determined. Exchange differences arising on the settlement of monetary items or on translating monetary items at exchange rates different from those at which they were translated on initial recognition or in prior reporting periods are recognised through the profit or loss, except where they relate to an item of other comprehensive income. Group companies The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency (none of which has the currency of a hyperinflationary economy) as follows: • Assets and liabilities for each balance sheet are translated at the closing exchange rate at the date of that balance sheet; • Income and expenses for each income statement and statement of comprehensive income are translated at average exchange rates; and • All resulting exchange differences are recognised in other comprehensive income. (d) Other income Finance income Finance income is recognised on an accruals basis using the effective interest method. (e) Financial assets Trade and other receivables and other financial assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, loans and trade and other receivables are measured at amortised cost using the effective interest method. Any change in their value is recognised in the statement of comprehensive income. The Group applies a simplified approach in calculating Expected Credit Losses (ECLs) in trade receivables. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date, where appropriate, based on historical credit loss experience and adjusted for forward-looking factors specific to the receivables and the economic environment. The Group applies the general approach in calculating ECLs in other receivables. The Group tracks changes in credit risk and recognises a loss allowance for lifetime expected credit losses if there has been a significant increase in credit risk (measured using the lifetime probability of default, based on historical credit loss experience and adjusted for forward-looking factors specific to the receivables and the economic environment) since initial recognition of the receivable. If, at the reporting date, the credit risk on a financial instrument has not increased significantly since initial recognition, a loss allowance for 12-month expected credit losses is recognised. (f) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the statement of income net of any reimbursement. 87 Redbubble Group • FY23 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued For the Year Ended 30 June 2023 28. Other significant accounting policies continued (g) Sales Tax (includes Goods and Services Tax (GST) and Value Added Tax (VAT)) Revenue, expenses and assets are recognised net of the amount of sales tax, except where the amount incurred is not recoverable from the Australian Taxation Office (ATO) or other similar international bodies. Receivables and payables are stated inclusive of sales tax, where applicable. The net amount of sales tax recoverable from, or payable to, the ATO or other similar international bodies, is included as part of receivables or payables in the statement of financial position. The statement of cash flows includes cash on a gross basis and the sales tax component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. (h) Leases Set out below are the accounting policies of the Group upon adoption of AASB 16, which have been applied from the date of initial application: Group as a lessee Right-of-use assets The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred and lease payments made at or before the commencement date of the lease less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment in accordance with AASB 136 Impairment of Assets. Lease liabilities The Group recognises lease liabilities at the commencement date of the lease (i.e., the date the underlying asset is available for use), measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The variable lease payments that do not depend on an index or a rate are recognised as expense in the period on which the event or condition that triggers the payment occurs. Significant judgement in estimating the incremental borrowing rate In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. The rate is determined using a government bond (risk free) rate adjusted for a risk premium commensurate with each lessee’s profile. The bond rates used are for a bond with a term and security similar to each lease and are country specific. After the commencement date, the amount of the lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. The carrying amount of lease liabilities are adjusted if there is a modification, a change in the lease terms or a change in the in-substance fixed lease payments. Short-term leases and leases of low-value assets Lease payments on short-term leases and leases of low-value assets are recognised as an expense on a straight-line basis over the lease term. Significant judgement in determining the lease term of contracts with renewal options The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Group has the option under some of its leases to extend the term of the original lease. The Group applies judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for the Group to exercise the renewal option. After the commencement date, the Group reassesses the lease term when there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew. The Group has determined that no lease extension options will be exercised as they are not reasonably certain that those options will be exercised and therefore, the extended periods have not been included in calculations. (i) Accounting standards issued but not yet effective A number of new accounting standards, amendments to standards and interpretations, have also been issued and will be applicable in future periods. While these remain subject to ongoing assessment, no significant impacts on the financial statements of the Group have been identified to date. These standards have not been applied in the preparation of these Financial Statements. 88 Redbubble Group • FY23 Annual Report DIRECTORS’ DECLARATION In accordance with a resolution of the Directors of Redbubble Limited, we state that in the Directors’ opinion: (a) the financial statements and notes, as set out on pages 56 to 88 are in accordance with the Corporations Act 2001 including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2023 and of its performance for the financial year ended on that date; and (b) there are reasonable grounds to believe that Redbubble Limited will be able to pay its debts as and when they become due and payable. The financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The Directors have been given the declarations by the Group Chief Executive Officer and Group Chief Financial Officer required by Section 295A of the Corporations Act 2001. Anne Ward Board Chair Melbourne 22 August 2023 Martin Hosking Group Chief Executive Officer and Managing Director Melbourne 22 August 2023 89 Redbubble Group • FY23 Annual Report INDEPENDENT AUDITOR’S REPORT 90 Redbubble Group • FY23 Annual ReportA member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Ernst & Young 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au Independent auditor’s report to the members of Redbubble Limited Report on the audit of the financial report Opinion We have audited the financial report of Redbubble Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2023, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a. Giving a true and fair view of the consolidated financial position of the Group as at 30 June 2023 and of its consolidated financial performance for the year ended on that date; and b. Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. 91 Redbubble Group • FY23 Annual ReportA member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Revenue Recognition Why significant How our audit addressed the key audit matter As disclosed in Note 3 to the consolidated financial statements, revenue is recognised when control of the goods are transferred to the customer, which is considered to be when the product is delivered. However the billing system recognises revenue upon receipt of payment from customers which requires management to estimate the sale transactions not delivered at period end. Due to the volume of online transactions processed on a daily basis, and the arrangement in place with fulfillers whereby fulfillers dispatch goods directly to the Group’s customers, the judgement involved in the timing of when revenue is recognised is considered to be a Key Audit Matter. Our audit procedures included the following: a combined testing approach, including testing the operating effectiveness of controls and performing substantive procedures over the capture, timing of revenue recognition and measurement of revenue transactions; for a sample of revenue transactions, testing whether the revenue was recorded in the appropriate period and whether management’s estimate of sale transactions not delivered to the customer at 30 June 2023 were appropriately recorded as Unearned Revenue and Goods in Transit for items shipped but not yet delivered, as at that date; testing the assumptions used in management’s estimate based on the average delivery days between payment, shipment and delivery; assessing whether the revenue recognition policy applied to the terms and conditions of sale was in accordance with Australian Accounting Standards; and considered the adequacy of the revenue recognition policy disclosure contained in Note 3. Capitalised development costs, including derecognition Why significant How our audit addressed the key audit matter As disclosed in Note 15 to the consolidated financial statements, the Group capitalises costs related to the development and engineering activities of website and mobile applications as intangible assets. The carrying value of capitalised development costs as at 30 June 2023, after derecognition of $2.9m during the year, totalled $14.3m. The accounting for capitalised development costs involves judgment, including: considering technical and commercial feasibility, the Group’s intention and ability to complete the intangible asset, future economic benefits to be generated by the asset, the ability of the Group to measure the costs reliably, determining when the asset is ready for use, the useful lives for capitalised development costs and the amortisation recognised. In addition, determining whether there is any indication of impairment of the carrying value of assets requires judgment in making assumptions which are affected by future market or economic developments. This was considered a key audit matter given the judgement required in accounting for internal capitalised development costs, the value of capitalised development cost assets relative to total assets, the rapid technological and economic change in the industry, and the specific Australian Accounting Standards criteria that have to be met to enable costs incurred to be capitalised. Our audit procedures included the following: assessing the eligibility of the development costs for capitalisation as an intangible asset in accordance with Australian Accounting Standards; selecting a sample of capitalised development costs by project and assessing whether the nature of projects and costs incurred were supported by underlying evidence such as employee time sheets, employee contracts and supplier invoices; checked the clerical accuracy of the movements in the capitalised development cost balances, including amortisation and disposals; assessing whether the amortisation rates used are appropriate; tested a sample of projects on the feasibility and benefits expected from each based on the current status, forecast performance and related assumptions. This included discussions with project managers and developers and reviewing project plan approvals and reporting; considering whether there were any indicators of impairment or derecognition and evaluated the completeness of the listing of impacted assets as well as calculation of amount derecognised; and evaluation of the disclosures in Note 15 of the consolidated financial statements. INDEPENDENT AUDITOR’S REPORT continued 92 Redbubble Group • FY23 Annual ReportA member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Information other than the financial report and auditor’s report thereon The directors are responsible for the other information. The other information comprises the information included in the Company’s 2023 annual report, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: ► Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 93 Redbubble Group • FY23 Annual ReportA member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation ► Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. ► Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. ► Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. ► Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. ► Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. INDEPENDENT AUDITOR’S REPORT continued 94 Redbubble Group • FY23 Annual ReportA member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Report on the audit of the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 38 to 54 of the directors’ report for the year ended 30 June 2023. In our opinion, the Remuneration Report of Redbubble Limited for the year ended 30 June 2023, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Ernst & Young Ashley Butler Partner Melbourne 22 August 2023 SHAREHOLDER INFORMATION The shareholder information set out below was applicable as at 20 September 2023 (except as otherwise indicated). Number of Ordinary Shares Issued Capital % A. Top 20 Shareholders Rank Shareholder Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 JELLICOM PTY LTD J P MORGAN NOMINEES AUSTRALIA PTY LIMITED BNP PARIBAS NOMINEES PTY LTD ACF CLEARSTREAM CITICORP NOMINEES PTY LIMITED BNP PARIBAS NOMINEES PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED BLACKBIRD FOF PTY LTD RADIATA INVESTMENTS PTY LTD NATIONAL NOMINEES LIMITED MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED PITON CAPITAL VENTURE FUND II LP SOLIUM NOMINEES (AUS) PTY LTD CAWSEY SUPERANNUATION FUND PTY LTD SOLIUM NOMINEES (AUSTRALIA) PTY LTD BNP PARIBAS NOMS(NZ) LTD BNP PARIBAS NOMS PTY LTD NETWEALTH INVESTMENTS LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 OSBORNE TAS PTY LTD 20 DENALI VENTURE PARTNERS FUND 1 LP Total Balance of register Grand total B. Holding Distribution Shares Range 100,001 and Over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Shares 256,261,478 16,661,989 3,401,819 4,863,202 1,531,735 Based on the closing share price on the date of this information ($0.55), there are 4,078 holders of unmarketable parcels of shares. 282,720,223 100.00 37,143,172 30,451,388 24,182,529 23,978,271 22,345,241 18,822,221 11,361,819 10,075,208 8,416,422 5,543,028 5,537,291 5,145,883 4,033,980 3,380,115 2,594,269 2,340,209 2,189,792 2,116,734 2,016,542 1,840,240 223,514,354 59,205,869 282,720,223 % No. of holders 90.65 5.89 1.20 1.72 0.54 108 574 457 1,963 4,049 7,151 13.14 10.77 8.55 8.48 7.90 6.66 4.02 3.56 2.98 1.96 1.96 1.82 1.43 1.20 0.92 0.83 0.77 0.75 0.71 0.65 79.06 20.94 100.00 % 1.51 8.03 6.39 27.45 56.62 100.00 95 Redbubble Group • FY23 Annual Report SHAREHOLDER INFORMATION continued Share Options Range 100,001 and Over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Share Appreciation Rights Range 100,001 and Over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Restricted Stock Units Range 100,001 and Over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total C. Substantial Holders Share Options % No. of holders 2,984,741 2,407,195 102,576 41,230 2,785 53.89 43.47 1.85 0.74 0.05 5,538,527 100.00 13 71 15 13 5 117 Share Appreciation Rights % No. of holders 5,837,011 232,577 0 0 0 96.17 3.83 0.00 0.00 0.00 6,069,588 100.00 10 4 0 0 0 14 Restricted Stock Units 2,867,327 2,745,569 76,973 2,365 0 50.37 48.24 1.35 0.04 0.00 5,692,234 100.00 % No. of holders 13 75 10 1 0 99 % 11.11 60.69 12.82 11.11 4.27 100.00 % 71.43 28.57 0.00 0.00 0.00 100.00 % 13.13 75.76 10.10 1.01 0.00 100.00 The information displayed below has been obtained from each holder’s most recent notice of substantial holding as submitted to the Company (except as indicated). Name Martin Hosking Osmium Partners, LLC Spheria Asset Management Pty Ltd Date of interest Number of Shares Issued Capital % 20 September 20221 40,000,000 5 June 2023 25,764,4732 16 August 2023 13,951,347 14.15 9.27 5.02 (1) Date of Mr Hosking’s most recently lodged ASX Appendix 3Y (Change of Director’s Interest Notice). (2) Includes shares represented by discontinued ADR interests. 96 Redbubble Group • FY23 Annual Report D. Unquoted Equity Securities Type of Equity Security Share Options Share Appreciation Rights Restricted Stock Units Total Number of Holders 117 14 99 Number 5,538,527 6,069,588 5,692,234 230 17,300,349 There are no holders outside of the Company’s employee incentive plan that hold more than 20% of the unquoted equity securities on issue. E. Securities subject to escrow arrangements There are no shares on issue that are subject to voluntary escrow. F. Voting Rights Ordinary Shares At a general meeting of shareholders, each shareholder is entitled to one vote on a show of hands and one vote per fully paid ordinary share on a poll. Options, Share Appreciation Rights and Restricted Stock Units No voting rights. G. On-market Buy-back There is no current on-market buy-back of shares. 97 Redbubble Group • FY23 Annual Report CORPORATE INFORMATION Directors Anne Ward (Chair, Independent Non-Executive Director) Martin Hosking (appointed as Group Chief Executive Officer/Managing Director 27 March 2023) Jennifer (Jenny) Macdonald (Independent Non-Executive Director) Greg Lockwood (Independent Non-Executive Director) Ben Heap (Independent Non-Executive Director) Bob Sherwin (Independent Non-Executive Director, appointed effective 1 November 2022) Group Chief Executive Officer Martin Hosking (appointed as Group Chief Executive Officer/Managing Director 27 March 2023) Company Secretary Carlie Hodges (appointed effective 31 October 2022) Registered Office Level 12, 697 Collins Street Docklands VIC 3008 Australia Share Register Link Market Services Tower 4, 727 Collins Street Melbourne VIC 3008 Australia 1300 554 474 Auditors Ernst & Young 8 Exhibition Street Melbourne VIC 3000 Australia Bankers Citibank, N.A. Stock Exchange Listing Redbubble shares are listed in the Australian Securities Exchange (ASX listing code: RBL) Website Redbubble.com and TeePublic.com Investor Centre Shareholders.redbubble.com 98 Redbubble Group • FY23 Annual Report