Temple & Webster Group
Annual Report 2023

Plain-text annual report

Annual Report 2023 Acknowledgement of Country Temple & Webster Group acknowledges the Traditional Owners and Custodians of Country throughout Australia. We recognise their enduring connection to the lands, the waterways, and the skies. We acknowledge the Gadigal and Wangal people, on whose lands our corporate head office is located, as well as all other First Nation Countries we operate across. We pay our respects to Elders past, present and to all Aboriginal and Torres Strait Islander peoples. Temple & Webster Group Ltd ABN 69 608 595 660 Contents Summary Chair’s report CEO’s report Operational review Environmental, social and governance statement Directors’ report Remuneration report (audited) Auditor’s independence declaration Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Directors’ declaration Independent auditor’s report Shareholder information Corporate directory 2 4 6 10 18 30 37 61 62 63 64 65 66 99 100 104 107 1 Annual Report 2023Summary $396m FY23 Revenue $14.8m FY23 EBITDA 3.7% FY23 EBITDA Margin $105m Cash Balance at 30 June 2023 2 Temple & Webster Group Ltd FY23 EBITDA within guidance • FY23 revenue $396m, retained ~90% of COVID-19 revenue • FY23 EBITDA margin 3.7% (within guidance of 3-5%) • H2 FY23 EBITDA up 80% vs HY FY22 • FCF of $17.0m (before share buy-back and Renovai investment) Business back to growth • The business is back to growth since Q4, driven by growth in both repeat and first-time customers Well positioned to capture market share • Leading pure play online retailer for furniture and homewares in Australia • $105m cash, profitable, negative working capital • Building strategic moats around range, brand, data, tech and artificial intelligence Targeting $1b+ in sales in 3-5 years • Online market still under-penetrated in Australia • Weaker macro-environment provides market share opportunity • Our goal is to achieve scale point as quickly as possible, while remaining profitable 3 Annual Report 2023Chair’s report Dear shareholders, On behalf of the Board of Directors, it gives me great pleasure to present Temple & Webster’s 2023 Annual Report. Results summary The 2023 financial year was a difficult one for many Australians, with rising interest rates and cost-of-living pressures, which in turn impacted discretionary spending. We are no stranger to such economic cycles, so throughout FY23 we ensured that our product range was agile to changing customer needs and that we were providing quality products at affordable prices. We are starting to see a return on this effort, with Q4 revenue growing when measured against the previous comparable period which was not impacted by the COVID-19 pandemic. We are pleased to report revenue of $396 million for the year. This is around 90% of the revenue of FY22, a year that was boosted significantly by strong e-commerce demand during the pandemic. Earnings before interest, taxes, depreciation and amortisation (EBITDA) was $14.8 million, with an EBITDA margin of 3.7%, which was within our stated 3–5% guidance. Capital management We finished the year with a cash balance of $105 million, and we remain debt-free. The strength of our balance sheet enabled us to initiate an on-market buy-back of up to $30 million Temple & Webster shares to improve shareholder value. By 30 June 2023, the business had bought back 2.7 million shares at a cost of $12.3 million. The Board considers the acquisition of shares to be an effective capital management strategy that also allows us to retain flexibility to pursue future organic and inorganic opportunities as part of our growth strategy. Investing for growth While we reduced operational expenditure in the first half of FY23, we continued to invest in our future growth horizons of Trade and Commercial, and Home Improvement. We also continued to advance our market-leading digital capabilities, including the use of artificial intelligence (AI). We see significant potential for AI to increase conversion and customer benefits, and to help us achieve productivity gains to lower our fixed costs as a percentage of revenue as we scale. The current economic cycle will no doubt present challenges for retailers. However, for companies that can combine capability and financial strength with agility, it could present significant opportunities. Our focus during this period will be executing against our key strategic priorities to increase our market share. 4 Temple & Webster Group Ltd Board composition Thank you to the team On behalf of the Board, I would like to thank Mark, the executive team and all Temple & Webster staff members for their dedication and hard work throughout the year. I would also like to thank my fellow Board members for their expertise, commitment and stewardship. Finally, I would like to thank you – our shareholders – for your continued support. Stephen Heath Chair In November, we farewelled Sue Thomas, Non-Executive Director and Chair of the Audit and Risk Management Committee, who retired after six years of service. Sue’s contribution to the Board and the Group was highly valued. On behalf of the Board and management, I express my sincere gratitude to Sue. We welcomed Melinda Snowden in June as a Non-Executive Director. She will also serve as Chair of the Audit and Risk Management Committee. Melinda’s extensive experience in legal and professional corporate advisory roles makes her an ideal addition to the Board and ensures we have the right mix of skills and experience to execute our growth strategy. CEO’s multi-year agreement I am pleased to note that Mark Coulter (co-founder and Chief Executive Officer) has agreed to a new multi-year remuneration package that is heavily weighted to long-term shareholder value. Since rejoining the business in 2016, Mark has grown revenue to record levels and significantly improved profitability metrics. He has made sound operational and strategic investments to create a platform for sustainable growth. We are pleased to have him at our helm as we enter Temple & Webster’s next growth phase. 5 Annual Report 2023CEO’s report Dear fellow shareholders, I am pleased to report Temple & Webster delivered a strong FY23 result, with revenue of $396 million and a return to growth in the fourth quarter. This performance reflects the resilience and flexibility of our business model in a more difficult trading environment. As cost-of-living pressures impact household budgets, shoppers increasingly search for quality at affordable prices, and it is clear our agile range is resonating. These results meant we retained around 90% of the accelerated growth the COVID-19 years delivered. Given the current macroeconomic climate, it is great to see the Group back in growth now that we have finished cycling COVID-19- impacted periods. The flexibility of our business model was also evident in FY23, with an EBITDA result of $14.8 million for the year, and up 80% in the second half compared to the same period in FY22. Where to from here? As we progress into FY24, we understand that the macroeconomic turbulence of the past 12 months isn’t in the rear-view mirror yet. However, we are well positioned to manage these headwinds and believe this environment provides us with an opportunity to gain market share faster and more efficiently as less well-capitalised peers struggle with market conditions. We are growing our position as Australia’s leading pure play online retailer in a market that is poised to expand substantially over time. The Australian furniture and homewares market is worth around $19 billion1 but only about 18%2 of that market has moved online, compared to the 27–28% we see in similar markets in the US and UK. The transition from offline to online presents us with a once-in-a-generation opportunity to become the top-of- mind brand in our category. Our sights are firmly set on exceeding $1 billion in annual revenue over the next three to five years. We believe this scale will firmly entrench our competitive moats around range, brand, data, AI and technology. To do this, we will be focusing on five key strategic priorities. 1. Becoming the top-of-mind brand in the furniture and homewares category by building greater brand equity Temple & Webster currently ranks seventh in unprompted awareness for furniture and homewares among Australian shoppers3. Furthermore, 78% of Australian furniture and homewares shoppers have never visited our website. So, we know the Group has plenty of room to grow by reaching a large number of untapped customers. Consumers are most likely to switch brands when they seek value, and brand building is likely to be most efficient during tougher economic times. As such, we believe now is the time to build our brand equity to gain 1. Source: ABS 8501.0 Retail Trade, Australia (2023). Excludes Trade & Commercial and Home Improvement. 2. Source: Euromonitor 2023 Home and Garden for CY22. 3. Source: Lucid (Hub Consulting) Temple & Webster Brand Tracker – April to June 2023. Excludes multi category dept stores/discount retailers. 6 Temple & Webster Group Ltd market share. In FY24, we will be launching our first multi-channel, multi-city, above-the-line campaign. This will build on the successes of our earlier trials with TV and out-of-home marketing promotions. As the business scales, so too will our marketing budgets, raising brand awareness among consumers. Our end goal is to become the top-of-mind brand in the category over the next three to five years. 2. Generating the majority of sales from exclusive products We want to be famous for having the best range in the country, with quality products at great prices. To do this, we need most of our sales to come from our exclusive lines. These products include our private label products (including those imported under the Temple & Webster brand), exclusive drop-ship products (such as those designed by Temple & Webster), and made-to- order products. To achieve our goal, we will also need to substantially grow the share of revenue from these products over the next three to five years. We already use our data to inform our buying and product design decisions. However, we will be increasing investment in this area to employ more data scientists, grow our product development capabilities and offshore sourcing teams. Our exclusive lines have greater margins, which allow us to price them more competitively. We also have the ability to value engineer products, allowing us to offer on-trend, quality products at even better prices. More data also decreases the risks of obsolescence by helping us to predict bestsellers more accurately. Importantly, our goal is to retain our negative working capital economics using our different inventory sourcing models. 3. Developing market-leading capabilities around data, AI and technology As an online-only business, we are well placed to benefit from the revolutionary potential of new technologies such as AI. Not only can AI help us to convert more website visits into sales, but it can also enhance our bottom line through cost base efficiencies. In FY23, we increased our investment in our external research and development partner, Renovai, an Israeli AI startup that is disrupting the way customers shop our category, and helping to drive higher conversion rates and customer engagement. Our dedicated internal AI team is looking at how we implement AI across all customer interactions and internal processes. Early initiatives include using generative AI to power all pre-sale product enquiry live chats (which account for more than 20% of all customer enquiries). We’ve also enhanced product descriptions across our 225,000 products, leading to an increase in conversions, products added to carts and revenue per visit. In FY24, we will target all first-time care interactions, logistics routing, exception handling, pricing, promotions and recommendations. 7 Annual Report 2023CEO’s report continued 4. Lowering our fixed cost % to obtain a price and margin advantage 5. Building scale through adjacent growth plays, including Home Improvement and Trade and Commercial (B2B) Our aim is to significantly decrease our fixed costs as a percentage of revenue over the coming years. Given we do not have physical store costs, our fixed cost base will naturally be leveraged across a greater scale, significantly reducing our fixed cost % as revenue increases. Most areas in our business can and will be materially disrupted by AI (including customer care, operations, product development, technology and back office). This provides us with a competitive advantage relative to our offline peers, as they have limited upside in their cost bases as a result of AI (staff and lease costs cannot be minimised by AI). Lowering our fixed costs as a percentage of revenue will allow us to pass on cost benefits to customers through better pricing and promotions, further differentiating our value proposition. Over time, this will lead to margin benefits as operating leverage translates into bottom-line improvements. In FY23, 16% of our revenue was from growth outside our core B2C furniture and homewares business. This included $38 million (10% of Group revenue) from our B2B division, and $23 million from the Home Improvement category (6% of Group revenue). Our plan over the next three to five years is to earn more than 30% of Group revenue from these (and new) growth plays. This will diversify the Group’s revenue mix and enable us to gain further leverage from our fixed cost base. Our growth plays will (and do) leverage the core capabilities of the Group, such as brand, customer base, technology, data, sourcing, operations and logistics. These growth plays significantly increase our total addressable market (TAM). For example, the B2B market is a multi-billion dollar, highly fragmented market, while Home Improvement adds around $20 billion to our TAM. 8 Temple & Webster Group Ltd In FY22, we launched a pilot site, The Build, as an entry into the Australian Home Improvement market. We assembled a dedicated team and developed a range across core categories such as laundry, bathroom and kitchen fixtures, flooring and lighting. This range was replicated on www.templeandwebster.com.au. As mentioned, these efforts delivered revenue of $23 million for the year, 80% of which came from the main Temple & Webster site. This is a great outcome as it shows the Temple & Webster brand can stretch into adjacent categories, which was reflected in lower marketing acquisition costs and higher conversion rates than The Build. We are still bullish about the Home Improvement category and have decided to consolidate our focus on the Temple & Webster brand for all activities across the Group. This will allow for easier cross-sells and targeted marketing to our existing customer base. It will also enable us to redeploy The Build team and marketing budget to Temple & Webster. We will continue to build out a high-quality range and trial our first private label collection of bathroom fixtures. Gaining a foothold in large, more complex projects is a key focus, and will be assisted by building out project tools and fulfilment solutions. Leadership team changes To ensure we are set up for success, we reviewed the structure of our leadership team. We have added a Chief Marketing Officer, Joana Barros, an experienced cross- channel marketer who has worked in e-commerce for many years, including roles in the hyper-competitive online travel market. Tim Charlton, who was running our supply chain team, has been promoted to Chief Operating Officer. His focus will be on growth. In addition to logistics, customer care and operations, Tim will take on Group strategy, Trade & Commercial and any new growth plays (including international markets). Lastly, Kate Perkins, who leads our furniture and homewares category management and sourcing teams, has been promoted to Chief Merchandise Officer. In this role, Kate will be responsible for all products we sell across the Group, including Home Improvement and any new categories. Thank you to the Tempster team As always, I’d like to say a massive thank you to the Tempster team. Your commitment, adaptability, and resilience are as inspiring as ever. We wouldn’t be able to fulfil our vision of making the world more beautiful, one room at a time, without you. Mark Coulter Chief Executive Officer 999 Annual Report 2023Annual Report 2023Annual Report 2023Operational review 10 Temple & Webster Group Ltd Overview of FY23 performance The Group delivered a strong FY23 result with $396 million in revenue, achieving ~90% of sales from the previous year, our strongest COVID-19-driven trading period. Q4 FY23 revenue was up year on year with a return to market share gains driven by growth in both repeat and first-time customers. $396m $14.8m FY23 Revenue FY23 EBITDA FY23 EBITDA of $14.8 million was within our stated range of 3-5% and H2 FY23 EBITDA was up 80% vs H2 FY22. Note this result is after our investment into our current growth plays, Trade & Commercial and Home Improvement. The Company remains in a strong financial position with a closing cash balance at 30 June 2023 of $105 million and no debt. Active Customers and Revenue per Active Customer While active customers decreased as a result of cycling the COVID-19 impacted periods of FY22, pleasingly we managed to retain ~90% of our peak customer numbers. This in part was due to us recognising early that customer needs were changing as a result of macroeconomic conditions, which resulted in a shift towards increasing our promotional activity and focusing on the value ends of our ranges. Active customers retained ~90% of peak COVID-19 numbers 941k 832k 778k 480k 271k FY19 FY20 FY21 FY22 FY23 11 Annual Report 2023Operational review continued Revenue per active customer continued to increase, up 6% year on year. This was driven by an increase in average order values, which benefited from mix shifts towards less-discretionary categories such as furniture with higher average selling prices relative to homewares categories. We were also able to pass on most inflationary pressures in our cost-base, particularly around shipping. Revenue per active customer up 6% Canstar award for most satisfied customers Based on independent customer survey data1, Temple & Webster was awarded the furniture retailer with the most satisfied customers by CanstarBlue in December 2022. Of the top six retailers, we were the only pure play online retailer, with the other five retailers predominantly store based. Temple & Webster was the only retailer to receive 5 stars across all relevant important customer satisfaction drivers including: $451 $477 $426 $379 $380 • overall satisfaction • value for money • customer service • checkout experience • product availability, and • website experience. FY19 FY20 FY21 FY22 FY23 1. Canstar Blue customer satisfaction research conducted through online sample aggregation from ISO accredited panels (December 2022). 1212 Temple & Webster Group Ltd Temple & Webster Group Ltd Marketing Marketing ROI2 is holding and allows room for growth investments 2.7x 2.6x 2.3x 2.0x 2.0x 54% of customers are repeating customers 620k 628k 574k 491k 565k 463k 361k 245k 203k 140k FY19 FY23 $72 FY20 FY21 ■ First-time customer ■ Repeat customer FY22 FY23 FY19 $43 FY20 FY21 FY22 $46 $58 Customer Acquistion Cost (’CAC’) $69 Marketing return on investment held, despite inflationary pressures, which provides headroom to increase our brand spend in FY24 and FY25 to drive market share, and increase both first-time and repeat customers. In FY23, given the strategic importance of brand and organic traffic, we focused on building out our internal and external capabilities. We were in-market in Sydney with a heavy-weight out-of-home brand test campaign from May to July 2023. Early causal impact study results show a positive impact on orders and we saw a 25% increase in branded searches in NSW from May to June. Our focus on growing organic traffic has also begun to take shape. Initiatives aiming to boost SEO authority have delivered a 50% improvement in ranking for most of our targeted keywords and the integration of AI assisted content on pages has resulted in significant ranking improvements. Personalisation in CRM ramped up in FY23 as we doubled our email journeys targeting shoppers with a higher affinity for certain categories, resulting in an increase in revenue from personalisation by 3.5x. Orders from repeat customers now make up 54% of total orders, and further increasing repeat customers will drive better returns on marketing spend. Product Range At the end of FY23, we had over 225,000 unique products for sale across 225 sub-categories. Key growth categories for the year included bedroom, outdoor and children’s furniture, sofas, plumbing and pet products, all sourced from a combination of private label (owned-inventory) and our drop-shipping network of over 500 local supplier partners. We have maintained a strong inventory position across all categories, sourced and imported directly by Temple & Webster from more than 100 overseas suppliers and secured inventory into our warehouses from our key drop-ship partners, to deliver deeper margins and an improved last mile delivery service. We have diversified our sourcing to non-China geographies wherever possible and launched made-to-order collections in upholstery to offer wider choice in our growing Sofa category where private label and exclusive products now represent more than 50% of our revenue. With millennials being the fastest growing cohort in the online furniture space, it is not a surprise that children’s furniture is one of our fastest growing categories. The diversity of our catalogue has also enabled us to achieve growth in categories impacted by post lockdown lifestyle changes, such as pet and travel products. 2. Marketing ROI = Margin $ / CAC Margin = Revenue per active customer as at 30 June 2023 x delivered margin % for FY23 CAC = Total marketing spend for FY23 x 73% (being the estimated percentage of marketing spent on new customer acquisition, i.e., excludes estimated spend on repeat customers) divided by the number of first-time customers during FY23. 131313 Annual Report 2023Annual Report 2023Annual Report 2023Operational review continued We have made a strategic shift into more entry-priced ranges to meet consumer demand, introducing smaller sizes, new production techniques, and new factories and suppliers. Re-engineering bulky products for higher loadability and increasing flat pack options in sofas and chairs has also delivered cost savings for customers. We have partnered with an exclusive sourcing team in China to provide access to new factories, gain deeper intelligence around manufacturing, and source goods that offer cost savings in the value chain, as well as returned to international sourcing travel for the Buying teams. Data, AI and technology We have the leading conversion rate out of the Australian large retailers dedicated to the home. Monthly conversion rate, June 20233 Temple & Webster 2.5% 2.3% 2.1% Competitors 1.4% 1.1% 1.0% 3. Source: Similar Web, June 2023. All retailers in home category with monthly visits >200k visits. Excludes marketplaces e.g. Amazon. 1414 Temple & Webster Group Ltd Temple & Webster Group Ltd Average conversion rate remains high4 Content 3.0% 2.9% 3.0% 3.2% 2.8% FY19 FY20 FY21 FY22 FY23 Our objective is to use data, AI and technology to break down the barriers of shopping online and drive cost efficiencies. A dedicated internal team of data scientists, engineers and product managers have been applying AI throughout the business during FY23. These AI capabilities have already introduced measurable wins. These include enhancing product descriptions across all 225,000 products leading to an increase in conversion rate, add to carts and revenue per visit. In addition, generative AI has proven its ability to drive customer satisfaction, lower response times and improve conversion rates by directly assisting customers. All pre-sale product enquiry live chats (+20% of all customer enquiries) are now powered by our custom Generative AI solution. Our research and development partner, Renovai, is delivering AI generated personalised mood boards. We increased our investment in Renovai during FY23 and maintained our exclusivity within Australia and New Zealand to strengthen our competitive advantage. In FY24, we will continue to build skills and capabilities within our team in the areas of machine learning, generative AI and innovation. We are specifically targeting all first-time care interactions, logistics routing and exception handling, pricing, promotions and recommendations. Throughout FY23, our creative team and partners produced 2,678 bespoke studio images, 442 video assets, and 1,024 3D assets. These assets are all exclusive to Temple & Webster and are used across our digital shopping experience and in marketing channels including social media, display advertising, and email, helping create a uniquely differentiated customer experience. We began experimentation with Renovai to generate images entirely using AI. Initial results were encouraging and these experiments will continue in FY24 with the objective of creating Temple & Webster style imagery at scale with the expected benefits of increased production capacity, reduced cost per image and faster turnaround times. Supply chain Over the past year, we made significant investments in our people, processes, and technology to develop an operational capability that can scale and effectively serve the current and future initiatives of the Group. As a result, we successfully reduced our customer care and operations overheads as a percentage of revenue from ~3% in FY22 to ~2.5% in FY23. At the same time, we focused on enhancing customer satisfaction, as reflected in our overall FY23 Net Promoter Score ('NPS'), which increased from 57% in FY22 to 62%. Customer satisfaction remains one of the strongest in the category 60% 62% 62% 57% 54% FY19 FY20 FY21 FY22 FY23 4. Average conversion rate is the total number of unique visits over a 12-month period divided by the total number of transactions. 151515 Annual Report 2023Annual Report 2023Annual Report 2023Operational review continued We successfully launched our scalable, 3rd party, asset-light T&W delivery service in various regions, including Sydney, Brisbane, Melbourne and Canberra metropolitan areas, as well as regional areas such as Central Coast, Newcastle, Wollongong, Geelong, Ballarat, Mornington, Sunshine Coast and Gold Coast. In the past 10 months, we have completed over 70,000 deliveries through this service, with a high NPS of over 70%. Moreover, our T&W Delivery service operates at a lower cost, reduces product damages, and ensures faster delivery times by eliminating touch points within traditional delivery networks. Collaboration between our Supply Chain function and Data and Analytics team enabled us to optimise our shipping recovery models. As a result, we increased shipping recovery from approximately 91% in FY22 to around 98% in FY23, ensuring that we passed on the true cost of delivery to our customers. Stabilisation in global supply chains enabled us to bring down our private label inventory holding from the peaks experienced during the COVID-19 pandemic. We continuously right sized our warehouse capacity to support growth while navigating low industrial property vacancy and inflation pressure on lease costs. Through enhanced planning cadences, we operate as an integrated business with short, mid and long-term capacity planning horizons. iOS and Android apps By the end of FY23, we had 536k lifetime downloads of our iOS and Android apps. App customers are demonstrating higher conversion rates, greater lifetime values and higher customer satisfaction. While our desktop and mobile websites are the primary vehicle for first-time customer acquisition, once a customer has purchased from us, we encourage them to download the app and migrate to the better shopping experience our app offers. Our apps now represent ~19% of total Group repeat revenue. Trade and Commercial (B2B) $38.2m $35.3m $25.2m $11.8m FY20 FY21 FY22 FY23 The Trade & Commercial (B2B) division grew 9% YoY to represent 10% of the Group. B2B plays is a multi-billion- dollar market, which is fragmented and high margin, representing a material opportunity for the Group. B2B has been structured to provide a full service offering to business customers, including a newly established Design and Projects division responsible for design, procurement and installation of large-scale projects. This resulted in an increase in large-scale project opportunities and as a result an increase in average order value of 11% YoY. A dedicated marketing and growth team worked to improve new customer acquisition and conversion in selected markets with new customer acquisition improving by 19% YoY. A key area of focus are the accommodation, residential and SME office markets with sales specialists in each sector. Ongoing design and sourcing of a commercial grade product offering to service these industries will result in large scale range expansions in FY24. 1616 Temple & Webster Group Ltd Temple & Webster Group Ltd Home Improvement New office During the year, we moved into our new Head Office in St Peters. This purpose-built area spans approximately 6,000m2, incorporating office space, communal dining and entertainment areas, training facilities, wellness areas, photography studio and associated studio warehouse, with expansion opportunities. This space was designed to meet our current and future needs for many years to come, signing a long-term lease (up to 20 years) to ensure this. We believe having a physical space which is enjoyable to work in is a big driver of employee engagement and productivity, and in our recent engagement survey, ~95% of Tempsters stated that they were enjoying our new home. Home Improvement is one of the fastest growing categories, with Group Revenue of $23 million. FY23 was the first full year of having a dedicated team in the Home Improvement space. Over the course of the year, our main focus was on improving ranges across key categories such as laundry, bathroom and kitchen fixtures, flooring and lighting. At the end of the year, we had over 20,000 items for sale from more than 100 suppliers. We also scoped and ordered our first private label range (in bathroom fixtures) which will land during FY24. Our customer experience, product and technology teams delivered a range of deployments throughout the year to support the Home Improvement category, including options for customers to purchase swatches (e.g. fabrics) made to order products (e.g. blinds), and products sold by size/sqm (e.g. tiles). We also launched new fulfilment options (e.g., palletised shipping), dedicated pre and post customer support, and project management tools. Our NPS for Home Improvement customers ended the year at 69%, a remarkably high score for a category that traditionally presents challenges in shipping products. 17 Annual Report 2023Environmental, social and governance statement 18 Temple & Webster Group Ltd OUR COMMITMENT At Temple & Webster, we believe everyone wants to live more beautifully, which is why we continue to focus on areas that will deliver lasting change for the planet, our people, and the communities in which we operate. In FY23, we made significant progress in establishing key baseline environmental, social and governance (ESG) metrics. These allow us to track and measure the progress of our sustainability goals, while providing valuable insights to inform our long-term strategy in key areas, such as procurement and capital allocation. We remain committed to reducing our carbon emissions by 45% by 2030 in line with the United Nations Sustainable Development Goal (SDG) on climate action. We recognise the importance of carbon offsetting to achieve this goal and are firmly committed to reducing or removing carbon emissions from our operations where possible. The procurement of our range remains the area where we have the most potential to drive positive change throughout the value chain and deliver on our vision to make the world more beautiful, one room at a time. Our procurement teams continue to work with suppliers to offer more products that have been responsibly and ethically sourced, with a key focus on due diligence and verification of sustainability claims. As part of this collaboration with our suppliers, we aim to use more responsible materials in the packaging of our private label range. We remain committed to meeting Australia’s 2025 National Packaging Targets and continue to work with key suppliers to achieve this. In the second half of FY23, we submitted our first annual report as a member of the Australian Packaging Covenant Organisation (APCO). Furthermore, we recognise the importance of supporting our people and the broader community. Diversity, equity and inclusion (DEI) has always been a fundamental element of our business and values. We are committed to advancing reconciliation with First Nations peoples, taking steps to make our workplace fairer and more inclusive, and ensuring our employees are provided with the opportunities and resources to grow and thrive in a psychologically safe environment. We are committed to being a responsible business by driving long-term sustainable value for our customers, employees, shareholders and other stakeholders. In line with this, we set important sustainability goals for the future which are outlined in this report. 19 Annual Report 2023Environmental, social and governance statement continued Our ESG goals Number Goal Carbon neutral in our controlled operations (Scope 1 and 2 emissions) Just started In progress Complete Calendar year target 2030 Progress to date Status Successfully attained carbon neutrality for FY22 Scope 1 and 2 emissions 45% reduction in our carbon footprint (compared to our FY23 baseline) 2030 Commenced procurement of renewable energy for our corporate head office Audit all private label suppliers for ethical and social compliance 2023 • 100% of our private label suppliers have been audited for ethical and social compliance • Where applicable, suppliers requiring corrective action received plans based on audit findings 100% responsibly sourced solid wood in our private label range 2030 Range baseline is undergoing verification • 100% of packaging baseline has been established for our private label range • Submitted first APCO Annual Report • Submitted first APCO Action Plan 100% reusable, recyclable or compostable packaging 2025 70% of plastic packaging being recycled or composted 50% of average recycled content included in packaging 2025 2025 Phase out rigid polystyrene packaging 2025 1 2 3 4 5 6 7 8 2020 Temple & Webster Group Ltd Temple & Webster Group Ltd Our ESG goals Number Goal Just started In progress Complete Calendar year target Progress to date Status 9 Continue to foster a diverse and inclusive workplace Ongoing • Became an official partner of ACON’s Pride in Diversity Program in FY22 • Established all-gender facilities in our corporate head office in FY22 • Delivered LGBTQ+ awareness training for all employees in FY23 • Established DEI Committee in FY23 10 11 12 Continue to invest in the growth of our people for today and tomorrow Ongoing • Established a Learning and Development department in FY22 • Developed and launched a Learning Management System in FY23 • Delivered bespoke leadership training for all people leaders in FY23 Build authentic and respectful relationships with First Nations communities Ongoing • Established a Reconciliation Action Plan (RAP) working group in FY22 • Published our Acknowledgement of Country across all major communication channels in FY23 • Submitted our Reflect RAP for endorsement in FY23 Achieve ISO 27001:2022 Information security management systems certification 2025 • Established internal Cyber governance FY21 • Aligned to the ISO 27001 framework in FY21 • Adopted risk-based cyber model FY22 • Expanded our internal cyber capability in FY22 • Partnered with the Australian Cyber Security Centre (ACSC) in FY23 2121 Annual Report 2023Annual Report 2023Environmental, social and governance statement continued Caring for the planet Carbon emissions and energy management Addressing the many challenges associated with climate change will require a considered approach to how we operate into the future. We have made great progress over the past two years to understand the full scope of our greenhouse gas (GHG) emissions, and while reducing our emissions footprint remains a key priority, we know we have a long way to go. Through our partnership with Carbon Neutral, we completed our annual GHG inventory in accordance with the Greenhouse Gas Protocol Corporate Standard. Details and insights from this report helped to inform the development of our four-year carbon-reduction strategy. In FY22, we set a target to offset 100% of our direct emissions (Scope 1 and 2) and to begin procuring renewable energy for our corporate head office. In FY23, we invested in Australian Carbon Credit Units (ACCUs) from projects which established native forests through human induced regeneration (HIR) in Eastern Australia. These projects positively impact the triple bottom line through a diverse range of benefits, including: • improved water and soil quality, • biodiversity conservation, • increased social capital, • knowledge sharing and education, • • job creation in regional areas, and investment in regions and rural communities. We are committed to reducing our carbon emissions by 45% by 2030 We started procuring renewable energy for our head office, which will constitute 25% of our total power usage. We aim to build on this by installing solar panels at our head office, which will allow us to offset most of our grid requirements and transition towards 100% renewable energy. We recognise that the largest component of our carbon footprint is related to indirect emissions (Scope 3), which occur along our value chain and outside our operational control. We understand that collaboration will be key to addressing this issue and are currently exploring strategies to effectively manage and reduce our Scope 3 emissions. Temple & Webster GHG emissions (tonnes carbon dioxide equivalent [t CO2e]) Scope 1 Scope 2 Scope 3 FY22 0.02 112.33 FY23 0.05 255.79 26,810.50 27,759.05 Total GHG Emissions 26,922.85 28,014.89 In FY23, our carbon footprint increased by 4% (1092.04 t-CO2e), primarily due to resuming regular office operations after the COVID-19 pandemic. This led to higher electricity consumption on-site at our corporate head office, increased employee presence, regular staff commuting, and a rise in domestic and overseas business travel. As we analyse the changes in our carbon footprint, we recognise that the return to work has a material impact on our emissions. Whilst this necessitates further attention, we are confident that we can significantly reduce the carbon emissions contributed by our controlled operations throughout FY24 and beyond. United Nations Sustainable Development Goals that align with this area of focus1 1. The framework is a comprehensive roadmap consisting of 17 interconnected goals aimed at addressing social, economic and environmental changes to create a better world for all by 2030. Please refer to this link for further information - https://sdgs.un.org/goals. 2222 Temple & Webster Group Ltd Temple & Webster Group Ltd Reducing the impact of our products As Australia’s leading online-only retailer for the home, we are committed to developing and sourcing lower- impact products through third-party certification, ethical procurement practices and trialing end-of-life product solutions to divert waste from landfill to support a circular economy. 100% of our private label suppliers received corrective action plan reports We understand the importance of responsible product stewardship and are committed to managing the full life cycle of our products to minimise any associated impacts. We continued to build on our efforts in FY20 to promote ethical procurement practices and transparency within our supply chain. In FY23, we continued to assess our supply chain for modern slavery risk, ensuring all private label suppliers were audited for social and ethical compliance with fair work and labour standards. As a result of our commitment to continuous improvement, 100% of our private label suppliers received corrective action plan reports based on the findings from these audits (where necessary). These reports allow us to effectively manage human rights risks within our supplying factories, while providing our suppliers with key insights that empower them to improve social management systems and labour practices. Our long-term goal is to engage with suppliers across every tier of our supply chain and to partner with them in addressing modern slavery where it may exist. In line with our FY22 commitment, we continued to develop sustainability credentials for our range. Our focus in FY23 was to engage and collaborate with suppliers to identify the proportion of our range that incorporates responsibly sourced timber in the final product. The emphasis was on improving our internal procedures to ensure that any related claims are accurate and verifiable. In FY23, an internal leadership group was established to identify and plan for how we could prevent customers’ old products from ending up in landfill. We will continue to build on the findings from this project and aim to trial an end-of- life product solution in FY24 that will reduce the number of products sent to landfill by diverting valuable material resources into the circular economy. We understand the important role we play in protecting the environment for future generations. We will work closely with our partners to ensure we can continue to deliver beautiful solutions for our customers while making a positive difference within the global community. United Nations Sustainable Development Goals that align with this area of focus 2323 Annual Report 2023Annual Report 2023Environmental, social and governance statement continued Responsible packaging In FY22, we worked with an external consultant to conduct a materiality assessment of our business. The assessment revealed that responsible packaging emerged as the most significant focus area for our business and stakeholders. As a result, we made a commitment to meet the National Packaging Targets by 2025. As part of this commitment, we joined an industry-driven initiative and became a member of APCO. In the second half of FY23, we submitted our first annual report, which defines and details the packaging footprint of our extensive private label range. Our overall performance has been classified as ‘Getting started’, acknowledging that we are at the initial stages of the journey. As a member of APCO, we have access to a comprehensive suite of resources, including technical guides, case studies and webinars. These resources will assist us in implementing practical measures to optimise, and reduce the impact of, our packaging. Recognising that protective packaging plays a pivotal role in reducing transit damages and subsequent product waste, we are actively collaborating with key private label suppliers to assess our packaging against the Sustainable Packaging Guidelines (SPGs) prescribed by APCO. Through this collaboration, we aim to improve the recoverability of our packaging and support our customers in diverting packaging waste from landfill via kerbside recycling systems. Submitted our first APCO Annual Report and Action Plan In line with the SPGs, we are also working closely with our private label suppliers to increase the proportion of recycled content used in our packaging to 20% in FY24. We believe this is an area of critical importance as it not only reduces our reliance on virgin materials, but also promotes a circular economy by giving new life to recycled materials. United Nations Sustainable Development Goals that align with this area of focus 2424 Temple & Webster Group Ltd Temple & Webster Group Ltd Supporting our people and communities Diversity, equity and inclusion An important part of living more beautifully is to invest in the wellbeing and development of our employees, so that every individual has opportunities to succeed and thrive. We know that people are happier and more fulfilled at work if they can be their authentic selves. We want our employees to feel safe, comfortable and have a true sense of belonging in the workplace. Through the use of formal feedback mechanisms, we are able to identify areas of opportunity to nurture a culture of continuous learning and development, whilst continuing to drive a strong employee engagement score. Being aware of our employees’ passions, strengths and areas of interest allows us to equip them with the necessary tools and resources to achieve their goals. In FY23, we successfully launched our employee Learning Management System (LMS) – a comprehensive, centralised hub for all training and learning content. The LMS hosts a large range of enterprise-wide learning programs, covering onboarding, compliance, leadership and career development. We also curated a content library and personalised learning pathways that empower our team to engage in self-directed learning at their own pace. In partnership with Thinka, an independent external learning and development business, our leaders received bespoke leadership training which consisted of: • interactive workshops, • practical support tools, and • our new leadership framework. We recognise the importance of developing our leaders to ensure we are investing in the growth of our people for today and tomorrow. Nurturing the mental health and wellbeing of our employees has consistently remained a fundamental aspect of our corporate culture. We will continue to focus on our employees’ mental health by inviting them to participate in daily mindfulness in our new Wellness Room. Through our LMS, employees also have access to a range of wellbeing resources to support their holistic growth. To ensure we have the necessary resources to best support our employees, members of our leadership team have been trained and certified in mental health first aid training. We are assessing the potential to expand this training to all employees in future. All employees were provided with LGBTQ+ awareness training and have ongoing access to the training In FY23, we became members of Diversity Council Australia (DCA) and established our internal DEI Committee. As members of DCA, we have access to comprehensive resources, subject matter experts and unique research. These resources will help the DEI Committee to identify best practices and guide our initiatives for being an inclusive workplace where everyone can genuinely thrive. In line with our DEI efforts, an internal leadership group was established to investigate and develop potential strategies which will help to remove bias from our recruitment process. In FY23, we trialed some of these strategies to identify opportunities for improvement and to assess effectiveness in removing bias. Whilst this is just a small step in our recruitment process, we remain committed to evolving our internal hiring procedures so they are fair and equitable for everyone. United Nations Sustainable Development Goals that align with this area of focus 2525 Annual Report 2023Annual Report 2023Environmental, social and governance statement continued Advancing reconciliation In FY23, we reaffirmed our dedication to advancing reconciliation with Aboriginal and Torres Strait Islander peoples in Australia. Guided by our commitment to authenticity and collaboration, we embarked on a transformative journey. To deepen our understanding and recognition of the land on which we operate, we participated in an enlightening Acknowledgement of Country workshop led by a First Nations facilitator from Murawin, an independent external Indigenous consultancy certified by Supply Nation. This workshop served as a catalyst for developing an appreciation of Country and its significance to First Nations Australians. Through guided learnings and thoughtful discussions, we explored various types of acknowledgements to understand their true meaning and purpose. This helped us to develop our own Acknowledgement of Country, which is used on all our major communication channels, symbolising our commitment to honouring and respecting the lands, waterways and skies that we use to store and transport our products. Our Acknowledgement of Country also recognises the Gadigal and Wangal people as the Traditional Owners and Custodians of the lands where our head office is located. Building on our efforts, we celebrated NAIDOC Week in 2022 by showcasing the remarkable talent of First Nations artists on our website. We took great care to ensure that artists were portrayed in an authentic and respectful manner, and were proud to provide them with a platform to showcase their talents. To ensure accuracy and to adhere to cultural protocols, we collaborated directly with individual artists to fact-check and obtain their approval for all content before publication. Our campaign encompassed Instagram stories, Pinterest pins, and a dedicated customer email, showcasing the stories and selected artworks of four gifted First Nations artists. Moving forward, we remain committed to celebrating and promoting the incredible talent of First Nations artists. 2022 NAIDOC Week Campaign Artist – Amanda Hinkelmann United Nations Sustainable Development Goals that align with this area of focus 2626 Temple & Webster Group Ltd Temple & Webster Group Ltd At the end of 2022, we moved into our new Eora (St Peters, NSW) office. We were welcomed through a Smoking Ceremony and Welcome to Country, led by Brendan Kerin, skin name Japangardi, a cultural representative of the Metropolitan Aboriginal Land Council. Brendan’s personal journey of rediscovering his identity by reconnecting with Country fostered a deep appreciation for the enduring connections First Nations people share with the land. This experience was a powerful reminder of the importance of acknowledging and valuing the traditions and wisdom passed down through generations. Throughout the development of our Reflect Reconciliation Action Plan, Murawin has stood as our invaluable ‘Critical Friend’, facilitating meaningful discussions on important topics and ensuring we were supported every step of the way. These workshops allowed our team to reflect, ask questions and lay the groundwork for essential learning resources. Together, we explored cultural protocols, job parity, cultural safety and the appropriate use of First Nations terms and languages in professional and everyday contexts. Through these engagements, we embraced the opportunity to drive social and cultural change within our organisation to foster an inclusive and respectful environment for all. Smoking Ceremony for the opening of our new corporate head office 2022 NAIDOC Week campaign Artist – Russellina Puruntatameri Welcome to Country led by Brendan Kerin 2727 Annual Report 2023Annual Report 2023Environmental, social and governance statement continued Giving back Since 2018, we have partnered with Women’s Community Shelters (WCS), an organisation dedicated to providing community-based emergency accommodation and support to women and children at risk of homelessness and domestic and family violence. In the past five years, we have supported and contributed to eight shelters by donating furniture and homewares, leveraging our design expertise to style rooms, handling the delivery of product and providing employee volunteer services for assembly and installation. This year, we focused our efforts on supporting Blue Wren House – Camden Women’s Shelter and The Haven – Nepean Women’s Shelter. We provided furniture, homewares, delivery and assembly, and styled these safe havens for women and children in need of support. In December, we aimed to bring joy and empowerment to the residents of the WCS. We initiated a Christmas gift card donation campaign, enabling residents to choose what they wanted to purchase for themselves or their children. This gesture provided a sense of agency and allowed individuals to select items that would truly bring happiness and fulfilment to their lives during the holiday season. Following our collaboration in FY22, we launched a formal partnership with the Black Dog Institute, a not-for-profit organisation for the diagnosis, treatment and prevention of mood disorders such as anxiety and depression. As part of our mutually beneficial partnership, we will continue to provide the Black Dog Institute with furniture, homewares and styling services, in return for employee access to important mental health tools and resources. Blue Wren House – Camden Women’s Shelter In our ongoing commitment to supporting a diverse range of causes, we also participated in: • Australia’s Biggest Morning Tea – a fundraising event that brings people together to enjoy a morning tea while raising funds for cancer research and support services • STEPtember – a fitness and fundraising challenge that encourages participants to take 10,000 steps a day for 28 days in support of people living with cerebral palsy • RSPCA Cupcake Day – a fundraising event where participants bake and sell cupcakes to raise funds for the Royal Society for the Prevention of Cruelty to Animals (RSPCA) • Red Ribbon Appeal – a campaign to raise awareness and support for people living with HIV/AIDS, and promote prevention and education; and combat stigma around the disease • MINUS18 – an organisation that works to lead change, build social inclusion and advocate for an Australia where young LGBTQ+ people are safe, empowered and surrounded by people who support them. United Nations Sustainable Development Goal that align with this area of focus 2828 Temple & Webster Group Ltd Temple & Webster Group Ltd Being a good corporate citizen Integrity We are committed to the high ethical standards outlined in our Code of Conduct. We expect our employees to act honestly and with integrity in all their dealings on behalf of the company, including in their interactions with colleagues, business partners, customers and the community. Our Code of Conduct is available at www.templeandwebstergroup.com.au. Customer data, privacy and security We are committed to safeguarding customer data and preserving privacy in adherence to legislative requirements, specifically the Privacy Act 1988 (Cth) and associated amendments, such as the Notifiable Data Breaches scheme. Highly publicised data breaches in FY23 highlight the risks to all Australian organisations. We see this as a call to further enhance security practices across all aspects of our business, both technically and operationally. The prevalence of these attacks in recent times call for technical investment, employee vigilance and a focused approach to corporate governance to respond effectively. Our response across all levels of our organisation is commensurate to the threats faced. As a leading e-commerce company, we take the protection of data and digital assets with the utmost criticality. In the past 12 months, Temple & Webster has adopted a risk-based approach to Cyber Security strategy, by implementing a zero-trust cyber security architecture and aligning to ISO 27001 as a best practice to bolster cyber defences. Furthermore, we have made substantial investments in technical security controls and have invested in dedicated information security resources. Beyond this, we have committed to the implementation and certification of the internationally recognised Information and Data Security Standard, ISO 27001:2022. We consider this initiative to validate our commitment to our cyber security duties and trust model in the protection of our corporate and customer data. ISO 27001:2022 is the most comprehensive and relevant security best practice for our business. By adhering to this standard, we aim to protect our digital assets, effectively manage our supply chain, foster crucial technical relationships and establish an ongoing framework for enhancing security measures. To ensure we stay abreast of evolving security threats and maintain a proactive approach, we regularly collaborate with external parties to obtain objective and timely insights that help identify potential risks to Temple & Webster's data and privacy obligations. We have partnered with the Australian Cyber Security Centre (ACSC) to gain continual and relevant insights into real time threats, to increase vigilance to the Temple & Webster environment. Further investments have been earmarked for the short to medium term to continue to respond to the Company’s overall commitment to the detection and prevention of cyber threats. We will continue to reinforce our risk based approach by implementing initiatives such as: further expanding on our internal resources with the addition of dedicated SecOps resources, dedicated CISO role to further support our cyber related project investments being Identity and Access Management, enhancements to Zero Trust architecture, Incident Response and Observability, Compliance and Governance controls to name a few. Corporate governance The Board of Directors (the Board) of Temple & Webster Group Ltd is committed to high standards of governance, legislative compliance and ethical behaviour. It is responsible for the overall operation, stewardship and governance of the Company. The Board has adopted a framework of corporate governance principles, policies and practices that are in line with the ASX Principles and Recommendations to promote responsible governance. Our Corporate Governance Statement reports the Company’s compliance with the fourth edition of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations and has been approved by the Board. The Corporate Governance Statement and further details about corporate governance policies adopted by the Company and the Board are available on the Company’s website at www. templeandwebstergroup.com.au. 2929 Annual Report 2023Annual Report 2023Directors’ report The directors present their report, together with the consolidated financial statements, on the consolidated entity (referred to hereafter as the ‘Group’) consisting of Temple & Webster Group Ltd (referred to hereafter as the ‘Company’ or ‘parent entity’) and the entities it controlled at the end of, or during, the year ended 30 June 2023. Directors The following persons were directors of Temple & Webster Group Ltd during the whole of the financial year and up to the date of this report, unless otherwise stated: Stephen Heath Conrad Yiu Mark Coulter Belinda Rowe Susan Thomas (retired on 30 November 2022) Melinda Snowden (appointed on 1 June 2023) Principal activities Temple & Webster is Australia’s largest pure play online retailer of furniture and homewares. Temple & Webster has over 200,000 products on sale from hundreds of suppliers. The business runs an innovative drop- shipping model whereby products are sent directly to customers by suppliers, enabling faster delivery times and reducing the need to hold inventory, allowing for a larger product range. The drop ship range is complemented by a private label range which is sourced directly by Temple & Webster from overseas suppliers. Temple & Webster’s Trade & Commercial division services the B2B market, offering exclusive product ranges, procurement, styling, specialised delivery and installation services by a dedicated support team. The Group also provides home improvement products via both the Temple & Webster and The Build websites, with everything customers need to renovate and redecorate their homes. Temple & Webster Group’s registered office and principal place of business is 2, 1-7 Unwins Bridge Road, St Peters, Sydney, Australia and is listed on the Australian Securities Exchange under the code TPW. Dividends There were no dividends paid, recommended, or declared during the current or previous financial year. 30 Temple & Webster Group Ltd Operating and financial review Key operating and financial metrics for the year ended 30 June 2023 include: • FY23 revenue of $396 million which reflects ~90% retention of COVID-19 revenue; • Q4 FY23 saw a return to year on year growth after cycling COVID-19 impacted periods; • Gross margin % for FY23 at 32.6%, an increase from the prior comparison period (‘pcp’) despite inflationary pressures during the year; • EBITDA of $14.8 million was within the Group’s communicated range of 3-5% at 3.7%; • H2 EBITDA was up 80% on the pcp; and • Free cash flow of $17.0 million (before share buy-back and Renovai investment) with a closing cash balance of $105 million, and no debt. Please refer to the Group’s FY23 results presentation for further commentary on the Group’s financial and operational results. Key business risks There are a number of market, financial and operational risks both specific to the Group and externally that could have an adverse effect on the Group’s future performance. The Group has a risk management framework in place with internal control systems to identify key business risks and mitigate them to an acceptable level. The material business risks are summarised below (not exhaustive nor in order of materiality). Key risk Description Continued growth of retail ecommerce in general and growth in demand may be affected by economic factors While the B2C retail ecommerce market and the online market for furniture, homewares and home improvement have been growing there is no guarantee this will continue into the future. The Group is subject to factors outside its current control including Australia’s outlook for economic growth, cash rate, taxation, unemployment rate, consumer sentiment, global economic outlook, foreign economic shocks and building activity. One or more of these factors could cause a slowing or contraction in the forecasted growth in the market and industry. New and existing competitors could adversely affect prices and demand and decrease the Group’s market share Supply chain might be disrupted Political, economic or social instability The Australian furniture, homewares and home improvement segment is highly fragmented. Competition can arise from a number of sources including domestic and foreign traditional offline retailers, including multi-channel, mono-channel, multi-branded retailers, and online-only ecommerce competitors. Existing online competitors may strengthen through funding or industry consolidation, or through financial or operational advantages which allow them to compete aggressively on pricing. Competition may also come from third-party suppliers establishing their own online presence as opposed to utilising the Group’s platform. As a result, this may increase the costs of customer acquisition, lower margins due to pricing pressure and reduce the Group’s market share in the furniture and homewares segment in Australia. There remains a risk that the spread of pandemic like COVID-19 or a similar event, has an adverse impact on the Group’s supply chain. This could occur if the ability to transport products between countries is disrupted, the Group’s key suppliers are negatively affected or the Group is otherwise unable to efficiently distribute products to customers. In the event that the supply chain of the Group is disrupted, this may have a material adverse effect on the Group’s operating performance and earnings. The Group’s suppliers and service providers are also subject to various risks which could limit their ability to provide the Group with sufficient, or any, products or services. Some of these risks include raw material costs, inflation, labour disputes, union activities, boycotts, financial liquidity, product merchantability, safety issues, natural disasters, disruption in exports, trade restrictions, currency fluctuations and general economic and political instability (including as a result of pandemics such as COVID-19 and military conflicts). The Group is also exposed to risks related to labour practices, environmental matters, disruptions to production and ability to supply, and other issues in the foreign jurisdictions where suppliers and service providers operate. Any of these risks, individually or collectively, could materially adversely affect the Group’s financial and operational performance. 31 Annual Report 2023Directors’ report continued Key risk Description Performance, reliability and security of websites, databases, operating systems The Group’s financial and operational performance could be adversely affected by a system failure that causes disruption to its websites, or to third party suppliers of its systems and products. This could directly damage the reputation and brand of the relevant platform and could reduce visitors to the Group’s website and directly influence sales to customers. The Group’s databases and systems are hosted on platforms provided by third party providers. As a result, the Group is subject to its own disaster planning contingencies and those of its third parties to deal with events that are beyond the control of those parties such as natural disasters, infrastructure failures, terrorist and cyber attacks. A material failure in the systems of a third party provider is likely to have a material impact on the systems and operations of the Group’s platforms. Unauthorised use of intellectual property or independent development of technology Substantial parts of the Group’s online platforms, distribution software, applications, data analytics and customer databases are seen as proprietary information. Unauthorised parties may obtain or copy, or seek to imitate, all or portions of this intellectual property or independently develop technology that is similar and may be in breach of proprietary rights. In this instance, the Group may seek legal actions to remedy the breach of proprietary information. This may incur legal or other fees and if unsuccessful may have a material adverse effect on the Group’s financial and operational performance in the future. Laws and regulations may change Key Management Personnel (‘KMP’) The Group is subject to, and must comply with, a variety of laws and regulations in the ordinary course of its business. These laws and regulations include those that relate to fair trading and consumer protection, product safety, employment, property, taxation (including goods and services taxes and stamp duty), accounting standards, customs and tariffs. Failure to comply with, or changes to, laws and regulations may adversely affect the Group, including by increasing its costs either directly or indirectly (including by increasing the cost to the business of complying with legal requirements). The Group relies on the expertise, experience and strategic direction provided by its Key Management Personnel. These individuals have extensive experience in, and knowledge of, the Group’s business. Additionally, successful operation of the Group’s business depends on its ability to attract and retain quality employees. Competition could increase the demand for, and cost of hiring, quality employees. The Group’s ability to meet its labour needs while controlling costs associated with hiring and training employees is subject to external factors such as unemployment rates, prevailing wage legislation and changing demographics. Significant changes in the state of affairs During the period, the Group commenced its 10-year lease for office space in St Peters. Sydney. The lease was recognised in accordance with AASB 16 Leases and a right of use asset and lease liability were recognised in November 2022. In March 2023, the Group also entered into an agreement to invest in convertible notes of US$2,000,000 issued by Renovai, Inc (‘Renovai’) a start-up developing AI/Augmented Reality (‘AR’) interior design tools. As at 30 June 2023, the Group purchased US$400,000 of convertible notes with further investments of US$1,600,000 to be made over the next financial year. The Group’s investment is in alignment with its strategy to innovate its digital offering through 3D and AI/AR generated tools to help customers navigate the vast range of furniture & homewares to aid engagement and conversion. The Group also initiated an on-market share buy-back program up to a maximum value of $30,000,000 which commenced in April 2023. The buy-back will be for a period up to 12 months. The Group considers the acquisition of shares at prevailing prices to be effective capital management while retaining financial flexibility to fund accretive organic and inorganic opportunities as part of its growth strategy. As at 30 June 2023, the Group had bought back 2,696,254 TPW shares worth $12,295,000. 32 Temple & Webster Group Ltd Matters subsequent to the end of the financial year In July 2023, the Group purchased a further US$600,000 of convertible notes issued by Renovai. No adjustment is required in the Group’s financial statements for the year ended 30 June 2023. No other matters or circumstances have arisen since 30 June 2023 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years. Likely developments and expected results of operations Other than the developments described in this report, the Directors are of the opinion that no other matters or circumstance will significantly affect the operations and expected results of the Group. Environmental regulation The Group is not subject to any significant environmental regulation under Australian Commonwealth or State law. Share Options Unissued shares As at the date of this report and at the reporting date, there were 8,962,052 unissued ordinary shares under options. Refer to the remuneration report for further details of the options outstanding for Key Management Personnel (‘KMP’). Information on directors Name: Title: Stephen Heath Independent Non-Executive Director Qualifications: Graduate of the Australian Institute of Company Directors Experience and expertise: Stephen is a specialist in consumer goods brand management with over 25 years of manufacturing/wholesale distribution and retail experience. Stephen spent 16 years as CEO of some of Australia’s best-known consumer brands that includes Rebel Sport, Godfrey’s and Fantastic Holdings with operations experience in Australia, New Zealand, and Asia. His experience includes working for both ASX Listed and Private Equity owned companies. Other current directorships: Non-Executive director of Best & Less Group Holdings Ltd (appointed on 24 June 2021). Former directorships (last 3 years): Chair of Shiro Holdings Limited (appointed on 24 October 2019 and resigned on 2 November 2021). Chair of Redhill Education Limited (appointed to board on 1 September 2019, elected as Chair on 1 December 2020 and resigned on 30 October 2021). Special responsibilities: Chair of the Board Interests in shares: 34,000 Interests in options over shares: 181,026 Interests in restricted rights: 14,150 33 Annual Report 2023Directors’ report continued Name: Title: Susan Thomas Independent Non-Executive Director Qualifications: Bachelor of Commerce and Bachelor of Law from the University of New South Wales Experience and expertise: Other current directorships: Susan is an experienced company director and audit and risk committee chair. Susan has expertise in technology and law. Susan founded and was the Managing Director at FlexiPlan Australia, an investment administration platform sold to MLC. Susan Thomas retired as the Non-Executive Director and Chair of the Audit and Risk Management Committee on 30 November 2022. Director of Fitzroy River Holdings Limited (appointed on 26 November 2012), Director of Nuix Limited (appointed on 18 November 2020), Director of Cash Converters International Limited (appointed on 1 April 2022) and Maggie Beer Holdings Limited (appointed on 1 July 2022). Former directorships (last 3 years): In February 2020, Fitzroy River Holdings Limited acquired 100% of Royalco Resources Limited (‘Royalco’). Accordingly, Royalco is no longer a listed entity; however, Susan Thomas is still a director of Royalco (appointed on 22 February 2017). Special responsibilities: Chair of the Audit and Risk Management Committee Interests in shares: Nil Interests in options over shares: 181,026* Interests in restricted rights: Nil Name: Title: Qualifications: Experience and expertise: Melinda Snowden Independent Non-Executive Director Bachelor of Economics and Laws from the University of Sydney, Graduate Diploma in Applied Finance and Investment (SIA), Graduate of the Australian Institute of Company Directors Melinda joined the Group in June 2023. Melinda has extensive experience in legal and professional corporate advisory roles, as well as on listed Boards in technology, retailing, property and funds management. Melinda has 28 years of experience in finance and has been a professional Non-Executive Director since 2010 in a broad range of industries. Melinda is currently a Non-Executive Director and Chair of the Audit and Risk Committee of ASX listed companies Best & Less Group Holdings, Megaport and Newmark Property REIT. Melinda is also Chair of LLS Fund Services. Melinda has held previous non-executive director roles at WAM Leaders, MLC, Vita Group, Mercer Investments (Australia), Sandon Capital Investments, Our Ark Mutual, Newington College, Sane Australia and Kennards Self Storage. Prior to her non-executive career, Melinda held investment banking roles with Grant Samuel, Merrill Lynch, and Goldman Sachs and was a solicitor in the corporate division of Herbert Smith Freehills. Other current directorships: Non-Executive Director and Chair of the Audit and Risk Committee of Megaport Ltd (appointed on 1 June 2021 ), Best & Less Group Ltd (appointed on 18 May 2021) and Newmark Property REIT (appointed on 1 March 2021). Former directorships (last 3 years): WAM Leaders Limited (ASX:WLE) (appointed on 1 March 2016 and resigned 1 June 2023) Sandon Capital Investments Limited (ASX:SNC) (appointed on 14 May 2018 and resigned 2 March 2022). Special responsibilities: Chair of the Audit and Risk Management Committee Interests in shares: Nil Interests in options over shares: Nil Interests in restricted rights: Nil * Susan Thomas’ interest in options is shown as at her retirement on 30 November 2022. 34 Temple & Webster Group Ltd Name: Title: Qualifications: Experience and expertise: Conrad Yiu Non-Executive Director Bachelor of Commerce from the University of New South Wales, Master of Business Administration from the University of Cambridge, Member of the Australian Institute of Company Directors Conrad is a co-founder of Temple & Webster and joined the Board on its formation in July 2011. Conrad was Chair of the Company until immediately prior to the IPO. Conrad has over 25 years’ commercial and advisory experience with a focus on investing in, acquiring and building high-growth businesses in the consumer and technology sectors. Conrad was previously Director of Corporate Development with the digital division of Newscorp Australia (formerly News Digital Media), co-founder and Director of a London- based mobile technology company, a manager at Arthur Andersen and is a principal of ArdenPoint, an investment firm which he co-founded with Mark Coulter in 2011, the CEO of Temple & Webster Group Ltd. Conrad is a co-founder and current partner of AS1 Growth Partners, a private investment firm focused on growth and technology investments in public and private markets. Other current directorships: Non-Executive Director of FiscalNote (NYSE: NOTE) (Appointed 25 October 2020) Former directorships (last 3 years): None Special responsibilities: Deputy Chair of the Board from 1 November 2022 Interests in shares: 2,327,933 ordinary shares* Interests in options over shares: 181,026 Interests in restricted rights: 23,125 Name: Title: Qualifications: Experience and expertise: Belinda Rowe Independent Non-Executive Director Bachelor of Arts Monash University, Graduate of the Australia Institute of Company Directors Belinda is an experienced business leader and successful marketing executive. Belinda’s extensive professional experience lies in marketing communications, content, media and digital marketing technologies. Belinda led media and marketing communications businesses for Zenith and Publicis Media globally based in the UK, and held many senior roles in the marketing industry, including as CEO of ZenithOptimedia for 10 years in Australia and as Director Brand and Marcoms for O2 Telefonica in the UK. Other current directorships: Independent Non-Executive Director of ARN Media Ltd (appointed on 5 February2019), 3P Learning Limited (appointed in September 2021) and Sky NZ (appointed on 1 March 2023). Former directorships (last 3 years): Nominated Director Soprano Design (appointed on 22 September 2020 and resigned in February 2023). Special responsibilities: Chair of the Nomination and Remuneration Committee Interests in shares: 12,100 Interests in options over shares: Nil Interests in restricted rights: 6,382 * ArdenPoint Ecommerce Unit Trust (‘Trust’) is the registered holder of 2,427,828 Ordinary Shares of Temple & Webster Group Ltd. For the purpose of above table, both Mr Coulter and Mr Yiu, the beneficiaries of the Trust, are considered to hold 50% of the shares held by the Trust. This is similar to prior financial years. 35 Annual Report 2023Directors’ report continued Name: Title: Mark Coulter Executive Director Qualifications: Bachelor of Laws and Bachelor of Science (Biochemistry) from the University of Sydney Experience and expertise: Mark is a co-founder of Temple & Webster and has been involved as an advisor to the Group since its inception. Previously, Mark worked at News Limited where he was Director of Strategy for the Digital Media properties and managed a portfolio of businesses including Moshtix, a digital ticketing company. Mark was also a solicitor at Gilbert + Tobin and management consultant at McKinsey & Company. Other current directorships: Former directorships (last 3 years): None None Special responsibilities: Chief Executive Officer Interests in shares: 1,895,322 ordinary shares* Interests in options over shares: 8,600,000 Interests in restricted rights: Nil * ArdenPoint Ecommerce Unit Trust (‘Trust’) is the registered holder of 2,427,828 Ordinary Shares of Temple & Webster Group Ltd. For the purpose of above table, both Mr Coulter and Mr Yiu, the beneficiaries of the Trust, are considered to hold 50% of the shares held by the Trust. This is similar to prior financial years. ‘Other current directorships’ quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. ‘Former directorships (last 3 years)’ quoted above are directorships held in the last three years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. Company secretary Lisa Jones is Company Secretary of Temple & Webster Group Ltd. Lisa is a corporate lawyer and corporate governance professional with more than 20 years’ experience in commercial law and corporate affairs, working with both public listed and private companies in Australia and in Europe after starting her career in the corporate practice of Allens. Meetings of directors The number of meetings of the Group’s Board of Directors (‘the Board’) held during the year ended 30 June 2023, and the number of meetings attended by each Director were: Full Board Nomination and Remuneration Committee Audit and Risk Management Committee Attended Held Attended Held Attended Held Stephen Heath Susan Thomas1 Conrad Yiu2 Melinda Snowden3 Belinda Rowe Mark Coulter 9 3 9 1 9 9 9 3 9 1 9 9 6 2 6 1 6 – 6 2 6 1 6 – 5 2 5 1 5 – 5 2 5 1 5 – Held: represents the number of meetings held during the time the Director held office. 1. Susan Thomas resigned as a Non-Executive Director on 30 November 2022. 2. Conrad Yiu was the acting Chair of the Audit & Risk Management Committee from 30 November 2022 until 1 June 2023. 3. Melinda Snowden was appointed as a Non-Executive Director on 1 June 2023. 36 Temple & Webster Group Ltd Remuneration report (audited) Dear shareholders, On behalf of the Board, it gives me immense pleasure to present the FY23 Remuneration Report. FY23 was a challenging year for Australians, with many having to reassess their discretionary spending in response to rising cost-of-living pressures. Despite these difficult trading conditions, we were able to produce a strong set of financial results and a return to year on year revenue growth in Q4, and we anticipate that the business will continue to grow as we return to our strategy as the category disrupter. Based on the business’ overall results, the Board has established a remuneration framework that clearly links the Group’s performance with remuneration outcomes. This framework also ensures that the interests of Directors, employees and shareholders are closely aligned. The Board is confident that the outcomes described below are fair and reasonable. We believe that the outcomes strike the right balance, as they reward and motivate our key executives whilst meeting the expectations of our shareholders. FY23 Remuneration Outcomes The key remuneration outcomes for FY23 were: • after a comprehensive review of the remuneration package for Mr Mark Coulter, Chief Executive Officer (‘CEO’), with the assistance of external remuneration consultants, several changes were made to the CEO’s remuneration package in FY23. The CEO received a $105,000 increase in fixed remuneration. This increase recognises that the CEO’s previous fixed remuneration was below market value (below the 10th percentile of the reference group). The increase will be the only increase the CEO will receive during the next four years and his remuneration package remains below the 25th percentile for CEOs of companies of comparable size. • • the Board and CEO agreed that the CEO would continue to not receive a short-term incentive. They also agreed that he would maintain a heavy weighting towards long-term equity to ensure he is incentivised to grow the long-term value of the Group. in a package that was approved by a significant majority of shareholders at the 2022 Annual General Meeting, the CEO was awarded 3,600,000 options in three equal tranches of 1,200,000 options. These tranches were all granted on 30 November 2022. Each tranche has an exercise price set at a significant premium to the share price at the time the options were granted. These exercise prices are $7.06, $9.53 and $12.86, respectively. The premium on the option provides an in-built absolute total shareholder return performance hurdle, as the Temple & Webster share price needs to exceed the premium exercise price to provide any value to the CEO. This ensures the CEO can only benefit from the award if shareholders experience a significant increase in value of their Temple & Webster shares. The option award is intended as the only variable remuneration the CEO will receive over the four-year period ending on the date the FY26 annual report will be approved. • Mr Adam McWhinney, Chief Experience Officer (‘CXO’), and Mr Mark Tayler, Chief Financial Officer (‘CFO’), did not receive an increase in fixed remuneration or any other changes to the structure of their remuneration in FY23. Both executives had received increases to their fixed remuneration in FY22. • the FY23 short-term variable remuneration (‘STVR’) outcomes for the CFO and CXO were 76% and 75% of target, respectively. Further details regarding the STVR outcomes are set out in Section 4.2 of this report. • performance rights were granted in FY20 to the CFO and selected non-KMP executives under the FY20 long-term variable remuneration (‘LTVR’) awards. The share price hurdle, based on a 30-day volume-weighted average price of Company shares up to and including 30 June 2022, was met and the awards vested in August 2022. Shares acquired by the CFO on the vesting of rights under this award are subject to a two-year holding lock from the vesting date, expiring in FY25. 37 Annual Report 2023Remuneration report (audited) continued • • in addition, the awards made to the founder executives in FY19 both vested in FY23, as all applicable conditions for the awards were met. All options awarded to the CEO have vested but have not been exercised. The performance rights awarded to the CXO have also vested and were exercised. The shares awarded on exercise to the CXO are now subject to a two-year holding restriction, which will be lifted in FY25. the CXO and CFO received LTVR awards in FY23. The awards are like those made to the CXO and CFO in FY22, except for the introduction of a new earnings per share growth (‘EPSG’) hurdle, which applies to 50% of the award. The new metric provides management with a second performance metric, which will reward participants for EPSG. The structure of the LTVR awards prioritises and rewards indexed relative total shareholder return (‘iTSR‘) growth, to give the executive team and Board flexibility to adapt the Group’s strategy as the market evolves. The maximum reward will only be permitted under the awards where Temple & Webster has materially outperformed the market. Further details of these awards are set out in Section 5.1 of this report. • there were no changes to Non-Executive Directors’ (‘NED’) base or committee fees in FY23, other than the creation of a new position of Deputy Chair of the Board, which has an additional fee of $20,000 payable in addition to the base Director’s fee. • under the Temple & Webster Group Ltd NED Equity Plan (‘NED Equity Plan’), which was introduced in FY22, three Non-Executive Directors elected to have a portion of their Directors’ fees paid in restricted rights in FY23. The NED Equity Plan is described further in Sections 6.1 and 6.2 of this report. FY23 Board changes There were several Board changes in FY23: • Mr Conrad Yiu was made Deputy Chair of the Board, effective 1 November 2022. This appointment reflects the significant contribution he makes to the Board. He also assumed the interim role of Chair of the Audit and Risk Management Committee (‘A&RC’) upon the retirement of Ms Susan Thomas from the Board on 30 November 2022. • the Board welcomed the appointment of Ms Melinda Snowden as a Non-Executive Director, effective 1 June 2023. At this time, she assumed the Chair of the A&RC. Looking forward to FY24 • having made the remuneration changes noted above in FY23, there will be no further changes to the CEO’s remuneration in FY24. • the Board has determined that both the CXO and CFO will receive a 3% increase in fixed remuneration in FY24. Furthermore, the Board has also decided that the STVR target opportunity for both the executives should increase from 25% to 30% of fixed remuneration, with corresponding stretch opportunity increasing from 43.75% to 50%. There is no change to LTVR opportunity. • the Board has determined that the structure of the STVR and LTVR programs will be broadly similar to those programs run in FY23. • the Board has determined that Board fees will increase by 5% in FY24. This is the first increase in Board fees since FY21. I hope the information in this year’s Remuneration Report helps shareholders to understand how the Company manages remuneration. I also hope you agree that we have found the right balance as we navigate the current trading conditions and our return to a high-growth business. Belinda Rowe Chair, Nomination and Remuneration Committee 38 Temple & Webster Group Ltd The Directors of Temple & Webster Group Ltd present the Remuneration report (‘the Report’) for the Group and its controlled entities for the year ended 30 June 2023. This Report forms part of the Directors’ Report and has been prepared in accordance with the Corporations Act 2001 (‘the Act’), Corporations Regulation 2M.3.03, in compliance with AASB 124 Related Party Disclosures, and audited as required by section 208(3C) of the Act. The Report is divided into the following sections: Section Description 1. Persons covered by this Report This section provides details of the Directors and Executives who are subject to the disclosure requirements of this report, together with the KMP, including roles and changes in roles. 2. Remuneration overview This section provides an overview of performance and reward for FY23, including ‘at a glance’ summaries. 3. Remuneration framework, strategy, and governance This section provides details of the elements of the remuneration framework, including market positioning, changes to fixed remuneration, variable remuneration principles, and the terms of variable remuneration. 4. FY23 Executive Short-Term Variable Remuneration (‘STVR’) plan and outcomes 5. Executive Long-term Variable Remuneration (‘LTVR’) plans and outcomes 6. Non-Executive Director remuneration This section outlines the key terms of the FY23 STVR Plan, the key metrics that apply to Executive KMPs under the STVR Plan, and their STVR outcomes. This section outlines the key terms of the FY23 LTVR Plan awards, FY23 Option awards to the CEO and key prior year equity awards. This section outlines the Non-Executive Director fee policy, aggregate Board fees, Board fees and Committee fees. It also sets out details of the FY23 awards made under the NED Equity Plan and any prior years’ equity awards to Non-Executive Directors. 7. Statutory tables and supporting disclosures This section provides the statutory disclosures not addressed by preceding sections of the Report, including statutory remuneration tables, changes in equity, KMP service agreements, related party loans/transactions, and the engagement of external remuneration consultants. 39 Annual Report 2023Remuneration report (audited) continued 1. Persons covered by this report This report covers KMP which are defined as those who have the authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including any Director (whether executive or otherwise) of the Group. The below table outlines the KMP of the Group: Name Role Non-Executive Directors Committees1,5 Appointed/ (Retired) Nomination and Remuneration Audit and Risk Management Stephen Heath Independent Board Chair 15 October 2016 Conrad Yiu Deputy Chair, Non-Executive Director3 6 October 2015 Belinda Rowe Independent Non-Executive Director 26 February 2021 Melinda Snowden Independent Non-Executive Director4 1 June 2023 Former Non-Executive Director Susan Thomas Independent Non-Executive Director (30 November 2022) Executive KMP Mark Coulter2 Managing Director and Chief Executive Officer (‘CEO’) 22 April 2016 Adam McWhinney2 Customer Experience Officer (‘CXO’) 1 July 2017 Mark Tayler Chief Financial Officer (‘CFO’) 18 April 2016 M M C M M n/a n/a n/a M M M C C n/a n/a n/a 1. M = Member, C = Chair. 2. These individuals are considered co-founders of the Group and referred as ‘founder executives’ in this report. 3. Mr Yiu was appointed as Deputy Chair of the Board on 1 November 2022 and acted as interim A&RC Chair from 30 November 2022 to 1 June 2023. 4. Ms Snowden was appointed as Chair of A&RC on 1 June 2023. 5. In FY22, it was announced that a new Technology Management Committee would be established. However, in FY23, the Board determined that given the importance of technology at Temple & Webster, all technology matters would be considered by the entire Board during the Board meetings and no new Committee was required. 40 Temple & Webster Group Ltd 2. Remuneration overview 2.1 Executive remuneration structure at-a-glance The following diagram outlines the Executive KMP remuneration cycle under the remuneration framework as applicable to FY23: The timeline below outlines how remuneration is delivered. Executive Remuneration Components Component Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Fixed Salary and statutory Remuneration superannuation STVR 2023 1 year performance period ▲ • Y1 STVR performance period commences • STVR performance tested • STVR award delivered in Q1, Y2 – 100% cash unless Board determines otherwise LTVR ● 2023-2025 • Y1 LTVR performance period commences • Performance rights for Y1 LTVR granted in Q1, Y1 • LTVR service tested in Y1 ■ • Y1-Y3 LTVR performance tested Two-year additional disposal restriction Once rights vest, participants have until 15 years from grant to exercise Q1, Y1 Q1, Y2 Q1, Y3 Q1, Y4   Performance rights granted   Shares released   Performance tested, and cash award paid   Performance tested, performance rights vested The structure outlined above applies to the CXO, CFO and non-KMP executives in the current financial year. The CEO does not participate in the STVR and received a separate award of premium-priced options which are intended to cover the next four years’ awards. The terms of the CEO’s Options are discussed in Section 5.2. The FY23 STVR outcomes for participating Executive KMP are set out in Section 4.2. 2.2 Executive remuneration mix at target CEO and other executives including KMPs total remuneration package (including the stretch target) is broken down into the following four elements. Executive KMP Remuneration Mix CEO 14% 0% 86% Other Executive KMP 52% 23% 25% ■ Fixed Remuneration – Cash ■ LTVR – Options ■ STVR – Cash ■ LTVR – Rights As the CEO does not receive an annual LTVR award and received a single award of Options designed to be his equity awards over a four-year term, the value of Mark Coulter’s equity component is based on one-quarter of the value of his option award, as determined by an independent valuer. 41 Annual Report 2023 Remuneration report (audited) continued 2.3 Group’s performance at a glance The following outlines the Group’s performance in FY23 in the context of the prior four years, which is intended to assist in demonstrating the link between performance, value creation for shareholders, and executive reward: Normalised NPAT1 $000s NPAT $000s Share price2 $ Change in share price $ Dividends3 $ 8,986 8,973 12,088 4,560 637 8,305 11,968 13,954 13,909 3,764 5.88 3.32 10.79 6.31 1.35 2.56 (7.47) 4.48 4.96 0.59 – – – – – Change in shareholder wealth4 Rolling 3-year annualised TSR5 % 77% (69%) 71% 367% 78% (2%) 35% 142% 227% 113% FY end date 30/06/2023 30/06/2022 30/06/2021 30/06/2020 30/06/2019 1. Normalised Net Profit After Tax (‘Normalised NPAT’) is calculated as NPAT adjusted for any benefits received from the recognition and utilisation of historical tax losses. 2. Share price at the end of the financial year. 3. Dividends paid during the financial year. 4. Share price change plus dividends on prior financial year. 5. Total shareholder return (‘TSR’) is the sum of share price appreciation and dividends (assumed to be reinvested in shares) during the Measurement Period expressed as a growth %. While the Group is not paying the dividends, it’s equal to a rolling three-year annualised share price growth. 3. Remuneration framework, strategy and governance 3.1 Executive remuneration – fixed remuneration, total remuneration package and variable remuneration framework Total remuneration package (‘TRP’) is intended to be composed of an appropriate mix of remuneration elements including fixed remuneration, short-term variable remuneration and long-term variable remuneration. This structure applies to all Executive KMP and senior management, other than the CEO. Fixed remuneration Short-term variable remuneration Long-term variable remuneration Fixed remuneration comprises base salary, plus any other fixed elements such as superannuation, allowances, benefits, fixed equity and fringe benefits for example. Fixed remuneration is intended to be positioned competitively in the market when assessed against suitable benchmarks but may vary with decisions around the mix of cash, equity and performance- linked remuneration as negotiated between the Board and each incumbent on a case-by-case and fit-for-purpose basis. 100% of the FY23 STVR will be paid in cash (unless determined otherwise by the Board). Performance is measured over the financial year with a combination of financial and non-financial goals for Executive KMP, both at a Group and Individual scorecard level with threshold, target and stretch levels. FY23 STVR goals were: Group targets (75%) – Group revenue growth (30%) – EBITDA margin (30%) – Customer satisfaction (20%) – Employee engagement (20%) Various individual goals tied to role (25%) Refer to Section 4.1 for more details. Performance rights vesting after three years. The LTVR program aligns executives to shareholder interests through 50% of the award being tested against iTSR targets (indexed relative Total Shareholder Return) measured over a three-year measurement period from FY23. This ensures executives are only rewarded by shareholder returns which must at least match the iTSR of the ASX 300 Industrials Index for any portion to vest (and beat this Index by 10% p.a. for all awards to vest). 50% of the award is aligned against Earnings Per Share Growth (‘EPSG’) a key internal financial metric of the Group. iTSR remains the primary measure in the LTVR scheme, with exceptional iTSR performance permitting full vesting of the award in certain instances. Any shares allocated after vesting are subject to an additional disposal restriction of two years after the measurement period. Refer to Section 5.1 for more details. 42 Temple & Webster Group Ltd Variable remuneration is not a ‘bonus’, but a blend of at-risk remuneration (below target) and incentives (above target and up to stretch). Metrics selected are intended to be linked to the primary drivers of value creation for stakeholders, and successful implementation of the long-term strategy over both the short and long term. Thresholds are intended to be a near-miss of expectations, while target is intended to be a challenging but realistically achievable objective with a probability of around 50% to 60%. Stretch, on the other hand, is designed to be exceptionally challenging with a probability of around 10% to 20%. 3.2 Benchmarking Approach Executive KMP remuneration has been tested regularly by reference to appropriate independently sourced comparable benchmark data by KPMG, and specific advice as may be appropriate from time to time. Two peer groups are used to benchmark Executive KMP and senior executives at Temple & Webster. A primary peer group consisting of Consumer Discretionary and Information Technology focused companies, with 15 above and 15 below the Company’s market capitalisation. A secondary peer group based on market capitalisation (using ASX-listed companies within 50% to 200% of Temple & Webster’s 12-month market capitalisation) is also used to provide further background and validation of remuneration packages. Benchmarks may be adjusted upwards or downwards for variations in role design compared to market benchmark roles, and individual remuneration may vary to reflect individual factors such as experience, qualifications and performance. The Board will continue to monitor market positioning to ensure that appropriate talent can be attracted, retained and aligned to the strategic needs of the business. More detail on the TRP is set out in Section 7.1. 3.3 Remuneration governance framework The Board takes an active role in the governance and oversight of the Group’s remuneration policies and practices. Approval of certain key remuneration practices is reserved for the Board, including appointing the CEO, and monitoring their performance and other key senior executives. In addition, the Board has final approval of the Group’s remuneration framework, including approving remuneration of the CEO and the remuneration policy and succession plans for the CEO. However, the Nomination and Remuneration Committee assist the Board in fulfilling its corporate governance and oversight responsibilities in terms of the remuneration structures, processes and annual remuneration cycle of the Board and its senior executives, including all Executive KMP, as well as Group culture and employee engagement. The Nomination and Remuneration Committee has a formal Charter which outlines the roles and responsibilities of the Committee. This is available on the Group website. The Committee’s responsibilities include: • providing advice and recommendations to the Board with respect to the appointment and removal of Directors and senior executives; • providing the Board with advice and recommendations regarding executive and senior executive remuneration policy; • reviewing and providing recommendations to the Board with respect to the remuneration packages of senior executives and executive Directors; • providing advice to the Board with respect to Non-Executive Directors’ remuneration; • • reviewing and providing recommendations to the Board with respect to incentive schemes; and reviewing and providing recommendations to the Board on the Group’s remuneration, recruitment, retention and termination policies. The Group has a Securities Dealing Policy which outlines under what circumstances and when trading in the Group’s securities by KMP and other nominated employees may be permitted or prohibited. This is available on the Group’s website. The Group also has a Diversity Policy, which supports the Board and management in making sustainable and appropriate decisions around hiring, career development and remuneration. This is available on the Group’s website as well. 3.4 External Remuneration Consultants (‘ERC’) External Remuneration Consultant Engagement Policy is intended to ensure the independence of any recommendation received regarding KMP remuneration and supports the Board’s published statements regarding such recommendations. In addition to the requirements outlined in the Corporations Act, it requires the external remuneration consultant notify the Board if management contacts the external remuneration consultant on remuneration matters outside of interactions approved or supervised by the Board, such as the provision of factual information for benchmarking purposes. 43 Annual Report 2023Remuneration report (audited) continued During FY23, the Board engaged external remuneration consultants to provide KMP remuneration recommendations and other services as outlined below: Board assessment of independence Rationale for board assessment Services Name KPMG The consultant provided statements that they viewed the advice they gave as being independent from undue influence, which the Board agrees with. The Board is of the view that the recommendations received were independent and free from undue influence of any KMP to whom the recommendations related, because the ERC complied with the Group’s policy for engaging ERCs. Fees (inc. GST) $ 8,800 Provision of market data and recommendations for target setting for the proposed CEO LTI plan Other advice, including a review of the CEO’s remuneration and advice in relation to the drafting of the resolutions of the Company’s Notice of Meeting related to the CEO’s remuneration 25,300 4. FY23 Executive STVR Plan and outcomes 4.1 FY23 STVR Plan A description of the STVR structure applicable for FY23 is set out below. Term Purpose Detail To provide at-risk remuneration and incentives that reward executives for performance against annual objectives set by the Board at the beginning of the financial year. Objectives selected were designed to support long-term value creation for shareholders, and link to the long-term strategy on an annual basis. Measurement Period The financial year of the Group ending 30 June 2023. Opportunity The target value was 25% of Fixed Remuneration, with a maximum stretch target of 43.75% of Fixed Remuneration (Individual Targets are capped at 100% of target and Group Targets have a 200% stretch potential). Outcome metrics and weightings The STVR was dependent on meeting Group and individual performance objectives. For FY23, the metrics were as follows: Group Targets – weighted at 75% of target opportunity. These Group Targets include: • revenue growth exceeding market growth – 30% weighting; • EBITDA margin – 30% weighting; • customer satisfaction – 20% weighting; and • employee engagement – 20% weighting. Individual Targets – weighted at 25% of target opportunity. The CXO and CFO also have four Individual targets tailored to their role. These metrics were selected because they are viewed by the Board as the primary drivers of value creation for the business in FY23. 44 Temple & Webster Group Ltd Term Detail Settlement Awards are determined following auditing of accounts after the end of the financial year. The Board has discretion to determine whether the STVR award is settled in cash or in equity interests such as rights. The Board elected to settle the FY23 STVR in cash. Malus and clawback Should the Board determine that any portion of STVR is deferred, the deferral would be in the form of share rights and therefore subject to the malus and clawback clauses under the Group’s Rights plan (see further Section 5.1). Board discretions The Board has discretion to modify the awards payable to participants regardless of any performance outcome or gate, to ensure that outcomes are appropriate to the circumstances that prevailed over the Measurement Period. Corporate actions The Board has discretion to determine the treatment of unpaid STVR in the case of major corporate actions such as a change in control, delisting, major return of capital or demerger. 4.2 Executive KMP STVR plan – objectives and outcomes All Executive KMP aside from the CEO participated in the STVR Plan in FY23. Metric/measure Performance/comment Group targets (75% of total opportunity) Revenue growth exceeding market growth (30% weighting of Group target) This measure tracks TPW’s growth relative to online sales growth1, which is a measurement of growth in market share which is a driver of share price growth. The Group delivered a strong result with revenue of $396 million. Although the result was lower than last year’s result, which was impacted by strong demand during lockdowns, the Group outperformed the online sales growth1 for the year (at target). EBITDA margin (30% weighting of Group target) This measure tracks EBITDA margin relative to the Group’s guidance of 3% to 5% EBITDA. EBITDA of 3.7% of revenue was within the Group’s stated guidance range for the year (slightly below target). Customer satisfaction (20% weighting of Group target) Customer experience and satisfaction are critical to the success of the Group. This measure tracks customer satisfaction using Net Promoter Score (‘NPS’) scoring, with last year’s NPS as the benchmark. The Group set a challenging NPS threshold metric, reflecting the high standards required when measuring customer satisfaction. The Group achieved NPS score above the 60% threshold mark (between the threshold and target) Employee engagement (20% weighting of Group target) The Group’s employees are one of its key assets and primary drivers of success. It is vitally important they are engaged as measured by Industry Employee Engagement Benchmarks. The FY23 result was above the median score for the comparative group. The Group measures itself against other technology companies who typically have high employee engagement scores. The achieved result demonstrated the high level of employee engagement across the employee base (between the threshold and target). 1. As measured by the NAB Online Sales Index (Domestic Homewares and Appliances). 45 Annual Report 2023Remuneration report (audited) continued Metric/measure Performance/comment Individual targets (25% of total opportunity) CXO’s personal targets include: • delivery of Group’s FY23 ESG Goals; • achievement of quality, compliance and sustainability goals as measured via average product ratings; • achievement of specific brand targets; and • maintaining high-level customer experience goals. CFO’s personal targets include: • delivery of FY23 specific EBITDA target; • achieve specific capital management target agreed • with Board; and further implementation of employee equity awards as agreed with Board. The CXO achieved a 68% score against his personal targets. This was a strong result with key successes being delivering on FY23 ESG goals (as explained in FY22 Annual report), maintaining high T&W brand rating and improving product display pages for key products. The CFO achieved a 63% score against his personal targets. This indicates the stretch nature of these KPIs given the achievements made over the year. Key achievements included the delivery of a strong set of financial results, certain cost base savings, and the implementation of a capital management framework. The table below sets out the actual STVR outcomes as a percentage of their maximum STVR opportunity for FY23 and FY22. Executive KMP1 Adam McWhinney Mark Tayler FY23 43.5% 42.6% FY22 55.6% 61.2% 1. The CEO did not participate in the STVR Plan in either FY22 or FY23. The Board views the outcomes of remuneration for FY23 performance as appropriately aligned, given the Group and individual performance against annual targets, and progress towards strategic growth objectives made by the executive team, despite challenging economic circumstances. 5. Executive long-term variable remuneration plans and outcomes 5.1 Executive Long-Term Variable Remuneration Plan – Performance rights A description of the LTVR awards granted in FY23 to Executive KMP, aside from the CEO, under the Temple & Webster Group Ltd Rights Plan (‘the Plan’), is set out below. Term Detail Purpose To provide at-risk remuneration and incentives that reward executives for performance against long-term value creation objectives set by the Board at the beginning of the financial year and to align the interests of executives with the interests of shareholders. Measurement Period Opportunity 3 years from 1 July 2022 to 30 June 2025. The target value is 25% of Fixed Remuneration, with a maximum stretch of 200% of target, or 50% of Fixed Remuneration. Price The price is nil because it forms part of the remuneration of the participant. Exercise price The exercise price is nil. 46 Temple & Webster Group Ltd Term Detail Allocation method The grant number is determined by dividing the stretch LTVR value by the 30-day volume weighted average price (‘VWAP’) following the release of the financial results for FY22. Performance metrics and weightings Performance rights granted in FY23 have two performance hurdles, each with a 50% weighting. 1. Performance rights with an indexed Total Shareholder Return (‘iTSR’) vesting condition (50% weighting). The vesting of such performance rights will be determined by comparing the Group’s TSR over the Measurement Period with the TSR of the ASX 300 Industrials Total Return Index, according to the following vesting scale: Performance level Stretch Target Threshold Below threshold TSR of the Group vs TSR of the ASX 300 Industrials Total Return Index Index TSR + 10% TSR p.a. Index TSR + 5% TSR p.a. Index TSR

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