ersonal use only
Acquisition of Eroma Investor Presentation
December 2021
Transaction Overview
• dusk has agreed to acquire 100% of Eroma Group ("Eroma") ("Acquisition") for an Enterprise Value of $28m (cash and debt free)
Transaction Details | • | Consideration comprises $15m in cash and a $13m placement of ordinary shares in dusk, issued to all Eroma shareholders, including | |||
Shane McGrath, majority (55%) shareholder and Eroma CEO/founder | |||||
• Eroma will continue to operate as a standalone business within dusk Group, led by Shane McGrath (CEO) | |||||
only | • The Acquisition is complementary to dusk's existing offering and provides the dusk Group with strong growth potential: | ||||
─ Enables dusk to increase its Total Addressable Market ("TAM") through acquiring an adjacent but non-competitive leader in the | |||||
'small maker supplier segment' | |||||
─ Eroma is a largely online business, which will enhance dusk's online presence and complements its physical retail offering. dusk | |||||
also adds 'OTC' capability to Eroma | |||||
use | ─ The Acquisition presents both geographic and range expansion opportunities via shared facilities, industry knowledge, customer | ||||
insights and relationships | |||||
─ Increases buying power for common input costs and unlocks an in-house 'made in Australia' supply opportunity for dusk | |||||
Strategic Rationale | |||||
candles and fragrances / essential oils | |||||
─ Eroma has also developed and owns the recipe (IP) for over 900 fragrance formulations, which gives Eroma a unique market | |||||
position in Australia and provides dusk with a large catalogue of fragrance formulations to draw upon quickly and test | |||||
─ National network of distribution facilities provides both businesses with more options for greater operational efficiency in | |||||
distribution and faster delivery to customers in more remote geographies (e.g. Perth, FNQ and New Zealand) | |||||
ersonal | ─ Eroma is led by a strong management team with deep industry knowledge, committed to the continued success of the business | ||||
─ Highly EPS accretive acquisition which creates a larger, more diversified group with increased exposure to growing segments | |||||
and channels. | |||||
• Consideration of $28m will be funded through: | |||||
─ $10m of debt (new facility secured for purpose of transaction) | |||||
Funding | ─ $13m in dusk shares (~6.7% of dusk(1)), as outlined above | ||||
─ The remainder from existing cash reserves | |||||
• New finance facilities will remain comfortably within covenant limits, with the gross leverage ratio expected to remain under 0.5x | |||||
Acquisition Metrics and | • Valuation of Eroma equates to an EV/FY21 EBIT(2) multiple of ~5x (and a lower multiple of FY22 forecast EBIT) | ||||
• | The Acquisition is expected to deliver pro forma EPS accretion(3) from year one of over 20% (before synergies) | ||||
Financial Impact | |||||
• There is no change to dusk's dividend payout policy (60%-80% of net profit after tax) as a result of the Acquisition | |||||
(1) On Completion, dusk will issue 4.496m new DSK shares to the Eroma vendors based on a 20-day VWAP of $2.89, bringing total SOI to 66.8m. | 1 | ||||
(2) | Pre AASB16 adjustments and one off items. Note: Eroma financials are historically unaudited. | ||||
(3) | Based on internal forecasts of dusk and Eroma's financials in FY22 and FY23. |
Transaction Overview (Cont'd)
onlyuse•
•
•
•
•
Australia's #1 specialty retailer of home fragrance products TAM estimated at ~$0.7bn (FY21 retail value)
FY21 Sales of $149m
FY21 pro forma EBIT of $38.4m (EBITDA $41.4m) ~8% online sales (FY21)
- Australia's #1 supplier to the 'small maker' segment of the Home Fragrance market
- TAM estimated at ~$0.15bn (FY21 wholesale value)
- FY21 Sales of $30m
- FY21 pro forma EBIT of $5.6m (EBITDA $5.8m)
- ~65% online sales (FY21)
ersonal
Group | ✓ Clear market leadership in both segments of the Australian home fragrance market | |
✓ | Increased diversification, vertical integration and control of our supply chain | |
dusk | ✓ Highly profitable and cash generative group, with attractive margins, high ROCE and clear growth strategies | |
✓ | Experienced leadership teams with proven track record of performance | |
✓ Shared culture of customer focus and innovation in home fragrance | ||
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Eroma Overview
OVERVIEWLOCATIONS
only | Supplier of a complete range of home fragrance component parts (and some | ||||||||||||||||||||||
• | Showroom and Warehouse | ||||||||||||||||||||||
finished products), candle making kits and bath & body products | |||||||||||||||||||||||
• | ~95% of orders are placed online, ~1/3 of which are transacted by customers | Warehouse, Manufacturing, | |||||||||||||||||||||
in the showroom with goods then collected directly from the co-located | Head office | ||||||||||||||||||||||
warehouse(2) | |||||||||||||||||||||||
• Eroma has over 30,000 active customers (LTM). Customer database is very | |||||||||||||||||||||||
broad and growing, with low levels of key customer dependency | • | Wholly owned manufacturing | |||||||||||||||||||||
• Showrooms, blending facilities and warehousing across Sydney (Mortdale), | facility in Dongguan, China | ||||||||||||||||||||||
use | Melbourne (Epping), Gold Coast (Yatala, Ormeau) and Perth (Malaga) | Perth recently opened | • | International expansion to New | |||||||||||||||||||
• Manufacturing and warehousing facilities in China, Sydney and Gold Coast | Zealand, the UK, US and Europe | ||||||||||||||||||||||
possible in future | |||||||||||||||||||||||
• 55% owned by founder and CEO Shane McGrath, with the remainder owned | |||||||||||||||||||||||
by private investors | |||||||||||||||||||||||
REVENUE GROWTH AND PRO FORMA EBITDA | |||||||||||||||||||||||
28% CAGR | 20-30% Growth | ||||||||||||||||||||||
ersonal | 36.0 - 39.0 | ||||||||||||||||||||||
22.8 | 30.1 | ||||||||||||||||||||||
18.7 | |||||||||||||||||||||||
Revenue | 0.3 | 2.4 | 5.8 | 7.0 - 8.5 | |||||||||||||||||||
EBITDA | |||||||||||||||||||||||
FY19A | FY20A | FY21A | FY22F | ||||||||||||||||||||
EBITDA Margin(1) | 1.6% | 10.6% | 19.3% | ~20% | |||||||||||||||||||
(1) EBITDA has been normalised to adjust for items outside normal course of business, per PwC due diligence (pre AASB16). | 3 | ||||||||||||||||||||||
(2) | For the purpose of the analysis on page 7, we do not regard showroom originated sales (at kiosks) as truly online. |
Eroma Overview (Cont'd)
Eroma's Unique Selling Proposition (USP)
National | • Operates showrooms in Melbourne, Sydney | |
and Brisbane, with Perth opening shortly | ||
Showroom and | ||
• Sales are overweight in markets where they | ||
Distribution | ||
Network | operate showrooms, as customers value | |
proximity and JIT sourcing when needed | ||
only | • Offers the widest range of high-quality | |
products in the market | ||
Range Width | ||
and Quality | • Over 900 proprietary fragrance formulations | |
• 'One stop shop' for the small maker segment | ||
Eroma's Future Growth Drivers | |
• Scope for additional showrooms in Adelaide and | |
Showroom | Auckland, and potentially second show rooms in |
Network | Melbourne and Sydney |
Expansion | • Eroma's sales over index in geographies with |
conveniently located showrooms | |
• Continues to expand and innovate in its range | |
Range | adding new fragrances, packaging and vessels |
Differentiation | • Eroma has recently secured exclusivity for |
and Exclusivity | Kerax wax products in Australia and New |
Zealand (5 year term) |
• Has invested in locally held inventory | |
availability to ensure its customers get what | |
Availability and | they need, when it's needed |
Convenience | • Deals with a large number of international |
use | |
suppliers to offer a locally relevant range of | |
products |
New
Manufacturing
Capabilities
- New manufacturing facility on Gold Coast (currently being commissioned, completing in Mar-22) will increase capacity to quickly produce and deliver short run unique fragrances to meet fragrance trends and specific customer requirements
ersonal | • Offers value-add services including bespoke |
Value add | fragrance design, making and reproduction, |
label design, glass and lid etching, specific | |
services | |
item sourcing, and technical production and | |
fragrance advice | |
• Eroma uses its scale and experience to source | |
Value for money | and make products that deliver value for |
money to its customers across its entire range, | |
delivered in a timely manner to customers |
Enhanced | • Is investing in enhanced customer service | |
capabilities, including more specialised team | ||
customer service | members, and more payment options (incl | |
BNPL), and a recently upgraded website | ||
• Product knowledge and 'one stop shop' and | ||
Asian sourcing and manufacturing capability | ||
International | provide scope for international expansion (UK | |
Expansion | market most likely first) |
• A broader partnership with Kerax may form part of an international expansion strategy
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Dusk Group Ltd. published this content on 16 December 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 16 December 2021 21:38:16 UTC.