Dusk : DSK Acquisition of Eroma Group Presentation

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•

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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)

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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

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Supplier of a complete range of home fragrance component parts (and some

•

Showroom and Warehouse

finished products), candle making kits and bath & body products

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~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

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Melbourne (Epping), Gold Coast (Yatala, Ormeau) and Perth (Malaga)

Perth recently opened

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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

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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).

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(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
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	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

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• 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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