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Q4 FY21 Quarterly Report: Commercialising social e-commerce marketplace

August 2, 2021 Financial No Comments

Aumake Limited (ASX: AUK, Aumake, or the Company), operator of an emerging Australian-based social e-commerce marketplace that connects Asian influencers and consumers with highquality and authentic Australian and New Zealand brands, is pleased to release its consolidated quarterly cashflow and business update for the quarter ended 30 June 2021 (Q4 FY21).Summary
• Completed development of unique B2B2C social e-commerce platform, providing a new and easy-touse channel for high quality Australian and New Zealand brands to reach the Asian market via an existing and growing 30,000 influencer database
• Targeted influencer acquisition strategy gaining traction with improved online profitability and decreased new active user cost
• Forecast 30% decrease in operating expenses Q1 FY22 reflecting transition to a capital light business model with further anticipated growth in new brand revenue as influencer business model gains traction • During the coming quarter, Aumake will trial its influencer model in Australia and expand its product portfolio with an increase in New Zealand products and the addition of a fresh produce category Financial
• Robust total quarterly revenue of $2.6m (Q3 $2.7m) achieved via influencers despite the June quarter traditionally being the quietest period for retail in China, post Chinese New Year
• Operational cash outflow of $1.8m, a 10% improvement over the March quarter
o Cost base to decrease further due to benefits of operational restructure and divestment of four stores in June
• Well-capitalised for growth with a cash balance of $4.3m as at 30 June 2021 Operational
• Targeted influencer growth strategy increased active users by 25% over the quarter to 30,000, up from 24,000 in Q3
• 140+ Australian and New Zealand brands currently available on Aumake’s social e-commerce platform with new brands to be onboarded during the coming quarter
• Senior management appointment with Tony Guarna taking the role of Chief Financial Officer, bringing more than three decades’ financial and commercial experience to Aumake Commenting on the quarter, Aumake Executive Chairman Keong Chan said, “We are extremely pleased to have completed the development of our new social e-commerce platform this quarter, which now features full social e-commerce functionality. Our new online platform, in conjunction with our highly experienced social e-commerce team in Hangzhou, provides an easy-touse channel for high quality Australian and New Zealand brands to reach the Asian market.

“Our new online platform is entirely bespoke and was developed by our technology team in Australia and China, and involved the co-ordination of three leading solution providers in China. Through our new platform, anyone with a WeChat account can be an influencer and effectively act as a sales agent for the brands. It is not uncommon for a WeChat user to have in excess of 5,000 people in their address book, providing brands with a cost effective yet sizable and scalable channel to grow their presence in the Asian market.

“We have already observed promising signs in relation to influencer engagement metrics and increasing transaction values per order, which we expect to grow further as influencers start utilising the new functionality now available on our social e-commerce platform. This improving revenue performance against the backdrop of a rapidly decreasing operational cost base provides us with a clear path to profitability.

“As we continue to increase our presence in the Chinese market, we are also assessing a number of exciting opportunities to replicate our influencer business model in markets outside of China, such as Australia, and to add new categories to our product portfolio.”

Financial Overview
Total revenue for the June quarter comprised of online Gross Merchandise Value (GMV) of $1.8m and physical
store revenue of $0.8m, up 33% on Q3 FY21.

The Company improved operational cash outflow by 10% over the March quarter due to the combination of:
• Increasing profitability from online revenue, with online sales being achieved with little to no marketing
spend to acquire new customers (influencer-led growth) or incentives given to customers to purchase;
• Owned brand health supplements being promoted and sold by influencers, accounting for 7% of total
revenue and generating 30% of total gross profit;
• Increased in-store physical foot traffic; and
• Benefits from cost restructuring initiatives undertaken during the March quarter.

Significant cost restructuring initiatives have been implemented during the June quarter, including divestment
of four stores and continued labour restructuring which is forecast to reduce operational expenses by 30% for
Q1 FY22. This reduced cost base combined with improving new brand revenue as the Company transitions
from development to growth phase for its new social e-commerce platform, is anticipated to materially improve
future operational cashflow.

Payments to related parties and their associates shown in the Appendix 4C is item 6.1, consisting of $226,985
Director’s fees and $22,226 rental expenses to a related party.

Online commentary
During the quarter, Aumake completed the development of its bespoke B2B2C social e-commerce marketplace, enabling Asian influencers to easily promote and sell Australian and New Zealand products to their social networks. Enhanced platform capability, including group buying and live streaming functionality, combined with higher customer engagement and improved marketing content, increased online profitability during the quarter. In addition, registered users on the platform increased by 6,000 to bring total active users to 30,000, with the overwhelming majority being influencers as opposed to end-consumers. Around 85% of these users are based in mainland China.

Aumake is focused on influencer acquisition with its Hangzhou social e-commerce team onboarding an estimated 1,000 specialist Asian influencers during the quarter. These influencers are highly prized as their main vocation and income stream is the promotion of new brands to their social network. The Hangzhou team utilises Douyin (Tiktok) and other social media platforms to promote new Australian and New Zealand brands in China, support influencers, and drive traffic to Aumake’s marketplace.

Aumake’s B2B2C platform is designed to support influencer interaction with data-driven insights into brands and products that are resonating with their individual social networks. Advanced account management tools provide detailed purchasing behaviour data, such as products being purchased, quantities and transaction order value, to enable influencers to tailor recommendations to their social network. Influencers are incentivised through loyalty points, which provide access to better pricing on products, discounts and priority access to new brands and products. This focus on influencers differentiates Aumake from the large Chinese B2C e-commerce platforms who tend to target end-users with low-margin commodity products.

Now that the technology development is complete, Aumake is focused on cost-effectively growing influencers,
active users and revenue through its social e-commerce marketplace. Over the coming quarter, Broadway will
also commence onboarding Asian travel agents and tour guides onto Aumake’s platform as influencers. These
travel agents and tour guides are ideal influencers as they have extensive contacts within a highly profitable
demographic and deep insights into the Australian and New Zealand brands and products that appeal to Asian
consumers.

Physical store network commentary
Aumake’s five operating physical stores in Sydney generated $0.8m in revenue in the June quarter, up 10%
over Q3 FY21 due to increased foot traffic.

During the quarter, Aumake commenced its physical store rationalisation program, divesting four stores with
seven stores remaining, five of which are currently open in Sydney. The Company will continue to divest noncore stores over the coming quarter, which will positively impact future operating cashflow.

Aumake will retain a few key stores to service its local customers and maintain a physical presence within the
local Asian influencer community. These stores will serve as showrooms for new brands and products and
assist in driving physical traffic to the online e-commerce marketplace.

Q1 FY22 outlook
Over the coming quarter, Aumake will launch a new brand-facing website and targeted marketing campaign to
educate and onboard new brands to its social e-ecommerce platform while simultaneously ramping up direct
marketing campaigns to attract new influencers and increase transaction volumes of existing influencers.
Aumake expects to see a material uplift in new brand and product orders in Q1 FY22.

The Company will also begin trialling the use of its social e-commerce platform in the local Australian market
during Q1 FY22, given that importation of products from overseas into Australia has increased significantly
during COVID-19.

Lastly, the Company will be looking to add fresh produce as a new product category and increase its portfolio
of New Zealand-based products, leveraging the upgraded Free Trade Agreement between China and New
Zealand that came into effect in January 2021. New Zealand exports to China have increased by 17% over the
12 months to June 2021, particularly in agricultural products.

Aumake looks forward to updating shareholders on the above initiatives in due course.

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