Thank you for standing by and welcome to the Articore 1H FY 2024 results. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Virginia Spring, Vice President, Investor Relations. Please go ahead.
Good morning to our Australian participants, and good afternoon and evening for those joining us from the Northern Hemisphere. My name is Virginia Spring, and I am responsible for Investor Relations at Articore. With me today I have the Articore Group CEO and Managing Director, Martin Hosking, and Group CFO, Rob Doyle. Martin and Rob will provide an overview of our first half FY 2024 results shortly, and we will then open up the lines for questions. The key information for today's call is contained in the ASX announcement and investor presentation released to the market this morning. I would like to call your attention to the Safe Harbor statement in our ASX release regarding forward-looking information. That Safe Harbor statement also applies to this investor call. The session is being recorded, and a transcript will be released to the ASX. I will now pass over to Martin.
Thank you, Virginia. First, I would like to thank everyone for their patience and understanding over the last week. We decided to push our results back a few days to enable me to travel to the U.K. to attend a close friend's funeral. I'm grateful that I was able to do this and appreciate the sentiments received from a number of investors. Before we get into results, I want to highlight that this is our first results announcement since we changed the group's name to Articore late last year. We made this change to reflect our new operating structure, which clearly defines the two marketplaces, Redbubble and TeePublic, and the group. This has been an immensely positive change, which has cleared up any confusion internally about how the different functions operate and interact.
We now have greater insight into how each marketplace is performing and are increasingly sharing knowledge and expertise across the two businesses. Reflecting this change, we've moved to segment reporting and are providing more information on the individual performance of Redbubble and TeePublic, which you can see throughout the materials we release today. First, let's start by looking at the group's overall performance. The group has delivered a remarkable turnaround in this half. For the last 12 months, we have been focused on driving profitability, and you can see that in our results today. Gross profit increased 7% to AUD 108.4 million in the first half of the financial year, and our gross profit margin increased 660 basis points to 41.6%. This uplift was driven by a number of recently implemented initiatives focused on maximizing unit economics. We expect the benefit of these initiatives will be sustained going forward.
Gross profit after paid acquisition, or GPAPA, increased 24%, and the group's GPAPA margin increased 670 basis points. This improvement was driven by the uplift in gross profit as well as more efficient paid marketing spend. We realized the full benefit of the cost reduction initiatives we implemented in FY 2023 and maintained our strong cost discipline during the half. As a result, gross profit, GPAPA, and operating EBITDA were all significantly above the group's pre-COVID results, delivering AUD 8.8 million of underlying cash flow, up AUD 36.4 million on the H1 2023 results. While we are happy with our results today, there is no shying away from the fact that there is still work to do. We need to return the group to profitable revenue growth. Solid unit economics provides the foundation, but it is only the starting point.
Delivering this for each marketplace, utilizing our existing resources, is our primary objective going forward. On the next slide, we have provided a snapshot of each marketplace's performance during the half. Both marketplaces have contributed to the group's significant improvement in profitability and delivering positive underlying cash flow. The turnaround has been particularly significant for Redbubble. In first half FY 2023, the marketplace operating EBITDA was AUD -13 million. This half, its operating EBITDA increased nearly AUD 25 million- AUD 11.8 million. The primary difference in the two marketplaces' performance relates to the top line. TeePublic has been able to drive margin expansion while also improving marketplace revenue. However, Redbubble's marketplace revenues declined by 18%. This divergence is highly correlated to each marketplace's paid marketing activities. Both Redbubble and TeePublic set their paid marketing to be first-order profitable.
So we want paid marketing to be as high as possible, as every sale contributes to the bottom line. During the half, TeePublic was able to find more opportunities to do this, scaling their paid marketing expense in line with revenue. Optimizing paid marketing activities is a key focus area for Redbubble in the second half and a good example of where we can leverage the skills and expertise from one marketplace to the other to address an identified issue. Turning to the individual marketplace performance. On slide five, we provided a summary of Redbubble's key strategic achievements this half. Our intention is to share this dashboard with a consistent set of metrics for each marketplace every six months going forward. We have selected three operational metrics as they provide a good indication of marketplace health.
If selling artists, customers, and designs sold are all going up, then the flywheel is operating efficiently, which should translate into solid financial returns for the marketplace. The number of selling artists on the Redbubble marketplace increased during the half to more than 500,000 independent artists. This is a positive sign and reflects our recent focus on improving artists' experience, particularly for pro and premium artists. Total artists' earnings decreased this half, reflecting the introduction of fees for standard accounts and overall marketplace revenue decline. Pleasingly, the amount taken home by pro and premium artists was largely flat. The number of customers and designs sold during the half were down, which explains the decrease in marketplace revenue. The declining customers is primarily caused by a decrease in the number of new customers coming to the site.
The drop in new customers is correlated to the decline in paid marketing spend. For individuals who have never bought a product in the marketplace, this is a primary entrance point. Fewer customers and a reduction in volume certainly contribute to less designs being sold. In addition, we believe the reduction in designs sold is a short-term response to some of the measures we have taken to improve the content library on the marketplace. We are confident that the long-term benefits outweigh the costs. Having less content and improving the overall quality of the content library enables buyers to have a better experience on-site and improves off-site marketing. Returning the Redbubble marketplace to profitable revenue growth is our primary focus. To do this, we have focused on optimizing the marketplace's flywheel. Over the last 12 months, we've made significant progress addressing issues that were inhibiting the flywheel.
We have dramatically improved the quality of content being uploaded to the marketplace, pulling a surge of low-quality content flooding the site, as I have highlighted in previous calls. This clogged the engine, making it difficult for customers to find designs that excited them, leading to disengagement and, in turn, frustration from top artists that their work was not being discovered. We are now confident that we have fixed this issue. This is highlighted by the proportion of uploads from pro and premium artists increasing to 56% in December 2023 compared to 15% in December 2022 and also up in absolute terms. We have also made progress in improving our margins. We launched a dynamic order routing system in March last year. This half was the first holiday period that it was in use.
Fulfillers now have greater awareness on how orders are routed, and some have chosen to reduce their pricing to increase the amount of volume that our platform routes to their sites. We have also been able to reduce shipping costs across the group. As a result of these initiatives, COGS were down 8% in December 2023 compared to the prior corresponding period. The next part of the flywheel we are concentrating on is how to attract new customers to the marketplace and turn existing customers into repeat purchases. As I've highlighted throughout this presentation, we are particularly focused on Redbubble's paid marketing strategy. Having strong off-site promotion also helps attract new customers, and it also reminds customers who have previously bought a product about Redbubble and increases the likelihood of a repeat purchase. In December 2023, paid marketing spend was down 22% compared to the PCP.
This decline is fairly similar to the reduction in MPR, which is not a coincidence. As I highlighted earlier, our paid marketing is profitable on first order, which is why increasing spend in this area is a good thing. We've done a lot of work recently to better understand the profitability of individual products in different geographies, which gives us confidence that we can increase our spend without compromising our profitability. TeePublic has delivered a strong set of results this half with profitable revenue growth. The metrics on this slide highlight that TeePublic's flywheel is operating more efficiently than Redbubble's, with the number of selling artists and designs sold both increasing. Improving the artists' experience has been a focus area for TeePublic. Last year, we introduced two account categories on the site: artisan and apprentice.
Artisan accounts are giving more prominence on-site in search results as well as in off-site marketing. The amount they earn for each product sold is also higher. Introducing this distinction in artisan account categories has been well received by the most valuable artists. There was a decline in artists' earnings in the first half. This primarily reflects a decrease in artists' earnings from apprentice accounts. The number of customers declined slightly during the half. This reflects a reduction in new customers in a tough economic environment. Pleasingly, we continue to see growth in repeat customers. In 2020, repeat purchases represented just 32% of total NPR. In 2023, it was 47%. We further optimized the supply chain by increasing allocation of volume to lower-cost third-party fulfillers. We also adjusted order priority.
Previously, third-party fulfillers worked on a first-in, first-out principle without taking into account how far the product needed to be shipped. We've now updated this logic so that third-party fulfillers print products yet have further to travel first, reducing the need to express ship to meet the promised delivery date. A focus for TeePublic in the last half was enhancements to the website to improve customer experience. We know that historically, visitors that search on the site have a much higher conversion rate than visitors that do not. So our upgrades were focused on introducing new experiences that allow visitors to browse content and expose them to the depth and breadth of the marketplace catalog without relying on them to initiating a search. The first enhancement was the introduction of categories: the buttons directly below the search bar.
This feature is targeted at individuals who come to the site and don't know where to start. To determine the categories, we used two different approaches. First, we considered what historically are the most popular searches on the marketplace. We also used AI to review the vast content library available to the marketplace and identify categories with the most relevant designs. We are pleased with the impact of the introduction of categories had during the holiday period. The bounce rate on the homepage more than halved compared to the prior year, highlighting the improvement to customer experience. This reduction also drives higher Google ranking for key searches, helping us reach new customers. We also launched a gifting module in October 2023.
Often, people find themselves on the site wanting to buy a gift for a friend or family member, and this helps them to very quickly narrow down their search results by focusing on a particular product and design category. For example, I want to buy a T-shirt for a sports fan. From there, I can further narrow down the search results to different types of sports and even further to finally, I'm looking at the marketplace's broad range of retro football T-shirts. For individuals who engage with the gifting module, the conversion rate was 87% higher during the holiday period than the individuals who did not. I'll now hand you over to Rob to take you through a more detailed review of the financial results.
Thank you, Martin. Turning to Slide 10 and our profit and loss statement. As Martin highlighted, we've delivered a marked turnaround in performance this half. Our focus has been on increasing absolute GPAPA, maintaining strong cost discipline, and ultimately returning the group to positive underlying cash flow, all of which are evident in the numbers released today. One thing I would like to call out is an adjustment that we've made to the results highlighted in our investor presentation and ASX announcement, which means that gross profit, GPAPA, EBITDA, EBIT, and net profit are AUD 2.7 million lower in these materials than in our statutory financial statements. This non-cash adjustment relates to the identification and correction of a reconciliation issue relating to artist expense accruals, specifically the treatment of cancelled orders. This reconciliation issue resulted from a system change in 2020, which has now been remediated.
In each historical period, the adjustment was below our materiality threshold, but in total, since 2020, amounted to AUD 2.7 million, which we have written back in full this period. As this is a one-off item, we've adjusted our results in the investor presentation and ASX release to enable the market to compare this half with prior periods on a like-for-like basis. Importantly, this reconciliation issue has had no impact on artists. The increase in the group's profitability has been driven by Redbubble and TeePublic improving their GPAPA alongside a reduction in the group's operating expenditure. The waterfalls on this slide highlight the significant improvement to both marketplaces' gross profits due to the successful delivery of a number of initiatives in the last 12 months.
This includes a review of base prices, which has been enabled by a greater understanding of unit economics by product and geography, supply chain efficiencies, which was particularly significant for the Redbubble marketplace following the introduction of a dynamic order routing system, and the introduction of artist account categories. TeePublic scaled their marketing spend in line with their NPR during the half, which is why there is no margin benefit here. As Martin emphasized, as both marketplaces run their paid marketing to be profitable on first order, this is a positive outcome. For Redbubble, the paid marketing spend as a proportion of revenue has come down as they refined their bidding strategy to ensure that each transaction was profitable on a first order basis.
In the first half of FY 2024, the team has been focused on improving our capability in this area, which will enable us to profitably scale Redbubble's spend while maintaining our discipline in setting appropriate ROAS hurdles. Our cash position is something that we continue to monitor closely. Our closing cash balance at 31 December was AUD 87 million, which was above our first half FY 2020 position. Consistent with seasonal payments to marketplace participants, we have a significant cash outflow in January as we pay third-party fulfillers and artists for December sales. As a result, our cash balance at the end of January provides a more accurate picture of the group's cash position. As of 31 January, the group's cash balance was AUD 41 million. This is AUD 5 million higher than at 30 June.
In the first half, our underlying cash flow was AUD 8.8 million, up AUD 36.4 million on the first half FY 2023, a remarkable turnaround. We do not expect underlying cash flow to be positive in the second half but continue to aim to deliver positive underlying cash flow for FY 2024. I'll now hand you back to Martin.
Thank you, Rob. As highlighted throughout this presentation, we have a very clear focus for the group in the near term, returning to profitable revenue growth. For Redbubble, we are focused on addressing identified issues which are inhibiting the flywheel from operating efficiently. First and foremost, this is optimizing our paid marketing spend. This is an area where TeePublic is performing strongly, and we are confident that we can use this expertise and recent improvements in data to make some meaningful improvements to enhance Redbubble's approach in the near term. TeePublic's flywheel is operating well, as evident by the results for the half. There will always be work to be done to ensure the marketplace stays in balance, but TeePublic is in the position to be looking at opportunities to grow their flywheel by expanding into new geographies and customer segments and building their presence outside the U.S.
For the group, our role is to support the marketplaces to leverage their core strengths and ensure we are generating synergies from operating as a group. We are also very focused on maintaining cost discipline. We are thinking about our longer-term growth strategy. We have stabilized the foundation of the business, putting in place the necessary framework to achieve positive underlying cash flow for this financial year. This was the necessary first step. We're now moving into phase II, highlighted on Slide 15, and shifting our focus to delivering profitable revenue growth for the group by maximizing the performance of our existing marketplaces. This is where the vast majority of our time and resources is focused. We will consider adding new operating companies that leverage and/or add to our group assets and capabilities. This includes the global fulfillment network, the artist base, and technology and marketing expertise.
As our focus is on the existing marketplaces, we are still in the early stages of progressing this strategy. However, we are monitoring our environment to make sure we are aware of opportunities and are ready to act at the right time. Finally, our FY 2024 guidance. In the first half of FY 2024, the group demonstrated its ability to drive absolute GPAPA growth by focusing on unit economics and optimizing its paid marketing activities. While the group expects trading conditions to remain soft in the near term, it is confident in the execution of its strategy, and as a result, it has narrowed its FY 2024 GPAPA margin range to between 24%-26%, the higher end of its previously given guidance, 23%-26%.
The group expects the decline in group marketplace revenue to be more moderate in the second half of the financial year as the group revised its strategy to focus on profitability in a comparable period in FY 2023. The group realized the full benefit of cost-saving measures implemented in FY 2023 in the first half of FY 2024. It will continue to focus on strong cost discipline in the second half of the financial year.
Largely due to foreign exchange rate movements and the decision to change the executive team's short-term incentive to an at-risk cash reward, the group now expects its FY 2024 operating expenditure to be between AUD 97 million and AUD 100 million, previously AUD 92 million to AUD 100 million. After delivering positive Underlying Cash Flow for the group and both marketplaces in the first half of FY 2024, the group is continuing to focus on its aim to deliver positive Underlying Cash Flow for FY 2024.
Thank you for joining us today. We're now happy to take any questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on speakerphone, please pick up the handset to answer your question. The first question comes from Owen Humphries at Canaccord. Please go ahead.
Good day, guys. Just a quick one from me. Just to understand around that OpEx, Martin, can you just go through what the OpEx increase relates to? Sounds like it's just around the change in the short-term incentive packages.
That's a smaller component. I'll hand it over to Rob. It's actually overwhelmingly foreign exchange, but Rob.
Yeah. It's mostly foreign exchange movement, Owen. So sort of low single-digit AUD millions and then about AUD 1.5 million of the change to a cash-based STI. Obviously, that's only payable based on performance, so that can flex, but that's really the change and why we've narrowed that OpEx guidance towards the upper end of the range.
Okay. Just to understand the guidance there around moderating the decline in revenue growth in the second half, can you guys give an indication of where the first six weeks stands relative to that target and when the expectations are that the group will return to positive growth?
Yeah. Look, we're not going to give detail of the last few weeks. I think we've given enough in the outlook statement and sort of working back to a moderation of the decline in revenue in the second half, so I think that's fairly clear. We're obviously not going to guide beyond this financial year, but as Martin said in his commentary, it's kind of the absolute focus of the group at the moment is to really make sure that we can return to revenue growth, and that's a commitment that we've made. We're not going to put a timeline on it, but I think it's fair to say we know the recipe.
You can see that TeePublic's revenue has been up slightly and growing profitably, so we kind of know the recipe that goes into that, and we're very much focused on executing that, particularly within the Redbubble marketplace.
Okay. Thanks, guys.
Once again, if you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. Please press star then one now. As there are no further questions at this time, I'll now hand it back over to Mr. Hosking for closing remarks.
Well, thank you, everyone. So if you have further questions, obviously, you can follow up with Virginia, and we look forward to updating you at the next call.
That does conclude our conference for today. Thank you for participating. You may now disconnect.