Bristol-Myers Squibb Company (BMY) Earnings Call Transcript & Summary

Thank you for standing by and welcome to the Booktopia Group Limited Full Year Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Geoff Stalley, Chief Financial Officer. Please go ahead.

Thank you and welcome to the shareholder presentation for Booktopia's outstanding results for FY '22. My name is Geoff Stalley and I'm the acting CEO for Booktopia. I'm joined today by our Chair, Chris Beare; and Fiona Levens, who today has been appointed as CFO. Fiona and I will provide a summary of FY '22 based on the investor presentation that was lodged with the ASX this morning or we will be presenting that as well on the web if you're using that. We'll make some comments about the overall business before opening it up to any questions that shareholders may have. But before we commence, I would like to acknowledge the traditional owners of the land on which we meet today and pay respects to the Elders past, present and emerging. Moving to our results and it's true to say that the past year has been challenging and disruptive, but it has had its highlights and we are very confident that we have our strategy right for the future. The highlights have included another year of record revenue and customer spend with the challenges around our costs, which are higher and resulted in lower performance in fact. We have worked hard to address these costs and to be more efficient over the past 6 months and with our new customer fulfilment center and other key initiatives, we believe we have the right plan for the future. We move to Slide 4. Let's look at some of the key metrics of our business where you can see our record revenue of $241 million, which is 7.6% up on last year. We shipped 8.5 million, also 4% up on last year. Our average order value increased to $75.59 and our average spend per customer again increased to $134.95. During the year we did have challenges, as I've mentioned earlier, that resulted in higher cost per unit distribution labor costs in our customer fulfilment center largely impacted by COVID, which resulted in an overall lower EBITDA of $6.2 million when compared to last year's $13.6 million. Now we have taken a range of steps to reverse these costs and remain focused on our operational efficiency and improvements that we can make to our overall performance. We move to Slide 5. To give a fuller picture on our business, this slide provides an overview of where we sit across a number of dimensions. We have continued growth at the top line and across several key operational financial metrics as I just outlined. We are the leader in Australia and a dominant player in our category. We have a single focus on books and are confident on our future strategy. There are, however, volatile economic conditions in play with inflationary outlook and different consumer behaviors as we come out of the COVID environment. In particular, online and retailing is experiencing a whole new world of personalization, different delivery options and a variety of partnerships emerging to meet customer demand. We remain confident in our future strategy and have taken steps to improve our cost and efficiency as a business. This has resulted in a number of one-off costs that have impacted our EBITDA and NPAT. Our restructuring of the business including removal of the former CEO resulted in a one-off cost of $1.3 million. Accounting for the change in leases following the announcement that we released last week in CFC and have taken on a new lease for a customer fulfilment center in South Strathfield, a similar review of the useful life of some of the equipment and resulted in write-down of the items that we won't be reusing in the new center. M&A costs, as we outlined in the half year, are $1.7 million. And whilst we remain very positive about the overall partnership we have with Welbeck Publishing Group, an impairment has been made by the investment in the specific business of Welbeck Australia and New Zealand. For some time we have been in discussions with the ACCC regarding the misleading information we provided to customers regarding our return policy and have reached an agreement for a penalty of $6 million. We are now working with the ACCC to present our joint submission to the court who will ultimately determine the final penalty. As such, we have made a provision in our accounts for this penalty. Beyond this one-off adjustment, the focus on the business has been on lowering our costs and improving our efficiency of our operations to better align our cost base with the future growth trajectory of the business. We do have a great plan for the future and our new customer fulfilment center will drive many operational improvements. We are building strong partnerships that are essential to meet the needs of changing consumer behaviors and we have a strong customer base who just love books. We move to Slide 6. This year we have included a slide on the revenue mix as we grow the various customer groupings and as things are becoming more important to our business. Our traditional trade as we call it or general consumer group remains the key to our business with that making up over 60% of our revenue. Academic customers, mostly university students, make up over 20%. And both of these customer bases have grown in the past year albeit much lower than during the pandemic. Interesting growth in revenue stemming from our business, government and education setup where we mostly work with corporates, businesses and all government departments. Growth in the past few years has seen this group become 11% of our revenue. I'll now hand over to Fiona to take you through the financial information in a bit more detail.

Thanks, Geoff. I can certainly echo the sentiment so I might tell you that Booktopia has not seen a year that has been more challenging than FY '22. It has been a roller coaster of highs and lows as other e-commerce businesses have struggled to find our operating rhythm amongst lockdowns, unprecedented demand, distributions and exchanges and the unpredictability of consumer behavior. At the commencement of FY '22, our distribution center was located in the first LGA lockdown and we remained in lockdown along with the greater part of Sydney for over 107 days. This obviously presented many challenges for the business, including extended periods of staff absences due to illness or having to isolate due to being in close contact. We also lost time between shifts while we performed safety cleans to reduce the spread of infection. We commenced an additional night shift to meet customer demand, all while suffering from a deficit of skilled and trained staff. Ironically, this all happened at a time when there was unprecedented demand from our customers as they searched in desperation for different forms of non-electronic entertainment during lockdown. And the remainder of the year also proved to be challenging from a number of different aspects. The academic season, which is traditionally a peak time for book buying, saw a much softer peak than in previous years. We think this is due to a large proportion of overseas students staying overseas and studying remotely finally coming back to Australia to study. Then as the country started to open up again and people enjoyed shopping in stores once more, retail sales started to soften. The economy was returning to a new normal and we had to adjust and respond accordingly. So during our budget process in Q3 and Q4, it was evident that the business had to shed some of the overheads it had accumulated in the past 12 to 18 months in order to sustain profitability. We enacted a number of redundancies and there was better review of our overheads so we saw there were write-backs for the business going into FY '23. I will just talk to Slide 8 now to the FY '22 business highlights. Despite this challenging year, we have grown revenue by 7.5% on FY '21, 45% on FY '20 or 86.5% on FY '19. Overall, this represents a 3-year CAGR of 23%. Our revenue growth was driven by a number of different factors. We shipped 317,000 more units this year compared to last year, we increased our average selling price by just over 3% to $28.27 and we increased the average order value up 6% to $75.59. Our customers also spent on average $8.09 more per year than they did last year. These last few metrics are being driven by a change in product mix and a change in customer mix. As we saw on Slide 6, we substantially grew our business, government and education customers by 23% as well as sales to resellers, which included sales to more than 550 bookshops and this area grew by 79%. On average, these total customers spend more in 1 order than your average retail customer. This unique group of customers are looked after by our 14 treasury managers -- territory managers, who have personally contacted 9,564 schools across Australia [ and New Zealand ] with around 5,700 of those schools becoming customers of ours by the end of FY '22. Our territory managers this year will be focused on a couple of initiatives. They include contacting the Top 500 ASX listed companies with a [ doing ] your business library campaign and they will be reaching out to schools again with the aim of securing the first-time sales from those that have not bought from us before. Our largest single sale in FY '22 was just over $150,000 and our paid customers accounted generally 80% of revenue in FY '22, which is up from 76% in the prior year. Our gross profit unit economics remained solid with FY '22 delivering a very strong gross profit per unit of $7.65, which is 2% higher than last year, 12% higher than FY '20 and 19% higher than FY '19. Overall, it represents a CAGR of 3% -- sorry, it represents a 3-year CAGR of 6%. In absolute terms, gross profit increased $3.9 million this year or 46% with a CAGR of 24% over the 3 years from FY '19. We made a paid marketing with significant detail in the first half of the year while Sydney was in lockdowns. Unprecedented organic demand largely contributed to our growth in half 1 and so to ensure the customer experience remained as favorable as possible, we deliberately curtailed demand by reducing advertising spend for a [ logical ] leadership in products beyond what was already an extended time frame. Hence, our marketing expenses were $0.97 per unit in half 1, $1.50 per unit in half 2 and overall $1.20 per unit for FY '22. Since pre-pandemic levels, marketing expenses have increased by $1.1 million or 12% representing a CAGR of 4%. One of the most significant challenges in FY '22 was the control of cost in the distribution center for all the reasons I outlined earlier. And then even when the dust did start to settle on the issues experienced in half 1, we were still catching up on a range of activities such as stock take that were put on hold in half 1 while we focused on meeting customer demand. On a per unit basis, DC wages grew by 16% on last year and on an absolute basis 14% on last year. So this will be one of our main focus areas for FY '23 and beyond, but there are a number of activities that we are undertaking to improve efficiencies in the DC in the short term while we remain at Lidcombe, but also in the long term with the new 20,000 square meter facility in Strathfield South. I'll now speak to Slide 11. We have included this slide to give additional disclosure on the unit economics of Booktopia, specifically the evolution of the net margin of the business. We calculate net margin as revenue less product and freight stock and less other variable costs such as advertising costs, direct labor costs and merchant fees. From FY '19, we grew our net margin from $2.98 per year to $4.37 per unit. The focus this year will be on savings and variable costs driven by a range of initiatives, which we outlined on this slide, that aim to reduce purchase cost, reduce merchant fee and address the labor cost in the distribution center amongst other things. While we aim to improve this margin in FY '23, one of the challenges that we will face is the increasing cost of paid acquisition which will add to our marketing expense in the coming year and potentially offset any benefits we may realize from reducing other cost buckets. The investment in the new customer fulfilment center is projected to substantially reduce our DC labor cost from midway through FY '24 and beyond. I'll now move to Slide 12. Statutory EBITDA was a loss of $2.4 million and includes a number of one-off costs which are outlined on Slide 12. We raised the provision for the ACCC matter, which equates to the present day value of the agreed penalty of $6 million payable over 5 years. And together with M&A activity and restructuring costs of just over $3 million, this makes a total of $8.7 million in one-off costs that form part of the statutory EBITDA for FY '22. Without these costs, our underlying EBITDA is $6.2 million and while this is down from $13.6 million in FY '21, we are almost on par with FY '20 where underlying EBITDA was $6.1 million. In comparison to the last pre-pandemic year of FY '19, underlying EBITDA was up $2.2 million or 54%. Talking now to Slide 14. Our balance sheet is relatively simple. We have a number of major assets, including inventory at $17.3 million at the 30th of June. This was up $0.4 million on last year and represents a stock turn of 8.7x per annum. Plant and improvement that we have in our distribution center and intangible assets relating to software development. We also have a lot of these assets relating to leases. Our major liabilities are trade payables, contract liabilities where customers pay in advance for the products that they want to buy and the lease liabilities associated with the different leases that we have. On Slide 15, we can highlight that we have generated an additional $10.1 million in operating cash this year, which is up 53% from last year to give us a closing cash balance of $8.5 million. There are a number of one-off costs that we've outlined in the cash bridge on this slide being $3.1 million for the purchase of a 25% stake in Welbeck and $2.1 million in term deposits to secure the bank guarantees for our new leases. I'll finish off there, Geoff, and hand back over to you. Thanks.

Thanks, Fi. And I'm moving to Slide 17 to see an update on our country and our outlook for the future. And as we have mentioned, trading conditions remain volatile particularly for online retailers who had the benefit of the COVID lockdowns last year and together with various economic headwinds are seeing a slowing down to the start of FY '23. Despite these headwinds, demand for books remained strong and as we approach Christmas -- the Christmas trading period, we have the inventory and we have made a number of operational changes and have issues in play that will continue our strong customer reception. Whilst we aren't providing the market with a forecast of the year ahead, we will continue to update the market throughout the year. Next likely time to talk to you will be around the Annual General Meeting. I'll talk to our key initiatives, which is we remain very confident that we have the right strategy for the future. We have a single focus as an online retailer on being the market leader for books in Australia. We have and will continue to align our cost base with the growth trajectory of the business and including our new customer fulfillment center, which will deliver operational efficiencies. We are responding to challenges to consumer behavior post COVID by growing our channels to market, our partnerships with the likes of Welbeck and Zookal and others and a number of initiatives that will continue to drive our strong customer obsession. Thank you for your time today and I look forward to answering to any questions that shareholders may have. Handing back to the moderator to handle the questions.

[Operator Instructions] There are no further questions at this time. I'll hand back to Mr. Stalley for closing remarks.

Thank you. Thank you to all the shareholders and investors who have joined the call today. As I guess just in closing, reiterating our key message that we are very confident in our strategy. We are focused on the operational efficiency of the business and we are responding to the changes we hope to see in consumers and we see a great future for Booktopia. So thank you for your time today and we'll talk to you again.

That does conclude our conference for today. Thank you for participating. You may now disconnect.