Cake Box Holdings Plc (CBOX) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to the Cake Box Holdings Plc Final results investor presentation. [Operator Instructions] Before we begin, we'd like to submit the following poll. And if you can give that your kind attention, I'm sure the company would be most grateful. I'd now like to hand over to the management team from Cake Box Holdings Sukh, Michael. Good afternoon.

Good afternoon.

Good afternoon.

Well, thank you everybody for joining us today. For those of you who don't know us, Cake Box is the U.K.'s largest retailer fresh cream celebration cakes. I'll give an overview and then hand over to Michael to present the financial performance of the business, after I'll give you a strategic and operational update. So on the first slide, we are pleased to present our full year 2024 results and the remarkable achievements our company has made during the year with strong growth across the business. The strategic initiatives we've implemented have yielded excellent results with increases in sales and profits. We have outperformed market expectations, achieved our store opening targets and investment made in brand refresh, IT hub and customer database has all contributed to our growth, and we're continuing to do so. These results are also because of our commitment to cost discipline and our ability to maintain robust trading momentum despite challenging macroeconomic conditions. With that, let me hand you over to Michael to present the financial performance of the business.

All right. Thank you very much, sir. So this slide just gives you a summary of all of our financial metric highlights during the year. What we'll do now is just go through each one individually on the next slide. So if we just look in terms of our franchise sales, this is our sales from our stores to the end customer. That was up 9.1% in the year going from GBP 72.1 million to GBP 78.8 million. Our sales, which is our Cake Box group sales, that was up 8.7% from GBP 34.8 million to GBP 37.8 million. And our adjusted EBITDA, this is after taking out the effect of exceptional items, was up 12% from GBP 6.7 million to GBP 7.5 million for the year. Our net cash, this is our cash and cash equivalent balances less our mortgages was up GBP 1.2 million in the year from GBP 6.1 million to GBP 7.3 million, which was a 19.5% increase. If we can just look at our adjusted earnings per share. The adjusted earnings per share was up 4.2% from 10.6p to 11p, and I'll take you through later on just why and how we move from an adjusted EBITDA of 12% increase year-on-year, down to a 4.2% adjusted earnings per share or profit after tax. Our diluted share has grown at 10.8% year-on-year, so from a full year dividend of 8.1% (sic) [ 8.1p ] in the prior year to 9p per share this year. And our free cash flow conversion was 81.8% in the year. So if we then look a bit closer at our sales performance. So overall, our franchise sales is up 9.1%. That was driven by a 4.4% like-for-like for the -- our mature stores, and our 20 new stores that opened up during the year. Our sales, which is GBP 38.8 million (sic) [ GBP 37.8 million ], that was up 8.7%. Now that was up less than the 9.1% also due to the fact that the franchise packages, and this is where we invoice for new store builds. That's slightly down year-on-year, although we opened up exactly the same number of stores, 20 in 2023, and 20 in 2024. And that's just because we've allowed franchisees to go direct to the suppliers of the building or of the refrigeration that goes into stores to cut us out as the middle man. We can also see there a new line, the National marketing levy, which came into operation from just about the half year during the financial year, and that was GBP 600,000 that we collected from the franchisees, which was again spent on marketing activities. Let's just give you an illustration of how our sales grew from the GBP 72 million to GBP 78.8 million in the year, which is GBP 5.3 million from existing stores, which is a combination of the like-for-like growth as well as the annualization of the stores that opened up in the prior year, GBP 1.8 million from our new stores and a slight reduction in our sales [indiscernible] sorry, there we go. And our like-for-like 4.4%. So this slide just shows us how that's broken down during the first half of the year versus the second half. We can see it was 6.3% in the first half, where we were up against a negative 1.6% like-for-like in the previous year to a 2.6% positive in the second half, where we well after against a stronger positive 3.4% in the previous year. One really good thing here to notice was that every single month during the year, we had positive growth. Our online sales was 16.1%, up year-on-year, driven by our investments in our online marketing as well as our investment in our marketing team. We can see we ended the year for the full year of GBP 16.1 million, which was 21.8% of our total sales came from online, versus 20.8% from the previous year. So we can see again an increase in that metric year-on-year. So if we look at our adjusted EBITDA, we started with our gross profit of GBP 19.9 million, which was GBP 16.1 million (sic) [ 16.1% ] up. Just a note here, on the third bullet point on the slide, which shows that the increase in gross profit is down partly to the national marketing levy coming into force, where the revenue is within our revenue lines, but the actual costs against that revenue, I've shown it overhead, which is the line below. So there's a little bit of that increase, which is down to the fact that the revenue is in the one line and then the actual expenditure is in the next line, which is the overhead line, which is why we've got an 18.7% increase in overhead line. But if you look underlying, you have to expect the actual marketing expenditure, which matches to the national marketing fund revenue that we collected. Adjusted EBITDA at the bottom is GBP 7.5 million for the year, which is 12% up year-on-year. If we then look at how we go from adjusted EBITDA down to our adjusted profit after tax. So we're going from a 12% increase of adjusted EBITDA down to 4.2% -- and we can see there the largest impact is the change in the corporation tax rate year-on-year, which went from 19% to 25%. Our underlying, our effective tax rate went from 22.2 % to 25.6%. And we're always slightly above the statutory tax rate as we have some expenses, which are not tax deductible. If we just look at how our free cash flow. So our reported EBITDA of GBP 7.7 million. So that included our exceptional item, which was the reversal of the provision we've made in the 2021 financial year due to a data breach. In the year, we had the correspondence from the ITO that they have considered the case closed, following the information that we have provided on how we've improved our security around our data capture and security around data, customer data in the business. So we need expect that we'll go to from a reported EBITDA of GBP 7.7 million down to adjusted EBITDA of GBP 7.5 million. We've got a slight increase in working capital during the year, and this was mainly down to stores that opened up in the second half of the year, opened up to the back end of the year, and that's the actual invoicing for those new stores, which, again, those funds would have been received from a franchisee in the new year, for both April and May. So therefore, free cash flow ended at GBP 6.3 million, which was in line with the prior year. So from our net cash position, we started the year with GBP 6.1 million. We generated GBP 6.3 million of free cash flow. We spent GBP 1.3 million of CapEx, paid GBP 3.4 million in debt -- sorry, dividends and GBP 0.3 million on our finance leases, which led us with closing net cash up GBP 1.2 million from the previous year at GBP 7.3 million. And just our capital allocation policy. So we spent GBP 1.3 million of CapEx, GBP 800,000 of that was on existing distribution incentives, which is maintenance CapEx and GBP 0.5 million on our new IT infrastructure, which is our new website and our ERP solution, which is Microsoft Dynamics. Following just post year-end, we've identified an opportunity to buy the land right next to our current Bradford depot. We took that opportunity to purchase that land for GBP 700,000. And we look at developing a warehouse on that land, which will help us with our expansion to the north of the country, Scotland and then over to Ireland as well. And then you can just see our dividend. Full year dividend for the year is 9p per share, which is a 10.8% increase year-on-year and no other opportunities have been identified to utilize our net cash. All right. I'll hand you back over to Sukh.

Thank you. Thank you, Michael. On the next few slides, let me give you a flavor of what we've achieved this year and what you should expect from us in the year ahead. This year, we opened 20 stores achieving the target we had set ourselves, as Michael also said, franchise sales increased by over 9% and online sales saw an increase of over 16%. And we managed the cost pressures in a highly inflationary environment. Turning to our key areas of focus. These are our key areas that contributed to our success. At the beginning of our financial year, we set out to empower our franchisees, expand our storage state and our focus on growth in online sales. On a corporate level, we strengthened our leadership team and enhanced our ESG initiatives. I would pick these in turn and go through the detail as progress in each and every one of these components. Empowering our franchisees and operational excellence, let me speak briefly about how we've empowered our franchisees. Firstly, we appointed a dedicated learning and development manager to oversee our training programs. This move has allowed us to focus on enhancing the skills and knowledge of our franchisees. One of the key areas we addressed was the reinforcement of our franchise on-boarding process. We structured a comprehensive training regime that includes a 4-day initial training session followed by rigorous 10-day intensive program to reinforce and expand on the initial learnings. In addition, we wrote out a specialized customer service training program for franchise staff to ensure exceptional service delivery across all of our locations, to further improve in performance and standards, we introduced a new internal scorecard for our stores. This scorecard now attracts important metrics such as TrustPilot scores, food hygiene ratings and internal audit results. As a result of these initiatives, we were able to achieve an impressive TrustPilot score of 4.5 out of 5 by the end of the fiscal year 2024. This demonstrates our commitment to deliver outstanding customer savings and maintain high operational standards. On this next slide, Slide 20. Furthermore, we will continue to invest in our IT hub to drive operational fee efficiency and improvement throughout our organization. We've hit our target -- moving on to what we achieved in our efforts to expand our stores, I still say we had a target of 20 new stores using a property consultant to map out all areas where we think we could expand into. We've identified 196 expert areas to achieve our target of opening 400 stores. In this next slide, we show you the brand evolution, the brand refresh initiatives launched in H2 '24 has been a significant milestone of our company, the positive reception, encouraging results, and the ongoing store refresh program demonstrate our commitment to evolving with the changing market landscape and meeting the needs of our customers. One of the significant achievement so far is that a total of 9 stores have been successfully opened with a new contract. These stores represent the first phase of our brand refresh and has been instrumentally showcasing the direction we are heading in. The positive reception from customers and community is a testament to the strength of our brand evolution where we see feedback indicating that the refreshed brand and store concept resonate well with our target audience, driving engagement and loyalty. The encouraging results are not just anecdotal, we have seen a notable improvement in key performance metrics, such as foot traffic, sales and customer satisfaction rating since the launch of the new contract. These metrics when they affected in this -- of our brand refresh strategy. We'd like to -- we are dedicated to do [indiscernible] happens with every order. Our commitment to quality, personalization, customer satisfaction, sets us apart and makes us a trusted joy for all such occasions. We take immense pride in the quality and the individuality of our products. Each of our cake is particularly [indiscernible] by store in hand, is showing that every creation is [ quality ] to perfection for each customer's orders. In addition to our unique handcraft approach, we are providing a complementary personalization service for most of our cakes. This allows our customers to add a special touch day orders, making each cake truly one of a kind. Our focus on handmade craftmanship and personalization ensures that every customer receives a cake that is not only delicious, but are also tailored to their preferences. We strive to create a memorable experience that goes beyond just a simple desert. Lastly investment in our online offer was a key area of focus. We launched a new website to improve the customer journey and e-commerce capability. We also launched a national advertising fund in collaboration with our franchisees. This initiative allowed us to significantly invest in new customer acquisition online. As a result of our strategic investment, we're achieving an impressive return on investment of 4x. Furthermore, our value growth saw a substantial increase of 16.1%, driven primarily by capturing new customers. Our [indiscernible] efforts have really remark results since the launch of our new website. We are thrilled that and we now rank #1 in searches for birthday cakes and photo cakes online. To further boost our store awareness, we're implementing a comprehensive strategy that involved radio advertising Hot FM. Additionally, we utilized telephone kiosks to emphasize our online click and pick proposition. We aim to -- continue building on this in the coming year. On the next slide, we can show you capturing mobile customers online. Online sales of click and collect orders increased 16.1% driven by more customers buying for the first time. And as I've stated previously, this is a result of investment in e-commerce, marketing and capability. Our investment in marketing and CRM systems has resulted in growth as a result of using customer data effectively. As you will see from the graph below, the month-by-month increase over the past 12 months. Let me talk a little bit about our new products that were well received by our customers. At the beginning of the year, we set ourselves the chance on we can make every occasion, especially by bringing new and exciting products to our customers, while enhancing their overall experience. Our focus on innovation and customization has had a positive impact on our sales and brand image, by staying ahead of trend and offering unique products, we've garnered attention and loyalty from both existing and new customers set us apart from the competitors. We've introduced new premium product collections such as Mango and Speculoos to cater to evolving consumer preferences. We've expanded our seasonal launches for occasions like Valentine Day, Mother's Day and Easter, ensuring that we are part of our customers' special moments and adding new ranges like brownies and Buttercream cakes to diversify our offering and cater to vary tastes. We've implemented an online click-and-collect feature, allowing customers to order personalized cakes online and collect them within the hour, providing convenient and personalized service. These are just a few examples of the new products are showing you what we're using in caking for the occasion. On the next slide, the successful our Capital Markets Day in October 2023 highlighting the company's robust capabilities and commitment to growth, the Board changes in full year '24 have further strengthened our leadership team and government structures positions us for continued success in the future. In October 2023, our company had a highly successful Capital Markets Day led by senior managers, franchisees showcasing the strength and depth of experience within our group. The [ CMV ] provides participants with the opportunity to visit our head for us, with as a significant investment made in our production facilities. During the fiscal year 2024, our Board underwent key changes to strengthen leadership and governors. Martin Blair assumed the role of Chair bringing in wealth of experience and experience expertise and tradition. Shaun Smith joined our Board on 1st of February 2024, adding valuable insights and perspective. And in fact, he was appointed as the Senior Independent Director, contributing his strategic counter independent oversight. Michael Botha became my Chief Financial Officer on 11th of April 2023, bringing his financial acumen and leadership to our executive team. By collaborating with our suppliers, franchisees, employees and utility providers and by upholding the highest standards of compliance and community engagement, Cake Box is not always driving to excel in businesses, but also committed to make a positive impact on society and the environment. First of all, let me talk about our supply. It is impressive to note that 96% of our medium and high-risk suppliers have undergone ethical audits during the last 2 years. This underscores our commitment to ensuring that our supply chain adheres to the highest ethical standards. We are also committed to reducing plastic. An example of this is changing the packaging of our hosting from plastic buckets to bagging the box, reducing the plastic by 95%. Moving to our franchisees, an outstanding 96.7% of them have achieved a food hygiene rating of 4 or above for the year 2024. This remarkable achievement demonstrates our collective dedication to providing safe and hygienic products to all our customers. Our employees are the pillars of our success and their satisfaction is paramount to us. A remarkable 93% of our colleagues will gladly recommend Cake Box as a great workplace. This statistic speaks volumes by our corporate culture and work environment. In our efforts towards sustainability, we are proud to share that 72% of our electricity reutilized is sourced from renewable energy. This initiative reflects our commitment to reducing our carbon footprint and promotion in greener future. I'm pleased to say that our Enfield depot has achieved an impressive AA rating from the British Retail Consortium in returns of compliance and health and safety standards. This accomplishment underscores our braving dedication to maintain the highest operational standards. Lastly, our franchisees are actively involved in supporting local community in various impactful ways, from sponsoring youth football, cricket teams and to provide hockey [indiscernible] during the winter months in areas like [indiscernible] to feed the homeless. Our franchises are deeply engaged in giving back to the communities they serve. Here's the summarization of our achievements. Our company has demonstrated a strong performance in recent periods, delivering impressive sales and profit growth. We have significant progress with our strategic initiatives made a solid foundation for future growth and success. Our financial position has strengthened significantly with an increase in net cash and balance sheet strength. This improvement not only reflects our commitment to financial stability, but also provides us with a resilience to [indiscernible] challenges and see opportunities. I'm pleased that we've exceeded market expectations, surpassing performance targets and setting new benchmarks for excellence. Turning to the outlook. Trading environement for 2025 is expected to be challenging due to uncertain economic conditions. Interest rates are still high. We will continue to focus on growing our store [indiscernible] with some 20-plus new stores we opened this year. Our market initiatives, online growth, customer loyalty programs are all expected to help us on an upward trajectory. That concludes our presentation, and we're ready for Q&A.

[Operator Instructions] I'd just like to remind you that recording of this presentation, along with a copy of the slides and the published Q&A can be accessed via your investor company dashboard. Thank you, everybody, for your engagement this afternoon and for those that pre-submitted their questions. If I may hand back to you just to read through those questions and of course, where appropriate to do so to give your responses and then I'll pick up from you at the end.

Okay. So we'll take the first one, yes. So in terms of share buybacks, at the moment, we're effectively keeping our fire powder dry. We're looking at if there are any other opportunities to enhance shareholder wealth in the markets. But buybacks would definitely be something that we'll be considering going forward. Our long-term growth plans, yes, they do include looking at how we take the brand to other countries, and we continue looking at that. However, we haven't built that into any of our model at the moment.

How long does management think about dividends versus share repurchases? Has any consideration been given to share repurchases given the current low share value compared to increasing value?

So I think that's pretty much the same as that's question one, in terms of share buybacks. The answer is yes, we're not giving consideration to that, and we'll have something out for you in the near future regarding any sort of buyback program.

Is there an aspirational target for the rate at which new stores are opened and what steps are being taken to accelerate openings beyond the current rate of 20 to 25 per year?

So at the moment, we've got a target of 20 to 24. We are working with an external consultancy -- property consultancy business, where we have, together, highlighted 194 locations, target locations for us. Out of those, we are now looking at going further down to understand exactly where in those locations we need to be. So bottom line of the question is yes. There are plans to scale faster, but that will come probably following this year.

The benefit of an asset-light model is scaling without the need of high capital investments. However, Cake Box stock [indiscernible] rates seem stands. Is there a plan to scale faster in the future?

So I think it's a little bit similar to the previous question. I think, yes, we are working on our store expansion program, and we've identified where we want to expand to, and it's a case now of finding the sites, finding and matching that to a franchisee. What we have done now is being more proactive than we have been in the past. We are actually going out and finding the site first, then mention it to a franchisee. So that should help in terms of the rollout program.

Does the release of exceptional GBP 0.24 million provision made in 2021 for the data breach increase adjusted EBITDA this year. Is a result -- in the result it pays to reducing?

It does -- the reported EBITDA is GBP 7.7 million, which includes the reversal of the provision, which is therefore an income in the GBP 7.7 million. We then have to -- we take that at GBP 0.24 million out, which then reduces the reported EBITDA down to adjusted EBITDA of GBP 7.5 million.

Do you believe you exceed the market expectation? Why is the share price falling back and gone down another 5p ?

I would like to throw that question back to the market. I think it would be that the market had built in the fact that we've exceeded market expectations.

And the high market is down today as well. So if you look at all the other shares, they are all-in minus total today. How effective has a targeted marketing initiatives and brand refresh being attracting new customers and retaining existing ones. What metrics do you use to measure the success of these marketing efforts? If I give you one pager on this, website business up 37.6%. Volume sales are up 13%. Value sales are up at 16.1%, conversion rates are up 12%. Average order value is 37.94p versus offline of 22.39p, Return on the advertising spend is 4.1%. Online customer retention is 60%. Database has grown by 68% and SMS of sign-ups have achieved -- have gone up to 181,000. Is the sale [indiscernible] will include in your online sales?

Yes, it is. Yes, that's the easy one.

Which area do you think has more store expansion potential today beside London region, based on external consultants recommendations?

It's quite across the U.K., it's not just a London region as you've stated, it's from the Southwest right through to Scotland, where we're actually at the moment, engaging with 2 separate franchisees, 1 to go to Glasgow and one to go to Edinburgh. And then to build out the rest to Scotland. So it's across the U.K. I think we missed one question.

How is the company is positioned relative to others emerging in the picture as just cakes, pep talk cake [indiscernible]? Well, we've got many look alikes come on and they go. But we've got no like-for-like competitor in the country. We've got 225 stores now. We've got 27 of our kiosks. We continue to expand 2 of roughly 2 stores a month. And these smaller ones or they haven't expanded in the last 2 years, they haven't added any more or any more locations.

Do the 20 new stores open, including pop-ups? No, they don't. Those are pure brick-and-mortar stores, and that's the 225 stores that we speak about, again, those are pure bricks-and-mortar stores.

Do you track like-for-like volume sales, not [indiscernible] sales. I reckon the like-for-like volume would have gone down slightly in 2024?

Prominently, the 4.4% like-for-like was price, where we had slightly -- which is below 1% positive increase in volume for 2024.

Employee wages on Glassdoor. Can you scroll up please?

Just move your mouse on the right-hand side, you should see that scroll bar coming in.

What Cake Box considers selling into stores or partnering more recapping type brands or supermarkets? We have not considered that at the moment. But there's a possibility because getting our BRC rating AA rating, we are now well positioned to everyone to put a product into supermarkets. Such as our brownies or [indiscernible] or cupcake, is possible. And or is an opportunity that's come up, we will consider it. How is the rollout of new store branding going to be managed over time? Is there a time line? Every franchisee or after the 5 years of agreement, they have to do a refresh. And so we held off doing quite a few refreshing as we launched the new concept. So we will be refreshing as quick as possible and as quick as time actually can. Will it not be beneficial to supply to limit stock straight to Bradford and Coventry depots, while in drivers coming [indiscernible], to be going up and down to Enfield? Our supplies do send straight up to Bradford. They do deliver to Coventry as well. And the only time that we have to deliver to the Coventry and Bradford sites is a cheese cakes and the cupcake we made in Enfield.

So we got another one on stores, which I think we answered.

Is the vegan food worth expanding? How is the current vegan products doing? We have a vegan range come out. It's doing very well. But vegans unfortunately, they talk a lot or they don't buy a lot. And -- as and when demand increases, we'll increase the range. Will Cake Box consider WhatsApp business over SMS? We will constantly look at new avenues. And so if an opportunity arises and we will consider it.

I think short in the last one in terms of difficulties, are there any difficulties faced with new store locations in Scotland? Further north from the [indiscernible]? And no, they're not. There will be -- we had 1 or 2 stores up north and which have been supplied from our Bradford depot.

Also what product types cannot mitigate low sales in hotter periods? Example of summer or autumns. What we tend to find is that if the temperature exceeds 30 degrees hot for the 3 days, has [indiscernible] to go to peak and buy locally. And so what we do, we are reminding the customer that we're available everywhere. So we are going to be, example, in south-end in the South of England that we had a store there. So please preorder and collect there. And it's just reminding the customer that we are everywhere. Any other questions?

That's great. I think you've been very comprehensive in your responses. So thank you once again to everybody for your engagement this afternoon. If any further questions do make themselves available. Obviously, we will pass those on to you post today's meeting. I know investor feedback will be particularly important to you both in our shortly redirect the investors on today's call to give you their thoughts and expectations before doing so, if I may just come back to you for a couple of closing comments.

Yes. Thank you very much for everybody, and we hope to engage again soon.

Yes. Thank you very much for your time.

That's great. Thank you very much indeed. Ladies gentlemen, if I could please ask you not to close today's session as we're now automatically redirect you to the opportunity to provide your feedback in order that the company can better understand your views and expectations. This is going to take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of Cake Box Holdings PLC, we'd like to thank you for attending today's presentation. I wish you all a very good afternoon.