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

Good afternoon, and welcome to the Cake Box Holdings Plc Results Investor Presentation. [Operator Instructions] Before we begin, I'd like to submit the following poll. I'd now like to hand you over to CEO, Sukh Chamdal. Good afternoon to you, sir.

Good afternoon, everybody. Thank you for joining us today for our interim results presentation. I'm excited to share some key highlights and show you how our strategic plan is driving growth. After I wrap this up, I'll hand over to Michael, who will dive into the financial details. Strong start. We had a fantastic start to this financial year with group revenues up by 53.5%. What's driving growth? This incredible growth comes from sustained demand for our diverse cake offerings, the successful opening of 9 new Cake Box stores, significant enhancements to our digital platform. I'll provide more details on these later. The acquisition update, you may remember that we completed the acquisition of Ambala just before the last financial year ended. In the first half, Ambala contributed GBP 6.5 million in revenue and GBP 0.4 million of EBITDA. The franchise sales growth, we've also seen like-for-like growth in Cake Box franchise sales and our digital presence is stronger than ever. The store network, we are proud to now have 284 Cake Box and Ambala stores nationwide. On this next slide, let's now talk about our strategic plan and the growth it's delivering, even in challenging market conditions. Since Michael joined us, we've implemented this strategic plan, which is really starting to show results. The first half results continue the strong momentum we saw in Q4 of last year. We've achieved significant organic sales growth, mainly due to operational efficiencies, particularly with Cake Box leveraging improved operational gearing. Expanding our footprint, we've expanded our footprint with new store openings, including our first franchise of Ambala stores. We've also accelerated digital sales growth through effective marketing and customer engagement strategies. I'll discuss how our enhanced loyalty program is driving stronger customer engagement and growing our loyal customer database later in the presentation. On Ambala integration, we made significant progress integrating Ambala, streamlining production processes and supply chain operations to boost reliability and efficiency. On the next slide, the integration of Ambala into our group is progressing well, aligning with our plans and expectations. We made significant strides across various integration work streams. Operational improvements, we've upgraded production equipment and established partnerships with local suppliers to enhance product freshness, plus we negotiated better commercial terms. Delivery reliability, a major achievement has been enhanced delivery reliability by integrating our supply chain with Cake Boxes. People and culture, we've implemented new pay structures and benefits and completed recruitment for key roles. On the brand development, we rolled out our new brand with updated packaging to elevate customer experience, plus our new optimized website launched in October 2025. It is also great to see that 2 of our Cake Box franchises have opened Ambala stores as well. These efforts are laying a strong foundation for continued growth. Now let me hand you over to Michael for the financial overview. [indiscernible] because our IT issues this morning. Michael, all over to you.

Thank you very much, Sukh. And just to read that, apologies, I'm just having some technical issues this morning with my video. So from a financial highlights point of view, this slide sets out a number of our financial highlights for the year. We've got our group sales growing 53.5%. I'll go into that a little bit more in depth after this. Our Cake Box franchise like-for-like sales grew 6.3%, up from 2% in the prior year. We opened up 11 stores in the half, 2 of those being Ambala and 9 Cake Box versus 7 in the prior year. Our net debt is GBP 11.6 million at the end of the half, and it was GBP 5.6 million net cash at the half last year and GBP 9 million net debt at the end of the financial year last year. Our underlying group EBITDA grew to GBP 4.6 million from GBP 3.5 million in the prior year. Underlying profit before tax was marginally down at GBP 2.7 million versus GBP 2.8 million. Our free cash flow, again, marginally down from GBP 0.9 million to GBP 0.8 million. And our dividend per share is up 5.9% from 3.4p per share to 3.6p per share. If we just look a little bit further into how our sales is made up. There we go. So yes, there we go. Our total Cake Box franchise sales, so this is our sales from our franchisees to customers. That increased by 14.6% year-on-year to GBP 47.6 million from GBP 41.5 million. And that's due to 3 factors: existing stores that opened up in the prior year, new stores that have opened up this year and as well as our 6.3% like-for-like. If we just look at our group sales then, so we have the 2 segments now that we report on, Cake Box and Ambala. If we look at Cake Box on its own, the Cake Box sales, the segment sales, our group sales has increased 18.9% from GBP 18.7 million to GBP 22.3 million. And the difference within that -- between the 18.9% growth and the actual franchisees, 14.6% growth is that within our sales, we have what we call franchise packages, and this is where we invoice franchisees for store openings. And we had a total of GBP 2 million income in this half versus GBP 800,000 in the prior year in the half. And our group sales, if we include Ambala, GBP 6.5 million, the maiden contribution is where we get to a 53.5% year-on-year increase. So this slide just gives us a bit of a waterfall graph in terms of how our franchise sales -- Cake Box franchise sales have grown. We can see going from GBP 41.5 million, we've got GBP 5.6 million in the half from existing stores. So this is mature stores and stores that opened up in the prior year. GBP 0.5 million from new stores, which got us to our GBP 47.6 million, which was 14.6% up year-on-year. Our like-for-like sales performance, so we can see the 6.3% in this half versus 2% in the prior half. Just as a recap for the full year in FY '25, we did 3%. So we did 2% in the first half, then 3.8% in the second half. We actually exited the year, the quarter 4 in '25 with a like-for-like of 6.7%. So it's pleasing that we've actually continued that like-for-like going forward from the back end of the prior financial year. Our online sales performance, again, has been really a good performer throughout the half for us, where we are just shy of 26% up year-on-year. So we went from GBP 9 million in the prior year in the first half to GBP 11.3 million now, which was 25% of our overall franchisee sales. And in the prior year, that was 22.9%. In the second half, it was 24.1%. So we can actually see the progression through last year into this year. If we just then look at turn ourselves to underlying EBITDA, we can see our gross profit grew in line with the franchisee sales at 14.6%. Our overheads and depreciation growing at a lesser rate than our sales and gross profit, which meant that Cake Box, the segment's underlying EBITDA grew 23.2% in the half from just shy of GBP 3.5 million to GBP 4.25 million. Ambala first maiden contribution on an EBITDA level was just shy of GBP 400,000, which meant we ended the half as a group with GBP 4.6 million EBITDA, which is 33.3% up on the prior year. How that then rolls forward to underlying profit after tax? So we can see our -- from a Cake Box point of view, the segment, underlying EBITDA, which grew at 23.2%. We can see the big increase in our net finance costs, and this is due to the acquisition, the additional leverage that we had taken out, the GBP 15.2 million loan, and that's the interest on that loan. So that means that we moved to an underlying profit before tax position of GBP 2.9 million, which is 5.2% up year-on-year. So Cake Box, the underlying segment's profit after tax was up 7.1%. Ambala had a small loss at GBP 0.2 million, which meant overall, our group profit after tax was just shy of GBP 2 million, which is 2.7% down on the prior year. Our underlying basic EPS was 11.5% down, and that's due to the full impact now of the 4 million shares that was issued as part of the acquisition. So we now have 44 million shares in issue versus 40 million before the acquisition, so a 10% increase there. In terms of our cash generation, we can see that our net cash generated from operating activities was up GBP 1.1 million, which was due to our underlying EBITDA going from GBP 3.5 million to GBP 4.6 million. Following that, we have a net interest charge of GBP 0.7 million, which means that we are in line or just slightly ahead of our gross cash flow the year before of GBP 2.6 million versus GBP 2.5 million. Our CapEx was up a couple of hundred thousand on the prior year, which meant that free cash flow then ends up just slightly below the prior year at GBP 0.8 million versus GBP 0.9 million. This is just a graphical representation of how our opening net debt from the year-end has moved from GBP 9 million. We had the GBP 2.5 million of operating cash flow after tax and interest, GBP 1.8 million of CapEx. GBP 3 million of dividends, the final dividend for the FY '25 year, which is paid, the finance leases being repaid GBP 0.3 million, which meant we ended the half at GBP 11.6 million of net debt. If we look at our capital allocation policy, so from a CapEx point of view, we have spent GBP 300,000 in Cake Box and GBP 700,000 in Ambala. Ambala's CapEx was really front-loaded in this year due to us ordering most of the production equipment we need for automation within the production facility. So all that equipment we have now received and is being commissioned, ready to be implemented for the second half. We spent a further GBP 200,000 on the new Bradford warehouse and then GBP 400,000 in terms of our intangibles, our website, EPOS and ERP. GBP 300,000 -- sorry, GBP 3 million was the dividend -- final dividend payment for the FY '25 year. And in terms of new growth opportunities, Ambala is our focus now, integrating Ambala to ensure that we start to get the benefits that we had seen in the business. I'll hand you now back to Sukh for an update on strategic and operations.

Great. Thank you very much, Michael. As you can see, we have a robust platform for growth, both organically and through the Ambala acquisitions. In the next few slides, I'll cover our main operational performance, including our expanding store estate, how we're improving customer penetration across various channels, growing our customer database. Michael has already shared the numbers and they truly speak for themselves. We're definitely heading in the right direction. On Slide 19, now let's look at our store network, which continues to grow and strengthen our market presence. During the first half, we successfully opened 11 new Cake Box stores as of September 28. We now have a total of 260 Cake Box stores trading. Following the Ambala acquisition, we opened the first 2 franchise Ambala stores, marking a significant milestone in leveraging the franchising model for growth. Feel free to adjust any second so let me know -- one second, I just lost my flow there. Hold one second, please. Looking at the store network, it continues to expand, driving growth and strengthening our market presence. During the first half, we successfully opened 11 new Cake Box stores as of 28th of September. We had a total of 260 Cake Box stores trading. And following by acquisition, we've had the 2 first franchise stores opened. It's a significant milestone in leveraging the franchising model to support its growth. Moving forward, the Ambala estate will grow exclusively through franchising, bringing it into line with our proven strategy of leveraging franchise partnerships to achieve scalable and sustainable expansion. Over the past few years, we've been making strategic investments in online awareness, customer acquisition and retention. And as you can see from the pie chart on the left, online sales made up 25% of our total sales in the first half. One of the investments we made was to bring online customer acquisition for click-and-collect orders in-house. This investment is driving click-and-collect growth supported by cost-effective integrated marketing in June. We gained 134,000 new customers through targeted and effective campaigns. We'll try to push through our loyalty program as well. Our Cake Club reached 138,000 subscriptions, reinforcing customer engagement and repeat sales across the business. This omnichannel approach positions us well for sustainable long-term growth. This slide provides a visual proof of what I've said in the previous slide. Growth has come through launch of innovative marketing initiatives alongside effective utilization of our new CRM system. These enhancements are driving improved customer targeting, engagement and retention, reinforcing our digital strategy and creating opportunities for sustained growth in the online channel. The growth chart shows how we've succeeded in capturing customer opportunities online with -- on a strong performance of H1 last year. A quick word on our customer database. It continues to expand significantly, driven by strong new customer acquisition and the success of our loyalty program. As I said before, this has grown to 138,000. A few more data points that may be of interest to you. You can see from the bar charts, email subscriptions grew by 29% from April to September 2025, reaching a total of almost 1 million subscriptions. SMS subscription also increased by 32%, growing to 390,000. These gains highlight the effectiveness of our strategic focus on customer engagement and retention, further strengthening our ability to drive further growth and deepen brand loyalty. Our new product development efforts have delivered exciting innovations that continue to capture customer interest and drive sales forward. We've launched the Dubai Chocolate pistachio range, which gained phenomenal traction and then viral, creating a significant buzz around the brand. We also expanded our single-serve range with new offerings, including mini cheesecakes, chilled brownies and the strawberry and creme sandwich. Additionally, we introduced the first ever collaborative range between Ambala and Cake Box, further strengthening our product portfolio and broadening our appeal across customer segments. We conclude -- to conclude, the group firmly remains on track to deliver year-on-year growth in line with market expectations despite headwinds in the consumer environment. We anticipate stronger performance in the second half of FY '26 with revenues and profits exceeding H1 performance as we benefit from typical seasonal trading trends, the success of key celebration events and strategic investments. Our growth strategy is progressing well with 17 new stores already opened this year, and we're on schedule to meet our target of 25 new Cake Box and 10 Ambala franchisee stores by year-end. Additionally, our digital sales continue to build momentum with a 17.4% year-on-year increase in online sales for October, reflecting the strength of our integrated online and high street channels. Trade has been robust with franchise sales in Cake Box up 13.7% and like-for-like sales rising 5% since the period end, highlighting consistent consumer demand. The continued integration of Ambala further strengthens our position and remain confident that the investments made, combined with the group's innovative product offerings and strong franchise model position us well to deliver sustainable growth going forward. Thank you very much for listening, and we'll now go to the Q&A, and we'll read out the question and answer it as well.

Right. So we are at Q&A. And the first question is how success is Cake Box on the French market? We -- it's still a test. In the next couple of weeks, we will be launching the French website. That will enable us to click-and-collect, order online, have a range to all our products and pay online. So that will further enhance the profitability, the turnover, which we will report to you at the next full year results. Michael, do you want to do the next one?

Yes. So I think what -- perhaps -- if we look at the segment analysis in the annual reporting, the Cake Box revenue on its own was GBP 22.3 million. So I think maybe we just missed the fact there because you have taken off the 6.3% gives you the 15.8%. But actually, it was the Cake Box revenue on its own was GBP 23 -- sorry, GBP 22.3 million versus GBP 18.7 million. So that was 18.9% up and Ambala was GBP 6.5 million on its own. So the total group was GBP 28.8 million, not GBP 22.3 million.

And the next question, is interest cost, the only thing that have depressed PBT? Any way you can control this negotiate with your lenders?

So yes, so we could see after EBITDA, we have now the new line of the increase in our leverage costs. Following the GBP 15.2 million additional loans we've taken on. Those loans, the margin is set for the duration of the term of the loans, which is split between 7 years and 10 years. So the interest rate will only move at SONIA plus 2.75% margin. So those will only move if SONIA does come down.

At the moment of acquisition of Ambala in March 2025, you stated that it would be immediate earnings enhanced. The half year results show a limited EBITDA contribution and net loss for Ambala. Is Ambala performing up to your expectations? Can you give some more information on realized and expected synergies and growth opportunities?

So what we -- when you say immediately earnings enhancing, it would be for the next financial year. We've added on -- with the EPS at the moment, it's calculated based on 44 million shares, which we've only had half the year. So we need to look at it on an annualized basis. In terms of the synergies, we said there would be GBP 1 million worth of synergies on an annual basis. We have actually -- in the first half, we've unlocked those synergies, and we'll see a full 6 months of those synergies coming through for half 2. And it's very much -- the profit in Ambala is very much weighted on the second half, driven by the 2 main celebration of Diwali and Eid. And actually, Diwali, we have seen that we have generated the returns that we expected for that as Diwali was in October. So we now have sight of the results from that period. And the next big one will be Eid, which is in March, which is probably 2, 2.5x bigger than Diwali in terms of sales and profits.

Please, can you provide some color on the percentage evolution from revenue, plus 53% to gross profit, plus 58% to EBITDA, plus 30% to earnings per share of minus 15%. Please, can you mention the drivers causing these deteriorations?

So in Slides 12 to 13, so this is where we walk forward the underlying EBITDA. If you look at Cake Box, the 53.5% increase in sales, that includes this maiden contribution from Ambala for the first 6 months. So if you just look at the Cake Box segment, on Slide 12 again, you can see that actually our revenues, as we said, went up 18.9%. Our EBITDA has gone up by 23.2% for the actual Cake Box segment. So we can see a good progression in terms of the profitability of the underlying Cake Box business.

Dunkin' Donuts makes good profits with beverages. Why does Cake Box not offer any tea or other beverages? I believe this could increase profits as beverages usually have higher margin than many customers would likely add on to their purchase. We have tried our -- putting in coffee and tea in some test stores. And what we found that it just did not work because customers go to established Costa Coffee or Starbucks or Nero if they want a coffee. And it also distracted the staff from serving a customer where an 8-inch cake takes 5 to 6 minutes to make and 10 minutes to serve, it took 4 minutes to make a coffee so that we found it was detrimental to the overall customer experience. But we did find that we did not just don't get any much sales uplift with coffee. What is the progress with the franchising of the corporate stores? The gross profit margin increased, but the operating profit margin decreased by 400 basis points compared to H1 '26. What is the reason behind this? And what is your margin target for the remainder of the fiscal year and the long term?

So in terms of the progress of franchising the corporate stores, so we did say the corporate stores would look at this over probably a 24-month period. Our first priority now is and with our existing Cake Box franchisees is to drive the awareness and the increase in the number of franchise Ambala stores, which is why we're looking at 10 this year and 10 next year as well. We will be looking to move on the corporate stores over that sort of 24-month period. And we are looking at right now how commercially we'll do that. We want our franchisees to be putting their capital into new Ambala stores right now to get that brand awareness and to grow the store estate before we actually move on the corporate stores.

What is your goal regarding the repayment of borrowings? And do you expect the year-end cash position to be higher? If a new investment opportunity arises in the coming months, would you be willing to take on additional debt? Or is your primary objective now to integrate Ambala and pay down debt as quickly as possible?

So our debt pays down at GBP 2 million a year from now on, including this year. So we paid down GBP 1 million already by the half year. So that deleverages pretty quickly. Our primary objective right now is to integrate Ambala. So we will evaluate. We have had 1 or 2 potential opportunities come across our desk. But right now, our main focus is on integrating Ambala, getting the synergies from Ambala. And then as we go along in the next couple of years, we'll deleverage the business and put ourselves in a position to take up any potential opportunities going forward.

Why was the profit before income tax for Ambala negative?

So the main reason for that is that it's -- the profit is very much second half weighted. We also had -- we took a number of additional costs in the first half relating to restructuring and reorganizing the business, which we won't have in the second half. And we will have the benefit of the synergies we've identified for the full 6 months in half 2. So the profit is very much half 2 weighted for this year.

[ Leopold ] asked, what's the motivation behind the new look? I'm not sure if you're talking about Cake Box or Ambala, but I'll answer both. The Cake Box, we've now got new branding, new contemporary look because we're expanding out of our homeland, Asian homeland into non-Asian homelands. And so we felt that we needed a new fresher look. We've had the same look for the last 15 years. And so that is working really well. Where we've opened with the new look, we found an increase in sales. And we refreshed the new look into a new look, we found increase in sales. For Ambala, they've had a very dated brown-looking image. We've updated that with classy midnight blue with amber green inside, and that gives a much classier or much higher look, and it brings a much fresher look for the new generation to embrace the sweets and be seen as quality and modern. Can you quantify the amount of OpEx investments you made in Ambala this period? I think you meant CapEx.

I think well, we can do both. I mean, OpEx, there was an additional of about GBP 250,000 of spend, which included the restructuring of the team at Ambala. In terms of CapEx, there was GBP 700,000, which included improvements -- leasehold improvements we made to the production facility as well as the purchase of all the production equipment that we need.

Does Ambala have the same EBIT margin as Cake Box? And what should that margin be?

At the moment, it doesn't, but it will grow into a similar margin to Cake Box. And we -- our projections are that, that should be around the sort of -- once we get through this first period, around 15% and then grow to similar margins that Cake Box have.

[ Taylor ] wants to attend the next general annual meeting. We haven't set a date yet, but please keep an eye on our website, and we will announce it as soon as possible. [ Holly ], can you give me more detail on how the sales and customer feedback has been on the cheesecakes? What are the margins on that product compared to other cakes? The cheesecakes has been growing more and more every week. We're really impressed by how good the product is and how good the sales have been. And the margins on the product compared to the other cake is just as the same. We give a very similar margin. Okay. What is the long-term EBIT margin for Cake Box?

Is that -- is it just Cake Box on its own?

Yes, I thought we give for both because it's going to be one group, isn't it?

Yes. So the long term for the group is -- sorry, just the long term for the group is going to be north of 18%. I don't want to -- we've got what's in our notes. You can see that the short note has got that at -- if you've got access to that, that is yes, sort of north of 18%.

Yes. We will upload that to our investor website, so you can have a look on that. How is the Cake Box store in France performing? Are you planning on opening up more stores in France? The French store is doing well. We're going to launch the French website in a few weeks' time. That would enhance its earnings. And then we're going to reevaluate in 3 months' time on further expansion in France. And similarly, do you have plans to open Cake Box stores in the U.S.? We will eventually hope to go to Canada to -- America and eventually to India as well. [ Alex F. ] asked, how do you plan to finance the Bradford depot? Would you use borrowing? If not, would that impact dividend payout?

So we won't be using borrowings. It's financed over 24 months with the developer. We will have less CapEx in the business now from a maintenance CapEx point of view, and it won't impact on dividend or dividend growth.

Did the team consider interrupting the dividend to reduce the amount of debt required to perform the acquisition?

Sorry, Sukh, can you just...

Did the team consider interrupting the dividend payments to reduce the amount of debt required to perform the acquisition of Ambala?

No, we did not. We wanted to continue with our progressive dividend policy for our shareholders.

Are your new Ambala franchisees existing Cake Box franchisees? Yes, they are, but we've also got 2 new external franchisees, and we've seen a good mix of existing and new franchisees interested in the Ambala and the Cake Box franchise opportunities. [ Andrew P. ] asked, could you break out the mix of online and delivery sales? What percentage is from Cake Box and what percentage is from the aggregators like Uber Eats and Deliveroo? You previously provided something similar in the 2022 annual report.

So in terms of our online sales is -- for Cake Box is 25%, then the aggregators is another 6% to 8% of sales.

How many of the new Ambala franchise stores will be operated by existing Cake Box franchisees? We've had a lot of interest in our existing franchisees are taking on the Ambala. So whoever is interested in a viable area, we will allocate that to them. Do you have any plans to convert the corporate Ambala store to franchise stores in the short term? If so, do you see any interest on current Cake Box Ambala franchisees take over these stores?

So not in the short -- long term, we do foresee that we move on the corporate stores into the franchise market, but not over the short term.

Was Ambala SSSG in H1 negative? Do you expect to turn positive in H2?

So Ambala system -- Ambala sales -- same system -- same-store sales growth was negative, marginally negative in the first half. We saw some really pleasing results following the first half during Diwali. And we're now seeing that gap narrow, and we are looking -- forecasting that we'll actually get to positive growth by the year-end.

[ Holly ] asked, did you [ type ] in chairs and tables in those test stores with coffee machines, too? In the Cake Box stores, they're too small to have any tables or chairs in. In some of the Ambalas, we have got tables and chairs and we've got coffee machines, which are not too successful. We're replacing those with tea machines. But in Cake Box, it's not practical to have tables and chairs in. [ Leopold ] asked, is there a way to access the Ambala financial number years from previous financial years?

Yes. If you go to Companies House, you should see the previous financial statements have been submitted and lodged on Companies House.

Yes. If you look for Ambala Foods Limited. [ Holly H. ], do you have any medium-term financial goals?

Yes, we do. In terms of our goals are still very much to drive the Cake Box business and to open 25 stores a year. And then from an Ambala point of view is to open up at least 10 stores a year and then drive Ambala's EBITDA to get close to -- in percentage terms, what Cake Box is delivering for the group.

[ Alex F. ] asked, how is franchisee profitability evolving this year compared with last year?

So their profitability is up this year, and that's due to the fact that they are seeing this phenomenal sales increase we're seeing at the moment in 6.3%, which last year, they had 2% up. So they're -- all costs are pretty stable. We haven't passed on any material cost increases to the franchisees. So their food -- the cost that they are paying for their input in food and boxes and boards, et cetera, has remained pretty stable, which means that they've been able to take advantage of this increase in sales.

Can you provide an e-mail address for follow-up questions? Please send it to [email protected] with the subject line, Investor Meet Company Questions, please. That's all the questions we've got at the moment. If anybody wants to ask any more, please do so.

That's great. Well, Sukh, Michael, thank you very much for answering all those questions from investors. And of course, the company can reveal the questions submitted today, and we'll publish those responses on the Investor Meet Company platform. But just before redirecting investors, provide you with their feedback is particularly important to you both. So could I just ask you for a few closing comments?

Now I think we are well positioned for growth and both in Cake Box and Ambala. We are the #1 leaders in Cake Box, and we aim to maintain the #1 position of Ambala as well. By opening more stores, we get more coverage, more sales. We've just relaunched the Ambala website. It's easier to navigate, easier to order. We're going to have the choose-your-own-mix facility in the next few weeks as well. Ambala is only doing 3% online. Cake Box is 25%. So we're aiming to get to that level in Ambala as well. Thank you very much for listening, and we will see you at the full year results.

That's great. Well, thank you once again for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order the management team can better understand your views and expectations. On behalf of the management team of Cake Box Holdings Plc, we'd like to thank you for attending today's presentation, and good afternoon to you all.

Great. Thank you very much.