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

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

Good afternoon, everybody, and thank you for joining us. I'm Sukh Chamdal, Founder and CEO, and I have my CFO, Michael Botha, to present the numbers. So today, I'll walk you through the performance, what's driving it and how we're positioned for the next phase of growth. Next slide. Slide 2 -- Slide 3, FY '26 headline performance. 2026 has been a year of strong progress for the group, delivering record sales, meaningful profit growth and continued expansion of our store network. What drives that performance is a very efficient asset-light model, combined with the strength of our 2 complementary brands, which are helping us reach more customers and more occasions than ever before. We've got a clear strategy in place, strong momentum across the business and a significant runway for growth in the U.K. So starting with the headline numbers. 2026 was a really strong year for us. We've delivered record system sales of about GBP 111 million, which flowed through to nearly GBP 60 million in revenue and GBP 12.4 million EBITDA. What's particularly encouraging is that growth is coming through all the -- across all the key metrics, revenue, profit and earnings per share are up all strongly. On top of that, we continue to expand the estate, opening over 30 new stores during the year. So we're growing both financially and physically at the same time. Plus, we continue our progressive dividend policy. So overall, it's been a year of strong broad-based growth. If I step back and explain why this is working so well, at the core, we've got an asset-light, highly cash-generative model, which is key. Because franchisees fund the store openings, we're able to grow the network without heavy capital requirements centrally. That gives us a really efficient growth engine. We're expanding footprint, but we're still generating strong cash flow at the same time. And importantly, we're disciplined with that cash, reinvesting into growth while also maintaining a progressive dividend approach for shareholders. So it's a model that scales well and consistently delivers returns. Let me briefly describe what the Cake Box is today, the unique combination of assets and capabilities. We now operate 2 complementary brands. We are largely a pure franchise store model. Our stores are run by local operators, but powered by central production, systems and marketing, which creates a capital-light scalable platform. At the core of it is our manufacturing platform. We operate 4 owned manufacturing and distribution centers, which give us control over quality, consistency and cost and allow us to support a growing national footprint. What sets us apart is this combination of owned manufacturing, a franchise store model, skilled leadership, product-led innovation and an entrepreneurial customer-centric culture. I will come back to this in detail after Michael has gone through the financials. At the heart of the business, we now have 2 complementary brands driving growth. Cake Box is focused on fresh cream celebration cakes, that's our core. celebrations, occasions, 365 days in the year, approximately 68 million population. That's roughly 180,000 birthdays a day that needs a cake. And Ambala adds a second layer through Asian sweets, gifting and everyday snacks, bringing in cultural occasions like Diwali and Eid, weddings and other occasions. Cake Box gives us scale, consistency and high-frequency demand, while Ambala adds incremental revenue streams through gifting, cultural occasions and everyday consumption. Together, they significantly expand both our market reach and customer lifetime value rather than relying on a single category. So it isn't just about diversification. It's a more powerful, higher-value growth engine. And importantly, they sit on one shared platform. As we grow, we benefit from operational leverage and improved returns. We've got over 300 stores and 4 manufacturing and distribution centers, all supporting a franchise-led model. I'll hand over to Mike for the financials.

All right. Thank you very much, Sukh. So I'm going to go into a little bit more detail on the results, starting with -- if we just look at the financial highlights, Sukh has gone through some of these. So what I'll be doing is splitting between the 2 segments, the Cake Box segment and the Ambala segment. We've just highlighted a few of the KPIs on here where we can see the increase in our top line system sales, which is our sales to franchise from franchise stores and corporate stores. We can see the increase in our EBITDA as well as the increase in our overall dividend. So if we just look at the composition of our revenue, this is our sales to our franchisees as well as the sales from the corporate stores. So Ambala now, the corporate stores generated 24% of our group sales in the period. Our sales of food and other goods to our franchisees was 68%, and then the franchise packages was 9%. So this is our EBITDA bridge. So this is how we walk forward our underlying EBITDA. On the left, we've got the underlying EBITDA for Cake Box of GBP 8.7 million in the prior year. We then generated an incremental GBP 2.2 million of gross profit. So our Cake Box sales were up to -- franchisee sales were up 12.4%. Our sales to the franchisees were up 9.3%. Our overheads were up 3%, which meant we had a really good flow-through operational gearing in the year, which meant that we ended up in the Cake Box segment of GBP 10.5 million for underlying EBITDA versus GBP 8.7 million in the prior period. Add in the GBP 1.9 million underlying EBITDA, the maiden contribution from the Ambala segment, that's how we ended up with GBP 12.4 million underlying EBITDA for the year. So just a walk-through of how our underlying EBITDA came about in the year. So we can see the GBP 12.4 million, which is up 41.6% on the prior year and then flowing down the P&L to our increase of -- in underlying EPS. Our reported results, we can see our reported EBITDA was up GBP 10.5 million -- to GBP 10.5 million (sic) [ GBP 10.55 million ], which is 38.9% (sic) [ 39.9% ] up. The difference between the underlying EBITDA and the reported EBITDA was GBP 1.8 million of underlying -- non-underlying items, which is broken down on the right, which is GBP 1.6 million of impairment of intangible assets and GBP 0.16 million of professional fees, which related to the acquisition of Ambala in the prior year. So just on the Cake Box segment, we can see that the system sales was up just shy of GBP 97 million, which is 12.4% up year-on-year. Our revenue to the franchisees was up to just shy of GBP 46 million, up 9.3%; and the underlying EBITDA up 21.7% in the year to GBP 10.5 million. Our underlying EBITDA margin was up 2.3 percentage points to 22.9%, up from 20.6%. The growth drivers here were like-for-like sales for the full year increase of 4.8%. We successfully opened another 25 new stores, and that was on top of the 26 we opened up in the prior year. And our underlying EBITDA outpaced the growth of our sales due to the increase in our overheads being less than our sales. Ambala's first year, we can see the system sales. So this is the sales to the end customer was GBP 14.3 million. The underlying EBITDA was GBP 1.9 million with an underlying EBITDA margin of 13.1%. And the store expansion, we added 12 new franchise stores. So just a note here that all new stores opened up in Ambala will be franchise stores. So if we look a bit further into the growth in the system sales of Cake Box, 2 main drivers here was, one was the online sales. This increased 19.7% to GBP 22.9 million, which was 24.8% of our franchise store sales in the year, up from 23.5%. The second growth driver was the increase in the sales on delivery platform. So this is Uber Eats, Deliveroo and Just Eat. That was up 46.2% in the year, up from GBP 4.3 million to GBP 6.3 million and accounted for 6.8% of our sales, up from 5.3%. So if we just look at a bit in terms of the investment, the CapEx spend in the year, of the GBP 5.9 million CapEx, we spent GBP 2.6 million related to the new Bradford warehouse. This is a total build of GBP 5.5 million, of which the remaining CapEx will be spread over the current year, the FY '27 year and the first half of FY '28. We then also spent a further just shy of GBP 1 million on our technology platforms and then GBP 2.3 million on property, plant and equipment, GBP 1 million of that related to Ambala, where we invested GBP 0.3 million into the leasehold improvements of the production facility and the rest was on new equipment that we bought now to enable us to automate a lot of the production within the facility. Our closing net debt. So we ended off the prior year with a net debt of GBP 9 million. This year, that increased by GBP 1.8 million to GBP 10.8 million of net debt, and this is the walk through. So we added GBP 12.4 million of underlying EBITDA. Our working capital went up marginally by GBP 0.7 million. We paid over GBP 2.4 million in terms of tax and interest and a GBP 1.4 million of that was interest on the new loan facilities for the purchase of Ambala in the prior year. Net CapEx of GBP 5.8 million. And then we had repayment of finance leases of GBP 0.7 million and then dividends in the year, interim dividend for this year, final dividend for the previous year of GBP 4.6 million, which gave us a net closing net debt of GBP 10.8 million, which was 0.88x of EBITDA or rounded up to 0.9, where we started off the year with 1.03. So that has improved marginally on the prior year-end. Our capital allocation priorities going forward. So maintenance CapEx, we are looking about GBP 1 million per year. The growth investment is in the Bradford facility, where we still have another circa GBP 3 million to go. The facility should be complete by the end of this financial year, and then we will look to commission and start using the facility in quarter 1 of FY '28. We are continuing to pay down our debt facilities, which we took out to pay off the purchase of the Ambala, and we're paying that down at GBP 2 million a year. And then dividends. We now -- the dividend is -- this year is 1.48x cover, and that's up from 1.29x, which is in line with our target to get it to 1.5x. I'll hand you back to Sukh then.

Thank you very much. So stepping back, this is how we think the business structurally. Our growth is really driven by 2 core inputs, like-for-like performance and continued expansion of the store network. This feeds into a very efficient profitability engine where the franchise model allows us to scale without heavy capital requirements. And then ultimately, the output is how we use that cash, reinvest in the business and delivering returns to shareholders. So it's a very simple but very effective model, growth in efficiencies through the system and disciplined cash out. To bring this to life, we structured around 5 clear pillars. First is growing the U.K. footprint, which remains a big opportunity. The multichannel sales, making sure we're capturing demand both online and in-store. Third is data-driven marketing, helping us attract and retain customers more effectively. Then product innovation and collaborations, keeping the offers fresh and relevant. And finally, franchise efficiency, making sure our partners remain profitable as we grow. And the key point is they aren't stand-alone. They all reinforce each other. If we look specifically at expansion, there's still a significant opportunity ahead of us in the U.K. We've built good momentum over the past few years, but importantly, there's still a clear runway to continue growing the store network. And what gives us confidence is that this growth is being driven by experienced multisite franchisees. So it's not just about pace, it's about quality as well. So expansion remains a key driver and one that we can deliver in a controlled and sustainable way. What this slide really shows is how our online, offline channels work together to drive growth. Over the last year, we brought in about 134,000 new customers through our online platform, which helped drive sales -- online sales of nearly 26%. But the important point is these customers don't just stay online. A big part of our strategy is using digital marketing to bring people into our store through click-and-collect. It's a very cost-effective way of acquiring customers because we're turning online demand into physical store visits, which typically results in larger basket sizes and stronger customer engagement. Trust also plays a major role in that journey. When customers first discover the brand online, social proof is critical. We're now sitting at more than 40,000 excellent reviews on Trustpilot, which give customer confidence and helps improve conversion rates. We're also building stronger relationship with customers once they're in the ecosystem. Our e-mail database grew by 29% to almost 1 million subscribers. SMS subscribers increased by 32% to 390,000. Our loyalty program now includes around 138,000 highly engaged members. So overall, we're not just growing our digital presence. We're using it to acquire customers efficiently, drive traffic into stores and build long-term customer loyalty across the entire Cake Box network. We're very focused on staying relevant across key season cultural moments throughout the year. Our business is simple and clear, everyday celebrations, birthdays, anniversaries, et cetera. We know all the peaks in addition to everyday trading. So starting with Chinese New Year; Valentine's; Mother's Day; Eid, can be either side; Easter; Second Eid; school holidays; exam results; Diwali; Eastern European name days; Christmas and New Year's Eve and New Year's Day. That keeps the brand front of mind and drives repeat purchases. We're also starting to see more opportunity from cross-brand collaboration between Cake Box and Ambala, which is adding something new commercially. So it's about increasing frequency and basket size through innovation. Alongside growth, ESG remains a priority. We made progress in sustainability, ethical sourcing and food safety. Engagement across the business remains strong. So we're scaling responsibly. Alongside of growth, ESG is also a key part of how it's fully integrated into how we operate day to day. From an environmental perspective, we made strong progress, particularly across renewable energy and reducing packaging, which helps us to scale in a more sustainable way. On the operational side, there's a big focus on food safety and supply standards, making sure that just as the network grows, quality and consistency remain high across both brands. And just as importantly, from a people's perspective, we're maintaining strong engagement across the business, which is critical in a franchise model where execution at store level really matters. So you have got a balance of sustainable improvements, operational efficiencies, discipline and people engagement, all supported by clear governance from the Board and central teams. So just looking ahead, we've entered the new financial year with good momentum built on strong performance. We've delivered in 2026. Our focus remains consistent, continue to expand our store network while driving growth through digital product, innovation and franchise performance. We will also benefit from the broader reach of both brands, which puts us in a strong position to capture more customers and occasions. And while the wider economic environment remains uncertain due to the macroeconomic and geopolitical environment, our model, particularly its accessibility and resilience gives us confidence going forward. In short, strong foundations, clear strategy and significant growth still to come. Thank you, everybody, for listening. And we'll go to Q&A now.

So we -- on the first question, let's have a look -- isn't Cake Box payout ratio unsustainable in the long run? Michael?

So I'm assuming this applies to the dividend ratio. So what we have done, so in the past, the dividend ratio has been down to 1.2, 1.3x. That's why this year, we have now raised that to 1.5, and we'll be looking to keep that going on into the future.

Any updates on the store in Paris? I was wondering what your international strategy will be going forward. The Paris store is going really well. We just started on the delivery platforms like Uber and the French equivalents, and that's doubled sales. So we're looking at it very carefully monitoring it, and we're assessing what our next step will be. Do you have a wholesale strategy for Ambala? Yes, we do. So we are in contact with many of the major catering firms who want to stock our samosas, pakoras and sweets. So we're exploring that line and build up a database of all these customers, and we'll be doing wholesaling as well.

So will older stores be renovated and upgraded to the new brand format? Yes, they will be. We've got a handful still to do, but they will all be updated and rebranded.

How do you plan to reduce debt? And what is your target leverage ratio?

So we are paying down our debt at a level of GBP 2 million per year. So the one tranche of the debt, GBP 11.2 million is over 7 years and then GBP 4 million, which related to the production facility of Ambala is over 10 years. Our ratio that we look at is 1x EBITDA.

Could you provide a perspective on the GLP-1 drugs' recently launched oral version of what were previously injectable medicine, how do you expect this to affect your business, if at all? It won't affect our business at all. Because as you find, even if you're diabetic, right, when it's a celebration, you tend to have that piece of cake. So people may eat one slice less, but they won't stop eating cake. So we don't see that affecting us at all. When do you expect to open your 300 and 400 stores? And do you plan to continue opening 20 to 25 stores per year? Is there a scope to accelerate the pace of store openings to maintain past store growth rates?

So yes, we are looking at opening up 25 stores a year. So the 300 stores should be opened up by the end of this current financial year as we started the year on 276, but we will continue at that rate. We'll also be opening up at least 10 Ambala stores a year. When will the Annual General Meeting be? That's on the 2nd of September. Do you plan to refranchise the corporate-owned stores? Yes, we do. It's going to be over 2 to 3 years now. We are looking for franchisees to open up new stores in the first instance, and then we'll be looking to refranchise those corporate-owned stores. What CapEx expense can we expect going forward? So for the current year, there's a total of GBP 4 million, which breaks down in terms of GBP 2 million for the Bradford warehouse, about GBP 800,000 relating to a new Shopify website, app and loyalty scheme and then GBP 1.2 million of maintenance CapEx. Ambala's EBITDA margin is below Cake Box EBITDA margin. Do you expect Ambala's EBITDA margin to match Cake Box margin in FY '27? No, we don't, but we do expect it to -- within 4 years to get up to the same level as Cake Box's margin. Next question. How much of like-for-like sales growth was due to an increase in pricing? Of the 5%, about 2% of it was down to pricing. How is the Paris store performing? We've done that one, yes.

Yes, we've done that one as well. There are many business models in the industry that we're making -- that were nothing more than short-lived fads. What makes Cake Box a sustainable business? What sets Cake Box apart from companies like Beyond Meat or Sweetgreen? We started in 2008. It's been 18 years, and we're still here. We're expanding. And like I said, there's 365 days in a year. There's 68 million people in this country. That's 180,000 birthdays and every birthday celebrate with a cake. So we're here to stay in the long run.