Cambridge Nutritional Sciences plc (CNSL.L) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Cambridge Nutritional Sciences plc Investor Presentation [indiscernible] presentation. [Operator Instructions] The company may not be in a position to answer every question it receives in the meeting itself. However, the company can review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to CEO, James Cooper. Good afternoon, sir.

Welcome to the results presentation. For those of you who attended one of our presentations before, you may notice an update in the presentation style. This is reflective of the work that our new Marketing Director has put into refreshing the brand and creating an eye-catching and clear theming. I feel this has helped us to take a step further forward and our marketing and education materials have all benefited from these updates. I'll just pass on to the important notice, leave it there for a moment, and then we'll crack on. For those of you who are new to the company or are unable to join the last IMC presentation, my name is James Cooper, and I'm the CEO of CNS. I graduated from the University of Cambridge with a Masters in Material Science and then spent nearly 10 years working for an operations consultancy. During this time, I led projects that delivered a step change in the operational efficiency of manufacturing companies across a wide range of industries. I joined CNS in January 2024 as Operations Director. I spent the first few months working directly with the team to improve production before joining the Board as COO and widening my remit beyond production. In August, I took on the role of Interim CEO and was appointed permanently in March of this year. Being the CEO of CNS is a role that I'm proud to hold and working with the team here to implement real change has been a privilege. I aim to bring a motivated, pragmatic and data-driven approach, which I believe will enable us to unlock the full potential of CNS. I'm now going to pass over to Ajay to introduce himself.

Hello all. Welcome. I joined the CNS team in January of this year as the CFO of the [indiscernible] business, and I joined the Board in July last month when I was appointed by the full Board. I have over 30 years' experience as CFO in a range of businesses from [indiscernible] to SMEs and both in the U.K. and globally, but also in different industries within retail, health care and logistics as well as e-commerce, education and charities. I also have quite a bit of experience in business turnarounds and growth operations.

In today's presentation, we'll cover off 4 key areas, initially focusing on the year-end review and then moving on to the outlook for the coming year. Before we get started on this, I'd like to give a brief introduction to CNS to any new investors joining us today as part of the update to our brand and to reflect our renewed focus, we have updated our purpose, vision and mission statements to better reflect who we are. Our new purpose is to empower people to take charge of their health by unlocking the power of personalized nutrition. This updated statement now focuses in on the personal nutrition aspect rather than the wider functional medicine sector. Going forward, this is a space in which we will aim to increase our reach, position and share of the market. Our vision remains to put personalized nutrition at the heart of global health care. We feel that this remains a core focus, and it guides our education and marketing efforts as we see the role and impact that nutrition plays on the health and well-being of individuals only increasing as further research is published. Our updated mission to manufacture and develop best-in-class diagnostic products that enable fast, accurate and reliable insights, advancing our position as a leader in personalized nutrition. This reflects our position in the value chain as a manufacturer of high-quality products and a service provider of fast and accurate results. This reflects our strengths in the market and by maintaining and growing these, we secure our position as a leader in the space of food sensitivity testing. Our portfolio consists of 4 key brands. Our flagship product, FoodPrint is a lab-based ELISA test using microarray technology. Patients require just a few drops of blood, which can be taken at home or in the clinic. And using our test, the lab analyzes the IgG antibody response to over 200 foods. Food Detective is our point-of-care test, which can be used by professionals to generate results in just 40 minutes. This is the ability to analyze response to 59 commonly consumed foods. CNS lab is our U.K. lab offering food sensitivity testing on our FoodPrint platform to the U.K. market. Once someone orders a test online, they will receive a sample collection through the post. And all they have to do is follow a few single steps, and they will have the results in a matter of days. Any further follow-up questions are answered by our in-house team of nutritionists who are on hand to offer help and advice. Finally, MyHealthTracker is our innovative app, which not only delivers results direct to the patient, but also facilitate symptom tracking to allow patients and practitioners to better manage gut health conditions. This is just a brief insight into Cambridge Nutritional Sciences and the products and services that we offer. For more information, please visit our website, cnsplc.com or e-mail the investor e-mail address. Moving on to the performance highlights from the financial year ending 31st of March 2025. Total income was up 12.7%, following the successful resolution of the outstanding DHSC case. In early 2025, we reached an agreement to drop hands, which allowed CNS to recognize the GBP 2.5 million production prepayment. We were confident that this will be the outcome, and the resolution of this has increased the time and resource that we can spend on the future of the company. The revenue for FY '25 was down due to a couple of incidents in isolated markets. This is not a reflection on the general health of the market, which we observed to be growing. However, the loss of a large customer by a distributor and aggressive destocking by a partner has led to a lower revenue overall. The gross margin for the year has again improved and now stands at 65.3%. This has been due to the continued efforts of the team to increase both the yield and productivity in production, which has helped offset raw material cost increases and deliver an improved margin. Adjusted EBITDA has more than doubled to GBP 0.4 million, and this is a result of the efficiency with which the team are able to operate under a limited budget and marks the completion of our overhead reduction work. A key focus and catalyst for the success of the business and these results are the people that make up CNS. Over the course of 2025, we have made a number of changes aimed at improving and upskilling this vital asset of the business. There have been several changes at the Board level with Carolyn Rand joining as Chair in April 2024, bringing in a wealth of experience and a drive and determination to grow the business going forward. Following Jag's resignation in August 2024, I initially took over as interim CEO and in March was appointed on a full-time basis. I aim to bring a motivated, pragmatic and data-driven approach, which I believe will enable us to unlock the full potential of CNS. Then most recently, in July 2025, Ajay Patel joined the Board, bringing valuable plc experience and a strategic mindset. This brings the Board back to full strength ready for the year ahead. Within the leadership team, there are also a lot of new faces with 4 out of the 7 members joining within FY '25. The new skills, expertise and energy that they bring to the business is already having a significant impact as we push forward projects and improvements across a wide range of areas. Within the wider team, both in the U.K. and India, we've seen changes in the teams as we ensure we have the right resources in the right areas. The business now has a skilled and motivated workforce who deliver great results and value for our customers on a daily basis. This is underpinned by a culture of enabling all individuals to perform at a high level and for the wider teams of business as a whole to deliver results for our clients, our shareholders and themselves. We continue to focus and enable this through new training, development and an improved suite of benefits to reward and retain our team. Another key pillar for our success are the products and processes here at CNS. In early FY '25, we completed a rationalization of resources in production, which has led to an increase in productivity. This was enabled by improvements in the efficiency of processes and use of new equipment. Yield remains a core focus, and we saw a significant reduction in scrap costs over FY '25. This contributed to the improvements in gross margin, and we believe that we can go further. It is very encouraging to see the results of the team's efforts in these figures and only energize them going forward in FY '26. We have reviewed our internal systems to ensure that we are both compliant and set up for the year ahead. This process identified a couple of priority areas. In FY '25, we completed Phase I of a transition to our new electronic quality management system. And towards the end of FY '25, we appointed and started work with a vendor for a new laboratory information management system. This investment ensures the business is set up to scale in the future. Finally, our audience and our engagement with them has taken a step forward with the creation and appointment of a Marketing Communications Director. This has resulted in an uplift in our presence on social media, improvements to our own processes through secret shopper programs and a general improvement and refocusing on who we are and how we appear to the market. This is just a brief insight into some of the excellent work that the team here at CNS have completed in FY '25. And I'll now pass on to Ajay to dive more deeply into the financial review of the past year.

Thank you, James. That's really helpful and very full of insight. In terms of financial highlights, the key one really is that total income for the business increased 12.7%. James has already explained that this is brought on largely by the DHSC outcome where the GBP 2.5 million was able to be recognized within the income number. In addition, other income also helped us to grow that figure to get to GBP 11.1 million. Unfortunately, revenue was down 14.8%. And as James has explained, there are some reasons behind that, which we'll dig into in a little bit more detail. The other key highlights for us are that gross margin improved to 3.5% from 61.9% to 65.3%. It doesn't sound an awful lot when it looked this way, but actually significant effort went into producing those improvements, and we'll again dig into that in a little while. Those 2, together with a lot of emphasis on cost control, led to adjusted EBITDA, which is before exceptionals to increase over 100% from just below 0.2 to over 0.4, marvelous achievement in the current climate, especially in a business that's going through so much change. As I mentioned, the P&L itself has benefited from exceptional income in the year. The net number is GBP 1.8 million, which includes the GBP 2.5 million from DHSC, less costs of actually satisfying a number of events that took place there. Last year, this line had a cost impact of GBP 0.2 million. Overall, all of that has led to our cash balance remaining healthy and at GBP 4.9 million, down slightly from GBP 5.4 million last year. Moving on to the profit and loss account. Here, you see the classic P&Ls for this year and last year. And as you can see, revenue is down 14.8%. What you can also see a bigger falls in costs than the 14.8% and also a rise in income. This has led to operating losses falling by significantly more than the loss in revenue. In essence, our operating loss in FY '24 was GBP 0.5 million. And in FY '25, it was GBP 0.4 million. We would have expected that to be greater had the sales misses fallen straight through. In addition, in terms of the profit and loss account, we also see the exceptional item in the current year of GBP 1.8 million, leading to our overall profit before tax of GBP 1.6 million against a loss in 2024 of GBP 0.7 million. There is no tax impact in the current year as any taxable profits will be offset by losses brought forward. Moving on to sort of the 2 key big items of revenue and gross margin. James mentioned that actually one of the key reasons that revenue has fallen in the year is due to the fact that we've lost one of our -- one of our big clients from a distributor in Canada. The other reason is the overstocking that's happened in of our clients, specifically around the Middle East. These are largely one-off events, but equally, we will see the full year effect of some of these in the year ahead. So it's just something to be aware of. In addition, we talked about gross margin improving from 61.9% to 65.3%. One of the big factors here is scrap costs. James talked about a lot of the efficiencies, but also actually just the fact that we could reduce our scrap costs by 41% helped to improve that margin quite significantly. There are other plans in place, and those we'll keep an eye on and we'll talk about later. Next slide is a waterfall of adjusted EBITDA, showing how if we start from FY '24 at GBP 188,000, how we effectively get to the profit we've just announced of GBP 405 million. In essence, the gross margin, if we had applied the increase to last year's revenue, that would have improved our profit margin by almost 0.4%. In addition, with the cost cutting and the additional income that we've received this year, if that happened, we would have increased our profitability by another 0.8%. At that point, it looks like that we would have had a very, very good year. Unfortunately, the impact of the sales fall has meant that that's affected profitability directly, and that's reduced overall profitability by 0.9%, leading to sort of net profit for the year being GBP 0.4 million. Moving on to the balance sheet and cash. This waterfall shows cash movement from the start of the year at GBP 5.4 million to the end of the year at GBP 4.9 million. The business benefited in cash terms from good EBITDA growth and also working capital movements and the impacts on cash movements were around exceptional costs and also CapEx in the year. Exceptional costs are one-off in the year, and the CapEx is an investment for the future and largely was around some advanced printers and also some software to help in the manufacturing and the lab side of the business. Next slide, it just shows you a regional analysis of our sales split in FY '24 and then in FY '25. Some of the big benefits we saw in the year, bearing in mind that overall sales fell 14.8% was that actually we saw growth in the U.K. market and in the Indian market, 8% and 25%, respectively. Both those helped the share of those markets grow from '24 to '25. The areas where we have had the impacts on our revenue and has shown bigger falls than the 14.8% overall was the Americas, Africa and the Middle East, Asia and the Far East as well. Moving on to just the trend analysis of the previous 5 years. This is quite useful just to see direction of travel and where we think we can take the business in terms of sort of moving forward as well. The top slide shows revenue and gross margin over that 5-year period. And as you can see, the trend line for both is actually positive and growing. That's actually very encouraging for us and something we're working hard to make sure we can continue with. The table below shows adjusted EBITDA and our cash balance. Once again, you can see that adjusted EBITDA is on a growing trend. And whilst we had a blip in FY '23, the overall trend is positive and growing. And the cash balance has actually remained healthy, once again, a dip in FY '22, but actually has grown since then.

Thanks, Ajay. Turning to the outlook for FY '26 and beyond. We often get asked the question, how big is the market for your product? Now, this is not an easy question to answer. As our products can offer benefits to a large number of people, but there are no reliable stats on how many people currently purchase one of ours or an equivalent test. What we do know is that once a patient has used a test from us, they often have a very favorable opinion of it and frequently become a big advocate for us. So we believe that there is a large market out there who just need to hear about us. We can, however, be clear about the growth we see of our product in the markets we operate in. In FY '25, the U.K. and India both returned a 5-year high in revenue, and we feel that these are representative of what a market could be. The U.K. grew by 8% and India by 25%. And we've seen them both continue to grow in early FY '26. We are aiming to replicate this success in other markets around the world and have adopted a multichannel approach to achieve this. We're working with distributors, labs, online marketeers and practitioners to ensure that we can hit each market in the most appropriate way to drive growth. The sales team have focused on finding opportunities to enable this growth and have been filling the pipeline with a number of them. These are exciting in the size and scale that they represent. However, with the bigger opportunities comes a longer and more complex sales and onboarding process. We anticipate that these opportunities are going to take longer to convert. However, we believe this is the right approach and sets up CNS well for the future.

Moving on to the forecast for FY '26. The first forecast is around revenue. We're anticipating revenue to be broadly flat, and that's a prudent assumption on our part. It does take into account we mentioned earlier, the full year effect from the revenue from last year, but also the fact that we are signing new clients on, and we anticipate that will actually help to allow us to achieve a flat revenue growth year-on-year. We also talked earlier about operational improvements to allow us to grow gross margin. And as you can see from this chart, we do anticipate that we'll be able to grow the gross margin, which in itself will allow us to improve our cash gross profit. The other big important thing in the current year in terms of forecast is that we do anticipate investing more for the future in terms of our capital expenditure. We mentioned the printer earlier and also further investment for the future to allow the efficiencies and benefits that we've talked about. We do anticipate this will mean that our cash position will fall to around GBP 4 million at the end of FY '26.

Thanks, Ajay. I want to close today's presentation by thanking both our employees and the Board of CNS. The hard work and commitment from them over the last year has led not only to hard-earned revenue, but also a lot of progress has been made in projects which will complete in this year or the next. This investment sets up the business well for the future. I look forward to giving you further updates on these projects going forward. To ensure you don't miss out any of our future updates, please subscribe on our website. And if you have any questions in the future, you can contact us via the investor e-mail.

That's great. Well, thank you very much for presentation. [Operator Instructions] but just a while the company take a few moments the recording of this presentation along with a copy of the slides and the published Q&A can be accessed via investor dashboard. As you can see, we have received a number of questions, both pre-submitted and throughout today's live presentation. So James, what I'll do is I'll hand over to you now to read out the questions, and I'll pick up from you at the end.

Thanks, Alex. So for the Q&A session, I'm pleased to say we're joined by our Chair, Carolyn Ran, just to my left here. As Alex mentioned, we received a good number of questions, and we'll aim to answer as many as we can today, but we might not be able to get through all of them now. So do bear with us. So we're going to start out with the first question, which is what investment have you made in sales and marketing? So over the past 18 months, we've brought on 7 new team members in the sales team, and that's across a number of different geographies. We brought in new incentive schemes for them, and they're going out and trying to find new opportunities and new customers. On the marketing front, we have introduced a new Marketing Communications Director role, and they're helping to improve the visibility of us in the market, both directly and also through our partners. And they're also going to be in charge of improving the Investor Relations piece and the communications out to you, our shareholders. So that's very much a focus point for them going forward. The next question we move on to then is, is there any growth within the company? I'll pass to Ajay first.

Yes. And I think as the slides show, we've had a year, certainly the year ended FY '25, where there were 2 markets in particular, where we showed growth. My slide showed 25% in India and 9% in the U.K. So there is growth within the market from a sales perspective. Obviously, from -- because this question is growth within the company, we've interpreted it sales. And yes, we do anticipate some growth. In the early part of this year, we're still seeing those markets grow. So that's positive.

Okay. Next question up here is when are the dividends paid to investors?

Popular question and one I know that many people are intrigued in. As our analysis showed, we are looking at cash position quite carefully. We anticipate that we've got no plans to pay any dividends at least for 2 years because we think we can invest it well, certainly to develop for the future.

Okay. Thank you. The next question is about PR and how are we improving this. And there's an example asked about an industry award and could this have been communicated via an RNS reach. We want to be cautious on what we do put out via RNS reaches. We only want to put out events that we believe cross that threshold for being reportable. We do publish events like this, the award and lots of other things on our social media platforms, particularly on LinkedIn as well. So do make sure you're following us on there because you'll see all these great updates and information about where we are in the world, events we're at, conferences, et cetera, all of those will be published via those feeds. I have another question then. Is CNS too focused on process and not on sales? So as I mentioned in my previous question, I answered, we've significantly increased the size of our sales team, and they're really focusing on growing the pipeline to lead to that revenue growth going forward. So that is an absolute top priority now for the Board and for the leadership team. The process of the business and our operations side really remains the bedrock of the company. It's now in a really good position, and that has allowed us to switch our focus more on to that sales side of things. So yes, sales now really is going to be that core focus going forward. Another question here, I'll pass to Ajay. When do you expect the share price to close up on the broker valuation?

So we, as execs focus entirely on driving the business forward from a sales and from a profitability perspective. Hopefully, if we focus on those and drive those forward, the share price should improve. So we know that the forecast we've given for the year ahead is that sales will be broadly level. Our expectation is we'll try and exceed that. So we will be very much focused on sales and delivering profitability. So the next question is, can the company be more concise in respect of timing of bottom line profitability? I think in terms of concise and timing of profit, it's always hard. Growing sales is going to be absolutely imperative for us. As my waterfall showed, we suffered last year quite a bit from the fact that our sales fell. The effect on profitability was quite significant. Our aim is to drive sales up, which in itself will drive up profitability. So without being saying too much, our expectation is for FY '27, hopefully, that sales will deliver and then profitability will start to grow.

Thank you. Another question here is talking about with the decline in the sales, are the company actively looking for distribution partners globally? And what does it see as key markets to concentrate on? And I think we mentioned in the presentation, we've got a couple of key focus areas and those particularly are going to be on Europe and the U.S. That's where we're focused in the short term. But once we feel like we've got good traction there, we obviously broaden our horizon.

We're not just looking for distribution partners. We're actually also looking to go more direct to lab groups and other sales outlets as well. So it's not just distribution.

Another question here, a quite specific one. With marginal games being a key focus for Elite Sports, have the sales team engaged such organization as gut health could help top performers? Short answer, yes. We are working with people in this space and in touch with those in a number of different sports and a number of different countries. Another one here. What do you see as your competitive advantage? So we believe that we are a real gold standard, and we are a CE mark test made that we make ourselves in Cambridge. And we feel that really gives us an advantage over a lot of other competitors in the marketplace. Obviously, amongst those in Europe, they also have that CE marking. But when you go further afield, that CE marking carries a lot of weight. The other fact that we purely specialize in food sensitivity testing means that we've put a lot of effort into our product to hone and make it the best in the marketplace. And we offer a very complete package of support and educational material, which a lot of our competitors do not. We've also had quite a few people asking about our investor communication strategy and the plans to broaden that going forward. Yes, as I mentioned previously, we only want to be putting RNS reaches out for really truly reportable events. But rest assured, as soon as we feel comfortable that we've hit that threshold, we will be publishing those. Other one here. What are the biggest challenges to growing revenues and why is progress slow? I think we may have touched upon this in the presentation already. But one thing about the space in which we operate is the really quite long lead times it takes to go from that initial contact with a potential distributor of our product going through to the point where they validate the product on their system in-house and then they get on to the point of marketing it to customers. So it's this extended sales cycle that is probably the biggest challenge in terms of growing the revenue, and that's why it takes quite a long time to fall through. Another question here, which I'll pass to Ajay on. Given the transformation over the past year, what does success for FY '26 look like?

So we've shown and demonstrated our forecast for FY '26. I think the question, hopefully, bearing in mind, we've given that is probably more around FY '27. And our aim for '26 is that we will exceed the forecast revenue and exceed gross margin and profitability as well. So therefore, for '27, it's much more about building on that and really getting some of this pipeline of sales to start to deliver. So that would be my expectation is that we really drive sales in excess of the forecast and then for FY '27 go even further.

Then another one here of do you anticipate requiring additional funding to accelerate expansion? Or can this be funded from internal cash generation? No is the answer short term. We've got cash from -- for our plans. Clearly, obviously, if other opportunities that require funding are sort of forthcoming, we'd communicate and let you know.

Yes, I agree with that. We will be using internal generated cash to develop new systems and new equipment. We've already said that we're expanding our R&D, but we think all of this can be done through current cash and generated cash.

Great. I think that's covered off all the questions that we were seeing coming up here. If there's anything else that does come through, I believe we will be able to answer that at a later date through the IMC platform.

Thank you for your time today.

Thank you very much.

That's great. Well, thank you very much 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 Cambridge Nutritional Sciences plc, we'd like to thank you for attending today's presentation, and good afternoon to you all.