Elixinol Wellness Limited ($EXL)

Good morning, everyone, and welcome to the Elixinol Business Update Investor Webinar. On our call today, we have Gavin Evans, the Chair; Natalie Butler, Executive Director and CEO; and Adam Dimitropoulos, the CFO. And my name is Katie Mackenzie, Investor Relations for Elixinol. The presentation today will run for about 15, 20 minutes, and then we will open up for Q&A. [Operator Instructions] And now I would like to hand over to Gavin Evans. Over to you, Gavin.

Gavin, you're on mute. We've got you back now. We can hear you.

You can hear me?

Yes.

Sorry about that. It's the age-old issue of being on mute in this day and age. So apologies for that. Thank you. Great to be here. Just getting to where I need to. So yes, thank you, Katie. Good morning, everyone. It's great to be here and engaging with our shareholders again and especially off the back of some solid momentum in the market over the last few days. The purpose of today's webinar is twofold: Firstly, we want to expand on the exciting news of our new national distribution agreement with Priceline, which we announced last Friday. And this is really significant operating milestone for the company and has clearly created some buzz in the market. Natalie will go through that in more detail shortly. Secondly, we wanted to provide a clear overview of our operational and capital structure reset prior to the upcoming AGM. We're aware that the Notice of Meeting for the AGM, which was sent out to shareholders a few weeks ago, was filled with lots of important information. So we want to take the opportunity to step through each of those components to make sure that shareholders are clear on the details and that the strategic rationale behind those activities is clear. So to reset the overarching vision we have for Elixinol. We have a bold, ambitious vision for a healthy food roll-up. We're looking to build a portfolio of premium branded health food assets with Australian manufacturing capabilities and global growth potential. This year is all about setting the right foundations from both an operational and a capital structure perspective so that we can effectively execute on this bold vision. We want to take the right capital structure and the right shareholder base forward with us as we embark on this exciting journey ahead. Our bold vision is based on the belief that the diversified health and nutrition platform that we've built is now scalable. Our core verticals span across nutrition, supplements and superfoods. We have diversified distribution channels across retail, wholesale and e-commerce, and we have great relationships with the big supermarkets and other key retailers, and we're very happy to add Priceline to our channel network. We have market-leading and award-nominated products in the fast-growing GLP-1 curious category for customers that are investing in everyday wellness. We're vertically integrated with operations along the whole supply chain from farm to manufacture, distribution and e-commerce. And so we think that this is a great foundation for bolt-on acquisitions, which add new product innovation or trusted brands or manufacturing capabilities or indeed export footprint to roll into our established structure moving forward. Now I'll throw to Natalie Butler, our CEO, to talk to the operational momentum that we have been building.

Thanks, Gavin. Over the last 12 months, we've really done a lot of hard work in the resetting and rightsizing of the business. We have cleaned up, streamlined and really systemized and as a result, proven our viability. Importantly, while doing that, we've really kept a focus on growth opportunities and our commitment to innovation. So as a result, we're now entering that next growth phase with a much stronger foundation and multiple exciting opportunities ahead of us. I'm pleased to report that the resetting and rightsizing is working. Q1 '26 saw our gross margin improved to 45%, which is above both the previous quarter and the previous year. That improvement was driven by a streamlined supply chain and operational efficiencies across procurement and manufacturing. We have also undertaken a comprehensive pricing strategy review, and we have been ruthless in our SKU rationalization. If a product cannot deliver on the right margin, we're either reworking it or rationalizing it. Second, we're only innovating around real consumer insights. Retailers are reducing ranges across the board, but they're still backing true innovation. For us, that innovation sits across 3 key areas: Clean & Wholefood with our Hemp Foods Australia and Mt Elephant brands; longevity and well aging with our Healthy Chef range; and finally, sustainability without compromise, which is our new Mt Elephant packaging, which I'll share with you in a minute. Thirdly, and I guess, most importantly, is our scalable platform, which includes a distribution model diversified across both e-commerce and retail. E-commerce gives us higher margin and direct-to-consumer ownership, whilst retail really gives us that scale and broader brand awareness. Together, this model allows us to test, learn and scale successful innovation into retail, whilst also reducing that risk that small businesses face when relying on retail models alone. The Healthy Chef is a great example of this strategy coming to life. Last Friday, we were very pleased to announce that we have secured a multistage national partnership with Priceline. So in Q3, we will have Stage 1 launching into around 410 stores, then Stage 2 is planned for early 2027 and provides the opportunity to expand the range and increase store penetration based on performance. Priceline is the right partner for The Healthy Chef, and we were quite fussy when choosing who that partner would be. They are prioritizing health and wellness and really backing this expansion for their retail category. And they really share that similar target customer and so making this a really natural fit for both parties. Importantly, the rollout has been supported by a strong innovation pipeline over the past 12 months for the company. Products like our Metabolic Burn and 3 Functional Protein Waters are targeting that growing GLP-1 curious market, which is potentially much larger than the actual GLP-1 market itself. That innovation has not only helped drive this retailer interest, but has also led to The Healthy Chef being nominated for a prestigious Hive Award for Best New Product Development. At the same time, e-commerce remains a key innovation -- sorry, remains a key innovation and growth engine for the brand. It allows us to launch products quickly, test them with our loyal customer base and then scale successful products into Priceline over time. An example of this innovation pipeline is our creatine and electrolyte range, which you can see on the screen, which is dropping into e-commerce in Q4 and is a really exciting launch for the brand. I also wanted to touch briefly on our Mt Elephant brand, which is a great example of innovation collaboration with major retailers, specifically Coles. Mt Elephant is now positioned exactly where it should be. It is clean, wholefood, sustainably differentiated while still remaining highly mainstream. That positioning is resonating strongly with retailers, and Coles and Metcash are backing the brand because it is bringing genuine innovation into grocery at a time when ranges have been greatly rationalized. Our Pic's Peanut Butter collaboration and sustainable pancake shakers, which you can see on the screen here, are now launching into more than 800 Coles stores as of this week with Metcash rolling out over the next month. We've also worked closely with the Coles team on the development of our new Cake in a Cup range, which you can see on the right, which is currently under review for national distribution and is really brand-new innovation in both Australia and the world. Mt Elephant is now a future grocery brand built around real consumer trends. These innovation opportunities that I've shared today with Mt Elephant and with The Healthy Chef are really supported by our growing and stable hemp business, which remains the backbone of our company. Not only do we remain the largest consumer hemp brand in Australia, stocked in both Coles, Costco and Independence and Health as well, but we also have contracted hemp supply for the 2 largest grocery players, and this is revenue we can rely on well into 2027. I'll now hand back to Gavin to talk through our framework for the next stage of value creation.

Great. Thanks, Nat. Some really exciting product and channel developments there. To follow on from what Nat has just said, let's talk about our operational reset and where that is taking us in the future. Over the past year, we've worked very hard internally to reposition the business for sustainable growth. Across our product portfolio, we've made a strategic shift to higher-margin categories and channels. I'm very pleased to report that we're making progress, and that's now clearly coming through in our quarterly results. We're generating higher-margin revenue with our premium wellness brand, The Healthy Chef, growing 25% year-on-year, and with this new Priceline contract set to turbocharge that growth in the next 12 months. We've improved gross margins, which were reported at 45% in Q1, up a massive 8 percentage points year-on-year. We've structurally lowered the cost base with operating expenses down just under 30% in Q1 year-on-year. And importantly, we delivered our second consecutive quarter of positive underlying cash flow in Q1. As we look ahead, the outlook becomes more positive from here. We've just announced the new national distribution partnership with Priceline, which will significantly increase the revenue and earnings from our Healthy Chef brand in FY '26 and beyond. The capital reset provides the foundation for our next stage of growth, and we have multiple short-term catalysts, which we'll go through in detail later in the presentation. So putting all this together visually, we can see that our strategic focus on higher-margin revenue delivered improved gross margins in Q1 of 45%. This was a key highlight in our Q1 results, which we recently reported in April. And you can see this upward trend really accelerated about 6 months ago in Q4 FY '25 with the gross margins up to 42% and have increased from there. It's important to note that the revenue in Q1 is seasonally our weakest, but our revenue is now higher quality and as a result, our gross margins are increasing. The other major trend that we wanted to draw your attention to is the back-to-back quarters of positive underlying operating cash flow. Our Q1 results built further on our Q4 results to show a trend that we think is worth highlighting. This reflects the hard work undertaken by the management team over the past year to improve operating efficiencies and structurally lower the cost base. So we're very happy with this trajectory, and it puts us in a great position as our revenue grows and we look to scale in the future. Now I wanted to dig deeper into the capital reset as shareholders will be voting on some important initiatives in next week's AGM on Wednesday, the 27th of May. As I previously mentioned, we're looking to provide a stable foundation with the right capital structure and the right shareholder base to support the company in its next phase of growth. The first step here is to clean up the existing register with the small parcel sale facility, which is announced on the 20th of April. At the record date, we had just under 8,000 shareholders, representing 6% of the issued capital that had small parcel of holdings, which is defined as a value of less than $500. We have already seen some of our more engaged shareholders top up their holdings. But for those shareholders who are not interested in staying in the journey with us, we'll acquire those shares through a share sale facility, which will make for a stronger, more engaged shareholder base. This sale process will be completed on the 5th of June, at which point the threshold of $500 will be reassessed, and we'll provide an update to shareholders around that time on the final numbers. The second step and a really important one is the loan note holders. We're seeking approval for up to $2 million in convertible notes in the upcoming AGM to offer that instrument to our current loan note holders to stay on the journey with us rather than seek a cash repayment now. This is important for our working capital position as we continue to grow and invest in our brands. And the third step is a capital injection, whereby we are seeking approval for the issue of new shares and/or options. This is interrelated to the convertible note and will be used in conjunction with that instrument to get the best capital structure to take us forward. The combination of the 2 will also ensure we deal with all of the loan note holders. Clearly, we won't be looking to maximize both of those facilities to the amount mentioned in the AGM, but we've given ourselves flexibility to cover both of them. And whilst this document and the AGM Notice of Meeting needed to flag a worst-case scenario of that raise occurring at a floor price of $0.005 a share, which drove the $400 million shares figure, it's important to note that at today's price or yesterday's closing price of $0.016 per share, raising the full $2 million would result in issuing more like 125 million shares than the $400 million noted in the AGM NOM. Clearly, any further gains in our share price reduced that impact even further. The important point to note there is that we need to enable flexibility to the optimum combination of capital from convertible notes, new shares and options, and we do not plan to utilize either instrument to its full extent. But the AGM is an important opportunity to work with shareholders to agree that path forward. In all considerations and discussions, we'll be working towards the best option for all shareholders to ensure we have the right capital structure and register in place to support our long-term vision. And it is in that light that we encourage all shareholders to vote for the resolutions in the AGM. And as I said earlier, clearly, off the back of the rerating to a market cap of more like $7 million, any dilution will be significantly reduced from where we sat in early May. So as I mentioned earlier, our FY '26 outlook is very positive. We're now operating from a stronger, more efficient cost base. We're ready to capture growth opportunities just like the recent Priceline deal and create long-term shareholder value. We have operational momentum of a rightsized cost base. We have better cost efficiency whilst continuing to invest in growth initiatives. And we are focused on the long term, building a platform for sustainable growth with value-accretive M&A to scale the business. As we sit here today, the exciting part for shareholders is that we have multiple short-term catalysts that have the potential to lead to further re-rating of Elixinol. In this quarter, Q2 FY '26, we have the AGM, which we expect will deliver a capital injection with supporting new shareholders and new terms agreed to by existing loan note holders. This will effectively reset the capital structure and give us a clear path forward. In addition, we'll complete the small parcel sale facility. This will create a capital platform is far more stable and capable of facilitating our growth plans than has been in the case prior to me becoming Chair of the company late last year. And as we look further ahead to Q3, we'll be releasing our Q2 results in late July, and our current guidance is for strong revenue growth, underpinned by new B2B and retail channel opportunities. Then our first half results will come out in August, and we expect to show significant improvement year-on-year across all parts of our business. We will start the Stage 1 rollout of The Healthy Chef Priceline, as Nat discussed earlier. And we are further planning to spread the word to the broader investment community and clearly communicate our new growth strategy to potential new investors. And we'll also progress discussions on our pipeline of target M&A opportunities. So we expect to have a busy second half of this calendar year, but we'll also have lots of opportunities to share updates with investors along the way. Just to round I want to remind shareholders that we have the right management team in place to navigate through these changes over the next few months. We're fresh, and we're delivering results. I joined the Board late last year, Nat, our CEO; and Adam the CFO, joined in the last financial year, and Pauline has been a steady pair of hands throughout that period. As you can see, over the last 6 months, in particular, Nat and Adam are leading the team well and delivering much improved results. The Board, management and the broader team are completely aligned in what we need to do to execute on our bold vision. So on that note, I'll hand over to Katie to facilitate our Q&A.

That is terrific. Thank you. Gavin and Nat. That really interesting presentation, the business update and a clear explanation of the strategic rationale behind the operation reset and the capital reset. [Operator Instructions] So Gavin, just a first question for you. I think it's -- we do have a few questions have come through just while you've been speaking, I'm sure it's front and center of mind for investors. Given that the share price appreciation over the past few days and all of the AGM resolutions, can you just reiterate or just make it clear for investors what impact that share price appreciation will have on the small parcel sale facility and also the capital raise. I know you touched on it in your presentation, but just to be crystal clear for everybody on the call.

Great. Yes. Thanks, Katie. Very happy to. So look, I think I speak for us all when I say that we're really grateful that the market has acknowledged our considerable progress, not only the Priceline announcement, but I believe that the cumulative impact of producing much improved results over the last couple of quarters. We're delivering on what we've said we'd do clearly, lots more needs to be done, and we think further re-rating will follow, but it's heartening to see the interest in our business over the last few days. So we thank shareholders for that. So assuming that these gains hold, and we see no reason why they wouldn't, then yes, that means that any small parcel share sale will be purchased at a higher value than at the record date giving a better return to those exiting shareholders who on the 5th of June when the process is managed, will be reassessed to see if they still meet that $500 threshold. But also importantly, for those shareholders who are staying with us on the journey and our current shareholders, it also means the new capital that will be raised will be far less dilutionary for those shareholders than it would have been a week ago. So the timing of that's been really good. And that's why we'd encourage our shareholders to support these resolutions because it sets us up going forward with the right capital structure, but also obviously minimizes the dilutionary impact on that current shareholder base.

Yes. Okay. Thanks, Gavin. That make sense and it's good for shareholders to be clear on that. So I've just got another question here, sort of on that bigger picture vision. You talked a start of the presentation sort of throughout the presentation about the M&A pipeline. Is there anything that you can sort of talk to or update shareholders in terms of that pipeline and what you're looking for in acquisitions and sort of see what that next phase of growth could look like?

Yes. Good question, Katie. I think I've touched on it in the presentation that we're looking for businesses that complement the platform that we've now built, and we're increasingly confident as we look at opportunities for acquisitions in the market that the breadth of our platform, whether it be through our manufacturing and our branded products through our distribution channels that there's a range of businesses in the market that fit our thematic of healthy, better-for-you food that can complement what we're currently doing and get some scale into the platform, which we all agree is going to be important for this business as we go forward. And we're looking at obviously, value-accretive transactions. There's some really interesting brands and products and businesses in the market. I'd say, it's a buyer's market, which is a great environment for us to be opening some dialogue with some of those businesses. And I guess, we've sort of had to get our ducks in a row a bit. So whilst we've been having those conversations, this AGM and this capital reset and shareholder register reset are really critical steps before we can go into that next phase with the confidence that we need to. So that's why our focus has been on that, but we have had some really interesting dialogue, and we're looking at the market very broadly to see the businesses that might be those bolt-ons that we want to add and I can't obviously share any details at this stage. But what I can share is that I'm confident that there's some really value-enhancing businesses to help us start to make that scale change that we need to make.

Okay. Gavin, that makes sense. So I can't see any further questions there that have come through since we have been talking, but just to finally remind you, if anybody does have any questions, typing else you've got our contact details, both Gavin and myself there, the e-mails or other channels to contact the company. So feel free to reach out if you've got any questions. Gavin I'll just hand it back to you just to sort of to wrap it up.

Yes. Great. Thanks, Katie. Thank you to those who have joined today. Hopefully, we achieved our objectives of giving you some more context around the new Priceline distribution agreement. But very importantly, hopefully, we've provided some more information that helps you approach the AGM with confidence. We encourage you to vote and support the resolutions. We are really confident that this is a significant step for the reset of our capital structure and our registry to take us forward into this next phase, and we're wrapped that the market has acknowledged over the last week, the progress that we're making, but there's lots more to come, and we're excited about the future. So thank you for joining us.

Thank you.