Maggie Beer Holdings Limited (MBH) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. On behalf of the Board, it is my pleasure to welcome you to the Maggie Beer Holdings 2020 Annual General Meeting. It is the appointed time of 9:30 a.m., and we have a quorum present. Therefore, I now declare the meeting open. My name is Reg Weine and I am the Chairman of Maggie Beer Holdings. I would like to introduce you to my fellow directors, who are all present today. Maggie Beer, Hugh Robertson and Tom Kiing. Also in attendance is our CEO, Chantale Millard; and our CFO, Eddie Woods. I'm also pleased to introduce our company secretary Sophie Karzis. I'd also like to welcome Brad Peake from our auditors, PwC and Colin Fawns representing the company's share registry, BoardRoom Limited. Finally, I'm pleased to welcome our new shareholders as well as our long-term shareholders who have supported our strategy and the directors of the company over many years. As you all are no doubt aware, today's meeting is being held online by the Lumi platform. This allows shareholders, proxy holders and guests to attend the meeting virtually. In addition, shareholders and proxy holders have the ability to ask questions and submit votes during the meeting. Please note, questions can be submitted at any time. To ask a question, press on the speech bubble icon. This will open a new screen. At the bottom of that screen, there is a section for you to type your question. Once you have finished typing, please hit the arrow symbol to send. We would like to encourage shareholders to submit any questions they may have on the resolutions that are on the agenda for this meeting as soon as possible so that we can receive them in time and respond to them at the time the relevant resolution is put to the meeting. Please note that while you can submit questions from now on, I will not address them until the relevant time in the meeting. Please also note that your questions may be amalgamated together if we receive multiple questions on one topic. Finally, due to time constraints, we may run out of time to answer all your questions. If this happens, we will answer them in due course via e-mail. Before we turn to the formal business of the meeting, I would like to say a few brief words before our CEO, Chantale Millard, addresses you. If there are any comments or questions resulting from the Chair or CEO address, they will be taken when we consider the first item of formal business, the annual report. The 2020 financial year proved to be an extremely challenging year due to the devastating impacts of the summer bush fires in Australia and due to COVID-19 pandemic, which continues to impact our business, particularly Saint David's Dairy, which is based here in metropolitan Melbourne. Despite these unprecedented challenges, the group achieved its maiden profit as a listed company, reflecting the underlying strength of our premium brands and our diversified business model. And the completion of the cost out and corporate restructuring activities in the prior year. It is also pleasing to see group revenue increase for the full year despite the strong headwinds. Our 3 businesses in the group, Maggie Beer products, Paris Creek Farms and Saint David Dairy, all performed well during the year. Maggie Beer products continue to increase its presence in the premium entertaining categories and the Cooking with Maggie series demonstrated the unrivaled brand love that Maggie Beer enjoys. We also benefited and continue to benefit from the consumer shift to online purchasing through our Maggie Beer Food Club and our direct-to-consumer model. The turnaround in our Paris Creek Farms business accelerated during the year, with strong revenue growth, manufacturing efficiency improvements and achievement of our China organic certification. Whilst there is still work to do to reposition the portfolio and better balance the basket of dairy products that we manufacture, the foundations are solid and momentum is now building. As I said, our Melbourne-based Saint David Dairy business has been more impacted than our other businesses by the COVID-19 disruption to the food service and hospitality sectors. However, our management team has done a great job to reduce its cost base and divert its channel focus from cafés to specialty retail during the sustained lockdown periods, finishing the year with double-digit revenue growth. With a strong balance sheet and enviable brand portfolio, a significant e-commerce database and a strong pipeline of innovative new products, Maggie Beer Holdings is uniquely positioned for growth. This potential is clearly demonstrated in our first quarter FY '21 results, which we announced this morning, with strong revenue and earnings growth continuing. Finally, I would like to thank Chantale, our CEO, the whole executive team and all of our employees for their hard work, dedication and commitment in what has been an extraordinary and at times challenging year. I would also like to acknowledge the support and leadership shown by our Board. I think it's a great time to be a Maggie Beer shareholder. I will now hand over to our CEO, Chantale Millard, to deliver her presentation.

Thanks, Reg. Good morning, everyone, and thank you for joining us for the Maggie Beer Holdings 2020 AGM. Over the next few slides, I'll provide a quick summary of the FY '20 financial performance. Together with an update of the group's performance for Q1 FY '21 and our plans for the future. During the year of rebuilding, Maggie Beer Holdings diversification in its channels, customers and brands has enabled us to navigate through the challenges we faced in FY '20 whilst still continuing to grow. The event of the past 8 to 9 months have resulted in a noticeable shift in consumer purchasing behavior with people increasingly looking for premium Australian brands that use ingredients sourced from local farmers. This is at the very core of our 3 brands and has put us in good stead with consumers. This coupled with completed restructure and turnaround of the group in FY '20 has set us up for good growth in FY '21. Taking a look at some of the key takeaways from FY '20. Maggie Beer Holdings was able to deliver a robust financial result in a very challenging year in FY '20. At group level, net sales grew by 3.8% to $44.5 billion, and the group delivered a trading EBITDA of $248,000. The group achieved 2 key goals of achieving a positive monthly run rate for trading EBITDA for Paris Creek Farms and the group by the end of FY '20 and achieving a positive monthly run rate for group cash flow by the end of FY '20. Our H2 sales grew 10% to $21.5 million compared to the second half of FY '19. And following the efficiencies achieved across the businesses, we were able to improve the group's gross margin by 2.1 percentage points. Our overall cost base was reduced by $3.9 million, mainly due to the restructures of Paris Creek Farms and the head office. On the e-commerce front, Maggie Beer product sales grew by 220% in Q4 FY '20 versus the same period last year, underpinned by our new digital marketing plan and the launch of the Cooking with Maggie series that now has over 5.25 million views on social media. Doing a quick comparison between FY '20 and FY '19 and focusing mainly on the second half of FY '20, the group performed strongly in the second half of FY '20, with trading EBITDA improving by $3.9 million when compared to H2 FY '19, reflecting the benefits from our turnaround initiatives and group office changes. This momentum has put us in good stead to start FY '21 strongly. Driven by strong sales and our lower cost base, we generated $2.1 million in operating cash flow for the second half of FY '20, with all 3 businesses generating good cash flow in May and June. This gave us a strong balance sheet by the end of FY '20 with $7.2 million cash at bank and another $3 million of undrawn invoice finance facilities. As mentioned, the full year trading EBITDA finished in a positive position of $248,000 versus a $5.36 million loss the prior year. So now let's have a look at what we've been focusing on so far in FY '21. So the areas that we've been putting a lot of focus on so far is our expanding ranging in Australia and export markets. Developing new and existing markets for growth, such as e-commerce and retail. Creating new product development across the 3 brands and executing our launch plans, implementing strategic marketing plans to capitalize on core brand strengths and continuing to refine our manufacturing operations to create further efficiencies in the businesses. As a result of all of this, FY '21 is off to a strong start. With the group now in growth phase, we are seeing the results of the implementation of our strategic plans. Continuing on the momentum built in Q4 FY '20, the group has started FY '21 very positively, achieving 19.2% net sales growth in the first quarter of FY '21 versus Q1 FY '20. This has seen the group return to positive trading EBITDA position that is 244% higher or $1.6 million better than Q1 FY '20. This, in turn, has seen our operational cash position improved by $1.67 million in Q1 FY '21 versus the same period last year. Now looking at the next slide for a breakdown by business. All 3 businesses have returned a positive result for Q1. And some of the key highlights in the individual business are: Maggie Beer products showed strong growth in Q1 with net sales 24% better than Q1 FY '20. This included continued growth in its e-commerce business, which improved 237% in Q1 FY '21 compared to the same period last year. Paris Creek Farms also showed strong growth, with its net sales 18% higher in Q1 FY '21 compared to Q1 FY '20. And Saint David Dairy continued to perform solidly, returning 5% growth in its net sales for Q1 FY '21 compared to Q1 FY '20, which really is a great result. Now looking at each business unit in a bit more detail. Starting with the group office and head office costs. The group has returned a positive trading EBITDA in Q1 FY '21. And head office costs are 34% lower in Q1 FY '21 versus Q1 FY '20, and further savings will be achieved in FY '21 with the head office now fully relocated to South Australia. Q1 FY '20 group operating cash flow is 62% or $1.6 million better than Q1 FY '20. Moving on to Maggie Beer products. As mentioned, net sales grew by a pleasing 24% in Q1 FY '21 on the prior comparative period. E-commerce sales have grown by 237% in Q1 FY '21 over the same period last year, and trading EBITDA in Q1 FY '21 is 118% better than Q1 FY '20. Maggie's Food for Life continues to screen once per week and now has greater than 5.35 million views on social media. Next is Paris Creek Farms who also performed well in Q1 FY '21. With net sales growing by 18% in Q1 FY '21 compared to the same period last year, it achieved a positive trading EBITDA for Q1 FY '21, which was 114% better than Q1 FY '20. Gross margin in Q1 FY '21 was 9.6 percentage points better than Q1 FY '20. So the business is continuing on its solid performance from Q4 FY '20. And onto the resilience Saint David Dairy, who managed to still grow with net sales by 5% in Q1 FY '21 -- on Q1 FY '20, even through the tough trading conditions. And the business continues to have a positive trading EBITDA and continues to be cash flow positive. Off the back of the higher sales and reduced cost base, operating cash flow for Q1 FY '21 is $1.67 million better than Q1 FY '20. This coupled with the $3 million in undrawn invoice finance facility, keeps us in a strong cash and balance sheet position at the end of the first quarter. We've had a busy start to FY '21, with the teams working hard to execute great plans. And I'll now run through some of the work we have been doing so far in FY '21 for each of the businesses. Starting with Maggie Beer products. All key lines of cheese, quince paste, pate and cooking stocks have achieved double-digit growth in Q1 FY '21. With cheese the best performer with a 79% increase on Q1 FY '20. The new cheese lines launched in Q4 into FY '20 have been performing well. The business has almost finalized its new e-commerce platform, which will launch in early November '20. This new site will have an improved consumer shopping experience together with multiple payment options, improved device compatibility and enhance engagement options for our Food Club members. We've also launched our new Christmas hamper range, which in conjunction with the new e-commerce site should set us up for a great Christmas trading period. One of our key strategies in FY '21 was to form strategic partnerships with some good businesses to grow our brand awareness, and it's really exciting that we're launching a Maggie Beer products, cheeseboard pack with Marley Spoon towards the end of November through until Christmas, which will give us great brand exposure to a new base of customers. We've also partnered with life Starts at 60, who launched their marketplace in September and also -- is also giving us a new customer base to grow our direct-to-consumer touch points. We launched our own chilled delivery service hampers to South Australia, Victoria, New South Wales and Queensland, where customers in the greater metro area will be able to buy specially curated Maggie Beer cheese and entertaining packs from late October '20. Our plant-based meals launched nationally in Coles on October 12, with a fully integrated marketing plan, and we launched new fruit paste and pate flavors in Woolworths in October 20 or so. In addition to this, we are launching 2 new seasonal ice cream flavors into the independent market in November '20 to reinvigorate our ice cream category. We are now working hard on new product development and further ranging opportunities. We're really excited to announce that to further grow brand and product awareness, we've created 4 Maggie Beer products commercials to be launched on SBS on demand. These adverts will be shown to targeted SBS on demand viewers. The week commencing 18th of October until the end of December '20, with the adverts also being repurposed for targeted digital advertising and YouTube adverts. On the presentation, you'll see the stills from the advert showing the product ranges we were showcasing. Maggie Beer's ice cream range, Maggie Beer's plant-based meals range, Maggie Beer's entertaining range and Maggie Beer must-have range. I'll now play you the ice cream advert to give you a taste of what we'll be airing. [Presentation]

I hope you like them as much as we do. And I'd like to thank Maggie for her cameo appearance at the end of each advert. I think they look fantastic, and I can't wait to see them live. On to Paris Creek, Paris Creek Farms continued its growth trajectory with sales increasing 18% on the prior comparative period and a positive trading EBITDA for Q1 FY '21. Sales have been driven by increased ranging and growth in branded product sales and private label. We continue to focus on growing brand awareness and increasing branded product sales and have launched a radio advertising campaign in South Australia in Q1 to highlight the benefits of Paris Creek Farms products and to grow ranging in major retailers and independent supermarkets. With South Australian sales now stabilizing, we're turning our focus to growing revenue in Victoria and New South Wales and are about to appoint a Paris Creek Farms representative in Victoria to drive growth. Once established, this model will be replicated in New South Wales. So hopefully, you'll see a lot more Paris Creek Farms product range in Victoria very soon. We've been working on new products, and we are presenting a new yogurt range to major retailers and independent supermarkets, which are aiming for national ranging and hope to launch in H2 FY '21. We have been progressing discussions with export customers, which we hope will start to realize sales in H2 FY '21 also. Further new product development is underway to expand the core product range with new cheese, milk and quark formats being worked on. As with Maggie Beer, we are very excited to have launched a radio campaign for Paris Creek Farms to strengthen our brand position in the South Australian market which includes several live reads, recorded adverts and discussion around the Paris Creek Farms products. This is being launched in conjunction with the competition to drive consumers to our products with the weekly winners and grand finale winners announced on radio. The results so far have been pleasing, and the campaign, which started in mid-September will run until mid-December across 2 radio stations. I'll now play you one of the live reads from the radio campaign. [Presentation]

The feedback in the marketplace has been great so far with the campaign really resonating with the South Australian consumers. Growing our brand awareness and sales in South Australia will improve our ability to grow nationally with major retailers and will also give us better international credibility. Now looking at Saint David Dairy. With continued unknowns for the Victorian marketplace due to the strict restrictions imposed in Melbourne due to the COVID-19 pandemic, the first quarter has really been about business survival. And it's really pleasing to be able to say that the business continues to trade strongly despite the tough trading conditions. The business continued to be profitable and cash flow positive for Q1, which is a fantastic result. The business has continued to work hard to increase its retail footprint, increasing its retail customers from 19% of net customer sales at the end of FY '20 to 25% of net customer sales at the end of Q1 FY '21. Saint David Dairy customers remain loyal, and we are working on new product development to launch in the second half of FY '21 once COVID-19 restrictions are, hopefully, eased. The group now has a clear plan to achieve double-digit growth in net sales and earnings with 3 key initiatives. The first initiative is increasing our ranging in Australian markets from current product range with significant ranging opportunities with current product ranges across grocery, food service and specialty retail for all 3 businesses. The second initiative is our e-commerce and new product development, where we will grow our e-commerce sales and direct-to-consumer business for Maggie Beer products by launching our new website and executing our digital marketing plan and having better engagement with our Food Club members. We'll also be finalizing new product development and executing launch plans across all 3 brands to capitalize on market opportunities. Our third initiative is retail and export. We will be improving and potentially expanding our much loved retail footprint for Saint David Dairy. We'll be investigating more direct-to-consumer and retail opportunities for Maggie Beer products. And we're finalizing the assessment of our strategic partners to grow our export business for Maggie Beer Products and Paris Creek Farms. We really believe there is a lot of growth opportunities still from our 3 core brands. Maggie Beer Holdings represents 3 premium brands that all follow the principles of making Australian premium food and beverage products using Australian ingredients that supports local farmers and their communities. Maggie Beer products, Paris Creek Farms and Saint David Dairy are committed to making innovative products that meet consumer demand for high-quality, nutritious, convenient and indulgent food and beverage products. These brand strengths are on trend and in demand. With increased ranging opportunities in Australian and export markets, new product development, e-commerce and retail growth opportunities, we are very excited about the future of Maggie Beer Holdings and look forward to growing value and returns for our shareholders. Thank you for your continued support, and we look forward to sharing our journey with you. I'll now hand you back to our Chairman, Reg Weine.

Thanks, Chantale. I should also mention that a copy of my address and Chantale's presentation have been launched with the ASX and will also be published in the Investors section of the company's website. And now to the formal part of the meeting. The notice of meeting was made available to all members within the required period. And if there are no objections, I will take the notice as read. Voting today will be conducted by way of a poll on all items of business. We will open the poll voting towards the end of the meeting after all items of business have been put forward. As I put each resolution to today's meeting, I will address any questions that have been received in relation to that resolution. Discussion relating to the first resolution concerning the annual report may include questions or comments arising from either my address or Chantale's presentation. At this meeting, there will be 5 items of business, including 4 resolutions. Each resolution will be proposed and voted on as a simple majority to be carried. There have been proxies received in respect of today's resolutions, which will be disclosed when those resolutions are considered. As mentioned in the notice of meeting, it is intended that any undirected proxies given to the Chairman of the meeting will be voted in favor of the relevant resolution. The poll voting will be counted by the share registry, and the results of the poll will be notified to the ASX and published on the company's website following the meeting. I will now turn to the first item of business of the meeting, which is consideration of the audited financial statements and related reports for the year ending 30 June, 2020. The Corporations Act requires that the audited financial statements and related reports for the 2020 financial year be considered at the meeting. I confirm that these reports were made available to shareholders on 27 August, 2020. And although shareholders are not required to formally vote on these reports, I welcome any discussion or questions on the report. As I mentioned previously, the company's auditors are PwC and Brad Peake. The partner responsible for the company's 2020 audit is present at the meeting today and is willing and able to answer any questions on the conduct of the audit or the content of the auditor's report. I am advised by the auditors that no relevant questions for their attention were received prior to the meeting. Answers to the questions received in advance from shareholders will now be answered. I will ask our company secretary to advise whether any questions have been received in relation to the annual report, or arising from either my address or Chantale's presentation. Sophie, are there any comments or questions?

Chairman, we've received no questions or comments.

Thank you, Sophie. The next item of business is Resolution 1. Resolution 1 is a nonbinding resolution to adopt the company's remuneration report, which is set out in the company's 2020 annual report. The vote on this resolution is advisory only and does not bind the directors. However, the Board will take into account any discussion on this resolution and the outcome of the vote when considering the future remuneration policies and practices of the company. The resolution appears on the screen, and I will take it as being read. I will now ask the company secretary to advise whether any questions have been received in relation to this resolution. Sophie, have we received any comments or questions?

No questions or comments, Chairman.