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 2021 Annual General Meeting. It is the appointed time of 11:30 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 Matthew Beer Holdings. I would like to introduce you to my fellow directors who are all present on the call today: Maggie Beer; Hugh Robertson; Tom King; and our CEO and Managing Director, Chantale Millard. Also in attendance is our CFO, Eddie Woods; and our Company Secretary, Sophie Karzis. I would also like to welcome Brad Peake from our auditors, PwC, and Julie Kosh, representative of the company's share registry, Boardroom. And of course, I'm pleased to welcome those shareholders who are in attendance today. As you are all no doubt aware, today's meeting is being held online via 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. [Operator Instructions] We'd like to encourage shareholders to submit any questions they may have on the resolutions that are on the agenda for this meeting as early 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. This year, the Lumi platform is also offering the opportunity for shareholders to ask questions verbally. In order to do this, you will need to leave the Lumi platform site and dial into the meeting using your telephone via the Zoom facility, the number for which appears on your screen. Please note that while you can submit questions in writing from now on, I will not address them until the relevant time in the meeting. If you wish to ask a question verbally, please dial into the number provided by Lumi, and we will ask your question at the relevant time. 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 of your questions. If this does happen, we will answer them in due course via email. Before we turn to the formal business of the meeting, I would like to say a few brief words before our CEO and Managing Director, Chantale Millard, addresses you. The 2021 financial year was a pivotal year for Maggie Beer Holdings. The group achieved a positive net profit, reflecting the underlying strength of our premium brands, our focus on continuous improvement and innovation and our fast-growing direct-to-consumer e-commerce business. The Hampers & Gifts Australia, HGA, acquisition, which completed in May of 2021, has created a large-scale premium branded, direct-to-consumer business that leverages and strengthens our core Maggie Beer Products business. I am pleased to report that the integration has been seamless, and we are already enjoying the synergies anticipated with the acquisition. We have curated a new everyday hamper range that launched in September and a new Christmas hamper range that launched in mid-October, with many of the new HGA hampers now containing selected Maggie Beer products. Most importantly, the HGA acquisition has accelerated our customer penetration and reach with group e-commerce sales in FY '22 forecast to be more than 40% of total group net sales. This potential is clearly demonstrated in our first quarter FY '22 results announced today, showing HGA has had an excellent start to FY '22 with net sales increasing by 63% in Q1 FY '22 versus Q1 FY '21. Maggie Beer Products e-commerce sales, up 154% in Q1 FY '22 versus Q1 FY '21; and group net sales, up 84.1% in Q1 FY '22 versus Q1 FY '21. That's 24.8% on a pro forma basis. We are incredibly positive on the outlook for the remainder of the year, and we remain very much on track to achieve our target of $100 million in group revenue this financial year. Maggie Beer Holdings has a strong balance sheet with best-in-class e-commerce capability, power brands and a strong pipeline of innovative new products. As such, the group remains uniquely positioned for sustained growth in both revenue and earnings. We are proud of the group's results, and we remain extremely optimistic about our future. On behalf of the Board, I would like to thank all stakeholders, including our employees, our customers, suppliers and of course, our shareholders for their continued support. I will now hand over to our CEO and Managing Director, Chantale Millard, to deliver her presentation.

Thanks, Reg, and good morning, everyone, and thank you for joining us for the Maggie Beer Holdings 2021 AGM. Over the next few slides, I'll provide a quick summary of the FY '21 financial performance of the MBH Group, together with an update of the group's performance in Q1 FY '22. FY '21 was a pivotal year for the Maggie Beer Holdings Group as we successfully created the foundations for sustained future revenue and earnings growth. FY '21 wasn't without its challenges though, with the global COVID-19 pandemic continuing to cause disruption and lockdowns impacting all 4 businesses to varying degrees. However, all our businesses continue to show resilience with good diversification and management plans in place, and most importantly, all our people were kept safe and well. FY '21 was also a year of opportunity, with the continued positive shift towards consumers wanting to buy Australian premium brands using local ingredients as well as people continuing to move to online shopping for hampers and gifting. We also completed the purchase of the hugely complementary business, Hampers & Gifts in Australia in May 2021, which, in line with our strategic goals, has accelerated growth of our e-commerce and direct-to-consumer business. So looking at Slide 6, I'll now outline some of the key achievements of FY '21 and the pathway it's set for our future growth. We saw strong growth with FY '21 net sales increasing by 18.8% on FY '20 and EBITDA increasing by 177% year-on-year. Hampers & Gifts Australia or HGA was successfully acquired on the 21st of May '21 and HGA has been fully integrated, is still growing strongly and is already using Maggie Beer Products across its hamper range. The pro forma '21 combined results of MBH and HGA would have been $86.7 million net sales and $12 million EBITDA. And all businesses in the group recorded strong revenue growth in FY '21. So FY '21 saw all the Maggie Beer Holding businesses perform well, with strong growth across the group and with the successful integration of Hampers & Gifts Australia, we now have a large premium e-commerce business that can be quickly scaled. Looking at Slide 7, I'll just quickly run through the key metrics for the group for FY '21 and their achievements. Net sales of $52.9 million was up 18.8% on FY '20; trading EBITDA of $3.1 million was up 177% on FY '20; and our positive net profit after tax of $1.9 million was a $16.7 million turnaround from FY '20's net loss after tax of $14.8 million. We had a strong balance sheet, finishing the year with $13.5 million in cash and $3 million in undrawn debt facilities. So now taking you a little bit of a closer look at the group results of FY '21 versus FY '20. At the group level, as mentioned, net sales grew by 18.8% to $52.9 million, led by strong growth in Maggie Beer Products. The gross profit margin percentage was slightly lower than the prior year at 46.8%, mainly due to greater sales of third-party produced products and increased sales to major supermarkets, which require higher trade and promotional spend. However, overall gross profit was still $3.6 million or 17% better than last year. We do, however, gain savings below gross margin for our third-party produced products as they cost less to manage, so we see the benefit of this once it drops through to EBITDA. MBH's cost of doing business reduced by $1.6 million or 8% compared to FY '20 and with sales increasing by 18.8% over FY '20, it demonstrated the group's continued focus on cost control and improving operating leverage. Group trading EBITDA was $3.1 million or 6% of net sales, a $2 million or 177% improvement on last year. The statutory EBITDA of $1.3 million, which includes the deduction for noncash employee share options of $1.6 million, COVID-related cash flows received and HGA acquisition costs, was $0.5 million better than last year. And after depreciation and amortization of $3.3 million and a tax benefit of $4.3 million, the net profit after tax was $1.9 million compared to the $14.9 million (sic) [ $14.8 million ] loss last year, which included the impairment of Paris Creek Farms. So looking at Slide 9, that the cash flow driven by strong sales and our lower cost base, the group achieved a $1.5 million positive operating cash flow in FY '21, which is a $1.7 million improvement on FY '20. Operating cash flow in Q4 was impacted by acquisition costs for HGA and a full year prepayment of insurances and it was normalized operating cash flow would have been $0.5 million better than Q4 in FY '20. So the business has a very strong balance sheet and base to fund its future growth. Maggie Beer Holdings now has a clear path to sustain growth, which will be achieved through the following key strategies: increasing ranging across all channels; continuing to create innovative new products for all channels; increasing our strategic marketing of our core brands to increase brand awareness and growth; and continuing to refine and optimize our operational businesses to ensure strong gross margins. So I'll now move on to FY '22 and looking at the results of the first quarter of FY '22. And with HGA integrating successfully into the group, we're seeing very strong growth so far. In the first quarter, as Reg mentioned, the group achieved 84.1% net sales growth in Q1 FY '22 over Q1 FY '21 or 24.8% on a pro forma basis. The integration of Hampers & Gifts in Australia is already showing strong growth with the group's e-commerce net sales growing by 66% in Q1 FY '22 compared to Q1 FY '21. Maggie Beer Products' e-commerce net sales increased by 154% in Q1 FY '22 versus Q1 FY '21 and HGA's e-commerce net sales increased by 63% over the same period. HGA has launched its new every-day and Christmas hamper range, incorporating MBP products. And the group has sufficient stock in place for its e-commerce and retail grocery businesses to fulfill the expected uplift in consumer demand over the busy Christmas trading period. We've also put in place multiple delivery options to ensure timely delivery to its e-commerce customers over Christmas. And excitingly, Paris Creek Farms has won significant new business and will launch its PCF branded milk in approximately 400 Woolworths stores across Victoria and New South Wales from March '22. The group's operating cash flow improved by $1.18 million in Q1 FY '21 versus the same prior period, even after the large working capital prepayments and payments that were made, getting ready for Christmas. And Maggie Beer Holdings, we're on track to achieve our aspirational targets for FY '22 of $100 million of revenue and between $13.5 billion and $15.5 million of trading EBITDA. So we really have had an exciting start to the year, and we're looking forward to a busy Christmas period ahead. And just to reiterate a couple of those key takeaways on Slide 13. The group achieved 84.1% net sales growth; e-commerce growth was 66%; and the group's cash position is strong, improving by $1.18 million over the first quarter this year compared to the first quarter last year. Moving on to Slide 14 and a breakdown of the results by business. Maggie Beer Products continued its double-digit growth, with its sales increasing by 26.2% in Q1 FY '22 versus the same prior period last year. Of this growth, its e-commerce sales grew by 154% in Q1 FY '22 versus Q1 FY '21 with the new digital marketing plan under the guidance of HGA's team returning strong results. Paris Creek Farms had flat growth in Q1 FY '22 versus Q1 FY '21. However, with the significant business that we've just won with Woolworths starting in March '22, we'll soon see this growth returning. St David Dairy continued to improve its brand strength and resilience with its net sales growing by 8.7% in Q1 FY '22 over Q1 FY '21. And HGA had an excellent start to the year with its net sales growing by 63% in Q1 FY '22 versus Q1 FY '21, which has shown that the significant growth from COVID-19 last year really is the new base, and we're seeing excellent growth on top of this. Slide 19 shows the -- sorry, Slide 15 shows that the cash flow improvement for the group with operating cash flow improved by $1.18 million in Q1 FY '22 compared to Q1 FY '21. With strong sales in Q1 FY '22, the improvement is after the large volumes of inventory purchased in Q1 FY '22 in preparation for the busy Christmas trading period. And we expect the higher sales over that busy period to further strengthen the operating cash flows and cash balance in Q2 FY '22. Now taking a look at the individual businesses and starting off with Maggie Beer Products. The integration of HGA and MBH has been very successful and with MBP's e-commerce sales growing by 154% in Q1 FY '22 versus Q1 FY '21. Together, HGA and MBP have curated a new every-day hamper range that launched in September '21 and a new Christmas hamper range that launched mid-October. Together, they have created new photography and videography that is being used in the Christmas catalog and across social media and electronic direct mail-outs or EDMs, and it looks fantastic. Retail sales have continued strong, increasing 21.3% in Q1 FY '22 over Q1 FY '21. The business successfully launched its Bone Broths in September '21, which are selling really well, and its new range of Finishing Sauces are now fully ranged and expected to sell in well over Christmas. The business did experience some disruptions to its retail grocery sales in Q1 FY '21 with COVID-19 and the continued lockdowns impacting many retail grocery distribution center staff being in isolation across New South Wales and Victoria. However, all major retailers are expecting a bumper Christmas trading period. Our core ranges of cheese, fruit paste and pate sales are expected to increase with lockdowns easing and entertaining is starting to increase. Our marketing strategy is on track with TVCs, television commercials launching on free-to-air and on-demand channels between now and Christmas for our core entertaining lines, Bone Broths and Finishing Sources. And our digital marketing plan is now fully in place for both e-commerce and our retail grocery. So everything is in place for a fantastic Christmas trading period. Now some of the MBP e-commerce growth drivers. These aren't quite as advanced yet as the ones for HGA and GA, because we've only been measuring a lot of them since the start of this year. But websites have increased by 51% in Q1 FY '22 over Q1 FY '21. Our customers have increased by 122% and our repeat customer rate is achieving 30%, which is fantastic. And we've also seen good growth in our Food Club membership, which is up 94%, and we're almost at that 70,000 mark for our Food Club members. All of these increases are a result of the new digital marketing plan that's been put in place at the start of July '21, which is increasing people visiting the Maggie Beer Products website, converting more people to make a purchase and getting more people to make a repeat purchase. So just looking at the next slide, it just gives you a good snapshot of some of the beautiful imagery that's driving sales. I must say the HGA team really do have a fantastic eye for their hamper presentation and photography and they're really making our website and catalogs looking fantastic. So now moving on to HGA. The integration of the HGA team into the group has been excellent with the management team and staff in HGA operating under some tough trading conditions at the height of the COVID-19 lockdowns in Sydney and managing these fantastic results is really a great achievement. HGA launched 43 updated every-day hampers in September '21, containing selected MBP products together with 30 new baby hampers. The business launched its new Christmas hamper range in October '21 containing Maggie Beer Products' products and exclusive new products that were developed just for Maggie Beer Products and the Hamper & Gifts Australia collection. They've also created beautiful new photography and videography which is being used in their Christmas catalog and across social media and their electronic communications. The HGA team has achieved some amazing things over the past 3 months, finalizing the implementation of a new ERP system, together with expanding its warehouse space to ensure it is operationally optimized for growth over Christmas. The new expanded warehouse space will allow us to have all our stock at one location and reduce and eliminate third-party storage costs. We've been building stocking in Q1 FY '22 for both HGA and MBP, and we have excellent stock levels to meet the increasing consumer demand over Christmas for both e-commerce and grocery retail. The businesses have also engaged a new delivery partner to mitigate the risk of delivery delays over Christmas and the busy upcoming Black Friday sales. The new delivery options will also allow consumers to shop with confidence closer to Christmas. Now looking at some of the growth drivers for The Hamper Emporium. All the growth drivers are positive for Hamper Emporium with some key callouts being the growth in website visits, which were up 70%, together with an increase in new customers by 65% and an increase in repeat customers of 72%. Hamper Emporium continued to have a Net Promoter Score of 78, which is outstanding. And this is a direct result of the new digital marketing initiatives that have been put in place, including the new customer data platform and personalization tools, which we implemented in July '21 that allow greater personalization to customers, increasing conversion rates and repeat purchases. And now looking at the growth drivers for Gifts Australia. Gifts Australia has also had a great start to the year and saw growth in visits to its website of 43%, together with increase in its new customers of 66% and an increase in repeat customers of 69% in Q1 FY '22 versus Q1 FY '21. And Gifts Australia had a Net Promoter Score of 72.8%, which is also world class. And looking at Slide 24, just a bit of a snippet there of the beautiful imagery and photography for Hampers & Gifts Australia as well that's being used across its catalogs and electronic mail-outs. Now looking at Paris Creek Farms. We're really excited to announce that Paris Creek Farms is partnering with Woolworths to launch 3 of its 2-liter milk SKUs in approximately 400 stores in Victoria and New South Wales from March '22 under the PCF brand. This new ranging will be PCF's biggest launch outside South Australia and will be supported by a comprehensive marketing plan. This new business will sustainably grow PCF's brand awareness across the eastern states. This new business will add approximately 3 million to 3.5 million liters of extra volume through PCF's facility, which will improve overhead recoveries and operational efficiencies. Sales in Q1 FY '22 were flat when comparing to Q1 FY '21 when we exclude the private label business we discontinued in March '21. However, its new Greek Style Yogurts launched at the end of June '21 are selling well and growing our higher-margin yogurt sales by 25.6% in Q1 FY '21 versus Q1 FY '21 -- sorry, Q1 FY '22 versus FY '21. With the expansion of our PCF-branded milk in approximately 400 stores in Victoria and New South Wales, we're excited by the growth prospects for Paris Creek Farms whilst we continue to review the business to maximize sales, profitability and shareholder value. Now looking at St David Dairy. St David Dairy continued to show resilience and brand strength and traded solidly in Q1 FY '22 despite Victoria's continued lockdown and increased net sales by 8.7% on Q1 FY '21. With lockdowns easing, the business has seen sales already increasing to its New South Wales and Victoria customers, which is great. The business continues to be profitable and cash flow positive in Q1 FY '22, and no loss was made on the sale of its excess raw milk in the first quarter, and we don't expect to have any loss on raw milk sales for the rest of FY '22. And we really want to thank all of the loyal St David Dairy customers who've been very loyal to business, and we are now looking forward to having a clear trading run between now and the rest of the financial year and to be able to start growing again. Looking at staff well-being. All our people were kept safe and well and in accordance with our COVID-19 safe plans and health authority mandates. And as a group, we fully support the full vaccination of all our employees. Maggie Beer Holdings has in place an Employee Assistance Program for all its employees to access in times of need, and we actively promote its use. Now we're a larger group, we've appointed a People Culture & Performance Manager in July '21. And along with many of our other initiatives, we have been working to put in place new group values that match our ever-growing businesses and group aspirations. The company is currently -- is also currently undertaking a review of all its environmental, social and governance charters and policies to ensure they reflect the company's core values that include creating an inclusive diversified culture of being community and sustainably focused. We'll seek to identify the ESG factors and metrics that are material to the company achieving its core strategy and integrate these factors into the way we operate on an everyday basis. We'll then look to measure and report our performance against the key indicators. The group already does some great things in this space, and we're really looking forward to sharing these with you and our greater shareholding group as we are able to report these. Maggie Beer Holdings really does have a clear path to sustain earnings and revenue growth, with 4 premium brands that remain on trend and continue to resonate with Australian and international consumers. Having successfully integrated HGA, the group now has a large e-commerce business, national retail grocery channel and key export markets that allows to leverage our premium brands and accelerate growth. The group has ambitious growth plans with a clear plan to achieve sustained double-digit growth. With the strong balance sheet and the $30 million cash at the end of September and $3 million in undrawn debt facilities, we really are well positioned to fund this future growth. So it's been a busy start to FY '22 with the integration of HGA into the group, and I must commend all the Maggie Beer Holdings team for their outstanding work to make this as seamless as possible. Like many businesses, particularly in New South Wales and Victoria, it really has been a tough few months, and I'm very proud of all our teams for their dedication and their managers for guiding them through these difficult times. We're excited by the growth achieved in the first quarter of FY '22, and the businesses are in excellent shape, with great stock levels to ensure that we can hit our growth targets across Christmas. With Victoria and New South Wales coming out of lockdown and grocery retail hitting its strides over Christmas, we expect to see good growth in our entertaining categories, and we hope that St. David Dairy will have a clear run now through to the end of the financial year. We've already started to craft our marketing plan for the launch of Paris Creek Farms milk into Woolworths in Victoria, New South Wales in March '22 which will incorporate our sustainability and better-for-you credentials, which are very much in line with the vision of the major retailers. This new ranging will help transform the PCF business. With over 40% of our business now in e-commerce, we have a strong diversified revenue stream and clear plans to continue growth in both the online and retail grocery sectors. We're on track to achieve our revenue aspirations of $100 million and EBITDA of between $13.5 million and $15.5 million for FY '22. And we thank all our shareholders and employees for their continued support, and we look forward to providing you with a full update on the first half of FY '22 in the new year. I'll now hand you back to our Chairman, Reg.

Thank you, Chantale. Some wonderful progress there on so many fronts. I should also mention that a copy of my address and Chantal's presentation have been lodged with the ASX and will be published in the Investors section of the company's website. And now for 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 on all items of business will be conducted by way of a poll. We will open the poll voting now so that shareholders can vote at any time until the closure of the poll, which will occur after all items of business have been put forward. If you are eligible to vote at this meeting, a new polling icon will appear. Selecting this icon will bring up a list of resolutions and present you with voting options. To cast your vote, simply select one of the options. There is no need to hit a submit or enter button as the vote is automatically recorded. As I put into resolution at 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 4 items of business, including 3 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 ended 30 June 2021. The Corporation Act requires that the audited financial statements and related reports for the 2020 financial year will be considered at the meeting. I confirm that these reports were made available to shareholders on 19th of August. And although shareholders are not required to formally vote on these reports, I welcome any discussion or questions on the reports. As I mentioned previously, the company's auditors are PwC; and Brad Peake, the partner responsible for the company's 2021 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?

Yes, there are, Reg. We've had some general questions.

The first one is, with the integration of HGA successfully completed, does the company see opportunities for growth in pursuing suitable bolt-on acquisitions in the e-commerce space?

Chantale?

Look, I think we've got such a fantastic e-commerce business with so much room left to grow and a lot of other things that we can do with our e-commerce business. So at the moment, we're not actively looking to acquire any other e-commerce businesses, and we believe that we've got the skills in-house to really grow anything in that space that we would like to at the moment.

Any other questions, Sophie?

Yes. Given the increasing profitability of the business, combined with the available -- availability of the franking credits, does the Board intend to initiate a fully franked dividend? And if so, when? And would the Board consider -- and what would the Board consider to be a realistic payout of these dividends -- payout ratio of these dividends?

Wow. Great question. Look, firstly, the Board hasn't made any decision in regard to future dividends. Having said that, it is a regular topic of discussion and we do intend as a Board to formulate the dividend policy in the coming 6 months, which could see us paying dividends as early as next fiscal year, so from July '22 onwards. Having returned the business to profit, we intend to pass through 0 just once, and we believe our strong earnings profile together with the cash generative nature of our business gives the Board confidence now is the right time to be considering future dividends for shareholders. In regard to the question of franking credits and a payout ratio, et cetera, look, the Board hasn't turned its attention to the details of the dividend policy, including those payout ratios, frequency franking credits, dividend reinvestment plan and the like. But as I said, we'll turn our attention to those elements over the coming months and let shareholders know in due course.

And one final question for now, Reg. Can shareholders get a discount on products sold by the group?

Chantale?

Yes, they can. And there will be an e-mail if it hasn't already been circulated shortly with a discount code that can be used as many times as you like to shop up over Christmas, so we'll make sure that, that if it hasn't gone out, that that goes out shortly.

And that's all the questions for now, Reg.

Thank you. The next item of business, Resolution 1 is a nonbinding resolution to adopt the company's remuneration report, which is set out in the company's 2021 annual report. The vote on this resolution is advisory only. 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. Details of the valid proxy votes on the resolution also appear on the screen. As mentioned previously, voting on this item will be by poll, which is now open. [Voting]

I will now ask the Company Secretary to advise whether any questions have been received in relation to this resolution. Sophie, any questions or comments?