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

Good afternoon. Look, thank you all for joining us for the Maggie Beer results presentation. Hugh Robertson is my name, splendid set of numbers, I would have thought if anybody's unhappy now, there's no way of them ever being satisfied and a credit to the management as well. And so presenting today, we've got Reg Weine, the Chairman; Chantale Millard, who has been responsible with the rest of the management in recovering this business in such a major way and Eddie Woods, the CFO. So on that basis, thank you all again for attending and over to you, I think, Reg.

Thank you, Hugh. Well, good afternoon, everybody. On behalf of the Board, it is my pleasure to welcome you to the Maggie Beer Holdings Half Yearly Results Presentation for FY '22. My name is Reg Weine, and I'm the Chairman of the Board. As you said, joining us on the call today is Chantale Millard, our CEO and Managing Director; Eddie Woods, our CFO; we've got Sophie Karzis, our company's Secretary; and obviously, Hugh Robertson, my fellow Director. I guess the first thing I'd like to say is that the Board and management are very pleased with the continued transformation of the group, and our half 1 results announced today are a clear demonstration of our progress. The Hampers & Gifts Australia acquisition last year has accelerated our transformation. It provides a world-class e-commerce platform for growth and it importantly derisk our business. The integration of HGA has gone exceptionally well, and the results are consistent with our original investment thesis. And in this regard, I'd like to acknowledge and thank the Bill Potter team for their guidance and support around the transaction. On that very positive note, I will now hand you over to our CEO, Chantale, who will present our first half results for FY '22 and at the end of Chantale's presentation, there will be a short Q&A session for shareholders. Thank you.

Thanks, Reg, and good afternoon, everyone, and thanks for joining this presentation of the 2020 half year results for the Maggie Beer Holdings Group. Well, what a financial year has been so far with COVID-19 continuing to throw many challenges at all businesses and the first half impacted negatively by national and international supply chain disruptions and cost increases, together with higher labor costs and national staff shortages, which has impacted business' ability to operate efficiently and cause disruption in the retail grocery sector. The Maggie Beer Holdings Group has not been immune to all of these impacts, but thanks to the successful completion of HGA transaction in the first half, the group now has strong diversification in its revenue and gross margin streams with 59% of its revenue coming from e-commerce in the first half of FY '22. This diversification has allowed us to weather these challenges whilst continuing to have strong revenue and earnings growth. I'm now going to the group performance in more detail a touch on the individual performance of each of the business units. So looking at Slide 3. The first half of FY '22 saw Maggie Beer Holdings net sales increased by 133.8% or 18.2% on a pro forma basis. And when we mentioned pro forma basis, that just means that we have included the results for Hampers & Gifts Australia in the prior year period, which is a period that we didn't own it for. Its trading EBITDA increased by 438% or $8 million to $9.8 million in the first half compared to a loss of $0.4 million for the same time last year. And this took our trading EBITDA to be a strong 15.25% of net sales compared to 6.6% in the first half of FY '21. So you can really see that transformation starting to take place. Our net profit after tax was $5.5 million, which is an increase of $5.5 million on H1 FY '21, which is fantastic. And we have a strong cash position with operating cash flow increasing by $10.9 million in the first half compared to the prior year and had $23 million in cash at bank at the 31st of December. Integration of HGA was completed successfully in the first half with the group's gross margin increasing by 5.1 points or $20.4 million in the first half compared to the prior year. HGA's net sales increased by 28.6% in the first half compared to the same time last year on a pro forma basis, which is really exciting, considering the uplift that the previous year had for COVID-19. Maggie Beer products total net sales increased by 24.7%, with its e-commerce sales increasing by 174.1% and its retail grocery sales continuing to have growth increasing by 9.7% in the first half versus the same period last year. We strategically invested in our increasing investment in our brands in the first half of FY '22, which took it to 7.2% of total net sales, up by 4.1% -- up from 4.1% in the first half of FY '21. We've got upcoming new product launches, HGA, MBP and PCF in the second half of FY '22, which will continue to support this growth. And the COVID-19 challenges across supply chain, starting in grocery retail, which did negatively impact some of H1 FY '22 has continued on into the start of H2 FY '22. But our diversification between e-commerce and retail has reduced our risk and Maggie Beer Holdings as the ability to implement price increases with its premium branded offer, if these elevated costs persist, which is a great position to be in. So looking at Page 4. I won't go through all of these because I've just touched on those in my opening, but it's really great to have a visual snapshot and all of the arrows are pointing up and some really, really strong numbers in that first half. Looking at Slide 5. We will look at the individual key metrics for the group with HGA an MBP being the drivers of growth. HGA continued to grow strongly with its net sales increasing by an impressive 28.6% in the first half of FY '22 versus the same period last year. And this is excellent growth at the COVID highs of the previous year and really does show continued growth possibilities for the HGA business. Maggie Beer products had total net sales growth of 24.7%, which was made up of its e-commerce business continuing its strong growth, increasing by 174% in the first half and its retail grocery sales increasing by 9.7% in the first half compared to the prior year. We're really pleased with this growth in both key channels with grocery retail facing some key challenges during this period. Paris Creek Farms continued to have growth in its branded products when excluding the -- the private label milk contract but it continued in March 2021. And St. David Dairy continued to show solid growth even though it had faced ongoing challenges with COVID-19 lockdowns and restrictions in both Victoria and New South Wales was for a lot of the first 6 months of this year. Looking at Slide 6, with the overall group's gross margin increasing by 0.1 points in the first half compared to the prior year to an impressive 51.5%, we've seen some good increases across the individual businesses. HGA's gross margin increased by 25.3% in dollar value to $19.4 million. Maggie Beer products gross margin increased by 23% to $8.3 million. PCS gross margin decreased by 8.2% in dollar volume due to the discontinuation of the private label contract in March '21. However, with the launch of its branded milk in March '22, which I'll talk a little bit more about later, we'll see this start to grow again. And St David Dairy's gross margin grew by 4.8% to $2.2 million in a very challenging market. Moving on to Slide 7 to look at the HGA transaction, which is delivering what we said it would with the integration completed and already delivering strong growth and synergies for the group. As mentioned, HGA continued to perform strongly and the inclusion of Maggie Beer products in HGA's range, which, together with its digital marketing strategy is driving incremental growth. The overhaul of Maggie Beer products e-commerce range using the operational skills and creative skills of HGA team, together with the combined firepower of the HGA digital marketing team and the Maggie Beer products marketing team created strong growth of 174% in the first half year-on-year. MBP's e-commerce business is now being fully managed by HGA from Sydney, which is improving dispatch times and lowering freight costs. In addition to the strong sales growth, we also expanded HGA's existing warehouse space by over 2,000 pallet spaces in the first half, which have minimal CapEx and this delivered operational efficiencies in capacity over Christmas, and we believe that we'll have at least the next 3 years of planned growth out of that site before we would need to move and spend any more capital. HGA's customer data platform has been implemented, and it's now realizing benefits of its increased customer base and the same platform will be implemented into Maggie Beer products in the first half of -- second half of FY '22. So this customer data platform really allows us to capture all the information of our shoppers and consumers by personalizing their shopping experience, it allows us to then target their shopping habits and repeat -- increase our repeat purchase rate and really drive that digital marketing spend dollar from each consumer. The group's finance and operational teams are now working seamlessly across the businesses with the same ERP system implemented into HGA in July, August, and that's the same one that Maggie Beer products and Paris Creek Farms is on. And pleasingly, and probably one of the most important things is the cultural environment, employee engagement across the group continues to be really strong. And the HGA team have really just [indiscernible] it into the Maggie Beer Holdings family so well, and we've got aligned ambitions for growth and things that we want to do with the group going forward, which is fantastic. I'll now hand you over to Eddie Woods, the Group's CFO, who will take you through the first half results in a bit more detail.

Thanks, Chantale, and good afternoon, everyone. As Chantale said, during the half year, Maggie Beer Holdings has demonstrated a clear part to sustained earnings and revenue growth. Following the purchase of Hampers & Gifts Australia, Maggie Beer Holdings has successfully diversified its revenue, reducing its reliance on retail grocery channels and has been able to grow its revenue and gross margin during a very challenging trading period, whilst maintaining a healthy trading EBITDA. Maggie Beer Holdings delivered strong revenue growth with the group achieving 133.8% net sales growth in this half year of the same period last year or 18.2% on a pro forma basis. The acquisition of HGA in late financial year '21 has diversified our revenue channels with online sales, making up 59% of our total net sales. Gross profit percentages have increased by 5.1 points, mainly due to the increase in online sales, which attracted a higher gross margin. With the group's continued focus on reducing costs, improving operating leverage and synergies within the group, Maggie Beer Holdings cost of doing business reduced by 3.6 points to 36.3% of net sales, whilst at the same time, increasing its investment in brand awareness to 7.2% of revenue compared to 2.1% in financial year '21. And to ensure a faster delivery method to consumers over Christmas, distribution costs increased to 8.1% of net sales from 5.8% last year. As a percentage of net sales, trading EBITDA increased by 8.6 points to 15.2% of net sales, while the statutory EBITDA, including nonrecurring costs and share-based payments increased from 4.8% last year to 13.5% this half year-end. The group achieved a net profit after tax of $5.5 million, an increase of $5.9 million over the prior year, which reflects the underlying strength of our premium brands during tough trading conditions. Moving on to Slide 9. This graph on the left represents our current year split of net sales and gross margin by channel compared to the ones on the right for the prior year. E-commerce which now represents 59% of total net sales compared to 5% in prior year, is now our largest channel, increasing significantly with the acquisition of HGA and the overhaul of the Maggie Beer products e-commerce range using the firepower of the combined HGA digital marketing team and the Maggie Beer products marketing team. This diversification has significantly reduced our exposure to the major supermarkets from 51% of net sales last year to 21% this year. With the increased diversification, not only does it reduce our risk exposure, but also improves our gross margins as e-commerce sales attract higher gross profits than retail as they are direct to consumer. E-commerce represents 64% of our gross profit, which is a significant increase from 5% in the prior year. Slide 10. The e-commerce segment of the group achieved sales of $38.4 million, representing total growth of 35.4% over last year. HGA has demonstrated strong revenue growth of 28.6% over the same period last year, which was already at an inflated COVID-19 [ high ]. Maggie Beer products also achieved an outstanding result, grown online sales by 174%, demonstrating successful integration and impact of HGA into the group. The e-commerce gross margins remained strong at $55.6 million or $21.3 million for the half year, which is a 32.1% growth over the same period last year. Slide 11. On the retail side, the retail segment of the group also remained strong at $26.2 million, despite COVID-19 challenges in Q2, impacting sales to food services and cafes and with the major grocery retail canceling in-store promotions in Q2 and reducing orders as they were unable to move products through the distribution centers and restock supermarket shares and the timing material shortages. Maggie Beer products retail sales were up by $9.7 million to $14.5 million. And excluding lost sales for PCF white label contract in March '21, core retail sales increased by 9.3%. As Chantale said, Paris Creek Farms revenue will increase with the launch of its branded milk in over 400 stores across Victoria and New South Wales in March 22. St David Dairy retail sales were up $7.6 million to $4.8 million impacted by further lockdowns in Melbourne and Sydney due to COVID-19. At Slide 12. MBH continues to have a strong balance sheet and is well funded with $23 million in cash and $3 million of undrawn debt facilities. In line with the strong growth for this year, the cash balance increased by $9.5 million from June '21. Due to our strong growth and cash position, the group for entry repaid job keeper of [ 820,000 ] in full in September '21. The right-of-use assets from these liabilities increased by approximately $2.5 million due to HGA expanding its warehouse space in October '21, which was crucial for having success of Christmas training period. With the exception of this liability, the group is debt-free with no exposure to potential interest rate prices and is well capitalized to take further market share. Group net assets have increased to $108.9 million and overall working capital is at 8.8%, down from the 18% in financial year '21 due to holding higher inventory to mitigate any supply chain delays. Moving on to Slide 13. The group generated $11.4 million in operating cash flow during this half year, an improvement of $10.9 billion over last year, whilst also volunteer paying the [ 820,000 ] to job keeper in full in Q1. Maggie Beer Holdings is capital light with a strong balance sheet that will allow the group to continue to invest in and scale up its business in the second half and capitalize on growth opportunities to create sustainable long-term shareholder value. I'll now hand back to Chantale to provide you with an overview of each of our brands and an outlook for the group. Thanks.

Thanks, Eddie. So just looking at Slide 14 now. And as you no doubt all aware of these issues, I'll quickly touch on some of the persistent COVID-19 headwinds that like many businesses, Maggie Beer Holding space during the first half of FY '22, and they continue to impact the business to varying degrees in the second half so far. Just to start with, I guess, just pointing out that the staff well-being was first and foremost for the group and all our people were kept safe and well and in accordance with our COVID-19 plans. The first half saw industry-wide disruption to freight services with increased volume and staff shortages due to COVID-19, which has continued into H2 FY '22 and was exacerbated by the flooding of all rail networks in South Australia, NT and WA. Gladly, we're starting to see this to start to come back a bit with movement starting to happen over to WA into NT a little bit easier. We saw well-won increases in shipping costs, which impacted some of our imports for the e-commerce business in the first half FY '22, and this is also continued on into the second half, and we're hoping after Chinese New Year and some that we might see that abating a little bit. We had some sub shortages across all 4 businesses with HGA and SDD, the most impacted due to them being located in New South Wales and Victoria, respectively. But we are starting to see start shortages easing, which is great, and we're getting a much stable base of people and less people away being -- cyclically being a close contact. As we [indiscernible] major grocery retail partners were severely impacted by staff shortages due to COVID-19 with orders in December and January being negatively impacted. We're seeing this start to ease with the changes in close contact rules and expect retailers to be now focused on growing sales to June '22 to claw back some of that revenue. And one of the good things with the diversification of our revenue stream, there's definitely lessened the impact of that having 59% of our revenue now coming through e-commerce, which is great. An ability we incurred to increase prices with our large e-commerce business and premium retail grocery offer and customer value proposition. MBH does have the ability to implement strategic price increases where appropriate to combat these increased costs if they persist, and we'll also then continue, as Eddie highlighted, to continually review our operating efficiencies to further protect the profitability of the group. So looking at Slide 15, just to really touch on some of the consumer trends and also some business wins that we've had in the group, which we're really excited about and continuing on from the full year last year. We're still seeing that positive consumer trends where people are still wanting to buy Australian products that are using local ingredients, 100% natural ingredients, nothing artificial. Consumers want products that are ethically sourced and produced sustainably. We're doing a lot of work around that. premium products that are consistently applied quality, healthy but convenient products that make their life better and easier. The At home cooking trend continues. And of course, the trend towards e-commerce and online shopping continues to increase also. In terms of some exciting business wins and product launches that we've got coming up in the second half of FY '22. We've got some new Hampers and Gifting launching for HGA in a strategic move to grow sales in non-Christmas-gifting periods and to increase our corporate customer sales. HGA will be launching its new range of Mother's Day, homeware and pamper hamper ranges in the second half. We'll also be launching a range of premium cheese and entertaining hampers nationally for Maggie Beer product and HGA, which is really exciting. These new premium ranges will continue to set us apart from our competitors and increase sales in nontraditional gifting periods. And with consumers continuing to cook at home and strong growth in our[ 500 mill ] cooking stocks and Bone Broth range. We're really excited to be partnering with another major retailer to launch nationally our new Maggie Beer products, 1 liter of cooking stocks and also its Bone Broth range in May '22 later this year. And this expansion of our ranging is a key part of our ongoing strategy for Maggie Beer products. In regards to Paris Creek, we've been working closely with our farmers been to chain carbon-neutral status in January '22. And this is really exciting and highlight the importance of the biodynamic organic wave farming and its regenerative and sustainable practices. And this will be followed on our packaging from March '22 as we launched the PCF brand in 2 liter milk in Woolworths, in across Victoria and New South Wales and approximately 400 stores, which will be our biggest launch of the Paris Creek Farms branded milk outside of South Australia to date. Looking at Slide 16. Maggie Beer Holdings continues on the path to sustained growth, which is achieving -- which is achieved through its 4 pillars and key -- 3 -- 4 key strategies, which is further penetrating the Australian and international markets e-commerce, direct-to-consumer and retail channels, continuing to create innovative products for retail grocery, e-commerce and direct-to-consumer, continuing to increase our strategic marketing and invest in our brands and continuing to refine and optimize our operational businesses to ensure that they are efficient as possible. And the group is progressing well on all of the above. And with the results for the first half showing this, but we've still got a lot more to come. Looking at Slide 17. The acquisition of HGA in late FY '21 has transformed the group diversifying its revenue and earnings and improving gross margins. So I'll now go into the individual business units, and I'll start with HGA. As mentioned, HGA saw strong sales growth in the first half to $34.7 million compared to the prior year, which is demonstrating its strong consumer value proposition and growth ability. The business did experience higher inbound shipping costs as were experienced industry-wide, however, its gross margin remained strong at 56%. Outbound freight from postage was also higher with the business making the strategic decision to invest in faster delivery methods to ensure a premium customer experience over Christmas. By doing this, we strongly believe that we'll have a lot of repeat purchases over the following this year and also the following Christmas with people having such a great experience. We've also continued to invest strongly in digital marketing for HGA to continue to grow our premium customer base and grow sales and market share, and I'll run through some of the key metrics for the business in a moment, which will highlight the success of this investment. With the strong organic growth of the business and this increasing customer base, this investment will give benefit in the second half and beyond. And as mentioned, HGA now has room to grow with its expanded warehouse. And if increased cost persist, it has the ability to increase prices where required due to its premium offer and customer value proposition. So looking at Slide 20 and some of the key metrics for the Hamper Emporium to start with, and the Hampers & Gifts Australia business is broken down into the Hamper Emporium and Gifts Australia with Hamper Emporium making up 75% of the total sales of HGA and Gift Australia making up 25%. So driving growth in Hamper Emporium saw a 37.7% increase since website visits, 31.1% increase in its new customers, a 54% increase in its repeat customers in the first half of FY '22 compared to the first half of FY '21. And Hamper Emporium also had a Net Promoter score of 72.5, which continues to be impressive score a world-class. Slide 21 shows the key growth drivers for Gifts Australia, which even though it makes up a smaller percentage of the HGA business, it's really important and growing part of the business. So its new customers grow by 19%. Its repeat purchase rate increased by 40% and its Net Promoter Score, an impressive 74.5%. So those Net Promoter Scores really do show the continued customer satisfaction that they have using the Hampers & Gifts Australia businesses and purchases purchasing from them. Looking at Slide 22. HGA continues on its growth strategy to drive sales through digital marketing, new technology and expansion of ranging I'm really excited by the new ranging that will be offered by HGA over the next few months, which is premium and on trend and gives us a point of difference from our competitors. The business is getting good growth in customer insights for its new customer data platform and the investment in digital marketing in H1 FY '22 increased its customer base, which together with its strong organic growth, we'll see this investment continue to provide growth in the second half and beyond. So now looking at Maggie Beer products, looking at Slide 24. Maggie Beer products continued its strong growth in the first half of FY '22 with its net sales increasing by 24.7% to $18.1 million, made up of 174% increase in e-commerce, a 9.7% increase in retail grocery, which I mentioned is a great result in a challenging retail market and was also helped by the successful launch of its Bone Broths and Finishing Sauces in September '21. Maggie Beer products gross margins remain strong and will improve further as its e-commerce business continues to grow. We had new products launching nationally in grocery retail in May '22, expanding our core ranging further. In the first half of FY '22, we have upweighted our investment in marketing with the new product launches into retail and growing our brand awareness. Supply chain and retail gross disruption from COVID-19 continues so far in HY '22. However, we are starting to see that to abate a bit, which is fantastic. Looking at Slide 25. Not only the expert control of Hampers & Gifts Australia, it's fantastic to see the potential of the Maggie Beer products e-commerce site come to life. There have been many improvements already, which will continue into the second half of FY '22 and beyond as we finalize the implementation of the digital marketing plan and continue to grow on the Maggie products gifting range. So looking at Slide 26 now. We don't have all the key metrics that we have for the other e-commerce businesses yet for Maggie Beer products because we've only just started measuring them. But for the ones that we have, you can already see some great results. With Maggie Beer products website customer conversion rate increasing by 65% in the first half compared to the same time last year. It also saw its repeat purchase rate increased 51%, while with its Food Club increasing by 55.6% growth in the same time this year over the same period last year. And this really helps with engagement because our Food Club members are so engaged with the brand, and that will really help us to continue to increase our repeat purchase rate and conversion rate of consumers. And with the implementation of the customer data platform in the second half of this year, that will help to increase sales further as well. Looking at Slide 27. As mentioned, we really -- we did upweight our investment in marketing in H1 FY '22, but this is off a very small base. In previous years, we haven't spent much on marketing at all for the Maggie Beer products brand. So it's really important for us to start to increase that marketing activity, and that's been increased with in-store activity around peak buying occasions as well as launches for our new products around both Bone Broths and Finishing Sauces as well as creating things like TVC, featuring Maggie Beer, the new ranges are Finishing Sauces and cooking sources and also our core ranges for them so that we can play those across Free-To-Air TV, such as across Master Chef and also would be on demand across SBS Food channel Free-To-Air and also other on demand channels and Foxtel Go. So these are really important assets for us to start creating so that they are assets that won't date and we can use them across TV across online and then also in-store campaigns. Looking at Paris Creek Farms. Net sales were down by 12.3%, but importantly, excluding the private label business discontinued in March '21, its branded product sales have grown by 9.3%, and its gross margin remained strong at 44.4%. The launch of the 3 x 2 liter PCF branded milk SKUs in 400 stores across Victoria, New South Wales next month. With its new milk from carbon-neutral dairy farms logo, we'll see growth accelerate and will add approximately 3 million liters of additional milk volume through the facility, improving overhead cost recoveries and efficiencies which we have suffered a downturn in since we decreased the private label business in March last year. The new Greek-style yogurt that we launched in June are continuing to drive growth, and we're pleasingly seeing the yogurt category grow by 26.7% in the first half compared to the same half last year. And we continue to review all options to unlock shareholder value and return to Paris Creek Farms business back to profitability. And the new Woolworths business is giving us a lot more optionality around this. We've also been investing more in the marketing for Paris Creek Farms with the high frequency partnership with the -- partnership we've got with Nova radio doing high-frequency advertising with key selling points of sustainability, organic, chemical-free, local and regenerative farming practices, and we're really gaining some traction with those. We've been using influence and marketing, social media and content marketing to increase brand awareness, and we'll be launching a brand ambassadors in the Q4 of FY '22. At present, we're focusing on the -- executing the launch of the Paris Creek Farms brand in Milk Woolworths and with our new Onpack logo or milk from Carbon Neutral Dairy Farms. Moving on to St. David Dairy, on Slide 32. So St. David Dairy had another rough 6 months with the lockdowns in Victoria and New South Wales startling growth. It did, however, still managed to grow its net sales by 7.6% in the first half compared to the same time the prior year. Expenses were impacted by higher labor costs due to staff shortages, increased delivery costs due to staff shortages for our truck drivers and some machinery breakdown related expenses. How there was no loss on excess milk in the first half of this financial year compared to last financial year, but the excess raw milk sales does dilute the gross margin. And excluding this, the gross margin percentage would have been 49.9% David during in the first half. The second half will see the business working hard to generate sales growth and profitability. However, even with the challenges it faced, we remain cash flow positive and profitable for the first half of FY '22. Moving on Slide 33, although it's a much smaller program, St. David Dairy has also been working hard to grow its brand presence and has increased its Instagram and Facebook followers to over 10,000 while working with influencing customers to grow brand awareness with social media content and recipes. So moving on to Slide 44 and the bright future of the group. So Maggie Beer Holdings really does now have a clear path to sustained earnings and revenue growth with the 4 premium brands that remain on trend and continue to resonate with Australian international consumers. Maggie Beer Holdings large e-commerce business has provided excellent revenue diversification with over 50% of group revenue now from its direct-to-consumer business, reducing reliance on the major supermarkets. The group continues to have ambitious and clear growth plans to achieve a sustained double-digit growth in net sales and earnings with 4 key initiatives, which is growing our e-commerce businesses increasing ranging in Australian and export mainly for Maggie Beer Products range, continuing to develop new products and executing excellent product launches and having upweighted investment in marketing and advertising to increase our brand awareness. Maggie Beer Holdings is capital light with a strong balance sheet. We were $23 million in cash at the 31st of December is well funded for future growth. The Board is considering all capital management options, including dividends from the full '22 year, but it's ensuring that this doesn't compromise further opportunities for growth that are being considered. And looking at the outlook, Maggie Beer Holdings strategically increased its investment in its brands in H1 FY '22 to accelerate revenue growth and market share gains. Maggie Beer Holdings is currently on track to meet its group revenue guidance target of $100 million for FY '22. Our FY '22 trading EBITDA guidance does continue to remain to be contingent on the abnormal costs and trading conditions experienced due to COVID-19, abating and returning to normal in FY '22. Regardless of this, the Maggie Beer Holdings business will continue to invest in and scale up of businesses in the second half of FY '22 and beyond, so that we don't read on any of those fantastic opportunities that we can see coming up in the second half of this year so that we can create sustainable long-term shareholder value. The first half saw the integration of HGA into the Maggie Beer Holdings Group completed successfully substantially diversifying our revenue and gross margin between e-commerce, grocery, retail and food service, which has enabled us to deliver strong revenue and earnings growth in a very challenging market. As a group, we can be strategically invested in continuing to grow sales and market share and invested in ensuring our e-commerce customers received a great shopping experience and timely deliveries over Christmas. HGA's exceptional Net Promoter Score of over 72 demonstrates that we have a world-class reputation for customer satisfaction. With our gross margin improving by 5.1 points in the first half of FY '22. Our increasing profitability and strong cash generation, we will continue to invest in our businesses and in sales growth with new products to launch in the second half of the year and the ability to implement prices increases if COVID-19 continues to increase costs. The group has a strong platform for sustained revenue and earnings growth. But we're really excited about the future growth of the group as we push towards the net sales of $100 million, whilst providing continued premium products and innovation to our customers and support to our local suppliers and the communities in which we operate. I'd like to thank the whole Maggie Beer Holdings team for their continued hard work and dedication, operating under some very challenging conditions. And thanks also to our shareholders for their continued belief and support in what is now a strong and profitable group with great growth prospects, and we look forward to continuing the journey with you. Thank you. Hand it over to -- yes, to the floor. So we're happy to take some questions after the presentation if anyone has got some questions out there.

Yes, Mike [indiscernible], set management on if that's okay.

Yes, go for it.

Just on distribution costs, you called out a little bit of the detail rising to 8.1% net of sales. Could you break that down that extra investment down a little further for us? And is that the new normal? Or can we expect that to taper off? And then is it going to rise again next Christmas? I know that's a hard question, but just looking to the future.

Yes. So look, over Christmas, we made the strategic decision to -- with all of the issues that we were having with this Australia Post, particularly over the Father's Day period and the months sort of after that. We did make a decision that we would use the Express cost services of Australia Post and also a new door-to-door delivery partner to ensure that customers got their gifts in time to Christmas. And it also allowed us to sell right up until the 20th of December because we were using those options. And so we don't know, but we expect -- don't expect to be doing that next Christmas. But we're having -- as we go through our planning sessions this year, we're definitely planning some further allowances into our hamper pricing around that express cost delivery to offset some of that cost.

Great. And just on the Paris Creek on what we're still, is that an exclusive period or with that new milk supplier.

Yes. So look for Woolworths. It's not on pack, but we've given them, I guess, a variable exclusive period of 12 months for the PCF brand in Milk in Victoria and New South Wales. And that works out well with the milk review schedules anyway. It probably would have worked out that way. So hopefully, if that works really well in those 400 stores, we'll be able to increase that ranging even further with Woolworths and then get out yogurt expanded in New South Wales to be in the same stores. So for the first 12 months, we'll probably just see that the 2 liter milk in the Woolworths stores that doesn't cover independent. So we're still very strong in New South Wales and Victoria for independent stores. And so -- and we'll continue to grow that. And we're also in Costco in Victoria and New South Wales as well.

Okay. And just one more for me. Just to increase marketing spend, how are you measuring your success on that marketing spend as you're doing it?

Yes. So I'll break it down into 2 categories. And as I mentioned, we haven't really spent much on the -- particularly the Maggie Beer products business previously in terms of creating marketing assets. So part of that spend is in relation to creating some marketing assets that we can use digitally as well as across retail and also on TVCs. And so that they're the things that have created a lot of assets and legacy things we've making them herself. And they're going to be sort of -- they've got a lot of longevity in them. We also had to invest in a really good launch plan for the Bone Broths and finishing sources in Woolworth. So every time we do a launch of new products, and that does increase those marketing costs in that particular year. The digital marketing side of it, we measure that in a couple of ways. So I work very closely with the digital marketing team, and we measure that on return of [indiscernible]. And we have very clear revenue targets and then as well as digital targets that we want to hit for those months. And as they always joke with me normally and you're either driving for growth. And we'll be doing that, you're not driving for the profit, whereas I kind of want the both. So we try and to find that optimal in the middle of both of them where we we're growing sales, but always watching what it does to our gross margin and our EBITDA as well. So over that first 6 months of the year, where we increased our marketing spend, and we've also seen the customer life value of which is the amount of money that people spend across there actual the life of their journey within the business. We've actually -- we've seen that increase at a higher rate than the cost of acquisition of those customers. And so with the repeat purchase rate going up as well, so strongly for the businesses, we can see then that the extra investment in the digital marketing is actually giving us that repeat purchase rate. So we're going to get more spend than most consumers going forward. So if we didn't have strong organic growth, which we do, but if we didn't have strong organic growth, and we were just spending money to buy customers and we were doing at a really low return on ad spend times say 2 or 3 times or something like that. And we weren't getting that repeat purchase rate or an increase in our customer life value from our customers, and that's when I'd be concerned. And we're really then just buying a customer at that point in time. We're not really bringing them on board for those that repeat spend.

Congratulations on a fantastic result and a wonderful bottom line to you and the team. I'm just interested in your thoughts on export. You did sort of touch on that very briefly. What kind of product -- what of your product lines would you consider for export and to which markets?

Yes. Look, export has been tough over the last couple of years. And one of our key plans which we would have talked about would have been growing our export for dairy. We received our China -- organic China accreditation in June 2020 I believe it was. And so we had a lot of leads there to do dairy. But as you expect, that has really dried off with the cost of airfreight. So we're continuing to send dairy to Singapore each week at the moment. And we've got a number of many new products that growing across sort of New Zealand, Singapore, Hong Kong and Malaysia. So going forward, we think that if we -- if things return, we still think that there is a market [indiscernible] for organic dairy overseas, particularly in that sort of that the Southeast Asia region and potentially China and for Maggie Beer products, we're looking at a number of geographic regions to do some further export for that. And there also is some potential working on some plans at the moment for other areas of the business to potentially sort of gifting and stuff like that to potentially look at other geographic areas. So I won't go into that too much now, but there is plans to grow that out further and to invest in that over the next 12 months.

I just wonder just your thoughts around SKU of the business now going forward. Obviously, the first half is traditionally a lot stronger. How do you see the prospect of balancing in the second half in terms of the SKU and maybe broadening the business on hand business, particularly.