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

Thank you. Good morning, ladies and gentlemen. On behalf of the Board, it's my pleasure to welcome you to the Maggie Beer Holdings Full Year Results Presentation for FY '22. My name is Reg Weine, and I'm the Chairman of the Board. Joining me on the call today are Chantale Millard, our CEO and Managing Director; Eddie Woods, our CFO; and Sophie Karzis, our Company Secretary. Shortly, our CEO, Chantale, will present our full year results. And at the end of Chantale's presentation, there will be a short Q&A session with shareholders. Before we turn to the full year presentation, I would like to say just a few brief words. Maggie Beer Holdings is Australia's leading purveyor of premium, food beverage and gifting products and the FY '22 financial year was a transformative year for the Group. Firstly, we bedded in a highly complementary acquisition of Hampers & Gifts Australia, and I'm incredibly pleased to say we have continued to grow HGA's revenue and earnings over the prior year. At the same time, we have also grown our Maggie Beer e-commerce net sales to $4.4 million, up 156% on prior year, with website business increasing 18%, conversion rates increasing 38% and repeat customers up more than 300%, capturing the synergies we promised shareholders when we first announced the acquisition. We now have more than 900,000 engaged consumers across our digital assets and e-commerce platforms, and 66% of our Group revenue now comes from e-commerce. Consistent with our growth strategy, the successful HCA integration has created a large-scale premium branded direct-to-consumer business that leverages and strengthens our core Maggie Beer products business. Secondly, we made the important decision late in FY '22 to divest the legacy dairy assets, which were acquired by the previous management team. They were considered non-core and were dilutive to earnings. We will provide more information on the dairy assets divestment when we enter into binding agreements in the months ahead. Finally, with our capital-light business model, a very strong balance sheet, strong and predictable cash flows and no debt. The Maggie Beer Board has determined it will commence paying dividends to take advantage of our franking credits and to reward our shareholders. However, due to the statutory loss, from the movement of the dairy assets to assets held for sale, we proposed a $0.01 return of capital in lieu of the dividend in FY '22, which will be subject to shareholder approval at our AGM. With our best-in-class e-commerce capability, power brands and a strong pipeline of innovative new products, Maggie Beer Holdings remains uniquely positioned for sustained growth and revenue -- sorry, sustained growth in revenue and earnings. I will now hand over to our CEO and Managing Director, Chantale Millard, to deliver the FY '22 results presentation. Chantale?

Thanks, Reg, and good morning, everyone, and thank you for joining this presentation of the 2022 full year results and overview of the future direction of the Maggie Beer Holdings Group, Australia's leading purveyor of premium food, beverage and gifting products. The past 12 months have been unprecedented in terms of challenges we've faced like many other businesses, and yet the operational and financial results achieved over FY '22, clearly demonstrates the strength of our brands and products to consumers in Australia and overseas. As I reflect on the incredibly busy year we have had, I'd like to thank our entire team within the Group, who have worked tirelessly over the past 12 months to keep our businesses operating and growing. I'd also like to thank our loyal customers for continuing to purchase our premium products and trust that our beautiful food beverage and gifting products have delighted consumers and loved lines during these difficult times. As a Group, our focus continues to be on employee well-being and retention, as well as sustained growth through increased ranging, new product launches and price increases. The results for FY '22 showed the resilience of Maggie Beer Holdings, with combined revenue -- continued revenue growth, strong gross margins and cash generation, a substantial cash balance at the year-end, no debt and a workforce that is engaged, [ taken ] well. Looking at Slide 3; this slide outlines our recipe for success, as we call it, which is underpinned by our 5 core values in the Group. These value drives what's important to us and the key ingredient being our people, looking after the well-being and mental health has been a priority over the past 12 months. Our first ever people, culture and performance management started in July 2021, and is part of our investment in our people going forward. We've made some great progress on our employee engagement initiatives, with new Group value formulated embedded into the Group in FY '22, with the participation and inclusion of [indiscernible] in our teams. And we've also implemented a number of other initiatives, which are detailed in the ESG section of our 2022 Annual Report [ that was shared ]. So moving into the report now. Slide 4 details the key takeaways for FY '22. FY '22 saw the strong financial performance of our underlying continuing operations, which is Maggie Beer Products and Hampers & Gifts Australia, with an increase in net sales of 23% to $75.3 million and an $11.3 million trading EBITDA. We were able to maintain a strong gross margin of 53% despite supply chain cost pressures experienced throughout the year. We generated $11.3 million in operating cash flow, that's just from the continuing operations, but for our tactical investment in inventory, which we'll outline further in this report. We had $10.8 million in cash with no debt. And when we refer to no debt, the only debt in the business is asset-backed leases, so there's no working capital or other debt. And our financial outlook for FY '23, we are expecting our gross margins to continue to be over 50%, and we're continuing to develop new products and launch and expand our ranging, and as well as finalize the divestment of our discontinued operations of Paris Creek Farms and St. David Dairy. Moving to Slide 5; we're really pleased today to be able to say that we achieved the upper end of Maggie Beer Holdings revised trading EBITDA guidance of between 9.25 and $10.5 million, with a trading EBITDA of $10.3 million. The FY '22 result was also within our original revenue guidance of $100 million, with net sales of $98.3 million, when taking into account the performance of both the continuing and discontinued operations. The Maggie Beer Holdings Board made a strategic decision late in FY '22, to focus the Group's resources on Maggie Beer Products and Hampers & Gifts Australia, and these 2 businesses are delivering above average investment returns, and I'll now refer to these assets through this presentation as our continuing operations. At the same time, the Board made a difficult strategic decision to sell the company's legacy dairy assets, Paris Creek Farms and St. David Dairy. The Maggie Beer Holdings board believes, there is a more natural owner of these assets that will have synergistic operations to strengthen and grow the businesses. As such, these 2 businesses are now considered assets held for sale, and have been referred to as discontinued operations in the slide deck and in our financial accounts. As part of this process, a $17.5 million noncash write-down in impairment of our dairy assets has been incurred in FY '22, when moving into the assets held for sale. Given these strategic changes, the financial reporting for the Group this year is a little bit different, as in our classified MBP & HGA's continuing assets in St. David Dairy and Paris Creek is asset held for sale or discontinued assets, and regarding this as, as to how the results tie back to the financial statements, you'll see on this slide, how we tieback the net sales and trading EBITDA, are broken down between the $98.3 million in net sales and the $10.3 million in trading EBITDA. The balance of this report will now focus only on the financial performance of the continuing assets and the growth opportunities that they will provide. Slide 6, moving on to Slide 6. So the Slide 6 shows the key results of our continuing operations. As mentioned, the net sales of Maggie Beer Products and Hampers & Gifts Australia combined, they saw an increase of 22.1% for FY '22, which is [indiscernible] by a healthy 15% trading EBITDA as a percentage of sales. The consumer operations trading EBITDA was $11.3 million, and the business achieved a strong 53% gross margin for FY '22. The continuing operations achieved NPAT of $7.5 million, which all contributed to a strong balance sheet and $10.8 million of cash in the bank and no debt, at 30th of June. Looking to Slide 7 and the comparison of our revenue and gross margin by channel, and this slide highlights the strong diversification and change in the sales, the volume mix that we've had over the past 2 years, since we purchased and integrated HGA into the Group. But it also shows the move to the higher-margin e-commerce channel. So e-commerce now makes up 66% of the revenue, that's 75% of gross margin of the Group. So it's a significant swing from the 40% revenue and 21% gross margin in FY '21, but it also showcases the greater margins we're able to generate from the e-commerce channel. It also reinforces the strategic success of the Hampers and Gift acquisition and the successful and seamless integration of HGA into the Maggie Beer Holdings Group, which has reduced our reliance on the retail grocery channel. Retail grocery is still though a very important part of our business, and you'll see that in the reports, that we have had strong growth in that sector of our business also, against some challenging conditions, and we continue to grow both of those channels moving forward. Moving to Slide 8, and our scalable platform. Something that we're really proud of, is our Net Promoter Score for HGA at 74, which is considered excellent, very strong in the world of e-commerce and shows the high level of satisfaction that our customers have when dealing with us and make them want to shop with us again. We're striving to reach 80, which is world-class, and we'll continue to strive to achieve this over the next 12 months. Following the successful integration of HGA into MBP, HGA now manages the Maggie Beer Products' e-commerce business in its entirety, from the HGA base in Sydney, which is creating optimal efficiencies for the Group. Maggie Beer Products sold $1.1 million worth of product to HGA for inclusion in its assets in the first 12 months, which is great for the Group sales and also brand awareness, and we expect this level of cross-sales to continue increasing. Looking to Slide 9 and some of our e-commerce stats, you'll see that our digital marketing plan is driving a strong return on investment, with marketing activity, driving increased site visits across all 3 sites. And that's the Hampers & Gifts Australia, just to remind people that encompasses the Hamper Emporium, which makes up about 75% of its sales and 25% of sales is to Gifts Australia site. So all of those website business increasing, increases our customer reach. Our conversion rates continued to improve across the Hamper Emporium and Maggie Beer, with Maggie Beer up a huge 38%, which really shows the power of the HGA digital marketing skills that we purchased with that business. Moving to Slide 10, like a lot of e-commerce businesses, our customer acquisition costs increased in FY '22, as we invested in marketing, especially across the Christmas trading period, where we wanted to acquire new customers that we could talk to via our new customer data platform that we implemented in H1 FY '22. Pleasingly, the number of repeat customers increased at a high rate for all 3 sites, showing that we're achieving positive returns on that return of investment. And now that those customers are in our customer data platform, we can continue to talk to them for FY '23 and beyond. [ Moving to ] Slide 13 and our financial performance in more detail. I'll take you through the first couple of slides and then hand you over to Eddie, our CFO, who will take you through the balance. So contemplating first on the continuing operations, with its net sales and margin growing strongly in FY '22. The total net sales, including intercompany sales, which was the $1.1 million in sales between HGA and MBP, sales were up by 24%, with the combination of HGA and MBP delivering strong growth in that first year of them being combined. Without the intercompany sales, the growth was 22.1%, with both the e-commerce and grocery retail sales channels growing strongly. The combined gross margin percentage remained strong at 53%, compared to 53.2% in FY '21, even with the $1.2 million of extra import costs, which highlights the tight cost control we have in the businesses, but also our pricing power, which increased our overall gross margin by 22% to $39.9 million in FY '22. On Slide 14, you can see that our e-commerce sales and margin continued to grow rapidly in FY '22, with MBP online sales growing by 156%, underpinned by the -- with the successful integration impact of HGA and MBP being combined, and HGA continued its strong growth, up 26% of the highs of the previous year. We delivered a very strong gross margin of almost 57%, even after the impact of the higher import costs, which was really the key difference between the 58.3% and the 57% this year. And the overall gross margin of the combined online sales was up 29% to $28.3 million. Looking at the grocery retail channel, which only includes Maggie Beer Products, now that the Paris Creek farm has been moved to discontinued. With Maggie Beer Products retail grocery sales increasing by 11% to $26.6 million, and this is really after the launch of new products and increased ranging that we had in FY '22 through some of our new product launches that we had, and also entering a new -- a second larger major supermarket. So this is really pleasing, because the retail marketplace was a difficult place to operate in, between that November to March period, particularly when COVID effects were at the highest with staff shortages, and supply chain issues across Australia. So yes -- so that's the growth that we got out of Maggie Beer, which was really pleasing. The gross margin percentage decreased by 1.4 points, which is mainly due to product mix, we've done a lot of our extra ranging and growth coming from third-party produced products, such as our cooking stock and bone broth. These lower margin third-party products have easy scalability. So when we wanted to go -- we grew by about 3,790 extra distribution points, but we're able to scale up really quickly on that, [indiscernible] made by a third party, but they also then have low operational costs, meaning that they still contribute substantially to EBITDA. This growth was coupled with extra ranging points, as I just mentioned, in the second major supermarket, showing the growth potential, as we increased ranging in major retailers. Having walked you through the performance of the continuing operations, Slide 16 covers our discontinued operations performance and shows how our dairy asset results were impacted by the loss of the white label milk contract with Paris Creek and some quality issues for St. David Dairy, but both businesses were also impacted by the knock-on effects of COVID-19. Gross margin for [indiscernible] assets was impacted by raw mix milk sales, which was a result of the impact that I just mentioned. So while there's still -- we're undertaking a sale process for those dairy businesses, we continue to run them optimally, as outlined in this slide, the new ranging marketing activities and product launches taking place. I'll now hand you over to Eddie.

Thanks a lot Chantale, and good morning, everybody. I will now take you through a recap of Maggie Beer Holdings financial year '22 statements -- or financial performance. As Chantale has already stated, following the decision by the Board to classify the dairy assets as assets held for sale, the financial statements include the results of these discontinued operations as a separate item in the Group's P&L. Maggie Beer Holdings total net loss after tax of $12.3 million, includes a $7.5 million net profit after tax contribution from continuing or core assets, and there's a $2.3 million net loss after tax from the dairy discontinued assets, together with the $17.5 million impairment, totaling $19.8 million net loss after tax from discontinued operations. Revenue in the financial statements, [ as always ] shown from continuing operations at $75 million, delivering a 15% or $11.3 million trailing EBITDA. The comparative financial year '21 numbers in the financial statements have also been restated and shown separately as continuing and discontinued operations. However, they only include HGA from the 21st of May '21, being the date of its acquisition. On Slide 18, we show our balance sheet, which closed out financial year '22 in a strong position, and able to support our growth initiatives. The balance sheet and the financial year '22 financial statements, includes all of the dairy discontinued net assets of a one line item under assets held for sale, and measured at fair value versus cost of exposure. Cash on hand at 30th of June '22 was $10.8 million, and as Chantale has already explained, was lower than prior year, due to the purchase of inventory for both HGA and Maggie Beer Products, both lower compared to prior years. The cash balance will increase, as we sell through our inventory over the busy Christmas season. Prepayments and security deposits -- in the prepayments and security deposits, they include $1.3 million of prepaid inventory, that will be arriving over the next few months and approximately [ $0.5 million ] of security deposits in the HGA lease guarantees. The intangibles and property plant equipment balance reductions against the write-down of dairy assets and transfer the balance of the assets held for sale. Due to our future profitability of continuing core operations, the group was able to recognize all tax losses and the deferred tax assets under the asset section of the [ coalition ] and included under financial liabilities, an amount of $14 million, representing the contingent earn-out liability related to HGA, which earlier announced, not due until September '23, and would be paid 50% in cash and 50% in shares. Slide 19, which shows in financial year '22, we made the conscious decision to change the timing of our working capital, with inventory peaking earlier than previous years to avoid supply chain delays and disruptions, particularly as we head into our busiest period of the year, the run-up into Christmas. Inventory will reduce the normal levels between now and Christmas, and we expect to see the inventory position translate into cash inflows in the second quarter, as inventory returns to a more normal [ discount ] level. On Slide 20, we have the group's operating cash flow, and that includes both continuing and discontinued operations. Despite the $2.3 million net cash outflow from discontinued operations, our continuing operations, operating cash flow continued to be positive. Operating cash flow was impacted by the strategic move to bring forward inventory purchases, as I outlined in the previous slide, and hold more packaging for both HGA and Maggie Beer Products' key stock lines, to avoid any supply chain disruption during the second quarter sales period in financial year '23. If we wrote back the $2.3 million net outflow from discontinued operations and approximately $8.3 million of inventory purchased earlier than prior year, the Group's net cash flow from operating activities would be approximately $11.3 million, which [ adds ] back to trailing EBITDA from Maggie Beer Holdings' continuing core assets. We are confident that the cash balance will increase substantially by the end of December '23, as inventory sells-through. I will now hand over to Chantale, to take you through our key growth strategies over the next 12 months. Thank you.

Thank you. And now looking at Slide 22, which highlights our key focus areas for growth, including expanding ranging and entering new markets, creating new products, leveraging our brands and continually refining efficiencies and operations. And over the next few slides, I'll outline the progress that we've made against these focus areas. Slide 23 showcases the achievements that we've had in expanding our existing ranging, innovating and launching new products. And for Maggie Beer Products, we've launched a new national ranging of new 1-liter cooking stocks, 500 ml bone broth and finishing sauces, achieving 3,790 extra distribution points for cooking stocks and bone broths, and the new ranging in -- second range of retail, really shows with that new range, in what sales can be driven. And we are now developing further extensions with the [indiscernible] category to launch in FY '23. And to give an idea of the growth that we got from these new core lines, our cooking stocks and bone broth segment was our fastest-growing category in FY '22, increasing by 85% up to $5.5 million, and we're expecting that to grow further in FY '23 and to expand on that. So it's really a key part of the business now, which is exciting. We invested in additional account manager, a national account manager as well, to ensure that ranging opportunities are captured, as we now are venturing more into a second major retailer. We are going to make sure that we capitalize on all opportunities and we've developed a new ice-cream bar range to build on our existing top range, which we will both likely launch in the next couple of months, but definitely in the first half of FY '23. Looking at HGA, we've created a new range with Mother's Day, homeware and pamper hampers and launched stores in H2 FY '22, and they are now a core part of the driving the growth that we're having -- going to have in FY '23. We will [indiscernible] and launched premium cheese and entertaining hampers, which is by a new national food service, which is growing for us strongly. And this is another great example of how the Maggie Beer and Hampers & Gift Australia businesses combine well. The Maggie Beer Products business has access to the national food delivery service, and we can supply the cheese for -- the cheese and entertaining hampers, as well as all of the fruit paste and chutneys and then HGA has got the operation skills and the -- also the creative skills to make the [indiscernible] and also have some of their own brand products in there. So those sales are growing strongly, and at the moment, they're making up about 12% of our sales, so -- the HGA. So again, it's another new product we launched, which is growing really strongly. We launched a new [ type of ] dipping offerings in New Zealand, which is just starting, and we've also started to review some other geographical locations for further expansion. So some exciting stuff going on there. Slide 24 summarizes the investment that we've made in marketing and brand awareness, and this includes managing the launch of the new products, as mentioned before in both our retail and e-commerce channels, as well as the beautiful agency -- TV commercials for Maggie Beer Products that you can see at the bottom of the slide, which were aired on free-to-air TV and also on streaming services over the busy Christmas period, and we'll use those again in FY '23. Importantly, for our e-commerce, we have launched a new customer data platform for HGA, which allows us to streamline and personalize communications with consumers, together with our new online corporate or rental, which together with our upgraded investment, is helping to leverage our strong brands to reduce our customer acquisition costs, drive our Net Promoter Score and repeat customer rate. The slide you see in Slide 25. As a group, we now have a renewed focus on expanding the ranging of core and new products for Maggie Beer Products and HGA, and we intend to leverage these brands, to reduce customer acquisition costs, increase our Net Promoter Scores and drive repeat customers in both e-commerce and grocery retail. And we're also looking to finalize the divestment of the dairy assets in the near term. We expect some of the COVID-19 lockdown impact in FY '22 to create a challenge in recycling that growth over a couple of months, given the upscale that it provided. However, we're expecting revenue growth to continue in FY '23, through our diversified channels of retail and e-commerce combined. As mentioned earlier, given the investments we've made in inventories ahead of our busy Christmas period, we expect cash flow to substantially increase in Q2 FY '23, as sale increase in our inventory position unwinds. And with no debt, we're in a strong position to take advantage of strategic opportunities as they arise, whilst also funding further organic growth initiatives. And as Reg mentioned, in May, we mentioned -- we announced our intention to commit paying dividends, but due to the loss of the dairy assets, the Board is proposing to recommend a $0.01 return of capital per share, [indiscernible] the FY '22 dividend and, of course, subject to shareholder approval at the upcoming AGM. However, this intention highlights our confidence in the growth aspirations of our Group going forward. Our gross margin percentage is expected to remain strong and above 50% in FY '23 for our continuing operations. And above all, we'll continue to build on our employee engagement program and well-being program, with the continued investment in our people and teams in FY '23, to ensure the company can deliver on its full potential. So Maggie Beer Holdings has a strong balance sheet with continued growth ability, which will see the Group to only be able to weather the uncertainties in the next 12 months, but be in a position to take advantage of opportunities as they arise to strategically grow the group. FY '23, we see Maggie Beer Holdings continue to grow its retail grocery business with new product launches and increased ranging, as well as growing its e-commerce businesses through strategic marketing investment and its premium hamper and gifting range. After a long road, a decision has been made regarding our legacy dairy assets and FY '22 has been a year of challenges and change. We've come out the other side with a renewed focus and excitement about our future aspirations for Maggie Beer Holdings, and I hope that you're as excited about the future of Maggie Beer Holdings as we are. And I'm happy to answer any questions from participants at today's briefing. Thank you.

Chantale, we've got a couple of questions in the chat box. Can you give a time line of when the dairy assets will be divested by?

Yes look, we've got -- so there's 2 processes, running one a little bit further ahead of the other one, but we're expecting to be able to give announcements on those over the next couple of months, hopefully, a little bit sooner.

Okay. Another one, does inventory in this business have only a limited shelf life? You will be holding stock for another 6 months?

No. And so one of the things is, is that the inventory has been a deliberate purchase of inventory. So it's not carried over inventory from last Christmas or even from the last few months. It's been purchased deliberately for the budget that we've got for our Christmas trading. So at the moment, about 40% of that inventory is made up of finished goods, with finished hampers and they are all pamper and wellness and homewares hampers, so there's no short shelf-life products in there at all, but they've all been made to what we're expecting to sell over Christmas. And then we've got 17% of the inventory in packaging, and that will run out -- that will go through as well. And then we've got 11% of our inventory is champagne, which is quite hard to come by in bulk at the moment. So we're very pleased to have that. But again, that will go into hampers over the Christmas period as well and sell through. So look, we don't have any of our food sort of related products. They come in as we are building up the hampers closer to Christmas. But then again, they all have over a 12-month shelf life as well. So it's not a large overstock that's carried forward. It's a very deliberate purchase for what we're expecting to sell through over Christmas.

Great. And then just a couple of questions on the dairy businesses. The dairy business was only purchased about 3 years ago. During this time, there has been a P&L loss, and now -- there have been P&L losses and now a $19 million write-off of the number of shares issued. What level of due diligence was gone into purchase?

Yes. Look, so the Paris Creek farms' purchasing year in December 2017 and St. David Dairy in August 2018. I wasn't part of that transaction process, but there was the correct and robust due diligence that should have been done during that. So unfortunately, dairy assets can be difficult to manage, and there's been an number of changes and packaging changes that were made back in 2018, particularly with Paris Creek Farms, which didn't go as expected. So yes, I can't comment too much on that the history, back when it was originally purchased. But I think the thing that we need to focus on now is that, the decision is being made on the dairy assets, which is great because it really allows us to have that renewed focus on the 2 assets, which are hugely synergistic and are really driving growth and providing the impact that we need, to be able to pay dividends as well as that cash generation and high gross margins. So I think that's the focus of the group now, is to really drive hard the 2 brands that we can -- yes, that we'll be able to -- yes continue to grow profit to.

Great answer. And here from the accounts we are expecting proceeds of circa $11 million to $12 million from the divestment of the discontinued businesses. Can you provide any commentary on that?

[indiscernible] the first part of that. Is that to say whether or not we're expecting to get about $11 million or $12 million from divestment? Yes. Look it's somewhere around that range, and we've also got transaction costs, because you'll see in the balance sheet that the asset held for sale sitting in there at $11.4 million. So that also includes transaction costs, which we have taken into account in FY '22. So -- but over the coming weeks, as we firm up all those details, really exclusivity at the moment, we'll be able to release and announce more details of that, to firm up that.

Great. And just to tie into that, with the divestment of the dairy assets, where will the cheeses be sourced from, for the new HGA hampers?