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

Good morning, and welcome to Maggie Beer Holdings FY '23 results. Thanks for your interest in the company. I'm pleased to present the first set of financial results as CEO. Joining me today is outgoing CFO Eddie Woods; and incoming CFO, Craig Louttit. Today, I will present a review of the FY '23 results and also a recap of our 5-year strategy, which we presented in June. This will be followed by an outline of our priorities in FY '24 to support this strategy and the outlook for the year ahead. At the end of the presentation, Eddie, Craig, and I, are happy to take your questions. I also look forward to speaking to many of you in the coming days. I also want to acknowledge the contribution of all of our people at Maggie Beer Holdings over the past year. Since joining in March, I've been impressed by the caliber and passion of our team. They are central to our plans to deliver our growth strategy. So before commenting -- commenting specifically on the financials, I'd first like to provide an overview of our key highlights for the year. While we faced a challenging macro environment, including the effects of rising interest rates and inflation on consumer spending as well as higher input costs, we continue to make progress across key areas in the business. In our Maggie Beer products, our net sales were up 2%, benefiting from the launch of new products in our cooking categories. In Hampers & Gifts Australia, we grew share in a contracting hamper market with a focus on performance marketing and advertising to drive traffic and customer conversion. We also took the decision to reclassify Paris Creek Farms as a continuing operation during the year, and this reflects its strategic importance to our growth strategy and the synergies that we believe we can extract from optimizing assets across our group. We maintain a really strong balance sheet and one of the key highlights of the year is that we were operating cash flow positive of $6.5 million for the year. We are a consumer-led business. So it's critical that we continue to invest in and develop and build our brands to drive customer conversion to grow loyalty and preference. And FY '23 saw us step-up investment in key marketing activities to support product launches in Maggie Beer, but to also ensure that we continue to grow our leadership position in HGA. We also continue to invest in our people this year. And finally, we launched a refreshed 5-year strategy in June. That strategy is focused on unlocking value across Maggie Beer Holdings, optimizing and unifying our assets, expanding the Maggie Beer brand, and building scale in our e-commerce platform as we further diversify our categories. This all supports our aspiration to create a $300 million net sales revenue business with strong margins and return on assets over the next 5 years, and I'll talk about this later in the presentation. Here now is an overview of our financial results for FY '23. These results are consistent with the trading update of 30th of May 2023. It's also important to note that the results are also consistent with the announcement of 14th June 2023, where we announced that Paris Creek Farms has been classified -- reclassified as a continuing operation and no longer held for sale. Accordingly, the accounts for FY '22 have been restated to include PCF as a continuing asset for comparison purposes. Our net sales were $88.7 million, down 1.4% for the prior year. In Maggie Beer Holdings, we were up 1.9% from category expansion. In HGA, we were down 7.5%. However, our market share did improve. And in Paris Creek Farms, we're up 10.5%, primarily driven by increased milk volume. Our trading EBITDA was $3.2 million, and as we called out in the trading update in May, the macroeconomic factors, including higher freight, labor, and energy costs have impacted our trading results. We also successfully implemented price increases to mitigate some of the impact of these cost increases and EBITDA was also impacted by increased investment in people and advertising. These investments are part of our strategy to expand and leverage the Maggie Beer, but also to harness the strength of our e-commerce platform to continue to build scale and revenue. NPAT from continuing operations was $0.8 million, and we remain in a strong financial position with a net cash position of $9.2 million at the 30th of June 2023. And this strong position enables us to respond to the current market challenges while maintaining investments in growth initiatives to build further scale and capability and optimize our asset base. Moving on to the next slide. This demonstrates how we are responding to the current environment and how our priorities in FY '24 are aligned to our longer-term strategic priorities, and in particular, how we are leveraging our e-commerce capability across our key brands. So I've already called out the impact of rising costs on our operations in FY '23. And in addition to pricing, we will target greater efficiencies in our operations and look to extract supply chain synergies across Maggie Beer Products and Paris Creek Farms as well as improving productivity and reducing waste at each of our sites. Under this strategy pillar, we also kicked off our cheese project at PCF. In FY '23, we demonstrated the net sales growth in Maggie Beer products and how we can grow the top line through brand activation and expansion. So our focus in FY '24 will be on expanding our product range further with a greater focus on leveraging the e-commerce platform, not just for Hampers but also for gifting and for expanding our Good Life range. We will also be refreshing our approach to marketing and content creation and testing some new channels for the Maggie Beer brand. In HGA, we saw the hamper category decline reflecting the post-COVID trends as well as the macroeconomic factors. However, our investments in advertising have resulted in our share of [indiscernible] it growing versus the market. So in FY '24, we will firstly be focusing on the core business, ensuring that we execute our peak Christmas period excellently. And then linked to this is a continued focus on improving customer experience and service. We will be fully leveraging our e-commerce capability across our 3 online brands, The Hamper Emporium, Gift Australia and Maggie Beer. And we aim to continue to grow our leadership position through innovation through advertising and by expanding into new categories and verticals. I'll now move on to an overview of the P&L. As mentioned, revenue is down 1.4%, and the revenue mix reflects the shifting trend post-COVID from online to in-store. We had solid growth in retails -- in the retail channel, with sales up 7.2%, offset by declines in the online channel, which was down 8.4%. Gross margin was also impacted by this shifting, shifting channel and product mix with gross margin percentage down by 1.4 percentage points. Trading EBITDA was down to $3.2 million, and I'll talk to the key movements in EBITDA in a subsequent slide. Statutory EBITDA was impacted by a reversal of the earn-out provision from the HGA acquisition of $14 million, which we announced in May. This was partially offset by a noncash impairment charge of $12.5 million against the goodwill of HGA in the FY '23 accounts. And this is reflective of the macroeconomic environment in which the business is operating. Notwithstanding this impairment charge, we believe the business remains one of market-leading e-commerce platform with significant untapped potential and plays a key role in our group growth strategy. Moving on to net sales revenue and gross margin. This slide shows the revenue by segment and also the impact on gross margin from the shift that we're seeing from online to in-store. Net sales were up in both Maggie Beer Products and PCF, and offset by the decline in HGA. Online sales across Maggie Beer, The Hamper Emporium and Gift Australia were down 8.4%, while retail sales in Maggie Beer products and PCF were up 7.2%. In retail, we also saw the mix shift to major retailers as well as to products that are produced by third-party manufacturers, and that have impacted our gross margin in retail reducing it from 45.2% to 43%. Now we'll take a look at the key movements in trading EBITDA that are summarized in this waterfall chart. So on gross margin, while sales were down $1.3 million, the channel and product mix shifts just mentioned resulted in a $2 million gap at gross margin. And notwithstanding the earnings decline we've discussed, we believe it remains important to continue to invest in marketing, in our people, and products. These investments are part of our strategy to expand and leverage the Maggie Beer brand as well as harnessing the strength of our e-commerce platform to build scale. And then the final 2 buckets reflects the impact of rising costs that I've already mentioned, including the increase in domestic freight, which was compounded by the collapse of Scott's Refrigerated Transport, as well as higher utilities, insurance and professional fees. And the trading EBITDA of $3.2 million for FY '23 being consistent with the guidance provided on 30th of May. MBH remains in a strong financial position, which enables us to fund growth initiatives as part of our strategy. Here, you can see our balance sheet and cash flow. Net assets at 30th of June were $85.7 million, including a cash balance of $9.2 million. The reduction in group net assets is mainly due to the return of capital and dividend paid. And we continue to generate positive cash flow with operating cash flow of $6.5 million generated in FY '23 with $2.7 million less in inventory compared to FY '22, and we continue to be a capital-light business. I'd now like to move on to providing a snapshot by each of our entities. Starting with Maggie Beer Products. So as I've said, Maggie Beer sales were up 1.9%, reflecting the strong growth in retail. And this was partly offset by a 20% decline in our online business and this will be a key focus for growth in FY '24. In retail, we launched new products and increased our ranging through the year, including new Maggie Beer Cooking SKUs in supermarkets across finishing sources and stocks, and this led to 12.4% growth in the Cooking segment, which is a really strong result. We also saw incremental ranging in our entertaining offers across pastes and pates. We also launched the first of the Maggie Living range, and this sets a platform for future innovation and expansion, which we'll start to see in FY '24. Our gross margin was down by 2.6 percentage points, as I mentioned, mainly due to the product mix, with the majority of sales growth coming from our lower-margin third-party produced products in the Cooking segment as well as a reduction in the higher margin on sales -- online sales products. Moving to HGA. Hampers & Gifts Australia was down 7.5%. However, as I said, we have outperformed the market. The market has declined caused by a reduction in post-COVID demand for hampers as well as the broader macroeconomic factors. But our investments in HGA enabled us to continue to grow our database, which stands at over 1 million customers. We also launched new offers, including Christmas hampers, [ Homewares ] hampers as well as the very successful cheese hampers, which now account for almost $3 million in sales from a standing start. These launches enabled us to leverage the huge number of customers that visit our website every year. Across The Hamper Emporium and Gifts Australia, we have over 2 million website visits each year. In FY '23, we developed the bulk ordering system for corporate customers to streamline the customer experience and this enabled us to grow our corporate sales by over 5%. Our customer conversion rates also increased especially over the peak Christmas selling period, and we maintained a strong Net Promoter Score of 70%, up over 70%. Gross margin percentage was steady on the prior year as average order value has remained consistent despite the dropping volume. And EBITDA was impacted by sales and gross margin decline and also from the incremental investment required in paid advertising. Now on to PCF. PCF grew net sales by 10.5%, primarily driven by increased distribution and in-store activation in milk. While gross margin was up in dollar terms by 7%, gross margin percentage was impacted by increased milk prices that were not recovered through pricing. Now I'd like to spend the next few slides recapping our strategy, which we outlined in June this year. And I also want to provide you an update on how our FY '24 priorities also support this strategy. In June, I shared with you our vision to champion the joy of Australian food, and culture and gifting, which is relevant across all of our business units. As this is the platform for our refreshed aspiration to create a $300 million net sales revenue business over the next 5 years. And I strongly believe that this is possible when you look at the markets that we operate in and the categories that we are planning to enter across food and culture and gifting represents an addressable market of over $36 billion. This has required us to reimagine the potential of our assets. We have 3 core businesses that are market leading in their own right, and this provides us an opportunity for enhanced scale and growth. And we have reimagined what they can be to support our 5-year aspiration. Maggie Beer is already an iconic food brand, and we want to enhance the joy of the food experience. by bringing more pleasure to the preparation and sharing of food by expanding the Maggie Beer brand into kitchen, home and garden. Paris Creek Farms is an organic and biodynamic dairy business. That's focused on white milk. But we have an opportunity to leverage this asset. This very strong manufacturing asset to create more value through higher-value dairy categories across cheese and new yogurt and desserts. And Hampers & Gifts Australia is currently a market-leading hamper and gifting business, and our strategy is to develop this business as a market-leading e-commerce platform that is the first choice destination for gifting, entertaining and sharing occasions. This next slide demonstrates how we will realize the untapped potential by reframing these 3 distinct business structures into a unified force. In terms of optimizing and unifying our assets, we made the decision to retain PCF because it gives strategic value to the group, and we will invest in capability and capacity to support this expansion and growth. We also see enhanced scope to integrate our 3 business units to unlock synergies, and we will streamline and implement robust supply chain processes. We will also assess and streamline our core ranges to ensure that we have a more efficient product range and will optimize our cost base and take a zero waste mindset. In Maggie Beer, we will grow the core by increasing penetration of the brand in our existing channels across online and retail, but we will also be expanding the Maggie Beer brand across the good food and good life pillars that I shared with you in June and fully leveraging our existing e-commerce capability. We'll be expanding our key occasions in food across cooking, entertaining and desserts, and our new verticals will enhance the creation and sharing of food. These growth plans will be underpinned by investment in master brand advertising by refreshing our content and strengthening the foundations in e-commerce and in particular, our food club. These investments support the aspiration to grow the Maggie Beer to $125 million over the next 5 years. The e-commerce platform represents the most significant revenue opportunity for the group as a direct-to-consumer as well as a B2B opportunity. To enable this significant scale, firstly, we need to strengthen our foundations. We will optimize and streamline our operations. We will focus on continuing to provide exceptional customer service and experience, and we'll continue to build our Net Promoter Score. We will improve conversion by enhancing the customer experience and expanding our ecosystem in digital. While we have good traffic and strong conversion on desktop, we will enhance our conversion on mobile, and we will refresh our websites to adopt a mobile-first approach. There is also significant potential to further develop the corporate as well as the B2B sales by targeting specific verticals, and we are resetting our approach to capture a larger share of this market. On the next slide, I'm summarizing the key priorities for FY '24 to support the key strategic priorities I've already outlined. FY '24 is about cementing the foundation to effectively support the execution of our 5-year strategy while continuing to innovate, expand and grow our brands. The Maggie Beer brand will enter new categories in retail and online and see a refreshed approach to marketing. In e-commerce, we will leverage our platform and customer base with new partnerships and categories. And at PCF, we are focused on implementing the cheese capital expenditure upgrade. I'm also pleased to report that we are already making some progress on these initiatives. We have already established a unified supply chain team across MBP and PCF. We have also in-house the production of Maggie Beer Ash Brie ahead of our planned CapEx program. I'm also really pleased to share that we have expanded our dessert category in Maggie Beer ice cream, which will be now available through a major supermarket chain from October. This is one of our most iconic and much-loved products, and we're looking forward to sharing that with more Australians. We have also launched recently 2 new hampers. One is a new partnership with Curatif to build on the cocktail trend that we're seeing in the market. And we have also launched Grazing Hampers online. And over the next few months, we have a number of new launches to tap into broader market opportunities across our e-commerce platform. And so I will now conclude today's presentation with an outlook for FY '24 -- with an outlook for FY '24. Our key focus in FY '24 will be on optimizing our assets, innovating and expanding our ranges, and building new categories and partnerships so that we can fully leverage the Maggie Beer brand, our e-commerce assets and our dairy manufacturing capability. and we'll continue to invest in marketing, analytics and e-commerce capability to set a strong foundation for FY '25. In terms of outlook, we are focused on leveraging our strengths to meet shifting consumer habits while market conditions remain uncertain. We expect to return to positive sales growth in FY '24 led by growth in Maggie Beer products across retail and e-commerce. Gross margin percentage is expected to be broadly in line with FY '23, given similar macroeconomic and channel mix. We will continue to focus on operational costs and pricing discipline, which is expected to lead to an improved EBITDA margin in FY '24, and we maintain a strong balance sheet, which enables continued investment in growth. That now concludes the presentation, and we are happy to take your questions.

[indiscernible] speaking. Just firstly, just in terms of the earnings numbers for the different divisions. Previously, we've had some breakdown of earnings result for all of the different businesses. I'm just wondering if you can maybe talk to that or give us some idea or you're not disclosing that? Or is that a change in approach?

Mark, it's Craig here. I'm sure Eddie could answer this as well. But the statutory numbers, we do have statutory disclosure in the [indiscernible] in the accounts. So there's a good degree of information in there. But I'm happy to go through additional stuff offline if you've got any other further questions, Mark.

Okay. I'll take a look at that. Yes, sure. Sorry, had been in previous presentations. But then secondly, just to talk to the total CapEx, in particular, just how the Paris Creek capital expenditure is looking at the moment in terms of the planning for that?

Yes. So Mark, we're on track with that capital expenditure. As I've previously shared, the expenditures in the order of $4.5 million to $5 million. And we're really excited to see that come on board at the end of the year and to start to in-house our Maggie Beer cheese products as well as create a platform for further growing Maggie Beer cheeses as well as in the online business through cheese hampers.

Okay. So the split of that CapEx is going to be FY '24 and '25 is going to be roughly an even split? Or how should we think about that?

It will mostly be in FY '24 capital expenditure.

So that's $4.5 million, okay. And then just on the inventory buildup for Christmas. Just wondering how you see that, how do you see the Christmas trading? Are you going to sort of be even tighter on inventory sort of? Or what's the sort of the buildup around Christmas at this point in time?