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

Good morning, and welcome to MBH Half year '24 results. Thanks for your interest in our company. Joining me today is CFO, Craig Louttit. Today, I will present a review of results and a recap of our strategic progress. Craig will then discuss half year financials, and I will conclude with a summary and outlook for the full year. And at the end of the presentation, Craig and I are happy to take your questions. I also look forward to speaking to many of you in the coming days. I'll start with the Half 1 FY '24 summary. So while overall market conditions remain challenging, we were pleased to deliver a strong recovery in sales growth in the second quarter compared to the PCP. This growth demonstrates the positive market traction from the execution of our strategic initiatives across both the online and retail channels. We delivered a strong turnaround in Q2 revenue performance, and that resulted in net sales growth of 5.8% versus PCP. Our Q2 online sales were up 6.8%, and that includes our sales to corporate customers which were up 20% versus the PCP, and we see corporate customers as a key opportunity for further improvement and growth. When we talk about online, our online includes our 3 e-commerce sites, The Hamper Emporium, Gifts Australia and Maggie Beer online. In the retail channel, which is our supermarket channel, our Q2 sales were up 2.9% versus PCP, and retail includes Maggie Beer products sold in supermarkets, which saw a strong growth of 11.2% in the quarter versus PCP, which was partly offset by a decline in Paris Creek Farms. The Q2 sales performance delivered the sales growth for the half. For half 1 FY '24, sales up 0.9%. This reflects Maggie Beer products, which was up 4.1%, Hampers and Gift Australia up 2.5% and partially offset by Paris Creek Farms which was down 12%. Our trading EBITDA was $2.8 million versus $5 million in the PCP. This was impacted by declining gross margin, higher costs and lower volumes in PCF and increased investments for future growth across Maggie Beer and HGA. Our strong balance sheet and financial position has been maintained with net cash for the half at $11.6 million. In response to the continuing market challenges, we are accelerating our strategic initiatives in the second half and delivering operational initiatives to recover cost inflation and generate efficiencies across manufacturing. We have also identified a cost-efficient opportunity to leverage a large-scale quality manufacturer to supply Maggie Beer cheese. We are advanced in securing these third-party supply and as a result, the planned capital expenditure for the cheese operation at PCF has been placed on hold. I'll now provide a snapshot of our financial results, and Craig will detail these later. Further strong turnaround in revenue in Q2 led to the overall sales being up 0.9% for the half versus FY '23. And as I said, growth in MBP and HGA partially offset by PCF. Our trading EBITDA for the half was $2.8 million, reflecting gross margin decline, lower volumes in PCF and delayed recovery of input costs in MBP and HGA. The increased cost of doing business reflects increased costs in PCF plus an investment in growth initiatives, and I'll talk about these on the subsequent slides. Our underlying NPAT gain of $0.2 million and a statutory loss of $5.7 million includes a non-cash impairment in PCF of $4.6 million and onerous contracts of $0.9 million, and Craig will detail these later. Our strong balance sheet has been maintained, a net cash position of $11.6 million and no debt, and this enables us to respond to current market challenges and also maintain investments in growth initiatives to further build our scale and our capability. Moving on to progress against the key strategic initiatives. We have made good progress in each of our priority areas. These 3 strategy pillars have remained consistent, scaling our e-commerce platform, expanding the Maggie Beer brand and optimizing our assets. In terms of scaling the e-commerce platform, as you are aware, Quarter 2 is our peak selling period in the e-commerce business. We successfully executed our Christmas plans, and I'll share some highlights of these in the coming pages. We delivered improved conversion rates, we increased average order value, and we improved customer repeat rates. We also had a really strong focus on customer service, and that delivered an improvement in our Net Promoter Score. And also pleasingly, we were awarded the Canstar 2024 award for customer satisfaction in the category of Online Gift Delivery. Sales to corporate customers was also a key focus. And in Q2, we delivered 20% growth in this area. We took a personalized approach to segmenting our corporate customers, targeting new customers and developing personalized offers and providing personalized service. We also made improvements to our corporate ordering platform, and we also made improvements to our delivery through a bulk shipping option. As per the update at our AGM, we launched into a number of new categories and partnerships that I'll detail shortly. On The Hamper Emporium platform, and these delivered $2 million in sales in Q2, and they included Penfolds, Maggie Beer branded hampers on The Hamper Emporium as well as expanding our successful cheese hampers to include grazing offers. In terms of expanding the Maggie Beer brand, we've made solid progress here, which lifted our sales through category expansion, NPD and marketing. We refreshed our marketing program, which I'll show you shortly. We've made the campaigns which hopefully you saw, including outdoor, digital, campaigns at airports and also in magazines. We also focused on growing our Food Club. We now have over 70,000 members, and we've done that through exclusive offers and explosive content to those Food Club members. We continue to expand our Living Range, both online, in hampers and at David Jones retail stores. We also improved our delivery through NPD and ranging. Hard Cheese has delivered double-digit growth. We launched ice-cream in Woolworths and in January, we've also launched ice-cream in Coles. And our portfolio of new cooking products that have been developed and accepted into supermarkets for ranging in Half 2. In terms of optimizing and unifying our assets, we were able to leverage The Hamper Emporium website and customer database to launch a new category page on that website featuring Maggie Beer branded hampers. This is the first time we have done this and it is a good example of unifying our assets to grow revenue. We also streamlined our supply chain resources across Maggie Beer & Paris Creek farms in South Australia, and we implemented price increases for PCF and Maggie Beer products. Q2 was an important selling period for our e-commerce business, and we successfully executed all planned initiatives that were shared at the AGM. We delivered that by spending advertising in line with PCP and we delivered an improved return on ad spend. And some of those initiatives that were successfully executed included Events & Promotions. And during these events & promotions, we ensured that the mix of our promotions and products maximize our margins. We launched new product ranges and we implemented a number of initiatives to improve our marketing and conversion rates. I'll now share with you examples of some of the new product ranges that we launched in Q2 on The Hamper Emporium. So we expanded our Christmas range across both Maggie Beer and Hamper Emporium. We expanded into the Grazing Occasion through the inclusion of premium Salumi products as part of the cheese hampers. We expanded into Bridesmaids and also developed some corporate-specific hampers, and we expanded into new verticals of Travel and Pet, which we will leverage into next year. We also implemented a number of new partnerships and collaborations to continue to showcase our premium brand and to further elevate and differentiate our hampers across the market. So these are examples of the Maggie Beer -- some of the Maggie Beer hampers on The Hamper Emporium. Really pleased with our partnership with Penfolds in both The Hamper Emporium and Maggie Beer online. We updated our cocktail range through a partnership with Curatif, and we included the all popular Frank Green water bottles in our travel hampers. Now moving on to Maggie Beer. One of the key...

Kinda, we can't see the presentation anymore. Sorry to interrupt you.

Okay, just give me one second. Great, Okay. Let me just go back a couple of slides to see -- you can quickly see these. So these are the new product ranges that I've just outlined. These are the new partnerships and collaborations that we launched in quarter 2. Hopefully, that brings it to life a bit better than my words. And just moving on to the Maggie Beer brand and how we supported that brand, particularly during Quarter 2. So as I was saying, Maggie Beer is one of the key assets of this business. And we implemented a large-scale advertising program, which you can see on the left-hand side, some examples of our outdoor campaign, our app campaign, at airports and in shopping centers in close proximity to supermarkets supporting our hamper range, our newly expanded ice-cream launches as well as our cheese and entertaining products during that Christmas season. And this is a really important investment not just to support and deliver the improvement in sales that we saw in Quarter 2, but also to create a really strong platform for us to continue to expand and grow and leverage the Maggie Beer brand. You can see we also ran lots of campaigns across digital advertising as well as to our Food Club members. I'm now going to pass on to Craig to take you through the financial overview.

Thank you, Kinda. As Kinda mentioned, revenue for the half was up 0.9% with online growing 1.8%, partially offset by retail down 0.6%. Our gross margin, as it was mentioned, has been impacted by delayed price recovery as from input cost increases during the period. Trading EBITDA was down $2.2 million with the lower gross margin but also some increased costs in PCF in particular, but also some key investments through the P&L in key growth initiatives. Our statutory EBITDA includes the impairments for PCF assets, $4.6 million and the recognition of onerous milk contracts -- sorry, milk contract is an onerous contract at $0.9 million. We'll cover the EBITDA movement and PCF update further later in the presentation. The net sales revenue and gross margin by channel and segment. First of all, by segment, as Kinda mentioned, the revenue both HGA and Maggie Beer pleasingly up, HGA 2.5%, Maggie Beer products up 4.1%, and partially offset by PCF down 12%. At the channel level, online has grown. It's now 62% of our business for that first half, which is a positive mix shift of 1 point versus the prior comparative period. The gross margin, both at the retail and online level, there were cost increases and there's been a delay in recovering those increases, which has impacted our gross margin. Going through movement in the trading EBITDA. I have mentioned it a few times the gross margin down $0.6 million, was the dollar impact of that gross margin reduction. The higher cost PCF, $0.5 million with additional roles in that business. But there's also some key investments in display of growth initiatives that are included within the P&L. The HGA building capabilities in that business has been very important, but also the Maggie Beer brand. So leveraging the Maggie Beer, expanding and leveraging that brand has been very important. So a higher advertising cost of $0.6 million in EBITDA. With the balance sheet and cash flow, our balance sheet continues to be strong. We're well funded, $11.6 million of cash with no bank debt. Some key movements in the balance sheet compared to December '22. The PCF, property, plant and equipment is impairment of $4.6 million, higher trade and other payables, particularly given a strong Q2, but also there are some timing items included within that as well. When comparing against December '22, there were prior year items that happened in the second half, which are part of the bridge between those 2 items. The 2 key items being on HGA, a $12.5 million impairment in the second half of the prior year which was partially offset by a release of the earnout -- the remaining earnout, liability of $10 million during that period as well. Cash flow, strong positive cash flow during the half, $5.3 million, and we continue to maintain a capital-light model. I'll now hand back to Kinda.

Thanks, Craig. So looking at Half 2 FY '24 priorities, our strategy remains consistent, and we will continue to respond to market conditions and strengthen the company for future growth. In terms of the 3 key strategy pillars, scaling the e-commerce platform, we'll continue to focus on innovation with new categories, collaborations and partnerships as well as fully leveraging the new categories and partnerships that we've put into place in Q2. We'll be optimizing our direct-to-consumer go-to-market channels in terms of optimizing the mix of the marketing channels that we're using and further leveraging our owned channels in terms of content across social, Instagram, Facebook and the like. From a corporate perspective, our corporate customers are really important customers and are really important for continued growth. And we will continue to build on the personalized campaigns that we created through Q2 with a real focus on not just repeat customers and increasing average order value, but also new customer acquisition. We highlighted technology as being a key enabler, and we will continue to use technology to enhance and enable our strategy. In terms of the Maggie Beer brand, as referenced at the start, we will be -- we'll continue to leverage manufacturing partners to accelerate growth in the retail channel. And as I said, we have -- we have well advanced in securing cheese supply from a high-quality scale manufacturer. And as a result of that, the PCF cheese CapEx is on hold. On Maggie Beer, we'll continue to refine the brand building strategy to continue to strengthen that brand, providing a really strong platform for growth. We'll continue to expand our living range and launch into Garden, and we'll commence the redesign of our new website and continuing to leverage and expand our Food Club, which we also see as a key asset for future growth. In terms of optimizing and unifying our assets, we remain really focused on timely recovery of input cost increases. We will be implementing the SKU rationalization program. Very focused on reducing labor production costs. And in the half, we will also implement AI to further support and drive efficiency and great timely service in customer service, which, as you heard, have been a really big focus for us and has delivered an improvement in NPS. And we want to continue to improve on that. Our enablers remain consistent in people, capability, focus on marketing to fully leverage our assets in Maggie Beer, in The Hamper Emporium and in Gifts Australia as our key brands and in technology, which will facilitate and support our growth. So I'll conclude today's presentation with an outlook for FY '24. As mentioned, our strategy remains consistent in investing in marketing, analytics and e-commerce capability, setting a really strong platform for FY '25. Optimizing our assets. Continuing to innovate and expand our ranges and continuing to build new categories and partnerships. For Half 2 FY '24, MBH is focused on accelerating strategic initiatives and delivering operational efficiencies to create further value. For FY '24, the company expects to achieve positive sales growth driven by Maggie Beer products and Hampers & Gifts Australia. And while MBH expects H2 FY '24 trading EBITDA to improve on H2 FY '23, given the H1 FY '24 result, the full year trading EBITDA is expected to be lower than FY '23. MBH will maintain a strong balance sheet, which supports investments in growth initiatives. And that concludes the presentation section of today and Craig and I are happy to take your questions. Any questions?