My Food Bag Group Limited (MFB) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the My Food Bag FY '25 Full Year Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Mark Winter, Chief Executive Officer. Please go ahead.

Thank you, and [ Cura ], and welcome, everyone. I'm Mark Winter. I'm the Chief Executive Officer of My Food Bag, and I'm here with our Chief Financial Officer, Louise Newsome. Thank you for joining us today as we present our full year results for the period ending 31 March 2025, which we'll refer to as FY '25. Today, we'll provide an update on the business for FY '25. We'll provide a review of our financial performance for the year and talk a little bit to the outlook for FY '26. At the end of the call, there'll be an opportunity to take some of your questions. So looking back at FY '25, we're pleased to report revenue of $162.1 million and an EBITDA of $16.1 million, reflecting a return to growth in the second half of FY '25 and building on a stable performance in what has been a challenging retail environment. Our net profit after tax was $6.3 million. This was up 5% on the prior year FY '24. We've more than doubled free cash flow in FY '25 to be at $7.6 million. Turning to Slide 5, the year in review. Over the past year, we've certainly strengthened our customer offering and improved operational efficiency. This has translated into sustained business performance and renewed growth. Some of our key initiatives to support this included our focus on our products, providing more convenience and quality to our customers. We launched the My Food Bag Shop, offering one-off purchases and shorter lead times without the need for subscription. We've continued to invest in our brand, and we've seen positive impacts on active customer growth, as a result of this investment. We've redesigned our user experience and customer buying journey in our app and website, which increased personalization and convenience for our customers. We've strengthened our margin through procurement initiatives despite the inflationary environment. Our employee engagement and retention are higher than prior year, which speaks to the positive culture we continue to build and foster within My Food Bag and strong free cash flow allowed a net debt reduction of $4.9 million since March 2024. During the year, we refreshed our purpose of helping Aotearoa New Zealand eat and live well. This purpose is at the heart of everything that we do that motivates us to deliver the best outcomes for our customers and reflects our commitment to their well-being. Alongside our values of teamwork, ambition and customer love, this purpose is the foundation of the My Food Bag culture. Look now a little bit just to the business update, and on Slide 8, our strategy demonstrates that our focus remains on growing active customers. This is driven by leadership in the meal kit category and expansion into the broader online food market. And we'll do this by delivering greater flexibility, convenience and great value. We have 4 key pillars to support this. The first one being building our brand to drive higher customer advocacy and loyalty. The second one being enhancing convenience for our customers across all our brands, such as shorter lead times, faster recipes and growth of our ready-made meal range. The third one is around personalized solutions, so customers have more flexibility and more choice. The fourth one is about unlocking new customer segments and occasions by introducing new customers and audiences to My Food Bag. These pillars are underpinned by an efficient operating model and ongoing investment into our people, our supply chain and our data and technology. Our portfolio of brands continues to be a key driver for us in managing the current economic conditions. With My Food Bag, Fresh Start and Bargain Box, we have a strong market presence that caters to a broad customer base. Throughout the year, our strategic focus on providing a seamless customer experience has seen us develop our offerings to ensure they align with the evolving taste and dietary preferences of New Zealanders. A highlight for us this year was My Food Bag's partnership with the New Zealand Olympic Team for the 2024 Olympics. This campaign was a huge success with over 20,000 servings of our official supporters burger delivered. This partnership drove passionate engagement with our customer base, as well as reinforcing our New Zealand credentials. We also successfully reintroduced our gluten-free offering in collaboration with Coeliac New Zealand. As the only meal kit offering with these credentials, we've built a loyal following. We also prepared the launch of our Diabetes Plan, which recently launched in April with support from Diabetes New Zealand to tackle one of New Zealand's fastest-growing health challenges, type 2 diabetes. Finally, our ready-made meal range was rebranded under the My Food Bag brand to upweight the convenience of My Food Bag and strengthen our position in the ready-made meal category. The quality of our ready-made meals is a key factor in the growth and success of this range, and this quality was recognized in a number of awards during the year. Bargain Box continues to be New Zealand's most affordable meal kit, offering convenience for more budget-conscious consumers. We are focused on product enhancements such as expanding our low carb offerings, as well as restaurant collaborations with brands like Lone Star, which customers interacted with very positively during the year. Fresh Start continued to help Kiwis achieve their weight loss and wellness goals with calorie-controlled nutrient-rich meal options. We've seen strong engagement with the optional 8-week reset program with seasonal updates, a reward scheme that keeps participation levels high. Fresh Start also had product enhancements through the year, such as the introduction of new high-protein recipes in response to the growing demand for this dietary preference. On the next slide, we show how we invested in the full user experience redesign and platform of our website and mobile app. This ensures a consistent and seamless experience for our customers, while they navigate our expanding meal range, whether they're using our mobile app or our website. The new experience means they can now access things like personalized meal recommendations and an ingredient checklist to easily see what staples are required for their recipes. As a business, we continue to embrace new technologies such as AI to drive both customer experience improvements as well as efficiencies. We also continued to expand our delivery network by opening up more than 7,000 new addresses during the year and introduce new delivery windows to provide greater flexibility for our customers. Our focus on customer experience across the board has resulted in multiple areas of improvement. For example, our Net Promoter Score is up 7 percentage points year-on-year and customer compensation continues to trend down. Turning to Slide 11, we're excited about the launch of the My Food Bag Shop, which currently offers one-off ready-made, foodie gifts meal solutions and care packages for existing customers, as well as attracting customers, who want a one-off purchase without a subscription and shorter lead times. This new flexible operating model allows us to reach a broader audience, including corporate clients and provides a great level of convenience with deliveries being made nationwide within 48 hours. The shop has received great feedback from customers, particularly for our fresh ready-made meals and seasonal products. We'll continue to enhance the shop offering, digital experience and communications through FY '26. Our operational excellence program continues to drive efficiency across our operations, which results in better customer experience, and we can see this through our pick accuracy and delivery metrics. The investment in our Pick to Light technology in 2023 enabled our customers to have protein choice for our Christmas range this year, which resulted in an overwhelmingly positive response from our customers, including improved satisfaction scores and growth in sales year-on-year. From an environmental impact perspective, we've continued our efforts towards circular packaging solutions, including transitioning 2 suppliers from cardboard to reusable crates for ingredient deliveries in our distribution centers, removing packaging, where we can. We also have a strong commitment towards local sourcing, and we've consistently exceeded our 98% target of locally sourced produce and proteins. In November, we hosted our inaugural supplier awards, where we celebrated with awards in 3 categories: quality excellence, service and innovation. In FY '25, we continued strengthening our culture and capability for the future, and this is shown in our strong employee engagement score, as well as turnover being at an all-time low of 18%. Our commitment to our people was recognized when we won the 2degrees Supreme Employer of the Year Awards for Auckland in April 2025. This award highlights our dedication to fostering a diverse and inspiring work environment and demonstrated focus on health, safety and well-being, along with our commitment to employee and team development. We've also continued to support our community through a Supported Life in Auckland and Skillwise in Christchurch, which help provide opportunities for people with learning disabilities. I'll now hand you over to Louise, who will go into more detail on our financials.

Thanks, Mark. Turning to our financial performance. Both revenue and EBITDA are in line with prior year with the second half of the financial year, which I'll refer to as H2, showing positive trends for both deliveries and average order value. Revenue in H2 was up 5% on the prior year when normalized for the different number of trading weeks between financial years and up 1.9% on a straight half-on-half comparison. Our contribution margin remained strong at 23.3%, driven by our continued focus on operational efficiency, which is enabled by our Pick to Light technology. As Mark mentioned earlier, our net profit after tax was $6.3 million, up 5% on FY '24. Talking now to our delivery performance. Delivery stabilized year-on-year back to pre-COVID levels with growth of 3.7% on a normalized basis in the second half of the year. Our order frequency is positive as a result of our targeted discounting approach, and we've seen incremental deliveries coming from new product areas such as from the My Food Bag brand, Serves 6 option and gluten-free range. Active customers held steady with the prior year with the mix of customers highlighting improved customer retention. Our retained customer base has increased to 59% of the total base, reflecting our efforts to retain loyal high-frequency customers. This has helped to improve our overall customer mix with acquired and reactivated customers slightly down on prior year. Over the page on Slide 18, average order value remained stable at $130, supported by modest price increases across all our brands and the introduction of larger family-sized products such as the higher price point serves 6 offering, which are proving popular with our customers. As Mark mentioned earlier, we've also seen continued improvements in areas like pick accuracy, quality and delivery performance, which are resulting in reduced customer credits, contributing positively to maintaining average order value year-on-year. Our gross margin improved to 49.3%, primarily driven by produce pricing. We've seen favorable growing conditions throughout the year. And on top of this, procurement initiatives to purchase more directly from growers are enabling us to source more competitively priced ingredients. Our menu planning and recipe development also continues to play an important role in managing our ingredients costs, whilst retaining consistent quality for our customers. The contribution margin was 23.3%, up from 22.6% in FY '24, driven by the higher gross margin result. With our continued focus on customer experience, we invested in improvements to packaging and have also seen the anticipated cost increases coming through in distribution, which partially offset the higher gross margin result. However, our previous investment in Pick to Light technology, the consolidation of the Auckland assembly centers in FY '24 and the launch of the shop from within our current lease footprint continue to provide efficiencies across overheads and labor costs, which helped to offset these cost pressures. Moving on to our balance sheet now on Page 21. Net debt continued to reduce with a reduction of $4.9 million since March 2024. This results in net debt of $6.9 million. During the year, we reduced our total debt facilities from $30 million to $20 million, and we reduced our CapEx spend, reflecting there were no significant capital purchases throughout the year. Right-of-use assets and lease liabilities have reduced predominantly due to consolidation of our Auckland assembly sites. Over to page, looking at the summary cash flow, you will see that net cash flow from operating activities has improved by $3.4 million year-on-year, allowing the net debt reduction I just spoke about and the payments of dividends during the year. Free cash flow has increased to $7.6 million, up from $3.5 million at the end of FY '24. We've also been able to drive growth initiatives such as the launch of the shop and the investment in our digital user experience, while reducing CapEx spend to $3.2 million. A final dividend for FY '25 of $0.085 per share fully imputed has been declared to be paid in June. This represents a total FY '25 dividend of $0.015 per share, which is an approximate yield of 11%. We've also launched a dividend reinvestment plan, which will operate for the upcoming final dividend. This will enable shareholders to incrementally increase their My Food Bag shareholding by reinvesting their dividend either partially or in full in My Food Bag shares. I will now hand you back to Mark, who will talk about FY '26 outlook.

Cool. Thanks, Louise. So looking ahead to FY '26, our strategy remains focused on driving growth and innovation. Our 4 strategic pillars that underpin this focus are strengthening our brands, enhancing convenience, driving personalization for our customers and targeting new customer segments. We'll expand our health and wellness offerings and continue to invest in digital enhancements to improve the customer journey. Throughout FY '25, My Food Bag has demonstrated its resilience, generating strong cash flow despite challenging economic conditions. Revenue growth, tight cost management and low capital investment requirements have all contributed to this. In the first 8 weeks of FY '26, demand growth has continued. And despite inflationary cost pressures, we remain confident in our ability to continue to manage these costs effectively. Finally, the My Food Bag Board expects to continue to pay dividends in FY '26. So with that, I'll now hand it over for your questions. Thanks.

Your first question comes from Guy Hooper with Jarden.

Well done on a good result. It's good to see the revenue base turning back into positive growth. I guess just on that, can you talk a little bit about of that progression occurred through particularly into the second half, where you've gone to positive and perhaps talk a little bit about the run rates because given we were, I guess, negative in the first half, positive in the second, is that the second half ended at a stronger level than the total?

Thanks, Guy. Yes. So probably just to get a little bit into that. I mean, what we've seen is we've seen a very consistent level of sort of prior year [ beats ] now over the last 26 weeks. And in terms of those sort of prior year beats, that's obviously been at a delivery level, but also probably more so in the last 12 to certainly since the beginning of the year, seen that brand mix shift back towards My Food Bag a bit more, core brand. So with that, obviously is a stronger average order value, which is sort of over and above the delivery. So we're really pleased with both facts in terms of both the consistency in those prior year beats and also that sort of improvement in brand mix. I think the key call out from my perspective would be within that active customer graph within the investor deck, you can see there that the retained base is actually up year-on-year. And that talks to the success of a lot of the initiatives that have been implemented over the last 12, 18 months in that the quality of customer that we're seeing is tending to be retained, is tending to see a better order frequency. And so, that sort of is underwriting the growth in the revenue line. So I'd say, we're feeling really positive, as we head into FY '26 with that sort of foundation over the last 6 months.

Great. And you sort of preempted my next question just around the product mix. I mean, the improvements in mix towards My Food Bag, I mean, has that been driven by like a conscious marketing push towards that brand? Or is it just that you're seeing underlying improvements I guess similar to as the consumer backdrop deteriorated, you saw those shifts perhaps towards a more value proposition? Just keen to understand what's conscious on what might be consumer.

Yes. Look, I think it's much more the former. I think it is a case of a number of initiatives layering up to create that positive momentum. So I talked a little bit about some of the brand marketing activity, like the example being the sponsorship of New Zealand Olympic Team. And what was so successful about that was that it played to a lot of our strengths and obviously, our assets. So our New Zealand identity, the alignment around health and wellness, our ability in terms of our recipes, we went out to the Black Burger Bun, for example. We leveraged trading tactics with promotional kind of activities that engaged audiences. So there are a number of things across the whole business that kind of contributed to that. We had black boxes with another example. So I think that certainly played a role. I think product innovation as well, Guy, has contributed. We saw on the relaunch of our gluten-free offering, which has seen strong demand. And there's some other sort of innovation activity that we've done, which is also built on that. And then probably the other piece I want to call out has just been our relentless focus on the customer experience and material improvement around our quality performance, around our pick accuracy, around our delivery service performance, and we're seeing that in our Net Promoter Score that continues to track up month-on-month, year-on-year. So all of these things are layering up and our customers are buying more regularly and evidently, they're also becoming advocates and speaking to their neighbors. In terms of the wider environment, I'm not so sure that it's necessarily improving. I certainly don't think that it's getting any worse, but I still get the sense that it's tough out there in consumer retail world.

Yes. No, I certainly appreciate that. And then I guess one last one for me, just around the marketing spend. From memory, there was a bit of a step-up in marketing intensity in the first half associated with the launch of the shop. Can you talk a little bit about, I guess, how you're thinking about promotional intensity and the returns you're getting there and whether or not we can kind of look at the second half levels and say that's roughly where you think it will be going forward?

Yes. I think that's right. There's been an element of brand investment to support the shop in the second half, albeit we recognize we need to further invest to build awareness and get more New Zealanders engaged in what is a different offering from My Food Bag, but an important offering to help reposition the business beyond meal kits into wider meal solutions. There's always going to be a role for discounting. And particularly, I think in this environment, consumers have certainly been kind of trained to sort of wait for a discount offer to jump in. We've been increasingly more focused around I guess, the level of discount that we've been offering in the market. More recently, we've been pulling that back. We've been using more product incentives to engage with [ lapsed ] customers, and that's proven to be effective for us. But in terms of the general brand investment, I mean, I expect that to continue to be pretty consistent with the level we're at in FY '25, as we head into FY '26, we're certainly not looking to decrease that. If anything, it's a case of holding that and potentially being open to further investment if the opportunity warrants it.

There are no further questions at this time. I'll hand the conference back to Mr. Winter.

Well, thank you. Look, thank you, everybody, for dialing in to the conference today. And if you've got any further questions, please feel free to reach out to me on mobile or through the e-mail. Have a great day. Thanks.