Noumi Limited (NOU) Earnings Call Transcript & Summary

Good morning, everyone. I'd like to welcome everyone to the presentation for the First Half Results for FY '24 for Noumi Limited. It's a pleasure to be here with you today, and thank you for joining. The results will be presented today by myself and Pete Myers, Group CFO, who will go through the financial results of the company. We've already uploaded the presentation and you can navigate to the slides as you choose, or you can follow on the screen. We'll talk to each of the slides and refer to the page numbers as we progress. Slide 3 is the agenda for today's call. We'll focus on the call outs from the results and discuss the key elements of the company's evolution. Pete will present the financial performance for the period. I'll then talk through the strategy of the company, followed by closing remarks. The key messages for today's call. We are proud of the progress that we are making as we execute our plans. The results for the first half of FY '24 represent another period of solid progress against our plan to Reset, Transform and Grow the company. With all key operational financial metrics moving consistently in the right direction. Both our segments delivered strong sales and profit growth with other record performance from Plant-based Milks and positive earnings from Dairy and Nutritionals, marking a genuine improvement in challenging market conditions. Moving to Slide 5. We've executed against our plans. The year has seen strong execution of our plans and the transformer growth strategy continues to deliver improved results with EBITDA of $23.1 million, up 35.2% from the first half of FY '23. This is a promising result as we continue to deliver to the plan that we laid out. This result is a credit to the entire team across the business. The Plant-based Milks business is up 6.1%, with an EBITDA of $23.1 million, with continued growth in our Milklab brand. The Milklab brand has continued its growth with revenue up 6.8% across Dairy and Plant-based Milks. As mentioned at the beginning of the call, Dairy and Nutritionals continues to show improvement with EBITDA in this period of $2.2 million compared to the $1.9 million loss in the first half of FY '23. The Australian dairy industry faces significant pressure as the disconnection in the global commodity price versus the Australian farmgate milk price continues. This places significant pressure on exports and bulk commodities. The business continues to remain focused on the domestic market, but key export customers play an important role, although we are challenged with the current pricing structure. The unrestricted cash and undrawn facilities of $26.5 million at 31 December 2023. On Slide 6, we present the key financial metrics. As already mentioned, the EBITDA is $23.1 million, pleasingly up $6 million from the same period last year. Net revenue is up $16.9 million to $296.7 million. As we continue to rebuild the company, we have seen the net loss after tax of $27.7 million, including the $32.3 million of convertible note fair value adjustments. Dairy and Nutritionals delivered a positive EBITDA of $2.2 million on the back of $209 million of revenue, up $11 million. This is a result of our disciplined approach to focus on products with higher margins and delivering better returns. The Plant-based Milks' EBITDA was another record of $23.1 million. Revenue for Plant-based Milks of $87.5 million was up over $5 million versus the same period last year. This is a strong result and achievement we are all proud of. Moving to Slide 8. As you'll recall, we continue to talk about our 3-part Reset, Transform and Grow strategy. We're embedding the transformational changes in Dairy and Nutritionals with a focus on the growth phase in Plant-based. The company is focused on the great brands and world-class assets that we operate to produce our products. Many of the transformation initiatives are substantially complete. Actions to transform your company are now well underway with operational improvements across the business already driving improved sales and margins with our new values incorporated to all work practices. Those improvements provide the springboard to grow the business through 3 pillars: Products, Channels, Geographies. Plant-based Milks is clearly established in the grow phase. Moving to Slide 9. Previously, I laid out the transformational program to deliver long-term growth. We are pleased with the progress we are making, notwithstanding the headwinds we are facing. There are, though, a number of highlights. You will see, we are executing against our strategy. The only substantive reset item left is the corporate legacy issues that continue to progress in line with usual timetables. Dairy and Nutritionals has performed well in half 1 FY '24 with a focus on margin and operating efficiencies. To continue the growth, Milklab Oat is continuing to grow, showing over 51% sales growth in the first half. The Plant business is firmly in grow phase. Consistency of performance, investing in attractive initiatives, anchored by our core brand, Milklab, and supported by Australia's Own. We continue to partner with distributors locally and internationally as we drive further initiatives. Internationally, there are a few key areas we are focused on to ensure success in these regions. We continue to build our investment into our products and brands across the majority of our portfolio. I'll now hand over to Pete to go through the financial performance of the business.

Thanks, Michael. And good morning, all. I'm delighted that we're able to report a continuation of the progress that we shared at the 2023 full year briefing as we execute on our Transform and Grow agenda. Michael has summarized the key messages contained in the half year material that we released to the ASX this morning. We are pleased that our messages remain consistent with the last couple of announcements, another record result for Plant-based Milks and improvement in dairy compared to half 1 last year. But we still have much to do, challenges to be overcome and much opportunity ahead. We have opportunities ahead for our Plant-based Milks business, both in Australia and overseas, and we've delivered progress in the dairy business. As Michael said, dairy faces challenges from the dislocation of the domestic and global dairy markets, but the improvements that we have made, I mean that we are addressing these challenges from a much stronger position today compared to the circumstances we were in a year or so ago. Whilst industry conditions are dynamic and we remain cautious about the macroeconomics, our results continue to improve. We are becoming stronger, and we're encouraged by our progress. Now let me turn to some of the specifics of the result, but first, a few grounding comments. We have generally referred to our adjusted operating EBITDA numbers as being our most important measure of operating performance and the most useful for investors. And if Michael or I just say EBITDA this morning, that's what we mean. It excludes all one-off style restructuring amounts such as impairment charges and things like the U.S. litigation expenses and other legacy issues. There is an important change in the way we present the EBITDA result this year. Historically, we have presented our primary EBITDA on a pre-AASB 16 basis. AASB 16 is the accounting standard that deals with leasing. It effectively recharacterizes rent into depreciation and interest. Almost all our peers and ASX-listed companies have transitioned to highlighting EBITDA on a post-AASB 16 basis, and we have done the same from this reporting period. This ensures that we are presented on a comparable basis to our peers. There is no difference to revenue. There's no difference to our balance sheet or our cash flow, and we have updated all of the EBITDA comparisons in our ASX announcement to be on the same basis as the current year. So all of the improvement metrics that we are describing this morning are truly like-for-like. And there is a complete reconciliation of these adjustments to the statutory numbers in the appendices at the back of the slide deck. Now sorry, with that mouthful over, Michael, skipping to Slide 13. I'm pleased to report that all of our key operating metrics on this slide have improved again during the half. Revenue up overall compared to the prior period, in Plant-based Milks, Milklab as well as private labels. In Dairy and Nutritionals, pricing volume increases in domestic dairy and actions to limit the impact of the global dairy headwinds. Adjusted operating EBITDA of $23 million, up 35% from the first half of last year. The statutory loss of $27.7 million includes a fair value adjustment on the convertible notes of $32 million. Now a feature of this result is that it's much cleaner. There are no impairments. There's very little restructuring style charges, which is another in mind of the progress that we're making through the transformation phase of the turnaround. And as noted early, there is a full bridge from EBITDA to net loss after tax in the appendices. In terms of cash and capital, we've got lower cash than we had at June '23, largely attributable to a delay in some routine debtor financing drawdowns that moved from late December '23 to early January '24. In the same time, we paid down our conventional financial debt, $6 million. Consistent with prior periods, we've included a pro forma view of the balance sheet in the event that the convertible notes were converted, and conversion would obviously make our balance sheet much stronger. And as we've said before, we don't carry any value for our flagship asset, the Milklab brand on our balance sheet. Milklab has been built from scratch in less than 10 years, and we consider it worth hundreds of millions and it continues to grow. Moving to Slide 14. We're delighted with another record result from the Plant-based Milks business with EBITDA for the half year, up 6.1% to $23.1 million. There are a range of highlights to this result and still some opportunities to be pursued. Growth in our key brands, Milklab, plant sales up 4.6% growth in our range, the new oat formulation delivering growth of almost 52% in the same period last year. Solid growth for Milklab Almond and big initiatives underway to extend its geographic reach and strong performance from private label, giving consumers options. We continue to believe this business has a great future. And with a mix of branded and private label volumes, we're well placed to respond to any shifts in consumer behaviors resulting from macroeconomic factors. It's a great business with great brands and a great future. Slide 15 showcases the continued progress of the Dairy and Nutritionals segment compared to the same period last year. Positive adjusted operating EBITDA of $2.2 million, an improvement of $4.1 million on the loss of $1.9 million in the first half of last year. We had some good wins, domestic long-life milk sales up 28% with increases in volumes as well as the recovery of cost increases. Consumer Nutritional sales up 11%, supporting a turnaround in the profitability of this unit also. And it could have been even better. Global dairy conditions have impacted on the prices we received for bulk cream and impacted our first half EBITDA by $4 million compared to the same period last year. And we had disruptions to our lactoferrin production, which meant lactoferrin sales were down 37% in the half, also impacting EBITDA for the period. Export revenues were down 3%, but our actions protected profitability as volumes of low-margin formats were reduced. Overall, a good result for Dairy and Nutritionals with positive EBITDA and good half-on-half improvement. But the headwinds in exports, commodity prices and lactoferrin meant that earnings were still relatively small, and dairy is not yet cash flow positive. This is the next goal, and that is why improvement in the dairy performance is so important. The recipe is clear, product mix in favor of high-margin products, operating efficiencies, service quality and reliability and great customer relationships where we work constructively to navigate external challenges. So our message is one of progress, but consolidating our improvements is a key to continuing our journey. Turning to Slide 16. Our cash flow performance was impacted by the timing of drawdowns, as I said before, of our debtor financing facilities in late December. Put simply, this means that our accounts receivable was circa $9 million higher, and cash was almost $9 million lower than if the drawdowns would have occurred as normal. Otherwise, we're satisfied with our cash management and cash flow in the half. We are actively managing working capital, although inventories are higher at the end of December than we planned. The lactoferrin disruption and some changes to our Consumer Nutritional supply chain have contributed to this increase, and inventory is a clear focus for us for the second half. Our approach to capital expenditure remains disciplined. Our net financial debt, excluding the AASB leases and the convertible notes, was repaid by $6 million during the period. Net finance costs were $9 million, not including any cash interest on the convertible notes, where interest is capitalized and rolled up for the period. Consistent with the terms of the convertible notes, when they were issued 3 years ago, no cash interest was payable until now, when we now pay $4.5 million in the quarter with the first payment being made in early January 2024. The focus we have had on improving our earnings to prepare for the end of the cash interest holiday has been an important part of our planning over the last couple of years. So to recap the financials, overall EBITDA are up 35%, $23 million for this half compared to $17 million last year. Dairy and Nutritionals delivers a turnaround of $4 million in EBITDA compared to H1 FY '23. We adapted to lower volumes. We withstood difficult global dairy conditions. We optimized mix. We grew our domestic business, and we improved our operating metrics, and another record result for our Plant-based Milks business with strong performance across the board and with opportunities to expand our range and footprint underway. And with that, I'll hand back to Michael for some further remarks.

Thanks, Pete. I want to thank Pete and the finance team for the key presentation on the financial performance of the business. As Pete mentioned, consistency is key, and the information is also important for the entire business to understand the performance. Moving to Slide 18. I'd like to talk further regarding our strategy. A strategy that I've spoken to about previously is to develop high-quality and innovative dairy and plant-based products to meet the different nutrition and taste needs of customers and consumers across all life stages. We have 5 key strategic pillars, complete the Dairy Nutritionals turnaround, accelerate Plant-based Milks' growth, deliver world-class supply chain, embed high-performance culture and build future growth platforms. Through these 5 key pillars, we've developed strategic priorities to focus on. These drive the focus of the business to bring shareholder value. The strategic pillars are well established in the business, and we have a clear roadmap. We've ensured consistency in these areas to allow the team to understand the pathway to success. With the results presented today, you can see that we've been able to show strong progress. A number of priorities, though, that have already been executed. Some of these you've seen before as we continue to transform and accelerate our growth; build dairy into a profitable and growing business, invest to strengthen and grow the Milklab brand, including investing to accelerate global market expansion; embed Noumi culture and values; unlock Plant-based Milks growth through channel, range and geographic expansion. These priorities will assist in driving shareholder value. On Slide 9 is the strategy for the Plant-based Milks segment. As highlighted by Pete, we continue to see our brands in plant-based grow year-on-year and deliver positive earnings across the group. Our focus areas are very clear. We'll continue to invest in marketing and to strengthen the brand equity of Milklab and Australia's Own. Our Milklab Oat product can continues to perform for us and our customers. It is key to drive the range through the Cafe segment. Expand Milklab into new consumer occasions. Our big opportunity is to concentrate our effort in growing key international markets with attractive demographics and strong coffee cultures, where we can benefit from the skills and experience, we've gained from the establishment of Milklab in Australia. Development of the innovative new plant-based beverages that meet changing consumer preferences, focusing on health and taste. Working with partners that will help us drive successful campaigns is key to the strategy. As mentioned on our last update, we've accelerated our investment in the brand across many platforms. This is a brand that we are proud of, a brand that originated and we developed in-house, a brand that is only 8 years old. It is super impressive. We've been very systematic in building the reach and the value of the brand, and it has a great future. Moving to Slide 20. The Dairy Nutritionals strategy is about consolidation of operational efficiencies and margin growth. In light of the many challenges, the significant turnaround that we have achieved has continued in the first half, including reductions in waste and other operational efficiencies, but acknowledging, once again, that there is more to do. As Pete also mentioned, the impact on the results for the bulk commodity pricing has shown the significant achievement in the long-life business against a significant headwind on the bulk commodity price. We continue to focus on opportunities to meet market seeking high specification lactoferrin. Research is also continuing around the health benefits of lactoferrin to leverage the investment already made. With some positive performance of our -- some of our dairy range, including Milklab lactose-free and Australia's Own lowest cholesterol, we'll leverage these off to strengthen both of these brands domestically and internationally. Sports and wellness nutrition market continues to grow. Key to our participation in this market is building our brands, innovation and operational capabilities. International competitiveness is a challenge for the Australian dairy industry. For our part, we are making a strong discipline on volume and margin. We are working on our own operational efficiencies. For our part, we are in a significantly better positioned on positive actions that we have taken. We are focusing on the controllable elements. Moving to Slide 21 is our ESG strategy. We brought together our integrated Healthier Tomorrow Plan. This plan, as you may have seen, it was released in 2022, following consultation with suppliers, business partners and our own team. Our ESG strategy is integrated across our value chain from dealing with our supply partners to manufacturing to delivery of our products to our customers. We are continuously improving processes to meet or exceed our ESG targets. I'd like to update you on a few of the key achievements. We are moving to have all of our packaging APCO compliant by 2025 and all Milklab and Australia's Own products are now compliant. We have all our dairy farm supplies part of our food and safety program, which helps continue their stewardship of the land. We continue an engagement within our own team, we were successfully increasing our engagement scores by 4 percentage points, which is in line with our targets. We'll continue to aim for a further 4 percentage-point lift in the coming year. This year, we've also exceeded our target of over 75% of our own brands, carrying the minimum of the 4-star health rating. As you can see, we are deeply embedded in the ESG practices across all parts of our business. We'll continue to look for opportunities. Slide 22 with our trading outlook. Plant-based Milks is firmly in the grow phase. We established a performance, we -- sorry, we expect the performance of our Plant-based Milks to remain strong as it benefits from demand in Australia and targeted overseas markets. We're investing in growth domestically and internationally with updated ranging, leveraging the strength of our Milklab range. In Dairy Nutritionals, we continue to hold, build the momentum created, the disconnect of the global commodity prices impacting the competitiveness of the Australian dairy industry. We will focus on embedding operational efficiencies and continue to build on internally created brands. The company is positive about its progress, and this is evident with these results. Macroeconomic conditions continue to create uncertainty and volatility. We'll consolidate and embed progress to date. We need to execute consistently against the strategy and prepare for the evolving consumer. We are doing what is in our control. We are setting up the medium- to long-term sustainable growth. I'd like to thank you all for listening today. I want to reiterate that the significant transformation of your company is well underway. The results we are delivering today are a testament to that. There is still more work to do. We have a clear roadmap. Execution is key. While considerable challenges remain from increased domestic international competition to cost-of-living pressures on consumers. The operating improvements we have made, as this business is now being reflected is more consistent -- in more consistent performance and have put us in a clear path to long-term sustainable growth. Right across the business, including the Board, we are committed to a pathway forward we hope that is evident. I want to thank all stakeholders within the business, not at least our staff. We would not be here today without them. And I want to thank them for all the effort. That concludes the formal part of the presentation. We'll now move to Q&A.

Thank you, Michael. At this time, we have a number of questions submitted by shareholders. The first question relates to the convertible note fair value adjustments. What factors would impact these values? For example, would it be the interest rate set by the RBA?

So thanks very much for the question. The notes have got a conversion option. They've got cash payment requirements and they've got repayment provisions, and that makes them a complex financial instrument according to the accounting standards. Not quite a loan and not quite an option. So we get them expertly and independently valued at each reporting period by a qualified third-party expert. And a lot of factors go into the valuation of the notes and therefore, the adjustment to fair value each period, including discount rates, which is not exactly the RBA rate. But it certainly reflects the cost of capital in markets generally, time to maturity, cash interest payments, the valuation of the option component and the conversion feature. So I'm sorry, it's a bit of a mouthful, but they are -- all of those factors do go into the fair value adjustment that we report each period.

The next question comes from a shareholder. It relates to the distribution of Milklab products in McDonald's outlets. What percentage of group revenues come from that revenue?

Yes. Thank you for your question. We have significant distributors between all of our Milklab brand in the out-of-home market. McDonald's is an important customer getting to our consumers as well as many of our other customers. We regularly manage and monitor the concentration of any of our customers. Don't have a specific number to provide, but at this moment, we ensure we don't -- ensure we have supply across many different distributors in that market for our Milklab brand.

Thank you, Michael. Next question is, I appreciate that you can't provide financial guidance, but could you talk about your cost expectations going forward, e.g., salary, freight, energy, et cetera?

Yes. No, thank you for that question as well regarding that cost. And we continue to monitor with -- and especially with the cost-of-living pressures and ensuring that our practices are getting more efficient across our operation and ensuring wastage is continually monitored. We are well aware of future cost increases and cost pressures that may come from utilities, wages and supply chain. So continuing to improve our overall supply chain and operational efficiencies to ensure that we can offset many of those, but it is something that we continue to effect into our business as we move forward.

Thank you, Michael. The next question is, could you remind us what happened with the lactoferrin production disruptions?

Yes. Regarding the lactoferrin disruptions, there's been a couple of areas regarding the disruption that we've seen there. And some of that is to do with just overall volume of supply of milk coming through the factory, with -- as you saw from my notes, some smaller volume does also -- lactoferrin as an output of the amount of milk that we have to process. There's been some specification changes that we've been working through. So what we see is a bit of a timing around that first half disruption to the lactoferrin in these results.

Thank you, Michael. Look, a related question. Would you be able to provide more details, including root causes, timing as well as relevant correction, preventative and risk mitigation actions considering the importance?

That is something, in terms of this business, we're very -- been very focused on in terms of ensuring the quality as we want to drive for high-specification lactoferrin, so we've been very focused on that. We've been able to consistently deliver that product, and that is the approach to the business to ensure that product meet specification and high quality. So very large focus across the business, and it is something we're quite confident on in terms of the position in the future.

There are no more questions at this time.

Well, once again, thank you, everyone, for joining the presentation of these results. As highlighted, we appreciate the effort of everybody joining the call. And I also appreciate the effort of all of our team members. You can see the results in this first half are a testament to the effort that we're putting in. We continue to focus on building the shareholder value in this business, and we continue to build on the strength of our brands, especially Milklab and Australia's Own and focus on the operational improvements across the business. Thank you for your time, and look forward to speaking when we present our full year results in August.