Venture Life Group plc

Good morning and welcome to the Venture Life Group PRC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time via the Q&A tab situated in the right-hand corner of your screen. Just click Q&A, scroll to the bottom, type your question and press send. The company may not be in a position to answer every question it receives during the meeting itself. Have the company review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Gerry Randall, CEO. Good morning.

Good morning. Good morning, everybody. Welcome to our interim results presentation. Pleasure to speak to you again. We've been on the road for a few days meeting our institutional shareholders, so it's good to have an opportunity to speak to those of you in the retail space. A brief introduction is myself, Gerry Randall. founded VentureLife Business in 2010, CEO, and I've got with me this morning Danny Wells, CFO, who's been with us since late 2021. I'm going to introduce and talk through the first few slides, just an overview of where we are in the business, and then Danny's going to give a bit more detail on the financials, and then we'll spend some more time looking at the products, the marketing, and how we're progressing on the commercials. So let me start with slide two of the overview. So in overview, revenues for the first half of this year were up 24% compared to the comparable period last year. Now that does include an effect from the acquisition we made at the back end of 2022 of the ear roll. Business, so like for like, just up over 10% for the year, for the first half, excuse me. Gross profit, we had an increase in gross profit as those revenues came through. The gross profit margin did reduce in percentage terms slightly, and there's good reasons for that. And it was in line with what we're expecting to happen. And Danny will talk you through that later in the slides. adjusted EBITDA growing and percentage growing as well. And that's important because it shows the operational leverage of our business. Moving to the bottom left, the revenue mix, 55% for venture life brands, 45% for our customer brands. And that will move up towards 60% by the end of the year and into 2024 will go above that 60% mark in favour of the venture life brands as those high margin brands continue to grow and develop within the business. Operating profit grew to 3.3 million. But most notably, I would say the bottom right-hand corner, the cash generation was very strong. And Danny's going to talk through this in the later slide. That's a feature of the business now. It's a feature of having acquired some very cash generative businesses over the last two or three years, but also of good, tight and strict control around our debtor book and control of cash inflows book. That cash generation and free cash flow is a big feature of our business now. You'll see it this year. We're focusing on organic growth of our business. We're not intending to do any M&A this year, but you'll see that cash flow driving our net leverage down. It's gone down in the first half. It will continue to go down in the second half. And then also into next year, we expect to see significant free cash flow driving our net leverage down lower and lower, and that will obviously contribute to a lower interest charge in future years but also that switch from a value from debt into equity which will happen regardless of operational and trading changes. Just on the next slide, we've touched on most of these highlights. We've talked about our revenue performance. There's been good momentum in key brands, Balance Active, Lyft, and Aerol are driving the growth this year. Balance Active and Lyft particularly strong. But that said, the customer brands business has been very strong this year. That's where we develop and manufacture products for customers to sell under their own brands. And that grew 20% this year, but 1.2 million of that growth came from newly developed products, products we developed in 2022 for existing customers that were then launched during the first half of this year and we made deliveries. So that's an ongoing theme in our business, that capability to develop and manufacture and innovate in particular. And you'll see that coming through in our brands portfolio later in the presentation. cash generation strong, increased free cash flow. And as I said, the net debt going down, which is a key feature of our business at the moment. I'm now going to pass you over to Danny, who's going to take you through.

Good morning, everyone. Thanks, Joe. What we'll do, we took some feedback from our recent InvestorMeets presentation where we were too detailed on our financial slides. So we've tried to trim that down for everyone this time around. I hope that's appreciated. So we'll cover revenue firstly in one slide as opposed to six this time. And I'll talk from top left and we'll go around the charts. So firstly, top left, as Jerry's already said, revenue growth for the first half year on year was around 24.5%. 20% growth came from the customer brands. That's on the top left-hand side of that chart. uh driving from 8.8 to 10.6 million and within that growth that we've seen in the first half in the customer brands there you'll have seen a lot of that's been driven by new products that have been developed out of the facility our r d capability at that site so 1.2 million of that growth in the first half came from products we developed last year and have commercialized and are now selling through our customers existing customers in this year which is really pleasing and we'll see an annualization of that impact in the second half On the VLG brands, a 27% growth year on year, but of course, that includes the full annualized impact of the newest acquisition to HL Healthcare, which wasn't there in the first half of last year. So on a pro forma basis, the VLG brands were up around 3.5% year on year. Overall, if I take to the right-hand side of the slide in the middle chart at the top here, I just want to break down those VLG brands in a bit more detail for everyone. There's two key divisions within our BLG brands. There's our UK and EU retail business at the left-hand side of the top middle chart, and then there's the international business. I'll talk to the UK, EU part of that BLG brands business to begin with. First thing to say, that UK EU comprises mainly UK revenues. Over 90% of those revenues come through our retailers in the UK and pharmacy channels and online. We do also have a little bit of revenue through Ireland, the Netherlands retail, Germany on Amazon and USA on Amazon. That's also part of that EU UK picture. It's all managed by the same team and that's why we categorize that together. As you can see in the first half, 21% growth year on year. But again, it's got the full year annualization impact of the acquisition we made, which was not there last year. So on a like for like basis, that business was up 4% year on year. But moving into the second half of the year, you will have seen in our statements on Monday morning that there are 17 new listings. have been secured in the uk some of that is existing products into existing customers but also new products we've developed and we'll see a stronger second half from that part of the business reflecting the impact of that and jerry will talk to that more in a few slides time in the international business you can see that it's up 40 year on year two percent like for like the same reasons i've already broadcast uh but again in the statement on monday you'll have seen that our order book is uh strong particularly on the vlg brands I think if you go back a year ago and we would have talked about our order book being strong, that was very much being driven by our customer brands business, which is a lower margin part of the business. As those of you who follow the business closely will know. But in the VLG Brands business, that's much higher quality of revenue in terms of margin delivery. So that order book growth of 35% that we have this year compared to the same point last year, that includes 2.5 times growth of the VLG Brands international business, which is really important because it means that the revenues flowing through that part of the business and international will be significantly stronger in the second half and higher margin as well, which will have a positive impact on the overall blended margin. Quick snapshot on the right hand side of the page here, just the two pie charts. Just a headline here is that balance active lift and ear roll in the categories of women's health, energy and ear, nose and throat. These are the core parts of the VLG Brands business these days. They comprise around 65% of the overall revenue from that division. And they're all in growth, growing strongly, as you've seen. Balance Active was up 24% year-on-year. Lyft was up 16% year-on-year. And Aerol, our latest acquisition, was also in growth 6%. So if we just go down to the bottom left-hand of this page, and we've broken down those brand revenues in a bit more detail. And I'll just start at the bottom of that chart. Balance Active, you can see in the dark green bars, are the H1 2023 revenues. And you can see Balance Active is in growth. That's 24% up year on year. That includes some growth within the UK, high single digit, but also more driven by international growth through our partner, Bayer Consumer Care. uh bear launched in brazil at the beginning of 2023 that is a key market for them it's driven significant revenue growth from that customer in the first half and we're very pleased with how that's going and of course um with the bear agreements we've got a co-exclusive arrangement where we can go into those markets on the back of bear and launch our own brand under the balance active trademark as well so more opportunities being unlocked as a result of that launch by bear Lyft was also up 16% growth in the first half. Lyft has grown significantly over the last couple of years following the launch of that brand. And in this half, the growth has really been driven by online. And what's important to note about that online growth driving those revenues is that the shape of the P&L is quite different on online sales when it's direct to consumer as opposed to B2B sales. In a typical B2B sale, you might sell it £3.50 per unit. And you generate, say, £2 profits as your cash margin. So the percentage margin is good. But on a D2C sale, you're selling direct to the customer at the retail price. And so the price could be £8 for the same product. But then there's the commission comes off, the fulfilment fees, the advertising through that channel as well. So the pound note margin is actually the same. a setting through B2B. But in percentage terms, it's dilutive in the P&L. But we want to be in the online space because that grows volume. It brings new customers into the brand. It creates new loyalty. So it's where we want to be. And that dilutive impact, we understand that. But as the business grows and we push more through our online sales as a result of our digital transformation that we're talking about, we will see some dilution from that. But it means more volume and new customers coming into the business as well in those markets. Just touched the middle of that slide, Ultradex and dental, this is the oral care range. Pleasing, first of all, to see that Ultradex was up 16% in the first half, continuing its post-pandemic recovery after a fairly stable last couple of years. And Still number one in the halitosis category there as well. But dental has had a much weaker first half. And really that's dental performance. The key drive of that is the performance of our customer in China. Last year in the first half, we had 300,000 revenues for the Chinese market. We've had nothing repeat on that in the first half of this year. So that's a significant downward impact against the 1 million of revenue going through that business in the first half. There is also some small decline in the UK. And we'll talk later on in these slides around the other listing opportunities and movements going around the dental business. But we see that the brand is still strong and has opportunity in the wider APAC region. And we're exploring that. But the direct impact in the first half you see has been driven by that Chinese performance, as I say. Last thing on this slide, I've already talked to the Erol performance. Erol was up 6% in the first half. Key customer in the Erol business is Boots. And there's quite a lumpy ordering pattern with Boots. So we can actually see in the EPOS data that the growth is better than as reported in our net revenue. due to that timing factor, we do expect some stronger growth coming through on that brand in the second half. And there is an element of seasonality around the Erol Swim product as well around the holiday season. Last thing, Pomme Tea and Gel Clare at the top of that chart. This is the oncology support range. These are very profitable products in the business, higher margin relative to much of the rest of the portfolio. As you can see, Pomme Tea's had a very soft first half. But we've got the full order book visibility for this year, and that business will see a significant improvement in the second half of the year at higher margins, which will benefit the overall gross margin. And JL Clare as well, we had some new agreements at the end of last year. Much of the benefit of those agreements will come through in the second half of this year as well. Just touching base a bit in a bit more detail on the margin here, I won't go into too much detail on the driving factors of the supply chain environments over the last two years, COVID challenges, the Ukraine-Russia crisis, all of these things have made operating the business more difficult than it was a few years ago. So I just want to talk about how has that impacted our business in the first half of this year and And I'll focus on the input costs to begin with at the top right hand side. So you will have all seen that last year we built our inventory balance up significantly relative to previous years. And that was to protect supply, to be able to secure raw materials and packaging as early as possible and to not put our order book at risk of being unable to deliver that. So in doing that, we did have to pay some premiums for some of those raw materials during the year to secure them. And really what we've seen in the first half of this year is that that inflated COGS or premium price washed through P&L in the first half of this year so we've got a inventory as of today at half year which is now at more plateau level of pricing it's not plateaued to where it was two or three years ago but it's not as high as it was this time last year so this is one of the key factors of our input costs increasing proportionally with revenue in the first half but we see that to be a temporary impact with the majority of that unwound from the balance sheet in the first half of this year There is also some customer price increase lag effect as well. So on the back of buying those materials at higher prices, we had some orders that had already been placed by our customers late last year. And we've got price increases going into those customers that come effective in early in the second half of this year. So there's a lag impact between us incurring slightly higher COGS and being able to pass on those price increases to our customers. So again, this is another factor behind a visibility of improved second half gross margins. And then finally on this, there's a fair value adjustment, which should be highlighted. This is a technical accounting adjustment. When you buy a business, as some of you will know, you have to fair value the inventory you acquire with that business. So it comes through the P&L at a higher value than its normal COGS. So that has an impact of 0.7% against the total gross margin of the group in the first half, which will not repeat because that inventory has fully unwound value. from the balance sheet. So looking to the full years, you will have noticed that in Calvin Dish's notes on Monday, they've tweaked our gross margin downwards to 40% for the full year. It was around 42% before that. But the key driver of that is not actually to do with the input cost point I've been talking about because we anticipated that first half margin decline year on year and that we don't publish half year numbers in the market, but that was in line with our plan. But the real driver of the decline on the full year is actually to just do the continued strong growth of those customer brands business, which is at a lower margin. And that continued growth is just driving down the overall dilution of the business on a full year basis. But our visibility over that revenue is strong. I'll move on to cash and debt. This is the last official finance slide. I think in the last few years, it's fair to say that if you go back before 2022, cash generation in the business needed improving, needed some more focus, and really that turned a corner in 2022. We generated 1.8 million of cash from ops in the first half of 2022, and that's grown significantly to 4.8 million on an underlying basis in the first half of this year. But more importantly, the free cash flow generation of that. We've done 2.6 million free cash flow in the first half of 2023. And if you think in the full 12 months of last year, free cash flow generation was 2.9 million. So we've nearly done the full 12 months of last year in the first six months of this year. And with the highly cash generative acquisitions we've acquired, 4PL billing models, which create a very fluid revenue cycle in the UK, that's really supported that ability to increase that cash conversion percentage in tandem, as Jerry said earlier, building up our finance team resource, ensuring that we're doing proactive credit control checks on our customers, getting on things early and having more focus on credit control in our business is really having a positive impact over time. And the last point is around all of this is that with the continued growth in that free cash flow improvement coming through, we would expect to be able to pay off a significant amount from our debt facility over the next 12 to 18 months, and it's upwards of six to 8 million. And what that will do is it will create an immediate debt to equity shift for shareholders, which will create an increase in value for shareholders. So we think that's important to note, we've got good visibility over paying down that debt and our ability to do so. Last slide from me before I hand back to Gerry, and this is not a pure financial slide, but we thought it was useful to show a case study of how our business operates with the buy and build model and how we use our vertically integrated structure to grow brands that we acquire and develop new products. BBI Healthcare, big acquisition back in 2021, paid 35 million for it. Immediately earnings enhancing, highly cash generative, but it created loads of opportunity. We acquired key new partners, had a new manufacturing facility, and with it, we got great brands that we knew that we could extend those product portfolios. And since acquisition, we've developed five new products from that portfolio across Balance, Active and Lyft. And with those newly developed products, we've got 15 new listings in the first half of this year. And as you've seen, balance active and lift revenues grew by 24% and 16% respectively in the first half. So the bottom right hand chart there just shows that in the middle of 2021, the business did 10.3 million in revenue the year that we acquired BBI. grew to 11.9 million the following year, and we're well on track to over 13.5 million this year from those brands, and that's built into Cavendish's guidance. So we think that's a great example of what we're able to do using our R&D capability, utilising our revenue synergies and relationships in the UK that we have, but we see a whole load more opportunity through continuing that digital transformation and internationalising those brands further.