Moonpig Group Plc Adr

Good morning and welcome to the Moonpig Group half-year results presentation. I'm Nicol Raythartha, CEO, and I'm here today with Andrew McKinnon, our CFO. It's been another strong period of growth for the group, with continued delivery of our strategic initiatives, in particular our gifting business, and the results have confirmed the positive long-term step change in our business following the pandemic. First, I want to draw your attention to the disclaimer. Please take a moment to read it. In terms of the running order today, I'm going to give a quick overview, then I'll hand over to Andy, who will run through the financials, and then will come back to me to give you an update on our strategic progress. The past six months have been another extremely strong period for Moonpay Group, delivering on the goals we set at the beginning of the year. Despite the lifting of lockdown restrictions early in the period, we've maintained a triple-digit growth in both revenues and EBITDA compared to pre-COVID levels, confirming the enduring nature of the transformation that we have seen. In particular, we're very pleased with the progress in our gifting business, where the combination of algorithm upgrades and range enhancements took our gifting mix to record highs. We've continued to make progress on our strategic pillars with app usage increasing significantly to 42% during the half and reminder collection accelerating to a point where we now have over 60 million of these valuable reminders set by our customers. And these, combined with all of the other investments we've made across the business in our range and our experience, have ensured that the customers we acquired during the pandemic are displaying impressive retention metrics, such that revenues from existing customers is now just shy of 90% of the total business. Overall, trading and strategic delivery continue strongly in line with our expectations, and we now expect to finish this year at the top end of guidance. Before I hand over to Andy, I just want to take a short minute to remind you of our vision and the growth levers that will get us there. Moon Pig Group's vision is to become the ultimate gifting companion. We want to make it as easy as possible for our customers to be as thoughtful as possible on every occasion that matters to them. We do that by investing in our range so we all We do this by investing in our brands so that customers are inspired to send and delighted to receive our products. And we do this by investing in technology to make the gifting experience as seamless as possible. And we're confident that if we deliver on these pillars, then we will capture the growth opportunity in front of us. Now, that growth opportunity is built around three key leaders that we focus on. We look to grow our customer base, we look to increase the frequency of card purchases, and we look to grow our gift attach rate. And the great thing about these three growth levers is that they compound to drive the overall number, such that if we were to double each of them, our business would grow by a factor of eight. There is room for each of these levers to grow multiple times within our core markets alone. And later, I'll update you on some of the progress we've made on each of these three leaders. With that, I'll pass to Andy to take you through to the result.

Thanks, Nicole. And good morning, everyone. I'm Andy McKinnon, the CFO of Moonpeg Group. And I'm going to talk you through our financial performance in the first half of the year. It's been another strong half. We've delivered results in line with where we said we would be. And we have confirmed the group's step change in scale across lockdown. We delivered strong revenue of 115% across a two-year period. We maintained adjusted EBITDA margin at 24.5%. And we delivered another year of growth and gifting revenue mix to 47.5% of total revenue. Across two years, we have more than doubled orders from 19.5 million for H1FY22, which includes the impact of elevated frequency as customer behavior has progressively normalized following release from lockdowns. AOV has continued to rise driven by growth in attached gifting. AOV growth would have been higher. However, we chose to invest in strategic priorities such as driving reminders and app downloads to drive frequency. We expect a higher rate of AOV growth in future years. Now, let's look further at the drivers of these trends in orders and AOV. Our business model is built around sticky customer relationships. We have a 21-year history of stable annual cohorts that each behave the same. and we've worked hard to retain the customers acquired during lockdown through our work on driving app penetration, encouraging reminder setting, and further enhancing the capabilities of our data platform. We're really pleased with the quality of those lockdown customers. Retention for customers acquired last year is just as strong as for all the cohorts, and this has driven revenue from existing customers to 89% of total revenue. We focus all of our marketing spend on new customer acquisition. We believe that we've operated in a normal environment for customer acquisition throughout the first half of the financial year. Our marketing activity remains effective and we've been able to scale new customer revenue by 53% across two years at the same payback. Now, new customer acquisition is one of our three strategic growth drivers. Let's turn to another, which is growth in attached gifting. We want every Moon Pig and every Greets customer to find the perfect card and the perfect gift through an effortless experience. And we're delivering on this with 3.2 percentage points of growth in gifting revenue mix to 47.5%. Nicole will talk later about the drives of this, including new gift category partners, further improvements to the relevance of our gifting recommendations and new cross-sell touch points within the basket stage of the customer journey. The growth is part of an established multi-year progression. We've seen no lockdown impact on gifting, say for a couple of months during early 2021, when gift attach rate was temporarily elevated. Now let's turn to the third of our growth drivers, which is frequency. We've closely monitored customer behavior and recent data points provide us with confidence that we will exit the financial year with a frequency uplift in the UK of approximately 15% compared to pre-lockdown, which is ahead of our previous expectations. This reflects all the work that we've done to build habit and to tie customers further into our ecosystem. Agreed, which does not yet have access to the new technology platform, we expect an exit rate of frequency that is 5% ahead of pre-lockdown levels. H1 FY22 revenue includes approximately £16 million, which relates to frequency above these exit rates, which by definition will not reoccur next year. For the full year, we expect the equivalent figure to rise to approximately £20 million. Our future growth into FY23 will be delivered on underlying revenue, excluding this estimated 20 million impact of temporary frequency elevation. So having considered all three of our growth drivers, now let's look at the overall impact on revenue. we've grown group revenue by 115% across two years. We're pleased that growth has been delivered across both brands, reflecting the implementation of our cards-first strategy and operational improvements at Greets. Stronger growth at Moonpig was helped by a longer period of lockdown in summer 2020, but it also reflects the benefits from the Moonpig data and technology platform, which Greets will access by the end of current year 2022. We have doubled gross profit across two years to 70 million. The trending gross margin rate has been driven by our success in growing attached gifting. There's also been some impact across the last two years from discretionary promotional activity to drive app downloads and reminder setting. Adjusted EBITDA has more than doubled across two years to 35 million, and we have maintained adjusted EBITDA margin rate at 24.5%. Our business model means that adjusted EBITDA is relatively controllable, and across the group, we will continue to maintain flexibility in our marketing and promotional strategy, and we will invest where we see opportunities to drive long-term growth. Turning now to how we convert EBITDA into cash, we have a negative working capital cycle and convert EBITDA into operating cashflow strongly. We saw lower operating cash conversion in the first half of FY22, which reflects seasonality and the unwind of a large trade credit balance April that resulted from lockdown trading, which will impact the full year as well. We are investing in the group's operations network to ensure that we have the right capacity for our long-term requirements. In the Netherlands, as previously disclosed, we are investing to relocate Greets' fulfilment operations to new modern premises in FY23. In addition, we plan to invest in capacity on the UK mainland. This will operate from summer 2022 alongside Moonpeak's existing Guernsey facility and our continued relationships with outsourced partners. Both facilities are on 10-year leases and there will be some capex outside of the ordinary course on fit-out costs spread across this year and next year. Now, looking at what this means for leverage, net debt was 113 million at the end of the half year and closing net debt to EBITDA was 1.3 times. So we were clearly below the two times net debt to EBITDA commitment that we made at the time of the IPO. And you can see that the unwind of negative working capital was the primary driver of net cash flow in the half year. In terms of our focus to the deployment of cash, Our capital allocation priorities are unchanged and they focus around growth. We have a clear hierarchy. Number one, our primary focus is on organic investment, prioritising the UK and the Netherlands. Number two, we will consider M&A, but only where relevant to strategy and value accretive. And thirdly, whilst dividend policy is always under review, our focus remains on investing for growth. We do not intend to pay a dividend. And finally, turn to guidance. Group annual revenue for FY22 is now expected to be at the upper end of the previous guidance range of between approximately 270 million and 285 million. This includes approximately 20 million that is non-recurring as it relates to elevation in frequency above the expected exit rate, of which more than three quarters arose in the first half of the year. Customer purchase frequency has not yet fully normalised, but the data we now have provides us with confidence that we will exit the financial year with an enduring uplift in UK customer purchase frequency of approximately 15% compared to pre-COVID-19 levels. In the Netherlands, we expect customer purchase frequency to settle at a rate that is in line with existing expectations, reflecting the fact that Greece does not yet have access to the new group technology platform. With respect to the medium term, the group continues to target underlying annual revenue growth in the mid-teens and an adjusted EBITDA margin rate of approximately 24% to 25%. And now I'll hand back to Nicol, who will talk through the strategic progress that we've made in the last six months.

Thank you, Andy. I'll now take you through some of the strategic highlights for the past half year. Our strategy fundamentally revolves around three key levers that power our growth. getting more customers, getting them to buy more cards each year, and increasing gift attach. We've continued to make progress on each of these and deliver initiatives at pace, and I'll take you through some of those now. On the first of these, growing our customer base, we are delighted that we have been able to scale our marketing efforts significantly compared to pre-pandemic levels whilst maintaining the efficiency of this spend. It's primarily due to the higher levels of brand awareness that we have driven through our always-on marketing campaigns and the optimization of spend across these channels. It comes through most evidently in the quality of our traffic. Over 80% of our visitors are now coming to us through our brands with an increasing amount of unpaid traffic, up 14 points compared to pre-pandemic levels. Everything is underpinned by the quality of our experience, with ratings on our apps and our customer surveys showing that we're really investing and doing a great job here, and that boosts the network effect of everything we do. One of the key focuses for us, now that we have expanded our card range so significantly, is to drive awareness of the breadth of our offering. In particular, we see non-core missions such as Diwali or Easter as an opportunity to bring in new customer segments and to drive frequency from existing customers. And we've seen some initial success from this. In particular, I wanted to call out the thank you campaign that we ran in August, where we saw a 4x increase in sales during the month, almost all of which we believe was incremental. Moving on to the second growth lever, frequency, we've talked in the past about how this is really driven by getting customers onto our app. We know that when a customer downloads our app, their frequency increases by 15%. Put simply, our app offers the most seamless and personalized experience that a customer can get from moving. This half, we've continued to move more of our customer base onto the app, and we are well on our way to becoming an app-first business in the UK. Our Dutch business, Greeks, does not yet have a native app, and so we're excited to bring that to the Netherlands next year when we complete our platform migration. Reminders are another critical driver of frequency. They are the most valuable data that we can get from a customer as they are proprietary and they allow us to communicate with a customer when it really matters. And this half, we saw a big acceleration in reminder collection with now 60 million reminders set across our base. And importantly, we started to introduce more personalization and relevance to these reminders, driving conversion rate up. And we believe that there is significant room to increase the utility of these reminders for customers, increasing that collection and usage flywheel over the next years as we implement our roadmap. It's been another good period for new feature launches on our platform. Every time we launch a new feature or enhance the buying experience in some way, it improves our conversion rates and it drives the growth flow. This half, we launched our new card editor. the final piece of our platform rebuild, which gives customers a far superior experience than before, in particular with photo editing. On the back end, we made several upgrades to our search service, which have driven improvements in findability and conversion throughout the journey. And we also introduced this half a more visual way to showcase our card sizes. And we saw overnight a change in customer behavior, more of them taking on larger card sizes as they could see what they were really buying. At the heart of driving card frequency is continuing to ensure that we always have the best card range for every occasion. And this is powered by our global design platform, which now has over 33,000 unique designs on it. In particular, note this half, we took that global design platform and we extended it to our greets business, where we added over 3,000 designs in six months, significantly enhancing that range. And that number will continue to grow dramatically over the next coming month. The third growth lever we have is gift attach. And this is driven by both having a fantastic product range and having the recommendation engine and the user experience to surface the right product at the right time. And we've continued to make really good progress on both of these aspects. On range, we started our first category partnerships in wine with Virgin Wines and in fragrances with a specialist partner. And should this model prove to be successful, it will open up a dropship capability to our logistics network that will create significant opportunities in the coming quarters and years for enhancing our gift range further. Now, our gifting business is primarily driven by the recommendations on our cross-sell pages. It's the point in the journey where we are able to leverage all of the data we have about the gifting moment to inspire the customer to add a gift. These recommendations continue to evolve, and in the half, we've added several new data sets to the algorithm, which gets smarter every day. We now have over 50,000 unique cross-sell pages being shown to customers each day, and that number will continue to grow as we introduce more and more personalization elements to our journey. Finally, on gift attach, we've put a real focus into improving the recipient experience this half, which is critical in driving repeat attach rates and driving the network effect. We've launched new packaging across our entire gifting range with a significantly more premium aesthetic, and we've continued to push service levels up with seven-day delivery now available on all gifts. Our ESG strategy, which we launched earlier this year, is centred around three pillars. The environment, our people and our communities. And we've made good progress on all of these. In particular, we remain on track for 100% of our paper and packaging to be sustainably sourced by early next year. And we've launched our first reforestation projects to ensure that we are forest positive. Another initiative I'm really proud of is our partnership with Stamets. where we are working to encourage young women and non-binary individuals to consider technical careers. Just last month, we ran a hackathon for 50 of these individuals to inspire them for careers in tech, and we've had great feedback received so far. Before we close today's presentation, I just want to bring everything back to our data-driven growth flywheel. Everything we are doing to improve customer acquisition, to improve gift attach, to capture and use data in better ways, it all feeds into this virtuous circle of growth, which gets stronger with every additional engagement that our customers have with us. Everything we do is designed to power this network effect and to deepen our defensive mode as we strive to capture the enormous growth opportunity in front of us. In summary, we're really happy with the progress we've made this year against the objectives we set out to deliver. The business is more than double the size compared to pre-COVID and delivery of our strategic initiatives continues at pace. The long-term growth opportunity and our ability to capture it remains as attractive as ever. Thank you for listening and see you very shortly.