Moonpig Group Plc Adr

Good morning and welcome to the Moonpig Group full year results presentation. I'm Nicol Raytharfer, CEO, and I'm here today with Andy McKinnon, our CFO. First, I want to draw your attention to the disclaimer. Please take some time to look through it. In terms of the running order today, I'll give an overview, I'll turn to Andy to run through financial performance, and then I'll give an update on our strategic progress. This year was our first full year since the IPO, and we have delivered above expectations on every metric. Our revenues of 304 million are almost 30% higher than the target we set last year. And we have maintained a step change in our profitability with EBITDA margin of almost 25%, significantly higher than pre pandemic. Our gifting business has seen over a hundred percent growth on a two year basis. and now represents close to half of our total revenues. And we recently announced the acquisition of BuyerGift, a deal which we believe is both financially and strategically compelling, and will over time deliver a step change in the gifting proposition to our 13 million customers. Our business is in a stronger position than it has ever been. We have achieved a step change in scale over the past two years with a larger customer base and each of our customers buying more from us each year. The investments we have made in our brands, in our range, and in particular in our technology platform have created network effects, which means that our market share has grown over the past two years to now over two thirds in both of our markets, further extending our leadership of the online card segment. And this is driven by the growing loyalty of our customers. In the UK, our customers are buying 15% more often. And this shows in the fact that 87% of our revenues this year came from customers that joined us before the start of the year. And all of this, driven by the strategic investments that we have made, give us a high degree of confidence in our outlook for the coming year. with expectations of 350 million of revenues for the full year. With that, I'll pass on to Andy to take you through the results.

Thanks, Nicol, and good morning, everyone. I'm Andy McKinnon, the CFO of Moonpeak Group, and I'm going to talk you through our full year financial performance. It has been a strong year. We delivered 304 million of revenue, up 76% across a two-year period. That's in line with our most recent guidance and significantly ahead of our expectations at the start of the year. We maintained a just-a-debit-down margin at 24.6%, and we've grown gifting revenue by 101% across two years to 145 million. Gifting now accounts for 47.7% of our total revenue. Across two years, we have grown orders by 64% to 40 million total orders. In addition, average order value grew by 6% year-on-year in FY22, driven by growth in attached gifting in line with the long-term trend as we annualized out the changes that we made in FY21 to increase promotional activity. Turning now to the revenue performance of our customer base. Our business model is built around loyal customer relationships. We have a 22-year history of stable annual cohorts that each behave the same. And we've worked hard to retain the customers acquired in FY21 through our work on driving app penetration, encouraging reminder setting, and further enhancing the capabilities of our data platform. We remain very pleased with the quality of the customers acquired during lockdown. Retention for customers acquired in FY21 is just as strong as for older cohorts, and this has driven revenue from existing customers to 87% of total revenue in FY22, underpinning our confidence in the outlook for the year ahead. We focus all of our marketing spend on new customer acquisition. A key strength of our business model is it is not the role of marketing to drive total revenue. Our marketing activity has remained effective following the end of lockdown, and that has meant that revenue from new customers is higher than before the arrival of the pandemic. Turning now to the growth in touch gifting. We want every Moonpin Greeks customer to find the perfect card and the perfect gift through an effortless experience. And we are delivering this with two-year growth in gifting revenue of 101%. Nicole will talk later about the drivers of growth and gifting, including range expansion, new gifting brands and further improvements to our personalised gifting recommendations. But there's now an established multi-year trend of growth and gifting mix of total revenue, which reached 47.7% last year. And for the year ahead, our business model allows us to adapt our gifting range with speed and agility if we see any changes in consumer behaviours. The growth that we've delivered in customer base, in purchase frequency and in attached gifting means that we've increased group revenue by 76% across two years to £304 million. That's in line with our most recent guidance and well ahead of our expectations at the start of the year. We're pleased that growth has been delivered across both brands, reflecting the rollout of our Card First strategy and the group's operational playbook 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 this calendar year. Turning now to look at profitability. We have raised gross profit from 92 million in FY20 to 150 million in FY22. The trend in percentage gross margin rate has been driven by a success in growing attached gifting, with some impact across the last few years from discretionary promotional activity to drive app downloads and reminder setting. Importantly, we continue to see no material impact on gross margin rate from cost inflation at either of our brands. This growth in gross profit enabled us to raise adjusted EBITDA to 75 million in FY22. And we've maintained a group adjusted EBITDA margin rate at 24.6% in line with our previous medium term targets. Our business model means that adjusted EBITDA is relatively controllable. We will continue to maintain flexibility in our marketing promotional strategy and we will invest where we see opportunities to underpin medium term growth. Turning now to how we convert EBITDA into cash. Our business has a negative working capital cycle and converts EBITDA into cash flow strongly. In FY22, EBITDA into operating cash conversion was 80%, and that's despite the unwind of a large trade credit balance in April last year that resulted from lockdown trading. Total tangible and intangible capital expenditure totaled 9.7 million in FY22. In the year ahead, we expect capex to rise. We expect to spend between 11 and 13 million in FY23 on tangible capex, driven by the fit-out of two new operational facilities in Tamworth in the UK and Almere in the Netherlands. This will be one-off, and we expect that tangible capex will be below 2 million in subsequent years. We have acted to raise investment in technology development and the number of data scientists, analysts and engineers in our business has risen to 195 as of the 30th of April 2022. In line with this, we expect intangible capex to be between 13 and 15 million in FY23, growing thereafter in line with sales. This is in addition to the initial recognition of right of use assets in respect to the 10-year leases for the two new operational facilities and the capex of the BioGift business, which currently runs at approximately 2 million and will grow in line with BioGift revenue. Our strong cash generation means that we finished the year with net debt of 84 million, which included gross cash for 102 million. We will use that cash to fund the majority of the consideration for the acquisition of BioGift. We're really excited by the proposed acquisition of BioGift. We're looking forward both to how it will expand the gifting range on the Moonpit platform and to the opportunities that we will have for accelerating growth at the BioGift business itself. And the proposed transaction is on track for completion before the end of July. The proposed acquisition is being made at an attractive valuation. Purchase consideration will be 124 million in cash, which compares to unordered EBITDA of 14 million in FY22. The business delivered revenue of £44 million last year, and we intend to accelerate revenue growth to a mid-teens percentage rate in line with the existing Moonpit Group. The financial return profile of the acquisition is positive. It will be more than 20% accretive to earnings per share from year one, and return on capital will exceed a 10% cost of capital in FR25. We are funding their position to a combination of cash on balance sheet and additional senior debt facilities, so that on a pro forma basis, leverage at April 22 would have been 2.3 times. Following a temporary seasonal increase in leverage during the first half of the year, the strong cash generation of both Moonpig and Bygift will drive rapid deleveraging to comfortably below two times net debt to EBITDA. Looking forward, our capital allocation priorities will remain unchanged with a continued focus on growth. Our primary focus will remain on organic investment, prioritising the UK and the Netherlands. We will consider M&A the only way relevant to strategy and value accretive. And whilst dividend policy is always under review, our focus remains on investing for growth, and we do not intend to pay a dividend. And finally, turning to guidance. We are pleased with the start to the new financial year and remain confident in our existing expectations for group trading in FY23. Based on the anticipated completion of the acquisition of BuyGift by the end of July 2022, we expect revenue for the enlargement big group in FY23 to be approximately 350 million. In the medium term, we continue to target mid-teens percentage underlying revenue growth for the enlarged group. Margin trends remain resilient in the near and medium term, and the proposed acquisition of BioGift is expected to be margin accretive. In view of this, we have recently raised the group's medium term adjusted EBITDA margin rate target to between approximately 25% and 26%. And now I'll hand back to Nicol, who will talk through the strategic progress that we've made across the year. Thank you.

Thank you, Andy. I'll now give an update on our strategic progress. Our strategy has been and remains card first. Cards are the product which give us an invaluable data set around our customers gifting intentions. And the way that we capture and use that data is what underpins the competitive advantages that we have built. Our market leadership in cards and our best in class proposition allow us to continuously profitably acquire card customers. The data that we get from these customers each time they create a card allows us to remind and personalize the customer's future experiences. And this drives high loyalty and recurring purchases. And we then also use that data to drive upsell each time a customer creates a card. Upsell of gifting through our recommendation engine. which in turn drives high incremental margin given that there are no marketing costs associated with our gifting sales. Our market leadership of the online card segment gives us more marketing power, more customers, more technology investment, and more data than the rest of the market combined. And we have used this to create barriers to entry and network effects, which are most clearly evident in our market share. Here you can see that we have extended our market leadership, taking our share in both the UK and the Netherlands to over two thirds of the online card market. Our 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 all of the occasions that matter to them. And we do that by investing in three key pillars. We invest in technology and data to reduce friction and to make the gifting experience effortless. We invest in our brands so that customers and recipients are excited to send and to receive our products. And we invest in our range so that we always have the perfect card and gift for every occasion. And we've continued to make progress across each of these pillars, and I'll take you through the highlights now. starting with data and technology. This year, we've made great progress in improving the level of personalization across the customer journey. Not only have we continued to collect reminders, which are extremely valuable at a rapid pace with over 70 million reminders now set, but we've also improved the reminder experience so that customers are now seeing highly personalized recommendations linked to those reminders specific to their individual relationships. We also launched our personalized promotion engine, which allows us to target customers with promotions relevant to them rather than using site-wide discounts. This means we can drive specific behaviors, such as getting a customer to attach for the first time without giving away discounts to those who are planning to attach already. Given the wealth of data that we have, we are still very early in our multi-year personalization journey. As you know, we've been on a re-platforming journey over the past years, first with the rebuilding of the entire Moonpig technology stack, and currently with the migration of the GREETS business onto the group platform. The migration remains on track to complete by the end of this calendar year. And as we approach the end of this project, it will free up significant resource to focus on growth and innovation initiatives. And these are already starting to come through. We've recently launched a small pilot of our new subscription scheme, Moon Pig Plus, and we're collecting data to understand the impact of it on customer behaviors. There are likely to be several more versions of the scheme that we will launch and test over the next year or so before we roll this out to our wider customer base. We're also about to launch version one of our video card proposition where customers for a fee will be able to upload a video message into a card. And this is all part of our journey of bringing the card to life in new ways. Turning now to our brands. We continue to have two brands that have incredibly high brand awareness and affinity with customers. In the Netherlands, we launched a new visual identity for Greeks, significantly modernizing the look and feel of the brand. And all of the brand investments that we are making are most clearly demonstrated in the loyalty of our customers, with 87% of revenues coming from existing customers in the past year. And this loyalty of our customer base is what underpins our confidence in the medium-term outlook for the business. We also launched this year a fully local proposition in Ireland. And that means that for the first time, Irish customers can buy locally designed cards with locally sourced gifts dispatched the same day from an Irish warehouse. Our gifting business continues to evolve with new brands, partnerships and categories, taking our range to over 2,400 gifts now. In particular, our partnership with Cath Kitson around Mother's Day proved to be very successful, and we've extended this partnership to become a core part of our everyday range. Along with continued improvements in the gift recommendation algorithms, this has driven our gifting revenue to 48% of total revenues this year. To support the growth in our gifting business and in our overall business, we are building two new distribution facilities in the UK and in the Netherlands. Both projects are underway and will be live ahead of the Christmas trading period, giving us additional capacity, resilience, and numerous opportunities to further improve our service offerings to customers. And last, but by no means least, we're extremely excited about the opportunity to integrate the product range from BuyerGift onto the Moonpeg platform. Not only will this significantly expand the range and the relevance of our gift offerings, but it is also the catalyst for us to build a digital gifting capability, turning the card into the gift. In turn, that creates a mechanism for recipients to enter the Moonpig ecosystem and themselves become customers, a new network effect that we are excited to build. In summary, we're really happy with the progress we've made. We've over-delivered on the financial targets we set out at the beginning of the year. Our market leadership has widened, validating our strategy to invest heavily in our brands, our range and our technology over the past years. Our business has seen a permanent increase in scale and our customers are more loyal than before, giving us a high confidence in the outlook for the year ahead. And we're excited to welcome the Buyer Gift and Red Letter Day brands to our portfolio, taking us another step closer to our vision of becoming the ultimate gifting companion. Thank you for listening and see you shortly at the Q&A.