Moonpig Group Plc Adr

Good morning, and welcome to the Moonpig Group half-year results presentation. I'm Nicol Reitharfer, CEO, and I'm here today with Andy McKinnon, our CFO. First, I'd like to draw your attention to the disclaimer. Please take a second to read it. In terms of the running order today, I'll start with a very quick overview. I'll hand over to Andy to take you through the financials, and then we'll conclude with a strategic update. We are pleased today to report an inflection point in our business with a return to both revenue and profit growth in line with the expectations laid out at the start of the year. Group revenues were up by 6%, gross margin by 4 percentage points, EBITDA margin by 3 percentage points, and our net leverage came down to 1.8 times. We have consistently spoken about this being the year where we would see an acceleration in our growth-focused technology initiatives. and we have seen this happen in the first half of the year. The new features and innovations we have launched have seen excellent adoption, with nearly 4 million of our customers using our new creative card features in the half. Combined with the growing take-up of our subscription service, MoonPig+, we will continue to drive long-term improvements in customer loyalty and frequency. Our data science efforts have also seen a step up in velocity, with algorithm updates making all parts of the journaling more personalised, in particular the gift cross-sell. Our experienced business is now one year into a transformation project, with particularly encouraging progress on the technology re-platforming. And notably, we have also made significant improvements to the user journey for selling digital gifts on the Moonpig platform. The external consumer environment remains tough. But the resilience of our business model means that we are continuing to trade in line with our expectations. And today we reiterate our outlook for the rest of the year. We are a highly profitable and cash generative business and expect to see our rapid deleveraging path continue in the second half of this year. With that, I'll pass on to Andy to take you through the results in more detail.

Thanks, Nicol, and good morning, everyone. We've delivered a solid set of financial results with year-on-year growth in both revenue and profits. Group revenue grew by 6.5% to 152 million, equivalent to pro-forma growth of 2.1%, adjusting for the acquisition of experiences, whereas margins strengthened by 4.4% each point year-on-year to 58.5%, driven by the insourcing of UK fulfilment and pricing changes. We delivered a 20% increase in adjusted EBITDA to 41.4 million, raising our adjusted EBITDA margin rate to 27.2%. And in addition, we've maintained significant liquidity headroom of 102 million and remain highly cash generative on an annual basis. We reduced net leverage to 1.83 times at 31st of October through earnings growth and expect rapidly leveraging in H2 to approximately 1.5 times EBITDA, driven by the season strong operating cash flows that we deliver in the second half of each financial year. The growth that we delivered is a testament to the quality of our business model, the resilience of the card market and the loyalty of our existing customer cohorts. We can see this in the group's revenue growth, which was underpinned by the Moon Pig brand, at which revenue increased by 4.9 percentage points year-on-year to 108 million. Moon Pig is now consistently delivering growth at a mid-single-digit percentage rate, driven by the technology innovation that Nicole will talk through shortly. Now, performance in Greece has been more challenging, driven by the economic environment in the Netherlands and the fact that Greece was not on our technology platform during lockdown, so could not leverage its features to lock in COVID customer cohorts. But the trend is improving as we leverage the new functionality that Greece can access now that it's on the group's technology platform. Greece's growth improved by 10 percentage points relative to the decline in annual revenue seen last financial year, and we expect a further similar improvement of broadly 10 percentage points between now and the end of FY24. And at Experiences, trading has been solid with pro forma growth of 4.5%, and we're making good progress with strategy delivery within that segment. Our growth was driven through existing customers, which continue to account for nine tenths of Moonpeak and Greek's revenue. Whilst the environment for new customer acquisition has been challenging, our marketing investments remain significant, and we're focusing on brand marketing activity around new technology features that we expect to both attract and maintain customers. However, we have chosen to maintain payback periods within our existing framework, which means that we are accepting lower new customer revenue at this stage of the economic cycle. Average order value is a key driver of H1 revenue growth, reflecting greeting card and stamp price increases, changes in gift shipment prices, and modest growth in gift attach rates. orders were 5% lower, driven by lower new customer acquisition and lower existing customer orders at greets, with Moonpig existing customer orders remaining stable. And looking forward, we expect growth in the second half of the year to be driven through a combination of orders and AOV. Mipin Greets both operate a card-first strategy, which leverages the resilience of the single greeting cards market. More than 19 out of every 20 orders of these brands contains a card, and we drove year-on-year growth in cards revenue at 5.7%. Gifting revenue has proven to be resilient and we were pleased to deliver a year-on-year increase in gift attach rate. This meant that attach gifting revenue decreased by 1.9% year-on-year, which is better than the year-on-year trend in card first orders. Our growth in revenue is accompanied by continued focus on profit margin, and we've raised H1 gross profit year on year to 89 million, reflecting an increase in gross margin rates to 58.5%, including the positive mix impact from consolidating experiences for a full year. Gross margin rate has improved at mooping and greets, primarily reflecting actions initiated during the second half of last year, including changes to car prices and shipping charges for gifts, as well as the benefits from insourcing gift fulfilment at Tamworth. We have successfully maintained intake margin rates and continue to see no material impact on gross margin rate from cost inflation. Experiences gross margin remains above 90%, which reflects its agency business model. And that means that revenue comprises commission earned from experienced providers and cost of goods relates largely to postage and packaging. We expect the group's full year gross margin rates to be broadly in line with the actual rate for the first half of the year. This growth in gross profit has enabled us to deliver adjusted EBITDA of 41 million, up from 35 million in the first half of last year. the adjusted EBITDA margin rate of 27.2% reflects pass-through of higher gross margins and cautious cost management. We're seeing stable revenue trends in current trading, but we always want to manage our P&L prudently, and so we've deferred some planned expenditure into the second half of the year to ensure that we maintain flexibility. Accordingly, our expectations for absolute adjusted EBITDA for the full year remain unchanged. Moving now to the bottom half of the P&L. We delivered adjusted PBT of 20.8 million, which was up 9.7% year on year. The amortization charge for intangibles arising on business combination increased, reflecting a full year charge for assets recognized on acquisition of experiences. And we do not exclude this amortization from our adjusted profit measures. There was also higher amortization of internally generated intangible assets driven by the expansion of our technology teams during the 12 months of October, 2022. Net finance charge increased primarily as a result of higher interest rates. And our interest rate hedging arrangements were designed to step down in line with the deleveraging profile of our business. That meant that part of the interest rate cap expired on 30th of November 2023. However, interest on 70 million of borrowings remains capped at 3% until November 2024. Turning now to how we convert EBITDA into cash, as expected, we saw an improvement in H1 operating cash conversion to 36%, reflecting the fact that we incurred one enough capital expenditure last year in the fit out of new operational facilities. However, our business remains highly cash generative on an annual basis, with cash inflows weighted into the second half of each financial year, driven by the seasonality of working capital. This is especially the case of the experiences segment where pre-Christmas trading drives cash inflows in H2 and working capital outflows arise in H1 as vouchers are redeemed and experienced providers are paid. We therefore expect strong cash inflows from November through to April and these will drive rapid deleveraging, which remains our short-term capital allocation priority. Net debt to adjusted EBITDA decreased 1.83 times during the first half, and we expect a total reduction of half a turn across the full financial year, bringing net leverage to approximately 1.5 times by 30th of April 2024. Our balance sheet is liquid with headroom of 102 million against bank facilities that committed until December 2025, and we have significant levels of covenant headroom. Finally, turn to Outlook. Current trading remains in line with our overall expectations. Consolidated revenue growth in recent weeks has continued the positive trends seen in the first half, underpinned by growth of the Moonpig brand. Whilst the external environment remains challenging, our expectations for full-year consolidated revenue and adjusted EBITDA remain unchanged. We remain focused on deleveraging and expect to reduce the ratio of net debt to adjusted EBITDA by approximately 0.5 times during FY24. And now we'll hand back to Nicol, who'll talk through some of the exciting technology features and strategic initiatives that we've launched in the last six months. Thank you.

Thank you, Andy. I'll now give an update on our strategic progress, starting with our card brands, Moonpig and Greets. Our card brands are built on a model of card first and gift attach. We are the clear online leaders in a card market that is still in the early stages of shifting online. We acquire customers with short payback times, and we can then leverage the valuable data we get from each card to make the card experience more personalized and relevant each time they come back, which drives both more loyalty from our customers and also drives profitable upsell into gifts. The beauty about this model of profitably acquiring sticky customers is that we end up with a cohort model which compounds over time. as each group of newly acquired customers sits on top of previous cohorts, driving sustainable, profitable growth. And with only 15% of the card market online, there is still a long runway of growth ahead of us. And this is most clearly demonstrated when we break down the opportunity into three compounding growth levers. We are still very early in the journey of capturing all card buyers in our markets. of capturing a significant share of their card wallet and of getting them to add more gifts to those cards. Our strategy and the initiatives that we have continued to invest in through the cycle are all focused on moving these three growth levers forward. The structural growth in our business ultimately comes down to pulling the greeting card market online, as we have done for the past two decades. And a core tenet of this strategy is to focus on product differentiation versus the high street, being able to offer something that they simply cannot replicate. This ability to inspire and delight both customers and recipients is key to bringing new customers onto the platform and on driving frequency from our existing base. In the past year, and in particular the past six months, we have moved this point of differentiation significantly further by adding a number of exciting features to our cards. We've added audio message to complement video. We have launched an AI message generator to help customers find the perfect words or poems for their cards. We've introduced the ability to decorate the inside of our cards with photos, stickers and emojis. And we've also introduced a fully creative card where customers can design the front of their card from scratch with photos and stickers. And we've been delighted by the uptake of these features by customers, with nearly 4 million of them using new creative features in the half. And we will continue to drive new innovations going forward. And this half, we also launched a formerly our subscription scheme, Moon Pig Plus, and we're very encouraged with the initial results. The size of our subscriber base continues to grow at healthy levels, and we would expect that to accelerate as we further gain confidence in the proposition. And that confidence is coming from the sustained uplift in purchase frequency that we are seeing from every customer that signs up. And we now have over six months of cohorts to analyze. We're excited to bring this proposition to our greets brand early in the new year and for Plus to become a critical pillar in our future growth story. We're also targeting new customer groups. Group cards continue to gain traction, with each card created bringing new potential customers to the Moonpig platform for the first time. And we've also recently launched Moonpig at Work in beta mode, It's a product which will initially target SMEs gifting to their own employees. Moonpig itself is the first customer of this product. And for the past two months, we have sent all of our employees birthday and work anniversary cards and gifts in an automated fashion that simply wasn't possible before. We expect to start adding more clients from the waitlist that we have in the next few months. The velocity of our data science work has seen a step change improvement in the past six months, using AI to add more personalization to all parts of the user journey, from reminders emails and homepage banners to promotions at checkouts. It's been particularly effective in our gifting cross-sell page, which has driven an increase in our overall gift attach rate in the period. A particularly exciting development on this front has been the introduction of user-level data into the gift cross-sell, meaning that gift recommendations are no longer just based on the card that has been chosen, but also on some aspects of the customer's previous purchases. The first release of this algorithm allowed us to segment customers with a high and a low propensity to spend on gifting, and there is a long roadmap of opportunities ahead. Another key strategic initiative for us is launching and scaling gift experiences on the Moonpig platform. We've made solid progress on this front, significantly growing the range of products, improving the design of the product, and most importantly, upgrading our product information pages, which is critical in selling these more complex products on our site. And while still small, the attach rate of gift experiences has grown consistently through the period. And we remain very excited about the future potential. Another exciting development is the recent launch of a fully virtual gift experience by embedding a gift experience into a Moon Pig e-card. This potentially unlocks a large segment of the gifting market, which we haven't previously addressed, instant delivery. And we will test this for the first time as a customer proposition after the postage cutoffs this Christmas. Turning to our experience business, which is now over one year into a transformation program. The long-term opportunity in the business is huge. And the foundations that we are building give us confidence we can capture that opportunity. Our core strategic thesis is to transition the business away from being a transactional e-commerce business towards a lifetime value business with inbuilt network effects. We will achieve this by creating a growth loop where today's recipients become tomorrow's customers and so on. The foundations we are building to improve our brand positionings, our product range and critically the digital experience all serve to drive this flywheel. We recently refreshed the visual identity of our two brands ahead of the peak trading season. Alongside the brand positioning work we have done, it now gives each brand a clear position in the market, which will allow us to capture more of the market in a systematic way. Buyer Gift is focused on value and a younger audience, whereas Red Letter Days is focused on a curated range and accessible luxury. And we are currently running fully digital brand campaigns to test, launch and refine these new brand assets with customers. We continue to evolve and elevate our product range, bringing on new exciting brands such as W Hotels and Champlain Spas, partnering with iconic events such as Secret Cinema, and integrating more and more of these partners into our live booking system. The single biggest lever for unlocking the potential of this business is through technology, and we have focused the majority of our investments in this area over the past year. We're already starting to see the benefits of this project come through. We have re-platformed several parts of the user journey, improving conversion, site speed, and paving the way for launching AI-driven algorithm upgrades. We launched new payment options, in particular, a buy now, pay later option, which has seen strong take-up from our customers. And the new platform is already supporting faster experimentation, One example is the improvements we have made to the upsell journey, where we are now enticing more customers to upgrade their gift than ever before. The focus of the next 12 months will be platforming work, but the modular fashion in which we are building it means we will continue to see customer improvements along the way. In summary, it's been a solid period, with the group returning to growth in both revenues and profits. We've hit an inflection point in our technology cycle, with the velocity of feature releases a step change higher than before and an exciting innovation pipeline ahead. The results today demonstrate the resilience and flexibility of our business in a tough consumer climate. With the business performing in line with our expectations, we're pleased to reiterate our growth and profit outlook for the full year and will continue to use the cash generated to further reduce leverage. Thank you for listening and see you shortly at the question and answer session.