Release Date: September 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The beauty and ingenuity divisions delivered record performance, showing strong momentum.
- More contract wins and positive progress in the ingenuity division.
- Localized manufacturing initiatives are reducing reliance on FX volatility.
- Rebranding efforts are expected to drive significant growth in offline markets.
- Strong free cash flow generation in the core business, with expectations of improved performance in 2025.
Negative Points
- Nutrition division faced significant headwinds, including a GBP5 million profit hit from FX volatility.
- Rebranding efforts led to a 12% decline in average selling prices, impacting revenue.
- Increased net debt at the half-year mark, although considered transitory.
- Commodity price volatility, particularly in whey pricing, poses challenges.
- Potential risks and uncertainties surrounding the planned demerger of the ingenuity business.
Q & A Highlights
Q: Can you explain what went wrong with the rebranding of the Nutrition division?
A: The rebranding process was initiated when the momentum was strong, but unforeseen market challenges, such as currency volatility and commodity price fluctuations, impacted the execution. The decision to rebrand was made well in advance, and once initiated, it had to proceed despite these headwinds. The rebrand affected average selling prices due to the need to manage existing stock alongside new products, which created a less optimal customer experience on the website. (Matthew Moulding, CEO)
Q: How will the recent 10% improvement in the Japanese yen affect your financials?
A: The recent improvement in the yen is a positive tailwind for us, but its full impact will likely be seen next year. We have localized sourcing in Japan through third-party manufacturers, which helps mitigate some of the currency volatility. (Matthew Moulding, CEO)
Q: What are the risks that could prevent the demerger of Ingenuity from happening?
A: While we have strong stakeholder support and the necessary infrastructure in place, there is always a risk until the process is finalized. Ingenuity is a substantial business with significant revenue and EBITDA, and it can stand alone with its own banking and funding facilities. (Matthew Moulding, CEO)
Q: Can you provide more details on the EBITDA guidance and the expected margin for the Nutrition division in the second half?
A: A 12% adjusted EBITDA margin for Nutrition in the second half is a reasonable expectation. However, the performance of other divisions like Beauty and Ingenuity, which have outperformed in the first half, will also contribute to meeting the overall guidance. (Matthew Moulding, CEO)
Q: What trends have you observed in the Beauty segment, particularly in skincare, hair care, fragrance, and cosmetics?
A: Skincare and fragrance have shown strong performance, with fragrance advent calendars selling out quickly. Cosmetics, especially for Cult Beauty, are also performing well. The slight deceleration in Q2 was due to a focus on profitability and pulling back from less profitable customers. (Matthew Moulding, CEO)
Q: Can you quantify the potential positive impact from the FTSE index inclusion?
A: The inclusion in the FTSE index could attract around 60 million shares, based on estimates from various bankers. This would be a significant positive for the stock. (Unidentified Company Representative)
Q: What will the balance sheet look like for Ingenuity post-demerger, and how will it be funded?
A: Ingenuity is expected to have a cash outflow of around GBP150 million over the next three years until it turns free cash flow positive. This will be funded through a combination of EBITDA and external facilities. Detailed balance sheet information will be provided in a circular. (Matthew Moulding, CEO)
Q: Are there any implications for future service agreements and margin structures post-demerger?
A: The existing service agreements are already at arm's length and have been reviewed. There are no anticipated changes to these agreements post-demerger. (Matthew Moulding, CEO)
Q: Can you provide an estimate of the annualized GMV from new retail and licensing agreements in the Nutrition division?
A: While it's early to provide exact figures, we expect significant success from new agreements, such as the Miller partnership, which went live recently. The GMV for Nutrition is already showing positive growth and is expected to scale considerably. (Matthew Moulding, CEO)
Q: What are your medium-term margin expectations for the Beauty division?
A: We have undertaken extensive cost-saving measures and expect operating leverage to improve across all divisions. The Beauty division has the potential for significant margin improvement as we continue to optimize operations and leverage our fulfillment efficiencies. (Matthew Moulding, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
