MicroSalt plc (SALT) Earnings Call Transcript

Good afternoon, and welcome to the MicroSalt plc Investor presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. But the company can review all questions submitted to them, 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 the team at MicroSalt plc. Good afternoon.

Good afternoon, everyone. Thanks for joining. My name is Rick. I'm the CEO of MicroSalt. With me today is Gary Urmston, our CFO. So we thought we'd just jump right into our presentation, if that's all right with everybody. Our overriding vision is to help lower cardiovascular disease across the globe. And we accomplished that by making our patented low-sodium salt available to the largest food manufacturers in the world. Now if you want to change the food supply, you have to address the large food suppliers. So even though we love our small business, we have our business model focuses on the largest food manufacturers, and it doesn't really matter where they are, whether they're in the U.S. or Canada or U.K. or Germany, India, it doesn't really matter because our vision is to help lower cardiovascular disease across the globe. As I mentioned, I'm the CEO. I've got an extensive background in the food business. And with me is Gary, he's our Interim CFO. And as I say to people in the real world, Gary is a proper CFO, even though he's interim with us. So our team is really strengthened by his presence. So far, we started counting since January of 2025, MicroSalt has participated in over 1.5 billion, that's with a B, healthy serving food. What that provides evidence of is that we're no longer a proof of concept. We're no longer a test product. We are out in the real world being used by these major food companies, having been vetted by these major food companies across different categories, whether it be snack mix or snack items in general, the indulgence aisles in your food, could be the dairy aisle, it could be the cheese aisle. It could be anywhere in the stores that the retail products finally end up. We're really proud of this number. It's growing every month, obviously. And one of the things that we'll discuss a little bit later on is that once someone converts to MicroSalt and successfully lowers the sodium, it's very difficult, if not impossible, for them to reverse that path. So when we get a customer, we have a customer for a very long time. And that's a really good thing. We also have a strong IP estate as they call. We have -- basically, we have 3 basic patents that extend through 2040. And then these patents are scattered across the world. Most of the G7 countries are included, shockingly, including China. What supports this and what's almost more important than the IP itself is the technical know-how on how to make an idea like this work. We spent a number of years working with the patent, figuring out how to make it work so that this idea is actually practical when you get to the factory floor. And that's the thing when you're dealing with major food companies. It has to work when they turn their machines on. And we've been doing a really great job of making sure that the formulas and our third-party manufacturing partners understand how to make it work in the real world. Now I'm going to jump to Gary and let Gary talk a little bit about the finances and things.

Okay. Thanks, Rick, and thanks, everyone, for being here. So if you haven't seen them already, but we announced this week the half-year results. Half 1 FY '26 saw a 67% increase in revenues up to $1.4 million, mainly supported by our bulk sales. We improved our margins, getting up to 12%. And as we went through the half year, we saw those steadily improve single digits at the beginning of the year, going up to higher teens towards the end of the year to average at 12% half year, I should say. And that really was coming through from the scale, as we've talked before. Last year, we were doing production runs of 50,000 pounds in weight of products. Now we're doing 200,000 pounds in weight of product in one go. And when you consider that our toll manufacturer has to clean down these machines for a day before and after producing for us, you can -- which obviously we have to pay for. Clearly, with 4x the production run, that really will see some economies of scale, not to mention procurement economies, also trucking economies, et cetera. So we can see that coming through, and we expect that to continue as we get bigger. We do have that blue-chip customers and pipeline. So Rick's already talked about some, but we'll talk about a few others that we're in discussions around, and we'll talk about the drivers behind that as well. In FY '26, for the rest of this year, we got $3.1 million in our Half 2 forecast to get to the $4.5 million in FY '26. That really relates to the rollout with what we are calling Customer 3, which is a large -- one of the largest food and beverage manufacturers in the world. That really is predicated on that rollout, which also supports the FY '27 number at $15 million. So we are confident of the -- it's not an if, it's a when that happens. So -- but the FY '26 number is depending on when that rolls out in Q4. Also, recently, we've strengthened the balance sheet significantly with the fundraise that we announced this week at $2 million and also the loan note that was converted at $2.4 million as well, which has significantly reduced the debt on the balance sheet. Both of those obviously happened post half year. So as I mentioned, successful fundraise, GBP 1.3 million came through the subscription and then further from directors of GBP 151,000 and PDMRs, I should say. So good support from within the company and another -- sorry, another GBP 100,000 came from the retail offer, which was oversubscribed. Also, that gives us basically proceeds to help our commercialization to help us support the working capital as we grow. And it does leave us in a position where we expect to become cash positive on the rollout of Customer 3, as we mentioned before. So that will help support us as we go down that path. So current trading and outlook. So yes, continued commercial momentum. We do have many conversations going on across many different sectors of the food industry, and we are expecting various stages, I would say, and we expect more to come to fruition as time goes by. As I mentioned before, we strengthened the financial position through the equity raise and also the conversion of the loan notes. And in other areas, we have been -- we continue to be recognized. So the 2026 Fast Company World Changing Ideas Award, which Rick picked up in New York, I believe it was, earlier on this month. And also, we brought on another ambassador in Loïc Autret. He is actually in the bakery industry, which is a good sector for us, an area that we expect to do well in. So it's good to have him on board. Again, it just helps strengthen our branding in those sectors.

Thank you, Gary. I appreciate that. As, let's go back and let's talk a little bit about the product itself. There are no -- when you're dealing with companies size of our targeted customers and those customers that we do have, there are -- there is no one size fits all. So we have a number of different products that we have designed around our base patents, one that's designed basically for application where the customer would expect to see salt. Let's talk about French fries or crackers, and that's our premium addition. We have a new version of MicroSalt that's infused with dietary fiber, and that's targeting the GLP-1 diet people. Once you're on GLP-1s, you're almost automatically deficient of nutrients. So any chance you can get to add fiber or any kind of nutrient you're looking for it. So this is a welcome addition to the food business where they can do 2 things at one time now. They can lower the sodium and increase the dietary fiber. So it's a very friendly label as well as lowering their sodium. We spend a lot of time and quite frankly, a lot of money developing these different iterations. And on top of this, of course, we deal with the various regulatory requirements depending on where we are selling our product. A good example is that Mexico requires a higher level than Canada would allow. So we have to make a Canadian formula. We have to make Mexican formula. -- in the country of Colombia, they require fluoride. So we need to make Colombian formulas. So we've been able to figure out how to make all this stuff. And the key here and what Gary was talking about when it comes to margins is scale. The secret to MicroSalt's success is scale, and I'm very happy to admit to say that we're here. We're at the scale point. And because of that, because -- and we get there because we work across a number of different categories. It's not just one item. It's -- we're in the snack aisle. We're in breakfast foods. We have a really good strong business in the breakfast category, both in syrups, premade pancakes and cereals. The plant-based foods, plant-based proteins, especially, we share some of the same production capabilities with those guys. So our inclusion in those products is almost automatic. Of course, we are in the seasoning and flavoring business. We, our customer base includes the major seasoning houses and frozen foods. And I'll say frozen foods like pre made meals, which are a big category no matter where you are. They're always looking to become more healthy. And when we sit down and we say, look, we can lower your sodium and improve or maintain the flavor of your product, we have pretty much a home run. From a market standpoint, we can talk about numbers on this marketing all day long. The easiest way to visualize this is when you go into your grocery store, wherever you buy your food products, you can look around and almost every single item you're going to see needs to have lower sodium. Thank you, Gary. I forgot that we advance the slide. It's a huge market. The reduced sodium products alone are $373 billion and growing. But we reach beyond that and that we're not trying to just replace an existing low sodium product. We are replacing salt in general. When we go to our customers, we don't say, "Hey, listen, we want you to make a low sodium version of product A. We say to them, reformulate product A so that it has lower sodium. Therefore, they're not having to have 2 versions of the same item. And this allows them to do that without engaging their marketing department as far as dividing up available shelf space, 2 items versus 1 that allows them to concisely market their improvements on the back of the bag. So it's all good for us, an absolutely huge market and growing as everybody realizes that sodium has to come down. Let me get Gary, can you advance for me? I'm stuck here. Thank you.

Okay.

This is kind of basically what I was kind of talking about before. We have a significant regulatory drive that's pushing manufacturers to do it. The World Health Organization is pushing the world to reduce sodium by 30% by 2030. HFSS regulations, you guys pretty much know about how strict you are on lowering sodium. Believe it or not, there are stricter regulations across the globe. Mexico is stricter. South American markets are even stricter than that. In the Asian markets, they actually reward customers rather than fining them or creating an unfavorable marketing environment, they pay manufacturers to make low sodium foods. It's kind of a carrot versus a stick thing. So we've got all this extra stuff going on filling our winds. So it's really great. Most businesses don't get to have that. And on the bottom right, I just want to fill out one number. I see it says $1 to $12. Every dollar we spend on low sodium returns $12 to the economy. People aren't sick. They're not on very expensive medications. They're one step away from becoming diabetic and all the things that high blood pressure brings. So it's a good thing for everybody. Kind of wrapping up on our investment proposition. Technical difficulties here guys, hold on.

I'm on the Slide 14...

We have an incredibly strong market demand. The consumers demand healthy foods. The governments are making the manufacturers reduce sodium. So there's no way that you have a conversation where someone is going to say, well, sodium is not important or sodium is not a priority or we're okay with our sodium levels. It's very, very hard to imagine that. Gary mentioned the fact about our blue chip customers. And once they go through the vetting process, when you deal with MicroSalt and you sell to these large customers, the sales cycle is long. And there's no reason for us to say anything else because it is very, very long. The reward for that, the reward for our patience is that we will have customers for years and years and years because it's so difficult to reformulate and so intricate to reformulate that once we succeed, it's very hard for them to go back. They can't make their products higher sodium. It's just not going to work that way. And of course, since we're dealing with large customers, they're blue chip, we're not worried about it if they can pay their bills and all those issues. Our patent technology is fantastically strong, and it's supported by even stronger know-how. We're growing quickly because more and more and more companies realize that they need to lower sodium. Our big bump from '26 to '27, as Gary mentioned, is riding on an internationally iconic brand that has been committed. The testing is finished. The formulation is finished. The new packaging is coming on board. We are unsure whether it starts the exact start date. It could be next month or it might be early in Q1. As we're an ingredient, we're always ahead of the curve. So if they target, for example, in stores March 1, we'll start getting orders in January, maybe even December. We contract with third-party manufacturers. They're very strong. They're very large organizations that can grow with us. Gary and I can get to about I'm going to say $25 million in gross sales before we need to worry about acquiring extra capacity. They're very strong, very large customers that understand what we need, and they're great partners. And the last comment for me is we're on the bell lap. I talked about scale. Gary talked about becoming cash flow positive. We've done the hard yards. We rolled the rock up the hill. We have adoption by a number of large food companies and the volume, specifically this one item I just mentioned, is going to push us over the top, make us cash flow positive and pretty much get us on our way. And our last slide, we're a food tech company. We are delivering new technology that wasn't available to the food industry before MicroSalt. And that's a way to maintain flavor and lowering sodium. And I will tell you that as we look down the road into new technologies, what we discovered is the MicroSalt technology not only delivers that for low sodium, but it delivers it for other flavors. As an example, if you're making a product and it has cheese powder in it, by incorporating the cheese powder into the MicroSalt manufacturing process, you can use less cheese powder and get the same flavor profile. So it's become what they call in the food business, it's called tech stack. So we're beginning to develop tech stack capabilities so that not only can we lower sodium, but we can help them deliver their flavor profiles across our product in a less expensive manner. So explodes our potential for years down the road. That's what I've got. Gary, do you want to add anything before we get to the questions?

No, that's good. I think we're -- with the raise done now, we are set fair for Customer 3 to get on board fully.

Perfect.

[Operator Instructions] I'd like to remind you a recording of the presentation, along with a copy of the slides and the published Q&A can be accessed via your investor dashboard. As you can see, we have a number of questions throughout today's presentation, and thank you for those. If I may, Gary, just hand back to you just to read out the question appropriate to do so, give a response and I'll pick up from you at the end.

Sure.

Okay. Okay. I'll read out the questions, Rick. So I think the first one is for you. Given our growth relies heavily on one significant customer rollout, what are the specific operational milestones over the next 12 months that give us certainty the timing is now locked in? I think you mentioned the timing isn't quite locked in, but -- it is.

Yes, that's correct. The timing itself is not locked in, but the inevitability of this reformulation is locked in. We've spent a great deal of time and embedding ourselves in these large customers. It's not just one, but this one particular one. We have operational business now in Mexico, Canada and the U.S. with this customer in other brands. When you deal with these big customers, it's like they're like an Octopus with 1,000 arms and one arm doesn't know what the other arm is doing. So we treat them like their individual customers. And as we develop more credibility and more business in other markets, they've come to us and said, okay, it's time to come on board with the iconic brands. So we are very comfortable telling you that this is going to happen. I cannot tell you exactly when by month. But when it does, there will be an instant RNS put this out because it's going to be changed. All I can tell you is that we have been assured that it's going to happen. It's not just a low sodium reformulation. It's a complete reformulation, which makes it even a stronger case for us.

I think just to add to that, Rick, I think to give us more confidence, we've been in discussion on this product for well over a year. But in the autumn of last year, we were talking about rolling it out. One of our customers' customers got wind of this. And because they have a specific packaging format, they were able to change their format earlier than others. And that has been in their stores basically since the beginning of this year. So we've been delivering for this product since December of last year, but clearly not a full rollout across North America, which is where the significant uplift comes. So the product is in store and has not seen any reaction taste-wise or otherwise. So it's proven not just as a concept, it's been proven in store with consumers. Okay. I think the next one is for me, which was sort of covered, but was this final funding round required to bridge the company to its cash flow positive inflection point? Yes and no. I mean, I think it's helpful to give us security to get there in case there were delays. But what it does allow us to do is keep going with that R&D that Rick was talking about as well and also to build inventories where necessary as well ahead of further rollouts. Next one, I think, for me as well, what is the time line to clear the remaining Tekcapital loan notes? Well, basically, a little bit outside of our control in terms of -- apart from, it is -- they're due for payment in November for the remaining around about GBP 0.5 million with interest. So that's the long stop date for us dealing with them, which, given our cash flow shouldn't be an issue. Okay. Next one, I think, for you, Rick, if you want to build on this? -- how does the company's broader patent pipeline ensure long-term legal protection. And I think you covered that in the presentation, but if there's anything more you want to add?