Huddled Group Plc (HUD) Earnings Call Transcript

Good morning, and welcome to the Huddled Group Plc Full Year Results Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll And I would now like to hand you over to CEO, Martin Higginson. Good morning to you

Good morning. Thank you very much, and thanks, everybody, for joining. So we'll try and canter through the investor presentation so we can leave more time for investor questions at the end. We've also got 3 videos that we will play throughout the presentation. These are the 3 TV advertisements that we've got for each brand. So well, let's get started and let's get sort of straight into it. So really, what is Huddled Group. And we like to think that we are a force for good. And I think at this particular moment in time, I think we are extremely well positioned not only to deliver sustainability, but also savings. And I think people are now more aware than ever before of the need to stop surplus goods going to waste. And there's a lot of goods that do go to waste, and we're doing our bit to sort of help that. And also, I think this -- again, at this moment in time, there's a real need for people to save some cash. So we'd like to think that we are well positioned in terms of helping with the sort of positive social and environmental and economic impact as well as helping people save cash in their sort of everyday savings. So moving on to the sort of next slide. We see that we are a sort of positive social and environmental company. We see ourselves very much as a sort of circular economy business. As I touched on before, there is a lot of stuff that goes to waste. And we see more and more of this, not just in groceries and alcohol, but also with our brands such as Nutricircle in the wellness and sports nutrition area and then laterally with Boop Beauty in cosmetics. So our focus really is in helping these brands save that surplus from going to waste and ultimately to landfill. So moving on to the next slide. Just to sort of put some numbers around that. Last year, we saved 140,000 households actually saved money by buying from us. And normally, those discounts can be anywhere between 50% and 60% against retail prices. So it's a big, big saving. 5.7 million items were saved from necessarily going to waste. So that's a big ticket item, a big number, and that will continue to increase as we march forward into sort of 2025. Nearly 5,000 tonnes of food waste was diverted from landfill, 12,000 tonnes of CO2 emissions avoided. So I think you can start sort of seeing that this is a positive force for good. And as a byproduct, we worked with a number of our partners to make sure that collectively, we donated some 500,000 items to food charities across the U.K. So on to the next slide. So how does it work? What do we do? Well, first of all, and it doesn't really matter which brand it is, whether it's Discount Dragon, Nutricircle or Boop Beauty. We buy surplus stock from manufacturers and retailers. Often sometimes there's a wholesaler in the middle, but our aim is to try and move more and more closer to the actual manufacturer. And this -- once we buy that, it avoids unnecessary waste. We then -- they all come into our warehouse. We then sell the goods online at a fraction of their usual price. So we can deliver those savings direct to the consumer's pocket. And then we deliver the goods straight to the customer store. So a very, very simple model. And when it works, it's a real win-win for everybody along that chain. So on to the next slide, how do we do it? What's our secret? Well, it's we want to be in the moment. We want to sort of be able to work with partners. We start building deeper and deeper relationships. And a number of those are now directly with the manufacturers themselves. And by working closely with them, we can really help them manage their whole supply cycle. And often, the question we get asked is, will people stop producing surplus goods? Will there be -- will your supply chain dry up? And I think the simple answer to that is no. Supermarkets now, a lot of the goods are on sale or return. They continue to overorder. There's things like packaging changes, mispackaging. There's a whole plethora of different reasons why there's an oversupply. So we're not seeing any reduction, any slowdown in that. In fact, as we get closer and closer to a number of the manufacturers, we're seeing things unlock and that number actually increase as we become the preferred sort of outlet for their surplus goods. So moving on to the next slide. So let's sort of introduce our businesses and let's talk about each one individually. And we've done this in alphabetical order. There's no other reason for that. So we're going to start off with Boop Beauty. So just on to the next slide, you'll see -- and then the next one. Boop Beauty is about rescuing surplus beauty and cosmetics goods. We acquired the business back in July 2024. And it was a tiny, tiny business when we acquired it. It was set up by the founder, Yasmine, and she set this up in her garage. She had a great idea. She was the ex in-house counsel for L'Oreal and great idea. She's got the marketing right, she's got the PR right. But I think she really lacked the resource in order to get the stock that she needed in order to drive the business, not only the stock but also the marketing. So last year, a fairly small start. We launched it in September '24. Revenue for the year was just GBP 0.5 million, orders about 13,000, and you can see the AOV. I think what's interesting is where Boop sits today. In March, we did just over sort of GBP 330,000 of revenue, and that was double -- well, sorry, that was equivalent to January and February combined. So you can see the growth of that business. And as we march forward, we see great sort of opportunity in this area. We've got great margins, good AOV. We've just signed up. You can see her there, Olivia Bowen, TV reality star to be the face of Boop. And we're going to sort of use her in the TV adverts. So I'd like to just show you the latest TV advert. This is going to launch, I think, at the end of this week on ITV1 in the morning. So we'll just play the advert so you can see it. And this is the first time I think any of us have seen this advert. [Presentation]

So I hope you're as excited as we are to see that advert. It will be aired later on this week on ITV1 on Breakfast TV. So fingers crossed it. It does exactly what we hope it will do. So as we move on to the next brand, Discount Dragon. And as most of you already know, Discount Dragon rescues groceries, dry goods and alcohol products mainly what we like to think is sort of snacks and treats stuff that you can sort of enjoy at the weekend. Revenue last year GBP 10.8 million, orders 285,000, AOV pretty solid at GBP 37. And again, as we march on and we move on to sort of quarter 1 of this year, where are we at with Discount Dragon? Well, we had the clearance sale in January. And just to reassure people, the business bounced back immediately in February and March, revenues of sort of circa GBP 1 million in those months. Why aren't we growing this faster? Well, I think one of the challenges that we faced is we've seen meteoric growth in both Nutricircle and Boop. And as I've said many times, we were -- or we have been limited with our warehouse. In quarter 3, we -- quarter 4 of last year, we were able to do 110,000 parcels across the whole group. That was really at the limit of what we could do. In quarter 1 of this year, we did 137,000, which stretched us to virtually to breaking point. Now we've added another 40,000 square feet. That just so coming online now. We're starting to stress test that. We did -- I think last week, we did 2,400 orders in a single day. So we know that we can do sort of 180,000 in a quarter. I think we could actually stress test that even further. So as we sort of march on, we're now about sort of getting Discount Dragon and getting it back on track and growing it accordingly. We've altered a few things in Discount Dragon, sort of customer feedback, also trying to make it easier for the warehouse, our warehouse colleagues as well as making it easier for the consumer, easier to order and then also maintain or if not improve AOV. So we've gone a lot more to sort of bulk buys or tray buys. This means we can pass on the additional savings to the consumer, but it also means that we're not having to split a tray into individual items. So it's much, much easier to pack, so we've got less orders now in an average parcel, which makes it easier for our warehouse colleagues, and it actually means that we can get more orders out of the door. And we're seeing that's been very, very well received. And AOV at the moment is just starting to sort of tick up slowly. So fingers crossed, we'll sort of see the benefits of that as we move forward. I'd now like to just sort of take a minute or 2 just to sort of show you the TV ad for Discount Dragon. [Presentation]

So what we just wanted -- with Discount Dragon, it's all about missing out. And what we show there is goods that were on sale last month so that you can get a flavor of what bargains we have in our store and what you may have missed out on. And we found that's been very, very successful in terms of driving customers. And I think what's important to remember is that this is not a business that is lacking demand. We're seeing huge demand across all of the 3 brands. This is about sort of the balancing act between demand and our warehouse and getting the goods to the consumer on time. If we don't get the goods to the consumer on time, then we know that we're letting people down. And I think as I've talked about many times before, we must all now march to the sort of drumbeat that Amazon's set. So there is an expectation from customers that they're going to get their order ideally the next day, but at worst sort of 48 to 72 hours. And our goal is to really strive to getting goods to people the next day, and we're working very closely with our distribution partners to be able to do that, not only for Discount Dragon, but also for Boop and Nutricircle. So let's move on to Nutricircle next. Again, we acquired this business last year. It was acquired in April of 2024. Revenues were around sort of GBP 1.6 million for the year. Good orders, AOV of about GBP 34. And it's a slightly less sort of AOV on this business because we've been attracting so many new customers. But we're starting to see that balance come back in our sort of favor. And just to put it into context in terms of the meteoric growth we're seeing from this business. In March, we recorded revenues of just over GBP 435,000 for this business. So you can sort of see against the sort of full year revenue or pretty much a 3 quarter year revenue of GBP 1.6 million, you can sort of see where that business or this business is heading. Very much focused on wellness and sports nutrition. We're going to expand the range slightly, which we think will drive up AOV. We're seeing amazing repeat customers from this brand. And I think if we can just add whether it be vitamins or whether it be whey powder or some other sort of wellness products, we can see that adding those into your basket will just become a natural thing. And also, you will order regularly. So we're seeing customers ordering every month this product. And as I said before, coming back in a sort of timely basis. So let's just look at the sort of final TV advert that will just give people a sort of flavor for what we're about and how this is working. [Presentation]

Thanks very much. And we've got -- not only is that advert up and running, but we've got another advert being made as we speak using sort of some of our own shop footage. So quite excited about that. Those adverts for Nutricircle will be running on ITV2. We find that a great audience late night on ITV2 sort of around Love Island and then into sort of things like American Dad and that sort of programming. It's performed very well for us before. And as we now have got the additional sort of 40,000 square feet of warehouse space, we can start ramping that up and start ramping orders up across all of the brands. So flipping to the next slide, sort of understanding our impact. And I'm not going to spend too long on this. Look, we are committed. We've got this commitment to the planet to be able to work with our partners closely, help them balance up their ESG policies, help them really deliver a sort of sustainable set of criteria. We've just recently started doing impact reports for some of our partners. which allows them to show to not only their boards, but ultimately to their customers, how they're reducing, if not stopping waste and working with us to have a positive impact on their internal people, our people and ultimately on sort of the prosperity of the customers that we serve. So in terms of where we are, we are very much about people, planet and prosperity. People, we want to help people save money across the piece. We are committed to doing that. And that is at the forefront of everything that we do. But as a byproduct of that, we can help the impact on the planet. And I think we do help prosperity in -- we're growing this business. We're growing it rapidly. We can see our march to profitability is on the horizon. As I touched on in the video update, I think if we hadn't have had the sort of warehouse sort of lift challenge and some of the sort of DPD issues, which are now firmly behind us, I'm glad to say, then March would have been operationally profitable across all 3 brands. So we can see it, we can touch it, we can smell it. So we're very much committed to driving that forward. So just getting into our results. And I'm going to hand over to Dan Wortley, our sort of Chief Financial Officer, who will run you through the results.

Yes, no problem. Thanks, Martin. Yes. So really a lot of this, and as Martin sort of touched on it, we're getting to the stage now where as we look forward, it's more exciting, and we feel we're sort of getting the business to where it needs to be. But looking back to last year, there was a loss as was expected, huge revenue growth, which we'll sort of come on the next slide. Discount Dragon for the year made a sort of a gross loss of GBP 151,000. Now that's sort of stated after a stock provision of GBP 99,000. And of course, the business sort of bought a lot of the warehouse costs and a lot of marketing costs as we grew at the lion's share of the warehousing costs. So it was hit pretty hard with that. Nutricircle made gross profit and Boop made a small gross loss, but that's from a standing start really when we relaunched in September. So we're very encouraged by that result of that business. I'm going to move on to talk about the revenue progression. I think this is probably more interesting. So you can see Discount Dragon grew from a little over GBP 2 million in the first quarter to over GBP 3 million in quarter 4. And then as we went through the year, we layered on the other 2 businesses with Nutricircle sort of coming in quarter 2 with revenue of just under GBP 350,000. And then by quarter 4, we've sort of grown that to over GBP 700,000 and GBP 1.6 million for the year. And then Boop from mid-September standing start GBP 30,000 revenue in September and then we got up to almost GBP 0.5 million in quarter 4. And as Martin said, that's sort of growing further as we go into the new year in 2025. So that's probably as much as I'll say on this, but happy to sort of field any questions on the numbers as we get into the Q&A.

Thanks, Dan. So yes, look, I think you can start sort of seeing the growth of the business. You can see Nutricircle there 1.6% for the year. And on its current run rate, I think it's going to get close to that in the sort of forthcoming quarter. So you can really sort of start seeing where that's growing. Boop Beauty, GBP 494,000 for the year. And as I touched on before, GBP 332,000 in March. And I think with the TV adverts that we've got for Boop starting, we're sort of quite excited about where that brand can go. So why invest with us? And it's not all about the 15% discount, but we do like to share that. So if you are an investor and you want the 15% discount across all 3 brands, then please do drop us an e-mail at investors@huddled.com. But look, we think this is a really, really exciting business. The management -- we're highly committed. The Board owns just shy of sort of 20% of this business across the employees, including the Board, we own sort of 32%, 33% of this business, so around 1/3 of the business. So we are committed not only financially, but mentally, physically and every other which way you can sort of think about. Last year, look, I hate losing money. It's not something that we want to be doing. We knew we had to go through that pain. We knew we had to invest in the business. We know where we can see this going. We can see the growth. This is not one of is there demand for the product. The demand for our product is immense. And every time we run TV adverts, every time we run radio or Facebook or Instagram or go on TikTok, we can see the website lights up. We can see the inflow of visitors to this -- to our sites is amazing. It's one of about this balance of getting the warehouse sorted out, making sure that we're delivering to people on time, making sure that then we keep that demand and keep that balance accordingly and scaled up. So where do we go? Are we on the march to profitability? Yes, we are. As I touched on before, this is a tipping point business. Our marketing costs, our warehouse costs are relatively fixed. Of course, we've got marketing, but marketing, we can throttle on or off as we need to. We've decided to sort of start accelerating that. And now as we've got customers and the customers are coming back, they're helping to pay for the marketing of the new customers. And just to put that into context, marketing, it costs us slightly more to acquire a customer than he probably -- than we make out of them in the first instance. But on the basis that they come back and our offering is good, and we get the goods to you in a timely manner, then we know people come back. And the second time with no marketing costs. So therefore, the profit contribution to the bottom line increases and so on and so forth. So as I said, very much a tipping point business. And if you're so inclined, please do take the 15% discount. Not only are you going to save 50%, 60%, you're now going to save an extra 15% as well. So that sort of more or less sort of concludes the presentation. We are very, very happy to get into questions. There's no questions that are off bounds. So feel free to ask whatever comes up.

Fantastic. Martin, Dan, thank you very much indeed for your presentation. I will now turn your cameras back on. [Operator Instructions] Martin, Dan, as you can see, we have received a number of questions, both pre-submitted and throughout today's meeting from investors. And I wanted to start off the Q&A session with these. The first one reads as follows. When does the company expect to reach cash flow positive status? And when can investors expect to see future revenue forecasts released?

Okay. So dealing with that sort of 2 questions there. Operationally, we think the business is -- they're pretty much there in terms of profitability. As I touched on in the video update. I think if it hadn't been for those little minor things, we would have been operationally profitable. We think the group will be cash flow profitable in H2 of this year. But we're now sort of very, very close, as I said, to making a contribution to sort of plc overheads, and we can see that on the horizon. So we are quite relaxed on that. In terms of future forecasts, people may be aware or may not be aware, Zeus, our nominated adviser, put out a research note this morning with some detailed forecasts. Those that aren't able to access it through the normal channels may be able to find it on Research Tree, and we will also look to putting a link onto our website on Research Tree or to Research Tree in the coming days.

Thank you, Martin. Next question is, does the second floor area mean that warehouse costs will rise in line with this? Or are there material savings possible across the 2 floors?

Okay. So a great question. First of all, we've had the costs of the additional floor in since January, and we've been absorbing that. We are in an old mill. We're on the third and fourth floors. We've now got a dedicated lift. So each floor is around 40,000 square feet. So the space that we operate in is -- well, it's cheap. I think there's another word. It's not relatively cheap. It is cheap. Do we get efficiencies? Yes, we're now able to put Boop and Nutricircle onto its own dedicated floor with its own dedicated teams. We're not increasing staff costs. What we've done is we've just managed to allocate teams across the piece accordingly. And Discount Dragon then has its own floor. We'll get efficiencies in what we were doing historically is we were having goods on the fourth floor and then we were moving them down to the third floor. So we were having more touches of that stock than we would like. Ideally, we want as few touches on the stock as possible. Goods come in, they're on the floor. They get picked, goods go out. We want to reduce the number of physical touches on a product, which means we can improve productivity. That doesn't mean that we have to increase staff costs, it just means we have to be more efficient in what we're doing. And as I touched on before, we're already starting to stress test that. We did 2,400-some-odd on a day last week without any problems. What this means is that we're able to get goods out next day to people. We've got a next-day service with DPD. At the moment, we're running that 6 days a week for collections. We want to run that 7 days a week so that ultimately, in a very short order, we can say to customers order by 3:00 p.m. and you're going to get your goods tomorrow without additional costs.

Thank you, Martin. And another question on the same topic. When do you expect the second warehouse to begin adding meaningfully to group orders' revenues?

Well, the warehousing in itself doesn't necessarily add to revenues. What it does is it gives us the ability to market more, and it gives us the ability to get more orders out of the door. So the simple answer is we started to see the improvements last week. We're happy with what we were able to process, and that's now given us the confidence to start doing some more TV advertising. So as I touched on before, Boop will start doing some small TV adverts this month, same with Nutricircle and same with Discount Dragon. So we're going to sort of increase it slowly. We don't want to go too crazy because we want to make sure that we are operationally profitable. So we're always keeping that fine line between operational profitability and growing the business as well.

Next question we've got here is much effort has been put into winning customers, which has pulled the group AOV down from historic levels. When do you see this beginning to change for the better?

Yes. Look, we've invested money in acquiring customers. And I think that's absolutely the right thing to do. We needed to scale the business. As I touched on before, this is a tipping point business. And as the number of returning customers becomes more than the number of new customers, which we're starting to see that happen, then the AOV will naturally tick up. But we're not going to slow down in terms of acquiring new customers, as I touched on before. Demand is fantastic for these products. We've got fixed costs. And as the operational gearing kicks in, then that will deliver more profit. And the AOV will just naturally tick up in time.

And the next question we've got is on growth potential. Could you describe the growth potential? How big can this business get?

Look, obviously, I can't get into forecasting, but we see the market as being immense. We see the supply of surplus products being huge. There's no slowdown. And demand, as I touched on before, every time we run a TV advert, every time we run radio or Facebook or TikTok promotions, we see our website light up. So I don't think there's any issue with demand and scaling this business, it's really up to us as to how big we want to grow it.