Noumi Limited (NOU) Earnings Call Transcript

Good morning. and welcome to the presentation for the full year results of Noumi Limited for the financial year of 2025. I'm Michael Perich, Group CEO. And today, I'm joined by Group CFO, Pete Myers. It's a pleasure to be here with you today, and thank you for joining the call. We've uploaded the relevant materials to the ASX. You can navigate to the slides as you choose or you can follow up on screen. [Operator Instructions] Slide 3 is the agenda for today's call. I'll focus on the overview of the results and discuss the key elements of the progress of the company during the year. Pete will follow with the financial performance for the period. I will then talk to our strategy, followed by closing remarks and time for Q&A at the end. Key messages for today's call, once again, we are pleased to talk to the consistent execution of our strategy. The legacy items are now behind us. This means we can and will focus on the growth opportunities for the company. I'm proud of the progress we are making as we execute our plans, but there is more to do. As you will see in the results, FY '25 represented another period of solid progress against our strategy, with the operating financial metrics moving consistently in the right direction. The improved revenue and earnings are underpinned by our strategy. The delivery of another year of improved adjusted operating EBITDA performance provides the foundation for Noumi to pursue the significant opportunities before us to drive growth. I'll cover more on this later in the presentation. As we wrap up our transform -- our Reset, Transform and Grow strategy, it is with great pleasure to announce an EBITDA of $57.4 million, up 13% from FY '24. Our Plant-based Milks segment is up 1.7%, with an EBITDA of $50.3 million with healthy margins of 27.6%. The result was driven by MILKLAB successful expansion into retail. The MILKLAB brand has continued growth with overall Plant-based Milks sales up 6.7%. For the third year in a row, Dairy & Nutritionals has shown further improvement with EBITDA in this period of $11.1 million, more than doubling compared to the $5.5 million in FY '24. We are focused on the core, reduced our export volumes where margins didn't make sense. Lactose-free and lowest cholesterol products continue to show growth. Planning is underway for the potential solutions for the maturity of the convertible notes in May 2027. Slide 6 has the financial highlights that further call out the operational metrics. The statutory net loss after tax of $150 million includes $112 million for the convertible note fair value adjustment and the previously disclosed noncash impairment of Dairy $ Nutritionals of $50 million. Without these items, net earnings would have been positive. In 2022, we outlined the Reset, Transform and Grow strategy. This year has seen the legacy litigation matters closed that directly involve the company. This means we have completed the reset delivered significant transformation, move the business into the growth phase. Putting this behind us is a critical step in us thinking more about our future with the Dairy & Nutritionals achieving 3 years of improved results, it means we can shift our focus to growth. Commodity prices have shown stronger demand, and we've been able to participate with bulk cream -- cream commodity prices recovery. The performance of MILKLAB in retail has been exciting. It has helped grow our revenue by $9.3 million and accounts for 12.2% of MILKLAB's Australian sales. MILKLAB has 16% of the Barista segment, with MILKLAB Almond ranked as #1 in the almond category. MILKLAB Oat, grew 28.4%, with Plant-based Milks export sales growing 18.8%. With our focus on growth, there is more emphasis around investment across brand, people and technology. Innovation will form part of our growth with resources to support Plant-based Milks and Dairy & Nutritional segments. Execution of our strategy is delivering results. The team at Noumi are critical to our success. The engagement survey saw an increase in participation which for the second year running is a great result. This has enabled us to focus more on frontline leadership development programs with the feedback received underpinning the focus areas. I'm proud to say that with the focus on keeping everyone safe we have seen safety measures improved compared to FY '24, although we missed our own goal for FY '25. We continue to embed safety across all aspects of the business. During the year, we have made several critical investments in systems as part of our transformation journey. A new ERP was successfully implemented this year, this was no simple task, although I'm pleased to say it was delivered on time with no significant disruption to our operations. An updated CRM is in the pipeline for FY '26. The new tools will allow us to continue to embed operational efficiencies. AI will form part of the operation as these tools have embedded features, other productivity benefits will come as we look to other tools where it makes business sense. Slide 10, I'll talk to our Healthier Tomorrow plan. This plan was released in 2022 following consultation with the Board, suppliers, business partners and our team. Our ESG strategy is integrated across our value chain from dealing with our supply partners, to manufacturing, to delivery of our products to our customers. We are continuously improving processes to meet or exceed our ESG targets. In the annual report that was released today, we detail our progress, and I would like to update you on a couple of our achievements. In FY '25, we were successful in diverting 86% of our waste from landfill, where feasible and commercially viable, plastic-based packaging will contain 50% recycled content and be recyclable by 2030. Our team is committed to working together to build the health, wealth and happiness of our communities. During the year, we participated in R U OK? Day, Australia's Biggest Morning Tea and many more community events. We're also proud to have set up a 3-year partnership with Shepparton food chain, helping regional communities in need. As you can see, we are embedding ESG practices across all parts of our business. We'll continue to look for opportunities. Pete will now take you through this year's financial performance. After that, I'll talk more about strategy and how it is shaping our future plans.

Thanks, Michael, and good morning. Like Michael, I'm delighted that we're able to report more significant progress as we execute on our strategy. Our messages are similar to recent announcements. Our strategy is clear. We're executing more consistently and as a result, another record result for Plant-based Milks and a Dairy operating result, double that of last year's result. We plan this next stage of growth around a set of clear initiatives. The launch of MILKLAB in retail, making MILKLAB an international brand, making the most of a new formulation for Oat that was introduced a couple of years ago and more consistent execution. All of these initiatives are delivering in today's results, and we're pleased with the outcome. As Michael has outlined, we've now resolved our involvement in the class action, and we've call time on the reset phase. So whilst we are reporting on FY '25 today, we can also bring a perspective that is more forward-looking. A perspective where we can begin to plan for a longer-term horizon to contemplate the investment we need to fuel our next period of growth. And of course, the biggest landmark in that outlook is the maturity of the convertible notes in May of 2027, which I will talk to a little later. But to reflect for a moment on our achievements in FY '25, overall, our results continuing to improve, we're becoming stronger and we're encouraged by our progress. Just before I turn to some of the specifics of the results, just a word on terminology. We consider the adjusted operating EBITDA numbers as being our most important measure of operating performance. This excludes all one-off restructuring such as impairment charges and things like the legacy litigation expenses, it excludes the fair value accounting adjustment on the notes. And this year, it excludes $6.1 million that we spent on the new ERP, which went live in H2, as Michael has mentioned, and is one of the final elements of our transformation phase. So adjusted operating EBITDA is the measure we use, and we consider it most useful for investors. So if Michael or I just say EBITDA this morning, that's what we mean. Turning to Slide 15. I'm pleased to report record group revenue up 1% compared to the prior period. MILKLAB plant sales up 6.7%. Our 3 key Plant-based Milks initiatives delivering some gains from incremental changes in Dairy and some recovery in commodity prices. Export continues to be an opportunity for a plant but a challenge for dairy. Adjusted operating EBITDA for the group of $57.4 million is up 13% year-on-year, and this comes on top of the 22% increase we announced last year. In a moment, I'll take you through the highlights of the operating performance and the positive set of improvements we've announced today. But in respect of nontrading matters, there are a couple of key callouts. First, as Michael has indicated, the statutory loss of $150 million included certain significant items. The fair value adjustment on the convertible notes of $112 million and a $50 million noncash impairment write-down of the Dairy business. The earnings table on this Slide 14 (sic) [ Slide 15 ] highlights the fact that before we count the fair value adjustment on the convertible notes and the noncash impairment, we made money, $12.4 million. This means that after we take into account normal depreciation charges, normal interest on our financing other than the convertible notes and even allowing for the $14.4 million we provided for the legacy litigation and other transformation matters, earnings were positive. The second call out is to say that in relation to the impairment charge, you will recall that we booked this adjustment 6 months ago, back in December. At that time, we were concerned about 3 things: the strength of the then emerging recovery in commodity prices, margins for contracting in long-life milk, both domestically and in our export markets, and where we yet to see the benefit of a range of value-added strategies. Since then, these concerns have abated somewhat, and we've seen the Dairy result continue to improve, and accordingly, we see no reason to make any further impairment adjustments at yearend. And then finally, as far as the fair value charges on the convertible notes is concerned, these are higher than last year since we're getting closer to maturity but as we previously advised, these adjustments will continue until the notes mature in 2027 and more about those in a moment. Now let's move to the detail of the segmental earnings. So moving to Slide 16. We're once again delighted with the Plant-based Milks result with EBITDA for the period up 1.7% to $50.3 million. It's been another record year for the Plant-based Milks segment on top of years of consistent growth with our strategic initiatives adding to the result. Total revenue up 2.5%. Growth in our key brands, MILKLAB plant sales up 6.7%. Growth in our range, MILKLAB Oat formulation launched a couple of years ago, up 28%. And a solid period for MILKLAB Almond which is the foundation that underpins many of our growth initiatives and which laid out successful launch into retail late in FY '24. And then finally, sales up 18.8% in export markets from the targeted initiatives underway to extend MILKLAB's geographic reach. Now despite the contribution from the disciplined execution of these initiatives, our second half revenue growth was moderated slightly by a reduction in contract pack volumes. And we think we may have seen some pressure from cost of living issues weighing on the consumer in the middle part of the year. But looking ahead with the legacy issues resolved, we can plan with more confidence and position the Plant-based Milks segment for another strong period of growth. This will require some investments in our brands and our teams and our tools, which Michael will touch on shortly, but we are confident that a combination of these investmnets. The more recent easing of that cost of living pressure for Australian households and Australian's love affair with coffee is a very strong recipe for the future of our business. in short, another record result, a clear strategy in the great future. Turning to Dairy & Nutritionals. This slide outlines the progress that we've made. Positive EBITDA of $11.1 million, more than double last year's $5.5 million and continuing the turnaround, in earnings that began in FY '23. The result reflects a solid performance in long-life milk, improvements in lactoferrin production and some recovery in commodity prices, most notably bulk cream. Sales were highlighted by strong performance of 2 of our branded products. MILKLAB Lactose Free grew by 8.4% and Australia's Own Lower Cholesterol grew by 32.9%. In long-life milk, domestic sales were up 9.3% or volume related, whilst export sales were down 21.7% for the year. This year, export represented just 29% and of long-life sales, down from 41% 2 years ago, as we've strategically decided to pull back on unprofitable volumes in a highly competitive market. There are 2 important call outs regarding lactoferrin. First, sales volumes rebounded to be up 10% in the year following improved production efficiency compared to some of last year's disruption. But importantly, second, we are only operating around 80% of our lactoferrin capacity as a consequence of the decision to reduce export volumes of long-life milk. So any recovery in long-life sales will also allow us to produce more lactoferrin. Commodity prices for the -- for products such as bulk cream have recovered progressively during the year. Revenue was up $7 million on steady volumes, which means we have recouped most, but not all, of the negative impact we felt from the bulk cream downturn that we reported on last year. In Consumer Nutritionals, saw some challenges this year with increased protein prices and some supply chain disruptions. However, we continue to invest in the Vital Strength brand, new marketing campaigns and products and new protein on the best protein and supplement retailer by ProductReview.com.au for the fifth year in a row. Overall, the Dairy & Nutritionals result demonstrates a reward for years of hard work in the transformation phase of the strategy and is now becoming a meaningful contributor to earnings. Moving to Slide 18. In terms of cash and capital, we have got $1.6 million more cash than we had at June '24, and we have paid down our financial debt by $12.9 million. Convertible notes are now carried at $437 million, which, as with other years, is an independent fair value of the notes. In terms of the convertible notes, I want to pause on 3 important call-outs. First, as you will recall, fair value adjustment on the convertible notes have been included in all of our results since the notes were issued in 2021, although the annual adjustments get bigger as we approach maturity. These adjustments will effectively continue until the value of the notes on the balance sheet reaches the redemption value of a minimum of $610 million in May of 2027. In short, the fair value on the balance sheet is a proxy for the present value of the redemption amount. The second call out in terms of the notes, is to point out a change in classification to a current liability in the balance sheet from this year. Now normally, liabilities are only current when you have to pay them back within 12 months. Now our notes don't get repaid until May of '27, so they would generally be treated as noncurrent. During the year, the accounting rules changed regarding circumstances where liabilities in our case, the notes can be converted into shares at any time. So even though it is most unlikely that our noteholders would convert into shares in the next 12 months, given current valuation and share price considerations, the mere fact that they can means we have to show them as the current liability. The thing to remember is that this change has no impact at all on our liquidity position. Now for the third call out. Planning has commenced for the maturity of the notes in May of '27, by which time the noteholders will be owed a minimum of $610 million. This has not been possible whilst the legacy litigation has been unresolved. However, the finalization of our involvement in the class action means we can now plan for this important event. The opportunity is to review the capital structure so that we optimize the capital structure to support the group's future strategic plans. And at the same time, we create liquidity for the noteholders that provided critical capital for the Reset, Transform, and Grow phase, and we'll have more to say on this as things develop. Finally, in terms of our balance sheet. As we have said before, we do not carry any value in the books for our flagship asset, the MILKLAB brand. MILKLAB has been built from scratch, and it's 10 years old this year. And we consider it to be worth hundreds of millions of dollars, and it continues to grow. Turning to Slide 19. Our cash flow performance was very strong. Net cash from trading was $67 million, up from $41.6 million in the same period last year. Now with $57 million of EBITDA for the year and $67 million net cash from trading it's apparent that the year had some positive impact from timing differences as well as very strong underlying cash conversion. The big drivers were trade receivables down by $4 million year-on-year. Trade payables up $4 million, including some timing differences compared to last year and more effective utilization of our data financing arrangements. We are very pleased with our working capital management across the board. Inventory is well managed and in line with last year. And whilst payables were up a little, all suppliers are current. In the platform working capital, our approach to capital expenditure remains disciplined with $4.9 million spent during the period and some interesting value-add products which allow us to improve our lactoferrin production yields and support our NPD teams with their best tasting lactose-free projects. Net finance, mostly interest, were $18.8 million, not including any cash payments on the convertible notes. And with all of that going on, we repaid financial borrowings by $13 million during the period, and we increased our cash $1.6 million. So to recap on the financials, group EBITDA up 13% to $57.4 million. Dairy & Nutritionals doubled its earnings from last year with commodity prices and a strong focus on value-added opportunities making a difference. Another record result for the Plant-based Milks segment, highlighted by the effective execution of our key initiatives. And as we look forward, an increased focus on the targeted investments we plan to make to make our company even stronger and our capital structure and planning for the 2027 maturity of the convertible notes now firmly on the agenda. All in all, another period of progress executing against our strategy. And with that, I'll hand back to Michael for some further remarks.

Thanks, Pete, for the summary of the financial results for FY '25. Moving to Slide 21. I'd like to discuss our strategy for the Plant-based Milks segment. Our focus areas are very clean, investing in brand strength and out-of-home channel to fortify our position as the #1 Barista almond milk, enhancing the out-of-home sales team's capability. This is through development and also tools we're streamlining engagement with our customers and Baristas. With MILKLAB Almond, Oat and Coconut available in the retail, we will leverage our #1 position with Barista Almond to drive further consumption. There will be a focus on marketing activities to drive trial and aim to capture new consumers that are looking for premium coffee experience, especially at home. Innovation in new product development and accelerating progress in export markets is also key to our growth aspirations. Focusing on our key strategic international markets will allow us to make MILKLAB and an international brand. These focus areas aim to build awareness and increased market penetration and sustain growth momentum in this dynamic segment. The plant-based milk segment, led by MILKLAB continues to deliver record results with strong sales and earnings across categories and markets, reflecting the strength of our diversified channel mix. Our targeted international expansion is also delivering strong results as coffee culture grows across Southeast Asia. MILKLAB is widely available in our international markets with overseas MILKLAB plant sales up 20% year-on-year. MILKLAB is a brand that we are proud of, a brand that originated and we developed in-house. We have been very systematic in building the reach and the value of the brand. With MILKLAB turning 10 this year, it's time to celebrate this milestone and its future is exciting. Moving to Slide 22. In Dairy & Nutritionals, we are building on the improvements we have achieved. Our service and quality have seen urther improvements. The Dairy & Nutritional strategy focused on maximizing returns from milk components to ensure yield and performance is best practice. With commodity pricing strengthening during the year, opportunities exist with new products to leverage our skill set. Lactose Free is a key area for us as consumers are looking for better tasting products. Other products such as long-life cream also present opportunities for us. Leveraging the health benefits of PUREnFERRIN lactoferrin will play a role as we continue to build on the investment of our lactoferrin plant. Reshaping export long-life milk portfolio has been and will continue to be pivotal in delivering returns. Innovation will be key to bringing margin growth to the company. The Consumer Nutritional product range is set for further refinement. The demand for quality protein remains firm, and we are seeking to position ourselves with our 3 brands Vital Strength, Crankt and Uprotein to generate positive returns. These initiatives aim to enhance product value, expand market reach and strengthen our competitive position in both domestic and international markets. The Dairy & Nutritional segment has continued its 3-year turnaround in a challenging industry conditions and is now delivering more consistent operating results. In terms of outlook, on Slide 23. With the legacy issues resolved for the company, Noumi will be focusing on the investment in the MILKLAB brand for longer term by building on successful initiatives underway, including marketing investment to support expansion into new channels and product development as well as expansion into select overseas markets. Key transformation projects in the Dairy & Nutritional segment will continue in FY '26 with the aim of maximizing yield from milk components and focused on value-added opportunities. Noumi has commenced planning around potential solutions for the maturity of the convertible notes in May 2027. Addressing the notes, which will have a minimum redemption value of $610 million at maturity will ensure Noumi establishes a capital structure that supports strategic plans for future growth opportunities. Noumi is confident that the improved operating and financial performance it has achieved will be reflected in a recapitalization outcome. I'd like to reiterate a few points to summarize this morning's call. We are focused on service, quality and innovation. In plant, we are growing in range, channel and internationally. Dairy & Nutritionals is now making a significant contribution to earnings. With good momentum and legacy issues behind us, we are confident to invest for the longer-term growth in Australia and overseas, focusing on key strategic markets and at the same time, reinforcing the strength of our flagship MILKLAB brand in the out-of-home Heartland. I'd like to thank everybody for listening today, and I want to reiterate the execution of the strategy of your company. These results are a testament to that. Right across the business, including the Board, we remain committed to the pathway forward. I want to thank all our stakeholders within the business, our team are instrumental in our success. We would not be here today without them and I want to thank everyone for their efforts. That concludes the formal part of the presentation, and we'll now take questions from callers.

[Operator Instructions] We do have a number of questions that have come through, so I'll read out the question. First one is from Garth Francis from MST. Plant-based revenue was slow in the second half Sales were down 4.8%. Looks like it was more of a factor in the out-of-home versus the retail channel. Can you provide more color on the growth and your comments around investing in the sales team to drive growth. I'll let Peter.

Thanks, Michael. Well, I gave a little bit of color, I think, during my remarks in relation to that question. In -- there was a little slowing in out-of-home. And as I said, we're attributing that to a cost of living issue because it was kind of weaker in the middle part of the year and has picked up a little as we've seen some interest rate relief and the like from a cost of living point of view. Also within retail, you've got some -- as I indicated, some contract pack or private label business that contracted slightly in the second half, and that's probably masking the fantastic performance out of MILKLAB in retail that we're very pleased with. And then finally, the other thing I'd add, Garth, would be that you're also lapping a little bit of last year MILKLAB in retail in the comp. So it's a little harder to chase that number.

Amy, could you please unmute Garth Francis's line so he can ask questions.

Sorry, I jumped in with the typed questions before I understand I could ask in person. Thank you for providing the color today. Just in terms of that milk brand export market growth, you mentioned a few opportunities, and I think you've called out South Korea, Indonesia and Thailand. So the growth that you're expecting, is that in those current markets? Or have you got new expanded markets that you're also looking at penetrating?

Yes. Thanks, Garth. It's a good question. As you would have noted in our presentation in the annual report that was released. We are in roughly 24 countries with our brands, but our strategic focus is on those 3 core markets. So we see growth in all -- in generally all of the markets, but we are focusing on building the brand in those 3 markets, Indonesia, Thailand and South Korea, but we'll see growth across a number of the international markets.