Cake Box Holdings (LSE:CBOX) — Investor Presentation

0:01 Good afternoon, ladies and gentlemen. Welcome to the CAKE BOX HOLDINGS PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time just using that Q and A tab on the right hand corner of your screen. Please simply type in your questions at any time and press send. The company may not be in a position to answer every question received during today's call. However, the company can review your questions submitted today, we'll publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll, and I'm sure the company would be most grateful for your participation. I'd now like to hand over to the

0:32 management team from CAKE BOX HOLDINGS PLC. Good afternoon to you. Good afternoon. Thank you for joining us today. For those of you who don't know us, CAKE BOX is The UK's largest retailer of fresh cream celebration cakes. I will give you an overview and then hand over to Michael to present the financial performance of the business. After that, I will give you a strategic and operational update followed by q and a. So just one second. Yep. We are pleased to announce, we're pleased with our performance in the first half of the year. As you would have noted, we delivered an increase in revenue, profits, and dividend. Our store opening program is gaining momentum with more stores open due date than compared to last year. I will speak later about this later in the presentation.

1:19 We've seen continued growth in our online sales as well as brand awareness and seen our customer database grow by 40%.

1:27 We have entered the second half with ongoing positive trading momentum and expect to deliver full growth for the full year 2025 in line with market expectations. I'll come back and provide further details into into our operations. But first, let me hand you over to Michael to present the financial performance of the business. Thank you very much, Suk. And and just to say as well, we're we're very happy to have Shay Watkins, our marketing director with us today as well, who will be available to answer some questions during the q and a. From a financial point of view, our highlights, if you just run through them, and then I can go into a bit of more detail on some further slides. Our CAKE BOX group revenue was up 4.3%. So this is includes majority is is of what we sell to our franchisees, ingredients that they then use to to assemble cakes, cupcakes, etcetera, in the stores to sell on to customers.

2:24 Total franchise sales, so this is the sales from all our stores, our kiosks, and our web sales to the the end customer, was up 7.6%, and that included a like for like of 2% for the period. We opened up seven new stores in this half. Our gross profit went up by 11.5%, which included our gross margin percentage going up by three fifty basis points. EBITDA increased by just shy of 12%. Profit after tax was up just over 16, and our cash generation and and and our our results have have meant that we could declare a dividend of 3.4p per share, which was up 17.2¢ on the dividend of 2.9p for the same period in the in the prior year.

3:12 I'm just gonna flip straight on to slide eight, if we can. So this just breaks out a bit more the the sales performance. As I mentioned, the the franchise sales went up at 7.6%. Within that, we've got a a 2% like for like for the mature stores, the annualization of of the the 20 new stores that opened in the prior year, and then the the benefit of the seven stores that we opened in this half. Our sales, which is broken out below in terms of our product sales, that's all our sales to our franchisees, that went up 2.3%. Online commission, which we we charge to franchisees, which is used to to as costs of of the website and and and our ecommerce platform, went up 7.3%.

4:03 Franchise packages, this is the the cost of the building of new stores, which we then invoice onto franchisees, was slightly down, and that was due due to us opening up a couple of stores less than the prior year. And then we have our national marketing levy, which came into force from August 2023. So we only had six weeks in the in the first half of the '24 year versus the full half of this year. So that meant overall our sales grew from 18,000,000 to 18,700,000, which is 4.3% up. If we then just move on to slide 10, please, sir. So just a little bit more color around the like for like sales performance. The 2%, which was positive, 2% was up against a strong comparator of 6.2% from the prior year.

4:55 Just on the right, we can see actually how that materialized during the period. We started off with a with a with a tough period trading in the beginning of the year. Couple of factors in that was we our franchisees implemented a a 6% price rise to the customers, which was to cover the the the large increase in in the labor costs at that time. And then we can see how our customers then reacted to that price increase. We we also had timing of of Eid from prior year to this year. But we can see how that during the the half, how that like for like built and built up to September, the momentum, which is carried on through October, which Sip will talk about a bit later, and then into November as well. And what's nice to see is we got we can see some volume coming back into the business through that period into November now as well.

5:55 On the next slide, just a bit about the online sales performance, which which has been fantastic. 16.6% up year on year, and that includes 14% of volume within that 16.6% sales increase. As a percentage of our overall franchise store sales, that's increased from 21.3% in the prior year to 22.9%. And subsequent after September, we're now into above four 24%. So, again, a really strong performance of of what we're doing, and Shay can put a bit more color around that later as well. We just looked then at how our our EBITDA analysis. So gross profit was up 11.5%, which is a really strong performance.

6:41 Within that, when we strip out the the impact of the accounting treatment for the national marketing levy, we are we were up to 52.4% versus 50% for the prior year. And that's our strong strong margins coming through from product in the second half of the 2024 year, which now come through in into half one of this year. What is pleasing as well on this slide is our underlying overhead. So when we strip out our national marketing expenses, we can actually see that that's grown by 4.2%. If any of you have seen our our previous presentations over the last couple of years, we've had double digit increase as we built the teams and the capability back at our head office and invested, excuse me, invested in a different skill set as well. But that's nice to see now that that is has subsided and and it's low single digit increase, which will mean more operational gearing going forward.

7:43 So overall, our EBITDA was up just shy of of 12% for the period. The next slide just just shows our gross margins when we break out the impact of of the national marketing expenses, which is an underlying, therefore, 52.4% versus 50%, and and and that's carried on. So we're we're very comfortable with that level of margin going forward as well. Further down the p and l, we go from EBITDA of of just shy of 12% to increase of PBT of 16.3, and our profit after tax as well as our earnings per share has gone up 16.4%.

8:29 And just a bit about our our net cash position. We started off the the year on 7,300,000, generated 2,500,000 of cash, of which we spent 1,600,000 on CapEx. We paid our final dividend for the 2024 year, which is 2,400,000, and then our $2,200,000, which is the repayment of our our leases and our borrowings, which left us with a net cash position of 5,600,000,300,000 down in the prior year, but this included us paying out 700,000 to buy the land next to our Bradford depot. Then just on the next slide, if we look at our capital allocation policy, of the the 1,600,000 of CapEx, 700,000 went on the land purchase, 400,000 went on on the third investment in our IT infrastructure, and then the 500,000 we spent on our current depots where a large portion of that is just reinvesting in our delivery fleet.

9:36 And then we also mentioned our dividend in there, which was up 17.2%. Alright. Thank you very much. Back to you, Suk. Thank you very much for that, Michael. On the next few slides, let me give you a flavor of what we've achieved so far this year and what you should expect for us on the second half of the year. This year, we expanded our store estate, and I'll be talking about this in the next slide. As Michael also said, franchise sales increased by 7.6, and online sales saw an increase of 16.6%. And we manage cost pressures in a highly inflationary environment. Turning to our store estate. We opened seven new stores in the first six months in places like Greenwich. Since the period end, we have opened another seven new stores. Such is the momentum behind us that we are on course to open more stores in 2025 financial year than expectations.

10:30 We are finding locations and identified franchisees and providing financial support if required. There are three key strengths to our marketing model, Digital media, data and customer loyalty, and marketing automation. Brand awareness increased by 8%, online visits increased by 40%, and online sales increased by 16.6%. Our loyalty scheme, Hit Club, launched in June 24 and has 63,000 subscribers. As you can see from the graph, we are trending higher than we were last year. As I said in previous in the previous slide, on sales increased by 16%, and we expect this to continue to grow due to a new marketing initiative we have launched and continue to launch.

11:21 In 2025, I really was to grow our customer database. Our total database has grown by 40%, 517,000 people in the first half of the year. Also, as you can see from the graph on the bottom right, SMS subscriptions were up 48%, 269,000. The first half has seen some notable successes in the new product launches. We launched a Nutella range of cakes, cupcakes, and cheesecakes. These have been a resounding success, and we're the only officially endorsed Nutella cake in the country. We've introduced our 50 new designs and enhanced our popular red velvet range due to increased customer demand.

12:10 Whilst our focus remains on growing the state in The UK, we are testing the international markets. We'll open up a pilot store in Paris, France in the first half in the first quarter of the new financial year. Also, we continue to evaluate m and a opportunities that will grow our customer base.

12:31 In summary, we grew our sales driven on by online and in store sales. We're investing in new land for future growth and continue to grow our customer database, which is going to contribute to increased sales in the future. Before we take any questions, let me give you a bit of guidance on what we expect in the second half of the year and what it means for our full year performance. Post period in the month of October month of October trading has been very positive. Total franchise sales are up 9.9% and like for like sales up 4% compared to the month of October last year. We've opened 14 stores to date compared to 14 new stores we had opened by this time last year. We're on target to achieve at least 25 new stores by the end of the full year.

13:18 We continue to actively evaluate opportunities that will accelerate our growth, and it includes potential acquisitions. Consequently, we are expected to report continued growth in line with market expectations.

13:32 Thank you everybody for listening. We'll now take you to the Q and A. That's great, Steve. Michael, thank you very much indeed for updating you, Festus. And could I please ask investors to continue to submit your questions? Just using the Q and A tab situated on the right hand corner of the screen, which is why the guys take a few moments just to review the questions you submitted already. I'd just like to remind you that a recording presentation along with a copy of slides and the published Q and A will be accessible via your Investor Meet company dashboard. Shay, as you can see, you've had a number of questions submitted ahead of today's presentation, a number throughout it. So firstly, thank you to everybody for your engagement. But if I may, Shay, just hand back to you just to read through those questions, and then I'll pick up from you. Yes. No problem. Let's kick off. So question number one was around the loyalty scheme. And the question stated you have to spend a minimum of £10 to get a loyalty point.

14:24 And is this too much for a customer? And the answer to that is our our average spend in store is £22. And the discount the customer gets at the end of four stamps is £10. So what we do is we we've set a minimum spend because we don't wanna give more than 25% minimum discount at the fourth visit. So it's a control thing to stop people. We wanna we wanna incentivize people to come back and spend more. So it's frequency of purchase and volume of purchase as well.

14:57 So, hopefully, that clears up question number one. And then question number two is about around the cakes versus slices. So cakes are selling, but sales of slices are quite high too. What's your view on that?

15:09 So do you wanna take that question? Yes. When a new shop opens, slice sales are very high because people are trying them on the new products. And then eventually, they're selling the pattern that we've got, which is 70830% slices and cupcakes. And so you'll see that that pattern all through the the the evolution of the shop as it opens or we get a massive amount of sliced sales, then they settle down. The the customer have tasted the product and they're confident enough to buy the cake. And then told that it settles down into routine. There's more cake sales and less sliced sales.

15:49 And in terms of just just a follow-up question from from the slice mix in our business. Do you think there's a bigger opportunity to sell more slices to more customers?

15:59 Oh, absolutely. So we always on the app or look out that, you know, at the end of the day, we want purchases. And whether it be cakes or slices, it it really does not matter. And so, know, we we put offers out of three slices for 10 pounds or we'll do of of four of a box of six cupcakes, etcetera. So it's all about getting the customer to spend that little bit more. So a customer will buy a cake and then buy a few cupcakes on the side and then buy a few slices on the side as well.

16:31 Okay. The next question, Mike, is for yourself, and it's what is the long term neutral position for profit margins, and when when will this be achieved? Well, in terms of our margins from our our product where we are now, we've seen that, you know, increase in the second half of last year and and maintain that throughout the first half of this year. In terms of our our longer terms of EBITDA margins, you know, with with our investment into our overheads, we can we can see that growing in into into the long term. So at the at the moment, I can't see where it's actually going to neutralize.

17:13 Okay. And then what can we expect from capital allocation in your con in your in in CAKE BOX going forward? Would you consider any share buyback options? So so I think we we I think the answer to that is yes. We will. I think at the moment, we are looking at where we can invest to to grow the business. As Suk said, we we are evaluating certain opportunities. We're going to be investing in in a new Bradford warehouse. And and once we're sort of through through that sort of cycle,

17:47 we'll definitely be looking at at at share buybacks as an option. Okay. I'm just gonna expand on the loyalty question because I can see a couple of comments follow-up questions on whether or not we cat captured data, from the loyalty scheme. And so to in answer to that, at the moment, the loyalty scheme is, for offline only, so it's in store. And what we do is we capture the customer's data at point of point of sign

18:15 up, and that is to be in this financial year to be linked to EPOS. So we can track what they purchased. But as soon as that customer comes into the loyalty scheme, they sign up to our CRM system. So we capture all of that customer's data, what they buy online from us, what what type of cake. Therefore, we can remarket to them. So we do capture the data, and we will capture the data going forward offline once we introduce our new Epos system. The next question is all around, the next ten years. So where do you see the company in the next ten years? And considering international expansion,

18:54 they can see that we're looking at France, but would you consider The USA and India also? Oh, absolutely. Well, domination, I do. And so we we start off in Europe. And then, of course, we have plans, or we want we have aspirations to go to Canada, The USA, and eventually India. Thailand is a very nice market as well. So, you know, we think about this all the time and so in the next ten years let me quickly was a baby when I started a business and it was a problem in the last three years. We've just got to to be a a teenager, and we still wanna get it to an adult, get married, and have children. K. Next question is is about current cash position seeming quite high.

19:45 What is that appetite to what do we wanna do with this cash? Would we consider extra dividends or, again, share repurchases?

19:53 So I think, again, we were looking at investing in where we could invest in actual growth of the business. And one part of that is the investment in the Bradford warehouse. The other are the opportunities that that we are looking into. And then finally, once after that, we'll be looking into a a share buyback program.

20:15 Okay. And how is the development of, sales per store progressing? So We've oh, sorry. Go on. I'll start it. You you can you can you can give more flavor to it. Well, it's it's it's progressed. You know, we've seen the like for likes over the last year, the 6.2%, and then it was 3.4 for the second half. Another 2% growth in in mature stores.

20:43 October has gone up by by 4% in in mature stores. So we're continually seeing that that growth in in in the store store sales. Shay, if you can put us some more color on it in terms of what we're doing around around that area to grow sales. Absolutely. So online is is the the big win for us because we're a click and collect model. So the more we do online, the smarter we get online and the more confident we get online, the better it stored us. So we're seeing the percentage of mix move up to, you know, for example, up to 24% in October. So the better we do online, the better it stored us in terms of like for likes. But also as we introduce the loyalty scheme for offline and as we raise brand awareness, that is the overall how do we drive sales offline as well?

21:32 So the loyalty scheme gets customers to come back and to buy more. And the brand awareness, as we move that forward, and we're using social media massively to drive the brand awareness metric, people become more aware of our locations. And I really believe we've got a long way to go on brand awareness to to to really drive it. And the loyalty scheme is is new, and we're already seeing customers come back to the second round of of to the eighth purchase, which is which is encouraging.

22:02 The next question then is about the impact of the national minimum wage and employer national insurance. What do we expect the effect of that on our business? So if we look at it in terms of of of our business, we can break that between ourselves and and franchisees. Our business, it's it'll be about a hundred, hundred and fifty thousand in in terms of a a total impact for us of the year. So it's it's it's an impact that we can absorb. From our franchisees, it it'll it'll vary. You know? And we've got fifty one one store franchisees who who work in the store. So their their actual labor part, their paid labor is a very small part of of of their p and l.

22:51 Up until, you know, when you got your multistore franchisees, it'll have a bigger impact on on them. But within that, our franchisees have generally paid their labor. People install the same. They haven't looked at age. So if you if you're on the counter or if you're actually assembling the cakes, you're doing the same roll, you get paid the same amount. So so they won't be hit with the the the increase in the differential in in the rates. And in terms of of ourselves, if we compare our franchisees to other franchise groups in in other brands, their their labor is a smaller part of the p and l. So our franchisees, is is a third of their variable costs, where in other brands, it will be more than 50%.

23:42 They'll have a a lesser impact than other brands. Okay. So we have two questions that are similar but slightly different. So I'll ask the first part is do you have any plans to bring any senior executives in, from bigger franchise businesses to accelerate your growth and then to really add value to the business? So that's the first part. And the second part is, would you consider a McDonald's model where you invest in land or stores and then you let the franchisees sort of loan them off you and run them? So in in answer to the first question, we are we've engaged with an external property company who have the skills in terms of of finding sites, doing property negotiations, doing rent negotiations.

24:29 So we've we've, in effect, outsourced that skill set. So we won't be bringing in anybody to with that sort of skill set because we've already got that in in place. Answer to the second question is no. We're not gonna go out and and and do a property play like a McDonald's. That that's a totally different franchise model than than what we have. Okay. And there's a couple more questions. So the first one is around our supermarket pop ups. How are they going? They're doing very well. And they're they're on hold at the moment because the supermarket's got problems on its own, but the 18 that we've got are performing very well.

25:17 And same as the the ones in the shopping malls, they're doing very good as well. I think the final question I can see in in the list is around with all the metrics going positive in terms of like for likes, higher revenue growth, what are we likely to see in the future? What is the top line growth when our new stores mature? So what headroom is there in new in new stores in the future for our growth? Yeah. I I think mean, the two of us could probably answer that. You know, I I think we've we've seen those stores growing every year now. And as the brand awareness grows, as, you know, we're in the sort of second year now of with customers signing up, So we can now start talking to the customer about, you know, when they bought in the prior year. We know that a bit like the card companies, we can remind them when they bought.

26:14 There's just so much at the moment that there'd be probably low hanging fruit for us to go after that can actually grow those stores. When we look at stores, there there's a different level in terms of the the sign up of of the loyalty scheme. And and and, again, that's an opportunity for stores. Okay. In terms of all the questions that are in the q and a, I think we've answered the majority of them. I think we should we take one more question from someone? Yes. We've got plenty of time. Yep. I'm just shifting through to see if we've missed any Okay. There's a question here around, what are your thoughts on the increase in share ownership of River Capital?

27:09 Thoughts on that, Sukham, Mike? Well, I I think it shows how how positive they still are on on our business. It's, you know, it's it's not just not just them. There there there's some other shareholders who've who've come in in the last year who are who've who've actually overtaken them in in in in the holding. So I think it's just it's a real positive in terms of of new shareholders who've who've come to understand, our business and our brand, and and wanna be part of it. And we've got one around, given the cost pressures and and the environment we're trading in, how are we working with suppliers to ensure stable margins and a stable business?

27:54 And is there any risk, going forward? For every product that we buy, we have multiple suppliers. And by having multiple suppliers, they all compete with each other. And what we found generally in the last six months, commodities have stabilized. So there's not a huge spikes in the cost of them. And or so it's a it's a steady steady go and we're not too worried about how the price is on that at the moment. Okay. I have another question here, and this is for myself, and it's about collaborations. We've done the Nutella collaboration. In terms of long term brand strategy, are there any similar partnerships we're looking at? So the answer to that is we look we always look for partnerships.

28:39 We call them perfect partnerships with number one businesses that are complementary to CAKE. So Nutella is one example of that. And number two is other other partnership opportunities. So we are looking at partnership partnerships in movies, movie launches, cinema launches, the movies that are coming up in the next financial year, and we will sort of strike the right partnership for our customer. So we're looking at a lot of these partnerships at the moment just to amplify our brand awareness and, yeah, capitalize on on what's happening in in the world of cinemas at the moment. And that's all of the questions answered.

29:24 That's great. Well, look, thank you very much indeed, and we can make any other questions available to you post today's call. So, Michael, we I know investor feedback is particularly important to you both and to the team, and I'll shortly redirect investors to give you their thoughts and expectations. I also have a video to play on the exit, so I'll play that on on the way out. But before doing so, I wondered if I may just ask you for a a couple of closing comments. Yeah. I think it's very positive and there's a lot of confidence out there in our franchisees. The franchisees are coming to us to expand. We've expanded into Scotland. We'll be expanding to Northern Ireland or France, as you know. And so there's a lot of white space out there, so we can reach our goal of 400 shops.

30:13 Michael? Yeah. So I'll just reiterate in terms of no. It's it's in a franchise business, it's all about, you know, the profitability of the franchisees and profitability of the store. And we've seen that come back with with lower utility prices, with margins not just stabilizing, but our our franchisees margins growing. And that's just given them the the impetus to come to us and challenge us to wanting more stores, which is why we are, you know, sitting here this week, and and we're saying that we we our ambition is is to increase our number of stores we open per year from the 20 to 25 plus going forward. That's great. Sook, Michael, Shay, thank you very much indeed for updating investors. I'll surely redirect investors to give you your feedback, which will only take a couple of moments to complete, and I'm sure will be greatly valued by the company. But before doing so, if I may just play you out with a video from the company.