Vulcan Two Group (LSE:VUL) — Interim Results

0:35 Good morning, and welcome to the VULCON two GROUP PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time by the q and a tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to the management team. Michael, good morning, Good morning, Lily. Thank you very much, everybody, for attending. So today we're going to do effectively a dual announcement. We're going to announce our new identity molecule and as well as our interim results.

1:22 So just a little bit about the team that are presenting to you today. I'm Michael Craftsman, I'm CEO. I created the business that ultimately became known as Vision Direct through a combination of acquisition and strong organic growth, and became the largest seller of contact lenses in Europe online. I ran that business for seventeen years and sold that in 2016 to Essilor at a very attractive 4.25 times return to our institutional investors. I continued to to lead the business under Essilor's ownership for sixty years and left in 2021 and looked for a sector that I could apply the same business model to, and digital pharmacy, online pharmacy was clearly the market that made most sense for us to enter.

2:19 Brendan, who I'll introduce you into in a moment, joined me as a vendor of one of the first businesses I bought, GetLenses, in 2009. I signed him up for a six months, a three day a week consultancy contract, and he's still here next to me today. So he became the chief operating officer of Vision Direct and was by my side through the whole of the strong growth that Vision Direct enjoyed. Keith is our CFO. He's a very seasoned AIM CFO, over twenty years, track record in multiple businesses, principally in the payments industry.

3:04 He enjoy he joined us just prior to our significant raise in March where we raised £40,000,000 and leads a growing finance team within our business. So before we talk about interim results, I I want to introduce our new identity, Molekule. We have the objective of building The UK's leading regulated e pharmacy. The buy and build strategy, the playbook that we developed in Vision Direct, applied to a much, much larger market.

3:49 The pharmacy market in The UK is approaching 20,000,000,000, and online is a very, very small part of that, but growing very strongly. The plan is to build a UK focused business concentrated on the private market, which is the fastest growing in the market by far. In March, we completed three foundational acquisitions, CloudRx, Hyperdrug and WebMed, with a stated ambition of integrating those businesses hard, creating a unified brand, which we're announcing today, and also building a unified infrastructure, which will be complete by the end of the year. We have both b to b offerings where we're receiving prescriptions from a a large number of prescribers, but also a direct to consumer offering.

4:42 We have got a high growth platform, strong cash generation and recurring revenues, and a real platform for very, very strong organic growth. And we're positioned to lead the consolidation of a market that is, at the moment, highly fragmented, and we'll come onto that in in more detail. So we raised 12,000,000 on AIM as a cash shell in September with the stated aim of of doing those acquisitions. In March, we came back to the market with those three acquisitions signed and ready to complete, raised a further 40,000,000, and we now own these three founder led businesses. Now, when we did those acquisitions, and in fact, when we floated originally as a cash shell, we always said that the objective was to create a single brand from which we could market in a uniform way and integrate and cross sell between the businesses.

5:36 And we undertook a very thorough research based search for a brand name. We utilized a world class agency, Lexicon Branding, based in San Francisco, and from about 15 shortlisted names, we, through research, landed on Molekule. It is a very, very strong name that resonates extremely well with both consumers and prescribers. So this is the research on the name alone, which shows that Molekule performs as well as Boots. Based on the name alone, we asked consumers, which of the following online pharmacies are you most interested in learning more about? And we got the same score as Boots, which is a fantastic result.

6:24 So it was very clear. We we did the research on a subset of those 15 names. The molecule was the right choice. And we then managed to secure registered trademarks on that name that were actually existing dormant trademarks, ready registered in our sector, so we were able to effectively secure that name alongside the domain names that we need to trade. We then developed a logo, which was a derivative of the original VULCON two logo, and tested that as well. Now, I don't know if many of you understand logos. Everybody says the Nike tick. It doesn't say Nike anywhere, but everybody in the world, they see that tick, knows it's Nike. And what we've achieved with our logo is something approaching that. So we asked a thousand consumers, which of these logos do you think is the logo for? And gave the name. And Boots, well, they've got 100% because Boots is in their logo. But Superdrug did very well with their star, but we were number three. So we've actually got recognition that a flower in our symbol represents a molecule.

7:28 And again, that's a really, really strong position to be in so that people could see just the symbol alone and know they're dealing with. So with a strong name and a strong logo, we believe we are really positioned to move forward. So today, we're actually launching the name Molekule to our consumers. We've renamed all our subsidiaries using the Molekule name, and we have relaunched all our websites today under that name. The name will be applied to the group company, the PLC. For technical reasons, we've had to make an application to Companies House on paper. Those papers went yesterday, and we expect to announce the change of name to Molecule Group PLC and the change of the ticker to MOL in the coming days.

8:19 As I said, the new websites have launched. Molecule Co UK is now up, live and running, and our b to b website, CloudRX Molecule Co UK, is also live. So now I'd like to hand over to Keith, who will take you through the numbers in our interim statement. Thanks, Michael. So these are our results for the first half of twenty twenty six, both reported on the left hand side and pro form a on the right hand side as if we'd owned the businesses for the full six months. Before I start, just to remind everybody, we raised in March 2026, we raised around about 40,000,000 to acquire three businesses, CloudRx, Hyperdrug, and WebMed.

9:14 Those completed on the March 19. And so from a reported perspective, the the group only had revenues from the March 19 through to the June 30, and that's the 10,000,000 of revenue you see on the left. Perhaps more, representative of what the actual businesses are doing is what was on the right. Had we, own the businesses for the full six months, the revenues would have been about would have been 19,900,000. So you can see what kind of run rate the business is running at. And as a guide, the the analyst guidance for the full year is, just under 39,000,000. So you can see sorry. Just under, yeah, just under 39,000,000. And so you can see that we're sort of on a run rate that's akin to that.

10:00 So as I say, the left hand side is simply costs for six months of the PLC, but revenues for three point three months. So it's slightly, is is a little difficult to understand. I think the right hand side is more more of a proxy to what we're actually doing. A couple of things to pull out. You'll perhaps notice that, if you look at the sort of product mix on the left hand side, you'll see that, that general health care, which is what we call everything else apart from our other sectors, weight loss and veterinary, but includes things like women's health, men's health, sexual health, has grown to from 44 to 49%, and weight loss has shrunk slightly. So that moves us towards, general health care being roughly half of our business for the period that we've owned the businesses. Why is that? Well, we took a conscious decision to actually switch off a bunch of clinics, one in particular on on our PowerDirect b to b offering. That was a weight loss clinic, and, we didn't believe that the financials they had were sustainable. So we decided to terminate the arrangement.

11:08 That obviously reduced revenues, but it also meant that proportionally, the other parts of the business grew. So general health care is now half of our revenue. If you look to the same pie chart on a gross margin basis, general health care would be about 60% of our gross margin because we make high margin there. Weight loss is a good growth area, but it is low margin. It's highly competitive. In the general health care space, where we're talking about things like ADHD medication, HRT, it's a lot less competitive. The the unit prices are are lower, and people are less likely to shop around. Or we found that that they're they're less likely to shop around. So we like that part of the business. It's good, high margin business for us. We do expect weight loss to grow again, Michael and Brenda will talk to that later in in the deck.

11:59 If I just go on to the next slide, what does that mean for the business? If you if you read the financial statements, you'll see that that that we reported on a reported basis, we made a a naught 600,000 EBITDA, a loss in the first half. That's directly because of, the fact that for 2.5, we didn't have any revenues because we hadn't acquired the business. Again, on the right hand side, if you were had we have owned the businesses for the full six months, the business would have been EBITDA positive. A couple of things to add on this slide to pull out, quite hard to read, but there's a line in there. It basically says 2026 is a lot of reorganization going on. We spent about £5,000,000 on fees related to the acquisitions. We spent quite a lot of money on an ERP system, on fitting out the new warehouse that Brendan will talk to.

12:51 Quite a lot of restructuring. We've had to make people redundant in certain locations to relocate them all to Leeds. But when you look but when we look into 2027, we expect our OpEx base to actually fall, so we should be clean. Most of those things should be finished. New ERP system, new warehouse relocation, all the staff by the end of twenty twenty six. And so 2027, we have a much cleaner cost base with a slightly lower number of heads in an efficient warehouse. So I think that's encouraging for 2027, and that's what's in the guidance. Just briefly onto balance sheet and our cash position on the left hand side, I I won't focus on the intangibles, but worth just saying that off the balances we raised, we, as I said, we raised 40,000,000.

13:36 Most of that went straight out the door to buy three businesses, on the March 19, about 5,000,000, as I said, in in acquisition and and exceptional costs, and about another million to 1,000,000.5 on ERP and fitting out the warehouse. But we still end up with, cash balances of 5,700,000, which is very healthy, and, that balance should be enough to sustain ourselves through the for the foreseeable future. So I think the balance sheet is strong. Our cash position is comfortable. So let me hand over to, Michael and Brendan for the next slides. Thanks, Keith. So first of all, we just have a little run through the actual market. So what we're talking about here is the private e pharmacy market.

14:21 Privacy e pharmacy market, really, if you only go back a few years ago, was was quite a niche lifestyle market based around discretionary things like erectile dysfunction and hair loss. But then it moved into certain medications that weren't easily available on the NHS, things like elements of HRT or ADHD, because the at one stage, were looking at sort of a hundred and thirty thousand people with ADHD assessments. So a lot of that went moved privately. Then we moved into the huge weight loss explosion, which continues to grow very rapidly. But more importantly and honestly, the area that we're very excited about is that move of NHS to private, and it's generally to do with the challenges around GP services in The UK.

15:07 So we only have data from a couple of years ago, but thirteen percent of GP appointments were supplied privately a couple of years ago. But if you go into the different cohorts like the 35 to 44 or the 45 to 54, it's more like 18 or 19% of those GP appointments were provided privately. Also, driven by the fact that more and more people are now having private health insurance and GP appointments are included. And, obviously, the key thing with the GP appointments is that a private GP appointment leads to a private, prescription, which, obviously, we can supply privately through our, various platforms. There we go. And looking at the market, we call this the size of the price, and we've sort of divided it into quadrants. We've got physical and digital, private and NHS. So there isn't really a physical private pharmacy market because all NHS, the boobs, all the high street pharmacies will obviously provide private private prescriptions in in on the high street.

16:13 Bottom right is an area that we looked at originally, which is the NHS digital pharmacy market. Big challenge is that a lot of these businesses, they just don't make money. The margins are incredibly constrained by the drug tariff which controlled by NHS England, and also the fact that it's illegal to charge for delivery. So you've got a really tight margin and a cost that you can't recoup from the patient. Where we want to play is the top right. It's the profitable part of the private prescription market and the digital market. There are about two fifty small and medium enterprises in this area. Majority of them are owned, managed and founded by pharmacists. I came from the optical industry, and this is very analogous to where we were about twenty years in the contact lens world. So there are huge opportunities in terms of totally fragmented and real consolidation opportunities in the future for us.

17:15 So we have, a diversified platform built for growth. Basically, if you go back to sort of last March, we had three businesses. We had a veterinary business, we had a a a clinical business, and we had a pharmacy business. We now have a single platform, which means that that really we can now work towards our plan, which is having a sort of a a diversified pharmacy solution. Within those, we're actually across the major areas that we're very interested in. We're interested in b to b, we're interested in b to c, we're interested in prescribing, we're interested in dispensing, and we're also we've got human and animal. So molecule CloudRx is the original CloudRx, so it's a registered digital end to end prescription platform, but also provides all the fulfillment.

18:04 Key with this, part of the business is that we're integrated with the practice management systems used by the clinicians, to prescribe to their patients. So we're integrated with 80% of those across The UK. We have about 1,500 individual prescribers and clinical groups operating through that part of business. Molecule Clinic is different. It's a b to c business where we both prescribe and distribute a lot of weight loss and a lot of lifestyle business through a consumer facing online consulting platform. An additional piece that we've got now is Molekule Pharmacy where we're going to add OTC products and we're going to increasingly widen the range. And the real beauty of those is that it's extra products supplied to our clinical customers, but also as a cross sell to the patients that come through the Molekule CloudRx platform as well. And then the final part is Molekule Veterinary, which again is a b to c entity and it deals particularly in animal medication.

19:10 Big opportunity in Molecule Veterinary is that we're going to leverage the Cloud Rx API and while there are practice management systems for clinicians in the human world, there are also vet management systems. And recent changes in, the CMA results around around how vets market and charge their owners of their of their patients, we're going to really lean into that and provide a good solution. So there's a big b to b opportunity within the veterinary space as well. But the key thing is that we're now one brand, one business with all these different pillars channels to reach our end users. In terms of growing the business forward, we again, we're looking at the different areas. So in terms of the b to b part of the business, we've added our sales team.

20:01 Sales team, again, will operate both in the human and the veterinary. They are doing a number of things. One is that they're adding individual prescribers, but also we'll get involved in sort of strategic discussions with very large private providers of clinical services across The UK. So there are some really significant opportunities to transform that side of the business. Across the b to c part, we have, you know, we've now got a single brand, so it means that our digital marketing is much more focused and much more organized. And we, as I've said, with the pharmacy partners, this opportunity to move into cross sell products. And the bit that I'm very excited about as the operations guy is that we are moving into our new distribution center. We have a centralized ERP, centralized customer service platform, and a web platform. So ultimately, we have that opportunity to increase supply chain, add products deeper and wider, and also extend our opening hours and just provide a much better service to our our patients and customers across the business. And the last piece is around data. We're obsessed with data. We we care deeply about retentive data. Basically, the important thing about this is that it's a retentive business. If we provide a fabulous service, then what happens is people order from us again and again and again, and also you have that opportunity to cross sell and upsell and add other products. So we're obsessed with service and we're obsessed with data.

21:32 Very quick operational, review in terms of where we got to. Ultimately, we are pretty close in terms of integrating all the the businesses. And as Michael said, we're now on the single brand. ERP, we are shooting for completion by the end of the year. Our ERP will cover everything from finance, supply chain, order fulfillment, analytics, business intelligence, so we'll have one source of data and one source of the truth. And we have also really increased the sales and marketing both in b to c and b to b. Our new warehouse is 22,000 square feet in Leeds. It's on track to be fully operational by early December. We've got some nice pictures in the following slide. But also, we've really built out the senior leadership team.

22:21 We've appointed our from a clinical point of view, but also from a customer service and from a supply chain point of view. So really what we're doing is we're professionalized the entire operational organization, professionalized how we how we interact with our customers and patients and just provide a much better service. And the key thing is that one single entity, one warehouse, one ERP and one of everything, so we're no longer a mini conglomerate as it were. And last slide for me. So this 22,000 square feet, we're adding an extra about seven or 8,000 square feet in terms of mezzanine to house offices, clinical, finance, supply chain, and various other parts.

23:06 We'll also have our own controlled drug safe safe secure area and all the various other elements of a highly functional warehouse. So very excited about that. So a new warehouse, new ERP, and ready to go before the end of the year. And I'll just pass it back to Michael. Thanks, Brendan. So looking forward, we've got a very active plan to grow the businesses we've acquired organically. Now we've got the integrated brand. We've launched today a new molecule clinic, clinic.molecule.co.uk, which will be the replacement to the WebMed website that we acquired in March. We are currently running the two in parallel.

23:55 WebMed sorry, Molecule Clinic was launched with weight loss and erectile dysfunction treatments this morning. We are transferring the remaining four or five treatments that WebMed also delivers to the molecule clinic platform over the next few weeks, and then the WebMed business will be entirely integrated into that clinic. That clinic will give us the opportunity to compete much more effectively in the weight loss space, where the WebMed offering was non optimal, I would say, to grow that business. The clinic platform is effectively state of the art in terms of its prescribing flow, its questionnaires, and so on and so forth. So we're very excited about being able to effectively turn the dial on that and tune into the right level of growth versus profitability.

24:49 We've launched today a brand new pillar to our business, Molecule Pharmacy, where we're offering an over the counter range to patients, mainly as a cross sell offering. There is, as we briefly mentioned, a real opportunity to cross sell other products to the CloudRX clinical patients that that pay us for their drugs. Later this year, we'll be offering them other products alongside paying for the prescribed medication based on the OTC range that we've launched today. And our veterinary business is also being completely rebranded under the Molecule brand as Molecule Veterinary, and we have got a great opportunity in the other direction, where there we do not have any b to b competitors offering the fulfillment of veterinary prescriptions in the way that CloudRx does, and we are extending the CloudRx API into the veterinary market, and we see a very big opportunity for that.

25:49 So this structuring and the the branding allows us to really enhance the the cross sell capability to build a brand across multiple digital marketing channels, and we're very, very excited about the organic development that we have for what we've built so far. The outlook is very, very strong. This year has been a year of investment. We've had a huge amount of work rebranding the businesses, closing warehouses down, we're moving them all into our single leads facility that Brendan showed you. We've made over 30 people, given them notice of redundancy, We've tupped them across. There's been a huge amount of integration work. The ERP system is well advanced and will be live by the launch of the new distribution center.

26:44 So we have created or in the process of creating a really strong platform from which we can grow. The PLC will be renamed very shortly, hopefully in the next couple of days, and there'll be a new investors website reflecting the new name. We'll have one brand, one platform, one ERP system, one distribution center, which will be a great base from which we can both grow strongly organically, but also absorb further acquisitions in a much easier, cheaper, and quicker way than we have through the current year of of significant transition. So that's basically it.

27:32 And, I think now we open the room, to the q and a. That's great. Thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab situated on the top right hand corner of your screen. Just while the company take a few moments to review those questions submitted today, I'd like to remind you the recording of this presentation along with a copy of the slides and the published q and a can be accessed via investor dashboard. We have received number of questions throughout today's presentation. If I may just start off with the first question here, which reads as follows. Given cash position of 5,700,000, would further acquisitions be acquired using debt to minimize dilution, or is the primary intention now organic growth of the three founding businesses? Shall I take that? Yes, please, please. I mean, clearly, 5,700,000 doesn't allow us to do substantial, acquisitions.

28:26 Certainly, debt would be part of, any likely funding going forward. I think it probably is equally fair to say that, small acquisitions tend to take as much effort as larger ones. So there we will we would be unlikely to do something small enough to be funded out of existing cash and a relatively modest amount of debt. So I would see more more likely scenario being that we would, do something slightly larger, which would require slightly different funding. But, certainly, I think debt in a in a cash generative business is a is a sensible way of, at least partly funding the business. That's great. Just turning to the next question here. Similar listed company, MPAL, appears to be experienced rapid growth by focusing on a GLP one. Is there a reason this approach isn't the centric part of molecule, perhaps due to low margin?

29:18 Yes. Absolutely due to low margin. So so that particular firm is being very, very aggressive. There is a price comparison site in The UK called Monge. They are number one in Monge. They are the cheapest in the market. We know the cost price of these products. They're losing over £40 an order of products that are sold on that. And so they are going for growth, but not sure how advisable that is. You have to have deep pockets to participate in that market, and it's predicated on the assumption that you will make money on subsequent orders. We know from our experience with some of our b to b, weight loss clinical partners, that that's easier said than done, that people that achieve those sort of sales through price comparison tend to have customers that aren't necessarily that loyal, and as you try and increase their prices, it may go back into the market and go to some other provider. So it's a little bit of a dangerous game they're playing.

30:21 Weight loss has not been a a strong focus of our b to c business, mainly because the web web platform has not really been amenable to it. It is fair to say that the molecule clinic business will participate in weight loss more somewhat more aggressively than we have thus far, but not to the extent of MedPal. It's it's basically now we have got a platform that is is fit for purpose. We effectively have a dial that we can turn comparing, you know, managing aggressive aggressiveness with with actual volume, and we will optimize that dial so we just get the right balance. So, yes, there'll be more of it, but not to the extent of of the the the firm you you referred to. That's great. Just turning to the next question.

31:08 How has trading been after period end, July, August, and September? Do you want us to speak to that, Keith, or shall I? No. No. You're far away. Okay. So trading has been very, very good in certain sectors, particularly our our b to b business on the the the patient pay, what we call patient pay, that we did make an announcement a couple of months ago that we actually turned off some revenue for weight loss clinics that were invoice pay where they were collecting the money. They had their own websites and wanted to collect the money. They were collecting the money from the patients, so we were simply fulfilling the orders. That that created an exposure to us. We knew that they were losing money on those first orders, so they had to actually delve into their own resources to make payment to us for the stock.

32:02 And we actually reduced revenue by by turning those off. We have had a very, very strong growth in the much more healthy patient pay model, where we are collecting money from their patients, which is the model that we're going to promote going forward, And that is effectively we've approached 30% organic growth in that sector, and that effectively was able to backfill the business that we turned off. So although we've not shown and won't shown for the third quarter overall strong growth. Because we have effectively turned off a big chunk of money, we have actually strongly grown to backfill with alternative, much more profitable revenue. On the b to c side, we really were waiting for the new rebranding before pushing strong growth. We have appointed brand new marketing agencies on both the clinic and the veterinary and the pharmacy business, and are launching this week new marketing programs for those under a unified marketing program.

33:06 The one brand, much more emphasis on social channels, much more emphasis on a AI generated results optimization and so on. So the organic growth of the b to c business will follow, but we're now confident with the new brand and the new platform that we will be moving into a strong growth for the b to c side as well. That's great. Just moving on here. Very exciting plan for the way forward, and good luck with all the integrations. Just touching base on the shareholder register and the very small retail free free float of about 16% when all the disclosed institutions are accounted for. Does the company have any plans to promote the company amongst retail or indeed new institutions? Shall I take that? Yes, please. Absolutely. I think we needed to launch the company by raising 40,000,000. That was back in in March, so, clearly, that was all institutional.

33:59 I think we do have an interesting retail proposition. We currently, the only, research we have in terms of, analyst notes is Canaccord, which is not publicly available. We are about we are going we have commissioned Edison, which is paid research, and they will initiate next week at some point. And that will be research that will will be available to all investors, including retail. And I think this is all part of that process. I think we had to get the business off the ground, but I do think we we have an interesting retail offering. And, absolutely, we would like to drive growth in the retail side of these things. I've done this for a long time on AIM since 2002. Absolutely, institutional investors are important, but, equally, there are times when they sort of all go quiet between results, and you do need some retail volume. Otherwise, the the danger is the share price can drift. So, you know, we do see this as part of a balanced approach, and and retail will will now become part of our focus now that we've got these results out of way, we've initiated some more coverage.

35:03 That's great. And just the, final question we have here. Can you provide guidance for '27 for sales? Will Molecule show net profit next year? I can't provide guidance, but, I I think I can say that Canaccord's guidance for next year is about 44,000,000 of revenue, EBITDA positive. As I say, when Edison publish, next week, there will be more publicly available numbers. So I'm a little reluctant to share the Canaccord ones purely because they're their own they go to their own investors. But, yes, I think the business we expect the business to be EBITDA positive, cash flow generative, and growing next year. That's great. Thank you for answering those questions you can for investors. And, of course, the company can review all questions submitted today, and we'll publish those responses on the investor meet company platform.

35:56 Just before redirecting investors to provide you with their feedback, which is particularly important to the company, Michael, could I please just ask you for a few closing comments? Sure. So thanks everybody for joining us today. We've we've talked about a lot of things, and I think I would really encourage you all to to visit our new website. If you go to molecule.co.uk, that will be the window into all the businesses we've described, the clinic, the pharmacy, the veterinary business, but actually, there's also a link to the prescriber website, which is a website targeted towards the clinical partners that we have and are aiming to have. So I think it'd be really good for you to do that. You get a very good understanding, a tangible look at what we're planning to do.

36:42 This is just the start. Very excited that we've launched it today on a strong brand, but this platform is really only the beginning. It is the platform from which we can do proper quality state of the art marketing, analyze and understand our customers, and what we've got planned for the rest of the year in terms of the logistics, the distribution center, the ERP. I'm very confident that we will have an absolutely world class platform covering both the the market facing brand and and websites, but also the behind the scenes plumbing that will deliver world class service. So thank you very much for joining us again. That's great. Thanks for updating investors today. Can I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations?

37:35 This will only take a few moments to complete, and I'm sure be greatly valued by the company. On behalf of the management team, we'd like to thank you for attending today's presentation, and good morning to you all. Thank you. Thank