Earnings Call: H1 2022

Oct 7, 2021

Good morning, everybody, and welcome to the call. As Tamsin said, I've got here today myself, Julia Lavington, Ali Hall, co CEO and Steve Dilks, chief financial officer. As with the previous trading update, we're going to do a short summary of the update, followed by a Q and A session ending at 9:30. Our house broker, Singer Capital Markets, has published a research note on us today that is accessible through ResearchTree. For your knowledge, Cigna's analysts forecast for the full year 2022, that's ending March next year, have remained at a revenue of £24,400,000 and an EBITDA loss of £1,200,000 So let me start with a quick summary before we take your questions. We're really delighted to report a very strong period for the company with enhanced sales delivered across our entire product range, leading to revenue increase of 184% against the same 6 month period in the prior year and a continued improvement in EBITDA. The strong performance was driven by a very rapid sell through of stock across both our own site and third party websites. We've seen great results across a wide variety of product categories, including knitwear, dresses, leather, coats and denim. Whilst we're seeing demand shift significantly towards office wear and party wear once again, we've retained a more equitable mix across all our product segments compared to pre pandemic, increasing our resilience against any market changes and enhancing appealing choice for all our consumers. Early autumn sales have been particularly strong as demand for going out and workwear has dramatically increased, with September being a record month for revenue, both overall and with our 3rd party partners. Sequins and Christmas jumpers are already bestsellers. I think it's important that we also address the country wide supply chain disruption, which has been widely reported in the press. We've not experienced any material impact and we've maintained a constant flow of stock to meet our customer demand. We're well stocked for the autumn and we've got good future visibility. As we continue to scale and as we've increased our order quantities, we've been able to benefit from margin growth, which has offset a small degree of upwards pressure experienced on supply chain costs. But we do, of course, appreciate the scale of the issue and remain very mindful, taking prudent action to constantly review the situation and take mitigating actions as appropriate. Now I'll pass over to Steve, who will pick out some of the highlights on the financial side. Thanks, Julie, and good morning. 1st and foremost, as Julie mentioned, we are absolutely delighted to report revenue of $12,200,000 for the first half, representing a 184% increase against the same period in the prior year and more than was generated in the entirety of FY 2021. This strong performance together with our increasingly efficient operations has resulted in an improvement in EBITDA, taking us another step forward in our journey towards profitability. Our conversion rate increased to 3.91% from 2.58% in the same period last year, and our gross margin was up to 56.5%, reflecting a higher proportion of full price sales compared to the prior year, which was impacted by actions taken as a consequence of COVID-nineteen. We also saw a continued improvement in our active customer base, which is up 41% since March and also in our repeat buyer order frequency, which is up 14% in the first half, driven by our increased product range. The company has a strong cash position with net cash of $7,300,000 This reflects the execution of the plan outlined following the fundraise that we did in May 2021 to increase inventory in order to meet growing demand from all customers, including our 3rd parties. On that note, I'll pass back to Julie for a quick overview of our current outlook. Thank you, Steve. So it gives us great pleasure to say that despite external pressures with a strong first half and a record start to autumn trading, the outlook for SESAMDA is very positive and we expect results for the full year to be in line with market expectations. So over to you now and we'll be happy to take any questions. Thank you. And we have a question here saying, have you considered a QR code in the catalogue? It is something we have discussed, yes. It's something that mine and Ali's background, as everyone knows, is print media and it was something that was trialed quite a lot when we were working in magazines. Our experience of QR codes on print is that there isn't great uptake of it, to be honest, because it's just much easier to pick up your phone and go and Google Susanda and go straight to Susanda and also very easy to find the individual product. So we haven't done it yet, but obviously, it was something that would remain on the radar if we thought that it would be beneficial. Thank you. And have you started deploying any of the funds raised yet? Yes, we have. So as planned, we did the raise in May 2021 with the plan to increase stock landing for the autumn and winter season of the current year. And the plan has been executed in line with what we envisaged. So we are currently landing more stock now for both our own sites and our third parties. Thank you. And are you generating any export sales? Today, no, we're not. However, international expansion is very much on our radar. There's a massive opportunity in the UK and we've only scratched the surface really in terms of our demographic and the opportunity that exists. But international does continue to be an opportunity and one which we will take very seriously at the appropriate time. Thank you. And given the analyst forecast for half 2 are effectively only the same as half 1, are you not being conservative in maintaining an in line forecast given the Christmas period is your busiest? It is right to acknowledge that at this moment in time, we are taking a prudent and cautious approach, being mindful that we are only 7 days into the second half of the year as we talk today. And we have only just started to deploy the funds from the fundraise as part from September. We are also mindful that there are external challenges. And whilst we're presenting an incredibly strong and positive update today, we also do remain mindful for the second half at this moment in time. Thank you. And how much of the cash reduction is related to stock increases, I. E, are you trading broadly cash flow flat ex inventory increases? The majority of the reduction in cash to $7,300,000 is sat within inventory as completely in line with the plan that we had. At the moment, yes, we're trading successfully from a cash generation perspective, and the majority is sat in stock ready to execute into autumn and winter. Thank you. And are the 3rd party sales now a significant portion of the total? And how much additional stock do you expect to put in compared to the average you held in half one? So as we sit here currently, 3rd party sales are 20% of our revenue as reported today for the first half, so they are a material part of our business. But by far our own website is still the dominant part. The 3rd parties are performing incredibly well. When we did the fundraise, the purpose of the fundraise was to raise additional working capital in order to increase the stock going into the 3rd parties, which we have started to do from September. Broadly, we've doubled the stock going into 3rd parties versus where we were in the summer. Thank you. And when do you expect to have an EBITDA profit as you're continuing to have a loss? As reported today, we've seen an improvement in our EBITDA in the first half of the year. At the moment, of course, the financials will go to our auditor ahead of doing the final interim release later and likely to be early in December. With regards to when we will likely start to see EBITDA positive, I think I would probably refer you to the Singers guidance note that Julie mentioned earlier that's available on Research Tree. Their guidance has EBITDA profitable for FY23 at the current time. Thank you. And what's the ambition with repeat buyer frequency? Where do you think it could get to? I think, 1st and foremost, it it would be right to say that we're delighted with all elements of customer engagement, not only repeat buyer frequency, but also the growth in our active customer database, which grew by 41% in the first half alone, which is really, really pleasing. In terms of growth, as we continue to expand the product range, we will expect to see improvement further in the level of engagement stats in terms of all parts of our customer database, including our repeat purchase percentage and the frequency of their purchase per annum. So overall, though, we're really pleased where we are today. We've made great strides as presented. And we do see that as we continue to grow and expand that those stats will improve further. Thank you very much. And congratulations on the first half performance. Now you're buying much bigger quantities, are you getting better pricing and also better payment purchase price of the purchase price of product and that, as we mentioned earlier, is helping to offset the small degree of upwards pressure that we've seen on supply chain costs. So we're moving in a very, very positive direction as we increase the buy amounts on certain products and obviously the 3rd parties are helping with that because the products that are going into 3rd parties, we're also able to increase even further the buy on those specific items. Thank you. The payment terms? Yes, we do start to see improvements. I think it's fuller than that though. Payment terms, quantity increases and also the opportunity to engage with more and more diverse range of suppliers as well. So as you grow, you get access to much greater opportunity, not only in payment terms, but in a wider spectrum of benefit as well, all of which will enable us to improve margins as we move forward. Thank you. And are you targeting any other third party websites in addition to John Lewis, Next and M and S? At the moment, we're delighted with the performance, 1st and foremost, with 3 of the premier retailers in the UK. Yes, there is opportunity with additional partners, and we are constantly reviewing who and when those opportunities may go live. I think it's worth recognizing though that we still only have a relatively small proportion of our overall range with the existing third parties. So there's still significant growth potential, which is why we did the raise in May. But there is definitely opportunity for additional partners. And we mentioned earlier, there's also opportunity away from the U. K. As well, which we constantly review and look at opportunities for growth there in addition. Thank you. And can you give us some more color on the TV campaign you alluded to at the AGM? So our TV campaign, we do a new TV campaign every month, so it's a new creative every month. We're not on TV every single month but we are on TV most months. It's a very cost effective way of shooting the TV ad because we shoot it at the same time that we shoot all our stills. So it's shot on a single handheld camera, edited very quickly, turned around and is literally on TV within a matter of days. And what we're seeing with the TV is we are very careful in terms of the programs that we use, the slots, the channels that we use. What we've seen is since we've been advertising on TV now for nearly 2 years and we've been able to really use the data driven learnings that we've built up over that 2 year period to drive the absolute best return on investment for the marketing money that we're spending on TV. So it means that we're able to spend quite a small amount yet get really, really good results from the TV campaign. So what we see is the moment the TV ad airs, we see huge spike in traffic coming to the site. People then sign up to the email database and we're then able to use that email database to market to via email or via brochures and convert those people and it's proved a very, very cost effective and reliable way of recruiting high quality customers in conjunction with the brochures and the emails that we do and also social media. Thank you. And in terms of additional stock into 3rd parties, is it more breadth of range offered or depth to prevent fragmentation? It's actually both. So we have increased the breadth and the choice in the same way that we've increased the choice on our own site over the last 2 years, really increasing the product ranges that we've both gone into and the categories themselves. So it's both breadth but it is also depth because we were finding out we were selling out very quickly our product that was in 3rd parties. So yes, it's both. Thank you. And that's the end of questions. Julie, do you have any closing remarks? Just to say thank you really all for joining us this morning and we look forward to updating you again at the time of our half year results announcement, which will be in December.