Welcome back, everyone, to Vox Markets. My name is Paul Hill. I'm delighted again to be able to speak to CEO Jerry Randall of Venture Life, a leading consumer healthcare products firm. So welcome, Jerry.
Thanks, Paul. Nice to see you again.
Yeah, well, big congrats on today's, in-line-
Thank you
... 2023 results, with sales increasing 5.5%-4%, like for like, to GBP 51.4 million, and reiterating sort of a positive outlook for 2024s. Maybe we can start with that sort of top-line growth. What's been behind that, you know, good, solid, you know, single digit, increase in the top line?
Yeah, sure, Paul. I mean, you know, the like for like growth really has come from two places, which has been our distribution gains in the U.K. We've had a lot of good successes getting into more stores, into different locations, and also the NPD that we've built, so the new product development that we've done, getting those new products listed. A lot of that happened at the back end of 2023 as well, so there's good growth coming through on an annualized basis in 2024. Online's been good to us. Amazon still continues to grow very strongly. Internationally, in Ireland, Lyft's done very well, and you know, our Gelclair products done very well internationally as well in 2023. So across a number of brands and across U.K. and international.
I saw most of the split is actually... Well, most of the uplift is coming from your own Venture Life brands. It was about 9% plus, I think, for like for like, and it was sort of, like, just less, I think it was about 1% was in customer brands. Can you take us through that? Because that must also help your sort of, like, your bottom line in terms of, you know, sort of mix and stuff.
Yeah, sure. So the Venture Life brands obviously, you know, give us a better gross margin on the products. And going back to those earlier comments, you know, we've seen growth in Balance Activ. We've done quite a lot of new product development in Balance Activ. We launched a thrush cream during 2023. That's selling really well, and it's continuing to launch in new locations during 2024. Lyft continues to go well. We've got the good new Energy Boost range, which is now starting to roll out in stores. Very happy with that. Earol, the new baby Earol launched back end of last year, that gives us multiple sightings in the stores where it goes. So, you know, across those brands, very happy with how that's rolling out. And as I say, that online presence still continuing to go really well.
And of course, what you see, if you look at the numbers, you know, we had a 17% growth in revenues, you know, actual, so not like for like, but actual reported. We've seen a 14% growth in our gross margin in pound note terms, with costs only up sort of 0.4%. So that's where you've seen that EBITDA number, you know, push up nicely and, and push through, percentage points.
Yeah. I mean, I was looking at the actual margins, and I think you did, according to the numbers, 22.5% on your EBITDA margin, adjusted, compared to 20.5, so up 2%, in this year. How much was that sort of like, you know, pricing, or was it really just volume going through?
It's volume. If you look at the overall 5% increase on a like for like basis, only 1% of that was pricing the rest was volume. So that was, you know, really encouraging. Obviously, on a reported basis, we had the full year impact of Earol, which we only acquired at the back end of last year. But yeah, it's keeping those costs under control, and it's growing those revenues, and that's the operational leverage, you know, continuing to work for us. You know, over the coming years, you'll continue to see that EBITDA margin progress in percentage terms.
Yeah, and I saw, I mean, I don't know what the actual final report is today from Cavendish, but from the previous one, they were sort of projecting sort of like 8% like for like growth for this year, and a margin of roughly around about 24%, expected EBITDA margin. Is that sort of directionally how the business is currently tracking in Q1?
Yeah. So this year, you know, particularly in the U.K., you know, comfortably ahead of last year, doing really well. The international business is more lumpy, so it depends on the timing of orders, so but, you know, it's where we expect it to be by this time of the year. And what we have sort of flagged up, of course, is we're gonna be investing more in new product development, and marketing, and to build the brands. That's really important, 'cause the environment's very competitive at the moment, so we have to invest a bit more. But what you'll see also from Cavendish is you'll see that they're rolling our forecast out now to 2026.
So we're gonna be investing quite a lot in 2024. And that will, you know, that will slightly depress the profitability in 2024, but you'll get the return on that in 2025 and 2026, that additional investment. So we're gonna be increasing our investment in the U.K. brands as a potential percentage of revenues, almost doubling it in 2024 compared with 2023. And the Cavendish update will reflect that, but you'll see the growth that comes through from that, and the return on that investment in 2025 and 2026.
Great. Yeah, look forward to seeing some of those new products hit the shelves. Can you just take us through also the strategic rationale of sort of like, you know, expanding that private label? Because obviously you have your own brands, that's Venture Life. You have customer brands, that's the actual brand owners, third parties, and now you're introducing a third section, which is retailer-owned brands. So the likes of Boots, I guess, you're gonna be, y ou just take us through the logic to of having those sort of three streams?
Yeah. So we already do some of that business in effect. We've reported it within our Venture Life brands, 'cause it's our products at the end of the day. So a couple of million GBP in 2023. But the interesting part about private label, if you look at the European landscape, as a third of, particularly in the U.K., a third of consumer health products are private label, so U.K. and Europe. So if you look at that, you know, each time you go into somewhere like Boots or other stores, a third of those consumer health consumer products, excuse me, are private label. So it's a really big area. If you look at the States, I think it's only 14%, Far East is 5%-6%.
So it's a place where we have to be, and you look at a lot of the big players in this space, like Perrigo and others, you know, who are bigger versions of us, they do, they do this. And what's important is you get a number of benefits from it. So obviously, you increase production volume and, you know, gross leverage. You maximize your internally developed products. You build stronger relationships with the partners. But interestingly, you're still making the same EBITDA type margins as you are with the brands. Cause with our Venture Life brands in the U.K., you get a higher price 'cause they're going to the retailers, but you have to invest in that sales and marketing support.
You have to do promotions and whatever. With the private label, you don't. So you're selling it to the retailer at a lower price, which is better for them. They're able to offer it to the consumer at a lower price. But because we're not spending on sales and marketing, we're still making the same EBITDA margin. It's really important, though, that you differentiate the products, so we're not just giving them Venture Life brand products. So they may be in the same therapy areas, but they're differentiated. They won't be the same. So you won't be able to say, "Well, that's the Venture Life product," and always a private label product that's exactly the same. So you make sure you differentiate those. We already do sell products under Boots No7 brand.
It's private label. We sell products under the Superdrug private label and in Kroger, so it's something we know very well. And also, within our development facility in Italy, we've got over 1,200 formulations of products we've developed over the years, which is a fantastic base to be able to move and offer private label. So we're seeing really strong interest. We're working with a number of these retailers I've mentioned already in developing new private label products for them in skincare, in women's health, in areas that we're in. But we're also seeing it coming from the wholesale channel and new retailers that we're talking to, not only in the U.K. but across Europe. So we see it as a really strong growth area.
And going back to that original sort of picture, a third of consumer healthcare products in Europe are Private Label, so it has to be a place that we play.
Yeah. Just give me an example of how you differentiate it. So let's just say you have a, I don't know, a cream or something like that as your own brand or a third-party brand. which is important, and how would you differentiate it? Would it be through packaging, or would it be through recipe, or how would you, how would you do it? Size? I don't know.
It can be any of those. So, you know, for example, you know, we could, in certain territories, for example, come up with another skincare product similar to one we make, but you might package it in a different format. You might give a spray instead of a cream. You might give a smaller product. You might make it a multi-pack rather than a single pack. But you don't get the direct read-across. That's the really important thing, and it's something that the retailer themselves know that's their only product, so it might be a particular, you know, flavor in a mouthwash category, for example. It might be a particular, you know, fragrance or a particular size or a particular way of delivering it.
But something that differentiates it, so it's their own product and people can't go and buy it from others, and it's differentiated from the Venture Life brand.
Yeah. And I guess that extra volume then is gonna help you fill the, or increase the utilization of your existing manufacturing facilities. I think you got one in. Is it in Sweden, or is it in... something like, I can't remember exactly where it is.
It's in Sweden, yes. Yes, it is. Yeah, it's just south of Stockholm. So yeah, both Italy and Sweden. And again, you know, you've seen, as I said earlier, sales are margin up, costs not moved, extra profit to the bottom line. So the more volume we put through, it's generating more revenue, generating more pound over gross margin, and that's going through, the same overhead base. So yeah, any more volume you put through those facilities where we have plenty of capacity will drop through essentially to bottom-line profitability.
And then if, in the fullness of time, then how big would you expect this sort of, the private label to be? 'Cause you've got... Was it, the split of currently is roughly around about sort of 40%, which is third-party customer brand. You've got 60% your own, but of which was it GBP 2.4 million is the private label. So private label is, what, roughly around about 5%? Is it something around that sort of level, yeah. So you've got so you've got 55%, 40%, and 5%. Where would you sort of broadly what think that might get to in, say, in three years' time?
Yeah. I mean, bearing in mind that all those areas are growing, you know, so it's not a case of one will be growing and the other's not, you know. But I'd expect that we'd still continue to drive up for our, you know, Venture Life brands to be driving up towards the sort of 60%-70% without any, any problem. Well, I can see private label, you know, doubling in size, you know, every year for the next 2-3 years as we begin to roll it out. So you could be looking at, you know, 10% or 15% of our business in 2-3 years' time. And certainly with everything we have ongoing and the discussions that we're having, I'd, I'd see, deem that to be very realistic.
Good. How will it... just in terms now of the sort of supply chain with input cost pressures, obviously, luckily, the cost of living crisis is reducing, and CPI, thank God has started to fall. How are you seeing that at the coalface in your sort of like, you know, input costs?
Yeah, I mean, we're definitely seeing a tailing off of that inflationary pressure that we see on the input costs. I mean, I wouldn't say we're seeing deflation. I think that's, you know, optimistic on everybody's count, but we're definitely seeing a tailing off for the inflation. So again, we've put... You know, we had to put some more price increases through, you know, into this year, so there'll be an element of price going into, into this year's numbers. But we're certainly seeing going forward, we're not having those same pressures of increases, during 2024 on the cost side that we've seen before. And, and I think we're finding the supply chain becoming a bit easier.
I mean, you know, I noted recently, you know, Panama Canal water levels were low and things like that, and people were worried about that, but we haven't seen any impact on that, as at present. So, absent, and I think we say this every moment, absent those black swans that come along and bite us all in the backside, we don't see, you know, particular issues on the supply chain through 2024.
Yeah. I did actually see on your, on your balance sheet, I think your stock days have come down, haven't they, year on year? Be-
They have, yes.
... because you've obviously got much, much bigger sort of turnover on a sort of slightly increasing inventory, so your stock days must have improved.
Yeah, they have, and I think that's two reasons. I think going back to if we look at coming out of COVID into 2021, particularly into 2022, you remember, we were getting people to order a lot further forward because we needed to order further forward in order to have the supplies. So our forward order book went up, and but consequently, our inventory went up as well. And so we've got much better real-time ordering now. So again, we're ordering inventory tend to be on a sort of, you know, sort of 6-10-week basis rather than having to be a 6-10-month basis as it was a couple of years ago. So it's been that. And also, you know, I think we've just been much more rigorous in cash flow 'cause investors, shareholders want us to get that leverage down as fast as we can.
So again, squeezing our inventory making sure we're being efficient with that brings more cash into the balance sheet.
Yeah, your, your CFO certainly seems to have done a good job improving the margins and generating a lot of cash.
Yeah, no, Danny's done a-
Exactly
... fantastic job.
I did see, I mean, you've got your free cash flow was GBP 8.4 million last year, and now obviously, you're gonna enter 2024, and I did see the Cavendish note saying you're gonna generate roughly or reduce the debt round about sort of GBP 5-6 million again this year, et cetera.
Yes.
Is that a similar sort of level? So if you're doing-
Yes
... I think it's GBP 13.7 million of net debt, so you may be, what, round about sort of like GBP 9 million, GBP 8 million or GBP 9 million next year, something like that? Is that-
Yeah, I'd expect so, yeah. Yeah the cash flow will continue to drive that down. So we're very happy with the cash generation business. We had a, you know, super year, in 2023, but we've got other things going on in 2024 that will improve that. So we're internalizing, starting to internalize the Euro production. You know, that'll start from mid-year, and again, that's gonna give us improvements of marginality, but also reduction in working capital, because we're making it from raw materials rather than buying finished goods. So there's other things that will start to contribute into that cash flow as well.
Yeah. Okay, good. Well, I mean, if that's sort of directionally the correct, then obviously I'll look forward to seeing the you know, the final Cavendish note and stuff. But that would drive a leverage ratio well below one by the end of next year, et cetera. I guess the question then comes back, would the board ever consider paying dividends, or is it... you've got such opportunity and, you know, to invest in inside the business?
Yes, there is. I mean, it's... I'm sure as you'll be aware, when you, you know, talk to people, and you talk to institutions, you talk to retail, there's a thousand different views on, on leverage interest rates and everything. So you've got on the one hand, people wanting to delever, the others wanting a dividend. So yeah, absolutely, we are considering, you know, when we bring a dividend policy, and obviously it's not coming for this year, but it won't be in the two years in the future, but it won't be big, but, you know, delivering is important. I mean, another thing just to bring up, of course, people will be wary that our RCF is due for renewal-
In 2024, but we've renewed that, and, you know, in the RNS, we set the details out, so we've renewed that at better terms, going forward. So that's all, plenty of availability. And I, you know, I'll be championing it a bit to, to use that to, to do M&A, 'cause there's some fantastic opportunities at the moment, but obviously we've got to balance, you know, shareholders', concerns to make sure that we're not over-levered.
Brilliant. Well, that's great, a positive thing. In terms of how... In that RCF, how, what's the sort of timescale? Is it a three-year facility or five-year facility?
Yep, three years. So, we first took it out in the summer of 2021, so it's just renewed 2024. We've taken out the same size facility, so it's not increased or decreased it, but we have negotiated some better terms in that, which is obviously favorable for us. Yeah, I hope very soon I'll be able to use it, yeah.
Brilliant. Okay, well, big congrats again on the positive outlook and the strong results.
Thank you
... for last year. Your teams did a great job reducing, you know, your leverage and improving margins. So, you've hit all the, all the right buttons there. And, just in terms of your AGM, is that gonna be... Usually around about May time, mid-May, mid to late May?
I think it's early June, yes.
Oh, early June. Okay.
So it'll be there, and obviously we'll give a bit of an update at that point. But, yeah, yeah, we're very pleased with 2023. The team's done a brilliant job, you know, across the group. Fantastic, people, really delivered well for us, and, yeah, and doing well in 2024 as well.
Great. Well, thanks for your time again, Jerry, and look forward to touching base for the AGM in June.
Great. Thanks so much, Paul. See you soon. Thanks. Bye-bye.