Cambridge Nutritional Sciences (LSE:CNSL) — Interim Results

0:00 Good afternoon, and welcome to the Cambridge Research and Sciences PLC interim results investor presentation. Throughout this quarter presentation, investors will be in listen only mode. Questions are encouraged, and they can be submitted at any time using the q and a tab situated in the right corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives in the meeting itself. However, the company can review all the 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 James Cooper, CEO. Good afternoon to you, sir.

0:33 Good afternoon, everyone, and welcome to the Cambridge Intrational Sciences interim results presentation for the six months ended September 2024. I'd like to start this presentation by introducing our new nonexecutive chair of the board, Carolyn Rand, who was appointed chair on the twenty second of April this year. I'll just pass over to her for a brief introduction. Good afternoon. It's really nice to speak to you all. I'm a professional non exec director. I sit on a number of PLC boards in technology and science. And joining the board was a real positive choice for me. CAMBRIDGE NUTRITIONAL SCIENCES has some strong diagnostic products in the personalized health and well-being space, which is a growing global market as more people become aware of the importance of gut health and general well-being.

1:24 Our initial focus has been on improving operations and margins. And our focus is now shifting towards developing our sales and marketing and the capabilities of our future development. And I'm gonna as you can see, we're joined by James, our interim CEO, who'll take us through the presentation, and I'd like to let him introduce himself. Great. Thanks. So for those of you who are new to the company or were unable to join the last investor me company presentation, please let me introduce myself. My name is James Cooper. I joined CNS almost a year ago as operations director. I spent the first few months of the year working directly with the team to improve production before joining the board as COO. And then at this point, I widened my remit beyond production.

2:12 In August, I took on the role of interim CEO, and I've been working hard with the board to continue further improvements across the business. I graduated from the University of Cambridge with a master's in material sciences and then spent nearly ten years working for an operations consultant.

2:28 This is where I led projects delivering step changes in the operational efficiencies of manufacturing companies across a wide range of industries. Since joining CNS, I found these skills and experiences have really helped me to work with the team and deliver improvements across a wide range of areas.

2:49 I'm gonna start the presentation by going through three key highlights that I'd like you to take away from this presentation. I'll go into each in more detail across the following slides. First up, strong foundations. As you may have seen from the results this morning, we remain a well capitalized business with a strong balance sheet. Our cash reserves have improved since this time last year, and thanks to an improved gross margin, we have confidence that they remain strong. Our improvement in adjusted EBITDA reflects our improvement not just within production, but also with our optimization of the company cost base, which has led to a promising trend of increasing profitability.

3:35 Secondly, investment in our team to deliver growth. Our optimization includes the expansion of the sales and marketing teams, a key lever in our ability to drive the growth of the company. This has included new team members in geographies such as The US and Southern Europe, markets where we know there is a big opportunity. We believe that by having dedicated individuals focused on these areas, we will be able to grow our presence there. We've also brought on new team members in our more established areas, including a new global sales director and The UK, UK business development manager to help take advantage of the growing markets we're already in.

4:20 And finally, a strategy focused on the future. To support and enable the business to grow, we are investing in new business systems. This is vital both from a compliance and efficiency point perspective. This is alongside self funded CapEx, new equipment, which will form a key part of our development over the coming months and years. We also know that our team form an important part of our future, and we're increasing our focus on upskilling the team in technical and soft skills. Taking a step back now and for the benefit of those who are new to the company, I'll now give a brief introduction as to who we are.

5:06 CNS or rather Cambridge Nutritional Sciences is a UK based company focused on promoting a personalized and functional approach to health and nutrition. We have four primary brands that help us in that goal. Our food print product is a lab based ELISA test using microarray technology. And with just a few drops of blood, it's able to analyze the IgG antibody response to over 200 foods. Food detective is our point of care test, which can be used by professionals to generate results in just forty minutes. This is the ability to analyze a response to 59 commonly consumed foods. The My Health Tracker is our innovative app, which not only delivers results direct to the patient, but also facilitates symptom tracking to allow patients and practitioner to better manage gut health conditions.

6:01 Finally, the CNSLab is our UK lab, which offers food sensitivity testing on our food print test to The UK market. Once someone orders a test online, they'll receive a sample collection pack through the post, and all they have to do is follow a few simple steps, and they will have their results in a matter of days. If they do have any further follow-up questions, our nutritionists are on hand to offer advice. We are a well established brand in the food sensitive market with over thirty years of experience in the industry. We have a truly global presence with our UK and Indian offices dealing with customers in over 75 countries around the world, and we are trusted by over 170 labs worldwide.

6:53 As a business, our key aim is to improve the lives of our customers. We believe that there is a lack of data surrounding gut health, and we want to help fill that void by enabling practitioners and patients to take the guesswork out of diet planning and make faster data driven health decisions. This is enabled through our range of market leading products, which have all been designed with the goal of maximizing clinical utility and delivering insightful data that will make a real difference to a patient's life. Our offering, however, does not just extend to the products and services that we sell. We are proud of our educational materials and resources that help improve the general understanding of gut health in the market as well as ensuring that everyone gets the most out of their test result.

7:45 We deliver this program through a range of channels to maximize our exposure to the market with webinars, regular blog posts, social media content, and in person events, just to give a few examples. All of this is underpinned by our experienced team who work hard to deliver the best products and results guided by our core values.

8:10 Their work over the past six months has helped deliver some strong results that they can be really proud of. The CNSLab and food detective revenues have remained strong through the first half of the year and continue to serve as a reliable revenue stream for the business. The Foodprint h one sales were a bit softer than expected as some customers reduced their stock holdings in one off reductions. This is partially due to the increase in our ability to deliver on time and in full to customers at a good quality, which means they are no longer having to hold extra stock just in case we miss a delivery. The comparison with h one or f y twenty four is also skewed to due to the abnormal backlog of orders shipped in the first half of last year. So whilst there was a decrease in comparison to FY twenty four, we are well ahead of FY '23.

9:08 The gross margin in h one was the highest that we've seen in recent years and demonstrates that the improvements we are making operations are resulting in a real financial benefit for the company. Combined with the optimization of the company's cost base, this has flowed through to our adjusted EBITDA figure, which is positive for h one, the first time in the past five years. Cash and cash equivalents have also improved since this time last year, and that is inclusive of a 300 k, CapEx investment in new equipment for the future. Looking forward to h two and the full year results, we expect revenues to strengthen as customers work through their stock levels and resume a normal order pass.

9:57 In addition, the impact of the expanded sales team should also begin to be felt in the latter stages of h two, delivering strong ends to the financial year. The gross margin in h one was slightly ahead of the market forecast, and we hope to maintain this position as we move through h two. This will be enabled by the ongoing work of the operations team to continue improving our yields and efficiencies. Our adjusted EBITDA is also in a strong position at the end of h one, and we're looking to build on that in h two. With the ongoing optimization of the cost base, we anticipate that we will achieve the full year market forecast for adjusted EBITDA and hope to outperform last year.

10:44 I'll now touch upon some of the operational highlights that have enabled these results. Firstly, we've carried out some operational streamlining and restructuring of the teams to help reduce the cost of goods. This has not only helped reduce the cost, but it's also increased the cross training and skills of many of the team. This puts us in a better position to support any area of the business in the event of surprises, such as sudden peak sudden peaks in demand or unexpected absences. And the graph you can see on the screen there shows that cost base decrease. Secondly, the work that was started in q one of f y twenty four has been continued by the team, and we've seen food print yields continue to increase over h one as you can see in that graph.

11:37 This is a testament to the hard work of the team who keep on finding new ways to improve the yield and reduce the number of lost lines in the department. The CNSLab has been a standout performer within operations. And following a productivity improvement project at the start of the year that nearly doubled the productivity, we have seen levels be maintained at or above the target. This has enabled them to hit monthly records in August and September despite the reduction in our promised turnaround times. We've also invested in new equipment such as a flow wrapper, temperature monitoring system, and electronic quality management system.

12:26 These have all helped to increase our productivity. In particular, the flow wrapper pictured here has led to direct productivity gains in the production of food detective. We've also invested in new technology that the development team are using to prepare the business for the future.

12:46 As part of the operational streamlining that I earlier mentioned, we identified the need for effective supervision and leadership within some areas of production. We've successfully recruited a number of new team members to take on these roles in the supervisor and operational leadership spaces. This is also at the side benefit of improving the development of these teams as they have a supervisor focused on them and their area. Finally, the team have been working on improving the visibility and traceability of kits within production. Combined with the increased production capacity, this has meant that we were able to deliver all food print shipments, which represent over 75% of h one goods on time and in full to our customers, demonstrating to them that we are a reliable and trustworthy partner for the future.

13:43 Turning to the future, we believe that the outlook for CNS is very positive. We remain part of a growing market, and it is up to us to take full advantage of this going forwards. We are doing this by expanding our sales and marketing team through investment in people to increase increase our penetration in existing markets. Additionally, we've brought on new members to expand our reach in new and underexplored markets. We know that the sales cycle in this area is not a fast one. However, we've taken the first steps and already see encouraging signs that lead us to believe that this investment will begin to pay back in the latter stages of h '2 and into the next financial year.

14:31 We've also increased our focus on how the company is presented in the market and are investing in the marketing team to bring in more talent and resource to improve our reach and increase our awareness to customers in the market. One of the recurring points of feedback that we hear that people are not aware of the use of IgG testing and the clinical utility that we can offer. It is therefore increasingly important to continue and expand our education as we move into new areas. The team are also working with practitioners and listening to their feedback, which led to the creation of a series of resources focused on how to build a thriving practice. This takes a more holistic view of what is required and how foodprint and food detective can help form a part of being a successful practice.

15:27 Sales, marketing, education will all help to increase our footprint in the market, but we need to make sure that we have the people and systems to support this growth. We are continuing to assess, prioritize, and improve the systems required to deliver high quality products on time and in thought. We've already upgraded our quality management system, which is now being used for core functionality within just a few months, and we are now looking to deliver the next phase of improvement, which will deliver benefits outside the quality assurance team. Other systems within the business are continuing to be prioritized and upgraded accordingly, And these will deliver further efficiencies and prepare the business for growth in the future.

16:18 Outside of the systems, we're also training up our team internally to grow our skills in house, helping develop our team, and reduce our need for external support. This includes everything from internal audit training to first aid training to line management. Returning now to our key highlights. We believe that we've got a really strong business built on good foundations in an exciting sector. Our strong foundations built on our cash reserves have improved since our cash that have improved since this time last year. And thanks to that improved gross margin you've seen, we have a confidence they're going to remain strong. The improvements in the adjusted EBITDA reflects that the improvements are going beyond production and that the optimization of the company cost base has really taken effect and is leading to a promising trend of increased profitability.

17:18 We're investing in our team to deliver growth, which includes that expansion of the sales and marketing team, which we really view as the key lever in our ability to drive the growth of the company in existing and new markets.

17:34 We've also brought on new team members, including a new global sales director and The UK BTM, which is really gonna make sure that we are strongly established in those markets that we're already in. Strategy, focus on the future. So to support and enable the business to grow, we're investing in these new systems. As I said, it's vital from both compliance and an efficiency perspective, and that's this is alongside self funded CapEx in new equipment, which will form a key part of our development over the coming months and years. We also know that the team form an important part of our future, so we want to increase our focus on upskilling the team in technical and soft skills.

18:26 That concludes the formal part of the presentation. Thank you for taking the time to listen and learn about the Cambridge And Traditional Sciences. Perfect. Thank you very much for the presentation. What I'll do now is I'll just bring your cameras up for the q and a. Ladies and gentlemen, please do continue to submit your questions just using the q and a tab, which is situated on the top right hand corner of your screen. Just while the company take a few moments through the questions that have been submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. As you can see, we have received questions throughout today's presentation. And if I could hand back to you to read out the questions where appropriate to do so, I'll pick up from you both at the end. There's there's quite a few questions here, so we'll we'll work on a couple and a couple and then asking the same question.

19:13 So I'll let you answer the one on the DHSC. So with regards to DHSC, we are proactively chasing them now to engage with us on this. Unfortunately, at this point, there's no further changes I can report, but we are taking a very active role in this side of things. Can you just fold down that one? A couple of people are asking about even though that we've made great progress in our performance, why is the company valued as it is? Well, clearly, we agree that the company is undervalued. But I always feel at the end of the day, if we carry on doing the right thing, which is, you know, if you you lift the lid, it's a it's a really shiny engine in that car now we have. It's and we carry on growing and we invest in the sales and marketing and doing the right things, eventually that value will appear.

20:12 And as we know, the the market doesn't always sometimes lags behind what we're doing. So we're just gonna carry on doing what we're doing now, making the company stronger and working on the sales and marketing. And, hopefully, the market will notice that and, the value of the business will grow. But, sadly, I I can't control it, on a one to one basis, but, hopefully, you can. There are another couple of questions here which are talking about, how we promote ourselves both with shareholders and to the market equally to potential customers on, I think it was a social media platforms and areas like that. We are aware, and it was mentioned at the annual results, that this is an area where we believe we can do more.

20:59 And to address that, we have restructured that marketing team, and we are in the process of bringing in someone new as a director role to help us improve and be better at that going forwards. We've got a question here about confidence in the second half sales revenue. So with regards to the performance in H 1, if we compare H 1 of FY twenty four, we know we had that large backlog, which boosted the h one numbers substantially. We've also seen the result delivering the high quality product exactly when the customer needs it.

21:44 They've reduced their stock holdings in a one off action. So even despite this, we've managed to produce a very good adjusted EBITDA for the H one period, and we believe that the revenues in H two will be stronger because these were one off events that took place. Sorry. We're just quickly scrolling through the rest of the questions. The My Health Tracker app, this was developed in conjunction with a partner, and so it's a it's a bit of a joint venture. So I won't go into too more further details on that side of things, but that's something which we're confident that we have suitable control over.

22:57 There's a question here about the competitive landscape, and do we have a significant USP versus competition? Well, I think one of our key things is that we are one of, if not the gold standard in of tests in this area. And this is something which we don't feel we shout about enough at the moment. So it's something that's gonna be a key objective of the new, marketing role, is to make sure that we are representing ourselves, as the best product in the market because that is one of the USPs alongside the program of education that we offer, which no other competitors, offer the marketplace. And that's beneficial both for the end user and for the practitioners or the distributors that we're working with.

23:44 Thanks very much. I see some more questions that are through, but we'll get back to all of them as they flow through. I know we can't manage all of the questions in the time slot we have. But thank you very much. I hope you've enjoyed the presentation. James, Caroline, thank you very much for updating investors today. Could I please ask investors not to close the session? I should now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will then take a few moments to complete, but some should be greatly valued by the company. On behalf of the management team of CAMBRIDGE NUTRITIONAL SCIENCES PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.