7 December 2022

MOONPIG GROUP PLC

HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 31 OCTOBER 2022

Resilient business model with high profitability and robust cash generation

Summary H1 FY23 financial results

1   Before adjusting items of £9.8m in H1 FY23 and £5.4m in H1 FY22. See Adjusting Items at Note 3 and definition of Alternative Performance Measures at Note 20.

2   Earnings per share not disclosed for periods arising prior to the Group's formation because of the pre-IPO reorganisation in February 2021.

3  Three-year growth included to contextualise the impact of Covid-19 in H1 FY22.

Results summary

·      Successfully navigating a challenging trading environment and Royal Mail industrial action in the UK.

·      Revenue growth of 115.4% on a three-year basis against pre-Covid comparatives for H1 FY20.

·      Revenue flat year-on-year reflecting annualisation against the prior year sales impact from lockdown restrictions, offset in part by first-time consolidation of £11.7m revenue from Experiences (Red Letter Days and Buyagift).

·      Adjusted EBITDA more than doubled on a three-year basis and was flat year-on-year at £34.6m (H1 FY22: £35.0m).

·      Adjusted Profit before Taxation of £18.9m (H1 FY22: £24.1m), reflecting interest on financing for the Experiences acquisition and amortisation of the technology platform investments that underpin our expectations for future growth.

Strategic and operational highlights

Resilience in more challenging conditions:

·      Loyal customer cohorts, with 90% of Moonpig and Greetz revenue from existing customers (H1 FY22: 89%).

·      Underpinned by the Group's proprietary data and AI capabilities, with over 79m occasion reminders (October 2021: over 60m) set by our customers.

·      The greeting cards market has a long track record of stability and resilience through recession.

·      Short buying cycles and structurally low inventory of £12.6m (October 2021: £12.0m) allow us to rapidly adapt the gifting range for changes in consumer preferences.

·      Experiences revenue growth in H1 and through the Black Friday weekend has been in line with our expectations at acquisition.

High profitability:

·      Gross margin rate has increased year-on-year, driven by category optimisation.

·      No significant impact on gross margin rate from input cost inflation.

·      The flexibility in our model has enabled us to maintain Adjusted EBITDA whilst continuing to deliver against strategy.

·      We have taken a disciplined approach to indirect cost management in the light of trading conditions.

Borrowings controlled with deleveraging expected in H2:

·      Net debt to last twelve months' pro forma Adjusted EBITDA was 2.45x as at 31 October 2022, with significant liquidity on the balance sheet.

·      Most of the annual operating cash inflow typically arises in the second half of the financial year due to working capital seasonality. We expect pro forma net leverage to decrease to between approximately 1.9x and 2.0x at 30 April 2023.

·      Senior debt facilities are committed until January 2026 with significant covenant headroom.

Continued delivery against our growth strategy:

·      Greetz was successfully migrated onto our unified technology platform in September 2022.

·      Most of our software engineers are now focused on delivering growth initiatives, enabling a step-up in the pace at which we are rolling out incremental improvements to our websites and apps.

·      Management team at the Experiences segment strengthened by new leadership for the technology function.

·      Continued focus on innovation, including testing the Moonpig Plus subscription service ahead of launch, the roll-out of video greeting cards across the Moonpig card design range and ongoing work to build digital gift experiences capability.

·      Moonpig "Moments for Less" gift range introduced to meet increased consumer demand for gifting at lower price points.

·      New in-house facilities at Tamworth in the UK and Almere in the Netherlands are now fully operational.

Significant runway for growth:

·      Online penetration for greeting cards remains low, estimated at approximately 16% in the UK and 20% in the Netherlands for 2022 (source: OC&C).

·      Significant opportunity to drive card-attached gifting, with fewer than one in five of orders across Moonpig and Greetz currently containing a gift.

·      Overall value of customer spending on gifting in the UK, the Netherlands and the Republic of Ireland is £57 billion, of which £22 billion relates to gifts that are sent with a card (source: OC&C).

·      Acquisition of Experiences in July 2022 is an enabler for unlocking innovation through digital gifting.

Outlook

Unchanged expectations for full year Adjusted EBITDA in FY23:

·      Trading conditions have become progressively more challenging through October and November, and given the continued macroeconomic uncertainty, we now expect revenue for FY23 to be approximately £320 million.

·      The actions that we have taken in response to the current environment mean that our expectations for full year Adjusted EBITDA remain unchanged.

·      The business is highly cash generative on an annual basis, and we expect deleveraging in the second half of the financial year such that the ratio of net debt to pro forma Adjusted EBITDA is between approximately 1.9x and 2.0x at 30 April 2023.

·      We remain confident in the structural growth opportunity in our markets, as well as the fundamental strength, resilience and agility of our business.

Nickyl Raithatha, CEO, commented:

"As the clear online leader in greetings cards, Moonpig Group is positioned to benefit as the market continues the long-term structural shift to online.

Our resilient business model offers a powerful and unique combination of leading market positions, strong customer retention, high profitability and robust cash generation, giving us flexibility to manage through the economic cycle. As a result, our expectations for profit for the current financial year remain unchanged.

We remain focused on delivering against our strategy, with the successful migration of Greetz onto our central technology platform and innovations such as the launch of video greeting cards and ongoing testing of our Moonpig Plus subscription service. Despite the difficult trading environment, we have delivered a robust set of results and with our data-led model we are ideally positioned to capture the significant long term opportunities in our markets."

Investor and analyst meeting

The half year results presentation will be available on the Investor Relations section of Moonpig Group's corporate website (www.moonpig.group/investors) shortly after 7:00am on 7 December 2022.

Nickyl Raithatha (CEO) and Andy MacKinnon (CFO) will host a Q&A for analysts and investors via webcast at 9:30am. Please note that the presentation will not be repeated during the webcast. Analysts wishing to register for the event should email investors@moonpig.com. Investors wishing to join the Q&A should register via the following link: https://www.lsegissuerservices.com/spark/MoonpigGroup/events/f811b7b7-afb7-4670-8c51-f6de8eaec8ed

Enquiries:

Brunswick Group                                                                                               +44 20 7404 5959

Sarah West, Fiona Micallef-Eynaud, Sofie Brewis                                              moonpig@brunswickgroup.com

Moonpig Group                                                                                                   investors@moonpig.com

Nickyl Raithatha, Chief Executive Officer

Andy MacKinnon, Chief Financial Officer

About Moonpig Group:

Moonpig Group plc (the "Group") is a leading online greeting cards and gifting platform, comprising the Moonpig, Red Letter Days and Buyagift brands in the UK and the Greetz brand in the Netherlands. The Group is the online market leader in cards in both of its markets and is also the UK market leader in gift experiences.

The Group's leading customer proposition includes an extensive range of cards, a curated range of gifts, personalisation features and next day delivery offering.

The Group offers its products through its proprietary technology platforms and apps, which utilise unique data science capabilities designed by the Group to optimise and personalise the customer experience and provide scalability. Learn more at https://www.moonpig.group/.

Forward Looking Statements:

This announcement contains certain forward-looking statements with respect to the financial condition, results or operation and businesses of Moonpig Group plc. Such statements and forecasts by their nature involve risks and uncertainty because they relate to future events and circumstances. There are a number of other factors that may cause actual results, performance or achievements, or industry results to be materially different from those projected in the forward-looking statements.

These factors include general economic and business conditions; changes in technology; timing or delay in signing, commencement, implementation and performance of programmes, or the delivery of products or services under them; industry; relationships with customers; competition and ability to attract personnel. You are cautioned not to rely on these forward-looking statements, which speak only as of the date of this announcement. We undertake no obligation to update or revise any forward-looking statements to reflect any change in our expectations or any change in events, conditions or circumstances.

Business review

Overview

The first half of FY23 has been a significant period for the Group, in which we delivered several landmark projects, including the completion of a unified technology platform for Moonpig and Greetz and the transfer of previously outsourced fulfilment activities to new in-house operational facilities. On 13 July 2022, we completed the acquisition of Red Letter Days and Buyagift, welcoming them to the Group as our new Experiences segment.

The trading environment has become more challenging in October and November. However, the work that we have done to build Moonpig Group's powerful business model, the inherent characteristics of the greeting card market and the continued dedication and efforts of all our people across the UK, Guernsey and the Netherlands, mean that we are well placed:

·      Our strategy and business model equip us with resilience in more challenging conditions. Our approach at Moonpig and Greetz is focused on acquiring loyal customer cohorts that drive recurring annual revenue and 90% of revenue at these brands was generated from existing customers (H1 FY22: 89%). The long-term "sticky" nature of these customer cohorts is supported by our data and technology platform, including a database of over 79m reminders (October 2021: over 60m) which enables us to communicate directly with customers at times of maximum purchase intent. More generally, the greeting cards market has a long track record of recession-resilience.

·      Our expectations for year-on-year growth in FY23 Adjusted EBITDA remain unchanged. We have prioritised resources (for instance marketing investment that would otherwise have been deployed on raising awareness of our gifting proposition) towards cards, where profitability is highest. Gross margin rate has improved year-on-year, reflecting management action to improve intake margin, the category mix impact of prioritising resources towards higher-margin cards, the use of our personalised promotions engine to target discounts more precisely and the impact of the acquisition of Experiences. We have taken a disciplined approach to the management of indirect costs in view of trading conditions.

·      The Group is cash generative. Net debt to pro forma Adjusted EBITDA was 2.45x at 31 October 2022. Most of the operating cash inflow arises in the second half of the financial year due to working capital seasonality, and we expect to deleverage such that net debt to pro forma Adjusted EBITDA is between approximately 1.9x and 2.0x at 30 April 2023.

The growth opportunity for the Group remains vast. Online penetration of the single greeting cards market remains low at approximately 16% in the UK and 20% in the Netherlands for 2022 (source: OC&C). As the clear leader in the online segment in both the UK and the Netherlands, we are ideally placed to benefit as we drive the market to transition from offline to online. We also now own the UK's largest gift experiences platform, which provides opportunities to unlock innovation through digital gifting and has equipped us with a profitable presence in the standalone gifting market. With several big foundational projects now completed, our teams are focusing on growth initiatives, including innovations under trial such as the Moonpig Plus subscription service and digital gifting, or initiatives in the process of roll-out such as video greeting cards.

The flexibility of our business model has enabled us to maintain profitability whilst continuing to deliver against our three strategic pillars, namely leveraging data and technology to make the gifting experience effortless, building our brands so receiving our product always means more and ensuring the perfect range of cards and gifts for every occasion.

Leveraging data and technology

In 2018, we commenced a multi-year journey to transform Moonpig and Greetz into technology and data-led businesses. We successfully delivered this in September 2022 with the completion of a unified technology platform.

For Greetz, this means that we are now able to leverage the Group's investment in technology and data to progressively increase customer retention, customer purchase frequency and gift attachment rates. As one example, Greetz now has native iOS and Android apps for the first time, enabling us to start the process of gradually migrating customers from the website to the apps to drive improvements in purchase frequency (in much the same way as we have done at Moonpig over the last two years).

After four years of work on foundational projects, the majority of our skilled data scientists, analysts and engineers are now focused on accelerating the development of growth initiatives that can be leveraged across both of our card-first brands. The pace of technology development has risen, with recent new features and functionality including:

·      Improvements to "upcoming occasions" on personalised customer landing pages.

·      Extension of personalised promotions to different stages throughout the online customer journey.

·      Collage designer, which automatically arranges up to ten photographs into suggested card designs.

·      Improvements in website functionality for greeting card multi-buy ahead of Christmas.

·      Personalisation of My Account, with logic-based recommended next actions to aid customer self-service.

·      Emails sent to customers following browse abandonment which are tailored based on their activity across the website.

Alongside continuous iteration, testing and improvement on the Moonpig and Greetz platform, we are making good progress on product innovation. Ongoing testing of the Moonpig Plus subscription service ahead of launch indicates positive revenue incrementality. We commenced the launch of video greeting cards in November with planned rollout across our range during 2023, introducing another competitive advantage versus the market. We are also making good progress ahead of the launch of digital gift experiences on Moonpig, which should enable recipients to view their gift through a code inside their card.

At our new Experiences segment, we have strengthened the technology function with the transfer of a small number of senior leaders from the Moonpig technology team. This is the start of a multi-year strategic plan to transform Experiences from being an ecommerce marketing operator into a technology and data-led platform, with an emphasis on building a growth flywheel based on converting gift experience recipients into future customers.

Building our brands

We have maintained a disciplined approach to marketing, ensuring that the payback period for new customers remains within our framework. In market conditions where fewer consumers are searching online for new goods and services, this has meant a reduction in the mix of revenue from new customers at Moonpig and Greetz. This is consistent with our growth strategy, which focuses on acquiring good quality loyal customer cohorts that deliver lifetime value rather than pursuing the transactional purchase of short-term revenue.

Reminders are one of the most effective ways for Moonpig and Greetz to communicate with their customers. As well as our pre-event notifications, we now send customers a convenient monthly diary of their reminders to ensure our brands are top-of-mind.

At the Experiences segment, we have to date focused on the optimisation of online performance marketing. There should be opportunity in due course to invest in the Red Letter Days and Buyagift brands, which each have heritage stretching back 33 years and 23 years respectively, and to further differentiate their positioning. We have been encouraged by the early sales of Red Letter Days and Buyagift products on the Moonpig website, driven through card-attached gifting, despite the offer launching with only a limited selection of physical SKUs. As we improve the selection of gifts and introduce digital gifting capabilities, we would expect this to grow significantly.

Expanding our range

We aim to have the perfect card and gift for every relationship and every occasion. In the current environment, this has meant responding to customer demand for more affordable gifting. Our commercial model is characterised by low inventory, short lead times for buying and a focus on supplier relationships in our domestic markets, which has enabled us to respond with agility to changes in customer preferences. Accordingly, we have:

·      Launched Moonpig "Moments for Less", a range of additional gifts at price points of between £8 and £15 (together with equivalent products at Greetz).

·      Introduced a new letterbox gifting range at Greetz.

·      Expanded Moonpig's range of balloons, with 78 new designs including numerous designs in the £8 to £14 range.

·      Expanded Moonpig's range of personalised mugs, which we sell for £10 in the UK, with 171 additional designs.

·      Offered value for customers through supplier-funded promotions.

As part of our ongoing technology roadmap, we continue to develop new ways to offer a broad range of gifting price points that drive incremental revenue. For instance, we have introduced the ability for customers to add gifts on the basket page of the website and apps. The centralisation of gift fulfilment within our newly opened facilities at Tamworth in the UK and Almere in the Netherlands should also present opportunities in due course to encourage the adding of multiple gifts to a single card order.

At Experiences, the range, brand and model have clear aspects that build resilience:

·      Almost one quarter of the range retails at a headline price of less than £50. As most of the experiences are for consumption by two people, this equates to pricing for these products at below £25 per head.

·      The Buyagift brand in particular is positioned to deliver further customer value through percentage promotional discounts, for instance at 20% off the headline experience price.

·      For categories such as afternoon tea and casual dining, a gift experience voucher is often cheaper than the menu price. In return for this, suppliers benefit from incremental distribution as they do not otherwise operate in the gifting market.

·      In a downturn, Red Letter Days and Buyagift offer suppliers in categories with higher fixed costs (such as hotels, spas and restaurants) an opportunity for value-led capacity utilisation without impacting prices in their primary distribution channels.

We also continue to develop our offering for customers who want to gift at higher price points, for instance through the launch of Virginia Hayward hampers at Moonpig. Likewise, the Experiences segment has launched new experiences with premium partners such as Harvey Nichols and Macdonald Spa Hotels, as well as Merlin Entertainments (allowing customers to gift tickets to 16 popular UK attractions including Alton Towers, the London Eye and Legoland) and City Cruises.

We have further grown our greeting card range, with over 45,000 designs available on our Global Design Platform (October 2021: 33,000), with a particular focus on expanding our range of licensed designs. For instance, we have launched Disney designs on Greetz; in partnership with Hasbro, we have introduced designs for Peppa Pig, Transformers, Guess Who and Monopoly; we have introduced a new Japanese anime range; and we expanded our football range ahead of the World Cup.

Maintaining high ethical, environmental and sustainability standards

We continue to execute against our ESG strategy, which commits the Group to eight long-term goals focused on the environment, its people and its communities.

Our new operational facilities at Tamworth and Almere are of a high environmental standard, with the UK facility rated as "BREEAM Excellent" and the Netherlands facility retrofitted in line with best practice. Across our businesses, we are working to measure greenhouse gas emissions in our wider value chain and set a Scope 3 reduction target for the next financial year.

One of our ESG goals is for new hires into technical roles (comprising those in technology security, engineering, product and analytics) to be at least 45% from women by 2025. For the six months ended 31 October 2022, 46% of new hires into these technical roles were women (H1 FY22: 46%).

At Moonpig and Greetz, we have extended maternity and paternity cover, increasing paid leave by four weeks in each case, and have introduced new policies to support employees through pregnancy, menopause and baby loss.

We continue to work to ensure that our card design range represents all of our customers and have launched designs that show sign language and wheelchair use, together with sentiment cards for difficult occasions such as baby loss and IVF treatment.

We are committed to ensuring our technology is usable and understandable for all users. Following the migration of Greetz onto our unified technology platform, our website and apps at both brands are accessible to a wide range of people with disabilities.

Financial review

Overview

The Group's financial model equips it with resilience in more challenging conditions. The greeting card market is characterised by low sensitivity to changes in GDP, the Group's revenue is underpinned by loyal cohorts of existing customers, profit margins are high, inventory levels are low with short buying cycles and the Group has strong annual operating cash conversion.

We have successfully navigated progressively more challenging trading conditions through October and November, across all segments of the Group, and we are operating the business on the basis that this environment will continue in the near term. Cards revenue and existing customer revenue have both grown year-on-year on an underlying basis (after taking into account the prior year impact of Covid on sales). Experiences has performed in line with our expectations at the time of acquisition. However, levels of new customer acquisition have decreased year-on-year and we have seen consumers trading down to lower gifting price points at Moonpig and Greetz. UK card-only orders have also been impacted by industrial action at Royal Mail during September and October.

The flexibility of our business model has enabled us to maintain profitability:

·      We are able to shift resources between categories and events, for instance reflected in our recent prioritisation of resources towards higher-margin cards, and the focusing of marketing activity ahead of peak trading events.

·      We can change the gifting range and mix at short notice, reflected for instance in Moonpig's recent launch of "Moments for Less" gifts at price points of between £8 and £15 and Greetz's launch of a range of letterbox gifts starting at €8.

·      We have a degree of discretion in pricing strategy, for instance we have changed cards pricing and have flexed the focus of promotional activity from strategic objectives (such as incentivising customer migration to our apps) to payback objectives (such as "3 for 2" offers).

·      We have a flexible cost base. We have reduced our total marketing budget and are managing indirect costs to reflect the current uncertain environment.

Hence, whilst full year FY23 revenue is now expected to be approximately £320 million (remaining above expectations at the time of the IPO, including on an organic basis), our expectations for absolute FY23 Adjusted EBITDA remain unchanged.

The Group is cash generative by virtue of its business model. We expect to deleverage in the second half of the financial year such that the ratio of net debt to last twelve months' pro forma Adjusted EBITDA is between approximately 1.9x and 2.0x at 30 April 2023. The Group's senior facilities are committed until January 2026. There is significant headroom against financial covenant thresholds. We have hedged floating rate exposure to movements in SONIA for interest on broadly three quarters of our current expected future senior debt (net of cash) until 30 November 2024.

Financial performance - Group

1   Before adjusting items of £9.8m in H1 FY23 and £5.4m in H1 FY22. See Adjusting Items at Note 3 and definition of Alternative Performance Measures at Note 20.

2   Earnings per share not disclosed for periods arising prior to the Group's formation because of the pre-IPO reorganisation in February 2021.

3  Net debt is defined as total borrowings, inclusive of lease liabilities, less cash and cash equivalents.

4  Three-year growth included to contextualise the impact of Covid-19 in H1 FY22.

The Group delivered revenue of £142.8m in the first half of FY23, representing three-year growth of 115.4% against pre-Covid comparatives for H1 FY20. Revenue was flat year-on-year, reflecting annualisation against the prior year impact on sales from lockdown restrictions, offset in part by the initial consolidation of £11.7m revenue from Experiences from 13 July 2022 onwards.

Trading at Moonpig and Greetz reflected the more challenging conditions seen from October onward and was also impacted in the UK by industrial action at Royal Mail during September and October, which affected last-minute card-only orders around each strike day.

Trading at Experiences has been resilient, in line with our expectations at the time of acquisition. Stated on a pro forma basis (as if the segment had been controlled by the Group in each relevant period), Experiences revenue for the six months ended 31 October 2022 was £18.0m (H1 FY22: £15.1m). This represents growth of 30.9% on a three-year basis against pre-Covid comparative revenue of £13.7m in H1 FY20.

Gross margin rate has increased year-on-year reflecting management action to improve intake margin, the category mix impact of prioritising resources towards higher-margin cards, AI-powered personalisation of promotions and the impact of the acquisition of the Experiences segment.

Adjusted EBITDA was £34.6m (H1 FY22: £35.0m), with an Adjusted EBITDA margin rate of 24.2% (H1 FY22: 24.5%). Reported profit before taxation was £9.1m (H1 FY22: £18.7m) with the year-on-year decrease impacted by an increase in finance costs, one-off transaction costs related to the acquisition of Experiences, an increase in amortisation (reflecting the full year impact of investment in technology development which underpins our future growth) and the commencement of depreciation of fit-out costs and the right-of-use assets relating to the Group's new leasehold operational facilities.

Orders and Average Order Value ("AOV")

Group revenue was flat year-on-year (growth of +0.1%) reflecting annualisation against the prior year impact on sales from lockdown restrictions, offset in part by the initial consolidation of Experiences from 13 July 2022 onwards.

Moonpig and Greetz revenue decreased year-on-year by 8.1%, reflecting:

·      A decrease in total orders of 13.3%, driven by annualisation against periods of Covid-related lockdown restrictions. Order volumes were also impacted to some extent by disruption to the UK regulated postal service because of industrial action at Royal Mail during September and October 2022.

·      Strong growth in Average Order Value at 6.0% year-on-year, reflecting card price increases and more targeted use of promotional discounting, offset in part by lower average selling prices on gifting as customers have traded down to cheaper price points in the current economic climate.

The year-on-year revenue trend was stronger at Moonpig than at Greetz, consistent with previous periods. Moonpig's revenue performance has been supported by sustained investment in technology over the last four years. Greetz was successfully migrated onto our unified technology platform during September 2022. The year-on-year impact of foreign exchange rate translation upon Greetz revenue was not significant, as on average across the six month period, the Euro appreciated by only 0.2% versus Sterling.

Three-year revenue growth for Moonpig and Greetz combined was 97.7% against revenue of £66.3m in H1 FY20. For the full year, it will be more challenging to contextualise revenue against FY20, as the second half of that year was impacted by Covid-related lockdown restrictions in March and April 2020, however the preceding year provides a benchmark. For Moonpig and Greetz, combined revenue (stated pro forma as if Greetz had been controlled throughout the relevant period) was £131.6m in FY19 (of which H1 accounted for £57.5m or 43.7% of the total).

The Group's consolidated results include £11.7m of Experiences revenue for the period following acquisition on 13 July 2022. The equivalent figure for the full six months ended 31 October 2022 was £18.0m (H1 FY22: £15.1m), which represents growth of 30.9% on a three-year basis against pre-Covid comparative revenue of £13.7m in H1 FY20.

Gifting mix of revenue

For Moonpig and Greetz, total gifting mix of revenue was 43.0% (H1 FY22: 47.5%). Cards revenue benefited from price changes in the UK, whilst gifting revenue was adversely impacted by consumers trading down to lower price points in both the UK and the Netherlands. Our inventory-light model enables us to flex our offering at short notice and we have reacted to changing demand patterns by strengthening the gifting range at lower price points.

Gross margin rate

Gross margin rate strengthened year-on-year at Moonpig reflecting management action to improve intake margin, the category mix impact of prioritising resources towards higher-margin cards and the use of our personalised promotions engine to target discounts. The year-on-year trend in gross margin rate at Greetz reflects atypically low intensity of promotional activity in H1 FY22.

Across the Group, we have continued to see no significant adverse gross margin impact from input cost inflation.

The relatively high Experiences gross margin rate reflects the nature of revenue recognised at this segment, which comprises agency commission earned from partners for the distribution of experiences, rather than the gross transaction value. Cost of goods at the Experiences segment relates primarily to packaging and distribution for the proportion of orders for which the consumer elects to pay for a physical gift box rather than digital delivery.

Adjusted EBITDA margin

Group Adjusted EBITDA Margin rate was 24.2%, in line with the same period of the prior year (H1 FY22: 24.5%). Outside of periods impacted by Covid, Adjusted EBITDA margin in the first half of each year is typically lower than the annual average rate, reflecting seasonally lower revenues together with the impact of operational leverage.

Alternative Performance Measures

The Group has identified certain Alternative Performance Measures ("APMs") that it believes provide additional useful information on the performance of the Group. These APMs are not defined within IFRS and are not considered to be a substitute for, or superior to, IFRS measures. These APMs may not be necessarily comparable to similarly titled measures used by other companies.

Directors and management use these APMs alongside IFRS measures when budgeting and planning and when reviewing business performance. Executive management bonus targets include an Adjusted EBITDA measure and long-term incentive plans include an Adjusted Basic Pre-Tax Earnings Per Share ("EPS") measure.

^{1 See Adjusting Items at Note 3 and definition of Alternative Performance Measures below and at Note 20.}

Adjustment has been made for the one-off compensation arrangements granted prior to IPO and described in the Prospectus as the Legacy Items and the All-Employee IPO Awards (together "Legacy Incentives"). These Legacy Incentives comprise a combination of cash and share-based payments and those that have not yet vested and will vest across each of the subsequent financial years ending 30 April 2023 and 2024. The combined cost of these arrangements was £5.4m in the first half of FY23, with full year costs expected to be approximately £10m in FY23, approximately £3m in FY24 and nil thereafter. The Group believes that it is appropriate to treat these costs as an adjusting item as they relate to a one-off award, designed and implemented whilst the Group was under private equity ownership (and are reasonably typical of that market and appropriate in that context).

Share-based payment charges of £1.3m in H1 FY23 which arose because of the operation of the Group's post-Admission Remuneration Policy are not treated as adjusting items and the cost is not deducted from the calculation of the APMs.

M&A-related transaction costs of £4.4m arising in H1 FY23 comprise advisers' fees, stamp duty and other costs directly relating to the acquisition of the Experiences segment. These are additional to the £0.9m of such costs recognised in the second half of FY22. No further fees are expected to be incurred in connection with this acquisition.

The definitions for the adjusted measures in the table are as follows:

·      Adjusted PAT is profit after taxation, before Legacy Incentive costs and M&A related transaction costs.

·      Adjusted PBT is profit before taxation, Legacy Incentive costs and M&A related transaction costs.

·      Adjusted PBT margin is Adjusted PBT divided by total revenue.

·      Adjusted EBIT is profit before taxation, interest, Legacy Incentive costs and M&A related transaction costs.

·      Adjusted EBIT margin is Adjusted EBIT divided by total revenue.

·      Adjusted EBITDA is profit before taxation, interest, depreciation, amortisation, Legacy Incentive costs and M&A related transaction costs.

·      Adjusted EBITDA margin is Adjusted EBITDA divided by total revenue.

Depreciation and amortisation

Depreciation and amortisation increased to £9.8m (H1 FY22: £6.0m), reflecting the decision taken last financial year to expand levels of technology investment, together with the fit out of new operational facilities in the UK and the Netherlands and the acquisition of the Experiences segment. Depreciation and amortisation within the Experiences segment includes amortisation of acquired intangible assets.

Our expectation for full-year FY23 depreciation and amortisation (excluding the amortisation of acquired intangibles arising on business combination with Experiences) remains unchanged at between approximately £17m and £19m for Moonpig and Greetz, together with up to £2m for Experiences.

Further to the purchase price allocation exercise performed following the acquisition of Experiences, we expect the amortisation of intangible assets arising on business combination with this segment to be approximately £5m in FY23 and £6m on an annualised basis thereafter.

Finance costs

Finance costs were £5.8m (H1 FY22: £4.9m) with the year-on-year increase driven by additional senior debt drawn down in July to finance the acquisition of the Experiences segment, increases in the SONIA reference rate, the cost of interest rate hedging and deemed interest on new leases relating to warehouses in Tamworth, UK and Almere, Netherlands.

Finance costs for the full financial year are expected to be between £14m to £15m.

On 1 August 2022, the Group hedged its floating rate exposure to the SONIA element of interest on broadly three quarters of its current expected senior debt (net of gross cash), based on the future borrowing profile expected by management. The hedge comprises: (1) an interest rate swap at a rate of 2.4725% with a floor strike rate of 0% on £90m notional until 1 December 2022 and £55m notional until the term expires on 30 November 2023; and (2) an interest rate cap with a cap strike rate of 3.0000% on £70m notional with a term that expires on 30 November 2024.

Taxation

The charge was £3.3m (H1 FY22: £3.4m), which represents an effective taxation rate of 35.9% (H1 FY22: 18.0%). This exceeded the prevailing rates of corporation tax of 19.0% in the UK and 25.8% in the Netherlands, primarily a result of the non-deductible nature of the M&A-related transaction costs relating to the acquisition of the Experiences segment and to the Legacy Incentives. Expressed as a percentage of Adjusted Profit Before Taxation, the effective tax rate was 22.8% (H1 FY22: 15.3%).

For the full financial year, the effective taxation rate is expected to be approximately 24%. The rate will reflect the increase of the UK statutory rate of corporation tax to 25.0% from 1 April 2023 onwards.

Profit before taxation ("PBT") and Earnings Per Share ("EPS")

Group PBT was £9.1m (H1 FY22: £18.7m), with the decrease driven by an increase in finance costs, the transaction costs related to the acquisition of the Experiences segment and an increase in depreciation and amortisation reflecting the full year impact of investment in technology development, the commencement of depreciation of fit-out costs and the right-of-use assets relating to the Group's new leasehold operational facilities.

Basic EPS for H1 FY23 was 1.7p (H1 FY22: 4.5p) based on the weighted average number of ordinary shares outstanding during the period of 342,111,621 less 3,075,329 shares subject to potential repurchase. After accounting for the effect of employee share arrangements, diluted earnings per share was 1.7p (H1 FY22: 4.4p).

Adjusted basic EPS, which is stated before Adjusting Items (as set under APMs) was 4.3p (H1 FY22: 6.0p).

Cash flow

Cash (used in)/generated from operating activities was (£4.2m) (H1 FY22: £14.6m):

·      There was a cash outflow in the period of £1.1m (H1 FY22: £2.8m inflow), due to a temporary increase in stock from the opening of our new operations facilities. Inventory acquired upon business combination with the Experiences segment was £1.4m. Total inventory at 31 October 2022 was £12.6m (October 2021: £12.0m).

·      There was a trade and other payables working capital outflow in the period of £30.8m (H1 FY22: £21.8m). The outflow derived from Moonpig and Greetz was £10.2m (compared to the £21.8m outflow in H1 FY22, which was driven by annualisation against periods of Covid-related lockdown restrictions). The remaining outflow of £20.6m (H1 FY22: £nil) is driven by a reduction in Experiences trade and other payables since acquisition, reflecting the one-off settlement of legacy incentive obligations of £13.2m associated with the acquisition, which were fully provided for in the opening balance sheet, and movement in the merchant accrual during the period.

The merchant accrual balance acquired upon business combination with the Experiences segment was £61.2m. A payables balance is recognised when a gift experience is sold to a consumer, to reflect the expected future liability to the merchant; this balance is settled through the remittance of cash to the merchant following redemption of the voucher by the recipient.

The acquisition of Experiences (comprising the legal entity Experience More Limited) was completed on 13 July 2022 for net consideration of £88.6m, comprising gross cash consideration paid of £124.3m net of cash balances acquired of £35.7m. There was no deferred element to the purchase consideration. M&A transaction costs of £0.9m in FY22 and £4.4m in H1 FY23 are recognised as Adjusting Items.

Capital expenditure increased year-on-year to £14.2m (H1 FY22: £4.1m) reflecting one-off tangible capex to expand our operations footprint and higher intangible capex resulting from an increase in the size of the technology organisation that is intended to remain in place in future periods. Our expectations for full-year FY23 capital expenditure remain unchanged and are as follows:

·      Intangible capital expenditure at Moonpig and Greetz is expected to be between approximately £13m and £15m in FY23. We took a decision last financial year to step-increase levels of technology investment and we intend intangible capital expenditure to be at or above the FY23 level in future years. Following completion of the unified technology platform for Moonpig and Greetz in September 2022, most of our software engineers are now focused on the development of technology growth initiatives to be deployed across both brands.

·      Tangible capital expenditure at Moonpig and Greetz is expected to be between approximately £11m and £13m because of expenditure incurred on the fit-out of new operations facilities in Tamworth in the UK and Almere in the Netherlands. From FY24, annual tangible capital expenditure is expected to reduce to below £2m. These figures exclude the initial recognition of IFRS 16 right-of-use assets in respect of the Tamworth facility in FY22 and in respect of the Almere facility in H1 FY23.

·      Combined intangible and tangible capital expenditure at Experiences is expected to be approximately £2m.

Adjusted Operating Cash Conversion

The Group is cash generative on an annual basis, with cash inflows strongly weighted into the second half of each financial year. This is reflected in Adjusted Operating Cash Conversion of 3% (H1 FY22: 38%). Adjusted Operating Cash Conversion for the Group excluding Experiences was 30% (H1 FY22: 38%). Cash outflows at Experiences reflect payments to merchants made in the ordinary course, with voucher redemptions by recipients seasonally exceeding new voucher sales to customers in the period.

1 Reflecting the non-cash share-based payment charge recognised within Adjusted EBITDA, net of NI on the share-based payments recognised below EBITDA.

2 Working capital movements for the six months ended 31 October 2022 have been adjusted for the opening balances arising upon acquisition of Experiences.

3 Operating cash flow excludes settlement of legacy incentive obligations associated with the acquisition, which were fully provided for in the opening balance sheet.  

Adjusted Operating Cash Conversion is a non-GAAP measure and is defined as operating cash flow divided by Adjusted EBITDA, expressed as a ratio. Adjusted Operating Cash Conversion informs management and investors about the cash operating cycle of the business and how efficiently operating profit is converted into cash.

Capital structure

When we announced the acquisition of Experiences, we stated that we expected Group net debt to last twelve months' pro forma Adjusted EBITDA to peak at approximately 2.8x at 31 October 2022. The actual ratio at this date was 2.45x and we expect it to decrease until it is between approximately 1.9x and 2.0x at 30 April 2023, driven by operating cash flows.

Net debt is a non-GAAP measure and is defined as total borrowings, inclusive of lease liabilities, less cash and cash equivalents. Group net debt as at 31 October 2022 was £208.8m (October 2021: £113.0m). The year-on-year increase in net debt reflects financing for the acquisition of Experiences, together with additional leases taken out in respect of new operational facilities at Tamworth in the UK and Almere in the Netherlands.

The Group's senior facilities of £255.0m comprise a Term Loan of £175.0m with a bullet repayment profile, an original revolving credit facility ("Original RCF") of £20.0m and an additional RCF ("Additional RCF") of £60.0m. Arrangement fees capitalised on the balance sheet as at 31 October 2022 were £5.2m (October 2021: £5.6m).

These senior facilities are committed until 6 January 2026. They are subject to a single covenant of total net debt to last twelve months' Adjusted EBITDA of 4.00x until 30 April 2023 and 3.50x thereafter, which is tested on a semi-annual basis. The senior facilities agreement specifies that for covenant purposes, Adjusted EBITDA is measured on a pro forma basis, including the pre-acquisition profits of the Experiences segment. As the Senior Facilities Agreement was put in place under a previous ownership structure, the definition of Adjusted EBITDA for covenant purposes includes several favourable add-backs that are more typical of an acquisition finance facility, for instance to include the anticipated pro forma impact of any planned cost reduction actions, and to exclude recurring share based expenses that are not treated by the Group as an Adjusting Item for reporting purposes.

Our short-term priority is deleveraging. Our medium-term capital allocation priorities are unchanged. Our priority remains organic investment to drive growth, and we continue to invest in technology and data, in our brands and in our operational capabilities. Our policy is not to pay dividends, which remains under review and may be revised from time to time.

Outlook

Trading conditions have become progressively more challenging through October and November, and given the continued macroeconomic uncertainty, we now expect revenue for FY23 to be approximately £320 million. The actions that we have taken in response to the current environment mean that our expectations for full year absolute Adjusted EBITDA remain unchanged.

The business is highly cash generative on an annual basis, and we expect deleveraging in the second half of the financial year such that the ratio of net debt to pro forma Adjusted EBITDA is between approximately 1.9x and 2.0x at 30 April 2023.

We remain confident in the structural growth opportunity in our markets, as well as the fundamental strength, resilience and agility of our business.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors confirm that these Condensed Consolidated Interim Financial Statements have been prepared in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

·      an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·      material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

On behalf of the Board

Nickyl Raithatha                                Andy MacKinnon

Chief Executive Officer                     Chief Financial Officer

6 December 2022                             6 December 2022