Announcement PDF H1 FY23 Results Presentation 30 August 2023 11 Disclaimer This presentation contains summary information about Elixinol Wellness Limited (Elixinol Wellness) and its subsidiaries and their activities. The information in this presentation does not purport to be complete. It should be read in conjunction with Elixinol Wellness’ other periodic and continuous disclosure announcements lodged with the Australian Securities Exchange, which are available at www.asx.com.au. The information contained in this presentation is not investment or financial product advice and has been prepared without taking into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, investors should consider the appropriateness of the information having regard to their own investment objectives, financial situation and needs and seek independent professional advice appropriate to their jurisdiction and circumstances. To the maximum extent permitted by law, no responsibility for any loss arising in any way from anyone acting or refraining from acting as a result of this information is accepted by Elixinol Wellness, any of its related bodies corporate or its directors, officers, employees, professional advisers and agents (Related Parties). No representation or warranty, express or implied, is made by any person, including Elixinol Wellness and its Related Parties, as to the fairness, accuracy, completeness or correctness of the information, opinions and conclusions contained in this presentation. An investment in Elixinol Wellness securities is subject to investment and other known and unknown risks, some of which are beyond the control of Elixinol Wellness or its directors. Elixinol Wellness does not guarantee any particular rate of return or the performance of Elixinol Wellness securities. Past performance information given in this presentation is given for illustrative purposes only and should not be relied upon as (and is not) an indication of future performance. This presentation contains certain forward‐looking statements with respect to the financial condition, results of operations and business of Elixinol Wellness and associated entities of Elixinol Wellness and certain plans and objectives of the management of Elixinol Wellness. Forward‐looking statements can be identified by the use of forward‐looking terminology, including, the terms “believes”, “estimates”, “anticipates”, “expects”, “predicts”, “intends”, “plans”, “goals”, “targets”, “aims”, “outlook”, “guidance”, “forecasts”, “may” or “will”, and similar expressions. These forward‐looking statements include all matters that are not historical facts. Such forward‐looking statements involve known and unknown risks, uncertainties and other factors which because of their nature may cause the actual results or performance of Elixinol Wellness to be materially different from the results or performance expressed or implied by such forward‐looking statements. Such forward‐looking statements are based on numerous assumptions regarding Elixinol Wellness’ present and future business strategies and the political, regulatory and economic environment in which Elixinol Wellness will operate in the future, which may not be reasonable, and are not guarantees or predictions of future performance. No representation or warranty is made that any of these statements or forecasts (express or implied) will come to pass or that any forecast result will be achieved. Forward‐looking statements speak only as at the date of this presentation and to the maximum extent permitted by law, Elixinol Wellness and its Related Parties disclaim any obligation or undertaking to release any updates or revisions to information to reflect any change in any of the information contained in this presentation (including, any assumptions or expectations set out in this presentation). All figures in this presentation are A$ unless stated otherwise and all market shares are estimates only. A number of figures, amounts, percentages, estimates, calculations of value and fractions are subject to the effect of rounding. Accordingly, the actual calculations of these figures may differ from figures set out in this presentation. 2 CONTENTS • • • • Vision & Purpose Operational Highlights Financial Highlights H1 FY23 Results Summary • • • • Segment Performance Financial Summary Cash Flow Financial Position • Strategy & Outlook • Summary 33 Hemp Foods Australia (foods, supplements & skincare) Vision To create a healthier everyday life through the power of hemp and plant-based products Ambition Building a global, natural wellness consumer products company Elixinol Americas (digestible & topical products) Purpose Changing lives naturally! 44 Operational Highlights Group wide transformation and restructuring efforts continues to drive profitability and EBITDA improvements. Hemp Foods Australia’s focus on revenue growth and profitability with a complete brand and packaging refresh enabling new distribution and ranging opportunities. Investment focus on AU and US markets with strongest competitive position simplifies our business model and enables the Group to compete more effectively. New product development pipeline expected to drive entry into new product categories and drive incremental growth. Large scale business transformation drives a further $2.5m (36%) OPEX saving with additional optimisation initiatives implemented. Elixinol Americas continues to deliver EBITDA improvement despite challenging market context. Corporate cost reductions Corporate team reduced by 66% contributing a further $0.8m (36%) reduction in underlying cost base. 5 Financial Highlights Adjusted EBITDA significantly improved for the 7th consecutive half year period. 36% cost base reduction Operational and corporate expense reduction initiatives have continued to significantly reduce operating expenses. $4.5m in H1 FY23 vs $7.0m in H1 FY22 56% improvement in normalised net operating cash utilised Revenue by channel 24% growth in Hemp Foods Australia, strategically important market and growing its share of total business. Elixinol eCommerce revenues flat in a challenging market context, driven by subscription-based revenues and a loyal customer base. 1 Excluding non-cash impairments and share-based payments. Ongoing improvement since FY20, despite lower revenues, due to ongoing business optimisation efforts. Adjusted EBITDA1 Ongoing improvement since FY20, led by a reduced cost base to support a simplified strategy. Cost reduction program driving performance improvements. -$2.4m in H1 FY23 vs -$5.4m in H1 FY22 6 H1 FY23 Results Summary 7 Segment Performance Driving EBITDA improvement across all business units. A$’m Australia Americas Rest of World Corporate H1 FY23 2.1 0.7 H1 FY22 1.7 0.5 H1 FY23 1.3 0.9 H1 FY22 1.5 0.9 H1 FY23 - H1 FY22 - H1 FY23 - H1 FY22 - GP% 32% 31% 66% 63% - - - - Operating expenses (1.0) (1.0) (2.1) (3.7) - (0.1) (1.4) (2.2) Other income/(expenses)* 0.0 0.0 0.2 0.2 0.2 (0.1) 0.0 0.0 Adjusted EBITDA (0.4) (0.5) (1.0) (2.5) 0.2 (0.2) (1.4) (2.2) Revenue Gross profit • Building profitable distribution with Costco, Woolworths • Impacted by regulatory uncertainty and CBD category consolidation • Margins slightly improved despite rising input costs • Elixinol Life launched August 2023 • Operating costs maintained • 43% cost reduction including investment in NPD Near breakeven EBITDA $1.5m (60%) EBITDA improvement • Market stalled due to regulatory uncertainty • Ceased direct trading Q4 FY21, low-cost licensing model from FY22 • Includes $0.2m nonrecurring legal & termination costs* • Corporate team reduced from 6 to 3 (2 effective H2 FY23) • Recovery of additional $0.2m arbitration award $0.4m EBITDA improvement $0.8m EBITDA improvement 8 Financial Summary Tight cost controls drive significant profit improvement. A$’m H1 FY23 H1 FY22 Revenue 3.5 3.2 Cost of goods sold (1.9) (1.7) Gross profit 1.6 1.5 GP% 46% 47% Operating expenses (4.5) (7.0) Non-operating (expenses)/income 0.3 0.1 Adjusted EBITDA (2.6) (5.4) Depreciation and amortisation (0.3) (0.4) Impairment of assets (0.3) (1.1) Share-based payments (0.4) (0.1) Interest income/(costs) 0.1 - Profit/(loss) before tax (3.4) (7.1) Tax benefit/(expense) - - Profit/(loss) after tax (3.4) (7.1) • 9% revenue growth vs PCP, led by 24% growth in Hemp Foods Australia • Business optimisation and tight cost control driving a reduction in operating expenses by 36% vs PCP 9 Cash Flow 56% reduction in normalised net operating cash utilised. A$’m H1 FY23 H1 FY22 Operating activities (0.6) (5.3) Investing activities (1.0) - Financing activities 1.7 (0.4) Net increase/(decrease) in cash 0.1 (5.7) Opening cash on hand 2.9 12.6 Effect of change in foreign exchange - - Closing cash on hand 3.0 6.9 • Simplified operating model has driven further significant cost savings: • 56% reduction in normalised net operating cash utilised vs H1 FY22 • 13% reduction in operating cash outflows vs H2 FY22 • Cost reductions implemented to simplify business model and reduce corporate cost structure * Excludes non-recurring government grants, transaction and severance costs. 10 Financial Position $3.0m cash on hand as at 30 June 2023. A$’m Current assets Cash and cash equivalents Trade & other receivables Inventories Other Total current assets Non-current assets Property, plant and equipment Investments Intangible assets Other Total non-current assets Total assets 30 June 2023 31 December 2022 3.0 2.8 1.7 0.6 8.1 2.9 4.0 1.7 0.7 9.3 0.3 2.9 0.2 0.5 3.9 12.0 0.4 2.8 0.2 0.8 4.2 13.5 Liabilities Trade and other payables Other current liabilities Non-current liabilities Total liabilities 1.4 1.9 0.4 3.7 1.4 2.0 0.9 4.3 Net assets 8.3 9.2 • $3.0m cash on hand as at 30 June 2023 • Continued prudent working capital management • Reduced capital expenditure requirements due to simplified, capital light business model 11 Strategy & Outlook 12 Business Transformation • Producer, manufacturer and distributor of premium hemp and plant-based health products Creates a global plant-based food, health and wellness company, with pro forma Australian revenues to immediately almost double • • Operates in high-growth market verticals: plant-based food, pet supplements and sustainable ingredients Highly complementary product range and shared new product development capabilities within the combined group • Immediate cost synergies with potential future revenue synergies • Developing proprietary hemp isolate and concentrate product • Expanded distribution network providing cross-sell opportunities and the ability to expand existing relationships • Leader in innovating, marketing and selling hemp derived and plant-based products • Premium hemp and plant-based health brand with Tier 1 Australian retail relationships • Operations across the United States and Australia delivering significant global reach • • Well positioned in the global consumer wellness trend for natural and plant-based food and nutraceuticals Aligned vision to build a leading global plant-based food, health & wellness company 13 13 Background Strategic Rationale Creates a global plant-based food, health and wellness company • • • Strengthens product portfolio across health food nutrition, hemp-based nutraceuticals such as CBD and pet nutritional supplements Optimises access to large Australian based hemp-growing farmer network Hemp protein isolate development expected to deliver a highly differentiated ingredient offering Highly complementary product set with improved product innovation • • • Number of brands increase from 4 to 8 Unique products across the human nutrition, food, CBD, pet and wellness verticals Combined group new product development and IP sharing will assist in driving cost effective growth Expands distribution network • • • • Immediately broadens distribution capabilities across Australia to over 4,000 locations Substantial cross-sell opportunity for EXL and TSN brands Expand existing relationships with partners and distributors Accelerates e-commerce growth with increased product range Increases size and scale • • • Pro forma Australian revenues to immediately almost double Aims to realise economies of scale through the rationalisation of operations and distribution channels Immediate cost synergies and additional revenue synergies expected to be realised over time Leveraged to strong sector tailwinds • • Positioned to leverage the mainstream shift towards plant-based, sustainable nutrition products The global plant-based protein market is expecting significant growth1 1 Food Frontier: Hungry for plant-based: Australian Consumer Insights, Colmar Brunton, October 2019 14 14 Highly Complementary Product Range Combined group to deliver products across 4 key verticals Human Nutrition CBD Consumer Products Pet Wellness Skincare 15 15 Leveraging a Diversified Distribution Network Immediately broadens the distribution network Retail: ✔ Strengthened retail network with complementary expansion in distribution channel for both EXL and TSN • Combined Australian distribution of over 4,000 stores: • Hemp Foods Australia products stocked in circa 3,500 stores • TSN products stocked in circa 500 incremental stores • Ability to broaden and increase existing relationships with partners and distributors for combined group E-commerce: Digital strategy to drive growth and profitability ✔ Accelerates growth in established e-commerce platforms • Combined group to have 7 e-commerce sites • Increased SKU and product range to drive growth, website traffic and online sales • Potential to leverage US e-commerce channels for TSN products Retail E-commerce Wholesale ✔ Wholesale: Strengthens wholesale offering • Potential to cross-sell TSN products through EXL US platform and relationships 16 16 Increase in Operational Scale and Size Access to a large Australian based hemp-growing farmer network Increased scale with a clear pathway to profitability • • • Significant uplift in revenue immediately realised through combination Ongoing margin expansion expected through the consolidation of operations TSN and Hemp Foods Australia targeting cash-flow breakeven in H1 FY24 • • Strategic reviews: • EXL’s strategic review focused on reducing annualised operating costs by approximately $3.2m • TSN’s strategic review placed an emphasis on optimising the company’s product SKU’s and reducing operating expenditure • TSN reduced annualised operating costs by $1.1m Expected to realise economies of scale within the larger combined group • • Access to a farmer network cultivating and harvesting hemp seed on behalf of TSN and EXL Strong farming yields of up to 1.9T/ha in FY22 Large 800sqm, Certified (HACCP, GFSI – stage 1, stage 2) processing facility with significantly increased de-hulling capacity Operations consolidated into a single manufacturing facility by 1 Sep 2023 o TSN’s Geelong facility can satisfy dehulling and packing requirements for the combined Group o Warehousing, packaging and dispatch to be managed from a central hub Identified cost reductions / synergies: • Scope to significantly reduce freight charges • Expected consolidation of farmer networks likely to improve supplier costs for the combined group • Expected reduction in corporate costs • Expected to reduce annualised operating costs by $2.3m 17 17 Strong Tailwinds Group ideally positioned to benefit from significant macroeconomic tailwinds Plant-based protein market CBD in the USA • Rise in dietary trends such as vegan / vegetarian and flexitarian has seen consumers turn to plant-based foods • EXL has right sized the US business to drive cost effective growth within the US CBD market • Global plant-based protein market expected to significantly grow from US$10.3bn in 2020 to US$17.5bn in 2027F1 • According to latest Brightfield Group report (2023), CBD sales expected to reach $10.3bn by 2028* (assuming the implementation of federal regulation by 2024) Significant near-term market growth driven by… Shift towards overall health and nutrition Rising agricultural costs Industry and bi-partisan support for CBD to be recognised as a dietary supplement in the US expected to be a significant catalyst for the market Greater consciousness on environmental impact Increasing accessibility of meat alternatives Increased awareness of animal wellness in relation to animal-based products 1. 2. 32% of Australians are 46% increase in Australian “flexitarians” or “meat reducers”1 plant-based grocery sales in FY202 2x plant-based products in Australian Supermarkets2 Food Frontier: Hungry for plant based: Australian Consumer Insights, Colmar Brunton, October 2019 Food Frontier; 2020 State of the Industry, Australian Plant Based Meat Sector 18 18 Summary Well positioned in global consumer wellness trend for natural and plant-based food and nutraceuticals New product development pipeline will drive entry into new product categories and drive incremental growth Ongoing business transformation to a leaner cost structure, further strengthening fundamentals Improving outlook due to a better economic environment and end of COVID-19 restrictions TSN acquisition now complete and will increase the size and scale of Elixinol Wellness $3.0m cash on hand as at 30 June 2023 19 Thank you 20