Plukka Ltd (ASX:PKA) talks FY16 results


by David Chau

Transcription of Finance News Network interview with Plukka Limited (ASX:PKA) Managing Director, Natalia Obolensky

David Chau: Hello I’m David Chau for the Finance News Network. Joining me from Plukka Limited (ASX:PKA) is its Managing Director, Natalia Obolensky. Natalia, thanks for joining us.

Natalia Obolensky: Thank you very much for having me.

David Chau: So Plukka sells jewellery online, via bricks and mortar stores, pop-ups and trunk shows. Now your company made some changes to its strategy in June, could you tell us a little bit more about that?

Natalia Obolensky: That’s exactly right. Plukka is an online retailer with offline support, via our boutique in London and our boutique in Hong Kong. We’re increasingly focusing on the online market and that has resulted in a shift in strategy. We’re now really focused on a price point that is in the US$500 to US$2,000 range. And we have spent quite a lot of time thinking about the structure of the business, and a leaner structure that’s better able to help us deliver results in the longer term.

David Chau: Let’s talk about Plukka’s FY16 results. Could you run us through the financials?

Natalia Obolensky: Plukka is pleased to have announced strong financial results for the year ending June 2016. We saw 40 per cent revenue growth in an e-commerce and retail market, particularly in Hong Kong, that has had severe headwinds. So we’re very proud of that growth that took us up to AU$1.9 million in revenue. And despite all of the changes that we’ve discussed, in terms of the business model and the refinement of our strategy with that growth, we were also able to maintain a 40 per cent margin.

David Chau: What would you say were some key achievements?

Natalia Obolensky: 2016 was a huge year for Plukka. We listed the company in December, successfully completing an RTO and raising AU$10 million, which has really set us up for success in the coming years. After that RTO, we spent the last few months (in the second-half of the last financial year) really refining our strategy, and ensuring that we’re focused on the key segments that are going to drive and accelerate our growth.

Lastly, we’ve spent the year cementing some of the key relationships and, in particular, moving up the value chain through a strategic partnership with Trellis, a diamond cutter and polisher. We’re now able to really solidify that relationship, and take a little bit more control over the manufacturing process, that supports our downstream jewellery sales.

David Chau: I see your company recently underwent a comprehensive cost cutting exercise. Can you tell us a bit more about that and how it fits in with the Plukka strategy?

Natalia Obolensky: As part of the new strategy that we announced in June, we did have to restructure the business. And the main driver behind this was reducing our cash burn rate, down to a roughly US$100,000 range. That gives us two years, plus a little bit, to be able to really invest in our growth in that online segment and make sure that it comes through. To do so we, made a number of different changes and we restructured the team. We did take head count out of the business to make us a more streamlined operational team. We improved our operations and our logistics, so as to be able to save some costs there. And we did manage to reduce our fixed costs, overheads in certain locations, reducing rents and reducing that fixed outlay.

David Chau: I see there’s also been some management changes recently. What can you tell us about that?

Natalia Obolensky: As part of the restructuring of the business, we have had management changes. As you’ll be aware, I stepped into the Managing Director role at the end of April and we do have a new Chief Operating Officer, who’s running all of our operations worldwide. We were sad to announce that Joanne Ooi, who is the founder and former creative and marketing director, has resigned from the business. She remains a shareholder and a key stakeholder and supports the business in that capacity. And we thank Joanne for her significant contribution in bringing Plukka to where it is today.

David Chau: As you were saying before, in the middle of the year your company refined its strategy to focus on products that are within the US$500 to US$2,000 price range. How’s that working out?

Natalia Obolensky: We’re really excited about this shift to the US$500 to US$2,000 range. Historically it’s where we’ve seen the most traction in our online markets and as we look forward, we’re really looking to get our growth from those online (predominantly US or Anglophone) markets. The newest collection, Plukka Essentials, does fit in that US$500 to US$2,000 range and is produced by our strategic upstream partner, Trellis. It launched yesterday, so it’s a little early to be giving any strong results or indication. We’re really hopeful that we’ll have a lot to report in the coming months.

David Chau: Well that sounds exciting. What else are you doing to support the push into this segment?

Natalia Obolensky: We’re actually really excited to be announcing that we will be opening a pop-up in New York, from mid October through the end of December. The store will be located on 60th and Madison Avenue, just opposite the entrance to Barneys. So it’s a great location to be in fine jewellery. We’re opening this as a JV with our Chinese counterpart. They will be providing half the jewellery, and their brand is called Artoriz. They are opening also in Shanghai, and in Shenzhen this month.

They have the same commitments to uncompromising creativity and the same price range (that important US$500 to US$2,000 range) that we do. Plukka will be operating the store entirely and will be responsible for the sales and marketing drive in the US. We’re intending to use this joint venture there to be able to, in a cost effective manner, have an offline experience that can help us drive online sales in the US market. That Christmas period is really important for us.

David Chau: One more question Natalia. What time frame do you think is realistic for the changes to your company to take effect?

Natalia Obolensky: We’re a small company, so we do move quite quickly. We will already see the benefits of the reduction in our burn rate. So our cash flow improvements are essentially already in place, certainly from the 1st October. On the product and revenue side, as I mentioned, the new collection has recently launched, so that’s already in place. It will be a little bit of a phase in and phase out, but I would anticipate that by 1st January, all of these changes will be firmly in place.

David Chau: Natalia Obolensky, thanks for the update.

Natalia Obolensky: Thanks for having me.