Earnings Call: Q1 2021

Apr 22, 2021

Thank you, and yes, and welcome to the Q1 report presentation. We'll first start with a period in short here. Of course, the new COVID-nineteen waves and the slow vaccination continues to affect the markets, and it's pretty similar to Q4. And of course, we had hoped for a really big opening here for the market around Eton, but that didn't happen, unfortunate. But on the other hand, the really strong takeaway trend continues. So the impact nearly doubled the operating income in the quarter. In the quarter, we also adjusted our loan agreement for another 2 quarters. The market outlook is Still, of course, with very high uncertainty, but there are lights in the tunnel. And positive is that we've seeing some openings now in Denmark where the restaurant actually has been closed since 7th December. So That's really positive. And also Finland is starting slowly to open up. So we see some flight in the tunnel. So that's very positive. If we go into the Q1 highlights here, we had a drop in the net sales of minus 25%. And of course, the restriction significantly impacted the Duni Group throughout the quarter. And of course, it's the area, Dunib, that continues on low levels as, of course, all the sit down restaurants are forced to, yes, either limit or in many, many markets, it's fully closed on premises. But on the other hand then, the business area BPU continues really strong as the takeaway benefits due to the COVID-nineteen restrictions are increasing. If we look at Operating income, we were down with SEK 121,000,000 versus last year, so a significant number. And of course, this decrease comes from the Duni business area with the less fixed cost coverage and limits economy of scale into the logistics. We have cost reduction program, and of course, the strong BIPAC growth continues to support the results on the other hand then. I will hand over to Magnus to dig a bit deeper then into the two business areas. Thank you very much, Robert. So I will now go through our 2 segments in more detail, and I'll start with the drilling segment, This represents our products to set the table like napkins and table covers and candles. So as all of you are fully aware of and Robert Mentioned, we continue to be in a lockdown situation on almost all markets in Europe, have been affected by this in the quarter. The decrease for Business Aerodone is dramatic with a 50% decline and even more so for our main segment for Reker, Grotas Restaurant Thanks, Itrick. And also like previous quarters, retail channel has not been that severely affected with only a modest decline. We have seen a gradual strengthening during the quarter, but again, from very low volumes. We should also be aware that it's only the 2nd part of March that was negatively influenced by the pandemic last year in comparison. So we continue to work hard with mitigating the negative effects from these very low volumes, especially demanding the situation in our production facilities. We have, to a great extent, been able to lower fixed costs and our breakeven points, but our gross margin has been hurt by these less fixed cost coverage. And also as earlier communicated, We are in the process of seeking support from German authorities. The application itself is quite complex care based on interpretations on these new set of legal frameworks. But we estimate the effect to be somewhere between EUR 5,000,000 to EUR 6,000,000 and naturally a very welcoming contribution to cover for parts of the fixed costs. But again, since we have not finalized the application, Q1 has not been affected by this. So if we now move over to Biopak segment, which is offering sustainable food packaging. We continue to see a very strong demand. Parallel to the development of Business area, Disney, or I should say, contrary, that is being burdened by pandemic. Biopak has been contributed by very strong growth of 25% in the quarter, and that is driven that the industry is now more actively looking for takeaway and sealable solutions. And we have seen that more traditional fine dining and sit down restaurants are now shifting over also to offer more premium takeaway solutions with free course diners packed in a design with high quality of sustainable materials. That is exactly what BioPak is offering. Australia, which is our biggest market for BioPak and 2nd biggest for the group, I've seen a tremendous good quarter, which was also the case for 2020. The brand is well known in Australia and New Zealand, clearly associated of having the most sustainable, not environmentally friendly packaging on the market with the ambition to champion compostable packaging. So it is clear that the shift from plastic to different fiber based solution develops at increasing speed. This shift is good news for Biopac offer, but we still have areas where we are more dependent on different solutions that include different plastics to fulfill certain product features. One of these areas is eating and drinking, but the share of total sales is continuously decreasing with a more future food mix as a result. The cost focus has been dominant in the last years, and this had also a spillover effect on BioPak And the increase, as I mentioned, of almost 25% in sales has resulted in almost doubling the result for the quarter. So in other words, a very strong operational leverage on these additional volumes. So finally, we indicated already in previous quarter care. So the challenges in lack of container capacity information. This has led to higher costs, but I would say that due to hard work, we have managed to mitigate delivered delays to customers. All right. Then if we look at the COVID-nineteen situation, a little bit actions and outlook here. Of course, as we talked about here, it's the delay in the vaccination rollout resulting now in the prolongation of lockdowns in almost all markets. And I think almost I think Q1 here has been the toughest one in Europe actually in terms of lockdowns in the restaurants during the quarter. Of course, we Things that the demand to eat, meat and travel will still be there after the pandemic and the vaccinations are coming in place. And then that's we saw that last year, so that feels reassuring for us. And I think in times of crisis, we have shown that we have 2 really strong brands that has been very good for us and that we are able to then balance here with the impact part when we don't have the sales in the Dune part. And we have a really high focus now on helping our customers now, first with the packaging side with the BPAK, but also now for when it starts to reopen with new concepts, say, increased hygiene focus, and we have a lot of different types of products like Zacchetto and so on that are perfect for the hygiene safety to dine safe in that and especially for the outdoor as well. Of course, it's very difficult to forecast at the moment depending on vaccinations and different other things, of course, regarding the COVID-nineteen and so on. But we have a good hope that it gradually will open during the next quarter. And of course, there will be some restrictions in different countries and so on. But when the summer starts and especially the outdoor comes in, then it's going to be hopefully a really good summer. So on that topic, I think we are very well positioned for the future. I think what we've done now in the Q1 here is that we have a new organization set up with the business areas now responsible for the whole category assortment marketing and to that having the sourcing and production in one basket, so to say, and we never had that. So that's really positive. And then on top of that, we have one sales force that are able to sell both VUPAC and UNION, and I think that has been really strong now in these times when it's been a bit volatile. Then the sales force can focus on maybe one thing a little bit more during that period. So these two Things are feeling really good for the next coming years here. We are actively, of course, working with different type of sustainability projects and working to close the loop for our products We have new solutions for reuse, recycling and composting. That's also a very important part for the future for us. So yes, a little bit of examples here on the next slide, where we have What we've done in the Q1 is that we launched new packaging foil around our napkins. So it's now a paper foil instead of a plastic foil. And this is starting, of course, on certain type of product group, and then that will be rolled out, but that's a really good initiative. We have also the SAKETO, which is in the middle in the on the top there. That is a very important product for us now when it opens up here. That is really hygiene and that you can and the capillary inside this little packaging. We also worked a lot on the digitalization, and we have visualizer that will also of course, now when the pandemic has been, we haven't been able to use it that much, but that will come in hand now for the restaurants to create a great atmosphere and a high hygienic atmosphere in the restaurants. And in the bottom, Q1 is actually the quarter where we have most fares in Europe and it's a good launch point for us when we're launching a lot of product. But this year, we've been able to transfer a lot of customers then into our digital fare platforms in the different countries. That's been also very high focus into Q1, so that's positive. Okay, Magnus. All right. We're moving into the financials and first the income statement. And as Robert mentioned, we are down with more than SEK 300,000,000 in sales. This is not as bad in absolute terms as in the Q4 2020, but in relation versus Last year, it is a similar development. And one of the biggest challenges that has been mentioned several times now is the inefficiencies caused in logistics and also less utilization in our production facilities, which is very visible in the numbers with a 50% reduction in gross profit. The lower indirect costs can't compensate for this, and we are showing therefore a loss in the quarter of minus SEK 41,000,000. During the quarter, we prolonged our waiver period and consequently with higher financial costs. The adoption of our bank Covenants to better reflect the current business environment is naturally very important for us to enable us to also focus on preparing ourselves for the possibilities that's open up once the restrictions are lifted. We can all enjoy a social life as we are used to with traveling and dinners at restaurants and replacing some of all the Teams meeting, I guess, we all had in the last years. So now if we look on the with more in the business areas. It is clear that the historical dominant business area, Duni, has reduced its share of sales. And at the same time, Biopak is very fast moving to the SEK 2,000,000,000 level and closing in on business Aerobini. It is also notable that the BioPak managed to leverage on the volumes and strengthening the operating margin that is now 8% both for the quarter as well as for the rolling 12 months. So we're looking on the cash flow. Protecting the cash flow has been of highest importance throughout the year, the last year. And although quarter 1 is seasonally the weakest volume, where normally we have a negative operational cash flow. The reduction is less in cash flow than the EBITDA decline. I think it could have been even a smaller gap, but we have during the quarter invested in having good stock levels on high run to be able to deliver once the restrictions are lifted. That is a learning from Q3 last year where we tripled volume within 2 weeks and had some delivery challenges when we were ramping up the factories. So this is something we are comfortable in managing and be better prepared of. Looking on the CapEx, It's naturally kept very low, but we are not taking unnecessary risks. In addition, we are investing in new web tools and the other tools that will keep us relevant in the market. So although if you look on the and comment on the financial position, although the disappointment from the slow pace The nation rollout and the lifting of the restrictions. We are in a financially good position with lower debt in comparison to time when we entered the pandemic. This is naturally with support from canceled dividends and the significant cost reductions we have and other measures we have taken to support the cash flow. But this has proven to be vital for us to stay strong and being able to meet the demands we have during the corona, but also the opportunities that will open up after the program. So finally, our financial targets. Unfortunately, we are not able to deliver on these and can conclude that the significant volume decline we are experiencing had a negative effect both in our sales growth, of course, our operating margin. And as earlier communicated, we will not have any dividend for the year 2020. That's all for us. So I will now hand over for questions. Thank Our first question is from Andreas Lundberg of SVB. Please go ahead. Your line is open. Yes, good morning, Anthony. Thank you. I wonder if you can talk a little bit about Biopak, how it's grown in markets that are open. I think you mentioned Australia, for instance, but What trends are you seeing in those markets where the society is open when it comes to Biopec? Thank you. Thank you, Andreas. Yes, as I mentioned, Australia specifically had a more open and less restrictions than in total. And we are seeing a strong development also after the restrictions are lifted. So that's That's the conclusion we are seeing. And there are some signs of opening up now, as we say, in Europe, and we are not seeing any We are not seeing the ViaTech should be hurt by that. We had a very strong development in ViaTech before the pandemic, driven by the pandemic shift and the general trend in takeaway. So it's not only pandemic that's driving the Okay. But is the growth similar in the market for Australia? Or is it lower or higher after society has opened. I would say it's even slightly better, I would expect, the last part. Why do you think that's the case? I think that mainly related to that we have a very strong offer, and we are very good in delivering on Time and so on. So there are other parameters then connected to that. So we have a very strong offering itself and that has been And in the same area, you reached a rather nice operating margin, As you say, from leverage and so forth, do you think you can sustain that kind of margin also going forward for Biotech? I mean, that's a tough question. It's a good question. What we have seen in 1 is that we had a really good operational leverage on the volume. It's all about how we scale this continue to scale and accelerate the Biopak business. The gross margin in itself has been quite stable. So it's more about the need for investment to accelerate the growth further. But the operational leverage on the additional volumes has been proven to be really good, absolutely. Okay. Thank you. And lastly, on the you mentioned raw materials, higher cost for logistics and so forth. How do you view your own potential price adjustments? Yes, I think I mean, Doudna's ambition is That's all we can wait to compensate for increasing raw materials. So and of course, sometimes with some delay in the different markets, but that's our position we take. Okay. Cool. Thank you so much. Thank you. Thank you. Here. There are no further questions at this time. So I will return the conference back to you. Okay, great. Thank you all for listening today. And yes, we speak soon again, and we hope but it's been some the lockdown has been less than in the next coming months. But thank you. Thank you.