Welcome to the Midsona Q2 Report 2024. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. Now, I will hand the conference over to the speakers, CEO Peter Åsberg, and CFO Max Bokander. Please go ahead.
Dear all, this is CEO Peter Åsberg speaking. Thank you for attending this call. And as a top-line summary, I can conclude that we took several steps forward, also in the second quarter. We are back to organic sales growth, and we significantly strengthen our margins and operating results. And I'm also happy to say that this improvement is broad. It's across all three divisions. They all reported both improved margins and stronger operating profit. That said, this is only one further step in our quest to reach our new financial targets. And before we go into the body of the presentation, I would just like to make you aware that this presentation might contain certain forward-looking statements, and that such statements might be subject to risk. So let's get into the summary of the second quarter.
As said, we are very happy about the progress. We continue to do good in the second quarter. We are growing sales again, and we see especially good progress in the division North, which is the DACH region for us, where we see double-digit sales growth. EBIT, before one-off items, amounted to SEK 22 million, compared to SEK -1 million last year, so also a good step forward. And this actually means that EBIT in the first half of the year has tripled, compared to, compared to last year. And this improvement in the group earnings were mainly driven by the sales increase and also by the higher gross margin that we saw in quarter two. It really was a result of good price management, and also streamline our ranges.
We are focused on best sellers and the termination of a number of less profitable contracts. We also saw efficiency improvements in production. They show a real impact in this quarter, and the gross margin increased to 28.9% before one-off items, again, compared to 26.4% the previous year. And this was actually despite a continued quite high raw material prices. By that, let's move into the divisions. All of them showed the improved operating profit compared to last year. Start with division Nordics. We saw flat sales, and this was due to the fact that we continued to terminate unprofitable contracts, but we also saw quite weak market conditions still for organic foods in some of the Nordic countries.
Friggs continued to do very well all throughout the Nordic region, and Helios, the brand Helios, also developed very nicely in Norway. I would say that the shining star in terms of growth was the North division, which is the DACH countries for us, and we saw a growth of 11%, and this was actually despite quite significant supply chain challenges, which we are now addressing. So we are installing extra shifts, and we also work on production efficiency improvements to better meet this higher-than-expected demand that we currently see in division North. EBIT was improved to SEK 5 million from -SEK 6 million last year. We also continued our efforts to generate new business, and we had new listing agreements for the brand Davert, and we also signed a number of private label contracts.
I would say that the main boost for the brand Davert was the contract that we signed with a nationwide grocery store chain in Germany for the delivery of the Davert brand, and this started in April and was actually announced already in the first quarter. The South division, lastly, we are improving profits to -SEK 2 compared to -SEK 9 the previous year. And this was mainly achieved by improved production efficiency in Spain, but also the implementation of price increases and the termination of unprofitable contracts. Still, of course, we cannot accept a negative EBIT, and we have started projects to further improve operations in Spain, and also to better compete in the currently quite depressed market for organic foods in France. As said, the main profit improvement was sales, but also increased gross margins.
Very nice development. It went up to 28.9% from 26.4%, the previous year. What is especially good is that we see good improvements in all three divisions. The drivers behind the improvement are pretty much the same in all the divisions. We are talking about efficient price management and improved production efficiency. We are working hard to substitute low-margin private label contracts with better margin ones. We have discontinued low-margin food service and licensing agreement contracts. We are focused on some of our high-margin brands, and we have seen quite stable raw material prices. Looking into the categories, we saw good growth for the organic category, +7%. Davert in Germany was helped by new customers, as well as new listings with old customers.
Helios has continued to grow at a double-digit rate in Norway. We, however, saw slight declines for Urtekram and Kung Markatta, as you know, market conditions for organic foods in Sweden and Denmark still were somewhat depressed. Private label demand continued to be high, and had it not been for production constraints, especially in Germany, sales would have been even higher. And as I told earlier, we are now addressing those production constraints and are adding new shifts to the German operation. Commercial health food brands saw a decline, and this is because we have stopped a number of unprofitable private label contracts, but also some less profitable brand campaigns that we did run last year. On the positive side, I should say that Friggs continued to grow nicely.
The consumer health category developed solid growth, driven by a few of our own key brands, but also a new distribution contract in Finland. For those of you who follow us closely, you know that we came out with new financial targets in March this year, and we're now working to achieve them. We have set a target to achieve an organic growth of 3.5% per year. We're actually getting quite close to that. In the second quarter, we achieved 2.7%, so this was a good step in the right direction. We have a EBIT margin, we have target of 8%, we are quite some way from this in quarter two.
But it should be said that quarter two is typically the quarter of the year with the lowest margin, and compared to the same quarter last year, we're improving by 2.5 percentage points. And leverage are already below the target level. This means that we are financially sound. Short term, we will focus on further strengthening our balance sheet, but long term, this could open up for M&A activity. As you also probably know, is that during the first quarter, we launched our new strategy. It's largely focused on increasing profitability and strengthening our market position for the future. And to achieve this, we will build a stronger organic platform, we will develop our health food brands, and we will achieve greater efficiency and harmonization across the organization. And we are confident that this, over time, will bring us to with our financial targets.
Quite recently, actually after the second quarter in July, we announced a new organization in order to be able to deliver on our strategy and to meet our financial targets. And what we're doing now, the next step, is that we are establishing central functions for marketing and innovation, for purchasing, and to HR. And this is to increase coordination and to really be able to create the right conditions for profitable growth. We have recruited both internally, and we will also do some external recruiting to build an even stronger management team. And what this will lead to is that central coordination between both divisions and various functions will improve, and therefore, we think that we have much better opportunity to reach our financial targets. I would say that these changes are offensive and completely right based on the strategy.
So this is a good step in the right direction. Now, before I hand over to Max Bokander, the CFO, I would like to make a short summary. And I would state that the second quarter earnings show that we are on the right track, that we can see that the continued streamlining and coordination of our product range has had a clear impact on earnings, and we are continuing to create good conditions for organic growth, and we did achieve organic growth in quarter two. We believe that we're able to continue to improve also during the second half of the year with an even stronger offering and more key deals. And the focus for 2024 is to continue the implementation of our strategy to move us step by step towards our financial targets.
Thank you, and by that, I leave over to Max. Please, Max.
Thank you, Peter. And as a financial summary for the quarter, the net sales grew with 2.8%, and the gross margin improved with 2.5 percentage points. This resulted in SEK 23 million higher EBIT or 2.5 percentage point higher EBIT %. The net result improved even more, by SEK 33 million, SEK 35 million, sorry. And this is SEK 12 million more than the EBIT, due to the fact last year we had SEK 14 million of restructuring costs, not repeated this year. The cash flow from operating activities landed on -SEK 19 million, which was SEK 36 million weaker than last year due to a negative working capital effect during this year compared to positive last year.
The net debt EBITDA ratio, however, continued to improve as a result from the improved earnings and landed on a 2.3 times, compared to 2.4 in quarter one or even higher a lot a year ago. Looking at the net sales development for the quarter, I move over to the next slide, and what we are, I think, extra proud of this quarter is that we now turned over to organic growth. This after seven consecutive quarters with a negative organic growth. Looking at the sales by brand type, our own brands continue to struggle on the market, where we still see a higher demand for products in the lower price range. However, it should be noted, as Peter mentioned, Friggs, and also Helios and Davert are some of our key brands that still demonstrated good growth.
Private label, focusing on the lower price segment, grew strongly during the quarter with 10.2%. South and North Europe continued to show strong growth in this segment, while we in Nordic still had a small negative growth because of the still focusing on exiting certain low margin contracts. The licensed business also grew strongly, 23.6%. This driven by an increased scope for an existing distribution agreement on the Finnish market. Now, explaining the quarterly EBIT development compared to last year. The organic sales growth, or in this case, labeled as volume, resulted in SEK 6 million higher contribution. The improved gross margin, that was a result of better price management and significantly improved margins on our private label contracts, generated SEK 24 million higher contribution.
The sales and admin expenses, however, increased by SEK 9 million, driven by higher activities in marketing and sales. As a summary, the EBIT landed on SEK 22 million for the quarter, which is SEK 23 million better than last year. Moving over to the quarterly cash flow. The cash flow from operating activities landed on -SEK 90 million. The cash flow was negatively impacted by a periodic increase in the working capital of SEK 61 million. This after building inventory during the quarter. And as communicated earlier, we ended last year on a lower than planned level, and we are continuing to balance to ensure that we keep the good service level. Still, we are on a much lower level than compared to last year. Finally, our cash and debt situation.
We ended the quarter with SEK 575 million in available cash, which represents 15% of the last twelve months sales. As already mentioned, the net debt in relation to EBITDA continued to improve and landed on 2.3 times. With this final slide, I would like to hand back to the operator and open up for questions.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Nikola Kalanoski from ABG Sundal Collier. Please go ahead.
Hi, Peter and Max, and thanks for the presentation. To start off, I'm a little curious on your recent marketing campaigns, such as the one for Kung Markatta. Have you seen any positive impact from your recent marketing campaigns? Can anything be said about that?
Yes, I would say that this is something that we have launched now during the year. First of all, the consumer response has been very good to that. We did not grow the brand in the second quarter, but I would say that that is more due to the fact that it's still a quite depressed market for organic foods, but we are much closer to growth now compared to a few quarters ago. So I think we're moving this in the right direction, and our clear ambition is that by-
... good marketing, good product development, we should get the Kung Markatta and Urtekram brand back to growth.
Yep, that's helpful and clear. Thank you. And secondly, would you say that the issues in South Europe are out of your control? Or would you say that most of these challenges are something that you can help influence operationally in order to make the division profitable? I hope that question is clear.
Yeah, no, I know. I think it's two different things. One is our production abilities in Spain, and we are for sure improving, but of course, we cannot be happy with a negative EBIT. This is something that continues. We are right now working on a major implementation project to streamline the factory in Spain, and that's work in progress right now. So I have good hopes that we will continue to improve in Spain. In France, it's a little bit more of a sales issue, and it's especially the organic health trade in France that has been seeing some declines, which has impacted us quite heavily. So we're also working on a plan to make our offering even more relevant in that segment.
But of course, we would also be helped from better market conditions. That's hard to make a judgment on how our market conditions will develop, but my overall assumption would be as inflation subsides, and that the consumer sentiment gets better, the market should get back to growth, also in France.
Yep, understood, and I just came up with a third one. If you could answer that one, that would be great. I note that you tie up quite little capital. Would you say that the new product mix generally requires less working capital tie-up?
We tied up less, maybe than you anticipated. We still think there is room to continue on this level. And yes, there is a difference dependent on the product mix. And it's not product mix, it's also business mix. In that sense that I highlighted that we have a distribution agreement that now has an increased scope. And it depends on how these are set up, these can actually require more working capital. However, they have good economies of scale when it comes to earnings. Then yes, our focus of streamlining the portfolio have, of course, also had a clear intention to improve our working capital situation.
So we have a better mix in our portfolio for better optimized working capital in our own brands, currently.
Wonderful. Very clear. Yep, that's all from me, and thank you very much.
Thank you.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments. Please go ahead.
Then Peter here. I would say thank you so much for attending. As we have shown, we are on the right track. We have taken good steps also in quarter two, so we now have two good quarters in a row. EBIT has tripled during the first half year. We are back to organic growth in, in the second quarter, and we will continue to work on our long-term plan, to reach our financial objectives. And by that, I would wish you a very nice summer, and then, if not before, see you again for this quarter three call. Thank you so much.