Earnings Call: Q4 2020

Feb 5, 2021

Thank you so much. And also Peter Osborne, CEO is present, and we can turn to the second page of the presentation. I will start by presenting the highlights of the Q4 and then Max will go into the financial details. Max is the new CFO since beginning of this month I said it's beginning at Gander, and I'm very happy to have him here by my side. And let's turn to the Page number 3 and the key developments in quarter 4. I must say that we are very proud about the development in quarter 4. We think that we have indeed a very strong quarter. We record both record net sales and EBITDA. This surpasses the SEK 1,000,000,000 for the first time for a single quarterly net sales and also a strong development for EBITDA. Something that we are particularly proud of this quarter is the organic sales growth. We have an organic sales growth of above 10%, very much driven by a successful rollout of key brands in the grocery trade in Europe, and I will come back to the details on this. And on top of that, we also have acquisition driven growth from Sysprenpruit, which we took control of at the beginning of the Q4. We turn to Page number 4. And here we see the quarter pure highlights in terms of the numbers. And I think that they pretty much speak for themselves, but a few comments. As said earlier, we are growing the sales growth by M and A growth and strong organic growth for our prioritized brands. And this then forecast sales well above SEK 1,000,000,000 for the first time in a single quarter. One key metric of ours is that we always want to grow EBITDA ahead of net sales to show that we're actually reaping synergies also. And in the quarter, net debt is up 31% and EBITDA is up 41%. So indeed, we see good growth on both those important metrics. We turn to Page 5, which is a summary of the revenue development. We have growth M and A pro form a, which is growth from the acquired company Systemfrug. Sustenflug had a very strong, strong Q1 in the group. It's their prime season, the Christmas season, and it turned out very, very well in terms of sales. So very happy with that acquisition. We are growing our prioritized brands at healthy rates and also the rest of the portfolio has been growing quite significantly in the quarter. And it's mainly very strong development for private label in Mainland Europe. Please turn to Page 6, which is summary of the year then. It has, of course, been a very special year, very volatile due to the pandemic. 1st quarter, heavy hoarding of products. 2nd quarter, still some pent up demand, quite weak in the Q3. And then I would say that the Q4 is actually the most normal in 2020. We did not see any hoarding effects. We also did not see cautious spending from the consumers. I think it was quite normal. Maybe we had a little bit upside due to restrictions in the different European countries due to the pandemic. And we are growing net sales by 20% for the year and EBITDA by 34%. So also here, we're growing EBITDA significantly ahead of net sales. And that signifies the work that we have done in terms of increasing our efficiency, getting the benefits from increased scale in the business and synergies from the acquisitions that we have done. We are proposing a dividend of SEK 125,000,000, is the same as last year. And this is, of course, a balancing act for us. We think it's very important to give a good dividend, but we also see good opportunity to continue our focus on consolidating the European markets for health and well-being products. So we are focused on acquisitions also in 2021 and we would like to give as much financial room and muscle to that as possible. We turn to Page number 7. I've been the CEO of Soma since 2007. And I've always seen us have had Soma journey as something of a maritime race or maybe even several meritor races after each other. And the 1st year of Markelenio was very much about structuring the company. And in 2012, the Midsona focus on health and well-being was created. And we have had some spectacular growth since then. On average, compared to average growth rate, we have growing net size by a solid 20%. That's both growth from our priorised brands, organic growth, but also a lot of M and A driven growth and EBITDA at 29% compounded equity growth rate. So we think that we do have a very good working model in terms of how to grow the business growth by improving the performance of our own brand, but also being a consolidator, first in the Nordics and then lately also out in Europe. And this is also very much the strategy that we're employing looking forward to continue the strong growth focus both from our own brands and from M and A. Will you turn to Page number 8. One major part of our strategy is to roll out our organic brands in the grocery trade across Europe. A lot of the sales in the organic trade is still done in each specialty stores. But to really make organic mainstream in Europe. We think that it's very important to offer the product in the grocery trade simply because that's where most people are doing their shopping. And we started the rollout of the Davik brand in the grocery trade in Germany in the Q2. It came to a temporary halt in the Q3, very much due to the pandemic and some execution issues that we had then. But then the rollout has continued at a very healthy pace in the 4th quarter. And we've also been stepping up our marketing investment to increase consumer demand for the product. And I would say, by now, it's no secret that the chain where we're launching in Pallet Grieb, it's one of the major retailers in Germany. It's a very big retailer across Germany. And we have now the product out in about 70% to 75% of the REBA stores across Germany. The same way if you turn to the next page, we are working with the Happy Biyu brand, which is our brand for the grocery trade in France and Spain. Deta brand that we're rolling out across both countries in the grocery trade. We have had some good success with major retailers. We have launched the Trivax and we see very strong growth for the brand in the Q4 now. Please go to Page 10. Another part of that I would like to emphasize is our organic beauty care concept under the brand Oerlik Braum. In the beginning of this year, beginning of 2020, we did a relaunch of the brand. We had new packaging for the brand and also upgraded formulations for the brand. And step by step, we're now seeing increased growth of the brands in the home markets in the Nordics, but also we're seeing some export success in a number of European markets with the brand. So this concludes the my part of the presentation my first part of the presentation. I will come back to the summary at the end. As I said, we are very happy about the 4th quarter. We things that we have made some major progress, especially happy about the strong organic growth that we see across all markets. Marc will back to that Max will come back to that, how it looks by division. So I leave the drift to you, Max, and the financial review. Thank you, Peter. Then I would like you to go to Page 12, the financial executive summary slide. As you can see in the slide, we had a small improvement in the gross margin during the quarter. But I would like to emphasize that during this period, the underlying business demonstrated a strong improvement and I will come back to that later. The quarterly EBITDA what's a record and 41% higher than last year. This was driven by record sales and also continued positive synergy effects. The quarterly cash flow was on a similar level as last year, but please note that operating working capital ended on a slightly better level than last year and this despite us including Sustainfloors. I now ask you to move to Page 13. On this page, you see the sales growth divided into structural effects, currency effects and organic growth. And as already highlighted, we had a strong organic growth for the Q4 at 10.4%. For the full year, we the growth landed on 3.9%. And I'll ask you to move to Page 14. And on this page, we present the organic development by our sales channels. And as you can see in the graph to the left, the growth during Q4 comes mainly from our deliveries into grocery trades or here called fast moving consumer good retailers, where the organic growth was as strong as 16.7%. This proves that the strategy to focus and grow our power test brands deliver results. And both North Europe and South Europe had significant growth in this channel. North Europe, by launching the Dabat product, as already mentioned, at retail of EWE, South Europe, as also already mentioned, by deploying Happe BU as the brand for the FMCG channel. I now ask you to move to Page 15. This is the page I referred to in the beginning where I will try to explain the gross margin development. But I would like you to start on the graph and look at the graph on the top. As you can see, we have a material positive effect on our EBITDA from Sustained First. It should, however, be mentioned that Q4 is the seasonal strongest quarter for Sustenfood. I now ask you to look at the graph below. SustenFrog has a lower gross margin than average group, resulting in diluting effect on the overall gross margin. But as you can conclude, Susterenflugh are compensating the lower gross margin with lower indirect costs. And finally on this slide, I would like you to note the underlying business have had a very strong improvement in the quarter and this is driven by organic growth, favorable mix, positive effects from our synergy or structural projects. And I ask you to move to Slide 16. In this slide, I want you to note that the structural effects for the full year includes on top of Sutteremfogorsseldepul division South Europe and Eisbronorp within division North Europe that was acquired during 2019. There is a similar pattern for these additions that they have a slightly lower gross margin when they join mid 7. However, they are compensating that with lower costs and overall improve the EBITDA for the group. In this context, I also would like to mention that we are systematically working with continuous improvements to improve gross margin and this will, of course, also help our newcomers. On this slide, you can see that during the year, for the underlying business, we have improved the EBITDA. We have the struggle with the gross margin. And this is mainly within North Europe where we have had negative effects from higher prices of raw materials and transports. And due to timing difference, these extract costs have not been able to fully be passed on to customers. I now ask you to move over to Page 17. This is the page where I would like to share some key highlights for division Nordic. Similar pages will follow for North and South Europe. Nordic had a record sales for the quarter, and this thanks to acquired Susterenfluk that added SEK 203,000,000 in the quarter. And as you can see in the chart to the left, the organic growth at FMCG retailers was as high as 11.8%. This is compensating for weaker development in the other channels where we can see tendency of slight effect from COVID-nineteen still. On full year synergies from One Nordic program and good cost control have continued to contribute an improved EBITDA throughout the year. I now ask you to move to Slide 18. The overall organic growth in North Europe landed on 19%. This is the strongest growth we have within the group among the divisions. And as already highlighted, North Europe has successfully deployed the Dabat products at the FMCG Retailer EBE during Q4, enabling a total growth within this channel at astonishing 32.6%. And as Peter said before, Reeb is a large player in Germany and have in total 3,000 stores, and we are present at more than 2,000 at the moment. Regarding the profitability at 7.4% for the quarter, as already mentioned, this is impacted by slightly higher costs and they have been able to pass on to customers. I now ask you to move to Page 19. Within South Europe, we also see a very strong growth within FMCG retailers and here landing on 32.5%. And this is also driven by successful deployment of our own brands and the Happy BU brand especially here. Regarding the profitability comparison for South Europe, it needs to be highlighted that when the division was acquired in Q4 2019. The organization did not have all the necessary functions required for a division within the group. The division neither has the growth expenses on the level needed to generate long term profitable growth. It has successfully been built up during the year and is affecting the comparability comparability. Now I ask you to move to my final Page number 20. As already mentioned, the quarter 4 cash flow was at similar level as last year. This partly due to a strong cash generation already in Q3. And on the full year, the cash flow improved with 63%. And on top of already mentioned good working capital development, we have a positive comparison effect by spending less on CapEx during this year due to the cautiousness during COVID-nineteen. With that, I would like to hand back to you, Peter. Thank you so much, Max. And we go to Page number '21, which is the summary and outlook. As you have understood, we are very happy about the development in quarter 4. We are well above SEK 1,000,000,000 for the first time in net sales in a quarter and also have a record EBITDA. We're especially proud of the organic double digit growth. It's very strong and shows that the studies that we're employing are working and that the tresnoye sulfide consumers and customers across Europe. We haven't talked so much about COVID-nineteen and the pandemic, but of course, there still is major uncertainty looking ahead as we think that we are well positioned to actually tackle this price and the situation, and I think that we approved that during 2020. A key focus in quarter 1 will be the continued role of the grocery trade in Germany, France and Spain. As you have seen, we see some very promising results. We are very happy about them and also see that we are getting repurchase from consumers. So it seems like we are on the right track there really. Integration is the same product. We are very happy so far with what we have achieved. Integration continues in quarter 1, and we will gradually start to reap the benefits from the synergy program that was announced in connection with the acquisition of the company. So the underlying business is strong. Still, we need to mention that we do cycle some pretty high comparative figures for current quarter due to the hoarding that we saw in especially March last year, which was some sort of an extraordinary Jason. But the message is that we are very happy about where we are. We do have the strategy and the plans to also excel in the future. And thereby I go to Page number 22 and I open up for questions and answers. Thank you. And we have one question in the queue so far. That's from the line of Johan Dahl of Danske Bank. Please go ahead. Your line is open. Yes. Thank you. Hello, Peter. Hello, Max. First of all, I just have to say that it's great with this in case disclosure in the presentation that you provider today, who provides much better insight into the company, in my view, at least. But just a couple of questions. Firstly, if you look on the full year, You talked about organic growth in the grocery trade of 7% to 8%. If you try to distinguish what is pipeline filling of that growth in grocery trade due to launches that have occurred here during 2020, just to understand what's some sort of underlying growth in our sell through to consumers? I would say that the majority of the pipeline filling, almost all of it was done in quarter 2. So in quarter 2, you have a pipeline filling effect. Then in quarter 3, we've got somewhat of a halt in the buildup. And what we see now in quarter 4, it's mainly repurchase that VCs. So the majority of the buildup was done quite early in quarter 4. So I would say that there isn't that much pipeline in the figures in quarter 4. I said you talked about the Dalbert launch here in Germany was temporarily halted in Q3, then it sort of came back Q4. So that should be read as sell through then on the other in Q4? Mostly it was sell through because the pipeline failing was done in Q2. And then the retailer where we are launching, had some executional issues due to the pandemic. They didn't have the operational ability to launching in order stores during Q3. So yes, the majority of it is for sure sell through yet. Okay. On the bridge you provided on earnings development here, Q4 versus Q4 last year, Sistemfrott seemed to have contributed some almost SEK 20,000,000, I guess, to EBITDA. I think when you announced this acquisition, I don't know, we talked about some SEK 40,000,000 possibly earnings full year. What's your updated forecast for Sysdenfrucht? And how heavily tilted its earnings in the Q4 in Sysdenfrucht? We don't have an updated quarter, but you're correct in the sense that the 4th quarter is by far the strongest course this day and fruit. That's their main season due to strong Christmas sales of dried fruits and nuts. And it should also be said that they did have a very good 4th quarter. So we are very happy about how they actually managed to sell into the customer, but also sell out of the stores. So it was a strong season that they had. So the refresh rate is a tilt, but it isn't the tilt. It's not that they would do 50% of profit in quarter 4. So they have performed better than we expected in quarter 4. I understand. Okay. And the flip side of that is, of course, the organic earnings development. Can you just talk about why operating leverage on those organic sales increases is so low? You talked about further investment into driving volumes, I. E, marketing, etcetera. How does that look for 2021 in terms of cost increases? If I start by the quarter 4, we have stepped up marketing investment significantly, especially in divisions North and South, but also to some extent in the Nordics. And it relates to the launches that we have done, Daubert in Germany and Happy Blue in France and Spain. And to some extent also the Nordics brand like Oerlikon, the rollout of the new Budokal lineup. And from our point of view, we think that we have a fantastic opportunity now to establish strong positions across major retailers in Europe. But that, of course, also requires that we see sales to the consumer, and that's what we have done. I think that you can expect that you have slightly higher than normal marketing expense also in quarter 1 and quarter 2 of 2021 as a way to solidify our position with those major retailers across Europe. And how much money are we talking about roughly if you look on the 4th quarter Compared to sort of previously an increased stand. That's a figure that I cannot give you because we are not usually giving out those specific competitive reasons. But there are some major investments that we haven't done before. I mean, you saw on the Davenport page we had we did a major outdoor campaign across Germany. There have been some other campaigns as well and also campaigning in the stores. So it's quite significant, but we think it's investments well worth DUNE, I'd say, because it will really solidify our long term position with those retailers and then something that we then should be able to reap the benefits of for years years. Thank you. Okay. As there seems to be no further questions coming through on the phone, so I'll hand back to our speakers. Then I would like to thank you so much for your attendants, and we will hear we will talk to you again in the next quarter. So thank you so much.