Welcome to the Midsona Q2 Report 2025 presentation. During the questions and answers session, participants are able to ask questions by dialing *KEY-5 on their telephone keypad. Now, I will hand the conference over to the speakers, CEO Henrik Hjalmarsson and CFO Max Bokander. Please go ahead.
Thank you very much. Good morning, everybody, and welcome to the presentation of Midsona 's second quarter 2025 results. My name is Henrik Hjalmarsson. I'm the President and CEO, and with me, I have Max Bokander, Group CFO. We'll spend the coming 20 minutes or so going through a brief outline of the second quarter, as well as a few more details on the financials, after which time there will be room for questions. Before we get started, just the usual disclaimer that some of the statements we do might pertain to the outlook, and as usual, they are subject to risks and uncertainties, more of which you will be able to read about in our annual report 2024.
Just before we get started, for those of you who might be new to us, Midsona is a European healthy and sustainable food business with a mission to provide healthy food for people and planet. Most of our products are plant-based and/or vegetarian and/or organic and natural. We had sales in 2024 of a bit more than SEK 3.7 billion across three divisions: the Nordics, which is the largest, North Europe, which consists of Germany, and South Europe, which consists of France and Spain. We got a bit more than 750 employees across these geographies, with a headquarter in Malmö and are listed in Stockholm since 1999. We work very hard towards the vision of becoming a European leader in healthy and sustainable food. A quick overview of the second quarter then.
First of all, in this first quarterly report, for me as fairly new CEO, I have to conclude that sales in the second quarter was a disappointment at SEK 865 million, which is a 2% organic decline versus last year. If we adjusted for the number of trading days, as well as the Easter effect, we did have basically a flat sales development. Obviously, against our ambition to grow by 3%- 5% organically, and also in the context of the sales decline on own brands being 3% organically, we're not happy with that development. However, positively in the quarter, our own organic brands are back in growth with a 1% organic growth development, which is a good platform for the next steps, which I'll come back to a bit later.
We saw a less favorable sales mix with higher growth on private label, and also see some remaining factory efficiency opportunities, which then impacted the gross margin negatively in the quarter with a 0.8% decline to 28.1%. In combination with an inability to fully adjust our sales, marketing, and admin costs to lower volumes and gross margin, a material EBIT before items affecting comparability declined to SEK 4 million, which is down from SEK 22 million last year. That corresponds to an EBIT margin for the quarter of 0.5%. Positively, we saw a continued improved net debt leverage year over year at 1.9x , although a slight deterioration quarter over quarter. Also, positively improved cash flows year over year at SEK 5 million, which is SEK 24 million higher than the same period last year.
If we look at the first half year, in summary, obviously, to a large extent, the same story. Sales modestly climbed to just north of SEK 1.8 billion, which corresponds to a 0.3% organic sales decline. We saw a strong start to the year on our own consumer health brands. In the second quarter here, as I mentioned before, the own organic brands contributed positively with 1% organic growth. The capacity buildup during the first quarter, as well as the unfavorable sales mix and some remaining supply chain efficiency opportunities, then led to a slight deterioration of the gross margin, 0.5 percentage points down year over year to 28.4%.
In combination with the overhead cost development, this led to an EBIT before items affecting comparability deterioration to SEK 41 million, SEK 19 million down year over year, which then means that we closed the first half of the year with an EBIT margin of 2.3%. Also, for the total first half year, positive cash flow development was seen in a year-over-year comparison at SEK 40 million, which is SEK 38 million higher than last year.
If we look at it briefly by division, the Nordic division, specifically for the second quarter, had a weak sales development in the quarter, partly driven by the loss of two licensed brands, but also because our own brands had a fairly weak development of a 2.9% decline organically, mainly driven by a change in business model for one of our larger health food brands that we're in the process of going from direct-to-store distribution to central distribution, leveraging strong capabilities and relation on central chain level. However, this has temporarily impacted the sales development negatively in the quarter. The gross margin in the Nordics was also negatively impacted by the fact that we had lower factory efficiency on the health food segment in Denmark, mainly as a consequence of a lower volume.
Division North, however, it's pleasing to see a continued sales growth with private label as the biggest contributor, but also, as you can see in the third bullet here, with healthy organic growth for our own brands in Division North. We have achieved the capacity expansion that we needed to serve the customers and that we've been striving for. However, despite a very good job on this in the local team, we see some potential for improved efficiency going forward. Looking then at Division South, we saw organic sales growth despite pockets of weaker sales performance, particularly in the health food stores and particularly in France. A stable gross margin then, despite a slightly unfavorable sales mix, thanks to improved efficiency and pricing. We have seen a good growth in grocery in France, supported by new listings that we have mentioned previously.
It's pleasing to see that also translate into improved sales. If we look at it instead on the second quarter development by product category, we can see organic products growing by 7%. Overall, I think it means that we are strengthening market shares in the overall segment from all the geographies we're looking at in combination, but mainly driven by private label. However, as I mentioned before, very pleasingly to see that the organic brand portfolio is also improving the growth trajectory, now growing by 1% organically in the quarter. As I mentioned, we see continued strong growth for private label, mainly in North, but also improved listings on our own brand products in several geographies that are supporting the positive sales trend. Looking at health foods, though, had a more gloomy quarter with an organic decline of 10%.
As I mentioned before, this is mainly due to the change in business model going from direct to central distribution in the Nordics that has temporarily impacted sales negatively. We also stopped the number of unprofitable private label contracts, which also impacted the total sales negatively. Lastly, looking at consumer health products, we saw an organic decline of 18%, where the own brands are impacted by timing. We had a considerably stronger development on own brands in Q1, which saw a big part of the seasonal stock build on the more seasonal products that came in Q1 this year versus some more in Q2 last year. On top of that, the stock distribution of two licensed brands, both of which were also in the consumer health segment, is also impacting the total sales development negatively.
Looking at gross margin development in the Nordics, we saw a slight deterioration due to a slightly negative product mix with consumer health and health goods growing less. As I mentioned previously, also production efficiency in Denmark being impacted negatively by lower production volumes. However, with some less profitable private label contracts being canceled, actually supports the development and mitigates some of the loss in the other pockets. In North, we saw a somewhat more material year-over-year decline with the unfavorable mix explaining a big part of that with more private label sales than own brands. Although we saw, I'll remind you again, growth on both of those. Also, while as I said, I think we did a good job with the capacity increases that we've been striving for, the next step there is to go after some more production efficiencies, which if anything creates an opportunity going forward.
Lastly, looking at South, a very, very, very small year-over-year gross margin decline with a slightly negative sales impact, with a good then partly as a result of a good private label growth in Spain. However, partly mitigated then with good brand progress in French grocery, with new listings that helps defend the gross margin, and then improved production efficiency that compensates for some of the negative mix impact. I thought I'd take the opportunity to comment a little bit on a press release that we sent a week and a half ago regarding a fire in our plant in Castelserás in Spain, part of Division South. Early in the morning of the 7th of July, a fire interrupted in the plant.
Thanks to very swift action by our own staff, as well as a good collaboration with the local fire authorities, the fire was contained to part of the plant. Most importantly, no one was hurt in the fire. The fire directly impacted a production area corresponding to roughly SEK 75 million of sales. This production area was basically completely destroyed, which also then caused us to, for that part of the business, claim a force majeure event. The plant is covered by property damage and business interruption insurance. We are now working full steam ahead to specify the losses in detail, as well as cooperating with the insurance company in terms of the investigation going forward.
What's very pleasing in this tough situation is that the sales, marketing, and administration activities were up and running and back in operation the same day, and that the indirectly impacted production areas were fully operational already two days after the fire. I want to take the opportunity and send a massive thank you to the team in Midsona in Spain for excellent efforts in conjunction with that. Our customers are being served with the available products, which includes products from the indirectly impacted parts that's up and running again. It includes branded products from contract manufacturers, as well as the licensed brands. At the same time, we are working hard to rapidly establish new sourcing for the directly impacted products where it makes sense, either in-house or through contract manufacturers.
We will obviously do so working in a smart way to make sure that we sweat the existing assets and try to use this tough situation to create an even more improved trajectory for the Spanish business. After a tough quarter, and also being one of my main insights after the first weeks in the business, we will further accelerate, and there is clear room to further accelerate the strategy implementation and deliver shareholder value and organic growth from this. We will put even more focus behind the focus areas of organic and healthy food, winning with our brands, as well as selected geographic markets that we're in, building on the pillars of one organic powerhouse and efficiency and harmonization, as well as growing and expanding our health brands to strive towards our organic growth objective of 3% - 5% and an EBIT margin of above 8%.
We will do so with even more clearly focused actions and initiatives and a relentless passion and drive. In the very short term, that means that the immediate priorities towards that trajectory is obviously, first of all, to ensure full operation of the indirectly impacted parts of the Spanish business and to reestablish sourcing of the directly impacted products in a smart way to take the opportunity under the difficult circumstances to improve the best trajectory possible for the Spanish business. We want to regain the growth momentum in the Nordics, leveraging the positive trend that we've seen now on the organic brands, which is a very important step for us. We also leverage a very positive growth momentum in the North in combination with the successful expansion of our production capacity to drive margins and profit growth going forward.
With that, I'm going to hand over to Max, who's going to take you through a bit more of the details on the financials. Max, please.
Thank you, Henrik. I will start with a financial summary for the quarter. The net sales declined by 5.7% compared to last year, and the gross margin was slightly weaker due to unfavorable mix when private label continues to outperform sales of our own brands. The EBIT came in SEK 18 million lower, driven by lower sales and slightly weaker gross margin. The net result was slightly down, but negatively impacted by SEK 11 million of one-offs related to the changed timing of our former CEO's departure and structural changes within Nordic divisions to reduce costs for the future. The one-offs were, however, fully offset by a small positive tax net and SEK 5 million lower financing costs.
The cash flow from operating activities landed on SEK 5 million, which was SEK 24 million better than last year, and the quarter ended with a leverage of 1.9x . Finally, on this summary slide, we are pleased to inform you that we have signed a new long-term financing agreement with Nordea, which I will come back to in more detail later in this presentation. Moving over to net sales development versus last year, the net sales last declined by 5.7% or in absolute SEK 53 million. The FX translation explains SEK 34 million, and the organic sales decline was SEK 19 million or in relative terms -2%. For our own consumer brands, the organic decline was 2.5% with a mixed development for our different brands. For our own business-to-business brand in North Europe, the focus on profit over volume continues, and the sales declined by 20.2%.
Our private label business grew strongly with 18.8%, where South and North Europe continue to show strong growth, while Nordic still declined due to the focus on profit over volume. The license business declined by 23.5%, mainly driven by discontinued distribution agreements. Now explaining the EBIT. The organic sales decline, or in this case, labeled less volume, resulted in SEK 6 million lower contribution, and the weaker gross margin resulted in a further SEK 7 million lower contribution. The sales and admin expenses increased by SEK 1 million, explained by temporary higher costs, while the underlying cost was lower. However, the lower run rate was not on the level to compensate for the lower sales and weaker gross margin. Revaluation of operating assets and liabilities due to FX reduced the EBIT further by SEK 3 million. As a summary, the EBIT landed on SEK 4 million for the quarter.
Moving over to the quarterly cash flow. As you can see from the graph to the right, the second quarter is seasonally a weak cash flow quarter for us. However, as already mentioned, the cash flow from operating activities landed on SEK 5 million and improved by SEK 24 million versus last year. As I introduced, we are pleased to inform you that we have signed a new finance agreement with Nordea. This agreement consists of a total credit of SEK 950 million, a similar level as in our old agreement. The agreement is beneficial to Midsona AB with significantly better margins and will give us greater flexibility and better conditions for our focus on profitable growth, including potential new acquisitions for the future. Moving over to my final slide and the status of our cash and debt.
We ended the quarter with SEK 634 million in available cash, which represents 17% of the last 12 months' sales. As already mentioned, the net debt in relation to EBITDA landed on 1.9x , well within our financial target. Excluding items affecting comparability, the ratio would be calculated to 1.7x . With this, I would like to hand back to you, Henrik.
Yes, in summary, a challenging quarter in terms of net sales and some remaining opportunities for efficiencies. However, also with some bright spots, most specifically, I would say the 1% organic growth achieved in our own organic brands, which is an important step on our journey towards our strategy. With that, we are going to open for questions. Operator, please.
If you wish to ask a question, please dial #KEY-5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial #KEY-6 on your telephone keypad. The next question comes from Nikola Kalenovski from ABG Sundal Collier. Please go ahead.
Thank you for the presentation, gentlemen. My first question is on the Nordics. You mentioned you've terminated some distribution agreements. Would you say that there is more work to be done in this regard, particularly in the Nordics? Could you perhaps share any potential timeline for terminations if you are considering any additional ones?
I would say that this, obviously, if you look over the longer period of time, licensed brands have become a smaller part of our overall portfolio. However, there is not a clear strategy in any not to continue to these where it makes sense in terms of complementing our portfolio and bringing further strengths to the channel position that we have. The specific answer to your question is that we are continually reviewing the licensed brands collaborations that we have. As you would expect, some of those we're very happy with, both in terms of strong collaboration, but also the impact it has on the total portfolio performance of us, whilst others are being challenged. There is not any, how should I phrase this? There is no specific targeted timing, but more a continuous review of the collaborations that we have.
We're not in a position to say that we can exclude either canceling further ones, but also potentially actually taking newer ones, which would have a positive impact.
I appreciate that. That sounds like a very pragmatic approach. On North Europe, you mentioned that there have been some capacity constraints that seem to have eased in Q2, if I understand it correctly. Have you installed capacity that you're happy with? Have you finished installing additional capacity, or is there more work to be done here, would you say?
In terms of the ones that we referred to at the back end of last year and in Q1, actually, that was less about installing new equipment and more about ramping up and getting full capacity out of the equipment that was already in place. That was achieved well, although, as I mentioned, there is still some opportunity to improve the efficiency now that we've got that up and gone. I think the fact that we were able to grow at the rate that we did in the quarter also demonstrated that we could fulfill those requirements. When it comes to the footprint in general, that is obviously a continuous optimization work to do on our behalf, including then in the German factories.
I think in the immediate future, there is no plan for any, as I would say, material CapEx project, but more utilizing the capacities that we have and getting the most out of that.
Great, that's very helpful. Thank you very much. Finally, on the fire incident in Spain, I understand that a certain production area was completely destroyed. I believe you characterized it that way. Of course, appreciate that this is in the early innings in terms of remedy and recovery. However, do you have any feeling as for how long it could take to recoup the lost production that you're referring to, if at all?
Yeah, that's a very relevant question. I think it's a question that begs a slightly complicated answer, to be fair. I think to some extent, parts of our Spanish business, and this is not a general statement regarding the entire business, but parts of that, if you look at it from a product segment, have suffered to what the Spanish would call un traje demasiado grande. That is a suit that's been a bit too big. Obviously, in this position, whilst it's a very tough blow for the team and for the business, we're obviously trying to do the most positive thing we can from it in terms of gearing the Spanish business for the best possible profitable growth trajectory.
That also means that we're working hard to try to figure out what the right supply chain setup is, including what we can and should produce in-house using the assets and the space that we have and what we could potentially do together with contract partners. I would phrase it like this. There were strong and tangible plans to recover a reasonably, how should I say, a material part of the prioritized production on either semi-permanent or interim basis within months. That's how I would phrase it. Exactly how much of the total production that means, that's a bit too early to say. The exact impact that will have on our margin based on the fact that some of it will likely be contract manufactured rather than made in-house is also a bit too early to say.
Yeah, super helpful. I appreciate the color on that. That's very helpful. Thank you very much. No further questions from my end. Thank you.
Thank you very much.
As a reminder, if you wish to ask a question, please dial #KEY-5 on your telephone keypad. There are no more questions at this time. I hand the conference back to the speakers for any closing comments.
Thank you very much. Thank you, everybody, for your attention. Being the reflections from me after only a few weeks in the role, obviously, whilst there are some bright spots in this result, and I mentioned, highlighted earlier, the nice-to-see organic growth in our organic product portfolio. Overall, we're not happy, obviously, with the quarter development. However, from my perspective, and I know I speak on behalf of the entire management, we are super excited about the potential in the strategy. In the longer term, we see a clear and material potential based on the strong and increasing interest in healthy and sustainable foods among European consumers. Rest assured that we will work tirelessly to realize that potential. With that, thank you very much, everybody, for listening in. Wishing you all a great summer. Thank you very much.