Earnings Call: Q1 2021

Apr 29, 2021

Thank you so much and thank you for your attendance. I will present where we stand overall and then Mr. Max Bokante will go more into the figures. We can move to the second and we can actually even move to the 3rd page in the presentation where I have my first summary slide of the key developments of quarter 1. As you'll probably see, we were pricing tough comparative figures in the Q1 with last year's sorting in mind. As you might remember, in the first panic phase of the pandemic last year, retail shelter emptied time over time and this phase started in end February 2020. It's at its peak in the month of March and then also continued into April and then we are facing more normal comps again. Still considering those circumstances, we are actually quite happy with the development and we are delivering according to our internal plan. And I would like to focus on a few things here. First of all, our priority as brands, the brands that we are really focusing on are doing comparatively better. And they are actually almost at the same level as last year despite the big hoarding effects that we had last year. So we are quite happy about that. We are especially happy about the developments for our key brands in Germany, France and Spain. For you for those of you who have followed us before, you know that we are making a rollout in the grocery trade in Europe. And that rollout is going actually not only according to plan, but it's going better than planned right now. And that's very promising, we think. In the quarter, we have invested more than normal in our brands to support the rollout in Europe of those brands that I mentioned before, but also to some extent to selectively support our Nordic brands. This, of course, have had a small positive volume effect already in quarter 1, but the main effects we see looking forward. In quarter 1, we took quarter 4 last year, we took control of System Trust and the integration is also running a product plan. We see declines in sales in foodservice, private label and we've also terminated a couple of principal contracts with very low profitability. So on our strategic agenda, we think that we're still doing very, very well. And by that, we can turn to the next page, Page number 4 in the presentation. These are the highlights of quarter 1. And at SCC, we are growing, but that's by quite growth by SCCN fruit and organic growth was minus 5.6% due to the hoarding effects that we were cycling from last year. EBITDA is down versus prior year and this is the effect of lower base sales, increased marketing spend, as I communicated earlier and also due to the fact that quarter 1 is the same fruit seasonally weakest quarter with low sales and very low profitability. And to some extent, we've also had increased cost per production and transportation during the quarter. An illustration, if you go to the next page, page number 5 of the net sales bridge, which I think is quite illustrative. In Q1, M and A pro form a at SEK 109,000,000 and that should then be compared to quarter 4 where M and A added SEK 203,000,000 and this is due to the seasonal pattern that we see in Sisteen Frucht. Quarter 4 is by far the best season because of the Christmas season. Quarter 1 is the comparatively smallest quarter and then it improves quarter by quarter. So this is a totally normal seasonal pattern that we see persistently improving. And overall, we are quite confident about the future and feel that we are running according to plan here. Our prioritized brands are almost flat there down SEK 8,000,000 versus last year. Of course, we always want to grow, but considering the new churning effect that we had in Q1 last year, we are still quite satisfied with that development. And then if you look at the other part of this, this is private label. We got huge orders in February March last year. In Screw Service, that started to drop last year, but that drop has continued. And then as said, we have terminated a couple of principal contracts with very low pretty high sales but very low margins. And then we have a currency effect due to the strengthening of the Swedish krona against the euro primarily. We move to Page number 6. And while net sales is only growing moderately in quarter 1 and EBITDA is down, I want to emphasize we've been very confident that we will continue long term growth here in that you see here. Our stadium plans hold and we will continue to execute according to those. And a somewhat slower development in quarter 1 it's very much due to the fact that we recycle those hoarding effects from last year plus the seasonal pattern of Sistemproot. A few highlights on the brand side, and we go to Page number 7. Building strong brands is one of Mid Sonos core competences and we have a number of those and those are primarily the brands that we call our prioritized brands. We're very proud that ComerKit has been awarded Sweden's Greenest brand. And this, we think, is approved with the continued brand building that we have done for the brand. And of course, this is something that we now we will employ in our market, significant market of brand. We go to Page number 8. As you know, and thus I've already talked about to some extent in the presentation, the rollout in the grocery trade in Europe is a key project for us. In the Nordics, where we have our home markets, most of our products are sold in the grocery trade, we think that this is both good and the right way to go about it because in the grocery trade, you meet a lot more consumers compared to the specialty trade. This is in contrast to the situation out in Europe where our brands mostly have been in the specialty trade. And to reap the full benefits and get the full potential of the brands, we need to launch some Ingrede grocery trade and this is what we have started in the key markets. We see continued good development for the Daven brand in the grocery trade in Germany. And despite the fact that there is cycling cording effects also in Germany, the brand is growing double digit in quarter 1. So this is, of course, very promising because it shows that the trend works and that we also see consumer off takes the consumers are actually picking the brand and the products from the shelves. Pretty much along the same lines, if we go to Page number 9, we are rolling out the Happy Bio brand in France and Spain. We have continued to build distribution, continued to launch new and innovative products. And we see some quite spectacular growth, which is close to triple digits. Admittedly, it's a low base, but the base is growing very quickly. And we are attracting more customers and more consumers quarter by quarter. By that, I would leave the word to Max Buchander, who will go through the financials in some more detail and then I will summarize at the end. Thank you, Peter. I would like you to move 2 pages forward and be on Page 11. In the quarter 1, we had a small growth, but driven by added system for the organic development was negative at 5.6%, mainly due to the positive hoarding effect that we had during last year. Worth noting is that not only the PowerTeq brands develop better, but their own brand portfolio developed better, and I will come back to that. The gross margin comparison with last year continued to be impacted by Sustenkrupp, which has a lower gross margin than average in Sona. The EBITDA variance is largely explained by the negative effects from the lower organic sales. However, these were partly offset by synergies, favorable mix and at favorable transactional exchange rate. The free cash flow a seasonal week during Q1 for Midserna. And this year, it was additionally negatively impacted by us deciding to end the factoring agreement within Suttenfor. I'll ask you to move to Page 12. Susterenberg adds 11% and besides already mentioned organic decline, the currency continued to have a negative translation effect in the period of 3.6%. I'll ask you to move to Page 13. This is the slide where we show the organic sales development by sales channel. And last year, basically all channels had a positive impact by a rewarding effect accept foodservice. And foodservice, on the other hand, have during this year had some negative effects due to lockdowns. And compared to last year, this year includes 1 less invoicing day, representing a theoretical 1.6% lower Spain. To be noted, it's also that Eastern, that was a part of Q1 this year, do not have a positive demand on Midsena products. I ask you to move to Slide 14. Here you see the sales development over the last 5 quarters. And I would like you to note that our own brand continue to develop better than the average business within Luxona, which is important for our mix. I'll now ask you to move to Page 15. In the upper graph, you see the gross profit and the gross margin development versus pro form a last year. And versus pro form a, we improved the margin with 0.6 percentage points. However, we generated lower gross profit from lower organic sales. In the lower graph, you can see that the EBITDA effect is less negative than the gross profit effect. Synergies, favorable transaction exchange rates other drivers for these less negative effects and actually also compensating higher marketing expenses. I now ask you to move to Slide 16, the summary of the Nordics division. The division had a net sales growth of 8.6% driven by the structural growth that's the improvement. Beer grocery trade include a negative effect from the discontinued sale of a low margin licensed brand, which is positive for the mix. Pro form a system cooked added SEK 1,000,000 in EBITDA, I. The year EBITDA landed on the same level as last year performance, this despite a negative organic sales development. I now ask you to move to Slide 17, the summary of Nordic division and North Europe division. Levision had an organic external sales decline at 4.7%. However, as you can see in the graph and also mentioned by Peter, grocery trade continued to grow with the successful launch of Vale. Foodservice, on the other hand, that is a material share of the business within North Europe and used to represent 30% have during this quarter been impacted by the warding effect the lockdown, sorry. And basically, the lower EBITDA is last year, it's mainly driven by the lower organic sales. I now ask you to move to Slide 18. Within South Europe, we also had a negative organic sales development due to the tough comparisons figures here at 3.1%. And also what mentioned here as you see on the graph to the left is that grocery trade continues to grow significantly, I would say, with the continued successful launch of HappyV. And also here, the EBITDA unfortunately is lower you do the organic sales development. And now I would like you to move to my final page, the free cash flow, Slide number 19. And as I introduced, for Midsoona, Q1 is a seasonally weak cash flow quarter and this quarter was additionally negatively impacted by discontinuing our factory at December. And we have, during April, decided and implemented a new credit frame, which will increase our flexibility going forward. We have not utilized it and do not see a need in close by. With that, I would like to hand back to you, Kjell. Thank you so much, Max. And this takes us to the a summary of this. And I think that the story is quite clear. We did have tough compared to figures at the beginning of 2021. And to some extent, we still have that in April 2020. But that is also the last month of hoarding last year and then we will have more normal comps again. The rollout in the grocery trade in Europe continues. This is a key long term project for us that will significantly strengthen our European presence. And we did invest in extra marketing in quarter 1 and we will continue to do so in quarter 2 to support the launch because this is such a strategically important project that we need to make it a huge success. And the cycle we see so far are very promising and we continue to drive this very hard because this is a major opportunity for us looking forward. The integration of Sysdient Fuel continues. And please remember, as discussed earlier, there is a strong seasonal pattern for Sysdee and Fluids, with quarter 1 being the weaker And then gradually, you should expect to see stronger quarters as we move into the season. And by far, the most important quarters are quarter 3 and quarter 4 when we do a lot of the Christmas sales. We continue to look for M and A opportunities. The opportunities have been fewer during the pandemic. As restrictions are lifted, we are confident that we will be able to acquire new companies in our quest to consolidate the European market for healthy and sustainable tool products. Although we had challenges in quarter 1, I look to the future with confidence. Thank you so much. And by that, I open for questions. Thank you. And our first question comes from the line of Ewen Brand of ABG. Please go ahead. Thank you. Hi, guys. I have a few questions. So first of all, if we go into sort of a month 5 months basis here. Is it possible to split up the quarter in 2 sort of before And after the hoarding comps came in, the sort of organic sales development there? Okay, would you like should I answer that or would you like to take all your questions? Let's take them 1 by 1. I think that's Let's take them 1 by 1. Okay. We will not give you specific figures in terms of how the development was month by month. But for sure, the major negative effect as we expected was for sure in March, but that was when we were facing the extremely high comps from last year, while January was quite normal. February was somewhat affected by holding last year. But at the same time, I should say that the month of March in terms of profitability was quite good for us. So and this is due to the fact that we are increasing production in Sistemfrook. So that's the way I would like to answer that question. Thank you. And sort of you mentioned April being more of a hoarding comp as well. Would you classify that more as a February or March sort of comparable if we stated that way? The peak for sure was in March. I would say that it started the summer since February and then it was mainly customer hoarding because customers got worry about corona effects. The first half of March was very strong. The second half of March last year was extreme. It went on a week or 2 into April and then it gradually receded. I would say that March for sure was the strongest holding month, then April, then February and then May was pretty much back to normal or even a little bit of a backlash in terms of lower than anticipated sales last year. So that's the pattern that we saw. Thank you. And you also talked a bit about synergy effects there in 15 Vlugt. That should gradually sort of increase over the year. Is it possible to quantify The synergies you expect during 2021? The synergies we had in quarter 1 was SEK 3,000,000 roughly. We foresee additional SEK 2,000,000 in quarter 2. Then the project is going according to plan and should be completed late early Q4, which, of course, then have will continue to have rolling effects into next year as well. I didn't want to quantify it more, but we have communicated SEK 34,000,000 as a rolling effect, and we're following that plan. Wonderful. Thank you. And regarding the marketing investments as well, you mentioned SEK 10,000,000 in the report. Is this the magnitude we should expect in Q2 as well? I would say that, that would be a rough benchmark, yes. Thank you. And then a last question for me as well. You mentioned M and A activity as well and how hard it's been due to lockdowns to sort of reach out In Europe, is this where you see the most targets currently sort of when If you look at the sort of pipeline here, are you seeing most objects in Europe? Or is it still the Nordics? I would say that we are looking at both. And as we have communicated earlier, we have a focus on Europe because we want to expand our presence in both Europe North, I mean, the Dutch region and Europe South with France, Spain and neighboring countries. So for sure, we are looking there. But then there also might be good add on acquisitions in the Nordics. We did 2 of them last year because those are available and those fit it very well into our overall strategic framework. So we are looking at acquisition opportunities in all our divisions. Thank you very much. That was all of my questions. Our next question comes from the line of Johan Dahl of Danske Bank. Please go ahead. Thank you. Can you just I was late to the call unfortunately, but how much of a full year impact of this And the sort of contract manufacturing, how will that impact the group on a sort of rolling 12 month basis? Can you tell us that? On the license brands, it's I would say that the drop figures now net net sales and fixed would be about SEK 60,000,000, but the gross profit is extremely low. So I mean, these are countries that we have terminated because there were just no profits left for us. So I mean, already last year, the profit impact was 0 or maybe even negative. So on the profit side, it doesn't have a lot of effect, but or if any effect, but of course, on the net sales side. And on your supply chain, how does that look at the moment? I've seen a lot of disturbances out there and you complained about that in the past as well. But what would the updated situation be for you guys? And if you can provide any forward looking comments we are still facing increased transportation costs and I think that goes through pretty much everyone and also a lack of containers, especially from Asia. So this is something that has had effect of us. I think that the effect for quarter 2 will be above at the same level as quarter 1. Then we have even if organic growth is somewhat negative this quarter, we still have had some production disturbances. And for certain items, especially in Division North, still demand is higher than the supply and that has both driven some extra costs and meant some lost sales in Division North. Thank And there are no further questions at this time. Please go ahead, speakers. Then I would like to thank you all for your attendance. Thank you so much. Goodbye.