Midsona AB (publ) (MSONB) Earnings Call Transcript & Summary

Thank you so much. I'm very pleased to present what we think is a very solid second quarter for Midsona. I will take you through more of a general business update, and then Lennart Svensson, the CFO, will go through the actual numbers. And then we'll round up to questions-and-answer session. And I think that we can go straight to the third page, which gives the highlights of quarter 2. As I said, I'm of the opinion that we delivered a very solid second quarter in quite some turbulent times. We are having both organic and acquired sales growth in the quarter. I'll get back to the precise split between the organic part and the acquired part. In addition to this, we have had very good cost control in the quarter, and that means that we can deliver a solid EBITDA result and also margin that we are very happy about. It is actually on par with the previous record, 11.3%, significantly above the last year of 8.4%. And we think that this is specifically strong because the second quarter is usually our weakest quarter of the year. So we think that this is indeed very, very solid. We turn to Page #4, which describes the revenue development for the second quarter. And for those of you who follow Midsona, you know that we are an acquisition-driven company. And if we compare to last year, we have 2 acquisitions, and that is the Alimentation Santé acquisition, which was our platform acquisition in France and Spain; and then we have an add-on acquisition, Eisblümerl Naturkost, in the German market. And I should say that we're very happy with development of both those acquisitions. They have been performing extremely well. So if you start from this quarter 2 2019 pro forma basis, we see 6% growth overall and an underlying growth of 8% if we take out the effect of Alpro, which was the principle that we had before, but that we have lost and that we had some remaining sales also in quarter 2 last year, and the foreign exchange effect. And most of the growth comes from our prioritized brands, the brands that we focus on. So that drives the bulk of the growth completely according to our strategy. We turn to Page #5, which summarizes the key developments in the second quarter. And of course, this has been a quarter that has been heavily influenced by COVID-19. For us, it has been a little bit of ups and downs in the quarter. We had a very strong start in April. Then we had a somewhat weaker May when the lockdowns were eased in various countries, and customers and consumers phased out some of their inventory. And then towards the end of the quarter, we again had a very, very solid performance. But overall, I would say that we're very pleased by the performance in the quarter. In addition to COVID effects that was described, we have continued to work according to our strategy. And one of the key things that we're doing is that we want to roll out our strong organic brands in the grocery trade across Europe. And in the quarter, we have had kind of a breakthrough in this with several new listings that have driven growth both in Germany, France and Spain. We also started a relaunch of our organic brands in the Nordics in the first quarter, and that has continued in the second quarter, and we overall see some very good performance for our organic brands also in the Nordics. We have had very high capacity utilization during the quarter, and we have had some bottleneck issues and also lack of certain raw materials. And this has, to some extent, limited our capacity to sell to our customers. It starts to get better towards the end of the quarter, but we had some other stocks during the mid-quarter and the beginning of the quarter. And then we have continued to work on our long-term cost savings programs that have been announced earlier. They are running according to plan or even ahead of plan to some extent. And then we took some more specific COVID-19 measures to control costs even further, and those have also delivered. So we are moving ahead according to our plan, while at the same time, managing this quite complicated COVID situation. So we feel that we are really on the right track here. We can turn to Page #6. As I talked about earlier, one of the key strategies is to roll out our strong organic brands in the grocery trade. We have historically had a very strong position in the specialty trade in both France, Spain and Germany. And now we are making also inroads into the grocery trade, which is where we think we will see most of the market growth in the future. And we're very pleased by the results so far. As said, we have gained new listings with major mass market customers both in France, Spain and Germany during the quarter, and those have driven sales for Happy Bio. It's up 84% in the quarter, and the Davert brand, which is up 38% in the quarter. We go to Page #7. As I've talked about, we are a company that is quite heavily focused on M&A. As a part of our strategy, we want to consolidate the European markets for health and well-being. We want to be one of the consolidators, and this is a strategy that we've been employing for a number of years. As I'm sure you can imagine, the M&A market was quite a deep frozen at the beginning of the COVID crisis, but it's starting to ease up during the quarter, and we're happy to announce that we could make one acquisition during the quarter. We acquired a brand Gainomax. It's a strong iconic sports nutrition brand present in the Nordic market. It was an asset deed of SEK 60 million, and the brand has a turnover of about SEK 80 million. So this is relatively seen as a small acquisition for us, but a good add-on acquisition to our Nordic business. We start to see some easing up in the M&A market, and we do think that there will be plenty of opportunity for acquisitions in the second half of the year, and this is something that we will hope to be able to come back to later in the year. By that, I leave the word to the CFO, Lennart Svensson.

Thank you, Peter. Then I would like to turn to Page #9, Q2 2020 financials. And as Peter mentioned here, our sales have developed quite good during the quarter. Even though normally Q2 is our weakest quarter, we see good sales development both with the new volumes, both in -- especially in North Europe and south of Europe. And we had an increase of 22% compared to last year, of course, then driven by both acquisitions but mainly also by the growth of our brands. We had an EBITDA of SEK 97 million, which is an increase of 64% compared to last year, which we think is quite amazing. And we're quite proud of that. And this comes from the efficiency programs that we have implemented last year in 2019, but also by seeing a higher efficiency in our production line and especially now in -- with the COVID-19 special measures that we have taken to reduce costs. And we have normally reduced costs like traveling and so on, but also by working smarter and more efficient, especially in the production. We had some one-off items of SEK 11 million. This comprises of consideration of purchase -- previous purchases. We do estimations on considerations every quarter to see on the earn-out structures. Normally, we have quite high targets on the acquisitions that we do going forward. So we have to do considerations every quarter. We also have a small restructuring, which is in line with our plans -- restructuring costs. And we also have a negative goodwill of SEK 8 million, which is also described in our report, which is related to a company we converted -- a joint venture, Paradiset, which has been converted from a joint venture to a fully owned subsidiary, and this has affected both then as a one-off item on -- in operating revenue, but will also -- I will come back to that, also in the net financing costs because we had -- closing down the joint venture has affected the net financing costs. Depreciation, as mentioned, is mainly due to the new ERP system, but also the increase is because we are acquiring the new acquisition like Alimentation Santé, comprises of quite a lot of production machinery and with -- which then increases our depreciation. The good thing with the acquisitions that we made, both Davert, Eisblümerl and Alimentation Santé, is that the equipment is of high quality and fairly new, which means that we do not see high replacement costs in the near future for these production units. Our net financing cost is -- came out at minus SEK 21 million, but this includes then a write-off of the joint venture of SEK 8 million. So in comparable -- it's comparable to previous year. The good thing is that also that we have been able to reduce our net debt quite in line with our forecasts, which also reduces our financing costs going forward. Income taxes are in line with the corporate -- with each specific -- country-specific tax rates. So there's nothing special in the tax expenses. Moving on to Page #10, segment reporting. And again, here, we see a little bit what was mentioned previously. In the Nordics, we have had a good development for organic and health food products. However, we have been affected slightly negative in the quarter from sports, health -- sports and health products and also in the food service business. This has been compensated on the result base by the efficiency programs and the overall lower cost that we have had. In the North, we see -- in North Europe, we see a very good development, specifically on the branded products, as Peter mentioned here, Davert, with new listings in the grocery trade and also with the increased production -- we have a much higher efficiency in the production. And this combined with a cost-conscious organization that has been working very -- has been a good quarter from a cost perspective. This also goes for the south of Europe. We see high efficiency. We see the new listings into the grocery trade and a very good cost control in these companies. So both of these divisions have performed really, really well. In summary, we can say that for the -- we have -- we see a higher efficiency in production. We have seen a lower cost base, and we see that we are complying with -- we are on track with all our cost efficiency programs that we initiated last year. Moving on to Page #11, allocation of revenue. We see good growth of our own brands. However, in the Nordics, this is slightly affected because in the food service, we see a little bit of a drop, and that is mainly Kung Markatta brand that we're selling in the food service channel. But the branded goods into the grocery trade, we see a good development. Both North and South, good growth, as mentioned before, towards the grocery trade. And this is really important for us because this is what we are kind of betting on, and we see also that is happening is that the move from specialty trade into the grocery trade. Our license portfolio suffered slightly here due to the COVID-19 where we see a lot of consumer health products, such as Compeed and so on and other brands -- related brands. However, we see a little bit of a pickup of these brands by the end of the quarter and going into the vacation mode here now in a lot of countries. And so we see positive development at the end of the quarter for this. By that, Peter, I would like to hand over to you.

Thank you. And what I would like to do then is to move to the next page, which is Page #12, which is the -- a little bit of a summary, but also the outlook for 2020. And I would say that we are very humble and in a constant state of alert because still, of course, there are major uncertainties in terms of how COVID-19 will develop in the future and what potential business impact it will have. That said, I would say that the overall impact for us so far has been positive, and there is good reason to believe that it will stay like that also in the future. COVID-19 is a health crisis. And in that, we see that consumers are becoming more conscious about making those healthy and long-term sustainable choices. And we think that, that will work to our advantage. As discussed, what we have seen towards the end of the quarter is that demand has stabilized at a somewhat higher level than before. And also the supply situation has also stabilized, and we think that, that is what we'll see in the future. Our assumption is that we will see continued strong demand for dry organic products driven by this general health trend that I've talked about. A major project that was really started during the second quarter and that is a project that we'll continue for a number of quarters, not to say, years, is the roll out of our organic brands in the grocery trade in the major European markets. And this is very much in line with the trade that we employed in the Nordics, which started already around 2012 and 2013, to not only offer the product in the specialty trade with more limited number of consumers, but really reach out to the grocery trade where we will find the majority of the consumer. So this is a very important project for us. We have got a very good response from some of the major retailers in Europe, and that was also what was driving the sales of both Davert in Germany and Happy Bio in France and Spain during the second quarter. Our cost efficiency programs continues to run according to plan. As said, it's, of course, very hard to give predictions about M&A, but we are eager to make new acquisitions. There is reason to believe that the M&A market is starting to get up to speed again, and we're eagerly looking for those opportunities. So the summary from our side would be that we are cautiously positive for the second half of the year. Thank you. And by that, we leave -- we go to the next page, and we open up for questions and answers.

[Operator Instructions] And as there are no questions, I'll hand it back to the speakers.

Okay. And then I would like to thank you for your attendance and interest in Midsona. We are now moving ahead to the second half of the year. And as said, we look cautiously positive at that, and we look forward to talking to you again in the quarter 3 report. Thank you so much.