Humble Group AB (publ)

Welcome to Handel Group's year-end presentation. My name is Simon Petrin. I'm the group CEO. And with me today, I have Johan Lenartson, our CFO.

Good morning, Johan.

So thank you for tuning in. To start things off, we just want to share a few highlights on the quarter. We have delivered a stable quarter for the last period of the year. We have seen some improvement in the profitability. We actually had the first quarter where we surpassed 2 billion kroner in a single quarter, which is a milestone for us. We had an organic growth of 7.2%, a little bit weaker than the previous quarters. But as I already mentioned in the Q3 report, we were facing some tough comparables here. And if you look at the absolute growth, it's pretty much in line with the previous quarters. We had a sequential improvement in the gross margin, spanning up quite significantly from Q3, which also creates good confidence entering into 2025. And most importantly, the profitability is improved. We grew the adjusted EBITDA with 11% versus last year. And we also have a slight margin improvement. And overall, I feel that we have a quarter and a year behind us now with several improvements strategically in the groups. We had a lot of major initiatives that we have really focused on execution. And we're starting to ramp those up in the year, which is something that we really look forward to. So let's dig into to start talking about the net sales.

As Simon mentioned, the net sales for the quarter came in just below 2.1 billion. And the total growth amounted to 8%, of which .2% was organic growth. And we had a currency impact of just 1.1%. Looking at the segment perspective, we note that Nordic distribution have a really strong quarter, growing their net sales by 14%, mainly driven by good deliverance from Privab and GSD. And we also had a good sales growth in the sustainable care segment, where Solent and Amber House is two strong platforms in that segment. The growth in future snacking was amounted to 7% for the quarter, a little bit hampered by some structural changes in first-class brands. And in quality nutrition, we had a negative sales development of 6% due to some tough comparatives in the same quarter last year.

So when we talk about the growth for the full year and the quarter, I mean, we have our financial targets of 15%. For those of you that know our company, you know that we've been able to surpass 10% for many years in a row. This year is a little bit special. We have basically no price whatsoever into the growth. It's all volume. So we are actually taking market share. And I just want to highlight also that we have two companies in the group that I flagged earlier this year, B&S and FCB, where we have some quite big outliers for 2024. FCB, we discontinued the external distribution contracts. We made a big reorganization in order to have a higher focus on our own brands. And then with B&S, we had a low margin candle business that we terminated. We were basically break even, but we don't want to tie up capital in a business where we don't make money. So those two companies alone impacted us with minus 159 million. So we are entering a year where we have easier, much easier comparables in those two companies. And historically, we have been growing in them as well. And if we account for this, we're actually up above 11%. And our ambition is to be able to deliver a solid double-digit growth and something that we're in for going forward. So overall, I'm quite satisfied with the growth this year, taking all of the different aspects into consideration. But we are aiming for higher.

From a gross profit perspective, gross profit amounted to 659 million in the fourth quarter. We came in on a gross margin of 31.5%. This was sequentially .5% better than the third quarter. But compared to the previous quarter last year, we had a negative development of 0.2. And this was mainly explained by some challenging freight prices in the third quarter.

Yes. So if we compare with last year, the freight prices dropped significantly in Q3. This year, they were actually the highest in the full year, and something that impacts the business a couple of months later when we are selling those goods. What's positive about this is that we know for a fact the freight prices are down. They're down to around 3000 per container on our freight index. So that is something that is going to give us a positive boost in next year if the prices are maintained. If we look at the history throughout 2015 and the last 10 years, it has been significantly lower. So this is something that we see as positive going forward. Other than that, of course, as I also mentioned in the CEO letter, it is a challenging macro environment. We have some raw materials, not only prices going up, but also having access to those. Cacao is one example. Whey protein is another one. And of course, that also sometimes you just need to get the product to deliver on the service level. But that is also something that we are focusing on. We see strong opportunity to strengthen the margin, the gross margin going forward. So I'm actually quite happy to see this sequential improvement despite having those headwinds in the quarter. And we're confident about our continued development here to regain the gross margin to previous levels.

Looking at the overall profitability, the adjusted EBITDA for the quarter came in on 157 million. And this is a growth of 11% compared to the previous quarter last year. The adjusted EBITDA margin ended up in 7.5%, which is in line with the same period last year, a little bit less than the third quarter. You want to share your reflections?

I mean, this year, and as we have explained, we have significantly increased our marketing and sales spend in the group. We've also done a lot of investments into scaling up our factories. Not all of that is CapEx, but hiring additional personnel and strengthening the management team in different subsidiaries to be able to cope with the growth that we see going forward. And taking all of that into consideration, I'm really happy that we are actually able to improve the profitability still. We're not going to need to increase the marketing spend and the sales investments that we have done this year versus 2023, going into 2025. So here we see a good opportunity to start getting some operating leverage. That being said, we wouldn't invest in marketing unless we see some really strong traction. One example, we launched Pounding Q1 in Norway. It's almost surpassing Sweden already in sales. And of course, entering a new market is quite costly initially, but after a year or two, you start to gain some really strong benefits if you do it right. And we have good traction, a good ROI on our investments in our brands and scaling them internationally. So it's all about balancing that investment versus growth versus profitability. And our ambition here is to continue to invest but also sequentially grow the margin in the coming years. Talking about the business segments overall, Johan gave a few highlights here. Let's start with Future Snacking. I mean, in Future Snacking, we have some of our fastest growing companies in the group. We see a really good demand from consumers and customers. They like our products. I was just down with the group at ISM. I think we had one of the better booths there. I mean, the offer we have in Humble Group here is so much better. We're so strong with flavor dates, Swedish candy, the best sugar-reduced candy in various brands, and also some really good traditional candy. So just looking at what we have in the group and the offer that we can give to a distributor or a retailer, it's really attractive. So I'm very positive about this segment. We have also started to scale up in the factories. We're now up and running in two shifts, and we will have additional capacity throughout the year, and we have the orders to fill it with. So that's very positive. The downside here has been FCB. It's a big company. It's been dragging down the segment. It's actually the distribution part of FCB. So that is something we have been working on, and I'm quite confident that we are going to start regaining growth again. We have a growth plan for the year. Sustainable care, our biggest segment. Here we have Solent Group and Amber House, two companies that are very well aligned with the macro climate right now. The retailers like that business model that we have, and we can see some strong growth. Some of the brands, Nate and Humble Co., we have also started to regain momentum, and we're starting to see an increased sales velocity out from store, which is a behavior change with the consumer comparing to the previous two and a half years. So it's a little bit early to say, but if that trend continues, we hopefully will also have a higher organic growth in those companies. Quality Nutrition, the weakest segment in this year, one of the shining stars earlier quarters. Here, as you mentioned, we face tough comparables, but we've also made some changes. Body Science, we had a bit higher focus on profitability. We took down the investments a little bit, which impacted the sales. Also, we had some shortages in the bars production that led to less output from that facility. We have the capacity this year, and we're working hard to fill that up. And then also Whey Protein, it has been an issue throughout the last few months, and we are doing what we can to help our companies to source it and get availability. So we're not worried about Quality Nutrition. I would be surprised if it's not one of our fastest growing segments going forward. Nordic Distribution, the fastest growing segment in this group. Some people might ask, like, how fast is this market growing? The macro growth of distribution in general in Sweden is not that big, but we see a lot of great opportunities to grow structurally. And this is something that we have already secured, new exclusive retail agreements, where we are the supplier of snacks, drinks, confectionary. So we are growing, but with market share, and the market is not growing as fast. But really happy to see that. And we also start to see some leverage and scale on the investments we made in warehousing and consolidating some of our logistics centers.

And looking at the cash flow for the fourth quarter, it came in on 146 million of the change in networking capital. And we can see that we have a strong underlying cash-generating business across the group. Earnings before taxes amounted to 51 million, and then we add back some non-cash items, such as depreciation and some -cash-generating items into financial net items. Pay taxes of 7 million. But in general, the major impact on the cash flow is the changes in networking capital. And here we could see that we had a release of 36 million in inventory during the fourth quarter, which is, of course, in the right direction. We would have wanted to see some more release in the inventory. We had a negative effect in the short-term receivables and short-term liabilities ending up in the total cash flow for the quarter of 146 million, which is in line with before and after the change in the networking capital.

Yes, and to add to that, I mean, our companies have a sound and solid cash flow underlying in them. I was hoping for a bigger release in Q4, and we had a really strong start with October, November, and also December. But the last two weeks were really weak, mainly due to a lot of bank holidays. So I think that really impacted our inventory release quite a bit. That being said, we have further work to be done here. Looking at networking capital levels versus net sales, we have an ambition to improve that going forward. And I think there is an upside here to have a further release in the coming months. So we also have a few companies like Sollent, like our Superfoods, where we have stocked up. And also mind you all, I mean, we ship more than 1,500 containers yearly from Asia, and with the prolonged lead times in freight, that's been happening due to the Red Sea crisis, that naturally will tie inventory for us. But we have improved service levels in quite a few companies. And my hope and ambition going into 2025 is that we're not going to have to tie nearly enough as we have done in 2024, thus resulting in better cash conversion for the group, more deleverage and potential some additional investments. And talking about deleverage.

Looking at the net interest being in debt, it came down to just around 1.7 billion for the end of the year. And earlier in 2024, we communicated new financial targets that we want to reduce the net interest being in debt in relation to EBITDA to 2.5 times. And as you can see, we are on a good trajectory. Of course, as mentioned earlier, we would have wanted to see a little bit better cash release in the fourth quarter from inventory, which would have helped us to reduce the leverage even further. But we are on a good trajectory and continue to focus on how this is a high priority focus area for the group.

Yes, given that we are leaving the year with high net working capital levels, further potential to release, and we are closing in on our target of getting below 2.5 times, I would say we're looking to reach that in near term. Something we look forward to. I think we've done a good job throughout the last 2.5 years deleveraging the business organically. And yeah, as you mentioned, we're down to 2.8 right now. And it's gonna go further down if we continue to deliver solid profitability improvement and cash conversion underlying. And to wrap things up, I'm just gonna talk a bit about the outlook and the feeling we have right now. As I mentioned in the CEO letter, we have a really strong confidence, not us in the management team only, but also when I talk to my entrepreneurs, their feeling going into 2025 is much stronger than I have seen when we entered 23 or 24. So it's starting to feel a little bit easier in the market. And I think January is a good start. We had a solid double-digit growth where we should be. So that's a good start still early on, but I have a good feeling about the year, especially given that a lot of the initiatives that we've been focusing so hard to initiate and execute and also the consolidation of a lot of the smaller entities into bigger ones. We're basically done with a lot of that now. And we are ramping up those initiatives during the year. So we have a lot of opportunity here in 2025. We also see a good demand from customers and consumers. I mentioned earlier, we are investing in marketing spend and sales efforts. We wouldn't do that if the demand isn't there. So it's all about traction. If you have good traction, we are willing to invest. And by doing so, we will grow much faster than we would do organically otherwise. Continue to deliver the balance sheet. We aren't at satisfactory levels yet, but with the solid development in the year, I think we are gonna get to better levels in near term. And that opens up for potential acquisitions during the year. We have a lot of companies that we've been talking with for more than two years. They aren't out for sale, but they really want to become part of humble group. Many times due to good references from our entrepreneurs that it's actually fun and a good place to be with your company if you want to take it to the next level. So hopefully we will be able to execute on some interesting acquisitions. But I also want to be mindful about that. We are also gonna continue to invest in our existing companies like we have been doing throughout the year with additional complex into scaling the manufacturing sites and also internationalization of our strongest brands. So that's sort of the outlook for 2025. And let's wrap things up with some Q&A.

Thank you, Simon. And I'm just gonna bundle up so a few of the questions related to sales growth. We have a question about what's behind the sales growth in Sweden and also maybe if you can share your thoughts on the growth in Sweden and UK. How do you experience the consumer activity in these regions? Any positive effects from returning customers?

Yeah, I mean, in Sweden it's our biggest market. And if you look at Sweden alone this year, it's actually, I mean, FCB and Belsson, their sales in Sweden is what has been down. So it's like 159 million down just from that. But we have Nordic distribution. It's also a lot of Swedish companies in that segment. And as you can see, they're really pulling some good numbers this quarter. So it's all about the execution, getting more products into more retailers and more channels and also seeing an increased sales velocity from existing retail stores where we already have the product. One good example that we've been working on in the last six months is quite big initiative where we now really gonna enter the service or convenience trade with like 7-Eleven, Pressbyron, Circuit Key, OKQ8, that sort of retailer with a larger assortment of our greatest products and brands. So we haven't really pushed that historically because it costs quite a bit to do so. But now we are focusing to do that and the retailers like working with us. So I mean, Sweden, we are growing. It's our biggest market, but there is so much left to do. If you look at our sort of distribution percentage of the total market on some of our brands versus the more traditional FNCG brands that has been doing this for 30 years, the upside is huge on those brands. So, yes, Sweden is far from done.

And talking about brands and upside and the retailers you mentioned, we have a question from Mona if you can elaborate a little bit on the collaboration with Orkla.

Yeah, so that's an initiative we had from one of our companies, actually FCB. We sort of helped developing a ready to drink product. So we're producing and distributing a ready to drink version of Funlight. I personally love it. I think it's a really good product. And we've also entered into quite a few stores with it. So I think that really showcases what we have built here. I mean, they're a big group and they do fantastic things in Orkla, but they see us as an entrepreneurial partner to support with innovation and also driving new product development and distribution in that regard. So I think it's a statement to, yeah, the entrepreneurial view that the market has on Humble Group.

Another question coming in. Could you elaborate a little bit on the challenges in quality nutrition? You mentioned that we expect it will grow going forward. What are your thoughts?

Yeah, I mean, I don't think we should focus on just one single quarter. As I said, quality nutrition and future snacking are the segments where we expect the highest growth. Talking about the bars production, I mean, we have some setbacks in the production for Q4, but we have invested in the capacity to scale it significantly. We have a long list of customers that we are developing new products with. So just by filling that capacity up with those new customers is gonna drive growth. We have a Valko where we have also moved out the colonial site into a different site. And now we actually are able to scale the protein powder. But we could take the shortcut and take the fastest customers. But if you look at protein powder, for instance, it's much more profitable to actually export it given the weak CX. So going for export here is actually gonna be very good for the market, but taking a little bit longer time to grow. And as you mentioned also, the shortages on the whey protein has been a bit of an issue. I wouldn't say it's over yet, but we are working to solve it continuously in the different companies. And also Australia Body Science, as mentioned, we hit the market quite hard end of 2023 and also the first six months of 2024 with additional marketing investments to really scale the soft bar, the protein water, the energy drinks. Energy drinks, super tough category. It's taken a bit longer than expected, but we now actually have some good listings. Soft bar, I just want to highlight an amazing product. We bought the bar line in Q4 2023. At a discounted price. And we've already delivered half of what we paid in profit this year. So I think, and the soft bar is the best selling bar in the market. We have now invested more money to be able to scale that site significantly, just moving in some of that external production. So as I said, I'm not worried about quality nutrition, but of course, I mean, we want all of the segments to pull strong numbers. So yeah, a bit disappointment this quarter, but we shouldn't, I don't think we should take too much input from

that. Okay, great. Looking ahead, what investments are you expecting show the most visible product, visible effects during 2025?

You mean, I mean, going into CapEx, I think we've done quite a lot already. In terms of benefits we can... Yeah, I think the factor is, we've done a lot of investments to enable two shifts. Of course, there are some automation and more things we can do. So that's more about the executing on the previous investments that we've done. In terms of new investments, I do see a lot of opportunity with our brands. Like if you have the traction like we have with some of our brands, like Panda, as I mentioned, when you enter market, you become the leading confectionary product in less than a year by far. And we're almost surpassing our domestic market. You just have to go for it. And now we're aiming for UK, Germany, US, Denmark, Finland. So of course it costs quite a bit of money to do so, but that's creating long-term value.

Yeah, and we've also taken a few investments in 2024 in relation to, for example, one question about Bubblander, that's one investment that we have done, is launched now in Q1. We have

Bubblander, Swedish Candy, two products that we've actually launched, Swedish Candy a couple of weeks ago, already some nice first orders. We have Bubblander now entering the retailers with some good listings. So yeah, I mean, we are not afraid to invest into new products. And I think the track record with us doing so is so far very positive. We have the energy drink line in Natturbin Harbo, took longer than we wanted. We actually increased the investment from the original idea because we saw the opportunity, but now it's up and running and we're starting to fill that up. And we have some really good external customers that wants to produce with us, but also looking to take into that plus 20 million can that we produce for our own brands externally today, starting to move that in-house. But it's only now when we're actually fully up and running that you know you can get an exact version of the existing product with our own sites. So it's taking a little bit of time, but I think that's one that's gonna help for instance quality nutrition segment going forward.

One question you're talking about it, take a pan it to new geographies, in new markets. Could you elaborate a little bit on the startup costs related to that and when we expect breakeven in new markets?

I think it's really depends on the opportunity. Looking at Norway, we hit that in less than a year. So it really depends on how fast you wanna go and how much you want to invest. But what we are doing with the Pandy for instance, I mean it's the fastest growing company in the group almost 100% in 2024. We're keeping the profitability on a good level, so it's like minus one, two percent or plus one, two percent. So we actually invest all the excessive capital that we generate into marketing, but we don't want to end up in a situation like some other brands in CPG where you see those minus 20, 30% profitability. We don't have brands like that. We invest what we get from those brands back into marketing, but we also always want to make sure that, okay if we take the marketing down from 15 to 20% down to five percent just to sustain and still grow, we're really profitable in short time. So having that flexibility is important for us and that's why we do it in a mindful way.

Several questions coming in. One question about what actions will you take to reduce the networking capital? What will you do going forward?

So we've already deployed quite a lot of initiatives that we're now rolling out. One thing is to make sure that we have the credit terms that we deserve from our suppliers. In some instances, we have been growing so quickly so we actually hit the limit of the credit and then you have to prepay it. That is something that we are now renegotiating. They're part of a humble group that it's a lot bigger and we actually make profit on the last row. So that is something that just naturally will increase the cash flow and release of networking capital. Other actions is that we have some suppliers we are starting to become really big with and maybe you have been on like 20 days so we can turn that into 30 days. That is also something that we're doing. We're looking into the warehouses and see what procurement should we make. We shouldn't maybe buy products for four months going forward just to be, because it's good on a profitable level, but rather be more strategic and say, okay, how much do we actually need? What's the gain versus capital cost? So I think that's about the procurement. Looking with the customers, we're always trying to push down the payment terms, but you have to keep them at good levels and especially depending on the customer mix that you're growing with, some of the retailers expect longer payment terms. And then really inventory, I mean, there's a lot to do there. We have been stocking up a bit in some companies, Go Superfoods for instance, we were at 60% fulfillment in 2023, which is terribly low. Now we're getting closer to 90%, but of course you might have some raw materials that you wanna get rid of and you want to fill up with everything to make sure you have good service levels. So I think we're quite filled up in our inventory and I mean, we don't have any sort of write downs on inventory or AR basically, so it's not bad product. It's just about improving that balance with purchasing points versus the sales. And we've also invested in some procurement systems to help our subsidiaries with that.

Yeah, to make sure that the inventory is just in time and not staying on the warehouse too long. That's

a bit short. I think that's one of the challenges when you have a group built with entrepreneurial companies. If they say good opportunity, they might buy some extra. And we are developing models for them. We invest in systems and also education. Like, I mean, inventory in a subsidiary actually costs the group money in terms of capital. So there is a lot of opportunity here.

The questions are coming popping in, but can you short elaborate on the Swedish candy launch launched now in Q1?

Yeah, so we launched at ISM. I think it's really interesting because if I go to myself, generally the reason why you buy pick and mix a lot is because you want different favorites from different brands and companies. So what we've done here is to include all of the favorites, working with all of these different suppliers. And now we have a nice pre-packed pick and mix version of different flavors with six different products. Another big win with this that is actually the hygienic factor. I mean, it's packed directly from the finished goods. So there is nobody digging into the different candy flavors in retail as it is now. And also the quality. I mean, sometimes when you get pick and mix, you have really soft and fresh and good quality candy. And then you have one flavor that is hard because it's been there for a long time. In the Swedish candy assortment, everything is fresh. So, and with the boom of Swedish candy internationally, we acquired the domain quite opportunistically, which I think has been a really good investment. You know, we get so much demand from international players that wants to buy bulk from us, but also have the finished products where they can easily put it in a convenience store. So I'm really excited about it. We'll see, I mean, it's early on, but we still have some tangible orders just from the first few weeks here.

One short question about US tariffs. Do you see any impacts to the overall group's US goals?

No, I wouldn't say so. Not at this point, but of course we have to always be mindful about that and taking that into consideration, but not something that we see as a big risk right now. I think we're

gonna wrap up with a few final questions. Priority about profit margin versus growth. What is your thoughts on which one to prioritize?

I mean, our mission is to, as in our financial targets, to grow the 15% with a majority organically. So that is something we're mindful about and I'm confident that we will do with the current investment levels. So I think we are gonna, relatively, if you look at 23 versus 24, we are gonna have less of an increase in marketing and sales, that's for sure. And also getting leverage on personnel. So just to make sure that we continue to invest long-term, which is what we're doing, if we create long-term value, we are gonna do that investment. That being said, I mean, profitability, we also have a profitability margin target of 10% EBIT, which we also are very keen on reaching. So I think the margin development in 23 and 24 and all of the different factors and also doing those increased investments, if we wouldn't have done that, we would have a lot higher margin improvement. And I think that is something we're gonna balance more towards profitability going forward, given that we are confident in our growth with the initiatives that we already invested in.

Great, mindful of time. Just gonna ask a few last questions here. There's one question about if we have any sales to China, which we spoke about for several years ago, and we can just in short comment, it has not been a prioritized market for us at this stage.

I mean, it's not material at this point. I mean, we do have sales to China. We have a lot of interesting leads, but it's quite regulatory, it's quite hard exporting there. I mean, Swedish and Scandinavian produced goods, even European is very attractive to many of the Chinese customers. So of course, there is a good opportunity there. It's something that we are gonna start looking into going forward, but I mean, we have so much to do in near markets such as Germany, UK, rest of Scandinavia, Central Europe in general. So I really don't see the need to start going to China where we have lower hanging fruits near term.

And

the

final question is just about what's the possibility, what we think about the dividend, is it far away? And I think we can just refer to the published dividend policy of the group where all the excess cash will be reinvested in so many opportunities that we see to further develop this group. You wanna comment anything on that one?

Yeah, I mean, that's up for the board to decide, but as you said, in our financial targets, we are gonna aim to reinvest, but I mean, you never know, it depends on the cash development and what opportunities we see going forward.

Lastly, last question. When do we see body science products in Sweden? We

already have them in Sweden. So we actually launched Body Science Europe, I think it was like two, three weeks ago. And it's really interesting. We produce everything in our Scandinavian facilities. We make the best powder for them. It's a really nice, like it's a highest quality product you can get in the market. And then we also developed a completely new innovation that is actually called Mellow Bar, which is almost like a marshmallow protein bar. So if you're lucky, you will find them in some selected stores. I think the bar is going out to 7-Eleven, and Presbyterum for instance, and some of the bigger ECA stores. I've seen some really great exposures in our communication, internal communication chats. So feel free to follow them on Instagram and the development. But yeah, it's gonna be exciting to see. I think it's a great brand. It is a saturated market here. It's not that we're pulling super much resources into it, but we've invested in the subsidiary with a great CEO last year. And we developed all the full range and we produce it in-house. And I think the quality of the products are outstanding. So let's see what the consumer thinks.

Thank you, Simon. And we've tried to cover all the questions coming in. There was a lot of questions this quarter, which is of course very fun. We hope that we responded to them the best we could. Do you want to say some final words?

No, I mean, I want to say thank you for 2024, reflecting on the year. It's been an intense year, new financial targets, list change, a lot of international expansion, scaling up seven different factories, building new sites. But I feel that we're well prepared for 2025. I hope it's going to be a good comeback year for us. And yeah, I think we have interesting times ahead. Thank you. Thank you.