Humble Group AB (publ)

Good morning, everyone. Welcome to Humble Group's quarterly presentation of the first quarter 2025. My name is Simon Petrine. I'm the Group CEO of the company. With me today, I have Johan Lennartson, our Group CFO. Good morning, everyone. So before we dig into the details of the quarter, I just want to share a few highlights. We've had a quite strong start to the quarter with strong development in the beginning of the quarter with a little bit softer trading by the end of the quarter, mainly due to seasonality. We didn't have any sales from the Easter and that goes into April. So we're quite confident about the trading for the first six months of this quarter and the year. Looking at the highlights, it's really rewarding to see that we have been able to continuously improve the gross margin, we're making more money out of the sales that we're having, and we are investing that additional profitability into growth initiatives. We can also see that we've been able to maintain the profitability margin despite those quite significant investments. And we have also seen a significant improvement in the operating cash flow after networking capital, which is also one of the key priorities that we highlighted in the fourth quarter report. This is also something that we are going to maintain a high focus on, given that we had a quite weak cash flow in the first six months of last year. priority going forward. One of the big highlights for me this quarter is that we are starting to really see the results of the investments and the initiatives that we've been executing upon in Future Snacking. It's really the highlight segment of the quarter and especially Truco and Poundy where we had a really strong growth of more than 100% for the period. That being said, we have also further initiatives to execute upon quality nutrition, the weakest segment in the quarter. We have an interesting pipeline for the second half of this year and also one of the key priorities for us. But let's dig into some of the details.

And looking at our net sales, it came in on 1.9 billion. It's comprised of a total growth of 4% with an organic growth of also 4% with limited currency impact. Looking at the segment-wise, we saw a strong contribution from the future snacking segment, mainly driven by a really solid growth for some of our strong brands, Pandia and Truco, grew their sales by nearly double the sales in the quarter. We had some challenges in the quality nutrition segment with some delay or postponed orders in some of our production facilities causing some delay in sales and profitability. Looking year on year, we can also see where we had some negative impact from the late Easter and this impact is mainly shown in the Nordic distribution segment for the quarter.

Yes, talking a little bit about So I had a lot of questions the last few weeks from investors asking us, how will this impact Humble Group? Around half of our group sales is in SEAC. But of course, the outstanding currencies, we will have a direct impact when we convert a lower international currency to SEAC. That being said, we are very positive about this because looking at all of our Swedish companies, many of them have either direct or indirect import of goods in international currency. And this is also something that we know have been reducing our gross margin historically. And over time, looking at a few quarters down the line, we assume that this is going to improve the gross margin just with a stronger SEC currency. Overall, as Johan mentioned, we had strong growth in three out of four segments. Quality nutrition also, as in Q4, was a bit weaker. That being said, we will talk more about quality nutrition, and it's a strong macro growth segment overall, so we're not worried about it long term. Future stacking, the real highlight here. Pan and Trueco, not nearly double sales, but actually quite a bit more. So really rewarding to see that the investments we are making in those companies are really starting to show results.

Looking at the gross profit, we grew the gross profit with almost 9%, came in on 615 million for the quarter compared to 566 million the previous quarter. And we are also happy to see an improved gross margin driven by priorities internally on strengthening the overall profitability of the group. Gross modeling came in on 32.3% compared to 31% in the previous quarter. And we see that the main growth in the gross profit is driven in the sustainable care and the future snacking segment. Your thoughts, Simon?

well i think it's really strong to see that we both sequentially and versus last year are improving the gross margin we are maintaining that streak ever since middle of 2023 we have been improving the gross margin continuously we still have further room for improvement here but We are gradually improving it, and that is also something that we are very focused on right now. For us, it's about making more money out of the sales that we are having, but also being able to maintain growth. And having that balance is always challenging, but I think we've been able to do it well here. But as I mentioned earlier, we do see some potential for further improvements with a strong SIEC, but also not to mention the freight cost. We do import a lot of containers from Asia, and we know for a fact that the container prices are down. This is not something that is in the P&L right now, but it's actually going to come a little bit further down the year with the FIFO principles. So that's just worth mentioning. We have two macro factors here that might also play in our favor with the gross margin. But despite those, we still maintain a high focus to continue to solidify our gross margin in our companies?

Profitability-wise, the adjusted EBITDA, we managed to grow the adjusted EBITDA to 133 million compared to 128 million compared to last year. This is a total growth of 4%. And bear in mind here that this is a growth of 4% despite significant investments in selling and marketing activities in some of our hero brands across the group. Main contributors to the profitability growth is found in the future snacking segment and the sustainable care segment here as well.

Yes, and I just want to share a few words on this. Because in Q1 last year, we also made a quite significant increase in sales and marketing spend. And the results we are seeing in some of our brands this quarter is actually of the spend that we did almost two years ago. Some of the key markets we have entered and invested in historically are actually starting to show results. And when we have that sort of traction data, we aren't afraid to invest more because we know that long-term, this is going to be highly value-accurative for the group. But that being said, these are efforts that we control. So if we need to, we are able to turn those down a bit to improve the profitability even more. So I think despite increasing it by 18%, we are actually showing a tangible profitability growth in line with the net sales growth and that's due to strong cost control and that we're starting to see some leverage in our companies where we have been scaling traditional shift and also implemented efficiency processes for the supply chain.

Looking at our first segment, Future Snacking, we saw a strong underlying growth in the net sales already communicated earlier. Net sales grew with 19% and amounted to 282 million SEK for the quarter. We also saw a strong increase in the underlying gross profit amounted to 144 million, comprising a gross margin of 51.1%. And the adjusted EBITDA amounted to 32 million second improvement to 11.4 in adjusted EBITDA margin. And here is the main impact that Simon mentioned is some selling and marketing initiatives that have a negative impact on the overall profitability for the segment.

Yes, and also worth mentioning, I mean, First Class Brands, one of the bigger companies in this group, we have actually gotten back, not to growth, but we are actually just a little bit below last year. We do have an ambition to grow in this year. We've had several very interesting initiatives, one of them, Ready to Drink, Funlight, that has been a real success, and also several product launches with our own brands. So I think with that big company, back on track with the restructuring process we've been having and also the strong trading from our manufacturers. They are doing really, really well. We're getting the results that we wanted from scaling them and also the brands on top of that. So, I mean, Future Snacking is really the shining star of this quarter, but we have a good hope for more this year.

Looking at sustainable care, the net sales grew by 4%, amounting to 543 million. The gross profit also increased by 15%, to 240 million. And the gross margin amounted to 39.4%, which is also an improvement from the previous quarter. The profitability amounted to 68 million compared to 57, reaching an adjusted EBITDA margin of 12.5% for the quarter, comprising a total growth of the overall profitability of 19%.

Yes, and what's worth mentioning here, I mean, we have two of our big brands, Nati and Humble Co. We are starting to see the results from working those companies. Nati has been back to growth now several months in a row, which is really rewarding to see. And also the profitability are improved in both of these companies. It's a little bit early to tell if the consumer is getting back on the sustainability track with their procurement, but we are seeing positive results from the retailers, higher sales velocity, and that the work we've been doing for the last two years is starting to yield results. Also in this segment, we have some of our UK companies, Amber House and Solent. In the UK, with the new labour regulations, there has been a little bit weakness with some of the retailers. When I say weakness, I mean they have been reducing their stock levels. So we have had a short-term effect on this, but it's not something that's going to impact us long-term, that we believe. Overall, I think the performance here has been quite solid, but it could have been even stronger. And we do have a turnaround position here in two of our brands that could be really interesting for us going forward.

Looking at the quality and nutrition segment, as mentioned earlier, we saw a negative sales trend, reducing the sales by 7%, reaching 362 million. This is a negative trend that we noted in the fourth quarter that we also had some impact in the first quarter. Worth mentioning here is that we've taken some initiatives to reduce this impact going forward. mainly caused by some postponed orders from major larger retail stores. Looking at the gross profit decreased by 14% for the quarter mainly driven by the lower net sales for the segment. Profitability wise, we managed to remain almost flat on the adjusted beta, decreasing to 26 million compared to 33 million for the quarter.

Yes, and I mean, quality nutrition is one of our key segments where we expect a lot of growth going forward. We have prepared with our powder site with increased capacity. We have our bar site with increased capacity available. And we have the drink line that we had the official sort of opening for just a few months ago. And I'm really impressed with what we've done here, fully automated energy drink line. So our ambition here is now to really scale up this additional capacity with high value customers. So we're focusing a lot on export here. We see many opportunities and this is one of the key initiatives for the year that we are going to gradually ramp up the capacity utilization in all of these companies. And as I mentioned earlier, a bit weak trading in Q4 and Q1. What's positive here is that we've seen increasing orders from our existing customers going into the later part of this year in their forecast. So I'm not worried about quality nutrition long term, and it's a fast growing market. But for us, it's key here that we're able to ramp up the additional capacity, but with the right customers that also has strong profitability.

Looking at the last segment, in order distribution grew the net sales by 6%, amounting to 718 million. Here we also had a little bit weaker gross margin, reducing the gross profit to 133 million and the gross margin decreased to 18.5%. And this can mainly be explained by some sellout of some low value stock for the quarter. And here I should say that the profitability managed to reduce flat on 27 million for adjusted EBITDA.

Yeah, and I think this is really showcasing, as you mentioned, we have reduced the stock levels a bit here. We have a good trajectory going forward in this segment. And also, as you mentioned earlier, a lot of the Easter sales with candy is in this segment. So this is something that we have already hit our P&L in April positively. But what's really rewarding to see here is that we're, despite having a bit of a sellout with some inventory, we're able to maintain a solid profitability. And this is due to the different efficiency initiatives that we have been executing upon historically. So I think with normal gross margins and the regular trading here, we have a good opportunity for strong profitability. And that's something that we focus on because we want to be really efficient in our distribution.

Looking at cash flow-wise, this is, as previously communicated, a highly prioritized area for us. The cash flow from operations came in on 134 million compared to 127 before changing network and capital. After a change in net working capital, we could see that we had a cash flow of 70 million compared to 60 million and increased by 10 million. But worth mentioning here is that we also had a repayment of tax deferrals by 45 million that reduced the net working capital. Adjusted for that effect, we had a cash flow from operations after changing net working capital of 115 million, which is a significant improvement, nearly double the cash flow compared to the previous quarter last year.

Yes, and as you mentioned, I'm really positive about this. We are translating more of our net sales into cash flow. And what we can see also, what's really important for us, is the second quarter. We had a bad second quarter with minus 49 million last year. I think if we're just able to keep this track and being able to grow and scale efficiently without tying too much network capital, we should be able to provide strong cash flow as well. And that is one of the challenges being a product company. When you are growing, you have to have the products in advance and that's tying some networking capital. This is a main priority for us to continue to strengthen and we're trying to implement more processes to be even leaner in our inventory and networking capital management.

Looking at the debt ratio and the leverage, we see that the overall leverage adjusted EBITDA in relation to the net interest bearing debt came in on 2.8 times. This is an almost flat development from the fourth quarter last year, but we can see that we have a continuous improvement here and we're not We're not so worried. We see that we have a positive trajectory of the overall leverage quarter on quarter.

Yes, and also worth mentioning here, we had a negative impact from currency. So this is also something that impacted our cash by the closing balances. But despite that, we've been able to reduce the net debt and we are closing in on our target to get down to below two and a half times as in our financial targets. So to wrap things up for the first quarter and what we're thinking ahead, as I mentioned in the CEO letter, we have a clear ambition to deliver higher organic growth for the rest of the year than we did this quarter. In our financial targets, we have a minimum majority of 15%. So that's quite a bit up from where we are in Q1. But we have a really positive outlook for the rest of the year. And despite the volatile market and environment, our companies are actually quite confident. I think it's all about executing on the initiatives and maintaining the momentum that we've had in our companies for the last years. And we feel solid about that. What's also good with our positioning here is that we are seeing some strong demand in our private label and contract manufacturing side of the business. This is something that we are trying to grow, especially in the Nordics, where we are a little bit behind the UK retailers. That is one of the things that we are working on. And also looking at the gross margin, I mentioned earlier, we have two major things that actually might play in our favor with the currency for Swedish companies and also the reduced freight costs for a lot of our companies that import goods from Asia. So that is something that might play in our favor. But on top of that, we are implementing several initiatives to further improve the gross margin, such as centralized procurement in some of our platforms. And the third part here is about cash flow. And that's something that we are highly focusing upon because we want to reduce our debt. We want to improve the cash flow. And over time, we might be able to start acquiring some companies and do Bolton acquisitions again. There are a lot of companies that really like what we are doing and want to become part of this group. But we want to feel confident about our balance sheet before we do so. So that being said, thank you for this first quarter and we're looking forward to the rest of the year.

And now it's time for some questions. It's not so many questions, but one question from Victor is what's behind the sales decline year-on-year in Sweden? In Q4 it was 6%, now it's minus one.

so i think i mean we've had some challenges as also mentioned in our quality nutrition segment uh that's the big drainer for for this year uh but also as we also mentioned nordic distribution uh we are meeting tough comparables given that we had didn't have any in in sort of pipe fill sales for easter which is actually several percentage points of a potential growth. Looking at the first six months of the year, that's not going to have any seasonality impact, but Q1 versus Q2 is always a bit tricky just because of the Easter and that we do have a lot of companies selling candy and providing the stores with the products for Easter. But overall, Sweden is doing well and we see, especially in future snacking, the development is very strong, but Quality nutrition, I mean, a lot of our companies in that segment are in Sweden. And what's positive here is that we have been able to ramp up the capacity. The drink line is up and running. We're starting to provide the first serious customers. And the pipeline in both our powder bars and energy drinks is looking very strong. And we've been in development... projects for for the last six months with a lot of these customers. So I think as long as we're able to convert these customers to actually producing orders, which generally take, you know, from start of a project to actually being up and running nine to 15 months, you know, we should be quite doing quite well in the coming sort of quarters for for quality nutrition as well.

Great, thank you. Another question. Given reduced acquisition activity and limited cash available, can you share some thoughts on if the group have shifted focus toward organic growth and joint venture projects, and maybe share your thoughts on future M&A opportunities?

We have to be mindful about that. If you look at the last two years, we have invested quite significantly into Copics as well. And that is something, as we mentioned in our capital markets, they were not going to have the same level of Copics investments going forward. So I think by reducing that and that we have been able to invest in all of our facilities to a certain point that we feel, OK, now we do have capacity. By having lower COPICs, we will generate more cash and we can deploy that into acquisitions. But of course, those investments are to facilitate organic growth in our existing companies. And we have a lot of extra capacity going forward with the investments we made and a few more coming this year, next year. So we have a lot to do with our own companies. But that being said, with our cash generating profile and with the COPICs gradually going down, there will be room for acquisitions as well.

Thank you. One question here about quality nutrition. We mentioned temporary slowdown and some postponed orders. The question is about how should they think about wording temporary? Have we seen some pickup in sales?

Yeah, I mean, just to give an example, one of our biggest customers in the bars production, they had a lot of excessive stock in Q3. They didn't buy anything in Q4 and Q1, and now they started ordering again for Q2. So, I mean, you have those shifts sometimes in the market. Same with powders. There was a bit of weakness last year in that. But now our key customers here are turning up their orders again. And if you look at sport nutrition market and the quality nutrition market for a longer period of time, it's a very strong macro growth. So as long as we are an efficient supplier of quality products, there will be demand with other brands to produce with us. So I think it's all about that. As long as we feel confident in our ability to produce great products and having a solid profitability on that, I think we're in good shape. And as I mentioned earlier, I think the The drink line, I was severely impressed when I saw it finalized actually. And I think that's an exciting opportunity. We have a great pipeline, but it's like six to 12 months before those customers are starting to produce with us. But there are some good leads already.

One question here is a little bit related to why are we not focusing more on profitability and taking this strategic selling and marketing activities?

I mean, as an entrepreneur of a brand like Pandi many years ago, the sort of traction we are seeing in our brands, it's everything you would want as an owner. And if you look at these brands, I mean, we're still profitable on these companies, but we're keeping it at sort of a break-even level and reinvesting everything we can to grow them. And if you talk about value creation long-term, that's exactly what you should do, because growing these brands, they have tremendous value for us and also potentially others. So I think that is something really worth considering. If we were losing money and not having the opportunity to turn off marketing, then that would be an issue. But entering a new market and building brand awareness, rapid start, campaigns, DMO activities, all of those investments, that's because you are going to take a good position and grow long-term. Pandi is a great example. We did start in Norway quite recently, and it's been a tremendous success, almost surpassing Sweden. So I think... When you have that data and that sort of traction, that's where you need to invest. And we're not afraid to do so if we're confident it's going to bring value long term.

I think you're touching a little bit on it, but one question is a little bit on our markets in Europe and the penetration. Of course, maybe tricky to pinpoint every market, but what are your general thoughts on how we perform on the different markets?

I mean, we're barely scratching the surface. I think Scandinavia is, of course, a big market for us, but we have been initiating a lot of activities throughout the last two years to get into Germany, UK. I mean, the US is something that we've been starting with and starting to see some really interesting dialogues with retailers. I mean, we have a few key markets that we want to enter, but of course, I mean, over time, we want to be present in any sort of Western market where you have the same consumption behavior with the products that we are providing. And we have a lot to do in Europe, and not only with our brands. And as I mentioned, if you look at in terms of value producing, you know, qualitative quality products from the Nordics in, for instance, nutrition is something that is very attractive for international brands and companies. So if we can be a bigger exporter of products, that's also going to be value adding for us long term.

One question from Stefan here. What are your thoughts about the time lag before we see a potential tailwind from the weaker US dollar?

I don't want to guide on that exactly, but generally it's between five to nine months before you have the changes in COGS in the P&L for most of our companies. But it depends on if you're a brand or a distributor or manufacturer. But I mean, a weaker dollar is impacting some of our Nordic companies, but also some of our international companies where we're buying in US dollar from Asia, for instance. So, I mean, the strength of the SEAC currency lately is like we have to provide more info on that going forward, how it's actually going to impact the profitability long term. What we do know is that it is going to be positive on a 12 month basis. And it has been one of the big drainers historically also when we had an opposite effect of the currency.

Thank you, Simon. We are through all the questions that we received relating to the first quarter. Do you want to summarize?

Well, thank you everyone for listening in. I think we're continuing on the track and the strategic plan that we have set and we look forward to the rest of the year. Thank you so much.