Humble Group AB (publ)

Good morning, everyone, and welcome to Humble Group's presentation for the first quarter of the year. My name is Noal Abdayem, and I'm the acting CEO of Humble Group. With me today, I have our Group CFO, Johan Lennarsson.

Good morning, everyone.

To everyone calling in, welcome, and thank you for taking the time to be with us today. We will now go ahead and present the results for the first quarter. Following the presentation, we will open up for a Q&A session. Let's walk through the quarter. Our organic sales growth came in at 8% with revenue coming in at nearly 2 billion SEK. Despite the challenging macro environment, we're seeing a stable demand for our products. This clearly reflects the strength of our portfolio and our ability to consistently meet consumer needs over time. All of our four segments grew well, and the main growth was driven by our segments future snacking and quality nutrition, where our brands and production sites are performing well with a good demand across the full segments. Our gross profit came in slightly lower than last year, mainly impacted negatively by currency effects and the product mix around the group. Cashflow remains to be a priority for us, and we delivered a strong cash generation during the quarter. Our net depth has continued down and we are now in line with our financial target of two and a half times adjusted EBITDA. This means that we can gradually shift our focus from a more defensive approach to a more targeted capital allocation strategy. I am certain that our organically generated cash flows will enable us to drive Humble toward increased shareholder value over time. Johan will now dig into the numbers.

Thank you, Noel. And looking at our net sales, it came in to, as Noel mentioned, to nearly 2 billion SEC. And there is no doubt that there is a strong demand for our products in the group. The organic growth amounted to 8% for the quarter, mainly driven by future snacking and quality nutrition, where we see a really strong performance for the quarter. And if we start looking about the impact of currencies, we do have a large portion of our business in both UK and in Australia, where the impact of stronger second relation to the sterling and Australian dollar is impacting the overall sales development in a negative way. We also communicated divestments during the quarter and a few acquisitions and these had in the net effects for the total net sales had a minor impact of negative minus 4 billion crowns. But overall development for the sales in the quarter is positive and we see a good amount for our products. So shifting our focus to the profitability of the group and starting with the gross profit. Gross profit came in on 630 million crowns for the quarter. That is an increase with 15 millions. The gross margin amounted to 31.6%. That is a decline from the previous year by 0.7% where of which 0.2 is driven by currency impact. But the major explanation and reason for the decline in the gross margin quarter on quarter is driven by product mix and mainly which segment is growing faster. And we see that we have a strong growth in quality nutrition this quarter, which had a negative impact on the overall gross margin. Looking at the overall profitability and in particular the beta, it improved to 116 million. That is only one million up from previous quarter. But we want to underline that we have an underlying profitability improvement and we will deep dive a little bit into what we mean with that. First of all, we announced the efficiency program in Q3 last year, and we see that we have a good impact from that in the profitability. The efficiency program contributes with approximately 20 million in the quarter. um but then as we have communicated as well we have an uh an occurrence impact of six million and also an uh loss in the divestment when we device divested left stores uh the stores um in the left group we had a capital loss of six million crowns in the quarter which impacting negatively of course Then we also have a volatile macro climate, which many of you are aware of. During the quarter, we got a turbulent situation in Iran, which is impacting the energy prices somewhat and also impacts the overall profitability. So with that said, that has a negative impact to the overall profitability. But with that said, we also want to emphasize two major drainers to the profitability in the quarter, which is Prevab, where we see an increased price pressure and competition in the market, but where we're also taking bigger and larger investments for this big company in the group. to ensure enable a future growth of which we optimize warehouse and also invest in the organization to prepare them for the next step in their growth journey. And secondly, we also see that Solent is regaining some of the challenging they've had in the past. from a loss of a customer contract and also somewhat challenging market conditions in the UK. So these two have a negative impact to the quarter. But with that said, we do have a strong underlying organic development of the profitability, which we are happy to see that we are moving in the right direction. We also want to say that looking at the segment presentation, we have had a changed procedure of how we present and how we allocate the management fee internally between the quarters. Previously, we have done that allocation semi-annually every six months. But now we change that presentation to every quarterly instead, which have an impact on the EBITA and EBIT presentation for the segments. And the full impact is disclosed on the segment slides in this presentation and also in the interim report that we present on our webpage. Shifting focus to the cash flow, we are happy to see that the cash flow is developing in a profitable and strong way. Cash flow from operating activities after changing networking capital amounted to 114 million crowns. That is an increase from last year with 63%. And worth mentioning here is also we do increase that number even though we pay 18 million more in corporate income tax this quarter than we did last year. But if we look at the cash conversion, we increased that number as well from 46% to 73%, which is of course something we are happy with. Also worth mentioning is that this quarter we had a repayment of tax deferrals of 44 million crowns, impacting that number a little bit negatively. But all in all, we see that the cash flow is gaining strength and improving from previous year, and that remains to be a high priority for us here at Hubman Group. And just continuing on the cash flow, we could see that the positive cash flow had a good impact on our overall net debt leverage ratio, which came down to 2.5 times. And we are now also in line with the group financial targets that we've communicated previously. With that said, we have during the quarter invested, continued the plan, COPEX plan to invest in a new candy production facility in Skövde and also the second bar production line in Australia. And those two investments had an impact of 41 million crowns during the quarter and that had a negative impact to the overall leverage with 0.1 times. So with that said, we see that we are moving in the right direction in the leverage ratio, but we are also continuing to be mindful with the capital allocation of the group going forward. But knowing that we have reached the financial targets also gives us the ability to start taking a little bit more offensive approach with how we can allocate the capital across the group. And lastly, I also want to mention and double click on that we yesterday communicated a new facility agreement with our two main banks and two leading banks, SDB and Nordea. This is a refinancing of the existing facilities and it gives us an increased flexibility in our business and simplifies our day-to-day lives. It also has a significant reduction on the total cost of financing for the group. So that is something that we are very happy to be able to communicate and which gives us the right support to build a group in the future.

Thanks a lot, Johan. Let's talk a bit more about our segments. If we start off with the future snacking segment, it continued to grow well during the quarter, where organic growth in the segment reached 11%. We have several brands within the segment that continue to gain market share through new launches and increased listings all over the world. Our confectionery production also continues to deliver strong performance And as mentioned before, we are progressing well with the completion of our new factory in Skövde, while we are actively building the order book for the facility. We're securing solid production agreements ahead of the opening in the second half of the year, and are finalizing dialogues with larger customers and brands regarding upcoming launches, not only in Sweden, but also internationally. segment delivered a satisfying evita development during the quarter as well which we are very happy about if we look at our segment sustainable care we delivered an organic growth of two percent during the quarter it's not really where we want it to be but we're working actively on it Profitability in the segment remains challenged, primarily as Solent, our company in the UK, continues to recover from a demanding market environment where the effects of a lost customer contract have not yet been fully mitigated. After the end of the first quarter, we completed a bolt-on acquisition to Solent's existing platform, UTExpo, which we expect will support the recovery and help us accelerate the growth going forward. Within quality nutrition, which is our sport nutrition segment, organic growth amounted to 19%. We continue to see a strong recovery in the production of sports nutrition products, and our assessment is that this positive development will continue during the year. However, we do see an increased volatility in the whey protein market prices, which we expect will challenge profitability in the coming months. In Australia, our brand Body Science is successfully capturing synergies with our bar production facility, while the underlying business continues to show strong momentum. Finally, we have the Nordic distribution segment that grew 6% organically during the quarter. Easter fell early this year, which contributed to part of the growth. but overall performance was primarily driven by our strong offering through a well-developed store network and a broad Nordic market presence. Finally, let's look ahead to what's next for Humble Group. After another quarter as acting CEO, it is clear that our increased operational focus is delivering results. We're seeing tangible improvements, and I'm proud of the work our teams are doing across the group to drive this development forward. Our cost saving program is progressing according to plan, and we are already seeing positive effects in both earnings and cash flow. As mentioned, we have also announced the first steps of our strategic review. We have acquired Willemsen in Norway, and after the end of the quarter, Youth Expo in the UK. These are two add-on acquisitions with a clear strategic rationale and a strong fit to the group. At the same time, we have also completed divestments of a few companies as part of our efforts to streamline the group. Altogether, these transactions add approximately 73 million SEK in annual revenue and around 14 million SEK in EBIT, excluding any potential synergies. At the same time, we're also strengthening our focus and overall profitability profile over time. The work to streamline the group continues as planned, and as part of the ongoing strategic review, both acquisitions and divestments may be announced in the near term. Today, Humble Group is a large FMCG group with multiple companies operating across different categories. While we might seem broad, we are very, very focused and we intend to further strengthen that focus through the ongoing strategic work with the ambition to build a more profitable, forward leaning and scalable group. During the quarter, we also announced that Anders Fredriksson will start his journey as Group CEO in September this year. Anders has a strong FMCG background, most recently as the CEO of Löfbergs. I'm very positive about bringing that experience into the next phase of the company. And as I have previously communicated, I look forward to continuing to support the business in an operational role following the transition, as well as remaining a long-term shareholder and member of the board. Thank you all for listening in. We will now open up for the Q&A.

Thank you Noel, so let's go through the questions we have received here from maybe we should start from bottom. There's some questions about the CAPEX outlook from Victor and reminder of 2026 and we can and also some question about from John at GCX investments. Remaining in Capex for Grans & Sjövden, the second borderline in Australia. Well, we can comment on that. The Capex for the quarter amounted to 41 million for these two investments jointly. And for the Grans facility, we estimate that we have approximately 40 million Swedish crowns left in Capex during Q2 and some of it also to spill over in Q3. And for the bar line in Australia, we estimate that we have approximately 7-8 million switch crowns in remaining CAPEX to recognize during the second quarter. But besides that, also the CAPEX outlook for the remaining 2026 is that there are two main initiatives that we have communicated and also have announced. We do not have any other larger initiatives in the pipeline. So besides that, it's more maintenance, maintenance, capex investments of approximately 15 million crowns per quarter to anticipate. And then we have a question from Victor about the announced, yeah, the divestment, the capital loss of 6 million crowns from the lab stores, if that is included in the non-recurring items of 10 million crowns. And the answer to that is yes, it is included. Let's see what we have.

We have a question here regarding the gross margin and the distribution segment. And if we have any initiatives to lift this up as we scale further. If we just comment on the gross margin in general for all the segments, it is a main priority for us. We are currently following up closely with each businesses through dedicated sessions where we review concrete actions, expect the timelines and impact. And this is an ongoing priority as we scale the group. Now, if you look at the distribution segment in particular, we see a small uplift on the gross margin. Worth mentioning is that within our distribution segment, we do not only sell our own brands, we also sell external brands, which means that we need to be right when it comes to the pricing because we are operating in a, competitive market. Now, with that being said, Prevob, as an example, has a large pick and mix concept that is being sold at ICA. And we see a potential of adding some more of our own products as we scale the Grans factory into Prevob, which will improve gross margins in that segment.

Thank you, Noel. And maybe we should start looking at the questions from John here at GCX Investments. I think it's four questions in one. Maybe Noel, you want to start? Yes.

So regarding the M&A, the strategic review is progressing well. And as mentioned, we have already taken several steps as part of that process. We will come back to the market when we have something more concrete to communicate. But our main focus is to ensure that we get the right outcome rather than being driven by a specific timeline. So, you know, more broadly, these transactions should be seen in the context of our ongoing strategic review, where we continuously evaluate the portfolio based on current conditions, performance and forward looking perspective.

and second question here how has increased strike costs impacted your gross model in the quarter we can just short comment on that yes we do see some impact on the flight costs during the the later phase of the quarter but I think the main impact will remain to see be seen in the second quarter if the especially what happens in the Iran-US conflict will have some impact to that of course Worth mentioning here is that we have a really strong team at Solent working with securing freight contracts and competitive freight tariffs for other subsidiaries in the group. We are confident that they are doing a great job securing the best prices that we can see on the group level. Our third question, I think we can just cover them all, right, while running them through. Sure. Body Science had a good quarter in Australia. We see that they are regaining some pace. But I will see. Sorry, I was reading the question at the same time. beta model was down compared to last year. Just double-clicking on that one in the quality nutrition segment, the beta model was first of all impacted by the management fee allocation that we've mentioned earlier, but also some other subsidiaries in the quality nutrition segment grew very well. For example, Evalco grew very well and did a fantastic performance in the the quarter but they have a they have a lower gross margin and the lower margin profitability overall so that explains uh lifted why the margin is down for that segment in the quarter and well current trading and outlook for the year i mean growth has really never been a problem for for humble group we have wonderful wonderful entrepreneurs

We have products that are attractive to the market and we're confident that we will continue to be able to grow the group at satisfying levels, excluding any potential M&A.

Perfect. And then we have a question from Oysten, a private investor in cultural nutrition. I think we've covered that one. but also another one about the negative impact from the consumer loss at Solent and price pressure at Preval. I think we can just comment on the Solent impact. That was an event that occurred in the later stage of 2025 and we expect to see some impacts from that during Q2 and also Q3. But we expect them to regain, especially some of the mitigating sales that they have won is starting to take impact in the later stage of 2026. And also the price pressure for Prevo, just to mention that very shortly, that is a continuously challenge they have in a competitive market. But we are confident that the team is doing everything they can to review the prices and also make sure that we stay on top to be competitive in that market and take impact. So we expect to have a positive development in the segment going forward. Noel?

We have a question here from Musafir. Appreciate that comment. Thanks, Musafir. Can we expect higher gross margin at the end of the year? So I think it's worth mentioning that if you look at our four segments, we have three segments that are running really, really healthy gross margin profiles. Now, with that being said, our Nordic distribution arm is quite significant in sales and as that segment grows and the product mixes changes this alters the the overall gross profit of the group now with that being said and the the gross margin is a key priority for us and something we are focusing on quite intensively during this year and this is also a central part of our operational agenda and the core responsibility of each CEO within each business. But there is a lot of work going on, and I'm certain that the entrepreneurs together with the executive management teams and the headquarters are doing everything that we can to get the gross margin up.

Perfect, thank you Noel. Then there is a question about the EBITDA breakeven for facility in Skövde and when you expect to have some EBITDA contribution once it's fully operational. Do you want to touch a little bit on when it's expected to be open?

Sure, so the process is going on well. We've had some slight delays on some parts of the machinery. But we feel confident that we will open up that facility at the second part of this year. Now with that being said, as mentioned earlier, we have already secured a few production contracts, not only for our own internal brands, but also external brands. It's not something we can announce quite yet, but we are certain that the demand for our confectionary production is high, not only for the usual sugar confectionary business, but mainly also the sugar-free or sugar-reduced side of the business. But we'll get back to the market with some more info when we can, but we feel very, very positive that we'll be able to fill up that factory some good quantities as we move ahead.

Thank you Noel and also double clicking, tagging on to that there's a question from Mustafa about the specific target for the net depth end of the year. We repeat the financial target we have is 2.5 times. But of course, I think Noel writes in the CEO letter as well that reaching that level gives a good flexibility to continue to be mindful of the leverage ratio. But that is the bottom line.

And as our focus ahead is to gain some more profitability and improve our cash flows, we do see a natural development of the net debt going down even further. And adding to that, we might announce some divestments, which will bring that leverage down quite significantly. We're not there yet, but we're working on it.

Yeah. And also another question from Oisin about the divestment and bolt-ons we announced. We generally don't comment about the prices we pay or the cash we receive for businesses. So that's out of respect from negotiation perspective. And yeah, that's what we can say. We're short about that. Let's see if we have covered all the questions or if we have any others coming in. I think I was trying to go through all the questions. I think we've covered all of them. One last one here is coming in from Stefan. If we can comment on the price initiatives that are underway with further actions ongoing. What exactly are you doing and when can we expect to see the effects on this?

I mean, this is the ongoing work and we're trying to work in a structured and proactive way to optimize our cost of goods sold. So we have several initiatives in place such as supplier strategy, how we work with products coming in, but mainly also how we work with potential price increases to our customers. So it's ongoing work broadly at a group level. And, you know, we're certain and positive that we will see some positive outcome from that work as the business continues to grow during the upcoming quarters.

Okay. Thank you, Noel. I think we have been through at least most of the question. It was a big interest for the presentation today, which we of course are very happy to see. Any final remarks from you, Noel?

I would just like to send a big thank you to the whole group. We have a lot of employees in the group that works effortlessly to continue to scale and improve. the group financials and overall health. We are excited about the future ahead. I'm particularly excited to get Anders on board as well, to get some outbound strategic experience. Thanks a lot.

Thank you so much for listening in.