Midsona AB (publ)

Peter speaking, thank you so much for attending this call. As a top line summary, I would conclude that we took several steps in the right direction in the first quarter to actually strengthen our position. We're very happy that all three divisions reported both improved margins and a stronger operating profit. That said, this is only the first step in our quest to reach our new long-term financial objectives. And before we go into the actual presentation, I would just like to make it clear that this presentation might contain further looking statements and that those statements are subject to risk and uncertainty. And for a full view on the risks, we refer to our newly published annual report. So let's look at the key financial headlines for quarter one. We are quite happy about the progress that we did make in the first quarter. First and foremost, EBIT almost doubled to 48 million Swedish krona compared to 21 last year. And this is actually despite the fact that Easter had quite an economic growth, and we're not seeing any negative impact on both sales and profits in the quarter. Easter is typically a weak period in terms of sales for Midsona, and this year we had Easter in the month of March. And last year it was in April. So the main reason why we still manage to grow EBIT to such an extent is to be seen in the gross margin. We executed well-chosen price increases. And we also continued to streamline our ranges of products, focused on the best sellers, and we did also terminate quite a few unprofitable contracts. We also worked hard on the efficiency of our production, and we started to see real results of that. So the gross margin improved to 29% compared to 26.3 last year. And this is despite still relatively high raw material prices. And it should also be said that we reached this profit despite a decrease in sales. I said this decrease was mainly due to the negative Easter effect that we had in the first quarter, but also to some terminated contracts. If we look at the visions more in detail, as I've already mentioned, we are very happy about the fact that all pre-divisions are now showing EBIT improvement. And for sure, the Nordic Division remains the strongest deal, with an EBIT margin of .2% compared to 8% last year. Frigs continued to be a shining storm with very strong sales development. We also had very good development for the Helios brand, or organic brand in Norway. There was also strong development in Finland. We increased sales despite the negative Easter effect, and we improved EBIT and EBIT margins. In Sweden, the trend was slightly negative. This is due to the Easter effect, of course, but also termination of a distribution contract last year. It should be noted that as of April this year, we will not any longer cycle this distribution agreement. So that will mean that we have that negative effect out of our profit and loss. In Denmark, we had increased earnings despite the fact that we saw lower sales. We have discontinued quite a few low-margin manufacturing assignments for various private labour partners. This is part of our overall strategy to focus on our brands and the most profitable private labour contracts. We saw quite a step change in the Nordic Division, which is the DAH region for us. Operating profit improved from minus 4 to plus 5 million. But also most importantly, our efforts to generate new business pay dividends, to some extent already in the quarter, but will have an increasingly positive effect in the second quarter. Among other things, we have signed a new contract. We have a nationwide grocery chain in Germany, and deliverables are the Brandavert and April Start and April Beginning May. In the South Division, we are still in the red, but we see a fancy reduced losses. So it was down to minus 1 million coming to minus 7 last year. And it was mainly achieved through improvements in efficiency in production in Spain, implementation of pricing increases, and terminations of some unprofitable contracts. As already mentioned, the main driver for the significantly improved EBIT was to be seen in the gross margin. As already mentioned, it went up from .3% to 29%. And what is good is to be seeing very nice improvement in all three divisions. I would say that generally speaking, the drivers are the same in all divisions. We have implemented pricing increases, and mainly in 2023, but also some at the beginning of 2024. We are significantly improving our production efficiency. We are substituting low-mard in private label contracts with ones with better margins. We have discontinued a lot of low-mard in food service business and licensing agreements. This has a slight negative effect on sales, but a good effect in terms of improving EBIT. We are focusing on key brands. It should be said that we don't see much effect from raw material prices. They are generally speaking stable versus the same period last year. If we go to the next page and then look at our product categories. We did see declines for our categories here, mainly due to the Easter effect. If we had gone for that effect, we would have seen a slight show for both organic products and healthy products. Consumer health is down, but that's due to a discontinuation of a licensed brand as well as a Wester brand in the portfolio. What we have also done during the quarter is to update our financial targets. We now have three targets. Organic growth should be free to 5% annually. There is no question that growth was a challenge in the quarter due to the negative Easter effect, but also due to discontinued licensed brands and also continued streamlining of the assortment. There is no question that this is our key priority to get back on growth for the portfolio. This is the number one priority for the year 2024. We accept gradually improved traction in our brands due to the brand efforts that we improve, but also hopefully a brighter economic situation for consumers, which should make them prioritize health and sustainable fuels again. We had an organic growth of minus 4.2%. It was a little bit less negative compared to 2023, but still of course the objective is to get back to growth as soon as possible. We have set an EBIT margin of 8% and we reach by end 2027. I would say that we're halfway there. We did just over 4% EBIT in quarter one. This is a good step in the right direction, but of course we want and will target for more. But compared to the 1.6 that we did in 2023, we are for sure moving in the right direction. In terms of capital structure, we have said that it should be maximum 2.5 times net debt EBITDA. We are now down to 2.4, so we're actually slightly below the target. What this means to us is that we are financially sound. Short term, we will still focus on strengthening the balance sheet, but longer term of course as we go down further in leverage, this might open up opportunities for value adding M&A. What we also did during the first quarter was to launch the new group strategy, and this is what we're working against now. It's largely focused on increasing profitability and to strengthen our market position for the future. There are three main pillars in this strategy to achieve this. To build an even stronger platform for our organic brands, to develop our strong health food brands, and to build for the future by achieving greater efficiency and harmonization across our organization. On a general level, we are convinced that healthy and sustainable foods offer the future, and that we are well positioned to protect consumers who prioritize their health and want to eat more healthy and organic products. As you know, sustainability is one foundation of our business strategy, and this makes it very pleasing to announce, which we did during quarter one, that CDP ranks mid-seven as one of the top 400 reporting companies globally, so we are a category A company. This is out of 21,000 companies that have been assessed globally. We also were awarded a respectable second place in Sweden's sustainable brand ranking. So this is clearly a sign that we're moving forward also on our sustainability efforts. Before I hand over to Max Bokander, I would like to conclude by briefly summarizing. First quarter results show that we are on the right track. We can see that the continuous streamlining and coordination of our product ranges has actually an impact on earnings, and we continue to work to create conditions for organic growth. And one proof of that is the recent contract that we have taken in Germany. We believe that we should be able to continue to improve in the second quarter and the rest of the year by offering stronger deals to our consumers and customers. And the focus for 2024 is to continue with the implementation of our strategy to move step by step towards our financial targets. And thereby I hand over to you, Max.

Thank you, Peter. As a financial summary for the quarter, the net sale was down 4.6 percent. But the gross margin improved with 2.7 percentage points and the EBIT improved with 17 million or in relative terms 81 percent. The net result improved with 22 million. This is five million more than the EBIT improvement when last year net result included five million in restructuring costs. The cash flow from operating activities landed on 21 million, which was 61 million weaker than last year when we had positive working capital effects. The net -to-epidarm ratio improved with 1.9 times, which also was a further improvement of 0.3 times versus what we ended last year with. Looking at the net sales development for the quarter, the organic growth landed on minus 4.2 percent, impacted by 1.7 percent from the discontinued distribution agreement and 2.6 percent from fewer invoicing days from its owner compared to last year. Looking at the sales by brand type, it's worth again mentioning the development for the licensed brands that was driven by the discontinued contract for Kauke. Additionally, I would like to highlight the private label business that continues to show good momentum, driven by North and South Europe, while Nordic still show lower sales of the discontinued contracts at low to negative margins. Now explaining the EBIT development compared to last year. The negative organic sales, or in this case labeled volume, resulted in 12 million less contribution. This was however more than compensated by the improved gross margin that generated 25 million higher contribution. The improved gross margin was driven by a combination of better price management, improved margins for private label, and improved efficiency in the operations. The sales and admin expenses decreased by 3 million, driven by good cost control and some cost variable with volumes. As a summary, the EBIT landed on 38 million for the quarter, which is 81 percent better than last year. Moving over to cash flow. The cash flow from operating activities landed on 21 million. The cash flow was 46 million negative impacted by the working capital, this after building inventory during the quarter. The inventory build included goods for new, smaller distribution agreements that would start first of April. The focus on efficient inventory continues, and the days in inventory continue to improve, and the inventory was 95 million lower than last year's same period. Finally, our cash and debt situation. We ended the quarter with 626 million in available cash, which represents 70 percent of the last 12-month sales, and the net debt in relation to EBITDA improved to 2.4 times. With this final slide, we would like to hand back to the operator and open up for questions.

The next question comes from Nicola Kalinowski from ABG Sundial Collier. Please go ahead.

Thanks for the presentation, Peter and Max. Just a couple of questions from me. Firstly, if people are interested in the question, please do not hesitate to ask them. Could you please share with us where you believe that you are in the process of streamlining the brand and product portfolio? Have you already completed the lion's share of discontinuations, or should we expect much more to come?

Yes, this is a continued process that has been going on for quite some time. I think that we are clearly in the second half of this, and I would say that the majority of this is done. What we have done in the first quarter is continue to discontinue some lower margin or negative margin agreements, and this is one of the reasons why we are able to improve the EBIT profit. We still have some taste that we will continue, so this is something that will continue throughout 2024, I would say, but the pace might be slightly lower in the future.

I appreciate that. That's very helpful. Secondly, you mentioned that the tensions in the Red Sea result in delays of container shipments. Is this something that is affecting all segments and geographies, or is it more contained to a specific segment or geography?

I would say that it mainly affects our organic brands, and we do have organic brands in all the three divisions. It has had a slight negative effect, but I would say that it's manageable and looking forward also we see a steady inflow of goods, and it's something that we are overly worried for the second quarter or further ahead.

I understand. And the final question. I think it's fair to say that you've been quite nimble with the cost base. Would you say that more could be done with respect to costs, or are you as lean as you possibly could be without harming Topline?

I would say that there is more to be done in our supply chain and production efficiency in terms of continuing to drive for improved sourcing, continue to develop our factories, and this is basically twofold. I mean it's one, to save costs, but it's also to be able to supply our customers as volume hopefully increases in the future. So this is something that we will continue to work on, but it's more around supply chain and production efficiency, not so much in administration now.

Wonderful. That's all from me. Much appreciated. Thank you very much.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you so much and thank you for attending. As you've understood, we were happy about the progress in the first quarter, but we are also hungry for a lot more. So we will continue to drive towards our financial goals, and this for sure is the key focus for 2024 and forward, to step by step get closer to them and to deliver on them. And we look forward to be able to present you again after the second quarter. So thank you so much for your attendance. Bye.