Midsona AB (publ)

Welcome to the Midsona Q3 Report 2025 presentation. During the questions and answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now, I will hand the conference over to the speakers, President and CEO Henrik Jolmarsson and CFO Max Baconder. Please go ahead.

Good morning everybody and welcome to this presentation of Midsona's third quarter 2025 results. My name is Henrik Almasson, I am the president and CEO and with me I have Max Bokander, CFO. We will spend the coming 20 minutes or so going through an overview of the third quarter as well as by Max a bit more details on the financials after which time there will be plenty of time for questions. But before we go into this, just a few words on Midsona for those of you who might be new to us. We are one of the European leaders within the space of food that's good for you and good for the world, with a mission to provide healthy food for people and planet. Most of our products are plant-based and are vegetarian, and many are natural and organic. We are organized in three divisions, with Nordics being the largest, with almost two-thirds revenues, covering the four big Nordic countries, Sweden, Denmark, Finland, and Norway. Second biggest is Division North, which mainly covers Germany. And last but not least, we also have operations in France and Spain in Division South, with 11% of the revenues. We're headquartered in Malmö, Sweden and listed on the Stockholm Stock Exchange since 1999. So with that, jumping into the highlights of the third quarter 2025, where the overarching story is a good step in the right direction. As you can see in the graphs on the right-hand side, looking at the top right-hand pink box, we saw a good margin growth in the quarter by 1.5 percentage points to 5%. And obviously then also a good strengthening of the EBIT by 13 million SEC to 45 million SEC. This was driven by strengthened gross margin, improved efficiency and good cost control. The growth margin improvements by 0.7 percentage points came from better mix, both on the category level and product level for the group, but also continued pricing activities. And then EBIT growth was then further supported by continued good overhead cost control across all the divisions. In net sales, however, we saw a slight decline, but as I'll come back to later, that was impacted by the fire in Castelsir in Spain, which we previously announced. We saw a decline of 0.4 percentage points organically, but very pleasingly, our own brands were in growth, supported very much by our own organic brands, which I'll come back to. And it's also pleasing to see that the sales trajectory really illustrates that the commercial initiatives we're taking are paying off with both customers and consumers. As you can see in the bottom right-hand part, the cash flow was stable in the quarter, which means that the leverage net debt to adjusted EBITDA was improved by 0.4 times to 1.6 times, which means we exit the quarter with a stable financial position. Looking instead at the first nine months. So despite the good step in the right direction in quarter three, the first nine months is a bit more gloomy following the performance in Q1 and Q2. So we've seen a slight net sales decline for the first nine months, positively contributed by our own organic brands and private label. However, negatively impacted by the change of a business model of one of our health food brands from direct distribution to central distribution, which we also talked about in our Q2 report, as well as two discontinued licensed brands that have impacted us. The EBIT margin is down for the first nine months by 0.1 percentage points to 3.2%, which is obviously disappointing. So the gross margin for the first nine months has been impacted negatively by sales mix and efficiency. And we haven't been able to fully compensate that with cost reductions to support EBIT margin growth. Cash flow, however, robust, almost doubling year to date, and again, leaves us in a stable financial position. Looking at the highlights of the three divisions, starting with division Nordic and focusing then on the third quarter. On the sales development side, we saw a fairly weak organic sales development, however, very much attributed to two specific drivers, where one is the discontinuation of the two licensed brands that I mentioned before. And that's an impact that will gradually phase out during the fourth quarter, but also remaining effect from the change of the business model for the health food brands that we've mentioned before. However, very pleasingly, we see a healthy growth of our own organic brands of 9% organic growth in the quarter, really showing that the product and brand activities that we're putting in place and the plans we're executing are having good effect with consumers and customers. We also saw strength and gross margin in the quarter then driven mainly by price mix. Looking at Division North, we saw a material improvement of results, driven by both healthy sales growth, but also better efficiency. So own brands grew by 7.9% organically, with strengthened positions on both organic food and organic beauty, very pleasing to see. We also saw a healthy growth on private label, with the new business one continuously impacted. And on Division South, obviously sales impacted by the fire in Castos here in Spain, but own brands are in good organic growth of 8.5%, which is also, again, very pleasing to see. Production efficiency obviously impacted negatively by the fire, but compensated by good mix management. And whilst we see an improvement of the EBIT margin, it's obviously still at a very disappointing level. And there are several actions ongoing to improve with rapid effect. Looking instead then at the portfolio perspective in the third quarter, starting with our organic products. Overarching, we saw a good organic growth of 7.8%. And very pleasingly, then, if you look specifically on our own brand portfolio on organic, we saw an even better growth trajectory there with 8.2% organic growth. Again, showing that our actions to develop the assortment of branches paying off with both consumers and customers. We also saw a continued good growth for private label that is also contributing positively. On health foods, however, it was a little bit gloomier picture with an organic decline of 7.5%. And to come back to that, that is mainly impacted by the change in business model for one of our brands going from direct to central distribution. That is in the shift over transformation period and impacting the top line sales negative. But we've also stopped the number of unprofitable private label contracts on the health food sites, which is also then impacting the total growth negatively. On the consumer health side, we saw an organic decline of 12.5%. But referring back to the two discontinued licensed brands, that is the main impact that is impacting that. Our own brands has a slightly more positive development, although they are also impacted by sales timing with higher sales earlier in the year. Looking at the gross margin development, I think it's first very pleasing to note that we have gross margin growth in all three divisions, albeit ever so slight in Division South. But if we start by looking at the Nordics, the overall story here is that we see good product mix and good price management that's supporting the margin growth, despite a slight negative category mix and also a slight negative efficiency. We also see that we've been continuously good at optimizing the private label exposure mix, which is also impacting positively in the court. In North, obviously with two percentage points strengthening of the gross margin in material strengthening, with a positive sales mix impact, where we see a strong growth on our own consumer brands, and also in the shift from more unprofitable B2B sales to better profitability contract manufacturing, or as we also call them, private label contracts, which is also impacting positively. We also see that the efforts that we've previously mentioned in terms of increasing capacity has really paid off with both increased output, but also very pleasingly improved efficiency, which is also supporting the gross margin growth. In South, a slight growth of 0.1 percentage points, and obviously, as I mentioned before, negatively impacted by the fire in Castelsir in Spain, which is temporarily impacting negatively. However, then compensated sales mix, both from a category perspective and also from a product perspective. I also wanted to take the opportunity to just say a few words about the fire in the Castelcir plant in Spain that we mentioned already in conjunction with the Q2 report. As we mentioned then, we saw a fire early morning on July 7 erupt in the plant, thanks to swift action locally. I'm very pleased to note that the fire was fairly contained and most importantly that no one was hurt. The fire, as we communicated before, directly then impacted a production corresponding to roughly 75 million SEK of sales, which is also then partially visible in our top line for the quarter, obviously. The plant is covered by property damage and business interruption insurance, and we have since early July worked closely with the insurance company to ensure we get a payment of the insurance settlement as soon as possible. I'm very impressed with how well the Spanish Midsona team managed to get the business up and running again, which I think is a big part of the reason why we've also been able to reasonably protect the sales as well as gross margin in the quarter. But sales, marketing and administration were up and running the same day. The non-impacted parts of the plants were up and running within almost hours, more than days. We've been able to serve customers with available products, both contract manufactured products as well as licensed brands. But we also achieved in-house production of some of the lost capacity in the remaining parts of the facility within a couple of weeks. And during the quarter also achieved incremental capacity of some of the products with contract manufacturers. And we're now busy working on short term, adapting the cost base to the available capacity, but also very importantly to set the long term plan for the brand assortment and supply chain to support a long term profitable Spanish business. I also wanted to take the opportunity to briefly comment the news yesterday that we're launching a restructuring program to accelerate margin improvement. So whilst it's obviously pleasing to note a margin improvement in the third quarter, our long-term ambitions for our margins is considerably higher than what we're delivering at the moment. The key driver of that arguably will be a continued profitable growth and strengthened gross margin, but an optimized cost structure is also gonna be an important element in achieving our margin ambitions. Therefore, we've launched a restructuring program to accelerate margin improvement, where we're targeting 20 million SEK in run rate savings. We will start consultations shortly with the unions, obviously, and working on the details together with them. And we have the ambition to set the final details and get full run rate impact by the first quarter of next year. And we're expecting roughly 15 million sales. So summarizing then our focus going forward briefly, obviously one priority will be to make sure we get a successful implementation of the restructuring program to support margin growth. We're also going to leverage the growth momentum, the good growth momentum we have on organic brands to support the margin improvement, but also as a platform for growth in health foods and consumer health. And thirdly, obviously, continuously focus on achieving a stable operation in Spain. Again, I want to iterate how impressed I am with the local team and how quickly they managed to get the business up and running. But we need to continue that work, but also execute the action plan for rapid profit improvement in Division South as a whole. So with that, I'm going to hand over to Max, who's going to take you through more of the details on the financials. Max, please. Thank you, Henrik.

I will start with the financial summary for the quarter. The net sales declined by 2.6% with a negative impact from currency and the fire in Spain. The gross margin, however, improved from favourable mix price management and improved efficiency in production and warehouse. The EBIT improved with 30 million from improved gross margin and cost control. The net financing costs continues to improve versus last year, this quarter with 6 million, driven by the more favorable conditions in our new, earlier communicated financing agreement. The net results, however, landed on minus 50 million and was negatively impacted by the write-offs related to the fire in Spain. The items affecting comparability landed on minus 45 million, where 49 million were related to write-offs, 7 million plus from insurance payments that we have received, and other costs were included with 3 million. The cash flow from operating activities improved with 6 million versus last year, and a quarter ended with a leverage on 1.6 times. Moving over to the net sales development for the quarter, as already mentioned, the net sales declined. In absolute terms, 24 million, but Translation effect explains 21 million of it. And organic sales decline was more than 3 million. However, as communicated earlier, the fire had impacted our production capacity and approximately 75 million in annual sales value, indicating a theoretical 19 million quarterly impact. With that in mind, the sales could be seen as a growth. For our own consumer brands, on the right side here, you see the organic growth was 0.7%, with a strong development for several of our organic brands that in total grew 8.2%. For our own business-to-business brand in North Europe, the focus on profit before volumes continued, and the sales declined with 14.6% or 7%. Our private label business continues to show strong growth, this quarter with 10.5%, and North Europe continues to be the driver, and this quarter they grew with 25.1%, while South Europe now shows 35% lower sales following the reduced production capacity after the fire in Spain. The licensed business declined with 16.2%, mainly driven by discontinued distribution agreements earlier communicated on the Nordic market. Now explaining the EBIT development. The organic sales decline, or in this case labeled as volume, resulted in 1 million lower contribution, but this was more than offset by the improved gross margin that resulted in 6 million higher contribution. The tight cost control during the quarter resulted in 6 million lower sales and admin expenses. And furthermore, the FX effect from translation and revaluation of operating liabilities and receivables was 2 million favorable versus last year. And as a summary, the EBIT improved with 30 million or 40% versus last year. Moving over to the quarterly cash flow. As you can see in the graph on the left side, the cash flow was seasonally negatively impacted by working capital, but less so than last year. And as a summary, the cash flow landed on 48 million, an improvement with 6 million versus last year. Moving over to my final slide and our cash and debt situation, we ended the quarter with 656 million in available cash, which represents 18% of the last 12 months net sales. And as already mentioned, the net debt in relation to EBITDA landed on 1.6 times well within our financial targets. And with that, I hand back to you for some closing comments, Henrik.

So in summary, the third quarter was a step in the right direction with a considerably strengthened EBIT margin to 5%. and emerging positive signs, most notably with strong growth on our own organic brands, showing that the actions we're taking and the plans we're setting for our brands and our products is paying off with consumers and customers. And with that, I'll hand back to the operator for questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad. To enter the queue, if you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Alice Beer from ABG Sundahl Collier. Please go ahead.

Hi, thank you for taking my questions and congratulations on the good quarter. Just firstly on the restructuring program, When do you think the timing will occur for the implementation costs? Will that all be taken in Q126 and will that be included as NRIs?

So we think that the majority of the costs will be taken in Q4 and potentially some in Q1. We think that a majority of the costs will be items affecting comparability, but not necessarily all of it.

All right, great. Thank you. And other than reducing admin costs, what are your plans for reaching the margin target? Because currently you're a bit far off. Do you think that this will be enough if demand improves?

So this restructuring program in itself is not sufficient to get us to the margin target, obviously. In addition to that, there are two key drivers, I would say. The most important one is continued profitable growth of the assortment. And what I mean by that is that we see further opportunity to strengthen the margin of our portfolio, not the least through weeks, but very importantly then to see continued and that's going to be the key driver but secondly we're also continuously reviewing our production and logistics footprint and looking for opportunities to further improve our efficiencies and over a strategic horizon I would also expect there to be some potential impact

Okay, great, thanks. And then maybe more of a detailed question, but you commented in the report on higher raw material prices and some shortages. How much should this affect the gross margin, and will you be able to adjust prices in Q4 to offset this?

The exact impact of that in the financials is not immediately available, so I can't really answer that. But yes, continuously, our plan and structure is always to gradually adjust prices to that, unless there's some sort of specific one-off effect. And that's also the case here. So that will gradually be taken out towards customers.

Okay, great. And then on the Nordics, you said that previously terminated distribution agreements for two licensed brands also had an impact this quarter, but this effect will be phased out in the fourth quarter. Could you elaborate on that and the effect in Q4?

The exact impact in Q4 is a little bit difficult, because it depends a little bit on sales timing as one thing is sales out of store, another one is our sales into store. But what we expect is that by mid Q1, it will be fully phased out. And that will start occurring already from the start of Q4 and gradually phase out by then.

Great. And then on the market outlook, you commented on some positive signs in the market and some high interest in your product. Could you elaborate on that and your outlook for 2026?

We're starting to see, and we try to be quite cautious in our communication, but we are starting to see slightly more positive overall consumer signs in terms of our assortment. Not material in any sense yet, but at least painting a slightly more positive picture on the horizon. In addition to that, we're also seeing more microtrends related to our products, which are very much focused on health and well-being, such as, for example, clean eating, just to take one example, in some of our geographies that has also impacted the interest in our products positively. So on balance, the outlook is still uncertain, but at least we can say that it's looking a little bit more positive than it did if we look back a couple of quarters.

Perfect. That sounds good. And just a final question. Are you planning on investing in rebuilding the facility fully in Spain, or will you move the production capacity that was lost in the fire to existing factories? What I'm really looking for here is whether there will be some capex in 2026 to rebuild Spain.

We're actually not in a position to give a sort of a detailed answer to that yet. We are busy working on, well, first of all, we're busy making sure that the operation we have currently is a profitable and robust business. So that's the number one priority. And the second priority is actually to set, as I also think I mentioned, to set that long term plan. And when we set that long term plan, we will also set the right production footprint to support that. But a key priority in that will be to set a long-term plan which creates a good long-term profit and also achieves the right balance of return on capital that we invest to achieve that plan.

Okay, perfect. Thank you so much. That was all from me.

Thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Okay, thank you very much for your interest and for listening in to the Q3 report. We close this conference there. Thank you very much.