Probi AB (publ)

Welcome and thank you for dialing in to PROBI's presentation of our quarter one results for 2024. With me, I have Per Lindvall, the CFO of PROBI, and my name is Anita Johansen, and I'm the CEO of PROBI.

So please take a few moments to familiarize yourself with this statement. And this is the agenda of our presentation today. So this is the first quarter in what will be a transition year for ProB.

We've just finalized a busy and eventful first quarter. And on financials, our sales came in as expected. The 12% reduction compared to last year is mainly due to a positive one-off effect from 18 million in delayed deliveries due to a snowstorm at the end of 2022, and hence a high comparison quarter in 2023. Our net sales amounted to 152 million Swedish kronor. The EBITDA margin was 15% versus 28 last year. An adjusted comparison EBITDA without the favorable orders would have been 23%. Here we'll get into more details on the underlying details of the numbers in a minute. On the activity side, quarter one has been characterized by a high number of activities and events and significantly driven by our strategic priorities and focus areas. We are building our future customer pipeline. We've seen good traction and momentum in sales and marketing activities, several new partners, business contracts, and product launches. This strengthens our product portfolio by delivering exciting new scientific evidence on our Symbiotics offering which was published in the International Journal of Nutritional Sciences. Our performance and sustainability rewarded us with a silver status from EcoVadis. And our groundbreaking research behind the Proviscentia gut-brain concept provided us with a selection as finalists for the Nutri-ingredients Awards 2024.

Now I will hand over to Per for financial review.

Thank you, Anita.

And yes, let's look at the key financials for our Q1. The reported sales of 152 million is down 12% versus last year. And in constant currency, it's a reduction of 11%. Q1 last year is a high comparison as the snowstorm in the US had an 18 million impact of moving sales from Q4 2022 into Q1 2023. This is what we reported as an unusual also back in 2023 and hence this is obviously not a surprise that we for Q1 2024 have high sales counts. Adjusting last year for the 18 million, the sales is largely at level. As Anita shared, lots of commercial activity, for example, around our newly launched concepts, yet these take time due to long sales cycles, so we don't see those in the financials yet. If we look at the EBITDA chart, last year we reported an EBITDA margin of 28%, whereas we for Q1 2024 report 15%. The snowstorm is a major cause, and again, adjusting for this, that comp of 28% would be 23%. Still more is involved, and lots of that is timing. To quantify, let me remind you that probably last year for full year 23 reported an EBITDA margin of 17%, so the 23% is still a high comp. And also in earlier years, 28 is actually higher than any quarter we recorded in 22. So with these into consideration, I'm not really surprised by the reported 15%, and it's actually in line with our internal forecast. The biggest driver for the low number is low production volume in Q1 2024 and also non-recurring cost in our production optimization program. When we look to sales by region and cross-profit by region and first starting with the Americas, The 115 million of sales in Q1 represent a decline of 12% for this region. And as we saw in the consolidated view, this is all driven by the earlier mentioned snowstorm related to the US. Adjusting last year for that same 18 million, the underlying comps for the Americas is 113. And hence, the 115 actually reported is actually slightly up. I will later explain what is happening to the margin from a consolidated view. And those explanations is also valid for the US. So I will cover those on the next slide. Yet looking at EMEA, EMEA is having a good Q1 driven by good solid customer traction. But let me also remind you what we looked at last year with lots of timing impact of several big customers reducing inventories. Those impacts we don't see this year and that is a favorable impact to our numbers for 24. I also like to mention our B2C business in the Nordics, which also performs well and ahead of last year. Specifically for the EMEA region, the lower margin is driven by product mix, so we don't see any kind of adverse impact on profitability underlying for EMEA and neither for APAC. The APAC number for Q1 is relatively soft and below last year. But this is mainly driven through sales facing and we will see later quarters coming back.

Now the bridge of our net income compared to last year.

Again, this reveals timing as the biggest driver for the changes to net income year over year. Again, the mentioned snowstorm is all timing and accounts for 12 million on a net income basis. And that brings the 19 million as reported last year to 8 million as shown in the chart. The cross-profit margin is also impacted by timing. And again, the biggest driver for cross-profit is lower production volume. With sales expectations maintained for the full year, swings in production volume will be timing. Other factors for the reduced cross-profit in Q1 reduce include temporary added cost to drive Opix manufacturing optimization program, but also some impacts from higher increased depreciations related to upgrade in our production facilities. Opix is up five percent versus last year. This is a an increase you could say which is above inflationary benchmarks yet this is fully planned and is a consequence of probably strengthening the organizations in various departments including R&D and commercial. Now our cash position and Probi generated 10 million of cash in Q1. So despite the soft EBITDA, good cash generation. And with this, Probi further increased our strong cash position up to 340 million of cash. Operating cash flow in Q1 is generated mostly by earnings. with 24 millions for the period of the quarter, while net working capital increased with 5 million, and hence the net 19 shown in the chart as operating cash flow. Specifically for CapEx, for Q1, those amounted to 7 million, of which 5 million is related to new equipment. mainly at our production site in Redmond, Washington state. And the remaining two million is across Intantible's investment in RMD and in IT. The last financial slide is really no big news. It's a slide which reconfirms the strong cash balance sheet of HOBI. no external loan and an equity ratio of 93%.

With this, I'd like to hand over again to Anita. Thank you.

Next slide.

So we have just begun our transition and 2024 will be focused on further stabilizing our business and restoring our profitability. As previously communicated, we have three key focus areas in 2024. And the first one is Win on Talent. I am firmly committed to cultivating a robust, resilient, and adaptable organization, which is focused on our customers and on commercial excellence. The second focus is to be more efficient in manufacturing, and we are progressing our ongoing optimization program. And we've started witnessing positive developments. The third focus area is accelerating our business growth. And we keep promoting our existing products and our new innovations. And although the sales cycles are rather long and it will take time, we now have good momentum and we are building our future customer pipeline. So in summary, 2024 will be a transition year with modest expectations on increased growth and profitability. But I am, however, confident that we are heading in the right direction. to deliver on our long-term strategy. So this concludes our presentation of our Q1 interim report.

And now there is time for questions.

If you wish to ask a question, please dial pound key five 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 Sten Gustafsson from ABG Sundal Collier. Please go ahead.

Good morning. Thank you for taking my questions. Actually, I think I only have one, and maybe it's a clarification, and it relates to the comments you made about the gross margin in EMEA. You mentioned product mix and what I didn't understand was when you expect it to sort of normalize again. Is that already in Q2 or should we look at it more over time for next year or Yeah, if you could give us some more color on the gross margin comment you made for me, please.

Yes, thank you. Thank you, Sten, for that question. It's actually a combination. So in Q1, we have a very specific product mix impact. And that will rebound already in Q2. But part of this the underlying situation is a specific customer product relationship that will fully recover in 25. So the answer or your question is spot on because it is a quite tricky situation. But again, most of it will recover already in Q2 and it will be full recovery in 25.

Okay, thank you. Because I noticed looking at sort of the past quarters over the years, there is some volatility in the gross margin in EMEA, and there could be many different reasons for that. But sort of the underlying, what was the sort of the base you had for 23 of around 56.5%, is that a good estimate? benchmark for what sort of, on average, the normal gross profit margin should be for EMEA, in your view? Or is that too high? Or could there be improvements longer term?

Yeah, but as you point out, we probably see significant fluctuations quarter by quarter. So in future, we will also see that for sure. But specifically to your question, we do see that cross-profit underlying is stable for POPE. Thus, as you can imagine, there's various factors having a kind of a push. Generally, customers push on pricing, there's inflationary. So we need to manage all this. So I'm not going to say that we are not going to see any any variations in cross-profit, but kind of no big impacts and it's day-to-day business.

Excellent, thank you. As a follow-up to that, in general pricing, how is that developed in Q1?

For all regions, not only EMEA, but in Americas and APEC also?

We are consistently or constantly working on our sales pricing. It is very much defined with the individual customer relationship and most of our customers is on contract. So it's specific to those contracts when we renew pricing. All our business is more spot and then it's kind of... on that basis. So there's not a simple answer to the pricing question.

Okay. Thank you.

The next question comes from Thomas Nilsson from Acti Esperana's Analyse Guidance. Please go ahead.

Hello, my question regards the successes and expansions in your B2C business. The expansion of B2C to Denmark appears to be a strategic move to strengthen the presence in the Nordic region. I wonder how the response in Denmark has been so far and are there plans to expand this B2C model to other countries in Europe?

Do you still hear us? Sorry?

Yes.

Yes.

Oh, sorry. Okay. Sorry. I thought we fell off. Thank you for that question, Thomas. I appreciate it. So the expansion to Denmark is, of course, part of our strategy to strengthen the propy brand in Scandinavia. Now we are in Sweden and Norway, and we are entering in Denmark through METAS. We haven't actually product available for customers in Denmark yet. It's going to happen here in the next month or two. So I cannot talk to how it's developing at this point. It's still too early. And through Metas, it's still, for us, you can say it's still just not a test, but it's still very cautious. We are launching in Metas through the online channel only. So it's going to be a soft launch you can say in Denmark. What is really important for us is obviously maintaining and growing our business in Sweden where we are market leader and are gaining market share also.

Okay, thank you.

Will other countries be probable in the future? What do you think about that?

Right now our strategy is in the Nordics. We will obviously always evaluate, but we also prioritize and value our relationship to our business to business customers, which is the main part of our business. So that is our key focus.

Okay, thank you.

You're welcome.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any written questions or closing comments.

Thank you all for listening.

The last slide just states the upcoming events that we have, financial events. And our next meeting is on May 7, where we have our annual general meeting. So we will be happy if we can entertain you on May 7. Thank you, everyone, for listening, and have a wonderful day.