Probi AB (publ)

Good morning, welcome and thank you for dialing in to PROBI's presentation of our Q2 results for 2024. With me I have Kjell Lindblad, the CFO of PROBI and my name is Anita Johansen and I'm the CEO of PROBI. Please take a few moments to familiarize yourself with this statement. And this is the agenda of our presentation today. Here are the highlights of the quarter two, which was a busy quarter marked by significant progress. The net sales was 179 million Swedish kronor, which was a 25% increase versus the same quarter last year. Net sales in the first half of the year are in line with our expectations. The EBITDA margin of the second quarter was 19%, which is 10% points up versus second quarter last year. In May, the Annual General Meeting decided on a 1.30 Swedish kronors per share dividend. And with regard to our business operations, the quarter was busy. We continued to streamline and adapt the organization to facilitate growth and profitability. Our Macos partnership went live, making probius consumer products available in Denmark. And the Probicentia product received further validation by a fourth study focused on gut-brain health in older adults over the age of 70 years. We also entered a partnership with Bauer to incentivize recycling of the consumer packaging in the Nordic markets, Sweden and Norway. We launched the first ever China Innovation Day, which was igniting considerable interest among our customers in China. And our customer project pipeline is growing as a result of a generally high commercial activity. Now I will hand over to Per for the financial review.

Thank you, Anita. Strong business performance in Q2 reported sales growth of 25% and an EBITDA margin of 19%. The strong Q2 sales is due to favorable comparisons, but also underlying growth in Americas and EMEA, where I will show more specifics shortly. The EBITDA margin of Q2 is 19% and brings the H1 margin up to 17%, which is at level with full year 23 and aligned with our expectations. Now the regional segment reporting for H1. America was impacted by quarter-to-quarter timing and the outcome is a reported growth for H1 with sales up 2% and organic growth up 1%. Behind this is lots of activity by the commercial team. Examples are showcasing most recent innovation at Supply Side West trade show and also the Digestive Disease Week in Washington, D.C. The cross-profit margin in America is impacted by added resources in operations to facilitate improvements to production. The added resources involve both internal and consultant as well as investments in tangible equipment. The initial results are very promising and we are confident that the investments made will pay off in 2025 and beyond. Next is EMEA. EMEA had very strong sales in Q2, which built on a strong Q1 sales also. H1 is now up 48% year over year. Noted though that last year we reported inventory corrections with a major EMEA account after the COVID pandemic normalization. and also insourcing of the B2C business in Sweden, which implied lower sales in Q2 last year. In Q2 this year, both has normalized and EMEA is on top of this showing underlying growth and has secured a few new business wins. The sales growth which maintained high margins imply an overall close profit in EMEA is up 10 million Swedish in H1. APAC sales in both Q1 and Q2 has been adversely impacted by the cross-border business sales into China being significantly reduced compared to 2023. This impacting all players in the market, including Ruby. Other major accounts were exposed to timing driven by both inventory positions and launches Despite the lower sales than last year, the competitive position of Probi has been maintained and cross-profit is noted impacted by adverse product mix for the H1. Now the net income for Q2 and it's here broken out by the various drivers and shows the volume effect is the real underlying driver. This is in line with the comments made earlier, specifically with sales timing in Americas and EMEA. Continued investment of Swedish 27 million for both plant machinery and equipment to drive efficiencies, but also R&D projects to support the sales pipeline. On top of this, we paid out dividend of 15 million as decided by the ATM. Noted though that the continued strong operating cash flow of 23 million and Probi has by this maintained an overall strong cash position. A quick look at the balance sheet. This is mainly a slide to remind you of the strong balance sheet of Probi. With this, I'd like to give back the word to Anita.

Thank you. So summarizing our quarterly financial report, it is fair to say that we are progressing in the right direction, and that quarter two marked a positive milestone, verifying ProVis reinforced strategy. We are currently on track to meet our targets for the full year, which are largely expected to be in line with last year results. We are still in an ongoing transition period, working diligently to implement essential changes and improvements to achieve long-term strength. Our organizational capabilities and ways of working have improved. Our commercial activity is high, also with the organization, which has resulted in a positively trending customer project pipeline. And production optimizations are progressing according to plan, and initial data shows positive results. We will maintain our strategic focus while implementing important changes and improvements during the ongoing transition. This concludes our presentation of our Quarter 2 Interim Report 2024. Now there's time 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 Philip Ekengren from ABG Sundal Collier. Please go ahead.

Thank you, Anit. It's really nice to see such good progress here. I have a few questions. I plan to take them one by one. I hope that's okay. So first you write that you're making efforts to improve internal processes and production alongside the commercial incentives. Could you please expand on this? What type of improvements you expect and can we expect a margin improvement at the end of year?

Good morning Philip and thank you for your question. First of all I'll say Our optimization and manufacturing is a catalog of projects. So it's different projects, it's several projects to improve our ways of working and also it's process optimization. And as I already said, we're making steady progress and our data shows positive results, but we do not expect a notable impact until the end of the year at the earliest. So we are not expecting it to be visible in 2024.

Thank you very much. And the next question concerns this year's goal of staying large in line with 2023 as you write in the report. But could you explain a bit what's in line? So is the goal to stay in line on sales or margin or EBIT on absolute terms?

I think I used the term in line specifically to the EBITDA margin. And then we see, as you know well, a lot of quarter to quarter variation. And with the 19% reported in Q2, we are on a year-to-date basis at 17%, which is in line with full year last year. So I think it's important to see not only on the quarters, but also in in the aggregate, so at H1. And the same for sales. We see variations on sales. We had a relatively weak sales in Q1 with high comps. We had an excellent Q2 now. But again, I think H1 is the most important takeaway. And sales here is at 4.8%, which is a good number considering the market dynamics.

Great, thank you. If we move on to the strength in EMEA, you explained partly by it facing easy comps, but also the strength in the B2C leg. Could you elaborate on how much of the growth is attributable to the B2C, and if other parts of EMEA also moves in the right direction, so to say?

Yeah, as you know, our segmental report is regional, so we are not providing specific data below that. But we are giving some insights and the insights is that our B2C business is doing well and it's growing compared to previous years. We are especially happy with the insourcing of the business as we reported last year or as we executed last year, which is performing well. And that is helping us to invest even more in marketing and continue to strengthen that B2C business. And as noted by Anita, we are also expanding into Denmark now and we are quite excited to see how we can do in that market too.

Wonderful. And then a final question from me. Today you talked about some added resources in the US negatively impacting the margins over there and that you expect this to start paying off in 2025 and beyond. Could you maybe just elaborate a bit on what type of ramp up we should expect going forward from 2025 onwards? Is it back to historical levels or how should we think?

I think it's fair to say that we've already, when we launched our strategy back, I think it was in October last, where we talked about our financial targets. So we have a target to say in 2028, we want to be at or above 25%. We also communicated this year is a transition year. So this year, we're not expecting any specific growth versus last year. But then gradually we will expect an increase in the EBITDA from 2025 and beyond that, if that was your question.

Perfect. Thank you. That's all for me.

Thank you, Philip.

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

Next slide, please. Okay, with no more questions, I want to say our financial calendar is shown here on the last slide. Our next interim report, the Q3 report, will be out on October 22nd. And then after that, we have the year-end report in January 28th next year. I just want to say thank you all for listening and have a wonderful day.