Midsona AB (publ) (MSONB) Earnings Call Transcript

Welcome to Midsona Q2 Report 2026 presentation. [Operator Instructions] Now I will hand the conference over to the speakers, President and CEO, Henrik Hjalmarsson; and CFO, Niclas Lundin. Please go ahead.

Good morning, everybody, and welcome to this presentation of Midsona Second quarter and first half year results. My name is Henrik Hjalmarsson, I am the President and CEO. And with me, I have Niclas Lundin, CFO. We're going to spend the coming 20, 25 minutes with me going through an overview of the second quarter and first half year. And Niclas then going through a bit more of the details. And after this, as usual, there will be plenty of time for questions. But starting with a brief introduction to us, for those of you who might be new to us. So we are a European natural and healthy food group, roughly SEK 3.6 billion revenue last year in 7 geographies in Europe, roughly 700 employees and 50 owned brands. We're well positioned in categories with structurally growing demand driven by an increasing interest in health and sustainability with a good combination of strong local brands as well as a stable European platform with scalable European brands. And we have a vision to become a leading European player within natural and healthy food. First, I thought I'd start with an overview of the second quarter. Starting here in the top left-hand box on the right-hand side with sales. So sales grew by SEK 5 million to SEK 870 million, an organic decline of 1.2%. The organic decline is driven mainly by contract manufacturing and as a result of the fire in our Spanish operation at the start of the third quarter last year, as well as, in general, more selective contract manufacturing activities. Very importantly, we saw an accelerated growth of our own consumer brands that grew by 2.3% organically in the quarter, proving that the strategy that we've set is paying off and the fourth consecutive quarter of organic growth on our own consumer brands. If we then go to the bottom left-hand side and look at our gross margin, we saw a continued gross margin improvement with our own consumer brands, growth driving a positive mix that is driving a 1.2 percentage point increase of gross margin. In combination then with the cost saving program, giving impact in terms of lower overheads. However, partially offset by very important increased investments in marketing for profitable -- long-term profitable growth. We saw an improved EBIT by SEK 16 million to SEK 20 million as well as an improved EBIT margin by 1.6 percentage points to 2.3%. In the quarter, cash flow strengthened by SEK 17 million to SEK 22 million despite the negative impact from the takeover of the inventory connected to the Risenta brand that we took over from the 1st of June which meant that we closed the quarter with a net debt to adjusted EBITDA of 1 flat, a considerable improvement versus last year, leaving us with a strong balance sheet, both in terms of the resilience, but also to be able to capitalize on strategic opportunities. Jumping then to a summary of the first half year. The story line is pretty much the same. Again, a slight negative organic sales development of minus 1.2% but also again driven by a decline in -- a conscious decline in contract manufacturing as well as an impact from the fire in the Spanish operation. The -- as I mentioned, the organic growth of our own consumer brands accelerated in the second quarter means that we've got a 1.2% organic growth of own consumer brands in the first half year, offsetting then some of the decline on mainly contract manufacturing. Gross margin in growth by 1.1 percentage points, again driven by mix, production efficiency and good price management. And then in combination with the cost saving program, delivering an improvement in EBIT of SEK 24 million to SEK 65 million and an improvement in EBIT margin of 1.4 percentage points to 3.7%. Cash flow improved by SEK 16 million to SEK 56 million, positively impacted by the insurance settlement in Spain in the first quarter and negatively impacted by the acquisition of the recent inventory here during the second quarter. If we look then a bit at the highlights by division, starting with Division Nordics. So in Nordics, we saw an organic sales growth of 0.5% with the own consumer brands in healthy growth, partially then as a spillover from the first quarter, where we saw slightly less growth on the old consumer brands, partially linked then to the shift of a launch window from the first to the second quarter. Gross margin strengthened in the Nordics by 0.7 percentage points, driven by mix but also a healthy continued production and logistics efficiency. And in combination, that means that we saw a considerably improved EBIT margin and fueled by the gross margin improvement as well as cost savings. But as I mentioned before, partially then offset by conscious investments in marketing activities, to drive our long-term profitable growth. Looking then at Division North, we saw a weak sales quarter with an organic sales development of 3.7% negative, mainly then driven by our own consumer brands in the quarter. Positively, our own business-to-business brands transition continued well with the sales stabilizing and profitability continuing to improve. And the gross margin improved in the quarter despite a slightly negative segment mix then driven by the weaker development of our own consumer brands. but mainly driven by the improvements in production and logistics efficiency. Looking at Division South, we saw an organic sales decline of 7%, driven by the lower contract manufacturing activities in Spain, which is completely linked to the fire that we saw at the start of the third quarter last year. Pleasingly, our own consumer brands grew by 6.6% with a continued strong growth in French grocery trade. And we also saw a materially improved gross margin driven by continued efficiency improvements as well as a more positive sales and segment mix. If we look then instead at the portfolio by product group, starting with the organic products, we saw a total organic sales development of the organic assortment of minus 1%. And driven then mainly by contract manufacturing and again, to a not insignificant degree linked to the fire in the Spanish business. Our own organic brands continued in growth, albeit Division North in the quarter then being the negative exception. But in general, showing that the marketing and innovation activities that we put in place across the group is delivering both organic growth but also improved profitability. And despite that growth, as I mentioned, not sufficient to offset the development on contract manufacturing than linked to the fire in Spain. Looking at health foods, we saw an organic growth of 3%, driven by the larger brands. This is partially then a recovery after a weaker first quarter. And as we mentioned in the report for the first quarter, partially then linked to the shift of a launch window. But this -- the growth that we see is a clear link to the strategy that we set and the investments we're doing in growth, both in terms of innovation as well as in marketing, such as for rigs, which I'll come back to in a little bit. And contract manufacturing in continued decline on the Health Food side, but a very conscious result of a more selective approach as we optimize for profits. And then lastly, on the Consumer Health side, a sales decline of 9% organically, so a fairly weak sales quarter, mainly linked to a weak seasonal performance on a number of seasonal products earlier in the quarter, more linked to the back end of the flu season and later in the quarter, partially also linked to a weak start to the mosquito season. We also have pockets of conscious optimization for profit in the consumer health products portfolio, which is partially impacting the top line performance and linking into portfolio, a slight follow-up on an example that I mentioned during the first quarter presentation, which is the launch of protein cakes under the Friggs brand. So a new range capitalizing on a strong protein trend, one of the fastest-growing trends in the market. offering a natural and protein-rich product with 23% protein based on lentils and peas. This has been rolled out during the second quarter. We -- very positively received, both on the customer side as well on the consumer side. And as we can see here on the top right-hand side, healthy growth in the quarter supporting clearly our overall on consumer brands growth in the quarter. And we've also supported this quite materially in terms of marketing activities, both supporting the launch as such, but also driving the long-term brand equity of the Friggs brand. A few words on the gross margin development in the second quarter, starting with -- or first of all, very pleasingly seeing that we've got a gross margin growth in all 3 divisions. Starting with the Nordics, as I mentioned, partially before, so an improved product mix with a higher share of own consumer brands and then in combination with good net price management is sufficient both to offset the slight negative impact that we've seen on transportation and partially on packaging as a result of the development in the Middle East and the impact that has helped on energy prices. But overall, also supported by a continued healthy production and logistics efficiency. Division North then, not as positive with an 0.3 percentage point growth, partially as a result of a negative sales mix with a weaker development on our own consumer brands. But the expansion is then supported by continued improved production and logistics efficiency as well as a continued improvement of the B2B, the B2B business in terms of strengthened margins. And then lastly, Division South with a considerable improvement in gross margin with a material positive impact from sales mix with a decline in contract manufacturing activity and healthy growth on our own consumer brands and this substantial positive mix impact is sufficient to also offset a somewhat weaker production logistics efficiency as we're continuously scaling up capacity to meet the demand. I thought I'd take the opportunity to also briefly link the performance of the quarter back to the -- to our strategy and the 3 strategic levers for value creation. The first one being then to invest behind selective power brands, where we're prioritizing investments behind selected brands where we see the biggest potential in order to strengthen the brand's competitiveness and long-term profitable growth. And one clear example here in the quarter is the progress we're making on the Friggs brand with the launch of the protein cakes, but also the marketing investments we're driving and where we're also seeing a clear payoff in terms of a healthy growth. We're also continuing to leverage our strong local positions with good progress on our local organic brands, strengthening growth as well as profitability in the quarter than Division North being the one exception. And lastly, cost and capital efficiency, where already several times mentioned, improved production and logistics efficiency as one driver of the across-the-board improvement of our gross margin in the quarter. And I think looking at this in a slightly longer perspective, it's positive to see looking here over the past few years. Starting with the organic growth on our own consumer brands, where we're targeting a growth of above 5%, that whilst we clearly have some work to do, we have made material progress over the past years, going from a negative 3.3% organic growth rate in an annual pace to a positive 2.2%. And doing the same comparison on our EBIT margin, we've taken that over the same period from 0.8% to 4.4%. And while doing this, strengthen our cash flows and considerably strengthen our balance sheet, and as I mentioned before, now at a net debt to adjusted EBITDA leverage of 1.0. So made some clear progress towards our targets, whilst obviously recognizing that we have some work ahead of us to continue to deliver those improvements to meet the targets that we have set. And then very briefly, our short-term priorities for the quarter to come, very much in line with what we saw for this quarter, in the sense of continuing to ensure the focused implementation of our strategy to accelerate profitable growth, investing behind our strongest brands, leveraging our strong local positions. Secondly then, more tactically leveraging the growth momentum that we have on our own consumer brands, now 4 quarters in a row and showing healthy brand growth -- on brand growth here in the quarter. So continuing that to take both innovation and marketing initiatives to fuel that continued growth. And lastly, getting the final pieces of the puzzle in place in terms of the long-term profitable growth plan for the Spanish business. With that, I'm going to hand over to Niclas, who is going to take you through the finances in a bit more detail please.

Thank you so much, Henrik, and hello, everyone. Let me start with the financial summary for the quarter. Net sales was up by SEK 5 million, including recent impact of SEK 11 million. And adjusting for currency impact, the total organic growth rate came in at minus 1.2%. And in line with Henrik's earlier comments, gross margin developed well during quarter 2 in all our divisions. Total gross margin improved by 1.2 percentage points and was positively impacted by improved efficiency, price increases and a good sales mix, where our own consumer brands developed well. In consequence, EBIT improved by 1.8 percentage points, equivalent to SEK 16 million. And apart from increased gross margin, we saw a positive impact on EBIT from the cost reduction activities initiated in 2025. This was, however, partly offset by increased sales and marketing initiatives. Net financing costs continued to improve versus last year, this quarter with SEK 5 million, driven by the more favorable conditions in the new financing agreement as well as lower indebtedness. Net results landed on SEK 12 million including an additional SEK 4 million in costs related to the factory fire in Spain, classified as items affecting comparability. Moving on to cash flow from operating activities. It came in at SEK 22 million and although negatively impacted by continued seasonal buildup of inventory as well as onetime effect related to acquisition of Risenta finished goods. This was an improvement of SEK 17 million compared to last year. As Henrik mentioned earlier, the quarter ended with a leverage of 1.0, a substantial improvement versus last year. Now moving over to the sales development for the quarter. And as already mentioned, net sales increased by SEK 5 million, equivalent to 0.5%. Structural growth from Risenta explains SEK 11 million and FX translation an additional SEK 3 million. So the organic sales development was negative with minus SEK 10 million, equivalent to minus 1.2%. Now let's shift focus to the right hand side of the slide on to the graph. And although overall negative organic growth, we were glad to see the increasingly good traction of our own consumer brands showing organic growth of 2.3% in the quarter with our larger prioritized brands as top performers. And as Henrik previously mentioned, on a rolling 12-month basis, organic growth of our consumer brands has improved by 4 percentage points versus Q2 last year. The business-to-business branded business in Germany is still under transition to focus on profit over volumes. And in Q2, new more profitable contracts replaced old contracts with less profitability, leading to net sales in line with last year with continued positive effects on margin. License business declined by 1.7%, mainly referable to certain consumer health brands in the Nordics. And finally, our Contract Manufacturing business showed a decline in all our divisions, mainly related to discontinued less profitable contracts within the Nordics as well as effects from the fire in Spain in July last year. So let's hand over to the quarterly EBIT development compared to last year. Lower volumes resulted in SEK 1 million less contribution but this was offset by a clearly higher gross margin of 1.2 percentage points, improving profit by SEK 14 million. This improvement, including the impact of Risenta, which was in line with expectations, was driven by lower staff costs, improved efficiency, less scrap, pricing and a good sales mix. Sales, marketing and administration expenses were down a further SEK 1 million net, including recent impact, also in line with expectations. We now see the full effect of our cost reduction program from 2025. But this positive impact was, however, largely offset by increased investments in direct sales and marketing activities in order to facilitate future profitable growth. The FX effect from translation and revaluation was SEK 2 million compared to last year. And to conclude, EBIT landed on SEK 20 million with a 2.3 percentage margin, an improvement of 1.8 percentage points or SEK 16 million versus last year. And on the right-hand side, we illustrate the quarterly and the rolling 12 EBIT development during the last 2 years, and it's encouraging to see the gradual improvement. We're rolling 12 EBIT increasing to SEK 157 million by this quarter end, which is SEK 48 million higher than by the end of June last year. And consequently, rolling 12 EBIT margin has improved from 3.0% to 4.4%. Let's continue to the quarterly cash flow. And in Q2, we saw a continued buildup of inventory, which is partly seasonal. Inventory levels were also impacted by purchase of finished goods related to the Risenta acquisition. Accounts receivables came down to more normal levels after the payment delays we experienced in Q1. However, this positive working capital impact was partly offset by a decrease in payables. And to summarize, operating cash flow ended at SEK 22 million, an improvement by SEK 17 million compared to last year. And the right-hand side graph illustrates the cash flow trend displaying an increase of rolling 12 operating cash flow by SEK 65 million compared to Q2 '25 to SEK 245 million. So we're approaching the end of the financial review, summarizing our cash and debt situation. The quarter ended with SEK 745 million in available cash. And worth mentioning versus Q1 is that Q2 cash wise has been impacted by dividend, SEK 32 million as well as the first payments related to the recent acquisition, SEK 42 million. Available cash represents 21% of the last 12 month sales, which is a very healthy level continues. Right-hand side, net debt increased to SEK 370 million, including the IFRS 16-related debt of SEK 101 million. This means a continued historically low net debt in relation to adjusted EBITDA and including recent a pro forma effect of 1.0x. The current leverage is well within our financial target, establishing our strong financial position going forward. And that rounds off the financial review. So back to you, Henrik.

Okay. Thank you very much, Niclas. And with that, we will open up for questions. Operator, please.

[Operator Instructions]. The next question comes from Alice Beer from ABG Sundal Collier.

Just starting off, could you quantify how much the shift in the launch window in the Swedish market affected sales? Just trying to get a better understanding of the underlying developments in consumer brands, excluding this timing effect.

Thanks, Alice. Yes. I think it's -- in all fairness, it's very hard to isolate that effect, with -- particularly with the dynamics going on in the market and also the investments we're making for growth. So we'd be guesstimating a bit too much to be comfortable giving a real number. It is an impact, and we are seeing that in the strengthening of the consumer brands growth. But another way to phrase it is that we don't see that as the only reason behind the strengthening of the growth on own consumer brands from Q1 to Q2. So that was not -- that shift does not explain the full strengthening, but there are also -- we also see a general positive momentum. But hard to give an exact number.

Okay. Fair. Moving on then on the marketing spend. Selling expenses rose in Q2 behind priority brands are described as gradually driving sales? What's the expected marketing spend run rate for H2? And what organic growth rate do you expect that investments will we start paying back the EBIT line rather than just in the gross margin?

Yes. So we do expect our -- to answer the second question first. We do expect a continued positive development of the growth of our own consumer brands and that the marketing spend is part of that. We don't expect a -- in terms of group profitability, we don't expect a material increase versus the levels that we've seen in Q2. So at about a level or slightly even below the relative level that we saw in Q2, which is slightly higher than the level we saw in Q1 is what we're expecting going forward.