AS APF Holdings (EGG) Earnings Call Transcript

Dear participants, welcome to APF Holdings Investor Webinar. We will start the company's presentation and continue with a live Q&A session [Operator Instructions] For your convenience, we will be recording this session and replay will be available shortly after the call. Let me now introduce you to the management of APF Holdings. Jurijs Adamovics, APF Group Founder and Chairman of the Management Board; and Mihails Keziks, CFO and member of the Management Board. Handing over to you.

Good afternoon, dear shareholders, dear investors. Welcome to our semiannual webinar. Today, we are going to cover the following agenda. We're going to walk you through key indicators of our operational financial performance. We're going to share key highlights of the business, followed by egg industry overview, sales performance, key financial indicators, and we'll finish with targets for the second half of this year. Key indicators. This 6 months of this year has been historically the best ever period for the group. Operationally, we have sold 59 million eggs, which represents 23% year-on-year growth. We have surpassed the EUR 10 million revenue threshold, which is 70% year-on-year growth. Gross profit, we have reached EUR 4.3 million, which is 183% growth. And our EBITDA for the 6 months of this year is EUR 3.5 million, which is 250% growth. So as you can see, the results are the proof of our investments or the viability as our investments are now translating into a very viable results, higher scale, stronger profitability and discipline on leverage. Moving on to the highlights. I'll only touch upon the key ones. February 25, we have reassured our commitment to energy efficiency and sustainability by renewing our ESO certification. We have also have been quite active on the product innovation and marketing. In June this year, we have launched a new packaging, which is actually we now see is very likely to become our top 5 best sellers amongst all SKUs that APF is offering. Earlier this year, we have also entered into the market making agreement with Signet Bank. This is to support share liquidity and improved trading dynamics. So this was done for the benefit of our investors and it's, in a way, our small contribution to the capital markets development of our country. Hopefully, this is going to be helpful for our retail investors. In March '25, we have completed a Series B placement of bonds. So we have placed EUR 5 million private bond issue with our partner, CVI. The funding was used for the completion of our latest investment phase and also to give us some flexibility and also in order to decrease reliance on shareholder company loans. June '25 was the month of some changes in corporate governance. We have reelected Supervisory Board and have a very valuable addition. Ruta Amtmane joined the Board as a new member and also as a Vice Chairperson of the Supervisory Board. Ruta is a well-respected professional in the corporate governance and corporate law fields and has very substantial experience in banking and finance. And since very recently, he is also on the Supervisory Board of airBaltic. So this makes our Supervisory Board complete in line with Articles of Agreement. The investment program that we have been communicated about our -- in our previous webinars has been fully completed during first half of this year. And on May 8, we actually had an official inauguration of all 3 new buildings. And this includes 2 state-of-the-art laying houses with Big Dutchman state-of-the-art equipment and also new liquid egg processing and central warehousing complex. So all 3 are completed and delivered within the budget. And that basically puts to a close or to a final completion, our current investment phase, which in total amounted to EUR 13 million, of which EUR 2.9 million was EU co-funding. And as reported before, this would allow to boost our production capacity by 60%, allowing APF to produce up to 800 -- apologies, 180 million eggs per annum. So this expansion is actually very critical. It's an initiative which would allow us to strengthen our position as a market leader in the cage-free production and would certainly is going to improve our competitiveness in the cage-free egg and egg product line. As reported before, last year, we have launched a new business line under the trademark Fiteg². First 6 months of this year, we have continued to actively work on this business. Just to remind to our investors, the product lineup includes premium egg white protein powders, egg membrane collagen and egg white protein bars with different flavors. So we have a separate dedicated team that works on this project. Since launch, the project is primarily Baltic region focused. But the vast majority of sales, roughly 94% in the first 6 months come from Latvia alone. With the remainder coming from Estonia, Lithuania and just slightly more than 1% from other EU countries. This is now no coincidence, and this is related to the fact that before starting a more aggressive rollout, we wanted to prove the business model and the concept, which is now largely being done. The Fiteg² team has achieved a repeated purchase rate of almost 32%, which according to any e-commerce benchmarks is a relatively high rate. So now we are quite comfortable to be more aggressive in launching in Lithuania and Estonia with recruitment activities currently in process. And most likely later in '26, there will be additional rollouts in selected European markets as well. Egg industry overview is the next section we are going to cover, and I hand over to my colleague, Mihails.

Thank you, Jurijs. Thank you, dear investors. Let's now walk through the financial part of the presentation. We will structure it in a similar way as usually. We will start with a big picture of the industry and then dig deeper down all the way forward to our numbers. So first of all, let's see what's happening on the market. As usually, we are presenting this information, which is based on Nielsen IQ data for all 3 Baltic countries and describing the changes in the market that happened during first half year of 2025. So let's now take a look at this nice picture that we see. All 3 Baltic states recorded a growth in total egg market, and it was driven mainly by the barn egg segment where APF is developing and the growth number reached a 3-digit number, which is absolutely perfect. And the leader amongst 3 countries as usually is Lithuania, which in the first half reached barn eggs segment -- reached more than 60% share of the total market, which is very close to what APF was forecasting before IPO. In Latvia, less, but still more than 50% and 23% in Estonia, which is still below our forecast, but it is explainable to the fact that some supermarket chains are postponing shift to cage-free eggs to the next periods. Next slide, as usually, it's the price development during the reporting period. So what we can see from this slide, information is provided by European Commission. So definitely, during the first quarter of this year, prices were continuing to grow until the Easter period. There are a number of reasons to this. Of course, it was influence of previous year developments, namely as we described previously, there was smaller production of European egg producers due to large import previous from Ukraine, also some AI outbreaks that happened in the end of the previous year and some in the beginning of this. So it's -- and also important factor in this period was a shift to the cage-free eggs that drive the higher demand for them. So prices continue to grow, as I said, until April of this year and then markets have stabilized due to -- which also was in line with the regular annual seasonality of the prices when the summer months are the lowest one. And on the background of this, as you can see, APF prices was in line with the highest price in the market. It was Polish producer prices. Now let's take a look at our sales breakdowns and performance, and let's start with one basic segmentation. It's difference between eggs sold to supermarket to retail and eggs sold for processing or industrial eggs. So as you can see, a very good result for APF. We have managed to reduce the share of industrial egg sales to 11%, which we can say is very close to the natural split of the eggs produced, so small eggs and large eggs which are not suitable for retail sales amounts around 10% of egg production. So we were very tight in this parameter and get a very good result, selling a lot of our eggs directly to retail, not to processing. Next slide is for breakdown of eggs sold under APF owned brands and eggs sold under other private labels. So here, again, you can see that almost no change to the previous period and the market level is approximately 50 to 50. Again, APF was very effective in this line, and we maintained 2/3 of our sales being sold under our brands, which gave more sustainability to our sales. And of course, we would like to thank here to all our customers that choose our brands versus some other labels. Last slide about sales, but not least, very important. Let's take a look about on how our export and our final destination geography of our clients looks like. Here, you can see that we have continued to grow comparing to the results reported for the previous financial year. We have significantly increased the number of eggs sold to Lithuania. And here, you can see Lithuania and Latvia sales are almost equal, which is explainable, of course, by the situation on the market previously described that Lithuania is a leader among Baltic countries for cage-free eggs sales. Also, we have increased our share in Estonia, and it's going to continue in the next period, we believe -- but what is more important here to say as Lithuanian and Baltics share increase in our exports, also our final client profile have changed, and we have sold more eggs to supermarkets, let's say, not for processing as previously. And this has driven the income from export to be -- to rise almost 3x comparing to the previous period, which is also a very good result for APF for this period. I'm happy to present here. So after that, let's finally take a look at our financial data. And as usually, beginning, we will review the factors that influenced the change in our adjusted EBITDA parameter as mentioned, and as you can see, a fantastic result. We have more than tripled our EBITDA for this period. And main reason was -- came from eggs -- higher egg sales received in this period under that was a number of reasons. Again, of course, we produced more our own eggs in this period due to finalization of our investment phase previously announced. Of course, there were higher prices in the market comparing to the previous period. And also, we have more than doubled third-party eggs sales comparing to the previous year period. On the cost side, feed costs, of course, increased, but only due to larger consumption of the feed due to new laying hens barns opened this year, but the feed price was even lower than in the first half of 2024. Another production cost increase was paced again due to acquisition of this third-party eggs comparing to the previous period, but also the increase in packaging and operational personnel salaries. Also to mention administrative expenses increase was due to higher research and development costs. So all in all, we finished this period with a brilliant EUR 3.4 million EBITDA, which is EUR 2.4 million higher than any previous period. Again, let's take a look what happened, what driven the change in our net profit. Previous half year, we finished with some losses. But this year, we are glad to announce that we are closing with a record-breaking net profit of EUR 1.7 million, which was again mainly driven by increase in EBITDA expressed I described in the previous slide. But there was higher interest expenses due to expensive -- more expensive financing we have attracted for this investment phase comparing to the previous period. But on the other hand, in this half year, we didn't have any expenses related to disposal of fixed assets as we were forced to have in the previous period. So this was positive. And again, happy to announce our net profit of record EUR 1.7 million. Finally, let's take a look at our financial indicators at one slide at a glance. As you may understand, our significant profit result of this year have boosted all of the profit indicators, and we have reached brilliant margins in EBITDA and return on equity of 34%. Our price earning indicator have decreased to 8x earnings received on an annual basis. Earnings per share is in a historic highest level, EUR 0.60 per share which provides for 12% per annum income versus IPO price. And very important also to mention, nevertheless, we have encountered higher debt to realize our investment phase. Our indebtedness level on net debt to adjusted EBITDA remained at a very comfortable level of 1.6, which also improves our financial stability. I will stop here and probably pass to Jurijs for the next slides.

Thank you, Mihails. So the financial outlook is what we have on the screen now. So we currently operate under the assumption that the revenue target or the turnover for 2025 should be close to EUR 22.6 million, which is a 7% upward adjustment towards last guidance, which was at the level of EUR 21.1 million. Also for EBITDA, our previous guidance was almost EUR 6 million. Now we operate under the assumption that APF should be in a position to close the financial year with EBITDA of EUR 7.1 million, which is an 18% increase versus last guidance. Growth drivers for second half of this year. First and foremost, this is expanded production capacity. As mentioned before, investment phase is completed, fully operational. Now we have 4 out of the 5 barns full. Once we complete [ flock ] replacement in 1 of the 5 barns, which is currently underway and is expected to be completed in September. So starting September, APF facilities in Aluksne will operate at full capacity. So that should support a strong revenue growth in the second half of the year and enable us to meet rising demand for products across all of our clients. Shift towards cage-free production is another growth driver, which Mihails covered that we see even in the Baltics, markets and retailers across markets and countries perform differently. We see that Lithuania is leading when it comes to cage-free transition, Latvia ranking second among the Baltics and Estonia lagging behind. But we do believe that all major international retailers will not walk away from the public commitments for transitioning towards better animal welfare products. So we do expect to increase a further accelerated demand for higher welfare production. We expect to see some growth in the liquid egg segment. There is also some correlation to the increased capacity of the APF facility. Obviously, once we have a significantly higher number of eggs that we produce, there is also a larger quantum of so-called B-grade or secondary quality eggs, which are using for processing means with liquid products. We also see a higher demand for liquid products produced specifically from cage-free products among large corporate accounts such as food processors, confectioneries, bakeries. This segment, we also see is becoming more high animal welfare standards focused, which also works for our benefit. Next growth driver is growth in Fiteg². We are growing the team, as I already said. We are recruiting people in other markets as well. And we are actually, as we speak, increasing our presence in retail, fitness and other lifestyle channels. We actually have already started first shipments in July to actually majority of larger retailers in the Baltics, where Fiteg² product range is already available, which we expect should be a significant boost in brand awareness and should help to facilitate growth in revenue across both the online and offline sales and channels. Overall, we also do believe that a more premium product mix should also contribute to growing revenue and higher margins. As we reported before, now APF is becoming -- well, actually, we have already de facto become the largest industrial scale cage-free egg producer. If we look at our capacity in relative terms as to what is the percentage of cage versus cage-free eggs we produce, only 1 of our 5 barns is cage or enriched cage or so-called colony and the remaining 4 are cage-free, which puts APF on the past most likely to become the first totally cage-free egg producer once the cage production is gradually phased out. So this ends our presentation. Thank you very much for your attention, and we are open to take up any questions from our shareholders and investors.

Thank you for the presentation. We will start with the question-and-answer session. [Operator Instructions] And since we have received a lot of questions already prior to the call, we will address similar questions as one. So let's start with the first one. So will shareholders' loyalty program include any benefits for the Fiteg² production.

The short answer is yes. And more expanded answer, I need to say then actually, the timing of this question is very good. We had our regular Supervisory Board meeting last week and the shareholder loyalty program was approved at last. And it does contain, of course, a very, we hope, attractive components for our loyal customers and for Fiteg² product [indiscernible]. So we do expect to officially launch this, I would say, within 6 to 8 weeks. And hopefully, we'll make some positive surprises for our clients. It's no secret. The key day for us for the egg industry is International Egg Day or the World Egg Day. which is early October. So around that time, we expect to publicly announce all the details of the shareholder loyalty program.

What drove the 70% growth of the revenue in first half of 2025?

Yes. As we mentioned during the presentation, there were a number of reasons. Of course, it was an increase in number of eggs sold and more eggs we have produced, thanks to the next investment phase we have finished in the first half of the year. Also, we sold more third-party eggs, as mentioned, but another factor was increase in price of eggs due to market situation and due to higher demand for barn eggs this year, but also thanks to the change in our product mix, as mentioned, we sell as less as possible eggs to industry, but the majority was sold to retail clients.

Is the gross profit margin improvement sustainable?

Yes. Of course, our gross margin was driven by this significant change in transfer in the market, which is a shift from cage eggs to cage-free eggs production and also, of course, our increased capacity will lead us to a better economy of scale, which will support our gross margin hence forward.

How do you manage rising feed or energy costs?

Feed and energy cost, both prices are fixed for the maximum period possible ahead, what is the best market practice and available solutions. And in terms of energy, we can add more that we also have built our own solar park, which partly compensate our energy consumption.

How much debt do you carry after the bond issuance?

So this year, yes, we have received another EUR 5 million debt from CVI. And in total, you will see from financial statements, our debt from CVI reached EUR 12.6 million, which was in line with our previous expectation. And as we mentioned, all in all, at the end of first half of the year '25, our indebtedness indicator is very comfortable of 1.6.

Do you expect to raise any additional capital in 2025?

I'll take this one. Well, as we reported, our current capacity expansion is fully funded. So if we will pursue additional development projects or acquisitions, we will, of course, evaluate financing options very carefully, always balancing growth with leverage. Our investors and shareholders might have noticed that some decisions on raising new equity were also taken at the latest shareholder meeting in June. So if those acquisition and development opportunities will materialize, then yes, indeed, there will be additional capital raise.

The IPO projections were higher. So why there was adjustment?

The adjustment reflects predominantly timing. So as Mihails has also covered in his macro overview, we have seen some delays in retailers accepting the -- or introducing the transition to cage-free. So that also makes the transition more gradual and not at the pace we have originally anticipated. But that does not change our strategic direction, which remains the same. So anyhow, as you have seen from our operational and financial results, APF is delivering strong growth, which is well above our previous guidance.

How do you see the cage-free transition affecting the APF?

I think it's fair to say it's a tailwind, and we are pretty much in the hands of our end clients, consumers, also retailers and food processors who are, of course, in many ways, accelerating this shift, if you like. And I think also with our investments, which have been already concluded this year, APF is very well positioned to capture a significant market share and premium pricing as cage-free we see over the years will become an industry standard.

What is your export strategy?

It's pretty much based on diversification. As we have reported to our shareholders and investors before, for us, the whole market is Baltics. But statistically speaking, if we look at everything that we sell beyond Latvia, exports are already above 50% of sales with very significant growth in Lithuania and Estonia, which are logical markets because these are the markets for our key corporate accounts for the key international retailers with whom we cooperate. But also over the course of the first 6 months of this year, we have seen more shipments than usually to Western and settle European clients. So this reduces reliance on any single market and build some resilience. And of course, going forward, our strategy will be to increase exports as a percentage of overall sales of the company.

How material is Fiteg² today? And what is the outlook?

Today, it's not material. It's a relatively small share of our revenue, but it is strategically very important business line. As we have mentioned earlier, we are scaling distribution. We are going into offline retail, and we are going into fitness channel as well and we have a very strong pipeline to grow those distribution channels. The Fiteg² business as such is diversifying our revenue into functional nutrition, which is internationally known to be a high-growth and high-margin category in which APF wants to be significantly present.