Probi AB

STO:PROB

Earnings Call Transcript 2021-Q2

[Operator]

Hello, and welcome to the Probi AB Q2 Reports 2021. [Operator Instructions] Today, I'm pleased to present CEO, Tom Ronnlund; and CFO, Henrik Lundkvist. Please go ahead with your meeting.

[Tom Ronnlund, Chief Executive Officer]

Thank you very much, and good morning, ladies and gentlemen, and thank you for dialing into Probi's presentation of our Q2 results for 2021. Together with me here in Lund, I have Henrik Lundkvist, our CFO. Next slide, please, which is our safe harbor statement. And please familiarize yourself with that at your convenience. And next slide, please. And today's agenda, we're going to give an overview of our results and activities in the quarter as well as our financials and also have some comments with our -- with regards to our outlook and open up for questions and answers later on. Please switch to next page, please, which is Page #4. So in Probi here during the second quarter, we have continued to be very busy. We have entered into exciting customer relationship and important strategic collaborations, both elements, important pieces to drive our growth for the company into the future. Financially, following a strong start to the year in the first quarter this year, we had a slower quarter as presented or published this morning. We've seen currency headwinds as well as lower volumes. That gave us a relatively low quarter, which is minus 12% versus previous year if we do not adjust for currency. And if we adjust for currency, we were 3% down in the quarter compared to last year. However, for the first half of the year, aided by the strong Q1, we posted an 8% growth in constant currency for the period January to June 2021. Our EBITDA margin was affected by the lower volumes and we came in at 26% and for the first half of the year, which is the same level as last year for the first 6 months, but also a bit below our long-term financial target. The dynamics in the region, in our geographical regions vary with Americas down 5% in currency adjusted sales performance and with EMEA posting another strong quarter and APAC delivering a solid quarter against the tough compare last year as we saw some pandemic-related stocking back in the same quarter in 2020 in the region APAC. Whereas from a partnership perspective and strategic collaboration perspective, we are very excited and happy to have initiated a customer relationship with the Swedish Oriflame where they will launch globally their first probiotic supplement in their wellness range of products. This product is based on Probi digestive, a well-documented offering for general gut health. The first order from Oriflame is already received and the rollout into the market will commence in the fall of this year and continue into 2022 and beyond as they will roll out to a significant number of countries. We also signed, in the quarter, a significant customer contract in the South Korean market, where a large local company will work with both Probi ClinBac products as well as offerings from our LiveBac range depending a bit on the uptake in the market. This customer account has the potential to be an important growth driver in our APAC region moving forward. First orders have been received and shipped within the quarter. So we're off to a good start here with them. And in our continued focus to drive innovation in the field of research and development, we're also excited that we, in the quarter, have entered into a research and development partnership with the Estonia, well, quite difficult to pronounce. Tervisetehnoloogiate Arenduskeskus AS. We -- for short, we put it at CCHT, where we are targeting the development of novel products focused on women's health and specifically vaginal health. It's a quite large unmet need within the field for efficacious products, and we're very happy to partner with CCHT as they have created and studied a unique and proprietary bacterial strain library in this field. And through this agreement, Probi will have specific access to the library for further research and eventually also commercialization at a later stage. So we hope that this will be a strong addition to our product portfolio in the future. Last week, which was post the quarter, we also announced investments into Blis Technologies, who are based in New Zealand as well as a strategic long-term partnership with them, focused on licensing and distribution as well as manufacturing. We will comment a bit more specifically on this a bit later in our call. If we move to next slide, please, Slide #5. With regards to our sales volumes, which were lower in this quarter compared to previous year. In Q2 2021, our net sales landed on SEK 168 million compared to SEK 188 million last year, which is a decline in currency on adjusted performance of 12%. If we take the weakened dollar into consideration, our decline in the second quarter was considerably lower at minus 3%. Our EBITDA came in at SEK 39 million compared to SEK 68 million last year, which represents an EBITDA margin of approximately 25%. The profitability decline here in the quarter was driven mainly through the lower sales volumes in the quarter and also partly small increases in sales and marketing and R&D based on higher activity levels as we're slowly returning to more normal mode of operations following the development of the pandemic. The main reason for the weaker quarter are customer dynamics in the U.S. market with a few large customers who have delayed our orders or made updates to their product portfolio. Some are related to e-commerce, where a couple of customers following a very strong 2020 have not been able to maintain the same momentum into 2021. One other customer, not in the e-commerce field, have made changes in the product portfolio and Probi lost the competitive bid for the product, which included LiveBac strain-based products. The combined impact of these specific customer dynamics are about SEK 50 million in the quarter. If we turn to the next page, please, which is Page #6. If we take a look at asset performance across our geographic regions. As mentioned, let's start with the U.S., which is our single largest region. And as mentioned, the U.S. had a slow quarter, down 5%. If we adjust for the weakened dollar compared to last year. If we look at the first half, they are at about an 8% growth if we adjust for the dollar as well there. As mentioned, there were these specific customers where we had challenges and -- but we also see the opportunity to rebound with a few of these in the future. There was also a positive growth in a number of other accounts, including Probi's largest accounts in the region, but these developments were not fully able to offset the impact from the dynamics in the other accounts. We see that the American market likely will develop a bit slower this year compared to previous year as there has been some COVID-related demand increases last year, which will likely wear off through this year. In EMEA, we continued a strong trend from the first quarter. We posted a 7% growth in the quarter, and we're at 12% up the first half. This is being driven by strong development in new launches with significant new customers that we have onboarded through the past 12 months, I would say, such as, for example, Perrigo and Oriflame, but also with other accounts around the region. We continue to have a positive outlook on our abilities to drive additional success in the region in the years to come and to ensure that Probi has a stronger foothold also in EMEA in the future. If you look at APAC, even if the individual quarter is showing a decline versus previous year, we maintain a positive outlook on our opportunities in the APAC market. Our compare for last year was a tough one affected by pandemic-related stocking in 2020. But the quarter -- the second quarter in 2021 was actually one of our stronger ones seen over the past 3 years. So as mentioned, in the quarter, we also signed an agreement with a potentially large South Korean customer that we believe will be an important addition to our customer base, and that can support further growth in the region for the years to come. If we turn to the margins, we had a significant decline in the U.S. to 33% in gross profit -- or in gross margin, sorry, apologies, which was driven much based on the lower volumes as we have fixed cost in our facility and thus, a lower volume will impact our gross margin there. Also partly due to product mix, where we sold a bit more of -- as an SKU, with slightly lower gross margins, but mainly it was caused by the lower margins in the quarter.In EMEA, we had a positive or sort of the same, basically, development in our gross margin. But it was a small movement based on product mix in the region. In APAC, we had a positive product mix as we've sold ClinBac offerings to customers in the region in the quarter, which helped the growth in the gross margin there. We turn to the next page, please, Page #7. Last week, we announced the investment as well as partnership with Blis Technologies. A very exciting collaboration for Probi as Blis is a company that has a long history of working with scientifically well-documented strains and proprietary technology and also constantly been innovative in terms of finding and identifying new interesting strains for applications in different areas. The main product that we will be partnering around here initially are 2 strains called BLIS K12 and BLIS M18 and -- where Probi will license the opportunity to both manufacture and sell and distribute these products. This will also be combined with an R&D collaboration, where we jointly evaluate opportunities potentially to combine our respective strains or develop new products as well. This provides the opportunity for Probi to broaden our product portfolio of clinically validated products. We have the opportunity with our sales organizations reach and power to offer additional opportunities for line extensions or product -- new product launches with solidly documented bacterial strain. We also, as we will be able, after a technological transfer, of course, be able also to leverage on our production capacity in our upgraded facility as well, another very positive development for Probi. They also represent a strong partner, of course, particularly for the oceanic region, Australia and New Zealand, but also with good inroads in the APAC region. And for Probi, this also means opportunities for margin expansion down the road. We see longer term, a few years down the road, 2, 3 years down the road, that this partnership could, for Probi, represent somewhere around SEK 60 million to SEK 65 million. But of course, we'll update you on that as the partnership progresses through the years here. Next slide, please. Now we'll be in Slide #8. Just some brief information about the company as such. As mentioned, they're based in New Zealand. They're a listed company. Probi will have a seat in the Board as we become the second largest shareholder there with a 13% holding. Their market cap is approximately around SEK 550 million. And their sales in 2020 was approximately SEK 65 million -- SEK 64 million. Their business model is that they have their -- they are working with their own strain in their own direct-to-consumer offering as well as being sold as an ingredient and invite label or with 2 brand owners who are using brand owners' own products. They're also, right now -- but the partnership is not focusing on that, they're also in the early launch phase of an additional product called BLIS K -- Q24, sorry, which is targeted at skin health. So we're very excited about this partnership. It provides a good commercial opportunity for Probi strengthening our portfolio and also provide additional potential for volumes through our facilities. And we will keep you updated on the development in this partnership as we move forward. Next slide, please. So I'll hand over to Henrik for a closer look at our financials.

[Henrik Lundkvist, Chief Financial Officer]

Thank you, Tom, and good morning, everyone. I will now walk you through the financial section. Please turn to Page #10. As earlier mentioned, we reported net sales of SEK 158 million, which was a decrease of 12%. We continue to have a large negative impact from currencies this year, mainly due to a weaker U.S. dollar versus the Swedish kroner. Adjusted for currencies, the decrease was 3% and is explained by a few larger U.S. customers, where sales has not occurred due to delayed orders, but also to changes in customers' product portfolios. Our organic growth for the first half of the year was 8%, which is above our growth target. Our EBITDA landed at SEK 39 million in Q2, which was a decrease by 33% compared to last year. The decrease is explained by reduced sales volume, but we also had a lower gross margin than last year. Additionally, we had an impact from currency changes that negatively affected our EBITDA by approximately SEK 5 million in the second quarter. This gave us an EBITDA margin of 25% compared to 32% last year, but we should keep in mind that the profitability in Q2 last year was very strong and the full year EBITDA margin was 27% for 2020. EBIT was 46% lower than last year, and net income and earnings per share was 42% lower than last year. Now turning to Page 11. Net income for the second quarter landed at SEK 16 million, which was SEK 11 million lower than last year. Compared to last year, we had a negative sales volume effect of SEK 9 million in the quarter and a gross margin effect of minus SEK 8 million. The gross margin was lower as a result of lower sales volumes in combination with an unfavorable product mix. The operating expenses were more or less in level with previous year, but with some additional spend in R&D and sales and marketing, which resulted in a small OpEx increase of SEK 1 million. The decreased results obviously resulting in a decreased income tax. So -- and adjusted for currencies, we would have reported a SEK 3 million higher net income here. Now turning to Page 12. The gross operating cash flow amounted to SEK 88 million during the first half of the year, which demonstrates a solid business model. The working capital decreased by SEK 8 million, mainly due to a lower amount of outstanding trade receivables. Our CapEx amounted to SEK 18 million during the first half of the year, where approximately SEK 40 million was related to an upgrade program of our manufacturing sites in U.S., and the rest was related to investments in clinical trials and patents. In the quarter, we paid a dividend of SEK 13 million to our shareholders based on the AGM decision in May. And the cash flow from financing activities was related to payments and interest for lease obligations. To summarize, our cash generation was strong during the first half of the year, and we generated additional SEK 45 million in cash during this period. And at the end of the quarter, the cash balance was SEK 261 million. Now turning to Page 13. We continue to have a very strong balance sheet and no external loans. Our equity amounts to SEK 1.3 billion, with an equity ratio of 90%. This means that we are well equipped to continue to evaluate interesting business development projects so we can further grow our business, not only organic but also through M&A activities and different types of strategic partnerships. Blis Technologies was one good example, but we are actively working on finding more opportunities. Now turning to Page 14 and handing over to Tom again.

[Tom Ronnlund, Chief Executive Officer]

Thank you, Henrik. And let's turn over to the next page, please, #15. So our strategic focus areas remains the same. We're focused on driving top line growth staying in the front line of innovation and science in our field and also, through investments, ensure that we maintain and have world-class manufacturing capabilities. When it comes to our ambition, in terms of double sales, our objective remains, and we see we've added important building blocks to that with large new customers that have the opportunity or have the potential to develop into large accounts in Probi over their lifespan. The recently communicated partnership with Blis as well is another element of our growth strategy as well. We have dealt with customer dynamics in the U.S. in this quarter here, as mentioned. But we also have an interesting pipeline to compensate for this and additional opportunities to continue to grow. It has been, for us and many others, of course, a strange period through the pandemic. We have now, again, the opportunity to directly interact with our customers. And our sales teams are slowly starting to have a more normal mode of operations, catching new business opportunities and being able to quote additional product opportunities. In EMEA and APAC, smaller regions, but they're both on a good trend today with several larger customers that we have onboarded over the past 12 months as well as a positive -- a healthy pipeline for the future as well. So we are targeting to continue to drive growth in these regions. In innovation and research and product development, we continue to invest. We have a high activity level, several ongoing studies and we've also bolstered our access to -- through the partnership with CCHT in an interesting portfolio of strength in women's health that we are looking forward to conduct further research on and eventually commercialize. In our manufacturing operations, we're on track with our facility upgrade program and we are seeing -- we are delivering on plan there in terms of yields and output through -- sort of capacity increases through our manufacturing facilities. We are [indiscernible] and we are intensifying our work obviously to address a weaker quarter that we have had now but continue to remain positive for the future for the opportunities and development of our company. The underlying demand for the product in our field is -- it remains strong. Different regional dynamics where we see the U.S. market have slowing down a bit, but there's still growth in the market but lower compared to last year. And we are seeing a return to normalization of several levels in other markets as well. So we can meet our customers, consumers can again access pharmacies and shops where some of our sales happen. And with a strong underlying demand continued for probiotic, we see opportunities to continue to benefit from this moving forward. Next slide, please. And with that, we'll open up the floor for questions and answers.

[Operator]

[Operator Instructions] And the first question is from Mattias Vadsten, SEB.

[Mattias Vadsten, Analyst]

I have a few questions. Firstly, I mean, like the rate at which you reach new partnerships recently, would you just clarify as current knowledge when it's reflected, the new partnership will start to contribute with 4:sales? And how would you think about sort of uptick in sales? I already have standing for it, but always good with a fresh update as it stands right now. I'm thinking like the Oriflame, Sinopharm mix.

[Tom Ronnlund, Chief Executive Officer]

I had a bit of bad audio there, Mattias. But if I repeat your question, was it that you wanted to understand a bit more specifically when we expect to see sales from recently entered partnerships such as Blis, Sinopharm, Oriflame, et cetera? Was that the question?

[Mattias Vadsten, Analyst]

That's correct. I thought it was good with a fresh update with current knowledge as it stands right now.

[Tom Ronnlund, Chief Executive Officer]

Okay. Right. Thanks for that. And with regard to Blis, I mean, we signed the agreement last week. So that's still quite early, but we've actually kicked off the work already, connecting our commercial teams, et cetera. We have live customer opportunities where, potentially, Blis materials could fit in. So that has already started, but of course, it will take a while before we see a significant impact of that. So for the Blis partnership, we expect limited impact in this year, but then starting to take off from '22 and onwards. Also, there will also, of course, be a period of time before we can manufacture the materials in our own facilities. There will be a technological transfer, et cetera. We expect to be ready to be able to produce Blis materials in our facility towards the end of this year. That's the current working plan. But with regards to other customers such as Perrigo; and large, large opportunities with Perrigo or same Sinopharm, et cetera; they've already sort of placed orders with us. We see a positive forecast as well with Sinopharm right now. We have delivered a few orders. We're also working on 1 additional launch there as well towards the fall here. So those accounts are developing in a positive way and in accordance with our plans and in certain instances, actually a bit better as well than what we expected initially. And all these represent what we label within Probi as large accounts where we put the pressure of about $1 million in annual sales. And of course, the ultimate potential for these customers is dependent on their ultimate success in the marketplace, of course. So that's always a bit difficult to judge in the beginning, but all products are off to a good start, at least in our experience.

[Mattias Vadsten, Analyst]

Perfectly clear. Secondly, just on the sales in Americas. Any further color on what's going on with your client base, much appreciated. So a few questions on this topic. I think I will take them one by one. So firstly, can you just repeat the impact on sales from destocking and change to customers' product portfolio combined? And also, if possible, to quantify this isolated by an approximate number or percentage or anything would be appreciated.

[Tom Ronnlund, Chief Executive Officer]

So I believe I mentioned that the impact of these specific customer dynamics in the quarter was to the tune of SEK 15 million. And the distribution there between the competitive pitch for the LiveBac product, which we lost, unfortunately, and the e-commerce customers that have not been able to carry through, basically, their -- the demand into this year. The split between those 2 elements there is about 50-50, I would say.

[Mattias Vadsten, Analyst]

Very clear. And then do you expect the sales from the clients with destocking to recover materially in Q3? I know it's somewhat difficult for you to answer, but just your thoughts there would be...

[Tom Ronnlund, Chief Executive Officer]

It is difficult to answer because -- I mean we've been working with e-commerce customers for a significant period of time. Quite many of our large customers are e-commerce customers as well in the U.S., particularly. And it is sometimes a bit sickle. Strong periods of growth are followed by 5 periods of decline and -- which can then swing back, et cetera. And we're working with our customers also to support them in, both launching new products as well as strategies how to ensure that they have a fresh product line and that they are competitive in the marketplaces where they act. So for the e-commerce customers, they're still our customers, they're still buying, but at lower levels. And we do expect them to recover. But within this year, I don't see them recover fully, I would say.

[Mattias Vadsten, Analyst]

And then just lastly, just to be fully clear, so on the change in customers' portfolios, is this sales that diminishes entirely or partly for that specific customer?

[Tom Ronnlund, Chief Executive Officer]

So that specific customer that -- where we lost the competitive bid, we're still in dialogue with them. We've had a long-term relationship, but they're also a very cost-conscious customer. So they did put one of their offerings out for a competitive bid, which we unfortunately lost them. But -- and that is also in our LiveBac part of our portfolio where it is more of generic product in that portfolio. But we're still working with the customer on potential new launches for new products. So the customer relationship is not lost, but that particular product is lost.

[Mattias Vadsten, Analyst]

So you're still selling other products with that customer?

[Tom Ronnlund, Chief Executive Officer]

Yes, but they are much, much smaller.

[Mattias Vadsten, Analyst]

Then moving on to the EMEA. Just a quick question there. I mean, has the underlying market improved a lot, would you say? I mean, let's say, excluding the impact from Perrigo year-on-year, is it still organic growth in the region? Just to understand sort of the underlying...

[Tom Ronnlund, Chief Executive Officer]

So I wouldn't say that, that sort of -- that there's a massive organic growth component. Yes, we are seeing positive developments with most of our customers, actually, across the region, probably then due to sort of subduing pandemic effects or from lockdowns, et cetera, easing of sort of, no, societal lockdowns and all that we've been talking about over the past year. So there's probably one component of that. But I would say that the improved performance for EMEA is mainly driven from new customers -- well, we have a solid customer base, which is developing positively and long-term customer base. But also then, much of the growth is driven by new accounts and new customers.

[Mattias Vadsten, Analyst]

And then lastly, you alluded to weak mix for Americas and EMEA. What's your comment around the mix ahead? I mean, since the gross margin was also weak somewhat in Q1, for example, in EMEA, is there anything structural in the weaker mix we should also expect going forward? I know you had some costs connected to launches, et cetera, in Q1, but just some flavor there ahead would be appreciated.

[Tom Ronnlund, Chief Executive Officer]

I think there's a couple of elements for our gross margin. As I mentioned, a big component of the decrease gross margin in the U.S. was the lower volumes. We have our facilities. There's quite a big component of fixed costs with that. So we need to hit sort of a certain volume thresholds there in order to fund the fixed cost. So there is not -- I wouldn't say that there's any fundamentally wrong with our product mix. Sometimes it depends on which large batches are run in a specific quarter, of which type of product because we have some products which contain largely or mainly light -- ClinBac products with a higher margin, and also some products also in large volumes, which contains LiveBac where we operate at lower margins. So we are a bit unfortunate in the quarter and produced large -- sort of large runs of LiveBac product that can adversely affect our gross margin. But most important for us is to ensure a strong volume growth for our facility because that will also result in a stronger gross margin for us.

[Operator]

And the next question is from [ Jaakob Lanske ], ABG Sundal Collier.

[Unknown Analyst]

If we start with the North America, do you see any other states at risk on perhaps the e-commerce side? Any other e-commerce customers that might have seen a sudden drop and perhaps did some overstocking ahead?

[Tom Ronnlund, Chief Executive Officer]

No, wouldn't so. No, no. No, it's been isolated to a quite a few cases there, I would say. And we do not see sort of an overall strong drop in demand in the market. So one of these customers on the e-commerce side, we're working very closely with them. They're quite bullish about the development towards the end of the year and so on and so forth. But of course, we need to see that sort of turning into actual sales for us, obviously. Whilst the other customer, it will take them longer time to recover. They overstocked at bit and will cycle through that. They still have sales but have lost a bit of the momentum that they had in 2021 -- sorry, 2020.

[Unknown Analyst]

Okay. So then out of this SEK 15 million in negative impact, sort of fair to assume that half of this -- that this will sort of persist ahead and maybe that you can recover the other half a bit more in the coming quarters?

[Tom Ronnlund, Chief Executive Officer]

We, of course, also have other customer opportunities. But yes, I mean, one customer is lost or one product is lost. So that will not reappear imminently, that particular quarter for sales. For the e-commerce customers, we do see a road back, but it will take a different sort of -- well, it will be in different time perspective with one customer potentially sort of being back next year and the other one, perhaps being back towards the end of the year. But it's still a bit early to say with exactly what type of volume.

[Unknown Analyst]

Okay. Great. And then if you talk about Blis Technologies. Maybe you can comment on how you think the -- your offerings complement each other. And maybe, do you see that you could slot in their bacterial strains to your existing customers?

[Tom Ronnlund, Chief Executive Officer]

Good question and correct. So in terms of sort of the split between the 2 companies and our respective product portfolio. What is good here is actually that Blis' strains, which are well documented and used for a long time as well, both have -- or covering health areas where Probi's current offering within our own portfolio is not positioned today. So this K12, for example, is well documented and upper respiratory illnesses or immune health, like ear, nose and throat, and also have the ability to affect so-called halitosis or just bad breath really. And so those are product or sort of health areas, which Probi, with our own and current portfolio, are not covering. Also, Blis M18 covers the bacterial balance in dental or oral health, also complementary areas to Probi's health position. So we have very complementary product portfolio. And of course, for us, it provides an opportunity to go to both existing as well as new customers to promote these materials alongside our own product as well.

[Unknown Analyst]

Okay. Great. And then I think you mentioned that you expect this Blis partnership to take some time before it's up and running and started in there, too. So I was just wondering, do you expect that you have to take any investments to sort of adjust your manufacturing?

[Tom Ronnlund, Chief Executive Officer]

No. No significant ones. There's, of course, also certain costs involved in sort of a technology transfer. But it is bacteria and we have the experience of growing these types of bacteria. So it will be time, I would say, for our team, no CapEx investment of any significance, at least.

[Unknown Analyst]

Okay. Great. And then a final question. With this new partnership model, do you expect that it will have any impact on margins when you get that to scale?

[Tom Ronnlund, Chief Executive Officer]

Our ambition is to make this a positive impact on our margins moving forward. So through the agreement, we have had access -- we have had limited access to Blis materials. We've provided a few customers with product based on Blis materials in the past. And through this partnership and through our ability to manufacture their materials ourselves, roll it out in a bigger style through our organization and through our customer network and manufacture it ourselves. That provides us opportunities for margin improvements here.

[Operator]

And the next question is from Hans Bostrom with Trinity Delta.

[Hans Bjorn Eskil Bostrom, Analyst]

I had a couple of questions. Allow myself to go back to the U.S. customer loss. You obviously talk about what pricing might be a concern there for the customer. But is this more of an overall theme for the market that the U.S. market is becoming more price competitive overall? Or was it very specific to this customer?

[Tom Ronnlund, Chief Executive Officer]

Good question. Yes, apologies. I didn't -- I had a bit of a bad audio here. So I didn't catch your name.

[Hans Bjorn Eskil Bostrom, Analyst]

Yes. My name is Hans Bostrom and I work for Trinity Delta based in London.

[Tom Ronnlund, Chief Executive Officer]

Okay. I'm off. Sorry for that. Sorry.

[Hans Bjorn Eskil Bostrom, Analyst]

No problem.

[Tom Ronnlund, Chief Executive Officer]

Okay. So with regards to the U.S. customer and your question is really, okay, do we experience an overall price pressure in the market, I would assume. And no, this particular customer, they are they are price sensitive, indeed. And we've been working with them for quite a long time. And they did want to challenge sort of the status quo in this and put us through competition. And unfortunately, as we also strive at improving our margins as a company, we weren't able, really, to meet the competitive bid there. But with regards to that, we do not generally see that as a trend in the U.S. market. The market is still healthy, even though the growth is likely going to be a bit lower this year compared to last year. But still, it's a good marketplace.

[Hans Bjorn Eskil Bostrom, Analyst]

Okay. And my second question relates to your comment about the return to more normal selling practices from July onwards. What type of increases in operating costs would you expect? I mean, where are we? Where have we been in the first half of the year? And what do you see going into the second half of the year as a percentage of revenue, for instance?

[Tom Ronnlund, Chief Executive Officer]

So I think in general, even though returning to more normal is still going to be lower normal than before. But we do see sort of, finally, again, attendance at trade shows, ability to go out and visit customers. We had our U.S. team make their first couple of customer trips the other -- a few weeks ago. And where they were able to sort of visit in 1 day, 9 different customers and come back with 6 leads and -- which have then been validated and turned into actually in 1 case also opportunity for business, et cetera. And this has been difficult under the pandemic. So this is a very positive development. If we look at what we expect in terms of operating expenses in relation to this by trade shows as well as travel and customer activities, we'd save to the tune of SEK 1 million to SEK 2 million per quarter approximately.

[Hans Bjorn Eskil Bostrom, Analyst]

Great. And my final question goes back to your comment about the Korean partnership. My sense was that you kind of put some caveats around this would become possibly an important growth driver. I'm just curious as to what are the specific conditions, if any, why this may or may not turn out to be important to Probi?

[Tom Ronnlund, Chief Executive Officer]

Well, the contract that we've entered into, the customer is forecasting quite significant volumes through the years moving forward and -- which, of course, is positive, but also by experience, it is not always the case that the customer develops the way that they themselves intend to or wish to. So that is why we're placing a bit of caveat. But it is a strong partner. So we are very hopeful that, that actually will come into fruition.

[Operator]

And we haven't received any further questions at this point. So I'll hand back to the speakers for closing remarks.

[Tom Ronnlund, Chief Executive Officer]

Okay. Thank you so much for your attention today. I appreciate you calling in, and hope that you will be able to join us as well in our Q3 report, which will be on October 22 later on this year. Until then, for some of you, perhaps you'd go on holiday or vacation, enjoy that and speak to you again later. Thank you very much.

[Henrik Lundkvist, Chief Financial Officer]

Thank you.