Probi AB

STO:PROB

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Welcome to Probi Q2 Report 2024. [Operator Instructions] Now I will hand the conference over to CEO, Anita Johansen; and CFO, Per Lindblad. Please go ahead.

[Anita Johansen, executive]

Good morning. Welcome, and thank you for dialing in to Probi's presentation of our quarter 2 results for 2024. With me, I have Per 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 2, which was a busy quarter marked by significant progress. The net sales was SEK 179 million, 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 percentage points up versus second quarter last year. In May, the Annual General Meeting decided on a SEK 1.30 per share dividend.

As regard to our business operations, the quarter was busy. We continue to streamline and adapt the organization to facilitate growth and profitability. Our Matas partnership went live, making Probi's consumer products available in Denmark. And the Probi Sensia 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 Bower 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'll hand over to Per for the financial review.

[Per Lindblad, executive]

Thank you, Anita. Strong business performance in Q2, we 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. Americas 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 gross profit margin in America is impacted by added resources in operations to facilitate improvements to production. The added resources involved 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 '25 and beyond. Next is EMEA. EMEA had a very strong sales in Q2, which built on a strong Q1 sales also. H1 is now up 48% year-over-year. Note though that last year, we reported inventory corrections with a major EMEA account after the COVID pandemic normalization and also in-sourcing of the B2C business in Sweden, which implied lower sales in Q2 last year. In Q2 this year, bulk has normalized and EMEA is on top of this showing underlying growth and has secured a few new business wins. The sales growth with maintained high margins imply an overall gross profit in EMEA is up SEK 10 million 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, thus impacting all players in the market, including Probi. 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 gross profit has 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 SEK 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 SEK 15 million as decided by the AGM. Note though that the continued strong operating cash flow of SEK 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.

[Anita Johansen, executive]

Thank you. So summarizing our quarterly financial report, it is fair to say that we are progressing in the right direction and as quarter 2 marked a positive milestone verifying Probi's 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 has improved. Our commercial activity is high also in 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 is time for questions.

[Operator]

[Operator Instructions] The next question comes from Philip Ekengren from ABG Sundal Collier.

[Philip Ekengren, analyst]

Anita and Per, 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're right 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 the margin improvement at the end of year?

[Anita Johansen, executive]

First of all, I'll say our optimization in 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 optimizations. And as I already said, we are 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.

[Philip Ekengren, analyst]

Okay. And the next question concerns this year's goal of staying largely 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 the absolute terms?

[Per Lindblad, executive]

Yes, I think I used the term in line specifically to the EBITDA margin and there 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 other quarters, but also 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 important -- most important takeaway and sales here is at 4.8%. And which is a good number considering the market dynamics.

[Philip Ekengren, analyst]

Great. If we move on to the strength in EMEA, you explained partially by facing easy comps but also the strength in the B2C like. 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.

[Per Lindblad, executive]

Yes. 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 insight says that our B2C business is doing well and it's growing compared to previous years. We are especially happy with the in-sourcing of the business as we reported last year or that 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.

[Philip Ekengren, analyst]

Wonderful. And then a final question from me. Today, you talked about some added resources in the U.S. 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 '25 onwards? Is it back to historical levels? Or how should we think?

[Anita Johansen, executive]

I think it's fair to say that we've already -- when we launched our strategy back up in U.S. in October last where we talked about our financial targets so in -- we have a target to say in 2028, we want to be at an EBITDA at or above 25%. We also communicated this year is a transition year. So this year, we are 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.

[Operator]

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

[Anita Johansen, executive]

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