Probi AB
STO:PROB
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Probi AB
Earnings Call Analysis
Q4-2023 Analysis
Probi AB
Probi's net sales for Q4 2023 increased by 8%, or 9% adjusted for currency effects, reaching SEK 156 million. The EBITDA margin was 12%, rising to 15% when adjusted for comparability items. A dividend of SEK 14.8 million was proposed for the fiscal year 2023.
Probi made notable advancements in introducing new products like Probi Sensia and synbiotic solutions. Expansion efforts in North America, establishment of a business-to-consumer organization, and focus on innovation through patents and clinical evidence were highlights of the year.
Strategic initiatives to enhance organizational capabilities, optimize manufacturing, and improve management teams were undertaken in 2023. The launch of the new 5-year strategy, Probi Reinforced, with ambitious financial targets for 2024 to 2028 aims at sustainable and profitable growth.
In 2023, Probi experienced 8% reported and 9% organic growth in Q4, with a full-year EBITDA margin of 17%, down from 22% in 2022 due to added costs. Sales were affected by market caution, notably in the Americas.
For 2024, Probi aims to stabilize business, enhance profitability, and drive growth through talent acquisition, manufacturing efficiency improvements, and promoting new product launches. Focus areas include building the leadership team, optimizing manufacturing processes, and supporting new product initiatives.
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Welcome to Probi Q4 Report 2023. [Operator Instructions]
Now I will hand the conference over to CEO, Anita Johansen; and CFO, Per Lindblad. Please go ahead.
Thank you, and welcome, and thank you for dialing in to Probi's presentation of our Q4 and our full year results for 2023. With me, I have Per Lindblad, the CFO of Probi. And my name is Anita Johansen, I'm the CEO of Probi.
Then please take a few moments to familiarize yourself with this next slide, which is a safe harbor statement. If we can -- yes, there it is. And the next slide is the agenda of our presentation today.
So first, I want to talk a little bit about our fourth quarter, which was very eventful. We had a lot of things going on. But first of all, the financial results, we had net sales increased by 8%, or 9% adjusted for currency effects. So our quarterly result was SEK 156 million. The EBITDA margin amounted to 12% or 15% when we adjust it for items affecting the comparability.
In the quarter, we launched several innovations, and the first one that I want to speak about is Probi Sensia, which is our brand-new product concept in the mental health area. We also launched two new scientifically proven synbiotic solutions together with our partners, Clasado Biosciences, and we did that at our big event in Las Vegas.
In the quarter, also Per Lindblad took over as the new CFO starting November 1. And finally, we also had the Board of Directors proposing a dividend for the fiscal year of 2023 totaling SEK 14.8 million, which corresponds to SEK 1.30 per share.
I'm not satisfied with our financial performance in 2023, but I'm proud of our progress in business development and the hard work of all the people in Probi.
In the year, we had several major commercial advancements. I already talked about our two new launches, our new innovations in mental health and also the synbiotic concepts that we launched in the last quarter.
In 2023, we also established a business-to-consumer organization, and we took over the Probi brand in Sweden, and we also expanded into Norway. Throughout 2023, we also strengthened our position in the North America by becoming the sole distributor of the two BLIS drinks, K12 and M18.
In the beginning of the year, we launched the Weizmannia coagulans probiotic strain, which is a spore-forming strain that has high stability and, therefore, fit for use in beverages and confectionary-type formats like gummies. Throughout the year, we also worked heavily in innovation and science, and we were granted 23 new patents, and we also published new clinical evidence in several areas.
We also worked a lot to strengthen our organization capabilities and also on getting a new management team in place. And of course, myself, my new role as the CEO, and now Per as the CFO, was one of that contributed to strengthening the management team. We've done additional organizational changes, and we've improved the ways of working throughout the company during 2023.
We also initiated the optimization program in manufacturing with the intent to strengthen the long-term competitiveness and improve our profitability. We also spent a considerable time to revise our business strategy to make it ready for long-term growth. So we launched Probi Reinforced, the new 5-year strategy that can deliver sustainable and profitable growth. And we established and announced our ambitious financial targets for 2024 to 2028.
And all -- above that, we also have dedicated efforts to create a healthy and thriving organization, which is driven by our shared purpose and goal to provide probiotics for healthier lives and a healthier planet.
Now I will hand over to Per for a financial review.
Thank you very much, Anita.
So looking at the financials, the 2023 numbers confirm that the year very much was a year of transformation and investing in building capabilities. The Q4 sales showed strong finish of the year by EMEA and APAC. And with Americas, which had timing in sales last year, that was impacted by low comparison. So all in all, this helped to close the quarter well ahead of last year with 8% reported and 9% organic growth.
EBITDA margin for Q4 of 12% is at level with last year, and that's really as both is impacted by items affecting comparability. Net sales for full year '23 is at par with last year, with reported plus 2% and organic minus 2%. The 2023 EBITDA margin of 17% is down compared to the 22% of '22.
In line with earlier quarterly announcement, we also disclosed adjusted EBITDA margin. This is to better share underlying profitability. We hence adjust for temporary added cost to enable optimization of the production and also cost for restructuring and changes to the management team, including -- or as an example, recruitment costs. These adjustments amount to SEK 19 million and imply an adjusted EBITDA margin for '23 of 20%.
Now the '23 sales and gross profit by region. The Swedish krona weakened during '23. Hence, the organic growth of minus 4% in Americas is lower than the reported growth of 0%. Like our competitors, Probi experienced a soft sales year for '23, like we saw a cautious margin where customers are ensuring they don't keep high stocks, which result in lower order frequency for some of our customers.
Gross margin for the Americas was down compared to last year, caused by both unfavorable product mix and cost, which I will speak to on the next slide.
EBITDA reported -- sorry, EMEA reported decline of minus -- of 6 -- minus 6%. The sales in the region has been negatively affected by one of the largest customer reducing their safety stock. And in the first half of the year, as we reported earlier, we took over distribution of the Probi brand in the Swedish market and hence had some time impact -- a onetime impact associated with this. The second half of the year tracked well to our business case for in-sourcing this business.
Gross margins in EMEA is favorable. Again, it's related to the in-sourcing of the B2C business, where we are structurally having a higher price point, and that is to cover now for the -- covered additional sales and marketing costs. But on a net-net basis, it's favorable to Probi.
So looking at net income for '23. Again, as mentioned earlier, adjusting for items affecting comparability of SEK 19 million, the SEK 41 million is and can be restated to SEK 22 million adjusted. Of this, we compared to the actual net income of SEK 17 million for the year.
A big variation, as is highlighted in the slide, is gross margin. As earlier shared, product mix is impacting adversely. But also in the year, we see the impact of increased depreciation. This is after some years with significant investment in manufacturing footprint and also in innovation, so short-term squeeze on net income while positioning for long-term growth.
Financial result is SEK 15 million and includes interest income related to the significant cash position of Probi.
And talking about cash position, that remains strong. In the year, as shown on the slide, operating cash flow was SEK 86 million. We continue to invest significantly in our operational facilities and R&D with SEK 54 million. And as Anita disclosed earlier, we are also proposing to the AGM for a SEK 15 million dividend payout. So all in all, cash position remains strong.
Now big changes here in the balance sheet compared to earlier periods, but just again demonstrating the very strong position of Probi. And with an equity ratio of 92%, we are really well positioned to continue to grow and also acquisition, if that should come across.
And with this, I'd like to hand back to you, Anita.
Thank you very much. So Probi's mission and vision has not changed. We aim to continue to be first in probiotics, and we will deliver on our mission to provide probiotics for healthier lives and healthier planet.
As communicated with our new strategy, we want to come back to delivering sustainable and profitable growth, and we will deliver on our goals through a systematic focus on our strategic focus areas.
We do expect that 2024 will be another demanding year for Probi. We have just begun our transition, and 2024 will be focused on further stabilizing our business and restoring our profitability.
We have three key focus areas in 2024. The first one, win on talents. We need to, and we will continue to, build the executive leadership team and further strengthening our organization with strong capabilities.
We will improve our efficiency in manufacturing. We will progress our ongoing optimization program, and we expect that these investments will gradually contribute to greater profitability.
And lastly, accelerating business growth with the new launches. We will keep promoting, of course, our existing products, but also these new innovations. And we are excited about, again, being first in probiotics with these new launches that we did in quarter 4 of last year. We also know that sales cycles are rather long, so it will take time, but we will continue supporting these also throughout 2024.
I'm confident that we will be able to transform and return to growth and strong profitability. But I also know it will take time to work with our internal processes and build a strong organization. Me and my team are fully committed to deliver on the ambitious goals we have set for Probi.
This concludes our presentation of this financial report and now it's time for questions.
[Operator Instructions] The next question comes from Thomas Nilsson from Analysguiden.
This is Thomas Nilsson from Analysguiden. Given the impressive 26% growth in the Asia Pacific region and the stabilization observed in North America, could you perhaps elaborate on the specific strategies Probi will employ to capitalize on these market dynamics? And how do you plan to address challenges in Europe, especially with the reduction of safety stock among your B2B customers?
Thank you very much for that question, Thomas. I can start. So yes, you're right, we had impressive growth in APAC, sorry, last year with the 26%. And we are continuously investing in the team and our efforts there to continue that growth.
But of course, it's on a lower starting point, so to speak. We have not as much sale in APAC as in the other regions. So it will take considerable time also to grow that to be big enough. But we are certainly investing in APAC, and we will continue to do that to be very active in APAC.
And then maybe I can also mention that one of the key drivers in APAC is the growth we've seen in China, where we now also have teams on the ground.
With regards to stabilizing North America, I think it may be a little bit too early to say what will happen going forward in the market. We've seen probably a stabilization in the last 2 quarters, but we want to -- we would like to see a little bit more before we really speak about it in a confident way.
But with regard to what we can do internally, we have strengthened our sales team in the U.S. in the last quarter. And we are very confident now that this team is very well equipped going out to our customers and also finding new customers. And especially now with new innovations in the back, they have a very good reason to get the right conversations with our customers.
With regards to challenges in Europe, do you want to say something here?
Yes, absolutely. So we and many other businesses see changes in global supply chains. And we also see very specifically a situation where we took over the stock and the business for direct sales in Sweden.
Yes, the good thing here is that these changes in supply chains and to safety stocks are onetime impacts. So yes, it's impact in '23. But going ahead, we will -- that they will not impact, and we should see kind of the more tracking with the underlying market.
So the big question for the future is how will those underlying markets develop, and all sources point to good underlying growth. So let's see. We will come back on this in future announcements, for sure.
[Operator Instructions] There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Thank you. Then this concludes the call today. I just want to remind everybody about our financial calendar. Our next interim report is the Q1 report for this year, and it's going to be released on April 23.
And with this, I want to say thank you very much for listening, and have a good day.