Comment by the CEO
We took clear steps in the right direction in the third quarter, despite a challenging market situation. Net sales decreased by 2 percent to SEK 923 million (944), but adjusted for terminated distribution agreements corresponding to combined net sales of SEK 47 million in the comparison period, net sales increased by 3 percent. Several of our own larger brands developed well, including Friggs which demonstrated strong sales growth of 16 percent. As a whole, sales in the organic products category increased by 5 percent, with several of the Group’s own brands had a positive trend.
Improved gross margin
The gross margin, before items affecting comparability, increased to 25.7 percent (23.6) supported by price increases and the discontinuation of unprofitable products and brands, but was partly counteracted by continued high operating expenses for input and completed goods. In addition, the product mix was unfavourable with a relatively higher proportion of contract manufactured products with generally lower margins. Our cost of materials remain high, both due to continuing high prices for raw materials, as well as unfavourable exchange rate trends for both the SEK and NOK against the USD and EUR alike.
Implemented measures improved earnings
In the Nordics, profitability remained strong with an improved, double-digit EBITDA margin, despite currency headwinds and terminated distribution agreements, as well as larger sequential long-term investments in our own brands. The earnings were mainly a consequence of a favourable trend for most of our own brands, as well as a successful change process in the Danish market. We face challenges in North and South Europe, where, although improved, profitability is weak. In North Europe, the market for organic products is particularly challenging, resulting in what are, for us, decreased volumes. We have initiated a dedicated process to grow the customer base, both for our own brands and for contract manufactured products. Over the quarter presented here, we have also signed a number of new agreements that are expected to have a positive effect from the start of 2024. In South Europe, we saw improved profitability in the French market, while we continued to face production technical challenges in the Spanish market. We are now working dedicatedly to improve production flows and renegotiate or terminate a number of unprofitable contracts in the Spanish market. Synergies were realised from restructuring programmes, lowering the cost base for both selling and administrative expenses. EBITDA, before items affecting comparability was improved to SEK 58 million (50).
New innovative market concept to increase sales
Our new innovative market concept, “Shortcut to a good deed” is one of our long-term marketing initiatives aimed at increasing sales of our own organic brands in the organic products category. The concept has been launched for Kung Markatta in Sweden, with a positive initial response from customers and consumers. The concept will now be launched in one market after another and, in the fourth quarter, the Urtekram brand is in turn to launch in Denmark and Finland.
Strong free cash flow
Substantial focus has been placed on reducing working capital and improving cash flow. In fixed currencies, inventories have been reduced by more than SEK 200 million compared with the corresponding period last year through, for example, improved inventory management procedures and optimised inventory levels. This led to free cash flow which improved to SEK 80 million (22), with the measures allowing net debt to be reduced by SEK 95 million over the quarter at hand.
We move forward strengthened
I remain certain that the long-term prospects for our healthy and sustainable options are positive. We continue to work in accordance with our long-term plan for our brands to be relevant even when consumers tighten their purse strings. To improve our position, we will also implement the necessary cost savings and continue to optimise our working capital. Strengthened by the effects achieved through the measures we have implemented to date; we look ahead with confidence.
Peter Åsberg
President and CEO