CEO'S COMMENTS 

Comment by the CEO Interim Report January-March 2022

The first quarter remained challenging and was largely affected by the situation in Ukraine and increasing inflationary pressure. We are now implementing a number of measures that give us a positive view of the future.

Sales gradually improved during the quarter

Initially, the sales trend was weak, although this turned into a good recovery in March, which turned out to be our strongest sales month since October 2020. The positive trend continued in early April with a nice increase in sales compared with the previous year. Sales in the first quarter were strongest for our major brands in the healthfoods and consumer health products categories, while the situation remained challenging for organic products, although sales in that category did gradually recovered during the period.

Overall, sales for our own brands developed relatively better than for licensed brands and contract manufacturing. During the quarter, we made a number of selective market investments in some of our own brands, and these have yielded good return. In a comparison with the same period last year, however, it is important to remember that the comparative figures are relatively strong as large parts of Europe were then in lock-down.

During the first quarter, we launched Friggs Corn Cake Taco, which was received well by consumers. We also increased the distribution of plant-based meat-alternatives in the Spanish market. Among other things, we made our first deliveries to Mercadona, although we expect the greatest effect from mid-April when the national roll-out to the grocery trade commences. In the second quarter, we will also conduct our first deliveries for a couple of new private label contracts in France. These new volumes will strengthen sales as of the second quarter.

Continued price increases on input goods, transport and energy

During the quarter, we saw continued price increases for raw materials, finished goods, packaging materials, transport and energy, where, for example, gas prices for our production facilities in Germany have risen significantly. The rising price of artificial fertilisers, which has hit food production around the world hard, has been of less significance for Midsona as about half of our range consists of organic products for which chemical fertilisers are not used.

The problems we saw in the supply chain at the end of last year have also worsened with continued transport problems and shortage situations for certain raw materials and inputs. However, we have managed better now than last autumn because we are better prepared. The measures we have taken to improve the supply chain to achieve greater security in the supply of goods have had an effect. However, volatility in commodity prices and currencies (particularly the USD and EUR) has been a continuous challenge. On the whole, through good foresight, we have managed to maintain our level of service.

Our price increases began to take effect, but will be followed by new ones

In order to maintain our gross margin and compensate for the price increases, we already initiated price increases in the fourth quarter and those began to take effect in the first quarter and achieved full effect in March, that is, slightly earlier than we initially expected. However, the war against Ukraine has further fueled cost inflation and we have therefore initiated further price increases, which are expected to achieve their full impact in the third quarter.

Our new price increases have generally been well received because the causes of the cost inflation are well known. In our key markets of Denmark and Germany, however, it takes a little longer for our price increases to have an impact because we have a relatively larger share of contract manufacturing in those markets.

Costs are to be reduced by SEK 40 million

Despite own price increases and generally good cost control, cost inflation has had a significant negative impact on our profit. To strengthen profit, we are initiating a restructuring program including structural changes and staff cutbacks. As far as possible, the cutbacks will be achieved by terminating temporary contracts, as well as through natural attrition. The ambition is to cut costs by SEK 40 million on an annual basis. The restructuring program will entail restructuring costs being charged against profit for the year in 2022.

We are confident that implementing a number of measures will strengthen profit.

We are fully focused on strengthening our earnings. Our price increases have generally been well accepted and will gradually have an impact. We are continuing to strengthen our supply chain. Most of our own brands are performing well and are, in our assessment, capturing market share. We are strengthening our organic range and implementing a cost-saving action program. I look to the future with confidence, despite the current challenges and the uncertainty in the world around us. The strong underlying consumer trend for our sustainable and plant-based products remains.

 

Peter Åsberg

President and CEO

 

Comments by the CEO – Interim Report January-September 2021

The third quarter of the year was marked by intensive preparations for Christmas, which is our high season for many product groups. For the Group, the trend was mixed, with good profits in many parts of the operations, although we saw poorer profits in other parts due to continued delivery disruptions and poor harvests.

Shortages of raw materials and delivery disruptions burdened sales and earnings

Net sales increased 9 percent to SEK 893 million, mainly due to the acquired System Frugt at the same time that organic growth declined somewhat. Our own brands performed significantly better than licensed brands and private labels. Because we sold relatively more of our own brands, the gross margin rose to 27.5 percent. EBITDA profit rose by 11 percent to SEK 80 million.

 The decline in sales was attributable primarily to shortages of raw materials and getting certain raw materials delivered. There were several reasons for this – on the one hand, for some of our product groups, we saw poor harvests, while on the other, the global supply chain continues to struggle with transport problems, particularly from Asia. We also experienced some production issues. The greatest disruptions were noted in our Danish production unit in Tilst. System Frugt is approaching its high season and our outbound volumes of nuts and dried fruit ahead of Christmas were impacted severely.

It is our ambition and hope that we will ultimately receive the great majority of the goods we need.

 For large parts of Nordics and for North Europe, sales were maintained relatively well. The roll-out of Happy Bio and Davert in the European grocery trade continued at a good pace, particularly for South Europe with Happy Bio. The launch of Happy Bio in the grocery trade is exceeding expectations, with sales rising 38 percent compared with the preceding year.

In some countries, a certain negative effect was observed during the quarter as economies opened up following the summer as the pandemic subsided, where trade declined somewhat in favour of the restaurant industry. The effect was particularly noticeable in southern Europe, where the trend among French and Spanish healthfood stores in particular was very weak. Although we gained market share during the period, we experienced a significant decline in sales.

Price increases to be expected

During the quarter, we saw increased world market prices for several key raw materials. Plastics and other packaging materials became significantly more expensive. Cost increases for raw materials, input goods and transport have led us to prepare price increases. In some cases quite substantial ones. As supply chain disruptions are a global and well-known problem, we believe that our planned price increases will be accepted. At the same time, we are working hard to meet the challenges within the supply chain and are monitoring the global situation closely.

Value-generated acquisitions completed and on the agenda

The acquisition of Vitality and Oy (Vitality) in Finland, which was announced during the quarter and will be consolidated as of 1 October, significantly strengthens our position in Finland. With a product range that complements our own very well, we perceive sales and cost synergies. Vitality also has a good presence among pharmacies, making us strong now in all significant sales channels in the Finnish market. On the whole, Vitality is exactly the type of acquisition that has added most value for Midsona historically.

During the quarter, we implemented a directed new share issue to institutional investors for approximately SEK 500 million to finance continued value-generating acquisitions. I would like to take this opportunity to thank our shareholders, old and new alike, for their confidence in us. We are seeing the acquisition market around Europe thawing and currently have several interesting processes in progress – we hope to bring more news on these soon. Right now, we are mainly focused on addressing the challenging situation with regard to raw materials and transport, and I look forward to the remainder of 2021 with confidence.

Peter Åsberg

President and CEO