Anders Fredriksson: Good morning, and welcome to Humble Group's Q3 presentation. My name is Anders Fredriksson, and I took over as CEO on 14 September. I am proud of joining the company and really excited of stepping into this role. But of course, humble, no pun intended, by the trust given to me. With me today is our CFO, Johan Lennartsson.
Johan Lennartsson: Good morning, everyone.
Anders Fredriksson: Johan will take us through cash flow and leverage when we come to those slides and help me answer more detailed financial questions afterwards. As usual, you can send in questions throughout the presentation in the chat, and we will address them when we come to the end of the presentation. I would like to start with my first weeks and what I will focus on. I have visited a number of companies so far, six to be exact.
Anders Fredriksson: What I see throughout the group is strong entrepreneurship and people who are proud of what they build. That is an asset that we will keep. I think it is important that every company has clear targets and priorities, and we follow up against them. My three priorities for the first one month are profitability first.
Anders Fredriksson: We can see that the EBITDA margin in the period rose to 6.4% from 3.7%, and the efficiency program is completed. The next step is to take firmer control over pricing, purchasing, and cost discipline in every company. Secondly, cash conversion. Operating cash flow was SEK 120 million against SEK 195 million last year, and the working capital absorbed SEK 35 million in the quarter.
Anders Fredriksson: That is not something I am satisfied with, and here is definitely room for improvement. The third priority is clearer active ownership and focus within the group. From the turn of the year, two experienced FMCG leaders will join us, Henrik Arfwidsson as Chief of Staff, and Ludvig Persson as Head of segment for Future Snacking. That will strengthen our FMCG experience and executive power to support our subsidiaries and drive the change within the group. We also divested seven businesses this year to reduce complexity and improve focus.
Anders Fredriksson: Some highlights on the report, the quarter in brief. The reported EBITDA increased by 83% to SEK 141 million, and the EBIT margin was 5.1%, up from 1.5%. Net sales grew 5% to SEK 2.2 billion. Breaking that up a little bit, 4% was organic and led primarily by Future Snacking at 12% and Quality Nutrition at 14%. Sustainable Care declined 2% organically on the weak UK consumer sentiment.
Anders Fredriksson: Come back to that a little bit further on in the report. Gross margin improved to 31.3%. Cash conversion was not satisfactory, as I mentioned before, and we will come back to that. Leverage came down to 2.5 times from 2.8 at the end of June, primarily driven by an improved EBITDA. Looking at the portfolio, we divested TransStage and Kryddhuset in the quarter and Marabu and Assertia Fastigheter after the quarter.
Anders Fredriksson: I will take you through an EBIT bridge to show where the improvement comes from and a little bit about the underlying EBITDA development. The reported EBITDA rose by SEK 64 million. Looking at the underlying EBITDA, it increased from SEK 128 million to SEK 165 million. SEK 27 million comes from lower items affecting comparability.
Anders Fredriksson: Breaking that up, -SEK 51 million last year was related to the efficiency program and the former CEO. That compared to this period where we have a -SEK 24 million from divested operations and acquisition related costs. So the net from those two is SEK 27 million. The remaining SEK 37 million comes from the underlying business, basically, where the largest contributor in the period is Quality Nutrition at +SEK 24 million. We go on and look at the gross margin.
Anders Fredriksson: Looking at the trend, gross profit grew 8% to SEK 689 million in the period, and the gross margin was up 0.9 points to 31.3% compared to last year. I would say mainly from consumer and product mix in Quality Nutrition and Nordic Distribution. Gross margin was weighted down by Sustainable Care, impacted by the customer sentiment, as I mentioned before.
Anders Fredriksson: Currency added about SEK 9 million to gross margin. Compared to Q2, the gross margin is slightly lower, 31.3% against 31.7%. EBITDA compared to previous two quarters, shows a growth of about SEK 20 million. We will continue to net sales. Here, we see an increase of 5% to SEK 2.2 billion. The 5% is organically, the growth is 4%, and the currency added another percent on top of that. Acquisitions and divestment in the period basically netted out to zero.
Anders Fredriksson: The growth comes from Quality Nutrition and Future Snacking and Nordic Distribution, where I would say Quality Nutrition and Future Snacking are the prime drivers of 14% and 12%. Sustainable Care declined organically by 2%, mainly because of weak British consumer sentiment, which has been against us in previous quarters as well. Organic growth is important to us, but it has to be a profitable growth. I will come back to that when we close the presentation. With that, I hand over to you, Johan, for a look at the cash flow and the leverage.
Johan Lennartsson: Thank you, Anders, and I will speak a little about the financial position in the period and the development that we have seen during the quarter and also year to date. Looking at the cash flow for the period, the cash flow increased to SEK 155 million versus SEK 137 million in the comparative period. That is an increase of 13%.
Johan Lennartsson: We can conclude that the change in net working capital had a negative impact on the quarterly cash generation. We absorbed SEK 35 million in net working capital, which is, of course, something that we will prioritize and continue to prioritize going forward. Cash flow after changing net working capital amounted to SEK 120 million versus SEK 195 million last year, a decrease of 38%.
Johan Lennartsson: Worth mentioning is that we repaid tax deferrals during the quarter of SEK 45 million, and that is the main driver of the short-term liabilities decrease that we could see in the period. As mentioned, the net working capital remains to be a higher prioritized area. It amounted to around 12% in relation to the net sales in the last 12 months.
Johan Lennartsson: This is something that we will continue to follow to drive it down. We can conclude that the inventory increased by SEK 103 million year to date, and this is, of course, a natural development as we grow the underlying business. We drive the innovation, and we explore new business ideas and opportunities. We can also conclude that the volatility in raw material prices had a slight impact on the working capital development. For example, the whey protein prices have been significantly volatile during the period.
Johan Lennartsson: With that said, we repeat that we see a potential to drive the efficiency in the capital allocation and the usage of the Group. We do have tax deferrals also in the coming year that we will do the final installments in Q1 and Q3 last year before the full deferrals have been repaid. With that said, we also continue with the investments in new confectionary sites that we have communicated previously.
Johan Lennartsson: During this quarter, we continued according to plan, and we expect to have minor investments in Q4 and also a few spillovers in Q1 of that project that we will have an impact on the overall cash flow and CapEx development. With that said, that has an impact on the leverage.
Johan Lennartsson: We can conclude that despite the strategic investments that we have done in the factory and other projects, we decreased the leverage down to 2.5 times the adjusted EBITDA from 2.8 in the second quarter. We can conclude that we are back on our target level where we have established where we said that we want to be. With that said, we are not satisfied where we are. We want to continue to drive the leverage down even further. This is for us to achieve a stronger financial flexibility for new value-giving activities.
Johan Lennartsson: The development in the leverage is mainly driven by both improved profitability of the Group all in all, but of course also the underlying cash generation of the Group, which has enabled us to remain on a flat level versus year to date, despite the strategic investments that we have done and despite the inventory build-up that I mentioned on the cash flow slide. As Anders has been very clear about to further drive down the leverage and the capital allocation of the Group is one highly prioritized area going forward.
Anders Fredriksson: Thank you, Johan. Now a quick look at each of the segments, starting with Future Snacking. Future Snacking grew 12% organically with resilient demand across the core categories, I would say. EBITDA was SEK 38 million against SEK 33 million. Here it should be noted that last year's quarter included a one-off income of SEK 80 million, so the underlying improvement is clearly stronger than the headline number shows.
Anders Fredriksson: The new factory in Skövde is expected to be completed in Q4, and that will strengthen our production capacity and our ability to grow. We will move over to Sustainable Care. If you will switch the slide, Johan. Thank you. Sustainable Care continued to have headwinds with decline 2% organically in the period, weighted by UK consumer on both, I would say, sales and gross margin that fell to 34.7%.
Anders Fredriksson: Even so, EBITDA increased to SEK 72 million from SEK 68 million, and the EBITDA margin improved to 11.3%. Looking at the underlying EBITA, that is affected by the cost efficiency program last year of -7. So if you take that into account, that shows a decrease of EBITA from SEK 75 million last year to a reported SEK 72 million this year.
Anders Fredriksson: The divestments, we also made divestments here in Tante Lucie and Marabu, and that will sharpen the segment portfolio going forward. Quality Nutrition had a very strong quarter, 14% organic growth and EBITA of SEK 40 million against -3 last year, is, I would say, supported by strong demand. Nutrition is a fast-growing business to be in and higher capacity utilization for us. We should mention, as I said in the CEO letter, that the volatility in whey protein over the past year has been somewhat favorable for the segment.
Anders Fredriksson: It also increases uncertainty around purchase prices and sales volumes going forward. So this is something that needs to be closely managed. The underlying EBITA is affected by the cost efficiency program last year, -19. So if you take that into account, it shows an increase of EBITA from SEK 16 million last year to reported SEK 14 million this year.
Anders Fredriksson: Finally, Nordic Distribution. It grew 4% organically and gross margin improved to 20.1% from 17%, thanks to favorable customer and product mixes. Unfortunately, we do not see this improvement materialize in the result, and there is definitely an opportunity for improvement here. EBITA was stable at SEK 33 million, and doing the same look at underlying EBITA as we did in the other segments. This year's result includes management fees of SEK 3 million now invoiced to the segment, which was not last year. But last year, the efficiency program impacted by -1.
Anders Fredriksson: But I would say that those changes are not material. What is material here is that this is a large part of the group, and I see an opportunity here to strengthen it with margin expansion as the primary goal. That will bring us to the final slide. I will close looking at our financial targets and the next steps. On the leverage, we are at target at 2.5 times.
Anders Fredriksson: Next lever to pull here is to work with working capital. The inventory, as Johan Lennartsson mentioned earlier, is SEK 103 million so far this year, and that is something that we are going to put a strong spotlight on. On growth and profitability, we are not there yet. Net sales grew. Sorry. We have 5%. We are not there yet, but we are working on it. Sorry, I lost my train of thought here.
Anders Fredriksson: EBIT margin went from 1.5% to 5.1% in the year against a target of 10%. So here, closing this gap is what my profitability priority is all about. Here we need to take firmer control over pricing and purchasing and cost discipline and a portfolio of businesses that contribute to value. When it comes to growth and profit growth, net sales grew 5% and the target is 15%.
Anders Fredriksson: Future Snacking and Quality Nutrition showed double-digit growth in the period, which is good. But I would say here that organic growth is important, but it has to be profitable. Growing low-margin volume only drives working capital. My recipe is simple: stability first, then profitability, and then growth, basically. We will report progress on this quarterly as we proceed forward. Yes. With that, we are happy to take your questions.
Johan Lennartsson: Thank you, Anders. We should also say that you are more than welcome to write the questions to us if you have any on the reported presentation. But first of all, we have a couple of questions from Victor Hansen here about Sustainable Care. You mentioned a little bit of the weak UK consumer, Anders. We have mentioned that we have new contracts with Solent from early 2027. Is that still true? What are your thoughts about
Anders Fredriksson: Solent in Q1. I will say that, as I mentioned throughout the presentation a couple of times, Solent and our UK businesses have had a challenging year with rising costs and a weaker consumer sentiment. That is something that the management in Solent and those companies have worked really hard to address. I do not give forecasts, but what I can say is that there is intense work going on to turn that business around.
Johan Lennartsson: Thank you, Anders. Victor also has a question about higher protein input material prices. We mentioned that there is a quite high volatility in the whey protein market. Question from Victor then is: How long is it in your inventory? When will it start to impact earnings? Any comments on that?
Anders Fredriksson: Yes. First, I should say that raw materials movement up and down is a natural part of FMCG business. Sometimes it works for you, and sometimes it works against you. When it works for you, then if you manage to build some stock before the rise, then it usually impacts your working capital, and so forth. So it is up and down. Without going into any details here, I would say that the effect in the earnings is temporary.
Johan Lennartsson: Yeah.
Anders Fredriksson: I do not give any forecast on this.
Johan Lennartsson: Thank you, Anders. Last question from Victor there is also a little bit. John Adams has a little bit similar question. We write about one-off non-recurring revenue that occurred in Q3 in Future Snacking last year, which gave impact on the EBITDA. Are there any comments and thoughts on that we want to raise?
Anders Fredriksson: Yeah. The income was included in last year's reported figures, and then it was disclosed in the notes to the annual report. I've chosen to state it explicitly in this quarter because it matters for the year-on-year comparison in Future Snacking. Excluding it, the segment EBITDA grew from around SEK 21 million to SEK 38 million, and I think that is a material part of understanding that segment.
Johan Lennartsson: Perfect. Thank you, Anders. One question here from John Adams also: What are you considering the underlying CapEx level to be, both for 2026 and for 2027, excluding the factory investments? We have previously communicated that we have a general maintenance CapEx need for around SEK 15 to SEK 20 million per quarter. So that's around SEK 70 to SEK 80 million on an annual basis. That is our general maintenance need for running the 17 production facilities that we have in the group.
Anders Fredriksson: Yeah. There is no need to change that statement at this point. With that said, also, we are quickly approaching the budget period for 2027. But I would say that the previously communicated numbers still hold.
Johan Lennartsson: Thank you, Anders. Another question from Anders Collin here is: Expansion of nutrition in Future Snacking to other countries, how is that going? Do we have any thoughts to share here?
Anders Fredriksson: I would say it is going good. It is going well, which we can see in the growth of the segment. It is also important, I know that it is on the agenda of key companies within the segment.
Johan Lennartsson: Perfect, Anders. I think we have been through all the questions that we have got for today's call. Are there any closing remarks that you would like to end before we end the call?
Anders Fredriksson: No. Just to repeat, I am proud to be part of the company and really looking forward to continue to work to improve profitability and cash conversion.
Johan Lennartsson: Okay. Thank you so much, Anders, and we are of course also happy to have you here, and we look forward to continue this journey.
Anders Fredriksson: Thank you. Bye.
