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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to Probi Q1 Report 2024. [Operator Instructions]
Now I will hand the conference over to CEO, Anita Johansen; and CFO, Per Lindblad. Please go ahead.
Welcome, and thank you for dialing in to Probi's presentation of our quarter 1 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. So please take a few moments to familiarize yourself with this statement. And this is the agenda of our presentation today. So this is the first quarter in what will be a transition year for Probi. We've just finalized a busy and eventful first quarter. And on financials, our sales came in as expected. The 12% reduction compared to last year is mainly due to a positive one-off effect from SEK 18 million in delayed deliveries due to a snowstorm at the end of 2022, and hence, a high comparison quarter in 2023. Our net sales amounted to SEK 152 million. The EBITDA margin was 15% versus 28% last year, and adjusted comparison EBITDA without the favorable orders would have been 23%. Per will get into more details on the underlying details of the numbers in a minute.
On the activity side, quarter 1 has been characterized by a high number of activities and events, and significantly driven by our strategic priorities and focus areas. We are building our future customer pipeline. We've seen good traction and momentum in sales and marketing activities, several new partners, business contracts and product launches. This strengthens our product portfolio by delivering exciting new scientific evidence announced in synbiotics offering, which was published in the International Journal of Nutritional Sciences.
Our performance in sustainability rewarded us with the silver status from EcoVadis, and our groundbreaking research behind the Probi Sensia gut-brain concept provided us with a selection of the finalists for the NutraIngredients Awards 2024.
Now I will hand over to Per for financial review.
Thank you, Anita. And yes, let's look at the key financials for our Q1. The reported sales of SEK 152 million is down 12% versus last year. And in constant currency, it's a reduction of 11%. Q1 last year is a high comparison as the snowstorm in the U.S. had an SEK 18 million impact of moving sales from Q4 2022, into Q1 2023. This is what we reported as an unusual, also back in 2023. And hence, this is obviously not a surprise that we, for Q1 2024, have higher sales comps.
Adjusting last year for the SEK 18 million, the sales is largely at level. As Anita shared, lots of commercial activity, for example around our newly launched concepts. Yet these takes time due to long sales cycles, so we don't see those in the financials yet.
If we look at the EBITDA chart, last year, we reported an EBITDA margin of 28%. Whereas we, for Q1 2024, report 15%. The snowstorm is a major cause. And again, adjusting for this, that comp of 28% would be 23%. Still more is involved and lots of that is timing. To quantify, let me remind you that Probi last year for full year '23 reported an EBITDA margin of 17%, so the 23% is still a high comp. And also in earlier years, 28% is actually higher than any quarter we reported in '22.
So with these into consideration. I'm not really surprised by the reported 15% and it's actually in line with our internal forecast. The biggest driver for the low number is low production volume in Q1 2024 and also nonrecurring costs in our production optimization program.
When we look to sales by region and gross profit by region, and first starting with the Americas, the SEK 115 million of sales in Q1 represent a decline of 12% for this region. And as we saw in the consolidated view, this is all driven by the earlier mentioned snowstorm related to the U.S. Adjusting last year for that, same SEK 18 million, the underlying comps for the Americas is SEK 130 million, and hence, the SEK 115 million actually reported is actually slightly up. I will later explain what is happening to the margin from a consolidated view. And those explanations is also valid for the U.S., so I will cover those on the next slide.
Yet looking at EMEA. EMEA is having a good Q1 driven by good solid customer traction. But let me also remind you what we looked at last year with lots of timing impact of several big customers reducing inventories. Those impacts we don't see this year, and that is a favorable impact to our numbers for '24. I'd also like to mention our B2C business in the Nordics, which also performs well and ahead of last year.
Specifically for the EMEA region, the lower margin is driven by product mix. So we don't see any kind of adverse impact on profitability underlying for EMEA and neither for APAC. The APAC number for Q1 is relatively soft and below last year. But this is mainly driven through sales phasing, and we will see later quarters coming back.
Now the bridge of our net income compared to last year. Again, this reveals timing as the biggest driver for the changes to net income year-over-year. Again, the mentioned snowstorm is all timing and accounts for SEK 12 million on a net income basis. And that brings the SEK 19 million as reported last year to SEK 8 million, as shown in the chart. The gross profit margin is also impacted by timing, and again, the biggest driver for gross profit is lower production volume. With sales expectations maintained for the full year, strength in production volume will be timing.
Other factors for the reduced gross profit in Q1 reduced -- include temporary added cost to drive Probi's manufacturing optimization program, but also some impact from higher -- increased depreciation related to upgrade in our production facilities. OpEx is up 5% versus last year. This is an increase, you could say, which is above inflationary benchmarks. Yet this is fully planned and is a consequence of Probi strengthening the organizations in various departments, including R&D and commercial.
Now our cash position, and Probi generated SEK 10 million of cash in Q1. So despite the soft EBITDA, good cash generation. And with this, Probi further increased our strong cash position up to SEK 340 million of cash. Operating cash flow in Q1 is generated mostly by earnings, with SEK 24 million for the period of the quarter, while net working capital increased with SEK 5 million, and hence, the net SEK 19 million shown in the chart as operating cash flow.
Specifically for CapEx, for Q1, those amounted to SEK 7 million, of which SEK 5 million is related to new equipment mainly at our production site in Redmond, Washington State. And the remaining SEK 2 million is across intangibles investment in R&D and in IT. The last financial slide is really no big news. It's a slide which we confirm the strong cash balance sheet of Probi, no external loan and an equity ratio of 93%.
With this, I'd like to hand over again to Anita.
Thank you. Next slide. So we have just begun our transition, and 2024 will be focused on further stabilizing our business and restoring our profitability. As previously communicated, we have 3 key focus areas in 2024. And the first one is win on talent. I am firmly committed to cultivating a robust, resilient and adaptable organization, which is focused on our customers and on commercial excellence.
The second focus is to be more efficient in manufacturing, and we are progressing our ongoing optimization program and we started witnessing positive developments. The third focus area is accelerating our business growth, and we keep promoting our existing products and our new innovations. And although sales cycles are rather long and it will take time, we now have good momentum and we are building our future customer pipeline.
So in summary, 2024 will be a transition year with modest expectations on increased growth and profitability. But I am, however, confident that we are heading in the right direction to deliver on our long-term strategy.
So this concludes our presentation of our Q1 interim report. And now there is time for questions.
[Operator Instructions] The next question comes from Sten Gustafsson from ABG Sundal Collier.
Actually, I think I only have one, and maybe it's a clarification. And it relates to the comments you made about the gross margin in EMEA. You mentioned product mix. And what I didn't understand was when you expect it to sort of normalize again, is that already in Q2 or should we look at it more over time for next year? Or yes, if you could give us some more color on the gross margin comment you made for EMEA, please.
Yes. Thank you, Sten, for that question. It's actually a combination. So in Q1, we have a very specific product mix impact, and that will rebound already in Q2. But part of this is the underlying situation is a specific customer product relationship, that will fully recover in '25. So the answer -- or your question is spot on because it is a quite tricky situation. But again, most of it will recover already in Q2 and it will be fully recovery in '25.
Okay. Because I know just looking at sort of the past quarters over the years, there is some volatility in the gross margin in EMEA and there could be many different reasons for that. But sort of the underlying -- was the sort of the base you had for '23 or around 56.5%, is that a good benchmark for what sort of, on average, the normal gross profit margin should be for EMEA, in your view? Or is that too high? Or could there be improvements longer term?
Yes, Sten, as you point out, we in Probi see significant fluctuations quarter-by-quarter. So in future, we will also see that for sure. But specifically to your question, we do see that gross profit underlying is stable for Probi. Thus, as you can imagine, there's various factors having a kind of a push. There's generally customers push on pricing. There's inflationary. So we need to manage all this. So I'm not going to say that we are not going to see any variations in gross profit, but kind of no big impacts and it's day-to-day business.
Excellent. As a follow-up to that, in general, pricing, how has that developed in Q1 for all regions, not only EMEA but in Americas and APAC also?
We are consistently or constantly working on sales pricing. It is very much defined with the individual customer relationship. And most of our customers is on contract, so it's specific to those contracts when we renew pricing. Other business is more spot, and then it's kind of on that basis. So there's not a simple answer to the pricing question.
The next question comes from Thomas Nilsson from Aktiespararna Analysguiden.
My question regards the successes and expansions in your B2C business. The expansion of B2C to Denmark appears to be a strategic move to strengthen the presence in the Nordic region, I wonder how the response in Denmark has been so far? And are there plans to expand this B2C model to other countries in Europe?
Do you still hear us? Sorry.
Yes, yes.
Okay. Sorry. I thought we cut off. Thank you for that question, Thomas, I appreciate it. So the expansion to Denmark is, of course, part of our strategy to strengthen the Probi brand in Scandinavia. Now we are in Sweden and Norway, and we are entering in Denmark through Matas. We haven't actually products available for customers in Denmark yet, it's going to happen here in the next month or 2. So I cannot talk to how it's developing at this point. It's still too early.
And through Matas, it's still -- for us, you can say still just not a test, but it's still very cautious. We are launching in Matas through the online channel only. So it's going to be a soft launch, you can say, in Denmark. What is really important for us is obviously maintaining and growing our business in Sweden where we are a market leader and are gaining market share also.
Okay. And will other countries be probable in the future? What do you think about that?
Right now, our strategy is in the Nordics. We will obviously always evaluate, but we also prioritize and value our relationship to our business-to-business customers, which is the main part of our business. So that is our key focus.
[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any written questions or closing comments.
Thank you all for listening. The last slide is just to state the coming or upcoming events that we have, financial events. And our next meeting is on May 7, where we have our Annual General Meeting. So we will be happy if we can entertain you on May 7. Thank you, everyone, for listening, and have a wonderful day.