CEO'S COMMENTS ON THE SECOND QUARTER 2020
Strong earnings in unusual times, healthy trends here to stay
The ongoing Covid-19 pandemic continued to affect operations in the second quarter. Unlike the first quarter, in which the effects were predominantly positive, the effects in the second quarter were mixed. We believe, however, that the pandemic has helped increase interest in healthy choices in what seems to be a durable way. With consumers demanding healthier products, we have experienced highly favourable development, particularly among our organic brands. During the quarter, we secured new listings among several leading FMCG players in the key German, French and Spanish markets, and gradually achieved a breakthrough among consumers with our new platform for our Nordic organic brands. Towards the end of the quarter, sales normalized at higher levels and, for the Group as a whole, sales rose by 22 percent compared with the corresponding period last year.
Mixed effects of the pandemic
Early in the quarter, we experienced a continued increase in demand as people increased their at-home consumption due to the pandemic. The greater the extent of the lock-down, the greater the increase in sales. As restrictions were lifted, the increase in demand abated and, in May, the hoarding phase among both customers and consumers shifted over to some phasing out of inventories, leading to a temporary reduction in sales. Nonetheless, people appear, on the whole, to have increased their consumption of Midsona’s organic, healthy and natural foods over the period. Combined, these effects resulted in a very strong sales trend for North Europe and South Europe. The Nordics showed a weaker trend, partly attributable to shortages of certain raw materials due to closures in, for example, India and Sri Lanka, partly because of reduced demand for certain product groups, primarily associated with outdoor activities, social gatherings and sports. Towards the end of the quarter, sales improved in all regions.
Continued strong development for priority brands
On the whole, our priority brands are showing strong organic growth: increasing by 12 percent for the quarter, with the largest growth in the organic products category. This was primarily attributable to the success of targeted measures, but also to positive effects of the pandemic. Firstly, we have been successful in rolling out a wide range of organic products in the European FMCG segment, with new listings among several leading players – the Davert brand in the DACH region grew by 38 percent and Happy Bio in France and Spain grew by 84 percent in quarter. Secondly, our new, shared Nordic communication platform for organic brands, One-Organic, gradually broke through in the stores. Among other things, we managed to reverse the negative trend in Helios, which developed strongly in the quarter, while we also saw particularly strong growth for Urtekram’s most profitable beauty care products. Sales of Kung Markatta products decreased, however, due to the negative impact of reduced sales to the Food services sector, although a certain increase could be discerned among packaged consumer products.
Improved earnings and strict cost control
The strong earnings trend continued in the second quarter: EBITDA before items affecting comparability, increased by 64 percent to SEK 97 million. The EBITDA margin increased to 11.3 percent (8.4), brushing against the previous record and particularly strong given that the second quarter is usually our weakest seasonally. A lower cost base and good cost control were factors contributing to the sharp improvement in margin. The cost base was lowered by implementing previously announced cost-saving programmes and targeted measures during the pandemic. At an early stage, we activated a soft embargo on new recruitment, as well as several selective personnel measures. We optimised our campaign and marketing plans and cut our administrative costs by strictly limiting travel, for example. Towards the end of the quarter, we also experienced a certain positive currency effect from the strengthening of the Swedish and Norwegian currencies (SEK and NOK) against the euro (EUR).
Effective handling and thawing acquisition market
Overall, I am proud of how well the organisation has navigated through this health crisis. The parameters that the organisation has been able to influence have been handled extremely well. Despite some bottlenecks in production, Midsona has maintained a high pace. Although we have had some problems finding sufficient numbers of qualified production employees at short notice, through heroic efforts by existing personnel, we have managed to break previous production records at our facilities. We have fostered favourable conditions for the future and consumers have clearly demonstrated their appreciation of healthy products.
We have a strong financial position and continued to assess possible acquisitions in Europe. Towards the end of the quarter, we announced our acquisition of the Gainomax brand, strengthening our position in sports nutrition while securing an excellent platform from which to grow. My impression is that the acquisition market has begun to thaw from its late spring iciness and we perceive favourable acquisition opportunities in the wake of the pandemic. In accordance with our strategy, I hope we will be able to make further complementary acquisitions in one of our three regions in the autumn. We stand by our humbly optimistic outlook for the future and I look forward to getting back to you with more news.