Veg of Lund AB: Interim Report January - June 2022

Updated strategy and revised objectives to reach profitability in the near future

April–June 2022

• Net sales amounted to TSEK 1,070 (574).
• Operating profit before depreciation and amortization (EBITDA) amounted to TSEK -11,291 (-5,415), and EBIT amounted to TSEK -11,343 (-5,533).
• Net profit amounted to TSEK -11,183 (-5,588).

January–June2022

• Net sales amounted to TSEK 1,524 (659).
• Operating profit before depreciation and amortization (EBITDA) amounted to TSEK -29,004 (-7,580), and EBIT amounted to TSEK -29,107 (-7,814).
• Net profit amounted to TSEK -29,182 (-7,857).

Significant events April–June 2022

• Veg of Lund signed a cooperation agreement with First Class Brands of Sweden AB regarding sales processing in the Swedish retail market.
• The company filed an application for a Swedish patent for a potato emulsion with applications in plant-based ice cream products.
• Veg of Lund conducted a strategic review of the business and decided on an updated strategy and revised objectives with the aim of increasing sales. At its core, the business model is a hybrid between out-licensing and inhouse production and sales.
• The Annual General Meeting of Veg of Lund resolved to re-elect the Board of Directors and elect Fred Holmberg as new member of the board. As Chairman of the Board, Håkan K Pålsson was re-elected.
• Veg of Lund obtained a bridge facility of up to MSEK 16 to strengthen the company’s market position and product development and resolved to issue warrants.
• Member of the board Fred Holmberg stepped down from the Board of Directors.

Significant events after the period

• The Board of Directors appointed Fredrik Carling as the new CEO of Veg of Lund. He will take position on 19 September 2022.

Summary of the Group’s indicators

    
A word from the CEO

Under our updated strategy, the launch of DUG® continues to reach customers and consumers in selected markets. To reach the objective to achieve sales of MSEK 420 and a positive operating result by 2025, we are focusing on Sweden and the United Kingdom. The strategy further includes boosting sales by appointing licensees in complementary markets.

The UK and Irish markets have undergone positive developments, and there is considerable interest from consumers as well as major food companies that include DUG^® in their vegetarian meals. Sales in the British Isles continue to develop positively and with Ireland’s clear interest in DUG we see a solid potential to increase sales during the year. In Sweden, our cooperation with nationwide First Class Brands (“FCB”) gets us access to about 20 additional experienced food sales representatives with outreach to the Swedish grocery market as of the third quarter 2022.

Our marketing efforts will entail a higher level of costs for some time to come, and we are investing to drive sales in parallel with the development of additional products based on our patents and unique production processes.

New products
Together with Scandi Standard, Veg of Lund has an ongoing research project with the aim of introducing plant-based meat products. The project is on schedule, and we are pleased to have reached significant milestones that will enable us to launch a commercial phase of the project before the end of 2022.

In addition, the development of vegan ice cream is well underway, including that we have opened discussions with one of Sweden’s leading ice-cream manufacturers. Flavour, texture, and a small climate footprint are the most critical factors to successfully introduce a new ice cream in Sweden. Swedes are among the biggest consumers of ice cream in Europe, second only to our neighbours the Finns, according to the industry association Svenska Glasstillverkare. In Sweden, about eight liters of ice cream is consumed per person per year.

The third product that we hope to launch within a few months is an updated version of our smoothie, a plant-based snack drink. Sold under the DUG My Foodie brand, it will be available in the original flavours raspberry and blueberry. Work is also under way to develop a third flavour, which we will present in more detail when it is ready for launch in Sweden.

Clarified business model, updated strategy and revised objectives
An essential part of our ambitions to increase sales and strengthen profitability is to enhance presence and consolidate Veg of Lund’s position in those markets that, in terms of the products we develop based on our own patents, offer the best conditions for rapid sales growth. This is accomplished in part by our own organization in Sweden and the United Kingdom, in part through license agreements with manufacturers and distributors in other countries. The Board of Directors assesses that this hybrid model enables the company to make optimal use of its in-house resources and reach profitability more quickly.

During the second quarter, we identified several interesting parties for distribution and sales as well as production of DUG^®. We have been focusing on countries in Europe, Southeast Asia, and Oceania. Negotiations are ongoing, and I hope that we shortly will be able to sign memorandums of understanding that will allow us to launch enhanced cooperation with committed parties taking responsibility for product launches, customer relations, and customer development, even production, in strategic markets. We are looking to cooperate with licensees that already have strong established brands in their respective markets, in parallel with a focus on producers of prepared meals and mass caterers that prepare meals for schools, hospitals, large companies and institutions. The United States is also a priority market where we see potential, but the work to identify one or more licensees there is at a less advanced stage.

Sales
During the second quarter, Veg of Lund’s net sales amounted to TSEK 1,070, an 86 percent increase over the corresponding quarter last year and 135 percent over the preceding quarter 2022. We see orders from more and more categories of customers, and the number of repeat customers is growing.

The food producer customer category increased its share of the total during the quarter, and Veg of Lund continues to develop the offer to these customers, including by offering DUG^® in different packaging sizes to UK and Irish food companies. We consider this segment to have great potential, but we understand that it may take some time to adapt the existing practices and recipes. In Sweden, we are in contact with mass catering customers that have noticed that DUG^® is free of the 14 most common allergens and other sensitizers. DUG^® is currently involved in a few purchase framework agreements and we have high hopes of commencing sales during the autumn of 2022.

Marketing
During the second quarter 2022, the company’s marketing and sales efforts were focused on retailers and professional customers, including food companies such as Kirsty’s in the United Kingdom, and major consumer campaigns in Sweden and the United Kingdom.

Production and logistics
The effort to complement the existing production in the United Kingdom with a partner in Continental Europe has proceeded. Various test runs have been carried out successfully, and we assess that we may have an agreement in place during the third quarter 2022. Unfortunately, we have to recognize that production and logistics are hampered by various obstacles, mainly due to the ongoing war in Ukraine. The main implications for Veg of Lund are increased raw material prices, shortage of certain inputs, and longer delivery times, which may disrupt production.

Organization
The Board of Directors of Veg of Lund has appointed Fredrik Carling as the new CEO of the company. Over the past ten years, he has served as the CEO of Hövding Sverige AB, and he has wide experience of establishing new products and building strong brands. Fredrik Carling will take up his new duties at Veg of Lund on 19 September 2022, and I will return to my role as the company’s CFO.

The company has in-house staff in cooperation with a network of consultants, specialists in research and development and marketing, and sales representatives.

Funding
During the second quarter, the company obtained a bridge loan of up to MSEK 16 to secure its market position and development of novel food products in the dairy and meat categories. The Board of Directors continues its active evaluation of various financing options to ensure the long-term financing and optimal capital structure of the company.

Veg of Lund has amazing potential, the products are extremely timely, in a growing market, and our brand DUG^® has in a short period of time won the market's clear approval. We are now focusing on raising the awareness of DUG^® among additional groups of consumers, such as flexitarians and others who wish to drink plant-based, tasty, and sustainable beverages. Owing to its potato origin, DUG^® is healthy, nutritious, and tasty.

Emma Källqvist,
acting CEO and CFO

For more information, please contact:

Emma Källqvist,
acting Chief Executive Officer and CFO.
Tel: +46 721 869 018
E-mail: emma.kallqvist@vegoflund.se

Malmö, Sweden, 16 August 2022
Veg of Lund AB
The Board of Directors
 

About Veg of Lund
Veg of Lund develops unique plant-based foods meeting consumers’ demands for taste and sustainability. The company has roots in research at Lund University and owns patented methods for developing new food categories in the fast-growing market for plant-based foods. Veg of Lund’s climate-smart and tasty products are sold in Europe and Asia under the DUG^® brand. The company’s share is listed on the Nasdaq First North Growth Market under ticker VOLAB. Read more at ir.vegoflund.se. Mangold Fondkommission AB is the company’s Certified Adviser and can be contacted via telephone: +46 8 5030 15 50 or e-mail: ca@mangold.se.

This disclosure contains information that Veg of Lund is obliged to make public pursuant to the EU Market Abuse Regulation (EU nr 596/2014) and the Swedish Securities Markets Act (2007:528). The information was submitted for publication, through the agency of the contact person, on 16-08-2022 08:00 CET.

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