Veg of Lund AB: Interim Report January - March 2022

Proactive efforts to drive sales

January–March 2022

• Net sales amounted to TSEK 455 (84).
• Operating profit before depreciation and amortization (EBITDA) amounted to TSEK -17 712 (-2,164), and EBIT amounted to TSEK -17,764 (-2,282).
• Net profit amounted to TSEK -17,999 (-2,270).

Significant events January–March 2022

• An extraordinary general meeting held on 31 January 2022 elected two new members to the Board of Directors: Magnus Nordin and Håkan K Pålsson. Håkan K Pålsson was elected Chairman of the Board.
• UK food companies choose DUG^® for vegetarian and vegan products.
• Veg of Lund chooses NTEX for tailored logistics solutions.
• UK Waitrose starts to offer DUG^®, highlighting the potato-based beverage as one of the food trends of the year.
• UK food company Kirsty’s chooses DUG^® for several of its prepared meals.
• Veg of Lund enhances its sales organization in the United Kingdom.
• Series TO1 warrants were exercised at a rate of approximately 75.3 percent, raising proceeds of approximately MSEK 6.53 for Veg of Lund.
• Veg of Lund’s plant-based beverage DUG^® is launched in Ireland.

Significant events after the period

• Veg of Lund enters into a sales cooperation in Sweden with nationwide operator First Class Brands.
   

Summary of the Group’s indicators

    
A word from the CEO

More clearly defined sales strategy aims to strengthen profitability and consolidate DUG^®’s position as a leading brand among plant-based foods.

A little more than a year ago, DUG^® was launched and warmly greeted as a new, sustainable, and healthy plant-based beverage. As a result of the attention and interest, Veg of Lund is now recognized for its brilliance in potato-based food development, and the company’s strong patents form the foundation of several foods. DUG^® is available in both brick-and-mortar and online shops. During the first quarter 2022, the existing sales team in the United Kingdom was strengthened by the addition of two in-house employees, and as of May, the Swedish sales organization was strengthened through a collaboration with First Class Brands (“FCB”). FCB adds about 20 experienced food-sales representatives with outreach to the Swedish grocery market. Further, Veg of Lund has terminated the agreement with the company’s strategic partner in China due to a lack of sales in the country, which has forced the company to bear the related costs, for example for warehousing.

We are continuing the development of new products underpinned by our patents and unique production processes. During the second quarter 2022, Veg of Lind submitted patent applications for additional dairy products in the cooking and ice-cream segments. This is complemented by the ongoing development of meats and additional dairy products.

Clarified business model, updated strategy, and revised objectives
The sales of DUG^® to customers in Sweden and the United Kingdom continue to account for the great majority of the total. In each country, we have succeeded well in certain geographical areas while we also see that there is a potential that we, unfortunately, not yet have been able to reach. The company’s board and management have, therefore, carried out a strategic review of the conditions to reach out to additional points of sale and additional customer groups more effectively and thus strengthen cash flow and the company’s financing. The Board of Directors has today adopted an updated strategy and revised objectives with the aim of driving sales and promoting value creation in the short and long term.

In summary, the decision entails that Veg of Lund henceforth will increase its presence and consolidate its 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 will be 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 will enable the company to make optimal use of its in-house resources and reach profitability more quickly.

Our former operational objectives, “to increase both domestic sales as well as exports and licensing of all of the company’s products” and “underpinning the first years by sales of the company’s plant-based milk, and adding a range of new products to complement it” have been replaced by the new operational objective: “to expand into new markets at a fast pace by means of our hybrid model”.

The former financial objectives, “to fund the operations with current revenue from sales of the company’s products” and “to achieve a positive operating result by 2023, with net sales exceeding MSEK 300 in the same year” have been replaced by the new financial objective “to reach a turnover of MSEK 420 with a positive operating result by the year 2025”.

We have, over recent months, received enquiries from several manufacturers in various countries about the prospects of initiating manufacturing of DUG^®. To meet this interest in the best possible way, we are intensifying our licensing programme in markets where plant-based premium foods are in high demand, particularly focusing on Europe, the United States, and Asia. 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.

A more in-depth description of the Board of Directors’ decision on the clarified business model, updated strategy and revised objectives for Veg of Lund is provided in a separate press release issued today, 10 May 2022.

Sales
During the first quarter, Veg of Lund’s net sales amounted to TSEK 455, a 440 percent increase over the corresponding quarter last year. The launch of DUG^® in our strategic markets Sweden and the United Kingdom, and in other selected geographies, continues.

The DUG^® range comprises three different options, Original, Barista, and Unsweetened, which are sold in one-liter containers to consumers. In addition, we have supplemented the range with 10-liter containers for food producers looking to use DUG^® in their meals and bakery wares sold to final consumers. We consider this segment to have great potential, and we understand that it may take some time to adapt the existing practices and recipes.

As the awareness of DUG^® has spread, municipal kitchens that prepare food for Swedish schools and institutions have requested samples. Feedback is starting to come in, thus far consisting of positive comments regarding sustainability and taste aspects and much of it revolving around the fact that DUG^® is free of the 14 most common allergens and sensitizers. The procurement procedures vary between municipalities and regions but DUG^® is currently involved in a few purchase framework agreements and we have high hopes of commencing sales during the autumn semester of 2022.

Marketing
During the first 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 on preparing consumer campaigns in Sweden and the United Kingdom, which will be executed during the second quarter. 

Production and logistics
The manufacturing of DUG^® takes place in a UK facility, and Veg of Lund has throughout the first quarter worked to streamline transports and warehousing in the United Kingdom and Sweden. The company is exploring the possibilities to add facilities closer to raw materials producers, customers, or both to complement the ongoing production.

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

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, 10 May 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). The information was submitted for publication, through the agency of the contact person, on 10-05-2022 08:00 CET.

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