Veg of Lund AB: Year-end report 2022

First steps taken towards implementing the new strategy

October–December 2022

• Net sales amounted to TSEK 667 (1,304).
• Operating profit before depreciation and amortization (EBITDA) amounted to TSEK
  -8,434 (-8,987), and EBIT amounted to TSEK -8,486 (-9,766).
• Net profit amounted to TSEK -10,652 (-9,719).

January–December 2022

• Net sales amounted to TSEK 2,541 (2,573).
• Operating profit before depreciation and amortization (EBITDA) amounted to TSEK
  -42,580 (-22,500), and EBIT amounted to TSEK -42,787 (-17,325).
• Net profit amounted to TSEK -45,279 (-23,754).

Significant events October–December 2022

• Anders Gustafsson and Rolf Bjerndell were elected to the Board of Directors of Veg of Lund AB.
• Veg of Lund carried out a directed new issue of shares as conversion of the bridge financing facility and resolved on allotment of shares in response to the exercise of warrants by two lenders.
• In November, CFO Emma Källqvist left her position as CFO of Veg of Lund.
• In November, Cecilia Strandberg took position as interim CFO of Veg of Lund.
• The Board of Directors resolved on a rights issue of approximately MSEK 30.9.
• Veg of Lund AB announced the outcome of the rights issue, which had a subscription rate of 70 percent.
• In connection with the completion of the rights issue, Veg of Lund carried out a directed issue of shares to the guarantors and issued warrants to existing shareholders free of charge.

Significant events after the period

• The Swiss food chain Migros launches DUG across 486 stores.
• Veg of Lund enters Germany with German distributor

Summary of the Group’s indicators (see definitions on page 15)

A word from the CEO

Focus on growth

During the fourth quarter, my focus has been to create the conditions for a performance that drives growth and steers the company towards profitability in the long term. The company's strategy, established in 2022, provides a clear roadmap. Cost-efficient growth at a high pace is best achieved by complementing the current business model with two new and well-defined main strands: distributor sales and sale of licenses.
 

We are involved in ongoing negotiations in both instances and with the recently concluded agreement with a German distributor partner, we are entering into Germany. As such, the first agreement is in place, and I expect that more such collaborations will be soon to follow. This includes the previously disclosed letter of intent with future licensing partner for Thailand and Vietnam, where the plan is to launch during 2023.

Some conditions are in place, and with a strong brand, more appreciated products and the right partners, an expansion is possible. Other important prerequisites for a successful journey include financing and making smart choices. Some work remains on the latter part, but me and the Board of Directors are convinced that the company has all the required elements in place to allow for growth in 2023.

With production in England and northern Germany, we now have the advantage of a more secure base that enables us to establish sales in countries on the European continent. Consequential to the agreement with a new producer is the agreement concluded with the Swiss food chain Migros to launch DUG from the month of March. The scope of the launch—486 stores and an order value of about EUR 59,000—is indicative of their faith in us and in our patented potato-based beverage. In Europe beyond Sweden and the United Kingdom, we will only address the retail level directly, working with major individual chains and good profitability. Broader introductions in Europe will be handled by means of distributor and licensing collaborations.

The UK and Irish markets show a positive development, and my colleagues are making an excellent effort in establishing DUG in additional channels. We have a good working relationship with leading food retail chains and online channels, and sales to food companies making vegetarian dishes are growing; it is clear that the possibility of using our products, with their absence of allergens and small carbon footprint, offers them an advantage. 

Updated and reinforced product portfolio

For a food company that develops novel products, it is of the utmost importance to stay close to customers and consumers to be able to succeed. This effort is ongoing on a daily basis and sometimes involves major updates, most recently in the fourth quarter when we introduced a new recipe for our potato-based beverage, DUG.

A few weeks ago, sales of all three DUG varieties (Original, Barista and Unsweetened) commenced. In tests comparing the original and the updated recipes, consumers responded that the taste experience of using the product in coffee, with cereal and in cooking was significantly improved. At the same time, the updated version has fewer added ingredients, a more milk-like appearance and flavour, and an even better marriage of flavours when put into coffee—without compromising the advantages that DUG has always offered. We are optimistic that the new recipe will be well received in our existing markets and quickly established in countries in which sales are set to start gradually over the course of 2023.

In November, DUG Smoothie was launched in Sweden and we noted a great deal of interest in our allergen free snack with the lowest fructose content on the market.  Sales are under way in Sweden, and we intend to launch to additional markets in 2023.

During the fourth quarter 2022, the strategic effort relating to plant-based red and white meat has advanced in collaboration with Scandi Standard. Our assessment is that we have a product ready for commercialization, but the commercialization effort has fallen behind the original schedule. The work with Scandi Standard continues while we, within the framework of the existing contract with Scandi Standard, consider alternative partners.

We also continue to strengthen our patent portfolio. The most recent development is that we have received confirmation of the European Patent Office’s intention to approve our patent “Vegan potato emulsion”, which defines Veg of Lund’s unique vegetable milk alternative. The impending patent protection will cover the European market, which may comprise 39 countries. New product categories will be added on an ongoing basis, including additional plant-based dairy products such as ice cream, where we are involved in discussions with commercial partners in relation to flavouring and commercial rollout.

Financial basis of expansion

The rights issue completed in December 2022 provided a capital injection which has been used in part to reduce our level of debt and thus our financial expenses. Importantly, it enables us to stride forward.  During 2023, we intend to strengthen financing on a continuing basis in order to enable the implementation of our hybrid business model (including distributor and licensing partnerships). In this way, our existing products will be brought to additional markets in Europe and Asia more cost-effectively. Moreover, we intend to develop new food products based on our patents in the dairy and meat categories.

It is clear from our performance in the full year compared with the fourth quarter of 2022 that we, after a costly start to the year, by the fourth quarter have found a more cost-efficient level, which we bring with us into 2023. I envision a 2023 very different from 2022, with enhanced performance. Moving forward, we will make balanced choices to drive growth and expansion at a lower cost than in the past.

An extraordinary general meeting held on 9 December 2022 elected two new members to the Board of Directors: Anders Gustafsson and Rolf Bjerndell. The two new board members contribute important skills. Anders Gustafsson is marketing director at Tetra Pak Vietnam and has extensive experience of sales and distribution of food across several markets in Southeast Asia. Rolf Bjerndell is Chair of the Board of Aventure AB and GlucaNova AB, among other companies. He has worked at numerous food companies, including as CEO of Skånemejerier and board member of Oatly, Probi and Brämhult.

I look forward to working alongside the Board as a whole, my colleagues and our partners to implement our expansion strategy in 2023.

This information is such that Veg of Lund AB (publ) is obligated to disclose pursuant to the EU Market Abuse Regulation and the Market Securities Act. The information was submitted for publication, through the agency of the contact person set out below, at 8:30 am CET on 16 February 2023.

For more information, please contact:
Fredrik Carling, CEO.

Tel: +46 703 121 942

Email:  fredrik.carling@vegoflund.se

This report, as well as other financial information and press releases, is available on the company’s website,
www.ir.vegoflund.se

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