Interim report January-September 2021

CEO Walker Kinman comments on the quarter: In a quarter where additional demand from Covid-19 has been receding and we have seen a return to normal seasonal patterns, we have delivered solid growth for the LMK Group despite tough, Covid-19 affected comparison figures from 2020. At the same time, we have continued to execute on our growth strategy; integrating our Danish business, recruited strategic roles and promoted our brands and offerings through ambitious sales and marketing.”

Third quarter 2021 (Q3 2020)

• Net sales grew by 7.8% (7.3%) to 259.9 MSEK (241.0 MSEK), adjusted for exchange rate differences that equals to a growth of 8.4%
• Contribution margin after fulfillment cost at 25.6% (27.6%)
• Sales and marketing expenses were 49.8 MSEK (39.0) an increase of 10.8 MSEK and was 19.2% (16.2%) of Net sales
• EBITDA amounted to -9.1 MSEK (6.7). EBITDA-margin at -3.5% (2.8%)
• Adjusted EBITDA amounted to -9.1 MSEK (7.4), Adjusted EBITDA-margin of -3.5% (3.1%)
• Operating profit (EBIT) at -20.6 MSEK (-3.9), a margin of -7.9% (-1.6%)
• Adjusted EBIT at -20.6 MSEK (-3.2) gives a margin of -7.9% (-1.3%)
• Net profit for the period after taxes at -18.7 MSEK (-9.0)
• Earnings per share SEK, before and after dilution at -1.47 SEK (-1.68)

January-September 2021 (January-September 2020)

• Net sales grew by 19.6% (6.7%) to 1060.3 MSEK (886.3 MSEK), adjusted for exchange rate differences that equals to a growth of 19.9%
• Contribution margin after fulfillment cost at 28.5% (28.7%)
• Sales and marketing expenses were 148.8 MSEK (96.1) an increase of 52.7 MSEK and was 14.0% (10.8%) of Net sales
• EBITDA amounted to 64.8 MSEK (91.6). EBITDA-margin at 6.1% (10.3%)
• Adjusted EBITDA amounted to 77.7 MSEK (97.9), Adjusted EBITDA-margin of 7.3% (11.0%)
• Operating profit (EBIT) at 31.2 MSEK (59.8), a margin of 2.9% (6.7%)
• Adjusted EBIT at 44.1 MSEK (66.1) gives a margin of 4.2% (7.5%)
• Net profit for the period after taxes at 2.9 MSEK (48.3)
• Earnings per share SEK, before and after dilution at 0.28 SEK (8.96)

Events during the third quarter

• Successful migration of Danish business to the common LMK Group operating platform, executing on our growth strategy with increased recipe flexibility and better unit economics
• As part of strengthening our effort in business development, Klaus Toft Nørgaard, co-founder of the Danish business, was appointed Chief Business Development Officer to manage new initiatives at group level
• Recruitment of Anton Nytorp as CTO to continue developing LMK Group’s leading position in Scandinavian food tech
• We initiated reporting of food waste in own production as part of our focus on sustainability and to continue our successful efforts to reduce supply chain related food waste

CEO comments from Walker Kinman: “Continued growth in a dynamic post-covid market”

Net sales in the third quarter amounted to 260 MSEK which was an increase of 8.4% adjusted for exchange rates vs. the comparable period last year. The third quarter is characterized by seasonally lower volumes due to summer vacations in July and August, while also containing a period of heavy Sales and marketing spending as part of the post summer campaigns focusing on new sales and customer reactivations. Adjusted EBITDA for the quarter amounted to -9.1 MSEK (7.4) which includes a 10.8 MSEK increase in Sales and marketing spend vs. the previous year, corresponding to an increase of 27.8%.

For the nine months ended September 2021, we achieved net sales growth of 20%, adjusted for exchange rates. Net sales have grown by 13% on a compounded annual basis compared to the first nine months of 2019. In 2021, growth has been achieved with stable contribution margin development, while continuing to increase flexibility in our offering. Over the period, we continued to see growth in active customers, number of deliveries and average order value while continuing to execute on increased flexibility with 71% of orders produced on customer unique production lines in Q3.

Room to Invest in Marketing and Sales
We have continued to increase Sales and marketing investments during Q3, which vs the same period last year increased by 27.8% (10.8 MSEK) while for the nine months ended September 2021 the increase was 54.9% (52.7 MSEK). We have made a conscious decision to boost our Sales and marketing spend in line with our focus on growth, as communicated in the IPO process and have achieved a higher growth rate than the mid-term financial targets communicated.

Norway accounted for 51% (47%) of Net sales in the third quarter and both brands that we operate (Godtlevert and Adams Matkasse) continued a good growth trajectory with combined growth of 17% during the quarter and 26% for the nine months ended September 2021. With the increase in marketing spend and a decrease in additional demand from covid, customer acquisition costs have increased since last year.

Sweden accounted for 36% (40%) of Net Sales in the third quarter and has shown a slowing down of sales growth with -4% during the quarter and 13% for the nine months ended September 2021. Growth across the food e-commerce market also felt the effect of the transition back to a non-covid operating environment with the Online Grocery Index in Sweden* for the third quarter showing a growth of only 3% (vs 26.9% in Q2 2021 and 100.9% in Q3 2020). The change to flexibility in our offering continues to drive customer loyalty and the capture of market share from traditional fixed-mealkit offerings while reinforcing the leading position of the brand in the market.

In Denmark, we operate the brand RetNemt which accounted for 14% (13%) of Net sales in the third quarter. Denmark also continued to post solid growth in Q3 with 10% during the quarter and 16% for the nine months ended September 2021 on the back of increased Sales and marketing spend.

Denmark Integration Leading to Improved Offering
We have made significant advances in the full integration of our Danish business and the harmonization of a standard product offering across markets. During September we completed the migration of the Danish technical systems that control most aspects of the meal kit value chain. We are concluding the rebuilding of our production facility in Denmark during Q4 and the transfer of production technology that will give the capability to deliver a significantly larger recipe variation to our Danish customers. The rebuilding and introduction of new production techniques creates a temporary short-term reduction in production efficiency translating to higher cost in the unit economics equation that is expected to carry on into the beginning of 2022. Because of these process changes, we expect to achieve higher productivity, more control on input costs, and expect positive customer response to the offering and service quality over time.

Strong Unit Economics Model Underwriting Growth
We remain on track to achieve 100% customer unique packing by the end of the year as an underlying capability to increase personalization in the product model and drive customer loyalty. Order production on customer unique packing lines increased to 71% (39%) in Q3, up from 60% in Q2 2021. Increased personalization continues to drive improvements in average transaction value, purchase frequency and reduced churn in comparison to fixed menu offerings.

The increase in customer unique production has driven up production cost, albeit at a lower level than originally planned. We will bring final capacity online for customer unique production in Q4 and in preparation for that we are making changes in our production facilities in Sweden and Norway that are impacting efficiency short term during construction. As new pick-to-light packing lines come online in all markets in Q4, we anticipate that production efficiency will fall temporarily as these new lines are calibrated, however these changes enhance our capabilities, ensure a better experience for our customers, and lay the foundation for growth.

We began to see some effects of inflation in Q3 which will likely continue for the near future. Rising fuel prices are increasing transportation costs in both our inbound supply chain and with our outbound delivery partners. In addition, packaging material prices have increased as both rising oil and wood pulp prices have impacted plastic and cardboard prices. We introduced low single-digit price increases across brands in August which to some degree balanced the inflationary pressure. Pricing power remains good, and we continue to adjust our sourcing model to maintain medium term contribution margins approaching 30%.

As a result of the above, combined with the seasonally lower sales volume of Q3, we achieved a contribution margin of 25.6% (27.6%). For the nine months ending in September 2021, we have achieved a contribution margin of 28.5% (28.7%).

Sustainability in Focus
During Q3, a company-wide Sustainability Policy was approved by the Board, further strengthening the company’s ambitions. The policy will form the basis for continued development of goals and action-plans, with the initial focus being on food-waste, reduction of CO2 footprint and plastic packaging.

Two examples of how our sustainability ambitions came alive during the quarter were the launch of a new Plastic Promise, whereby we aim to reduce the amount of plastic in our meal kits by 20% by 2025, and a pilot project with Urban Oasis for hydroponic farming of vegetables in an underground storage space in Stockholm.

Read more about sustainability at LMK Group and the new policy at www.lmkgroup.se/sustainability

Organization Development with Key Recruitments
During Q3 we recruited our new CTO, Anton Nytorp. He joins LMK Group from Coop Norway’s digital unit CoopX, where he has been responsible for the development of Coop’s digital products and services. Additionally, Klaus Toft Nørgaard was appointed as Chief Business Development Officer to drive new growth initiatives and stepped into that role in September. Klaus is co-founder of RetNemt and has successfully driven that business since its inception in 2006. Finally, Peter Bodor was recruited as Head of Corporate Communications. In his role, Peter will develop and strengthen mainly the LMK Group brand, focusing on internal and external communications, sustainability, as well as investor relations. We are confident that these new key appointments allow us to accelerate the development of the business and to continue innovating the mealtime experience.

Return to normal seasonality
The prevalence of vaccines and falling infection rates related to Covid-19 has led to the broad opening of all our markets and many households have begun traveling again for business and leisure. We see a return to seasonally normal purchasing behavior which translates to lower sales volume during fall holidays and normal vacation periods. New customer cohorts show good retention rates, indicating that our flexible meal kit offering is well received in the market and that our marketing efforts are working. That said, recent developments point to slightly lower purchase frequency, a trend which will likely continue in the near term. This slower growth environment is expected to continue for at least the first half of 2022 as we face comparable figures from 2021 that have benefited from restrictions and unseasonal buying patterns.

In the long term we believe that the underlying structural changes in consumers' digital habits will work in favor of our continued growth as we deliver on our strategy of fully flexible meal kits and innovative mealtime experiences as a leading Scandinavian food-tech company.

*Sw Dagligvaruindex – Total e-handelsförsäljning

Report presentation

CEO Walker Kinman and CFO Erik Bergman will present the report in a conference call and webcast today 9 November at 09:00 CET. The presentation will be held in English and will be concluded with a Q&A session.

To participate via telephone please dial-in on the numbers below:

SE: +46 8 5664 2706
NO: +47 2396 3688
DK: +45 7872 3251
UK: +44 3333 009 264
US: +1 646 722 4902

Link to webcast: https://tv.streamfabriken.com/lmk-group-q3-2021

Link to report

The interim report is attached to this announcement and can be found at: https://lmkgroup.se/investor/financial-reports/
   

For further information, please contact:

Peter Bodor, Corporate Communications, LMK Group
Phone: +46706487065
E-mail: peter.bodor@linasmatkasse.se 

Walker Kinman, VD, LMK Group
Phone: +46 707 22 65 13
E-mail: walker.kinman@linasmatkasse.se
 
Erik Bergman, CFO, LMK Group
Phone: +46 707 74 49 73
E-mail: erik.bergman@linasmatkasse.se

About LMK Group

LMK Group was founded in 2008 with the vision of simplifying everyday life by offering a large variety of inspiring meals delivered directly to the customer's front door. Today, the group is the largest supplier of meal kits in the Nordic region and a leader in Scandinavian foodtech. The group operates in Sweden, Norway and Denmark under the brands Linas Matkasse, Godtlevert, Adams Matkasse and RetNemt. In 2020, LMK Group generated SEK 1.2 billion in revenues and delivered approximately 1.74 million meal kits to households in the markets in which the group operates. LMK Group is listed on Nasdaq First North Premier Growth Market. Certified Adviser is FNCA Sweden AB, info@fnca.se, +46 (0) 8528 00 399.

This information is information that LMK Group AB is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact persons set out above, at 2021-11-09 07:45 CET.