Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Nicotine pouch volume grew by 43% year-over-year and 93% over a two-year period.
- Nicotine pouches now account for 61% of total volume, up 11 percentage points from Q2 2023.
- EBIT margin increased from 2.7% to 3.7%, reflecting benefits of scale.
- Sales grew by 23% compared to the same period last year, with a 19% growth from March to June.
- The company achieved a milestone of serving over 1 million consumers in the past 12 months.
Negative Points
- The U.S. market experienced turbulence due to higher-than-expected consumer demand, leading to a market shortage.
- FDA regulations on flavored vaping products and the backlog of risk-reduced products could delay new product launches.
- Net financials showed significant volatility, with a notable negative impact in Q2.
- The company remains cautious about the implications of the Chevron Act on FDA regulations.
- No capital returns to shareholders are expected during 2024 or 2025, despite a strong balance sheet.
Q & A Highlights
Q2 2024 Haypp Group AB (publ) Earnings Call Highlights
Q: Can you quantify the impact of the severe shortage of SIM in the US market? Has it been positive or negative for you?
A: Gavin O Dowd, CEO: The shortage is more about higher demand than anticipated. It has been marginally positive for us in the short to medium term, increasing consumer awareness of the online channel. Long-term benefits are expected as more consumers explore online alternatives.
Q: What impact could the Chevron Act have on FDA regulation and the sale of nicotine pouches in the US market?
A: Gavin O Dowd, CEO: It's too early to predict the impact. The reversal of the Chevron Act changes the regulatory dynamic, but we need a few more quarters to see how it manifests. It could potentially allow new products to enter the market quicker.
Q: Your margins have risen over 100 basis points year-to-date. What magnitude of profitability increase do you expect in early 2025?
A: Gavin O Dowd, CEO: We generally see material upticks from Q4 to Q1 each year due to annual negotiations with suppliers. We expect a significant increase in Q1 2025 but will provide more detailed guidance later in the year.
Q: Can you explain the volatility in your net financials over the last few quarters?
A: Peter Deli, CFO: The volatility is due to interest expenses on lease contracts, interest rates on credit facilities, and realized exchange impacts. We have restructured inter-company loans to mitigate future impacts. Interest costs are expected to remain stable, but exchange impacts are harder to predict.
Q: How significant is the contribution of media insights to your earnings improvement?
A: Gavin O Dowd, CEO: The improvement in profitability is largely driven by our growth divisions reaching critical mass. Our media and insights capabilities are being utilized by more industry players, contributing to the uptick in profitability.
Q: What is the expected annual average growth in fully diluted shares over the next few years?
A: Gavin O Dowd, CEO: We generally issue around 3% in warrants for management each year. If the share price grows by 30% over three years, there will be zero dilution. If it grows by 100%, it would result in roughly 1% dilution per annum.
Q: Do you expect the seasonality in your balance sheet to continue, and what are your plans for the business balance sheet?
A: Gavin O Dowd, CEO: We will prioritize growth within our organic business as long as we see robust returns. If we can't efficiently use the capital, we will consider returning it to shareholders, but no capital returns are expected during 2024 or 2025.
Q: Can you provide more details on the performance of your vape offering in emerging markets?
A: Gavin O Dowd, CEO: Our vape offering is performing in line with or slightly ahead of expectations. The operating model is similar to our nicotine pouches, and we expect robust growth in this segment.
Q: Has there been any development in supply issues recently?
A: Gavin O Dowd, CEO: The supply environment was turbulent in Q2, but it has stabilized somewhat. We are adapting to the new conditions, allowing consumers to buy from us on a monthly basis.
Q: What is the impact of the new issue warrants for management on the fully diluted number of shares?
A: Gavin O Dowd, CEO: We issue roughly 3% in warrants each year, which are generally 30% out of the money. If the share price grows by 30% over three years, there will be zero dilution. If it grows by 100%, it would result in roughly 1% dilution per annum.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
