Prosus N.V. (PROSY) CEO Bob van Dijk on Q1 2021 Results – Earnings Call Transcript

Prosus N.V. (OTCPK:PROSY) Q1 2021 Results Earnings Conference Call November 23, 2020 10:00 AM ET

Company Participants

Eoin Ryan – IR

Bob van Dijk – CEO

Basil Sgourdos – CFO

Larry Illg – CEO, Naspers Ventures

Martin Scheepbouwer – CEO, Classifieds

Conference Call Participants

Lisa Yang – Goldman Sachs

Will Packer – Exane BNPP

Ravi Jain – HSBC

Cesar Tiron – Bank of America

John Kim – UBS

Catherine O’Neill – Citibank

Operator

Good day, ladies and gentlemen, and welcome to the Naspers and Prosus Results Call. All participants will be in listen-only mode. [Operator Instructions] Please also note that this event is being recorded.

I would now like to turn the conference over to Mr. Eoin Ryan. Please go ahead.

Eoin Ryan

Thank you Chris. Hello everyone, and welcome to the Naspers and Prosus First Half 2021 Results Call. On the call with me today is our CEO, Bob van Dijk and our CFO, Basil Sgourdos. Bob and Basil will walk you through the operational and financial progress we made during the period, and then we’ll open up the call for questions. During that section of the call, we’ll have the broader management team available to answer questions.

As you know, Prosus is a subsidiary of Naspers, and its financial results almost completely account for Naspers’ results. So to ensure that shareholders of Prosus and Naspers are provided with the information simultaneously, we’re having one results call, focusing on Prosus’s results, but where necessary we’ll highlight the impact on Naspers.

And with that, I will hand the call over to Bob. Bob?

Bob van Dijk

Thanks Eoin and thanks everyone for joining the call today. The world continues to grapple with the effect of COVID-19 and many countries are heading back into lockdowns and will remain in the period of great uncertainty. And I wanted to start this call with my very best wishes to you wherever you are in the world and my hopes that you and your loved ones are keeping safe and healthy.

So on the call today, Basil and I will take you through the operational and financial progress of the group as we navigate the current operating environment as well as hit some of our key priorities for the coming year.

So the first half of 2021 was challenging one for us and I’m proud the Frontier Group has navigated the tough times that we saw. So we performed well ahead of the expectations we had back in March when visibility was severely limited. So today, we are 8 months on, and we are operating with a great degree of clarity and our business has become fundamentally stronger.

This is driven first, by an acceleration of usage levels and consumer internet, and second by our businesses scale and our preparation for such a shift. So I’ve confident this will manage value for our shareholders over time.

So let’s start on slide five by looking at the highlights of the strong period. We adapted very quickly to the new operating environment presented by COVID-19. So our businesses are naturally positioned to benefit from the shift of consumer time spend and habits to online, and this was a clear evidence during the period.

So as a group, we delivered the strongest set of results we’ve delivered in quite some time, with revenue and trading profit growth accelerating meaningfully. Because of so important transactions as well, we enhanced our market positions in key verticals and classifieds.

We increased our exposure to digital remittances and payments. And we made a more significant boost into the fast growing FX [ph] space that has been transformed this year. Importantly, as stock [ph] valuations expanded, we remain disciplined in deploying capital. We have roughly $10 billion in gross cash. And we have now build up the flexibility to invest a quarter of segments in our own stock when there’s an opportunity to create value.

Three weeks ago we’ve announced our intent to do just that and purchase $5 billion in shares of Naspers and Prosus. As we continue to trade our various – on to our net asset value and confidence [ph] additional creates financial value.

Let’s now turn to slide six, which summarizes our strong financial results. Basil will discuss it in more detail shortly. So I’ll just highlight in our key points. So group revenue grew 32% driven both by Tencent and an impressive 51% growth from our ecommerce portfolio, which accelerated from 28% growth in financial year 2020. This acceleration ecommerce growth was driven by very strong growth across food delivery, Etail adventures, as well as a strong recovery in the classifieds and payment segments in Q2. The trading houses and core headline earnings growth was also strong.

Turning on trading profits, we saw the significant improvement from businesses but we haven’t been investing to scale ecosystems over the last few year. Most notably in food, the losses reduced by almost $100 million and then HE growth, which recorded it’s first ever period of profitability.

Turning to slide seven, the chart on the left hand side captures nicely what we have seen play out first hand in operations. And what I directly alluded to on this call. And that is a record and exponential adoption of online models over a very short period of time in 2020. So this chart is based off on NASA and the U.S. Department of Commerce Data and it shows the equivalent of seven years of gains and share online retail in just one month, which is really stunning. And as we approach the backend of the year, it’s clear that these trends are continuing and becoming more structural. We’ve seen that in our Etail and food delivery businesses where our platforms that provide new and vital demand for tripe salad and for restaurants.

For example, in Brazil, iFood became an absolutely essential platform for restaurants and added 98,000 new restaurants over of 160,000 is really outstanding. So seeing this trend play out in classifieds, online payments, and also in MPEG [ph] our investments have become significantly more valuable this year.

So let’s move to our operating segments starting with Classified on slide eight. So the OLX group had an eventful year and it’s making substantial progress. Over the last few months, we’ve completed the merger of OfferUp and letgo in U.S. and the merger of Dubizzle with the EMPG in the Middle East. A few weeks ago, we also completed the acquisition of a leading real estate vertical in Brazil, Grupo Zap and this is representing a major expansion into the real estate vertical, and it’s given us access to 70% of online agents in Brazil.

We continue to focus on strengthening our presence in key verticals and rolling out new convenience models such as pay-and-ship. It already has moved production needs to Europe and in other markets. In Russia, Avito has gone from strength to strength as a multi vertical leader. This year, we ramped up marketing substantially to guide market share gains and enable the business to grow. Within Europe, Poland was our largest market, and again, the focus here is on full virtualization into jobs, real estate, follows and general guidestones.

The greatest in the OLX autos brings together our auto classified platforms with injection capabilities from the Frontier Car Group which we acquired last year. So you should expect us to continue to expand OLX ecosystem to get closer to the transaction, their partners, end-to-end customers as a business develops into a highly profitable market leader.

So in terms of growth, our food businesses had a breakout year as we show on slide nine. What we’ve seen in 2020 confirms our view that food delivery represents a massive opportunity and overall growth of accelerating this year.

In the period, our food delivery segment grew up by 69% while trading losses improved by 32% to $187 million. Growth was driven by increased customer loyalty to increase frequency of monthly orders and by restaurant loyalty to reduce churn. Outside of our investments in Delivery Hero, which reports its results separately, our businesses have been impacted in very different ways. So in Brazil, iFood’s results have been outstanding. So iFood grew orders by an impressive 111% and revenue by more than 200%.

Importantly, the iFood platform has provided the opportunity for many businesses to continue to operate during the pandemic. It’s provided them with much needed demand when the alternative would have been to close their doors.

In the first six months of the year, iFood added 1000 new restaurants onto the platform of those 160,000 which is great. It is now processing 44 million orders per month in Brazil. The one fee [ph] delivery business has performed strongly and has increased its share of total orders to 35%. This growth has translated into an almost $100 million improvement in profitability, driven by continued strong order growth, more effective marketing and more efficient driver meeting.

iFood acquired SiteMercado in September, which is an online grocery platform in Brazil. This will help iFood to expand its products assortment and offer customers greater convenience.

Swiggy in Indian brands have negatively impacted by severe lockdowns, which materially impacted the supply of restaurants on the platform. So while the restrictions hit revenue, the management has used the opportunity to guard efficiency, to position itself for future growth. The trading losses improved by a meaningful 40%.

The core of Swiggy business remain strong and encouragingly in recent months, Swiggy has been on a steady recovery. And at the end of September, down there a month in September business was operating at approximately 90% of restaurant capacity and at 80% to 85% of pre-COVID-19 order levels.

So we then take you to slide 10 to Payments & FinTech. Overall, PayU reported strong results and grew revenue by 29% year-on-year. And that’s despite a very — starting period of India due to the pandemic. So overall revenue in total actually accelerated year-over-year driven by a strong performance in Europe and in Latin America. Trading profit was flat over here and this is because we increased our stake in PaySense in December 2020. And with that came increased share of the business losses. This offset the growth and profitability to report PSP business.

Regionally, our business in Europe and LatAm retained employees by more than 50% of more transactions shifted online and local regulation supported visitors purchases. As we’ve particularly prevalent in Poland, Romania, Turkey and in Colombia. The largest market was initially negatively impacted by lower transaction in the travel and hospitality space. So last year federal generated 17% of TPV and this is upto 20% this year.

As a result, we only saw 5% year-on-year TPV growth in India in Q1. However, as lockdown regulations eased, a new sectors like financial services and e-commerce saw increased rates of digital payment adoption. TPV growth in India bounced back to 43% in Q2 in local currency. This increased diversity in candidate mix will benefit us in the long term in particular and travel [Technical difficulty].

It’s also worth mentioning that Turkey was our fastest growing market after strengthening operations with the acquisition of Iyzico last year. In August, we also invested further $53 million into Remitly, which is our investment in cross-border remittances. During the period Remitly saw a 200% increase in new customers, as consumers moved to online remittances instead of offline.

In credit, during the period we fared back to business in India, as the regulator initially imposed the loan moratorium. Given the relatively small size of the book, credit losses as a result of COVID-19 were not significant. We have now expanded our product offering and we are optimistic about the growth opportunity in a more normalized demand.

We’ll take you to slide 11. I think it’s worthwhile to spend some time on our Edtech portfolio. It’s another area where we’ve been early investors in an area which has grown significantly in volume. So including the recent investment in skillsoft, which is due to close in the New Year, we’ve invested $1.1 billion in trading businesses and are already seeing excellent returns. So this sector has strong momentum and our enthusiasm has only increased this year. So COVID-19 is really providing a generation of tailwind for the segment.

In the last six months, the considerable amount of demand have been brought forward and broader use of new tech emerged. The amount of progress in a short period of time is really startling. In August, we also invested in Eruditus, executive education. It’s a company that offers postgraduate education by partnering with over 30 universities doing the likes of partners MIT and Columbia. They have already launched 100 courses in 80 countries. We’ve now committed $500 million into skillsoft, which is the world’s leading corporate Digital Learning Company.

It has 45 million learners across more than 70% of Fortune 1000 Company. It doesn’t have any users and the revenue and the profit. And once the acquisition of skillsoft of our circle closes, and represent a very attractive way to extend its leadership position by driving further consolidation in the industry.

On the right hand side you can see the momentum for our investments. Udemy, for example saw more than 400% growth in enrollments, and BYJU’s saw 180% growth in students on top of very high growth rates over the last few years. Beyond the pandemic, it is becoming increasingly clear to us that all areas of schooling and professional life can and will be augmented by Edtech, a student [Indiscernible].

We are really pleased with the progress on Edtech. In a short period of time, we’ve learned a lot and have created a significant amount of value. And with the stress off investment Edtech is on track to become our next segment.

Let’s now go to slide 12 for a look at how we deploy capital so far this year, and our general worries for capital allocation. We look to invest in growth assets, operating in growth markets, where we can make a return for our investors as fine exits over corporate capital. And this philosophy drives our decision making and drives the potential investments big or small. Our ambition then is to deploy capital across each of our core segments to enable them to scale profitably to leadership positions.

In each of these segments, we have already created substantial value more than doubling our investments. In the first half of the financial year 2021, we invested close to $600 million, in classified, payments and in Edtech. There are a few additional deals still up close in the M&A pipeline remain strong. We stay disciplined, which is the key to good returns and also to our on-going ability to maintain impairment rates below themselves.

So when valuations are high globally, we can take advantage of our financial flexibility to crystallize more value for shareholders to investing in ourselves. And this is why we recently announced a $5 billion share purchase program. The details on slide 13, so Prosus will buy back and cancel up to $1.4 billion worth of own shares and Prosus will buy up to $3.6 billion shares in Naspers. These shares will be held in treasury in Naspers and excluded from Naspers per share financial metrics.

And we see that as an excellent opportunity to create value for shareholders. And buying back shares is an investment in a group turned strong internet portfolio giving a good use of capital given full market valuations and consumer debt and their sizable consolidated discount to net asset value.

So we are lucky to be in a position now where we can comfortably invest in our business and in our stock. I do believe this will generate a strong return. And I’m very pleased to got into this position. It really reflects the evolution of the group, and is made possible by continued operational improvements and the increased financial flexibility that Basil and his team have been working on for years.

So we remain committed to reducing the consolidated discount, and work is on-going to the masses. The — no further action that we’ve lost in an impact and it maintains our long term focus to invest and it will give good returns for our shareholders. Actually, that means they need to benefit both is enough for shareholders and limitation costs for shareholders.

So the buyback underscores our commitment to build and visualize value across the group over the long term, as we outlined on slide 14. Over the course of the past 10 years, we’ve invested $30 billion across our businesses and the portfolio is now worth more than three times. And we’ve worked hard to create like a value for shareholders over time, you can see here on the right that we’ve unlocked over $20 billion to shareholders. There remains a significant opportunity for us to create even more value. You will see from the results today that our ecommerce business sales continue to make exceptional progress with 51% overall revenue growth and significant improvement in profitability and cash generation.

And it is essential to ensure that the value is reflected in our share price, which today I knew was clearly not the case. And I continue to take sensible financial and structural steps where possible, such as a share buyback, you can increasing unlock its value.

So with that, I’ll turn the call over to Basil. Basil, go for it.

Basil Sgourdos

Thank you, Bob. Hello, everyone. And thank you for taking the time to joining us today. I hope you’re all keeping well, and staying healthy. In this time of uncertainty and challenge, I’m very pleased with the strong performance we’ve seen. As Bob mentioned, we’ve adapted very well, and the group is operating with a great deal, more clarity than we had during the first phase of the pandemic.

While Prosus visibility remains challenging, the drive in COVID-19 cases in some of our markets, and the uncertainty of the longer term impact of the pandemic I believe we emerge as a stronger company. The results are the strongest possible endorsement of the significant long term value creation potential of the high growth markets, business models and segments we’ve invested in, a very important takeaway for as shareholders.

Before I dive in, as always, a quick reminder and a few housekeeping items. Both Naspers and Prosus have reported their results today. Naspers results reflect that of Prosus almost entirely. For that reason, we’ll be focusing on Prosus numbers.

We report revenue and trading profit on an economic interest basis, meaning they include a proportional share of the results of our associates and joint ventures. The results of our associates, Tencent, Mail.ru, Delivery Hero, Swiggy and others are reported on a three month lag basis. This is particularly important when considering trends due to COVID-19.

Importantly, free cash flow is a consolidate number and for services and growing ventures only taxes and dividends repay us. And finally, as I look through the deck, I will focus on local currency growth, excluding the impact of M&A. So let’s get going and if you could please turn to slide 16.

Overall, we weathered the storm well, and ended the first half year with a strong financial performance and improvement across all financial metrics. Revenue for the period was $12.7 billion growing 32% year-on-year, ecommerce revenues grew even faster at 51% year-on-year supported by food delivery, retail and payments and fintech and our basic businesses.

Trading profit grew 43% driven by improved scale and unit economics improved delivery and by our Etail business. Our share of PaySense revenues and trading profit grew 28% and 32% respectively. This reflects China’s early recovery from the pandemic and the strength and resilience of patient service model. We remain very excited about the company’s future prospects.

Core headline earnings were $3.2 billion growing 29% year-over-year, driven by improved profitability from our e-commerce units and PaySense. And finally, free cash flow improved meaningfully year-over-year, with a group generating $370 million in free cash flow, which is a substancial improvement. We ended the period with a strong balance sheet with almost $10 billion in gross cash and net cash of approximately $4.5 billion. We have the financial flexibility both invest across our asset portfolio and in our stock.

So turning to slide 17, you’ll see that ecommerce revenue grew significantly. Growth accelerated 23 percentage points year-over-year. Food delivery, Etail and the core payments business all did well. They executed well in difficult times to capture the opportunity created by the acceleration in consumer internet growth, which all covered well earlier.

Classified revenue declined as its business model is most affected by the pandemic. Our revenues declined on par with our peers in the first quarter. However, as restrictions were relaxed in many of our markets by the second quarter, we continued to grow comfortably ahead of our peers.

If you turn to slide 18, you’ll see revenue growth flows nicely to the bottom line, reflecting improving unit economics from scale. Trading losses improved by 26% from a loss of $416 million to a loss of $316 million, a $100 million improvement. That’s a healthy 10 percentage point gain in trading margin. Food delivery was a standout for the trading with margins improving 61% benefitting from scale and lower customer acquisition costs.

Etail reported a trading profit of $20 million compared to a $50 million loss in the prior period, which is just outstanding. It’s incredible to see how quickly the team organized to — dramatic increase in demand for services, and also taken considerable action to support governments pandemic efforts in the after markets, as well as enabling new third party sellers looking for a way to access customers online.

COVID-19 negatively impacted cash impact’s trading profit. However, we’ve seen a good rise in profitability in recent months, in Payments who stepped up investment in longer term growth initiatives. So let’s get into the financial performance of our segment starting with Classifieds on slide 19.

Our Classified segment was the most impacted by lockdown restrictions. The first quarter of the period was the whole brand in key markets. But the business recovered strongly and steadily in the second quarter as lockdown restrictions were relaxed. Most recently, however, as COVID-19 cases have risen in some of the cash bond markets, we remained somewhat cautious on our outlook.

In our traditional classified business, revenues grew 4% for the six months. Tax revenues excluding transaction revenues, got 8% in the first quarter, as traffic volumes dropped, when markets went into lockdown. They supported our partners, but targeted initiatives like extended listing duration, and discounted listing fees to help them through the crisis. These initiatives had a short term negative impact on revenues and profits.

We all say that is behind innovation and find new ways for people to tread on our platforms. We’ve invested in new services like Payments, shipping capabilities, virtual real estate and car and stations. We’re also investing in enhancing the user experience and engagement.

The second quarter saw a steady recovery in revenue as support members were phased out. Core classifieds revenue grew 16% in the second quarter as Etail performed well, in a difficult environment growing 10% year-over-year in the first half. Following a revenue decline of 4% in the first quarter, the business grew strongly by 23% in the second quarter. We are using the opportunity to invest incrementally to gain market share, particularly in key verticals. The [Indiscernible] margins initially that enables Avito to drive record volumes of user and platform activity and gain market share. We’ll continue with this as long as it delivers sustainable long term gains.

Poland, Ukraine and Romania continue to gain momentum building on a healthy ecosystem. Despite the impact of COVID-19, trading margins remained strong at 44%. Poland has also recovered well and continues to make good progress. We see opportunities to increase investments in our key verticals and in pay and ship capabilities, which is beginning to show real traction. You will see a pickup in investment in the second half of the year.

OLX Brazil was hard hit by the pandemic restrictions and consequently recorded a revenue decline of 5%. However, as Bob mentioned earlier, growth has not resumed, margins have improved to 20%. The recent acquisition of Grupo ZAP places us firmly in the number one spot in the independent crisis online real estate classified segment.

Turning now to our transaction business, which was initially hit hard by the pandemic. During lockdown restrictions in the first quarter, the majority of our inspection and retail transaction centers closed resulting in 52% drop in the first quarter revenue. As lockdown restrictions lifted, transaction centers began to open and return towards pre-COVID levels.

The second quarter ended with approximately 90% of the transaction centers open again, and revenue returned to higher levels. Losses for the transaction status increased in aggregate during the period reflecting our acquisition of a controlling stake in Fronteir Car Group.

This means that we now include 100% of the losses from Frontier Car Group compared to only 36% last year. I’ve called out a couple of times on the slide, that as you think about the remainder of the year, you will see an increase in our marketing and other investments. This is consistent with prior year claims, but it’s also driven by investments to build out our ecosystem.

With the actions we’re taking in the classified segment, and the encouraging trends we are seeing, we remain confident that our business will continue to do well over the long term.

So moving to Food delivery on slide 20, while the impact of the pandemic deferred by region, the segment was a real bright spot in the period. Buoyed by our response of consumer claims that we believe will significantly benefit the industry long term. We provided vaccines [Ph] to 10s of thousands of restaurants, who are able to keep the doors open. We worked hard to keep our employees and delivery partners safe, providing additional employment opportunities at a critical time for so many.

For the period, our food delivery segment doubled revenue to $610 million and reduced losses by almost $100 million to $187 million, an exceptional performance. iFood continues the momentum. It has taught us prior to the pandemic, that order frequency, order value and the key KPIs lifting to record levels.

So impressive revenue growth of 234%. Our decision to invest and go differentiate the capabilities just at the core of the strong performance. Delivery Hero also continued to execute incredibly well. For the six months ended 30 June 2020 order volumes — by 93% to $519 million, with revenues growing 87% year-over-year. We are also encouraged by Delivery Hero’s continued investment both on the border service offering.

Previous performance was different as we have previously told you. Early in the crisis, food delivery in India was hit hard by the lockdown. Something however, the maintenance picked up and the trends are positive. The business have steadily recovered and is nearing pre-COVID levels. At Swiggy, we reported on the three month lag, we expect the impact of COVID to carry through into the second half of the year. Our shared service revenues grew 17% over the period.

Trading loss contribution for the period improved meaningfully. Management views the green space that the low activity created to look at the entire business and take action acquisitions and wealth for the future and to drive growth. Looking forward, it’s important to note that as restrictions ease and — on dining normalizes, it will be difficult for a food segment to attain the rates of growth we have seen over the past six months. So while we expect revenues to continue to grow strongly, the pace of growth will decelerate somewhat. Consumer acquisition and investment will also increase as we continue to expand our ecosystem.

Moving on to Payments and Fintech on slide 21. The segment’s performance like food delivery different by region, but was on balance another bright spot. Once again, we mobilized fast to capture the acceleration of consumer trends and managed to offset the sizable drop in vertical sectors travel that have been hard hit by the pandemic.

Revenues grew 29% to $252 million driven by transaction payment by the growth of 37% with over 700 million transactions processed. Europe and Latin America making up a GPO business performed very well. Business grew strongly throughout the pandemic, with revenues strongly up in the first quarter and remaining robust at 44% in the second quarter, despite the lifting of lockdown restrictions in many markets.

I expect growth rates to take off in the second half but will remain strong. In India, we are number one in terms of online payments volume. We had a tough start to the year. Revenue fell 10% in the first quarter as activity levels dropped, particularly in travel. As restrictions eased and ecommerce India resumed its rapid growth, the business recovered sharply and grew revenue 21% year-over-year in the second quarter.

Overall the core payments business improved margins by 7%. As you know, in recent years, we’ve been focused on broadening our Fintech ecosystem in core markets such as India. In the full year 2020, we stepped up our investment to a controlling stake in PaySense, a fast growing online consumer lending business. This is what grows the larger year-in-year losses for the segment.

As you would expect during the last six months, we’ve been cautious funding the pandemic’s negative impact on the Indian economy and then held back on new loans. We’ll await more substantial signs of recovery before we again price growth as you move forward.

Turning now to slide 22, where we unpack the increased contribution to stable cash flows from unprofitable ecommerce businesses. This is an important slide and demonstrates the cash flow generated by the ability of the group. Over 60% of our ecommerce revenue now comes from profitable businesses. This compares to 64% last year. Consolidated trading profit from these businesses increased 20% year-over-year, driven by Etail and Payments and Fintech. This was partially offset by a lower contribution from classifieds due to the effects of the pandemic. We expect classifieds direct to rapidly recover, boosting overall profit growth.

Our share of Tencent’s dividend grew 21% to a sizeable $458 million. This continues to be a significant underpinning of our increased financial flexibility. Now let’s dig deeper into the cash flows on slide 23. Free cash flow for the six months was an inflow of $370 million, a considerable improvement compared to the $14 million in the prior year. The progress was driven by ecommerce due to lower losses from food delivery, excellent working capital management, particularly in our Etail segment, and $81 billion increase in Tencent dividends. Unlike last year, this year, we did not have one time transaction costs for the process listing.

Moving to the balance sheet on slide 24. Over the years, the group has worked hard to increase financial flexibility through both a portfolio of ecommerce assets with significant cash flow generating capabilities. We increase leverage and the average interest rate of our debt has declined steadily. And we remain good allocators of capital. Our balance sheet remains healthy with $4.5 billion of net cash and — $2.5 billion revolver and the ability to raise additional debt. We remain committed to the investment grades rating.

This increased financial flexibility allows us to execute on M&A to enhance our core segments and invest in our stock. Before I close, I will capture the buyback, we will be launching shortly. While I’ve covered this extensively, but I wanted to cover some of the accounting aspects.

[Indiscernible] that our board will be cancelled. Posters will account for the NASDAQ purchase shares as an investment, investment will be mark-to-market at every reporting period, and gains and losses will be taken through other comprehensive income in the process results. Secondly for NASDAQ, safe process to purchase will sit in treasury shares. NASDAQ will exclude the shares owned by process in as per share ratios

We will execute the program in an optimal manner focusing on creating value for our shareholders. Also want to reiterate what Bob said, this repurchase program should not be viewed in isolation and is not the solution to reducing the discount. Management and the board remain committed to reducing consolidated discounts through a variety of means. And we will discuss them with you in more detail as and when they come.

Finally, just a quick housekeeping item. As you know, we publish a lot more detail on our website to help you understand the operations and to model the numbers. We have for the first time added an excellent API key. I know many of you have asked for this in the past, and I hope you find it useful.

So in closing, I’m very pleased with our results and our position as we enter the second half of the year. This has clearly been a very challenging time. As a group, we’ve make these challenges head on and have exceeded our expectations. As I said, we’re operating today with a great deal more certainty than we had in March.

We will continue on as we have operating with discipline, with a close eye on our business, and ready to take strategic action when necessary. The results are the strongest possible endorsement of the significant long term value creation potential of the high growth markets, business models and segments really invested. This is a very important takeaway for you as shareholders.

With that, I’ll hand the call back over to Bob to close this off.

Bob van Dijk

Thanks, Basil. Before, we head to questions, I’d like to summarize our key priorities when we look towards 2021 and beyond. Let’s go to slide 26. So firstly, the fundamentals of our business are very strong. And each business is actually well-positioned to benefit from the acceleration of secular growth trends that driving the consumer internet space.

The second is around that we remain focused on driving profitability and cash generation in our more established ecommerce segments, while we are investing for growth in food delivery, and classifieds transactions, and credit and Edtech

Third, our financial flexibility has improved and is enabling investment across our operations and our stock. Fourth, we will continue to read to improve the competitiveness of our platform by investing in products and technology and talents, and by reinforcing our AI capabilities.

And fifth, there is significant amount of opportunity to create value to the growth of our business, and by entering the discount to our net asset value. And we remain committed to both.

So with that, I want to thank you for your time so far. And let’s open the line for questions.

Question-and-Answer Session

Operator

Thank you very much, sir. [Operator Instructions] Our first question is from Lisa Yang of Goldman Sachs. Please go ahead.

Lisa Yang

Good afternoon, and thank you very much for taking my question. I have three if possible. The first one is on food deliver where clearly the performance been really impressive in H1. And you mentioned the improvement profitability was driven by better operating leverage and lower marketing costs. So I’m just wondering like how do you think that possibly improving profitability trend is sustainable, especially as the environmental normalizes into H2?

And then, if you don’t give the guidance, but you think we’re now in a position to potentially breakeven sooner that whole food delivery business, let’s see on the one to two in your view? That’s the first question. The second one is on eMAG. I mean, the business have turned profitable, as you said, and you can benefit from COVID. So just given your comments about paid valuations being high. I’m just wondering whether you could take advantage of that situation and maybe crystallize your value of the market in the short term? That’s the second one.

And the third question is actually on the on the buyback? I mean, my understanding is that it seems like there’s been a bit of a change in tone regarding the buyback. So I’m just wondering, did you see the reason buyback announcement more as the one-off? Or do you think it could be a more recurring part of your capital — future capital allocation policy? And how would you rank that versus for instance deploying cash flow, M&A, or cash to invest organically in the future? Thank you very much.

Bob van Dijk

Thanks Lisa. Thanks for your three questions. On the first one, maybe I’ll start and I’ll hand over to Larry to add color from more [ph] facility to the operation. I can also speak briefly to the eMAG. On buyback I will start and if Basil wants to continue to do so. So, on food delivery, indeed, we’ve seen results improved. And it has helped profitability because of, as you say, leverage and reduce marketing costs. What is your sustains — I think based on what I’ve seen so far, I think a lot of it will sustain. Because we’ve seen previous, customer groups who previously hadn’t tried for delivery have now tried it. Or people have been using food delivery for different food occasions that they like. And they’re net promoters for directly across the businesses are extremely strong. People are therefore having a great experience when they’re using these products. And if we look under the hood, I don’t think there’s no reason to believe while that sort of trial and sort of usage in different occasions is something that will go away completely. So it’s hard to do to forecast exactly what the world will look like. But it looks that a big part of the shift that we have seen as a structural shift that we expect will actually be sustained. But maybe Larry, you want to comment based on your observations.

Larry Illg

Yes. I think you covered most, Bob. The only point that I would add is, we have a pretty good lens on the consumer cohorts. And so what we can see, and we’re far enough into the pandemic where many of the pandemic age cohorts are no more than six months old. So we can see how they’re performing versus historical cohorts. And this is speaking in very broad brushes across over 40 markets that we observe. Broadly speaking, the cohorts look as good or better is the cohorts sort of pre-COVID. So it speaks to what Bob mentioned, just the quality of users that have been brought in, remains strong. And if anything is giving us an advanced view on the future of the sector, and further growth opportunities in adjacent categories. So then their consumer quality is quite high.

Basil Sgourdos

And the second part of your question like does this change, sort of our views on breakeven? Well, we don’t gave guidance. But we’ve seen in detail, the profitability part of businesses be significantly improved. Based on what happened during COVID. It also has certainly given us confidence to invest further. So I think it’s been generally a very positive story. And if I move on to the eMAG, eMAG is an outstanding asset. It has a very clear user division in Romania and a number of other Eastern European countries, and it has excellent growth, as well. And actually one of the things that really excited me about eMAG is that how they build that initial position, detail, and they started very much as a first party etailor but has built a great ecosystem where they empower other sellers.

They’ve also really improved their offerings by going into last mile logistics, they’re going into food delivery, and they are creating a great loyalty program. So I would say, even though the numbers are incredibly impressive, I would say the best is yet to come, but there’s really no such easy runway, and are no current plans to invest. I think actually it’s a tremendous growth story from here as well. Then on the buyback, I think your question was, is there a one-off or continue? I think the most important thing on the buyback is the rationale behind it. Right? The rationale is that we have the financial ability to continue investing in our core assets, but also make use of this phenomenon where I think we — our assets are because of the discount prices are cheaply. So that in itself — that philosophy, we’re all for the future with exact position, who will be knows is hard to forecast their position, okay? If we have the capital to invest in our business, and to buy those shares at a good discount to net asset value that will make sense to me going down. Bob, do you want to add to that?

Bob van Dijk

No. Thank you. You hit the nail on the head. We’ve got $5 billion to deploy, and that’s going take some time. Once we’ve done that, we can see where we’re at. And then we’ll make the capital allocation decisions according to the focus always on growing the business and improving financial flexibility and giving up faster room to be able to deploy across multiple capital allocation opportunities. So that’s what we focus on that.

Lisa Yang

Well, that’s very helpful. Thank you.

Operator

Thank you. The next question is from Will Packer of Exane BNPP. Please go ahead.

Will Packer

Hi, there. Thanks a lot for taking my questions. I had a couple of topics I wanted to cover. Firstly, there’s been a lot of news flow on Chinese internet regulation. But it was one particular aspect I hoped you could comment on. Some investors are concerned on the comments in the press that VIE structures maybe in focused. Are you concerned? Or in fact, could it be a good thing that these structures are more regulated?

And then the second topic I wanted to go into was around online car dealing. We’re seeing lots of capital in the U.S., U.K and elsewhere invested in the online car dealer opportunity. At Frontier Car Group, where we are in very strong position in C2B in many interesting markets. And then nascent B2C position. How aggressively are you planning to roll out your B2C online car dealing offering? And what are the challenges in the markets you operate? Because your geographic exposures are a little bit different? Thank you.

Bob van Dijk

Yes. Thanks for your questions, Will. I think on.

Operator

Sorry, ladies, our apologies. Mr. Bob van Dijk line has dropped again. We will be getting in back shortly.

Larry Illg

I think, Sgourdos, do you want to take the question on AIE?

Basil Sgourdos

I can certainly do. Is Bob back.

Larry Illg

Yes, great.

Basil Sgourdos

Let me take that that once Bob return. Well, thanks very much for your question. As you rightly pointed out, there’s been a lot of commentary in the press recently in relations, particularly in the context of the antitrust draft regs that came up. I think maybe just to comment on that. I think there’s been somewhat of a misunderstanding in relation to many of these press reports. The inclusion of VIE under the SAMA regulations that came up was ready for reviews of all from a avoidance of darts perspective, just to say that these new regs regarding antitrust, sort of include all internet companies. And within that grouping, of course, should be those internet companies that operate under BIE structures.

So there were some reports and some press reports that AIE’s would have to obtain special approvals and the like. And there’s really nothing of the kind. That is rather erroneous reporting in that respect. Insofar as VIE is concerned, overall, I mean, as you well aware, VIEs have been around for a long time. I mean, it’s over 20 years, right. They’re very widely used, and they have worked well, during that time. It’s fully understood by the Chinese authorities. And as you know, anytime there is a listing that is required as an example, the approvals of the authorities and the Chinese regulatory authorities are required for that. So they’ve worked well during this time and we’d see no reason for this to change.

Martin Scheepbouwer

Great. Bob back.

Bob van Dijk

Yes. I’m back. But maybe Martin, if you mind, speaking to the online car dealer opportunity and from the car group, Scheepbouwer.

Martin Scheepbouwer

Yes. Thank you for your question, Will. So you’re right, that’s what we essentially at both the C2B buy cars from consumers, sell to dealers and B2C. We facilitate offloading of dealer inventory towards consumers already under our umbrella. And both have their merit. What we’re doing now is on top of that building what we then call C2B, B2C business where we manage the entire value chain from the consumer willing to sell a car to us. And then offer it for treatment we sell the car on to another consumer, preferably with and suite of supporting products like finance, insurance, title, deed, transfer, warranty, and so on.

And we do what is that. If that’s what consumers want, they fundamentally want more transparency, trust and some convenience in the process. And it gives us access to new to new revenue, profitables. And that this part of the business is still fairly nascent. It’s most of found in Chile, but building outwards networks to do more scalable markets like India. With regards to and the main challenges there is mostly execution. We’ve no doubt that this is something consumers want. Strong, it’s a mirror companies in form of glossy and carvana to show that this business model has lots of runway. But there’s a number of things we need to do to build that infrastructure, both in software and on the ground presence. And that takes some time. And that’s why we’re doing that diligently and to make sure we allocate capital efficiently.

Will Packer

Thanks for the Martin. Appreciate it.

Operator

Thank you. The next question is from Ravi Jain of HSBC. Please go ahead.

Ravi Jain

Hi. Good morning. Thanks, again, for taking my question. I had two quick ones. The first one is just overall, when I look at the capital allocation and the pace of investments, now the size of your enemies [ph] is probably north of $250 billion. And then look at the total investments, on an average in a year is maybe somewhere between $2 billion to $3 billion. Do you think it makes sense? Or would you consider maybe increasing the pace of these investments, maybe via more transactions or higher ticket to kind of maybe move the needle more every year? And the second one is a follow up to an earlier question where if the valuation is pretty attractive today, generally in the public markets and it’s clearly not reflected in your stock. Do you consider maybe even listing assets rather than even selling but listing it like for example eMAG, Avito, or potentially even OLX?. Thank you.

Larry Illg

Thanks Ravi. I’ll give you an answer. And then, I’ll pass one to Sgourods [ph] more than welcome. So when it comes to increasing the face of investment, it’s really important to take a step back there. And we have a series of fun as well when we investor grow and we have period of time when invest it less. I think, actually essential part of when we when we evaluate investments that we think they have to make strategic sense. And we want to make sure that we can deliver great to ensure shareholders. And that depending on what you then get into the pipeline. That is really what decides whether we invest or not. So I think if you say we want to substantially increase the pace of investment, we cannot let go of strategic framework and listen attentively to happy something that we understand, believe in credit synergies. And then you see deliver for our shareholders. Otherwise, we are investing and creating business that we don’t want to create.

So could you see us increase sales? Yes, if we run into the right opportunities, with a great return profile that compounds the business we have, but we’re not done as more money for the sake of selling money faster. And I think thus people are back in the recent past and they are probably not necessarily looking back at the great sense of pride. The second question on list and actually I think that’s such a short form that we have actually over the years listed, many assets in to Naspers then and sent. And I think that is definitely an arrow in our quiver that we will put forward what we think the time is right. But again, I think the most important thing for us is we do that when we want to crystallize value and we think that’s the best option for certain business, not to react to all in the market. So we might be working on that.

Basil Sgourdos

What I mean, Bob, we also have some fantastic companies and some really big markets. And there’s an opportunity to plug on to what Prosus’s do in both ecosystems. And as we’ve demonstrated, they’re both great businesses, they’ve grown fast and become profitable. So — and we should be very comfortable deploying capital organically and given that we’re still in the very early stages of the segments we’re in and the sizable markets we’re in. Those are going to create meaningful value. So I’m told you earlier, we’ve tripled, and Katherine basis from $13 billion to $30 billion. There’s no reason why we can’t keep doing that. So with organic investment too.

Operator

Thank you, sir. The next question is from Cesar Tiron of Bank of America. Please go ahead.

Cesar Tiron

Yes. Hi. Thanks, everyone. Thanks for the call and the opportunity to ask questions. I have three questions. Sorry about that. The first one would be on if you can give some examples of operational changes you’ve made during COVID. So we all have seen the tailwinds or the headwinds faced by these different businesses. But just wanted to ask if there’s any specific changes you have made to these businesses over the past six months, which would allow them to set them up for faster growth when these COVID tailwinds end. Or for classifieds maybe to allow them for a higher profitability when the headwinds end?

And then I think that the next question would be on online education. So you’ve been investing quite significantly in the past year and increase a little bit your disclosure on these assets? So there my question would be to understand what prevents you to make it officially one of your verticals and if there’s scope for consolidations among these assets? And then finally, last question on a food, I think this is the second time in a row where revenue growth was ahead of GMV. So I suspect that last time, this is really driven by subsidies which are decreasing. Can you please discuss the dynamics there and whether there is scope for the subsidies to decrease without necessarily impacting GMG growth going forward? Thank you so much.

Bob van Dijk

Thanks Cesar. And maybe I can start on the last one, because there are to be simple answer. Larry, if you can talk maybe about consolidation in FX. And there are several examples of changes to the business and that anybody who wants to be chime in you can do so. I have certain issues now. But I think the main reason for the revenues on past GMV, and iFood is actually the shift from 2B to 1B that’s really the story. But you see, the one, two percentage grow of car quite quickly and that drives where it can be much, much faster than GMV does. Be that’s been fair we issue there. But maybe Larry, do you wants to say a little bit about consolidation in assets. And do you know that?

Larry Illg

I can’t talk for the eloquence of the answer. I think it’ll be pretty straightforward, though, I think, with Edtech, it’s a multi-faceted sector. So I don’t want to paint with too broad of a brush. But generically speaking, we have a lot of companies that are really coming of age as a result of the pandemic and bringing demand forward by years. And I think that gets a lot of the companies and investors in the space excited about what the future holds. And as part of that, I think, consolidation is just natural. And we’re seeing more and more investment activity alongside that could be consumer activity in the last couple of months. And as is true of most sectors, consolidation will be pursued when it makes sense. And certainly see more activity there.

Bob van Dijk

Yes. The other part of the question now there on assets there as Ceasar that prevents us from develop maybe the attraction. I think in terms of investment thesis has become clearer, we deploy more capital over time, I think we will transition into continuous segments. We’re working through the details on one and then that is the right timing, but I think that’s actually the direction of travel. And Tiron, specific examples of changes in the market. I would say that there is quite a few examples that come to my mind as well. For example, market and then even talk to virtual inspections of cars, I think in food delivery, I think we’ve seen a lot more partnership with restaurants, integration with restaurant systems are the only customer or the main source of customers of restaurants, you create a more natural fear of the partnership that is lacking further integration, marketing, Mart and Mary, feel free to chime in structural change and the business that will help you going forward

Martin Scheepbouwer

Yes. Shall I start, Bob. So thank you for pointing that out. And indeed, there’s been a number of adjustments, I will say to product priorities during COVID. It was all geared towards meeting new or change customer requirements, obviously, so people could not leave their homes. So we made sure they could order on OLX or our fee [ph] from the couch, and organized for last mile delivery where that was not yet possible such as in Russia. We also allowed people to virtually see houses they might want to buy or rent. So software to enable that was basically either created or given more priority. And Both Bob and Basil already differ to the impact of social distancing on the ability to operate physical car inspection centers at the trust, very few were still allowed to be open. Now their backup to a large degree. But capacity is still somewhat limited due to all the health and safety measures. That’s why we have put particular emphasis on alternative ways to evaluate the value and the condition of cars we purchase through home inspectors, through self inspection, and so on. And I think that’s positive. I think ultimately, anything that makes the business more efficient and more customer centric is a good thing in the long run.

And in the meantime, we were also clued in on hiring, on marketing and so on, which gave us some profitability benefits in the short term. But I expect as Basil already alluded to reverse that, if and when opportunities arise to invest again, behind beyond growth opportunities. But the impact of accelerated innovation, Christmas simplicity, I think, is a positive one in already now and also in the future.

Larry Illg

And I guess I’m happy to go next quickly on food. So I think in general, our teams responded very quickly to address, safety and business sustainability. That was early stages of pandemic. And that allowed them to shift once they sort of got a read of the landscape to shift towards operational transformation. And the handful of examples that I can call out quickly, even in some examples, it would mean moving more quickly towards online transactions, removing cash, and increasingly from the transactions be the opening up of new kinds of order engagement. So we saw our businesses move towards restaurant takeout versus formal delivery in some cases.

And the last I’ll point out is, you know, you have these businesses, especially as they skew towards first party that have an unbelievable reach and driver network. And you can use that infrastructure and those consumer relationships and high NPS to open up new sectors that might be in demand as a result of the pandemic. I think the one that’s most prominent and in most folks minds would be things like grocery. So again, get the situation under control, and then leverage that region operational infrastructure to do new things.

Bob van Dijk

Well, I think grocery is a great example, Larry. Complementing the interests of consumers. Those are good examples, and I suggest we move on to give someone a chance to ask the questions.

Operator

Thank you, sir. The next question is from John Kim of UBS. Please go ahead.

John Kim

Hi, everybody, congrats on a good set of results. Two questions please. Last time, around the listing of process called a year plus ago, I think the team intimated that there were certain restructurings or optimizations that team process wanted to engage in before potentially moving down between below a 30% ownership level for Naspers. Question on the progress of that kind of restructuring or reorganization is that largely done? And then if I could ask Larry and Bob to speak to extension in the grocery. How we should think about that? Do you see it as a logical extension of the retail platform or the margins are two competitive? Thanks.

Bob van Dijk

Thanks, John, for both questions, I think Basil allows you to talk a little bit around the sort of follow on steps on some of these narrations. A lot of you’re wasting hours on that. On grocery, I think we talked about it for an hour and Larry will say more sensible things. But I think if you have the infrastructure to deliver in urban areas from many to many locations in a time critical way, with a half an hour delivery window, that is an unbelievable assets to leverage into further vis-à-vis, that will be my short answer to how I think about the grocery. Larry, maybe do you want to add?

Larry Illg

Yes. John ask two question is an extension of retail, I think the starting point matters. So it’s, obviously from a top down perspective, grocery is interesting. But really the bottoms up view matters. Bob to your point, what’s our starting point? Do we just have consumer reach? Do we have a central warehouse. We have a driver network and depending on our starting point, and also what the consumer needs are different models might make sense that a more convenience, model and marketplace, central warehouse kind of model. So I think, from least from my perspective, we look at it in both ways, top down, is it compelling in a given situation. And then do we have a right to play? And what’s the right approach to play?

Bob van Dijk

Then John to your first question. So look, as we went into the pandemic, a couple of things happened. Our business started to recover fast into a project sort of gap, and we didn’t see our performance with [Indiscernible]. And I saw what was coming, I saw that we were going to rapidly add to our market cap and that into our waiting. So and we move very quickly, we pulled the team together, and we started working hard. And that works continued. We want to be very, very conservative. So we looked at many options. We don’t want to exclude anything. And we’ve had our own ideas, we’ve heard ideas, and we’ve been kind of made for work on all of those. And we were honing in on a couple that are interesting, but they require more work. It’s not as simple thing. It’s not just about tax, this to shift for shareholders, there’s this regulation, there’s a whole bunch of other things that need to come into play. And what I want everyone to take back from this is, we’re working as hard on this as we are on the business, it’s important to us, it’s important for our shareholders, and we want to make progress. And when they’re ready, we’ll come back and tell you what that progress is.

John Kim

Thank you.

Bob van Dijk

Thanks, John.

Operator

Thank you. The next question is from Catherine O’Neill of Citibank. Please go ahead.

Catherine O’Neill

Right. Thank you very much. Well, three questions, actually one on the classifieds. I just wanted to see if there’s been any impact on lockdown 2.0, I guess in some markets or more restrictions in terms of whether you’ve had to offer any discounts again. And giving your commentary on investment plans in the second half, the classifieds? Should we expect the trading profit or loss to be a loss for the year? And second question is on IT and the merger in Colombia and what your plans are in terms of how aggressive you want to be given division work you have a market. And whether UCI [ph] had opportunities within that time or if your focus is mainly on Brazil, and now Colombia as well?

And then finally, on the payment side of things, and I think you mentioned that the credit lending has sort of stopped for the moment or the plans or credit lenses too slow and that you’ve been investing in growth. initiatives in payments and setup those investments Could you maybe talk about some of those great initiatives within the payments area that you’ve been investing in plan to invest further in?

Bob van Dijk

Yes. Thanks Catherine for your questions. I think the questions naturally distribute themselves. And so marketing, if you wouldn’t mind talking about classifieds scenarios, so you can shift to the Columbia merger and then — the payment questions yours. Maybe market you want to protest?

Larry Illg

Absolutely, yes. So, as you’ve been able to see, the trading profit in the first half was $12 million, considering the inclusion of the full FCG. And that impacts the initially saw on the lockdown that result that we’re very, very happy with. And going forward. for us, we live in an uncertain world, and it’s largely be crystal balling, but for now, we haven’t, yet had to give good discounts to the paying professionals on any of our large platforms. We do see activity in jobs and in cars are meaningfully impacted by the second wave in many countries as car dealer has to stock up and companies are equal supply constrained companies are hesitant to hire. So some uncertainty to remain. But overall, the trajectory of recovery has been very steep and that continues to this moment.

What is important to note is that what we’ve always done is we would like to call oil fire. So when things work, we push ahead and do not hesitate to benefit from an opportunity to drive growth or gain market share, which we’ll continue to do also in this second half. So especially in Russia and in Poland we share this opportunities, if we continue to drive, but then on the back of what I think will be much better economics than we saw a few months ago.

Bob van Dijk

Then happy to go to go next on our LatAm. I think, you know, to your question, Catherine, I think you know, Brazil is clearly in focus. And we’re excited about the potential of AI could in that market. So we’re not blind to the broader LatAm opportunity. We’re very excited about the opportunity for a combined entity between your iFood and domicilios shows, as in most cases, consolidation makes sense, of course, pending regulatory review. But when we’re on the other side of that you’ll see a business that has the largest footprint in Colombia with over 12,000 restaurants and operates in over 30 cities across the country. And consistent with our other food delivery platforms truly becomes a platform to be can use to not only build that own food delivery business, but other adjacent businesses on the back of it.

Basil Sgourdos

And regarding payments, it’s slow on here. So I can think of three big initiatives that we are going on at the moment. One is around the growth for the small and medium business segment in our business. Most of the growth that we’ve seen is coming from e-commerce, but not just for large merchants, but also the growth purely on SMB accelerating their plans to sell online. So actually, we’ve invested quite a lot to automate or the onboarding of these SMBs. And this is true across all of our markets, from LatAm, Central Europe to India. So that’s what the growth of SMB. The second one is, specifically to India, we serve three type of customers, merchants, of course, without payment gateway, consumers without creating business, and then banking partners.

And about a year ago, we acquired a company called Wibmo, which is now fully integrated into our business and actually, we are invested in terms of money for the platform, but also people to actually accelerate the plans to serve the banks without platform to actually process payments for them. And we are in a position where we manage most of the car transactions in terms of security, which is an added value services for all the banking sector in India. So we believe that this will give us a very strong position actually, to reinforce our position in the banks in the market. And the third one is actually regarding credit, is what we have done there is effectively stopped the issuance of personal loans to new customers, because we didn’t have a good read on the risk in the markets. But actually, we have continued to serve our existing customers without buy now pay later product, which is called LazyPay.

And actually, that product has continued to grow. We serve right now about 1.5 million customers every month, with a very high repeat rate of 90%. So actually, we’ve stopped the issuance of personal loans continue on BNPL. And actually, what the team has done is continue to innovate to bring new products, like installments using the UPI platform. So when we are ready to go back to the markets, we will actually add a new set of product to offer. So these are the three initiatives.

Catherine O’Neill

Thanks a lot.

Operator

Thank you. Ladies and gentlemen, we have time for one more question. The question is from [Indiscernible] Nick Bank.

Unidentified Analyst

Hi, everyone. Thank you for the questions. And just two questions from my side, please. The first question is on pay and ship. If you could maybe give us a bit more color through the COVID crisis as yours, TJ, outlook for this particular product class changed, specifically in Central Eastern Europe, in Russia? And what are your thoughts on pay and ship in the U.S. mobile classifieds market? Do you see an opportunity there?

And then the second question is on online food. Given that you scaled up your 1P business in Brazil, could you maybe give us a bit more color on what the contribution margins are for 1P versus 3P specifically in the Brazilian market at the stage and how you see it evolving? Thank you.

Bob van Dijk

Yes, thanks. Larry, that the second question is certainly in your in your camp, the trends are generally quite positive. And Martin, maybe you want to talk us through your views on pricing per day and ship and the outlook you have for different markets.

Martin Scheepbouwer

Absolutely, so thanks Illg for taking that, because pay and ship, as you point out, I think has gained in strategic importance. Over the lockdown as I pointed out earlier, it was always in and solutions for distance trade between cities when people have difficulties meeting up in person. But it has more widely spread over the lockdown for two reasons. One is that people want to order from the comfort of their own home. And second, a lot of small businesses that had to close there, their physical store over sold declining food traffic moved online and every one of the channels they can use.

So we’ve invested significantly to improve the experience and the speed of delivery in the network, especially in Russia, where we already very active but extended the service levels. And we accelerated the rollout in Poland and in Brazil, and we pretty much continued what we had in which is a bit more mature in Ukraine and a few other places.

And going forward. I think we’ll do more of this. And I think that’s one of the main, one of the major let’s say growth pillars under the especially the European side of the business. In the U.S. I also think there is potential, the — we are minority in the offer of let go a combination. So we’re not we’re not viable initiatives. But that that is one of the things that the team is looking at, because believes a lot but even though other companies have alternatives in U.S. they don’t have elsewhere with Amazon and eBay and many other channels at their disposal. The strength of up now, after induction of letgo is so significant that for, for many such SMEs, it’s becoming a channel force. And similar to other markets, we bumped into the [Indiscernible] that with a pay and ship solution. And as we see results come in we’ll share them with you.

Unidentified Analyst

Thanks Martin.

Larry Illg

Yeah, sorry, I could just hop in on the iFood profitability, you know, as Bob said, the trends are positive. And it gives us a view into the future in a COVID context, and you can see what it what food delivery looks like, especially on the first party side at further scale, you know, no surprise to folks on this call as the business benefits from on-going leverage as a predominantly logistics model. And what we can see not just for iFood, but I think globally, that first party can be run profitably. And while on a percentage basis, it’s hard to see how it will ever be as high as a third party marketplace in terms of percent profitability, but we can see contribution coming from this space, we’re seeing it now. And it’s especially important as we can see that the future growth in the category will predominantly be 1P. So it’s nice to see that the profitability that that side of the business can generate.

Operator

Thank you very much. Ladies and gentlemen, we have no further questions at the moment. And I like to hand the call back to Mr. Van Dijk for final comments.

Bob van Dijk

Yes, the same century much and they already started closing goals early. But I wanted to thank everybody, for many great questions. And I hope you share our excitement about these results. But actually, more importantly about, I think, the potential and the growth for the businesses that we discussed. For the time ahead, because they’re looking forward to and we look, we look forward to talking to you about it in about six months and thanks very much.

Operator

Thank you very much sir. Ladies and gentlemen, that then concludes this event and you may now disconnect.

The dark side of Italian hazelnut farming

As the early morning mist clears to reveal the turrets of San Quirico Castle in central Italy, the greenery surrounding local farmhouses comes alive with sound: Red-bellied woodpeckers chirp and bright-green tree frogs call to each other among the cypress and beech trees.

But walk a little further towards the fields of young hazelnut plantations and there is suddenly silence: the birds and insects have been driven away by the monoculture. Seemingly never-ending lines of saplings are now the defining feature of Alfina plateau which lies a few hundred meters above sea level. Until recently, much of this area was composed of wildflower fields and a patchwork of different crops.

“Six or seven years ago this place looked completely different,” Gabriele Antoniella said. He works as a researcher and activist with Comitato Quattro Strade, a conservation organization in Alfina. Antoniella estimates there are around 300 hectares (741 acres) of new plantations in the area, mostly owned by a few large investors. 

The plateau sits in the northern section of Tuscia, a historical region in Viterbo province and the heart of Italy’s hazelnut production. Around 43% of the agricultural land in Viterbo is reserved for hazelnut orchards, the bulk of which goes to the confectionary industry for use in products such as nougat and chocolate.

The nuts have been grown for thousands of years in the southern part of Tuscia and have largely sustained its economy since production ramped up in the 1960s. But the intensification of monoculture practices and their expansion into new areas such as the Alfina plateau is an increasing concern for environmentalists.

Impact of monoculture on water, soil and air 

Several diverse cropshave been replaced by hazelnut plantations, and hedgerows have been cleared to minimize the presence of insects. As the nuts are harvested once they fall, the ground beneath the trees is also usually kept completely free of vegetation.

“For us the hazelnut represents a great resource, but it’s cultivated in an unsustainable way,” said Famiano Cruciarelli, president of the Biodistretto della Via Amerina e delle Forre, an environmental organization in southern Tuscia. “Hazelnut monoculture has caused problems with water, soil, and air.”

The use of chemical fertilizers and pesticides treatments, he says, is making the soil increasingly arid, which in turn has led to its erosion in some places. And during harvest season, clouds of dust are kicked up into the air by the heavy machinery. “That dust is full of chemicals, which are a big problem for people’s health,” he said.

One of the most glaring examples of environmental degradation can be seen in a nearby volcanic lake encircled by decades-old hazelnut plantations. 

“Large quantities of fertilizers have been used in the intensive hazelnut cultivation, and they have ended up in Lake Vico,” explains Giuseppe Nascetti, a professor at the Tuscia University who has been studying the lake for over 25 years. This has caused the proliferation of so-called “red-algae,” which produce carcinogenic chemicals harmful to environmental and human health.

Expansion of the industry  

While the transformation towards monoculture has been underway for decades, environmentalists say the growing demand for hazelnuts from big companies and investors has further fueled this shift.

Italian manufacturer Ferrero Group, which makes the chocolate and hazelnut spread Nutella, doesn’t own or run any farms in the region but is one of the biggest consumers of the nuts produced in Tuscia.

In 2018, the company launched its Progetto Nocciola Italia plan which aims — in cooperation with farming associations — to increase hazelnut plantations across Italy by 20,000 hectares by 2026. In Lazio — a region that includes Alfina plateau — the company is also working with local producers through a farming association in Lazio to develop 500 hectares for the crop over a five-year period. According to Ferrero’s figures, 17,708 hectares are currently devoted to hazelnut cultivation in Viterbo, and 80,000 across Italy.  

A Ferrero spokesperson said it was a company objective to integrate hazelnut shrubs with existing crops — and that organic production is neither an obligation nor prohibited.

They add the company is also working in collaboration with researchers including those at Tuscia University to “gain a better understanding of its environmental impact” and “enhance sustainability in hazelnut cultivation.”

Sustainable, organic agriculture 

Yet as local farmer Anselmo Filesi has discovered, choosing a sustainable path isn’t without its challenges.

In 2002, concerned about the environmental and health impacts of using pesticides, he converted his small 20-hectare hazelnut plantation in southern Tuscia to organic methods.

But it came at a cost. Filesi says he was no longer able to sell his products to the world’s biggest buyers: Most confectionary multinationals require hazelnuts with little damage from shield bugs — a common pest which can cause shriveled kernels and a slightly bitter taste.

“This is very difficult to achieve with organic methods,” Filesi said. “If the hazelnuts are not perfect the market will not accept them.”

Filesi shells, toasts and packages his own produce before selling it directly to local shops and supermarkets. But he says it’s harder for bigger farmers — which usually sell pre-processed nuts in bulk – to make the switch as they fear losing their biggest buyers.

The rush to invest in hazelnut plantations in the area is also increasing land prices, says Filesi, making it harder for small farmers like him to buy or rent land.

“Converting all hazelnut plantations to organic ones could be one way forward, but there is no incentive to do so,” said Professor Nascetti, citing a lack of commitment from big companies to pay good prices for organic produce. “Until sustainability is put before profit … it’s unlikely this will happen.”

“People do not imagine that behind a jar of hazelnut [spread] there is an environmental and social economic catastrophe,” Antoniella said. By staging protests against intensive agriculture, encouraging smallholder farmers to turn to organic farming and not to sell their land, activists hope to foster a new relationship between locals and the land. 

“We are not against hazelnuts, but against these agro-industrial methods that don’t respect our land,” Antoniella said. “We want to show that things can be done differently, that agriculture can be based on respect for the environment.” 

He glances at the endless lines of saplings and explains that once the trees grow, the striking view of San Quirico castle perched on a hill in the background will be obscured. “The landscape will change forever.”

COVID19: Impact on Organic Honey Industry, Finds Fact.MR

The MarketWatch News Department was not involved in the creation of this content.

Nov 21, 2020 (MARKITWIRED via COMTEX) —
The global Organic Honey market study presents a careful compilation of the historical, current, and future outlook of the said market as well as the factors that are responsible for such development of the market. In an effort to provide the users of this report with a comprehensive view of the global Organic Honey market, experts have made an inclusion of a detailed discussion on and analysis of the diverse product portfolio and competitive vendor landscape of each of the leading players spread across different territories of the world. The report study also includes both PESTEL analysis and SWOT analysis of the industry. The report also adds an analysis of market attractiveness, in which all of the market segments have been benchmarked based on general attractiveness, their rate of growth, and size of the market.

The MarketWatch News Department was not involved in the creation of this content.

Biofungicides Market Is Estimated To Expand At a Healthy CAGR in the Upcoming Forecast 2028

Biofungicides Market Is Estimated To Expand At a Healthy CAGR in the Upcoming Forecast 2028

Berry Global Group, Inc. (BERY) CEO Tom Salmon on Q4 2020 Results – Earnings Call Transcript

… America, Mexico, Africa and Eastern Europe, offering higher growth potential … sheet improvement, delivering profitable organic growth in 2020, and … million of low hanging fruit of EBITDA growth in … are actually preparing their restaurants and considering models …

Europe Food Preservatives Market 2020 Precise Outlook – Kerry Group PLC, Brenntag Holding GmbH, Tate & Lyle PLC, Jungbunzlauer Suisse AG, Koninklijke DSM N.V., DuPont de Nemours, Inc

The Europe Food Preservatives Market report is a compilation of first-hand information, qualitative and quantitative assessment by industry analysts, inputs from industry experts and industry participants across the value chain. The report provides an in-depth analysis of parent market trends, macro-economic indicators and governing factors along with market attractiveness as per segments. The report also maps the qualitative impact of various market factors on market segments and geographies. We analyzed the impact of COVID-19 (Corona Virus) on the product industry chain based on the upstream and downstream markets, on various regions and major countries and on the future development of the industry are pointed out.

Europe food preservatives market is projected to grow at a CAGR of 4.23% during the forecast period (2020-2025).

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The 100 Pages report presents the market competitive landscape and a corresponding detailed analysis of the major vendor/key players in the market. Top Companies in the Global Europe Food Preservatives Market: Kerry Group PLC, Brenntag Holding GmbH, Tate & Lyle PLC, Jungbunzlauer Suisse AG, Koninklijke DSM N.V., DuPont de Nemours, Inc., Corbion NV, Merck KGaA

Market Overview:

– The natural food preservatives segment is expected to record robust growth during the forecast period, particularly in the developed countries of Europe that have a large number of food companies using natural preservatives in their products.
– In addition to maintaining the quality of the food, specialty preservatives, such as sorbic acid, benzoic acid, nisin, and acetic acid, help control contamination. One group of specialty preservatives and antioxidants also prevent food from becoming rancid or developing an off-flavor.
– With the increasing acceptance of the ready-to-eat (RTE) food in Europe, manufacturers of RTE foods are inculcating clean label ingredients, which offer high nutrient and more shelf life.

Beverage Application is driving the Market

The popularity of on-the-go beverages has led to the introduction of highly convenient packaging formats. Additionally, functional beverages are emerging as a preferred class of meal-replacement solutions in the region. Companies are producing a large variety of non-alcoholic ferments as specialty food ingredients for applications in beverages, like soft drinks and malt-based juices. Sorbates and benzoates are often used in combination, especially in highly acidic drinks. Sorbates are very effective preservatives against bacteria, yeasts, and molds. The antimicrobial effectiveness of sorbates depends on the physical and chemical properties of the beverages. Thus, contributing to the preservatives market in Europe. The European marketplace has witnessed significant growth in natural preservatives led by the increasing consumer awareness of the potential negative impact of synthetic preservatives on health, in contrast to the benefits of natural preservatives, has generated interest in the development and use of natural products among the beverage manufacturers._

Germany is Among the Largest Player

Synthetic preservatives still dominate the share of the preservatives market in the country, however, the market experiences the surging demand for natural preservatives. Whereas, under synthetic antimicrobials, lactates hold a prominent share of the Germany market. The availability of ingredients in liquid, powder and crystalline forms further enhance the application in numerous food products. For instance, In Germany, Galactic produces and retails a range of antimicrobials such as Galacid, and Galaflow formulated in liquid, powder and crystalline forms for its extensive application in the food industry. Moreover, the growing demand for food application has insisted players of the market to widely produce additives in the country. For instance, Celanese Corporation manufacture Nutrinova Sorbates in a single-purpose plant in Frankfurt, Germany for its extensive food applications. The plant has accountability given through EU law.

Competitive Landscape

The Europe food preservatives market is dominated by global players, and the market is highly competitive owing to the presence of numerous regional and global players. Players such as Koninklijke DSM N.V. are inclining towards various strategies such as merger and acquisition, product innovation and expansion. Thereby, focusing on all the elements of the market. _For instance, Koninklijke DSM N.V. invested in the launch of two innovative natural antimicrobial additives including DelvoCid+ and other mushroom-based natural preservative to satiate the extensively growing demand for natural and organic food products. Moreover, companies such as Dupont adopted continuous expansion as their strategy to achieve a competitive advantage in the market and expand their geographical presence and customer base.

Influence Of The Europe Food Preservatives Market Report:

-Comprehensive assessment of all opportunities and risk in the Europe Food Preservatives market.

– Europe Food Preservatives market recent innovations and major events.

-A detailed study of business strategies for growth of the Europe Food Preservatives market-leading players.

-Conclusive study about the growth plot of Europe Food Preservatives market for forthcoming years.

-In-depth understanding of Europe Food Preservatives market-particular drivers, constraints and major micro markets.

-Favourable impression inside vital technological and market latest trends striking the Europe Food Preservatives market.

What Are The Market Factors That Are Explained In The Report?

Key Strategic Developments: The study also includes the key strategic developments of the market, comprising R&D, new product launch, M&A, agreements, collaborations, partnerships, joint ventures, and regional growth of the leading competitors operating in the market on regional scale.

Analytical Tools: The Europe Food Preservatives Market Report includes the accurately studied and assessed data of the key industry players and their scope in the market by means of a number of analytical tools. The analytical tools such as Porter’s five forces analysis, SWOT analysis, feasibility study, and investment return analysis have been used to analyze the growth of the key players operating in the market.

Key Market Features: The report evaluated key market features, including revenue, price, capacity, capacity utilization rate, gross, production, production rate, consumption, import/export, supply/demand, cost, market share, CAGR, and gross margin. In addition, the study offers a comprehensive study of the key market dynamics and their latest trends, along with pertinent market segments and sub-segments.

The report has 150 tables and figures browse the report description and TOC:

https://www.marketinsightsreports.com/reports/10192355102/europe-food-preservatives-market-growth-trends-and-forecast-2020-2025?Mode=12

Customization Of The Report:

MarketInsightsReports provides customization of reports as per your need. This report can be personalized to meet your requirements. Get in touch with our sales team, who will guarantee you to get a report that suits your necessities.

If you have any questions about any of our “Europe Food Preservatives market report” or would like to schedule a personalized free demo of Europe Food Preservatives market report, please do not hesitate to contact me at irfan@marketinsightsreports.com.

Best wishes,

Irfan Tamboli

Head of Sales Operations

Market Insights Reports

Tel: + 1704 266 3234 | +91-750-707-8687

Email: sales@marketinsightsreports.com | irfan@marketinsightsreports.com

About Us:

MarketInsightsReports provides syndicated market research on industry verticals including Healthcare, Information and Communication Technology (ICT), Technology and Media, Chemicals, Materials, Energy, Heavy Industry, etc. MarketInsightsReports provides Global and regional market intelligence coverage, a 360-degree market view which includes statistical forecasts, competitive landscape, detailed segmentation, key trends, and strategic recommendations.

This Press Release has been written with the intention of providing accurate market information which will enable our readers to make informed strategic investment decisions. If you notice any problem with this content, please feel free to reach us on mediarelations@xherald.com.

Europe Weight Loss Management Market Emerging Trends and Demands 2020 to 2025 | General Nutrition Centers Inc., Amway Corp., Glanbia PLC, and Herbalife International

The Europe Weight Loss Management Market report is a compilation of first-hand information, qualitative and quantitative assessment by industry analysts, inputs from industry experts and industry participants across the value chain. The report provides an in-depth analysis of parent market trends, macro-economic indicators and governing factors along with market attractiveness as per segments. The report also maps the qualitative impact of various market factors on market segments and geographies. We analyzed the impact of COVID-19 (Corona Virus) on the product industry chain based on the upstream and downstream markets, on various regions and major countries and on the future development of the industry are pointed out.

The European weight management market is projected to witness a CAGR of 4.91% during the forecast period, 2020-2025.

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https://www.marketinsightsreports.com/reports/10192355161/europe-weight-loss-management-market-growth-trends-and-forecast-2020-2025/inquiry?Mode=12

The 116 Pages report presents the market competitive landscape and a corresponding detailed analysis of the major vendor/key players in the market. Top Companies in the Global Europe Weight Loss Management Market: General Nutrition Centers Inc., Amway Corp., Glanbia PLC, and Herbalife International.

Market Overview:

– The market is primarily driven by factors, such as rising incidence of obesity and chronic diseases, rising awareness about nutrition and healthy lifestyles, an increasing number of fitness centers, and rising disposable income across the region. In addition, an increasing number of health and fitness clubs across the region fueled the market’s growth. Moreover, product innovations by leading players, such as herbal and organic slimming products, are boosting the market’s growth.
– However, the major factor restraining the growth of the market is the high cost of weight loss products, owing to the additional processing required for low-calorie products and additional nutrients, such as vitamins and minerals.

Rising Obesity Concerns across the Region

Concerns related to weight and obesity are increasing at a rapid rate in most of the EU member states, particularly among children. In addition to causing various physical disabilities and psychological problems, excess weight drastically increases a person’s risk of developing a number of noncommunicable diseases (NCDs), including cardiovascular disease, cancer, and diabetes, along with the risk of developing more than one of these diseases (co-morbidity) and body weight. The involvement of different governmental sectors and national policies favored the European region significantly. For instance, the WHO European Food and Nutrition Action Plan 2015-2020 has been initiated specifically for the purpose of restricting the marketing of unhealthy foods to children, mainly to curb the obesity epidemic. Also, the European Association for the Study of Obesity (EASO), an authoritative body of the obesity community within Europe, is focusing on developing a universal, evidence-based approach for tackling obesity across disciplines and countries, along with the improvement of quality and availability of care, while supporting the campaign projects and groups across the region. As a result of this trend, the demand for healthier balanced diets is expected to increase. This, in turn, may provide significant growth opportunities for players operating in the weight loss management products market.

Italy to Drive the Regional Market

Italy has been reported to dominate the weight loss management market in the European region, owing to the rising incidences of major health concerns, such as obesity and diabetes, in the region. The significant presence of global players catering to weight management supplement products is driving the market’s growth in this region. The rising popularity of natural and organic ingredients in weight management supplement products is one of the driving factors for the increasing demand for these products in Europe. In terms of distribution channels, weight management products are primarily available in mass-market channels, such as hypermarkets/supermarkets and convenience stores. Also, with the increasing internet penetration, the online market related to weight loss, including food and beverages and supplements, witnessed rapid growth, globally, in the past 3-4 years. This category attracted a few vertical specialists, like Amazon, Walmart, and Carrefour, who are focusing on the growth of e-retailing.

Competitive Landscape

The European weight loss management market is competitive, due to the presence of numerous domestic and multinational players. Companies are focusing on mergers, expansions, acquisitions, and partnerships, along with new product developments, as strategic approaches adopted to boost brand presence. Key players dominating the regional market include General Nutrition Centers Inc., Amway Corp., Glanbia PLC, and Herbalife International.

Influence Of The Europe Weight Loss Management Market Report:

-Comprehensive assessment of all opportunities and risk in the Europe Weight Loss Management market.

– Europe Weight Loss Management market recent innovations and major events.

-A detailed study of business strategies for growth of the Europe Weight Loss Management market-leading players.

-Conclusive study about the growth plot of Europe Weight Loss Management market for forthcoming years.

-In-depth understanding of Europe Weight Loss Management market-particular drivers, constraints and major micro markets.

-Favourable impression inside vital technological and market latest trends striking the Europe Weight Loss Management market.

What Are The Market Factors That Are Explained In The Report?

Key Strategic Developments: The study also includes the key strategic developments of the market, comprising R&D, new product launch, M&A, agreements, collaborations, partnerships, joint ventures, and regional growth of the leading competitors operating in the market on regional scale.

Analytical Tools: The Europe Weight Loss Management Market Report includes the accurately studied and assessed data of the key industry players and their scope in the market by means of a number of analytical tools. The analytical tools such as Porter’s five forces analysis, SWOT analysis, feasibility study, and investment return analysis have been used to analyze the growth of the key players operating in the market.

Key Market Features: The report evaluated key market features, including revenue, price, capacity, capacity utilization rate, gross, production, production rate, consumption, import/export, supply/demand, cost, market share, CAGR, and gross margin. In addition, the study offers a comprehensive study of the key market dynamics and their latest trends, along with pertinent market segments and sub-segments.

The report has 150 tables and figures browse the report description and TOC:

https://www.marketinsightsreports.com/reports/10192355161/europe-weight-loss-management-market-growth-trends-and-forecast-2020-2025?Mode=12

Customization Of The Report:

MarketInsightsReports provides customization of reports as per your need. This report can be personalized to meet your requirements. Get in touch with our sales team, who will guarantee you to get a report that suits your necessities.

If you have any questions about any of our “Europe Weight Loss Management market report” or would like to schedule a personalized free demo of Europe Weight Loss Management market report, please do not hesitate to contact me at irfan@marketinsightsreports.com.

Best wishes,

Irfan Tamboli

Head of Sales Operations

Market Insights Reports

Tel: + 1704 266 3234 | +91-750-707-8687

Email: sales@marketinsightsreports.com | irfan@marketinsightsreports.com

About Us:

MarketInsightsReports provides syndicated market research on industry verticals including Healthcare, Information and Communication Technology (ICT), Technology and Media, Chemicals, Materials, Energy, Heavy Industry, etc. MarketInsightsReports provides Global and regional market intelligence coverage, a 360-degree market view which includes statistical forecasts, competitive landscape, detailed segmentation, key trends, and strategic recommendations.

This Press Release has been written with the intention of providing accurate market information which will enable our readers to make informed strategic investment decisions. If you notice any problem with this content, please feel free to reach us on mediarelations@xherald.com.

Mushroom cultivation produces three times its weight in waste. It’s now being turned into burgers and fertiliser

Cultivating mushrooms produces a lot of waste. For every kilogram of mushrooms produced, about three kilograms of soil-like material containing straw, manure and peat is left behind. In the EU, this results in more than 3 billion kilograms of waste per year.

Managing this waste is a challenge. Although it is rich in organic matter, and therefore useful as compost, used mushroom substrate—the soil-like material—contains a lot of water, which makes it heavy and unprofitable to transport. Some of it is used as compost in agricultural land close by but the vast majority that remains ends up being stored temporarily then landfilled.

“Every year we have more and more waste,” said Pablo Martinez, project manager at the Mushroom Technological Research Center of La Rioja in Spain. “So, we need larger and larger areas just to manage this waste.”

More mushroom waste could soon be given a second life though thanks to new innovations. Dr. Bart van der Burg, Director of Innovation at BioDetection Systems in Amsterdam, the Netherlands, and his team are interested in discarded mushroom parts, such as stems, and deformed mushrooms, which are part of the cultivation leftovers. They are aiming to extract components such as proteins, carbohydrates, fats and chitin—a fibrous substance—from them as part of the Funguschain project. Their goal is to incorporate these extracts into new products such as novel foods, cosmetics and bioplastics. “I think we will end up with at least three products coming out of this project,” said Dr. van der Burg.

The team has been experimenting with different extraction techniques. After milling and grinding the mushrooms, they found that a technique using microwave radiation was effective for removing antioxidants, antimicrobials and organic compounds called polyols, for example, which could be used in food and bioplastics. A pressurised hot water tea-like technique was suitable for extracting other components such as proteins and polysaccharides—a type of carbohydrate—for use in food products.

Food

At the same time, they have been developing new products with different companies. Extracted mushroom protein is being incorporated into food for older people with swallowing problems, for example, in the form of solid, edible gels. The protein is also of interest for vegetarian burgers where both the nutritional value and mushroom taste are desirable.

Mushroom powders could also be incorporated in functional foods, another avenue they are investigating. However, these products will take longer to develop since potential health benefits need to be evaluated.

In terms of cosmetics, the team is developing a natural line of creams that contain chitin, a preservative, extracted from mushrooms which acts as a natural preservative. Mushroom components tend to become brownish when they come into contact with oxygen, which would make creams an unappealing brown colour, but they’ve managed to prevent a colour change. ‘(Discolouration) depends on additional ingredients,” said Dr. van der Burg.

The team thinks mushroom waste could be reduced by up to 40% with the products they are creating. But they are also investigating other uses, such as composting and biogas production, which utilise all the soil-like leftovers from mushroom cultivation and could increase the amount of waste that is repurposed. These applications are more straightforward and would be easier to commercialise says Dr. van der Burg. “That’s one reason why we are still investing in that part.”

Martinez and his team are developing a system to remove water from mushroom waste and turn it into pellets of organic fertiliser as part of their SmartMushroom project. “Once it’s pelletised, we can deliver it anywhere for agricultural use,” said Martinez.

Their goal is to develop an environmentally friendly process that doesn’t use electricity or traditional sources of energy to power the drying. They are using some of the mushroom waste to produce biogas as a power source by optimising an existing production process that usually uses waste slurries from other agricultural processes.

Waste management

At the beginning of the project, a pilot plant was set up in an existing waste management facility. But their process can be set up wherever it’s needed. It uses four containers and doesn’t require building infrastructure. For the past year, the researchers have been perfecting the drying process by performing tests that experiment with different temperatures. If temperatures are too high, the waste can decompose, releasing nutrients that are important components of fertilisers.

The team is currently trying to increase the amount of biogas produced by combining mushroom byproducts with other types of agricultural waste. For example, several companies nearby produce marmalade so they are reusing the water used to clean machinery which contains sugar and fruit residue. “At this point, we are measuring the volume and quality of the gas produced by adding different co-substrates to our material,” said Martinez.

The project is also trying to produce fertilisers that are tailored to different crops. Before the dried waste is pelletised, extra nutrients can be added. Vineyards, for example, require balanced levels of potassium, phosphorus and manganese so the fertiliser can be supplemented to match the exact amount required.

Being able to produce organic pelletised fertiliser could have huge economic benefits for mushroom growers. At the moment, cultivators bear waste disposal costs which range from €10 to €50 per tonne of spent mushroom substrate in Europe. But in the future, they could make a profit by bringing their waste to a plant that will transform it into fertiliser and enable them to operate within a circular economy. “They will get paid depending on how much they bring to waste management facilities,” said Martinez.

Eventually, all the mushroom growing industry’s soil-like residue could be turned into pelletised fertiliser once the technology is commercialised, says Martinez. So far, there is high demand for the fertiliser from farmers in Spain and their pilot plant can’t produce enough to meet it. “If we can pelletise all our production, we will sell all our production,” said Martinez. “That means there will be no waste remaining from the mushroom cultivation sector.”

Estimated net sales of SEK 850-1,050 million and SEK 300-400 million in operational EBIT added during FY 2021/2022

STOCKHOLM, Nov. 18, 2020 /PRNewswire/ — Embracer Group AB (“Embracer”) and its subsidiaries have as previously communicated this morning entered into 13 acquisition agreements (the “Acquisitions”). The acquired businesses are, during the financial year ending 31 March 2022, expected to contribute to Embracer Group’s net sales in the range of SEK 850-1,050 million and contribute to operational EBIT in the range of SEK 300-400 million. In addition, during FY 2021/2022 the expanded studio footprint is expected to bring savings on capitalized game development in the range of SEK 50-100 million. The combined operational EBIT and savings on game development are expected to be in the range of SEK 350-500 million and this profitability is expected to grow in the following years as more game development projects will be completed.

The aggregated day one purchase price for the Acquisitions amounts to approximately SEK 2.0 billion on a cash and debt free basis. Approximately SEK 1.7 billion is paid in cash and SEK 0.3 billion in newly issued Embracer B shares with a maximum additional consideration amounting to SEK 1.8 billion, which is subject to fulfilment of agreed milestones, both operational and financial, over a period of up to 10 years. The additional consideration comprise a maximum of approximately SEK 0.9 billion which may be paid in cash and a maximum approximately SEK 0.9 billion to be paid in Embracer B shares at a price corresponding to the volume weighted average price per Embracer B share at Nasdaq First North Growth Market during 20 trading days up until and including the date of signing of the Acquisitions (VWAP 20). The aggregated maximum consideration amounts to SEK 3.8 billion.

The total number of shares that are issued as part of the aggregate consideration, excluding shares issued as part of earn-out structures, amounts to approximately 1,723,000 Embracer B shares issued at a price of approximately SEK 174 per B share. The part of the additional consideration consisting of Embracer B shares amounts to a maximum of approximately 5,170,000 shares provided that all earn out targets are met. Approximately 1,367,000 B shares being part of the additional consideration are issued at closing of the Acquisitions and subject to such as claw back rights and lock-up restrictions. A maximum of approximately 3,803,000 B shares may be issued in the future as additional consideration subject to fulfillment of certain targets. The share issues are made pursuant to the authorization granted by the extra general meeting held on 16 November 2020.

The Acquisitions

All of Embracer’s operating units – THQ Nordic, Deep Silver/Koch Media, Coffee Stain, Amplifier Games Invest, Saber Interactive and Deca Games – are making bolt-on acquisitions. Embracer onboards more than 1,250 experienced and talented people, strengthens its developer footprint in Eastern Europe as well as its development and UA capabilities within free-to-play. In most of the transactions, earn-outs and management incentives over 5-10 years, have been put in place to ensure long term alignment with the founders and management teams joining Embracer.

The announced Acquisitions are aligned with Embracer’s growth strategy and is enabled by the group’s decentralized operating model. Over the past three years, Embracer has expanded from one to six operating units. Each of these operating units have put in place their own M&A agenda with the purpose of adding additional organic growth opportunities and to improve long term profit and cash flow generation. For Embracer’s decentralized operating model to be sustainable and scalable, it is a necessity that most acquisitions are originated and onboarded on the operating unit level. For the Embracer operating model with emphasis on decentralized decision making and independence for local management to work, it is also necessary that founders and management of acquired companies join Embracer with a long-term mindset.

Through the Acquisitions, Embracer Group grows to 58 internal studios and more than 5,700 employees and contracted employees in more than 45 countries.

Embracer’s inhouse developer footprint is expanded by 767 developers, equivalent to a 30 percent increase and brings the total number of internal developers to 3,318. The total headcounts within the group increases to more than 5,700 employees and contracted employees following the Acquisitions. The management depth is further extended by the addition of strong business leaders and local management teams with an impressive track record, where many of the acquired companies are leading premium games developers in their respective countries.

Deca Operating Unit will triple in size in terms of revenues and employees

Embracer entered the free-to-play games segment with the acquisition of Deca Games in August 2020. Today, the Deca Operating Unit is established with the addition of A Thinking Ape and IUGO, two studios based in Canada. Embracer estimate the new Deca Operating Unit will triple in size in terms of revenues and employees and create a full scale free-to-play operation with expertise across IP origination, game development, marketing, user acquisition and live operations. Deca Games, A Thinking Ape and IUGO will continue to operate as independent companies within the Deca Operating Unit free-to-play ecosystem with their respective management teams continuously responsible for day-to-day operations. Founders and management across these businesses have a long term alignment with Embracer and shares a passion for creating a substantial free-to-play business over time through a combination of organic growth and by welcoming more FTP gaming entrepreneurs to the Embracer family.

Embracer Group’s capital allocation strategy are essential for continued growth

The capital allocation priorities for Embracer are unchanged. The first priority for allocation of operational cash flow from released games to reinvest as much as possible into value enhancing organic growth opportunities, e.g. new game projects. The second priority is to use free cash flow to finance, bolt-on acquisitions in the operating units.

Embracer reiterates the ambition to maintain a strong balance sheet and strives to maintain a net cash position to maintain maximum strategic flexibility. For the right inorganic growth opportunity, financial leverage could temporarily exceed 1,0x operational EBIT to net debt, where operational EBIT is measured as management expectations for the coming twelve months. In such circumstances, leverage should at least return to below 1,0x net debt to operational EBIT over the medium term, either by retaining cash from operations or by raising primary capital in the equity market.

Cash at hand and available credit facilities post the cash payment of the Acquisitions amounts to more than SEK 8.5 billion. Furthermore, on 16 November 2020, the extra general meeting authorized the board of directors to issue B shares in the amount not exceeding ten (10) percent of the total number of shares in the Company at the time when the authorization is used the first time to fund acquisitions, parts of this mandate has been used according to the Acquisitions. The ambition is to continue to partly fund acquisitions with equity to create long term alignment with founders and management joining Embracer.

The shares and dilution

Through the Acquisitions, Embracer may in aggregate issue, including earn-out consideration shares, a total of approximately 6,893,000 shares, meaning that the number of shares in Embracer can increase from 421,139,665 to approximately 428,032,665 B shares, and that the number of votes can increase from 721,731,898 to approximately 728,624,898.

The total number of shares that are issued as part of the aggregate consideration, excluding shares issued as part of earn-out structures, are issued at a price of approximately SEK 174 per B share.

The part of the additional consideration for the Acquisitions consisting of Embracer B shares amounts to a maximum of approximately 5,170,000 shares provided that all earn out targets are met. Approximately 1,367,000 B shares being part of the additional consideration are issued at closing of the Acquisitions and subject to such as claw back rights and lock-up restrictions. A maximum of approximately 3,803,000 B shares may be issued in the future as additional consideration subject to fulfillment of certain targets. All earn-out shares are issued at a price of approximately SEK 174 per B share.

The Acquisitions will, if all earn-out consideration shares are issued, lead to a dilution of approximately 1.61 percent of the share capital and approximately 0.95 percent of the votes in Embracer based on the number of shares and votes in Embracer following completion of the Acquisitions and issuance of all earn-out consideration shares.

All shares issued as part of the consideration for the Acquisitions, excluding the earn-out consideration shares, are issued based on the authorization from the extra general meeting on 16 November 2020.

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Imperial Brands PLC (IMBBY) Stefan Bomhard on Q4 2020 Results – Earnings Call Transcript

Imperial Brands PLC (OTCQX:IMBBY) Q4 2020 Earnings Conference Call November 17, 2020 4:00 AM ET

Company Participants

Stefan Bomhard – Chief Executive Officer

Oliver Tant – Chief Financial Officer

Peter Durman – Investor Relations Director

Conference Call Participants

Owen Bennett – Jefferies, Inc.

Gaurav Jain – Barclays Capital

Alicia Forry – Investec

Adam Spielman – Citigroup

Patrick Dolan – Redburn

Jonathan Leinster – Société Générale

James Edwardes Jones – RBC

Sanath Sudarsan – Morgan Stanley

Stefan Bomhard

Good morning everyone and welcome to our presentation. Thank you for joining my first results presentation as Imperial CEO. I’m sorry, we cannot meet in person today, but I very much look forward to doing so in the future. I’m joined today by Oliver Tant, our Chief Financial Officer and Peter Durman, our Investor Relations Director.

And before we get started, I suspect some of you might be asking why I took the role and what I think I can bring to Imperial. I’ve spent the majority of my career in consumer goods. I started in Procter and Gamble, and have had a range of senior sales and marketing and general management roles across a diverse range of consumer facing businesses, Burger King, Unilever, Cadbury, and Bacardi. So I believe I bring many years of sales and marketing experience.

And as Imperial’s first external CEO, I bring a fresh perspective to test and challenge the business. And I’m determined that we’ll deliver our full potential for all our stakeholders. I’m also someone who’s passionate about delivery. I firmly believe a commitment is a commitment. And have always been focused on making sure we do our best to deliver against our promises. So that’s a bit of background about me and my approach.

Now, why did that take the job at Imperial? There were a number of attractions. Firstly, Imperial is a good business with some good assets and people. The problem is, it has been underperforming for several years and having the opportunity to turn that around is very appealing to me. I’ve also always enjoy being in business and sectors that are going through change. And that is certainly the case for Imperial and Tobacco.

My role as CEO at Inchcape allowed me to lead the business through the evolving automotive industry, and to reshape the organization to play to its strengths. My time at Bacardi brings experience of working in the highly regulated spirits industry, where you have to navigate the challenge of marketing products in dark markets as well. I also enjoy being in businesses, which are not the market leaders. And when there is a real opportunity to move the business forward, companies where you often need to work harder and smarter to identify the competitive point of difference and what gives you the right to win.

For example, Burger King was a distant number two to McDonald’s. And Bacardi, like Imperial was the global number four in its industry. So Imperial has many attractive qualities for me. And from day one, I’ve been focused on addressing the issues that need to be resolved in order to enable us to deliver a stronger and more consistent performance over time. Today, I will give you my initial observations on the business and outline my timeline for our strategic review. But I want to be clear, while this review is advancing well, this is still work-in-progress, and our plans, the building blocks to create a stronger business are still being finalized.

However, I’ve already identified a number of areas for improvement and changes underway. I will detail some of these areas to you this morning. I will also provide some context for this set of results, including an assessment of the impact of COVID-19 and how is it influencing consumer behavior. I will then touch on our progress in managing our ESG responsibilities, before handing over to Oliver, who will take us through the results himself. I will then share our outlook and priorities for 2021. We’ll then conclude as usual with your questions.

So let me start with my priorities over my first four months. My first priority has been to visit our markets to learn about the business because of the coronavirus most of these had to be virtual, but I did manage to physically visit all of our most important European markets. Over the past few months, I’ve met with all 12 of our cluster teams, and all of our major functions hosting around 300 virtual or physical meetings. Wherever I had meetings, I’ve held online employee channels, which enabled me to reach thousands of employees around the world to hear their views, their challenges, and answer their questions.

I also made a point of meeting a range of our stakeholders, consumers, retail partners, competitors and shareholders in order to build a clear view of the business and how are we perceived. I’ve also been focused on gathering and understanding as much data as I can, a lot of it. It is important we base our decisions on real data and insight.

In order to begin addressing the performance and execution issues, I’ve already implemented monthly business reviews with the divisions and our top five markets, to embed a much more rigorous approach to tracking performance. I’m already instilling a greater sense of discipline in the way we monitor progress, and deliver against our commitments.

One of the areas colleagues have raised with me is accountability for delivery. This is one of the key elements I’m now looking to improve as part of the change in the culture at Imperial. And a scene, I will come back to you shortly. I recognize that some areas like culture take time to change. But I’m already seeking to deliver better outcomes by placing a greater emphasis on performance management, and revising incentive structures.

One of my biggest focus areas has been leading the complete strategic review of the business with the support of my colleagues. This will continue to be our key focus over the coming months. And as you may have seen in our Trading Update last month, I’ve been working to strengthen my Executive Team with a number of new senior leaders joining from outside the industry. I believe it is critically important for us to introduce new ways of thinking, particularly given our industry is undergoing such change, with plenty of tobacco expertise in the organization, which is important.

But we’re now adding to that by bringing in new skills, capabilities and experience developing other consumer goods businesses. For example, Javier Huerta, will bring more than 20 years of experience at Nestle and Unilever at reconfiguring supply chains to adapt to changing consumer needs, and developing new supply chains for new product segments important for addressing our NGP strategy. I worked with Alison at Inchcape, so I’ve seen firsthand how she can help drive the necessary organizational and cultural change to support our strategic objectives. Murray McGowen is the First Head of Strategy of Imperial with a strategy consultancy background having worked at McKinsey, but as well as with extensive FMCG experience.

In a similar way, Therese has taken steps to strengthen our Board, recently appointing two new NEDs who both bring a wealth of international business experience. So, also, I am not yet in a position to fully share all of my thoughts with you today, I would like to take a moment to provide you with some initial observations about the business. I should say at the outset that I recognize the disappointment around performance and valuation. We will address this over time. And my first four months have reinforced my view about the future value creation potential of Imperial.

For example, Tobacco is proving its resilience in these uncertain times. And while there always be some regulatory uncertainty, I’m confident that tobacco pricing model is intact and can support increasing returns, going forward. We have a solid business with good brands, high margins, and strong operating cash flow, all of which underpin the opportunity to deliver a stronger and more consistent performance over time. I recognize that there is a debate as to whether these brands are underinvested. But it is also important to recognize that marketing spend in the tobacco sector is relatively low percentage of revenue compared to other consumer sectors. So adjustments to spend are unlikely to be significant over time in the context of our high margins.

With exposure to some highly attractive markets, such as the U.S. and Germany, both are large profit pools where consumer affordability is good, which supports future pricing opportunities. I believe that our manufacturing supply chain operations provide us with a really core strengths in the tobacco business. The team has delivered consistently and coped admirably, for example, with the challenges of the coronavirus, with the vast majority of our factories operating throughout with minimal disruption. I also believe they’re run relatively efficiently despite the complexity of the business.

Our approach to customer engagement is also a real strength. I have spoken personally, many of our customers at length, which has provided real insight. In talking to customers, they really value the insight around the product and support that Imperial brings on areas such as regulation, helping to build solid retail and wholesale relationships. I believe this strength is critical in tobacco, given the role that retailers play in influencing consumer brand and product choices, particularly in dark markets.

With Imperial typically being the number two or number three play in that country, I found customers like to partner with us to provide good competitive tension on shelf. I think we can build on the strengths going forward. In the U.S., for example, our sales force coverage varies significantly by state. So there is an opportunity to allocate resources more effectively. Well in Germany, our sales team need to be better aligned to the fastest growing channels and outlets. One of our big German retail customers also comment to me that he has not met with a senior Imperial leader in many years. I’m determined to make sure we stay close to all our customers.

This is my DNA, and has critically build a strong and competitive business. I’ve also been impressed with the commitment and passion of our employees across the business, and also the warm welcome I’ve received. Our people have done a great job in embracing new ways of working in these uncertain times. For example, our sales force adopted their approach to meet and serve customers. And when I was out with our sales force in Madrid, they described to me how we were the fastest at that outlet coverage to the changes caused by COVID.

In general, I found good people on the ground, who we need to empower and give greater accountability. I’d also like to be candid in talking about some of the issues I think we have to address. In Tobacco, the market share performance has been mixed over the last five years, we’ve often grown share in markets that make a relatively small financial contribution, like Russia or Saudi Arabia, while losing share in some of our larger contributors, such as Germany and UK. We need to deliver a more consistent result particularly in the market that drive our overall financial delivery.

This is such a priority. I’ve already changed the way market share is incentivized in our bonus structure to improve alignment with this objective. It’s important to recognize that we operate in competitive market and it will take time to change the share performance. But there is scope to improve our consumer insight to better inform our marketing programs and deliver stronger results. As part of improving performance management in our major markets, we’re now reviewing the marketing initiatives in detail against their KPIs, every quarter.

With NGP, we’re starting with consumer preferences, where it’s clear that many adult smokers are choosing reduced risk alternatives to combustible tobaccos. As a consumer goods company, we have an opportunity to meet that consumer demand, and therefore NGP needs to be part of our offer to consumers, where we can make a meaningful contribution to harm reduction. However, it has been challenging with uncertain regulatory backdrop, low barriers to entry and the highly competitive environment. While these factors have played a part, our NGP business has underperformed and our investment decisions have not delivered the anticipated returns.

We’ve already taken steps to address this by cutting investments to reduce the losses, while we assess our assets and capabilities. The NGP team and the markets have raised areas with me where we can improve our execution, for example, by ensuring we develop products that are sufficiently different and thoroughly tested before we scaled them up widely. We will also continue to be more disciplined with our investments in this context. The real positive here in my view is that no company has found the NGP solution that truly meets the needs of adult smokers across the world.

So there’s more to play for and with a more proven and disciplined business model, I’m confident I can build a stronger NGP business that provides returns to our shareholders. As I mentioned earlier, there’s a need to manage performance more closely. I’ve already begun to make change to lever this through detailed monthly business reviews. This will enable us to be more agile and responsive to changing circumstance and to course correct when investments are not delivering. This must be supported by a more rigorous analysis so that decisions can be informed by consumer insight.

I found that we have plenty of detailed brand level market share data that’s often not being meaningfully used to drive decision making and planning. All of this needs to be supported with the right culture, with a greater sense of accountability and better ownership of results, all supported with collaborative teamwork. We should be more outward looking, embracing new thinking and learning from others. We must also embed greater discipline around returns that reflect the inherent risk of different business areas. It was often the case that tobacco investments had to pay back within a relatively short period of time, even though their risk profile was well understood and low.

However, NGP investments did not face the same returns requirements despite the greater uncertainty. We need to implement a more disciplined return focused framework. I’m also encouraging everyone to have the confidence to be more transparent, and to challenge accepted wisdom, while being much more open in the assessment of performance. I’m determined that our communication should also be balanced and open. We’ve already taken steps to improve these results – in these results. And we’ll strive to do better.

In summary, there’s so much things that we can achieve and I see Imperial as having great potential. With clearer focus, better execution, we will over time be able to create long term shareholder value. I will be able to share much more of my thinking after concluding a strategic review. As you might expect, I’m looking at all aspects of the business to explore options to create value. I’m approaching this with an open mind, recognizing the current strategy and business model have not been delivering.

We need to put the consumer at the center of our thinking and planning, recognizing their freedom of choice. In Tobacco, we’re looking at what gives us competitive advantage across our footprint of markets, how brands are perceived by customers and consumers, and what gives us the right to win in the market. I’m looking at the role that NGP can play in terms of providing consumers with reduced risk alternatives to combustible tobacco. I want Imperial to be able to play a meaningful role in harm reduction, which means having a successful NGP business, one that is more focused and better managed.

On organization capabilities, as I’ve said, we’re exploring how we strengthen the team and build our capabilities in certain areas, and making sure with the right organization structure to deliver the strategy. Alongside the strategy, we’ll need to ensure our capital allocation supports the strategic delivery with the right mix of funding sources, the right investment levels, and the appropriate returns to shareholders. We come out of this process with a clear strategy and priorities that will define what Imperial needs to do in the next couple of years and how we are facing up to the challenges and capitalize on the opportunities ahead.

We will provide you with an update on the – of the review on the 27^th of January in more detail. I know lots of you have lots of question on these future plans, but you will understand today I will be limited what I can talk with you about.

So, now let me provide you with my perspective on this year’s results. This has been a challenging year, and I recognize these results fall short of original expectations. Encouragingly, consumer demand for tobacco has proved resilient, and we grew net revenue while the business adapted well to a rapidly changing environment caused by the global pandemic. COVID-19 continues to affect and shape all our lives, requiring flexibility and resilience. I’ve been really impressed with the commitment demonstrated by all our people to keep the business going.

Our tobacco volume declined by 2.1%, reflecting some temporary COVID related changes in consumer behavior. We delivered share gains for the Group overall, also, much of the improvement was in low value markets and products, leading to a weaker than expected gross profit contribution. Our profit delivery has also been affected by some additional COVID-19 related costs in manufacturing, as well as some increased provisions following a cautious assessment of further risk, given the ongoing uncertainties.

We also had some additional regulator expenses and investments in overheads which weighed on our tobacco profitability, which Oliver will explain in more detail. While the NGP results are disappointing, we’ve delivered against our revised expectation and is encouraging, we’re seeing some sequential improvements in sales progression in the second half. A more disciplined approach has substantially reduced investments, which has supported a significant reduction in losses during the second half. Also somewhat delayed, we’ve now concluded the sale of the Premium Cigar business, which was a major achievement in the current environment. Proceeds of €1.2 billion will be used to support deleverage.

It is clear that COVID has impacted consumer and market dynamics, influencing how and where consumers are purchasing and using our products. With more time spent in the home and restrictions meaning fewer discretionary spending opportunities, it would appear that some consumers allocated a greater percentage of their income to tobacco. This has been reinforced in some markets like the U.S. where consumer wallets were boosted by stimulus payments.

From a market and channel perspective, it was clear from the start of the pandemic that travel restrictions would severely limit sales in the duty-free channel in Horeca outlets and in markets which traditionally benefit from seasonal holiday travel. The UK, Germany and France have benefited from the repatriation of some tourist volumes and the reduction in illicit trade. The pandemic has caused some minor disruption to our manufacturing supply chain, resulting in some inefficiencies, which Oliver will talk about. It is clear we will be living with the virus for some time yet. And while I believe our business will be resilient, we’re taking a cautious assessment of the potential risks.

Finally, I would like to touch on ESG. I firmly believe that effectively managing is ESG response is important to our future success. And also as the pandemic affected some of our plant activities in the year, we’ll make further progress against all five of our priority focus areas here. The establishing of an ESG Steering Committee chaired by Thérèse Esperdy and comprising senior figures from around the business, highlights the importance of ESG to the Board, as does the fact we insist our auditors assure our ESG KPIs.

If there’s one area where it could be stronger, is on the metric for some of the priorities such as climate and energy, we have very robust KPIs, but for some others, we need to do better. That will be changing this fiscal year. The Steering Committee has been working with the business to identify and agree appropriate KPIs for all of our main ESG issues. That work is complete. And once they have been validated against the new strategy, we will make them available to you.

I will now hand over to Oliver to take us through the numbers.

Oliver Tant

Thanks, Stefan. And good morning, everyone. This has been a difficult year. While our Tobacco revenue was somewhat better than we originally expected, this has not translated into better profits. Our NGP revenue was also fell short of our original expectations. But the steps we’ve taken to cut costs have significantly reduced the losses in the second half, creating a better platform for the future.

In Tobacco, we grew our total market share across our footprint by 50 basis points and delivered further growth in the majority of our priority markets. Much of the gain however, was in lower value markets leading to adverse mix and lower gross profit contribution. Overall, our Tobacco net revenue was up 1.8% benefiting from a strong second half performance in the U.S. and a return to growth in our AAA division,

In NGP, revenue was down 27% as we destocked trade inventories in the first half and as we scaled back investment, particularly in the second half. Profits and EPS reflected NGP losses and a decline in Tobacco profits, which I’ll come on to in a moment. EPS declined by 5.6%, more than the decline in operating profit, which reflects the slightly higher tax rate in the year.

As previously guided, I expect the upward pressure on our tax rate to continue at around 23% for FY21. Dividend per share of 137.7p was 33% lower, reflecting the Board’s decision to replace the dividend, which we announced back in May.

Our headline cash conversion of 127% includes a 20% temporary benefit from a change in the timing of excise duty collections. Our underlying cash conversion of 107% was ahead of our expectations, driven by working capital improvements.

Tobacco volumes declined by 2.1%, better than the level we’ve been used to over recent years. In Europe, volumes were down 3.5% with slightly better than expected market size trends, offset by the significant impact of COVID, on our duty-free business. As a reminder, our global duty-free business is all reported within our Europe division. We’ve also seen a benefit to market size from border closures, particularly in Europe, where a reduction in the level of illicit product has supported duty paid volumes in markets like the UK.

In the Americas division, our volumes declined 3.3%. Within the U.S. market specifically, we saw a decline of 2.5% compared to a market size decline of 1.8%. Adjusting for the year-on-year impact of inventory movements in the U.S. of 700 million sticks, our volumes outperformed the market, reflecting 10 basis points of market share gain. Volumes in the AAA division grew 0.4%, reflecting stronger sales performance in the Middle East and Africa, which more than offset weaker volumes in Australia.

Stefan mentioned there have been winners and losers as a result of COVID. For example, Spain and the Canaries and the duty-free channel have suffered whereas markets in Northern Europe and the U.S. have benefited. Coronavirus is clearly on the rise again, creating further uncertainty about how consumer behavior and channel shifts may develop going forward. I’ll talk about how we’ve chosen to provide for this risk shortly.

As I mentioned earlier, Group share was up 50 basis points and although we grew in seven of our 10 priority markets, including the U.S., we’ve continued to lose share in the UK and Germany. Our position is however improving in the UK with sequential growth supported by the launch of Lambert & Butler fine cut tobacco together with several large value offerings across a number of our cigarette brands.

In Germany, we are continuing to reshape our portfolio led by JPS and West, with a focus on value formats in both fine cut and cigarettes. This has delivered a better second half, but we’re still down for the year as a whole.

In Spain and France, we delivered share gains for the first time in many years, with gains in blond now offsetting the drag from dark formats. Our share in Italy came under pressure as we increase prices on JPS ahead of our peers. In the U.S., cigarette share was up for the second year. This was primarily driven by continued success with Sonoma and deep discount, while Winston and Kool maintained their position in the declining premium segment.

Mass market cigars gained 70 basis points led by backwards. Overall market size decreased by 4.3%, with some stronger performance in H2, such as the UK and U.S. offset by accelerated declines in markets such as Australia and Spain.

Overall net revenue grew by 0.8% at constant currency. We grew Tobacco net revenue by 1.8% supported by the lower rate of volume decline. Price mix of 3.9% was weaker than normal, reflecting adverse market and product mix, which I will come to in a moment. Our NGP revenues declined 27% driven by destocking of the supply chain and lower investment levels.

If we look at price mix in Tobacco in more detail, we’ve seen a pretty consistent level of gross pricing across the year, as the whole list is shown here. Overall price mix was held back by negative market and portfolio mix, particularly in the first half. Market mix has been a story of two halves with stronger sales in lower value markets such as the Middle East and weaker sales in Australia creating a drag during H1. A stronger mix of market volumes in the second half was driven by increasing sales in higher value markets in Northern Europe, and stronger volumes in the U.S. offsetting the impact of adverse market mix in AAA.

Adverse product mix was driven by a stronger performance from our lower priced formats in the UK, Australia and Germany, with the private label brands in the latter adding over a billion sticks to our volumes but with very little revenue. The improvement in product mix in H2 was driven by the turnaround in backward sales, which were up over 30% in the second half.

Looking at the divisional performances in more detail, our Tobacco net revenue improved in the second half across all divisions except Europe, which was impacted by reduced sales in global duty free. Tobacco net revenue in the Americas grew 1.9% benefiting from the robust market volumes, continued strong pricing and further share gains in both cigarettes and cigars.

In AAA net revenue grew by 5% against a weak comparator with strong volume performances in the Middle East and Africa and an improved pricing environment in Russia. We also benefited from greater stock profits in Australia, which as you’ll recall, is a carryover from 2019. Looking into 2021, we expect that this will be a headwind of around £15 million to revenue and profits year-on-year.

Our NGP revenue performance has been affected by the reduced investment levels in H2 and first half trade destocking. Encouragingly, following the destock, we’ve seen revenue improve sequentially in the second half in both Europe and the U.S., with actual consumer off take remaining broadly stable. In AAA, the second half decline reflects a pause in our expansion of Pulze and blu in Japan, the former pending our assessment of the heated tobacco category as part of the strategic review.

Adjusted operating profit was down 4.8% at constant currency. We’ve restated the prior comparator by £10 million to strip out the benefit of our Auxly revaluation last year. This is as a result of changes to our adjusted performance measures we announced last year. Tobacco profits were £118 million lower. I will provide further detail on the drivers of this decline on the next slide.

Our NGP losses increased by £84 million, driven primarily by, inventory write-downs which more than offset the benefits in underlying profitability from cost and investment reductions. Our Tobacco profits were impacted by four main drivers. Despite strong pricing across the year, price mix was below par affected by the negative product and market mix, I referred to earlier. I estimate the adverse mix represented about a £50 million drag on profit

COVID-related costs of £90 million include around £25 million of manufacturing inefficiencies as a result of disruption to our normal working practices. We expect that many of these manufacturing cost increases will continue into FY21. We’ve also taken provisions of around £65 million against potential stock and debtor risks relating to COVID-19. For example, in the case of stock this relates to certain SKUs, where we are experiencing much lower levels of consumer off take, and so stock durations have increased dramatically, for example, with duty free.

As regards these risks, we have deliberately adopted a more cautious approach against a rapidly evolving environment. Regulation costs were around £50 million higher than usual, driven by the implementation of track and trace as part of a EUTPD II and inventory write-downs following the menthol ban in Europe.

We also had some industry fines relating to competition authority cases in the Netherlands and Ukraine, which we are appealing. We expect about £20 million of regulation costs will continue next year, relating mainly to track and trace. Tobacco overheads were also higher as we allocated more investment towards the tobacco sales force. In NGP, we had a further £29 million of write-downs in the second half, bringing the total for the year to £124 million. These additional write-downs also relate to slow moving inventory and IP.

We significantly reduced operating losses in the second half as we cut costs, reduced investment and renegotiated trade margins with retailers. Cash conversion benefited from a 20% temporary benefit to our working capital from the timing of duty payments in the UK on Logista. Excluding this benefit, which we expect to unwind in 2021, underlying cash conversion of 107%, was driven by working capital improvements and lower CapEx.

As a reminder, we benefit from a daily cash pooling arrangement with Logista. Over the year, the daily average cash balance under the Logista cash pooling arrangement was £1.9 billion, with movements varying from a high of £3.9 billion to a low of £0.5 billion. At the year end, the loan position was £2.4 billion.

Our reported net debt-to-EBITDA including temporary benefits from the timing payments was 2.7 times. Excluding this benefit underlying gearing was 2.9 times. Including the proceeds from the premium cigar sale, which completed post the year end our pro forma net debt-to-EBITDA is closer to 2.7 times.

As a reminder, the sale of Premium Cigars will dilute next year’s EPS by around 3% as detailed in a slide in the appendices where you will also find guidance on a range of finance items for the coming year.

I would now like to hand back to Stefan.

Stefan Bomhard

Thank you, Oliver. So as we now look forward, I’m expecting a stronger operational and financial performance in 2021. On an organic basis, excluding the impact of the Premium Cigar sale, we expect to deliver a low to mid single-digit growth in adjusted operating profit at constant currency.

We’re conscious that COVID continues to impose restriction across our markets and against this uncertainty we’ve been deliberately cautious in forecasting for the year ahead. Underlying tobacco pricing is expected to remain strong. Also ongoing mix headwinds are likely to persist, coupled with lower level of stock profits from Australia and the UK. We expect tobacco consumption will trend back to more normalized levels, particularly as the benefit of fiscal stimulus reduces and potential recessionary pressures takes effect.

Given the outlook for travel, we’re not assuming any recovery in our duty-free business this year. We also expect the COVID-19 restrictions will cause further manufacturing inefficiencies in the coming year. And similarly, the regular costs related to track and trace will continue. We expect the NGP losses will continue but at the moderated level achieved in the second half. A high tax rate will have a 2% impact on earnings with constant currency earnings per share, expected to be slightly ahead of the prior year.

Turning to my priorities for the coming year, they are about three things, the right strategy, the right team, and the right performance. My immediate priority is to complete the strategic review and implement the right strategy to unlock the Group’s full potential overtime. I look forward to providing more details in January. It is also about the right people by combining the strengths of our existing people with the fresh perspective of new hires. The people in the business have impressed me and this reinforces my confidence.

Recognizing that many are watching today, I would like to thank you for your support so far. It is also about the right performance. I’m already taking steps to improve accountability to strengthen performance with more rigorous data led oversight. I’m confident that with a more disciplined focus on execution, we can begin to deliver better and more consistent results. I’m excited about the future and truly believe that over time, we will deliver a stronger performance and unlock long term value for shareholders.

Thank you very much for listening today. I would now like to take questions. I’ll hand you back to the operator to start the Q&A session.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Thank you. And our first question comes from the line of Owen Bennett from Jefferies. Please ask your question, your line is now open.

Owen Bennett

Good morning, guys. Hope you’re well. And the first question is, I was just hoping maybe you could comment on the trends on blu in the U.S. and what you’re going to do to try to improve market share trends? I guess more specifically, obviously little that can be done by way of innovation anytime soon, with new products and due to PMTA. So do you think that the current blu product in the U.S. market is good enough? And how do you start to drive some improved momentum there? That’s my first question. Thank you.

Stefan Bomhard

Owen, good morning, it’s Stefan speaking. So nice to meet you at least in the virtual world. On blu, in the – your question on market share in the U.S. In principle, we’ve seen what is quite encouraging, we’re seeing a flattening out of the market share in blu in the last couple of months. So we are clearly seeing that the business is quite resilient in the current environment. On the second part of your question, as you will know, the future of our NGP strategy, that is what we’re currently still working through in preparation for our overall strategy. So on that one, I’m sorry, but that is probably some – that is something we’ll share in the 27th of January, Capital Markets Day.

Owen Bennett

Okay, thank you. And I think your next answer will be similar. And but I was just going to ask and maybe talk about possible, the divestiture of non-core assets? And is this something you’re looking at and specifically, would you look at potentially selling the mass markets cigars in the U.S. or even part of the emerging market cigarette business? Thanks.

Stefan Bomhard

Owen, I think you got it right. I mean, in principle, this is not a question that I think would be right to answer ahead of the completion of strategic review. I mean, what I can reassure you is that we are taking a very rigorous, very disciplined and detailed review of the business, unit-by-unit, brand-by-brand, country-by-country. So we will look at our footprint assets and the performance and the execution against it. So that is truly something we’ll come back to you at the end of January. But I can reassure you, we are looking at all options inside the business.

Owen Bennett

Okay, great. Thanks very much. Appreciate your time.

Operator

Thank you. Your next question comes from the line of Gaurav Jain from Barclays. Please ask your question. Your line is now open.

Gaurav Jain

Hi, good morning. So a few questions from me, one of the biggest concerns investors have had is there’s a margin reset at Imperial. And you are giving an EPS guidance today, and you will have a CMD in January. So should we assume that the guidance you are giving today you will retain in January as well, so if you could just comment on that?

Stefan Bomhard

Sure. Good morning Gaurav. Gaurav, in principle, I think the key point you’re picking up here, I think one thing to keep in mind is when you compare the levels of marketing investment specifically in our industry versus other consumer goods industries, we’re talking about single digit level of investments versus many other consumer goods industry in double digit. So I think, overall, well as I have looked at the last four months and just based on today’s knowledge, I think we’re reasonably invested in our brands in the right way. We are clearly also looking about how do we spend that money today about driving performance? So it’s pretty fair to say, based on our knowledge that you shouldn’t expect a major margin reset won’t be coming at the Capital Market Day.

Gaurav Jain

Sure. You mentioned in your comments that you are having monthly business reviews with your top five markets. But I think you have 10 key focus markets. So could you share what those top five markets are? And those other five markets, are they no longer a focus?

Stefan Bomhard

Now, Gaurav, I think the most important – the broader comment is very clearly and in my first couple of months, I had to clearly focus my attention. And it’s very clear that five of our top markets make a very disproportionate impact to our business performance. So once the changes are implemented, I have my monthly direct reviews with these top five markets together with the two divisions we have. So I’m not just relying into two divisions to look at the business, but as a CEO of this company, I feel it’s very important to really have a direct grip on the business.

We’re also seeing, just to share with you one detail, it isn’t just with the Managing Director of the Market, it’s with the entire management team, the Head of Sales, the Head of Marketing, the Head of Consumer Insights, because these are clearly the market that are driving the best value creation. And the five markets you could figure out when you look at this time, you will have seen in our release. We call out the profitability and the revenue impact of these key markets. So probably, pick the top five markets from a revenue and a profit perspective, and you are in the right place.

It doesn’t mean the other ones are not important, to be clear. But I do believe focus in this space is one of the key messages I’m sending, which are the market that will move the needle in this company.

Gaurav Jain

Sure. And last question, just a technical question, maybe on the excise tax scenario. So Australia and France, have been difficult markets in the last few years because we had these very steep excise tax hikes. And it seems that in both those countries, those excise tax cycles are at an end right now. So first of all, is that assessment correct? And does this imply that Australia and France can improve for you as well as for everyone over the next couple of years?

Oliver Tant

Gaurav, if I can take that one? Hi, good morning, it’s Oliver here. I think one factor you need to reflect in Australia is the fact that we’ve also benefited from and we referred to it at the end of last year, duty windfall is a part of those excise changes. And those have benefited our stand in the market over the last couple of years to the tune of about £50 million. So I think you actually, we’re expecting that to largely unwind as we move forward. So we’re starting from a lower base. So I would say with Australia and say, actually, that’s likely to be a headwind for the business in the context of the outlook for FY21 and beyond. And France is progressing in a measured way is the way I think I would probably describe where we are in France.

Gaurav Jain

Okay. Well, thanks a lot.

Operator

Thank you. Your next question comes from the line Alicia Forry from Investec. Please ask your question, your line is now open.

Alicia Forry

Hi, good morning, Stefan and –

Stefan Bomhard

Good morning, Alicia.

Alicia Forry

Hi. You talk a lot about changes happening in your industry and I think most of that is aimed at NGPs. But I noticed, a couple of years ago in 2018, at an Imperial company presentation 70% of profit was derived from the top 10 markets. And now in a couple of years’ time that’s concentrated into the top five markets contributing 70% of profits. So I’m just curious if you can talk about some of the changes in profitability in your main markets that are behind that, that shift and that consolidation, I think that would be interesting to understand more about. That’s the first question.

Stefan Bomhard

Alicia, I mean, on the – to be honest, it’s because I haven’t been here in 2018, so quite difficult for me to comment on profitability development over time. I think what is clear and I think one message I’m sure you’re taking away is about the – it’s a very important, yeah, that a significant chunk of our profit gets generated by a group of countries, which I think that I’m focusing management’s attention on these ones. At the same time, I would just be mindful as well, that the rest of the market still make a very meaningful contribution in this company. It’s we are in the privileged position of a good level of profitability in this company. But I think it’s also very clear that a lot of our markets make still some very significant contributions to the overall profitability. Oliver, anything to add from you side?

Oliver Tant

Yeah, I had – just had a couple of points. So I think we have actually seen quite strong growth in profitability from the five that we’re currently focused on over that period of time. But also, it would be fair to say that the – that there was a big difference between the larger ones and the smaller ones and therefore disproportionate. The increases in the larger ones have a much more impactful contribution in overall terms. So if we take the U.S., for example, which has always been pretty transparent in our numbers, because we’ve talked about the Americas, and it’s been a large portion of our business, the profitability of that business has grown pretty strongly over the last three or four years, and much stronger than the average for the Group as a whole. So it shouldn’t entirely come as a surprise. And it’s, I guess it drives the comments Stefan’s making about the need to be very focused on that group, because they make a massive difference if we get them wrong. And, anyway that’s where a lot of the focus, time, and attention will be as we’re moving forward.

Alicia Forry

Understood, thank you. And then secondly, you talked about becoming a more agile, is this a matter of reorganizing where accountability lies within the organization or is it a question of, more investment is needed in systems to monitor data? Is it a structural, organizational issue or more of a capabilities and investment issue?

Stefan Bomhard

I think – let’ say, it’s a great question. One thing, I can reassure you it is not – the primary answer is that it’s not a structural investment in IT. I think it’s more, we’ll talk more about the Capital Markets Day once we’ve completed our work. It’s a combination of on the one side about kind of how do we focus our attention from the top down on the core markets and the core decisions. It is also logically a question how we operate from a cultural perspective. I mean, you’ve seen I’ve appointed, Alison Clarke as the Head of People and Culture. There’s a cultural opportunity here. And for example, introducing what you could call skip level management meetings with the top five markets, is one of these examples. That makes us significantly faster, so give you an example from these ones, in these meetings last month, we could very quickly take price decisions in a couple of our markets, because we suddenly had all the leadership team together of the company and we do this now on a monthly basis. And becoming more agile is going to be a combination of many things, but I feel very comfortable that we as an organization can become faster in our decision-making process.

Alicia Forry

Thank you. And if I could just get one last question through, please. Could you talk about how the crisis has impacted trends in fine cut tobacco in the last few months? Just curious how the consumer is either moving more towards that product or away from it?

Stefan Bomhard

Yeah, I mean, number one, interestingly, fine cut tobacco has an important position in some of our markets and it is a relatively small part of our – of the business or the industry in some other markets. So we haven’t really seen a major shift there. I think the one I would probably call out specifically is in some markets as borders shut, what you see in the United Kingdom, a large part of the market growth reported has actually occurred in fine cut tobacco.

However, when we look – when I look at the deeper data, it doesn’t look like consumers have down-traded to find cut tobacco. Our hypothesis at this point in time, a lot of illicit trade, consumers who were buying illicit products have actually switched into fine cut tobacco. So we’re not, so it’s an interesting tendency, and we’ll need to see whether that is something that will continue over time or whether that will revert back at another point in time.

Alicia Forry

Thank you.

Operator

Thank you. Your next question comes from the line of Adam Spielman from Citi. Please ask your question, your line is now open.

Adam Spielman

Thank you very much and looking forward to meeting the new top two. So my first question, I’m trying to ask a question in a way you can answer it, right? And I suppose that, as I listened to what you said very carefully, a lot of what you’ve talked about is more intense management, particularly of the top five markets. And that’s quite a big contrast to what we used to hear about under Alison Cooper. But the main strategy or a low talk was about streamlining Imperial, which I suppose meant asset sales. And I guess I thought personally, potentially buybacks. So here’s the question. The question is, am I right to assume that you think there’s more value to be gained through intense management of existing business, particularly the most profitable elements of it, relative to restructuring and streamlining the overall company?

Stefan Bomhard

Adam, as you say – I mean, first welcome and I absolutely look forward to meet you in person as well. And trying to answer the question today in November, I mean, logically, the key answer is, that’s one of the key focus areas for the Capital Markets Day. But trying to give an idea and I think you are rightly reading into that, I do believe there is more opportunity for managing core markets in the right way. I think there is some low hanging fruits in this company, which give me confidence, because I see the underlying assets of this company are in a solid base, especially as we talk about the tobacco side.

And so I think that is clearly one of the opportunities I see. And I think that is in the interest of our shareholders because that is clearly going to give us a relatively good return on this one. More details, we’ll – I’m happy to share that at the end of January, when the strategic review is really complete, where I think it would be more appropriate to give you the fuller picture.

Adam Spielman

All right. And again, I’ll try and ask questions that you can answer.

Stefan Bomhard

Yeah.

Adam Spielman

Clearly, the share price is sort of very disappointing. Valuation is very low. And you obviously and everyone’s acutely aware of that. And I guess, do you think that’s something you can address directly, most obviously, through buybacks or in your mind is it something that will just and with good operations, will just sort itself out over time? And your view is, give me three, four, five years, and hopefully the operations will improve to such a degree, the share price will go up? Or I guess is it the balance between those two things?

Stefan Bomhard

Adam actually, let me answer it two parts. I think, number one, it is very clear and when you look at our relative share performance, it’s clearly as you will all know very well, there is a secondary rating has clearly occurred in the last couple of years, which impacts us as many of the other players in the industry. But it’s also very fair to say, I’m candid that within the sector, we as a company have underperformed and the primary driver of that is that we have consistently not delivered against the expectation that we set before. So to certain extent, what you hopefully and I’m sure you read into these results, and also outlook for fiscal ’21, there’s a clear strategic imperative from my side that we make promises that we can keep. You heard me talk earlier about a commitment is a commitment. So I think it is important. That is clearly one of the elements I have myself with the team here want to get Imperial to a better place.

Secondly, it’s about you are asking, logically the question about capital allocation. I think on this one, I think we should start with the strategy first. That’s the effort that is clearly on the way, making sure that we are having the appropriate level of funding to actually allow Imperial to be properly in this market for the – all the years to come. I would have said logically and that’s why I put it on the chart very explicitly, in the end of January, we will share with you the capital allocation policy of the company. My last five years at Inchcape, we had a very clear capital allocation policies that we adhered to in that period of time. So we’ll give you clarity, how based on the strategy, we would like to allocate capital going forward.

Adam Spielman

Okay, thank you. And, I presumably, that – one of the things about capital allocation is the leverage you want to have in the company. And historically, there’s been this target of between two and two and a half times net debt-to-EBITDA. Presumably that is something that you are at least thinking about whether that’s the right level again or that’s the right level going forward?

Stefan Bomhard

Adam, it’s part – absolutely. It’s part of the capital allocation model, absolutely. And it’s going to be is that – that combination of like, what is the right level of leverage for this company? What is the right level of dividend of the company and what, as you’ve mentioned before, is there an element of share buyback as we look at our capital allocation policy? So as I said before, all things are on the table as much on the strategy side as well as on the capital allocation side.

Adam Spielman

Okay, thank you very much. That’s very helpful.

Operator

Thank you. Your next question comes from the line of Patrick Dolan from Redburn. Please ask your question, your line is now open.

Patrick Dolan

Good morning, gentlemen. Two questions for me. First, within Germany, specifically, you look at the share performance of last few years, I mean struggling quite a bit. And this year, you had some favorable aspects with less [losses] but you’re still not where you want. In your view, Stefan, why has the German performance been underwhelming and are there any insights you have into the channel and what that means for Imperial? And then secondly, on the mass market cigar business, good performance in H2, how should we think about performance into 2021? Now we have the benefit of people staying at home over the last few months, and how should we think about the category over next year? Thank you.

Stefan Bomhard

Okay. And Patrick, good morning. On German performance, now, I’m in the business four months. I’ve spent – one thing I made sure I’ve given the importance of German market. I actually was in Germany, on the ground, out with our sales force, with our management team, talking with customers. Now, and I think would be inappropriate today to kind of share already kind of thoughts about Germany. I think it’s the direction of travel that we want to get to a better position there, it’s clear.

And I think I – put it this way, I’ve looked after German markets for a long part of my career. I’ve known the German trade for a long period of time. I think there are some levers we can pull over time to get ourselves to a better position. And there is logically we – as you will know, a lot of value creation in our industry in the German markets. One of the most highly attractive markets and we actually have a very strong footprint in the German markets, which actually is quite interesting and good for Imperial. But we do need to generate a better performance from a market share perspective out of the German market. That will take time, that won’t happen overnight. But being on the ground reviewing the plans with the team, I do believe there is an opportunity to get to a better place.

On the mass market cigar question – on that you asked about the U.S. Clearly, we – obviously, that is an opportunity that we for Imperial to grow. I mean, with the backward brand that we hold in that market, that is clearly a consu – that is a brand that has a very strong consumer preference. So interestingly, we’ve been in fiscal year ’20, handicapped by supply constraints, because it uses a very high-quality leaf.

And therefore, as a result, we couldn’t actually produce as much as we wanted. We’re working very hard to improving our supply situation to be clear that has wholesome costs of goods implications. But to be clear, there is a consumer demand, a consumer preference for our brands, and therefore our job has to do to get these products into the hands of the consumers.

To be clear, when you look at the half effects, we clearly have these supply chain shortages, primarily in half one of fiscal ’20. So we already saw an improved situation in half two. So as we carry now into half one fiscal year ’21, the year-on-year, like-for-like comparison would actually be quite positive for us. So I’m quite – you get the sense that I’m quite excited by our mass market cigar opportunity in the U.S.

Patrick Dolan

Great, thank you.

Operator

Thank you. Your next question comes from the line of Jon Leinster from SocGen. Please ask your question, your line is now open.

Jon Leinster

Hi, good morning. And again just to reiterate Adam, looking forward to meeting you in person at some point. And couple of questions, if I may. First of all on your outlook, you said volumes will become more normalized. Could you give a bit more detail on what do you expect the U.S. and EU markets to look like in terms of volumes going into FY21, please?

Stefan Bomhard

Yeah, it’s a great question. I have to say it’s difficult to predict. To be honest, I think what I would say is that we will – I think if you look at the U.S. and Europe, we clearly saw an improvement of underlying market volumes behind COVID. I think relative from a volume perspective in these markets, COVID has been a tailwind. I think it’s fair to say in our fiscal year ’21, I think some of that tailwind will unwind. I have to say, I find it difficult to say by how much, because to be honest, that will depend on when is the effect of COVID going to reduce itself. And to be fair also, what is going to be the recessionary impact that we’ll see from COVID.

I think so I feel quite confident that we will see some unwind of the tailwind. But it’s quite difficult to say how much will really happen in fiscal year ’21. And I personally have – you probably get the sense, I’d rather go forward with a prudent forecast versus actually leaning forward in an optimistic way here. If the world turns out to be better, fantastic for all of us. But I don’t want to build my forecast around kind of a very optimistic outlook.

Jon Leinster

Okay. And perhaps put it – put the same question in a slightly different manner, if I may. How much do you think illicit trade or lack of illicit trade impacted some of the major markets? And are you assuming that illicit trade comes back into the market at the sort of more normalized rate?

Stefan Bomhard

I think it’s quite a difficult question, to be honest because as you will know, illicit trade is very difficult to track at this point in time. Would – to answer your boarder question, would I believe if border situation normalizes, then you will see some recovery of illicit trade. Yes, I think we will. Will it recover to its prior levels? I think that’s difficult to say at this point in time.

Jon Leinster

Okay. And on the NGP side, I mean, it looks like – I mean, the sort of run rate cost base is about £400 million a year. How much of that is, would you say is fixed and how much of that is sort of marketing and variable? Is that something that you can flex going forward?

Stefan Bomhard

I mean, at this point in time, I wouldn’t kind of go in the different lines of the P&L of the NGP business. I think – I think you’re rightly said, lots of moving parts here in the past. So that honestly is one of the ones I would like to come back at the end of January as we’re still working through our plans. But what you will see it’s a more focused and a more rigorous approach. The one thing I would volunteer to you, it has been historically quite a fragmented approach, as we have driven our EVP business separate from our heated tobacco efforts. For example, and one of the steps I’ve taken here my first months to actually bring that business much closer together. So removing duplication of market research costs, as an example, because an NGP consumer is an NGP consumer, we don’t need to do the research twice between heated tobacco and EVP.

Jon Leinster

Right. And lastly, if I may, I mean, you mentioned again, on the capital allocation that you’re investing more particularly in the in the tobacco sales force, is that – I’m not assuming, is there a sort of low hanging fruit? Is there – is that something where you can improve the market share trend in some of the key markets just because there’s perhaps been not enough sales force?

Stefan Bomhard

I think the – as I said, I spend – I’ve run sales forces for a significant amount of my life. When I’ve been out there with our people, looked at coverage of different channels and so on and I think there is an opportunity for us to actually improve our coverage of the most attractive channels. Now, when we come to Capital Markets Day, we’ll give you more detail, but I do believe that is one of the leverages that we have to actually run the business – our business better. And exactly as you say, ultimately, that is one of the levers we can pull to actually drive market share as well.

Oliver Tant

So it might be worthwhile just to be clear on the point. I mean, what’s actually happened in FY20 is that we had, – we have a lot of investment going in behind our NGP business in FY19 and into the early part of ’20. It was the sales force in part, so the sales force was tasked with a series of initiatives to support NGP. What we did during the course of ’20, is pull back the amount of time they were spending on NGP and ask them to spend more time on tobacco. So although that shows up as an increase in our tobacco costs, obviously the counter is that it’s reduced our NGP costs. We’ve not put on additional overall costs of £26 million.

Jon Leinster

Right, okay. So I mean, but okay, so it’s an allocation issue.

Oliver Tant

Yeah, well, it’s an allocation of time. You see that’s –

Stefan Bomhard

For fiscal ’20.

Oliver Tant

For fiscal ’20.

Jon Leinster

Yeah. Okay. Well, thank you very much.

Stefan Bomhard

Thank you.

Operator

Thank you. Your next question comes from the line of James Edwardes Jones from RBC. Please ask your question, your line is now open.

James Edwardes Jones

Good morning. Stefan, you said that it’s important to base decisions on real data and insights, I think was your phrase. And it was pretty clear implication that this hasn’t been the case historically. Can you give some examples of what’s or what needs to change?

Stefan Bomhard

Yeah, I think they are two [indiscernible]. I think that the most obvious one is on NGP. I think it’s very clear that with the best intentions in the past, some of our roll outs on the NGP side happened too fast and too broad. And in the desire to capture what was especially on the EVP side, a very fast-growing market and also in heated tobacco, sometimes, decisions were made without the full data being available at that point in time. And the products were scaled into markets without really having all the data in hand, so not fully tested proposition. That kind of would be the one.

And the other one I would volunteer is, when you look at it, I’ve come through hundreds of pages of consumer data on our tobacco business. And what you would – what I would observe was lots of data but for example, some of how we look at the data is not consistently the same across the company. And it’s about mining that data in decision making process that is something where I think we have a real opportunity to improve. That gives me confidence about that over time, we can also improve our tobacco performance.

James Edwardes Jones

Got it, thank you.

Operator

Thank you. Your next question comes from the line of Sanath Sudarsan from Morgan Stanley. Please ask your question, your line is now open.

Sanath Sudarsan

Hello, good morning, everyone. And good to hear from you, Stefan. Two questions from me today.

Stefan Bomhard

Good morning.

Sanath Sudarsan

Yeah, good morning, two questions from me today. The first one, you seem to have looked at all the options inside the business and much of the comment seem to suggest going for improving operation performance, speed, accountability, for example. But the tobacco industry is changing quite a bit, especially in some of your key markets. So how do you tie up your internal assessment of the business with the external market with your current brand and geographic footprint? And secondly, probably just related to that, do you think Imperial can transform into a business which adds more users to the portfolio in a sense, the canvas transforming to a growth business over the medium to long term? Thank you.

Stefan Bomhard

Sanath, I think the – logically my starting point has to be the business of what I have today. So my strategic review has to start with the business of today. But logically, we’re doing this in the context mode, what will the industry looks like in the next five years? So you have to trust me that we are looking at all options, and we’re considering that. But to be clear, I think there is clearly an opportunity to generate more growth and more profitability from our existing portfolio, but we’re not going to close our eyes to other opportunities that are there. But to be clear, I think our starting point always has to be our own business. And we’ll give you more details on this once we have completed our strategic review at the end of January.

Sanath Sudarsan

Great, and can I just press on one more question on culture changes you’ve actually touched upon. And obviously culture changes are always like the transformation story of companies. Could you just also maybe touch upon a few more examples of how, the traditional versus new model of culture can help deliver a bit more robust earning to the business?

Stefan Bomhard

I think the – I do believe culture can play a key element. I mean, in my last five years of CEO, it definitely made a difference. And I think one thing you can take as a signal of me putting for the first time in quite a while achieve people and culture office on the Executive Committee, take that as a signal that I do see that as one of the key levers of improved performance at Imperial.

And I think the other thing when I went through all the employee engagement service, read through all the verbatims that were of a survey that was done before I arrived, it’s very clear that there is an observation from an employee that we work too much in silos. And when you hear the word silo, that’s a very clear signal, we’re wasting resource because people do not work together enough. And therefore you have duplication in the organization.

So that is clearly, I see a more collaborative culture throughout the business. And also with more shared objectives as an organization, that’s one of the levers to pull in this context. And I’ve done this before in my career. I do believe there is actually going to be a very high correlation between driving a more collaborative and more focused culture, in the organization to actually making a contribution to a more consistent performance of the company. But you will hear Alison talk about this when we come to the end of January.

Sanath Sudarsan

Thank you very much.

Operator

Thank you. We have no further question at this time, please go ahead.

Stefan Bomhard

Okay. So I wanted to say a big thank you for a high-quality set of questions. And as I said before, hopefully we’ll have the chance to meet face-to-face again. And I’m very much looking forward to hopefully, at least probably in a virtual way see at the end of January, where we – I’m sure many of the questions that you couldn’t ask today, we’ll be able to answer that. Thank you.

Operator

Ladies and gentlemen, that does conclude your conference for today. Thank you for participating. You may now all disconnect. Thank you.

Gasoline is too cheap

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Europe must follow Czechia in banning hen cages

Good news is in short supply these days as Europe battles Covid-19, but there is something to celebrate: breeding millions of egg-laying hens in cages will be banned in the Czech Republic, from 2027, writes Michaela Šojdrová.

Michaela Šojdrová is a Czech Member of European Parliament for the European People’s Party. She is a substitute member of the Agriculture Committee.

The next step must be to move swiftly to ban such cages throughout the EU. Cages are not only cruel — they are also unnecessary as more welfare-friendly alternatives are already in widespread use.

A vote in the upper house of the Czech Parliament, the Senate, taken on Friday (13 November) confirmed the cage ban approved by the lower house in September. The legislation will become law once signed by the Czech President.

Farmers and businesses have seven years to prepare for the ban and adapt, so any financial impact will be minimised.

My party, the Christian Democrats, fully supports the ban. The conditions in which some farmed animals are kept today are simply unacceptable: caged hens have about the same amount of space as an A4 sheet of paper and cannot even flap their wings.

We strongly believe that all animals should be treated with respect to their natural needs. That is why we want to see hen cages banned as soon as possible across the whole of the EU. I warmly welcome the Czech government’s commitment to press for this.

Getting rid of cages is feasible as viable alternatives such as barns, aviaries and outdoor free-range or organic systems are already used widely.

Indeed, Czechia’s ban is not the first. Luxembourg and Austria have already ended the use of hen cages, and Germany and Slovakia plan to do so by 2025 and 2030, respectively.

What is the rest of Europe waiting for?

Increasing numbers of consumers, appalled at the cruelty of caging hens, are refusing to buy battery eggs. The good news is that just over half of the hens on commercial egg farms in the EU today are kept in cage-free systems.

But that still means the other half of commercial hens are caged, and they make up 182 million of the 300 million or more farmed animals confined in cages each year across the EU.

The Czech ban will free from cages around 4.5 million hens a year. Now we must do the same for the millions other caged hens elsewhere in Europe.

It is clear that there is strong public support for this across the EU.

A ‘Eurobarometer’ survey of EU public opinion conducted for the European Commission found that 94% of people believe protecting the welfare of farmed animals is important, and 82% want farmed animals to be better protected.

And last month a European Citizens’ Initiative calling for an end to the use of all cages in animal farming was handed to the Commission, signed by 1.4 million citizens from every member state.

The Commission has already made a welcome commitment to improving animal welfare legislation and making agriculture more sustainable with its recently published ‘Farm to Fork’ strategy to reform the way the EU produces and consumes food.

However, Commission officials have since indicated that their proposals for improving the legislation will not be ready until the end of 2023. This is much too late, and not only in terms of animal welfare.

It may mean there will not be enough time for the European Parliament to consider the proposals before Parliament is dissolved for the next elections in spring 2024. That will delay the final adoption of the legislation even longer.

If we can end the use of cages in Czechia from 2027, I see no reason why the EU cannot work to a similar timetable.

I urge the European Commission to make revising the legislation a priority and to present its proposals as soon as possible, to ban the use of cages at least from 2027.

VITAFIBER® IMO, CANADIAN BIONEUTRA’S POPULAR HEALTHY ALTERNATIVE TO SUGAR, IS NAMED THE WORLD’S TOP BEVERAGE INGREDIENT

Europe’s Appetite for Caribbean Food Highlights Growing Trend

[Bridgetown, Barbados] – A growing taste for Caribbean food in Europe could be lucrative for regional manufacturers, according to research from The Caribbean Export Development Agency (Caribbean Export). 

The trend for exotic food sauces and condiments and natural, plant-based ingredients is highlighted in a new report commissioned ahead of Caribbean Export’s Absolutely Caribbean virtual expo on 17 and 18 November.   

“We are seeing great potential for Caribbean food products across Europe at the moment”, says Dr. Damie Sinanan, Manager of Competitiveness and Export Promotion at Caribbean Export. 

“It seems that consumers are looking for different flavours and playing more with spices but there is much promise amongst natural foods such a chocolate, teas and gluten–free flours. We are really excited about the range of quality, artisanal producers that we have at our expo this year which will help to support trade between the Caribbean and Europe.” 

In the UK, the Caribbean food market is now worth almost £100m and foodservice wholesale giant Bidfood singled out Caribbean food as a Top 10 cuisine trend. In 2019, UK retailer Tesco also highlighted Caribbean fare as an ‘emerging trend’. Sauces and condiments in particular are worth £1.12bn and grew by 16.8% in the last year.  

Craig & Shaun McAnuff at Caribbean food & lifestyle platform ‘Original Flava’, state: “We’ve seen a huge rise in the popularity of Caribbean foods in the UK in recent years which is really exciting. The likes of Ainsley Harriott and Levi Roots paving the way for Caribbean food; seeing staple Caribbean ingredients more widely available; but also seeing our cookbook as a bestseller on numerous charts and receiving TV & media recognition nationally. There is such a variety and so many flavours in Caribbean cooking which the British public are loving.” 

In Spain, the ‘foods from other countries’ category has grown by 105.9% since 2012. Spicy tastes have seen strong growth with Caribbean flavours named as an emerging trend in sauces and spices, increasing around 55% to three million kilograms and over 29% in value to nearly €19m. 

Almost a third (32%) of German consumers have said they like Caribbean food (1) which has led to an increase in heat and spice on the table during family dinners (2). 

People in the Netherlands are also increasingly open to incorporating greater variation into their cooking, including flavour combinations and the use of fresh and natural ingredients, with the value of chilli sauces climbing 125% in value since 2016.  

Europe’s love for wholesome plant-based ingredients, combined with the region’s efforts to promote sustainability, have also led to an increased interest in natural and organic products such as chocolate, tea and gluten–free flour. 

In the UK, chocolate is a £4.3bn category and according to Kantar, plain and dark chocolate is growing by 14.5% year-on-year.  In Spain, it is worth €1.5bn, and increased by 3.6% in 2019.  Meanwhile, the Netherlands was the largest importer of cocoa beans in 2018 and is home to the largest cocoa grinding industry in the world.  

The tea category in the UK is worth £561.3m which is not surprising given the nation’s love of the hot beverage.  In Germany, 129 million cups of tea are consumed every day and in the Netherlands 71% of consumers drink tea at least once a week. 

The UK’s gluten–free flour food category grew by 19.9% in 2019 compared to the year before and in Germany the market is worth £174m. 

Caribbean food suppliers will be given the chance to showcase their unique food products to European buyers at Caribbean Export’s first virtual expo event: Absolutely Caribbean – unlocking the profit potential of the Caribbean on 17 and 18 November.   

For more information about the event and to register, please visit  –Click here 

Is Britain really about to embrace chaos and misery for the sake of Brexit dogma? | Will Hutton

British business and finance are holding their breath. Few can quite believe that a British government could drive the British economy this close to the brink. Surely no sane government, entrusted with our collective wellbeing, could calmly contemplate imposing on its citizens immense trade disruption, transport chaos, shortages in medicine, fresh foods and key technologies? Then there’s the rise in unemployment created by two lockdowns and widespread bankruptcies. Even a minimalist deal, as John Major said last week, will be far more brutal than anyone expects.

Yet for what? A utopian conception of sovereignty that even in the full flush of empire never held true? Surely rationality must prevail and a deal that goes well beyond the skinny Canada-style deal with the EU – which Boris Johnson says is all he wants – will be struck?

But here we are. As I write, with days to complete negotiations and secure ratification, nobody knows whether there will be no deal – or “Canada”, which is barely better. The reasons are well rehearsed. A reckless, unfocused, Brexit-obsessed prime minister. A Tory party in thrall to its Brexiter ultras. A lapdog rightwing media. And too many of the potential countervailing forces, from the opposition through to business itself, are afraid of offering high-profile arguments for something better out of fear of being cast as undemocratic Remoaners.

Thus the obvious goes unsaid. Britain has no option but to engage extensively with the continent of which it is part. It always has. It always will. Global Britain is just another vacuous slogan. Whatever happens on 1 January is but the beginning of another chapter in Britain’s relationship with Europe. Of course we will have to strike trade bargains on everything from organic food to cars. Equally, with services, whether we’re talking trade in data or mutual recognition of audit standards, there will have to be an accommodation with the 450 million people on our doorstep. And because they are part of a bigger unit, they will get more of their way than we will ours. Only Brexit ideologues, in the same la-la land as Donald Trump in their denial of reality, could think otherwise.

Three weeks ago, the outgoing director-general of the CBI, Carolyn Fairbairn, did manage to gather an astonishing 71 trade associations and professional bodies, encompassing virtually the entire British economy, to jointly insist on an ambitious trade deal – and warn of the consequences of no deal. Steve Elliott, CEO of the Chemical Industries Association, says as the leading manufacturing exporter, “we need that deal”. From Ian Wright, CEO of the Food and Drink Association: “No deal would… put at risk the choice, quality and affordability of food and drink.” David Wells, CEO of Logistics UK, says a deal is “vital to keep the trucks moving”. Mike Hawes, speaking for the motor industry, says: “Only an ambitious deal… will safeguard livelihoods and drive investment.”

There was more in the same vein from farmers, chartered accountants, the pharmaceutical industry, ceramics, the City, motor manufacturers, airports, airlines, energy, creative industries, hi-tech. Even country landowners and the security industry added their weight. I can’t remember such urgency and unanimity from every nook and cranny of British business. For their pains, it was hardly reported.

And yet, even if there is no deal by 1 January, with all the immediate chaos it will cause, there will have to be some arrangement negotiated over 2021, as the environment secretary, George Eustice, conceded to the BBC in September, arguing that the intransigent EU would by then have to come to its senses. More to the point, so would the British government. A comprehensive deal encompassing goods, services and regulatory standards in which the interests of the EU are respected and the integrity of the Good Friday agreement is upheld is an inevitability. Johnson simply lies, as John Major says, when he declares all Britain wants and needs is a Canada-style, no-frills deal. There has to be more.

On data alone, the heart of the 21st-century economy, a skinny deal is not remotely enough. The Japan-UK trade deal drops necessary privacy and protection standards for data trade, again barely reported. The EU cannot allow Britain’s financial services industries and hi-tech companies to opt out of conforming to EU data standards, otherwise Britain just becomes a global data-washing hub. Without a deal on data standards, as the international director of the Financial Conduct Authority warned last week, British financial services stand on a cliff edge. So does virtually every British business deploying data.

The No 10 court is deaf to all of this. Grassroots for Europe, a network of 200 pro-EU groups around the country, is trying, to its credit, to raise the salience at the last with its Voices for a Better Deal social media campaign, highlighting the concerns of business, finance, university, science and trade union leaders. It’s a commentary on our times that before a national emergency there is no sustained, high-profile effort to sound the tocsin. In its absence, this is the best we can do.

The Labour party, apparently, is even debating voting for Johnson’s deal to show it has left Remain behind. It would be a category error. This fiasco must be owned by Johnson and the Conservative party. Labour’s role in the years ahead will be to campaign on endless issue after issue – on data, financial standards equivalence, transport logistics, drug safety – for access, common understandings and deals, culminating ultimately in either a special association relationship with the EU or full membership. Brexit Tories and Trumpites can try to defy the tide. Truth – and with it our prosperity – demands differently.

• Will Hutton is an Observer columnist

Heineken N.V. reports on 2020 third-quarter trading Amsterdam Stock Exchange-HEIA

Amsterdam, 28 October 2020 – Heineken N.V. (EURONEXT: HEIA; OTCQX: HEINY) today publishes its trading update for the third quarter of 2020.

KEY HIGHLIGHTS

• Beer volume -1.9% organically for the quarter; -8.1% for the first nine months
• Heineken® volume +7.1% in the quarter; +1.0% for the first nine months
• HEINEKEN’s current strategic review aims to accelerate a return to profitable growth in a fast-changing post-COVID world, including simplifying and right-sizing its cost base

Dolf van den Brink, Chairman of the Executive Board / CEO, commented:

“Our performance during the third-quarter continued to be impacted by the COVID-19 crisis. As many lockdowns eased, our volumes improved sequentially compared to the last quarter.

We outperformed the category across most of our key markets, with Heineken® showcasing a stellar performance. We continued strict cost mitigation actions whilst balancing investments behind our brands and future growth opportunities.

The situation remains highly volatile and uncertain. We expect rolling outbreaks of COVID-19 to continue to meaningfully impact many of our markets in addition to rising recessionary pressures.

As we navigate the crisis, we are deliberately shaping how to adapt and emerge stronger from the pandemic. I am proud of the relentless drive of our employees and the agility they continue to demonstrate, taking care of one another, our customers, suppliers and communities.”

THIRD QUARTER VOLUME BREAKDOWN

^{1 Refer to the Definitions section for an explanation of organic growth and volume metrics.}

From the onset of the COVID-19 crisis, our first priority has been our people’s health and safety. We have ensured that employees follow strict hygiene and physical distancing guidelines and receive support to do their jobs safely. To provide security to our employees, HEINEKEN has committed to no structural lay-offs because of COVID-19 during 2020.

We continue to support our customers, suppliers and the communities most impacted by the pandemic. We continue to assist our customers with advice and tools, pay all our suppliers on time and reduce payment terms to some small suppliers. Additionally, we provide pandemic relief to support front-line medical facilities in the communities where we operate, including water, non-alcoholic beverages, hand sanitiser, and monetary contributions.

The COVID-19 crisis continued to affect all geographies during the third quarter. Beer volume declined organically by 1.9% in the third quarter, a sequential improvement relative to the previous quarter across all regions. The on-trade remained affected by restrictions to operate and some important markets like South Africa and parts of Mexico faced bans on the sale of alcoholic beverages. Our performance was ahead of the market in most of our key markets.

Heineken® brand

• Heineken® volume continued to outperform the overall category and grew by 7.1% in the quarter and 1.0% for the first nine months of the year.
• Volume grew double-digits in more than 25 markets including Brazil, China, the USA, Nigeria, Singapore, Poland and the UK.
• Heineken® 0.0 grew double-digits with a particularly strong performance in Brazil, Mexico and the USA. This year Heineken® 0.0 was introduced to 11 new markets, including Vietnam, and is currently being sold in 69 markets.

Africa, Middle East & Eastern Europe

• Beer volume declined organically by 2.5% in the quarter, a sequential improvement across all key markets versus the previous quarter. The premium portfolio declined by a high-single-digit as the decline in South Africa off-set growth across most markets.
• In Nigeria, beer volume grew in the high-teens, ahead of the market. The non-alcoholic portfolio grew in the mid-twenties and the premium portfolio grew by more than half.
• In Russia, beer volume increased by a low-single-digit and cider volume by double-digits. The low- and non-alcoholic portfolio grew by a mid-single-digit.
• In South Africa, total consolidated volume declined in the forties due to a nearly five-week ban on selling alcoholic beverages. Heineken® 0.0 continued to grow strongly.
• In Ethiopia, beer volume declined in the high-teens, following the steep price increase in mid-February after the tripling of excise duty. Premium volumes continued to grow double-digits driven by Bedele Special.
• In Egypt, beer volume declined in the mid-teens, driven by lower tourism.

Americas

• Beer volume increased organically by 2.5% in the quarter due to our premium portfolio’s strong performance, partially off-set by the impact of government measures in some regions and cities.
• In Mexico, beer volume declined by a mid-single-digit due to the dry laws, particularly in the Southeast, and stock-outs caused by restrictions on brewing operations at the start of the quarter. The premium and low- and non-alcoholic portfolios increased by double-digits, led by Amstel Ultra and Heineken® 0.0 respectively.
• In Brazil, beer volume grew in the low-teens. The premium and mainstream portfolios grew by double-digits, with Heineken® growing by more than half and the continued momentum of Devassa and Amstel. The economy portfolio grew slightly. Non-beer volume declined in the low-twenties.
• In the USA, beer volume increased in the low-teens as distributors replenished inventories and the on-trade showed some signs of recovery. Sales-to-retailers of Heineken® were back to growth driven by both Heineken® Original and Heineken® 0.0. Lagunitas declined in the low-teens due to its high exposure to the on-trade.

Asia Pacific

• Beer volume declined organically by 12.3% due to lower volume in Vietnam and the continued declines in other key markets affected by recurring lockdowns, the lack of international tourism and increasingly negative consumer sentiment. The premium portfolio declined in line with the overall portfolio in most markets.
• In Vietnam, we continue to outpace the market while beer volume declined by a high-single-digit following the second wave of COVID-19 restrictions and the price increase at the end of June. We have reached the position of market leader this year, driven by the success of our expansion strategy and the solid momentum of our innovations including Heineken® Silver, Heineken® 0.0 and local beer brand Bia Viet.
• In Cambodia, beer volume declined in the high-thirties following a steep increase of promotional activity in the market and by economic conditions affected by the rise in unemployment from the tourism, garment export and construction industries.
• In Malaysia, beer volume declined in the mid-teens, an improvement versus the previous quarter as the on-trade gradually recovered. Since mid-October the government has imposed new movement restrictions and closed part of the on-trade again.
• In Indonesia beer volume declined in the mid-double-digits as a second lockdown was imposed impacting the on-trade and consumption from international tourism remained absent. Beer volume in Bali declined by close to 80%.
• In South Korea, beer volume increased in the mid-thirties driven by improved penetration and distribution of new brands and line extensions.
• In China, we are into the second year of our strategic partnership with China Resources Beer (CRB). Heineken® grew by strong double-digits as it continues to be rolled-out throughout CRB’s strong route-to-market, entering new channels and the successful introduction of Heineken® Silver.

Europe

• Beer volume declined organically by 2.4%, driven by a decline of around 20% in the on-trade. The off-trade grew by a high-single-digit, ahead of the market across most countries. Third-party volume declined by 16.1% as wholesale operations continued to be impacted by outlet closures. The premium portfolio continued to outperform in the off-trade. Non-alcoholic propositions grew low-single-digit driven by Heineken® 0.0.
• In the UK, total consolidated volume was down by a low-single-digit. Beer volume returned to low-single-digit growth with double-digit growth in Heineken®, Birra Moretti and Sol. Beer volume declined in the high-twenties in the on-trade overall with a similar performance in our Pub estate. Beer volume grew in the high-twenties in the off-trade, ahead of the market.
• In France, beer volume was flat during the quarter as the mid-teens decline in the on-trade was off-set by mid-single-digit growth in the off-trade. The premium portfolio grew in the low-teens driven by Desperados and Affligem.
• In Spain, beer volume declined in the low-teens driven by a decline in the on-trade in the mid-twenties, partially off-set by high-single-digit growth in the off-trade. Low tourism and regional lockdowns impacted the summer months.
• In Italy, beer volume increased by a mid-single-digit, outperforming the market, with high-single-digit growth in the off-trade partially compensated for by a low-single-digit decline in the on-trade. The premium portfolio grew around 10% with a continued strong performance from Ichnusa and Messina.
• In Poland, beer volume grew by a mid-single-digit, ahead of the market, supported by the strong growth of Heineken® and Desperados.
• In the Netherlands, beer volume was down by a mid-single-digit driven by a decline in the high-twenties in the on-trade. The off-trade grew by a high-single-digit driven by Heineken® and Affligem, outperforming the market.

REPORTED NET PROFIT

The reported net profit for the first nine months was €396 million (2019: €1,667 million). Continued cost mitigation actions partially mitigated the impact from lower volume, adverse product and channel mix and incremental expenses driven by the crisis, including credit losses and impairments on tangible and intangible assets.

BUSINESS OUTLOOK

The COVID-19 pandemic is having a significant impact on our markets and wider business in 2020. In April, we withdrew all guidance for 2020, given the lack of visibility on the duration of the pandemic’s impact. Consequently, HEINEKEN is only able to share directional information for the remainder of the year.

Although we have observed a recovery over the summer, continued volatility is expected for the fourth quarter, as many markets experience additional waves and the corresponding restrictions, including on-trade closures and crisis-related economic consequences. Currently, new restrictions have been imposed by governments across many countries in Europe, including a full closure of the on-trade. In Asia Pacific, new restrictions are also in place in Malaysia, Myanmar and Sri Lanka.

Product and channel mix is expected to continue to adversely impact results, especially in Europe, as the on-trade remains more affected than the off-trade. Input costs per hectolitre are expected to be significantly higher than last year.

Mitigation actions will continue for the remainder of 2020. We are reducing all discretionary expenses while providing sufficient support behind our brands and route to markets. In the second half of last year costs were skewed towards the third quarter, so the benefits of the mitigation actions will be lower in the fourth quarter.

Most of our non-committed supply chain CAPEX remains suspended, while commercial CAPEX has resumed where it is required to support our current and future top-line growth.

The relative effect of permanent items in the income tax line will be less adverse in the second half than in the first half due to a higher profit before tax base.

Given the uncertainty in profit estimations for this year it is not possible to provide a reliable estimate of the translational currency impact. This year many currencies have depreciated versus the Euro, most notably the Mexican Peso and the Brazilian Real.

STRATEGIC REVIEW

Our current strategic review efforts are focused on shaping the company to emerge stronger from the COVID-19 crisis. We aim to increase adaptability with a clear focus on customers and consumers to regain and sustain future growth. We are exploring how to accelerate and expand our sources of growth while simplifying and right-sizing our cost base. To improve agility and speed in an increasingly dynamic environment, we are reviewing the effectiveness and efficiency of our organisations at head office, regional offices and each of our local operations.

As part of this ambition, while maintaining our commitment to no restructuring related to COVID-19 in 2020, we will streamline our head office and regional offices with an expected reduction of around 20% in related personnel costs. Implementation will begin in the first quarter of 2021. The impact and timelines of restructuring in our local operations will vary depending on the specific circumstances of each operating company. The process will be in close collaboration with our Employee Representatives (HEINEKEN’s Group Works Council and Labour Unions).

RECENT ANNOUNCEMENTS

On 9 September, HEINEKEN announced its entry into the Peruvian beer market by acquiring local beer brand Tres Cruces and incorporating its local operating team in Lima. To support its strategy in Peru, HEINEKEN entered into a strategic partnership with AJE Group to be its local sales and distribution partner in the traditional channel.

On 17 September, HEINEKEN announced it is exploring the Hard Seltzer category with the launch of Pure Piraña in Mexico and New Zealand. It will be available in a range of up to nine different flavours to test local preferences. HEINEKEN is also exploring additional market introductions into this category.

Earlier today, HEINEKEN announced the acquisition of cider brand Strongbow from Asahi Group Holdings Limited (Asahi) in Australia, along with two other cider brands, Little Green and Bonamy’s. The company will also gain the perpetual licenses on beer brands Stella Artois and Beck’s in Australia. The acquisition is subject to regulatory approval and comes after a successful bid for these brands when Asahi put them up for sale as a condition from the Australian Competition and Consumer Commission for their acquisition of Carlton & United Breweries. The acquisition brings the Strongbow brand in Australia home to HEINEKEN and scales up our beer and cider portfolio in one of the world’s leading beer and cider markets.

ENQUIRIES

Editorial information:
HEINEKEN is the world’s most international brewer. It is the leading developer and marketer of premium beer and cider brands. Led by the Heineken® brand, the Group has a portfolio of more than 300 international, regional, local and specialty beers and ciders. HEINEKEN is committed to innovation, long-term brand investment, disciplined sales execution and focused cost management. Through “Brewing a Better World”, sustainability is embedded in the business. HEINEKEN has a well-balanced geographic footprint with leadership positions in both developed and developing markets. It employs over 85,000 employees and operates breweries, malteries, cider plants and other production facilities in more than 70 countries. Heineken N.V. and Heineken Holding N.V. shares trade on the Euronext in Amsterdam. Prices for the ordinary shares may be accessed on Bloomberg under the symbols HEIA NA and HEIO NA and on Reuters under HEIN.AS and HEIO.AS. HEINEKEN has two sponsored level 1 American Depositary Receipt (ADR) programmes: Heineken N.V. (OTCQX: HEINY) and Heineken Holding N.V. (OTCQX: HKHHY). Most recent information is available on HEINEKEN’s website: www.theHEINEKENcompany.com and follow us on Twitter via @HEINEKENCorp.

Market Abuse Regulation
This press release contains inside information within the meaning of Article 7(1) of the EU Market Abuse Regulation.

Disclaimer:
This press release contains forward-looking statements with regard to the financial position and results of HEINEKEN’s activities. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Many of these risks and uncertainties relate to factors that are beyond HEINEKEN’s ability to control or estimate precisely, such as future market and economic conditions, developments in the ongoing COVID-19 pandemic and related government measures, the behaviour of other market participants, changes in consumer preferences, the ability to successfully integrate acquired businesses and achieve anticipated synergies, costs of raw materials, interest-rate and exchange-rate fluctuations, changes in tax rates, changes in law, change in pension costs, the actions of government regulators and weather conditions. These and other risk factors are detailed in HEINEKEN’s publicly filed annual reports. You are cautioned not to place undue reliance on these forward-looking statements, which speak only of the date of this press release. HEINEKEN does not undertake any obligation to update these forward-looking statements contained in this press release. Market share estimates contained in this press release are based on outside sources, such as specialised research institutes, in combination with management estimates.

Attachment

Attachment

• Heineken NV Q3 2020 Trading Update (28_10_2020).pdf

My favorite IG food finds

A lot of people have become instant food entrepreneurs because of the pandemic. Selling their products solely online, they have made our food delivery options more varied, and choosing a lot harder.

To help narrow down your choices, here are some items I found on Instagram and have grown to love.

Lotus Leaf Rice from Rolling Pin (@rollingpinph)

Flight attendant Melody Sy is revisiting her love for baking. With her mom Marines, who cooks classic Chinese dishes, she opened Rolling Pin last May. Their lineup of cakes includes a berry-filled version of the trendy burnt Basque cheesecake and an old-fashioned chocolate cake. For savory fare, their bestsellers are the pork and shrimp wontons, machang or lotus leaf rice, pork maki, pork kiampong, chami, lomi and five-spice kikiam.

The Hulk from Naked Bakery (@nkd.bakery)

Many started selling sourdough during the lockdown, but none were as pretty as the ones from Naked Bakery, so named because the breads have “nothing to hide.” “My time in Europe taught me to love bread the way Europeans do,” says Harvey Hsieh, 29. “I’ve always wanted to learn how to make bread because I knew that one day I’d have to come back home, and the thought of not being able to enjoy them was not acceptable.” So he honed his skills by watching videos online and consulting with friends. He started selling his 100-percent refined wheat sourdough during the initial stages of enhanced community quarantine, then followed it up with schiacciata, a classic Tuscan flatbread, and his bestseller, the Hulk, which is the schiacciata slathered with herbed butter.

Beef Rendang Empanada from Casa Luisa (@casa_luisa)

Because of COVID-19, Jen Gerodias Slagle had to lay off most of the staff from her commissary business. On the bright side, this allowed her to start anew and move to Laguna with her two boys. “Living here, surrounded by fruit trees and foliage and embracing slow living, has inspired me to get back in the kitchen and make things with my own two hands.” In June, she launched Casa Luisa, which offers comfort Filipino food using French techniques. She has sisig, tocino and tapa, but it’s her empanada that sell the most. It’s made with an all-butter pastry that’s treated like a croissant dough. For fillings, she has beef brisket kaldereta, French onion soup, and my favorite, beef rendang with pickles and sambal.

Gourmet Bangus Belly Sardines from CC Table (@cc_table)

A former magazine fashion editor, Carole Cuasay Tagle decided to offer her entertaining staples to the public last July. “I wanted to share my own take on comfort food using healthy alternatives and thoughtful ingredients that even kids will love,” she says. Her roster includes mostly bottled goods like Three Cheese Pimiento, All Natural Hummus, Tomato Everything Confit, Organic Chicken Paté paired with Pear Jam, and pan de sal from Masa Bakery, which is her sister’s business. The Bangus Belly Sardines comes bathed in flavored oil, and the fatty belly begs for warm rice.

Baby Back Ribs with Corn Muffins by Maisie (@aMAISIEingGoodies)

What began simply as a quarantine activity for Candy Villaroman-Tuliao’s daughter, Maisie, eventually became a profitable hobby. “I wanted the time spent at home to be productive. This was our way of turning our situation into a positive and meaningful experience,” says the dermatologist. Maisie bakes the snickerdoodle cinnamon cookies herself, while Candy does the baby back ribs, which are oven-baked for hours. And since this has been selling really well, they’re now working on a frozen version, which customers can reheat.

Wagyu Steak Bowl from Ginza Gyu (@ginzagyuph)

Craving for premium beef bowls, friends and business partners Rich Sanz, Maxine Marcelino, Mikael Jiang and Queen Lee started Ginza Gyu last week. Choices include Wagyu gyudon, grilled salmon, yakinikudon, ebi katsu, eight-hour kurobota chashu and brown butter tenderloin.

Angus Roast Beef from The Purple Wok (@thepurplewok)

The Purple Wok was a longtime idea that finally saw its launch due to the pandemic. “We had to look for means to help our laid-off staff from our other food businesses,” says Portia Vicente-Habaluyas. “They’ve been loyal to us for many years, and there was no way we were going to let them down.” Introduced last September, the brand serves recipes from her home: gambas al ajillo, paella negra with clams and mussels in white wine, and baked lobster tails. Their bestseller has been the US Angus Melt-in-Your-Mouth Roast Beef, which can be ordered with herbed veggies, creamy garlic mashed potatoes, mushroom splice and three sauces—basic gravy, au jus and truffle gravy.

Pollo à la Brasa by Viaje by Kev (@viaje.bykev)

Kevin Jonathan Uy, who graduated from Enderun and trained in restaurants Enoteca in Barcelona and Central in Peru, launched Viaje by Kev in August. “Being a Spanish-speaking, Latin American- and European-trained chef, I felt that I could offer something new and delightful in the face of this crisis,” he says. “The concept revolves around closed borders and open minds. It strives to bring adventure on a plate.” The brand has already become known for its pollo á la brasa set, which includes a whole butterflied grilled chicken, two pepper-based sauces called ajies (rojo and verde), boniatos or sweet potato croquettes and chorizo rice. He also offers a delicious barley risotto, and ready-to-heat callos.

Truffle Umami Rice with Smokin’ Ribs and Garlic Shrimps from Slow Burn (@slowburnmnl)

Food consultant and chef Chryso Morales, 32, lost some projects and his restaurant job because of the pandemic. To earn a living, he, along with partners Dale Morales and Matthew Ignacio, started Slow Burn Manila last September. “The idea is to offer unique and original flavor combinations on a single plate,” he says. “Putting together truffle and barbecue sauce played in my head, so we started testing and cooking in the kitchen until we got the right recipe.” The result—Smokin’ Ribs with Truffle Rice, Garlic Shrimps with French Beans and Cherry Tomatoes—is their first offering, and it has already gathered a loyal following. Next in line are salmon with squid ink rice, and an herbed and spiced chicken dish.

Despite pandemic’s disaster, brewers insist on EU climate goals

The EU beer industry has vowed to continue investing in sustainable practices in their brewing processes to meet EU Green Deal goals despite disastrous implications of the ongoing COVID-19 pandemic.

While the COVID-19’s impact is indeed enormous, it also paves the way for greener options, Pierre-Olivier Bergeron, the secretary-general of the Brewers of Europe, told ‘The Brewers of Europe Sustainability Forum’.

“The impact of the pandemic has been amplified by the great uncertainty around how the situation will evolve, leading to stress and worry for all involved growers, business owners, our supply chain employees and their families. The societal impact of the pandemic has struck the heart of our sector,” he said.

“But it also creates a need to bounce back better and stronger, to create a greener, more resilient and sustainable Europe,” Bergeron added.

The beer industry and the hospitality sector in general have been hit hard by the pandemic, which brought partial and total lockdowns across Europe to curb the spread of the virus. Pubs and bars have subsequently been closed for the second time this year.

A number of supportive measures have been taken at the member state level; however, the post-pandemic era does not look bright financially as many are not planning to reopen their stores.

Despite these circumstances, EU brewers, who employ more than 130,000 people in the EU, have taken a number of innovation-driven initiatives to adjust to a greener economy.

The European Green Deal, together with the Recovery Fund, will help member states modernise and adjust their structures in resilient and greener economies in the long run.

Industry stakeholders have already made moves to put initiatives in practice. In the case of brewers, they have come up with a sustainability plan focusing on areas such as waste, packaging and transport.

MEP: Brewers are leading green innovation

Slovak MEP Ivan Štefanec said the brewers’ contribution to the Green Deal is already remarkable and constantly evolving.

“I think we have to talk also about the whole food industry, but the beer industry is definitely the leader. And I’m happy that I can at least go create a legislative framework for that,” he said.

Belgium, the “Mecca” of beer lovers, has once again seen one of its flagships industries severely impacted by a second lockdown.

Mark Demesmaeker, a member of the Senate of Belgium, said many small brewers in the Flanders region are making strong efforts to find their way toward green innovation.

Some of them, he said, have joined forces and established partnerships with organic farmers., while others have focused on sustainable packaging.

“It is key for the sector in the first place to make sure that they design their packaging in a way that it can be recycled, without any problems. And then, of course, it’s up to the authorities,” he said.

Referring to specific examples in Flanders, he said good collection schemes and recycling facilities have been established.

“This is something we have taken up as well in the revision of the EU waste directives, with new targets […] it is key for all the member states to implement them as good and as soon as possible,” he said.

Demesmaeker said it was necessary to back these efforts on a policy level considering that the number of breweries has doubled in five years, while the number of beer producers – who make innovative recipes – has more than doubled.

A collaborative approach

Paolo Lanzarotti, CEO of the brewing company Asahi Europe and International, said a holistic approach is needed moving toward more collaborative schemes within the industry and across the supply chain.

“We sat down with one of our partners, and we made a long-term agreement. We basically moved or helped them move their can packaging and production facilities closer to our production sites,” he said, calling this a win-win situation.

“The advantage for them is that they get obviously an anchor customer while for us, is that we get better working capital. The advantage for the planet is we reduce the environmental footprint.”

Asked if the innovation push in the beer industry is driven by potential profit, Lanzarotti replied: “I think our innovation strategy needs to both meet consumer demands, sustainability, and ultimately, profitability. And I think the three actually go together.

The Recovery Fund and EU budget

But the industry’s push for greener options depends on what happens with the Recovery Fund and the post-2020 EU budget.

Rozalina Petrova, a cabinet member of EU environment Commissioner Virginijus Sinkevicius, said EU funds need to be channelled quickly to the member states.

“And then member states have a key role in also making sure that those funds are spent for green investments,” she said.

But the rule of law conditionality puts a quick approval of the EU funds at risk, as Poland and Hungary have already threatened to veto the budget deal.

Another thorny issue for the hospitality sector is the rising level of private debt.

There have been some liquidity-supportive measures at the EU level to help businesses cope with the current liquidity shortage. However, these are loans which increase private debt and have to be repaid at some point.

Critics suggest that SMEs may need further assistance or softer tax regimes to be able to survive in the post-COVID era.

[Edited by Zoran Radosavljevic]

Celsius Holdings (CELH) CEO John Fieldly on Q3 2020 Results – Earnings Call Transcript

Celsius Holdings, Inc. (NASDAQ:CELH) Q3 2020 Earnings Conference Call November 12, 2020 10:00 AM ET

Company Participants

Cameron Donahue – IR

John Fieldly – President, CEO

Edwin Negron-Carballo – CFO

Conference Call Participants

Jeff Sinderen – B. Riley & Company

Jeffrey Cohen – Ladenburg Thalmann

David Bain – ROTH Capital

Anthony Vendetti – Maxim Group

Operator

Greetings and welcome to Celsius Holdings Third Quarter Earnings Call. [Operator Instructions] It is now my pleasure to introduce your host, Cameron Donahue, Investor Relations for Celsius. Thank you. You may begin.

Cameron Donahue

Thank you and good morning everyone. We appreciate you joining us today for Celsius Holdings third quarter 2020 earnings conference call. Joining the call today are John Fieldly, President and Chief Executive Officer; and Edwin Negron, Chief Financial Officer. Following their prepared remarks we will open the call to your questions and instructions will be given at that time.

The company filed its Form 10-Q with the SEC and issued the earnings press release pre-market today. All materials are available on the company’s website at celsiusholdingsinc.com under the Investor Relations section. As a reminder, before I turn the call over to John, the audio replay will be available later today.

Please also be aware, this call may contain forward-looking statements which are based on forecasts, expectations and other information available to management as of today, November 12, 2020. These statements involve numerous risks and uncertainties, including many that are beyond the company’s control.

Except to the extent as required by applicable law, Celsius Holdings undertakes no obligations and disclaims any duty to update any of these forward-looking statements. We encourage you to review in full our safe harbor statements contained in today’s press releases and our quarterly filings with the SEC for additional information.

With that I’d like to turn the call over to President and Chief Executive Officer, John Fieldly for his prepared remarks. John?

John Fieldly

Thank you. Cameron. Good morning everyone and thank you for joining us today. Our third quarter continued to see the impacts of the COVID-19 pandemic, materially impacting several channels of trade for Celsius including our health and fitness, vending and in foodservice as well as a reduction in food traffic in several other channels.

While we did begin to see an improvement in the third quarter with capacity restrictions and reopenings in our distribution channels, this remains significant, uncertain as there potentially could be reclosings with additional cases and increased in our regions of operation and extended closures in some states and countries.

The health and safety of our employees, customers, consumers and partners remains our top priority and we continue to monitor the environment and implement contingency plans to mitigate risk to our business.

In addition to the COVID disruptions in our retail channels, the entire beverage industry is now being impacted by an aluminum can shortage taking place in the United States. The impact is across the board with major bottlers recently announcing a material shortfall in cans for 2021 and many smaller brands are being turned away.

We have been in continual dialog with our suppliers, and while they remain certain to fulfill our base can needs for 2021, they indicated they do not expect to be able to fill our expected growth from our internal projections.

While this is a significant issue, we have also found a solution. Being an international company, we have been able to leverage our global relationships and strategic investors and will be securing additional cans needed — as needed from Europe and Asia to support our growth.

While this is great news on all these incremental cans, we are able to source outside of the United States, we will see an increase in our cost of goods over the short-term period through 2021, which will impact our gross profit margins by a few points, but we remain confidence, the company will be at least at a run rate in the low 40s on a gross profit basis.

We are currently expecting 2021 as being impacted for the entire year until the new plants in United States get up and running, balancing supply and demand as we head into 2022. We will continue to explore additional opportunities as they become available to shorten the duration Celsius is impacted by this can shortage, but wanted to set an initial conservative expectation as a baseline.

I’m sure, I assure you our team is focused on continuing to improve operational performance and the team is focused on improving efficiencies as we continue to scale, and we will work to mitigate and offset this increase as much as operationally possible throughout 2021. With the only negatives for the quarter out of the way, I am extremely proud and excited with our team at Celsius and the accomplishments they’ve made during the quarter.

The third quarter results were at an all-time record for the company, including record revenue, gross profit, gross margins, operational income, net income, earnings per share and cash flow from operations. Overall, revenue was up over 80% to approximately $36.8 million from $20.4 million in the year ago quarter.

Domestic revenues, we saw growth of 60% to $26.9 million, up from $16.8 million in the year ago quarter, which was driven by expansion in retail outlets, where we grew over 19,000 locations from the year ago period, expanded our distributions or DSD, and saw organic same-store sales growth. And we saw over 100% growth in our e-commerce channels during the quarter.

Our e-com revenue was driven by Amazon, where we saw an increase of over 111% to $5.6 million for the quarter, which represented about 22% of our domestic revenue. Initial revenue increased 172% to $10 million approximately from $3.7 million in the year ago quarter in which we saw our Nordic revenue increase 182% to $9.5 million, also a quarterly record since the acquisition and sequential growth of approximately 10% from the — versus the second quarter.

Consumer demand for the CELSIUS brand has only grown stronger through 2021 and with the most recent reported United States SPINS data for the 52 weeks ending October 4, 2020, confirms that we have significantly outpaced the category across multiple channels, includes a 43.9% growth in the convenience channel outpacing the category by approximately 14.8 times with new store additions ramping up our ACV to approximately 16% and in the MULO channel, our growth rate is over approximately 100% with an ACV currently at 36.5%, outpacing the category growth by 7.4 times.

Additionally, third-party data reflects the same trends on Nielsen as reported all channels as of October 27, 2020, the CELSIUS sales were up over 61.3% for the four weeks ending with a 0.6% share. The next largest growth rate in the category was Red Bull with approximately growth rates of 20.2% for the most recent four week period.

According to Stackline, which tracks energy drink sales on Amazon in the United States for the four weeks ending October 17, 2020, sales in dollars in the energy drink category by Amazon including energy shots grew by over 157.5% versus the same period a year ago.

And CELSIUS sales increased outpacing the category by 190.3% and our share increased to 13.9% of the category, which puts CELSIUS as the third largest energy drink brand on Amazon just behind Monster Energy at a 31.2% share, which grew at 156% and Red Bull which is at a 15.8% share, which grew at 179% growth rate. Being the third largest brand on

Amazon demonstrates our opportunity and verifies Celsius [indiscernible] additional and much better placements as we continue to scale. Through the third quarter, traffic and purchasing patterns remained disrupted and online ordering patterns, pantry purchasing and curbside pickups became more prevalent in response to stay-at-home orders in particular markets and consumer shifting their lifestyles.

During the quarter we continue to see impacts in several of our distribution channels, mainly our health, club, vitamin specialty and vending channels. Our health club channel, specialty channel saw revenue decline by approximately 23% in the third quarter. This was historically represented approximately 20% to 25% of our United States revenues and this channel remains predominantly shutdown during the quarter.

We did begin to see some reopenings at a limited capacity during the quarter, but expect revenues from this channels to remain materially down in the fourth quarter. We do expect continued openings throughout 2021 and a rebound.

As I discussed, in the third in the second quarter earnings call, despite these two channels, essentially shutdown, our consumers shifted their purchasing patterns of CELSIUS to other channels, which did not only replace the sales in these channels, but drove record revenues and accelerated revenue growth of over 60% of third quarter in North America, further reinforcing the opportunity we have at CELSIUS. Our brand is more than just an impulse purchase.

We are part of daily lifestyle, aligned for today’s health-minded consumer. The CELSIUS consumer bring significant value to retailers, not just as an expanded age bracket and a 50% female demographic, but our consumers are recurring regularly consuming CELSIUS as part of a daily lifestyle further expanding the channels and category growth.

During the quarter, we made significant process on further building out our DSD distribution networks on our pursuit for a national network to service our accounts. We secured additional distribution partners with Anheuser-Busch, PepsiCo, Keurig Dr. Pepper and Molson MillerCoors network partners further expanding availability to new regions.

We further transition Target and 7-Eleven over to the wholesaler Big Geyser in New York during the third quarter and have already seen volumes more than double in those locations. The company initially announced last summer that we are building out our national DSD network, starting with our first major account DSD partner Big Geyser in New York City metropolitan market.

We have now built our network to over 147 regional direct store delivery partners and we have anticipate our DSD network now covers approximately 75% of major metropolitan markets in the United States. One of the initial challenges we did have building on our network, was really working with the retailers as you have to cover the retailer distribution and the stores in order to flip over those retailers to your distribution partners.

So, this is why the percentage of stores serviced by DSD is materially lower currently than our overall coverage, which is approximately 75% of metropolitan markets.

Now that we have grown overall coverage and completed all regional coverage on geographical areas, we have now seen in over a 100% increase in number of stores serviced by our DSD network from our Q2 earnings call, which includes our most recently announced target DSD conversion and the 2,700 Speedway store expansion we most recently announced.

The company anticipates that approximately 30% of doors will be currently covered by DSD distribution, which we will be adding additional stores and locations throughout the back half of Q4 and into 2021.

We anticipate that the accelerated transition will continue and include convenience as such, the recently announced Speedway launch drug and grocery over the next two to three years, we expect approximately 70% of our retail stores to be serviced by DSD distribution and the associated benefits of doubling revenues in those accounts as we continue to transition.

In our mass channel CELSIUS saw significant growth through our recently announced exclusive launch of Kiwi-Guava-Lime flavor of On-The-Go stick powders into over 2,700 Walmart locations. In addition to the Walmart launch of the new flavor, the company expanded our On-The-Go sticks into Publix over 1,200 locations with five flavors and expanded our flavor offerings throughout Europe — Europa, who services the gym channel as well as Vitamin Shoppe and HEB in Texas.

We also expect to transition the remaining 50% of Walmart stores to DSD in the beginning of 2021. We transitioned as stated 1,200 Target stores to DSD through September and October with additional plans and regions to transition throughout the back half of 2020 and through 2021.

Target is a great case study for Celsius. As we have steadily grown our initial two SKUs and a 200 store test to national availability with five flavors serviced now by DSD, the company also participated in an end cap program which to support the transition in August and September, which was very successful.

In the convenience channel during the third quarter, we announced the expansion stated in Speedway to over 2,700 locations, which are now serviced by DSD and grew our ACV in the channel in the convenience channel in North America to approximately 16%. We also expanded and brought on Xtra Mart, Kum & Go and Union Pacific stores.

In the retail space our total US door count now exceeds 79,000 locations nationally, which is up for more than 19,000 locations or 32% growth from the 60,000 locations we announced in Q3 of 2019 on our earnings call. We expect the number to grow even further in the coming quarters as retailers execute planogram resets, which were delayed in the summer months this year.

In Europe, we continue to capture incremental benefits and synergies from full integration of Func Food, a Nordic wellness company into our operations. The business was immediately accretive to earnings and an important step in our strategy to build out a global dynamic brand.

As in the United States, our Europe operations were impacted by COVID and saw decreases in the FAST protein snack portfolio continued through the third quarter as consumers shifted habits to confectionery products, but we do see the protein category continuing to rebound in the fourth quarter and expected to continue to rebound into 2021. These decreases were more than offset by the sales increases of CELSIUS in the region, which we continue to see great opportunity and momentum.

Some of our operational highlights. In Sweden, we had a great successful launch of a new flavor great tasting strawberry marshmallow, which we launched in August and September, and we also kicked off in the back half of the third quarter a limited addition blueberry frost which is great tasting and was well received by consumers and retailers in the country.

In Finland we saw great, very strong campaign in Kesko, one of the country’s leading hypermarkets where we saw over 65% growth versus the prior year quarter, and the team launched a great tasting indulgence bar in August, which has been very well received by the consumers.

As with Europe and the United States, China and APAC were impacted as well by COVID-19. Recovery continues and we saw momentums gained in the summer months. In China, we maintain a licensing royalty model in the market where distributors cover approximately 76 cities and now cover approximately 60,000 points of distribution at the end of the third quarter.

And in Malaysia, we maintain a direct relationship with the local distributor. We maintain approximately 2,000 7-Eleven, with plans to reenter the fitness channel, specialty and gyms and additional retailers as the recovery continues.

As with Europe and the United States we see great opportunity to capitalize on the changes in consumer preferences for better-for-you offerings and we see tremendous opportunities in the enormous market of Asia.

On a marketing front, we continue to innovate Target new and existing consumers where they live, work and play to prioritize meaningful and emotional connections through robust marketing programs that drive live integrated programs, competitive activities, even while consumers are at home.

Specifically during the quarter, despite COVID-19 restrictions, we sponsored over 25 advance both in-person and virtual, sampled thousands of cans in-hands during the quarters in our key markets. We also [couraged] responders with thousands of donations to doctors, nurses, police, army, firefighters and also supported the California fires.

In addition, we started our Live Fit Tour in the Florida market, where we reached out and sampled and activated gyms and also created experiential outdoor activities throughout the quarter and have planned to further expand throughout Q4. In addition, we further leveraged our SWEAT WITH CELSIUS Instagram live workout programs and further leveraged our brand ambassadors and influencers where we connected meaningfully with more consumers.

In addition, we continue to partner with our core retailers and most recently we partnered in a college program where we have distributed over 100,000 On-The-Go sticks to college students through the Walmart back-to-school college program.

Our brand is resonating with an expanded consumer base, distribution platform and retail locations with the tailwinds and overall increased focus on health and wellness and specifically in the energy category where functional energy is recognized throughout the industry as the driver of future growth and shelf space with retailers.

We remain focused on driving profitable growth in an industry that is rapidly changing. We are growing exponentially and adapting quickly, outpacing our competitors and grabbing market share. The momentum we are creating reinforces our confidence in the long-term growth and profitable aspects of our business, and we believe we are just getting started.

Heading into the fourth quarter of 2020, we remain excited and are seeing sales orders through October in the United States exceed over 50% growth rate versus the prior year.

I will now turn the call over to Edwin Negron-Carballo, our Chief Financial Officer for his prepared remarks. Edwin?

Edwin Negron-Carballo

Thank you, John. Starting with our third quarter results for the three months ended September 30, 2020 revenue was $36.8 million, a substantial increase of $16.4 million or 80.4% from $20.4 million for the same quarter of 2019.

The revenue increase of 80.4% was attributable to continued strong growth of 60.4% in North American revenues reflecting double-digit growth from existing accounts, new distribution and expanded presence in major retailers. European revenue for the three months ended September 30, 2020 was $9.5 million, which translates to a robust increase of 182.3% from 2019 quarter revenue of $3.4 million.

The 2020 figures now reflect the full financial impact of the consolidation of Func Food Group, our European distribution partner whom we acquired in October 2019.

Asian revenues which basically consist of royalty income from our China licensee were essentially $275,000 for the three months ended September 30, 2020, an increase of 40.8% from $195,000 in the 2019 quarter. Other international markets generated a $145,000 of revenue during the third quarter of 2020, an increase of basically $57,000 when compared to $88,000 for the same quarter in the prior year.

The total increase in revenues from the 2019 quarter to the 2020 quarter was mainly related to increases in sales volume as opposed to increases in pricing. For the three months ended September 30, 2020, gross profit increased by approximately $8.9 million or 103% to $17.5 million from $8.6 million for the same quarter in 2019. Gross profit margins for the three months ended September 30, 2020 were very healthy 46.7%, which compared favorably to 42.2% same quarter in 2019.

The increase in profit margins delivered an incremental $1.9 million of profitability this quarter. The increase in gross profit is mainly related to increases in sales volume from the 2019 quarter to the 2020 quarter as opposed to increases in product pricing.

Sales and marketing expenses for the three months ended September 30, 2020 were $8.3 million, an increase of basically $3.3 million or 68% from $4.9 million in the 2019 quarter. This increase reflects the impact of the full consolidation of the operating results of Func Foods. Thereby, resulting in an increase in our marketing investments of 88% or $1.7 million from the prior year quarter.

Similarly, all other sales and marketing expenses give effect to the increases related to the consolidation of Func Food Group’s operations. Specifically employee costs, which also includes investments in human resources to properly service our markets increased to $2.3 million or 71% from the prior year quarter.

Moreover, due to increase in business volume from the 2019 quarter to the 2020 quarter, our support to distributors and investment in trade activities as well as our storage and distribution costs increased by $705,000 when compared to the prior year quarter.

General and administrative expenses for the three months ended September 30, 2020 were essentially $4.6 million. An increase of basically $2.4 million or 108% from $2.2 million for the three months ended September 30, 2019. This increase similarly reflects the impact of the consolidation of Func Foods operations which were not present in the results for the 2019 quarter.

As such, administrative expenses for the three months ended September 30, 2020 were $1.3 million, an increase of essentially $866,000 or 182%, from basically $476,000 for the prior year quarter. Employee costs for the three months ended September 30, 2020 reflected an increase of $360,000 or 63%.

Not only attributable to the consolidation of Func Food Group’s operations, but also reflecting additional investment in resources to properly support our higher business volume. All other increases for general and administrative expenses from the 2019 quarter to the 2020 quarter were approximately $1.1 million.

These increases are mainly related to higher stock option expense of $1.2 million, additional depreciation and amortization of $15,000, which were partially offset by net decreases in all other administrative expenses amounting to $122,000.

Total net other income for the three months ended September 30, 2020 was basically $45,000, which compares favorably to other expenses of $543,000 for the same period in the prior year.

The 2020 quarter results reflect a total favorable impact of approximately $588,000, which includes $155,000 of lower amortization expenses, $143,000 gain related to foreign currency fluctuations, $408,000 gain on the note receivable from China and net other miscellaneous expenses of $63,000, which were partially offset by higher net interest expenses of $55,000.

As a result of the above, for the three months ended September 30, 2020 net income was $4.8 million or $0.06 per diluted share, compared to net income of $961,000 or dilutive earnings of $0.03 per share in the year ago quarter.

Adjusted EBITDA was $6.9 million compared to a loss of $2.6 million for the third quarter of 2019. We believe this information and comparisons of adjusted EBITDA and other non-GAAP financial measures enhance the overall understanding and visibility of our true business performance. To that effect, the reconciliation of our GAAP results to non-GAAP figures has been included in our earnings release.

Now turning to the year-to-date results. For the nine months ended September 30, 2020, revenue was essentially $95.1 million, an increase of $44.1 million or a significant increase of 86%, from $51 million for the same period in 2019. The revenue increase was attributable in large part to continued strong growth of 57% in North American revenues, reflecting double-digit growth in both existing accounts and new distribution as well as expanded presence in major retailers.

European revenue was $26.8 million for the nine months ended September 30, 2020, an increase of 251% from $7.6 million in revenue for the 2019 period. The 2020 figures now reflect the full financial impact of the consolidation of Func Food Group. Asian revenues which basically consist of royalty income from our China licensee were $969,000 for the nine months ended September 30, 2020.

An increase of 38% from $629,000 for the 2019 period. Other international markets generated $309,000 of revenue during the nine months ended September 30, 2020, an increase of basically $150,000 from $160,000 for the same period in 2019. The total increase in revenue from the 2019 period to the 2020 period was mainly related to increases in sales volume as opposed to increases in product pricing.

For the nine months ended September 30, 2020 gross profit increased by approximately $22.3 million, or a robust 105% increase to $43.5 million from $21.2 million for the same period in 2019. Gross profit margins increased to 45.8% for the nine months ended September 30, 2020 from 41.6% for the same period in 2019. The increase in gross profit dollars and gross profit margins is mainly related to increases in volume as opposed to increases in product pricing.

Sales and marketing expenses for the nine months ended September 30, 2020, were $23.6 million, an increase of effectively $9.5 million or 68% from $14.1 million for the same period in 2019. This increase reflects the impact of the consolidation of Func Food Group following its October 2019 acquisition by the company. As a result, our marketing investments increased by 77% or $4.2 million from the 2019 period.

Similarly, all other sales and marketing expenses reflect the increases related to the consolidation of Func Food Group’s operations. Specifically employee cost for the 2020 period, which also includes investments in human resources to properly service our markets increased by $3.6 million or 88% from the 2019 period.

Moreover, due to the increase in business volume, our support to distributors investment in trade activities as well as storage and distribution costs increased by $1.7 million from the 2019 period to the 2020 period.

General and administrative expenses for the nine months ended September 30, 2020 were essentially $12.5 million, an increase of $5.3 million or 72% from $7.2 million for the nine months ended September 30, 2019. This increase similarly reflects the impact of the consolidation of Func Foods operations which were not present in the results for the 2019 period.

As such, administrative expenses reflected an increase of $2.6 million which included an increase of $221,000 in our bad debt reserve to cover potential collectability risks associated with the COVID-19 pandemic. Employee costs for the nine months ended September 30, 2020 reflect an increase of $1.1 million or 59%, not only attributable to Func Foods operations, but also related to additional investments in resources in order to properly support our higher business volume.

All other increases for general and administrative expenses from the 2019 period to the 2020 period were $1.4 million. These increases mostly resulted from higher stock option expense of $1.3 million, higher depreciation and amortization of $34,000, and net increases in all other administrative expenses of $59,000.

Total net other expenses for the nine months ended September 30, 2020 were $590,000, which reflect a variance of $11.9 million when compared to total net other income of $11.3 million for the same period in the prior year. The variance of $11.9 million is mainly related to the recognition of a gain of $12.1 million pertaining to a note receivable from our Chinese licensee.

The note receivable is part of an agreement executed with our China distributor related to the restructuring of our business relationship to a royalty based model, which requires the repayment over five year period of the investment the company made in China during the 2017 and 2018 years.

As a result of the above for the nine months ended September 30, 2020, the company had net income of $6.9 million or $0.09 per diluted share. In comparison, for the nine months ended September 30, 2019, there was net income of $11.1 million or $0.20 per diluted share. The net income for the 2019 period included a non-recurring gain of $20.1 million related to the note receivable from our China licensee.

Adjusted EBITDA for the first nine months of 2020 was $12.2 million compared to a loss of $3.4 million for 2019. We believe this information and comparisons of adjusted EBITDA and other non-GAAP financial measures enhance the overall understanding and visibility of our true business performance.

To that effect, a reconciliation of our GAAP results to non-GAAP figures has been included in our earnings release. As of September 30, 2020 and December 31, 2019, company had cash of approximately $52.2 million and $23.1 million respectively and working capital of approximately $62.2 million and $24.8 million respectively.

Cash provided by operations during the nine months ended September 30, 2020 was approximately $3.8 million compared to cash used in operations of essentially $966,000 for the nine month period ended September 30, 2019. Finally, subsequent to the end of the third quarter on October 30, 2020, the company paid off the bonds payable related to the acquisition of Func Foods in the amount of approximately $10 million and is now debt free.

That concludes our prepared remarks. Operator, you may now open the call for questions. Thank you.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Jeff Van Sinderen with B. Riley & Company. Please proceed with your question.

Jeff Sinderen

Good morning everyone. First, let me say congratulations on the strong Q3 metrics. Terrific to see. John, maybe you can just touch on, I know you’ve ramped the DSD network quite a bit. I think you said you’re at 147, but maybe you can just speak to which regions you feel are best covered at this point, maybe where you still need to fill in or add DSD partners?

And then what is kind of the optimization of your DSD network look like at the next phase based on recent business trends and kind of maybe just review the timeframe of getting to that optimization?

John Fieldly

Yes, no, thank you, Jeff. I really appreciate it. The team did a great outstanding job during the quarter, during these unprecedented times. So, really excited about the results and the momentum we’re at, but you’re absolutely right. I just stated on the call we’re at a right around 147 DSD partners today. We have about 75% of the major metropolitan markets covered.

So, that allows us to really activate our retailers. So, our team, our key accounts team is in the process really working with our retail partners and getting plans in place to transition from a direct model to the DSD model where we just see great lift, really gets us much better placement, better activation, better in-store execution and so forth.

And that’s really what we’ve been saying that’s what we’ve been seeing as we flip over Target and CVS, 7-Eleven in New York and Ralph’s in California as well. So, lots of momentum there. When you look at the areas where we’re still working on and need coverage, the team is working very closely with a variety of potential customers is the Mid-Atlantic states, Northern California, we’ve been working on.

And also there is pockets in the middle of the country as well as certain pockets in Texas that we’re working on. So, — but we do have 75% of the major metropolitan markets covered. We can cover a good portion and a good footprint of our existing distribution. So, really just in the process, working with our retailers, we’ve even talked about Walmart before 50% are currently covered by DSD.

We’re hoping that will change in the really in Q1 of 2021 as we continue to work with those retail partners and flip over these key accounts. So, we think we’re in great position, we’re in great standings and a better position than we ever have been on our retail distribution footprint and just really excited, we’re seeing these distributors continually reorder products working with us.

We have some great team members, field sales team members that are working on activating these distributors. So, we think we’re in a really great position as we exit 2020 and head into 2021.

Jeff Sinderen

Okay, great. And then kind of a multi-part question here. Can you speak on how the process of converting Target to DSD has been going? Maybe what sort of lift you’re experiencing lately when you convert to DSD. Overall, I think you said something along lines of 50%?

And then I think you also mentioned Walmart flipping to DSD in the first part of next year. Maybe you can just elaborate a little bit on that? And then, just curious any more thoughts you have on the C-store channel and how business is growing with Speedway?

John Fieldly

Okay, excellent. Target, we mentioned, we put press releases out, we have worked — been working on flipping over 1,200 stores. There is a whole process that gets involved there to even get to that point. So, it’s making sure you’re covering all the stores within a given DMA, making sure that you’re — their vendor numbers have to be loaded, there is a lot of back office work that has to be done.

Not only on the Celsius side but also on the retailer side. And once that’s all completed, then that needs to be communicated to our distributor partners, activated at retail, we do provide support with our field sales team as well making sure these shelves get set. I’ve been working on it over the last two months really September and October, getting those 1,200 Target stores set. There is additional Target opportunities to flip as I mentioned, as we head into 2021.

In regards to Walmart, we are in about 50% of those Walmart’s are currently serviced by DSD, due to COVID and a lot of challenges as we know with these retailers with a lot of back office roles and responsibilities and [physicians] working from home, has taken a little bit longer.

So, we anticipate Walmart will get together with them and we’ll continue to work on, move over to DSD, which is the preferred method and we anticipate that to happen sometime in Q1, early 2021. As it relates to convenience. Convenience, we’re up to a 16% ACV, outpacing the category growth. Obviously we’re into — getting into the pick of buyer seasons.

So, really account calls for 2021. It has been extremely positive as we — where we sit today and looking into 2021, we’re getting a lot of excitement as we did last year at NAICS, as we presented there. We did have a booth there. We got a lot of excitement. We are anticipating a lot of resets in 2020 which had been delayed. But we anticipate those to come around.

We’re expecting more accounts coming on-board in the convenience channel in that March-April timeframe in 2021. And we’ll have more announcements over the next coming quarters of our expansion in existing accounts as well as new distribution coming on-board within that convenience channel.

As you look at Speedway, it’s process of the first, really the first phase of the relaunch. Initial feedback has been positive on the — in the 2,700 stores range. So, initial feedback has been positive. We’ll continue to monitor, but I don’t have anything else to really report on at this time in regards to Speedway, but things seem to be going well.

Jeff Sinderen

Okay, great to hear. Thanks for taking my questions. I’ll jump back in the queue.

John Fieldly

Excellent. Thank you, Jeff.

Edwin Negron-Carballo

Thank you.

Operator

Our next question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.

Jeffrey Cohen

Hi, John and Edwin and Cameron. How are you?

John Fieldly

Excellent. How are you doing today Jeff?

Jeffrey Cohen

Very well, thank you. Just fine. So, few random questions and one more of a macro question. So, could you talk about the, On-The-Go sticks, it’s now up to six SKUs. Is that yet become a material portion of the overall business at least in North America?

John Fieldly

Yes, the On-The-Go sticks is a great offering for us, because that expands our usage occasion. So, we see a lot of — we’re seeing a lot of momentum with individuals making it part of their smoothy combinations, also taking it on their travel or travels down.

We’ve seen a lot of offers a lot more portability and we are seeing — we expect it to be a meaningful part of our business. Obviously the RTDs or drive the bulk of our revenues, but we do see this additional opportunity with the On-The-Go sticks, they’re doing well at Publix.

We just expanded into Walmart with them. With Vitamin Shoppe we’ve done really well over the years in our line and HEB has had in for some time, as well as Harris Teeter, so we do get a lot of excitement, a lot of interest on them.

We do have some new flavors plans for 2021 and as it will be a meaningful business — part of our business, it is a piece of our business. And we expect it to deliver revenue and gross profits as we continue to scale and the team has put priority on it as well. But our main focus is the RTDs.

Jeffrey Cohen

Got it. You did mention a couple of new flavors, you said strawberry marshmallow and blueberry frost. Can you tell us what the timing is on that? And if that’s the traditional line or the heat line and where we might expect that to pop up?

John Fieldly

Yes, it’s in the market now in the Nordics. Great tasting strawberry marshmallow and the frost it’s great tasting the blueberry frost, is a limited addition that we just launched at the end of the third quarter. So, locally here in the US, we don’t have that slotted to arrive. But it is in the Nordics, if you’re traveling over to Sweden, Finland or Norway, you will be able to find that.

Jeffrey Cohen

Okay, got it. And then, next, could you talk about, I know that Func is closed. Could you talk a little bit about the Vitamin channel and if you’re seeing any disruptions with the GMC situation?

John Fieldly

Jeff, can you repeat the question. Sorry?

Jeffrey Cohen

Yes, could you talk a little bit about the Vitamin channel specific to this quarter or next quarter?

John Fieldly

Yes, I mean the Vitamin channel has been a channel, especially supplement channel in the gym business. We started to see great reopenings in Florida. We did start to see reopenings in Texas markets and in California we’re actually the workouts are outside. We have some outdoor activation to support those local partners.

It’s very key to our core. We’re there to support the fitness channel. Regards to the vitamin specialty, I mean the channel has been has struggled. We’ve talked about, it was down 23% in the quarter. We anticipate it to come back. We feel health and wellness trends are here to stay. It’s — we don’t see that going away anytime soon.

It’s more important now than ever deep forward to stay healthy, stay fit, stay active. So, we feel the sports nutrition space is going to continue to grow. It’s a great way for a consumer to be — learn about CELSIUS for the first time in that channel as well and they bring a lifelong CELSIUS consumer on board.

Jeffrey Cohen

Okay. And then lastly from me. If you could talk about the situation with the cans. As I understand that you have had four or five facilities, is the limiting factor, the capacity of the current facilities or is the limiting factor the raw materials and the availability of the can manufacturing?

John Fieldly

Yes, we’ve spoken about the cans. We were notified late in October about availability as we head into 2021. There is a massive can, the physical actual body of the can shortage for 2021. It’s anticipated in 2021, the industry in the North America is short about 30 billion cans.

So, lots of shortfalls, and that really has to do with the capacity of the manufacturing of the physical can, not the filling of the can. When we talk about filling stations, that’s the five filling stations or co-packers we’ve been working with. We have capabilities to produce the cans, but we, to fill the cans into finished goods, the challenge we have, as we head into 2021 is the physical can body.

So, that’s where the big shortfall is. All the manufacturers, the larger can manufacturers are all running over capacity and turning brands away, unfortunately. So, as I stated earlier, on the opening remarks of the call, we do have contingency plans in place for that. Being a global company is advantage to us.

We were immediately able to start sourcing cans out of Asia, out of Europe as well and immediately put our teams on that task to secure cans to sustain our growth and continue to outpace the category. So, we will have sufficient ample supply as we head into — as we had through 2021. But it is an industry wide issue. Everyone is going to be dealing with which also can be an opportunity for brands that have cans.

Jeffrey Cohen

Got it, okay. That does it for me. Thanks for taking the questions.

John Fieldly

Excellent. Thank you, Jeff.

Operator

Our next question comes from the line of David Bain with ROTH Capital. Please proceed with your question.

David Bain

Great, thanks. And also my congratulations on the results and thanks for all the data points you covered a lot. So, I’ll limit mine to two. Just given the cash on the balance sheet, cash flow generation, I mean, does this change your outlook either on potential M&A activity or brand extensions?

I mean looking at the SKU average for your industry leader, you start to add Rain, body fuel to Paradise, Dragon Tea whatever, it’s got to be three times, four times, five times yours in the same locations. So, is that an opportunity potentially next year or am I thinking about that the right way?

John Fieldly

Thank you, Dave for the question. There is a ton of opportunity out there for us. No question about it. The key — lead Celsius is focused execution. We did finish the quarter with $52 million in cash of which right around $42 million if you back out the $10 million paying off that debt, which we are debt free. So, that’s been paid off.

So, we do have sufficient cash. We are generating cash flow positive. We will be investing in inventories to sustain growth. So, we have funds market for inventory investments. We also have some positive ROI targeted investments, we will be implementing into 2021 with cooler placements.

If you’re out in California, I know Dave you’re out there, if you stop into some Ralph’s, we’re getting great placement with some really good cooler assets and the ROI is extremely positive. So, we’ll be looking to invest in that area into 2021. Opportunities arise every day.

We’re willing to evaluate them and if we find an opportunity that’s accretive to our shareholders, accretive in revenue and gross profits, we will look at it, but at the strategy right now is to continue to stay focused, drive profitable growth and drive Celsius into a major player in the energy category and take share.

David Bain

Fantastic. Okay, and then my follow-up would be, is if it’s possible to kind of help us bifurcate 3Q North American revenue growth into buckets like same-store sale, organic growth, SKU growth, door growth, or any way we can kind of look at what the main pillars of the third quarter growth were?

John Fieldly

I mean if you look at the growth in North America like we stated on the call, I mean, on a year-to-date basis we’re at a 57% growth rate. Edwin talked about a lot of the new distribution coming on. We did talk about the store count increase there that we saw. So, it’s an interesting year as we all know in 2020.

So, it’s consumer shifting their purchasing patterns and now they’re going back. There is a lot of dynamics taking place. So, I don’t really want to state anything. We haven’t provided guidance. There is momentum behind the company. I did say we had a 50% growth in North America orders in-house as of the end of October.

So, that shows some underlying momentum there. But I would not going to provide any forward guidance at this time.

David Bain

No problem, just go ahead.

Edwin Negron-Carballo

Are you going to follow-up?

John Fieldly

No, I mean the underlying if you look at it, the SPINS data, Scan data as I said about is 60% growth rate and that was the latest Nielsen data. In the convenience channel, we’re at a 43% growth rate. We have gained some new distribution as well. So, I think, organically we’ve seen and we stated this publicly about a 30% growth same-store sales and the other growth is coming from new distribution.

David Bain

Got it, okay. Thanks so much. Great quarter.

John Fieldly

Thank you David.

Operator

[Operator Instructions] Our next question comes from the line of Anthony Vendetti with Maxim Group. Please proceed with your question.

Anthony Vendetti

Thanks. Good morning, Edwin. Good morning John. How are you doing?

Edwin Negron-Carballo

Good morning.

John Fieldly

Good morning. Excellent.

Anthony Vendetti

So, just on because there is a lot of talk about the can shortage across the industry, not just obviously what you are dealing with, but it’s just — it’s obviously a big issue and it’s excellent that you’re able to source this outside. You said it’s going to impact margins a little bit.

If it can start to impact margins right now, do you need to start sourcing from Europe and Asia now or is that a ’21 issue?

John Fieldly

Yes, it’s an industrywide issue. We anticipate sourcing in Q4. So, that will start in Q4.

Anthony Vendetti

Okay. But in terms of being able to get the can that you need, based on the fact that you seem like you’re ahead of this curve, you don’t see it being an issue in terms of being able to meet the forecast you have for the demand, correct?

John Fieldly

That’s correct. We already have purchase orders in place. We’ve already are far along on the processing order procurement process to have sufficient cans as we head into 2021.

Anthony Vendetti

Okay, great. And then as we — you mentioned Amazon the third after Monster and Red Bull. Just in terms of the corporate gross margin, is that in line, is it a little bit lower margin, when you go on Amazon and just remind me, John or Edwin, what’s the percent of revenue that comes from e-commerce or Amazon at this point?

John Fieldly

Just, Anthony, it’s roughly around 22% of our revenue for the third quarter, North America. So, if you’re looking at the segment there. In regards to gross profit margins, we don’t disclose particular accounts, but overall, margins were very good for the quarter. And like we said going forward due to the can, importing of cans, we are looking at the low 40s on a go-forward basis as we go through 2021.

Anthony Vendetti

Okay, great. And on the DSD network Anheuser-Busch, Big Geyser, those are the big ones, but you have DSD agreements with PepsiCo, Keurig Dr. Pepper, MillerCoors Network. Are there any others and how your DSD network you believe can cover 75% of your major metropolitan areas?

Are there other DSD partners that you believe you need to increase that penetration or at some point maybe 75%, 80% is about as far as you can go in terms of DSD coverage?

John Fieldly

Great question. And keep in mind the Pepsi and Anheuser-Busch, Keurig Dr. Pepper were dealing with the independents. So, they’re not corporate owned. So, this is an independence. The bulk of our distribution is with Anheuser-Busch independent wholesalers. A lot of brands can’t even get to 75% major metropolitan covered.

So, it is a great achievement where we’re at today. But we are looking for full coverage and we’ll continue to drive that through. We will — they we’re talking to a variety of additional distributors to help fill some of those boys [ph] mainly in the Mid-Atlantic, Northern Tao, Texas, certain parts of Texas and then there are certain regions within the middle of the country that we are looking for additional coverage on.

But I think we’re in a really good position right now with 75% major metropolitans covered. The opportunity to activate these distributors. We just picked up thousands of new potential sales reps that can be out there helping build the brand for Celsius. And we’re looking to partner with them in a big way in 2021. And we’ve never been in a better position to have the opportunity we had on hand.

Anthony Vendetti

Okay, great. And then just lastly, a few years ago you came out with the HEAT line which was — it’s a different packaging, different product, more caffeine than your standard CELSIUS line. Is there any other lines that you’re looking at launching in ’21 or is it more going to be just an extension of what you have in additional flavors?

John Fieldly

Yes. We have a great cross-functional innovation team. We have a lot of innovation plan for 2021 and beyond. Some great line expansions, innovative flavors coming to market and one opportunity we’ve had which we’ve talked about with the Func Food acquisition is leveraging that fast brand portfolio. So, we’re looking to partner with them.

We’ve been partnering and bringing that Fast Protein snack portfolio to North America in Q1, starting to test it and ceded. But there’s a lot of opportunities in that category. We do see massive opportunities in the RTD category and that’s where we are mainly focused. But look for some great tasting flavor innovation, some line expansions as we head into and through 2021 and beyond.

Anthony Vendetti

Alright. Great quarter guys, thanks. I appreciate it.

Edwin Negron-Carballo

Thank you.

John Fieldly

Excellent. Thank you.

Operator

There are no further questions in the queue. I’d like to hand the call back to John Fieldly for closing remarks.

John Fieldly

Thank you, Doug. Thank you everyone. On behalf of the company, I’d like to take everyone for their continued interest and support. Our results demonstrates the products are gaining considerable momentum.

We are capitalizing on today’s global health and wellness trends and the changes taking place in the transformation of today’s energy drink category. Our active healthy lifestyle position is a global position with mass appeal. We’re building upon our core and leveraging opportunities and deploying best practices. We have a winning portfolio strategy and team and a rapidly growing market that consumers want.

Our mission is to get Celsius to more consumers profitably. I’m very proud of our dedicated team as without them our tremendous achievements and significant opportunities we see ahead would not be possible. In addition, I thank our investors for their continued support and confidence in our team.

And I thank everyone for your interest in Celsius. Be safe, stay healthy, and have a great day.

Operator

Thank you, sir. And that does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect your lines. Thank you once again. Have a great day.

Celsius Holdings Inc. (CELH) Q3 2020 Earnings Call Transcript

Celsius Holdings Inc. (NASDAQ:CELH)
Q3 2020 Earnings Call
Nov 12, 2020, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings and welcome to Celsius Holdings Third Quarter Earnings Call. [Operator Instructions]

It is now my pleasure to introduce your host, Cameron Donahue, Investor Relations for Celsius. Thank you. You may begin.

Cameron Donahue — Investor Relations

Thank you and good morning everyone. We appreciate you joining us today for Celsius Holdings third quarter 2020 earnings conference call. Joining the call today are John Fieldly, President and Chief Executive Officer; and Edwin Negron, Chief Financial Officer. Following their prepared remarks we will open the call to your questions and instructions will be given at that time.

The company filed its Form 10-Q with the SEC and issued the earnings press release pre-market today. All materials are available on the company’s website at celsiusholdingsinc.com under the Investor Relations section. As a reminder, before I turn the call over to John, the audio replay will be available later today.

Please also be aware, this call may contain forward-looking statements which are based on forecasts, expectations and other information available to management as of today, November 12, 2020. These statements involve numerous risks and uncertainties, including many that are beyond the company’s control. Except to the extent as required by applicable law, Celsius Holdings undertakes no obligations and disclaims any duty to update any of these forward-looking statements. We encourage you to review in full our safe harbor statements contained in today’s press releases and our quarterly filings with the SEC for additional information.

With that I’d like to turn the call over to President and Chief Executive Officer, John Fieldly for his prepared remarks. John?

John Fieldly — Chief Executive Officer

Thank you. Cameron. Good morning everyone and thank you for joining us today. Our third quarter continued to see the impacts of the COVID-19 pandemic, materially impacting several channels of trade for Celsius including our health and fitness, vending and in foodservice as well as a reduction in food traffic in several other channels. While we did begin to see an improvement in the third quarter with capacity restrictions and reopenings in our distribution [Phonetic] channels, this remains significant, uncertain as there potentially could be reclosings with additional cases and increased in our regions of operation and extended closures in some states and countries. The health and safety of our employees, customers, consumers and partners remains our top priority and we continue to monitor the environment and implement contingency plans to mitigate risk to our business.

In addition to the COVID disruptions in our retail channels, the entire beverage industry is now being impacted by an aluminum can shortage taking place in the United States. The impact is across the board with major bottlers recently announcing a material shortfall in cans for 2021 and many smaller brands are being turned away. We have been in continual dialog with our suppliers, and while they remain certain to fulfill our base can needs for 2021, they indicated they do not expect to be able to fill our expected growth from our internal projections. While this is a significant issue, we have also found a solution. Being an international company, we have been able to leverage our global relationships and strategic investors and will be securing additional cans needed — as needed from Europe and Asia to support our growth. While this is great news on all these incremental cans, we are able to source outside of the United States, we will see an increase in our cost of goods over the short-term period through 2021, which will impact our gross profit margins by a few points, but we remain confidence, the company will be at least at a run rate in the low 40s on a gross profit basis.

We are currently expecting 2021 as being impacted for the entire year until the new plants in United States get up and running, balancing supply and demand as we head into 2022. We will continue to explore additional opportunities as they become available to shorten the duration Celsius is impacted by this can shortage, but wanted to set an initial conservative expectation as a baseline. I’m sure, I assure you our team is focused on continuing to improve operational performance and the team is focused on improving efficiencies as we continue to scale, and we will work to mitigate and offset this increase as much as operationally possible throughout 2021. With the only negatives for the quarter out of the way, I am extremely proud and excited with our team at Celsius and the accomplishments they’ve made during the quarter.

The third quarter results were at an all-time record for the company, including record revenue, gross profit, gross margins, operational income, net income, earnings per share and cash flow from operations. Overall, revenue was up over 80% to approximately $36.8 million from $20.4 million in the year ago quarter. Domestic revenues, we saw growth of 60% to $26.9 million, up from $16.8 million in the year ago quarter, which was driven by expansion in retail outlets, where we grew over 19,000 locations from the year ago period, expanded our distributions or DSD, and saw organic same-store sales growth. And we saw over 100% growth in our e-commerce channels during the quarter. Our e-com revenue was driven by Amazon, where we saw an increase of over 111% to $5.6 million for the quarter, which represented about 22% of our domestic revenue. Initial revenue increased 172% to $10 million approximately from $3.7 million in the year ago quarter in which we saw our Nordic revenue increase 182% to $9.5 million, also a quarterly record since the acquisition and sequential growth of approximately 10% from the — versus the second quarter.

Consumer demand for the CELSIUS brand has only grown stronger through 2021 and with the most recent reported United States SPINS data for the 52 weeks ending October 4, 2020, confirms that we have significantly outpaced the category across multiple channels, includes a 43.9% growth in the convenience channel outpacing the category by approximately 14.8 times with new store additions ramping up our ACV to approximately 16% and in the MULO channel, our growth rate is over approximately 100% with an ACV currently at 36.5%, outpacing the category growth by 7.4 times. Additionally, third-party data reflects the same trends on Nielsen as reported all channels as of October 27, 2020, the CELSIUS sales were up over 61.3% for the four weeks ending with a 0.6% share.

The next largest growth rate in the category was Red Bull with approximately growth rates of 20.2% for the most recent four week period. According to Stackline, which tracks energy drink sales on Amazon in the United States for the four weeks ending October 17, 2020, sales in dollars in the energy drink category by Amazon including energy shots grew by over 157.5% versus the same period a year ago. And CELSIUS sales increased outpacing the category by 190.3% and our share increased to 13.9% of the category, which puts CELSIUS as the third largest energy drink brand on Amazon just behind Monster Energy at a 31.2% share, which grew at 156% and Red Bull which is at a 15.8% share, which grew at 179% growth rate. Being the third largest brand on Amazon demonstrates our opportunity and verifies Celsius [Indecipherable] additional and much better placements as we continue to scale. Through the third quarter, traffic and purchasing patterns remained disrupted and online ordering patterns, pantry purchasing and curbside pickups became more prevalent in response to stay-at-home orders in particular markets and consumer shifting their lifestyles.

During the quarter we continue to see impacts in several of our distribution channels, mainly our health, club, vitamin specialty and vending channels. Our health club channel, specialty channel saw revenue decline by approximately 23% in the third quarter. This was historically represented approximately 20% to 25% of our United States revenues and this channel remains predominantly shutdown during the quarter. We did begin to see some reopenings at a limited capacity during the quarter, but expect revenues from this channels to remain materially down in the fourth quarter. We do expect continued openings throughout 2021 and a rebound.

As I discussed, in the third — in the second quarter earnings call, despite these two channels, essentially shutdown, our consumers shifted their purchasing patterns of CELSIUS to other channels, which did not only replace the sales in these channels, but drove record revenues and accelerated revenue growth of over 60% of third quarter in North America, further reinforcing the opportunity we have at CELSIUS. Our brand is more than just an impulse purchase. We are part of daily lifestyle, aligned for today’s health-minded consumer. The CELSIUS consumer bring significant value to retailers, not just as an expanded age bracket and a 50% female demographic, but our consumers are recurring regularly consuming CELSIUS as part of a daily lifestyle further expanding the channels and category growth.

During the quarter, we made significant process on further building out our DSD distribution networks on our pursuit for a national network to service our accounts. We secured additional distribution partners with Anheuser-Busch, PepsiCo, Keurig Dr. Pepper and Molson MillerCoors network partners further expanding availability to new regions. We further transition Target and 7-Eleven over to the wholesaler Big Geyser in New York during the third quarter and have already seen volumes more than double in those locations. The company initially announced last summer that we are building out our national DSD network, starting with our first major account DSD partner Big Geyser in New York City metropolitan market. We have now built our network to over 147 regional direct store delivery partners and we have anticipate our DSD network now covers approximately 75% of major metropolitan markets in the United States.

One of the initial challenges we did have building on our network, was really working with the retailers as you have to cover the retailer distribution and the stores in order to flip over those retailers to your distribution partners. So this is why the percentage of stores serviced by DSD is materially lower currently than our overall coverage, which is approximately 75% of metropolitan markets. Now that we have grown overall coverage and completed all regional coverage on geographical areas, we have now seen in over a 100% increase in number of stores serviced by our DSD network from our Q2 earnings call, which includes our most recently announced target DSD conversion and the 2,700 Speedway store expansion we most recently announced. The company anticipates that approximately 30% of doors will be currently covered by DSD distribution, which we will be adding additional stores and locations throughout the back half of Q4 and into 2021. We anticipate that the accelerated transition will continue and include convenience as such, the recently announced Speedway launch drug and grocery over the next two to three years, we expect approximately 70% of our retail stores to be serviced by DSD distribution and the associated benefits of doubling revenues in those accounts as we continue to transition.

In our mass channel CELSIUS saw significant growth through our recently announced exclusive launch of Kiwi-Guava-Lime flavor of On-The-Go stick powders into — over 2,700 Walmart locations. In addition to the Walmart launch of the new flavor, the company expanded our On-The-Go sticks into Publix over 1,200 locations with five flavors and expanded our flavor offerings throughout Europe — Europa, who services the gym channel as well as Vitamin Shoppe and HEB in Texas. We also expect to transition the remaining 50% of Walmart stores to DSD in the beginning of 2021. We transitioned as stated 1,200 Target stores to DSD through September and October with additional plans and regions to transition throughout the back half of 2020 and through 2021. Target is a great case study for Celsius. As we have steadily grown our initial two SKUs and a 200 store test to national availability with five flavors serviced now by DSD, the company also participated in an end cap program which to support the transition in August and September, which was very successful.

In the convenience channel during the third quarter, we announced the expansion stated in Speedway to over 2,700 locations, which are now serviced by DSD and grew our ACV in the channel — in the convenience channel in North America to approximately 16%. We also expanded and brought on Xtra Mart, Kum & Go and Union Pacific stores. In the retail space our total US door count now exceeds 79,000 locations nationally, which is up for more than 19,000 locations or 32% growth from the 60,000 locations we announced in Q3 of 2019 on our earnings call. We expect the number to grow even further in the coming quarters as retailers execute planogram resets, which were delayed in the summer months this year.

In Europe, we continue to capture incremental benefits and synergies from full integration of Func Food, a Nordic wellness company into our operations. The business was immediately accretive to earnings and an important step in our strategy to build out a global dynamic brand. As in the United States, our Europe operations were impacted by COVID and saw decreases in the FAST protein snack portfolio continued through the third quarter as consumers shifted habits to confectionery products, but we do see the protein category continuing to rebound in the fourth quarter and expected to continue to rebound into 2021. These decreases were more than offset by the sales increases of CELSIUS in the region, which we continue to see great opportunity and momentum.

Some of our operational highlights. In Sweden, we had a great successful launch of a new flavor great tasting strawberry marshmallow, which we launched in August and September, and we also kicked off in the back half of the third quarter a limited addition blueberry frost which is great tasting and was well received by consumers and retailers in the country. In Finland we saw great, very strong campaign in Kesko, one of the country’s leading hypermarkets where we saw over 65% growth versus the prior year quarter, and the team launched a great tasting indulgence bar in August, which has been very well received by the consumers.

As with Europe and the United States, China and APAC were impacted as well by COVID-19. Recovery continues and we saw momentums gained in the summer months. In China, we maintain a licensing royalty model in the market where distributors cover approximately 76 cities and now cover approximately 60,000 points of distribution at the end of the third quarter. And in Malaysia, we maintain a direct relationship with the local distributor. We maintain approximately 2,000 7-Eleven, with plans to reenter the fitness channel, specialty and gyms and additional retailers as the recovery continues. As with Europe and the United States we see great opportunity to capitalize on the changes in consumer preferences for better-for-you offerings and we see tremendous opportunities in the enormous market of Asia.

On a marketing front, we continue to innovate Target new and existing consumers where they live, work and play to prioritize meaningful and emotional connections through robust marketing programs that drive live integrated programs, competitive activities, even while consumers are at home. Specifically during the quarter, despite COVID-19 restrictions, we sponsored over 25 advance both in-person and virtual, sampled thousands of cans in-hands during the quarters in our key markets. We also couraged [Phonetic] responders with thousands of donations to doctors, nurses, police, army, firefighters and also supported the California fires.

In addition, we started our Live Fit Tour in the Florida market, where we reached out and sampled and activated gyms and also created experiential outdoor activities throughout the quarter and have planned to further expand throughout Q4. In addition, we further leveraged our SWEAT WITH CELSIUS Instagram live workout programs and further leveraged our brand ambassadors and influencers where we connected meaningfully with more consumers. In addition, we continue to partner with our core retailers and most recently we partnered in a college program where we have distributed over 100,000 On-The-Go sticks to college students through the Walmart back-to-school college program.

Our brand is resonating with an expanded consumer base, distribution platform and retail locations with the tailwinds and overall increased focus on health and wellness and specifically in the energy category where functional energy is recognized throughout the industry as the driver of future growth and shelf space with retailers. We remain focused on driving profitable growth in an industry that is rapidly changing. We are growing exponentially and adapting quickly, outpacing our competitors and grabbing market share. The momentum we are creating reinforces our confidence in the long-term growth and profitable aspects of our business, and we believe we are just getting started. Heading into the fourth quarter of 2020, we remain excited and are seeing sales orders through October in the United States exceed over 50% growth rate versus the prior year.

I will now turn the call over to Edwin Negron-Carballo, our Chief Financial Officer for his prepared remarks. Edwin?

Edwin F. Negron-Carballo — Chief Financial Officer

Thank you, John. Starting with our third quarter results for the three months ended September 30, 2020 revenue was $36.8 million, a substantial increase of $16.4 million or 80.4% from $20.4 million for the same quarter of 2019. The revenue increase of 80.4% was attributable to continued strong growth of 60.4% in North American revenues reflecting double-digit growth from existing accounts, new distribution and expanded presence in major retailers. European revenue for the three months ended September 30, 2020 was $9.5 million, which translates to a robust increase of 182.3% from 2019 quarter revenue of $3.4 million. The 2020 figures now reflect the full financial impact of the consolidation of Func Food Group, our European distribution partner whom we acquired in October 2019. Asian revenues which basically consist of royalty income from our China licensee were essentially $275,000 for the three months ended September 30, 2020, an increase of 40.8% from $195,000 in the 2019 quarter. Other international markets generated a $145,000 of revenue during the third quarter of 2020, an increase of basically $57,000 when compared to $88,000 for the same quarter in the prior year. The total increase in revenues from the 2019 quarter to the 2020 quarter was mainly related to increases in sales volume as opposed to increases in pricing.

For the three months ended September 30, 2020, gross profit increased by approximately $8.9 million or 103% to $17.5 million from $8.6 million for the same quarter in 2019. Gross profit margins for the three months ended September 30, 2020 were very healthy 46.7%, which compared favorably to 42.2% same quarter in 2019. The increase in profit margins delivered an incremental $1.9 million of profitability this quarter. The increase in gross profit is mainly related to increases in sales volume from the 2019 quarter to the 2020 quarter as opposed to increases in product pricing.

Sales and marketing expenses for the three months ended September 30, 2020 were $8.3 million, an increase of basically $3.3 million or 68% from $4.9 million in the 2019 quarter. This increase reflects the impact of the full consolidation of the operating results of Func Foods. Thereby, resulting in an increase in our marketing investments of 88% or $1.7 million from the prior year quarter. Similarly, all other sales and marketing expenses give effect to the increases related to the consolidation of Func Food Group’s operations. Specifically employee costs, which also includes investments in human resources to properly service our markets increased to $2.3 million or 71% from the prior year quarter. Moreover, due to increase in business volume from the 2019 quarter to the 2020 quarter, our support to distributors and investment in trade activities as well as our storage and distribution costs increased by $705,000 when compared to the prior year quarter.

General and administrative expenses for the three months ended September 30, 2020 were essentially $4.6 million. An increase of basically $2.4 million or 108% from $2.2 million for the three months ended September 30, 2019. This increase similarly reflects the impact of the consolidation of Func Foods operations which were not present in the results for the 2019 quarter. As such, administrative expenses for the three months ended September 30, 2020 were $1.3 million, an increase of essentially $866,000 or 182%, from basically $476,000 for the prior year quarter. Employee costs for the three months ended September 30, 2020 reflected an increase of $360,000 or 63%. Not only attributable to the consolidation of Func Food Group’s operations, but also reflecting additional investment in resources to properly support our higher business volume. All other increases for general and administrative expenses from the 2019 quarter to the 2020 quarter were approximately $1.1 million. These increases are mainly related to higher stock option expense of $1.2 million, additional depreciation and amortization of $15,000, which were partially offset by net decreases in all other administrative expenses amounting to $122,000.

Total net other income for the three months ended September 30, 2020 was basically $45,000, which compares favorably to other expenses of $543,000 for the same period in the prior year. The 2020 quarter results reflect a total favorable impact of approximately $588,000, which includes $155,000 of lower amortization expenses, $143,000 gain related to foreign currency fluctuations, $408,000 gain on the note receivable from China and net other miscellaneous expenses of $63,000, which were partially offset by higher net interest expenses of $55,000. As a result of the above, for the three months ended September 30, 2020 net income was $4.8 million or $0.06 per diluted share, compared to net income of $961,000 or dilutive earnings of $0.03 per share in the year ago quarter.

Adjusted EBITDA was $6.9 million compared to a loss of $2.6 million for the third quarter of 2019. We believe this information and comparisons of adjusted EBITDA and other non-GAAP financial measures enhance the overall understanding and visibility of our true business performance. To that effect, the reconciliation of our GAAP results to non-GAAP figures has been included in our earnings release.

Now turning to the year-to-date results. For the nine months ended September 30, 2020, revenue was essentially $95.1 million, an increase of $44.1 million or a significant increase of 86%, from $51 million for the same period in 2019. The revenue increase was attributable in large part to continued strong growth of 57% in North American revenues, reflecting double-digit growth in both existing accounts and new distribution as well as expanded presence in major retailers. European revenue was $26.8 million for the nine months ended September 30, 2020, an increase of 251% from $7.6 million in revenue for the 2019 period. The 2020 figures now reflect the full financial impact of the consolidation of Func Food Group. Asian revenues which basically consist of royalty income from our China licensee were $969,000 for the nine months ended September 30, 2020. An increase of 38% from $629,000 for the 2019 period. Other international markets generated $309,000 of revenue during the nine months ended September 30, 2020, an increase of basically $150,000 from $160,000 for the same period in 2019. The total increase in revenue form the 2019 period to the 2020 period was mainly related to increases in sales volume as opposed to increases in product pricing.

For the nine months ended September 30, 2020 gross profit increased by approximately $22.3 million, or a robust 105% increase to $43.5 million from $21.2 million for the same period in 2019. Gross profit margins increased to 45.8% for the nine months ended September 30, 2020 from 41.6% for the same period in 2019. The increase in gross profit dollars and gross profit margins is mainly related to increases in volume as opposed to increases in product pricing.

Sales and marketing expenses for the nine months ended September 30, 2020, were $23.6 million, an increase of effectively $9.5 million or 68% from $14.1 million for the same period in 2019. This increase reflects the impact of the consolidation of Func Food Group following its October 2019 acquisition by the company. As a result, our marketing investments increased by 77% or $4.2 million from the 2019 period. Similarly, all other sales and marketing expenses reflect the increases related to the consolidation of Func Food Group’s operations. Specifically employee cost for the 2020 period, which also includes investments in human resources to properly service our markets increased by $3.6 million or 88% from the 2019 period. Moreover, due to the increase in business volume, our support to distributors investment in trade activities as well as storage and distribution costs increased by $1.7 million from the 2019 period to the 2020 period.

General and administrative expenses for the nine months ended September 30, 2020 were essentially $12.5 million, an increase of $5.3 million or 72% from $7.2 million for the nine months ended September 30, 2019. This increase similarly reflects the impact of the consolidation of Func Foods operations which were not present in the results for the 2019 period. As such, administrative expenses reflected an increase of $2.6 million which included an increase of $221,000 in our bad debt reserve to cover potential collectability risks associated with the COVID-19 pandemic. Employee costs for the nine months ended September 30, 2020 reflect an increase of $1.1 million or 59%, not only attributable to Func Foods operations, but also related to additional investments in resources in order to properly support our higher business volume. All other increases for general and administrative expenses from the 2019 period to the 2020 period were $1.4 million. These increases mostly resulted from higher stock option expense of $1.3 million, higher depreciation and amortization of $34,000, and net increases in all other administrative expenses of $59,000.

Total net other expenses for the nine months ended September 30, 2020 were $590,000, which reflect a variance of $11.9 million when compared to total net other income of $11.3 million for the same period in the prior year. The variance of $11.9 million is mainly related to the recognition of a gain of $12.1 million pertaining to a note receivable from our Chinese licensee. The note receivable is part of an agreement executed with our China distributor related to the restructuring of our business relationship to a royalty based model, which requires the repayment over five year period of the investment the company made in China during the 2017 and 2018 years. As a result of the above for the nine months ended September 30, 2020, the company had net income of $6.9 million or $0.09 per diluted share. In comparison, for the nine months ended September 30, 2019, there was net income of $11.1 million or $0.20 per diluted share. The net income for the 2019 period included a non-recurring gain of $20.1 million related to the note receivable from our China licensee.

Adjusted EBITDA for the first nine months of 2020 was $12.2 million compared to a loss of $3.4 million for 2019. We believe this information and comparisons of adjusted EBITDA and other non-GAAP financial measures enhance the overall understanding and visibility of our true business performance. To that effect, a reconciliation of our GAAP results to non-GAAP figures has been included in our earnings release. As of September 30, 2020 and December 31, 2019, company had cash of approximately $52.2 million and $23.1 million respectively and working capital of approximately $62.2 million and $24.8 million respectively. Cash provided by operations during the nine months ended September 30, 2020 was approximately $3.8 million compared to cash used in operations of essentially $966,000 for the nine month period ended September 30, 2019. Finally, subsequent to the end of the third quarter on October 30, 2020, the company paid off the bonds payable related to the acquisition of Func Foods in the amount of approximately $10 million and is now debt free.

That concludes our prepared remarks. Operator, you may now open the call for questions. Thank you.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Jeff Van Sinderen with B. Riley & Company. Please proceed with your question.

Jeff Van Sinderen — B. Riley & Company — Analyst

Good morning everyone. First, let me say congratulations on the strong Q3 metrics. Terrific to see. John, maybe you can just touch on, I know you’ve ramped the DSD network quite a bit. I think you said you’re at 147, but maybe you can just speak to which regions you feel are best covered at this point, maybe where you still need to fill in or add DSD partners? And then what is kind of the optimization of your DSD network look like at the next phase based on recent business trends and kind of maybe just review the timeframe of getting to that optimization?

John Fieldly — Chief Executive Officer

Yes, no, thank you, Jeff. I really appreciate it. The team did a great outstanding job during the quarter, during these unprecedented times. So really excited about the results and the momentum we’re at, but you’re absolutely right. I just stated on the call we’re at a right around 147 DSD partners today. We have about 75% of the major metropolitan markets covered. So that allows us to really activate our retailers. So our team, our key accounts team is in the process really working with our retail partners and getting plans in place to transition from a direct model to the DSD model where we just see great lift, really gets us much better placement, better activation, better in-store execution and so forth. And that’s really what we’ve been saying — that’s what we’ve been seeing as we flip over Target and CVS, 7-Eleven in New York and Ralph’s in California as well. So lots of momentum there.

When you look at the areas where we’re still working on and need coverage, the team is working very closely with a variety of potential customers is the Mid-Atlantic states, Northern California, we’ve been working on. And also there is pockets in the middle of the country as well as certain pockets in Texas that we’re working on. So — but we do have 75% of the major metropolitan markets covered. We can cover a good portion and a good footprint of our existing distribution. So really just in the process, working with our retailers, we’ve even talked about Walmart before 50% are currently covered by DSD. We’re hoping that will change in the — really in Q1 of 2021 as we continue to work with those retail partners and flip over these key accounts. So we think we’re in great position, we’re in great standings and a better position than we ever have been on our retail distribution footprint and just really excited, we’re seeing these distributors continually reorder products working with us. We have some great team members, field sales team members that are working on activating these distributors. So we think we’re in a really great position as we exit 2020 and head into 2021.

Jeff Van Sinderen — B. Riley & Company — Analyst

Okay, great. And then kind of a multi-part question here. Can you speak on how the process of converting Target to DSD has been going. Maybe what sort of lift you’re experiencing lately when you convert to DSD. Overall, I think you said something along lines of 50%? And then I think you also mentioned Walmart flipping to DSD in the first part of next year. Maybe you can just elaborate a little bit on that? And then, just curious any more thoughts you have on the C-store channel and how business is growing with Speedway?

John Fieldly — Chief Executive Officer

Okay, excellent. Target, we mentioned, we put press releases out, we have worked — been working on flipping over 1,200 stores. There is a whole process that gets involved there to even get to that point. So it’s making sure you’re covering all the stores within a given DMA, making sure that you’re — their vendor numbers have to be loaded, there is a lot of back office work that has to be done. Not only on the Celsius side but also on the retailer side. And once that’s all completed, then that needs to be communicated to our distributor partners, activated at retail, we do provide support with our field sales team as well making sure these shelves get set. I’ve been working on it over the last two months really September and October, getting those 1,200 Target stores set. There is additional Target opportunities to flip as I mentioned, as we head into 2021.

In regards to Walmart, we are in about 50% of those Walmart’s are currently serviced by DSD, due to COVID and a lot of challenges as we know with these retailers with a lot of back office roles and responsibilities and physicians [Phonetic] working from home, has taken a little bit longer. So we anticipate Walmart will get together with them and we’ll continue to work on, move over to DSD, which is the preferred method and we anticipate that to happen sometime in Q1, early 2021. As it relates to convenience. Convenience, we’re up to a 16% ACV, outpacing the category growth. Obviously we’re into — getting into the pick of buyer seasons. So really account calls for 2021. It has been extremely positive as we — where we sit today and looking into 2021, we’re getting a lot of excitement as we did last year at NAICS, as we presented there. We did have a booth there. We got a lot of excitement. We are anticipating a lot of resets in 2020 which had been delayed. But we anticipate those to come around. We’re expecting more accounts coming on-board in the convenience channel in that March-April timeframe in 2021. And we’ll have more announcements over the next coming quarters of our expansion in existing accounts as well as new distribution coming on-board within that convenience channel.

As you look at Speedway, it’s — process of the first, really the first phase of the relaunch. Initial feedback has been positive on the — in the 2,700 stores range. So initial feedback has been positive. We’ll continue to monitor, but I don’t have anything else to really report on at this time in regards to Speedway, but things seem to be going well.

Jeff Van Sinderen — B. Riley & Company — Analyst

Okay, great to hear. Thanks for taking my questions. I’ll jump back in the queue.

John Fieldly — Chief Executive Officer

Excellent. Thank you, Jeff.

Edwin F. Negron-Carballo — Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.

Jeffrey Cohen — Ladenburg Thalmann — Analyst

Hi, John and Edwin and Cameron. How are you?

John Fieldly — Chief Executive Officer

Excellent. How are you doing today Jeff?

Jeffrey Cohen — Ladenburg Thalmann — Analyst

Very well. Thank you. Just fine. So few random questions and one more of a macro question. So could you talk about the, On-The-Go sticks, it’s now up to six SKUs. Is that yet become a material portion of the overall business at least in North America?

John Fieldly — Chief Executive Officer

Yes, the On-The-Go sticks is a great offering for us, because that expands our usage occasion. So we see a lot of — we’re seeing a lot of momentum with individuals making it part of their smoothy combinations, also taking it on their travel or travels down. We’ve seen a lot of offers a lot more portability and we are seeing — we expect it to be a meaningful part of our business. Obviously the RTDs or drive the bulk of our revenues, but we do see this additional opportunity with the On-The-Go sticks, they’re doing well at Publix. We just expanded into Walmart with them. With Vitamin Shoppe we’ve done really well over the years in our line and HEB has had in for some time, as well as Harris Teeter, so we do get a lot of excitement, a lot of interest on them. We do have some new flavors plans for 2021 and as it will be a meaningful business — part of our business, it is a piece of our business. And we expect it to deliver revenue and gross profits as we continue to scale and the team has put priority on it as well. But our main focus is the RTDs.

Jeffrey Cohen — Ladenburg Thalmann — Analyst

Got it. You did mention a couple of new flavors, you said strawberry marshmallow and blueberry frost. Can you tell us what the timing is on that. And if that’s the traditional line or the heat line and where we might expect that to pop up?

John Fieldly — Chief Executive Officer

Yes, it’s in the market now in the Nordics. Great tasting strawberry marshmallow and the frost it’s great tasting the blueberry frost, is a limited addition that we just launched at the end of the third quarter. So locally here in the US, we don’t have that slotted to arrive. But it is in the Nordics, if you’re traveling over to Sweden, Finland or Norway, you will be able to find that.

Jeffrey Cohen — Ladenburg Thalmann — Analyst

Okay, got it. And then, next, could you talk about, I know that Func is closed. Could you talk a little bit about the Vitamin channel and if you’re seeing any disruptions with the GMC situation?

John Fieldly — Chief Executive Officer

Jeff, can you repeat the question, sorry.

Jeffrey Cohen — Ladenburg Thalmann — Analyst

Yes, could you talk a little bit about the Vitamin channel specific to this quarter or next quarter?

John Fieldly — Chief Executive Officer

Yes, I mean the Vitamin channel has been a channel, especially supplement channel in the gym business. We started to see great reopenings in Florida. We did start to see reopenings in Texas markets and in California we’re actually the workouts are outside. We have some outdoor activation to support those local partners. It’s very key to our core. We’re there to support the fitness channel. Regards to the vitamin specialty, I mean the channel has been — has struggled. We’ve talked about, it was down 23% in the quarter. We anticipate it to come back. We feel health and wellness trends are here to stay. It’s — we don’t see that going away anytime soon. It’s more important now than ever deep forward to stay healthy, stay fit, stay active. So we feel the sports nutrition space is going to continue to grow. It’s a great way for a consumer to be — learn about CELSIUS for the first time in that channel as well and they bring a lifelong CELSIUS consumer on board.

Jeffrey Cohen — Ladenburg Thalmann — Analyst

Okay. And then lastly from me. If you could talk about the situation with the cans. As I understand that you have had four or five facilities, is the limiting factor, the capacity of the current facilities or is the limiting factor the raw materials and the availability of the can manufacturing?

John Fieldly — Chief Executive Officer

Yes, we’ve spoken about the cans. We were notified late in October about availability as we head into 2021. There is a massive can, the physical actual body of the can shortage for 2021. It’s anticipated in 2021, the industry in the North America is short about 30 billion cans. So lots of shortfalls, and that really has to do with the capacity of the manufacturing of the physical can, not the filling of the can. When we talk about filling stations, that’s the five filling stations or co-packers we’ve been working with. We have capabilities to produce the cans, but we, to fill the cans into finished goods, the challenge we have, as we head into 2021 is the physical can body. So that’s where the big shortfall is. All the manufacturers, the larger can manufacturers are all running over capacity and turning brands away, unfortunately. So as I stated earlier, on the opening remarks of the call, we do have contingency plans in place for that. Being a global company is advantage to us. We were immediately able to start sourcing cans out of Asia, out of Europe as well and immediately put our teams on that task to secure cans to sustain our growth and continue to outpace the category. So we will have sufficient ample supply as we head into — as we had through 2021. But it is an industry wide issue. Everyone is going to be dealing with which also can be an opportunity for brands that have cans.

Jeffrey Cohen — Ladenburg Thalmann — Analyst

Got it, OK. That does it for me. Thanks for taking the questions.

John Fieldly — Chief Executive Officer

Excellent. Thank you, Jeff.

Operator

Our next question comes from the line of David Bain with ROTH Capital. Please proceed with your question.

David Bain — ROTH Capital — Analyst

Great, thanks. And also my congratulations on the results and thanks for all the data points you covered a lot. So I’ll limit mine to two. Just given the cash on the balance sheet, cash flow generation, I mean, does this change your outlook either on potential M&A activity or brand extensions? I mean looking at the SKU average for your industry leader, you start to add Rain, body fuel to Paradise, Dragon Tea whatever, it’s got to be 3 times, 4 times, 5 times yours in the same locations. So is that an opportunity potentially next year or am I thinking about that the right way?

John Fieldly — Chief Executive Officer

Thank you, Dave for the question. There is a ton of opportunity out there for us. No question about it. The key — lead Celsius is focused execution. We did finish the quarter with $52 million in cash of which right around $42 million if you back out the $10 million paying off that debt, which we are debt free. So that’s been paid off. So we do have sufficient cash. We are generating cash flow positive. We will be investing in inventories to sustain growth. So we have funds market for inventory investments. We also have some positive ROI targeted investments, we will be implementing into 2021 with cooler placements. If you’re out in California, I know Dave you’re out there, if you stop into some Ralph’s, we’re getting great placement with some really good cooler assets and the ROI is extremely positive. So we’ll be looking to invest in that area into 2021. Opportunities arise every day. We’re willing to evaluate them and if we find an opportunity that’s accretive to our shareholders, accretive in revenue and gross profits, we will look at it, but at the strategy right now is to continue to stay focused, drive profitable growth and drive Celsius into a major player in the energy category and take share.

David Bain — ROTH Capital — Analyst

Fantastic. Okay, and then my follow-up would be, is if it’s possible to kind of help us bifurcate 3Q North American revenue growth into buckets like same-store sale, organic growth, SKU growth, door growth, or any way we can kind of look at what the main pillars of the third quarter growth were?

John Fieldly — Chief Executive Officer

I mean if you look at the growth in North America like we stated on the call, I mean, on a year-to-date basis we’re at a 57% growth rate. Edwin talked about a lot of the new distribution coming on. We did talk about the store count increase there, that we saw. So it’s an interesting year as we all know in 2020. So it’s consumer shifting their purchasing patterns and now they’re going back. There is a lot of dynamics taking place. So I don’t really want to state anything. We haven’t provided guidance. There is momentum behind the company. I did say we had a 50% growth in North America orders in-house as of the end of October. So that shows some underlying momentum there. But I would — not going to provide any forward guidance at this time.

David Bain — ROTH Capital — Analyst

No problem. Just go ahead.

Edwin F. Negron-Carballo — Chief Financial Officer

Are you going to follow-up?

John Fieldly — Chief Executive Officer

No, I mean the underlying if you look at it, the SPINS data, Scan data as I said about is 60% growth rate and that was the latest Nielsen data. In the convenience channel, we’re at a 43% growth rate. We have gained some new distribution as well. So I think, organically we’ve seen and we stated this publicly about a 30% growth same-store sales and the other growth is coming from new distribution.

David Bain — ROTH Capital — Analyst

Got it. Okay. Thanks so much. Great quarter.

John Fieldly — Chief Executive Officer

Thank you David.

Operator

[Operator Instructions] Our next question comes from the line of Anthony Vendetti with Maxim Group. Please proceed with your question.

Anthony Vendetti — Maxim Group — Analyst

Thanks. Good morning, Edwin. Good morning John. How are you doing?

Edwin F. Negron-Carballo — Chief Financial Officer

Good morning.

John Fieldly — Chief Executive Officer

Good morning. Excellent.

Anthony Vendetti — Maxim Group — Analyst

So just on — because there is a lot of talk about the can shortage across the industry, not just obviously what you are dealing with, but it’s just — it’s obviously a big issue and it’s excellent that you’re able to source this outside. You said it’s going to impact margins a little bit. If it can start to impact margins right now, do you need to start sourcing from Europe and Asia now or is that a ’21 issue?

John Fieldly — Chief Executive Officer

Yes, it’s an industrywide issue. We anticipate sourcing in Q4. So that will start in Q4.

Anthony Vendetti — Maxim Group — Analyst

Okay. Okay. But in terms of being able to get the can that you need, based on the fact that you seem like you’re ahead of this curve, you don’t see it being an issue in terms of being able to meet the forecast you have for the demand, correct?

John Fieldly — Chief Executive Officer

That’s correct. We already have purchase orders in place. We’ve already — are far along on the processing order procurement process to have sufficient cans as we head into 2021.

Anthony Vendetti — Maxim Group — Analyst

Okay, great. And then as we — you mentioned Amazon the third after Monster and Red Bull. Just in terms of the corporate gross margin, is that in line, is it a little bit lower margin, when you go on Amazon and just remind me, John or Edwin, what’s the percent of revenue that comes from e-commerce or Amazon at this point?

John Fieldly — Chief Executive Officer

Just, Anthony, it’s roughly around 22% of our revenue for the third quarter, North America. So if you’re looking at the segment there. In regards to gross profit margins, we don’t disclose particular accounts, but overall, margins were very good for the quarter. And like we said going forward due to the can, importing of cans, we are looking at the low 40s on a go-forward basis as we go through 2021.

Anthony Vendetti — Maxim Group — Analyst

Okay, great. And on the DSD network Anheuser-Busch, Big Geyser, those are the big ones, but you have DSD agreements with PepsiCo, Keurig Dr. Pepper, MillerCoors Network. Are there any others and how your DSD network you believe can cover 75% of your major metropolitan areas. Are there other DSD partners that you believe you need to increase that penetration or at some point maybe 75%, 80% is about as far as you can go in terms of DSD coverage?

John Fieldly — Chief Executive Officer

Great question. And keep in mind the Pepsi and Anheuser-Busch, Keurig Dr. Pepper were dealing with the independents. So they’re not corporate owned. So this is an independence. The bulk of our distribution is with Anheuser-Busch independent wholesalers. A lot of brands can’t even get to 75% major metropolitan covered. So it is a great achievement where we’re at today. But we are looking for full coverage and we’ll continue to drive that through. We will — they we’re talking to a variety of additional distributors to help fill some of those boys [Phonetic] mainly in the Mid-Atlantic, Northern Tao, Texas, certain parts of Texas and then there are certain regions within the middle of the country that we are looking for additional coverage on. But I think we’re in a really good position right now with 75% major metropolitans covered. The opportunity to activate these distributors. We just picked up thousands of new potential sales reps that can be out there helping build the brand for Celsius. And we’re looking to partner with them in a big way in 2021. And we’ve never been in a better position to have the opportunity we had on hand.

Anthony Vendetti — Maxim Group — Analyst

Okay, great. And then just lastly, a few years ago you came out with the HEAT line which was — it’s a different packaging, different product, more caffeine than your standard CELSIUS line. Is there any other lines that you’re looking at launching in ’21 or is it more going to be just an extension of what you have in additional flavors?

John Fieldly — Chief Executive Officer

Yes. We have a great cross-functional innovation team. We have a lot of innovation plan for 2021 and beyond. Some great line expansions, innovative flavors coming to market and one opportunity we’ve had which we’ve talked about with the Func Food acquisition is leveraging that fast brand portfolio. So we’re looking to partner with them. We’ve been partnering and bringing that Fast Protein snack portfolio to North America in Q1, starting to test it and ceded. But there’s a lot of opportunities in that category. We do see massive opportunities in the RTD category and that’s where we are mainly focused. But look for some great tasting flavor innovation, some line expansions as we head into and through 2021 and beyond.

Anthony Vendetti — Maxim Group — Analyst

All right. Great quarter guys. Thanks. Appreciate it.

Edwin F. Negron-Carballo — Chief Financial Officer

Thank you.

John Fieldly — Chief Executive Officer

Excellent. Thank you.

Operator

There are no further questions in the queue. I’d like to hand the call back to John Fieldly for closing remarks.

John Fieldly — Chief Executive Officer

Thank you, Doug. Thank you everyone. On behalf of the company, I’d like to take everyone for their continued interest and support. Our results demonstrates the products are gaining considerable momentum. We are capitalizing on today’s global health and wellness trends and the changes taking place in the transformation of today’s energy drink category. Our active healthy lifestyle position is a global position with mass appeal. We’re building upon our core and leveraging opportunities and deploying best practices. We have a winning portfolio strategy and team and a rapidly growing market that consumers want. Our mission is to get Celsius to more consumers profitably. I’m very proud of our dedicated team as without them our tremendous achievements and significant opportunities we see ahead would not be possible. In addition, I thank our investors for their continued support and confidence in our team. And I thank everyone for your interest in Celsius. Be safe, stay healthy, and have a great day.

Operator

[Operator Closing Remarks]

Duration: 58 minutes

Call participants:

Cameron Donahue — Investor Relations

John Fieldly — Chief Executive Officer

Edwin F. Negron-Carballo — Chief Financial Officer

Jeff Van Sinderen — B. Riley & Company — Analyst

Jeffrey Cohen — Ladenburg Thalmann — Analyst

David Bain — ROTH Capital — Analyst

Anthony Vendetti — Maxim Group — Analyst

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