BioGaia AB (publ)

Hi, this is Teresa Agnew, CEO of BioGaia, and Alex and I are here to share our Q2 results. For Q2, our sales were $384 million SAC, which is growth of 22%. That was mainly driven by growth in Asia-Pacific as well as our Americas region. Sales in Europe, Middle East, Africa increased by 7%, Asia Pacific by 49%, and Americas by 22%. And we did have some orders due to quarterly variations in some of those areas, specifically in China and Brazil. Our EBIT was 134 million sec, which is growth of 42%, and our EBIT margin is 35%. Earlier in the month of June, we actually announced that we are taking our business direct in Australia and New Zealand. This is really exciting for us. It is one of our future investments. Australia is actually the 12th largest probiotics market in the world. And we have a really big opportunity to grow in both Australia and New Zealand. Those are both markets where consumers understand probiotics and coming in with our products, our probiotics drops in the beginning. And then we will be expanding our other probiotics products in the future in the pharmacy channel, as well as the grocery channel in Australia and New Zealand. So it's a big opportunity for us in terms of taking our business direct. And as you know, we have been successful in our other direct businesses. Prior to this, we were direct in six markets. So now that makes it eight markets. And our direct businesses typically are around 30% of our sales. So we anticipate this will continue to grow as we've taken Australia and New Zealand direct now. Also on the news front in early July, we won our arbitration with our former Italian distributor, Nus. And we have recently, just last week, signed a long-term contract with our sub-distributor Ricordati, which is a pharmaceutical company in Italy, Spain, Portugal, and a number of other markets. So they will now be our exclusive distributor of probiotics in Italy, as well as in Spain and Portugal. As you know, over the past couple of quarters, we have been talking about future investments in our business to continue our growth. So we are ramping up our investments in the second half of this year. We are projecting $75 to $85 million in the second half of costs on top of our normal operating costs. Some of those investments will be in marketing and sales activities. Specifically, we will focus on the US with Salesforce that will be marketing and selling our probiotics products. As we said, we are launching our direct business in Australia and New Zealand, so that is another opportunity for investment for us. We will also be launching our first global advertising campaign. and preparing for that launch that will be coming up in the near term. We are also investing on new products in R&D, on clinical studies for the future. So these are just some of the investments that we will be doing to drive our continued growth. Some of the launch events and other events in the quarter, so we had through our PharmaVest distributor in Italy, our Biogaia Protectus drops with vitamin D. And in the UK, which is one of our direct businesses, we have launched our Biogaia Predentis lozenges. So as we've talked about before, Prudentis is one of the brands that we are continuing to invest in. We've done extremely well in Japan, the US, Canada, and now we are driving even more emphasis on Prudentis in the UK. As I said in the overall introduction, we announced our own distribution in Australia and New Zealand and also announced our long-term agreement with Ricardotti in the Italian market. So our sales, as I said, increased by 22%. Our pediatric sales increased by 32%, mainly due to increased sales of our protective drops. And sales increased in all regions, and also specifically in markets such as China, Brazil, and Canada. For the quarter, our adult sales decreased by 6% due to decreased sales of our protective tablets. mainly South Africa, Belgium, and Japan, but this is due to quarterly variations for individual orders. And as you see for year-to-date, our overall pediatrics growth is at 11%, and our overall adult health is at 10%. So our pediatrics business remains at around 79% of our total business. In terms of the regions, as I said, EMEA sales increased by 7%. This was mainly in Germany, Spain, and Turkey. In Asia Pacific, our sales increased by 49%. And this was mainly in China, South Korea, and Vietnam. And again, our sales were positively impacted by quarterly variations for orders in China and And in Americas, our sales increased by 22%, mainly in the U.S., Canada, and Brazil. And again, our sales for the quarter were positively impacted by quarterly variations, specifically in Brazil. But as you can see, also our year-to-date growth in EMEA is 10%, in Asia Pacific is 25%, and in the Americas is 3% for a total year-to-date growth of 11%. So now I'll turn it over to Alex to go through the financials in more detail.

Thank you Theresa. So if we just summarize the quarter we had revenues of 384 million which was a growth of 22 percent. Our operating profit was 135 million which was a growth of 42 percent and the margin was 35 percent compared to 30 percent one year ago. Earnings per share at 1.10 and operating cash flow at 119 million SEK. If we look at the sales bridge, we see that in the quarter and also year to date, there is basically no currency effect. It's very small. And the whole growth actually then comes from organic growth. We move on to the gross margin. We have a total gross margin in the quarter of 74% versus 72% in the same quarter last year. For pediatrics, the margin improved from 74% to 77%. And in adult health, it decreased from 67% to 61%. Now, the main reason for the decreasing adult health margin is mixed effects. We have been selling more relatively of Prodentis, which is a product where we have a slightly lower margin compared to our protectives tablets. So when we have a higher Prodentis sales in adults, the margin is getting lower here. And that is the main explanation for the lower margins, both in the quarter and year-to-date. Move on to the operating expenses. Our total expenses increased with 13%. Sales and marketing costs increased with 23%, mainly due to the increased costs in the subsidiaries that we have and the investments we are making in those subsidiaries. In terms of R&D, the cost decreased actually from 38.8 to 26, decreased with 31%. This is mainly due to some timing and some periodization effects of clinical studies. The cost did increase actually compared to the quarter previous to this one. In terms of administrative costs, they declined with 49%. This is due to a reversal of an accrual that we had for the litigation fees in connection with the termination of the distribution agreement in Italy. And that had then a positive effect on the cost. There was a negative cost, so to speak, in the quarter. And therefore, we have such low costs here. And then we have the last line in OPEX is the other OPEX. That was minus 5.8 million versus plus 8.5. And that is due to that we have had in the quarter this year, we have had exchange losses. And in the same quarter last year, we had exchange rate gains in the quarter. So all in all, then, a total OPEX of 149 million versus 131 one year ago. If we then summarize and look at the profit and loss, we see that we have a sales of 384 million, a margin of 74%, gross margin of 74%. and an operating expense level of 149 million, leading to an EBIT of 135. And then the EBIT or operating profit then increased with 42% in this quarter compared to one year ago. If we look at the margin in percent, we have a margin of 35% versus 30% a year ago. And year to date, we have a margin of 37% versus 36% in the same period last year. Moving over to the cash flow. Cash flow from operating activities increased by 14%, 219 million. The increase is mainly due to higher operating profit despite the negative change in working capital. Cash flow from financing activities went from 296 million to 699. This is due to the increased due to the higher dividends paid this year. So in total, we paid dividends of 697 million versus 293 in the same period last year. And all in all, that leads to a cash flow for the period of 582 million versus 216, negative 2060, negative 582. And therefore we have a cash at the end of the period of 1 billion, eight SEC. So with that, I hand over to Teresa for some concluding remarks.

So, as we said, BioGaia won the arbitration with our former Italian distributor, Nus, and we have now started our new contract with Ricordati for the Italian market. As we said, our total sales increased by 22% in EMEA, specifically increased by 7% in sales in both the pediatrics and the adult health segments. sales increasing mainly in Germany, Spain, and Turkey. Asia-Pacific continued its solid growth with 49% and was due to higher sales in the pediatric segment. And again, sales increased mainly in China, South Korea, and Vietnam. And sales for the quarter in Asia-Pacific were possibly impacted by quarterly variations for orders specifically in China. America's sales increased by 22%. mainly in increased sales in both pediatrics and adult health products. And our sales mainly increased in the US, Canada, and Brazil. And again, sales for the quarter were positively impacted by variations specifically in Brazil. As Alex said, our operating expenses increased by 13%. Our EBIT margin is 35%. And as I described, we have been talking about the last couple of quarters that we would be ramping up investments and making some targeted investments. So we will be doing that and we will be driving continued growth. We are projecting our costs at 75 to 85 million SAC in the second half on top of our normal operating costs. And I did talk a little bit about where some of that focus will be, such as in the US and Canada, in Australia and New Zealand, in global advertising campaign that we will be starting at some point. as well as investments in our new direct businesses, Australia and New Zealand. And of course, continuing investment in our current direct businesses to continue to drive growth. So that is the overall summary for Q2, as well as year to date. And we can now open it up for questions.