Swedencare AB (publ)

Hi and welcome to the presentation of SwedenCares Q1 report led by our CEO Håkan Lagerberg and CFO Jenny Graflind. We will have a Q&A session after the presentation so please raise your hand if you have any questions and we will answer them in the end. Over to you Jenny and Håkan.

Thank you very much Emma. Håkan Lagerberg here together with Jenny Graflind. Thank you all for listening in. We are going to present the Q1 highlights. But first of all, I would like to start off saying that we have had a successful AGM today and would like to thank all of the shareholders of SwedenCare for the confidence from the board to keep on steering the company. I would also like to inform you all that Heinz-Jürgen Bertram, the CEO of Simwise, is a new member to the board. All the other board members are the same. Okay, let's go over to Q1. A sales record, first time over 500 million SEK, 523 million SEK in sales. And also worth mentioning is that we had a record month in March, first time over 200 million SEK in sales. So we are trending in the right direction. We've seen some improvements that hit us last year in 2022, with the inventories being very high from several of our largest customers. It has started to improve. And this Q1, I would say that more or less two to three group companies affected. But we see it's a really good trend. And I'm sure that Q2 will absolutely be the last quarter we see any growth. any effects of this. The organic growth, just double digit, 10%. We are happy with that, with a shift in the trend. And we expect continued good year when it comes to organic growth. And as all of you probably know, is that the organic growth now is very similar to our sales numbers, since we don't have that much inorganic companies in the group anymore. a bit lower margins and strong cash flow for the quarter and Jenny will go through that more in detail. We have several new external internal core projects that starts to deliver. We see many synergy projects starting to bear fruit. And also when it comes on the sales side, we are introducing a lot of new products into the different brands coming from group companies. So that's really a key feature for 2023 is that we're going to continue to more than the product offering in several of our group companies' trademarks. We did send out a press release in March about a new partnership with Patterson for our animal pharmaceuticals brand, a veterinarian-focused brand that's been sold in the Veterinary Channel. for many years in the US and Paterson has always been our largest customer for this brand. But now we have come to agreement of a new sort of corporation that they have acquired exclusivity for the Animal Farm brand. And that will mean a more focused approach from Paterson Salesforce and also expanded capacity. A lot more of the Salesforce will focus on this brand. So we are... very excited about this and it will be exciting to follow the sales numbers for this brand. Lickportra has also been focused on lots of ESG, let's say finalization for many policy documents and setting out the strategy for the group. And now we have entered a new phase where we have started to identify some targets for our sustainability work, and that will be presented over the year. And you can read more about this in our quarterly report. Going over to some numbers.

Yes. So our net sales increased from 377 million, which we had in Q122, with 39% to 523 million. In our sales numbers, we have one month of organic InnoVet and two months organic of NatureVet. In our operational EBITDA went from 94.7 million last year to 107.4 million. So that's an increase of 13%, even though our EBITDA margin decreased a little bit. Some of the KPIs. So first of all, revenues with half of a billion, which is fantastic. I think for the first time, our change in revenue was 39%. And this is 80% acquired revenue. 11% currency impact and 10% organic growth. When it comes to the split of the organic growth into volume and price, NatureVet did not have any price increases in 2023. And there was only a small portion of Radio South price increases that impacted Q1. So in these two entities are of course the largest ones in our group. The rest of the entities had about maybe two or 3% increase. So I will say that the vast majority of the organic growth is definitely volume. When it comes to operational gross margin, it's a little bit lower than our average, and also I would say lower than our coming quarters. And this is due to a couple of things. First of all, we had less development work this quarter, and development work has a significantly higher margin than other groups. We also had a ramp of production at two of our facilities that impacted gross margin, and there was more freight cost. And also, we had in Q1 several product launches where we give higher discounts to new customers, and this also has an impact on margin. In addition to this, the price adjustment, which I just mentioned, will have a full effect in Q2. When it comes to operational EBITDA and expenses, it was quite an expo intensive quarter. There's a lot of expos all over the world, which impacted the external cost. We also have more marketing costs, which are connected to the Amazon sales, which have also increased during the quarter. But in total, the external expenses are still at 90% of our total revenues. So that's in line with the previous periods. When it comes to cash, we had cash of 232.2 million when we closed the quarter. And for the second quarter in a row, we have had a positive change in working capital, which has then, of course, a positive impact. And this quarter, it was 16 million. And this is despite that we have an increase in our revenue. During the quarter, we have invested 11 million in CapEx. That's about 2% of our total revenue. And during the quarter, we also had a cash outflow of 92 million SEK to the seller of NatureVet, which we have discussed in the previous report.

So going through the different regions, North America being 81% of our total revenue, and of course, the most important region where we are, had a growth of 38% in sales. As I said previously, the bigger retailers are picking up month by month, so we do expect a stronger year. Vitio South, as you all know, had a tough quarter last quarter, but they bounced back really good. And as I mentioned in the Q4 call, I did expect 30% improvement in sales compared to Q4, and they delivered that. Low profitability due to the price increases being pushed and also improvements in the organization and run through. So they have really delivered on a plan that they presented early Q1 and expected even stronger Q2, definitely when it comes to profitability. So all, let's say, really impressed by the team there and the changes they've made. And the pipeline when it comes to customers, both internal and external, really strong for Radio South. Um, online being the star of the, the, the quarter for, for many of our brands, uh, are online only, uh, brand at MD had fantastic quarter once again, uh, over 30% growth compared to 2022. And, uh, really, um, really just, uh, outperforming many of the competitors. So, so we have an excellent team and, uh, working there and, uh, and, uh, we, we do, um, do think that this will continue over the year. Pearl and Black Off, yeah, as we did last year, good quarters after quarter. This was even better, both due to export sales, and I will come back to that, but also in North America, 64% just for North America, fantastic. It's the new soft tubes being launched. It's the original powder product that keeps on taking market share. So just continuing the growth of one of the strongest brands in the market, definitely. NatureVet is starting to come back from a bit lower growth rates due to the inventory challenges. So really good friends for NatureVet, both online and also in the retail channels. So the team has done a fantastic job there as well. And as you know, as we presented previously, we have a big launch for the NatureVet brand, a completely new sector. section that we present the scoopables that is supplements in a new form and that will be introduced in all of the big retailers and online and pet retail all over. We presented it at the Global Pet Expo in March and it's starting to deliver out to the distributors and retailers this month so it will be exciting to see. We are also continuing to take full use of the NatureVet sales reps for the pack-off expansion. And we are also introducing a dermaline under the NatureVet brand that's being released, I think, today or was yesterday on Amazon. And it will be really exciting to see that as well. Two big expos, VMX on the veterinary side and Global Pet on pet retail. Important shows at the start of the year and we had really good meetings all over there. As I also mentioned previously, lots of intra-group synergies and sales projects and we're starting to see good results there and that will continue over the year. Jone Peter Reistadler, The European 16% growth. Jone Peter Reistadler, 34% sorry 34% growth and 60% of total revenue, so a strong quarter for your even though one of our largest entities neutral had their. Jone Peter Reistadler, Their let's say last challenge when it comes to inventory trimming in Q2 Q1 Q1 last year they. Jan-Willem Wasmann, They had a fantastic order for from the biggest customer and that that affected this this quarter, but from now on, I expect really strong growth also from neutral it and. And the neutral at ordinary sales, including the newly started D2C website has had really good growth in the quarter as well. Pastest growth, Sweden Care UK with predominantly product black-off sales, 50% growth compared to Q1 2022. So a fantastic quarter and a record quarter, definitely. nordic's also performing really well a bit slower in southern europe but that was expected due to strong southern europe ending of the year so it will pick up in q2 looking at innovate our italian company their sales in the italian market really strong eight percent growth in the quarter in a flat Italian market. We get really good statistics for the Italian market and the market is really flat or even a bit in decline. So 8% growth is a really strong quarter. CVP renamed to Vettio UK. We acquired them in November last year and Jan-Willem Wasmann, For their expertise in in software manufacturing and and lots of starting up there both external and and internal customers so so from Q2 where we're really picking up the volumes there and that will continue all over the year. Lots of expos in Europe. Crafts, the biggest dog show in the world, where we also had direct sales to consumers for both NutraVet and for Proton Black Off. So exciting to meet the end consumers. BSAVA, a veterinary show, and IboZoo in Spain, and Zoo Technica in France, an expo. So also all over, all over, I would say, Europe, there's been lots of shows. We had a successful European group meeting gathering all of the group management for Europe, visiting the internet site and just having lots of business development meetings focusing on what we can do in Europe together as a group. So lots of good things came out of that. And as some of you may have seen on LinkedIn, we are... J. looking for a new European or it's a completely new position for European chief commercial officer or chief operating officer, depending on the background of this person, and that will be a really good position for for continuing the growth in the European region. Looking at the export markets, 3% of total revenue, but a fantastic growth, 78%. And it was basically all over. As you know, Proden Packoff is a really export-oriented brand and has always been so and have had lots of success all around the world. And that continues. And we have lots of other group companies starting to to export more and more. NutraVet found two new markets in Israel and Thailand and the the existing markets for many of our brands had growth. So the most important export markets in the quarter was definitely South Korea the biggest, then China picking up again and that's really a relief to see that now after the COVID lockdowns that the Chinese market is back on track and I expect the coming years China to once again be a very important export market for us. Japan, Australia and South America is good to notice. Not only Brazil as it's been previously. We now have Chile and Uruguay and lots of things happening there and starting to look at at some other in Central America as well. Mexico is about to start over there. And then many of the smaller markets in Europe has also seen good export orders. Outlook for 2023 is really good with both new and growing partners and opening up new markets.

I think this picture speaks for itself. We continue to have a very nice trend, both when it comes to revenue EBITDA and operational EBITDA. And of course, now, as we have not acquired a company, our operational EBITDA, same thing with the organic growth and the net revenue, that change will be not so big anymore when it comes to operational and not.

Yeah, looking ahead, no change basically since the strategy we presented last quarter. So we're really both focused this year along with the profitability improvements that will come. And we will use a substantial part of the cash flow that we will have to lowering our debt level. That's a priority for us. So we will continue to amortize every quarter going forward. We have a really strong pipeline for new products and also new collaborations with different partners all over the world. We continue to move from external partners to internal when it comes to suppliers. We focus a lot of manufacturing all of our products ourselves. It will never be 100%, but we are in fact on reaching perhaps 80, 85 this year. So that's really, really... in the region where we want to be. Product launches and development, all of those, most of our group companies, not say all, but have exciting products to launch over the year. And it will be product launches every quarter going forward. Solidifying relationship with major customers, that is a continuation. As we presented Patterson, there will be other, not only exclusive deals, but there will be more high-level collaborations. And we are a very interesting partner to work with. So we can offer a very wide array of products and the market has started to realize that. So looking forward to presenting more and more in-depth collaborations to the market. Co-op and M&A opportunities, yeah, that will continue. We are, as we've said this year, not so focused on M&A. It could be some smaller ones, but the focus right now is really taking advantage of the group that we've created and fuel the growth from there. So there are lots of opportunities, both from a growth and synergy perspective, but also when it comes down to profitability, we have a big... Big cost improvement project for North America, where we see lots of improvements that we are going to make over the year that will have a real effect on the bottom line.

And that was about it so. Now we're open for questions.

Yes, and our first question comes from Adela. Please go ahead.

Hello everyone. A few questions from me. The first one relates to the decision to postpone price increases. Could you just explain your rationale behind that? Should we have seen price increases, the effect of that in Q1? Is there any way to gauge what the profitability would have looked like in Q1? Thank you.

I think when it comes to the price increases that was pushed in that had most effect was Video South. We said that we were increasing prices the most in 2023 for those customers due to primarily price increases for And that is a price increase of roughly 9%. But since we had the manufacturing issues in Q4, we had to postpone lots of projects. And since the postponement of those projects were pushed into Q1, we couldn't apply the new prices for for projects that were supposed to be delivered in Q1. So that's the reason for postponing it to Q2. So now the backlog is over, so it will have immediate effect in Q2. When it comes to NatureVet, it was that last year there were two price increases, one in January and one in 1st of July. So that's why we thought that we didn't want to increase price for NatureVet in January. So the other brands, as Jenny said, we have increased prices two to three percent to match salary increases and some of the cost increases.

Got it. So does that mean that for the products that were postponed, have you been able to retroactively increase prices or will the price increases that take place from here on out affect new projects within Veteo South?

Yeah, it's from now. So we delivered the projects. We invoiced and delivered in Q1. They were at old prices. And so now it's the manufacturing from basically 1st of April.

Got it. And then my second question relates to how should we view organic growth going forward? I know your target is 20%. Is that reasonable in 2023 or I guess higher than what you achieved in Q1? But what would be your full year outlook on the growth?

I've learned not to say too detailed outlooks since last year, but I would say my expectations is that it will be stronger than Q1 for full year, but I wouldn't go and say a certain number, but I expect stronger.

Okay, I appreciate that. And then just lastly, you briefly mentioned that SimRise's CEO have joined your board. Could you give any indication of what you expect SimRise's agenda to be with only SwedenCare?

No, it's difficult for me to say, but we appreciate since they are the largest shareholder, we really appreciate that the CEO take takes time to join our board. It's a big company and they have lots of assignments. So I think it will be good to get Heinz-Jürgen onto the board to really discuss synergies and business opportunities for us to collaborate with them and see what we can get out of the, let's say, the position that they have in Swedencare. So their strategy, you have to ask them.

Thus far, there's been no collaboration between the two companies, right?

Yeah, there are some. We were a customer of theirs for some ingredients prior to them joining, and there has been some, let's say, some smaller projects, but no major ones that we have presented. So I think that there will be more, and we have identified some areas where there's opportunities.

Okay, great. Thank you very much.

Thank you. Your next question comes from Richard. Please go ahead, Richard. Okay, then we'll take the next one.

And it comes from Christian. Please go ahead.

Yes, good afternoon. I hope you can hear me.

Yes.

Yeah, okay, thanks. It would be helpful if you could elaborate on gross margin. You had some items that had adverse impact in the first quarter, like higher freight costs and sales campaigns. So excluding for these items, what would the underlying gross margin have been?

Well, I haven't done removing all the, let's say, different things that impact the gross margin, but I would say half of the decrease compared to where we want to be around 58% is the fact that we had lower development projects this quarter.

Yeah, and when it's development projects, that's basically Vetio North. They had a strong growth in sales, but as Jenny said, more startup of manufacturing, and that is even lower than it should be when starting up projects. So that had a big effect that we had a large increase in sales, but with a low margin.

I would say that's the biggest impact to the gross margin, the lower gross margin. The second thing that impacted the most, except for that one, would be a production ramp up. When there's new products, it takes a little bit more cost and you have lower gross margin.

Okay, thank you very much. That's all from me. And your next question comes from Henry.

Please go ahead.

Can you hear me? Yes.

Fantastic. I actually asked these same questions online. So just ignore the online, the online questions. It concerns the balance sheet and your total debt at the moment, if I recall correctly, is about 1.65 billion sec. The way In Q1, you didn't generate positive working capital because you had that 95 million payback to one of the previous shareholders. Looking forward, do you see the cash flow generation being sufficiently strong to not only pay the interest, but also to pay down the debt without the need for a capital increase? and in this context and this is one of my fears is that you're going to find it more difficult going forward managing working capital for the very simple reason that higher interest rates mean that the big retail clients who themselves have negative working capital will be inclined to delay their payment days or increase their payment days so I'm just wondering if you've seen any changes in client behavior with regards to payment terms. And the second question is, do you see yourselves managing to pay down debt without needing to revert to a further capital increase? Thank you.

So the first question about if we have seen an impact from our customers, if they are trying to delay payments. We have not seen that yet. I think we have a very good track record of collecting customer. We have almost zero bad debt, etc. So far, we haven't seen anything of that. When it comes to the second question, if we can generate enough cash, we can absolutely generate enough cash to both pay the interest payments and also to amortize down the debt. I think I communicated that last time that I expect Close to 50 million each quarter to be amortized. Not every quarter, but at least on an average, it should be that level. We do not need to raise capital to pay down debt. We should be able to do that with our own cash generation.

So just to summarize, that's obviously very good news. And I had a conference call with you about six weeks ago, so that's good to hear. But I'm just trying to understand, are there any other further one-off payments which you have to make, which will impact? Because from what you're saying, Q2 will be the first quarter where you will actually be in a position to pay down debt. Is that correct?

No, actually, we did make repayment in, for example, in Q1, we did pay 92 million and I did not increase my debt. So that was the 92 million that we paid has been generated by our own cash in Q1. In Q2, we have the dividend to be paid. So that's one thing that's going to, let's say, decrease our own cash amortization. But yeah. Yeah. We should be able to decrease from now, yes. We do not have any future big payments to make, which are, let's say, non-operating payments.

And do you think you should still be paying a dividend, or should you not just suspend it for a year?

No, we should not suspend it. It's been decided today on the AGM to pay a dividend of 0.22 crowns per share. It's about a total of 34 million, so it's... It's a lot of money, but it's not compared to what we can generate ourselves. We think that we can both do that and also to pay down our debt.

Okay, great. Thank you very much. You're welcome.

Okay, thank you. That concludes our Q&A session. So I'll hand the word back to you, Ingen Håkan, for any closing comments.

Thank you so much for listening in and we look forward to seeing you again in three months or so and report the Q2 and lots of activities going on here. So it will be exciting to tell you.

Great.

Thank you.

Thanks.

Bye-bye. Bye.