Swedencare AB (publ)

Hi and welcome to the presentation of SwedenCares Q3 reports, led by our CEO Håkan Lagerberg and CFO Jenny Graflind. We are pleased to have production manager John Kane joining us with the presentation during today's webinar. And as usual, we will have a Q&A after the presentations, 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. Warm welcome to everyone joining us today for the Q3 2024 reporting. Starting off, 9% organic growth, a bit lower than we want to be, and it was impacted by negative growth of Garmin NatureVet, and as most of you know, that's the biggest entity of our group, so a big impact on us, but we still delivered 9% organic growth, and as I wrote in the report, the rest of the group together delivered 30% organic growth. So actually a fantastic quarter for many of our group companies. Looking at the overall pet health market, solid growth in major markets where there are reports and a bit of a pickup in M&A activities compared to a year ago. and it's been, I will come back for our case. We have ongoing discussions, but it is a bit challenging with the, with multiple still in this industry. Where there's been most activities in M&A, not so surprising, it's been in North America, US predominantly, and that's also, as you know, the biggest markets in the world. For us, looking at our channels, a very good bounce back for the veterinary sector. The veterinary sector has been a bit slower for us in the first half of the year and now coming back to really nice numbers on all markets, basically. Online still very strong and despite the effect the online sales on Amazon and HVAC had on us in this quarter, we see a very strong growth on our online activities. Pet retail a bit slower and that's for all markets, but still growth, but slower than the other two. Looking at our ESG initiatives, we've been working with some efforts to increase the recycled plastic content in our products, in our tubs, basically. And we have had very good discussions with the suppliers on both continents and also For our branded products, it's easy to take some big steps going forward here, but we've also had very fruitful discussions with our major product manufacturing and private label partners. Also started, made some lifecycle analysis on products that we have in the group and hired a sustainability focused controller, just joined us. So we are beefing up our capacity and our efforts and we will, as we presented Laszlo Varga presented at our last call, we will be presenting our goals, sustainability goals in Q1 2025 that will be measurable. Finally, as we presented before the Q2 reporting, we acquired Medvan, the Canadian veterinary distributor that joined the group as of 1st of August. It has been a very smooth process getting the team to join us and already seen some good results. collaborations between the group as expected. It's been a partner of ours for some years distributing RxVitamin brand in Canada. So we knew the team very well. So no surprises there on the negative front, only on the upside. So over to the numbers and Jenny.

Yes, like what I said, we have another record quarter and 9% organic growth. There was a significantly weaker US dollar, which impacted the growth with a 3% currency impact. Our operating growth margin increased with 14%. It's almost at 58% and that's compared to 54% last year. Our EBITDA is 136 million. and a margin of 21.2%. That's 1.4 percentage points lower the margin that we had last year, but it's about the same value. We continue to decrease our net debt to EBITDA. It's now at 2.2 compared to 2.9 one year ago. And our operating cash flow was really strong for the quarter. We had 125 million and we have 193 million of cash when we closed Q3. Okay, some highlights on the revenue, the growth margin and EBITDA. So the North American segment was down year over year, and it was heavily impacted by NatureVet. But due to very strong growth in the US production segments, they grew by 59%. The North American region was at 2% growth. Europe very good strong growth and 30% in the rest of the world, we had a declined and this and that's due to the fact that we had a material farmer delivery in Q3 last year, but the rest of the brands had grew with about 10%. Our growth margin is stable at the 50% for the last four quarters and that's in line with our expectations. In the quarter, there's been an increased spending in marketing, both in value and as percentage of sales. The increase is the reason why we don't see an increase of the EBITDA margin, which this quarter is lower than last year. It's lower than previous quarters and is significantly lower compared to where we want to be. The increased marketing spend is linked to the major digital platforms, and there are several reasons why this has not had a positive impact on sales. And I will go through them. So the number one is that we have increased spending in NatureWeb for Amazon, and we can see that Amazon grew with 13% for the quarter. However, at the moment with Amazon, we work with a partner which has decreased their inventory. So while the Amazon sales out the door grew, we have a decline in our sales compared to Q3 last year. So this increased marketing spent that we had this quarter basically had a double hit on us. Second, in the UK, we have taken over the Amazon sales in-house. And that also means that we also do the marketing ourselves. And this is actually the first quarter we are really back with the sales volume and Taking over the marketing, we need to tweak it a little bit to make sure that we find the right levels. And third and last, it's also in the UK where we have increased the marketing spend for NutriVet. And this has not had the expected result we wanted on sales, mainly due to a slower veterinary channel. So this is the reason behind the lower EBITDA margin. Let's go and talk about cash for a little bit. We had a positive change in working capital this quarter. With 22 million, we had lower inventory, lower receivables. In addition, we have paid acquisition of MedVent. That was about 28 million. And we have also been able to decrease our external debt with 50 million. So we had a very good cash conversion, 93% for the quarter. In addition to that, we have now about 80% of our US cash is now included in our cash pool. And we have also initiated a cash pool in Europe. So this will continue to enable us to have a lower cash level. And then we can, just like we did this quarter, we can use our cash for investments and to decrease our debt instead. Our net debt to EBITDA continues to decrease. It's down 23% compared to one year ago, and we expect it to continue to decrease. The first nine months of the year, revenue is now close to 1.9 billion. 10% growth, and that's including 1% acquired growth and a negative 1% for exchange impact. EBITDA is at 415 million. That's an increase of 15% compared to last year. And margin has also increased from 21.2% for the first nine months to 22.2% this year. Rolling 12 months. Nice trend. We are now at 2.5 billion for the rolling 12 months and 550 in operating EBITDA. And product split. As you can see, there's a small decrease of nutraceuticals and that's our largest category. And the reason behind that is the decrease of nature vet, as we talked about. Pharma, still a small category, but very nice, strong growth. And we continue to expect that to ramp up. Dental, also fantastic growth of 50%. This is mainly the Protoplat Gov and a few other dental products, but it's mainly Protoplat Gov. And the main contributors here are the Protoplat Gov powder and the soft juice, which are quite newly launched. However, it's quite nice to see that even the other dental products, so products that we produce to other partners have had a strong growth. And that's positive to see that this important therapy area is growing. If we look at some of our brands, Innovet stands out. That's our Italian entity. That market has been growing at a healthy 9%. However, we are growing much faster than the market. We've grown 22% of this in Italy, which is nice. The decrease that you can see in the private label, that's mainly due to this lost private label customers that we had at Naturevet, which we spoke about in the report. Rylis, it's the new acquisition that we completed in the beginning of the year, which continues to grow, quarter by quarter.