Swedencare AB (publ)

Hi, and welcome to the presentation of SwedenCare's Q4 reports, led by our CEO Håkan Lagerberg and CFO Jenny Graflind. And we are pleased to have Brian Nugent, the CCO of SwedenCare North America, joining us with a 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.

Hi, everyone. Håkan Lagerberg here together with Jenny Graflind in Malmo. And then we have Brian Nugent, early morning in Tampa, Florida, joining us for presenting the US Veterinary Division. Okay, let's see now. Year-end report Q4 2024 highlights. Sales in EBITDA are at an all-time high, but growth is not where we want it to be. We had organic growth of 4%, so it's below our expectations. And It's somewhat the same story as last time with our biggest group company NatureVet having some headwind in the quarter with 21% organic growth decline and rest of the group altogether 18% organic growth. So we just need to get NatureVet fixed and then we will be at our growth targets of double digits as a whole group. I will come back and explain more about the road forward with NatureVet. Other highlights. We were accepted for trading under the ticker SWTCF at OTCQX in New York. And the reason for this is our strong presence in the US. You all know that it's plus 70% of our sales are in North America and looking at our shareholder base. We have a majority of European investors definitely looking at on the retail side. We have several North American institutional investors, but we have had requests and also think it's interesting to facilitate the trade of our share in North America. So we will follow this closely and see the development of predominantly retail investors. We also had another VOHC recognition for protein plaque off. Now it was for our fairly new soft juice where we made two clinical studies and could prove that it's effective against both plaque and tartar. And many products on the market that have the VOC seal is actually either or. Not that many products have both for plaque and tartar. We are very happy and proud about that. Looking at our sales channels, it's not an effect, let's say a detailed science because some are distributors and big retailers, we don't get the split there. But fairly similar as it has been, 40% online sales, 30% pet retail and 30% veterinary. If you're looking at the two different main regions that we have, there's a bit higher percentage in the US on the online compared to in Europe where we are a bit higher on pet retail and on the veterinary side, but not that big differences. I've also received a number of questions both from the board and and also from investors about the situation regarding potential trade wars and tariffs and what strategy you have and if we are prepared. And as many of you know, is that we have focused on having manufacturing local. So we have manufacturing hubs in the US for North America, and also a development site and manufacturing site of RX products in Canada. And then we have both in UK and Europe to handle the Brexit situation. So but we have not created this out of let's say, the strategy of avoiding tariffs, it's really down to having having secure product supply, And also from a sustainability perspective that we definitely want to avoid long, unnecessary transport. So that has been the main strategy for us is to have local manufacturing. But of course, it's convenient to have now when we have analyzed the situation, basically, Basically, I wouldn't say we are unaffected, but we have a very, very small percentage that comes from different regions, if you're looking at UK, Europe and US. So we are very local there with the ingredient supply, material supply, packaging. So we're well prepared. The only long-term issue could be that the pharma division that we have, many of the products that we are manufacturing in Canada, are going into the US market. However, it's long-term processes of moving manufacturing projects from one facility to another. and we have the competence. So if it would be problematic between Canada and the US, we are in a position to be able to open up a manufacturing facility in the US also for RX products. Furthermore, the board has proposed dividend of 0.25 sec per share, increase of 9% compared to 2023 and in line with our policy that if the board thinks it's, let's say, it's according to our policy that we could give a dividend up to 40% of the earnings. Jenny?

Yes. Some financial highlights for the quarter. Like Håkan said, we had another gross sales quarter of 661 million, which represents 4% growth. Four of this was organic growth and 1% was acquired growth. For the four-year growth, the organic growth was 9%. And the acquired growth mainly came from Medvent, a Canadian business that we acquired in August 1st. Our operational growth margin was the highest since 2022 with 58.5%. This is in line with our expectations. We have earlier said that we'd like to be around 58%. This quarter was slightly higher due to the fact that we had lower inventory adjustments and also we can finally see some improvement in purchasing. The external costs are increasing with the growth of Amazon as some of those costs are directly linked to sales. In addition, we had 9.7 million of additional costs this quarter and this includes a non-operating legal settlement from prior years. as well as we have done a rebranding project in NatureVet and also we have some reserves in the accounts receivable. As a result, EBITDA is at all-time high, 145.3 million for the quarter. The EBITDA margin is 22% and that's a growth of 9% compared to Q4 last year. The net results are impacted by lower interest costs. Of course, we have lower interest rates and also we have a lower debt level. In 2024, we booked the tax cost and adjustment throughout the year compared to 2023 when a large adjustment came in Q4. So these two items caused the increase of net results. We had a negative 13 million last year, and we now have a positive 23.8 million this quarter. And the net income for the whole year for 2024 is at 98.9 million, and that's an increase of 69% compared to last year. I can also mention that the effective tax rate for our group is at 11%. We continue to decrease our net debt to EBITDA, which is now at 2.05 compared to 2.63 one year ago. In the quarter we have repaid 75 million on our loans and for the whole year we have amortized or repaid 200 million. In addition to that, we have used our own generated cash flow to invest in some acquisitions, which you probably know about. That is a total of 107 million for the year. Operating cash flow was at 81.7 million for the quarter, and at the end of the year, we had 186 million of cash. And since we're closing the year, I just want to give you some highlights for how we finished. So we finished with net revenue, which amounted to just about 2.5 billion. Like I said, 9% growth compared to 23. Gross margin was at 57.7% for the year. And EBITDA grew with 14% this year to 560 million and a margin of 22.2%. Rolling 12 months is of course the full year this quarter, but as you can see, we have had a nice trend of growth and profitability from 2021. Product and brand split. We have had a decrease in nutraceuticals, which is our largest category of 8%. This is due to the decrease of NatureVet, which mainly sell products in this category. Farma, it's a quite small category still, but a very nice strong growth of 37%. We are growing with mainly manufacturing volumes here in Farma. And dental, which is always nice to mention, that mainly includes Proton Plakoff and a few other dental products, grew with 54% for the quarter. This category is now 18% of the group's total revenue. And the main contributors in this product group is the Proton Plakoff powder, but also the soft juice that had a nice growth, but also Restomil. That's a series where we have launched a new toothpaste during the quarter, and that's been well-received. Few comments on the brand split. The largest decrease is in private label, which Håkan will talk about. The contract manufacturing is absolutely worth mentioning. We had a growth of 22% in the quarter. The production segment has grown with 20% for the quarter and 28% for the year. The strongest growth we can see in Europe, we had actually 97% growth in 24 compared to 23. This is mainly driven by the increased software production, which we have in the UK. and where capacity has been built up during the year, but also in Ireland, where we have also invested to increase capacity. InnoVet, our Italian company, has also had a great year with record sales and far above market growth.

Looking at the regions, net sales in North America, almost 475 million sick, 2% growth. Biggest driver dental, as Jenny said, and predominantly in pet retail and online. We have now also made a new launch for the veterinary side that Brian will mention, where we sell basically the protein pack of products under a new brand. focused on the veterinary side. Production and online strong, pet retail a bit weaker and the veterinary side also a let's say it's stable up but not that double-digit growth where we would like it to be. Pharma division, really strong, best quarter ever. And the interesting thing is that we are now really seeing the effects of our development projects materializing in manufacturing. So the split between manufacturing development continues to even out. a very strong quarter for the Pharma Division and we expect 2025 to be strong for the Pharma Division. Manufacturing will be a bit lower in Q1 due to inspections and some refurbishment of the manufacturing side in Q1, but then Q2 and onwards will be really strong when looking at the manufacturing side. In nature at last negative quarter, as we expect, I will go into depth that in next slides and treats categories worth mentioning a wireless we acquired wireless organic treats in the beginning of last year and has been a really successful last year. And we're expanding the product category and also looking to expanding to new markets. There has been lots of interest in new markets, but we have chosen to focus on the US from the beginning. But now we're looking at some new markets, both Europe and some Asian countries. Medvent has started to analyze and prepare to expand their product range and brands that they sell into the Canadian market, analyzing different brands that we have within the group. And also when that process is over, the registration process starts in Canada, which is a complicated one. And one of the reasons why we wanted to acquire entity of our own in Canada because it is a complicated regulated market. We have also added some key sales addition in resources in North America in a couple of different group companies and really looking forward to see the results from that. Yes, just a sum up of 2024. Organic growth in the quarter, minus 21%. And full year, 10%. And that is of course not where we want our biggest group company to be. So the reason for the low numbers in Q4 was predominantly from the private label division. Three largest accounts pushed orders into 25. Different reasons, but 2024 was a, O23 was a special quarter last year since we made some changes in volume requirements and also price increases. So it pushed a lot of big orders in the end of 23. all of the customers are on board and we have made a reorganization in that division to get better visibility and also to support our customers better. So we have changed the working methods, more focused on business development and and together making a plan for the coming year. So I'm confident that the private label, these three customers, we know already that Q1 will be better and also Q2, but also in longer term, we will be more focused in helping them to develop their business. Looking at the branded sales, down overall a bit, but there was growth in our distribution line. Chewy, the biggest customer after Amazon, and also second biggest customer and down when it comes to pet specialty. They also grew. So what affected the quarter and the branded sales was that our biggest pet specialty customer was down. And it has been down for the full year due to the launch of competing brands into their assortment. But however, 25 reset, we are very confident that 25 will be good. quite different year. We have received confirmation that they are bringing in our new innovations and also expanded in-store presence. So we are very glad that we have been able to have those discussions and also develop our offering in their So looking forward to that. Amazon sales, sales to consumers, what we call out the door, are up 9% for the quarter. And there you might recall that we are transitioning from selling through a partner to our own Amazon sales. And that will... be transferred end of this year. This agreement resulted that our partner wanted to have inventory at a bit under three months inventory and historically they've had four to six. So that's why our sales in this quarter was 7% down. However, going forward, our sales will definitely reflect the outdoor sales and January outdoor sales are 10% up. So you can expect that if we continue to drive sales this year and increasing our sales, then our sales will increase to our partner as well. What will happen in 2025? Yes, the team we have brought in, they have been working very diligently and the sales processes for a large account is long. So it's 12 to 18 months from where you see results. So we are starting to see results of the hard work being laid down and the new strategies. As Jenny said we have been end of the year and early this year we are about to conclude a rebranding project for the NatureVet brand at a cost and lots of time and resources but we want to do it correctly and so we're very excited to be presenting that the end of March at the Global Pet Expo. And then we have been working very hard to expand and strengthen our relationship with all the top branded customers, all of the big chains and retailers. And it has given the sought after after effect so we we are all of our big big accounts we will have more presence in store uh launching more products and also have have better visibility for for our brands so so we um We are at good terms with all of our big customers. And as you may recall, we started in 24 with a couple of SKUs with the biggest pet specialty retailer in North America. And that collaboration has gone good. So we have already in Q1 added a couple of more SKUs. Q2, we will have a special... program for 400 stores expansion with an even larger product offering and what we are waiting for is really the key expansion opportunity in Q3. That one is not decided yet but we are Yeah, looking forward to the final decision there. We have had really good discussions about that. Looking at private label, as I said, more visibility and less dependency on a few accounts. We have secured two new major accounts, one private label brand with the top tier pet specialty retailer who closed down their private label program last year. They have now rethought that and are launching a completely new one and we will be supplying that. We also have secured a private label program with the nationwide pharmacy chain and we are also in discussion for them to launch a couple of our branded products. Big box retailers, lots of focus on that from our side. We have online presence with three big box retailers or will have when the quarter ends. And that is basically a prerequisite to get into the physical stores. one um small a big win and that that is is very new is that we have uh have received a um a opening a small side wing confirmed for 1400 store end of q1 um so we we are gathering the resources here with the largest seller of pet health the biggest big box retailer and We are expected to get the decision on a significant presence in that retailer at the latest by the end of the year. So we're excited about that and target and working diligently to add more before 2025 is over. How has 2025 started? Sales are up and we predict NatureVet to basically be stronger quarter by quarter. So no more decline in sales for our biggest group company. Europe has continued the success story of the year, 20% growth for the quarter, dental strongest product group, and also coming back to dental. It's really important to understand also why we are able to be so. strong in dental is that we are utilizing many of our group companies when we sell dental. So the success for proton plaque off wouldn't have been possible in the same way if we wouldn't have had For example, Nature Vet opening up the big pet specialty retailers for us. And for us to continue working with all of the smaller brick and mortar store from our original setup. And also having, like we have in North America, Coming back to that, sorry for that, speaking of Europe, but coming back to that, our online team in North America have made a fantastic job with our online sales for ProtonPackoff. So it's an important key to remember. We're looking at the success of Proton Blackoff. It has been made possible due to the fact that we have added lots of new competences into our group with different group companies and utilizing their capacity and potential. But looking at Europe, continue to be very strong looking at the dental. UK, a bit mixed market, very strong in our Amazon sales. As you know, we took that back from Amazon. So we handle that ourselves now. So we expect that to continue to be strong growth in 2025 as well on our sales there. Weaker veterinary market. However, we do feel that... There has been a swift change. End of Q4 and also start of 2025 has been good, both due to product launches, but also the sentiment in the market. I think the UK wetland market is starting to rebound. Italy and Nordics had another fantastic quarters. They've been working really, really hard. Nordics is a small market, but have had excellent growth all year. Italy, as Jenny said, has been a fantastic market for us and also starting to make a bit more noise in finding new markets around the world for the InnoVet products. We start the more extensive collaboration with Zooplus in Q4, and especially with the NatureVet by Swedencare. A promising start, a couple of reorders, so we're looking forward to keep on growing that in 2025. Several product launches in the quarter, and that will continue in 2025. In our report, we present some of our product launches that have been made in 2024, and many of them have not really made any big impact on our sales, but will have in 2025. Manufacturing production is, as Jenny said, has been fantastic in Europe, especially our new UK facility up and running, our Irish facility adding new capacities. So really been a strong end of the year and that will continue in 2025. Rest of the world down 5%. But as we highlight here is that it's down due to the fact that we in 2023 had a development and manufacturing project for clinicals for an Asian customer that was large. And that, of course, impacted our sales significantly. Those are more of a lump in nature and not continuously. So looking at without the pharma impact, our export sales actually increased by 37%. for the quarter. Asia top region, China bouncing back, and Japan and South Korea continuing to be very strong markets for us in Asia. South America, Brazil, Chile, Uruguay stands out in the quarter and also for the year, I would say. So we are excited about the opportunities in South America. Looking at the smaller or specialized project, we have continued to add new collaborations when it comes to pet food. So we now have five projects with brands where they include Proton Plakoff and utilize our brand on their marketing. And the couple of new ones that started in 24 have had a really good launch. So we expect that sector to keep on growing in 25. And we will be adding a major brand in South America already in Q2 2025. So looking forward to updating you on that further on. Prior to 2025 and what happens in the near future, it's really down to growth and profitability. That should be our signum, and we continue to focus on that. We are dead set to coming back to double-digit growth, not happy with the 9% growth for 2024. So that is a focus area for us. And also that our increased gross margin will start to show also in the profitability bottom line. So lots of focus on that. I put the lowering debt level... I wouldn't say we don't question that, but we are at 2% net debt to EBITDA. So I would say that it's not that much focus as before to get the debt level down. But of course, if we do not use the funds that we generate, because we will continue to be cash flow, positive every quarter going forward. We will, of course, use that to amortize our depth, but it's not such a focus area as it has been the last, let's say, two years. Capitalizing on 2024 strategic projects, we have lots of projects together with partners that will start showing our numbers, and I will present a couple of those over the year to come. M&A reactivation, I would say that we have been making some smaller M&A. The market as such started to pick up in 2024. More activity in our industry. And we, of course, with the debt level have gone down for us and the situation we are in. We were, of course... looking a bit more open and a bit more open in discussing and looking into M&A opportunities so I would say we focus on geographies where we're not present and also targets with unique features to our group so from that you can read out that we focus on some geographies in Europe and APEC area and And also, if we can add something new to the group, that's important for us. And we have some opportunities there. I do expect us to and hope that we will be able to make some acquisitions this year. uh product launches and development as i said we have lots of uh lots of product launches and and development on ongoing so really excited about that um and also the as i can come back to saying that the the um the the manufacturing and the pharma division is is at the next exciting point right now Also looking forward to get the results for our bi-annual employee survey. For those of you that remember, we had really good results last time we did it for the first time. But of course, there are always things that you can improve and we have been working hard with that with the local leadership and different group companies and also from a group perspective. So excited about seeing the results from this if our efforts have have will generate even better results. And then sustainability is, of course, focused area for us. And we will be finalizing and presenting our targets during 2025. And I think in the next report, we will have some some some presentations about that or the next day after I don't know if you do. No, let's see, we will present it in 2025. At least And with that, I would like to introduce Brian Nugent, who has been with us since 2020, where he came on board as he was the CEO of Stratford, and he will present Sweden Care North America Use Veterinary Division.

My name is Brian Nugent. I am the Chief Commercial Officer of SwedenCare North America. My responsibilities include oversight of SwedenCare North American veterinary and online channels, and today I'll be specifically providing an update on the U.S. veterinary market. SwedenCare U.S. veterinary brands include Stratford Animal Care, RX Vitamins, Vet Classics, Animal Pharmaceuticals, and the newly launched Protein Dental Care. These companies share a common mission, which is to be the leader in the advocacy and innovation to the veterinary community by providing premier products and practical business solutions that support the growth, profits, and success of veterinary practices. Our veterinary commercial and operational teams have been busy and spent the last year and a half consolidating operations to a centralized distribution facility in Tampa, Florida, shifting from external to internal manufacturing, cross-training and integrating sales, service and marketing. And we are poised for growth in 2025 and beyond. Also, just two weeks ago, we all jointly presented these companies at the VMX Global Veterinary Expo in Orlando, Florida, where over 33,000 attendees were able to see our combined SwedenCare U.S. vet solutions for the first time. That is a picture of a very busy booth. And as I mentioned, the VMX itself was also very busy with over 33,000 attendees. And I'm pleased to mention that the new SwedenCare booth was one of the busier booths in the entire expo, where we were able to meet with current customers, gain new customers, and engage with prospective customers and future partners. I will now provide an overview of our veterinary brands, starting with Stratford. Stratford is exclusively distributed by MWI Veterinary Supply. Stratford sells products in three ways to MWI. The first is a traditional Stratford label. The second is we provide MWI with a private label brand called Vet One, which is the green label in the middle of your screen. And the third is a clinic custom label program where we provide a unique label and brand for an individual veterinary hospital. I'll talk about this more and show you a little bit more in depth in a few slides, but interesting to note on that graphic, all three of those graphics are the exact same product. The only difference is the label that's on it. So we really work with our distribution partners to provide the ultimate program that most benefits their veterinary hospitals. Animal Pharmaceuticals is currently distributed exclusively through Patterson Vet Supply and available in two options. The Animal Pharmaceuticals brands on the left, which essentially acts as a private label brand for Patterson. And also, once again, our unique customized clinic label program that allows for an individual hospital to have their own label. And it's the only place that that label exists was under that roof of that veterinary hospital. RX Vitamin brand, which is over 20 years old, is available through MWI and also sells direct to veterinary hospitals. This range tends to be a little bit more holistic and it's very unique in that it has extensive clinical and research on the products and specifically the ingredients. We also just recently completed a rebranding of the entire RX line to include significantly improved looking feel of the labels and all the marketing and support materials. Vet Classics is one of the most widely distributed of our brands, and it's sold through MWI, Covetris, Patterson, and Midwest Vet Supply, and only available in the Vet Classics label shown here. We have recently added the Stratford and Animal Pharmaceuticals Dermatology range to this line. This dermatology range, just coincidentally and also, is 98% sourced internally from Vetio, a SwedenCare sister company. And our most recent brand is Protein Dental Care. And this is a new line that we just launched nationally at the VMX two weeks ago in Orlando, and it utilizes SwedenCare's flagship Protein Plakoff. The difference, however, is that Protein Dental Care is available in a label that is very unique to the U.S. veterinary community. This allows veterinarians in the U.S. the assurance and recommendation of prescribing a product that is exclusive to veterinarians and not readily available on the OTC or online channels. This brand has already been picked up by major distributors such as MWI, Patterson, and Covetris. And this range generated extreme interest at the VMX Expo. So it's going to be very exciting to track the growth and trajectory of this product throughout 2025. I also wanted to share a few insights of the industry. Some of these bullets were released during a think tank at BMX regarding the US Veterinary 2024 industry year-end review. Vet visits overall in the US were down, but the spend per visit was up. Vets are continuing to face a loss of business from online home delivery companies, especially Amazon and Chewy. Vets are desperate to find ways to help increase owner compliance. Hospital consolidation is still occurring, just at a slower rate than what it was in previous years. Estimated manufacturing brand growth in veterinary supplements and pharma was up approximately 5% as an industry average in 24 versus 23. And finally, declining pharmacy sales were the top two concern or challenge faced by vets in 2024. Staffing was number one. And it's important for us to understand that the problems and the challenges that veterinarians face. And so the question becomes, how can SwedenCare help the vets increase repeat visits, increase pharmacy sales, stop the loss of business to OTC and online channels? And if you recall one of my earlier slides, the mission statement is we wanna not just sell products to vets, but we also wanna help them solve these challenges by providing them solutions as well. And the solution to this question is clinic label. And I spoke about this earlier, but I'll go in a little more detail now. Our clinic label, it's a very unique and proprietary program that allows an individual hospital to have their own brand of products that's only available in that hospital. It can never be found online. Thus, it drives clients back to the clinic when it's time to reorder. And we offer this as a service both through our animal farm and our Stratford product lines through our distribution partners. We find that vets that clinic label have a stronger bond between pet owners and the vet. They have a much higher percentage of pet owners who return to the hospital when it's time to refill a script. And we know that more repeat visits equals increased pharmacy sales. So we really try to give them a winning strategy as well as premier products. Another question is, how can we help solve the issue of increased owner compliance and help increase pharmacy sales? One example on the left side of the graphic is at BMX, our teams launched a unique and exclusive finger wipe with a proprietary technology that we called ClaraClean. If you've ever tried to clean your dog or cat's ear, you know it can be gross, messy, No fun for you or the pet, and our new finger wipes provide a significantly more efficient, effective, and sanitary method in which to clean your pet's ears, mouth, wrinkles, or even their body. The wipe, when placed over the finger, provides 180 degrees of surface area that can quickly and efficiently remove wax, debris, etc. So a much more sanitary and pleasant way than previous methods. Because these are easy to use and smell great, pet owners will be more willing to regularly use these finger wipes, which will increase owner compliance, thus driving pet owners back to the vet when it's time to reorder. We strongly believe that companies who provide unique products and services and demonstrate a desire to not just sell to veterinarians, but rather offer practical solutions and innovative products and delivery methods will become the recommended partner of veterinarians in the U.S. from vets and their staff so that they can offer convenience to pet owners, resulting in repeat visits, increased sales, that these companies will grow above industry average. And that's where we want to be. A couple of initiatives I'd like to share with you that we're currently working on. is a consolidation of group brands and the US vet market. So we're looking for one sales, one marketing, one service and one trade show team. And we are in process with that. We will be really kick that off at the VMX show and that will be completed by quarter two, 2025. We will continue to add additional SwedenCare manufactured internally products into our U.S. vet offering. Right now, we are at a backwards integration of 80%. So that's to say that 80% of products we sell in the U.S. vet market are manufactured by SwedenCare internally. And we will continue to collaborate with our SwedenCare sister companies, specifically InnoVet and NutriVet in the U.K. And with that, I'll turn it back to Jenny.

And by that, we are open for questions. And the first one comes from Johan. Please go ahead.

Yeah. Good morning, guys, and thank you for taking my questions. Firstly, one on NatureVet. Could you materialize the impact of the two private label orders that did not come through in Q4? And what's the timing effect on these orders? Can we expect them to come through in Q1 or Q2?

We are messing up to deliver in end of Q1 is the expectations we have. have a plan now with very high volumes demand in end of Q1. So I would say Q1 and the orders are, I mean, it's a couple of million dollars orders as a whole.

Okay, very clear. Thank you. And the second question on nature vet and branded sales. You mentioned that your biggest pet specialty customer will expand its shelf space and product assortment in 2025. Could you clarify this both in terms of timing and potential impact on growth, please?

Yeah, I would say compared to sales to that customer in 2024, I expect it to be double digit growth with that customer and that will, the major reset will be in Q2.

Okay, got it. Thank you. And continuing on NatureVet here, could you sort of elaborate on your agreement with the big box retailer in the US? As I interpreted it, and from your presentation today, you are launching in 1400 stores at the end of Q1. Is that correct? And well, when will this potentially translate into sales?

Yes, that is correct. But that program is, as I wrote and said, a small program, sort of a test launch, I would say. So that's not really... It's fantastic and it's a good recognition of our brand. But what we are eagerly waiting for is the final decision in writing about... about a reset and the introduction of our brand in a larger scale. And that will, in that case, happen second half of this year.

Okay, got it. And finally, on NatureVet, how does the initial sales data from you having launched your products online with the three big box retailers in the US sort of developed during the quarter? Is it too early to say or have you seen any numbers thus far?

No, unfortunately. Too early to say the actual out-the-door sales. We have not received that. We have made some shipments to them, but that is too early for us to say the results. Hopefully, I can give you some update on that after the next report. At that presentation, Jeff Granger will also be present and presenting Nature at the Q1 call. So that would be of high interest to you, of course.

Good stuff. Those are all my questions for now. Thank you so much.

Thank you.

Thank you. Your next question comes from Rikard. Please go ahead.

Yes, good day and thank you for taking my questions. So first one on sort of CDMO and Vettio business. Can you elaborate on pipeline for 25 and a little bit when we should expect? the most meaningful projects to come online there and maybe also a more general question on what's the capacity utilization of the cdmo part of your business at the moment i start there thank you

Yes, we are. The expectations for the pharma division is when it comes to manufacturing, the large scale up will be Q2 and Q3 will be strong manufacturing sites as we plan today together with our partners. And if it is as planned, so definitely that EQ2 will be another record for our pharma division. When it comes to development projects, we are, I wouldn't say fully booked, but that is more... more related to personnel, of course. So more timing and planning there. But we have capacity when it comes to manufacturing. We definitely have a lot more capacity. It often is runs that goes for a couple of weeks and then we can change for another customer. So, I mean, it's... We are at the utilization level when it comes to manufacturing. I would say we are well below 50% as of today when it comes to hardware. Of course, when it comes to personnel, we will need to increase a bit in Q2 and Q3.

Okay, and following up a little bit on the sort of EBITDA margin, you're seeing a quite nice gross margin development, but not really seeing it flow through to the operating profits. You mentioned 9.7 million in additional OPEX in the quarter. Is that reflected in the non-recurring items or sort of reflected in the operational EBTA? Or is it something beyond that, just trying to understand what the underlying EBTA margin is for the quarter?

Yeah, of the 9.7 million, three of them are non-operating because it's relating to legal settlement that was for prior years. The other ones, for example, the branding cost, which was about 4 million, and as normal reserves for accounts receivable, that's of course included in our operating margin.

Okay, I'm trying to get a sense a little bit on how we should think about the EBITDA margin for next year. Is it reasonable to assume 24-25% levels given that you already have a nice step up in the gross margin heading into the year or anything we should keep in mind when thinking about the operating margin for next year?

Well, we definitely want to see a growth in EBITDA margin next year. Partly driven by improved growth margin, but also with scalability. We haven't really seen it now since we have had additional cost in external cost this year due to several investments. But I hope we will see it in 2025 more.

Okay, and just a final question. I noticed that you leave the 26 outlook or guidance or targets unchanged. Any input on when we can expect updated financial targets?

It's a discussion in the board and we haven't set the date. But as of today, we are working towards those goals. So I don't have any input if and when we will update those.

Okay, I'll stop there. Thank you for taking my questions.

Thank you. Your next question comes from Christian. Please go ahead.

Yes, good morning and thank you for taking my questions. You mentioned that you have the opportunity to move the production from Canada to the US if needed. Would it be to the Florida site?

No, I wouldn't say that it can't be, but it would demand different sorts of licenses and approvals from FDA. So we can't have those interlinked too much. It could be in the same vein. same facility but very very uh very let's say um divided from from the the operations we have there today so it could be but uh doesn't have to be but but as i i would like to underline that we we don't expect that to happen um this area with when it comes to drugs both for humans and and animals, the US and Canada trade is substantial. So we have been speaking with some experts. So we don't expect that to happen, but we have the know-how to set it up.

Okay, but if that would happen, do you have the capacity to increase the manufacturing in Florida to replace, for instance, Retinol?

Yeah, absolutely. We can set that up, but it will take some time, of course. And also we need to be granted new licenses and approvals from FDA. So it is a process.

Okay, that's very clear. And you mentioned that you have less focus on bringing down your net debt level in 2025. Do you intend to keep the net debt EBITDA ratio around two despite the potentially significant acquisitions? Or do you see a wiggle room to be above three in the short term?

We haven't set out any fixed levels, but I would say if we were to make any M&A, I would be surprised if we would increase our... or debt over three. I think we are comfortable around two. And we, of course, with the right acquisition, we wouldn't hesitate to get the debt level up around 2.5 again. It wouldn't be an issue if it's a good acquisition, of course. But I wouldn't expect us to go well over three. But that's just my opinion. I mean, that's a discussion for the board.

I can just add, I mean, we can see the proven record that it's quite, I wouldn't say easy, but it's quite there. We can decrease the debt level quite fast without generating cash. So I think, yeah, between the room, between two and three, I don't think there's an issue at all.

Okay, perfect. And Mr. Nguyen mentioned that the U.S. VET market grew by 5.2% in 2024. What is the outlook for 2025? And how much does Sweden care about sales increase by 2024?

I think the market is poised for grid girth. There's been a lot of slowness to the consolidation of hospitals, which actually keeps things quite steady. So that's nice. And if you look at our US veterinary divisions, In the second half of 24 compared to the second half of 23 when you exclude Interco and when you just focus on veterinary business, we had growth of 12% in the six-month period, second half versus second half of 23. So above the industry average, and we think that that will continue. And some really interesting projects that we're working towards, and some are already underway.

Perfect. Thank you very much. That's all for me.

Thank you. Your next question comes from Adrian. Please go ahead.

Hi, good morning. Three questions for me. Regarding your pipeline for 2025, entering big box retailers and such, how will it affect your inventory levels? Will you require to build some inventory or will it keep as percentage of sales as we are at the moment?

We will be forced to build up inventory levels because all of the big box retailers and also the big pet specialty retailers, they demand the access to products in a different way than smaller retailers. So yes, initially, they definitely need to build up some inventory levels to be able to serve them.

Do you have any kind of indication of how much we're talking about?

No, it's too early to say.

Okay, thanks. Regarding NatureVet, is there anything you can do? You talked about this a bit in the presentation, but is there anything you can do to sort of limit the timing effects of NatureVet going ahead to sort of smooth out the sales and thus not have these kind of lumps as we have had in the last two quarters?

Yes, it comes down to, I would say... execution of the customer relationships and be able to work more closely and having more updated and correct the forecast. And that's definitely something we have been working with this last half year and early on here. So I would say that we are in a lot better position in knowing how the business will perform going forward, both on a yearly basis, but also in the shorter term, looking at different quarters.

Excellent, thank you. And last question here, just when it comes to acquisitions, do you have any kind of ceiling on what you're willing to pay for acquisitions in terms of multiples or how are you thinking about that?

Yeah, I would say that psychologically, it would be difficult to argue that we would pay more than the valuation we are trading at, I mean, for over a period of time at least. So I would say that it is a bit of a challenge when it comes to looking at the industry as such. As I've mentioned last time, the average in the US last year was 17 times EBITDA. So it is still a very attractive market, but We have some dialogues where companies are very interested in joining SwedenCare and we can find common grounds on valuation is my belief and hope.

And let's follow up to that one if I may. Is that those discussions are those mainly related to acquisitions in Asia or are we talking about other geographical

No, no, as I said, I mean, we are looking at geographies where we're not present. So there are some some spots in Europe, for example. And, and also, the other priorities is bringing something new to a group that we don't have. And that could, of course, be in a geography where we're present already.

Okay, excellent. Thank you.

Next question comes from Adela. Please go ahead.

Thank you. Final one on NatureVet. I know that's been heavily discussed already. But if you look at that unit inherently and exclude the challenges, would you say that that is a faster growing business than the rest of the segments on average? Or is it in line with

I mean, it's a bit difficult to overlook the challenges, but as I said, we are growing with with many of our customers when it comes to the NatureVet brand. And we have been doing better than the market last half year when it comes to Amazon sales. Chewy has become our second biggest customer overall. So we've been doing really well with Chewy this year. So I would say that the potential for NatureVet to have really incremental growth in 2025. We have laid the groundwork for that and that is what I and also the full team at NatureVet are working for and is expecting.

And with really incremental growth without giving us guidance, I mean double digits is what we should assume? Yes. Great. Then a follow-up on M&A, and maybe this ties to the question about purchase multiples and developments there. You're saying now that you might see a more favorable outlook for deals actually materializing. Is that driven by purchase multiples coming down, or is there anything else that drives it?

No, I would say that's more... related to the dialogues that we have currently at the market. So the discussions we have, we have in some of the opportunities we have come, we often start off with if we are going to look more in depth in an opportunity, then we're basically in agreement about the valuation before we go to the next phase. So I would say that it's not the industry as a whole, it's more the opportunities that we see before us.

Got it. And then lastly, I believe I asked this question last quarter as well. It was about your entry into big box retail. And if you are seeing any competitive differences between other sales channels. And now we are a few months in. Bigger launches there. So I would like to ask that again, basically. Is that... sales channel more or less competitive than veterinary or direct

In some way, you could say that it is a bit less because often when it comes to big box retailers, you have perhaps unique packaging sizes. You don't have a vast number of competing brands. They are more in looking at, let's say, big pallet sizes of offerings. So I would say a bit less competitive if you get in there. then you can expect to have good sales and not so much focus on competing products. Of course, there are competing products and brands, but not in the same way as if you go into a normal pet specialty store.

Got it. So the way we should read that is basically, you know, as a brand owner, just getting into those big box retailers is a much more difficult process than specialty. Yes. Okay, great. Thank you.

Thank you. That concludes our Q&A session. So back to you guys for any closing comments.

Thank you for participating. I know we are a bit late from our presentation, but good questions and looking forward to seeing you after the Q1 report. And thank you to Brian Nugent who participated. And as I said, next time, Jeff Granger from NatureVet will be on our presentation.

Thank you.

Bye-bye.