Swedencare AB (publ)

Welcome to the presentation of SwedenCares Q1 reports, led by our CEO Håkan Lagerberg and CFO Jenny Graflind. And we are pleased to have NatureVet CEO Jeff Granger joining us with the presentation during today's webinar. And as usual, we will have a Q&A 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 so much, Emma. Yes, welcome to you all. Thank you for your interest. It's not only the Q1 report today. We also have our AGM here in Malmö at one o'clock today. So I'm happy to say that I will meet some of our precious shareholders today. But let's start with the Q1 25 highlights. A solid quarter, 7% growth, 5% organic. and 19.4 EBITDA, operational EBITDA and strong cashflow. Growth a bit softer than where we want to be, but I mentioned that in the Q4 report that we expected a softer Q1 in preparation for lots of things that will happen. And it was like that. And Jenny will explain the lower EBITDA. So, but we expect us to keep on improving over the year to come. Lots of talks and questions about the new tariffs from the US and how that will impact SwedenCare. And as many of you know, we have had a strategy of investing both in manufacturing and sales forces locally or on every continent. ship very few products over the Atlantic and so we are not impacted basically at all. We ship our, let's say, raw material from Proton Plakoff, we ship that from Europe but still that's a high, high margin product so the effect on our margin is more or less negligible. But of course, going forward, you never know what happens and how it will affect the economy as a whole. But as I wrote in my comments in the report, the pet industry has been a very solid industry since 1945 with growth every year. So we have had lots of crises. over those um 80 years basically so so um so it is a it is a sturdy industry and and we expect it to continue and we haven't seen any signs signs of weakness really due to that Furthermore, launch of Nativet's new brand design as Global Pet, a big event for us and invested a lot in that. And I won't talk a lot about that because we, as you heard, Jeff Branger is joining us today and he will be talking and showing some exciting cycling pictures about that. And he will also convey the first in-store launch in the big box retail that we have been talking about and preparing for. For a year, basically. So we're very happy about that. That will take place in Q2. We had a sneak and small launch in Q1, but the big one is coming now in Q2. We make a biannual employee survey and we are happy to say that we had excellent results two years ago. We had 41 in the ENPS score then and over 20 is actually deemed as a good result. But we managed to improve from 41 to 44 and I'm especially happy since we increased the the response rates a lot from just over 60% to over 80% this year. So I'm really happy about both, of course, getting a higher response rate, but managed to improve the NPS score is really great. And I know, I mean, all of the group companies have been working a lot with these questions to improve. And also, Jenny and I from from leadership have been working a lot to be more transparent and informative to all of the group companies and employees. So really happy with that. And also very proud to say that our 2024 annual report was completely in-house produced have a great team for that and basically adding those tasks to do the normal tasks. So I was really impressed by the work that we performed internally. And then some really exciting news when it comes to acquisitions. They both took place now in Q2, but we announced the acquisition and the signing of UK Summit Vet. And we have also just concluded the takeover of the seller account and operations for NatureVet. As you know, that was what was supposed to happen in the beginning of next year, but we managed to come to an agreement to take it over prior. Yes. So I will explain a bit about Summit Vet. We're going into a new type of business where we have not been present. It's called Animal Health Specials Company, or in the US, it's more known under the name Compounding Pharmacy. So it's actually... uh, pharmaceutical products that, that are compounded, um, and made, uh, due to, let's say orders from veterinarians. It's special, special pharmacies. So, so it's not drugs that are, uh, sold under a, a label. It's, it's, uh, it's especially, um, put together products that there is a demand for some it's working on a batch size and and there's only one other company doing that in the uk as well otherwise it's pharmacists that that make these type of products products but one by one and that's very uh costly of course if you make it batch size and have the demand for it it becomes a very uh financially good operations and um In 2024, Summit had a sales of 7.3 million pounds and EBITDA of 2.7 million pounds, 37% margin, so good and over our target. So that's a great addition. And the purchase price was 30 million and a two-year earn out of maximum 15 million pounds, primarily based on growth. And we do see lots of potential for growth for Summit Vets. Looking at the setup of the company, culturally, they're very aligned with us. And that's really why we managed to strike this deal is the setup that we have and the values that we have in our group that align very well with SummitVet. The main focus for Summit Vets as of today and the bulk of the sales are directed to products for pets, dogs and cats. And they have some equine products and there's opportunities specifically in the equine sector for new and unique products to the market. Other synergies between us and them, since we haven't been active in this, is of course Vetur North. That's our CDMO business in Canada, where we have lots of experience in developing and manufacturing pharmaceutical products. And also I've mentioned NutraVet here is more based on that we have a Salesforce in NutraVet working directly to veterinarian clinics. And that is something that Summit Vet also has. And I don't see immediately that they will continue to work separately, but from references and experience, we can have lots of knowledge transfer between the two organizations. And we have really kicked off in a fast pace. The most important immediate project that we've started is the transfer and setup of videos patented software technology. There is a demand and opening for having Summit Vets products or new products in the format of soft shoes instead. So we really kicked that off from start. Then coming to the Amazon account, that's really a setup that we've been working with a partner for NatureVets Amazon sales for many years, five years, I think. So prior to, at least five years prior to us acquiring NatureVets. And that agreement was set to expire in December 31st, 2021, and at some, 25. And as some of you may recall is that we had some negotiations of, of taking back the sales last year. But at that point of time, we were not really negotiating about taking over the account. We were more negotiating of ending our agreement prior to 2026 or end of 2025. And that didn't work out due to just coming to terms of how to compensate our partner, but we reopened the negotiations this year. And it was actually based on that we are taking over their legacy accounts, selling the products. They do sell some other products there, but the majority of the sales was or is NatureVet products. We're not expecting our partner to be interested in selling, but we have had talks this year and managed to strike a very good agreement for us. And why we're able to strike this deal is really that we have an organization within the PetMD structure being able to take it over. So we basically paid the annualized additional profit and that profit is on a good margin, not diluting our group, profitability. And the reason for that is really that we can add it into the PetMD team, handing lots of brands already. So we, as of yesterday, took over the account and the stock. And I mean, it's good from the perspective that we take it over earlier and that we basically pay the same price as the profits. But the main reason main goal for us and really that could have affected us very negatively is really taking over the account as is. Because if we would have taken it over in 1st of January, we would have had a situation of of transferring all of the sales to a completely new account. And there's a risk of losing subscribe and save customers. And that's a part of the business that's basically a majority of the sales on Amazon. So even though the processes for that have improved in the Amazon setup, there's always a risk. And definitely when creating a new account, we would be hit by higher marketing costs, at least for a quarter, then coming back to the more preferential rates due to the size of the business. So it's a fantastic agreement for us and it's been a team working from NatureVet and from PetMD and also the team from SwedenCare North America have been working a lot with this together with me. So I'm really happy to announce this deal and Looking forward to handling it ourselves. So Jenny, some financial comments from you.

Yes. So revenue for this quarter amounted to 641 million. Like Håkan said, 7% growth, 5% was organic, 2% was currency. And of course, we have some acquired growth, but it was rounded down to zero. And the acquired growth mainly came from Medbent, a Canadian business that we acquired in August last year. Our operating gross margin is stable. It's 58.1% this quarter compared to 57.9%. So I would say very stable within a percentage. And internal costs has been increasing, as we mentioned before. With the growth of Amazon, we have costs that are directly linked to sales, so it would automatically increase. However, in addition to that, like Håkan mentioned about the expos, we have invested more money this year compared to last year. This year was about 7 million compared to 3 million last year. Our personnel cost has also increased as the percentage of sales in Q1 compared to last year. Partly was due to this cautious sales growth that we had in the quarter. But it was also affected by overtime. We have written in the report that, for example, NatureVet had very two... slow first two months of the quarter and then a record month in March. So that, of course, impacted overtime. And then there's also additional benefit cost in Q1 compared to last year. However, the organization is now structured for the expected revenue increase in the coming quarters. So I expect this ratio to come down again. As a result, EBITDA is reaching 124.5 million this quarter. It's a decrease of 10% compared to Q1 last year. And it's a margin of 19.4%. Interest expense on loan has decreased. In Q1 last year, it was 20 million. And this quarter, it was 12 million. So this is both due to lower interest rates and, of course, a lower debt level that we have. We continue to decrease our net debt to EBITDA. It's now at 2.0 compared to 2.4 one year ago. And this quarter, we have increased our loans with a net of 300 million. We took out 325 million right at the end of the quarter because we prepared for the acquisition of Summit, which we closed on April 1st. So that explains the high cash level we had at the quarter end. However, we have done a repayment and we have also completed a smaller acquisition of PAC approved during the quarter and that impacted cash with about 24 million. With the acquisition of Summit, we expect this net debt to EBITDA ratio to increase some. Everything else being the same, I would expect it to be a 2.5. Our operating cash flow was really strong for the quarter, 96.7 million, cash conversion of 78%. And that is despite the fact that we have higher inventory levels. And like I said, with a record March for nature, but for example, and we also have a higher level of accounts receivable after a very strong March. CapEx remains less than 2% of sales. And this one looks a little bit different with the new year and historical and trend of revenue in EBITDA since 2020. And now this shows the annual increase and also the trend of the Q1. Product and brand split. Nutraceuticals, which you know is our largest categories, it's about 50% of the revenue. It increased with 3%, and this is mainly connected with NatureVethan, who sells their products in this category. Pharma had a small decrease, and this is explained partly by the planned maintenance work that we did. We put the production on pause for a couple of weeks at the two facilities. Dental is always nice to see. It mainly includes the proton plaque off and a few other dental products. It grew with 51% this quarter. And this category is now at 21% of the group's total revenue. The main contributors in this is the powder, the original one, and also the soft juice that is one of the latest launches. The treat product group is still going very strong, 90%, even though it's from small levels. It's nice to see. This is mainly one of our new acquisitions. And also the newest acquisition, not the newest one because it's Summit, but Packet Proof is also included in this product group. If we look on the right-hand side where we have the brands, I can mention Innovette. which have had a fantastic 2024. They had a 15% decline compared to Q1 last year. And this is due to they had abnormally high orders from the largest customer in Q1 last year. On a positive note, Nutravet, which is mainly selling on the veterinary market in the UK, is back on double-digit growth after week 2024. So that's nice to see. And before we move over to the next slide, which is what I was going to talk about, I just want to mention, I'll just move to there and just tell you. I want to explain that in the past, we have divided the group's net revenue by geographical market. So that would be North America, Europe, and rest of the world. From this report, we will instead report our net sales in line with our segments, which are North America, Europe, and production. So note that the segments also have sales in other geographical markets, but more details about that you can find in the report.