Swedencare AB (publ)

Welcome to the presentation of SwedenCare's half-year report, led by our CEO Håkan Lagerberg and CFO Jenny Graflind. And we are pleased to have our European CCO Laszlo Varga 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. Over to you, Jenny and Håkan.

Thank you so much, Emma. A warm welcome to everyone joining this call. Q2 2025 highlights, sales increased 3% and primarily affected a lot with negative effects, as you all know, due to low sales growth. Organic growth, 7% increase compared to last quarter. But definitely a disappointment for us since we thought we would be reaching the double-digit goal that we have. And I will explain that a bit later. But main driver for not reaching it was a big box order that was scheduled to go out in Q2, mid-Q2. But due to not caused by us, it was up to the customer to draw the order. It started drawing out in 1st of July. Organic, yeah, organic growth. And then resulting in 19% operative EBITDA, also lower than where we want to be and mainly affected by the Amazon transition of the NatureVet account. And Jenny will go through that in detail. And also, of course, if we would have had that additional order, that would have been a good margin boost also for the quarter. Coming back to the tariffs, nothing much has happened despite all the talks, but of course creating some turmoil and discussions with customers. But as we have explained, we have local manufacturing and local sales. So we are not heavily impacted in any case. Of course, we have had some discussions with our Vetio North customers since being produced in Canada and lots of the sales go to US customers, but we have a good setup and good plans. So regardless of what will come, we won't be that much impacted. Another big event was, of course, the transfer of the NatureVet Amazon account. As I said, Jenny will go into details about the financials. But from an operational point of view, it's been a success. Our in-house PetMD team has done a great job in taking over the account. And I will come back to that a bit later in the presentation. We started off the quarter by the acquisition of SummitVet, a specialty pharma operations primarily in the UK or compounding pharmacy as they call it in the US. Specialized business, niche business where we haven't been present before. Great fit for us and the inboarding of SummitVet has been good and we have already kicked off the potential development for Summit Vet, adding a completely new feature of their offering, our patented software process that we utilize in Veture North. We have already bought in equipment and started some trials. And if everything goes well, we schedule a launch of a couple of products in early 2026. Big box, exciting things, despite the disappointment of the actual shipment of the of the the order uh walmart uh despite the delay in the the order from a shipment from us there is no change in the actual launch date in 1400 walmart stores um so it's the last last week of july and we will be present with the 18 or 19 skus and with all the new design for branded products for So we're really excited about that and have made together with Walmart presented our marketing plan to pulling customers into the store. So I will be looking forward to tell you more about that, the launch in the next call. CVS will also be launching a smaller setup of SKUs, three SKUs nationwide, plus 1000 stores, also launching end of July. So I really would like to congratulate the team In NatureVet, they've been working very hard for these two accounts. Also, what will happen in Q3 is that we will expand with five new SKUs at PetSmart. That also will have a big effect on our sales going forward. So we are evening out, let's say, the... the differences between being dependent on a couple of few big retail customers. We are really expanding the customer list. Jenny and her team has been working for all the quarter with a new long-term finance plan that's in place. And Jenny will tell you a bit more about that. So really happy about that. And Jenny, over to you.

Yes, the finance. So revenue amounted to 647 million for the quarter, representing 3% growth. 7% of this was organic. We had a negative 9% currency impact for the quarter and 5% was acquired growth. The acquired growth came from Summit, which was acquired on April 1st and contributed with 26 million for their first quarter as part of SwedenCare, and also MedRent, which we acquired in August. For the first six months, net revenue amounted to 1.3 billion. That's compared to 1.2 last year, so we have an organic growth of 6% for the first six months. Our operating gross margin was at 58.9%. This is the highest gross margin we have had since 2022 and a good increase compared to the 27.9 that we had in Q2 last year and also for the full year 24. But this is also in line with our expectations. I will come back a little bit later and talk about the difference between the reported gross margin and the operating gross margin. The external costs are increasing. As we have mentioned before, with the growth in Amazon, some costs of the external costs are directly linked to sales. So this quarter, Amazon costs increased with 23 million compared to Q1. The majority of this is linked to the NatureVets Amazon account, which we have now managed in-house, and more on that in a little bit. We had 8.9 million in acquisition cost for Summit as well. And we also had some costs for ERP implementation for the quarter. The more variable external cost, so cost which is not related to Amazon, which is about 50% of the total external cost, has actually decreased as a percentage of sales. So that's nice to see some efficiencies there. Operational EBITDA amounted to 123 million for the quarter. That was a 19% EBITDA margin, which is a decrease compared to Q2 last year of 13%. For the first six months, EBITDA margin is 19.2%. And speaking about EBITDA, this will lead me into giving you an overview of the Amazon that we have moved in house. So this acquisition, which included the Amazon account and our partner's existing inventory, was completed on April 23rd. So for the first two months, this has generated an additional 24 million for the group. As we have been selling out our partner's inventory in the quarter, which we have less margin on, of course, this has a negative impact on our gross margin for the quarter. Marketing and selling costs associated with this additional Amazon sales amounted to 17.3 million for the quarter. When all the products we have sold have lower margin, the EBITDA was negatively impacted by almost 8 million. So excluding this transfer, our EBITDA margin would have been 21% for the quarter. So going forward and looking at Q3. In Q3, we will still sell the remainder of our partner's inventory. And that will take about a little bit more than half the quarter. And then the rest of the quarter, when we'll be selling the other inventory, we have significantly higher margin for the group since it's purchased from our production facility. Hence, we will both get the margin on the production level and also the margin from the Amazon sales. As a result, the gross margin is expected to still be impacted, but less than we were impacted in Q2. And the additional sales will contribute to a positive EBITDA compared to the negative EBITDA we had in Q2, but it will still be at a very low margin in Q3. From Q4, all sales will have stronger margin, hence it's expected to have a minor impact on the group's gross margin and EBITDA margin. Some other financial highlights. Net debt to EBITDA has increased to 2.9 compared to the 2.4 we had a year ago and from 2.0 last quarter. We communicated that with the acquisition of Summit, we expected it to increase to 2.5. In addition to the difference between the 2.5 and the actual 2.9 is that we have purchased this Amazon account and the inventory for 78 million. And here we do not contribute to any performer EBITDA as this was an asset deal. In addition to that, we have a lower EBITDA margin in QTH than we had in 2024, which then of course has a negative impact on this ratio. Our cash conversion for the quarter was low. It was 27% for the quarter. The main reason for this is a buildup of working capital where we increased inventory about 28 million. This is mainly linked to this inventory buildup we have in the preparation of the Walmart launch. Like Håkan said, this was moved to the current quarter. So that's why it's all in our inventory. In addition, it's been a quarter with large supplier payments. During the quarter, we made acquisition of Summit. We paid 350 in cash and 40 million in shares. We also did the Amazon deal. That was 78 million in cash. We have also, during the quarter, paid the dividend, which the AGM approved. That was 0.25 SEC per share, so a total of 40 million. During the quarter, like Håkan said, we have refinanced our external loans. We had in the past two bilateral agreements with two different banks. Now we have moved to a club deal with SEB and Danske Bank, and we have a total facility of 2 billion. So that's an increase of 200 million. And we of course have updated terms. Our interest costs are decreasing with the lower interest rates. For the first six months, we had 27 million in interest costs compared to 39 million last year. Our capex is still in good control. It remains at 1% for the quarter and 2% of sales for the first six months. At June 30th, we have the lowest cash level we have had actually since 2021. And we have a cash pool structure in place for the US entities. And we have also recently set up one for Europe, which this enables us to have a lower cash level so we can better use our cash in terms of lower leverage and therefore also have a lower financial cost. Rolling for quarters. As you can see, the revenue for the rolling four quarters or 12 months have increased slightly. However, both operating EBITDA and EBITDA has decreased for the reason I've already mentioned. If you look on the right graph, you can see that there's a difference between the operational EBITDA and EBITDA. The majority of this adjustment is actually both for the operating gross margin and the same thing for the operating EBITDA. And this quarter is linked to the fair market adjustment that we make of the acquired inventory for Summit. So the inventory value that we acquired is a gross margin cost. However, when it's valued during the purchase price allocation at selling price, there is an accounting entry of 24 million, which is then adjusted for in the operating gross margin. A similar adjustment will also be made in the Q3. Product and brand split. These graphs are not adjusted for acquisition or currency. And as you know, currency impact on revenue for the quarter is negative 9%. So for example, if you look at topicals, it looks like a decrease with 2%, but actually it's a positive. So we are going to work on making this transparent, a little bit more transparent going forward. But pharma, 39% increase is impacted by the acquisition of Summit, which falls into this category. However, the rest of pharma has a negative impact as a large project was moved to the second half of 2025. I think Håkan will mention a little bit more about that. Dental, an increase of 20%. This mainly includes the Protoplat Golf and a few other dental products. It's about 17% of the group's total now. The main contributor to this is the plaque of powder and also the dental bones, which has been a focus product during the quarter. The treat product group is still going strong, 56%, even though it's small levels, but it's driven by product launches within the brand. Then on the right, we got the brand split, same here, and not currency adjusted. So the strong Swedish crown has a negative impact on this growth. One example is Innovet, which in this quarter turned to growth. However, it's not visible in the graph. And Summit Acquisition is included in other for this quarter. Now over to Håkan to give some more details on the sales.

Yes. Thank you, Jenny. Net sales, North America, almost 390 million SEK. Organic growth, 8%. despite the setbacks of the sales we had. Veterinary, we have a new lead, industry veteran Patrick Powell has taken over the lead for... for our veterinary division reporting to Brian Nugent has made lots of changes from start, primarily focusing on building a team and see the integration between the different brands slash companies. So going forward, we will be working more as one group from the veterinary side compared to, let's say, individual brands. Despite the, let's say, looking at the veterinary market as a whole in the US, it's been a bit soft. The number of visits to veterinary clinics went down in 2024. The actual value of the visits went up a couple of percentages, but there is a trend of... People not going as often to veterinarians if it's due to a cost issue or the, let's say, takeover from online veterinarians, etc. We do not know, but the veterinary market as a whole in the US is a bit soft. So we're very happy to see that we've had strong growth for our brands. Been a bit softer when it comes to private label solutions for bigger customers, and that's probably due to inventory. considerations and also the market as a whole being a bit bit softer but happy to say that we have started off well end of quarter we signed a major new private label agreement we've been working with developing a completely new line for the so-called ground level or basic product with some some novelty technology. And we managed to conclude a big agreement for that, that will start paying off a second half year and many years to come. Canada is a tough country when it comes to regulatory. So MedVent has been working hard with registering a couple of our product lines and one external product line as well. So lots of admin there, but has concluded the registration of of the full Protein Dental Care range. That's the range that we sell to the veterinarians. It's basically the same product as Protein Plakoff, but in the veterinary side, we sell it under the Protein Dental Care brand. And also on external products, brand and line that will be introduced to canada this second half year so starting to see see good results from from the hard work laid down pet retail uh proton pluck off driving a solid double digit growth nature at strong growth with new customers and customers that have been able to launch the new branded product a bit softer with a couple of bigger customers where we thought they would be a bit faster in selling out the old inventory. So we'll be in second half year for a couple of our bigger retailer customers. But overall, fantastic response on the new branding and lots of interest from the market. And in two weeks time, we will be presenting the full line at SuperSue in Las Vegas. And there we will also have lots of happenings. Online, of course, strong growth in online. The big takeover of nature account contributing a lot, but of looking at the old business that we had, also strong double-digit growth between 15% and 20%. So online is definitely the fastest growing sales channel for us. And one interesting... issue about taking over the account is that we have found new opportunities to improve margin. That's both related to the size of our account now. We are a major player going forward since this takeover. So we are a very important customer for Amazon and in our sector. And that has resulted in in better attendance from support from them. And it's also been some opportunities to increase our margins going forward with new programs. So we're excited about that. What we have continued to do is expanding different brands that we have with internal products, thus expanding our product offering with basically the same products that we have in another brand. And why is that successful is because in the PET category, Pet space, brand trust and loyalty is very high. So whenever we expand with the same products that we have under some other brand, we get their loyal customers buying into these new offerings. So we'll continue doing that and have really good results with that. Improved margin, we made a small acquisition of pack approved organic treats. And since that inventory is now sold out, it's starting to contribute with stronger margins for us. Treats, as Jenny said, continue to grow at a fast speed. It's a highly competitive product. sector of the business, but since we focus on high quality organic primarily, there's definitely a niche market for that. And we've launched a completely new set of wipes, finger wipes, that has had fantastic success on Amazon. And all of our veterinary private label customers are buying into it as well. And also our veterinary brands are launching it or have launched it already. And that will continue in the second half year. Going up to Europe, continues to have the strongest growth in our group, organic growth of 15%, driven by UK and Nordics primarily. Southern Europe is a bit softer, but as Jenny said, our Italian market bounced back to growth, a single digit, but still. And looking at Spain and France, I would say it's a bit tougher market, but there are also opportunities to grow faster than the market. But the market as a whole is not growing in France and Spain. What we have done also is we have taken over, we had a partner for Portugal that didn't really deliver. So now we have found a new distributor and it will be handled from our Spanish entity. So we expect Portugal to start picking up as a market for us. We have launched several products end of 2024 and early 2025. And now we start seeing a pickup in the market for those. We've been lots of marketing and the customer interaction with new products. SummitVet, solid growth from when we took over and kicking off the internal software project. A bit softer margin, but mainly due to them adjusting to our way of reporting, but still over 30% EBITDA. Pet Retail, we are in the process of strategizing and evaluating the NatureVet expansion for Europe. As some of you know, we have an exclusive partnership for selling the NatureVet by Sweden Care products for Europe ex-UK. Now we're evaluating that. That's been a good launch. But of course, only selling online is also hindering perhaps some opportunities. So we will see where we end up with that. Online, Amazon, really, really strong sales in the UK. We're very dominant in the dental space in the UK. Despite fierce competition, we continue to grow. Rest of Europe also been strong and Laszlo will come back with that. So I'm not lots of details about what's happening in Europe. So come, I will introduce Laszlo a bit later. Production, a organic decline of 4%, and that's completely related to our pharma development and manufacturing site that had really put in place the planning for the biggest manufacturing project ever for our group. And that was moved to Q4. Unfortunately, we made some adjustments and changes when it comes to manufacturing, but when it comes to pharma, you can't really switch over as fast as you would like. We do have strong demand from our other manufacturing projects in Vietnam and I think it's partly related to the, let's say, uncertainties when it comes to to the tariffs, et cetera. So we will be having a full manufacturing quarter going into Q3. So that's encouraging. We have also managed to expand our offering. We have set up in this Q2 a sterile eye liquids process, and that's complete. And there is high interest from the market. It's a niche product. niche product and production line, but strong interest. So this week is an exciting week since that visit of a tier one customer, we have not had a tier one customer up in a better north before. So if we will be able to learn that that project, it's a really good sign of our quality up there. We won one multi-million development project and we have never had as much requests for proposals as we've had this first half year. And I think it's related both to the fact that still there's a long line of products that are going off patent, but it's not only generic projects, it's also novelty projects. And And there has been some shifts in the biggest competitors we have in this sector. So perhaps that's driven from that. We don't really know why we have so many requests as we've had, but it's exciting. Supplements and dermatology, single-digit growth in the US, mainly related to contract manufacturing customers, the volume customers that we have. They have all been, let's say, on the lower end on their projections. Um, and it's probably related to the, um, the soft veterinary market in, in the U S uh, but still, uh, both, but, uh, and, and we, we are, um, see seeing lots of interest in our supplements range, but it's a bit longer lead time in starting up those projects. You continue with double digit growth and lots of demand for our. or soft juice that we're launching with both internally, but primarily with lots of external customers. So we are producing both in UK and ramping up in Ireland, and that continues to go well. Some other major improvements, Jenny mentioned about the CapEx, but one important CapEx that we have started to implement is new vacuum tanks in in Vetjusout, and that's really improving the quality of the process and the finished goods, and also, more importantly, reducing time. So, it has been very, very good with that project. We have signed several new customers, external customers for H2, and we will continue to transfer a couple of volume products from external to internal to our U.S. operations. And with that, sorry, I will have this before our lesson. That's true. Yes, priorities going forward, basically the same as last quarter. We will continue our strong growth trajectory. As I said in the beginning, very disappointed not having double digit growth in Q2, but for sure we are very focused and will deliver the double digit growth from Q3 and onwards. We are looking into some new geographics. I've been traveling in Asia a bit this quarter, and China, India, of course, main and bigger markets that will have a stronger growth trajectory than the traditional main markets. South America is also starting to be more of interest to us, and we will actually be attending a big expo this... end of summer, early fall for the first time, or not for the first time, but for the first time in several years. So we're excited about that. Enhancing operational efficiencies, particularly in production and supply chain is of course very important. And for that reason, we have also expanded the team covering NatureVet due to the expected volumes going forward. We have expanded the team with a new COO, Erik and he has dug in immediately from start. So more to come there. Strengthen our online platforms and DTC sales. Yeah, that's a continuation. And as I said, the online is the strongest growing channel that we have. And of course, we have increased our competency and also the efforts we do. So of course, that is expected. Acquisition-wise, looking for new niches that we are not into and also seeing from a geographical perspective also. But I wouldn't expect us to make any major M&A activities this coming quarter. So with that, over to Laszlo Vargas, our Chief Commercial Director for Europe.

Thank you, Hyokyong. So I'm going to give you guys a little bit of update of some highlights of actions and initiatives here in Europe. As Håkan said, digital is an important channel for us and it's not the sole focus, but if we're looking at where consumer journeys start, whether you're in store, a physical store or online or anywhere, 80%, around 80% of that journey starts online. So for us, it's important to be where the customers are and catch them with content, information, and try to drive them and convert them into purchasing our products. some of the best products in the market. So we really want to share that information with them. So looking at the digital campaigns that we're doing, usually start with some sort of inspiration or information to grab attention and we're looking at campaigns in various social media but also other online channels. The purpose of these is to really catch the attention of a prospective consumer customer and then drive that attention towards our website where we have the education information about our products and the purpose is to mold the customer and spring them to action. And we can see, and I'll share that in a later slide, that it has been highly successful in the pilot campaigns that we're doing. And for us, the action, it doesn't really matter. It's regardless of where it happens. And we do see a win-win where conversion is higher externally with our partners in retail and B2B. To do this, we have the Central Econ Performance team working closely with the global marketing team. And I have to say, even though historically we haven't been a digital company like that, we do have some of the best-in-class digital experience in this company. And working with the full funnel campaigns, it's been a real exciting journey, especially working together with the local teams. Going then to the pilot campaign here in Sweden, the purpose was to create multi-channel activation. So again, the purpose is not to build a whole new channel of direct-to-consumer sales through our website, but rather sales 360 of our products, regardless of sales location. It has been rolled out for select products and ranges. Looking at the reach in Sweden during Q2, we reached over 500,000 Swedish consumers targeted within the pet health sector. And we can see that the total increase of sales has been 34% versus last year with our business-to-business sales, so sales to our partners and customers in pet retail, distributors, wholesalers, going up almost 20% in this quarter, which has been one of the strongest quarters so far, at least since I've been here for one and a half years, almost two years. And we know that each European market is unique. You can't just cookie mold, take one that's worked this way in one market and then we'll do it. But we're doing a similar approach where we're making multiple limited scope tests. So shooting small bullets to see what works and then we scale up one finding success. And along the lines of the digital campaigns, if we're looking at Germany, this is where we have invested to gain some momentum. So Germany is the largest pet market in Europe with almost 7 billion US dollars in revenue in 2023. with expected growth through 8.4 million by 2029. And we have a very limited presence there. It's a difficult market to break into. Many, many companies try hard, but Germany is a little bit special. So we want to build the market share and we're using the online competencies that we have to do this and the momentum that we have. And the purpose is to build a wedge, get our products really a strong sales growth in there, reach as many consumers as possible, and then use that as a wedge to get into other channels for growth and reach. We have one European digital optimization specialist who started in January 2025 and started optimizing around February, March. And you can see the curve there and the sales still limited volumes, but a very encouraging and strong growth already from the start. And then we hired a German digital marketing specialist. who's gonna work full-time with the German market online market started in June, 2025. And we can already see some success there even though it's only been a month. So the initial results are very positive and the growth trend is continuing. We're following this closely and we'll do similar actions in markets where we see that the potential is big and where we believe that we can do the same growth sprints. Another thing to look at the German market is that historically it has been a little bit immature when it comes to e-commerce or digital and online penetration. It's still only around 20% if we're in the pet market. And if we're comparing to the UK, it's 35%. But we can see the trend is moving, that it's catching up rapidly. So again, it's a good channel for us to focus on to build brand, build sales, build momentum, because that's where the German consumers are likely to be even in the future. Besides online, as Helken mentioned, the veterinary segment is important for us. It is an important partner. And this is also where consumers go to find information and inspiration for our products. So it's important for us to maintain a very good relationship. collaboration and partnership within these, with our partners there. We are doing a lot of activations with veterinary summits and seminars to be there, be an educational partner in Italy and in the UK, but also launching initiatives in Spain and France to get closer to the veterinary market and build a stronger relationship with them. One other way we are growing our sales is using the existing product range and portfolio of vet-specific products for primarily NutriVet and Innovet, which we're rolling out in other European markets where we have subsidiaries. And very encouraging growth there. We can see that it's very welcomed and well-received by the veterinary segment. We're also expanding the vet-specific and vet-exclusive product ranges with more products within the best-selling ranges, as we know that the veterinarians might want to have a little bit of distinguished products compared to the pet retail market. So that's for the highlights from the European market. And then I'm also head of sustainability here at SwedenCare. And I wanted to highlight some of the actions that we've been doing during Q2. So one of the things we launched or started with in late Q1 was implementing a local sustainability champion in each of our subsidiary to make sure that we improve. and implement the actions that we are looking to implement across the board to decrease our footprint, but also improve our standing as an employer and our governance. Looking at Q2, we have implemented more than 10 actions and it's various sizes. It's how we recycle and reuse packaging in packaging. So packaging that comes in, it's shredded down and then reused, which is decreasing our carbon footprint. but also improvements into how the HVAC or air conditioning is used and heating and cooling in our various production facilities and offices to optimize or minimize the energy use. uh we've also had our company-wide employee survey in q1 and based on the findings there we we have developed action plans to improve our standing and support sweden care and being the best in class employer and workplace so even though the results were really good and encouraging and even the where we scored the lowest was still good and great we believe that there is always room for improvement and to be able to be the best in class employer and workplace, there's always room for steps up. We have also implemented a new reporting tool for our sustainability practices and reporting. And the Q2 has been very heavily focused on education of of the internal reporting staff or reporting colleagues and the people managing the sustainable reporting. So those are the highlights from Europe and from sustainability. Thank you.

Thank you, Laszlo. And by that, we are open for questions. And your first question comes from Mattias. Please go ahead.

Thanks so much for taking my question, Mattias. So firstly for Håkan, you generated 6% organic growth during the first half and you guide for double digit for the full year 2025. So that implies 14% for the second half of 2025. So can you help me understand the bridge to how you get there and perhaps talk about what's in your hands vis-a-vis dependent on timing of shipments from important clients And then secondly, for Jenny, you outlined how you refinanced debt during Q2 and you stated in the report you met the covenants with regards to net debt, EBITDA and interest coverage ratio. But can you help us understand what the covenants are so we understand where you are in terms of ability to navigate within those? Thanks so much.

Thank you so much, Mendias. Yes, it's due to a couple of reasons, but looking at our biggest entity, of course, NatureVet having a softer second half last year compared to first half 24. The comps are... getting lower. And then, of course, with all of the initiatives we have launching with new customers. So I would say that going forward, we shouldn't be dependent on individual shipments to customers or launches for reaching the double digit or, as you said, over 14% for the second half year. We have both, let's say, launches that that i have have have informed about and they and also some some big manufacturing production for private labels accounts that that are scheduled and planned for q3 and q4 so so those we we know will happen and that linked together with the um the the the the looking at the different channels the online is is growing a lot faster than than than the 14 15 percent and that will will will just keep on keep on improving with all of the initiatives we have specifically on amazon we are also doing the change that we did last year in the U.S. and U.K. We are doing that for the rest of Europe. So we're taking back the sales from using Amazon as a... As a customer for us, we're going over to the so-called FBA, where we utilize the fulfillment from Amazon. And that gives us more control in growing the business. And also, of course, we get the top line sales for the Amazon sales. That will happen second half year for all of Europe. And overall, I would say the different segments will be delivering double-digit growth going forward. We have many contracts in place for the manufacturing production. And looking at the different segments, I would say that perhaps the veterinary side is a bit weaker, but we have added contracts there as well. So I would say across the board, there will be different segments, there will be double digit growth and that will lead us to reaching our double digit growth for full year, definitely.

And regarding your question about the net at the EBITDA, so we are at 2.9 right now. We are allowed to go up to 3.5. I don't expect us to go up, I expect us to go down. Now in the coming quarters, probably close the year if nothing else happens, you know, Excluding acquisition, etc. I would expect us to be around 2.5 or right below 2.5 when we close the year.

Thanks so much. Two follow-ups, if I may. When do you expect the next shipment to Walmart, given the launch here late July? And can you talk about the magnitude of the next shipment? Likely smaller than the initial one or similar?

Yeah, definitely smaller. The first load-in order is, of course, the biggest. Having both enough products in store and also for them to have some inventory to be able to replenish quickly. So from... From this first order, after, let's say, four to six weeks of sales, we will get smaller orders replenishing the sales that they actually are performing. So there won't be like a one... one big order, but the setup is that with all of the major retailers, we need to have inventory at hand because they expect the shipment very, very quickly from order. So it is a bit more challenging from a, let's say, working capital perspective, having some inventory, but we're used to that from working with customers like like petco and tractor supply and other big pet retailers that that is the system that that they they have in in the us so um so so let's say orders going forward every month replenishing the sales

Thanks. A very final follow-up. In the report, you state improved profitability for 2025. So could you remind me if that implies a higher operational EBITDA in absolute terms or a higher operational EBITDA margin as well?

Compared to, yeah, higher operational EBITDA in percentage. And that, of course, we decide that we have both value and, yeah.

That's very clear.

Thanks so much.

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

Yes. Good morning. I hope you can hear me. Yes. Okay, great. I have four questions, please. If you could disclose the amount to Walmart that was postponed to the third quarter. According to my calculation, it looks like around 19 million.

We have previously communicated that the order was between $2 and $3 million. So we'll stick to that. Okay, great.

And dental decreased by 17% compared with Q1. Could you please disclose how much was related to your currency headwinds and if you had any inventory buildup effect from a strong Q1?

No, I don't have a currency split on that. There's a comment in there that we made an adjustment for the full year, but there was 20% growth of dental in this quarter. But I don't have information about any inventory buildup.

We can say traditionally Q1 is very strong for dental because it's dental month in US. So Q1 is normally the strongest quarter for the dental section.

Okay, thank you. And it would be very helpful if you could disclose what the operational EBTA margin would have been if the Walmart order had been included.

between 20 and 21.

Okay, that's clear. My final question, other external costs amounted to 106 million due to the cost increase related to Amazon sales. Should we expect this cost item to stay elevated in the coming quarters given the strong online momentum?

Yes, yes, it will.

Okay, perfect. Thank you very much.

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

Hi there. Adrian here from Nordia. Thanks for taking my questions here. Just going back to Walmart here. I assume that we saw some costs in the quarter related to the contract here in Q2, even though the sales was postponed to Q3. Could you try and explain how much of these costs that we saw in Q2 was due to this and how much this would have impacted margins in Q3 because everything else is equal. I assume that the margins in Q3 from Walmart will be higher than in Q2.

It's a bit difficult. Cost-wise, we have a setup. Of course, we have manufactured all of the product. We have built up the inventory. We use a third-party 3PL for the deliveries to Walmart because that's the way they want to have it set up. So we have cost with that. And of course, the team has been working with all of the preparations. But I don't have a number on that. on the actual cost. But of course, we thought it would be linked to Q2. But it was work we had to do anyway. And then going forward, I would say that both when it comes to new customers like Walmart and CVS, we will see an increased, let's say, marketing efforts pushing customers into these partners of ours, as we do with With all of our major partners like Petco and Tractor Supply and PetSmart.

I can just add to that, like Håkan said, the majority of the cost for the Walmart launch will come when the Walmart launch is coming. So it will come, the majority will come in Q3.

Okay, perfect. That's clear. And Jenny, a question for you again. Could you please explain... Maybe again, the deviation in the gross margin here and what we should explain or expect, I guess, for the second half of the year. I'm glad you brought that up.

I'm glad you brought that up because I think, I don't know if I, I think almost I forgot to say that, but yeah, the big difference between the gross margin. So the reported gross margin was about 55% and we almost reported 59%. That big difference is a fair market value adjustment. That's an accounting entry when we acquired the a summit inventory because it was acquired at a raw material cost and then you have to make an adjustment and that that's adjusted for in the operational one it will be the same adjustment the amount will be the same in q3 and then it will be gone

Okay, so in absolute numbers, in reported numbers, we will have tough comps or large items affecting comparability in Q3 as well, and then nothing in Q4, right?

Yes.

Right. Okay.

One more question. I expect the operational gross margin to stay the same.

Exactly. The operational gross margin, I don't expect to have any deviance. It's just that you're going to have that accounting entry in Q3 as well of 24 million, and then it will be an operating cost.

Okay, fair enough. Last question, if I may. Given the low EBITDA contribution from Amazon here in Q2, as I understand it, you will see a sequential improvement to Q3. But could you perhaps guide us on how much inventory you have from the old inventory in Amazon and sort of what's the delta here from Q2 to Q3?

Well, I can just say that that inventory that we have left, that's going to last us for about one or two months of this quarter. And then the remaining will be, let's say, our own inventory that we have better margin on. So we had negative EBITDA impact this quarter. It will be a positive EBITDA impact for Q3, but it will be low EBITDA margin on it.

Right. So it seems like Q3 will also have some higher costs than we might have expected, and Q4 will be sort of normalized, no?

Yes.

Yeah, we had two months of sales in Q2, yeah.

Okay, perfect. That was all for me. Thank you. Have a great summer.

Thanks to you. Thank you. Your next question comes from Johan. Please go ahead.

Yes. Good morning, guys. Thanks for taking my questions. Just a quick follow up on the gross margin development here. You mentioned some drag from from Amazon. Is this solely relating to the sellout of inventory or is there a negative mix effect from lower sort of gross margin contribution from Amazon?

No, this had about, let's say, a little bit less than half of a percentage point negative impact from the Amazon selling out the acquired inventory. Going forward, I don't expect it to have a negative impact, meaning from Q4 when we have sold out all the inventory.

Okay, very clear. Got it. And then on the external cost developments in the quarter, there were quite a bit of Or quite a few moving parts, actually, particularly around Amazon and sort of other one-offs cost. Could you maybe just finally clarify what a more normalized run rate for external costs might look like going forward once these temporary effects roll out?

You mean as a percentage? No, it's too early to say. No, I don't want to communicate that out. I can just say that based on this kind of additional revenue that we had for two months, it created 23 million, or it's actually 17. 23 was the whole Amazon impact, but 17 of this external cost was linked to the Amazon NatureVet account. So, no, it's too early for me to communicate that.

Okay, got it, got it. And the final one then on your... cost guidance, you stated that profitability is expected to be higher than in 2024, which I assume is on the operational EBITDA level. This, given sort of the performance in H1, would imply quite a significant margin uplift in H2, essentially somewhere around 25% operational EBITDA margins. However, sort of given what we've what you've already communicated on the call today and the comments around gross margins in Q3 and other costs in Q3. What are the key drivers behind sort of the expected margin uplift in order to improve profitability year on year?

Yeah, I mean, this quarter we've been impacted hard by this Amazon transition and also, of course, due to volume, the fixed costs that we have and having lesser sales. So we do expect that the main contributor to reaching the improved profitability is from scalability. we have built the organization for a lot higher sales and that will start to show in Q3 and Q4. So that's the main drivers. We are not increasing prices in second half year, but of course we will get a bit better prices or margin when taking back the Amazon sales in Europe, when also getting the full sales full margin from Amazon operations. And linked to that, as you know, the first half year has been weak from our manufacturing when it comes to pharma. First quarter, we were rebuilding the lines. And now in third quarter, We had to shift this big project to H2, so there will be a significant increase in revenue from our pharma development and manufacturing, and that is at a high margin.

Okay, yeah. Thank you for the update, and thank you for taking my questions. Thank you.

Thank you. Your final question comes from Adela. Please go ahead.

Thank you, Adela Dashen from Jefferies. Just two follow-ups from me. First on the Amazon transition. Obviously, we would suspect that this would be margin accretive once fully in place, but could you mention maybe what you think that the impact will be on your margins?

We have said it's going to be a minor impact if you compare to the group margins at the moment.

And that's even beyond 2025? Yes. Okay. And then maybe Jenny, while I have you on the leverage level, how comfortable are you with continuing to execute on your M&A strategy going forward?

No, I think that's more a question for Håkan. But I said we can go up to 3.5 on the net debt to EBITDA. So there is room there for smaller acquisitions. And if we want to make bigger acquisitions, we will take in capital. But it's more a question for Håkan, I would say.

No, I agree that that's what I said is that major acquisitions would have to be linked with capital increase and at current levels. At current trading, it would need to be a very attractive target to go on with that at this point of time. We are not uncomfortable at all at the leverage that we have now with the new terms and the increase, the push being, let's say, a bit special with the with the acquisition of the assets, not being able to account for any pro forma EBITDA. So it's a bit special situation. So we expect the deleveraging this, the coming quarters, and we'll be back at, at the levels. I would say that we are not uncomfortable right now, but I expect us to be somewhere between 2 and 2.5 in a couple of quarters.

That's good to hear. And then maybe, Håkan, on the pipeline, do you still view it as quite robust at this point? In what segments would you look at making more episodes?

I would say, I mean, online is more in our own hands, but that is very strong and we expect strong growth there. But I would say in... in both veterinary and, or if you take the segments, Europe and the US, I would say that US will start to contribute more than Europe has. Europe has been doing really well the last year, and I expect that to continue, and US will start picking up. Primarily driven from, as I said, a big... Big increase in pharma. Looking at the contract manufacturing, that is a bit softer, harder to say what will happen there. But the bigger private label contracts have been signed and I expect the second half year to be a lot stronger there. And then, of course, I've been talking a lot about all of the big box pet retail opportunities. So of course, that would be a huge factor for us going forward.

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

Thank you for your interest. Wishing you a great summer and looking forward to our next call in October. Thanks. Thanks. Bye.