Swedencare AB (publ)

margin and operating cash flow improved to 78 million SEK. Looking at our three segments, the growth profile is clearly mixed. Europe and production were really strong with organic growth of 19 and 25% respectively, while North America was down 3% organically due mainly to delayed FDMC or big box launch deliveries and temporary effects in the US veterinary channel. However, the North American segment would have been around middle single digit without this and that is still not where we should be. So improvements to come. Export markets delivered their strongest quarter to date with China rebounding sharply. End of quarter I visited China and we are planning to widen the production offering of protein black golf. and are also looking at the opportunities to launch more brands there. The interest is high, but the regulatory framework for imports is complicated, and we are now in discussions with potential manufacturing partners to facilitate new brand launches. Proden Packoff had another exceptional quarter and delivered more than 30% growth. Pharma delivers as expected, high growth numbers, both in manufacturing and development. and the activity level is high for the years to come. Strategically, the quarter also moved the business forward with new offerings, product offerings from under many of our brands and corporations and product launches. Interzoo was also an important event, of course, it's every second year. the biggest trade show in the world. So new market is opening up for Pearl and Black Off, of course, new smaller markets since we're already present in plus 60 countries, but really nice to see new opportunities there. And for other group brands, some big opportunities are in discussions with the relevant distributors. We also had the first capital markets day and strengthened the visibility around the group's priorities the coming years, and we are grateful that the event was fully attended and lots of interesting discussions with participants. We had a new board elected at the AGM, including Thomas Eklund as new chairman, providing continuity with refreshed governance. The message is that the group is still growing organically above market 9% first half year. Cash generation is improving and we have been working hard to prepare for a better and stronger second half year. Over to you, Jenny.

Yes, some financial highlights. So revenue amounted to 670 million for the quarter. This represents 4% growth. 7% was organic growth and we had a negative 3% of currency impact. It's the first quarter since 2019 where we don't have any acquired growth because the most recent acquisition, Summit Vest, has been part of the group now since Q2 last year. So it's included in the organic growth. The currency impact is coming from the dollar, euro and pound, which has all weakened against the crown compared to the second quarter this year. As Håkan said, we did expect another quarter with double-digit growth, and this is also what we communicated on our pre-closed call on the June 17th. And that was based on the information we had at that point. However, some unexpected things happened the last month, and mainly in the second half of that month, including a delayed order from the new big box customers. And that resulted in that we came in at 7%, and that's the same level as we were in Q2 last year. As Håkan mentioned, the year-to-day organic growth is 9%. Our reported growth margin is 61%, and there's no adjustments this quarter between operating and reported growth margin or EBITDA. This is the strongest growth margin we have had since 2020. It came in stronger than expected, driven by a continuous stronger growth in Europe, where margins are higher compared to the other segments, as well as some inventory build-up. And of course, Summit Vets also contributed with a record quarter and also strong margins. The external costs have increased compared to the last quarter. We continue to have strong growth on Amazon, both in the US and in Europe, and that contributes to higher sales-related costs. In addition to that, it's been enhanced marketing initiatives this quarter, mainly online with Prime Day, for example, which occurred in June this year. Last year, it was in July. But also, we have had product launches and intensified efforts to grow the NatureVet Amazon account and also win back some bestseller batches on Amazon. Personnel cost is stable. However, it did include 3 million of severance costs for the quarter, mainly for the final step of the IRB organization that we had at NatureVet. Operational EBITDA, same as the reported EBITDA, as there's no adjustments, amounted to 129 million for the quarter. This is an increase of 5% compared to last year. and a margin of 19.3%. Again, this is below the expectations and that's mainly impacted by this lower sales. However, it's a small increase compared to last year when the margin was 19.0%. Net debt to EBITDA has increased to 3.1. This increase is due to the expected earn-out payment that we are planning for Summit VET, which is included in the calculation from this quarter, because this payment is now due within the next 12 months. It also is impacted by the dividend payout that we did this quarter of 44 million. Our cash conversion increased to 60% for the quarter. It's mainly higher inventory value at the close, which impacted the operating cash flow for the quarter. During the quarter, we have also started the VerioSouth expansion. Hence, CapEx was 4% of sales for the quarter, and year-to-date, it still remains at 3%. Regarding our loans, we repaid 5 million on our external loans this quarter, and in total, we have repaid 55 million year-to-date. Rolling for quarters. On the left, you can see the rolling 12 months trend for which you can see revenues up slightly, but impacted by the negative currency impact and also an improvement of the reporting EBITDA. On the right hand side, you can see the trend of the Q2s. You can see that there's no change between the report and operating EBITDA this quarter.

Turning to North America. This remains the group's largest segment representing 55% of total net revenue and had a minus 3% organic growth. The key point is that the decline is not a broad loss of competitiveness. We knew that North America would be our weakest segment this quarter. In May we noted basically for the first time in many months a softer consumer demand. It was both in pet retail and online affecting all brands. However, June bounced back nicely and even though the turmoil in the Middle East is back and gas prices rising, we have not seen any new weakness in early July. So hopefully May was a bump in the road and not coming back. The major factor why we came in in minus 30 was, as we've said, the private label launch delivery to a new big box customer was delayed because of substantial quality controls implemented by the customer, but performed by a third party just before ship out. Production was approved by the end of the quarter, but the shipment couldn't move out in current quarter. Second, the merger of the two largest U.S.-Vietnamese disputers led to lower inventory levels during the discovery process. We knew about that, but we still had and expected some bigger POs than was delivered in the quarter. hopefully that process will end soon. As said, we are expecting a stronger second half year and when it comes to both sales growth and profitability for North America. There are important positives also. Proden Black Off remained very strong even with a weaker May also for Proden. New private label veterinary delivery started to leading partners, albeit with smaller shipment than expected. These are expected to continue to grow month by month going forward. The NatureVet sales reorganization was completed and Amazon sales badges have been restored for a couple of NatureVet products and also PetMD took back some lost badges. This has been The implementation is that Q2 was a weak North American quarter, but the underlying channel work is in place for a stronger second half, especially online. All the new big box partners, the ones we started last year, continue to grow and we take market share from others. And veterinary partnerships together with a bounce back in the traditional pet retail with a partly new sales team at NatureVet. Europe was one of the clear strengths in the quarter, as said, 90% organic growth and the region now represents 25% of group net external revenue and of course handles more than 90% of the group's internal manufacturing. The growth was broad-based. The majority of companies in the European segment delivered double-digit growth. Dental was the fastest-growing product group, fueled by Amazon mainly, while export sales through distributor markets also contributed strongly. China was an important highlight. As said, sales during the quarter exceeded last year's full-year level. Operationally, this was also a high-activity quarter. NatureVet by Swedencare was launched in Europe online, just started, and delivers to pet retailers will start in Q3. Worth noting is that we're very happy to announce that the leading pet retailer in the UK will be launching the full line in Q3. The Amazon transition was completed across all European markets and that has also had an effect on our profitability with the build-up of this operation and going forward we expect it to contribute at the same level as the Group. Vetner brands continue expanding on present and into new markets. Looking at the different regions, UK, Italy and Nordics are and export markets were the champions this quarter. The main takeaway for Europe is momentum. Europe is combining strong demand, channel execution, digital expansion and pharma growth with Summit Vet. And with SummitWet, we are also expecting second half year to be able to launch soft shoes with Pharma products. And that will be completely unique to the market. So we're expecting a nice demand for that. And also Europe will continue to lead the group's organic growth profile going forward. The production segment delivered the highest organic growth in Q2, 25%, and the segment accounted for 20% of group net revenue. Growth was mainly driven by contract manufacturing in Europe and strong pharma manufacturing and development in Europe. in VetioNorth. This performance is particularly impressive because demand in dermatology remains softer than expected. In other words, the segment is growing strongly despite some weakness in one major area. As said, the demand picture is strongest in the EU and North America Pharma, supported by both existing customers and new customer inquiries. That is why we are investing in additional capacity and organization. The pipeline also supports the outlook Over to you, Jeff.

There we go. Sorry about that.

All right. I think you can hear me. You can go to the next slide.

Perfect.

All right, so evolving in a hyper-competitive space. Good morning, I'm Jeff Granger, CEO of NatureVet. I've segmented today's overview into three sections. First, I'll share an overview of our key accomplishments over the past year. Second, I'll provide an overview of our key learnings from the latest US pet supplements market and category insights. And lastly, I'll walk you through how we are actively integrating these key learnings into our go-forward strategic approach. Go to the next slide. It all starts with culture. So starting with our key accomplishments over the last 12 months, of course, it all starts with culture. Our core strategic framework is comprised of four pillars, culture, revenue growth, EBITDA growth, and cash flow discipline. But it's no accident that we lead with culture. We know that unless we have a talented and engaged team, we'll never achieve our financial aspirations. SWEDEN CARE CONDUCTED A GLOBAL EMPLOYEE SURVEY THE MONTH BEFORE I STARTED BACK IN MIDDLE OF 23, AND THE RESULTS FOR THOSE SURVEY HAPPENED TO COME THROUGH THE WEEK, MY FIRST WEEK, AND I WAS ABLE TO REVIEW IT. THE RESULTS AT THAT POINT WERE NOT QUITE WHAT WE WANTED THEM TO BE. THEY WERE AT A 33 EMPLOYEE NET PROMOTER SCORE COMPARED TO TOTAL SWEDEN CARE AT ABOUT 41. We quickly identified the biggest opportunities that came out of the survey, and we implemented new standards and processes aimed at addressing these opportunities over the following year. And in early 2025, a new survey was conducted, and our employee net promoter score improved by 20 points to a 53, from a 33 to a 53, with anything 50 or above, especially in a manufacturing environment, considered to be excellent. And our current employee net promoter score ambition is now 70, which is considered to be world class. So that's our aim. Additionally, over the last year, we've significantly improved our executive leadership. About a year ago, we hired a new chief operations officer with 25-plus years of experience across the manufacturing aerospace and industrial sectors. Eric Thomas is our first operations lead, who is Lean Six Sigma certified, key efficiency certification, bringing with him years of proven expertise driving efficiency through systematic process improvements and waste reduction. And in March of this year, just a few months back, we recruited Christy Murphy, our new chief revenue officer with 30-plus years of pet industry expertise across sales and marketing. So she leads all things sales and marketing for us. Christy has extensive leadership experience across large, mid-size, and startup organizations, specifically in the pet space. And what's really exciting is she's built enduring pet retailer partnerships, relationships over the last 30-plus years, which we will, of course, leverage. Go to the next slide. Next, we needed to make some significant pivots to position the NatureVet brand for meaningful and sustained future growth. About a year ago, we launched a completely refreshed NatureVap brand, all-new packaging informed by exhaustive consumer insights and key retailer input. And we did this in around six months, something that's really traditionally a 12- to 18-month undertaking. And the rebrand really was table stakes for not only maintaining our brand and legacy accounts, but it was a must for expanding into new channels of retailers. And on that note, we significantly expanded the NatureVet distribution in the back half of last year. We launched NatureVet supplements in the number one U.S. pet retailer, PetSmart, approximately 1,500 locations. We had some other categories in NatureVet in, excuse me, PetSmart. but we never had core supplements, and we do now, and continue to expand. We expanded into the number one US pharmacy chain, CVS, at approximately 1,100 stores, and we introduced our brand in the number one overall US retailer, Walmart, in approximately 1,700 plus locations. And starting around that same time in Q3 of last year, we launched really our first ever 360-degree nature vet marketing campaign, supported by celebrity, influencer, and veterinarian endorsements, and activating across social, digital, and influencer media. Up to that point, we really did not have a marketing organization. We're not actively marketing. So you really can say within the past year is the first time we've truly marketed the brand. Go to the next slide. And lastly, within key accomplishments, so through the implementation of our first fully integrated ERP system in Q4 of last year and our recent completion of SQF facility certification, we're ensuring that our operation's efficient, competitive, and prepared to support increased scale. the implementation of Acumatica, our ERP system. Last October, it's gonna increase our efficiency, it's gonna reduce costs, and it's gonna enable us to make real-time data-driven decisions and have visibility we had not had up to that point. And our recent SQF certification, Safe Quality Food, is allowing facility certifications, allowing us to expand into a major club retailer, which Hoken had alluded to a number of times, which is happening this month with a private label program. And that sets us up for further expanded market access across both private-level and, of course, nature vet brand as well. We did a lot over the last 12 months. However, while we've been making significant strides to drive meaningful and sustained growth in the NatureVet brand, the US pet supplements category has become increasingly competitive and fragmented. And as we look to evolve our approach, we're pivoting our strategic direction to address the biggest opportunities that we've identified through the latest insights. Total category came in shy of 3 billion last year, U.S., and is forecasted to grow around 6% to 8% over the next couple of years. This is a category that was up double digits in 24 and 25. It's still up, but it's tightening, and there's a lot of competition. And I know we alluded earlier just the hyper-competitive category and environment, so a lot of work to do. E-commerce remains the dominant channel with over 80% of total market volume, with Amazon alone about 70% of that total channel. The Food Drug Mass Club channel is driving the highest year-over-year growth rate, approaching 20% growth, with Walmart growing even faster and approaching around 50% of the total channel share. The Pet Specialty channel, over time, it's the most mature channel, and over time, it's generally flat to down versus prior year, with a lot of brand expansion and a finite amount of shelf space within the brick-and-mortar space. The brands that are growing, are focusing marketing spend on fewer SKUs, higher conversion content, and leveraging Amazon as a primary marketing channel, which is kind of a consistent theme I'll touch on a few times. The consumer's looking for new products that mirror human trends. The cat's consumer specifically, and cat is disproportionately growing versus dog. It's a much smaller volume, but the growth rate is higher. Cat consumer's looking for an expanded assortment of cat-specific solutions. And it's imperative that legacy products are being regularly updated to address consumer demand for key factors like trending ingredients, higher active levels, natural preservatives, and high palatability. So while the innovation is often the fun and exciting part of it, the core assortment is where the meat of the volume is, right? So we've got to continue to make that part of the assortment relevant. So lots of learnings, but what do we do about it? So if we go to the next slide. Let's start with the e-commerce channel. We're going to specifically focus on what we're doing around Amazon. Amazon is the biggest portion of our business, so it's essential that we're maximizing the platform as we continue our push for meaningful and sustained growth. We transitioned the management of our Amazon business to PetMD about a year ago, a US-based Swedencare subsidiary with a lot of proven success scaling brands on Amazon. They're great partners. However, as a result of our distribution expansion, bringing in folks that weren't quite abiding by our map. We got them under control now, but distribution expansion, a map pricing change at the beginning of this year, and rogue seller proliferation. We did experience a significant decline in map compliance across the market, which did directly impact Amazon performance. Additionally, the rebranding and the repackaging push resulted in temporary inconsistent site experience, resulting in a combination of old and new packaging. So some growing pains coming from the big changes that we made. But over the last quarter, we've put a number of processes in place to get our Amazon business back on track. through renewed discipline around map enforcement, enrolling key SKUs in the Amazon Transparency Program to effectively address rogue sellers and a storefront refresh with a focus on ensuring that we're leading with our new packaging and messaging. These actions have resulted in a significant reduction in map violations, allowing us to consistently secure the buy box and bestseller badges. We were talking about that earlier on our key products. And as we've seen over the last 60 days or so, we're now seeing steady consumption growth on Amazon. Our priorities moving forward to further fortify map enforcement, continued expansion of transparency across the portfolio, but we have transparency on around 80% of the volume already, which is great. And then curating a best-in-class site experience to leverage Amazon as that primary marketing channel and ultimately driving performance improvement, not only in Amazon, but across all channels. So as I always say, as goes Amazon, kind of goes your total business. So that's really where we're focusing on e-commerce. You go to the next slide. Walmart is our primary focus as we push to gain a foothold in the Food Drug Mass Club channel. As noted earlier, we launched approximately 1,700 Walmart locations in the second half of last year and even secured a temporary 2,000 location end cap for Q1 of this year. So they believe in us and they're giving us access. However, despite the significant distribution expansion, the weekly consumption for Walmart continues to lag our We're seeing growth, obviously, but it's not quite where we need it to be. And it's imperative that we get on a steady path of regular week-over-week improvement and make meaningful inroads in a growing Food Drug Mass Club channel. So we're currently hyper-focused on Walmart marketing activation to drive short- to mid-term performance improvement. We recently turned on full funnel top-to-bottom marketing for Walmart with the objective to increase not only awareness, but to drive consideration and ultimately usage purchase. To date, the tactics we've deployed kind of overall focused on driving general awareness, not always include the necessary calls to action, and haven't always been focused on a handful of hero items, keeping the message simple. And that's all required. to improve consideration and ultimately that usage. And we're doing that now specifically with Walmart. We've been doing that last couple months. So for the first half to date, we delivered 80 million plus targeted impressions around Walmart activation with the most success coming from targeted digital display, Walmart Connect, and then over the top streaming content. Now we're also able to benchmark our performance across the different marketing funnel segments. And since initiating the latest round of Walmart focused activations, we've gone from lagging our competition across the key benchmark across the different parts of the funnel, awareness, consideration, and usage. Now we're exceeding competitor average awareness and consideration by 100 basis points and usage by 200 basis points. So where we've chosen to focus and alter our strategy, we're seeing a win. And you'll see in a moment, I'll kind of talk about how we're going to then kind of blow that out. in a larger way. Now, a tangible sales impact that can take six months, give or take, to materialize in a meaningful way, but we've already seen significant run rate improvement in three of the four featured hero items. Because again, a big part of this was also what we're doing here is focusing on that handful of items and not just focusing on general categories. So we're seeing movement. The data is telling us we're doing the right things. Ultimately, the volume needs to come. Go to the next slide. So now that we're starting to see success with how we're activating at Walmart, we're looking to scale the approach to other key accounts with a focus on, again, driving brand clarity with a single unified message, a focus on a handful of hero items, reducing the friction from awareness to usage through that full funnel top to bottom approach, continuing to transform our Amazon footprint into a best in class experience, leveraging the platform as that primary marketing channel, and again, driving brand growth beyond just Amazon by doing that, Because a lot of people start on Amazon, right? Holding ourselves accountable to measurable KPIs that have met will deliver our growth aspiration. I'll be honest with you, when we launched marketing in the last year, we had KPIs and we were hitting those KPIs, but it wasn't translating into the levels of revenue growth that we needed. And so anything we do going forward, if we achieve a KPI, that directly connects to us achieving our growth aspiration. And then lastly, Filling the Void is a partner of influence for the categories. The category continues to be confusing and difficult to navigate, and we still have an opportunity to partner with key retailers to improve the consumer experience while also preserving and growing our brand. So it's really this idea of thought leadership, which we've been doing for the last couple of years, and I think we've been winning there, and we have an opportunity to continue that. If you go to the next slide.

Here we go.

Okay. Let's talk about pet specialty. So as noted earlier, pet specialty has been, again, the most mature channel, and it's really the weakest performing channel over time in the pet supplements category. However, the category remains disproportionately meaningful to us, to NatureBet, It drives just shy of 40% of our volume. Again, that's where we grew. That's where we started versus only around 30% of the total market. So we're under-penetrating the other channels, right? So while we push to capture share across e-commerce and food, drug, medicine, and club, it's also imperative that we're protecting our position in pet specialty as well and being extremely surgical around where we choose to invest in the channel. So our focus here is to reestablish ourselves as a category authority through revitalized assortments, category thought leadership, and private label partnerships. And I include private label here, even though this is a NatureVet conversation, I include private label in the conversation here as we see it as a natural path to strengthening our current partnerships and opening the door for the NatureVet brand with new partners. And ultimately, we need to determine which past specialty retailers we can scale and disproportionately invest in and where we need to reduce investments because of retailers making decisions that are driving down their share and their overall importance to the channel. Okay. Next slide. All right, product. So when it comes to our product portfolio, everything we're doing is directly informed by Consumer Insights. The two new platforms that we're launching this year, Dual Action and Targeted Care Supplementation, are directly inspired by key human space trends, with Dual Action featuring combined solutions that address relevant need states like immunity, longevity, inflammation, gut health, and allergy. And targeted care is positioned as a more humanized approach to addressing core need states, featuring relevant solutions focused on muscle health. So it's not hip and joint, it's muscle health, right? Beauty care, it's not skin and coat, it's beauty care. And then expanding where we're playing in dental health. And our new expanded cat-specific solutions offering was developed in response to the disproportionate growth we're seeing in the cat segment and direct insights that tell us that cat supplement consumers continue to tell us. This isn't a revelation, but cat supplement consumers are looking for solutions that are uniquely formulated for cats. And these were actually solutions that were dog and cat combined solutions we've had in the assortment for a while. We basically took those formulas and created cat-specific formulas and reformulated them. and it made them more appropriate for felines. And beyond new products, our core assortment revitalization initiative ensures we're staying ahead of our competition through ongoing formulation and palatability enhancements. As I said earlier, the innovation part is the fun part, the exciting part, but you've got to make sure you're appropriately evolving your core assortment along the way to remain relevant and to remain competitive. That is where the meat of the volume is. And unlike years past where we were managing our assortment updates one year at a time, we're currently in the process of fortifying our long-term product strategy, leveraging new third-party insights resources, and mapping out our vision for the next five years and beyond. And lastly, last slide, lastly but certainly not least, we're continuing to transform our operations to support our growth journey. Starting this year, we're piloting automation on our production lines, and it's going to improve efficiency, increase capacity, and ultimately reduce costs. And based on the success of this year's pilot program, we'll be looking to expand automation deployment in 27 and beyond. And as noted at the top of the presentation, our new chief operations officer is certified in lean manufacturing processes and has to date completed lean training for his entire manufacturing team. This has driven transformations in our production planning and manufacturing processes, reducing excess inventory and private cash flow. Additionally, and last, we rolled our purchasing group into our operations team. So the folks purchasing raw materials and packaging and all that, they really weren't directly tied to our operations team, which is odd. So we rolled them into our ops team. We did that last year, and we transitioned them to a centralized supply chain function where they focus on strategic raw material sourcing and long-term supplier agreements. It's going to drive cost savings. It already is driving cost savings, improved payment terms, optimizing working capital, and optimizing probably most, you know, just as important or maybe most important, driving supply predictability, which is key. And we're doing all this within a stringent supplier governance framework so that we can ensure we're building partnerships with best in class resources and exiting transactional relationships that do not support our financial and operational imperatives, so. This concludes my segment for today's presentation. Thank you for giving me the opportunity to provide all of you with an update on our growth journey. And now I will pass it back to Håkon and Jenny for questions.

Thank you, Jeff. And by that, we are open for questions. And your first one comes from Adela. Please go ahead.

Thank you. Good morning. Firstly, on the developments in North America, I believe, Håkan, you mentioned earlier there that you would have been somewhere closer to mid-single-digit organic growth had you not had this big delay. Can we confirm that that is the case? And if that was the case, then I would assume that your organic growth would have been closer to 12% versus 7% in Q2? Yeah, low to mid.

So it would have been double-digit.

Okay, I see. And also, I guess, your visibility as we move forward here, you say that this specific order will be delivered in Q3, but at the same time, I mean, we do have to be cognizant of the fact that there has been some volatile quarters, and this isn't the first time where revenues are being delayed further into the year. So I guess... Are you doing anything specifically from a group level to have better control over throughput or what's your view on that?

Yeah, absolutely. It's very frustrating, of course, and we've been working hard with forecasting and have monthly updates, but probably need to have even more frequent updates when it comes to this and perhaps have a bit more margin when we present our expectations.

Okay, and then lastly on margins, gross margins did perform well in Q2. You saw expansion also in the operational EBITDA, but this was slightly below expectations. Now in Q3, and yeah, let's say you started with Q3, you were above 20%. I guess, how do you feel about managing that level, especially with maybe your Amazon related costs being a tad higher in Q2 than implied.

I can start. We definitely expect margin going up Q3 going forward and it's absolutely related to our Amazon costs. Actually, both in Europe and the U.S. As I said, we've been building up for the transition in Europe. That's a smaller part of the margin contribution, but that has also been at a lower level than what we expect going forward and primarily for the U.S., we definitely have have invested in in the clawbacks of the bestseller badges etc and we do see improvements have seen improvements over the quarter but but we we really had to push to get those in and now that we have them we can transform the investments to more let's say the campaigns that we know are more connected to to to ROI and the improvement in in in margin. So I would say Amazon is the biggest contributor to the margin uptake Q3 and going forward, but we've also had, I mean, a couple of, as I said, as we said under the production segment, the softness of the dermatology sector has been complicated for us when it's kind of hitting our margin as well and and we are working very hard and have connections with all of our customers and our own internal brands. The summer is a good year for those kinds of products. So with our new veterinary partnerships market picking up and the inventory level is low, we do expect the dermatology sector to improve going forward as well. And that will be also a main contributor for us improving our margins.

Okay. No, I think you covered it. Okay, I see. So I guess then we should think of this expanded other external costs profile to be the result of maybe front-loading investments in H1, and those shouldn't be recurring in H2?

Exactly.

Okay, great.

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

Yeah, perfect. Thanks, guys, for the presentation. I think I have three questions. Just firstly, like touching again here on the revenue visibility going in the second half of the year. My question is basically, do you have any larger orders now scheduled for Q3 and Q4 that have a similar risk of delayment that might be supposed to be in the back end of Q3 that could be pushed into Q4 or similar?

No, not the scale like this one. And we are actively working with both partners and our internal organization to push, let's say, to have a more equal delivery schedule going into a quarter. So we are actively working with that. So no, we don't have a major order that is scheduled for the last month of the quarter in Q3.

Okay, perfect. Very clear. Second question is basically on the rogue sellers on Amazon. Could we have any update on that?

Yeah, as Jeff said, that has improved a lot. And that's a combination of our products going into having transparency. That means that we are the only one that can ship in those unique SKUs. And also what... Jeff alluded to, perhaps I should clarify that a bit, because Europeans are not that used to the MAP pricing. That's actually sort of a recommended price that sellers are not allowed to go under when selling our products on the market. And there has been a couple of, especially some new collaborations with bigger partners undercutting specifically on their OWN ONLINE WEB SHOPS AND EVEN THOUGH THAT'S VERY SMALL IN VOLUME THAT MAKE CONFLICTS AND PROBLEMS WITH THE ALGORITHMS OF CHEWY AND MOST MORE IMPORTANTLY AMAZON SO THAT REALLY makes it problematic with keeping the MAP pricing on Amazon and Chewy. So that's really hard work from specifically the new team that has come on board on HVET. They have really had great success with our major partners in following our MAP pricing and we've seen improvements last part of this quarter. So going forward, we don't expect any major problems with rogue sellers, but map pricing is a constant, let's say, issue that we're working with. So better communication with our partners, we can avoid those kind of conflicts.

Okay, thank you for that. Finally, my final question I think is for you, Jeff. Regarding here the sort of flag, the increased competition on Amazon, if you will, I think you touched on this in your presentation, but perhaps, you know, I missed some of it, but could you be more specific about where the competition is increasing? Like, are you losing ground? Is it primarily volumes or pricing pressure? And kind of what are you doing here to address this? You know, are you risking? Yeah, I'm sorry.

Go ahead. Go ahead. No, I'm sorry. Please finish.

Are you risking, you know, being in a pricing war against competitors? Is this like you need to outspend them on marketing or anything?

No, it's not a pricing warrant. And you notice a lot of what I concentrated on was marketing. And I'll clarify, it's not just an Amazon thing, it's an overall thing. And the reason I emphasize Amazon a lot is is as goes Amazon, goes everything. These people use Amazon as a primary marketing channel to go on there and research the brand. So if we're losing buy boxes and bestseller badges, that puts us at a disadvantage as people are researching our brand. It is not a price war. We have an opportunity. So again, a lot of the brands that are doing successful are digital native brands that launched over the last, let's say 10 to 12 years. And they went heavy on social media and they went heavy on the .com pure play sites. And honestly, it's a bit of a catch-up exercise with them. And as I said, we really had not truly marketed within our organization until around a year ago or so, and we're fine-tuning that. And so I think it is an awareness, and it is not only an awareness factor, but it's going to that next level and getting compelling call to actions out there. and telling tighter stories. So I think a lot of it is marketing and that's part of why we brought our new chief revenue officer in because she has a significant background in marketing and she's already brought in some folks who have worked with her multiple tours of duty to help turn businesses around. And so our focus is on driving awareness and relevance and driving people to usage and purchase. So I believe it is a marketing challenge and that's what we're all over right now.

And also worth noting is the brand change. I mean, that's a major impact when transforming a brand when it comes to Amazon sales with different look and feel of products. That's really a project that we probably underestimated the complexity and the impact it would have.

All right. It is. Anyway, I got it.

Good. Very good. Sorry for interrupting you, but thanks for that, Jeff. That was all for me. Great.

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

Yes, good morning, guys. Thank you for taking my questions. A follow-up on the FDMC order. Does the delay have any impact on or put any potential impact on your pipeline, potentially delaying further projects, pushing them further out, etc.? ?

No, no, the whole order was more or less done by, I mean, the third week of June. So it was waiting to be shipped out. So it doesn't affect our manufacturing schedule.

Very clear. Thank you so much. And then the question on the merger or the US veterinary distributor merger here. At what point do you expect these two distributors to sort of normalize inventory levels and what's your revenue exposure to these two accounts?

We expect to have a decision, or they expect to have a decision on approval, I think, the second half year. I don't know the exact month when they need to get that decision. But I think the inventory levels are expected to pick up already in Q3 due to the fact that we see the sellout numbers of the product that we are supplying. But it's... But of course our agreements with those partners is that they should at least have let's say 90 days of inventory at hand and they were down to like 30 days. So it's of course a different kind of setup if we need to ship small orders all the time compared to shipping larger orders. So we expect both from the let's say inventory rebuild up but also that the partnerships for all of these programs is actually it's replacing another supplier for these kind of products. So of course they are selling out the old inventory and resupplying with ours. So it's a gradual process but I wouldn't like to say numbers, but it's significant volumes definitely from 2027 going forward. But already this second half year will be a lot higher volumes than we've had this first half year. So I would say we're not talking about hundreds of thousands of dollars. It's a million dollar range and upwards.

Got it. Very clear. And then the final one, maybe on the Amazon Prime Day, which fell in June this quarter versus July last year. What was the sort of incremental cost impact of that timing shift here in Q2?

You mean how much it was? I can't say how much it was, but it's two things that impact it. First of all, you have the cost in June instead of July, but you also have the result of the prime day because you kind of invest in one month and then the sales will follow in the future as well. So we expect the investment that we did for prime day in June to also have a positive effect in July. So it's two things.

Yeah, so essentially lower cost than in Q3 as you took them in Q2, but also better sales contribution given your marketing.

Yes.

Got it. Very clear. Those were all my questions for now. Thank you so much.

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

Yes, good morning, and thank you for taking my questions. My first question is regarding the gross margin of 61%. That was impressively strong. Could you please help us understand the relative contribution to the gross margin? You mentioned the favorable European mix and the inventory buildup effect. So excluding this inventory buildup effect, what would the gross margin have been?

I don't have that number, but of course, when you build up the inventory and we're not able to ship it, you have less cost of sales contributed to that. So it's not a split, but I will stay with the expectations for the full year that we are expecting to be around 58-59% for the full year.

Okay, so you are maintaining that communicated corridor of 58% to 59% despite the continued performance of Europe relative to North America?

Yes, I mean, it's not like we expect Europe to go down, but we expect the US to catch up, and they don't have the same kind of margins in the US. So it will have a negative impact, but it will not remain the gross margin that we had at 61%, I don't expect.

Got it, thank you. My second question is regarding Europe, which grew by 26% organically in the second quarter. Could you please say how much Europe grew adjusted for the China contribution?

Let's see now, it's... No, I don't have that number in my head.

Okay, was that a significant share?

The China ordering Q2 was around 8 million SEK.

Okay, great. Thank you. My third question is regarding Prodan Black Off delivering a 32% organic growth in the first half of this year. Could you please elaborate a little bit on what is driving this growth? Is it primarily a new product launches or geographic expansion or combination of both? And do you expect the brand to sustain a high growth in the second half?

Yeah, no, it's not so much, let's say, new markets, but you could say that, of course, or export markets was really strong, but that's a small portion of the total sales of... No, no, no. Major new product launches under the brand. We did launch a protein pack of creme specifically for cats, but that was introduced that at Intraso. And the only sales we've had for that is some some test sales on on Amazon. So it's first it's in Q3. We start shipping to Canada. to distributing partners and also to our local group companies selling out to pet retail. So I would say, and it hasn't launched on US Amazon yet. That will probably not be until Q4 due to the delivery. But no new products. It's the momentum of... As we've said, Protoplaque Office is a very attractive product. It's very high when it comes to subscription rates from our partners like Amazon and Chewy predominantly. So we're just adding new customers to current customer base. So we've seen fantastic growth numbers in Europe all across Europe. the Amazon channel predominantly, and we expect that to continue to grow because we haven't really marketed that much in the EU8, except for the UK. We have been kind of cautious when building up the organization for that. And in the U.S., I mean, it's going really well. We've had some challenges with our very popular proton plaque of dental bones. That's from a supply issue. So we've actually been stocked out for many of the flavors for that. So it could have been even better. So we expect the momentum continue going into Q3 and Q4. And we're very excited about the... the protein plaque of creme product so we that we have another let's say product specifically for cats perfect thank you very much that's all for me thank you Christian your next question comes from Javier please go ahead hello hello yes can you hear me yep

Great. Thank you very much. Thanks for your time. So sorry, because I missed the first question. Maybe you already answered this, but just wanted to confirm in terms of the US that the, so everything is up and running now with a new customer. So you are shipping already. You've been approved just to confirm that. And I wanted to understand how much can that new customer be, maybe in terms of a percentage of sales there. How much can it contribute to growth in the third quarter? And all together, so you have a lot of moving parts in the US, Prime Day, the merger, this new customer. so it's difficult to understand what can we expect in terms of growth for the second half and it's obviously a big part of your business so it would be helpful if you can help us understand the second half and the third quarter specifically in terms of growth in the US. And also, second question on Europe. You've grown very nicely in the second quarter. Part of that was China, as Christian mentioned, and wanted to understand how normal can that growth be. Obviously, maybe not 19%, but can we expect double-digit also in third quarter, fourth quarter, if everything remains as it is today? Just the third question. on margins obviously a lot of moving parts again you improved a little bit quarter on quarter can we expect the improvement in margin in the third quarter to be higher than the one seen in the second quarter so more than 30 basis points just to at least maybe just a little or a directional hint Basically.

So, thanks. Lots of questions. I'll try to answer them. I mean, the expectations for Q3 and going forward in the US is definitely growth for the For the segment, I expect it to be over or just under our double-digit target. We definitely do expect the US to bounce back. So let's say high single-digit or hopefully double-digit, but let's see how it performs. And this order, of course, it impacts Q3, but and should have been in Q2. So that will impact nicely. I don't want to say exactly the the number of the order, but the setup is that we make a first initial order that we have shipped now in July or are shipping some of it in July. So more or less it will be fully delivered in July. And then there will be replenishment from the day that the product goes out to all the different stores. We will keep inventory and ship out products to their distribution center. So this is an important important new customer, hard to say the exact volume, but of course it will have a nice effect on second half and definitely in 27 and hopefully we can expand this program even further. It's a private label program, not that many SKUs, so hopefully we can add new SKUs to this program. Then it was... Then it was Europe.

Can we expect... We have had really strong growth now this quarter. Can we expect it going forward?

Definitely expect double-digit. I don't expect perhaps 19% organic growth, but double-digit growth we expect. And the same goes for manufacturing, that we expect double-digit growth, but probably not as strong as we had now in Q2.

And your last question about the margin. Yes, we expect profitability to improve in the second half of this year compared to the first half.

Thank you very much. And just to follow up on that, two questions more on the FX impact. In the second half, it should move significantly versus the first half if we consider spot rates, right?

Yeah, it flattened out more in the second half compared to the first half or the first quarter, yes.

Okay, great. Thank you. Thank you. And your final question comes from Johan. Please go ahead.

Thank you. Just a quick follow-up on the gross margin guidance here. Could you, Jenny, just clarify whether you expect the gross margin to be in the 58-59% range for Q3 and Q4, or is that for 2026 as a whole?

It's difficult to say, depending how fast everything or the moving parts are moving, but I expect to be around 58-59% for going forward. I think 61 were exceptionally high due to the fact that US came in a lot lower than we expected.

Yes, but the implication whether this is on 2026 as a whole or for coming quarters is quite significant given the strong gross margin that you have delivered in Q1 and Q2. Just so we get everything clear.

Well, hopefully, with a strong 61 percent in one quarter, we will be close to the fifty nine percent. So let's just say that we will be around the fifty eight, fifty nine for the four year. I expected close actually to the each quarter. So I don't expect it to be exceptionally low next quarter due to the fact that it was high this quarter. So fifty eight, fifty nine per quarter, I expect.

Going forward. Yes. OK, got it. Thank you.

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

Thank you so much. And we wish you all a lovely summer if you haven't had the summer vacation. And see you next time. Thank you. Thank you.