BioGaia AB (publ) (BIOGB) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the BioGaia Audio Cast and Teleconference Q1 2022. [Operator Instructions] Today I am pleased to present CEO, Isabelle Ducellier; and CFO, Alexander Kotsinas. Dear speakers, please go ahead.

Thank you for the introduction, and good morning, everyone. I have to admit that I am particularly pleased with our quarter. We are over-performing on all important parameters, starting with one of the most important, the sales. We have a record revenue with SEK 284 million, which is a pretty strong increase of plus 41% versus last year first quarter. And for the one following us, you would probably remember that the first quarter last year was strong as well, but not that strong, but strong as well. And this is mainly driven by strong demand worldwide and especially the comeback of Europe. On the operating profit, here as well pretty impressive increase with plus 48%. We are able to have our EBIT margin at 34% as we are promising to do, and we have a strong operating cash flow. Next page, please. In term of key events, I just would like to have your attention on a couple of launches, one in Brazil with our distributor, Aché, where we are launching Minipack in a very big indication in Brazil, namely diarrhea in children. And then in Sweden, we launched our adult portfolio last year directly, and we managed to negotiate with our current distributor of pediatric, Semper, semi-exclusivity. So Semper, we continue to sell their product based on our strain with their brands while we have been able to launch as well our strain, the Drops, in pediatrics with our brand name BioGaia for the first time. And we are very, very happy with the way we work with Semper on that. We do believe that 1 plus 1 is going to make strength. And then in China, we are mainly driven by our sales in pediatric. So now we're starting to look into the adult segment and we are launching BioGaia Protectis capsule. Next page, please. Looking at the sales per segments, we're basically pediatric plus 38%, adult plus 57% for the quarter, and a stronger MAT. So I just would like to here as well have your attention on the adult portfolio, because if you follow us quarter after quarter you will as well notice that the adult portfolio is over-performing every quarter. And this Q1 is particularly strong, and it's mainly thanks to the Protectis tablet in all region. Next page, please. Looking at the sales per geographical market. Here we are really happy to see a plus 60% in EMEA. As you know, we've been suffering quite a lot during the COVID period in Europe. The good thing is that we learned from it. So we learned that we have to be wherever the consumer is, meaning in pharmacy but as well on marketplaces or on e-commerce platform. So now you can find our product both in pharmacy and online. So during this quarter we have a kind of double effect. We can leverage on our key strength, the medical marketing and we are as well online. And so I'm very happy to see Italy back on track, very, very strong, but as well Spain, and we name as well Eastern Europe, and I could name France, Turkey. I mean, basically the whole EMEA region is really back on track. And hopefully we have a limited exposure to Russia and Ukraine. Looking at the Asian and Australian market. I mean, basically strong quarter, 11%. Here you are used with the good quarter. It seems like 11% is almost a small increase, but it's still a very strong increase. And we have MAT by 21%. I mean for the quarter, I think it's worth to mention that South Korea performed extremely well. And we are happy because we changed our distributor. We had a very traditional distributor before, and now we switch to a much more digital distributor and is paying batch. For Hong Kong, I mean to be transparent, we had a pretty bad year last year. So we are recovering from a pretty bad year in Hong Kong that suffered from both political events and the COVID restriction. Vietnam is strong, quarter after quarter. Here we have a very young population with a stronger and stronger middle class buying our drops for their kids. So Vietnam is doing well. Indonesia is doing well. If I have just to flag on one country, that might be China. It's not that we are doing bad the quarter, but it's not as strong as usual. And that's basically because of the no-tolerance policy from the Chinese government, that makes that at the beginning of the quarter they were closing down big cities as soon as 1 case of COVID was noticed. Now they are doing that not per big city, they do that per district. So it's a bit softer to handle. But our main problem is really the logistics because if you close the district, then you cannot get in and get out. So what we've been doing with our distributor is to open new -- plenty of small new warehouses so that in case one is in the middle of a closed district, we can continue to operate from other warehouses, so. But that's creating hurdle to the business. Then if you go to Americas, strong quarter, plus 32%. Here we are very happy with the full integration of Everidis, our distributor, so now the company is called BioGaia USA and is doing as planned. So very happy with the U.S. market. For the Latin America, we have a very strong quarter as well with the come back of Chile, so there we are happy because Chile is a very interesting major probiotic market. Brazil is kind of uncertain. I mean they have high inflation. That's still the third world country in terms of COVID but actually very strong. They always have the possibility and they are very agile despite their big sizes, so. For our direct market, we are very happy with the development of the sales in our new subsidiary in the U.K. We have good sales on our e-com. And we have much better sales than we thought for a very young subsidiary with a limited number of FTEs, but we have strong sales to the wholesaler basket to pharmacy. And then on the more marketing side, we are focusing on social media and on what we call the momfluencer, so influencer that are moms and targeting the young mother community. So here we have a full program in place, which means that our drops are really flying. In Finland, we have well a very young operation. We started to ship in Finland in September last year. And as we speak, and I know that Minna, our CEO, is speaking in a big pharmacy conference today. We are listed in 543 pharmacies out of 800. So a pretty good result for young operation. The only direct market that have been slightly suffering is Japan, where we here as well, the government has kind of very strict regulation against COVID and which make our life a bit complicated to visit the doctor clinic. Next page, please. Gross margin, I will be very brief. I mean, we have still at very high level, pretty stable with some differences quarter-over-quarter depending on pediatric and adult, but that's mainly due to product mix effect, nothing very specific to comment. Next page, please. We just wanted to have some comment on our 2 - actually, it's BioGaia Pharma and MetaboGen, where regarding BioGaia we have 2 clinical study ongoing and doing as planned, one in the treatment regarding the treatment of ulcerative colitis and constipation in patients receiving opioid therapy. And regarding, as far as MetaboGen is concerned. So we have one clinic efficacy study on metabolic disease that we have done, and we are continuing on working on our anaerobic strains. Next page, please, Alex. Could you take us through the financials, please?

Yes. Thank you, Isabelle. So if we look at the slide called Q1 Financials. So to summarize, our revenues, as we heard, were at SEK 284 million, which is a growth of 41%. Our EBIT was SEK 95 million, a growth of 48%. And the margin, 34% versus 32% last year. Earnings per share of SEK 3.78 versus SEK 2.50. And on operating cash flow of SEK 93 million versus SEK 42 million last year. And basically, all figures are record high in this quarter. Move on to the next slide, the Q1 sales bridge. The sales of SEK 284 million, a 41% growth, is underlying. We have an organic growth of 24%. And we have growth of acquisitions, that is the acquisition of Nutraceutics in the U.S. Everidis of 8% and a currency effect of 9%. So just to summarize then, organically we are growing 24%. We move on to slide called group OpEx. Our total costs, OpEx, grew with 32%. However, if you exclude the acquisition we made of Nutraceutics or Everidis, OpEx grew 7%. If we look at the sales costs, the main increase in the sales cost, Ducellier has mentioned in the Everidis acquisition. And apart from that, we have higher personnel costs due to restructuring cost of SEK 1.9 million in the quarter. For admin, you will see that admin costs decreased mainly due to that we had a lower cost for evaluation of acquisition candidates of SEK 0.8 million versus SEK 2.5 million last year, and we had a lower cost for impairment of right-of-use assets. So extraordinary items were lower, so to speak, this quarter. R&D costs for the company, excluding MetaboGen and BioGaia Pharma decreased. This is mainly due to some phasing of clinical studies. That's the main explanation. And other costs were plus SEK 1.1 million due to a positive currency effect. So all in all, then a total OpEx of SEK 107 million versus SEK 81 million last year. So we move on to the slide, group profit and loss. As mentioned then, the total sales increased 41%, OPEX 32%, and the EBIT then increased with 48% and a margin of 34%. And if we exclude the one-off items, we had an adjusted EBIT margin of 35%, which was a growth of the adjusted EBITDA of also 35% versus last year. And moving on to the cash flow. We had a very high cash flow from operating activities due to the high results of SEK 81 million. And also we have a positive effect of changes in working capital of SEK 12 million, leading to record-high cash flow from operating activities of SEK 93 million. As for cash flow from investing activities, it was low at minus SEK 5 million versus minus SEK 23 million last year. Last year included the investments we made in BioGaia Invest in Boneprox and Skinome, which we did at that time, and we have not done any investments in this quarter. And this then all in all leads to cash flow for the period of SEK 86 million versus SEK 17 million last year. And cash at the end of the period of SEK 1.57 billion versus SEK 1.49 billion in the same quarter last year. Then I've added just a balance sheet slide, it's more for reference. I will not go through this in detail, but it is just worth noting that the equity has increased from SEK 1.8 billion to SEK 1.96 billion. So with that, I hand over to Isabelle for concluding remarks.

Thank you, Alex, for all these good figures. And as a conclusion, I just would like to repeat that after a good '21, we are proud to present a very strong first quarter with 41% growth, which is mainly driven by the lifting of COVID restriction and the wider implementation in Europe and the wider implementation of our omnichannel retailing strategy of our global premium brand BioGaia. And after 2 years of, I would say, suffering, EMEA is recovering. And we have a super strong increase by 60%, driven by Italy, Spain and Eastern Europe. As I said before, America has been performing well, and that's mainly thanks to the integration of our friends from Everidis and Latin America over-performing the probiotic market. In fact we are used to this quarter-after-quarter increase, and indeed we continue to do so for Q1 '22. So I would conclude by saying that the strong quarter definitively reinforced our confidence for the future of BioGaia. We know that the market is there. Probiotic market is growing. And everybody is aligned to say that we continue to grow. And despite some risk linked to high inflation and maintenance of anti-COVID policy in some countries such as Japan or China, our strategy to build a global trusted brand of probiotics anchored in science widely available to health care professional and consumer keep paying back. Now I will be happy to take any questions.

[Operator Instructions] Our first question comes from Kristofer Liljeberg, Carnegie.

Sure. First question I had, were there any more significant stocking effects in the quarter we should be aware of. Of course, you always have some sort of stocking effects. But if there was something bigger that helped sales. I also wonder, you had some positive commentary about U.K. and Finland, is it maybe possible to quantify that with a little bit of figures. For example, Finland, I guess it's still way below previous sales level. But if you could give an indication of how much lower.

Okay. Thank you, Kristofer. So to address your first question about the possible stocking effect. To be honest, we've really been looking at that. When we have a stellar data, we really compare with our selling. We have asked distributor who has been increasing their sales a bit I mean so hard that we were wondering, and we have not noticed anything. Having said that, the consumer demand is high. And the stock of our distributor were low. So they are planning for continued consumer growth. So we had really big order, but no really stock building that we are aware of. So first question. The second one regarding U.K. and Finland. So I mean, I don't think I'm open to disclose any figures per country. What I can do is that I mean, U.K. basically, we had [ one man ] kind of distributor. So it's pretty easy for us to overperform. Now we are on e-com. We started on Amazon, and now we have to -- we have some administrative program with Amazon that's left to solve, but we are selling there as well. And we have the sales to the pharmacy, the other wealth pillar. We have recruited a person coming from the pharma and vitamins industry. So he knows all the key manager, he has a very, very clear plan how to get into boots and how to get everything. So here, it's really looking promising. So we start with 1 month, and the plan is to be able to increase our coverage of the U.K. market better. For Finland, yes, I mean, Verman was a fantastic distributor, and we were about doing about SEK 80 million in Finland only. We are not back to that level of figures. But when we look at the sellout, Q1, we have almost sold as much as Rela sold during the same quarter. And Rela being the brand of Verman. Before they were buying the strain for us. Now they are buying other strains. And you know, Finland is an ethical market, as we call them. So pharmacists are extremely well educated, and they are really promoting the product, but they know a lot about it. So they discover that, oh, my goodness, but that's not the same strain in the brand anymore. What do you have? What do you have for clinical data? And then we arrive and say, okay, here we are, but you know the fact we are familiar with the work, that's us. And suddenly, we got mega facing in every pharmacy because for them we are the real stuff. So then consumer-wise, it's a bit more complicated. You might, I mean the consumer might not look into, okay, which stain you use in that product or another. But the pharmacists are best to tell them, well, you should look at that, and that's a big product. So we are not back to the same level, but we are growing very, very fast. And we have only 2 people in Finland. So it's a very lean operation, I mean organization.

Okay. Just a final quick one. China, you saw some negative effects. Have the situation worsened in the second quarter than what you saw in the first quarter?

Yes. The Q2 will be better in China than Q1. So if you look at the 6-month perspective, that will be okay. But we had higher ambition. I mean China, we just scratched the surface, there is so many new-born there that we know we can do much better. But now we have to handle the logistics and wait until it's over to be able to accelerate again. So that will be okay in 6 months, not super 6 months that we could have hoped for, but nothing to be worried as we speak. I mean now if a new variant or COVID is coming, I don't know. But as we see, I think we will be able to land on our feet at the end of June.

Our next question comes from Mattias Häggblom, Handelsbanken.

Yes. So with raw material price increases and inflationary pressure in the world, any updates on planned or announced price increases that we should think about? That's my first question, please.

Yes. You're right. That's kind of -- it's happening. Raw materials are increasing, especially we have a kind of a difficulty to have a clear view about the price increase on oil that we use for the drops. But we have done a cost analysis on the dry goods, on the oil, on the ingredients, on everything, and we have passed on an increase to all our distributors that will be implemented by 90 days. That's the way we have our contract built. So we will be able to pass on the price increase. Obviously nobody saw a price increase, nor the distributor, nor the consumer, but we have been obliged to do so.

Is it possible to quantify the average price increase you're taking?

I think I would like to prefer to keep that for ourselves. That is to maintain our margin, I would say.

Clear. So then around the gross margin, and perhaps a question for Alexander, we had modeled a higher gross margin in the quarter, but I know that Q1 last year was also sort of a low point and then things improved. So is there anything we should think about in terms of seasonality that is not clear to at least me? Or is it just mix effects that will continue to be volatile in between quarters?

Yes. So it's partly due to, like we wrote in the report, it's partly due to some mix effects that affected the margin. So we have not really felt yet, so to speak, the increased costs in raw materials has not affected. So that is not really the explanation so far. But that will come later, so to speak. The cost increases is coming gradually, but it has not affected in the quarter. So it's more than just mix effect. Plus, there are some inventory effects also, so smaller inventory effects in the acquisition in the U.S. with the fact that they already had inventory of ours, so to speak. And there is an inventory effect of that, that will -- I think will also exist in the next quarter, and then I think will move away. So those are some of the explanations related to the lower margin.

And then maybe a final question for me related to the acquisition in the U.S. And maybe -- first, maybe a point of clarification, still hearing investors thinking the U.S. acquisition is going to be margin-dilutive, doesn't seem to be the case here in the first quarter. But secondly, maybe can you talk a bit more about, you've now owned the company for a quarter, what is going better than planned? What is perhaps taking a bit longer than you planned for?

Okay. So we know the company for more than a quarter. We've been working with them since 2007. So we know them very well, and that's why we decided to acquire them. They are very bullish in the U.S. And we are -- when we look at the 5-year plan we have in front of us that we designed together, it's very bullish. But we are leveraging on that. And what is they are very good at the U.S. is to both handle the medical marketing and the consumer marketing. And this is the medical marketing as the base. They have a major sampling campaign all the time to health care professional. So you go to your pediatrician and there is a great chance that you see kind of sampling of BioGaia on the desk of the physician. So that's one way to do. And then I think they told me they will participate to 32 congresses. So they keep looking to health care professional as the reliable ambassador for the brand. And at the same time, they are super good at finding the right influencer to talk to the man who are not, I mean, physicians, how great the BioGaia drops are, and now they try to go into women health and they find the ambassador for the Prodentis KIDS. They have a very strong campaign on oral health, which is new to them. And doing -- I mean, the Prodentis KIDS has been one of the best seller at Amazon for the probiotics category. So we are entering a new area with the overall portfolio. And the good thing with the U.S. is that it's a green market in terms of regulatory restrictions. So we use them as pilot for a product that you have not heard about as we speak, but we test them there. And if we see that there is a good response from the health care professional and the consumer, then we are starting to roll out in the rest of the world. So I mean, I think it's going to be a very interesting year for us to follow in the U.S.

[Operator Instructions] We have no further questions. Dear speakers, back to you.

Thank you so much. And just wishing everybody a very nice day. We'll hear each other in a quarter. Bye-bye.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you all for attending. You may now disconnect.