Swedencare AB (publ) (SECARE) Earnings Call Transcript & Summary

Hello. Welcome to Swedencare's year-end report and Q4. This is Hakan Lagerberg.

Jenny Graflind.

And we will have a presentation of the quarter and the year-end and then have some -- answer some questions that we have received at the end and then we'll come back to you if you have even more questions. We'll answer with the chat after this session. Yes. Some Q4 highlights. We had record sales for the quarter, SEK 255 million with a lower margin than usual and I wrote about that in the Q4 -- Q3 report already, we were hit by increased raw material prices particularly affecting our big production unit down in Florida, in Vetio for the dermatology products. We also had some special investments needed to be made for building up the new facility that we have completed in Florida for supplements and also for building up some more people within the organization. But we are well set to move on to 2022 and I'm sure that we will be back at plus-25% margin in the next quarter. The organic growth was 10%, and for the year, 17%. Our goal is to have a 20% organic growth going forward. And it has mainly been due to factors from COVID, that was the reason that we didn't make 20% for the year. There's been some issues with supply and with transportation. But we are very confident in going forward that we will be able to deliver 20%-plus for the coming years. We also had a project with our newly acquired company called FAV. They moved into our facility in Tampa, where we have a group of companies in one facility. It's PetMD, Stratford and Animal Pharm -- together now with FAV. And I will come back and describe this a bit more later on. We had a fantastic group Board and management meeting in Florida. We managed to have that between the different COVID sessions. So in end of November, early December, we met up in Tampa, Florida, really focused on business development and opportunities within the group. And we have had lots of different projects starting up from that meeting. So we're very satisfied that we were able to have that meeting. And then of course end of the quarter, very intense M&A work with 2 major targets that I have presented previously with the NaturVet and Innovet and I will come back and present them a bit more later on in this presentation. Yes. Looking at the quarter and some other pointers here, had a really strong start in October and then it slowed down with some demand due to COVID, basically and then it picked up again at the end of the quarter. So it actually was a bit stronger in sales than I thought going into December. So we had a strong ending, but really looking forward to having 2022 and hopefully without any new COVID restrictions coming back. Looking at our group, we had good growth numbers in different areas of the organization. The Nordic sales were excellent. U.S.A. was excellent. Nutravet, our U.K.-based veterinarian company had a really strong ending of the year and the whole year has been exceptional for Nutravet. Spain also continued to grow quarter-by-quarter. Looking at our export markets, South Korea is really a standout, both for our regional product, ProDen PlaqueOff, but also Nutravet and Rx vitamins have strong exports to Korea. Japan is coming really strong and China also coming back. As you might remember, we had no shipments in Q3 to China. It came back now in Q4. And the good thing is also that we have had good reports from our distributor in China that the sales are really picking up again from being a slow year. Both '20 and '21 has been a bit slow in China, but still we had -- on a yearly basis, we had 10% growth for our Chinese sales. So that's acceptable. Australia and Chile also 2 other very important and fast-growing export market for us. Looking at different channels, the online keep on growing faster than the veterinarian and the pet retail sector, and we do continue to make investments both in building up teams, both in the U.S. and in the U.K. and also investing more in some big marketing campaigns and planning for that. So that has also affected the quarter a bit that we have made some early investments for projects that we will really start benefiting from -- in the first half of 2022. Then we finalized the expansion of the new Vetio South facility, so we can now start to produce supplements and soft chews. So it's a big facility where we will be able to deliver really volume-based projects. And it's starting up now in Q1 and will be in full production from Q2 and Q3 this year. And then we have also focused in this quarter, a lot of -- as I said, from the group meeting, we had lots of new strategies and planning for 2022 as a whole completely new group. So we have made several acquisitions over the year in 2021 and as you know also in 2022. So we have a fantastic group going forward, and we will really utilize all of the capabilities and expertise that we have in the group. We have multiple group projects. So we will, as I usually say, we start with the low-hanging fruits. We really look at the market, see the opportunities where we can take advantage of our group of different products that we have, of the brands that we have and the channels we can keep on exploring. So I would say that going forward, you will see a lot more cross sales between the group companies. It has started in 2021, but it will just continue to improve over the years to come.

All right, some figures. So for the quarter, we had net revenue of SEK 255 million, that is 6% above what we had the whole year for 2020. We had 154% increase of our revenues, out of this 10% was organic growth. Remember that all the entities that we acquired during the year are not included in our organic growth and they also had very good growth. And PetMD, for example, had 13%; Rx had 90%. And Vetio, which was acquired in the summer, as Hakan was mentioning, were impacted and then had a negative organic growth for the quarter. If we look at EBITDA and our profit, we had -- we were impacted on SEK 1.4 million of acquisition costs for FAV. We had a little bit lower gross margin due to Vetio and also some one-off costs that we were impacted with related to recruitment and marketing initiatives, et cetera. If we look at cash, we had SEK 136 million of cash at the end of the year. We paid SEK 25 million for FAV, and we also invested in some assets of about SEK 12 million during the quarter. However, the big impact on cash is after the year-end as we did the new share issue where we took in SEK 3.5 billion in order to pay the Nutravet acquisition. And we also did that with a new loan of about SEK 300 million. If we look at our ratio, net debt to EBITDA, it's at 2.62. And this is expected to increase to about 2.9 at the end of the quarter as we have the NaturVet this quarter and our solvency is at 69%. If we look at a little bit of the year-end figures, we had net revenue of SEK 770 million, means an increase of 221%, organic, that is 17%. And it's important to note that we have actually growth in all our markets and in all our product categories over the year. Again, the companies that we acquired during the year they are not part of the organic growth had a very good growth as well. Nutravet, as Hakan just mentioned, it had 36% organic growth for 2021. PetMD 11%, also Vetio North and Vetio South have 45% and 9%. Of course, the organic growth as Hakan mentioned was impacted by COVID as well. If we look at EBITDA for the year, we are at SEK 190 million, that is adjusted with SEK 17 million of acquisition costs for the companies that we bought during the year. It's also adjusted with IFRS accounting entry that we needed to do, which is a reevaluation of the inventory to fair market value of our acquired companies that had an impact of SEK 43 million and that is only an accounting entry, has no cash impact. The Board has proposed a dividend for the of SEK 0.20. This is an increase of 25% versus last year. Our operational cash flow is strong, again as the IFRS adjustment is only on its booking entry and not impacting the cash. Another fun fact, I can just let you know that last year at this time we were [indiscernible] 5 employees. Now when we close to 2021, we are 280 employees. And now when we acquired NaturVet and Innovet, we will be at around 500 at the end of Q1. Here's the slide on the purchase price allocation that was completed at Q4. During the year, we have done preliminary analysis where we have allocated the excess value over to goodwill. And now at the end of the year, we have reallocated these into identified intangible assets such as trademarks, customer relationships and intellectual properties. Part of this will be amortized and part of this will be done on an impairment test annually. It also as I mentioned a little bit earlier impacted our cost of sales because we had to book up the inventory to fair market value. We had an impact then of SEK 43 million for the year, but again no cash flow impact on that. Sales per region. And the biggest change here is, of course, in North America, which is the market where we have acquired most of the companies on. But I can also mention, Hakan mentioned, in China, that was up 10% for the year. Asia also had a good growth and this is partly impacted to Rx and Nutravet that also have sales to the Asian market. And during the fourth quarter actually Nutravet had a record sales for international exports. I will go over to sales per product category. Our patent for ProDen PlaqueOff expired at the end of Q3. So it was nice to see that due to the strength of the brand, we still had a 10% growth in the quarter despite this. Let me see. And then, of course, the categories, topicals in dermatology as well as nutraceuticals heavily impacted by the acquisitions that we did. The yellow high piece on the left, pharma is the new category with Vetio, which we expect to grow in 2022. Hakan mentioned that in his words in the beginning of the report that we have 3 volume production -- projects in 2022 compared to 1 that we had in 2021. And the 2 largest ones will come in, in the second half of the year. Just one really quick just to show you that 1 year ago, we were heavily relying on ProDen PlaqueOff 54%. Our revenue came from that. Now it's much more of an even split between the PlaqueOff, nutraceuticals and Topicals Dermatology with 20%, 30% and 39%. And we continue to invest in our own production facilities to have more production in-house. And this of course with our latest acquisition, NaturVet will have even more obvious because we have our own soft-chew production as well. So this will give you both better control and the better margins going forward. Our rolling 4 quarters is, of course, our year-end results. So you can see that we closed the year on SEK 770 million in revenue. Our EBITDA of SEK 129 million and the adjusted EBITDA of SEK 190 million.

Okay. And then as you all probably have heard and that we wrote about in the report, we made 2 major acquisitions in the end of January. Start off with NaturVet, a #1 pet supplement brand in the U.S. for the pet retail sector, I would say. A fantastic company, built over 27 years with a steady growth every year by Scott Garmon, the Founder and CEO of the company. And they are-- have a wide range of supplements, liquids, powder products, gels and primarily soft chews. They are the leading company in soft chews for the U.S. market. Fantastic production unit, both for their own brands and also as private label offerings. Have had a similar growth to Swedencare. We have the similar values. So it grow the company together with a healthy profit margin. So -- we were able to acquire this company in a very fierce competition and it was really due to the fact that Scott and his management team really bought that Swedencare was the perfect fit as we did think of them. So it's a fantastic acquisition for us. We get access to over 15,000 pet shops in the U.S. with a wide range of products as I said. Sales in 2021 was USD 63 million with a profit margin well over 30%, had 31% organic growth in 2021. And as we are finalizing the third production line in April this year, it stands for us being able to grow in NaturVet at a very fast rate going forward. So NaturVet will be one of the top group companies in Swedencare when it comes to both growth and profitability. And then Innovet, a company that we know very well. They have been our veterinary distributor in Italy for several years. A well -- very well run company by Renato della Valle and his family that founded the company. And a very strong market presence in Italy. Over 90% of the sales are in Italy, but they have had strong interest of international sales as well. But not have had the time or the resources to really develop that channel. So -- that is one major reason why we think Innovet is a perfect fit for us. We will get access to a supplement range that is on a high scientific level. Strong IP portfolio with unique products that has, as I said, been primarily sold in Italy, but has a strong demand from the international community all over the world, looking at these products. So it will be a joy for us to start launching this internationally. 2 out of 20 products, I would say, has been launched internationally successfully in licensing deals. And we will evaluate if we will launch the product range as a whole in different markets or as being offered to different partners of ours as a licensed product. The -- when it comes to numbers, they had excellent sales last year of around EUR 12.5 million, and with a healthy profit margin over 30%, nearly 35%, I think and also organic growth of 13.2%, and primarily, as I said, in the Italian market. Yes. Some synergies for these acquisitions is really to -- when it comes to NaturVet, we can really see that it's a fantastic complement to our group. NaturVet has no dermatology product whatsoever, so they can pick and choose from all of the capabilities that Vetio has. They do not have an [indiscernible] range either. So we are in full discussions in how we should utilize NaturVet's contact channels and strategy for launching ProDen PlaqueOff in some of the partners of NaturVet. And as I said, regarding Innovet, lots of interest on the international community about the IP protected product range of Innovet. So we have started that already as well.

If we look at the pro forma revenue for 2021. So all the way to the bottom left, you have Swedencare SEK 773 million. That is where we are right now at we closed 2021. If we add the companies that we own at the end of the year, if we had bought them and they have been included from the first of January, we could have added SEK 196 million to that. In addition to that, we have 2 new acquisitions of NaturVet and Innovet to add SEK 686 million. And then we'll remove a little bit of elimination due to the fact that we already sell a little bit to Innovet and there is a couple of intercompany sales between the pro forma numbers. That brings up to SEK 1.6 billion in revenues for 2021 if we had own all these companies from the beginning of the year.

Yes. And we presented new financial targets in December, early December and that was SEK 4 billion with an EBITDA over 30% by 2026. And at the point of time when we set those goals, we were fairly certain that we would make the Innovet deal, but we're absolutely not certain of the NaturVet acquisition. So -- of course, adding over SEK 65 million in sales for 2021 and with a strong growth, these targets are not so challenging as when we set them. But nevertheless, we will continue working and let's see when we reach these targets, but we are in a very good position to keep on growing the company. Priorities for 2022. Of course, integration of acquired companies. But as you all know is that we have an integration that focuses on sales corporation and other opportunities. We do not integrate with strong red tape on organization on how to do things. That's really important. And that's why we've been so successful in adding companies to our group. The only part where we are very strong in the integration and is of course, in reporting and finance that needs to be in place according to our standards. We will continue to increase our marketing efforts. We did invest a lot end of Q4 making a base for 2022. And we will continue to do that. We are very much focused on the online marketing efforts. But of course, we look at the situation in different markets, which is the best way to go forward. Brand and product development is also something we must focus on. I mean, we have very -- a lot of strong brands within the group and they are strong in different markets, and we now have made a prioritization of which brands that we really want to focus going really global and which brands that we focus more on select markets. And when it comes to product development, we continue to have a very fast-moving product development process for all of our group companies. All of the product development that we do, I would say, except for Innovet now in Italy is really on the basis from demand from the market. We have lots of collaboration with buying groups with veterinary groups where we discussed the best needed products and then we try to answer to those needs. Distribution of product range will continue. We see lots of opportunities in the different markets where we're in. It's just a question of how to prioritize and which channel we should focus on. So that will continue to grow all of the collaborations between the group companies. Organization, we will keep on building out the organization. Still being a lean organization. As Jenny said, we will be 500 people now with the conclusion of the Innovet acquisition in 1st of March. We will add a couple of, let's say, group roles that will facilitate the integration of companies and also [indiscernible] on all of the opportunities that we have. We also have a strong influx of the talent that wants to work with Swedencare. We have really made a presence in the market and I see that we are an attractive group that many people would like to work in. We will continue to look at M&A opportunities. The more deals that we make, the more opportunities we get. But I would like to stress the fact that we are not, let's say, a serial acquirer, even though we have made lots of acquisitions. We're really focus on finding the right pieces in our puzzle that should be the perfect fit for us. So we won't stress the fact of making acquisitions. But of course, we have an agenda where we still think there are opportunities to fill some holes and we will have some discussions over the years to come, definitely.

Okay. That's it. We have received a few questions. Let me do this. We have received a few questions, and then we will cover these. And then after that, we will open the chat, and then you can just send in your questions and we will answer them in the chat. But we have a couple of questions. How much did the new acquisition of FAV contribute to during the quarter? Well, the growth between Q3 and Q4 was 15%, and FAV was 4 of those percent as it's about SEK 9 million in revenues. What would EBITDA margin on a pro forma basis, including Nutravet and Innovet in 2021? As we presented, we would have revenues of SEK 1.6 billion, where we closed September, we presented that we would have an EBITDA margin of 29%. If we now look at the end of 2021, it's around 28%. So it will be increasing as Hakan said. Please let us bridge the 20% of annual organic growth target per business unit. What -- sorry, it's very small. Our brands will go faster and which will lag. Hakan?

Yes. As I wrote in the report, we expect at least 20% growth this year. And I would say that when we have presented the acquisitions, we made this last 12 months, I would say that both Vetio and NaturVet is 2 companies -- 2 companies that, that will grow faster than the group average. We do also expect Nutravet in the U.K. to keep on growing at a very fast pace and PetMD will pick up a lot more than compared to 2021 due to there were some constraints in marketing and getting product supply for the online sales on Amazon and chewy, so I would say -- there are a couple of months that will be a lot stronger than the others. I don't expect anyone really to lag that much. They will all have -- all of our group companies will have double-digit growth, but some will be closer to 10% and others will be significantly over 20%, I would say.

Are you intended to report on the performance of the various acquired businesses? Or will it be just 1 large Swedencare group? Well, I would say it's one large Swedencare Group. We will not report a revenue and profitability per unit. However of course, like we did in this report, we will mention a few organic growth or some units that sells out in the various parts, but the group reporting will be for the consolidation. PetMD grew by 13% in Q4, but the brand was grown by 100% when you bought it. Why has it slowed down so much? And is there a negative in the quarter period? Or what growth do you expect going forward?

Yes, that's true that it was 100%, but that wasn't the figure that we expected going forward. That was due to a very strong product launch, the number of products being launched within the PetMD brand. During 2021, it's true that they have not been at 20% as we would have expected or even more, and that I expect of them from 2022, but that has basically been due to lack of product supply. And it's always difficult in with Amazon and having -- the importance of not selling out of product there. So then we've been forced to lower our -- some of our marketing programs, not to be sold out on Amazon because then due to the algorithm, you lose a lot of -- you get lots of disadvantages if you sell out. So it's been a back and forth for PetMD this year in getting product, but that has improved a lot the last half year. And as I've written in the report, we do expect going forward now we won't have any major issues with product supply. We have transferred lots of the products into internal production and keeping the external suppliers that have been performing well. So going forward definitely over 20% in growth for PetMD as well.

Great. Then -- that's it for the 3 questions. We will come back in 5 minutes and then we'll start the chat.

Thank you so much. Bye-bye.

Thank you very much. Bye.