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

Hi, and welcome to the Presentation of Swedencare's Q4 Reports, led by our CEO, Hakan Lagerberg; and CFO, Jenny Graflind. And we are pleased to have Brian Nugent, the CCO of Swedencare North America, joining us with the presentation during today's webinar. And as usual, we will have a Q&A after the presentation. So please raise your hand if you have any questions, we will answer them in the end. Over to you, Jenny and Hakan.

Hi, everyone. Hakan Lagerberg here together with Jenny Graflind in Malmo, and then we have Brian Nugent earlier morning in Tampa, Florida, joining us for presenting the U.S. Veterinary division. Okay. Let's see now. Year-end report Q4 2024 highlights. Sales and EBITDA are at an all-time high. But growth is not where we want it to be. We had organic growth of 4%. So it's below our expectations. And it's somewhat the same story as last time with our biggest group company, NaturVet, having some headwind in the quarter with 21% organic growth decline and rest of the group altogether, 18% organic growth. So we just need to get NaturVet fixed, and then we will be at our growth targets of double digits as a whole group. I will come back and explain more about the road forward with NaturVet. Other highlights. We were accepted for trading under the ticker SWDCF at OTCQX in New York. And the reason for this is our strong presence in the U.S. You all know that it's plus 70% of our sales are in North America. And looking at our shareholder base, we have a majority of European investors, definitely looking at -- on the retail side, we have several North American institutional investors, but we have had requests and also think it's interesting to facilitate the trade of our share in North America. So we will follow this closely and see the development of predominantly retail investors. We also had another VOHC recognition for ProDen PlaqueOff. Now, it was for our fairly new soft chews, where we made 2 clinical studies and could prove that it's effective against both plaque and tartar. And many products on the market that have VOHC seal is actually either/or, not that many products have both for plaque and tartar. So we are very happy and proud about that. Looking at our sales channels, it's not an effect, let's say, a detailed science because some of our distributors and big retailers, we don't get the split there. But fairly similar as it has been 40% online sales, 30% pet retail and 30% veterinary. If you're looking at the 2 different main regions that we have, there's a bit higher percentage in the U.S. on the online compared to in Europe, where we are a bit higher on pet retail and on the veterinary side, but not that big differences. I've also received a number of questions, both from the Board and also from investors about the situation regarding potential trade wars and tariffs, and what strategy you have and if we are prepared. And as many of you know is that, we have focused on having manufacturing local. So we have manufacturing hubs in the U.S. for North America and also a development site and manufacturing site of Rx products in Canada. And then we have both in U.K. and Europe to handle the Brexit situation. So -- but we have not created this out of, let's say, the strategy of avoiding tariffs. It's really down to having secure product supply and also from a sustainability perspective that we definitely want to avoid long unnecessary transports. So that has been the main strategy for us is to have the local manufacturing. But, of course, it's convenient to have now when we have analyzed the situation. Basically, I wouldn't say we are unaffected, but we have a very, very small percentage that comes from different regions, if you're looking at U.K., Europe and the U.S. So we are very local there with ingredient supply, material supply, packaging. So we're well prepared. The only, let's say, long-term issue could be that the Pharma division that we have, many of the products that we are manufacturing in Canada are going into the U.S. market. However, it's long-term processes of moving manufacturing projects from one facility to another. So -- and we have the confidence. So if it would be problematic between Canada and U.S., we are in a position to be able to open up a manufacturing facility in the U.S. also for Rx products. Furthermore, we -- the Board has proposed a dividend of SEK 0.25 per share, an increase of 9% compared to 2023 and in line with our policy that if the Board thinks it's -- let's say, it's according to our policy that we could give a dividend up to 40% of earnings. Jenny?

Yes. Some financial highlights for the quarter. Like Hakan said, we had another gross sales quarter of SEK 661 million, which represents 4% growth. 4% of this was organic growth and 1% was acquired growth. For the full year growth, the organic growth was 9% and the acquired growth mainly came from MedVant, a Canadian business that we acquired in August 1. Our operational gross margin was the highest since 2022 with 58.5%. This is in line with our expectations. We have earlier said that we'd like to be around 58%. This quarter was slightly higher due to the fact that we had lower inventory adjustments and also we had -- we can finally see some improvement in purchasing. The external costs are increasing with the growth of Amazon as some of those costs are directly linked to sales. In addition, we had SEK 9.7 million of additional costs this quarter. And this includes a nonoperating legal settlement from prior years, as well as we have done a rebranding project in NaturVet and also we have some reserves in accounts receivable. As a result, EBITDA is at all-time high, SEK 145.3 million for the quarter. The EBITDA margin is 22%, and that's a growth of 9% compared to Q4 last year. The net results are impacted by lower interest costs. Of course, we have lower interest rates and also we have a lower debt level. In 2024, we booked a tax cost and adjustment throughout the year compared to 2023 when a large adjustment came in Q4. So these 2 items caused the increase of the net results. We had a negative SEK 13 million last year, and we now have a positive SEK 23.8 million this quarter. And the net income for the whole year for 2024 is at SEK 98.9 million, and that's an increase of 69% compared to last year. I can also mention that the effective tax rate for our group is at 11%. We continue to decrease our net debt-to-EBITDA, which is now at 2.05 compared to 2.63 one year ago. In the quarter, we have repaid SEK 75 million on our loans. And for the whole year, we have amortized or repaid SEK 200 million. In addition to that, we have used our own generated cash flow to invest in some acquisitions, which you would probably know about. That is a total of SEK 107 million for the year. Operating cash flow was at SEK 81.7 million for the quarter. And at the end of the year, we had SEK 186 million of cash. Since we are closing the year, I just want to give you some highlights for how we finished. So we finished with net revenue, which amounted to just about SEK 2.5 billion, like I said, 9% growth compared to '23. Gross margin was at 57.7% for the year and EBITDA grew with 14% this year to SEK 560 million and a margin of 22.2%. Rolling 12 months is, of course, the full year this quarter. But as you can see, we have had a nice trend of growth and profitability from 2021. Product and brand split. We have had a decrease in Nutraceuticals, which is our largest category of 8%. This is due to the decrease of NaturVet, which mainly sell products in this category. Pharma, it's a quite small category still, but a very nice strong growth of 37%. We are growing with mainly manufacturing volumes here in Pharma. And dental, which is always nice to mention that mainly includes ProDen PlaqueOff and a few other dental products grew with 54% for the quarter. This category is now 18% of the group's total revenue. And the main contributors in this product group is the ProDen PlaqueOff powder, but also the soft chews that had a nice growth, but also Restomyl, that's a series where we have launched a new toothpaste during the quarter, and that's been well received. A few comments on the brand split. The largest decrease is in private label, which Hakan will talk about. The contract manufacturing is absolutely worth mentioning. We had a growth of 22% in the quarter. The production segment has grown with 20% for the quarter and 28% for the year. The strongest growth we can see in Europe, we had actually 97% growth in '24 compared to '23. This is mainly driven by the increased soft chew production, which we have in U.K., where capacity has been built up during the year, but also in Ireland, where we have also invested to increase capacity. Innovet is our Italian company has also had a great year with record sales and far above market growth.

Looking at the regions. Net sales in North America, almost SEK 475 million, 2% growth. The biggest driver, dental, as Jenny said, and predominantly in pet retail and online. We have now also made a new launch for the veterinary side that Brian will mention, where we sell basically the ProDen PlaqueOff products under a new brand focused on the veterinary side. Production and online, strong. Pet retail, a bit weaker and the veterinary side also -- let's say, it's stable up, but not at double-digit growth where we would like it to be. Pharma division, really strong, best quarter ever. And the interesting thing is that, we are now really seeing the effects of our development projects materializing in manufacturing. So the split between manufacturing and development continues to even out. So a very strong quarter for the Pharma division, and we expect the 2025 to be strong for the Pharma division. Manufacturing will be a bit lower in Q1 due to inspections and some refurbishment of the manufacturing side in Q1, but then Q2 and onwards will be really strong when looking at the manufacturing side. NaturVet last negative quarter as we expect, I will go into depth that in the next slides. Treats category is worth mentioning. Riley's, we acquired Riley's Organic treats in the beginning of last year and has been a really successful last year. And we're expanding the product category and also looking to expand into new markets. There has been lots of interest in new markets, but we have chosen to be -- to focus on the U.S. from the beginning. But now we're looking at some new markets, both Europe and some Asian countries. Medvant has started to analyze and prepare to expand their product range and brands that they sell into the Canadian market, analyzing different brands that we have within the group. And also when that process is over, the registration process starts in Canada, which is a complicated one. And one of the reasons why we wanted to acquire a entity of our own in Canada because it is a complicated regulated market. We have also added some key sales addition in resources in North America in a couple of different group companies and really looking forward to see the results from that. Europe -- sorry, sorry, NaturVet. Yes. Just a sum up of 2024. Organic growth in the quarter, minus 21% and full year, 10%. And that is, of course, not where we want our biggest group company to be. So the reason for the low numbers in Q4 was predominantly from the private label division. Three largest accounts pushed orders into '25, different reasons, but 2024 was -- or 2023 was a special quarter last year since we made some changes in volume requirements and also price increases. So it pushed a lot of the big orders in the end of '23. All of the customers are on board, and we have made a reorganization in that division to get better visibility and also to support our customers better. So we are -- have changed the working methods, more focused on business development and together making a plan for the coming years. So I'm confident that private label, these 3 customers, we know already that Q1 will be better and also Q2. But also in longer term, we will be more focused in helping them to develop their business. Looking at the branded sales, down overall a bit, but there was growth in our distribution line, Chewy, the biggest customer after Amazon and also second biggest customer and down when it comes to pet specialty. They also grew. So what affected the quarter and the branded sales was that the -- our biggest pet specialty customer was down, and it has been down for the full year due to the launch of competing brands into their assortment. However, '25 reset, we are very confident that '25 will be a quite different year. We have received confirmation that they are bringing in our new innovations and also expanded in-store presence. So we are very glad that we have been able to have those discussions and also develop our offering in their chain. So looking forward to that. Amazon sales, sales to consumers, what we call out-the-door are up 9% for the quarter. And there, you might recall that we are transitioning from selling through a partner to our own Amazon sales, and that will be transferred end of this year. This resulted that -- this agreement resulted that our partner wanted to have inventory at a bit under 3 months inventory. And historically, they've had 4 to 6. So that's why our sales in this quarter was 7% down. However, going forward, our sales will definitely reflect the out-the-door sales and January out-the-door sales are 10% up. So you can expect that if we continue to drive sales this year and increasing our sales, then our sales will increase to our partner as well. What will happen in 2025? Yes. The team we have brought in, they have been working very diligently and the sales processes for large account is long. So it's 12 to 18 months from where you see results. So we are starting to see results of the hard work being laid down in the new strategy. So, as Jenny said, we have been -- end of the year and early this year, we have -- are about to conclude a rebranding project for the NaturVet brand at a cost and lots of time and resources, but we want to do it correctly. So we're very excited to be presenting that at the end of March at the Global Pet Expo. And then we have been working very hard to expand and strengthen our relationship with all the top branded customers, all of the big chains and retailers. And it has given the sought after effect. So we are -- all of our big accounts, we will have more presence in-store, launching more products and also have better visibility for our brands. So we are at good terms with all of our big customers. And as you may recall, we started in '24 with a couple of SKUs with the biggest pet specialty retailer in North America, and that collaboration has gone good. So we have already in Q1 added a couple of more SKUs. Q2, we will have a special program for 400 stores, expansion with even larger product offering. And what we are waiting for is really the key expansion opportunity in Q3. That one is not decided yet, but we are -- yes, looking forward to -- at the final decision there. We have had really good discussions about that. Looking at private label, as I said, more visibility and less dependency on a few accounts. We have secured 2 new major accounts, 1 private label brand with the top-tier pet specialty retailer who closed down their private label program last year. They have now rethought that and are launching a completely new one, and we will be supplying that. We also have secured a private label program with a nationwide pharmacy chain, and we are also in discussion for them to launch a couple of our branded products. Big box retailers, lots of focus on that from our side. We are now -- have online presence with 3 big box retailers or will have when the quarter ends. And that is basically a prerequisite to get into the physical stores. One small big win that is very new is that, we have received an opening, a small side wing confirmed for 1,400 store end of Q1. So we are gathering the resources here with the largest seller of pet health, the biggest big box retailer. And we are expected to get a decision on a significant presence in that retailer at the latest by the end of the year. So we're excited about that. And target and working diligently to add more before 2025 is over. How has '25 started? Sales are up, and we predict NaturVet to basically get -- be stronger quarter-by-quarter. So no more decline in sales for our biggest group company. Europe, has continued the success story of the year, 20% growth for the quarter, dental strongest product group. And also coming back to dental, it's really important to understand also why we are able to be so strong in dental is that, we are utilizing many of our group companies when we sell dental. So the success for ProDen PlaqueOff wouldn't have been possible in the same way if we wouldn't have had, for example, NaturVet opening up the big pet specialty retailers for us and for us to continue working with all of the smaller brick-and-mortar stores from our original setup and also having, like we have in North America, coming back to that, sorry for that, speaking of Europe. But coming back to that our online team in North America have made a fantastic job with our online sales for ProDen PlaqueOff. So it's an important key to remember when looking at the success of ProDen PlaqueOff. It is -- it has been made possible due to the fact that we have added lots of new competencies into our group with different group companies and utilizing their capacity and potential. But looking at Europe, continue to be very strong, looking at the dental. U.K., a bit mixed market, very strong in our Amazon sales. As you know, we took that back from Amazon. So we handle that ourselves now. So we expect that to continue to be strong growth in 2025 as well on our sales there. Weaker veterinary market. However, we do feel that there has been a swift change end of Q4 and also start of 2025 has been good, both due to product launches, but also the sentiment in the market. I think the U.K. veterinary market is starting to rebound. Italy and Nordics had another fantastic quarters. We've been working really, really hard. Nordics is a small market, but have had excellent growth all year. Italy, as Jenny said, has been a fantastic market for us and also starting to make a bit more noise in finding new markets around the world for the Innovet products. We started the more extensive collaboration with Zooplus in Q4 and especially with the NaturVet by Swedencare. A promising start, a couple of reorders, and we're looking forward to keep on growing that in 2025. Several product launches in the quarter, and that will continue in 2025. In our report, we present some of our product launches that have been made in 2024, and many of them have not really made any big impact on our sales, but will have in 2025. Manufacturing production is, as Jenny said, has been fantastic in Europe, especially our new U.K. facility up and running, our Irish facility adding new capacities. So really been a strong end of the year, and that will continue in 2025. Rest of the World, down 5%. But as we highlight here is that, it's down due to the fact that we, in 2023, had a development and manufacturing project or clinicals for an Asian customer that was large, and that affect -- that, of course, impacted our sales. Those are more of a lumpy nature and not continuously. So looking at -- without the Pharma impact, our export sales actually increased by 37% for the quarter. Asia top region. China bouncing back and Japan and South Korea continuing to be very strong market for us in Asia. South America, Brazil, Chile, Uruguay stands out in the quarter and also for the year, I would say. So we are excited about the opportunities in South America. Looking at the smaller or specialized project, we have continued to add new collaborations when it comes to pet food. So we now have 5 projects with brands where they include ProDen PlaqueOff and utilize our brand on their marketing. And that has -- the couple of new ones that started in '24 have had a really good launch. So we expect that sector to keep on growing in '25. And we will be adding a major brand in South America in -- already in Q2 2025. So looking forward to updating you on that further on. Priorities 2025 and what happens in the near future, it's really down to growth and profitability. That should be our signal, and we continue to focus on that. So we are dead set to coming back to double-digit growth, not happy with the 9% growth for 2024. So that is a focus area for us and also that our increased gross margin will start to show also in the profitability bottom line. So lots of focus on that. I put lowering debt level -- I wouldn't say we don't question that, but we are at 2% net debt-to-EBITDA. So I would say that it's not that much focus as before to get the debt level down. But, of course, if we do not use the funds that we generate because we will continue to be cash flow positive every quarter going forward, we will, of course, use that to amortize our debt, but it's not such a focus area as it has been in the last, let's say, 2 years. Capitalizing on 2024 strategic projects, we have lots of projects together with partners that will start to show in our numbers, and I will present a couple of those over the year to come. M&A reactivation, I would say that we have been making some smaller M&A. The market as such started to pick up in 2024, more activity in our industry. And we, of course, with the debt level have gone down for us and the situation we are in, we are, of course, looking a bit more -- and a bit more open in discussing and looking into M&A opportunities. So I would say we focus on geographies where we're not present and also targets with unique features to our group. So from that, you can read out that we focus on some geographies in Europe and APAC area and also if we can add something new to the group. That's important for us. And we have some opportunities there. I do expect us to -- and hope that we will be able to make some acquisitions this year. Product launches and development, as I said, we have lots of product launches and development ongoing. So really excited about that. And also the -- as I can come back to saying that the Manufacturing and the Pharma division is at an exciting point right now. Also, looking forward to get the results for our biannual employee survey. For those of you that remember, we had really good results last time we did it for the first time. But, of course, there are always things that you can improve, and we have been working hard with that with the local leadership and different group companies and also from a group perspective. So excited about seeing the results from this if our efforts have -- will generate even better results. And then sustainability is, of course, focused area for us, and we will be finalizing and presenting our targets during 2025. And I think in next report, we will have some presentations about that or the next day. I don't know, if you do. No. Let's see. We will present it in 2025 at least. And with that, I would like to introduce Brian Nugent, who has been with us since 2020, where he came on board as he was the CEO of Stratford, and he will present Swedencare North America U.S. Veterinary division.

Hello. My name is Brian Nugent. I am the Chief Commercial Officer of Swedencare North America. My responsibilities include oversight of Swedencare's North American veterinary and online channels. And today, I'll be specifically providing an update on the U.S. veterinary market. Swedencare U.S. veterinary brands include Stratford Animal Care, Rx Vitamins, Vet Classics, Animal Pharmaceuticals and the newly launched ProDen DentalCare. These companies share a common mission, which is to be the leader in the advocacy and innovation to the veterinary community by providing premier products and practical business solutions that support the growth, profits and success of veterinary practices. Our veterinary commercial and operational teams have been busy and spent the last 1.5 years consolidating operations to a centralized distribution facility in Tampa, Florida, shifting from external to internal manufacturing, cross-training and integrating sales, service and marketing, and we are poised for growth in 2025 and beyond. Also just 2 weeks ago, we all jointly presented these companies at the VMX Global Veterinary Expo in Orlando, Florida, where over 33,000 attendees were able to see our combined Swedencare U.S. vet solutions for the first time. That is a picture of a very busy booth. And as I mentioned, the VMX itself was also very busy with over 33,000 attendees. And I'm pleased to mention that the new Swedencare booth was one of the busier booths in the entire Expo, where we were able to meet with current customers, gain new customers and engage with prospective customers and future partners. I will now provide an overview of our veterinary brands, starting with Stratford. Stratford is exclusively distributed by MWI Veterinary Supply. Stratford sells products in 3 ways to MWI. The first is a traditional Stratford label. The second is we provide MWI with a private label brand called VetOne, which is the green label in the middle of your screen. And the third is a clinic custom label program, where we provide a unique label and brand for an individual veterinary hospital. I'll talk about this more and show you a little bit more in depth in a few slides. But interesting to note on that graphic, all 3 of those graphics are the exact same products. The only difference is the label that's on it. So we really work with our distribution partners to provide the ultimate program that most benefits their veterinary hospitals. Animal Pharmaceuticals is currently distributed exclusively through Patterson Vet Supply and available in 2 options: the Animal Pharmaceuticals brands on the left, which essentially acts as a private label brand for Patterson and also, once again, our unique customized clinic label program that allows for an individual hospital to have their own label, and it's the only place that, that label exists was under that roof of that veterinary hospital. Rx Vitamins brand, which is over 20 years old, is available through MWI and also sells direct to veterinary hospitals. This range tends to be a little bit more holistic, and it's very unique in that it has extensive clinical and research on the products and specifically the ingredients. We also just recently completed a rebranding of the entire Rx line to include significantly improved looking feel of the labels and all the marketing and support materials. Vet Classics is one of the most widely distributed of our brands, and it's sold through MWI, Covetrus, Patterson and Midwest Vet Supply and only available in the Vet Classics label shown here. We have recently added the Stratford and Animal Pharmaceuticals dermatology range to this line. This dermatology range just coincidentally and also is 98% sourced internally from Vetio, a Swedencare sister company. And our most recent brand is ProDen DentalCare. And this is a new line that we just launched nationally at the VMX 2 weeks ago in Orlando, and it utilizes Swedencare's flagship ProDen PlaqueOff. The difference, however, is that, ProDen DentalCare is available in a label that is very unique to the U.S. veterinary community. This allows veterinarians in the U.S. the assurance and the recommendation of prescribing a product that is exclusive to veterinarians and not readily available on the OTC or online channels. This brand has already been picked up by major distributors such as MWI, Patterson and Covetrus. And this range generated extreme interest at the VMX Expo. So it's going to be very exciting to track the growth and trajectory of this product throughout 2025. I also wanted to share a few insights of the industry. This -- some of these bullets were released during a think tank at VMX regarding the U.S. Veterinary 2024 industry year-end review. Vet visits overall in the U.S. were down, but the spend per visit was up. Vets are continuing to face a loss of business from online home delivery companies, especially Amazon and Chewy. Vets are desperate to find ways to help increase owner compliance. Hospital consolidation is still occurring, just at a slower rate than what it was in previous years. Estimated manufacturing brand growth in veterinary supplements and pharma was up approximately 5% as an industry average in '24 versus '23. And finally, declining pharmacy sales were the top 2 concern or challenge faced by vets in 2024. Staffing was number one. And it's important for us to understand the problems and the challenges that veterinarians face. And so, the question becomes how can Swedencare help the vets increase repeat visits, increase pharmacy sales, stop the loss of business to OTC and online channels? And if you recall, one of my earlier slides, the mission statement is, we want to, not just sell products to vets, but we also want to help them solve these challenges by providing them solutions as well. And the solution to this question is clinic label. And I spoke about this earlier, but I'll go in a little more detail now. Our clinic label, it's a very unique and proprietary program that allows an individual hospital to have their own brand of products that's only available in that hospital. It can never be found online. Thus, it drives clients back to the clinic when it's time to reorder. And we offer this as a service, both through our Animal Pharm and our Stratford product lines through our distribution partners. We find that vets that clinic label have a stronger bond between pet owners and the vet. They have a much higher percentage of pet owners who return to the hospital when it's time to refill a script. And we know that more repeat visits equals increased pharmacy sales. So we really try to give them a winning strategy, as well as premier products. Another question is, how can we help solve the issue of increased owner compliance and help increase pharmacy sales? One example on the left side of the graphic is, at VMX, our teams launched a unique and exclusive finger wipe with a proprietary technology that we call KLARACLEAN. It is -- if you've ever tried to clean your dog or cat's ear, you know it can be gross, messy, no fun for you or the pet. And our new finger wipes provide a significantly more efficient, effective and sanitary method in which to clean your pets, ears, mouth, wrinkles or even their body. The wipe when placed over the finger provides 180 degrees of surface area that can quickly and efficiently remove wax, debris, et cetera. So a much more sanitary and pleasant way than previous methods. Because these are easy to use and smell great, pet owners will be more willing to regularly use these finger wipes, which will increase owner compliance, thus driving pet owners back to the vet when it's time to reorder. We strongly believe that companies who provide unique products and services and demonstrate a desire to, not just sell to veterinarians, but rather offer practical solutions and innovative products and delivery methods will become the recommended partner of veterinarians in the U.S. from vets and their staff so that they can offer convenience to pet owners, resulting in repeat visits, increased sales that these companies will grow above industry average, and that's where we want to be. A couple of initiatives I'd like to share with you that we're currently working on is, consolidation of group brands in the U.S. vet market. So we're looking for one sales, one marketing, one service and one trade show team, and we are in process with that. We will -- we really kicked that off at the VMX show, and that will be completed by quarter 2, 2025. We will continue to add additional Swedencare manufactured internally products into our U.S. vet offering. Right now, we are at a backwards integration of 80%. So that's to say that 80% of products we sell in the U.S. vet market are manufactured by Swedencare internally, and we will continue to collaborate with our Swedencare sister companies, specifically Innovet and nutravet in the U.K. And with that, I'll turn it back to Jenny.

And by that, we are open for questions. And the first one comes from Johan.

Firstly, one on NaturVet. Could you materialize the impact of the 2 private label orders that did not come from -- come through in Q4? And what's the timing effect on these orders? Can we expect them to come through in Q1 or Q2?

Yes. We are massing up to deliver in end of Q1 is the expectations. We have a plan now with very high volumes demand in end of Q1. So I would say Q1, and the orders are -- I mean, it's a couple of million dollars orders as a whole.

Okay. Very clear. And the second question on NaturVet and branded sales. You mentioned that your biggest pet specialty customer will expand its shelf space and product assortment in 2025. Could you clarify this both in terms of timing and potential impact on growth, please?

Yes, I would say compared to sales to that customer in 2024, I expect it to be double-digit growth with that customer, and that will -- the major reset will be in Q2.

Okay. Got it. And continuing on NaturVet here. Could you sort of elaborate on your agreement with the big box retailer in the U.S.? As I interpreted from your presentation today, you are launching in 1,400 stores at the end of Q1. Is that correct? And when will this potentially translate into sales?

Yes, that is correct. But that program is, as I wrote and said, a small program, sort of a test launch, I would say. So that's not really -- it's fantastic, and it's a good recognition of our brand. But what we are eagerly awaiting for is the final decision in writing about a reset and the introduction of our brand in a larger scale, and that will, in that case, happen second half of this year.

Okay. Got it. And finally, on NaturVet, how does the initial sales data from you having launched your products online with the 3 big box retailers in the U.S. sort of developed during the quarter? Is it too early to say? Or have you seen any numbers thus far?

No, no, unfortunately, no, too early to say the actual out-the-door sales. We have not received that. So we have made some shipments to them, but that is too early for us to say the results. So hopefully, I can give you some update on that in -- after the next report. And at that presentation, Geoff Granger will also be present and presenting NaturVet at the Q1 call. So that will be of high interest to you, of course.

Your next question comes from Rickard.

So first one on sort of CDMO and Vetio business. Can you elaborate on pipeline for '25 and a little bit when we should expect the most meaningful projects to come online there? And maybe also a more general question on what's the capacity utilization of the CDMO part of your business at the moment? I'll start there.

Yes. We are -- the expectations for the Pharma division is, when it comes to manufacturing, the large scale up will be in Q2 and Q3 will be strong manufacturing sites as we plan today together with our partners. And if it is as planned, so definitely that Q2 will be another record for our Pharma division. When it comes to development projects, we are -- I wouldn't say fully booked, but that is more related to personnel, of course. So more timing and planning there. But we have capacity when it comes to manufacturing. We definitely have a lot more capacity. It often is runs that goes for a couple of weeks, and then we can change for another customer. So, I mean, it's -- we are at the utilization level when it comes to manufacturing, I would say, we are well below 50% as of today when it comes to hardware. Of course, when it comes to personnel, we will need to increase a bit in Q2 and Q3.

Okay. And following up a little bit on the sort of EBITDA margin. You're seeing a quite nice gross margin development, but not really seeing it flow through to the operating profit. You mentioned SEK 9.7 million in additional OpEx in the quarter. Is that reflected in the nonrecurring items or sort of reflected in operational EBITDA? Or is it something beyond that? Just trying to understand what the underlying EBITDA margin is for the quarter.

Yes. Of the SEK 9.7 million, 3 of them are nonoperating because that it's relating to a legal settlement that was for prior years. The other ones, for example, the branding cost, which was about SEK 4 million and as normal reserves for accounts receivable, that's, of course, included in our operating margin.

Okay. I'm trying to get a sense a little bit on how we should think about the EBITDA margin for next year. Is it reasonable to assume 24%, 25% levels given that you already have a nice step-up in the gross margin heading into the year? Or anything we should keep in mind when thinking about the operating margin for next year?

Well, we definitely want to see a growth in EBITDA margin next year, partly driven by improved gross margin, but also with scalability. We haven't really seen it now since we have had additional costs and external costs this year due to several investments, but I hope we will see it in '25 more.

Okay. And just a final question. I noticed that you leave the '26 outlook or guidance or targets unchanged. Any input on when we can expect updated financial targets?

It's a discussion in the Board, and then we haven't set the date. But as of today, we are working towards those goals. So we -- I don't have any input. If and when we will update those.

Your next question comes from Christian.

You mentioned that you have the opportunity to move the production from Canada to the U.S. if needed. Would it be to the Florida site?

No, yes, I wouldn't say that it can't be, but it would demand different sorts of licenses and approvals from FDA. So we can't have those interlink too much. It could be in the same facility, but very, let's say, divided from the operations we have there today. So it could be, but it doesn't have to be. But as I would like to underline that we don't expect that to happen. This area when it comes to drugs, both for humans and animals, the U.S. and Canada trade is substantial. So we have been speaking with some experts. So we don't expect that to happen, but we have the know-how to set it up.

Okay. But if that would happen, do you have the capacity to increase the manufacturing in Florida to replace, for instance, [indiscernible]?

Yes, absolutely. That's -- we can set that up, but it will take some time, of course. And also, we need to be granted new licenses and approvals from FDA. So it is a process.

Okay. That's very clear. And you mentioned that you have less focus on bringing down your net debt level in 2025. Do you intend to keep the net debt-to-EBITDA ratio around 2 despite potentially significant acquisitions? Or do you see a wiggle room to be above 3 in the short term?

We haven't set out any fixed levels. But I would say if we were to make any M&A, I would be surprised if we would increase our debt over 3. I think we are comfortable around 2. And we -- of course, with the right acquisition, we wouldn't hesitate to get the debt level up, I mean, around 2.5 again, wouldn't be an issue if it's a good acquisition, of course. So -- but I wouldn't expect us to go well over 3. But that's just my opinion. I mean, that's a discussion for the Board.

I can just add. I mean, we can see the proven record that it's quite -- I wouldn't say easy, but it's quite -- we can decrease the debt level quite fast without generating cash. So I think -- yes, between the room between 2 and 3, I don't think there is an issue at all.

Okay. Perfect. And Mr. Nugent mentioned that the U.S. vet market grew by 5.2% in 2024. What is the outlook for 2025? And how much did the Swedencare vet sales increase by in 2024?

I think the market is poised for great growth. There has been a lot of slowness to the consolidation of hospitals, which actually keeps things quite steady. So that's nice. And if you look at our U.S. veterinary divisions, in the second half of '24 compared to the second half of '23 when you exclude [ interco ] and when you just focus on veterinary business, we had growth of 12% in the 6-month period -- second half versus second half of '23. So above the industry average, and we think that, that will continue and some really interesting projects that we're working towards and some are already underway.

Your next question comes from Adrian.

Three questions from me. Regarding your pipeline for 2025, entering big box retailers and such, how will it affect your inventory levels? Will you require to build some inventory? Or will it keep as a percentage of sales as we are at the moment?

We will be forced to build up inventory levels because all of the big box retailers and also the big pet specialty retailers, they demand the access to products in a different way than smaller retailers. So yes, initially, they definitely need to build up some inventory levels to be able to serve them.

Do you have any kind of indication of how much we're talking about?

It's too early to say.

No, it's too early to say.

Okay. Regarding NaturVet, is there anything you can do? You said -- you talked about this a bit in the presentation, but is there anything you can do to sort of limit the timing effects of NaturVet going ahead to sort of smooth out the sales and thus not have the kind of lumps as we have had in the last 2 quarters?

Yes, it comes down to, I would say, execution of the customer relationships and be able to work more closely and having more updated and correct forecast. And that's definitely something we have been working with this last half year and early on here. So, I would say that we are in a lot better position in knowing how the business will perform going forward, both on a yearly basis, but also in shorter term, looking at different quarters.

Excellent. And last question here. Just when it comes to acquisitions, do you have any kind of ceiling on what you're willing to pay for acquisitions in terms of multiples? Or how are you thinking about that?

Yes. I would say that psychologically, it would be difficult to argue that we would pay more than the valuation we are trading at, I mean, over a period of time at least. So I would say that it is a bit of a challenge when it comes to looking at the industry as such. As I've mentioned last time, the average in the U.S. last year was 17x EBITDA. So it is still a very attractive market, but we have some dialogues where companies are very interested in joining Swedencare, and we can find common grounds on valuation is my belief and hope.

And a last follow-up to that one, if I may, is that, those discussions, are those mainly related to acquisitions in Asia? Or are we talking about other geographical?

No. As I said, I mean, we are looking at geographies where we're not present. So there are some spots in Europe, for example. And also the other priority is bringing something new to the group that we don't have. And that could, of course, be in a geography where we are present already.

Next question comes from Adela.

Final one on NaturVet. I know that's been heavily discussed already. But if you look at that unit inherently and exclude the challenges, would you say that, that is a faster-growing business than the rest of the segments on average? Or is it in line?

I mean, it's a bit difficult to overlook these challenges. But as I said, we are growing with many of our customers when it comes to the NaturVet brand. And we have been doing better than the market last half year when it comes to Amazon sales. Chewy has become our second biggest customer overall. So we've been doing really well with Chewy this year. So I would say that the potential for NaturVet to have really incremental growth in 2025. We have laid the groundwork for that, and that is what I and also the full team at NaturVet are working for and expecting.

And with really incremental growth without giving us guidance, I mean, double digits is what we should assume?

Yes.

Great. Then a follow-up on M&A and maybe this ties to the question about purchase multiples and developments there. You're saying now that you might see a more favorable outlook for deals actually materializing. Is that driven by purchase multiples coming down? Or is there anything else that drives...

No, I would say that's more related to the dialogues that we have currently at the market. So the discussions we have -- in some of the opportunities we often start off with if we are going to look more in depth in an opportunity, then we're basically in agreement about the valuation before we go to the next phase. So I would say that it's not the industry as a whole. It's more the opportunities that we see before us.

Got it. And then lastly, I believe I asked this question last quarter as well. It was about your entry into big box retail and if you are seeing any competitive differences between other sales channels. And now we are a few months in bigger launches there. So I would like to ask that again basically, is that sales channel more or less competitive than veterinary or direct?

Yes. In some way, you could say that it is a bit less because often when it comes to big box retailers, you have perhaps unique packaging sizes, you don't have a vast number of competing brands. They are more looking at, let's say, big pallet sizes of offerings. So I would say a bit less competitive. If you get in there, then you can expect to have good sales and not so much focus on competing products. But, of course, there are competing products, brands, but not in the same way as if you go into a normal pet specialty store.

Got it. So the way we should read that is basically as a brand owner, just getting through -- getting into those big box retailers is a much more difficult process than specialty.

Yes.

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

Thank you for participating. I know we are a bit late from our presentation, but good questions and looking forward to seeing you after the Q1 report, and thank you to Brian Nugent who participated. And as I said, next time, Geoff Granger from NaturVet will be on our presentation.

Thank you.

Thank you.

Bye-bye.