Swedencare AB (publ) ($SECARE)

Welcome to Swedencare's Pre-Quarter Update, where Jenny and Hakan will provide a short presentation followed by a Q&A. So please raise your hand if you have any questions. Over to you, Jenny and Hakan.

Thank you so much, Emma. Welcome to this quarterly update and new for this year. And the reason why we have this is basically due to the fact that we normally have separate analyst calls before entering into a silent period before the quarter ends. And as many of you know, there's been discussions about these type of calls, not for us specifically, but we have decided in collaboration with our CA to try a new format. And so this call is primarily a short update, not giving away much. You will have to wait for the report, but giving the analysts the possibility to -- and others to post any questions that they might have, and we will answer as we see fit. So a short -- we will try this. And if it's appreciated, we will continue to have these on a quarterly basis. So agenda, follow-up from Q4 an update by segment, some financial comments. And here also, I would like to take the opportunity to comment on the geopolitical and pet market update, very short, just as you know, Middle East is in turmoil right now, not really affecting us. No big markets for us. And when looking at transports from Asia and back and forth, we normally have flight transportation. So -- and -- so no real impact from that either. And if we look at the market as such, we haven't seen any decline in demand either in Europe or U.S. or rest of the world. So for us, it's like -- it's still business as usual, but we are, of course, following the happenings and also if it might affect any further, let's say, transportation costs if this war drags on. But as of now, no real impact for Swedencare. Here, profitability hit in Q4. As we described in the Q4 report, we had 4 more or less one-offs and that really affected our profitability in Q4. The higher marketing cost on Amazon related to the transition of the NaturVet brand and the brand protection. As we communicated in the Q4 report, we will still have some impact in the first half year. It is improving month by month. So we are confident that we are really on the right track, and we have seen lots of good things happening. So that will pan out over the first half year. ERP implementation caused interruptions and affected gross margin volumes. No impact going forward, actually improving our production at the NaturVet site, and we're really happy with the new system. Marketing spend to support Big Box partners, primarily Walmart and CVS, and it was primarily Walmart in Q4. Low-margin display campaign in 2,000 Walmart stores. That was an investment we made in Q4, so it won't happen now in Q1. And going forward, we are, let's say, open to and would like to have these types of campaigns since we have seen a big uptake in sales. But of course, with a more planned margin effect when we decide to do it. Then for the launch in pet retail. As we said, we are now present in over 500 pet retailers, and that launch has continued to go well in Q1, and we have also signed a new collaboration for distribution partners. So we will have probably even better numbers at least in Q2 when it comes to coverage. And the spend will be aligned with sales going forward when it comes to marketing spend. Inventory write-offs, no one-offs in Q1, and we follow it, of course, more diligently, and we don't expect to have these types of big write-offs going forward in any quarter. The different segments, North America, very strong sales in online and multiple new product launches. However, as I said, lower return on investment on NaturVet on Amazon, still affect by -- on H1, however, improving month by month. So we are encouraged by that. And -- the big thing here is also that we are, let's say, not being able to really push our, let's say, marketing campaigns that are doing a really good job for rest of our brands. We need to be a bit more cautious until everything is settled, but it is improving. And we are also, as we described in Q4, we have started to get SKUs into the transparency program, and that means that no rogue sellers can sell the same SKU. And we will start seeing effect of that in quarter 2. Pet Retail and Big Box, solid demand and the continued week-by-week increase with Walmart first 2 months of 2026. And that's also pushed by the display campaign, of course, and that display campaign ended last week of February. So let's see how it progresses from here, but we are happy that we saw continued growth week by week. And also, I would like to remind you here that Walmart was -- that was a big order going into Q4 and in Q1 and going forward, it's -- we are replenishing every week to Walmart, but of course, not a major shipment like we had in Q4. Veterinary, solid demand for our branded products. Europe, online, strong demand and growth, especially with Amazon and Zooplus. And finally, we now have transitioned all of the Amazon markets in Europe run internally. So we get the full top line sales and also be able to utilize our marketing programs as we see fit. Pet Retail, solid demand all over Europe. Veterinary Italian market, strong start. And as some of you remember, Italian market last year in Q1 was rather soft due to some customers pushing orders into Q2. So the comps are a bit lower, but even without that, the Italian market has really had a good start for 2026. U.K., good B2C and trade with veterinary. We have softer private label solutions there, but that is expected to pick up in Q2. Strong start for production. Pharma, as we've been waiting for, that has started as we expected and EU and U.K. as well. U.S. supplements, solid demand. U.S. derma liquid is still weak as it was in Q4, but expect to pick up in Q2. We have the orders for that. So finally seeing some improvement there. Jenny, over to you.

Some financial comments. As you know, we have our financial targets where we want to grow with double digit on an annual basis. We expect this for Q1. Gross margin, we expect this to increase compared to Q4. If you remember, we had a gross margin of 56.8% in Q4. And for the full year, we were at 58.1%. So we expect the gross margin to be improved compared to these 2. EBITDA -- and also just to mention on the gross margin, this is driven by both improved production and also the fact that we have some partial impact of price increases hitting in Q1, but it will be fully recognized in Q2. With this scalability, we expect an increased EBITDA compared to Q4, again, reminder that we were about 16% in Q4 and 19% in 2025. So we expect to have improved profitability compared to Q4. No material one-offs are expected in the quarter. And Q1 is also a very busy quarter with expos. So -- but we always have that in Q1, but I just wanted to remind you all of that. And then our net debt to EBITDA, we were at 2.9 in Q4, and we expect this to decrease compared to that, and we continue to amortize on our long-term debt.

Yes. Just a couple of shots from all of the activities we've done in Q1 and expected to do. And I'm traveling to Global Pet Expo next week, the biggest pet retail show in the U.S., but we have had lots of our different group companies and brands have had expos. So you see we've had a busy quarter and the whole organization is working really hard. And with that, open for questions.

Yes. And your first one comes from Adrian. Please go ahead.

Perfect. Can you hear me guys?

Yes.

Yes, very well. It's Adrian Elmlund here from Nordea. Just a few questions for me, please. So maybe first off, we had some one-off costs, right -- quite a few of them in Q4, right? I just want to double check, like which one of these so-called nonrecurring costs will not affect in Q1. You mentioned the ERP system is done now. Is that done as of 1st of January? Or like did it occur in the quarter? Kind of just timelining, what items should not affect the Q1 numbers?

Yes. No, no. ERP should not affect. Inventory write-offs should not affect.

I just want to say, of course, we're always going to have some inventory write-offs, but it's not going to have a big effect like it did in Q4.

Yes. And we're not going to have the, let's say, overly -- over marketing spend like we had in Q4. So in line with sales. And we are still affected by the rogue sellers and the Amazon transition, but as I said, improving month by month.

Another question is regarding the Walmart numbers. I think you said in the Q4 report that it doubled in January, right? Do we have any further trading update here? Or like has that continued? Was that like a short-term effect?

Just that it -- no, it -- by end of February, it actually grew week by week, definitely not doubling week by week, but increasing some, let's say, percentage every week. So trending in the right direction.

Okay. Last question here for me, please. I don't know if I missed this perhaps, but could you just guide us a bit towards the revenue visibility here for the Pharma segment in 2026? Like in terms of quarters, when are your biggest products hitting the revenues?

I mean we will have a strong quarter from the Pharma division in Q1. But we expect it to basically perhaps not grow quarter-by-quarter, but this is not the biggest quarter for the year.

Your next question comes from Adela. Please go ahead.

Adela Dashian from Jefferies. A few questions from me as well. I appreciate all the comments around what caused the profitability in Q4 and what the expectations are going forward. But could you maybe walk us through if there's any sort of cost headwinds that are affecting your cost base in 2026? I appreciate the comments about business as usual, but is there any pockets where you are actually seeing spikes already now?

No, not already. But we are, of course, monitoring the transportation cost. I mean we don't have that much when it comes to freight by boat. But of course, transportation costs in the U.S. for the distribution there is something we cover in some of the customer contracts, not the majority, but still, I mean, that's probably what I think would be most -- or if there's any new type of, let's say, hits on packaging due to this crisis. But we haven't seen it as of yet and don't expect it.

I see. And you mentioned packaging here. Is there any -- I mean, I would assume that you have pretty local sourcing? Or do you have big exposures to some of these?

I would say it's local companies that source us. But many of those companies, they -- if I'm talking about the U.S. market, they also have lots of, let's say, manufacturing from Asia when it comes to packaging. And so we don't always know if the product comes from their Asian production or if it comes from local U.S. production. But no indications as of yet changes in price for 2026 other than normal price increases that we have calculated.

Okay. I see. And then on your confidence of ROI improving meaningfully with Amazon and NaturVet and so on. What are like the underlying drivers of this? You mentioned the transparency program and fewer rogue sellers and so on. But is there anything else in maybe the -- both the mix and the marketing intensity that gives you confidence in or...

Yes. I mean looking at -- it's definitely when we can activate all of our marketing programs, then we're in full control of the ROI and how much we can spend. The problem is when we have to defend from rogue sellers. And we see the trend here, as I said, it's increasing -- our sales on Amazon are increasing month by month, and it's still -- we haven't activated all the programs that we would like to do. So we're waiting for the transparency program to get more or less full effect. So -- but we do see an improvement with the number of rogue sellers. We do see an improvement when price -- keeping the price from our other, let's say, online customers. There were some effect in January as we described when we had the call that we made a price increase for NaturVet and then it takes some time for the bigger retailers to adapt to those prices. So that also had a bigger effect in January. But still, January was still better than Q4. So we're at a -- finally at a comfortable place and see the trends are moving in the right direction and looking forward to really be able to push the trigger on some of the marketing campaigns where we are certain that we will get the velocity and the pricing -- the sales volumes hiking a bit more than it has in the last 6 months.

Okay. Lastly, as well on the entry into Big Box. Do you already have some sort of margin profile in mind? Like is this -- I know we've spoken about this before, but are you -- still is going to be accretive to your overall once you've reached some sort of steady state with the marketing intensity and campaigns, et cetera? Or do you still think that it will take maybe some time for it to actually generate better than group level profitability, if ever?

Yes. I would say it's more down to, let's say, volume, that volume increases within the Big Box. Margin-wise, it's good, but we would like -- as I've said, it's even better than for some retail channels due to the fact that we don't have to go through distribution and some other, let's say, historically setups with bigger pet retailers demanding more cost for, let's say, for being -- getting secondary replacements in their stores. So it's a bit different setup with the Big Box retailers. But -- so we are definitely happy with the margin setup we have in Big Box. So now it's more getting the volumes up and so we can really see the contribution to the group.

We got a question in the chat as well that says, can you expand on your contract manufacturing business, which had a weak performance in Q4. Projects were postponed to H2 2026. Please elaborate.

Yes. I mean contract manufacturing is -- we have contract manufacturing, both in the pharma part and also for supplements. And contract manufacturing was actually strong for some of our units and weaker for others like in the pharma sector in Q4. But as I said, the year has started really strong there. So it will definitely pick up. And so when we mentioned the segment production, that's basically contract manufacturing. And as we said, pharma, U.K. and EU has had a really, really strong start. The U.S., a bit weaker, but we expect that to come back in Q2. So contract manufacturing/private label solutions, that's really an integral part and important part for us going forward. And we expect that division to have a solid year.

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

Thank you so much. We'll be working hard last couple of weeks to have a good end of the quarter and looking forward to meeting you on 23rd of April when we release the Q1 report. Thank you. Bye.

Bye-bye.