Earnings Call: Q1 2021

May 6, 2021

Thank you so much, and dear shareholders, welcome to Biogail's Interim Management Statement Q1 2021. We are actually satisfied to present you a good Q1 at plus 10% sales at CHF 202,000,000 versus last year's CHF 183,000,000, which represents a 21% organic growth, excluding currency. These good results are driven by both the Americas and the APAC region and our focus on multichannel approach. But I have to underline that We have as well moved some order planned for Q2 into the last week of Q1, following the request on some of our clients who didn't want to be out of stock. And I know I'm very well aware that the market doesn't like supplies even if they are good, but for Biogaya, I mean, the customer is king, so they got that order in Q1. Next page, please. We've been very busy During Q1, so you've probably noticed all the different press release, written. And I would like to start with Sweden, our home market. In line with our plan, we took over Sweden directly And now we are rolling out our adult portfolio. So we launched Fortis, again, Vanuosi. We launched Prodentis For all else and for all the shareholder base in Sweden, I would encourage you to observe on net or on a put here. Secondly, we announced that the board decided on a revised dividend policy to 50% instead of 40% as we had before. On 12 February, we announced as well that Metabodian, Our sister company based in Randell received approval from the ethics committee to start a clinical study targeting a pre diabetic population, which is a very interesting area, as you know. On March 17, we announced the establishment of PEOGEO Invest, which main roles will be to invest in companies that will support the growth of Piogaya. We have already achieved 2 investments for about SEK 10,000,000 each. 1 for a company called Boneprox, with the purpose to help us to grow our sales of 40s. And the second one, SKYNOME, where we have some plans to develop together new products Regarding the skin microbiota, we are expecting the gut microbiota, but now we are looking very actively in the skin microbiota. On the 8th April, we welcomed a new country. So now we sell our products in 1 month 10 countries, namely starting to sell Biogareia protected plots in Egypt. And last but not least, We have been able to publish a randomized, double blind, placebo controlled study in children That showed that the supplement of 2 probiotic strains significantly reduced the fever and severity of pain in children with upper respiratory tract infection, which is here as well a very interesting area. I mean, upper respiratory tract in children, well, if you have children, you know that every year, when they go back to school at the autumn or during the winter, it's one the main indication. Next page please. Despite the pandemic And the fact that we could not organize events to launch new products, our partner and ourselves have been very, If I may say so, creative to offer to consumer new Biogaya products. So you can see on the Slide the number of country and products we've launched, but I would like to emphasize the focus from our distributor to launch our protective drop with vitamin D. I mean, that has really vitamin D together with Prabiotik I've been our hero product during the pandemic. The consumer, they know that to stimulate their own immune system, The combo probiotics and especially our product teams together with vitamin D is the best way to do so. And by the way, I would like to encourage you to watch our video that we will post this afternoon our website for the general assembly because you could see there some example of what we've been doing or what our distributor has been doing in terms of communication to the consumer regarding the immune opportunity. So you could See a new TVC that our Belgium distributor has been doing, a new TVC that our Evofarma Distributor in Italy has been doing in a lot of countries. You will see new digital content, you will see new POS for pharmacies. So really a 360% approach around the theme, boost your immune system. Next page, please. Per segment, you will notice a good resilience under Q1 of our pediatrics range at +13 percent and that's mainly thanks to our drop. Regarding the adult trends, As the key indication for like protected scabs is together with antibiotics, And that we've really seen a decrease of the demand because people were not being taking antibiotics. So we've been as well We're seeing a decrease of sales of protected tablets. I mean, not in a bit extent, but slightly. And that explains the 4% for the other. Next page, please. Now region. So we are really pleased with our sales in the Americas. I mean, 102%. I can say we are satisfied. But actually, both North America and Latin America are over performing. In Latin America, and despite the very complicated health situation, we have enjoyed very nice sales in Brazil, Guatemala, Chile, Costa Rica, Mexico and Peru to name a few. We even received the latest sellout data And for the first time, we surpassed Fluoratil in the region, which put BioGariat Brands as the 2nd biggest probiotic brand in Latin America, just after Ontario yes, just after Ontario, Germany. But our hero market in Q1 is again the U. S. Market with 3 digit growth. And this is thanks to the perfect collaboration with our local distributor for both of an online marketing supported by both medical and consumer campaigns. EMEA unfortunately continued to suffer and it's mainly due to large markets such as Italy and Spain, both for the quarter and MAT. Of Soli, we saw some growth in France, in Poland or Turkey, but not enough to compensate the loss in the market the Italian market. APAC, we are back on the normal trend we used to have for the APAC region. So a very strong Q1, mainly driven by good sales in Japan, Taiwan, Australia and China. Next page. In terms of gross margin, we have we maintained stable gross margin in the quarter And MAT for the pediatrics product. You will obviously notice the decrease for the quarter, but not MAT, of the gross margin for the Product and it's mainly due to a mix effect. As I mentioned before, our demand for protective tablets has been decreasing and that's where we have our best margin and that explains why we lost a bit during the quarter of gross margin for the adult segment. Next page please and I will ask Alexandre to comment or OpEx. Okay. Thank you. Then we move on to Slide number 9 called OpEx. So if we look at our total operating expenses, they were at SEK 81,000,000 versus SEK 77,000,000 in the same quarter last year, which is an increase of 5%. If we look at the individual line items, we will see that the so called OpEx non core, which is our subsidiaries, Metabogen and Biogayo Pharma. That OpEx is basically flat compared to 1 year ago. So the increase in OpEx is mainly then due to the nonmetabrjan and big pharma business. If you look at the individual line items, you will see that our sales costs were slightly lower compared to 1 year ago, Even though that cost item also included a restructuring cost of NOK 2,400,000 for staff costs. So even including that, our sales costs were a bit lower than the same period last year. If you look at our admin costs, you will see that they are Substantially higher than same quarter last year at SEK 15,700,000 versus SEK 7,300,000. However, this is explained by Both that we have had M and A costs during the quarter of SEK2.5 million and also a restructuring cost for our premises in Lund, where we took cost in this quarter of SEK 5,100,000. So all in all, it's about SEK 7,500,000 included in the total cost in admin of EUR 15,700,000. So if you deduct that, you will see that our admin costs are basically in line with last year. If you look at our R and D costs, they were SEK21 1,000,000 versus SEK22.5 Last year, so they are slightly lower. And other at EUR5.2 billion versus EUR2.7 billion, it's mainly Also currency effect. So all in all, our OpEx then at €81,000,000 versus €77,000,000 And if we look at rolling 12,000,000 For our costs, you will see that our costs are flat compared to the same last 12 months last 12 months. If we move on to Slide number 10, which is called P and M, you will see, like we previously described, that our sales increased to 10% 2021, excluding currency effect, and our OpEx increased to 5%. And all in all, this then, of course, then led to EBIT increase of 16%, an EBIT of SEK 64,000,000 versus SEK 56,000,000 in the same period last year, which then is a margin of 32% versus 30% last year. And if we look at the same Metrics for the rolling 12, we see that we have a margin for the rolling 12 of 31 Percent versus 32% in the previous period. And for the EPS, we have an EPS in the quarter of 2.5 SEK versus SEK 2.39 in the same quarter last year. So if we move on to Slide number 11, which is called cash flow, You will see that our cash flow from operating activities was cash flow from operating activities before changes in working capital It was SEK 57,000,000 versus SEK 48,000,000 in the same period last year. Of course, that is the increase is then mainly due to the increased profit in this quarter. The changes in working capital were minus 15% versus plus 25% in the same quarter Last year. It was a bit exceptional quarter in the same quarter last year. So this is in a way, it's a bit more of a normal quarter. In the previous quarter, in Q1, we had if you may remember, in the quarter 4 of We had a switch of our ERP system, which meant that we actually had accounts payable, very favorable situation in the Q1 because we paid off Quite a lot of accounts payable in the Q4 2019. So therefore, we had a positive change in working capital as one of the contributors at that Point in time. And this is then it's a more normal quarter this quarter. But also we had negative effects in this quarter Of the accounts receivable, which is mainly due to the fact that quite a lot of our sales came in the second half or the later part Of the quarter. So we made the quarterly sales, but we did not get the cash. So cash flow from operating activities was SEK 42,000,000 versus SEK 73,000,000 Same period last year. Then we had a cash flow from investing activities of SEK 23,000,000 versus SEK 4,000,000 in the same period last year. That is then due to the 2 Birgaya investments that we made in Boneprogs and Ginnom of a total of about SEK 22,000,000. So if you deduct that, we'll see that our cash flow from our investment activities is actually lower than the same quarter last year. So all in all, it led to a cash flow for the period of SEK 17,000,000 versus SEK 67,000,000 last year and the cash at the end of the period of SEK 1 point SEK 49,000,000,000 versus SEK 284,000,000 in the same period last year. So with that, I hand over to Isabelle de Celia. Thank you, Alex. And to conclude, So I just would like to say that we are satisfied with our Q1. We have strong sales at plus 10%, and that has been driven both by Americas and APAC. Unfortunately, EMEA are still suffering, and especially in one of our traditional big markets like Italy. But I just would like to Because if you look at the total Italian probiotics market, it has decreased by 26%. So It's difficult to grow in so much depleting market. But the pandemic didn't stop us, neither us nor our distributor, to launch new products and even for Biogayas to decide on internal changes to adapt ourselves on the new normal. And we've been restructuring our organization in order to size the digital and the B2C the opportunity. We've been very active both in medical and consumer activation all around the world. We can clearly see that the multi channel strategy early implemented in markets such as the U. S. Is the way to go. So our ambition is that our brand Biogaya will be available at every consumer touchpoint in order to generate growth. Thank you for your attention. And We will Alex and I will welcome your questions. With pleasure, as usual. Thank you. Our first question comes from the line of Christopher Liljeberg from Carnegie. Please go ahead. Yes. Thank you and good morning. First, I wonder if it's possible maybe to quantify the impact you said with those So orders that were shifted from the Q2 to the last weeks here of Q1. And then I wonder operating cost now for the remainder of the year So you are doing some changes in the organization. Does this mean operating costs will remain rather flat? Or do you expect them To stop maybe increase again. Thank you. Okay. So thank you, Christopher. Good morning. To answer your first question, yes, we can obviously quantify. We have a very clear view about what has happened. And It's mainly China and some countries in Eastern Europe. So If you put that together, if you take that away from Q1, we would have landed in Same level as Q1 last year, which was a strong Q1 last year with a slight increase. So that's The third question regarding the second question? Sorry, sorry. Thank you. Very detailed. I appreciate that. Yes, I understand. And you're talking about absolute numbers there. So that would mean adjusting for FX, you would still have been growing 10% plus, pure organically in the quarter? Last year, we sold SEK 183,000,000. If we took away the order from Q2, we would have landed around EUR 190,000,000. Okay, great. Thank you very much. And so to come back to your second question about the organization, what we've decided actually is that we want to have Top notch center in ATLAS where we have Biogaya production. So in order to have a better Efficiency of organization, we want to have all our people on-site. So we want the operation to be much closer to manufacturing. We want the DNR to because that's your operation and product development. So we have decided by December to close the office in Lund, And that's why you see the restructuring cost as you saw. And in terms of staff, I mean, we basically we are I mean, we want to adapt Opel to the new strategy and the new worldwide Opportunities, namely we want to increase our competency in terms of B2C and we want to increase our competency in terms of digital. Total number of people will be pretty similar, but the profile of the people will change. So that will be Slides increase in terms of number of staff, but with different profile. Okay. Thanks. That's very clear. Thank you. And as there are no further questions, I'll hand it back to the speakers for closing remarks. Okay. Thank you for not having questions. And Alex and I, we wish you a very nice day and see you for Q2. Thank you. Bye bye.