Welcome to the BioGaia Audiocast Teleconference Q3 2022. For the first part of the call, all participants will be in listen only mode, and afterwards there'll be a question and answer session. Today, I am pleased to present CEO Isabelle Ducellier and CFO Alexander Kotsinas. Speakers, please begin.
Thank you, and welcome everybody to BioGaia's Q3 Interim Management Statement. I mean, kind of happy with the Q3 sales and figures in general. That's the fifth quarter in a row with double-digit growth. Q3 shows a strong net sales increase by 48% and a year-to-date at 33% for SEK 830 million. The operating profit is increasing by 40% at SEK 90 million, and our operating margin is at 36%. Alex will comment the cash flow later on. Next page, please. If we go through the key events, so outside of the two reverse profit warnings we did, one for Q1 and one for Q2, sorry. One for Q2 and one for Q3.
We have been announcing that we just opened a pilot plant at Eslöv so at BioGaia Production, where we will start to test fermentation on our strain, but as well on methanogen strain, so this anaerobic strain. That's a pilot plant that we will learn very much about to ferment new type of bacteria. On the second of September, we as well announced together with Skinome that Skinome is launching the first skincare probiotic product in collaboration with us. We did the research, they ran the clinical, and now they launch the products that you can find in Sweden. Regarding launches, a very active quarter as usual, with 10 different launches. Out of the list that you can see in the presentation, I would like to underline a couple.
In terms of products, the Pharax drops that we launched in Sweden, but that we've already launched in the U.S. and in China. Now we are launching in Sweden, we are launching in Hungary. We are very, very enthusiastic about this product, which is a new area against for children who has, I mean, a upper respiratory infection. That's for sure that when you come into the wintertime, the children will have a cold, and our product could be very useful for that. We have a kind of great expectation behind Pharax. In terms of country, I just would like to emphasize the fact that we are launching now in Nigeria, and I mean Nigeria is about 206 million inhabitants and 8 million newborn.
As we are launching now the drops, we have as well. I mean, we have to keep an eye on Nigeria. In terms of other countries, I would like to emphasize Indonesia. Here we work with Interbat already for our drops, but now we are extending the range to with Protectis Kids. And here as well, Indonesia last year is 4.75 million newborns. A pretty interesting market for us as well. Next page, please. Looking at the sales per segment, Pediatrics showed extremely strong quarter with +57%, and that's mainly thanks to our drops in Americas and EMEA. Looking at the adults, we are increasing by 20%, so that remains very strong.
If you look at the year-to-date, we are now at 36% increase for the adult, but from a smaller base, and the adult sales increase is mainly driven to Gastrus in America. We've run a extensive road trip in Latin America with our chief scientific officer, Gianfranco, for to launch Gastrus in a couple of countries together with our distributor, Abbott. That seems to be here as well, quite promising. Next page, please. Looking at our sales per geographical market. During this quarter, EMEA increased by 90%, very strong year-to-date by 53%, mainly thanks to the fact that we are back to normal, no more COVID restriction. Actually, we are doing even better than prior to the pandemic. In EMEA, we have to mention during the quarter, France and Eastern Europe doing extremely well.
Looking at the year-to-date, we should add as well Italy with a triple digit increase, which is a relief after the kind of difficult year we went through in Italy in 2021. Looking at France. I mean France will probably take the lead in the overall European market. Not because I'm French, but a kind of nationalistic pride about France. I wanted as well to mention South Africa, which has both a very strong Q3 and a strong year-to-date. The fact that Ascendis, our distributor, has been acquired by Austell Pharmaceuticals, a very well-established pharma company in Africa, will help us to have a wider coverage of Africa because they are implanted in a lot of different countries. Now moving to APAC. APAC saw an increase for the quarter by 20%.
A strong increase year-to-date by 15%, and that is mainly driven by China, South Korea, and Taiwan. Regarding China, I think we could have done better if there would not have been so much COVID restriction. Despite that, we've managed to grow anyway versus last year, and versus our budget. South Korea, here I just want to emphasize again the fact that we changed from distributor [inaudible] to Grace International and they are doing a fantastic job by implementing our omnichannel strategy. We have as well another partner, Denomic, in oral health doing extremely well. If I move to the Americas, that's basically the continent where we've done best in Q3, with an increase of 137%, and that's driven by the U.S. market and by Brazil.
You know Brazil, they always have very strict, I mean, strong big orders. Sometimes Q2 was a bit low, now Q3 is very strong. You have to see it on a yearly basis because depending when they place the order, it has an impact on the quarter. Brazil is doing very strong, I mean on a year to date basis. First time first quarter where if you look at the split of our total sales, Americas with 30% accounts for as much as Europe, and I think that's the first time I see that. On the year to date basis, it's more normal. We are at like 37% for Europe and 34% for Americas. For the third quarter, we can really see the impact of the acquisition of Everidis into the BioGaia group. Next page, please.
In terms of gross margin per segment, we are pretty stable for the pediatrics at 74%. We've lost some points in the adult health segment. Here, basically, the gross margin has started to be negatively affected by the increase in purchase prices, mainly on packaging items like the glass bottle or the tube we use for the Easy Dropper. We have started to roll out a price increase to our distributor, so we've been able to manage part of the increase, and we are going to continue to roll out this price increase in 2023. Having said that, we are always asked the question regarding the impact on retail selling price to the consumer and the impact on our sales then.
For the moment what we see is that the price elasticity on the drops are pretty low. I mean, a father or mother who has a baby who has colic, who is crying all the time, honestly is willing to pay quite a lot to have this baby sleeping. We don't see any impact for the moment of the consumer price on purchase. But on the more kind of wellness adult product where you buy your probiotics, it's nice to have, but it's not a must, then perhaps here we might see some decrease in the coming quarter. I will hand over to Alex for the financials.
Thank you, Isabelle. If we move on to slide number 8, Q3 financials. To summarize, the revenues were SEK 258 million, which was a growth of 48% as Isabelle just explained. Our operating profit was SEK 94 million, which was a growth of 14%, and our operating margin was 36% versus 39% a year ago. Earnings per share were set at SEK 0.79, and operating cash flow was SEK 47 million. I will comment these figures a bit more in detail in the coming slides. If we move on to slide number 9, Q3 sales bridge. Our sales then, total sales, was for the quarter SEK 258 million. This was a growth compared to a year ago when the sales was SEK 174 million.
The growth was 48%, of which we had an organic growth of 21%. Look at the currency effect. The currency effect was 15%, and the acquisition effect, that is the acquisition of the U.S. distributor Everidis, that effect was 12%. You're looking at it year to date, the growth was 43%. In the quarter, we had a bit lower organic growth, but it was sort of compensated by a bit higher currency effect. Move on to the next slide, called Group OpEx. I will briefly just discuss the costs. Our total OpEx increased with 52%. However, the main explanation for this cost increase is again the acquisition of our U.S. distributor, Everidis. If you exclude that effect, our OpEx increased with 12%.
Sales costs increased mainly due to the Everidis acquisition, but also due to increased activity levels. We have, for example, participated in more exhibitions, congresses and done more marketing activities of various kind. And therefore, there is a natural increase of the costs on sales. Mainly it was the Everidis acquisition that affected the sales cost. Looking at the R&D costs, if we exclude MetaboGen and BioGaia Pharma, we see a somewhat higher costs, and this is mainly due to increased clinical study costs during the period. We have other costs which were negative 15, i.e., it was a positive effect on our profits of 15 million, and this is due to positive currency effect.
Just to finally comment, our so-called OpEx non-core, that is the MetaboGen and BioGaia Pharma costs were SEK 3.6 million versus SEK 4.3 million a year ago. It was slightly lower than a year ago. Move on to slide number 11, group profit and loss. To summarize them, we had a sales growth of 48%, an OpEx increase of 52%, and thereby an operating profit that increased with 40% and a margin of 36%. Our adjusted margin increased with 39% and was also at 36%. Move on to the next slide called cash flow. We can see here that our cash flow from operating activities before changes in working capital was SEK 81 million versus SEK 52 million in the same period last year.
The main explanation for that is of course the higher profit in this quarter compared to a year ago. However, we have changes in working capital of SEK -34 this quarter, versus, SEK +16 in the same quarter last year. The main explanation for the negative effect, so to speak, of the change in working capital is mainly that we have increased our trade receivables as a result of the higher sales. There's nothing strange really behind this other than our sales has grown a lot and that has led to that we have a bit higher receivables that we will eventually get paid. Also we have had lower trade payables in the quarter.
It's a factor that can vary between the months and for some reason it had this effect in this quarter. That's all in all then that led to a cash flow from operating activities of SEK 47 million versus SEK 68 million in the same quarter last year. In total then a total cash flow of SEK 37 million versus SEK 56 million one year ago. Total cash at the end of the period of SEK 1.4 billion. Move on to the next slide for balance sheet. I will not go into details. This is more for reference. With that, I think I hand over to Isabelle for concluding remarks.
Thank you, Alex. I mean, as I said in my intro, another strong quarter with 38% growth, mainly driven by the lifting of COVID restriction in EMEA and the wider implementation of our so-called omnichannel retailing strategy, and the leverage of our global premium brand BioGaia. Just, a nice figure we just received regarding this omnichannel retailing strategy. We can now estimate that we do 28% of our total sales online, which, I mean, we had an internal objective of 25, and we passed it, and we are very, very satisfied with this evolution. Regions, as I mentioned, EMEA is continuing its recovery. America is performing very strongly thanks to the U.S. and Brazil. APAC is as usual, a sound double digits around 20%.
We are very confident for the future of BioGaia. We know, we are in the perfect storm in terms of macroeconomics and geopolitics, but we do believe that we are well geared to go through this storm. We started to pass on this price increase to protect us from cost increase. Therefore, based on our, I mean, proven strategy now on brand building, on scientifically proven probiotics, we are able to maintain our long-term financial targets, namely an EBITDA of 30%. Thank you so much, and I will be happy to take your questions.
Thank you. If you wish to ask a question, please dial 0 1 on your telephone keypads now to enter the queue. Once your name has been announced, you can ask your question. If you find your question is answered before it's your turn to speak, you can dial 0 2 to cancel. So once again, that's 0 1 to ask a question or 0 2 if you need to cancel. There'll be a brief pause now while we register your questions. Our first question comes from the line of Mattias Vadsten of SEB. Please go ahead. Your line is open.
Yes. Hi there. Thanks for taking my questions. I have four. Firstly, if you could speak a little bit more about Americas, I mean, being strong also whilst looking at Q2 and Q3 together. Adjust for the big order. What are the key initiatives you are taking there now when you have full control towards the end customers? And do you expect this market to also grow faster than the other geographies for years to come here or how should we view Americas for you?
Okay. If we start by speaking about North America, I think we are doing very well because we are at every consumer touch point, and that has been the success story. I mean, every month it's about if we can break records at Amazon. We have a very good relationship with them. We are their most favorite brands in terms of pediatrics probiotics. I mean, on Amazon, we are really flying. We are doing very well as well on Target online. We are doing well on Walmart online as well. Target has listed us now in their shops, so we are both on and offline. The whole ecosystem regarding on and offline sales are complementing each other very, very well.
What is a key success factor for the U.S. is that we are continuing with our medical marketing. Our teams are all around the U.S. all the time to attend all possible conferences and visit health care professionals, sampling massively to health care professionals. We are. I mean, the drops are the most recommended product by pediatricians in the U.S. Based on that, we've been able to enter a new category, which is aiming in the oral health. We didn't know really what to expect. We thought, well, as we are so well distributed with the drops towards pediatrician, why not trying to launch for dentist kids, though. Here we've got a very good answer from the pediatrician.
We got as well a lot of attention from the dentist, and that's a new area for us. Now we've been participating to a couple of two big fairs in the oral health businesses, talking to to hygienists, talking to dentists. I think there is more to come from that front. It's both a channel reason, it's a product reason, and the fact that we have a very good team in place.
Perfect. Finland historically has been an important market for you. Is all going according to plan there? I would just like some flavor about the penetration among pharmacies now with your new product versus the prior distributor. That would be interesting.
Yeah. Thank you for that question. Finland, as you remember probably, was a tough decision to take because we work with Verman. That was a private label business. We had like 33% market share. And as we didn't find any possibilities to distribute our own BioGaia brands via them, we've been obliged to terminate the contract and start from scratch, which is sometimes a bit painful, but that was a strategic good decision. Now I can tell you we don't regret one second. We are not back at the 33% market share, obviously. We launched our product in September, so it's very early. But we are today. I mean, I talked to the MDs last week. We are in 570 pharmacies in Finland out of 800.
The pharmacies in Finland, they are very ethical. They sell based on clinical data. Now they look at Rela, so the older private label brands, who is, I mean, selling on other strain without any clinical data. The pharmacies, they don't recommend it anymore. They say, "No, no, no, we want the Rela with all the clinical data. We can't promote Rela because they don't have any clinical data." We are taking, I mean, much more market share and much more rapidly than we thought, but we are not still back to the 33% market share we had on Rela.
Very good flavor, I think. One more from me for now, on price increases. Have you seen any impact of that yet here in Q3? I mean, maybe a difficult question, but at what share of sales approximately can you increase prices at the turn of the year? Because I presume you're stuck in sort of longer contracts with some distributors. I mean, if we could just get a sense here, that would be very helpful.
In terms of price increase, we are just at the beginning of the process. As you're just saying we have a contract in place with our distributor. Sometimes we can change the price on a yearly basis. Sometimes we can change the price if we have good reason to, like cost increase. It depends a bit. We have not rolled out the price increase everywhere in the world. We will see the full impact of that as from January next year. Now we have a part of it, but not the full part of the price increase, which is perhaps a good way to transition towards the price, the retail selling price increase to consumer, where we will have a good view as well when we will see the retail selling price increasing.
As I mentioned during the presentation, I feel pretty confident that we have a good resiliency for the prices of the drops because here you really answer a consumer unmet need. There is no drugs out there that works against colic. The only thing that works is basically our drops. So if you have a colicky baby, you just buy the drops. And here I don't think we will see a major impact on our sales even if we increase the price, and even if we have already premium price compared to competitor because we have a superior benefit. For, I would say, the more well-being type of probiotics, I think here it's going to be a bit more difficult.
We have much more competition, it's much more red ocean, and that might be slightly more difficult to support a price increase even if thanks to the good reputation of BioGaia and the science we have, we will probably be able to have a higher price point anyway compared to competitors.
Very good. Thank you.
You're welcome.
Thank you. Our next question comes from the line of Kristoffer Liljeberg of Carnegie. Please go ahead. Your line is open.
Thank you. Good morning. Three questions. First, if you could maybe say a little bit more about the strategy of the small fermentation plant you are setting up. Also wonder if you could quantify the big order and what you think the total stocking effect might have been in the quarter ahead of price increases. Finally, you gave this figure for online sales. Is it possible to compare that with maybe, let's say, one year and three years ago? Thank you.
To start with, your first question on the pilot plant for fermentation. The strategy is the following. One, for MetaboGen, we are dealing with anaerobic strain. Today, no one is able to ferment anaerobic strain because they are too sensitive to oxygen, too sensitive to humidity. Nobody has succeeded by fermenting at a good scale level. I mean, that's what we want to prove that we can. I'm not saying we are going to succeed. It's still at R&D level, but we know how to do that in a lab. We've been increasing the quantity of bacteria we can ferment more and more, and now we want to go to the next step. The pilot plant is a 100-liter capacity fermentation plant.
Just by succeeding by fermenting in such a way would be revolutionary, I would say. That's the number one. The number two is for our own strain and the smallest one, where sometimes we need to do clinical study. To do clinical study, you have to have a product. When we call the big guys out there to say, "Well, we need to have a very, very small batch of clinical samples, could you do that?" Normally, they are not super happy and not super quick. Now we will be able to do our own clinical sample production, so we can run our clinicals faster. Then we want as well to learn about our bacteria. Today, we are outsourcing 100% of the fermentation to different players like Chr. Hansen or IFF.
We want to know more and we are working on new strains. I mean, we can experiment much more on our own capacity than doing that outside. That, I hope, answer your first question. Your second question about stocking effects, just to say that there is no stocking effect will not be really reasonable to say. Here as well, we sell product with a limited life expectation, I would say. Our strain, we can guarantee that they will survive two years. Pharmacies in the world wants to have product with a very long shelf life. It's in nobody's interest to stock for a long time our product. Some might have taken a bit more order this year to be able to, I mean, adapt.
I don't think it's massive, but there is a slight stocking effect, I would say, in the figure. For your last question, the online sales, I think we—I mean, basically, we were not selling online at all. We suddenly acquired Everidis, so our online sales has been increasing. I think last year we ended the year at 19%, and we are today at 28%. That's a very strong increase.
Thank you very much.
You're welcome, Kristoffer.
Thank you. Our next question comes from the line of Mattias Häggblom of Handelsbanken. Please go ahead. Your line is open.
Thank you so much. I have a few. I'll take them one at a time. First, probably for Alexander, can you maybe help me understand the net financials of SEK 5 million plus? I guess it's driven by the strength of the dollar, but we've seen that strength before. Curious to understand that a bit better, whether it's non-recurring or if it will occur again. That's the first one.
Okay. Hello, Mattias. Yes, it's mainly currency, basically, in short.
Why haven't we seen it before? I mean, can you expand on that? Because the U.S. dollar has been strong before, so why does it show up now?
I mean, yeah, it depends. I mean, difficult to say. I mean, it varies a bit between the quarters, but I mean, we are a bit more dollar dependent now with the U.S. acquisition, for example. That is probably one reason why it's more visible, I would say.
Okay. Probably the second one, probably also for Alexander. Working capital was up SEK 34 million in the quarter. You had strong sales. You talked about receivables being up, but still, you know, you've had strong sales before. Is there anything new to the dynamic here, or should we just expect that to reverse in the fourth quarter?
There's nothing new, no. You should expect it to reverse, I would say. I mean, we don't have any longer receivable times, so to speak, or anything like that. It's just a, I would say, natural variation. It just happened to be like that. I mean, for example, if a lot of it was, so to speak, in the second half of it, I mean, then we would have had higher receivables, so to speak. This is just a natural variation. It could be also the other way around, to be honest. It's sort of a natural variability, so it will reverse.
That's clear. Thanks for that. Lastly, probably for Isabelle. On adult health, 7% growth in local currency. I know the comparison from Q3 last year was tough, but still you made comments earlier that Protectis is a must-have, whereas adult health is more nice to have. How should we think about our forecasts for adult health going into 2023 with that in mind?
I mean, we as you know, we don't comment on 2023. I think it's more. The problem on adult is to maintain the premium price because there are much more competitors. I mean, you compete with a lot of different products. I think on Prodentis, here we are leading science, and we are pretty unique. You don't have a lot of oral probiotic out there as we speak. The pressure on Prodentis will not be that high.
Where I fear where it will be a bit more bloody is probably on Protectis, on the immune health, because you have so many probiotics out there claiming on your immune health that that might be a bit more complicated to maintain the premium prices and perhaps on Gastrus unless we come up with perhaps you never know new clinical data that will reinforce our superiority.
Perfect. That's all for me. Thanks so much.
Thank you, Mattias.
Thank you. We have a follow-up from Mattias Vadsten of SEB. Please go ahead. Your line is open.
Yeah. Two additional ones for me. Just on Pharax. What are the focus markets to launch the product for the quarters ahead?
On Pharax, it's a pediatric product. We roll out the product where we have good pediatricians. Even if we sell in 112 countries, I think it passed 113 yesterday actually, we want to focus much more on our 12 biggest markets. You could see a very big focus on China, U.S., Scandinavia, our direct markets. I think all our direct markets in the long run have to have all the portfolio. Today, Pharax is not sold in the U.K. We just opened the company, and it's doing extremely well, much more than what we thought. Stephen, the MD, has been focusing on the drops. We won a lot of awards, get a lot of recognition among the healthcare professionals. Now it's time to extend the portfolio.
At the beginning we always start with the drop. U.K. is a big market, super interesting in terms of probiotics and our entrance to that market has been very successful. You could see probably Pharax there soon.
Perfect. The last one. You know, when do you expect to launch in Canada under own management? And will we see the same dynamics as we saw in Finland, even though that's of course a smaller market? Just interested to hear a little bit about that.
I mean, I am a super strong believer in Canada. As you know, we were working with Ferring before, and Ferring wants to refocus on their core business. They say, "Well, sorry, but I think it's better if we focus," and we stop distributing BioGaia. That was a perfect timing because we had acquired Everidis, so we have a lot of synergy in terms of logistics, in terms of marketing that we can drive from the U.S. We managed to get their two best employees from Ferring. Daryl will take on as MD, and he has been working on BioGaia for eight years. Their sales director is following as well, so he will join us in January. That will ensure the perfect transition from today to tomorrow.
One of their biggest customer is Costco in Canada. Everything is already in place. We press the button in January, here we go. As for the U.S. case, instead of having the distributor margin going to Ferring, the distributor margin is staying within BioGaia. The dynamics there is going to be very interesting to follow.
Thank you very much.
Thank you. Once again, if there are any final questions, please dial 0 1 on your telephone keypads now. Okay, there seems to be no further questions from the phones at this time, so I'll hand back to our speakers for the closing comments.
Yeah, no new comments. Thank you for your attention and, yeah, thank you for following BioGaia. See you. Have a nice day.