Ladies and gentlemen, welcome to the BioGaia second quarter 2020 report. Throughout the call, all participants will be in listen-only mode, and afterwards there will be a question-and-answer session. Today, I'm pleased to present Isabelle Ducellier, CEO. Madame, please go ahead.
Thank you so much. And dear investors, Alex and I, I wish you a welcome to BioGaia Q2 report. I hope you had a nice holiday despite the special circumstances, I will call it. So, from the top-line point of view, we have a good quarter with total sales increasing by 10%, mainly thanks to the increase of the sales in pediatrics. If we look at pediatric products, the main SKU and the main increase come from our drops. If we look at the adult segment, it is driven mainly by Prodentis, our oral health probiotics, and by Gastrus tablets. I will come back to that later. All our two regions are showing a growth at different pace, with a modest plus 1% for EMEA and a very strong double digit both for APAC and for America. Next page, please.
Obviously, as for Q1, unfortunately, the key event is the pandemic. Having said that, BioGaia has continued to take a number of precautions to protect its employees and its business. So, to date, we don't have any impact on operations. We have been able to maintain our production and to ship our product to our partner all around the world. For the Swedish investor, nice to know that you can now, order the Protectis online, via Meds and even now via Apotea. So, that's our new Protectis that we launched in Finland. We had a pilot launch in 2019. It's the main strain, Protectis DSM 17938, but in the capsule format, which gives the very positive attribute that it's a vegan product. Next page, please. Despite some delay in our rollout of current product portfolio, we've been able to manage to have nine launches in seven countries during Q2.
As you can see in the list, we mainly launched Gastrus in three new countries and Protectis with vitamin D. I will come back to the vitamin D effect, which is probably driven by the COVID-19 pandemic. It's worth noting as well that we had our first launches in Malta with our new partner, Phoenix. Next page, please. If we look per segment, I mean, both pediatric and adult are growing, obviously, from a different volume base. But if you look at the pediatrics, during the quarter, we have an increase by 10%, year-to-date 9%, and adult 8%, both for the quarter and for the year-to-date. The pediatric sales, it's mainly thanks to our Protectis drops.
And here as well, even if it's not specified because we don't communicate in detail, it's worth mentioning that the vitamin D drops plus vitamin D have been growing even faster than the normal drops. And this is the case as well for tablets. Immune system has been a really consumer request all around the world, and the consumer is well aware that vitamin D, together with probiotics, is good for the immune system. And therefore, that explains the strong performance on our drops. If we look at the adult increase by 8%, it's mainly due to BioGaia Prodentis, our oral health, both under Prodentis brand and under GUM brand, which is a partner we have in Europe. For Gastrus, the good sales are driven by the three different launches I mentioned before and by the good results in the US market. Next page, please.
In terms of gross margin, you can notice a reinforcement of our gross margin at 75% in Q2 versus 74% Q2 last year. And that is, if we look at the pediatrics, here you see a 3% increase versus last quarter at 77%, which is mainly driven by the fact that we had a lot of production at our own facilities at BioGaia Production in the south of Sweden. Regarding the adult, basically, the lower margin at 68% compared to 72% last quarter is mainly due to increased transportation costs due to the COVID-19, and mainly in two markets, Japan and the US. Next page, please. Looking at our sales per geographic market, so for the quarter two, as I mentioned, a modest increase of 1% for EMEA. And basically, we had a very bad quarter in Italy and a very bad quarter in Finland, our two most traditional markets.
It's worth mentioning that these countries are not selling the BioGaia brand. It's under their own brand, so which reinforced my conviction that it's very important to develop BioGaia brand, but Italy has been really impacted by the full lockdown, and as we only sell in pharmacies, the consumer could not go out and almost go to the pharmacy to buy their stuff, and all the medical recommendations, as they were not able to go to the doctor either, so here, we had really been, I mean, there have been really hit by the COVID-19. In Finland, the lockdown was not as bad, but there was as well a lockdown, but it's mainly due to a price fight in a very probiotic major market. Having said that, in EMEA, we could mention a very strong increase coming from Spain, from France, and from all the Eastern Europe countries.
If we look at APAC now, so again, a very strong quarter at 23%. I'm very sorry, there is noise, and it was not planned. I think our neighbor is building. Sorry for that. So APAC is increasing by 23% for the Q2. And this is mainly thanks to China, but not only. Here you have with Vietnam and Indonesia increasing stronger because they have been able to manage a switch from offline to online very successfully. And then if we finalize with America, we have an increase by 17% for the quarter two. And this is mainly driven by the US, but Canada is doing very well as well. And I just wanted to stay a bit on the US market because we had a very strong quarter. And it's driven both by Gerber, so the Nestlé subsidiary under the Gerber name, and by Everidis under BioGaia brand.
And here as well, we've already started to have a very intensive online sales last year, but we had only listing at Amazon and Walmart. This year, we are able to be on the four main online platforms. So on top of Walmart and Amazon, we are now listed at Kroger and Target. So we are extremely satisfied with the development of the U.S. market. Next page, please. So now I will pass over to Alex that will go through the financials.
Okay, so if we move on to slide number nine, our operating expenses, we see that during the quarter, our operating expenses decreased with 1% from SEK 85 million to SEK 84 million. This decrease was mainly due to savings or lower costs in marketing and sales and in R&D. The reason for the lower spending in sales is obviously due to COVID-19 and the fact that we have not been involved in as many conferences and meetings with customers as we normally do, which has led to lower costs, and for R&D, we have a lower cost spending mainly due to also a slowdown of some of our studies, but also general cautiousness in terms of spending.
If we then look at what we call non-core OPEX, which is Metabogen and BioGaia Pharma, we see a cost increase of about three million SEK, which is according to plan as we move on with those projects and companies. If we move on to slide number 10 and look at the P&L, which is basically a summary of what we have said so far, we see that our sales grew with 10%, our OPEX decreased with 1%, and our EBIT increased with 28% from 79 million SEK to 100 million SEK. This then equates a margin of 41% versus 35% in the same period last year. Year-to-date, our margin is 36% versus 32% last year.
If we move on to slide number 11, which is the cash flow, we see that the cash flow from operating activities was 37.8 million SEK versus 34 million SEK in the same period last year. Our cash flow for the period was minus 38 million SEK versus minus 155 million SEK in the same period last year. The main explanation for the better cash flow compared to the same period last year is that we have a lower dividend, but also we have better results in the company. This leaves us then with cash at the end of the period of 243 million SEK. With that, I hand over to Isabelle for some concluding remarks.
Yeah. As a conclusion, I would say that we have a healthy sales growth of 10%, mainly driven by what I call the online sales market, so namely U.S., Canada, China, Indonesia, Vietnam, that are fueling our growth. We have a very nice round figure of SEK 100 million in EBIT for the quarter two, which is a growth of 28% that we are very happy with. That's due to a combination of healthy sales and as well some saving, as Alex mentioned before. So this generates a 41% EBIT margin for this quarter. And so we have now a 36% on year-to-date basis, which is higher than the expectation at 34%. So I mean, we have so far seen limited impact on COVID-19, but I think that it is important to mention that it's very difficult to predict future effects.
The demand from consumers on prevention health products is very big and is going to grow, but we don't know the impact on economic crises on capacity of consumers to spend on probiotics, and therefore, we have to remain cautious. Having said that, we have a very strong financial situation, so we should be well equipped to address uncertainties and opportunities, so with that, I'm very happy. Alex and I are very happy to take questions if you have any.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press 01 on the telephone keypad. Our first question comes from Kristofer Liljeberg, Carnegie. P lease go ahead.
Yeah. Hi, good morning. It's Kristofer from Carnegie. I have some questions related to sales. I don't know if you agree, but it seems a bit difficult for you to get back sales in double digits. It's still sales growth in double digits. Is that still the ambition? And if so, why is that not happening? You mentioned Italy here in the quarter, but shouldn't you also have some larger boost from the delayed shipments in the first quarter? So that's the first part of the question.
Okay. So in terms of sales, I mean, it's 10%, which is double digits. It's a low double digits.
I think it's, sorry, but if you look at the true organic growth, I think it's seven quarters since you were growing double digits now.
Okay. And I mean, we had an okay Q1. For me, Q2 at plus 10% is still very good. I mean, if you compare to some competitors, I mean, Probi had a plus 6%, Chr. Hansen plus 5%. So we are doing better than the market, which has always been our ambition. Indeed, we have a very strong online sales, but the traditional retail has been really paralyzed. I mean, if you look at Japan, I mean, all the dental clinics are being closed, totally closed. And that's the only place we sell Prodentis. In Italy, the pharmacy, I mean, people could not go out in the street. They could not buy their stuff, and if they would not have any access to internet, then there was no sales. So at the end of the day, I think one balanced the other, and we are able to generate plus 10%.
I mean, I'm pretty satisfied, and yeah, so that's basically my answer.
So do you think that the net effect from COVID-19 and the lockdowns has still been negative in the quarter despite the positive impact on the e-commerce channel?
No. I think in terms of consumer awareness, that you have to take care of your own health and that the best doctor you have is basically yourself. I think it's a trend that is here to stay, and therefore, we will not be hurt as other industries by the COVID-19 the same way. So on the long-term perspective, I'm not super worried. Plus 10%, I mean, in the current days, I think it's good. So I know you had the 20% expectation, but I think I was very ambitious. And my plan is to have a good 2020 year. We are here to stay, and we're here to have this amount of level of increase, but not 20%.
Okay. Sure. The price competition in Finland, how is that impacting you? Is it that you have to lower the price to the marketing partner, or has the partner lost some sales? And also in Italy, do you expect sales to pick up again in the third quarter, or would you still be impacted from the lockdowns that have been there and the lag from when the sales partners are placing orders and you ship?
For Finland, so our main product is sold under the brand Rela, and Rela has 37% market share, so we are the leading brand. Obviously, it's always difficult to maintain your leadership, and two years ago, we saw a new competitor at a very, very discounted price. We are not willing to decrease our retail selling price because we do believe we have a better strength than the competitor, and therefore, the consumer is willing to pay for it. But for price-sensitive consumers, it has impacted us. Yes. Having said that, now we have planned for Q3 and Q4 in terms of marketing activity, so we rather invest in marketing activities rather than decreasing retail selling price because we want to maintain our margin, and we want to maintain the premium positioning of the brand.
As regards to Italy, I'm honestly a bit more worried there than I am in Finland or in the rest of Europe. Having said that, we work with two distributors, and if we look at Recordati, which is our main distributor, Milan, it's a very professional pharma company. We are working with them in Spain as well and in Portugal, and in Spain and Portugal, we are increasing a lot, so I hope that our Italian Recordati friends are going to find a way to be more active and perhaps one day to look at online sales, but as their model is based on sales rep visiting doctor and the sales rep were not allowed to visit the doctor, they really have been impacted a lot.
Okay. I understand, and sorry, there's a lot of questions, but the final one. Now, I think it's good to see a large part of sales coming from e-commerce. Would that, in the end, mean that you're becoming less dependent on the distributors? Could you even handle that internally?
I mean, technically, I think we can say yes. We've just recruited a new key account manager specialized in e-commerce. But today, I mean, our key asset, one of our key assets, is our distributor network. So I don't see a winning solution to start to sell from Stockholm directly online everywhere in the world. I'm still convinced that for the partner, we can handle Amazon locally. They are better equipped to address their local online partner from the market. Having said that, if in some country we don't have any good partner or if the partner are not willing to go online, then we might look at solutions to handle it by ourselves. But that will be if our local partner is not professional enough, and most of them are. I mean, Everidis is in the U.S. or in, I mean, in China.
I mean, they are really amazing. We are learning from them. But now we've recruited one new guy. He started yesterday. And we have as well recruited a new marketing manager specialized in B2C that started in June. And the plan is really to nurture all partners with social media content and with expertise in terms of e-commerce and content management.
Okay. Thank you very much for answering all questions.
You're welcome. Bye, Kristofer.
Thank you. Ladies and gentlemen, as a reminder, if you wish to ask a question, please press 01 on the telephone keypad. Thank you for holding. Our next question comes from Daniel Albin. Danske Ba nk. Please go ahead.
Yes, thank you. I have two questions. The first one relates a bit to gross margins this quarter. You mentioned that you have insourced more production. I'm just wondering, is this a temporary event or more of a structural event that you have insourced more production going forward? And how would that translate into to say higher gross margins even? That's my first question.
Okay. So when all this COVID-19 started, we decided to work in two shifts at BioGaia Production. We were not sure that we would be able in the future to ship our product. And therefore, we asked BioGaia Production to work in two shifts, which reflects in the Q2. If it's temporary or not, it is temporary because now, as from July, we started to work in one shift. So we're back to normal. And the reason is that we have a higher margin if we produce by our own, but we increase the risk dramatically because if something would happen at BioGaia Production, like contamination, explosion, I mean, you don't know, then we have no backup plan. So we need to maintain two sources of supply for our drugs. Drugs are 80% of our business, so we cannot afford to have only one place where we produce our drugs.
Therefore, we need to maintain production of our drugs at other suppliers to mitigate the risk.
Okay. Thank you. And my second one, I'm wondering if you can elaborate a bit on, say, end consumption, and especially then in the regions APAC and Americas having very strong quarters. Are there any phasing effects, or how is the end consumption in those regions?
We were a bit worried when we saw increasing order from APAC to say, "Well, are they building up or are they selling for real?" My answer will be that basically, there is no major stock up by partners and that the consumer has been buying because they want to prevent to be sick, with one exception being South Korea and Japan, because Japan, they could not sell at the dental clinic. So that would be the two exceptions. For the rest, I mean, we didn't notice any stock up by the partner or by the trade.
Okay. Well, that's all for me. Thank you.
Thank you, Daniel.
Thank you. Ladies and gentlemen, as a reminder, if you wish to ask a question, please press 01 on the telephone keypad. Our next question comes from Kristofer Liljeberg . Carnegie, please go ahead. Mr. Kristofer, the line is open.
Oh, sorry, I was muted. So coming back to the question related to sales and the impact from the lockdown in Europe and Americas, did you see most of this effect already in shipments to your sales partners in the second quarter, or will you have similar or larger effect of this in the third quarter?
We didn't see that in Q2. It's a bit too early to say for Q3, as we can, I mean, we are not disclosing any forecast for the coming quarter. But that's probably why we always say that we want to be cautious. I mean, Mexico has a total lockdown, and it's a very, very difficult health situation. But we have very strong figures in Q2. That might be slightly down in Q3. But I mean, as far as we speak now, it's not visible.
But you mentioned, for example, Italy with a partner there, lower sales.
Yeah. No, Italy has been very open. That's where I'm worried.
Okay, but that's the only big effect, really, seems.
Yeah. For the moment, yes. Because, I mean, even Spain has been in major lockdown, and we have super strong figures. So some partners have found a way to maintain their sales. They have been extremely active organizing web seminars with doctors online. And in Latam, especially, I think we've had like 50 different web seminars with experts from all around the world. We've thousands of doctors, physicians online listening to seminars. So Mexico, Peru, Ecuador, I mean, they've all been able to continue to do their business online. But Italy, no. So that's really a matter of where your partner is equipped.
Okay. That's it. Thank you.
Thank you. We have no further questions. We have to go back to you for the conclusion.
Yeah, but thank you so much for all these questions, and we talk to each other after for the Q3. Have a nice day. Bye-bye.
Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you all for attending. You may now disconnect.