Earnings Call: Q2 2021

Aug 12, 2021

Thank you for the introduction and welcome back from holiday or I hope you enjoyed your holiday. If you're still on holiday, so welcome to our interim management statement Q2 20 21. In terms of net sales, we have a weak Q2 and for different reasons. The first one is that last year, we had our customer we order to prepare prior to the pandemic and wanted to make sure that they had the probiotics in their warehouse, so we had an extremely strong Q2 last year. So that's the first reason. The second reason is that Q1 2021, we had a lot of orders that was planned to be delivered in Q2, that has been shipped with the last week of Q1 and mainly to China, which make that our Q1 were particularly good. And I would say the last reason is the strong Swedish, chrono. So you could see that the total sales are -17, but if you exclude the currency impact, it's only -8. In terms of yesterday sales here as well, minus 5%, but if you exclude the currency impact, we end up having a plus 5% increase. A bit like last quarter, we have pretty big differences per region. So we have the Americas over performing. We have APAC back on track, and we are still suffering in EMEA. And EMEA, the decrease is mainly due to the fact that we have a really strict medical marketing approach. We sell mainly via OTC and pharmacy. And therefore, the pandemic has been impacting us dramatically. Whereas in the in Americas, we have a omni channel strategy And therefore, the results are much better. In terms of product, the sales mainly decreased for protective tablets and the drop in the Q2, and I will come back to that later. And I should anyway add perhaps that we I've managed to maintain our EBIT margin at 34% as we that's our objective. And that's mainly thanks to careful management of our costs. Next page, please. Key events during this quarter. Well, we had 1 new market. So now we selling our probiotics in 110 countries and Egypt joined the Family Biologia distributor in April. Then a very interesting new randomized double blind placebo controlled study has been published regarding upper respiratory tract infection in children. And here, that's really for us a new avenue in terms of product development, pediatrics are key areas. We have already the network. We have the knowledge. And now we have 2 published very strong clinical study in a very rapid track protection, and that we see that's a very interesting strategic new avenue for On 20th May, we announced that we've taken over Finland. We stopped working with Verhan, And we have created our own distributing company. Now we have recruited the Managing Director, Nina, that has already started. And so we are very, very happy because for the first time, we're going to have the Biogalia brands available in Finland because before, Vermaaten was only selling his own brand, Crena. So that's a very good news for us. Then finally, on the 2nd July, we announced that we acquired the remaining share. So we own fully our research company, Metabrogen. And we are here as well very happy about it because, as you know, we are dealing with anaerobic strain, which is a very interesting research avenue within Prabiotica. Next page, please. In terms of launches, we managed anyway to launch 8 to have 8 launches despite the pandemic. Worth to mention that a lot of countries have decided to launch the product plus vitamin D. And that's mainly because the consumer knows that to strengthen your immune system, vitamin D helps together with probiotics. So you could see out of these 8 launches, we have 3 containing vitamin D. And then we have to mention as well that we are expanding our leadership of Oral Provea6 with Prodentis and this quarter, so we launched in Australia and in Czech Republic. Next page, please. So to come back to the sales, obviously, -17 for the quarter, we are not really satisfied with that. Having said that, as I mentioned in my executive summary, on the year to date, we are at minus 5. And if you will exclude the currency that will be plus 5 in year to date. Pediatric sales has been impacted more than this quarter. Even if the drops plus vitamin D has increased, but not the total drop. And it's probably because the gastric products are really dependent on recommendation from the health care professional. Obviously, if it's your first baby as a mother, you will ask the pediatrician what you should do. And as the contract with healthcare professional and the visit to pharmacy has been reduced by the pandemic, we do believe that that has affected the pediatric more. Whereas on the adult sense, you there's to buy even if you don't have had a recommendation from your doctor. So that might be one of the reason why. Next page, please. Per market per region. So here, for the one following the Eugeo carefully, when I joined the company, I said that I wanted to have a better split of sales per region and it's actually happening. Obviously, I would have preferred it to happen with EMEA still growing. But if you look now, yesterday, at the end of the quarter, the split between EMEA, APAC in Americas, which is much more April than it was when I started. So I'm very with the evolution in Americas and APAC, so now we can really minimize the risk by being strong in the 3 regions. To come back to EMEA, which is really our problem this year, we have large markets such as Italy and Spain that are still suffering. I think it's going to recover because now with both with RECOVERTY and those in Italy and record us in Spain, we agreed on a very intensive online strategy. So I think that's going to pay back, but of course, it takes time. So we are still suffering there. Worth tuning anyway on the positive side or in spite because I'm French, but France is doing very well. And I do think that at the end of the year, that might be one of our leading market in EMEA. So it's a satisfactory news. In terms of I mean, if you look at APAC, so it's back on track for the quarter. It's strong earlier today. This quarter, we could like the good sales in Australia. So we had a couple of launches and it's doing very well both with Nestle and with our own brand via our distributor. In yesterday, Japan is increasing as well despite pretty strong lockdown that has affected our dental clinic. So we are happy with the results. And strong increase in Vietnam and Korea. I mean, it's driven by online retail. And in China, we had a bit of decrease, But that's mainly due to the fact that we were out of stock, which is not satisfactory, of course, because we would have preferred not to have any out of stock. And that's why we had as all this order ending in the end of Q1 to avoid all the stock, but we didn't manage it. But this is the demand is still there from the consumer. And Americas is really the nice part of the presentation, both in Latin America and in U. S. And Canada, all these markets are doing very well. As stated in the quarter report that you might have read already, we are so happy to be the for the first time in our history, the number one priority trend in Brazil. Here, Shay has been a fantastic job and even digitalized all their way of working. So we passed Anteborges, Germany for the first time. In the region, LatAm region, we are number 2. And that's here as well because most of the our competitors have decreased the investment where we maintain our investment in terms of I and P. And we launched Caspers pretty successfully. It took us a lot of time to get it validated by the regulatory authorities, but now it's done, it's launched and it worked very well as we opened 3 new markets, Uruguay, Equator and Argentina. Next page, please. Gross margin, not a lot of things to comment. Year to date, M and C is very stable. During the Q2, we have a slight increase on the asset sales, but it's just because we had some royalty in Japan. So I don't think it's it takes much more than that. So we're happy to be able to maintain this very high level of gross margin. Next page, please. And then I will ask Alex to go through the financials. Yes. Thank you. So if we move on to Slide number 9, which is OpEx. So if you go through our OpEx here, you can see that our OpEx has been basically flat. It's 3% down versus the previous year for the quarter. And the reason is that we have basically kept the activity level at a lower level and flat compared to 1 year ago. So sales costs are basically flat. R and D costs are slightly higher, and that is due to some clinical studies that were previously Delayed or postponed. I'll start now. And then we have the line item other costs, Which is mainly a negative currency effect, which is somewhat lower negative currency effect this quarter than 1 year ago. As for the noncore OpEx, this is Metabogen and Vivena Pharma subsidiary. As for those costs, they are also slightly lower than in the same quarter last year. So overall, our OpEx is Basically flat. So if we move on to the P and L, Page 10, it's basically then a summary of what we have said previously. Our sales decreased to 17%, will decrease with 3% and that led to an EBIT Of SEK 69,000,000 versus 100 and 1 year ago, a decrease of 31%. And as Isabel said, this is An EBIT margin of 34% in the quarter according to our financial target. Move on to the next slide, cold cash flow. You see that our cash flow from operating activities increased to SEK 55,800,000 versus 37.8 percent in the same period last year. Cash flow from investing activities it was basically 0 and cash flow from financing activities SEK 7,100,000. This is the dividends. And all in all, this led to a cash flow for the period of SEK 16,200,000 versus minus SEK 38,700,000 in the same period last year. And that leaves us with a cash at hand of SEK 1,470,000,000. So with that, I hand over back to Isabelle. Yes. And to conclude this presentation, I would just summarize in 4 bullet points to say that as expected, we had a challenging Q2 compared to a very strong Q2 last year, driven by pandemic buildup from our distributor and some large orders shipped last week of Q1 this year as an extent in my introduction plus the currency impact. And yes, I just want to say that we are anyway been able to manage our P and L pretty carefully and managed to maintain the EBIT margin at 34%. We can really see a reinforcement of the sales trends per region with America over performing, EMEA is not recovering, while APAC is back on track. What we've been doing, we I mean, we stay we follow our strategy, and we keep really focused on our journey towards PGT. So both in terms of organization, so we have created the Biogenia Digital. We have a new entity reporting directly to me to drive our digital agenda, both in terms of marketing, but in terms of sales as well. And the same so and that's something I mean, I keep repeating to the team, we have a new marketing B2C added by Linda, and we've recruited a lot of people for social and media content management. So there is a lot of activity and they all start next Monday, so we have a new team coming on and you're going to see much more happening on the market. So I would like to conclude by saying that thanks to our new product launches, where you see gastritis in Latin America as an example and for them kids in the U. S, it's which are based on the current strain, but as well our proactive research effort towards new strain an indication and you've seen the upper respiratory infection. We have a long term consumer trend promoting food supplement intake to prevent being sick and we have a clear and consistent B2C strategy. So we remain confident for the future of the company. And I understand that you might be slightly disappointed by the Q2. But I mean, at least I remain very confident. I think we have the right strategy. We have the right consumer trend out there, And we are very well equipped to such the coming opportunities. Thank you for your attention, and I will be happy to take Our first question comes from the line of Christophe Lilleberg of Carnegie, please go ahead. Your line is now open. Yes. Thank you and good morning. So my question is much related to Europe. I think Sales in EMEA is probably now the lowest for the first half since 2014. So first, I wonder why there's Such a big impact from the pandemic, it seems, here in the Q2 when Europe has been opening up. Is it so that this is more of a structural problem? I think you mentioned that a little bit that you're too reliant here on physical pharmacies. And you mentioned also the new online strategy for Europe. If you could maybe explain a little bit more what you're doing and how soon you think that We'll start then at sales. Thank you. Yes. Hi, Christopher. Well, indeed, in EMEA, we have I mean, there is a lot of reasons. The first one is that in every European market where our indication are more towards, I would say, treatment of problem like colleague or diary or that kind of stuff. That's where we've been impacted. And that's exactly what has happened in Italy and Spain where people take probiotics when they take antibiotics. And during the COVID-nineteen, people are not half of their disease than COVID, but they have not been exposed to flu. They have not been through to anything. So there was no antibiotics treatment. But if you take the case of France, that's why I was flagging out before, France has a different strategy. France has always been working with midwives at the prevention. So what France is saying to pediatric, in that case, our distributor, is that to at first day of life, you have to take the drop for your babies to avoid the baby to have problem, gastro problem and colleagues problem and so on and so forth. In that market, we see double digit increase. Whereas in all fashion markets like Italy, where it's taken when you have a problem, then the market totally collapsed. And it's not only us. I mean, the whole Italian market is down by 35%. So we are not doing better, which I could have hoped for. But I mean, the whole market is collapsing, and we don't communicate directly the turnover for market. But Italy, I mean, there was one of these markets selling for €60,000,000 So when a big market like that is suffering, the whole EMEA suffer. And we could do the calculation and we've done that internally. If we exclude Italy, then the picture is different even in EMEA because France is doing well, South Africa is doing well, Turkey is doing well. But we've I mean, we lost a lot of the Italian business and that's why it looks so bad. So now, so we have 2 distributors in Italy, Nous and Recorbasi. And especially Recorbasi, they have recruited all new team as well to take care of their online. So now you can find our product on Amazon in Italy. They are helping the pharmacy to sell more online. So but they started so I mean, 9 months too late. And so but they understand that. And NOSE does understand it. They might not have the similar quality of digital talent in their company. But here as well, they have recruited a new sales director And they understand that, okay, I mean, online is not the enemy. Online is just a complementary channel. And basically, it's up to the consumer to decide how they want to purchase. But if you're not there, then you're sure that you're not going to meet your consumer. So that's a bit kind of the perfect storm, but I see a better outcome coming from this market. And I see France really booming and South Africa, we don't know about the pandemic what's going on. But just now, it's doing very strongly. And you mentioned Italy. Is it the same more or less in Spain, which has also been weak during the pandemic? It's the same, but it's not as bad because the distributor is a bit more reactive. And the market was all percentage of our total turnover. So it's not fantastic, but it's not dramatic either. Okay. At this point, would you be happy to maybe provide some outlook for sales For the group here in the second half of the year, you were growing 5% first half of the year. Do you expect Full year sales to be up more than those 5% that we've been growing so far? I mean, I will not change the rules then I will not disclose any figures. But in terms of trends, if you look the last year per quarter, you will see a strong Q1, extremely strong Q2, we had €245,000,000 of sales. And then if you look at Q3 and Q4, they are really, really low. So then you can do your own calculation. I know you will do that. So that's why I remain very confident because, I mean, Q3 and Q4 last year, I mean, non existent last year. So and I see all the initiatives that we've been implemented under Q1 and Q2, they are going to pay back in Q3. We have this immune boost launch in the U. S. And we do believe with the start I mean, school start, we have a strong school start campaign in a lot of countries towards children. And where they are going to go out, they are going to have calls and they are going to have problems. So I mean, I'm not super worried, but I will not give you any figures. I will leave you doing that calculation for us. Okay. Sounds fine. Thank you very much. You're welcome, Thank you. Our next question comes from the line of Matias, you might be on mute, I don't hear you at least. Okay. It would appear that we have lost Matthias. At this stage, we have no further audio questions. I'll hand back to the speakers. Okay. So if we lost Matthias. Matthias, if you hear me, you can call me afterwards. That's fine. But thank you for your attention and looking forward presenting Q3 in a couple of months. Have a very nice day. Bye bye. This now concludes our presentation. Thank you all for attending. You may disconnect your lines.