Thank you so much. Welcome all to our highlights presentation or Q4 2023 presentation. Håkan Lagerberg here, and with Jenny Graflind, our CFO. Yes, the end of the year finished strongly, and we had another sales record growth in all channels and in all regions. I will present those later on. The organic growth was 23%, the best for the year, and full year was 15%. For those of you that remember, we had roughly 10% growth in the first half of the year, and then in Q3, we had 17%, and now we have 23%. So, as we discussed and anticipated, the second half of the year should yield better numbers, and it sure did.
Very strong cash flow continues, 93% cash conversion from EBITDA. So we managed to amortize SEK 75 million on our debt, and we also made a minority acquisition of Riley's Organics that I also will present a bit later on. Our process of focusing to leave the external manufacturers and transfer them internally has continued. We have now 84% of the products that we sell are manufactured internally, and we have also improved the output in all our manufacturing sites, both in California and in Vetio South primarily, and also in Ireland, where we have made lots of, let's say, new setups, predominantly for the Soft Chews launch in Europe. We made an acquisition of Riley's Organics.
It was finalized the second of January, and it's a very new and interesting area for us. We haven't been in the treat sector previously, but we see that it's a really high-growing and very interesting area, where we see lots of opportunities to be able to grow a lot faster than the market in that sector as well. As we have been looking at different treat brands and thoroughly, and we really wanted to find something that was a bit different than the normal me-too products. And Riley's Organics have had a really strong presence in the market. A small brand, but been true to their objective of having really high-quality products, and we see w e have a strong pipeline of new products being launched within that brand, and we will also take that brand has been sold in online and with some wholesalers.
We see opportunities in the vet channel. We see opportunities in the pet retail space. So that will be a very interesting sector of our business. The proposal from the board is that we increase our dividend this year to SEK 0.23 per share, and this is predominantly due to the fact that we've had a very successful year and had a very strong cash flow. So we see there's good room for this.
Our ESG work continues. We have now completed the implementation of a sustainability platform, where relevant KPIs have been carefully selected, and we will measure all of those in 2023, and then we will start communicating hopefully the improvements that we will be doing over the year in 2024. So it's been a big project and now being finalized, and now we're starting to implement it with all of our group companies. We also made a life cycle analysis for ProDen PlaqueOff. As most of you know, it is a organic material in the product, but we have been looking at the whole process and see where we can. We now know the imprint, and we will now look if we can make further improvements.
We also obtained a certification of Nasdaq ESG Transparency. We have been working very hard in improving our communication when it comes to ESG, and it's great to see that we get this recognition from Nasdaq.
Okay, some figures. Let's start with revenue. The net revenue for the quarter amounted to SEK 627 million, and that's about an increase of 26% compared to Q4 last year. This is including the, like Håkan said, 23% organic growth, a 1% currency impact, and 2% acquired growth. And the acquired growth came from Vetio UK and Axiom, which we acquired both in November 2022 and April of 2023. And net revenue continues to grow quarter by quarter. The increase from last quarter was 4%, and that's with the same company structure. The operational EBITDA is the same as EBITDA because there was no adjustments except for a very small one this quarter. So that is 21.6%. Some other KPIs.
Operational gross margin is 58.2%. During the fourth quarter, this gross margin was positively impacted about 3.6 percentage because we did a reclass between indirect and direct labor cost. We had a negative impact on gross margin due to write-offs of inventory. But if I exclude this inventory write-off and the reclass, the gross margin would have been at 56.9%, which is the strongest for the year. The operational EBITDA amounted to SEK 135.5 million. This is an increase of 13% compared to last year, and the margin was 21.6%, compared to 24.12% last year.
This margin was impacted partly by a write-off for a reserve of receivable, as well as a one-time cost, which related to the fact that we have relocated our reps from New York to Florida. In addition to that, we have increased marketing spend with Amazon, which was higher than in Q4, and we also have some double expenses for some positions, second part of the year, which is doubled because we have done a handover for some positions at year-end. Adjusted for these, the one-time cost, the write-down, and the EBITDA margin would have been a little bit over 25%. In Q4, we did an annual tax expense for the U.S., which was recorded, and this had resulted in a negative profit margin for the quarter.
However, excluding this depreciation on acquisition-related assets and related deferred tax, the group has an effective tax rate, which is about 10.7% for the year. We had another strong cash flow for this quarter, SEK 126.3 million, and this is, like Håkan said, 93% cash conversion against EBITDA. We further decreased our working capital despite that we are able to increase our sales, which is great. And, yeah, just like Håkan said, we have done the minority acquisition and also amortized on our loans. And one other thing is that despite the fact that the interest rate has continued to increase, our interest expense has actually decreased due to the fact that we have now a lower debt. And our net debt to EBITDA is now at 2.63%.
This is compared to 3.39%, which we had at December last year. Some annual numbers. Net revenue was at SEK 2.3 billion, an increase of 27%, which was 50% was organic growth. And like Håkan said, all geographical markets have shown growth, which is great. And operational gross margin of 55.4% is a bit lower than last year, but that's mainly due to product mix. We have had raw material cost, which has increased, and we also had higher inventory write-off this year. The operational EBITDA is about SEK 500 million, this is an increase of 14%, compared to SEK 440 million last year. OpEx is adjusted for the reclass and acquisition cost.
If I adjust the OpEx for the reclass and acquisition cost, we are at the same level as last year. However, Amazon represents 35% of the external cost this year, compared to 25% last year. So if we think about the remaining external costs, we have actually had a decrease as part of sales from 14% to 12.6%, which shows then the scalable operations. The operating cash flow is SEK 444 million, a positive effect of working capital for the year of SEK 60 million, due to less inventory and also an increase of operating liabilities. Investments in tangible and intangible assets, so CapEx, amounted to SEK 36 million for the year. That's about half of what we spent last year, and it's about 1.6% of net sales.
Last year, that was 3.6%. In addition, we have also amortized SEK 200 million on our loans this year. Our rolling four quarters continue to show a nice trend, of course, this is the full year numbers. Product and brand split. I will mention a few. Nutraceuticals, which is the largest product group, has shown a growth of 24%, compared to last year, and 35% for the full year. The product PlaqueOff has had a fantastic, and not just another fantastic year. It increased with 46% compared to last year and 50% for the full year. It's mainly the powder which is behind the increase.
There has been efforts to remove third-party sellers, at lower prices, and they have begun to yield results, which for us results in a higher sales price for the product. There's also been a very strong increase of Soft Chews, for the quarter and also for the year, and this only includes the launch of Soft Chews on the U.S. market, because the launch in Europe will take place this quarter. The Topical and Dermatology is down, or it's up this quarter, but down for the year, and this is partly due to this ingredient, chlorhexidine, which is found in many of our products that we sell online. This ingredient is a prescription ingredient for humans, but not for pets. However, Amazon's algorithms and guidelines are still influenced by this.
We did, we had to do a necessary write-down of some of these products, and also, we have lost revenue because of this. It's about SEK 20 million for the year.
Yes, looking at the different regions. North America, net sales of SEK 474 million , that's 77% of our total sales, had 19% growth. So steady and good growth, despite having some entities that didn't perform as well as others. But we see that we have built a very good foundation for going into 2024. So for the vet channel, that was a bit disappointing, as a whole for the year. We see a strong comeback in Q4, and also we have a good trust in the vet channel going into 2024.
So it's looking solid and coming into the vet channel, Vetio South and Vetio North, as you know, had a tough year. And we all expected a solid recovery in Q4, and we absolutely had that. So we're back on track at roughly 20% growth in both entities, and looking good for 2024. So the highlights for the different entities there, you could say that Vetio North was very dependent on a couple of customers going into 2023, and there we had a setback with a big project. So that affected us, but we have come out really strong there. Have several new customers and a full pipeline for 2024 going forward, so looking really well.
And for Vetio South, we had some challenges in the manufacturing lines, and we have come out of that as well. So really strong second half year in Vetio South, and also looking good for going forward. So it's been a bit tougher year for those two entities, but really have delivered what we expected and said in the beginning of the year that we had a plan to get back. So looking forward to 2024. A couple of different group companies that really were successful. Pet MD continues a really strong growth, 44% for the quarter. ProDen PlaqueOff 46%, and that's including a launch now in basically all of the big box retailers.
So, we launched the ProDen PlaqueOff for the first time with PetSmart in January, and those were shipped in Q4. NaturVet 20%+, and have also had a really strong contract manufacturing demand. So, really we are now able to offer contract manufacturing capabilities as well, and that's a very good has very good positive effect on our profitability from the manufacturing point of view. The relocation of Rx Vitamins was a big project that moving it down from New York to Tampa. Also the transition, so Lynn Bowgren has taken over as new CEO. She has a background in distribution and have made a revamp of the brand and also expanded the product line.
One liquid dermatology line that we manufacture ourselves is being launched now in Q1, and we have also, for the first time, launched one Soft Chew product within the Rx Vitamins line. So it will be really interesting, and we have also, for the first time, this in 2024, we will be going into national distribution with this brand. We have not had that previously, so that's exciting to see. Geoff Granger, as we announced, came in as the new CEO second half last year, and he has now fully taken over from Scott Garmon, the founder.
Now Geoff took over in December, and he's building, not a new strategy, but adding some important features so that our biggest brand will continue to have strong growth. Vet Classics, it was a veterinary-focused brand that was within the NaturVet Garmon line. It's still being manufactured there, but we have moved the distribution and sales responsibility to our vet division based in Tampa. There will be some changes and offerings for that brand.
We have also a fully operational new Swedencare North America distribution center, where we will, over this year, move several of our group entities that are based around Tampa into this distribution center, and we see lots of opportunities preeminently from a cost perspective that will definitely help us improve our group margin. Several projects going into 2024 when it comes to sales synergies and cost savings that been focused in 2023, and we will see effects of that in 2024, definitely.
Looking at Europe, continues to have a really, really strong growth from Q3, 53% growth, SEK 134 million in sales, and that was 21% of our group sales. We see all of our markets we're in that the demand is high in all channels, so nothing is really sticking out. Double-digit growth on most European markets. Some exceptional, Spain, 57%, Ireland, 63%, and that's really based from lots of internal demand when it comes to manufacturing from Ireland. Greece, France, Innovet Italy, and Nutravet, they had all their best quarter for the year, and so happy to finish out strong. Vetio UK surpassed its combined sales for the first nine months in Q4.
So, it's really from Q4 that both from internal demand and also external that we see the movement or the expansion and demand for Soft Chews in Europe is really taking off now. So we're excited about that, and every two years, the biggest pet expo is in Nuremberg. It's called Interzoo, and this year, it's always in May. And we're very excited to be presenting and launching couple of new brands and also the product ranges that has Soft Chews at that show. So we're preparing that.
Swedencare Ireland has been building up the capacity for soft chew manufacturing, and it's ramping up, and it will continue to ramp up in 2024. Swedencare UK had not a growth quarter, but that was expected since we are moving from vendor to FBA on Amazon, and that means that we will have the full top-line sales on Amazon sales in Europe, and we will also be more in charge of marketing and how we present the product. So, very excited about that.
We've had a good collaboration with Amazon, and we will continue to have that, but we will be more in charge of the marketing so that we can fully utilize our, our strategy and capabilities that we have successfully done in the U.S. So, it will have a very positive effect on sales in, in 2024. But I expect Q1 to be a bit slower also for Swedencare UK, since Amazon is selling out its inventory in this quarter. And exports, SEK 18.2 million , 3% of total revenue and had 70% growth. Behind those growth numbers is basically, lots of our group companies is starting to focus a bit more on exports and also from the Swedencare Group.
We are helping out with distributors where we're not present, and I expect the trend to continue very strongly for the exports. Some highlights, Vetio North had a new Asian customer, and that continues to grow. We h ad one big project start up in Q2 or Q3, and that customer awarded us a new project in end of this year. And there are several more in the pipeline for that, so exciting to see. Increased sales and interest of FlavorPal.
For those of you that do not know, it's a flavoring product that utilized for pharma products predominantly, and we have a very high interest there, 'cause it's a fairly unique composition and good results. So it's a longer process in adding FlavorPal to existing drugs, but for all of the drugs that we develop for other customers, we propose this FlavorPal ingredient. Most customers accept, and you can expect that section to grow basically, definitely year by year, but probably over every quarter as well. NaturVet and Rx Vitamins have primarily Asian sales, and it's increasing.
So, we're helping out there, launching a bit new on a couple of new markets. ProDen PlaqueOff sales were solid. Some markets really good and still waiting for the China comeback, and hopefully 2024 will be the year. We have positive indications on that. And one other aspect of China that's really gratifying is that our manufacturing site in Ireland they have been applying for getting on a GACC white list. That means that the manufacturing site is approved for exports to China, and it's a complicated process and definitely has taken a lot longer than we expected, partly due to COVID.
We applied during the COVID years, b ut that is finally, finally approved now, so that gives us a completely different opportunity to export supplementary products into China. So that we are ramping that up for 2024. Looking for priorities in the coming year, it should be 2024, not 2023. Basically the same as we have communicated to the market. Growth and profitability and lowering debt level, that's the overall, I mean, what we focus on. We have so many opportunities to grow faster than the market, and we are really, really, as a group, coming together better every year and every quarter that. S o we have had several, let's say, internal meetings, both in Europe and in the U.S., and for the different channels.
So you can definitely, I expect that we will continue our growth journey and the profitability to increase the coming years. Execution on synergies, sales, and cost savings, yes, lots of opportunities still. We are predominantly focusing on all of our customers and value creation for them, but of course, we do have lots of internal projects that will help us improve our business as a whole. Continue to move from external to internal, that work continues. We will probably never get to 100%, and we don't need to get to 100% because we have some smaller products that we don't see the reason for us to produce. But definitely, we will be marching towards the 90% in the coming year.
Strong pipeline, both from a customer collaboration perspective, in all of our channels. Product launches continues all year for all of our group companies, both, let's say just adding new products from one brand that we already have, but we also have lots of exciting R&D in our pipeline. So expect us to be launching new products in all of our brands this coming year. Other more integrated corporations are developing with major players in the market, and we are always open to that. And discussing M&A, we have communicated that we are interested in getting back a bit more, perhaps on the M&A trail, and there's lots of interesting companies that we have discussions with.
So let's see, when and if it happens, but that's it's a focus area for us to add new interesting companies to the group, where we see that they can add new things to us. And also looking from a geographical perspective, we are widening a bit in the scope. So we're looking at Asia, New Zealand, Australia, interesting markets where we don't have physical presence. So that could be, that's probably a focus area for us. But the overall importance is really the perfect fit for our group when it comes to company growth and profitability, and most importantly, the, let's say, culture of the business and having the same priorities that we do as a group.
And then just a small, small, indication is that 2024 has started well, a very strong, strong start, lots of things happening, lots of expos, and expecting definitely double-digit growth going forward. Thank you.
By that, we are open for questions, and the first one comes from, Richard. Please go ahead.
Right. Good morning, and thank you for taking my questions. So, Håkan, a bit of a follow-up there on the number of new product launches this year, and how many do you have sort of lined up for 2024? So that would be the first one, please.
I would say roughly 10. And that's all over the different brands. But if you add product offering expansion from different brands, then there's a lot more. Looking at the, for example, the dermatology products, we haven't been selling dermatology products in Europe, and we are just about to launch a couple of dermatology products under the Nutravet brand. That will be launched now in a couple of weeks at the Crufts, the biggest pet dog show in the world, actually. So that will be exciting to see. We have branded four or five products that will be launched there. But I would say completely new products, it would be around 10.
Right. That's helpful. And what are you planning for price increases in 2024 versus what you did in 2023? That'd be helpful as well.
The main price increases in 2024 is gonna come from Vetio because of the higher ingredients. So that's gonna be in the range of 5%-10%, but the other ones are close to 3%-5%, I would say.
All right. That's helpful. Just to follow up also on sort of current trading dynamics. You mentioned good start to the year. Is it sort of low teens or like low double digit, if you will? You know, consensus seems to be around 12%-13% growth for full year and EBITDA margin, you know, 25.5 for full year 2024. Does that align with your expectations, or would be interesting to hear your thoughts on, you know, how to set the expectations for next year? Because there was some extraordinary things happening this year, both on top line and profitability, right?
No, yeah, I would say definitely. I should say that I expect us to continue to have double-digit growth every quarter. Looking at the individual month, it's a bit, yeah, perhaps not a good, let's say, reference. But, I mean, it started really well this year. But I definitely expect that we should be delivering double-digit growth, probably closer to 20 than 10.
All right, great. And on the margin side, just to sort of frame expectations, how big of a step up should we think about for next year? You know, is it sort of like that 25%-26% level? Does that sound reasonable, or is it, you know, where should we think about then full year margin dynamics for next year?
No, but as Jenny said, looking at this quarter, we, without the, or adjusting for some one-offs, we would be around 25%. And so I don't expect us to deliver less than that, because we have put in place lots of new, let's say, processes. So we will not, we do not expect to have those kind of one-offs in 2024.
Perfect. That's very helpful. I'll get back to the line. Thank you for taking my questions.
Thank you. Your next question comes from Adela. Please go ahead.
Yes, good morning. Adela Dashian from Jefferies here. Just one question on your M&A pipeline. Obviously, the main focus seems to still be, at least now in the very short term, organic growth, and you're seeing good potential for that. But if you were to compare, I guess, your current funnel versus what you had at this time last year, do you feel like it has materialized in a certain way? Y eah, maybe start there on M&A.
What has materialized?
Your pipeline.
Ah, okay. Okay.
Your pipeline.
Yeah, I would say that 2023 was kind of a bit different year for the sector as a whole. A bit cautious, and also saying that sellers expected perhaps a bit higher multiples than the buyers were thinking about. So it's really has been a year of the market settle itself. So I think it's more realistic expectations now, and also the prospects of having a lower interest rates going forward. I think that probably helps the appetite. And I think most predominantly also that the market has seen that the industry as a whole is very solid and there is growth as a whole.
I would say that some players that were very cautious last year are being a bit more active on the buy side, and then on the sell side, people have realized that perhaps the 2021, 2022 multiples is not really realistic now, s o let's start to discuss. So I would say that the pipeline is definitely there. There are more discussions than, let's say, a year ago.
Okay, great. So it's a combination of prices rationalizing versus last year and better opportunities, I guess, for you to take on now with [crosstalk]
Exactly, and also-
Coming down.
Exactly, and also from our perspective, I mean, we communicated that 2023 would be a bit slower year, and we're really focusing on getting the debt levels down, and we have continued doing that. So and we are happy with the growth of the company, and that also helps us. I mean, so yeah. So it's both predominantly from the market and the expectations, but I would say also from our perspective, we weren't really on the M&A trail last year.
Great, thanks a lot.
Thank you, and your next question comes from Johan. Please go ahead.
Yeah. Hi, good morning, guys. Thank you for taking my questions. Starting off with a question on the production segment. It grew sales pretty, pretty impressively, 30%, I feel, think like full year 2023. Given your positive comments on the order backlog in Vetio and sort of the operational issues being mostly behind us, what can we expect in terms of sales growth in 2024 for the segment? That's my first question. Thank you.
I haven't really communicated that, but definitely that it will probably. It will be stronger, one of the stronger for us, both from a, let's say, internal perspective, the demand that we have there for our removing and also from external position, that we are more built to serve more external customers, and there are a big demand. So I will say that, my expectations on the production side is that it will be one of the stronger sections of our business.
Okay, got it. And the question on gross margins then. There were a lot of adjustments and cost of sort of one-off nature in the quarter. And also, you've talked previously about price increases in Vetio going into 2024. How should we think about sort of normalized gross margin coming quarters?
Well, we would've been at 56 or something if I take away the adjustments, and I expect them to be a little bit higher now when we have price increases going through. Then, we also have some projects where we are working on the raw material costs. So I expect it to be a little bit higher than the current 56. So somewhere between, yeah, I don't know, 57 maybe, or something like that. I communicated last year that we were hoping to be at 58. So yeah, that's what we're aiming for for the end of the year.
That's very clear. Thank you. A question on cash flow and working capital. You mentioned lower working capital. Do you expect this trend to continue in, into 2024? And, and if so, by what magnitude?
It's difficult. I didn't think that we were gonna be able to decrease working capital further, actually, in this quarter. We did. We did SEK 60 million for the full year, which I think is quite impressive, if you compare it to our growth. Due to the fact that we are expecting high growth last year or next year, or this current year, I would be fine if our working capital is flat. So maybe there's a little bit of improvement, but I don't expect. I think we have pulled out a lot of the improvement so far.
Okay, great. That's very clear. Thank you. Also a follow-up on CapEx. Same question there, really. Do you expect to see the sort of similar trends into 2024 with CapEx coming down, or should we expect CapEx in relation to sales to be in line with the numbers in 2023?
We have communicated that we're expecting CapEx to be around 3%, so it was a little bit lower this year, because we did a lot the year before. I would be fine if our CapEx to sales is 3% this year.
Okay, thank you. And then-
Like Håkan mentioned, I just, I just wanted to follow up on that. Like Håkan mentioned, we are doing a lot of investments right now to improve our Soft Chew production, especially in Europe. So I expect it to be a little bit more investments due to that than a couple of ones in the US, so 3% of sales.
Perfect, perfect. Great, thank you. And the final question on gearing, actually, is I struggle to get the math straight, because your full year 2023 operating EBITDA was roughly SEK 500 million or SEK 499 million. And you reported a net debt of roughly 1.4 billion. According to my math, that equates to a gearing of 2.85 x. Could you just help us understand how you get to the reported number of 2.63, please?
Yeah, it's partly including a pro forma EBITDA. So the entities that we own at the end of the year, you use the pro forma EBITDA for the full year. That's one of the difference, and also it's adjusted for the leasing, the IFRS 16, the leasing adjustments.
Okay, got it. And what are your sort of long-term? Yeah, I know you've communicated that you're sort of planning to reach levels below 2x EBITDA at the end of 2024. But beyond that, what is sort of your long-term targets in terms of gearing? Do you feel like it's something that you will continue to have going forward? Or, given your strong cash conversion, is that something that belongs to the past, and you can become net cash and sort of finance acquisitions through your own cash flow? That's my final question. Thank you.
I think that all depends on what kind of targets we're looking at in 2024. So if we are not making any big ones, similar to what we did in 2023, I think we will be at 2.0. But I'm not saying w e have not set a long-term target. If we wanna be at a positive net debt or we haven't set that, but I will be quite comfortable to be at 2.0.
Yeah, and also development on the interest rates.
Yeah.
I mean, that depends. No, so we haven't set a, let's say, fixed target.
Thank you so much for taking my questions.
Thank you. Next question comes from Christian. Please go ahead.
Yeah, good morning, and thank you for taking my question. I was wondering if you could elaborate a little bit on your acquisition agenda that is focused on finding assets that bring something new to the group. What are you missing in your product portfolio for the current moment?
I mean, we have a solid portfolio, so I wouldn't say there are any big gaps. But of course, as we now have entered into the organic treats with Riley's, we do not have the capabilities of those kind of products. The full protein freeze-dried and that could be something that we would look into, but that could also be set up from a greenfield. But otherwise, it's more looking at, let's say, niche products that could expand in areas where we are strong. For example, we are always looking for interesting oral care products.
We are looking for interesting, let's say, new innovations when it comes to ingredients. So, I wouldn't say that there are not any big areas where we see a big gap. T hen also coming back to the question, I said that we are a bit focused, looking at some interesting geographies. And when it comes to geographies, we are a bit more open to perhaps make an acquisition where there's a company that has similar products of ours that we see as a good starting point for that region or for that country to launch new brands that we have.
I would say that it's dependent on which geographies, how focused we are on getting the uniqueness into the group.
Thank you. That's very clear. How easy or difficult would it be for you to make acquisition in China, for example?
Yeah, China is a bit special market, as you all know. So I wouldn't say it's probably not an easy transaction, and it's not that many interesting targets there. Because China is really a, let's say, start-up market still when it comes to supplementary products where we are active. I mean, China has grown a lot within the pet sector, but that's predominantly within pet food. So I would say that China is probably a challenging market to find a really good target for us.
Okay, great. Thank you very much.
Thank you. That concludes our Q&A session. Back to you for any closing comments, guys.
Thank you so much for the interest, and Jenny and I, and the whole team are really excited for the year to come, and looking forward to presenting next quarter for you.