Hi and welcome to the presentation of Swedencare's Q4 Reports led by our CEO Håkan Lagerberg and CFO Jenny Graflind. We are pleased to have Brian Nugent, the CCO of Swedencare North America, joining us with a presentation during today's webinar. As usual we will have a Q& A after the presentations. Please raise your hand if you have any questions and we will answer them in the end. Over to you, Jenny and Håkan.
Hi everyone. Håkan Lagerberg here together with Jenny Graflind in Malmö. Then we have Brian Nugent early morning in Tampa, Florida joining us for presenting the U.S. Veterinary Division. Okay, let's see now. Year End Report Q4 2024 Highlights Sales and EBITDA are at an all time high but growth is not where we wanted to be. We had organic growth of 4% so it's below our expectations. It's somewhat the same story as last time with our biggest group company NaturVet having some headwind in the quarter with 21% organic growth decline and rest of the group altogether 18% organic growth. We just need to get NaturVet fixed and then we will be at our growth targets of double digits as a whole group. I will come back and explain more about. The road forward with NaturVet.
Other highlights we were accepted for trading under the ticker SWTCF on OTCQX in New York and the reason for this is our strong presence in the U.S. You all know that it's plus 70% of our sales are in North America and looking at our shareholder base we have a majority of European investors definitely looking at on the retail side we have several North American institutional investors but we have had requests and also think it's interesting to facilitate the trade of our share in North America, so we will follow this closely and see the development of predominantly retail investors.
We also had another VOHC recognition for ProDen PlaqueOff. Now it was for our fairly new soft chews where we made two clinical studies and could prove that it's effective against both plaque and tartar. Many products on the market that have VOHC seal are actually either or not that many products have both for plaque and tartar. So we are very happy and proud about that. Looking at our sales channels it's not an exact, let's say a detailed science because some of our distributors and big retailers we don't get the split there but fairly similar as it has been 40% online sales, 30% pet retail and 30% veterinary.
If you're looking at the two different main regions that we have, there's a bit higher percentage in the U.S. on the online compared to in Europe where we are a bit higher on pet retail and on the veterinary side but not that big differences.
I've also received a number of questions both from the board. And also from investors about the situation regarding potential trade wars and tariffs and what strategy you have and if we are prepared. And as many of you know is that we have focused on having manufacturing local. So we have manufacturing hubs in the U.S. for North America and also development site and manufacturing site of Rx products in Canada and then we have both in U.K. and Europe to handle the Brexit situation. So but we have not created this out of let's say the strategy of avoiding tariffs. It's really down to having secure product supply and also from a sustainability perspective that we definitely want to avoid long unnecessary transports. So that has been the main strategy for us is to have local manufacturing. But of course it's convenient to have now when we have analyzed the situation.
Basically. I wouldn't say we are unaffected but a very very small percentage that comes from different r egions. If you're looking at U.K., Europe, and U.S., so we are very local there with ingredient supply, material supply, packaging, so we're well prepared. The only, let's say, long-term issue could be that the pharma division that we have many of the products that are manufacturing in Canada are going into the U.S. market. However i t's long-term processes of moving manufacturing projects from one facility to another, and we have the competence so if it would be problematic between Canada and U.S. We are in a position to be able to open up manufacturing facility in the U.S. also for Rx products.
Furthermore, the board has proposed a dividend of SEK 0.25 per share increase of 9% compared to 2023, and in line with our p olicy that if the board thinks. Let's say it's according to our policy that we could give a dividend up to 40% of the earnings. Jenny.
Yes, some financial highlights for the quarter. Like Håkan said, we had another gross sales quarter of SEK 661 million which represents 4% growth. 4% of this was organic growth and 1% was acquired growth for the full year growth. The organic growth was 9% and the acquired growth mainly came from MedVant, a Canadian business that we acquired in August 1st. Our operational gross margin was the highest since 2022 with 58.5%. This is in line with our expectations. We have earlier said that we'd like to be around 58% and this quarter was slightly higher due to the fact that we had lower inventory adjustments. Also we can finally see some improvement in purchasing. The external costs are increasing with the growth of Amazon as some of those costs are directly linked to sales.
In addition, we had SEK 9.7 million of additional costs this quarter, and this includes a non-operating legal settlement from prior years, as well as we have done a rebranding project in NaturVet, and also we have some reserves in accounts receivable. As a result, EBITDA is at all-time high SEK 145.3 million for the quarter. The EBITDA margin is 22%, and that's a growth of 9% compared to Q4 last year. The net results are impacted by lower interest cost. Of course, we have lower interest rates, and also we have a lower debt level. In 2024, we booked the tax cost and adjustment throughout the year compared to 2023, when a large adjustment came in Q4. So, these two items caused the increase of net results. We had a negative SEK 13 million last year, and we now have a positive SEK 23.8 million this quarter.
Yes, and the net income from for the whole year for 2024 is at SEK 98.9 million and that's an increase of 69% compared to last year. I can also mention that the effective tax rate for our group is at 11%. We continue to decrease our net debt to EBITDA which is now at 2.05% compared to 2.63% one year ago. In the quarter we have repaid SEK 75 million on our loans and for the whole year we have amortized or repaid SEK 200 million. In addition to that we have used our own generated cash flow to invest in some acquisitions which you would probably know about. That is a total of SEK 107 million for the year. Operating cash flow was at SEK 81.7 million for the quarter and at the end of the year we had SEK 186 million of cash.
Since we're closing the year, I just want to give you some highlights for how we finished. We finished with net revenue which amounted to just about SEK 2.5 billion. Like I said, 9% growth compared to 2023. Gross margin was at 57.7% for the year and EBITDA grew with 14% this year to SEK 560 million and a margin of 22.2%. Rolling 12-month is of course the full year and this quarter. But as you can see, we have had a nice trend of growth and profitability from 2021.
Product and brand split, we have had a decrease in nutraceuticals, which is our largest category, of 8%, and this is due to the decrease of NaturVet, which mainly sell products in this category. Pharma, it's a quite small category still, but a very nice strong growth of 37%. We are growing with mainly manufacturing volumes here in pharma and dental, which is always nice to mention that mainly includes ProDen PlaqueOff and a few other dental products grew with 54% for the quarter. This category is now 18% of the group's total revenue, and the main contributors in this product group is the ProDen PlaqueOff powder, but also the soft chews that had a nice growth, but also Restomyl. That's a series where we have launched a new toothpaste during the quarter, and that's been well received.
Few comments on the brand split. The largest decrease is in private label which Håkan will talk about. The contract manufacturing is absolutely worth mentioning. We had a growth of 22% in the quarter. The production segment has grown with 20% for the quarter and 28% for the year. The strongest growth we can see in Europe. We had actually 97% growth in 2024 compared to 2023. This is mainly driven by the increased soft chew production which we have in the U.K. where capacity has been built up during the year but also in Ireland where we have also invested to increase capacity. Our Italian company has also had a great year with their record sales and far above market growth.
Looking at the region's net sales in North America, almost SEK 475 million, 2% growth. Biggest, biggest driver dental as Jenny said and predominantly in pet retail and online. We have now also made a new launch for the veterinary side that Brian will mention where we sell basically the ProDen PlaqueOff products under a new brand focused on the veterinary side. Production and online strong, pet retail a bit weaker, and veterinary side also.
Let'S say. It's stable up but not that double digit growth where we like it to be. Pharma division really strong, best quarter ever. And the interesting thing is that we are now really seeing the effects of our development projects materializing in manufacturing. So the split between manufacturing development continues to even out. So a very strong quarter for the pharma division and we expect the 2025 to be strong for the pharma division. Manufacturing will be a bit lower in Q1 due to inspections and some refurbishment of the manufacturing in Q1 but then Q2 and onwards will be really strong.
When looking at the manufacturing side, NaturVet's last negative quarter as we expect. I will go into depth that in next slides. Treats categories worth mentioning Wireless. We acquired Riley's Organic Treats in the beginning of last year and has been a really successful last year and we're expanding the product category and also looking to expand into new markets. There's been a lot of interest in new markets but we have chosen to focus on the U.S. from the beginning. But now we're looking at some new markets, both Europe and some Asian countries.
MedVant has started to analyze and prepare to expand their product range and brands that they sell into the Canadian market. Analyzing different brands that we have within the group and also, when that process is over, the registration process starts in Canada, which is a complicated one and one of the reasons why we wanted to acquire an entity of our own in Canada because it is a complicated regulated market. We have also added some key sales addition in resources in North America in a couple of different group companies and really looking forward to see the results from that.
NaturVet. Yes, just a sum up of 2024 organic growth in the quarter -21% and full year 10% and that is of course not where we want our biggest group company to be. So the reason for the low numbers in Q4 was predominantly from the private label. Three largest accounts pushed orders into 2025 different reasons but 2024 was a over 2023 was a special quarter last year since we made some changes in volume requirements and also price increases. So it pushed a lot of big orders in the end of 2023. All of the customers are on board and we have made a reorganization in that division to get better visibility and also to support our customers better. So we have changed the working methods more focused on business development. And, together, making a plan for the coming years.
So, I'm confident that private label these three customers we know already that Q1 will be better and also Q2 but also in longer term we will be more focused in helping them to develop their business. Looking at the branded sales down overall a bit. But there was growth in our distribution line. Chewy, t he biggest customer after Amazon and also second biggest customer was down when it comes to pet specialty. They also grew. So what affected the quarter and the branded sales was that our biggest pet specialty customer was down and it has been down for the full year due to the launch of competing brands into their assortment.
However, 2025. Yes, we are very confident that 2025 will be quite different. Here we have received confirmation that they are bringing in our new innovations and also expanded in-store presence. So we are very glad that we have been able to have those discussions and also develop our offering in their chain. So looking forward to that. Amazon sales, sales to consumers, what we call out the door are up 9% for the quarter and there you might recall that we are transitioning from selling through a partner to our own Amazon sales and that will b e transferred end of this year.
This resulted that our partner wanted to have inventory at a bit under three months' inventory and historically they've had four to six, so that's why our sales in this quarter was 7% down. However, going forward our sales will definitely reflect the out-the-door sales and January out-the-door sales are 10% up, so you can expect that if we continue to drive sales this year i ncreasing our sales, then our sales will increase to our partner as well.
What will happen in 2025? Yes, the team we have brought in they have been working very diligently and the sales processes for large account is long. So it's 12 - 8 months from where you see results. So we are starting to see results of the hard work being laid down and the new strategy. So as Jenny said, at the end of the year and early this year we have concluded or are about to conclude a rebranding project for the NaturVet brand that has cost a lot of time and resources but we want to do it correctly. So we're very excited to be presenting that at the end of March at the Global Pet Expo.
And then we have been working very hard to expand and strengthen our relationship with all the top branded customers, all of the big chains and retailers, and it has given the sought-after effect. So, in all of our big accounts, we will have more presence in store, launching more products, and also have better visibility for our brands. So w e are at good terms with all of our big customers, and as you may recall, we started in 2024 with a couple of SKUs with the biggest pet specialty retailer in North America, and that collaboration has gone good.
So we have already in Q1 added a couple of more SKUs. Q2 we will have a special program for 400 stores expansion with an even larger product offering and what we are waiting for is really the key expansion opportunity in Q3. That one is not decided yet but we are. Yeah, looking forward to the final decision there. We have had really good discussions about that, looking at private label. As I said, more visibility and less dependency on a few accounts. We have secured two new major accounts. One private label brand w ith the top-tier pet specialty retailer who closed down their private label program last year.
They have now rethought that and are launching a completely new one and we will be supplying that. We also have secured a private label program with the nationwide pharmacy chain and we are also in discussion for them to launch a couple of our branded products. Big box retailers, lots of focus on that. From our side we have online presence with three big box retailers or will have when the quarter ends and that is basically a prerequisite to get into the physical stores. One small big win that is very new is that we have received a n opening of a small side wing confirmed for 1,400 stores end of Q1, so we are gathering the resources here with the largest seller of pet health, the biggest big box retailer, and we are expected to get the decision on a significant presence in that retailer at the latest by the end of the year, so we're excited about that and Target and working diligently to add more before 2025 is over.
How has 2025 started? Sales are up and we predict NaturVet to basically be stronger quarter by quarter, so no more decline in sales for our biggest group company. Europe has continued the success story of the year. 20% growth for the quarter dental strongest product group. Also coming back to dental. It's really important to understand also why we are able to be so strong in dental is that we are utilizing many of our group companies when we sell dental. So the success for ProDen PlaqueOff wouldn't have been possible in the same way if we wouldn't have had for example NaturVet opening up the big pet specialty retailers for us and for us to continue working with all of the smaller brick and mortar store from our original setup and also having like we have in North America.
Coming back to that. Sorry for that, speaking of Europe, but coming back to that, our online team in North America have made a fantastic job with our online sales for ProDen PlaqueOff. So it's an important key to remember when looking at the success of ProDen PlaqueOff. It has been made possible due to the fact that we have added lots of new competences into our group with different group companies and utilizing their capacity and potential. But looking at Europe continue to be very strong. Looking at the dental U.K. a bit mixed market, very strong in our Amazon sales. As you know we took that back from Amazon so we handle that ourselves now. So we expect that to continue to be strong growth in 2025 as well on our sales there.
Weaker veterinary market. However we do feel that. There has been a swift change. End of Q4 and also start of 2025 has been good both due to product launches but also the sentiment in the market. I think the U.K. veterinary market is starting to rebound. Italy Nordics had another fantastic quarters been working really really hard. Nordics is a small market but have had excellent growth all year. Italy as Jenny said has been a fantastic market for us. Starting to make a bit more noise in finding new markets around the world for the Innovet products. We start the more extensive collaboration with Zooplus in Q4 and especially with the NaturVet by Swedencare. A promising start, a couple of reorders so we're looking forward to keep on growing that in 2025.
Several product launches in the quarter and that will continue in 2025. In our report we present some of our product launches that have been made in 2024 and many of them have not really made any big impact on our sales but will have in 2025. Manufacturing production as Jenny said has been fantastic in Europe especially our new U.K. facility up and running, our Irish facility adding new capacities, so really been a strong end of the year and that will continue in 2025.
Rest of the world down 5%, but as we highlight here, is that it's down due to the fact that we in 2023 had a development. Manufacturing project for clinicals for an Asian customer that was large and that of course impacted our sales. Those are more of a lumpy nature and not continuously, so looking at without the pharma impact, our export sales actually increased by 37% for the quarter. Asia top region, China bouncing back and Japan and South Korea continuing to be very strong market for us in Asia. South America, Brazil, Chile, Uruguay stands out in the quarter and also for the year I would say. We are excited about t he opportunities in South America.
Looking at the smaller or specialized project, we have continued to add new collaborations when it comes to pet food, so we now have f ive projects with brands where they include ProDen PlaqueOff and utilize our brand on their marketing and that has the couple of new ones that started in 2024 have had a really good launch so we expect that sector to keep on growing in 2025 and we will be adding a major brand in South America already in Q2 2025. So looking forward to updating you on that f or further on.
Priorities 2025 and what happens in the near future. It's really down to growth and profitability. That should be our signum and we continue to focus on that, so we are dead set to coming back to double digit growth. Not happy with the 9% growth for 2024, so that is a focus area for us and also that our increased gross margin will start to show also in the profitability bottom line, so lots of focus on that. I put the lowering debt level. I wouldn't say we don't question that but we are at 2% net debt to EBITDA. So I would say that it's not that much focus as before to get the debt.
If we do not use the funds that we generate because we will continue to be cash flow positive every quarter going forward. We will of course use that to amortize our debt but it's not such a focus area as it has been the last let's say two years. Capitalizing on 2024 strategic project, w e have lots of projects together with partners that will start showing our numbers and I will present a couple of over the year to come M& A reactivation. I would say that we have been making some smaller M& A. The market as such started to pick up in 2024. More activity in our industry and we of course with the debt level have gone down for us and the situation we are in.
We were of course looking a bit more open in discussing and looking into M& A opportunities. So I would say we focus on geographies where we're not present and also targets with unique features to our group. So from that you can read out that we focus on some geographies in Europe and APAC area and also if we can add something new to the group that's important for us and we have some opportunities there. I do expect us to and hope that we will be able to make some acquisitions this year. Product launches and development. As I said we have lots of product launches and development ongoing. So really excited about that. And also as I can come back to saying that the manufacturing and the pharma division is at the next cycle point right now.
Also looking forward to get the results for our biannual employee survey. For those of you that remember we had really good results last time we did it for the first time. But of course there are always things that you can improve and we have been working hard with that with the local leadership and different group companies and also from a group perspective, so excited about seeing the results from this, if our efforts will generate even better results and then sustainability is of course focused area for us. And we will be finalizing and presenting our targets during 2025. And I think in the next report we will have some presentations about that or the next draft. I don't know. You do?
No. Let's see. We will present it in 2025 at least, and with that I would like to introduce Brian Nugent, who has been with us since 2020 where he came on board. He was the CEO of Stratford, and he will present Swedencare North America U.S. Veterinary Division.
Hello, my name is Brian Nugent. I am the Chief Commercial Officer of Swedencare North America. My responsibilities include oversight of Swedencare American veterinary and online channels, and today I'll be specifically providing an update on the U.S. veterinary market.
Swedencare U.S. Veterinary brands i nclude Stratford Animal Care, Rx Vitamins, Vet Classics, Animal Pharmaceuticals and the newly launched ProDen Dental Care. These companies share a common mission which is to be the leader in the advocacy and innovation to the veterinary community by providing premier products and practical business solutions that support the growth, profits and success of veterinary practices.
Our veterinary commercial and operational teams have been busy and spent the last year and a half consolidating operations to a centralized distribution facility in Tampa, Florida, shifting from external to internal manufacturing, cross training and integrating sales, service and marketing. We are poised for growth in 2025 and beyond. Also, just two weeks ago, we all jointly presented these companies at the VMX Global Veterinary Expo in Orlando, Florida where over 33,000 attendees were able to see our combined Swedencare U.S. vet solutions for the first time.
That is a picture of a very busy booth. And as I mentioned, the VMX itself was also very busy with over 33,000 attendees. And I'm pleased to mention that the new Swedencare booth was one of the busier booths in the entire expo where we were able to meet with current customers, gain new customers and engage with prospective customers and future partners.
I will now provide an overview of our veterinary brands starting with Stratford. Stratford is exclusively distributed by MWI Veterinary Supply. Stratford sells products in three ways to MWI. The first is a traditional Stratford label. The second is we provide MWI with a private label brand called VetOne, which is the green label in the middle of your screen. And the third is the Clinic Custom Label program where we provide a unique label and brand for an individual veterinary hospital. I'll talk about this more and show you a little bit more in depth in a few slides. But interesting to note on that graphic, all three of those graphics are the exact same product. The only difference is the label that's on it. So we really work with our distribution partners to provide the ultimate program that most benefits their veterinary hospitals.
Animal Pharmaceuticals is currently distributed exclusively through Patterson Veterinary Supply and available in two options, the Animal Pharmaceuticals brands on the left, which essentially acts as a private label brand for Patterson and also once again our unique customized custom clinic label program that allows for an individual hospital to have their own label and it's the only place that that label exists was under that roof of that veterinary hospital.
Rx Vitamins brand, which is over 20 years old, is available through MWI and also sells direct to veterinary hospitals. This range tends to be a little bit more holistic and it's very unique in that it has extensive clinical and research on the products and specifically the ingredients. We also just recently completed a rebranding of the entire Rx line to include significantly improved looking feel of the labels and all the marketing and support materials.
Vet Classics is one of the most widely distributed of our brands and it's sold through MWI, Covetrus, Patterson and Midwest Veterinary Supply and only available in the U.S. in the Vet Classics label shown here. We have recently added the Stratford and Animal Pharmaceuticals dermatology range to this line. This dermatology range just coincidentally and also is 98% sourced internally fro`m Vetio, a Swedencare sister company.
Our most recent brand is ProDen Dental Care, and this is the new line that we just launched nationally at the VMX two weeks ago in Orlando, and it utilizes Swedencare's flagship ProDen PlaqueOff. The difference, however, is that ProDen Dental Care is available in a label that is very unique to the U.S. veterinary community. This allows veterinarians in the U.S. the assurance and recommendation of prescribing a product that is exclusive to veterinarians and not readily available on the OTC or online channels. This brand has already been picked up by major distributors such as MWI, Patterson, and Covetrus, and this range generated extreme interest at the VMX Expo. It's going to be very exciting to track the growth and trajectory of this product throughout 2025.
I also wanted to share a few insights of the industry. This some of these bullets were released during a think tank at VMX regarding the U.S. Veterinary 2024 industry year-end review. Vet visits overall in the U.S. were down, but the spend per visit was up. Vets are continuing to face a loss of business from online home delivery companies, especially Amazon and Chewy. Vets are desperate to find ways to help increase owner compliance. Hospital consolidation is still occurring, just at a slower rate than what it was in previous years. Estimated manufacturing brand growth in veterinary supplements and pharma was up approximately 5% as an industry average in 2024 versus 2023. Finally, declining pharmacy sales were the top two concern or challenge faced by vets in 2024. Staffing was number one.
It's important for us to understand the problems and the challenges that veterinarians face. The question becomes how can Swedencare help the vets, increase repeat visits, increase pharmacy sales, stop the loss of business to OTC and online channels? If you recall one of my earlier slides, the mission statement is we want to not just sell products to vets, but we also want to help them solve these challenges by providing them solutions as well as, and the solution to this question is Clinic Label. I spoke about this earlier, but I'll go in a little more detail now. Our Clinic Label is a very unique and proprietary program that allows an individual hospital to have their own brand of products that's only available in that hospital. It can never be found online.
Thus it drives clients back to the clinic when it's time to reorder. And we offer this as a service both through our Animal Pharmaceuticals and our Stratford Animal Care product lines through our distribution partners. We find that vets that private label have a stronger bond between pet owners and the vet. They have a much higher percentage of pet owners who return to the hospital when it's time to refill a script. And we know that more repeat visits equals increased pharmacy sales. So we really try to give them a winning strategy as well as premier products.
Another question is how can we help solve the issue of increased owner compliance and help increase pharmacy sales now? One example on the left side of the graphic is at VMX. Our teams launched a unique and exclusive finger wipe with a proprietary technology that we called KeraKleen. It is, if you've ever tried to clean your dog or cat's ear, you know it can be gross, messy, no fun for you or the pet. Our new finger wipes provide a significantly more efficient, effective and sanitary method in which to clean your pet's ears, mouth, wrinkles or even their body. The wipe, when placed over the finger, provides 180 degrees of surface area that can quickly and efficiently remove wax, debris, etc. It is a much more sanitary and pleasant way than previous methods.
Because these are easy to use and smell great, pet owners will be more willing to regularly use these finger wipes, which will increase owner compliance, thus driving pet owners back to the vet when it's time to reorder.
We strongly believe that companies who provide unique products and services and demonstrate a desire to not just sell to veterinarians, but rather offer practical solutions and innovative products and delivery methods will become the recommended partner of veterinarians in the U.S. from vets and their staff so that they can offer convenience to pet owners, resulting in repeat visits, increased sales. That these companies will grow above industry average, and that's where we want to be. A couple of initiatives I'd like to share with you that we're currently working on is consolidation of group brands and the U.S. vet market, so we're looking for one sales, one marketing, one service and one trade show team. And we are in process with that. We will be really kick that off at the VMX show and that will be completed by quarter two, 2025.
We will continue to add additional Swedencare manufactured internally products into our U.S. vet offering. Right now we are at a backwards integration of 80%. So that's to say that 80% of products we sell in the U.S. vet market are manufactured by Swedencare internally. And we will continue to collaborate with our Swedencare sister companies, specifically Nutravet and NaturVet in the U.K. And with that I'll turn it back to Jenny.
And by that we are open for questions and the first one comes from Johan. Please go ahead.
Yeah, good morning guys and thank you for taking my questions. Firstly, one on NaturVet, could you materialize the impact of the two private label orders that did not come through in Q4? And what's the timing effect on these orders? Can we expect them to come through in Q1 or Q2?
We are messing up to deliver in end of Q1 is the expectations. We have a plan now w ith very high volumes demand in end of Q1, so I would say Q1 and t he orders are. I mean, it's couple million dollar orders as a whole.
Okay, very clear, thank you. And the second question on NaturVet and branded sales, you mentioned that your biggest pet specialty customer will expand its shelf space and product assortment in 2025. Could you clarify this both in terms of timing and potential impact on growth, please?
Yeah, I would say. Compared to sales to that customer in 2024, I expect it to be double-digit growth with that customer and that will. The major reset will be in Q2.
Okay, got it, thank you. And continuing on NaturVet here, could you sort of elaborate on your agreement with the big box retailer in the U.S. As I interpreted and from your presentation today, you are launching in 1,400 stores at the end of Q1, is that correct? And well, when will this potentially translate into sales?
Yes, that is correct. But that program is, as I wrote and said, a small program, sort of a test launch I would say. So that's not really. It's fantastic and it's a good recognition of our brand. But what we are eagerly waiting for is the final decision in writing about reset and the introduction of our brand in a larger scale. And that will in that case happen second half of this year.
Okay, got it. And finally on NaturVet, how does the initial sales data from you having launched your products online with the three big box retailers in the U.S. sort of developed during the quarter? Is it too early to say or have you seen any numbers thus far?
No, no, unfortunately no, too early to say. The actual out the door sales, we have not received that, so we have made some shipments to them, but that is too early for us to say the results, so hopefully I can give you some update on that a fter the next report and at that presentation. Geoff Granger will also be present and presenting NaturVet at the Q1 call, so that will be of high interest to you, of course.
Good stuff. Those are all my questions for now. Thank you so much.
Thank you.
Thank you. Your next question comes from Rika. Please go ahead.
Yes, good day and thank you for taking my questions. So first one on sort of CDMO and Vetio business, can you elaborate on pipeline for 2025 and a little bit when we should expect t he most meaningful projects to come online there, and maybe also a more general question on what's the capacity utilization of the CDMO part of your business at the moment. I'll start there. Thank you.
Yes, we are. The expectations for the pharma division is when it comes to manufacturing. The large scale up will be in Q2 and Q3 will be strong, strong manufacturing sites as we plan today together with our partners. If it is as planned, so definitely that Q2 will be another record for our pharma division. When it comes to development projects, we are. I wouldn't say fully booked, but that is more, more related to personnel of course, so more timing and planning there. We have capacity when it comes to manufacturing. We definitely have a lot more capacity. It often. Runs, that goes for a couple of weeks and then we can change for another customer. So I mean it's, we are at the utilization level when it comes to manufacturing. I would say we are. Below 50% as of today when it comes to hardware. Of course when it comes to personnel, we will need to increase a bit in Q2 and Q3.
Okay, and following up a little bit on the sort of EBITDA margin, you're seeing a quite nice gross margin development, but not really seeing it flow through to the operating profit. You mentioned SEK 9.7 million in additional OpEx in the quarter. Is that reflected in the non-recurring items or sort of reflected in operational EBITDA or is it something beyond that? Just trying to understand what the underlying EBITDA margin is for the quarter.
Yeah, of the SEK 9.7 million, three of them are non-operating because they that's it's relating to legal settlement. That was for prior years. The other ones, for example the branding cost which was about SEK 4 million and as normal reserves for accounts receivable, that's of course included in our operating margin.
Okay. I'm trying to get a sense a little bit on how we should think about the EBITDA margin for next year. Is it reasonable to assume, you know, 24%-25% levels given that you already have a nice step up in the gross margin heading into the year or anything we should keep in mind when thinking about the operating margin for next year?
We definitely want to see a growth in EBITDA margin next year, partly driven by improved gross margin, but also with scalability. We haven't really seen it now since we have had additional cost in external cost this year due to several investments. But I hope we will see it in 2025 more.
Okay, and just a final question. I noticed that you leave the 26 outlook or guidance or targets unchanged. Any input on when we can expect updated financial targets?
It's a discussion in the board, and we haven't set the date. But as of today, we are working towards those goals. So, we. I don't have any input if and when we will update those.
Okay, I'll stop there. Thank you for taking my questions.
Thank you. Your next question comes from Christian. Please go ahead.
Good morning and thank you for taking my questions. You mentioned that you have the opportunity to move the production from Canada to the U.S. if needed. Would it be to the Florida site?
No. I wouldn't say that it can't be, but it would demand different sorts of licenses and approvals from FDA. So we can't have those interlinked too much. It could be in the same facility, but very, very, let's say divided from the operations we have there today. So it could be, but it doesn't have to be. But as I would like to underline that we don't expect that to happen. This area when it comes to drugs, both for humans and animals, the U.S. and Canada trade is substantial. So we have been speaking with some experts. So we don't expect that to happen. But we have the know how to set it up.
Okay, but if that would happen, do you have the capacity to increase the manufacturing in Florida to replace for instance Lachine ?
Yeah, absolutely. That's. We can set that up but it will take some time of course. And also we need to be granted new licenses and approvals from FDA. So it is a process.
Okay, that's very clear. You mentioned that you have less focus on bringing down your net debt level in 2025. Do you intend to keep the net debt EBITDA ratio around 2% despite the potentially significant acquisitions or do you see a wiggle room to be above 3% in the short term?
We haven't set out then any fixed levels, but I would say if we were to make any M& A, I would be surprised if we. Would increase our. Debt over 3%. I think we are comfortable around 2%, and of course with the right acquisition we wouldn't hesitate to get the debt level up. I mean, around 2.5% again wouldn't be an issue if it's a good acquisition, of course. But I wouldn't expect us to go well over 3%, but that's just my opinion. I mean, that's a discussion for the board.
I can just add, I mean we can see the proven record. That is quite, I wouldn't say easy, but it's quite there. We can decrease the debt level quite fast with our generating cash. So I think, yeah, between the room between 2% and 3%, I don't think there's an issue at all.
Okay, perfect. Mr. Nugent mentioned that the U.S. pet market grew by 5.2% in 2024. What is the outlook for 2025 and how much Swedencare's sales increased by in 2024?
I think the market is poised for growth. There's been a lot of slowdown in the consolidation of hospitals which actually keeps things quite steady. So that's nice. And if you look at our U.S. veterinary divisions in the second half of 2024 compared to second half of 2023 when you exclude interco and. When you just focus on veterinary business, we had growth of 12% in the six-month period second half versus the second half of 2023. So above the industry average. We think that that will continue and some really interesting projects that we're working towards, and some are already underway.
Perfect. Thank you very much. That's all for me.
Thank you. Your next question comes from Adrian. Please go ahead.
Hi, good morning. Three questions from me regarding your pipeline for 2025, entering big box retailers and such. How will it affect your inventory levels? Will you require to build some inventory or will it keep as percentage of sales? As we are at the moment.
We will be forced to build up inventory levels because all of the big box retailers and also so the big pet specialty retailers, they demand the access to products in a different way t han smaller retailers. So yes, initially they definitely need to build up some inventory levels to be able to serve them.
Do you have any kind of indication of how much we're talking about?
No, it's too early to say.
Okay, thanks. Regarding NaturVet, is there anything you can do? You said you talked about this a bit in the presentation, but is there anything you can do to sort of limit the timing effects of NaturVet going ahead to sort of smooth out the sales and thus not have these kind of lumps as we have had in the last two quarters?
Yes, it comes down to, I would say, execution of the customer relationships and be able to work more closely and having more updated and correct forecast, and that's definitely something we have been working with this last half year and early on here, so I would say that we are in a lot better position in knowing how the business will perform going forward, both on a yearly basis, but also in shorter term looking at different quarters.
Excellent, thank you. And last question here. Just when it comes to acquisitions, do you have any kind of ceiling on what you're willing to pay for acquisitions in terms of multiples or how are you thinking about that?
Yeah, I would say that psychologically it would be difficult to argue that we would pay more than the valuation we are trading at. Over a period of time at least. So I would say that it is a bit of a challenge when it comes to looking at the industry as such. As I've mentioned last time, the average in U.S. last year was 17 times EBITDA. So it is still a very attractive market. But we have some dialogues where companies are very interested in joining Swedencare and we can find common grounds on valuation. It is my belief and hope.
Follow up to that one, if I may, is that those discussions, are those mainly related to acquisitions in Asia or are we talking about other geographical?
No, no, as I said, I mean we are looking at geographies where we're not present, so there are some white spots in Europe, for example. Also, the other priority is bringing something new to the group that we don't have and that could, of course, have in a geography where we're present already.
Okay, excellent. Thank you.
Next question comes from Adela. Please go ahead.
Thank you. Final one on NaturVet. I know that's been heavily discussed already, but if you look at that unit inherently. Exclude the challenges, would you say that that is a faster growing business than the rest of the segments on average or is it in line?
I mean it's a bit difficult to overlook the challenges but as I said, we're growing with many of our customers when it comes to the NaturVet brand and we have been doing better than the market last half year when it comes to Amazon sales. Chewy has become our second biggest customer overall. So we've been doing really well with Chewy this year. So I would say that the potential f or NaturVet to have really incremental growth in 2025, we have laid the groundwork for that and that is what I and also the full team at NaturVet are working for and expecting.
And with r eally incremental growth without giving us guidance. I mean double digits is what we should assume.
Yes.
Great. Then a follow up on M&A. And maybe this ties to the question about purchase multiples and developments there. You're saying now that you might see a more favorable outlook for deals actually materializing. Is that driven by purchase multiples coming down or is there anything else that drives down?
I would say that's more related to the dialogues that we have currently at the market. So the discussions we have in some of the opportunities we have. We often start off with. If we are going to look more in depth in an opportunity, then we're basically in agreement about the valuation before we go to the next phase. So I would say that it's not the industry as a whole. It's more the opportunities that we.
Got it. And then lastly, I believe I asked this question last quarter as well. It was about your entry into big box retail and if you are seeing any competitive differences between other sales channels and now we are a few months in bigger launches there. So I would like to ask that again. Basically, is that sales channel more or less competitive than veterinary or d irect?
Yeah, in some way you could say that it is a bit less because often when it comes to big box retailers you have perhaps unique packaging sizes. You don't have a vast, vast number of competing brands. They are more in looking at the, at let's say big pallet sizes of offerings. So I would say a bit less competitive. If you get in there, then you can expect to have good sales and not so much focus on competing products. But of course there are competing products brands but not in the same way as if you go into a normal pet space specialty store.
Got it. So, the way we should read that is basically, you know, as a brand owner just getting into those big box retailers is a much more difficult process than specialty.
Yes.
Okay, great. Thank you.
Thank you. That concludes our Q& A session. So back to you guys for any closing comments.
Thank you for participating. I know we are a bit late from our presentation but good. Looking forward to seeing you after the Q1 report. Thank you to Brian Nugent who participated and as I said, next time Geoff Granger from NaturVet will be on our presentation.
Thank you.