Earnings Call: Q4 2020

Feb 18, 2021

Quarterly report

Okay. Nice to see you all. Lots of interest to follow our presentation today. We will present the Q4 for Sweden Care and the year end report. And we will end by presenting our new financial targets that we've been working with for the coming years. Yes. Okay, it will be Jannie presenting this report and let me just go ahead. Yes, Q4 highlights. Net sales increased with SEK 195 percent to over SEK100 1,000,000. We had both strong growth on the organic side, 32% and also with the companies that we have acquired over the quarter. The high EBITDA margins all over the group and we've seen strong demand for our products, I mean, basically all over the world and all over our product lines. We have had very many interesting projects over this quarter and that will continue over into 2021 years to come. Some new product launches in different markets. And as I said, we will present our new financial targets. And we managed to make yet another acquisition, a very interesting acquisition that will be a very important factor for our continued growth in the group with Holden, too, a U. S.-based company, experts in online sales. Okay. So we'll look at the revenue for the quarter and how it split geographically. The So the biggest part of the group's revenue is coming from North America. This is mainly driven by the acquisition of Stratford and Animal Farm, who came in, in the last quarter. So North America now represents 47% of the total revenue compared to 29% last year. Also to note that also the existing North America has organic good organic growth. Then if we look at the U. K. Has also grown from 22% of the revenue to 29%, Partly due to the acquisition of NutriVet, who also came in 1st October, but also driven by the strong online growth that we have had mainly in Amazon in the UK. UK actually had an organic growth of 56% compared to last year. The If we look at the next part, which is Asia, this is where we see the biggest growth. It's actually doubled compared to Q4 2019. The China, which if you look on the right, where it says 13%, it's now 7%. But behind this, there's a 53% increase compared to last this year. It's just that we have so much additional revenue this year. And then, of course, rest of Asia has also had fantastic growth this quarter, triple the revenue, and this is mainly driven by South Korea and Japan, but mainly in South Korea, where we have also launched the Dental Bones during the quarter. If we look at sales per region for the full year, North America is now representing almost half of our revenue. This will continue to increase in 2021 as we have hold and now coming into our books from January. China, despite the fact that there was no order in Q1, we are in the same levels as we were in 2019. Rest of Asia, we have seen a strong growth in 2020. It's been increasing by 65%. And again, the South Korea and Japan are 2 main drivers to that. Rest of the world is mainly Australia and Chile where we have seen the strongest growth the Q1 this year. If we go over and look at our revenue per product line, the Due to Stashford and Animal Farm, who offers many products in the topical and dermatology product line, this is now a new group for us, which is now 25% of our total revenue. NutraVest products are mainly represented in the nutraceuticals, the Which you can see the growth has gone from 12% last year to 36% this year. It. In the product lack of, it's also been very strong growth. First of all, the dental bones is the product that grows the fastest in our product line of the product Black Ops. It's about growing by 71% for the quarter. The This is mainly driven by the launch of the mini bones that we've had, a lot of sales on Amazon and successful launches all over where we have launched the product. Also the flagship product, the powder, is having very good growth of 28% in the quarter. The This is the product that we have also started selling in Stratford in the vet channels. The Pernod Black Off Last year represented 83% of our total revenue, and now it's 37. The The sales per product for the full year is very similar to the quarter, so I will skip that one. The If we look at some KPIs for the quarter, we have reached SEK 100,600,000 for this quarter. So it's the first time the In the history that we have reached SEK 100,000,000, this is 195% increase of revenue, 32% organic currency adjusted growth. The gross margin is a little bit lower due to that we have lower margin in both Stratford and Animal farm, it's about 63% for the quarter compared to 72% last year. When it comes to external and personnel costs, we have, of course, less sales activities due to the pandemic. There's less traveling and expo cost. However, we have increased our long term marketing initiative. During the quarter, we have, for example, launched a new brand platform for the product backlog. It. We have also increased marketing initiatives with Amazon as we are growing, especially in the U. K. A couple of other events that the What happened during the quarter is that we have moved to new offices, both in the UK, Greece and also the U. S. It. And in the U. S, we have moved to a much larger facility in Texas, where we're also going to open our own production facility for the product lack of which has impacted the quarter. In addition to that, we have had exchange losses of 4,400,000, the which is included in the $25,300,000 EBIT. And we have an EBIT margin of 25.1%. Moving forward to some KPIs for the year. Net revenue of almost 240,000,000, This is a change of 89%. Organic currency adjusted is 90% growth. The EBIT is about 60.3%. And if we exclude the acquisition cost that we had with Stratford Animal Farm NutriWet. Our operating EBIT will be at SEK65,600,000, which will be an EBIT margin of 27.3 key. A couple of things to mention for the balance sheet and the cash flow. We have increased our working capital a little bit due to inventory buildup. It. This is both the preparation for growth and also a preparation for the, let's say, Brexit logistic issues the Q4. There's been a negative cash flow this year or this quarter, mainly driven by the new share issue that we did for NutriVet and Animal form. We did that new share issue in the end of Q3, but we paid the purchase price in Q4. So that's why it had a negative cash flow for the quarter. It. Then we also did a new share issue in December to finance Holden, which has, of course, impacted the equity. The Our solvency is 81%, so I would say very steady balance sheet. Our cash when we closed the year was 284,000,000 the right after the year end on the 4th January, we paid the hold then of the SEK120 1,000,000. So we have a net cash of about SEK110 1,000,000. The This is our rolling 4 quarters. If you see, it's really taking a peak now in the last quarter up to SEK 239,000,000 and it will continue to have a dramatic change now for the next quarters to come due to the fact that we have additional businesses the that we have acquired for the last 6 months. Yes. A couple of pointers about the last acquisition that we made. It's been a strategic decision for us Q2 focus more and more on the online sales. And of course, with the COVID pandemic happening, the market trends has really been that the online sales in our business has grown a lot. And we've been fortunate to find a very good company to acquire, hold into, focus only on online sales, have fantastic competence within Amazon primarily, but also in other different platforms. The largest platform in the U. S. For pet products is chuvi.com, also an important platform for Oden. They are very skilled and had lots of reference projects with Amazon. So they are actually in direct contact with the development teams. They are have been growing tremendously. Last year was 100% growth and what we've seen so far this year, but that the growth will continue. We will, of course, use their skills for the whole group. And we will also launch the PetMD, that's the biggest brand that Holden has, the very well run and presented brand and that so far has been sold only in the U. S. We are in the preparations of launching that in Europe and that will hopefully happen this first half year and we're very excited about that. As you see, the Amazon and Chewy sales are 93% of the total sales for Holden, so they are very focused on that. But as we go along, they will get revenue streams from other sources as well. We have just finalized a deal for launching PetMD in Asia, Tmall in China. So that will be very exciting to see that will probably happen this first half year with the product launches. And talking about synergies, they are absolute synergies from day 1. Holden had a relationship with 1 of our group companies Stratford before, so they were selling a couple of the products from the Tragford product line and that will of course increase. The Holen will take on more products from different group companies. We will Holle will spearhead our direct to consumer sales that we're very focused on building up together with increasing the sales on these more well known platforms, we think it's important to have direct sales to end consumers as well. And that is also that was one major factor why we acquired Holden. The Holden will also have online global responsibility for within the group. So we have all already started some projects. Holden has helped us with our launch in India, on Amazon, in certain markets in Europe and that will continue. We will transfer the fulfillment of logistics centers for Holden to Stratford, where we're really building up a powerhouse in Tampa in the Tampa region. So Stratford will handle Holden, Animal Farm and their own fulfillment services. So that's really a stronghold for us. The as I said, the launch of PETMD in Europe Amazon, and we will continue the buildup in Ireland. So Swedish Haralden will handle all the fulfillment, logistic and also production projects for Holden and the PetMD series. They will also be a very integral part of the online sales transformation for Prodan Packoff and Animal Farm. Animal Farm has the sold within any platforms before and that will be launched on Amazon in Q1 and Chewy the Q2 and so that we're very excited about that. And if you want to see more about the product offering that Holen has. You can go into petmdstore.com and see the product offerings that they have currently. Integration projects, lots of projects as I've written in my CEO comment. Of course, Stratford Animal Farm that continues in fast development. So before Q1 is ended, all the fulfillment logistics finance department will be handled by Stratford, so Animal Farm can focus on marketing, sales and our development. The we have launched a completely new product and pack of soft chew with that's been developed with Strat within the Stratford group will focus on veterinary sales, but also be launched online. PetMD, we have introduced a product pack of PetMD co branded product launched on Amazon within NutraVet, our UK Specialized Veterinary Company. They are launching a Nucor Plaque product with our product pack of active ingredient, but in a new format being launched through all of the veterinary clinics in the UK. We will launch NutraVet in Greece as the 1st external group country to be launching new carats, so we're very excited about that. We have hired a one person focusing only on this launch together with Matthew and his team in the UK, so that would be really interesting to see. Production wise, as Jenny said, we have started up a new company, a new daughter company called Tilverka. We'll be based in Houston, Texas together with Swedish Care USA and we have our goal that we will produce 50% of the Prodan Packoff being sold in the U. S, the powder product will be produced by ourselves in 2021 already. So hopefully, the first products will come out the end of Q1 or early Q2 from Tilwaka. And that will, of course, help us 2 ways, the access to product, of course, and also increase our margins a bit. We will also start producing new products in Ireland. We are looking into dermatology products because they are very heavily based on water and we don't want to ship those from the U. S. To Europe. So that's a completely new product line that we haven't produced joint previously, but we are in the late phases of that. So hopefully we will start production in Q2 for the European markets. As I said, Animal Farm to Amazon, we're very excited about that since Animal Farm is a well known and well reputed brand, only sold previously in the veterinary clinics. And we're actually making a taking the current product line from Animal Farm to Amazon and Chewy and are launching a completely new Animal Farm Q2.0 version to the veterinary clinic, so that they will get a enhanced and even better product line from Animal Farm. We are also in the late phases of presenting a new web solution for the group and that will include new internal web shops the so that we could start promoting the business to consumer sales and that would be basically for all markets but it where we have daughter companies. Online in Europe and Rest of the World, as I said, the we streamline and integrate and focus a lot of marketing activities online, both with the platform partners and our from ourselves and we have both projects that We run from Europe and of course with the competence that we have acquired from Holden, so that they are really, really helping us to have the best solutions in place. Priorities going forward, of course, integration of Nutra Vet Animal Department, Holden, but I would like to emphasis that we are an entrepreneurial company, acquiring entrepreneurial companies. So it's really focusing on growing the business as it was or as it is and just taking the good synergies and integration projects that we can have at the same time. So we are not really focusing on big integrations. It's really a we've the really thorough due diligence before we acquire companies, so we know that they have the same mindsets as we. And the so far it's been all good and all of the entrepreneurs that have joined the Swedish Care Group are really thrilled about it and really appreciate our way of working. So I don't expect any problems with the integration work going forward. Increased marketing, as Jenny said. We are focusing a lot more on marketing and sales and we see that we get good return on investment on primarily the online sales that's really easy to measure. So we will continue with that and also our big product and pack off branding project continues. Brand and product development. Of course, now with our group being such so widespread and have lots of competences, the product development is increasing. We do that both in house and with partners and we see we get new competences within the group, helping us to develop or reshape products that we already have. So it's really exciting times. Of course, trying to get out as much product as possible in the different markets. So we see that's more hefty work being done. So we're taking the low hanging fruits with international partners, but also within our internal group, we see which product lines are the most, let's say, have the best characteristic due to being produced different markets. So it's really we keep on working diligently with increasing the product range. Going forward, Asia and North America will be, let's say, probably the where we see the most growth, but I wouldn't count out Europe since we have lots of interesting projects in Europe as well. But percentage wise, I guess Asia will continue to grow at higher numbers than the other markets. Yes, going over to our financial goals. We've been working with that since, of course, when making all of these acquisitions. We basically reached our financial target that we have with SEK 500,000,000 that we will definitely reach this year. So we started working with that, Jenny and I, together it with the Board, and we have come up with a, let's say, a tough target reaching over SEK 2,000,000,000 in sales with an EBIT margin above 30%. But we've been doing our homework here really, really well. So I think we're confident, Jenny and I and the rest of the organization for their parts, what they are responsible for. Really that we feel that the momentum in the business as such is really good and we have a unique position with having picked, let's say, the high growth sectors and lots of opportunities that DTC within our group and with our partners and customers. So we feel really, really it's a tough target, but I'm confident that we will reach it. And the goals will be reached primarily through organic growth. And what we mean by that is that we are still focused on looking at interesting acquisition targets. We have not in our goal, we have not counted on any, let's say, really big acquisitions. 1 or 2 perhaps will be needed to reach the goal, but no really big ones. If we would make a major acquisition, then of course, we would be have we will look at the financial target and see if there's any need or changing those, but we feel confident that with the current setup that we have and with a small couple of small additions, we will reach this goal. Okay. With that, I think we the Please, if you want to send in some questions, we will go over to them. Okay? The So we have received one question. Can you draw any conclusions from the customer patterns in the regions of China where COVID restriction have been lifted? The Yes. What I would say about China was basically the first market out with restrictions, it was a combination of the Chinese New Year being early last year and also the outbreak in China. So that affected us, they're not having our quarterly order from China, so because it was a major shutdown in China. What we have seen in China with the not only in the pet market was that China was a bit slower coming back from the pandemic. But if we look at our sales to our distributor, they were basically flat compared to 2019. But actually, the sales from our partner, they grew the sales the product back off in China with around between 15% 20%. So but the comeback for China was a bit slower than other markets and it wasn't as sharp change from the physical stores going to online because online was already strong in China. So I would say end of second half year, strong comeback in China and specifically in the Q4. Okay. The There's no other questions? I'm thinking if there's any other thing that we should mention? I don't know what's it. Can you talk about the 4:one split, the share split? Yes. The there will be a proposal for the annual meeting that we will have a share split of quarter 1 and it came up in the Board as a proposal and we decided that. So so it's not it's just really having a, let's say, I don't know, the share value we have, it will if it stays from this value we have right now, it will be around NOK 85,000,000 and going forward, we have been recommended that it. It's a good split to make. Yes. Good. What is the organic growth you are comfortable with For the 2025 guidance. I would say that we count it having organic growth between 20% 25%. Yes, depending on the markets. There are some that are Faster growing and some that are a little bit lower, but on average, 2025. Hello. Great work. Can you say something about the sustainability, use of plastic, etcetera. Any plans to look into saving contributions? Absolutely. It's really important. We're really focused on having a trying to have as sustainable operations as possible, not only with the packaging that we have, but it from all perspectives. The problem is with the packaging is with plastic, of course. We are looking at we have some projects with recycled plastics, but that's problematic since we have food grade products. So it's really difficult to find recycled plastics for that. But we have some projects ongoing and we will continue. So, we would absolutely like to have different packaging than the plastics that we currently have. The Yes, during 2021, we're going to do a lot more work on the sustainability documentation as well. The Okay. How do you explain PE factor over 150 over 20 is considered as a risky? The P factor. Yes, that depends on how you calculate it. And it's really the market setting the price. It's not us. So that's the appreciation for us. And going forward, I mean, all of these PEP numbers always on the historic numbers, and you need to take into account what we presented with our acquisitions. And as Jenny showed you the run rate for our company now. So it's really a completely different company. So I wouldn't say we don't have a PEP factor of 150 right now. We will have a completely different sales year 2021. Yes. And there was one question here. How do you see the dividend policy going forward? The Well, at the moment, we have a dividend policy that we are our target is to make a dividend of 40% of our result. The we have proposed or we will propose in the annual meeting that we're going to have a dividend of SEK0.80 or SEK0.80, SEK80, which is higher than we had last year. It's a little bit lower than the 40%, but this is something that we feel comfortable with. The So the question about the change policy will remain. How do you calculate organic growth? Does acquisition have to be full annualized before being included or do you readjust the base? Well, the organic growth is, 1st of all, adjusted on the currency to to make sure that you compare dollar to dollar and not the currency fluctuation. And then we exclude the acquisitions completely, the Stratford, Animal Farm and the NutraVet. And actually part of the BioVet was excluded as well as we didn't have BioVet for the whole 2019. The key. Any plans to develop the capacity of our own production? Yes. This is something that we mentioned today that we have just opened up our own production facility in the U. S. The For the program, Plakos. Yes. And then production is an interesting part. We have lots of good partners. I mean, the majority of our products are produced by partners, but of course, we see where we can where there's business opportunity not only from a, let's say, margin perspective. It's also a supply perspective is that it's, it's of course part of security having your own production to get the product on time when we need it. So it's a combination of improving our margins and also product security having the products to fulfill the demand. So we will probably look into new production, let's say, opportunities. And as I said, with Ireland, we are going into new producing new types of products that we haven't done before this year. Okay. What is the typical return on marketing spend it for you. What do you intend to spend on marketing in 2021? Well, all the marketing is not direct the sales driven, some is, for example, if we do on Amazon, we can see a good return on it. However, how much we spend? I would say we spend about 10% of our revenue in marketing. That's the target for 2021. The What is the reason for paying out dividend when there seems to be many investments opportunity in the markets, particularly within M and A, Well, it's been successfully historically. Yes, it's been the decision about the dividend. What's really what was made when we had the strategy of growing the existing business, not having this acquisition mode. But then that changes changed. And we the mode, but then that changes changed. And we just felt that since we are really in a, let's say, all our businesses are cash positive, generating lots of cash. And then we feel that it's the Board discussed it, but we feel that we have a really healthy balance sheet. So it's really we have the means and opportunities to make acquisitions even though we give some dividend. That's the reasoning behind it. Yes. There's a lot of questions coming in here. The. You gave a target of SEK2 1,000,000,000 in 2025, so around 50% top line CAGR. If 20% to 25% organically, it implies the 20% to 30% through M and E. Don't you think this is a lot? No, I would say that it's I don't know how that's You calculate that. But it's about a growth of 2025 with the existing businesses. And then you got to think that we have the new acquisitions that are not fully included in our results yet. We have Holden, which is going to be included in Q1 for the without holding, we had SEK 100,000,000 last quarter. And if you calculate that with those SEK 100,000,000 going forward every quarter and having growth and then you easily end up with around €500,000,000 and then you add Holden to that. So and last year, they had €17,000,000 in sales the continued growth. So I would say, you have to do your own calculations about where we're going. Yeah. The Here's one about the vet clinics. How do you wait, hold on. Hold on. It went too fast. The Beside organic growth, what is the market coverage in terms of vet clinics after all the acquisitions? The The vet clinic. What is the market coverage in terms of vet clinics? Yes. It's always difficult to get hold of the actual numbers of vet clinics. But my best guess is that we cover we sell products to over 50% of the vet clinics in the U. S. And when it comes to Europe, that's a bit different. We have with Nutra Vet, we have a really, really unique agreement with IVC, the biggest vet clinic chain in Europe. And they're really having a strong goal in growing the number of clinics. But there we supply all of their clinics in the UK and there are over 1500. And the rest of the clinics in the UK are basically a couple of 1,000 more and then we sell to perhaps 50% of them. So I would say that in Europe and the U. S, we sell products to around or will at least in a couple of years. We'll sell around 50% of the eBEST clinics. The I think that's the last question. I think thank you very much for everybody's time. The And see you in a quarter. See you in a quarter. Bye bye. Bye bye.