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Biogaia AB
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Ladies and gentlemen, welcome to the BioGaia audiocast with the teleconference Q3 2021. Today, I am pleased to present CEO, Isabelle Ducellier; and CFO, Alexander Kotsinas. [Operator Instructions] Speakers, please begin.
Yes, thank you so much. And thank you for attending BioGaia's Third Quarter Interim Management Statement. So we are actually pretty pleased with the third quarter with a sales of SEK 174 million that represents an increase of 32%. And if we would exclude the foreign exchange, an increase of 35% and an operating profit of SEK 67 million. I mean we are pleased with the third quarter. We can see 3 external reasons for the good results. Firstly, an increased demand from consumer ahead of the winter season. I mean, people know that it's going to be cold, time for back to school, back to work, all the viruses are outside waiting for us and people are working on prevention and buying probiotics in advance. Secondly, thanks to the lifting of pandemic restrictions. So that has led to a rise in visits to doctors and pharmacies. So both the consumer are back to pharmacies, they are back to visit their GPs. The mothers are back to the pediatricians. But as well, our distributors in the world and their sales force has been able to visit again their health care professionals and speak about BioGaia probiotics.And then thirdly, the same way that the quarter 2 has been impacted by orders that had been shipped under Q1 instead of Q2, we have actually exactly the same phenomenon, but the other way around this time. And we had a big customer about to be out of stock that have asked us to ship Q4 orders under Q3 and that has helped to generate this very nice increase of 32%.In the regions, we have sales increased in EMEA. So it's a bit like a light at the end of the tunnel and still growing in APAC, growing strongly in North America. And LATAM, we look at that a bit later, a bit down but it's more a phasing issue. So if you put that together, we can show an increase of the EBIT by 148%.Next page, please. So we've been communicating 4 times to the market during the quarter. We've had a press release in July to announce the fact that now we have the full ownership of MetaboGen. So MetaboGen is our subsidiary based in Goeteborg, specialized in anaerobic strain. And for us, it's extremely strategic. So we are very happy to welcome the full team of MetaboGen at BioGaia.In September, BioGaia Pharma announced as well that they're proceeding with their clinical study in 2 areas, one for ulcerative colitis and one to treat constipation in patients receiving opioid therapy for pain treatment. In September, and that's probably the greatest news of this quarter, we announced the fact that we are going to -- I mean, we have opened BioGaia U.K. So in the U.K. market, we had one man show distributor. And we do believe that the U.K. probiotics market is extremely interesting and that with our own setup, we can really gain market share and grow pretty quickly in the market -- in the U.K. market, both the -- own e-comm or webshop that we are going to open on November 1.And then while being on the marketplaces on Amazon, and we intend to be on Amazon U.K. mid of November. And then, of course, as well starting to look at the specialized drug store in the U.K. So more to come here. I'm very happy to have U.K. at least on the map of BioGaia.And the last communication was basically to announce that we are doing a little bit better than the market for Q3, as you have noticed. Next page, please. Regarding launches, so you see a long list of 12 launches, but I just would like to attract your attention on Finland because that's where we launched the whole portfolio under our own brand. So a lot of activities there, a lot of visits to pharmacies. So now we've already -- I mean, main listing in the main pharmacy chain. So very happy with the launch of BioGaia brand in Finland.In the U.S., we launched the Immune Boost portfolio. And here as well, very good timing with the back-to-school campaign. And the third launch, I would like to underline on is the Prodentis Pediatric KIDS and Baby. For that line extension, we have Prodentis for adults and for pregnant women. But now we are focusing on Paediatrics. And that's where our distribution network is the best at. So we see direct contact with moms to be able to speak about oral health for their baby and for their kids. So we start with launch in the U.S. and in China, but you will see more of it coming as well in the coming months.Next page, please. Looking at segments. I think the good news is that we keep saying that we want to focus on Adults. Obviously, we want to maintain our leading position within Paediatrics, that's obvious. But we want as well to increase our penetration within the Adult segment. And we've been struggling year after year.But this year, if you can see -- if you look at the quarter 3, if you look at the year-to-date or at the AMT (sic) [ MAT ], you see actually a bigger increase of the Adult than the Paediatrics, obviously, from a smaller base. But I'm pretty happy and I think it's encouraging to see that switch. Next page, please. The geography, so I was mentioning during my introduction. So we see the light at the end of the tunnel at the EMEA level. So a very big increase during the quarter. That doesn't -- it's not enough to compensate the year-to-date or the MAT figures, but that means a very strong Q3. And that's mainly thanks to our problem countries that we've been mentioning, Italy and Spain. Then in France and in Turkey, in Russia, we see nice growth, and that was the case before. But we see Italy and Spain back on track. So that generates an increase of 51%.APAC here as well a very strong quarter, plus 53%, mainly driven by China and Hong Kong. So China, I mean, we keep being out of stock, so which is a very good signal that the demand is very strong from the consumer side. And Hong Kong, it's more basically because that problem with the COVID strict -- I mean, restrictions and lockdown in Hong Kong, plus all the demonstration and political problems. So they had a very tough year. So they're just back on track. In Japan, increase of our sales year-to-date, not for the quarter, despite here as well a pretty strict lockdown. And the interesting thing is that in Japan, our sales are increasing, thanks to our own webshop mainly and the dental clinic that we visit by ourselves. So that was interesting to notice.For the Americas, so we had a very strong quarter lats time for LATAM. And therefore, now it's more a periodization issue of order mainly in Brazil. So it was not increasing during the quarter. But the North America and especially our distributor, Everidis, is really doing very strongly. And you could see at the MAT level, we are plus 19, year-to-date, plus 22. So we -- that's really the hero of the year 2021. And that has an impact here as well. I mentioned our strategy to minimize the risk region, and we were extremely dependent on Europe, at least when I joined 3 years ago.And now, as you can see on the year-to-date, Europe is 43% of our turnover when APAC is 24% and Americas is 33%, so a very nice split per region now.If we look at the next page and the gross margin, I mean not that much to mention. We are able to maintain gross margin at a pretty high level of 74%. It's pretty stable segment. Adult are always a bit under the level of profitability than the Paediatrics product because we are new into that business, the volumes are smaller and there has been some product mix and campaign effect. But nothing more to add on gross margin. If we move to the financial, Alex.
Yes. Thank you, Isabelle. So we move to the slide called OpEx. So our total operating expenses were 3% lower than last year. Our sales costs increased mainly due to increased marketing activities and personnel costs as we are moving out of the pandemic. R&D costs, excluding MetaboGen and BioGaia Pharma increased also slightly due to -- mainly due to higher cost for clinical studies. And again, this is also partly an effect of the return to a normal after the pandemic.So we had those cost increases, and this was then, however, compensated by positive currency effects of SEK 4.6 million. So we had positive currency effects this quarter. And in the last -- same quarter last year, we had negative currency effects. So that explains mainly why we have slightly lower operating expenses in the quarter.If we move on to the next slide, the P&L, which is basically a summary of what we have gone through here. As Isabelle said, we had an increase in sales of 32% and even 35%, excluding the currency effects, and a gross profit of SEK 128 million, which is then an increase of 43%. Operating expenses, SEK 61 million, minus 3%. And earnings before interest and taxes of SEK 67 million versus SEK 27 million in the same quarter last year, which is then 148% higher. And we had an extraordinarily high margin of 39% in the quarter, which then gives us a year-to-date margin, EBIT margin of 35% versus 33% last year. And we then also mentioned adjusted EBIT. This is our EBIT excluding restructuring costs and M&A costs. And as you can see, those -- the EBIT is the same in the quarter, however, year-to-date -- well, year-to-date, we have about SEK 10 million higher adjusted EBIT and a margin of 36% then.Good. So if we move on to next slide called cash flow. We see that our cash flow from operating activities was SEK 52 million versus SEK 15 million in the same quarter last year, which is a nice increase. It's mainly due to the increased profits. And cash flow for the period at SEK 55.6 million versus SEK 50 million in the same period last year. If you look at the cash flow from investing activities, we see that it's higher in this quarter, and that is due to the acquisition of the remaining MetaboGen shares. And also cash flow from investing activities in the year-to-date figures also includes the investments in Boneprox and Skinome of approximately SEK 20 million in total. So cash at the end of this period then is SEK 1.53 billion versus SEK 292 million in the same quarter last year. So with that, I hand over to Isabelle for concluding remarks.
Yes. And the main conclusion is that we are very happy with the strong Q3. It's always nicer to present such a good quarter than last time, Q2. And the good thing is that it's mainly due to increased consumer demand, which is the most important. And the impact of this order that we shifted from Q4 to Q3.EMEA is starting to recover, we are happy about that. APAC has a very good growth, and Americas is on fire. So we are so happy to see the activity of the U.S. market. We've launched a lot of new products that the consumer and the health care professional are very happy about. I mean, based on the job we've been doing on the drops, we've managed to establish BioGaia brands in the U.S. very strongly. And now we can leverage on the power of the mother brand being able to penetrate new target group and new type of health care professional. We are accelerating our B2C journey with the establishment of BioGaia U.K. And that would not have been possible if we would not have, I mean, created our B2C marketing department that is in full operation since August this year and the creation of BioGaia Digital because as we are operating on our own, we need their competency, especially on the digital side to be able to penetrate the promising U.K. probiotics market. So in a nutshell and as a conclusion, I would just say that the global market for probiotics is growing in terms of sales and consumer recognition. That the life after the pandemic will lead to an increased focus on preventative health care. And based on these trends and based on the work we've been doing on our organization, we are very confident for the future of BioGaia. So I thank you for your attention. Thank you for your confidence, and I will be happy to take any questions.
[Operator Instructions] And we have received the first question. It is from Kristofer Liljeberg.
I have a few questions here. First, is it possible to quantify this large order or the phasing effect and whether that was from one customer or several?
Okay. So to -- it was mainly from APAC and mainly from China, but as well in Indonesia where we see -- I mean, Indonesia is an interesting market because the demographic is definitely into our favor. I think we count about 4.6 million newborn every year, getting more and more digital. We have a good partner there and an acceleration that we didn't foresee. So they run out of stock. So that was one of the country. And China I mean, they just accelerate the sales every time. So here as well. So that's the main 2 parts from APAC mainly. And -- but I don't -- I mean, of course, I can quantify, but I'm not doing that.
But I think in the report, it's also mentioned that there were one large order in Spain that was supposed to happen.
Yes. No. I mean, in Spain, here we have discussed with our distributor, Recordati, and they had our strain under their own brand forever. And here, we had a lot of discussion because we would like to have BioGaia present in Spain, a bit more visible. So we agreed on a new trade brand, a new communication campaign, and it's -- so we use both their brand because it's very well recognized by the health care professional and the consumer, but with the signature of BioGaia. And therefore, so it took a bit of time to put that in place, to agree with our distributor. But now we have a strong campaign back to school that Recordati is doing for us with the new BioGaia tag line. So it took a bit of time. But now -- I mean, now we're there with the new product.
Okay. But -- so there were no order in Spain that were supposed to happen in Q4 that now happened in the third quarter. Is that what you say?
Again, I mean, we have anticipated -- I mean it were supposed to be shipped in Q4, and that has been shipped last week of Q3. Regularly, it's a matter of a couple of days.
Yes. I'm just trying to understand because I think you might have said that in the report now. But in the press release the previous week, you also said that because of the high -- or despite the high sales in the third quarter, you were -- I don't know exactly how you phrased it, but you expected or for full year sales would be in line with expectations. And I guess, you might refer to consensus and if I do the math correctly, that would imply no growth in the fourth quarter. Is that correct? Or I might be missing something here?
Hello?
Yes, hello?
Yes, sorry, we are back.
Yes. Did you hear my question or...
I mean, yes, I think, I did. And I think the answer is that we -- our expectation for the year is in line with the general expectation from the market.
Okay. My last question relates to R&D costs that were done quite a bit lower in the third quarter than in the first and second quarter. I think it was the same in 2020. But before that, it was pretty evenly spread between the quarters. So is this a new type of seasonality explaining this or something else?
No, there is no seasonality here. We are very pragmatic. We have some -- I mean, depending on the possibility to recruit patients that you cannot foresee, I mean, with LT patients, you can recruit any time. But when you are really targeting a specific type of patients, then they have to show up at the hospital. And so we don't have any seasonality in that sense. And we had some difficulties to start new or even to pursue some ongoing clinical study because the hospital were closed. There was only COVID-19 patients allowed. But now we're back on track. So we had postponed some clinical study and now they're all up and running.
So do you think it's fair to assume R&D costs will be up to the same level maybe as in the first and second quarter than in now in the fourth quarter?
Yes.
[Operator Instructions] And we have another question. It is from Mattias Vadsten.
I would try to not phrase this question in the same way as Kristofer did, but I mean obviously difficult for you to know the sales level in Q4 right now. But I mean, how should we assess the potential in your view to reach the sort of H1 level on a quarterly basis of around SEK 200 million? I mean, I'm thinking headwind, obviously, from some periodization of orders, but we have lifted restrictions compared to H1 overall. And as you said, demand of immune health products ahead of winter could help a bit. Just some general thoughts at least around the potential for Q4 would be very helpful.
I mean we normally don't disclose the coming quarter. To be honest, we have a very clear view because we deliver at 90 days. So we start to have a pretty clear view about how the year is going to look like. But that's not something we normally disclose.So to be able to answer to your question, I mean I don't expect -- I mean, I think Q4 last year was not very strong. We're absolutely paralyzed due to the pandemic. Retail will be easier. So there will be a better quarter 4 than last year. And if you put together Q1 and Q2 -- and that's basically what we said when we started in January. We said, Q1, Q2 is going to be tough. Q3, Q4 going to be easier if you compare with last year, and that's what is going to happen.
And another question we have received is from Mattias Häggblom, Handelsbanken.
Mattias Häggblom, Handelsbanken. I was curious if you could spell out. I missed the number for the growth in the U.S. I think you did that in Q2. Americas obviously was weak, but that was due to LATAM and you seem very pleased with the U.S. performance. So can you spell out the U.S. or U.S. Canada together for the quarter?
We normally don't do that, Mattias. And that's something we are asking ourselves if we should do it for next year. So but for the moment, we aggregate the whole Americas in one. And for the U.S. -- I mean, U.S. is going to be our #1 market in 2021. I mean, so -- and I think we can -- we want to have SEK 100 million market plus. And I think U.S. will be the first one. So going strong. And that's just the beginning.
Yes, but in the Q2 report, you spelled out U.S. Canada growing 43%. So should we think about that ballpark figure? Or is it at least double-digit growth? Or any color you can help us with the performance in the U.S. Canada would be helpful.
Yes. Now on the year basis, U.S. is going to be a very strong double-digit growth. So that I can easily disclose. And we will have sales of more than SEK 100 million for the U.S. market. I mean third quarter is not really relevant to go into detail. Because when I look at every day, it's basically their sellout to make sure that we don't have any problem with stocks or with out-of-stocks. And the -- we see really a snowball effect starting from the drops going into other indications. And now we are able to go out from the Paediatrics to go to the Adult. So that's really, really encouraging. So we had a major pumping campaign for the Immune Boost launch. So -- and we see how the health care professional has been reacting when they received the samples. And we've never seen that. I mean, even their website just collapsed because there was so much people looking at it and wanting to order the samples and so on. Now what -- how is this going to be in terms of sales in the future? It is a bit premature to say, but at least the reaction from the health care professional regarding the launch of the Immune Boost is extremely encouraging. And the same has happened on Prodentis KIDS and Baby. Here, they don't have that many products for oral health for kids. And the need is huge, both in terms of sneezing and caries. And they got a lot of call from dentists that normally never call us because we have never been targeting the dentists before. So something is happening there, but it's not turning into selling figures as we speak, but we are very optimistic.
And a follow-up question to that. I mean, obviously, U.S. is a large market in terms of population. You have historically had the biggest penetration in the Finnish market. But anything you could help us with thinking about the opportunity for the longer term in the U.S.? You said it's SEK 100 million in start.
Yes. No, I mean, we looked at the -- we just did the math prior to our strategy meeting that we had today with the Board. And even if we are selling a great quantity in the U.S., the drops, if you look at the penetration, it remains very limited. So sometimes when I'm -- I want to be extremely positive, I take the penetration of 3, 4 bottles per newborn that we add in Finland, multiply it by the low penetration we have in the U.S. and then the figures are just fantastic. It's a bit too naive to believe that we are going to reach 3 bottles per newborn in the U.S. tomorrow, but we are working on it. So yes, in terms of potential, there is a lot of things that we can still grab even on the drops.And that's basically what we do with all our markets now. We look at the number of newborn, we look at the penetration of the drops we are to see -- to identify where we should invest for the future. So we are allocating the right market, the resources we have because we are -- we remain pretty small, and we are very global. So it's important for us to focus on the right stuff.
Good. And on the strength in Italy and Spain, do you have any information from your distributors there to what extent in-market sales growth was vis-a-vis stocking effects with the distributor? I'm trying to understand if patient demand is returning in those markets. Or is it still only stocking?
No. I mean they stocked in Q2 prior to the pandemic. And we had -- if you remember, Q2 2020, we had SEK 245 million in sales. And that was really this massively order from all our distributors, mainly in Europe to say, okay, everything is going to close down, we have to get the stuff now. But now they have had almost 4 quarters to deplete what they had in stock. And they are, I mean, buying again. So they are repurchasing because they don't have anything in stock. And we thought that they would start to rebuild their stock in Q2, and they basically did it now. And mainly in Italy, both Recordati and Noos, our 2 distributors, and in Spain.
Good. Last question for me. Any update you can give us on the M&A process? I mean you have SEK 1.5 billion in net cash on the balance sheet, and it's a very low interest rate environment we're in, so it's not generating a very strong return. So I guess you're working on that, finding options to deploy that capital. Anything you can update us on?
No. Just that we are working on it. Yes, that keeps us awake in night and day. Hope to be able to come up with good news in close future, but nothing more I can say unfortunately today.
There are no further questions at this time. Please go ahead, speakers.
Thank you so much. Thank you for your attention, and have a very nice end of the day. Bye-bye.
This now concludes our presentation. Thank you all for attending. You may now disconnect.