Swedencare

Summary of the period

Second quarter: April 1st - June 30th, 2022

Numbers in parentheses refers to outcomes during the corresponding period of the previous year.

• Net revenue amounted to 470.9 MSEK (160.2 MSEK), corresponding to an increase of 194%

• Operational EBITDA amounted to 118.6 MSEK (48.2 MSEK), corresponding to an increase of 146%, and an EBITDA-margin of 25.2% (30.1%). The adjustments refer to an accounting adjustment of acquired inventory of 13.1 MSEK

• Organic, currency-adjusted growth amounted to 4%

• Operational EBIT amounted to 107.3 MSEK (45.0 MSEK), corresponding to an increase of 138% and an EBIT-margin of 22.8% (28.1%)

• Profit after tax amounted to 77.6 MSEK (15.2 MSEK)

• Earnings per share calculated on 158 111 805 shares 0.49 SEK (0.14 SEK)*

• As of June 30, 2022 cash amounted to 235.5 MSEK (1 261.0 MSEK)

First 6 months, January 1st - June 30th, 2022

• Net revenue amounted to 848.6 MSEK (294.1 MSEK), corresponding to an increase of 188%

• Operational EBITDA amounted to 213.3 MSEK (84.9 MSEK), corresponding to an increase of 151% and an EBITDA-margin of 25.1% (28.8%). The adjustments refer to costs in connection with the acquisition of NaturVet and Innovet of 11.2 MSEK and an accounting adjustment of acquired inventory of 17.5 MSEK

• Organic, currency-adjusted growth amounted to 6%

• Operational EBIT amounted to 189.1 MSEK (81.1 MSEK), corresponding to an increase of 133% and an EBIT-margin of 22.2% (27.6%)

• Profit after tax amounted to 103.0 MSEK (24.2 MSEK)

• Earnings per share calculated on 152 325 798 shares 0.68 SEK (0.23 SEK)*

• Cash flow from operating activities amounted to 65.9 MSEK (56.7 MSEK)

• Foreign exchange gains amounted to 4.4 MSEK

* Converted to the number of shares after the share split 5:1 that took place in May 2021

Significant events during the second quarter
Swedencare´s subsidiary Vetio receives Intention to Grant from the European Patent Office (EPO) and Notice of Allowance from the United States Patent Office (USPTO) for its Starch-Free Soft Chew.

Significant events after the second quarter
Swedencare executes the earn-out payment of 27.5 MUSD in relation to the acquisition of NaturVet as the target for it was reached already in May.

Words from the CEO

Strong delivery and intense work preparing for the second half year

As I previously stated 2022 will be a year in which I expect Swedencare to increase quarterly both in terms of sales and margins. This due to several transformative projects that are implemented over the year alongside the acquisitions we made during the first quarter. We managed to improve the margins in the second quarter even though the global economy was significantly affected by a number of parameters like continued price increases, rises in interest rates, inflation and not least the ongoing war in Ukraine.

The net revenue for the second quarter were471 MSEK which is a 194% increase compared to Q2 2021 and the operational EBITDA increased by 146% to 119 MSEK, equaling a margin of 25.2%. The gross margin in the quarter (56.1%) is the strongest since Q3 2020. Our other key performance indicators are equally strong and the entire organization and I are working determinately to stay on route towards the financial goals we have set.

We knew that the organic growth in this quarter would also be below our target for the year and that due to Q2 last year having a strong organic growth of 45%. But what also affected us during the quarter is that our larger retail and veterinary customers were focused on trimming their inventory levels. This means that we receive smaller, but more frequent orders compared to a year ago. In our frequent dialogue with customers, we know that our product lines sold very well to final customers, and in several cases with significantly higher growth than their purchases from us. We have already started to see an improvement in customer inventory levels and several of our group companies had their strongest month in June and July has also opened strongly. China is also this quarter clearly lower than last year, but we have in any case sent a smaller order and hopefully they will also return to a pre-Covid state again. We continue to be affected by raw material and material price increases and we adjust our own prices accordingly. All price increases have been well accepted by final customers and not least our strong June is proof of that. I expect strong organic growth in the coming quarters.

Online has impressed during the quarter as we were not affected in the same way by the inventory cuts described above. NaturVet´s Amazon sales increased by 37%, Pet MD Brands by 30% and SwedencareUK, who sells more than 60% online, increased by 61% during Q2. We are convinced that Online will be the sales channel that will grow more rapidly than the others over the upcoming years.

ProDen PlaqueOff® keeps developing strongly with a growth of 16% in the quarter overall and the important US market grew by 27%. Our very successful Dental Bones are now approved by VOHC (Veterinary Oral Health Council) which means that we can now brand our Dental Bones with the VOHC seal. The VOHC approval is based on two new clinical studies that proves that our dental bones are effective against the buildup and removal of plaque and tartar.

The two major projects that took a lot of resources during the quarter are the implementation of the third soft chew production line for NaturVet and their private label/contract manufacturing customers. Completion of the line, which increases capacity by 100% at full production, has been extensive work and investment but is almost complete and should be in production at the same time as this report is published. Additionally, Vetio South has worked hard to finalize their soft chew line and have started on a smaller scale in June and are rapidly upscaling production during the third quarter. We start with two external customer projects, one of which has great potential to become one of our larger external customer projects going forward. Vetio North is also now entering a manufacturing phase for more than one project, and this has meant new hires and competence building which have burdened the year with costs. They are now well staffed and motivated to begin commercial production of pharmaceutical products. One project has already started in July, and another will start at the end of the quarter.

The export division has been successful, especially ProDen PlaqueOff®, nutravet and RX Vitamins. Asia, apart from China, has recovered well and both Japan and South Korea are delivering impressive growth.

After several years of work and incurred costs, we announced in June that Vetio has obtained a patent for its unique soft-chew process, which gives us an advantage in our sales to, above all, the large pharmaceutical companies. This is particularly important in the growing generics market where we can offer a unique final product for various active API’s (Active Pharmaceutical Ingredient).

The acquisition rate in the industry has been lower than earlier quarters. As you know we are extremely selective when it comes to acquisitions, and only want to acquire companies that can add a new piece to the puzzle that fits what we are building. M&A is something we have a high level of expertise in and there are of course many interesting companies left and I am convinced that there will be more of us as time goes on.

In conclusion I would like to mention some findings from external sources about the pet market and its future* where we will have an important role.

• The US pet market grew by 19% between 2020–2021 mainly due to a large amount of new pet owners and the fact that more money was spent per pet. The prognosis for the US market is that the pet market will grow from 100 to 275 billion USD between 2020 and 2030.- Swedencare is primarily a US business and has a solid position to capture market share through all key channels; vet, pet and on-line.

• Pet healthcare products, both over the counter and prescription based, are the fastest growing segment and is expected to remain so.- Swedencares position in development and production capacity covers both areas and have directs sales of OTC-products.

• Millenials is nowadays the largest age group to have a pet. 65% of them plan to get another pet within the upcoming five years. They spend even more money per pet than other age groups.- Swedencare’s strong online presence fits millennial purchasing behavior and in addition we have just launched a targeted product line “Evolutions” for this buying group.

• Pet owners spend more money on their pet per year as the pet grows older.- Swedencare has products covering all of the major age-related therapy areas and continue to develop targeted and effective new products.

• Pet health products are primarily used during the second half on the animal’s live span, which means that most of the pets acquired during Covid are yet to become our customers.- Swedencare prepares and has invested for the increase in demand the coming five years and is ready to supply these pets with unique and highly qualitative products from our own manufacturing capabilities in both the US and Europe.

The points mentioned above combined with the fact that we have built a group of leading companies that together offer unique products, makes me convinced that Swedencare will continue our successful voyage. The whole organization and I are working hard and focused to ensure that you as shareholder, will be proud and want to be part of it as we intend to continue to have rapid growth together with high profitability in the coming years

Håkan Lagerberg, CEO
Malmö July 28th, 2022

The complete half year report is attached to this press release and is available at www.swedencare.com
Swedencare invites shareholders and analysts to a presentation of the half year report where CEO Håkan Lagerberg and CFO Jenny Graflind will comment on the report. The presentation will be held today at 10:00-10:30 am CEST and can be followed via live webinar.

Please use this link to join the webinar: https://swedencare.webinargeek.com/swedencare-live-presentation-of-q2-report-with-q-a/join/qtonmymh