Swedencare - Q2 2026

[00:00:04]Welcome to the presentation of Sweden Care's half year report led by our CEO Hogan Logay and CFO Yani Grafflin and we are pleased to have uh nature CEO Jeff Granger joining us with the presentation during today's webinar and as usual we will have a Q&A after the presentation so please raise your hand if you have any questions over to you Yin Hoken.

[00:00:26]Thank you, Emma. Good morning and welcome to the Q2 presentation of Sweden Care. Jenna and I are in Malma, Sweden, a bit cloudy today and Jeff is out in California joining us later. Uh Q2, we had a solid quarter that showed resilient growth and strong cash generation despite a volatile market.

[00:00:46]Europe and production segments deliver standout organic growth while North America was disappointing but is expected to as previously communicated strengthening in H2 and uh as delayed launches online and big box initiative scale up organic growth was 7% under our goal and as we communicated what we expected but still better than market operational IITA same same as ordinary ITA was 129.4 million SEC with a 19 uh.3% margin and operating cash flow improved to 78 million sick. Looking at our three segments, the growth profile is clearly mixed. Um Europe and production were really strong uh with organic growth of 19 and 25% respectively while North America was down 3% organically due mainly to delayed FDMC or big box launch deliveries. uh and temporary effects in the US veterary channel. However, the North American segment would have been around middle single digit without this and that is still not where we should be. So, improvements to come. Export markets delivered their strongest quarter to date with China rebounding sharply. End of quarter I visited China and we are planning to widen the production offering of Pro and Plaov and are also looking at the opportunities to launch more branch there. Um the interest is high but the regulatory framework for imports is complicated and we are now in discussions with potential manufacturing partners to facilitate new brand launches. Uh protein plaque had another exceptional quarter and deliver more than 30% growth. Um pharma delivers delivers uh as expected high growth numbers both in manufacturing and development and the activity level is is high for the years to come. Uh strategically uh the quarter also moved the business forward with new offerings uh um product offerings from under many of our brands and uh corporations and product launches. uh Interuk and was also an important event of course it's every second year the biggest trade show in the world um so new market is opening up for pro and black off of course new smaller markets since we're already present in plus 60 countries but really nice to see new new opportunities there and for other group brands um some bigger opportunities uh are in discussions with with the relevant distributors we also had the First capital markets day and strengthened the visibility around the group's priorities the coming years and we are grateful that the event was fully attended and lots of interesting discussions with participants. We had a new board elected at the AGM including Thomas Ecklund as new chairman providing continuity with refreshed governance. The message is that the group is still growing organically above market 9% first half year. Cash generation is improving and we have been working hard to prepare for a better and stronger second half year.

[00:03:55]Over to you you Jenny.

[00:03:58]>> Yes, some financial highlights. So revenue amounted to 7 670 million for the quarter. This represents 4% growth.

[00:04:06]H 7% was organic growth and we had a negative 3% of currency impact. It's the first quarter since 2019 where we don't have any acquired growth uh because the most recent acquisition summit invest has been part of the group now since Q2 last year and so it's included in the organic growth. The currency impact is coming from the dollar, euro and pound which has all weakened against the crown compared to the second quarter this year. And so I said, we did expect another quarter with double digit growth and this is also what we communicated on our pre-closed call on uh the June 17th and that was based on the information we had at that point. However, some unexpected things happened the last month and mainly in the second half of that month uh including a delayed order from the new big box customers and that resulted in that we came in at 7% and that's the same level as we were in Q2 last year. As sulan mentioned the year-to-day organic growth is 9%.

[00:05:03]Our uh reported gross margin is 61% and there's no adjustments with this quarter between operating and reported gross margin or IBITA. H this is the strongest gross margin we have had since 2020. It came in stronger than expected driven by continued stronger growth in Europe where margins are higher compared to the other segments as well as some inventory buildup and of course some advance also contributed with a record quarter and also strong margins.

[00:05:32]The external cost have increased compared to last quarter. We continue to have strong growth on Amazon both in the US and in Europe and that contribute to how higher sales related cost. In addition to that, it's been enhanced marketing initiatives this quarter, mainly online with Prime Day, for example, which occurred in June this year. Last year it was in July, but also we have had product launches and intensified efforts to grow the nature of that Amazon account and also win back some bestseller batches on Amazon.

[00:06:04]Personnel cost is stable. However, it did include 3 million of severance costs for the quarter h mainly for the final step of the air reorganization that we had at nature. Uh operational IBITA same as a reported IBITA as there's no adjustments amounted to 129 million for the quarter. Uh this is an increase of 5% compared to last year and a margin of 19.3%. Again, this is below the expectations and that's mainly impacted by this lower sales. Uh however is a small increase compared to last year when margin was 19.0.

[00:06:39][snorts] Uh net depth to ITA has increased to 3.1. This increase is due to the expected earnout payment that we are planning for summit which is included in the calculation from this quarter. Uh because this payment is now due within the next 12 months. Uh it also is impacted by the dividend payout that we did uh this quarter of 44 million. Our cash conversion increased to 60% for the quarter. Uh it's mainly higher inventory value at the close which impacted the operating cash flow for the quarter.

[00:07:13]During the quarter we have also started the var south expansion. Hence capex was 4% of sales uh for the quarter and year to date it still remains at 3%.

[00:07:24]Uh regarding our uh loans, we repaid 5 million on our uh external loans this quarter and in total we have paid repaid 55 million year to date.

[00:07:37]Rolling for quarters on the left you can see the rolling 12 months trend for which you can see revenues up slightly but impacted by the ne negative currency impact uh and also an improvement of the reporting ITA. On the right hand side you can see the trend of the Q2s. So here you can see that there's no change between the report and operating IPA this quarter.

[00:08:00]>> Turning to North America, uh this remains the group's largest segment representing 55% of total net revenue and had a minus 3% organic growth. The key point is that the decline is not a broad loss of competitiveness. Uh we knew that North America would be our weakest segment this quarter. Uh in May we noted basically for the first time in many months uh a softer consumer demand.

[00:08:24]It was both in pet retail and online affecting all brands. However, June bounced back nicely and even though the turmoil in the Middle East is back and gas prices rising, we have not seen any new weakness in early July. So hopefully May was a bump in the road and not coming back. The major factor why we came in in minus territory was uh as we've said the the private label launch delivery to a new um big box customer uh was delayed because of substantially substantial quality controls uh implemented by a third by the customer but performed by by a third party uh just before ship out. production was approved by the end of the quarter but the shipment couldn't move out in current quarter. Uh second the merger of the two largest US veterary distutors led to lower inventory levels during the discovery process. Uh we knew about that but we still uh had and expected some some uh bigger POS than than uh was delivered in the quarter. Hopefully that process will end soon. As said we are expecting a stronger second half year and when it comes to both sales growth and profitability for North America.

[00:09:40]There are important positives also.

[00:09:42]Prodov uh remained very strong even with a weaker may also for protein. New private label uh veterary delivery started to leading partners albeit with smaller shipment than than expected.

[00:09:55]These are expected to continue to grow uh month by month going forward. The nature vet sales reorganization was completed and Amazon sales badges have been restored for a couple of nature products and also petmd took back some lost badges. Uh this been been a very hard work for our online team in the US and from now on we should be able to focus on more costefficient and growth oriented marketing programs online primarily on Amazon where we have worked hard to claw back market share. So the implication is that Q2 was a weak North American quarter but the underlying channel work is in place for a stronger second half especially online. Old and new big box partners uh they continue the the ones we started last year continue to grow and we take market share from from others and veterary partnerships together with a bounce back in the traditional pet retail uh with a partly new sales team at Natureet.

[00:10:54]Uh Europe was one of the clear strengths in the quarter as said 90% organic growth and the region now represents 25% of group net external revenue and of course handles more than 90% of the group's internal manufacturing.

[00:11:08]The growth was broad-based. The majority of companies in the European segment delivered double digit growth. Um dental was the fest growing product group fueled by Amazon mainly while export sales through distributor market also contributed strongly. China was an important highlight. As said, sales during the quarter exceeded last year's full year level. Operationally, this was also a high activity quarter. Nature by Sweden Care was launched in Europe with uh online just started and deliveries to pet retailers will start in Q3. Worth noting is that we're very happy to to announce that the leading pet retailer in the UK will be launching the full line in Q3.

[00:11:52]uh the Amazon transition was completed of course all European markets and um that has also has an had an effect on our um our profitability um with the buildup of of uh of this operation and going forward we expect it to contribute um at same level as as as the group vetner brands continue expanding on present and into new markets um looking at the different the regions UK Italy and Nordics and export markets were the champions this quarter.

[00:12:25]The main takeaway for Europe is momentum. Europe is combining strong demand, channel execution, digital expansion and pharma growth with Summit Vet. Uh and with Summit Wet, we are also expecting um second half year to be able to launch um launch um um soft shoes and with pharma farmer products and that would completely unique to the market.

[00:12:51]So we're expecting um uh expecting a nice demand for that. Uh and also Europe will continue to to to lead the group's organic growth profile going forward.

[00:13:05]Uh the production segment delivered the highest organic growth in Q2% and the segment accounted for 20% of group group net revenue. uh growth was mainly driven by contract manufacturing in Europe and strong uh pharma manufacturing and and development in um in uh veter north. This performance is particularly impressive because demand in dermatology remains softer than expected. In other words, the segment is growing strongly despite some weakness in one major area. As said, the demand picture is strongest in the EU and North America pharma supported by both existing customers and new customer inquiries. That is why we are investing in additional capacity and organization.

[00:13:48]The pipeline also supports the outlook.

[00:13:51]With coming quarters and years, new go lives are expected to contribute to the ramp up. Uh lastly, the Andio video UK partnership is another example of how the production platform is becoming more strategically relevant. The takeaway is that production is moving from a mere support function to a growth engine and could also lead to new branded partnership providing a strong foundation for the coming years. Over to you, Jeff.

[00:14:43]mute. There we go. Sorry about that. All right. Can you I think you can hear me.

[00:14:47]If you you can go to the next slide.

[00:14:51]Perfect. All right. So, um All right.

[00:14:55]Evolving in a hyperco competitive space.

[00:14:56]Good morning. I'm Jeff Granger, CEO of Naturevet. I've segmented today's overview into three sections. Uh first, I'll share an overview of our key accomplishments over the past year.

[00:15:06]Second, I'll provide an overview of our key learnings from the latest US pet supplements market and category insights. And lastly, I'll walk you through uh how we are actively integrating these key learnings into our go forward strategic approach. Go to the next slide. It all starts with culture.

[00:15:23]So, um starting with our key accomplishments over the last 12 months.

[00:15:27]Um of course, it all starts with culture. Our core strategic framework is comprised of four pillars. culture, revenue growth, even a growth and cash flow discipline. But it's no accident that we lead with culture. We know that unless we have a talented and engaged team, we'll never achieve our financial aspirations. So, uh, Sweden conducted a global employee survey the month before I started back in, um, middle of 23. Uh, and the results for those survey happened to come through, um, the week, uh, my first week, and I was able to review it, and the results at that point were not quite what we want them to be.

[00:15:58]they were at a 33 employee netu uh net promoter score compared to total sweetening care at about 41. Uh we quickly identified the biggest opportunities that came out of the survey and we implemented new standards and processes aimed at addressing these opportunities over the following year and in early 2025 a new survey was conducted and our employee net promoter score improved by 20 points to a 53 from a 33 to a 53 with anything 50 or above especially in a manufacturing environment um considered to be excellent. and our current employee net promoter score ambition is now 70 which is considered to be world class. So that's that's our aim. Additionally, over the last year, uh we've significantly improved our executive leadership. About a year ago, we hired a new chief operations officer with 25 plus years of experience across the manufacturing, aerospace, and industrial sectors. Uh Eric Thomas is our first operations lead uh who is lean six segma certified uh key efficiency certification uh bringing with him years of proven expertise driving efficiency through systematic process improvements and waste reduction. And in March of this year, just a few months back, we recruited Christy Murphy, our new chief revenue officer with 30 plus years of industry expertise across sales and marketing. So she leads all things sales and marketing for us. Uh Christy has extensive leadership experience across large midsize and startup organizations specifically in the pet space. Uh and she's you know what's really exciting is she's built enduring pet retailer partnerships relationships over the past last 30 plus years which uh we will of course leverage. Go to the next slide.

[00:17:34]Uh next we needed to make some significant pivots to position the NatureVet brand for meaningful and sustained future growth. Uh about a year ago, we launched a completely refreshed NatureBat brand, all new packaging informed by exhaustive consumer insights and key retailer input. Uh and we did this in around 6 months, something that's really traditionally a 12 to 18month undertaking. Uh and the rebrand really was table stakes uh for not only maintaining our brand and legacy accounts, but it was it was a must uh for expanding into new channels of retailers. And on that note, we significantly expanded the Nature Vet distribution. In the back half of last year, we launched Nature Vet supplements in the number one US vet retailer, PetSmart, approximately 1500 locations.

[00:18:17]We had some other categories in Nature Vet in in excuse me, PetSmart, but we never had core supplements and and we do now uh and continue to expand. Um we're expanded we expanded into the number one US pharmacy chain CVS and approximately 1100 stores and um we introduced our brand in the number one overall US retailer Walmart in approximately 1,700 plus locations. Uh and starting around that same time in Q3 of last year, we launched really our first ever ever 360deree NatureVet marketing campaign uh supported by celebrity influencer and veterinarian endorsements and activating across social, digital, and influencer media. Up to that point, we really did not have a marketing organization. We're not actively marketing. So, you really could say last within the past year is the first time we've truly marketed the brand. If you go to the next slide and lastly within key accomplishments um so through the implementation of our first fully integrated ERP system in Q4 of last year and our recent completion of SQF facility certification uh we're ensuring that our operations efficient competitive and prepared to support increased scale the implementation of Acumatica our ERP system last October uh it's going to increase our efficiency it's going to reduce costs and it's going to enable us to make real time datadriven decisions. and have visibility we had not had up to that point. Uh and our recent SQF certification, safe quality food is allowing facility certifications allowing us to expand into a major club retailer which Hoken had alluded to a number of times which is happening this month with a private label program. Uh and that sets us up for uh further expanded market access across both private label and of course nature nature brand as well.

[00:20:03]So we go to next slide. Um so we did a lot over the last 12 months. Uh however, while we've been making significant strides to drive meaningful and sustained growth in the nature brand, uh the US pet supplements category has become increasingly competitive and uh fragmented. Uh and as we look to evolve our approach, we're pivoting our strategic direction to address the biggest opportunities that we've identified through the latest insights.

[00:20:27]total category came in shy of three billion last year US uh and is forecasted to grow around 6 to8% over the next couple of years. Uh this is a category that was up you know double digits in in in you know 24 and 25. Um it's still up but it's tightening and there's a lot of competition and I know you know we alluded earlier just the hyper competitive category and environment. So a lot of work to do. Uh e-commerce remains the dominant channel with over 80% of total market volume with Amazon alone about 70% of that total channel. The food drug mass club channel is driving the highest year-over-year growth rate approaching over uh 20 approaching 20% growth with Walmart growing even faster and approaching or around 50% of the total channel share. Uh the pet specialty channel over time is it's the most mature channel and over time it's generally flat to down versus prior year. Uh with a lot of brand expansion and a finite amount of shelf space within the brick and brick and mortar space. Uh the brands that are growing are focusing on mar focusing marketing spend on fewer SKs, higher conversion content and leveraging Amazon as a primary marketing channel which is kind of a consistent theme. I'll touch on it a few times. uh the consumers looking for new products that mirror human trends. The cats consumer specifically and cat is disproportionately growing versus dog. Much smaller volume, but the growth rate is higher. Cat consumers looking for an expanded assortment of cat specific solutions. Uh and it's imperative that legacy products are being regularly updated to address consumer demand for key factors like trending ingredients, higher active levels, natural preserves, and high palletability. So while the the you know innovation is often the fun and exciting part of it the the core assortment is where the meat of the of the volume is right so we got to continue continue to make that part of the assortment relevant so lots of learnings what do we do about it so if we go to the next slide um let's start with the e-commerce channel we're going to specifically focus on what we're doing around Amazon uh Amazon is the biggest portion of our business so it's essential that we're maximizing the platform as we continue our push for meaningful and sustained growth. Uh we transitioned the management of our Amazon business to PetMD about a year ago, a US-based sweet and care subsidiary with a lot of proven success scaling brands on Amazon. So, they're great partners. Um however, as a result of our distribution expansion, um bringing in folks that weren't quite abiding by our MAP, we got them under control now, but distribution expansion and MAP pricing change at the beginning of this year. uh in rogue seller proliferation, we did experience a significant decline in MAP compliance across the market which did directly impact Amazon performance. Additionally, the rebranding and the repackaging push resulted in temporary inconsistent site experience um resulting in a combination of old and new packaging. So, some growing pains, you know, coming from the big changes that we made. Uh but over the last quarter, we've uh put a number of processes uh in place to get our Amazon business back on track through renewed discipline around map enforcement uh enrolling key SKUs in the Amazon transparency program to you know effectively address rogue sellers and a storefront refresh with a focus on ensuring that we're leading with our new packaging uh and messaging. Uh these actions have resulted in a significant reduction in map violations allowing us to consistently secure the buy box and bestseller badges. We were talking about that earlier on our key products and as we've seen over the last 60 days or so, we're now seeing steady consumption growth on Amazon. Our priorities moving forward to further fortify map enforcement, continued expansion of transparency across the portfolio, but we have transparency on around 80% of the volume already, which is great. uh and then curating a best-in-class site experience to leverage Amazon as as that primary marketing channel and ultimately driving performance improvement not only in Amazon but across all channels. So as I always say, you know, as goes Amazon kind of goes your total business. Uh so that's really where we're focusing on e-commerce. If you go to the next slide, um Walmart is our primary focus as we push to gain a foothold in the food drug mass club channel. Uh, as noted earlier, we launched in approximately 1,700 Walmart locations in the second half of last year and even secured a temporary 2,000 location endcap for Q1 of this year. So, they believe in us and and then they're giving us access. Uh, however, despite the sign significant distribution expansion, the weekly consumption for Walmart continues to lag our original targets. Right? We're seeing growth obviously, uh, but it's not quite where we need it to be. Uh and it's imperative that we get on a steady path of of uh regular week-over-week improvement and start and and make meaningful inroads in a growing food mass club channel. Uh so we're currently hyperfocused on Walmart marketing activation to drive short to midterm performance improvement. Uh we recently turned on fullfunnel toptobottom marketing for Walmart with the objective to increase not only awareness but to drive consideration and ultimately usage purchase. Right. Uh to date, the tactics we've deployed kind of overall focused on driving general awareness, not always include the necessary calls to action haven't always been focused on, you know, a handful of hero items. Uh keeping the message simple. Um and that's all required to improve, you know, consideration and ultimately that usage. Uh and we're doing that now specifically with Walmart. We've been doing that last couple months. So for the first half to date, we've delivered 80 80 million plus targeted impressions uh for uh around Walmart activation with the most success coming from Target digital display, Walmart connect, and then uh over the top streaming content.

[00:26:05]Uh and now we're also able to benchmark our performance across the different marketing funnel segments. And since initiating initiating the latest round of Walmart uh focused activations, we've gone from lagging our competition across the key benchmark across the different parts of the funnel, you know, awareness, consideration, and usage. Uh and now we're exceeding competitive competitor average awareness and consideration by 100 basis points and usage uh by 200 basis points. So where we've chosen to focus and alter our strategy, we're seeing a win. Uh and you'll see in a moment I'll kind of talk about how we're going to then kind of blow that out to the you know in a larger way. Uh now a tangible sales impact that can take you know six months give or take to materialize in a meaningful way but we've already seen significant run rate improvement in those in three of the four featured hero items because again a big part of this was also what we're doing here is focusing on that handful of items and not just focusing on general categories.

[00:27:01]So, we're seeing seeing movement. Um, so, you know, the the data is telling us we're doing the right things. You know, ultimately the volume needs to come. Uh, go to the next slide.

[00:27:13]So now that we're starting to see success with how we're activating at Walmart, we're looking to scale the approach to other key accounts with a focus on again driving brand clarity with a single unified message, a focus on a handful of hero items, reducing the friction from awareness to usage through that full funnel toptobottom approach, uh continue to transform our Amazon footprint and into a best-in-class experience, leveraging the platform as that primary marketing channel and again driving brand growth beyond just Amazon by doing that because A lot of people start on Amazon, right? Uh holding ourselves accountable to measurable KPIs that have met will deliver our growth aspiration. I'll be honest with you, when we launched marketing in the last year, we had KPIs and we're hitting those KPIs, but it wasn't translating into the the levels of um revenue growth that we were that we needed. And so anything we do going forward if we achieve a KPI that directly connects to is going to directly connect to um us achieving our you know growth aspiration. Uh and filling um and then lastly filling the void is a partner of influence for the category as the category continues to be confusing and difficult to navigate and we still have an opportunity to partner with key retailers to improve the consumer experience while also preserving and growing our brand. So it's really this idea of thought leadership which we've been doing for the last couple years and I think we've been winning there and we have an opportunity to continue that.

[00:28:36]If you go to the next slide oops here we go. Okay talk about pet specialty. So as noted earlier pet specialty has been again the m most mature channel and it's really the weakest performing channel over time uh in the pet supplements category. Uh however the category remains disproportionately meaningful to us to nature because it drives just shy of 40% of our volume. Again that's where we grew that's where we started um versus only around 30% of the total market. So we're underpenetrating the other channels right so while we push to capture share across ecommerce and food drug mass and club it's also imperative that we're protecting protecting our position in pet specialty as well uh and being extremely surgical around where we choose to invest in the channel. So our focus here is to you know reestablish ourselves as a category authority through revitalized assortments, category thought leadership and private label partnerships. And I include private label here even though this is a naturevet conversation. I include private label in the conversation here as we see it as a natural path to strengthening our current partnerships and opening the door for the nature vet brand with new partners. Um and ultimately we need to determine which pest special especially retailers we can scale and disproportionately invest in and where we need to reduce investments because of retailers making decisions that are driving down their share and over and their overall importance in the channel. So okay next slide. All right product. So when it comes to our product portfolio uh everything we're doing is directly informed by consumer insights. The two new platforms that we're launching this year uh dual action uh and targeted care supplementation are directly inspired by key human space trends. Uh with dual action featuring combined solutions that address relevant need states like immunity, uh longevity, inflammation, gut health, and allergy and targeted care is positioned as a more humanized approach to addressing core need states featuring relevant solutions focused on muscle health. So it's not hip and joint, it's muscle health, right? beauty care. It's not skin and coat, it's beauty care. And then expanding uh where we're playing in dental health and our new expanded cat specific solutions offering uh was developed in response to the disproportionate growth we're seeing in the cat segment and direct insights have tell us that cat supplement consu continue to tell us this isn't you know a revelation but cat supplement consumers are looking for solutions that are uniquely formulated for cats and these were actually solutions that were dog and cat combined solutions we've had in the assortment for a while. We we we basically took those formulas and created cat specific formulas and reformulated them and um and and made them more appropriate for uh for felines. Uh and beyond new products, our core assortment revitalization initiative ensures we're staying ahead of our competition through ongoing formulation and palletability enhancements. As I said earlier, the innovation part is the fun part, the exciting part, but you got to make sure you're appropriately evolving your core assortment along the way to remain relevant to to remain competitive as that is where the the meat of the volume is. Uh and unlike years past where we are managing our assortment updates one year at a time, we're currently in the process of fortifying our long-term product strategy, leveraging new third uh thirdparty insights resources, and mapping out our vision for the next uh 5 years and beyond. And lastly, last slide, lastly, but certainly not least, uh we're continuing to transform our operations to support our growth journey. Uh starting this year, we're piloting automation on our production line. So, it's going to improve efficiency, increase capacity, and ultimately reduce costs. And based on the success of this year's pilot program, we'll be looking to expand automation deployment in 27 and beyond.

[00:32:08]Uh and as noted at the top of the presentation, our new chief operations officer is certified in lean manufacturing processes and has to date completed lean training for his entire manufacturing team. Uh this has driven transformations in our production planning and manufacturing processes, reducing excess inventory, improving cash flow. Um additionally and last uh we rolled out um we rolled our purchasing group into our operations team. They were the so the folks purchasing the raw materials and packaging all they really weren't directly tied to our operations team which is odd. So we rolled them into our ops team. We did that last year and we transitioned them to a centralized supply chain function with a focus on strategic raw material sourcing and long-term supplier agreements. Uh it's going to drive cost savings. It already is driving cost savings. Improve payment terms optimizing working capital and probably most you know just as important or maybe most important uh driving supply predictability which is key. uh and we're doing all this within a stringent supplier governance framework so that we can ensure we're building partnerships with uh best-in-class resources uh and exiting transactional relationships that do not support our financial and operational imperatives.

[00:33:17]So, this concludes my segment for today's presentation. Uh thank you for giving me the opportunity to provide all of you an update on our growth journey and now I will pass it back to Hogan and Jenny for questions.

[00:33:30]Thank you Jeff. And by that we are open for questions and your first one comes from Adela. Please go ahead.

[00:33:40]>> Thank you. Good morning. Um firstly on the developments in North America um I believe Han you mentioned earlier there that you would have been somewhere closer to mids singledigit organic growth had you not had this big delay.

[00:33:54]Um can we confirm that that is the case?

[00:33:56]Then if that was the case then I would assume that your organic growth would have been closer to 12% versus seven in Q2.

[00:34:03]>> Yeah I would yeah low to mid I wouldn't so so it would have been double digit.

[00:34:10]Okay, I see. And um also I guess your visibility as we move forward here. You say that this specific order will be delivered in in Q3, but um at the same time I mean we we do have to be cognizant of the fact that um there has been some volatile quarters and and this isn't the first time where um revenues is being are being uh delayed into uh further into the year. So I guess yeah are you doing anything specifically from a group level to have better control over throughput or or yeah what's your view on that? Yeah, absolutely. It's uh very frustrating, of course, and um and and we we've been working hard with forecasting and have have monthly updates, but uh but uh probably need to have have even even uh more frequent updates uh when it comes to this and and perhaps have a bit more margin uh when we present our expectations.

[00:35:11]>> Okay. And then lastly on margins uh gross margins did uh perform uh well in Q2 um you saw expansion also in the operational limit but it was slightly below expectations um now in Q3 and yeah let's say you started with Q3 um you you were above 20% and I guess how do you feel about managing that level um especially with maybe your Amazon related costs being a tad higher in Q2 Do >> you want to or Yeah, I can start. Yeah.

[00:35:48]Yeah, we definitely expect u expect um margin going up Q3 going forward and it it's absolutely related to our Amazon cost actually both in both in Europe and the US. As I said, we've been building up for the transition in Europe. That's a smaller part of of of the um of the margin um contribution. uh but that has also been at the lower level than than what we expect going forward and primarily for the US. We definitely have have invested in in the clawbacks of of bestseller badges etc. uh and we do see uh improvements have seen improvements uh over the quarter but but we we really had to push to get those in and now that we have them we can transform the investments to more let's say um campaigns [clears throat] that we know are more connected to to to ROI and improvement in in uh in margin. So, so I would say Amazon is the biggest contributor to the margin uptake uh Q3 and going forward but also uh but we've also had had um I mean a couple of uh as I said as we said dur under the production segment uh the the um the softness of the dermatology uh sector has been been u complicated for us when it come hitting our margin as well and Um and we're working very hard and have uh connections with all of our customers and and our own um internal brands. Uh the summer is is a good year for those kind of products. So So with um with our new veterary partnerships market picking up and inventory level at low, we do expect the dermatology um sector to improve going forward as well and that will be also a main contributor for us improving our margins.

[00:37:44]Jenny.

[00:37:45]>> Okay.

[00:37:46]>> No, I think you covered it.

[00:37:49]>> Okay. I see. But okay. So, so I guess then we should think of this um expanded other external costs profile to be the result of maybe front-loading investments in H1 and and those shouldn't be recurring in in H2.

[00:38:06]>> Exactly.

[00:38:08]>> Okay. Great. Thank you.

[00:38:12]>> Thank you a lot. Your next question comes from Adrian. Please go ahead.

[00:38:19]>> Yeah, perfect. Uh, thanks guys for the presentation. Um, I think I have three questions. Uh, just firstly like touching again here on the revenue v visibility going in in the second half of the year. My question is basically like do you have any larger orders now scheduled for Q3 and Q4 that that have a similar risk of delayment that might be you know supposed to be in in the uh you know back end of of Q3 that could be pushed into Q4 or or similar.

[00:38:53]>> No uh no not not the scale like like this one. uh and uh we are actively working with both partners and our internal organization uh to to um to push let's say the the uh to have a more equal um um delivery schedule going going uh going going into a porter. So so that we are actively working with that. So no we don't have a a um a major order that is scheduled for the last last month of the quarter um in Q3.

[00:39:24]>> Okay, perfect. Uh very clear. Um second question is basically on the rogue sellers on Amazon. Could we have any update on that?

[00:39:32]>> Yeah, as Jeff said that that has improved a lot and that's combine combination of the the our products going into to having transparency that means that we are the only one that can ship in um th those unique SKUs. Uh, and also um what um Jeff alluded to, perhaps I should clarify that a bit because um Europeans are not not that used to the the MAP pricing. That's actually sort of a a a recommended price that that sellers are not allowed to go under when selling our products on the market. and and there has been been a couple of especially some new new collaborations with bigger bigger partners undercutting uh specifically on their um own online web shops and and even though that's very small in volume that conf make make conflicts and and problems with the algorithms of Chewy and most more importantly Amazon. So, so that really um makes it makes it problematic with with keeping the map pricing um on on Amazon and Chewy. So, so that's really a u hard work from from the specifically the new team that has come on board on Het. They have really uh had great success with our major partners in in uh following our map pricing and we've seen seen u improvements um la last part of of this quarter. So, so going forward we we don't expect any major problems with the rogue sellers or but map pricing is is a constant let's say um issue that we're working with with so better communication with with our our partners uh we can avoid those kind of conflicts.

[00:41:16]>> Okay. Uh thank you for that. Uh finally my my final question I think is for you uh Jeff uh regarding here the sort of flagged uh or or the increased competition on Amazon if you will. I think you touched on this in your presentation but perhaps you know I missed some of it but could you be more specific about where the competition is increasing like are you losing ground?

[00:41:38]Is it primarily volumes or pricing pressure and and kind of what are you doing here to trade this you know are you risking >> Yeah. Sorry. Go ahead. Go ahead. No, I'm sorry. Please finish.

[00:41:49]>> Are you risking, you know, um being in a pricing war against competitors? Is this like you need to outspend them on marketing or anything?

[00:41:58]>> No, it's it's not a pricing war. And you notice a lot of what I concentrated on was marketing. And and I'll clarify, it's not just an Amazon thing. It's it's an overall thing. And the reason I emphasize Amazon a lot is is as goes Amazon goes everything because people use Amazon as a primary marketing channel to go on there and research the brand. So if we're losing buy boxes and bestseller badges, that puts us at a disadvantage. Um if as people are researching our brand, it is not a price war. We have an opportunity. So again, the the a lot of the brands that are doing successful are digital native brands that launched over the last let's say 10 to 12 years. Um and they went heavy on social media and they went heavy on the dot pure play sites and um and honestly it's a bit of a catch-up exercise with them. And um and as I said, we really had not truly marketed within our organization um you know until around a year ago or so. And we're fine-tuning that. And so um I think it is a it is an awareness and and it is not only an awareness factor, but it's going to that next level and getting compelling call to actions out there uh and telling tighter stories. Uh so I think a lot of it is marketing and that's part of why we brought our new chief uh chief revenue officer in because she has a significant background in marketing and she's already brought in some folks who have worked with her multiple tours of duty to help turn businesses around and so our focus is on driving awareness and relevance and driving people to usage and purchase. So I I believe it is a it is a marketing challenge and that's what we're all over right now. Hopefully.

[00:43:30]>> Yeah. And also worth noting is the the uh the uh the brand change. I mean that that's that's a that's a major impact when when transforming a brand uh when it comes to Amazon sales with diff different look and feel of products.

[00:43:47]That that's really a >> a project that we probably underestimate the the complexity and the impact it would have.

[00:43:55]>> All right. Is it Oh, anyway. I got it.

[00:43:58]Good. Good.

[00:43:59]>> Yeah. Very good. Yeah. Sorry for interrupting you, but uh thanks for that, Jeeoff. That was all for me.

[00:44:04][snorts] >> Oh, great.

[00:44:06]>> Thank you, Adrien. Your next question comes from Yuan. Please go ahead.

[00:44:11]>> Yes, good morning, guys. Thank you for taking my questions. A follow up on the FDMC order. Um, does does the delay have any impact on or put any potential impact on your your pipeline potentially delaying further projects, pushing them further out, etc.?

[00:44:29]>> No, no. The the the the whole um the whole order was more or less uh done by by uh I mean third week of of June. So, so it was waiting to be shipped out. So, so it doesn't uh doesn't affect our manufacturing schedule.

[00:44:48]>> Very clear. Thank you so much. And then a question on the u the merger in or the US veterinary distributor merger here.

[00:44:56]Um at at at what point do you expect these two distributors to to sort of normalize inventory levels and and what's your revenue exposure to to these two accounts? Um I we expect to have a decision uh or they expect to have a decision on approval I think the second half year. I don't know exact month when when they need to get that decision but but I think uh it I mean the the inventory levels are expected to pick up already in Q3 due to the fact that we see the sellout numbers of the product that we are supplying. So, so but but it's uh but but of course our let's say our agreements with those partners is that they should at least have let's say 90 days of inventory at hand and and they were down to to like 30 days. So so so it's of course uh different kind of setup if we we need to ship small orders all the time compared to shipping larger orders. So uh so we we expect both from from the the the let's say inventory rebuild up but also that the the uh partnerships for for all of the for these programs is actually um um it's it's uh it's replacing um another another um um supplier for for for for these kind of products. So of course they they are selling out the the old inventory and and resupplying with ours.

[00:46:21]So, so it's it's a gradual process but uh would like to say numbers but but it's it's uh it's significant volumes definitely from from 2027 going forward but but it's already this second half year will be be a lot higher higher volumes than than than um than we've had this first half year. So so I would say it's it's we're not talking about hundreds of thousands of of dollars.

[00:46:46]It's it's it's a million dollar range and upwards.

[00:46:51]>> Got it. Very clear. And then the final one maybe on the uh the Amazon Prime Day which fell in June this quarter versus July last year. What was the sort of incremental cost impact of that timing shift here in in Q2?

[00:47:10]>> You mean how much it was? I can't say how much it was, but it's in two it's two things that impact it. First of all, you have the cost in June instead of July, but you also have the result of the Prime Day because uh you kind of invest in one month and then the sales will follow in in in the future as well.

[00:47:26]So, we expect uh the investment that we did for Prime Day in June to also have a positive effect in July.

[00:47:32]>> So, it's two.

[00:47:33]>> Yeah.

[00:47:34]>> Yeah. So, essentially lower cost than in in Q3 as you took them in Q2, but also better sales contribution given your your marketing. Yes.

[00:47:43]>> Got it. Very clear. Uh those were all my questions for now. Thank you so much.

[00:47:48]>> Thank you, Yuan. Your next question comes from Christian. Please go ahead.

[00:47:56]>> Uh yes. Uh good morning and thank you for uh taking my questions. Uh uh my first question is regarding the gross margin of 61%. Uh that was impressively strong. uh could you please help us uh understand the the relative contribution to the the gross margin? Uh you mentioned the favorable European mix and the inventory buildup effect. So so excluding this inventory buildup effect, what would the the gross margin have been?

[00:48:26]>> Oh, I don't have that number. But of course, when you build up the inventory and we're not able to ship it, h you have less cost of sales contributed to that. So it's not the split but I I will stay with the expectations for the full year that we are expecting to be around 58 59% for the full year.

[00:48:45]>> Okay. So so you are um maintaining that um um communicated uh corridor of 58 to 59% despite the continued performance of Europe relative to uh North America.

[00:48:59]>> Yes. I mean it's not like we expect the Europe to go down but we expect the US to catch up and they don't have the same kind of margins in the US. So it will have a negative impact on negative impact but it will not remain the gross margin that we had 61 I don't expect.

[00:49:13]>> Got it. Thank you. Uh my second question is regarding Europe uh which grew by 26% organically in the second quarter. Uh could you please uh say how much Europe grew um adjusted for the China contribution?

[00:49:31]Uh let's see now. It's uh the uh I don't have that.

[00:49:38]>> No, I don't have that number in my head.

[00:49:40]Um >> okay. Was that a significant um >> No, the the the the China China order in Q2 was around 8 million sick.

[00:49:55]>> Okay, great. Thank you. And my uh third question is regarding prod uh delivering a 32% organic growth in the first half of this year. Um could you please elaborate a little bit on what is driving this uh growth? Is it primarily a new product launches or geographic expansion or combination of both? Uh and do you expect the brand to sustain a high growth in the second half?

[00:50:20]>> Yeah. No, it's not not so much let's say new new markets, but you could say that uh of course um um new new uh or export markets was really strong, but that's a small small portion of the total sales of of um of Protein PLA. No, no, no uh major new product launches under the brand. We did launch prom plaque of creme specifically for cats but that was introduced at at zoo and the only sales we've had um for that is is some some test sales on on Amazon. So it's first it's in Q3 we start shipping to to distributing partners and also to our local local um group companies sell selling out to pet retail. Um so so I would say and it hasn't launched on US Amazon yet. Uh that will uh probably not be until Q4 due to the delivery. Uh but uh no so no no new products. No so it's it's the momentum of uh as we've said the product off is is a very um attractive product. It's very high when it comes to subscription rates when from from our partners like Amazon and um and Chewy predominantly. Uh so we're just adding new customers to to to current customer base. So um we we've seen uh seen fantastic growth numbers in Europe uh all all across uh the the uh Amazon channel predominantly. Um uh and we expect that to continue to grow because we haven't really marketed that much in in the EU8 except for for the UK. We have have been kind of cautious when building up the organization for that.

[00:52:03]Uh and in the US uh I mean it's it's it's going really well. Uh we've had some challenges with our very popular pro and plaque of dental bones. That's from a supply issue. Uh so we actually been stocked out for for many of the flavors for that. So it could have been even better.

[00:52:21]So no, we so we expect the momentum continue going into Q3 and Q4 and we're very excited about the the um the protein plaque of creme product. Um so we that we have another let's say product specifically for cats.

[00:52:40]>> Perfect. Thank you very much. That's all for me.

[00:52:43]>> Thank you Christian. Your next question comes from Javier. Please go ahead.

[00:52:51]Hello.

[00:52:53]>> Hello.

[00:52:54]>> Yes. Can you hear me?

[00:52:55]>> Yep.

[00:52:56]>> Great. Thank you very much. Thanks for uh your time. So, sorry because I missed the first question. Maybe you already answered this, but just uh wanted to confirm in terms of the US that the so everything is is up and running now with a new customer. So, you are shipping already. You've been approved. Just to confirm that. And I wanted to understand how much can uh can that new customer be maybe in terms of a percentage of sales there. How can how much can it contribute to to growth in the third quarter and all together? So you have a lot of moving parts in the US uh prime day the merger this new customer. So it's difficult to understand uh what can we expect in terms of growth uh for the second half and it's obviously a big part of your business. So it would be helpful if you can help us uh understand the second half and the third quarter specifically in terms of growth in the US and also second question on Europe.

[00:53:56]Um you've grown very nicely in the second quarter. Part of that was China as Christian mentioned and wanted to understand how how normal can that growth be obviously maybe not 19% but can we expect double digit also in in third quarter fourth quarter uh if everything remains as it is today and just the third question on margins uh obviously a lot of moving parts again you improved a little bit quarter on quarter can we expect the improvement in margin in the third quarter to be higher than the one seen in the second quarter.

[00:54:32]So more than 30 basis points just to at le uh hint uh basically. So thanks.

[00:54:44]>> Yeah. Okay. Lots of questions. I'll try to to get your answer and then Jenn can take uh I mean the the the expectations for for Q3 and going forward in the US is definitely um growth for for the um for the segment. Um I expect um it to be u I mean over or just under um under um our double digit target. Uh we definitely do expect the US to bounce back. So, so let's say high single digit or or hopefully uh double digit. But let let's see how how how it performs. But uh and this order of course it impacts Q3 but uh but um [snorts] um and should have been in Q2. So so so that will impact u nicely. uh I don't want to say ex exactly the the the the number of the the order but but but but the the the setup is that we make a first first initial order that we we um have shipped now in July or or shipping some of it in July. Um so more or less it will be full fully delivered in in July and then um there will be replenishment when when when from from the day that the products goes out to the all of the different stores we will keep inventory and ship out products to their their distribution centers. So, so this is an is an important um important new customer. Um hard to say the exact volume, but of course um of course it will will have a a nice effect on on uh second half and definitely in 27 and and hopefully we we can expand this u this program even further. It's a it's a private label program. Um not that many SKs. Uh so so hopefully we can we can add new skills to this this program. Um then it was uh >> then it was Europe. Can we expect uh we have had really strong growth now this quarter. Can we expect it going forward?

[00:56:47]>> Definitely expect double digit. I don't expect perhaps 19% organic growth but double digit growth we expect. Uh and um the same goes for for manufacturing that we expect double digit growth. uh but probably not as strong as we had now in in Q2.

[00:57:04]>> Yeah. And your last question about the margin. Yes, we expect profitability to improve in the second half of this year compared to the first half.

[00:57:15]>> Thank you very much. And just to follow up on the on that uh two questions more on the FX impact. Um in the second half it should smooth significantly versus the first half if we consider spot rates, right?

[00:57:30]It's yeah, it flattened out more in the second half compared to the first half or the first quarter. Yes.

[00:57:36]>> Okay, great. Thank you.

[00:57:40]>> Thank you. And your final question comes from Yuan. Please go ahead.

[00:57:46]>> Thank you. Just just a quick follow up on the gross margin guidance here. Could you generally just clarify whether you expect the gross margin to be in the 58 to 59 uh% range for Q3 and Q4 or is that for uh 2026 as a whole?

[00:58:04]>> It's difficult to say depending how fast everything or the the moving parts are moving but I expect to be around 58 59% for going forward.

[00:58:14]I think 61 were exceptionally high due to the a fact that the US came in a lot lower than we expected.

[00:58:21]>> Yes. But but the implication whether this is on on 2026 as a whole or for coming quarters is is quite significant given the the strong gross margin that you have delivered in Q1 and Q2 just just so so so we get get everything clear.

[00:58:37]>> Well hopefully with the strong 61% in one quarter we will be closer to the 59%. So let's just say that we will be around the 58 59 for the full year. Um no I expect it closer actually to the each quarter. So um I don't expect it to be expectally low next quarter due to the fact that it was high this quarter.

[00:58:57]So 5859 per quarter I expect >> going forward. Yeah.

[00:59:01]>> Yes.

[00:59:03]>> Okay. Got it. Thank you.

[00:59:07]>> Thank you. That concludes our Q&A session. Back to you guys for any closing comments.

[00:59:12]Thank you so much and uh we wish you all a lovely summer if you haven't had the summer vacation and see you next time.

[00:59:19]>> Thank you.

[00:59:20]>> Thank you.