Message from the Managing Director
Sales of over 500 million
Looking back at my first 12 months as Managing Director of BioGaia AB, I see an exciting and successful 2016. With sales growth of 9 percent after foreign exchange effects, we were able to pass the half billion mark and recorded annual sales of SEK 534.7 million. Since the total market for probiotic supplements is growing by an estimated 7 percent annually, this means that we increased our market share despite the fact that our sales to Brazil, one of our most important markets, were low as a result of the inventory build-up in 2015.
Our operating profit, excluding the distributed former subsidiary IBT, reached SEK 199.4 million. This is an increase of 14 percent after foreign exchange effects and equal to an operating margin of 37 percent.
In our most important region, Europe, we grew by 22 percent and I’m particularly satisfied with our performance in major markets like Italy, Germany, Spain and France. In Asia we grew by 19 percent and the highlights were sales in Indonesia and the two exclusive distribution agreements that we signed with Kabaya Ohayo Holdings Inc. through our Japanese subsidiary. The first agreement concerns the exclusive rights to sell probiotic supplements with BioGaia’s patented strains of Lactobacillus reuteri in drugstores, supermarkets and similar outlets. The other agreement is an exclusive license that gives Ohayo Dairy Products the rights to use strains of Lactobacillus reuteri in food products. The two agreements will ensure a stable revenue stream in Japan over the next few years. In January 2017 BioGaia signed an exclusive agreement with Abbott for the rights to sell BioGaia’s products in the pediatrics and gastroenterology areas in Thailand. Given our positive experiences of working with Abbott in Latin America, we look forward to successful launches in 2017.
In North America we showed healthy growth in both the USA and Canada, but since we are coming from a low level in relation to the potential, we still have a lot of hard work to do before achieving sales we can be happy with. Sales in Rest of the World were down by 24 percent, which was an effect of the inventory build-up in Brazil during 2015. It is therefore encouraging to see that our Brazilian partner Aché is once again ordering our products and that development in South Africa was strong. In the third quarter we also signed a sales agreement for drops, digestive health tablets and oral rehydration solution in Kenya, Nigeria and Ghana, which was an important step into West and East Africa.
With regard to our partner Nestlé, our excellent collaboration has continued and they have followed the previous trend of buying fewer cultures for infant formula with a very low margin at the same time that royalties from Growing Up Milk for children over the age of one year are rising, which has strengthened our margins and profitability.
Investing for growth
Our operating expenses rose by 16 percent during the year, an increase attributable to marketing activities, personnel expenses and costs for patents and R&D in line with our research initiatives in existing and new areas. We are investing with the goal of optimizing the conditions for future growth through a stronger local presence, better support to our partners and future product launches.
In November we made our third previously agreed on investment in the research company MetaboGen. We have now invested a total of SEK 12 million and our holding amounts to 36 percent. Our investment is of a long-term nature and is aimed at developing the next generation of probiotic products based on in-depth analysis of the microbiome.
Expansion of existing portfolio
Externally, our main focus has been on expanding our existing product portfolio. In the Pediatric area we have striven to optimally utilize our fantastic partner network and we are proud to have grown by 10 percent (excluding foreign exchange effects). It was especially satisfying that the launch of Easy Dropper (our new drop package with improved dosing) was so well received by our partners, which also contributed to our strong performance in Europe. We also grew by 10 percent in the Adulth Health area (excluding foreign exchange effects). Here, sales were driven mainly by Protectis digestive health tablets combined with the rollout of Prodentis oral health lozenges and Gastrus digestive health tablets. However, I would also like to point out that our distribution network in Adult Health is still under development.
New organization in place
Internally, we have worked on developing our organization and our operations. On 1 June we presented a new management team that focused on three specific areas during the summer and autumn; getting the new organization in place, presenting a strategy for the next few years and ensuring that this was done without any negative impact on our day-to-day activities and earnings for the year.
Our future strategic priorities will be governed by cornerstones representing five selected areas: growth, customer focus, operational excellence, innovation and sustainability. In each area, we have defined a number of strategic initiatives that will ensure our ability to meet our goals.
A new grip on sustainability
When it comes to sustainability, I want to especially underline our commitment to fighting antibiotic resistance. The work being done by Peter Rothschild in this area is continuing with undiminished strength and being increasingly integrated into our day-to-day activities. During the year we also reviewed our entire sustainability platform, which resulted in a better structure, priorities and long-term approach.
Strong research results
Our vision is to be a ground-breaking leader in probiotics. Our mission is to conduct research and development to provide consumers with clinically proven, health-promoting, patented and user-friendly probiotic products. We were therefore delighted to see a number of studies of major importance to BioGaia published during the year. I want to especially point out two meta-analyses that confirmed the effectiveness of BioGaia Protectis on colic, a meta-analysis that confirmed the effectiveness of BioGaia Prodentis on gingivitis, a clinical study on reduced abdominal pain in children and a positive study in an area that is new to BioGaia, pregnancy gingivitis.
The results of the studies and our solid financial performance, at the same time as we have built a platform for future growth and signed important distribution agreements, demonstrates the strength of our business model, our employees and our products, and gives us reason to look at the future with continued confidence.
Axel Sjöblad, Managing Director, BioGaia