Innovating the Way from Fresh Breath to Global Pet Health Powerhouse | H.E.R.O. Issue 9, 9 November 2020

Be Stronger, Wiser & Kinder By Participating in the Quiet Innovators' Quest to Purpose

Innovating the Way from Fresh Breath to Global Pet Health Powerhouse | H.E.R.O. Issue 9, 9 November 2020

November 8, 2020 Uncategorized 0

A dog in Sweden's northernmost province Lapland had positively influenced the dental health of over 500 million pet dogs and cats around the world in giving them fresh breath and healthy gum. The most reoccurring health issue among pets for pet owners is dental hygiene, with more than 80% of dogs and 70% of cats developing gum diseases before the age of 3. North American households are estimated to have 94 million dogs whose owners spend more a year on their dog's dental care than they spend annually on their own dental health.

And there is only one dental powder product approved by the Veterinary Oral Health Council. The high prevalence of plaque and bad breath in dogs and cats contributes to its increased demand and it continues to grow as the product is seen as a market leader in effectivity for dental care with plaque reduction of 35%. Proprietary, patented and sold in more than 50 countries, the dental powder reduces the amount of plaque, tartar as well as problems with bleeding gums in cats and dogs. Power and additives account for around 8% of the total pet dental health product market, with major players mainly focusing on the remaining 92% as the products are more wear and tear.

This unique innovative dental powder product was inspired by this Lapland dog who was discovered in 1999 by Dr. W and his colleague when they noticed the dog's dental health had been positively affected by a pet food which contained a special type of marine algae. Together with dentists and veterinarians, they conducted a number of pilot studies on humans and pets in Sweden. The company holds a patent for the use of the special algae for oral and dental health - and has consistently achieved the highest profitability amongst all listed pet health product companies globally.

To achieve maximum effect, animal safety and minimal impact on the environment, the main ingredient is harvested from specially selected sites along the Atlantic coast of Norway - beyond the Arctic Circle, in one of the cleanest places on earth. To achieve the highest quality, the algae is harvested by a uniquely developed processes and with advanced technology and equipment that leaves the environment totally unaffected. The company, together with the supplier, has developed a postprocess that has resulted in a product with the greatest possible effect on oral health.

This week, we highlight one of our portfolio companies, Nordic Global Leader in Pet Health & Nutrition, which is up +26.5% during the week (2 to 6 Nov 2020), after it reported record 3Q2020 results, in which 3Q sales jumped 119% yoy and EBIT rising 70% yoy on margin of 26.8%. This rising dividend-yielding highly-profitable and cashflow generative innovator has also compounded +1,438% in capital gains in the recent 4+ years vs MSCI ACWI World index +49.6%. CEO Mr. L commented: “When it comes to addressable markets the number of pets has increased in almost all markets and as pet parents now value and spend even more time with their four-legged friends even stronger bonds are made, a factor that is positive for us as a distributor of premium products.”

On 6 Nov 2020, the company announced that it had secured exclusive rights for the purchase of raw material for its main dental products for the North American market, which the company has used to develop the unique quality of efficacy of the product that is an important part and the foundation for its success story. The company's unique premium natural product is seen as a market leader in effectivity for dental care with plaque reduction of 35% and is the only powder approved by the Veterinary Oral Health Council. CEO Mr. L commented: "With this agreement, we have now ensured an exclusive and long term collaboration for pet dentalcare products in North America."

The company's worldwide distribution centers allows them to compete with the big players. It has a widespread distribution network, with in-house sales, distribution and logistics teams in major markets. Following acquisitions of its three largest distribution/sales partners in 2016, the company has around 85% of its sales via direct sales and the remaining from external distributors. The company has increased its product exposure through a partnership with Amazon in European countries and the U.S.

Pet ownership is going through a change with an upsurge in humanization of pets by seeing pets as family members. There is increased demand for organic, premium, sustainable and “clean label” products. Knowledge increase & demand for nutraceuticals grows.

The company made a series of game-changing strategic acquisitions to expand beyond dental care into specialized animal health & nutrition leader and pet powerhouse. The first was an American pet health company specializing in dermatology products that was completed on 1 July 2020. The acquired American pet health company sells a broad range of its own premium brands in dermatology (skin & coat), joint support, behavioral/calming, hepatic (liver) and gut/intestine (probiotic) health, and provides products and services to more than 10,000 veterinary hospitals utilizing a multichannel distribution strategy and provides private label to some of the industry’s most popular OTC/Internet brands.

Subsequently, the company announced on 24 September 2020 the acquisitions of another two pet health companies:

(1) Britain’s leading ”exclusive-to-vet”-concept in a comprehensive and unique product portfolio of nutraceuticals in the premium segment for pets with more than 2,200 veterinary clinics and animal hospitals as direct customers, including a unique comprehensive cooperation with Europe’s largest veterinary care provider comprising an expansive network of clinics, hospitals and out-of-hour centers based across 11 countries;

(2) One of the leaders in the veterinary market in the US who sells a wide range of products to approximately 8,500 veterinary clinics. The product range, which is developed in house, covers a number of therapy areas of which dermatology and grooming stands for almost 60%.

The company now has access to the three largest distributors in the US via the acquisitions, with sales adding up to almost 30,000 veterinary clinics, creating significant revenue synergy opportunities with its dental health brand.

On the first major acquisition, CEO Mr. L commented: "We managed to complete the deal on July 1st, an acquisition that changes the future of our company, a so-called 'game changer', in my opinion. With the acquisition, we will have a channel to cover 10,000 veterinary clinics, many of whom are not customers of ours today, and we will have a business and management team that will not only develop the acquired company as a subsidiary but also contribute to our growth worldwide. The acquired company also has an interesting product range that complements and expands our range in various parts, of which their dermatology products will be particularly interesting to launch in our distribution network worldwide. Finally, the acquired company has built a unique process where they can deliver private label products to individual clinics that want their own label on their products. Without synergies and sales partnerships, as we see coming, the acquired company also had an extraordinarily strong first half year with a large increase in sales and they, like us, can see that this continues in the third quarter. Therefore, their contribution to our company will be clearly visible in our next quarterly report, which I am of course already looking forward to presenting! To finance the deal and continue to have a strong financial base, we chose to carry out a directed new share issue to new and existing institutional owners. The interest was fantastic, and we welcome several new extremely reputable owners. The great interest gives us the confidence to continue to see how we can best make new steps to approach our goal of becoming the leading dietary supplement company in the world focused on pets.”

On the second and third major acquisitions, CEO Mr. L commented: "Not only did we experience a strongly increased “normal” business sentiment during Q3 – we also had some extraordinary intense activities when ending the quarter! The acquisitions of two companies with strong positions within the veterinary sector, were made at the same time, both with take over from October 1st. The financing was mainly made by a directed new share issue where a large number of Swedish and international institutions took part. Our acquisition strategy is based on a simple prevailing rule – we seek companies that are similar to ours in that they should be entrepreneurial, profitable with high growth rate and with owners/management that share our goal in creating a world leading group within the Pet Healthcare market. We have made a thorough review and I am certain that these two acquisitions will prove to be extremely successful when we look back a few years from now.”

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