Swedencare shares fall 19.1% as growth slows and full-year ambition looks unlikely
Key Facts
Swedencare shares fell 19.1% in trading on the day it announced third-quarter results, to 19.06 Swedish crowns, according to Investing.com, as organic growth slowed and prospects for achieving its full-year ambition dimmed. The company said in its quarterly disclosure that double-digit organic growth for the full year had become unlikely after performance was hit by production, delivery and sales problems. Reported quarterly revenue was 732.2 million Swedish crowns, below the analyst consensus of 762 million crowns cited by the website in its earnings report. The shares fell despite an increase in net profit from the corresponding period, while the operating profit margin declined and leverage rose. Management maintained its ambition to return to double-digit organic growth in the final quarter, after reaching that level for the full year had become unlikely.
Swedencare's disclosure showed currency-adjusted organic growth of 2% in the third quarter, compared with 15% in the corresponding period a year earlier. The measure had stood at 7% in the previous quarter, according to Investing.com, leaving the latest quarterly reading weaker both year on year and compared with the preceding quarter. Organic growth remained positive, but its pace fell further short of the double-digit level management aims to restore at the end of the year. Revenue came in below analysts' estimates as European veterinary brands underperformed management's expectations towards the end of the period. The company linked the slowdown in its business to operational and commercial factors, including the impact of a food safety inspection on production, alongside supply chain problems that hurt deliveries and online sales.
Earnings before interest, taxes, depreciation and amortisation totalled 150.1 million Swedish crowns in the third quarter, according to the company's report, while the margin on those earnings declined. The margin was 20.5%, compared with 21.7% in the corresponding period, as slower organic growth was accompanied by a decline in operating profitability as a share of revenue. Net profit, by contrast, rose to 28.7 million Swedish crowns from 22.2 million crowns in the corresponding period a year earlier. Net profit thus moved in a different direction from the operating margin, with the former improving while the latter declined in the reported quarterly results. The reported margin remains below Swedencare's medium-term financial target of an EBITDA margin above 26%.
Detailing the operational factors, Swedencare said a food safety inspection conducted in September affected production more than it had expected, despite an additional facility receiving approval. That production impact came alongside supply chain challenges that delayed deliveries, according to the company's quarterly disclosure. The damage from supply problems extended to online sales at some brands, with difficulties affecting products reaching customers as well as their production. On the commercial side, management said European veterinary brands performed below its expectations towards the end of the reporting period. Production and supply difficulties thus combined with weakness in that European business among the reasons the company identified for the slowdown, as it seeks to restore a faster pace of growth in the final quarter.
On the balance sheet, the ratio of net debt to annual EBITDA, adjusted according to the company's definition, rose to 3.0 times at the end of the period. The comparable ratio was 2.7 times, according to Swedencare's disclosure, marking an increase in leverage alongside the decline in the operating margin in the third quarter. The company's financial targets set a level below 2.0 times for this ratio, with flexibility for acquisitions. The current ratio remained above that target, while the profit margin also remained below its medium-term ambition. The stated targets thus combine higher operating profitability with a lower net debt-to-earnings ratio, while retaining the flexibility specified in the company's financial policy for acquisitions.
For the remainder of the year, Swedencare described double-digit annual organic growth as "no longer a target likely to be achieved", wording that reflects management's assessment of the prospects for reaching its ambition after the quarterly results. It nevertheless maintained its ambition to restore that level of growth in the final quarter, distinguishing the scope of its quarterly ambition from its assessment of the full-year outcome. This follows a quarter affected by production, deliveries and the performance of European veterinary brands, the areas the company cited when explaining the slowdown. The year-end ambition relates to organic growth, while the margin and leverage targets remain part of the company's stated financial framework, including its medium-term profitability target. According to Swedencare's financial calendar, its year-end report is due on 10 February 2027.