Probi invests US$6m in Vital Nutrients Holdings, reporting growth amid COVID-19

21 Oct 2020 --- Probi has acquired an almost 10 percent stake in Vital Nutrients Holdings for US$6 million. Probi has also revealed “strong” growth for Q3 2020, although it saw some negative impacts of COVID-19 in some regions.

“We have no plans to acquire more shares at this moment. The stake in Vital Nutrients Holdings is part of a strategic partnership together with the brands and businesses in the group,” Probi’s CFO, Henrik Lundkvist, tells NutritionInsight. 

Probi is now the second-largest stakeholder in Vital Holdings, which offers clinically supported, nutritional supplements to healthcare practitioners, healthcare institutions and their patients worldwide.

Supply agreements abound
Vital Holdings recently acquired probiotic supplement brand Hyperbiotics, which had been a longstanding partner of Probi. The two parties have now entered into a new supply agreement.

“We have a long-term view on the strategic partnership, and the first step is the extended supply agreement with Hyperbiotics. It is too early to discuss a timeline for new products, but we will now further evaluate what categories to focus on, together with our strategic partner,” says Lundkvist. 

Ultimately, Probi will work closely with Vital Holdings and its various brands as a supplier for probiotic supplements. They will also jointly research and develop product concepts in categories where the two businesses overlap.

Additionally, the partners will evaluate opportunities for future manufacturing expansion, leveraging Probi’s existing facilities.

The acquisition will be financed by Probi’s own cash reserves, which will be reported as a financial investment in its balance sheet.Probi will work closely with Vital Holdings and its various brands as a supplier for probiotic supplements.

US$40 million revenue
Vital Holdings includes three brands with a combined 2019 sales revenue of approximately US$40 million and a team of approximately 50 employees.

It is a portfolio company of consumer private equity firm North Castle Partners, which is the largest stakeholder.

“We are enthusiastic about this partnership and see good collaboration opportunities in this structure,” says Probi’s CEO, Tom Rönnlund. 

“There is a complementary fit between our two businesses, as Vital Holdings is focused on scientifically backed professional brands, sales to healthcare practitioners and major e-commerce marketplaces.”

Increasing sales
Probi has also released its Q3 2020 results, which show that net sales increased by 38 percent to SEK195 million (US$22.0 million). There was also a positive one-off effect of around SEK15 million (US$1.7 million) from a US customer’s product update program.

The EBITDA margin for the group in the third quarter was 32 percent, which is on par with last year. For the nine-month period, Probi saw an EBITDA margin of 28 percent.

Growth was primarily driven by the Americas, which had a strong quarter. The majority of growth comes from increased demand from both existing and new customers.

“We continue to view our growth opportunities in the Americas positively, but at the same time note that variations between quarters can occur depending on how customer orders fall,” says Rönnlund.

“We can notice an increased demand for nutritional supplements in the US in the wake of COVID-19. The e-commerce segment has shown strong growth, but we recognize the development in most customer segments,” adds Lundkvist.

Probi’s investment program in the manufacturing facilities in the US is developing according to plan. This will allow the company to have stronger production capacity next year and, at the same time, reduce production costs, which is expected to positively impact the gross margin.

APAC and EMEA suffer
However, the Asia-Pacific (APAC) and Europe, the Middle East and Africa (EMEA) regions took a harder hit from the lockdowns. 

“This is especially true of APAC, which is more dependent on sales through pharmacies and health care practitioners. As APAC is in a build-up stage, canceled sales meetings affect this region more,” adds Lundkvist. 

The regions were also negatively affected by the stock building up that took place during the previous quarter, driven by the COVID-19 pandemic.

“We can only speculate if [the reason for different stock building behaviors in various regions] is found in the direction of the COVID-19 wave and how the different states and regions have reacted to the pandemic,” says Lundkvist. 

Earlier this month, Chr. Hansen also reported that stockpiling was having an impact on its results. APAC and EMEA were affected by stock building up that took place during the previous quarter.

Preparing for the year ahead
Probi has now taken measures, especially in Asia to mitigate these impacts. This includes a re-evaluation of strategy and new resources added to the organization. Rönnlund continues to see strong growth potential in the region.

Looking ahead, Lundkvist notes that how a second and third COVID-19 wave might affect the consumer behavior is yet to be seen. 

“However, based on our experience from these months with the pandemic, we see an increased interest in immune-supporting products and generally high attention to personal health.”

He anticipates sales variations will mainly depend on which sales channels are available. 

“We do have a rather balanced customer portfolio, with customers selling online, through pharmacies or in physical stores. Internally we will continue our precautionary measures in our organization and at our production facilities.”

By Katherine Durrell