AddLife AB (publ) (ALIFB) Earnings Call Transcript & Summary

My name is Kristina Willgård, and I am the CEO of AddLife.

Hello. My name is Martin Almgren, and I'm CFO of AddLife.

We are very happy today to present to you our second quarter report, which was a very strong quarter for us. In AddLife, we have a fantastic mission, and that is to improve people's lives by being a leading actor within the field of Life Science. And that has felt extremely meaningful in the light of the COVID-19 pandemic. If you look at the quarter result, we had a very strong quarter. We have an all-time high quarter both to sales and to results. The demand has been mainly driven from the COVID-19 pandemic. We have a product portfolio that has been very strong in these times, and our customer has really asked and have high demand on most of the areas where we can deliver solutions and products. We see the same trend in more or less all geographies where we are working today throughout the world. If you look at the drivers, mainly in our portfolio, it is diagnostics, both tests and the instruments and its medical suppliers and protective equipment for personnel working in hospitals. So summarizing the quarter, we had sales that has increased with 48 percentage to SEK 1,248 million, our EBITA ended up at the margin of 41.5 percentage, which is SEK 181 million. If we talk about the market and the market conditions right now, everything is about the COVID-19 pandemic still. The COVID-19 has been an exceptional situation for all of us, for our lives, for our ways of working and for society. And during this crisis, we have been able to support health care and other customers with a lot of products and solutions so that they could do the very best to treat all the patients that has strong needs during this awful times. We saw, as I said, strong demands both from health care and from diagnostics laboratory, mainly. The sourcing in the quarter has been very challenging, just as we informed in our last report. Initially, in the quarter, we have a high demand throughout the world to the same suppliers in Asia. We saw that it was difficult also to get transportation because a lot of countries closed the borders. At that time, price raised a lot. We also saw a lot of new suppliers coming into the market. And we also saw that suddenly, there was a lot of products with different quality if you compare to what is stated in the regulatory demands for different products in the market. This is -- this has unfortunately caused a lot of problems for the health care and actually, a lot of patients have suffered very -- from the low-quality of some products in the market. We with our vision and our core values, for us, it was very easy to go back where we think that's most important, and that is to make sure that we improve quality for customers. So high-quality was much more important than high quantities and to fulfill the orders that we already received from customers was more important for us than to do profit maximization in this market. What has happened in the market is, as we all read in the newspapers, a lot of surgeries have been delayed, postponed in many, many markets and hundreds of thousands of people are waiting in queues to get the procedures that they so urgently need. This will take a lot of time for the health services to really do in a good way coming forward. And for us, as a group, we see that the product solutions that we sell in these areas has been much, much lower than, normally, demand has been in the surgery side. In the middle of the quarter, we saw that Academia started up again since the universities opened throughout Europe. Very short after that, demand raised a lot, and we deliver a lot of products mainly to a lot of researchers working with different solution on the COVID-19 pandemic. And that is a very important work to see. What can we do in the world to really solve this difficult situation with the COVID-19 virus? Most of our employees have been working and are still working from home. And thanks for a lot of digitalization tools, this has made it quite...

Direct? Yes.

We have managed to do it during these times. It's not easy, but we have done the utmost we could. But of course, people working in logistics have been able or had to be in the offices during this time. And a lot of people have worked extremely hard to do whatever they could to help the customers. And I would really like to thank all employees of AddLife for the huge work they have done in this last quarter. If we look forward, we expect a lot of changes in the procedures for procurements from the customers. We also expect increased demand for self sufficiency and to be more prepared because I think all of us believe that it will come new pandemic even in the future, but we have to be more prepared for new things coming in. We also see an increased need of a more sustainable and efficient healthcare going forward. And I must say, I'm really convinced that we at AddLife has strengthened as a long-term sustainable partner to all of our customers during this quarter. So some more figures. Summarizing net sales in the quarter, we had a strong growth in both business areas. It was 48 percentage up, ending up at SEK 1.2 billion. The organic growth was really high, 39%, more or less the same in both business areas, and the impact is very positive from the COVID-19 products and solutions that we have sold. Direct procurement has been the way that customers in many areas has purchased products and that is, of course, there was a big need to get products as soon as possible. So the procurement processes have been different from usual processes in our market. The product mix has also been offset in the market since there was less elective surgery. And normally, we are very strong in surgery, and we had a big part of our own products in that area. So now we see that gross margin has declined somewhat in the quarter since distributed products has been in the major part of what we have sold. Looking at 12 year -- 12 months, sorry, we see a 39% growth year-to-year of the net sales. Coming to EBITA. EBITA grew even further, 167% is a huge number actually, and the margin went up to 14.5 percentage. And the margin increase is mainly coming from our organic growth that we have in a lot of ours subsidiaries. The margin improvement is mainly due to high volumes and very restrictive and cost efficiency way of handling the business. We have no travel. We have no fares. We have less marketing, cost flex that are close to 0 in the quarter. The growth year-over-year has been 73 percentage and the margin rolling 12 is up now 11.1 percentage. So looking into the business area of Labtech, we see the same here as we saw on the total. It was a good growth, a good organic growth of 37%. And the COVID-19 is, of course, doing the most part of this. Diagnostics is the main driver, as we said before, and research really picked up from the middle of the quarter. So Labtech increased sales with 55%, and EBITA increased with 180% to SEK 109 million, and that is a margin of 15.1 percentage. Diagnostics, well, we saw a high demand in Diagnostics due to a lot of testing of the COVID-19 patients in the ICUs during that period. And especially, we see a strong sale for instruments and reagents for blood gas analysis. Blood gas analysis has been one of our major areas where we have been strong for -- since 1941. So this is an area where we are really building the market. And in these times, we have really helped out the ICUs as much as possible. The growth is very strong in all markets in the diagnostics field. Looking at the research, as I said, demand is picking up. Academic customers started in the middle of the quarter in most countries again. And we have seen -- increased the grants to a lot of research companies and to different researchers around the COVID-19. And we are happy to help them out with different products and instruments to really do their research successful in the end. Significant, we have lower sales in U.S. and China of our own products because these markets has been closed for more or less the whole quarter. Pharmaceutical industry has been good, but food industry and vet industry has been lower during the quarter. And the same goes for the Medtech business area, strong organic growth, big impact from the COVID-19. Health service is the main driver. It has been enormous sales volumes that has been sold to different hospitals during these times. We saw a positive development in home care, which in a normal quarter would have been very good because it's more than our average organic growth. But in this quarter, it's on the lower side compared to other parts of our business. Net sales ended up SEK 530 million, it's 40% up. EBITA ended on SEK 76 million, that is 148% up and the margin was at 14.4 percentage. Some more details in the Medtech. Well, we talked about the strong demands in the health services. We have a product mix offset. We sell large volume of personal protective equipment and medical supplies with less volume of instruments and products to specialized surgery, which means that we have a negative gross margin development in the quarter. We -- if we look at the future, we see that, of course, the demands in the surgery side will ramp up which started already in June. But after the summer, we think all countries will start to really do the best they can to make sure that most patients are treated as soon as possible. In the quarter, Mediplast delivered the order of SEK 100 million extra that came in the first quarter, and that was to Sweden and Norway for the protective equipment. But both Mediplast and Biomedica has received extra orders in the quarter for protective equipment. The focus in our health services has throughout the quarter and earlier, of course, been on quality. That is extremely important in these time to remember why we have so strong requirements on medical devices and what can happen if we don't fulfill them. Home care, as I said earlier, a positive development. We see a lot of demands for our welfare technology as well as our different aids, especially in the bathroom. Unfortunately, it has been difficult to meet customers as we all know and to come out to different elderly homes to install the products during the last quarter. Martin?

Thank you. Talking a little bit about our financial goals. So we'll start with profit growth that we calculate as EBITA growth. And of course, as Kristina said, we have had a really good quarter. So we see that the increase in profit has been really high, looking at the rolling 12 months. It ended at 73%. And the interesting thing here is also to see the long-term trend that we have had since we were listed in March 2016, we have been able to generate a yearly profit growth of an average of 33%. If we look at the profitability, which we calculate as EBITA through working cap, we see the same trend here. Of course, the strong result is the main driver to the 67% return on working capital that we have in the end of June. If we look at the acquisitions, we did 1 acquisition in January with EuroClone, and that's the only acquisition we have done so far in year 2020. Going to the income statement. And as Kristina said before, we had a strong increase on sales, we end up at SEK 1.2 billion. Now what we also see is the effect on gross margin that we -- that Kristina mentioned. We have, in the quarter gone down to 33.0 percentage compared to 34.5 and this is, of course, due to the product mix that we have in this quarter. And what's interesting here also to see is that we are able to keep the profit all the way down to profit for the period that increased with 284 percentage. If we go to the balance sheet, we see that we have an impact on account receivables during the quarter compared to what we had in December. And this is mainly inventory that we have increased to be able to do deliveries in the coming quarter. And also we see that we have advances to suppliers due to the new way of doing the supply chain. We continue to have a strong balance sheet for the future. We have SEK 680 million in available cash. And net debt-to-equity is 0.6 and equity ratio ended up at 45%. Looking at the cash flow. We have a strong cash flow both in the quarter and for the first 6 months in 2020. The only thing that has a negative impact is working capital effect. And that is, of course, due to higher accounts receivable and as I said before, advances to suppliers that we see, especially in the quarter. Finally, some key indicators. And at the moment, end of June, we are 985 people working in AddLife. Also during this quarter, in the end of May, we registered our share split 4:1, which means that we now have 112 million shares, and we have also calculated all historical data due to this split.

Okay. That was it. I hope you enjoy listening to us. And we -- if you have any questions, just call us, mail us. We will do our outmost to help. And yes, have a good day. Thank you. Bye.