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

Good morning, everybody. My name is Kristina Willgård. I am the CEO of AddLife. And in the room, we also have...

Martin Almgren, CFO of AddLife.

We will try to mute during the presentation. And then after the presentation, we will open up, of course, for Q&A. So let's start with Q3 and what happened in AddLife. We are very humble and very proud that we can report these fantastic figures. And we are mostly proud of that we can contribute to health care services during these difficult times. And I think all of us follow the news on a day-to-day basis [indiscernible] worrying times with the COVID-19 pandemic. Coming back to AddLife, we report our third quarter. We have, in the third quarter, really strong sales, up 55 percentage compared to our Q3. Q3 is, as many of you know, our weakest quarter because some of the quarter is normally so that our customer doesn't have full activity during the summer months. So this year, the COVID pandemic are in the world. And right now, we are doing our [indiscernible] to help our customers. So we have strong sales. We have a very strong cash flow also coming up from these sales, both in the quarter but also accumulated. And that is, of course, for us, fantastic because that can support our future growth, both organic side but also to invest in further. In the quarter and also on the 1st of October, we reported 5 acquisitions totally. As you probably know, we decided when the pandemic started in the spring that we should pause a little bit in all the discussions we had for doing new acquisitions. But after the Q2, we realized that we were in a good financial situation. And therefore, we started all these discussions. And we managed to do 5 within 1 or 2 weeks actually, end of September. And these 5 acquisitions will add another SEK 375 million of sales for the earnings [Audio Gap] to the picture. You can't see the picture, let's see if we can arrange that again. Hopefully, that works now. Since we have these good results in Q2 and Q3, the Board, against the will, decided that we should now call for new Extra General Meeting on November 19 and also they proposed a dividend of SEK 0.50 per share or SEK 0.50 per share. And that is, of course, the dividend for 2019. Summarizing the quarter, we had, as I said, net sales up 55%. EBITA up 209% ending close to SEK 200 million, and the margin is close to double, 16.1 percentage. As I said, the COVID pandemic is a major impact, both in our company, but also, of course, in our lives. And what happened in the third quarter is the intensive COVID testing has started actually in all markets, all geographies. We see that the need in all geographies are still higher than what we and others can supply to the market and is still some -- troublesome to receive all the tests that all the customers and patients are asking for. But we have been, I would say, very successful to do our -- the most we can to help out to the customers. We expect the COVID-19 testing to continue for quite a long period, at least part in 2021. In the quarter, we also saw large volume of medical supplies to our health care providers and mainly personal protective equipment and that was in the Swedish and Norwegian market. In the quarter, I think we all have [indiscernible] thankful -- we're thankful that there are less patients in the ICU department compared to Q2. So the health care have really learned how to treat all the patients, and there are not so many really ill patient right now [indiscernible] in the second quarter. And of course, ICU and the sales for ICU was a big impact on our second quarter figures, which means that the product mix now in the third quarter is somewhat different compared to the second quarter. And the fact that there are less patients in the hospital also has meant that the difference [indiscernible] region have been able to [indiscernible] on critical products for the future because I think all of us are aware that it will be more pandemic and this isn't over yet. So I think it's great that the hospitals are a little bit more prepared for the coming threats during a lot of winter or the spring whatever. Elective surgery restarted in the quarter, but it's not close to normal. I would say in the second quarter perhaps it was closer to 70% less than normal, but in the third quarter perhaps 30% less than normal, but still it restarted. But what we're seeing right now is a potential setback in the market depending on how the infection is spreading. Actually, I read -- I think it was today I read in the newspaper that Belgium, for example, is trying to close down hospitals for other treatments than COVID treatments. We have, in the quarter, had difficulties to come into the elderly homes, [indiscernible] the infection control measures. So we are delayed in installation of different projects. [Technical Difficulty] Our employees still continue to work partly from home, I would say, perhaps 50% of the employees are in the offices right now. And now I must say that we are very pleased with the more [indiscernible] that has been done during these tough times. [indiscernible] Let's see what we can do. So coming back to the net sales. You can see the trend, we have a strong trend. The organic growth in the quarter was 48%, and year-to-date, we had an organic growth of 33 percentage. And since 2016, when we believe that we have had a fantastic growth in this group. Year-to-date, we have been able to summarize the impact from the COVID-19 sales, which we have got from our subsidiaries and they are amounting to approximately SEK 800 million since beginning of March. The main part of the SEK 800 million is organic, but we also have sales, of course, in some of the acquired companies from this year. That means that our underlying business in the group still shows continued growth, and we are very proud to be able to see that because we know what challenges we have in different parts of our markets. Total in 2020, there have been fewer procurements in the market. As you know, we are mainly building sales through public procurement. The customer has either extended existing contracts or done direct procurement because the need for the products was really high. So there was a quick action in this [indiscernible]. EBITA in the quarter, growth of 209%, margin close to double, more than 16%. The main margin improvement comes organically from our subsidiaries and the margin improvement is, of course, due to the high sales volume. We have, of course, a little bit less cost in our companies due to the fact that we cannot travel and the net sales cost less marketing costs. Year-to-date, we have an EBITA growth of 139%, and the margin is 13.7% year-to-date and also rolling 12 months, the margin is 13%. Coming to Labtech. In the quarter, we had a strong organic growth close to 50% and the sales mainly due to COVID-19 and the intensive testing that we have in most countries and the demand in research actually came back in this quarter as well. So totally, for Labtech, we have a margin a little bit above 18 percentage, which also is close to double compared to same quarter last year. So they have done a fantastic job during these times. A little bit details in diagnostics. As I said, we do a lot of COVID testing and we mainly sell PCR tests in our market. We are, of course, looking at some antigen testing because that is bigger than [indiscernible]. But up till now, the customers demand primarily into the PCR test and that is where we have different products from a lot of different suppliers and that is mainly the point-of-care instruments. Last quarter, we reported strong sales in blood gas analysis, but in this quarter that, of course, was not back to normal since we have less patients in the ICUs. And I would say all geographies where we are really show strong sales in this area. Research field, academia and pharma more or less normal. What we see and what we get from a lot of researchers is that they receive increased funding. Virus research is, of course, number one right now in the market, and [indiscernible] a lot of instruments, but different research reagents to a lot of different research groups both in the Nordics but also in Italy mainly. Still lower demand in sales to veterinary and food but I think that we all know that a lot of people have actually got new pets during the corona pandemic, so hopefully we will get a higher sales to vet clinics later on during this year or next year. A few words about Medtech. Organic growth, 47%, close to what we had in Labtech. As I said, strong sales for COVID-19 and in medical supplies and personal protective. And the acquisitions that we have done here in September, early October, all of those companies will be part of the Medtech business area here in Q4. So net sale increased totally 45% and the EBITA margin ended on 14%, which also here is close to double. I think I said more or less everything about health services. And what we hear right now, the pressure, at least in the Nordics, are not as high as in the spring. But who knows what will happen if there is a setback due to the spread of infection. And of course, that could come back larger orders again on protective equipment and other medical supplies. But right now, we sell more and more products into the elective surgery side. And that will hopefully also be positive on our gross margins because we have more parts of own products in the advanced surgery than we have in the medical supplies and the protective equipment. It also mean that the [indiscernible] for having an elective surgery has increased essentially. I think in [indiscernible], only, we have more than 600,000 people waiting to get an elective surgery. We feel very confident that [indiscernible] is still here, and we will, when it is possible, see that the surgeries will, of course, step up actually and do more than normal as [indiscernible]. Home care, as I said, delayed installation, but we know that we have a lot of large orders in our [indiscernible] portfolio. But we are waiting to be able to come to the customer side. We have thus -- in infection, we have been able to sell some custom-made bathroom aids in Sweden to elderly homes that were newly constructed. So we are happy to see that we had a positive sales growth in the home care area even though we have these difficulties to come into the market.

Okay. We continue with some comments on the financials and we'll start with the financial goals that we have. Rolling 12 months, ending September, we had a profit growth of 113%. And this is, of course, due to the strong sales that we have had in the last quarters. Looking at the return on working capital, EBITA through working cap reached 81%, and this is [indiscernible] just another comment on the profit growth. Looking at the average profit growth since March 2016, we have been able to achieve 39% end of the year nearly, which is really, really good, and our goal, as you know, was 15%. Talking about the acquisitions that we talked about before: EuroClone, a company that we bought in January; in September, we bought TechniPro PulmoMed in Australia. And we have the [indiscernible] agency, which is a supplier that we have had in the Nordics before; Ropox, home care producer for bathroom and kitchen products, a Danish company we acquired in October 1, a turnover or net sales of SEK 95 million and 73 employees; Dach Medical Group in Austria, consists of 3 companies and have sales in Austria, Switzerland and Germany. They have net sales of SEK 145 million and they have 23 employees; and we have Zafe Care Systems also [indiscernible]. It's a Swedish company within the [indiscernible], turnover of SEK 34 million and 21 employees; then we have also, in September, announced that we [indiscernible] SIAD Healthcare, and this is under [indiscernible] investments in Italy and we are expecting an answer during Q4. Looking at the income statement. As you've seen, as said before, in the quarter, we increased the net sales with 55% and we kept the same -- more or less the same gross margin as last year. We ended the Q3 this year on 34.6 percentage. EBITA margin, 16%. What is really good to see is that we achieved to grow profit for the period with the 369 percentage, which we ended up at SEK 127 million. We think that the trend is the same when we look at the accumulated figures for 2020. The balance sheet in the quarter. Not so many changes compared to end of June. The health companies that we have been able to amortize on our [indiscernible]. So we have further strength on our balance sheet. And this is, of course, due to the [indiscernible] cash flow that we have had in the third quarter. End of September, we had net financial liabilities of SEK 814 million, net debt-to-equity ratio of 0.5 and an equity ratio of 49%. We continue to have a strong balance sheet [indiscernible] driving growth. Cash flow. As said before, very strong cash flow in the quarter. The operating cash flow ended up at SEK 183 million compared to SEK 61 million last year. This is, of course, driven by positive growth that we have had. Looking at the investment activities in the quarter, investment in our current assets on the same level as the year before. We didn't do so much acquisition and acquisition in [indiscernible] as I talked about before. So now we're [indiscernible] repay our debt to the bank. And looking at the accumulated figures, we see the same trend here, a really strong cash flow from operating directives ending at SEK 391 million. So key financial indicators, we have talked about [indiscernible] we were 980 employees. And what is also nice to see is the EPS growth that we have had end of September, we have a 3.12 compared to 1.28 when we started the year. And now we will open up for questions and I will unmute you.

[Operator Instructions]

Do we have any questions out there?

It's Natalie Falkman from Swedbank Robur. Congratulations on a great quarter. Just wondering, you wrote -- and you mentioned on the presentation, you wrote in the presentation that the corona positive effect is about SEK 800 million. I'm just wondering, is that just a net number or is it a nominal number? And -- because, as you mentioned, there are some other revenue streams that have been hampered and had headwinds during this time.

So this is -- SEK 800 million is from the COVID side [indiscernible] other streams we have negative sales. So this is the fact that just the order [indiscernible] different part of the business.

And is it possible to kind of hear your color how much you have temporarily lost due to COVID? So kind of when we look forward in the world and the life post COVID-19, how much kind of it will be compensated -- this positive that today that we'll probably not bring review to 2021?

Look I mean what we write in your report and what we also summarize is that if you take away the SEK 800 million, main part of that is organic sales, some part is [indiscernible] company, so we see that underlying, even though we have lost this -- it's weaker demand in some areas, we still have positive growth totally. So I would say, we are -- even though we have got in elective surgery is a drop, in home care is a drop and a few other segments, we totally sell more or less the same volume as last year. So I would say we are a bit positive.

So a bit positive despite the headwinds is...

Exactly, exactly.

Got it. And could I also ask you, on the M&A front, you mentioned that you have -- you feel more comfortable now of the balance sheet. Is it possible that you see the acceleration, this is more one life -- one-in-a-lifetime opportunity for you to actually accelerate the acquisitions right now just ahead on the Q4 and Q1 or should we expect kind of your normal pace?

I think -- I mean, if we summarize what we have done this year so far, we have 75 right now, and what we did in January, and we have done totally for 9 months, SEK 655 million in acquisition, which I think is really a substantial amount for 2020. And of course, we have seen I think is a good opportunity for us. And we have a lot of interesting discussions ongoing there. But what will happen actually, again, nobody knows because you really have to be in an agreement, but we are very active right now and we've seen that we are in good position as I said. But wherever the [indiscernible] that we will see later on. But we are not [indiscernible], and we are active.

May I ask a third question? Sorry...

Of course.

I'm just -- you had -- I mean, if you look at overall, lots of companies have a great grip on their costs. And of course, corona '19 or COVID-19 is helping in that matter. But have you analyzed how much of this temporary cost savings could be transferred towards the permanent ones, kind of the way you do business or the processes that could be adjusted and kind of that you can keep this margin advantage even after the corona?

I don't think we should expect us to long term -- or I mean when the COVID pandemic is out, we expect us to have [indiscernible] I think it's too positive. But of course, we aim to be sure that we don't drop down to 80 percentage. So we are working very actively with our subsidiaries in Brazil that have [indiscernible] on capacity. So right now, we are still pushing and trying to do our own, but on the cost side, because as you said, we will start to work differently. We will have visible to -- we can have some cost savings in a few subsidiaries. But I think is -- right now cost savings is the main issue for us. So we are in a few companies discussing that, but in those companies, it's actually more about having -- making sure that we can continue to have high volumes as long as possible and also sell more products to new customers that we have received during these times.

Congratulations on a great quarter once again.

Thank you. Okay. Do we have any more questions?

No.

If not, I suggest that you contact either me directly or indirectly and we will try to answer the questions you have as soon as possible. Thank you very much for listening to the call. Wish you all a great day. Bye-Bye.