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

Hello, and welcome to the AddLife Q4 reports. [Operator Instructions] Just to remind you, this conference call is being recorded. Today, I'm pleased to present Kristina Willgård, CEO; Martin Almgren, CFO. Please go ahead with your meeting.

Hello, everybody, and most welcome to our year-end report presentation for the fourth quarter 2020. And in the room, as said, it's me, Kristina Willgård, and we also have Martin Almgren, our CFO here. Next page, please. If we start to look at the highlights for the fourth quarter of 2020, I must say that we end this year with an extremely strong fourth quarter. We have very strong sales, and we have, I must say, even stronger EBITA. Our companies have done a fantastic job, both in this last quarter of 2020, but actually throughout the full year 2020 to create business and to respond to the customer needs that has come during this year, which is an exceptional year in many cases. The last quarter, we finalized 4 acquisitions, adding SEK 355 million in annual sales. We also report an excellent operating cash flow of SEK 559 million, which is a very strong cash conversion. And today, the Board decided to propose to the AGM a dividend of SEK 1.50 per share. So summarizing SEK 1.7 billion in net sales, which is up 75% and an EBITA of SEK 316 million, which is an EBITA margin of 18.2%. Next slide, please. And the fourth quarter as well as a large part of 2020 has, of course, been focused around this pandemic that we all live in and is now a big part of our life. And when we finalized the third quarter, we hoped actually that we didn't -- would not go into a second wave. But I would say, in starting November, we really saw that the second wave of the pandemic is again in the world very hard. That, of course, affects our business a lot. We have, during this quarter, continuously seen an intensive COVID-19 testing. All markets and all governments are pushing in a lot of money into making sure that we can test all -- everybody in each and every country. So it's an intensive COVID-19 testing ongoing, which is a big business for us, as you have seen. Since the second wave hit us again, suddenly, the hospitals, again had to allocate the resources in a different way because there were increased number of patients in the ICU. And that, of course, meant that we also came to assess that in elective surgery. The beginning of the quarter, October was quite okay, I would say, perhaps it was between 10%, 20% less than normal. But in December, I would say, perhaps 70% less than normal in elective surgery in our markets is what we have seen. The area of health care, we still have challenges to be able to go into the elderly care to do installation and to test different aids to the elderly people. Of course, all of this to make sure that the infection control is as good as possible to make sure that our elderly in the -- are safe as possible in these times. For AddLife and for most of us, we continue to work from home. Even though we today are in the office, normally, we work more or less from home. A few people, of course, has to be in the office when we talk about logistics and other very critical functions. So summarizing from an AddLife perspective, we see that the COVID pandemic for us, of course, it's also what we see in the world. But we are very proud to be able to contribute to the health care and actually to improve people's lives by selling products and solutions that, in one way or another, is the way for everybody. Next slide, please. If we look at the market where we are, you all know that we are very Nordic, has been a Nordic company for many, many years. In 2019, our part outside of Nordics were close to 30%. And now in 2020, it increased even more. With the acquisitions in Italy, for example, and also in Austria that we have done throughout 2020. The market outside of the Nordics is now 35% where, of course, Europe as a whole is the largest market. And the Nordic markets are then, of course, a little bit less percentage-wise, but still they are very strong parts of the group. Next slide is about our net sales. Net sales, as you have seen, we have had a significant sales growth. During this fourth quarter and also during this year, in the quarter, we ended a net sale of SEK 1.7 billion. It's the strong growth of 75%. The organic part of it is 51%. It's fantastic figures, I must say. But if we deduct the COVID-19 related sales, we also end up with a strong organic growth of 8%. So I must say, our subsidiaries are really doing a very good job in this market. The COVID sales itself comes up to SEK 430 million during the last quarter. The sales growth in this quarter mainly comes from the Labtech business, and the main product area is actually the COVID testing. Looking at the full year, we are now close to SEK 5.3 billion in sales, which is a growth of more than 50%. 38% of that is organic. And if we also here deduct the COVID sales of EUR 1.2 billion, you see that our underlying organic growth is 6%, which is fairly on par of the average CAGR we have had organically since 2004. If you look at the sales bridge, you see that last year, we had sales of SEK 3.5 billion. The acquisitions are adding 70%. Currency are against us with some 3% and then we have this fantastic organic growth of 38%, that now adds up to SEK 5.3 billion. Next slide, please. This fantastic sales that we have had during the year and the last quarter has really gave us the opportunity to have a very strong result. And we are, of course, very pleased with the results that we have achieved in all our markets. In the quarter, we report sales -- sorry, EBITA of SEK 360 million, which actually is more than the full year results we had in 2019. So the EBITA growth in the quarter is more than 200% and the EBITA margin has strengthened to 18.2% with a really high number, and we are very proud to have managed to do that in this quarter. And how come that we have done this strong result growth? Well, I must say that the gross margins are fairly stable or sometimes even a little bit lower than previous year. But -- so the margin improvement is actually coming out of the high sales volume and a very good cost control that we have in more or less all the companies where we are. And you see in the graph to the right that we have a very strong growth during this year compared to previous year. Total year figure of EBITA is SEK 802 million. Strong EBITA growth of 153% and the EBITA margin has more or less doubled to 15.2%. And again, this growth comes from the high sales volume and very good cost control. And in the graph, you see that the EBITA last year was EUR 305 million. Labtech this year coming in with another SEK 363 million. Medtech coming up SEK 137 million. And then totally, we end up to SEK 802 million. And we are very proud and very pleased about these results. Next slide, please. If we open the box and go into the Labtech business, this fourth quarter, we had an organic growth of 74%. Very strong sales coming from the COVID-19. It's both testing. So it's reagent, and it's a lot of instruments. And throughout the whole year, we have had very strong sales of instruments, which, of course, is very good for the future. We also saw in the last quarter that we had a high demand again within the research field. And that mainly comes in the Danish market, which has been very successful of selling products into the COVID-19 research area. So Labtech adding sales of SEK 1.1 billion, which is more or less double last year. EBITA ends up on SEK 253 million. And as the margin itself is close to 22%. And next slide, you see somewhat more details in our Labtech business. And as state, the COVID-19 is actually driving the sales very much here. What we are, as I said, very proud of is that we have had very strong sales also of instruments during this year, which means that we have larger install base now of instruments, which, of course, for the future is very good because now we can -- after the COVID, we can start selling other tests on these instruments base. And I think one of the reason why we have been so successful in the diagnostics field is that we have been able to sell a lot of different tests from different manufacturers. So the total -- the opportunity with AddLife and with our way of selling, it's really that we have a lot of different strong brands in our portfolio. And that has been a success factor in this time. Since the COVID hit us with the second wave in this quarter, we also saw that the demand for blood gas analysis came back very strong in the fourth quarter. And most of you know that this is a very strong field for us in our diagnostics business. I would say diagnostics was very strong in all geographies that we have diagnostics business. So every country we have done a very strong sales. Looking more into the research and lab side, we continue to see more and more funding for Virus Research. Virus Research for 2 years ago wasn't sort of a hot topic. But due to COVID, this has really, of course, increased focus in the research field. For example, in Sweden, we see that has more than 300 different research programs just focusing COVID-19. So in a lot of different universities throughout the world, we see a lot of focus here. That has made us able to sell a lot of products to these researchers and also to companies that actually are doing research reagents for doing COVID-19 tests. Academia was a bit normalized if we summarize the quarter because we saw also that universities were a bit shut down, Italy and Denmark, for example. So in the end of the quarter, a little bit slower sales into academia in these markets. But pharma was -- mainly the Danish pharma industry was stable throughout the whole quarter. We are also very pleased that we see that the sales of our own advanced instruments now have seen a recovery in the Chinese market in the fourth quarter, but still, it's somewhat weaker in the U.S. due to the pandemic. So summarizing Labtech, we have year-to-date COVID related sales of SEK 980 million and organic growth, excluding COVID, is 7% for the full year. And the figures you see on this slide for the full year, which, of course, is very, very strong. Next slide, please. If we look into the Medtech business, this is different -- doesn't really look the same. We don't have the same drive from COVID during this quarter. Even though we have a strong organic growth, 19%, we have limited COVID-related sales to the Healthcare. We all know, and we also foresee in the last quarter that most hospitals really had a lot of PPE on stock so the need for further procurement this quarter was not so high. We see a strong growth within Homecare, which we are very pleased to see and double-digit growth, even though we have problems to come out to the customers. And into the area of Medtech, we have done 4 acquisitions in the quarter. So summarizing the quarter, SEK 575 million in sales. EBITA ended up SEK 68 million and the margin ended up on 11.8%. Next slide, please. So as I said in Medtech, health service, more normalized volume and much less volumes in the area of PPE. But I would say, even though we have -- I mean elective surgery started strong in the quarter in October, but it was set back November, December. On the total quarter, we still see that we have normalized and positive growth of total business we have into the healthcare, which we are very pleased to see, even though we face sort of a slowdown in the surgery area. We have strong growth in the other areas. Home care, as we said, welfare technology in Norway is a very strong and growing area for us, and we think that is also an interesting area for the future because digitalization will, of course, be out even more important in the future to help out in the elderly care. And we have been able in the quarter to deliver some of the orders that we have had for long-term to municipalities. We also had the opportunity to install aids to customize the bathroom in the Swedish area during the quarter. So therefore, we came up with a positive growth in home care. So summarizing Medtech, sales, COVID-related was SEK 255 million during the year. And the organic growth, excluding COVID, ended up on 3%. Next slide, please. So summarizing 2020. I must say it's exceptional year, exceptional for all of us. I think the pandemic has changed a lot for all of us and also for AddLife, but we are very pleased that we have been able to have strong sales, strong EBITA growth and this has also created an excellent operative cash flow for the year of SEK 950 million, which for the full year is a great cash conversion. We summarize 6 acquisitions that also adds on an annual basis SEK 650 million to our net sales. Next slide, Martin.

Thank you. A few comments regarding our long-term financial goals. We have a profit growth of 163% during 2020. And this is, as Kristina said, due to the strong sales growth that we have had and the increased EBITA. During the period since listing in March 2016, we have had an average yearly profit growth of 45%. And this is well above our financial goal of 15% profit growth per year. The next financial goal is the EBITA after working cap, and we ended up at 103%, and this is mainly due to the increased EBITA result. Next slide, please. Looking at the acquisitions we have done in Q4. We have 4 acquisitions that we announced in 1st of October. We started with Ropox with selling bathroom and kitchen aid products, mainly owned products in Denmark. We have a net sales of SEK 95 million and 73 employees. We continued on the 1st of October with the acquisition of Zafe Care Systems. It's a company in the welfare technology area, which is an interesting area for us that we have been working in for several years now, and we continued with the acquisition of Zafe Care in Sweden. We have a net sales of SEK 35 million and 21 employees. And the third acquisition we did on October 1 was Dach Medical Group in Austria, Germany and Switzerland. They are working in advanced surgery segment. And on 1st of December, we finalized the acquisition of Biomedica Italia. We have a sales here of SEK 80 million and working in advanced surgery segment. So we have continued to do acquisitions in the Nordics, and we have built also the advanced surgery segment in Europe and strengthen that. And we continue to see good opportunities for acquisitions, both in the Nordics and also in Europe. Next slide, please. This is a summary of the acquisitions that we have done during 2020 and 2019. And as Kristina said, we managed to do 6 acquisitions during 2020 and the net sales at the time of the acquisition was SEK 650 million. And they also added 197 employees. Next slide, please. As the -- comment on the income statement, Kristina told you about the sales growth in the quarter ended up at 75% but the really nice thing to see when we get this volume expansion, to see how we manage to keep control of that cost and get the results down to EBITA and further down also to earnings per share. And earnings per share in the quarter amounted to SEK 1.93, which is a growth of 339% compared to last year. Next slide, please. Looking at the balance speed. We continued to have stable and strong balance sheet. When we end the year 2020, we had a financial net liability of SEK 700 million and a net debt-to-equity ratio of 0.4., equity ratio of 46%. So we continued to have a really strong balance sheet to be able to finance both our continued organic growth and also acquisitions. Next slide, please. And a few words about the cash flow. As Kristina said, the accumulated cash flow for year 2020 amounted to SEK 950 million. And of course, the profit expansion is one of the drivers to the increased profit, but also a good managed working capital during the year. So SEK 950 million in operating cash flow. And in the quarter, we had operating cash flow of SEK 559 million. During the quarter, we have also done the acquisitions, SEK 271 million, and we paid out dividends to shareholders of SEK 57 million. End of December, we had SEK 1 billion in available cash. So we have a strong dynamic. Next slide, I will go to Q&A and open up for that. Oh, sorry, my mistake. Key financial indicators. We have added some key financial indicators, and we have talked about most of them. Just we ended the year, we are 1,112 employees. So we continued to grow number of employees as well as the result. So now next slide, we open up for Q&A.

[Operator Instructions] Our first question comes from Charles Weston from RBC.

Congratulations on the results. I have 2, please. First of all, it was very helpful for you to show the COVID effect in your different divisions. Looking at the Medtech side in particular, and thinking about the phasing over the next year, perhaps, if you can run your crystal ball and tell the future. How do you think things will look through the year with the potential possibly for new PPE or those potential recovery of electives and maybe even some catch-up work to get through extended waiting list?

Talking about COVID and the future in Medtech, we are not focusing or actually looking to see some exceptional large PPE orders because, as you probably know, that is not actually our focus area. PPE for us has -- from a historical perspective, been some 7%, 8% of our net sales in Medtech. So that is not our focus area. But I don't foresee so many, at least, large extra orders in that area.

Understood. My second question really had 2 parts. But my second question, hopefully, is shorter. On the diagnostics side, in Labtech, you talked about how positive it was, but you were selling or you placed a lot more instruments in order to be able to sell them other parts going forward for the post COVID. Do you think your cost portfolio is very wide now? Or are you looking to add a lot more task to take advantage of some of the equipment that you sold?

I mean if we look at the crystal ball again for 2021 in diagnostics, I mean, we foresee that it will be continuously testing for COVID for quite many -- a big part of this year, at least, perhaps the full year. But we already see that the suppliers, they are taking up new different tests that we can drive on these instruments. So we're already out talking to customer with -- and showing them what test they can buy on the instrument that we have installed to make sure that the instruments are sort of running at full speed for the future. So we are positive to see what test to be run after the COVID, but I mean, to have the same volumes as we have had during the COVID, on other tests, it's very difficult to say. I mean, for all of us, I think we are hit by new surprises from -- every week when we read about what's happening into this COVID pandemic and what happens then. But nevertheless, I think the usage of diagnostics test will increase anyhow in the market as such because we've seen how important it is to do the right medical treatment when we do the right diagnostics. So we are very positive to have a good growth for the future in these areas.

[Operator Instructions] Our next question comes from Daniel Albin from Danske Bank.

So I have a question concerning the margin profile and perhaps, really, how we should think of this going into 2021 hence it's a more normalized world? So in the prior years, pre-COVID, you had an EBITA margin of around 9.6%, and you are well above that this year or in 2020. Just thinking, are there any -- excluding positive COVID effects, are there any structural reasons for really assuming that EBITA margin should be higher in a normalized world? And that's my first question.

Yes. And I think -- yes, there are several changes that we will see, which is actually -- I mean, if you go back a few years, you see that before we did a large acquisition of the Medicare in Austria, we had higher margins. And then we knew that when we bought that company, we came into area with lower margins. And what has happened during these 2 years that they have been on board is actually, they have also increased their margins through the way they have been working and different tools, but also, of course, they have part of this COVID area. So I, for the future, would foresee that we have margins 10 plus. But if that is 11 or 12 or 10.5, I don't have a crystal ball to say. But I think that's at least where we foresee to be.

And my second question, really alluding to a bit of the stuff Charles was talking about. If you look at your installed base now, which has expanded in 2020, could you give some more granularity of what types of sort of other tests you're doing beyond, say, the COVID-19 test on these platforms or the Alzheimer's test or cancer test, what sort of are the largest ones?

Yes. You said some of them, Alzheimer. There's also women's health test, which is quite a big area for testing. But tests related to that, you have the flu test, the normal flu test that will come on. And this year, we already see that some of our suppliers have done a combination test, which is really normal flu A plus B plus COVID in the same test. So they are also coming up with new tests that will be broader and not just COVID test. So they have -- they are changing the reagents right now to be able to -- to also grasp COVID in the normal flu testing for the future. That is an example for improvements that we see.

Okay. There appears to be no further questions now. So I will hand back to the speakers for any other remarks.

Yes. We can summarize this year, as we said, exceptional in all matters. If we look in the crystal ball, which all of us try to do, I mean, we look in 2021, we still see that we are part of the pandemic. It continues unfortunately for the world, for AddLife. That means that we continue to see high focus on testing in more or less all the markets where we are. Governments are pushing in even more money. For example, in Sweden, we saw a few weeks ago, the Swedish government decided to push in SEK 5.5 billion extra into the COVID testing. So that will continue, and we are, therefore, positive to see that we will have a good growth even in this year. And hopefully, we see elective surgery coming back again. But of course, we should all be aware that 2020 was a very strong year. And when we come to comparison numbers, yes, that is not so easy perhaps later in -- during this year because we have tough figures to go again. But we are positive, and we think we have strengthened in the market and get better market access in many geographies due to the COVID. So we have a positive outlook. I think that's what we have to say from AddLife today. And please feel free to contact us by mail or phone or whatever, we will try to answer your questions as much as possible. Thank you for today.

Thank you. This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.