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

Most welcome to this meeting where we will present the September quarterly results for AddLife. And today, this morning, we released our report and it's a report that we are very proud of. I think we all know that the last year has been a very strong year for AddLife. And of course, the comparisons for all our business is very tough, but nevertheless, we are very proud of what we have achieved in this third quarter. So looking into some highlights, we can say it's a strong quarter. We had continuously strong COVID sales within our Labtech business, but more or less just SEK 10 million of sales of COVID-related products in our MedTech business. So overall, the growth in this quarter is driven, of course, by the larger acquisitions in the second quarter. As many of you know, the third quarter is seasonally the weakest quarter for us and has been so for many, many years. July and August, normally very weak months, low activity within health care. And I would say this summer is no exception at all. We see that many hospitals actually have given all their employees vacation, which I think they have really needed after this tough period with the COVID treatments. But we also saw that it was a strong recovery in most markets in September. And what happened generally is that we have also, in this quarter, starting in September, been able to visit our customers. Most hospitals and also research clinics have opened up for customer visits. And of course, that is very positive because then we can start selling products for the future. So summarizing this quarter, positive, as I said. We did also an acquisition in the quarter of Bio-Connect Group, adding another sales of SEK 140 million for the coming 12 months. So 49% up in sales, EBITA increased to SEK 286 million, and the EBITA margin ended on 15.5 percentage. We cannot sort of discuss AddLife and what is happening with us without discussing the COVID because COVID, of course, affects our business a lot. We all know that the communities have reopened. Restrictions are lifted. Vaccination rates are increasing in most Western European markets, but we have also seen, which is also obvious now after the quarter, that in the more Eastern European countries, the vaccination rates are still very low. And therefore, we also see now that there is another wave coming up. It looks like that now in October, and the spread of the infection has restarted in many countries through the new mutations. So it's very difficult timing to say what will happen in the future for us all, I would say, and also for our business. So what we saw in the quarter was, as I said, in September, a lot of business started again. We saw though that the resumption of elective surgery takes a longer time than we anticipated. There are still huge backlogs in many, many countries. We see, just in Sweden, I think we have 650,000 people in the queues. In Ireland, I think it's 870,000. And in the U.K., actually 5.7 million people waiting for elective surgery. And this will, of course, take time. It has been obvious for us and for, I would say, many, many companies that the global supply chain is somewhat weaker still after the pandemic, which, of course, affects our businesses and our companies. And we have also seen that the freight cost has grown tremendously and especially when you are trying to do sea freight from Asia. So that is a negative impact in the margins in this quarter. In this picture, we have now put in a chart where you can see the COVID-related sales quarter-from-quarter starting in Q1 2020, where we had only 2 weeks, some COVID in our books. And then you see the growth quarter-by-quarter, and it's obvious now when you compare Q3 2021 with Q3 2020 that we have a decrease in the COVID-related sales. And you can also see that we are actually lacking the sales in the Medtech business. We have strong Medtech sales from COVID products in PPE last year, but this year, very little actually, especially in this quarter. A few words about the future. Of course, as I said, it's very difficult to foresee what will happen in the pandemic, and the development for us will be depending on how this evolves in the market. But we also see that we have good business underlying, but we are also -- perhaps have possibilities to continue somewhat longer than we foresaw with the COVID-related business. So looking into the net sales in the quarter. Up -- sales up 49% to SEK 1.9 billion. The acquired growth was 54 percentage at SEK 672 million. So then, of course, we have a negative organic underlying growth, 5 percentage. But taking away, again, the COVID-related sales, the organic growth was actually up 9%, which we are very pleased with. For year-to-date, we have the same figures. SEK 5.9 billion in net sales. That is up 65%. Whereas we see the organic growth was 22%, including COVID, but excluding COVID, we have a rate of 6%, and that is actually more or less in par with the organic growth we have had since 2004. So of course, we are very pleased now to see that the underlying business have actually restarted during 2021. A new word about our EBITA. It was an increase of 44% to SEK 286 million. So we are very pleased with the result we got in this quarter even though we had problems with the disruption in global supply. I think you hear that from all companies. There's raw material problems, I would say, in the world. For us, it's mostly plastics that we are waiting for. Takes us some difficulties, especially in the Medtech segment, to get these plastics. But in the Labtech business, we see that there are the problems in the world with the semiconductors. It gives us some problems when we want to install new instruments that we, of course, have to with software put together with the customer's system. So therefore, there is late deliveries in the semiconductors, and that hurts us as well. But mostly, the increased freight cost is, of course, tough for our companies as well as it is for most companies right now in the world. So therefore, we are very pleased with the margin of 15.5 percentage. And if you compare that with last year, there is some product mix change, you could say. We had -- last year, we had sales in the Labtech business, a lot of instruments. This year, we did not have so much instruments. We actually had more reagents, meaning that the Labtech margins are higher this year. But in the Medtech business, we did have a lot of PPE sales last year, which gave us a big margin in the Medtech business, but this year, we didn't have it. So therefore, we have lower margins, you could say, in our Medtech business. Below, you see the year-to-date figures that, yes, that really sums up what I have said before. So we have continuously a very strong development in our results. Looking into the Labtech business. We, as I said, have high volumes. And what we have done also is, actually to compare the Labtech figures with what we had in Q3 2019, and we see that, I mean, last year, of course, it was a very weak organic, excluding COVID sales. But comparing to Q3 2019, we have, in this quarter, a small positive organic growth, ex COVID, comparing 2 years behind, which, of course, gives us good faith that we are now seeing the opening of other parts of the business again. And very positive is, of course, that we also, in this quarter, made a smaller acquisition, and I will come back to that. You see that we had extremely good margins in the quarter, close to 22%. Of course, that comes from what I said before that we have a bigger portion of reagent sales in this quarter compared to last year's third quarter. Next slide, more details. I think I discussed some of it. I think the positive side on the Diagnostics is actually that, what I said, customers start to engage in other activities, meaning that we see now they are really taking on other tests. We are able to meet and discuss future projects. We have so much more test within oncology, genetics, meaning that the installed instrument base that we have had during the COVID period, we now can start to run other tests on those instruments. That is very positive. And our Diagnostics company has for the last 3, 4 months actually had one big focus, and that is really to make sure that we can shift existing sort of COVID customers, to customers running other tests on the same instrument. And they have been so far very successful in this change in the business. Looking into the research and laboratory side. Virus research continues to be very strong. We have that strength most in Denmark, where we've seen a big part of investment in these areas. What is very positive is that we have had -- during the pandemic, we discussed a lot with research customers. They were -- they postponed a lot of acquisition of investments in instruments, but that has actually opened up again. So we have now much more opportunities to restart that sales in the quarter and for the coming period. So if we look at Labtech, it's a very strong quarter. And the organic growth, excluding COVID sales, is actually up 14% in this quarter. So we are very pleased with the business that we have in the Labtech businesses. Medtech in the third quarter, we had a sales growth of 131 percentage. And you see -- and the organic side is negative with 28. Of course, the acquisitions is really the driver in the Medtech business. Vision Ophthalmology Group and Healthcare 21 are, of course, doing the major part of this added sales, and they have developed according to our expectations during the quarter. We see in the quarter, that is very limited sales of COVID products. And as I said, the resumption of elective surgery is taking a long time. I would say, right now, we are probably running minus 20% compared to normal when it comes to surgeries in most countries. But it's also very different compared to what different types of surgeries are to be conducted. For example, we see that the cardio side in our Central Eastern countries are more negative, but they are more positive on the orthopedic side of the surgeries. So a bit different, but on overall, minus some 20% still. The reason for that is mainly because the customers have -- all the hospitals have lacked personnel during this time, but they also have a lack of beds because still, a lot of COVID patients are in the hospitals, even though they are not in the ICU so much, but they are still in the hospitals. Therefore, it's not enough resources, you could say. I already discussed a bit about the health services and Healthcare 21 and Vision Ophthalmology delivering according to expectations. And we see also for their businesses, of course, that it is lower activity during the summer period as we always expect it to be. What is very positive in Medtech is the home care part. We had a big close-down, I would say, during the pandemic for the home care businesses. It was extremely difficult to do tryouts and meet the customers and install products. But this quarter, it really opened up again. So we have a good underlying organic growth, and we see also very positive growth there compared to what we had in 2019. Also positive is that we see that fairs are opening up. We had a few fairs in Norway in the quarter. And actually, now after the quarter, we see that there are fairs also in Sweden and Denmark coming up, so we can now start to showcase our products. So organic in the quarter, excluding COVID, we have 0 growth. Still good, if you could know what is happening in the elective surgery. But year-to-date, minus 1 percentage. As I said, acquisitions, and you all know that acquisitions is one of the most interesting things that we are doing outside of just running our companies, but also adding new acquisitions to our group. And we did, last quarter, Vision Ophthalmology and Healthcare 21. And this quarter, we did a smaller acquisition in -- with Bio-Connect. And Bio-Connect is a distributor in the Benelux countries. Benelux is a market where we have only had a Medtech business before. We have it in our business, Mediplast, and we have been in Benelux for many years. And our Medtech Benelux business has developed very, very well over the last 5 years. What interested us is to also be in the more Labtech side in Benelux because we know that Benelux is a leading pharma biotech research area in Europe, and we have now been able to buy Bio-Connect. It's a smaller company with 31 employees, but a good sales of SEK 140 million. It's a really niche provider. They have -- they are working both in Life Science and Diagnostics, where they sell leading brands from more research-oriented suppliers. But what we think is very interesting is that they are also a full-service provider in very niche Life Science research, where they have a strong competence, especially within proteomics, which is an interesting research area. So the product portfolio that they have and the service provider solutions that they can have in their market is very interesting for our other businesses within that Life group. And we have already opened up a cooperation between Bio-Connect and the BioNordika companies and EuroClone and other Biomedica businesses within our group. So let's see how we can cooperate more in the future. So this is a very positive growth for our Labtech business, and it's a very positive opportunity to have more Life Science and Diagnostics into AddLife. Martin, please?

Thank you. Talk about our long-term financial goals. We continue to be above our goals here, and the EBITA growth was, for the rolling 12-month period, 114%. And if we look at the long-term trends since we were listed in 2016, we have been able to have an average profit growth of 50%, and the goal is 15%, so we have been well above the goal. Looking at the other financial goals. The profit through working cap, we have had 105 percentage share over the last 12 months, also very well above our goal. And this, of course, is important for us because this is how we calculate and see if we have a good cash flow for the business. Looking at the income statement. As Kristina said, when we look at the gross margin here, you see that we have been able to increase it with 1 percentage unit to 35.7% in the quarter, and you see that there is the same trend in the year-to-date figures. And this is, of course -- one factor here is the product mix, the change that we have had in Labtech, from instrument sales to reagent sales. What we also see in the income statement is that the intangible depreciation related to intangible assets are now increasing due to the acquisition of Healthcare 21 and VOG and also the financial income and cost interest expenses for those. Looking at the balance sheet, there are small changes compared to last quarter. But of course, if we compare to 31st of December, there are quite substantial changes in the balance sheet. And this is, of course, from the acquisitions that we have done. We continue to have a strong balance sheet. We have an equity ratio of 40%, and the net debt or financial net liabilities ended up on SEK 4 billion. And here, we have included SEK 408 million that are pension-related and also liabilities related to leasing. The net debt equity rates, your multiple is 1.0. So we continue to have a strong balance sheet for the future. Looking at our cash flow in the third quarter. We had a quite stable cash flow in the quarter, ended up on SEK 233 million in the operating activities, a little bit stronger than the last quarter. And what we see here, when we look at the rolling 12 months and accumulated figures, we continue to have a good cash flow, which, for the rolling 12-month period, ended up at almost close to SEK 1.2 billion. Otherwise, nothing to comment here. Some key financial indicators. We have talked about most of them. So the only one I want to comment is the number of employees. We are now almost 1,800 employees in the group after the last acquisitions we have done. So let's open up for questions. If you want to have -- ask a question, you unmute yourself and now just...

[ Daniel ] from S&P here. I have 3 questions for you today. So if we start off with the first one. I know it's getting rather tiresome to talk about COVID-19 testing, but given the current situation is -- did you feel that the Q3 number of SEK 300 million in sales is a good proxy for Q4 as well? And with that said, is it possible to quantify how much all of those volumes and sales are being related to, say, routine tests at hospitals versus nonroutine tests, such as travel certificates, et cetera, to get a greater understanding of the recurringness of this?

If you're talking about the COVID test, I would say then absolutely majority is coming from routine tests in the hospitals, the side where we -- more travel certificate testing or also, where we see -- especially where we, in Norway, have testing for employees on the oilfields, et cetera. That, of course, is a very small part of the SEK 300 million. To say if SEK 300 million is sustainable for the coming quarter, it is very dependent on how the COVID pandemic develops. I don't think it will decrease even more. Because as we've heard both in, for example, Sweden and Finland, the government have said that if you are now double-vaccinated and you get -- you will be sick, you are not supposed to take a test because they actually want you just to stay at home. So therefore, it could mean that the COVID for the coming quarter would probably decrease. But it's difficult, but I would assume it will decrease in the coming quarter. That's the best answer I have.

Okay. Understood. The second question relates to -- elective surgery has seen pretty low volumes in August and July, but stronger in September. Has this strength continued in October? And there are some talks about lack of surgery gloves, if you listen to Mölnlycke. So I would like to know where this status is today.

I would say, what we saw in September has for us continued in October as well.

Okay. Last one then for me. On the margin side for Medtech, I believe the margin looked a bit shy at 9.9%. If we are looking at Vision Ophthalmology Group, it had like 21%. So wondering if there are any seasonality effects or cost or mix effects in this quarter.

They have the same seasonality effect as we had in the rest of the hospital side, meaning that they have also very low volumes in July and August. And that is what we expected as well because that is normally how this type of business works. So for them, July and August were also very weak months, the same for our rest of the Medtech business. So therefore, we have a lower margin. And that is, I mean, that's how we expect this business to be, have seen it in other companies before. So...

Okay. So saying more long-term, rolling 12 months, a margin profile above current sort of Q3 level?

It's absolutely expected, yes. Thank you. Then we welcome you to either call us or send us a mail, and we will try to answer the questions you have. Thank you so much for listening into the presentation today. And we continue to work within AddLife for the rest of the day. So have a good Friday, all of you. Bye-bye.