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

So welcome everybody. The time is now 10:00 and I am now delighted today to present the fourth quarter report of 2021 and full year figures for AddLife. And I think today is a very difficult day for -- from a personal view, but I think also on the stock market to be frank. But let's end with that discussion in this meeting. I first would like to present the figures for this year and for the fourth quarter. And to summarize 2021, I would say it is really a successful year. 2021 is the year when we really did the big expansion within Europe. We have had -- we have made 7 acquisitions, 2 of them, of course, are closed now in 2022, but the other 5 have been closed during the year. So totally, with these acquisitions, we will add approximately SEK 3.3 billion in sales. But that is part of the growth. Another part of the growth is, of course, what we do organically. And I think during the year, we have had a strong sales and a very strong EBITA growth as well. As you know, this year is another exceptional year with the COVID pandemic. It has been a very volatile market during the year as well as in the fourth quarter. And it has all been depending on the infection rates, the restrictions that has been in the market, opportunities to sell products, et cetera, et cetera. So it has been, I would say, troublesome for some of our companies to manage, but I think we have managed this in a fantastic way. To summarize, the Board also suggests that after these strong results, we would like to do a dividend of SEK 2 per share. Looking into the quarter, it is what we think a very strong quarter. We are very happy with the results, but we all knew that now we are heading very tough comparison. And if you just look at the Q4 figures for 2020, they were extremely strong with a 75% growth of sales, of which, 51% were organic and EBITA was up 208%. So we knew this would be tough. And I think we tried to explain that this growth with the COVID will be very difficult to project when and how that will impact our figures. Nevertheless, we had a net sales growth of 23%. It is the acquisitions that are driving the growth, and they are, as you know, in the Medtech segment. We continue in this quarter to have strong COVID sales within our diagnostics companies in the Nordic markets. And we ended -- we finalized 4 acquisitions in this quarter, as we have reported before. EBITA ended on SEK 329 million, which was a margin of 15.5%. So a few words about the COVID. Market rapidly changed in the middle of the quarter. When we left Q3, we saw sort of the light in the tunnel and said now it's opening up. And just a few weeks later, it closed again. So it has been very difficult, of course, to have a good momentum in all our businesses. But that hits differently in different parts of this group. The elective surgery started the quarter very well. We had our sales rep out in the market. We had opportunities to meet. But when the COVID came again, we saw that a lot of staff in the hospitals got Omicron and of course, there were lack of resources. In the middle of the quarter, also, we saw increased testing in Q4 in the Nordic market, not in the rest of the markets. In the Central Eastern market, we have seen a decrease in the sales of our PCR tests. We see that in those markets, the prices have decreased a lot, but we also see that in some of these markets, the testing as such has decreased compared to last year. The major drop in the Labtech business actually comes from the research side because in 2020, we had big sales of research media for laborators because they did their own tests. We do -- they do something we call home brew because 1 year ago, there wasn't enough sort of test to be sold in the market. So the research laboratories actually created their own tests, but that was not the case in 2021. So you see we have a significant drop here from SEK 600 million last year to SEK 355 million. And some of you very well have noticed that we have restated our figures a little bit for 2020. Unfortunately, when we were closing this year, we have had to go through all the figures for last year, and we realized that has been differences between Q3 and Q4 2020 in the reporting. And we also saw that one of the acquired company failed to inform us about sales in the company of COVID products. So last year, we reported SEK 430 million in the quarter for 2020, but the actual figure is actually SEK 600 million. And the full year last year is SEK 1.3 billion instead of SEK 1.2 billion. So that is sort of where we are in the COVID. Looking at the net sales. This is an interesting year, and we have done a remarkable change in the geographic sales in this group. On the right side, you see the 2020 figures. You see that the Nordic markets, we were around 65% of the sales, but that has completely changed in 2021 where the Nordic markets are 49%. The new larger market for us is, again, U.K. and Ireland. It's Italy and it's Germany. And they have, as you know, many of the companies we acquired came in Healthcare 21 and had vision that formerly was a Vision Ophthalmology Group are in these markets that they came on board in April. So we have some 9-month figures for those markets. So if we had full year, we would have even more sales outside of the Nordic in this year. If we look at the net sales, as I said, it increased 23%, which I think is a very good increase coming mostly, of course, from the acquisitions organically, 12% down. But if we take away the COVID sales, it's actually 3%. So we have an underlying growth in this difficult market, which we are very proud to see. Year-to-date, we also have 3% underlying organic growth. And you know the figures. It has been a fantastic development of 52% in net sales for the year and acquired is, of course, the major part of that. Coming over to the results. EBITA in this quarter increased not many of you might say only 4%. Of course, we saw a drop in the margins from the extremely strong quarter last year, which was 18.2%. But I would say a 15.5% EBITA margin is something that we are very happy to be able to see in our companies. We have, in the companies over this year, worked extremely hard with trying to mitigate the effects that we have from higher freight costs from raw material, et cetera, which we have been able to do price adjustments. But we have also done a lot of tail-cutting, meaning that we have actively in a lot of companies taking away nonprofitable supplier sales so that we over time increase margin. And as you know, our goal is not to increase volume, it is actually to increase profit. So year-to-date, increasing 59% and ending the full year of 15.9%. This year, with all these acquisitions, we have quite high transaction costs, it's SEK 56 million. So if we sort of take them away, the real figures are SEK 1.3 million, and the margin is 16.6%. Labtech, as such, has had a fantastic year with very strong sales and very strong EBITA over the year. But in the fourth quarter, as I said, we have decreased COVID sales. It's minus SEK 270 million in this business area. The growth was in the quarter, 4% organically underlying and for the full year, 5%. And we did one acquisition in 2021 in the Benelux countries, which will, over the year, add SEK 140 million in sales. I'm extremely pleased with the high margin this quarter in Labtech, they are ending up in 20.8%. So they are showing really that even that we have decreased sales in COVID, we have managed very well to be efficient and continue to have a very strong margin. As I said, Nordics, still strong COVID sales, but it has decreased in the CE markets. What we see for the future is the higher demand for the combination test. And when I talk about combination test, that is flu A and B together with RS virus and together with COVID. So it will be 4 different sort of viruses that you will test for the future in the same combination. And I think that will be the one that we will sell in most going forward. But we also know that some customers, they really would like to follow just a COVID pandemic sort of development in the future. So we still expect us to continue to sell normal COVID PCR tests to see the spreading of the virus, but that will decrease for sure, for the coming year. What we are proud of and see is that it is really high activity in the market. Nevertheless, we have had opportunities to meet customers, discuss how they in the best way can use the installed instrument that they have acquired during the last years. And we have then seen increased sale when it comes to genetics, oncology. And of course, our blood gas analysis has been very strong in this quarter as well. And we see actually that in a few markets, we really have a market share in blood gas that is more than 90% of the market in the country and still growing. So I think the usage of blood gas analysis has been so strong within the ICUs during the pandemic. And I think the hospital has seen the advantage of using these tests for the future as well. The research and lab side, we saw the main hit of the COVID sales was actually from the test laboratories in Italy and Denmark. That was the major hit of the drop in COVID sales. But we again see that we have increased demand for reagents for gene sequencing, cell therapy and cancer immunology. So we actually have a few smaller subsidiaries that have made all-time high figures in the last 2 months of the year because the demands have really increased a lot. We also thought which we were happy about that we had robust sales of our own advanced instruments. So I see that somebody else is doing something with my presentation. I don't know why sorry for that. Yes. So we are happy that we now have had good sales of our own instruments in this quarter. Coming to the Medtech business, also a fantastic year. Do you see the presentation? Sorry for this, something has happened because it seems that somebody has been able to take over my -- here we have Medtech. Okay. It's a fantastic year. Of course, it's through the acquisition. But it was challenging for our companies in the fourth quarter. They started very well, but again, it was very volatile in the market due to the high spread and that a lot of staff in the hospital actually were out of the business. We did 6 acquisitions in 2021, as you know, but the organic growth was actually 2% in the quarter, 0 in the full year. So we've managed to compensate the big drop in sales of elective surgery with selling up other products in the Medtech field. Talking about the elective surgery, we have realized that the resumption of the surgeries will take time, and that is mainly due to the lack of personnel resources. And we know when we talk to hospitals and also to government in many countries, actually, that they are really planning to find solution for the future, how can they increase efficiency. We see, for example, that in Stockholm, the largest hospital here, they have managed at Karolinska to increase number of surgery stats have taken place. They have worked longer hours. They have started to do surgeries on Saturdays as well. So they are taking new steps to find solutions to actually reduce these long queues. And hopefully, we will see that opening up now in the first quarter when all of us are hoping that the pandemic will sort of decrease even more. I think our companies in the health services have been very good at doing price increases and tail cutting, as I discussed before. So they are actually managing a very good margin in this quarter and started to build for the future here. In our home care, we see strong interest. We have, as you know, bought a few companies within digital solutions, and we see especially strong interest from municipalities for the digital solutions. But again, December was a difficult month. So we couldn't actually install what we had in our pipeline. And we see a lot of good opportunities with these solutions for the future. This is a summary picture of all the acquisitions made in 2021, I would say, overall, they have performed according to our expectations. It has, of course, for many of them been difficult to have a big growth. During the year, they were, as many of our health care businesses had problems due to the restrictions, less surgeries, et cetera. But they have been running as we expected, and I think it looks bright for the future. It has been a very big work internally, of course, during the year, in the last quarter, still continuing to implement all these companies, and we have had several trainings in vision and corporate philosophy. And as you know, this is the start really to implement all employees into our thinking our culture, our values, which is so important for the strength of this group going forward. We have also seen big opportunities when we are implementing our toolbox and when we can start realizing the work with our profit of our working cap tools, we will, of course, try to intensify that work even more in 2020. So looking at our financial goals, the year, we had, had a growth, as I said, 59%. And you see in this slide that we had last year a profit growth of more than 200, of course, that is -- has stepped down right now. But I think still 59% is fantastic. We have had 48% since the listing in 2016. Profitability still very high, 95%, a little drop. The major reason for this drop is actually a change we have in working capital that relates to accounts payable between 2020 and 2021. That's the major shift in the profitability targets. I don't think there's so much to discuss about the income statement. You will see that our earnings per share now is SEK 6. That's a 30% increase this year to all the shareholders which we, of course, are very proud to be able to have. Looking at the balance sheet, I know that some of you have thought about what happens now when we also acquire MVA that we closed here in January 2022. So we have done a preliminary pro forma of the balance sheet, including MVA. So after the acquisition, we will have financial net liabilities of SEK 4.9 billion. Net debt-to-equity ratio around 1.1 and the equity ratio will drop to 35%, and we were at year-end on 40%. The net debt-to-EBITDA, sorry, ends up just below 3, meaning 2.85, we still think that is a fair multiple, and we don't have any problems with any bank loans, covenants, et cetera, on that part due to this sort of increased multiple. But going forward, of course, we are very -- always as we try to do, having a conservative balance sheet and we'll work with that extensively during the coming year. Cash flow, as I said was SEK 1 billion during this year. It was SEK 950 million last year when you look at the operating activities, the main difference is change in working capital, and that relates to changes in payment times of accounts payments. So I think that is, for us, not a major problems going forward. And this is the slide with all the financial indicators. I think we've gone through them most of them. We are now 1,802 employees end of period. And with our friends at MVA, we are more or less 285 people more in this group when we end the January. So I will open up for questions. But before that, I just want to comment a bit. Yesterday, we sent out a press release. And I have got a lot of comments. I got messages from many of you, and I saw that the stock market was completely red, perhaps I'm not sure if it's because of that press release and or it's a combination of the report from today. But I have after a fantastic journey actually decided that I would, during 2022, step down as the CEO. This is a very personal decision and it has been very, very tough to take, AddLife for me is sort of my baby, and I have been having a fantastic journey together with great colleagues. And it is -- I'm so proud of the strong solid foundation that we have in this organization and a fantastic culture. And you may argue timing is right or not. But some of you think it's bad, but I think we have never actually been that strong. We have very strong management team. We have done strong acquisition with strong managers in our companies, and I'm very convinced that the journey has just begun for AddLife. So I'm really looking forward to be part of this year. And from another angle, hopefully, I will also be part of AddLife for the future. So this is, as I said, a very personal decision. I would sort of love to have my own agenda of my life and has a little bit more flexibility. So with that, if you have any questions, please.

Yes, Karl.

I have a couple of questions, but we can maybe start off with COVID related one. I know it's getting kind of tired, but given what you're seeing right now? And I mean, can you give some kind of outlook? Because I guess that we've seen that January has started off with a lot of tests at least in the Nordics, I think. But how do you expect this to develop? And do you think it's a fair assumption that the sales of COVID test will increase in Q1 compared to Q4 and then decrease rather quickly when we now enter the spring season?

So it's a very good question, and that's always the crystal ball. If we say like, yes, of course, in January, we see a strong testing in the Nordics. That's for sure. So I would say, January, we know already, it will be strong. But I'm not -- it's so difficult to say if it will be the same figures as we had in Q4, but it's not probably quite close. So I would say we are still just in the 4th of February. But we also know that, I mean, it's slowing down the pandemic, but we have also opened the restrictions in most countries. So I would think there would be a lot of spread of the virus dose. So I think we will do testing throughout this quarter. But after this quarter, I expect it actually to decrease a lot. But I have been wrong before -- so -- but that's what we foresee. But again, it will not be 0, but I don't expect it to be the high volumes that we had in Q1, Q2 last year. Hopefully, far from that, not from an AddLife's perspective, but from a human perspective actually.

Yes, totally agree. And looking at the Labtech side, given that your sales were down around -- the COVID sales were down around 40% year-over-year. I think it's very strong profitability with almost a flattish margin year-over-year. I mean, I think a lot of people and there is a lot of questions regarding the outlook for the Labtech margin. If you could provide any kind of color when we enter the year with normal or in a normal environment. I know you said it's going to be higher than pre pandemic, but just some kind of additional color there would be very helpful, I think.

Yes. I think good question as well. I think if you look at what sort of the mix we will have in the Labtech business, during the pandemic, initially, we did a lot of sale of instruments. Last year, it was a lot of instrument sales. And actually, I don't expect it to be so much instrument sales in the Labtech business. And then I talk about Diagnostics, of course. So I would assume that for at least the coming year, it will be mostly sales of reagents and the margin on reagents is much, much higher than we have normally on the instrument side. You know it's a razor-razor blade model. So that's where I think we will see continued high margins in the Diagnostics business. And in the research, there will be more instrument sales over the years, and that is and has for all the time being very volatile. So it will be difficult exactly to say what the margin will be in the research business. So -- but long term, I don't think we could expect more. I mean we are running 20-plus margins. I would assume as coming down a few percentages leads, but these companies are very good, and they have done a fantastic job. So I think we will see creativity and how to keep moving with high margins for the future, but not 20-plus margins, that's not what I expect actually.

Understood. And then if we just changed paying shares to the Medtech side, it's kind of hard for us to make any estimates given that we don't have the comparable figures for Healthcare 21 and Vision Ophthalmology, but can you just give us some color on the margin there? Because pre-pandemic in Q4, I think you had around 10%, let's say, in EBITA margin. And now we've added 2 highly profitable companies and the margin is rather flat compared to that. Is that a mix with less elective surgery? Or is there some kind of seasonality that we're not really aware of?

I would say we were below 10% before the pandemic in the Medtech area actually. But yes, what's the margin? Well, during the year, the product mix, elective surgery has been less compared to other products in the portfolio, and we have actually the highest margin within the elective surgery and with our own products that actually are part of the elective surgery portfolio. So going forward, I assume -- we assume that we will be able to increase the margins. And as you said, we have acquired companies, which have higher margins generally. And we expect, of course, their part to grow for the future and thereby we can increase the margins. And I can also say that from a seasonality perspective, it is actually so that Ireland, the U.K., health care, they have sort of year-end closing in March, not in December as we have in most countries. So for Healthcare 21, the strongest quarter is actually Q1 and not Q4. So that's the weakest quarter over the year and has been for a very long time for Healthcare 21. So I expect them to be a little bit stronger in the first quarter as well, which they were in 2021. So they had actually their strongest quarter in Q1.

Yes, that's what I'm fishing for.

Yes, that's what you were fishing for. Okay.

And then just maybe a last one on the long term. Now you're not going to be with us for the upcoming 3- to 5-year period. But I'm just wondering how you think that investors should see your 15% earnings growth target given your, what I say, elevated earnings that you have currently in 2021, would you expect it would be possible to reach 15% earnings growth per annum in the upcoming, let's say, 3 years over, yes?

15% earnings growth is what I would say, the lower limit for the Board. So yes, that's what we expect. But that is not actually every year probably. This is a long-term target. So perhaps we shouldn't expect it to be every year at least 15%. It would be exactly as we have done historically, 1 year more, 1 year less, perhaps. But we have -- as you said, we have done a number of acquisitions. They will, during the coming year, give us, of course, increased growth in the EBITA. But we are, of course, also looking in to do more, I would say, normal size add-on acquisitions during 2022. I think we need to consolidate a little bit this year and really get all the effects out of the fantastic platform that we have so far done during '21 and the first days of '22. So I think it's absolutely feasible to have the 15%. Actually, many of you follow also Addtech and all our customs and this is something we have done for many, many years. So I think this model has proven, and it will show that we will continue to have this growth rate of minimum 15%. And I also foresee that we, for the coming year, we'll have an organic growth that is absolutely higher than we have seen during 2021, of course.

Okay. Thank you for the clarifications here.

Thank you. Okay. Yes, somebody raised their hand. Please Paolo.

I just wanted to follow up regarding the organic growth that you mentioned, that would be probably higher than 2021. I mean, the organic growth, of course, excluding COVID could be like similar to the previous years to the 2019, 2020 going forward?

I mean we have -- actually, since 2004, had an organic growth between 6% and 7%, but I expect it -- I mean, due to the elective surgery backlog, et cetera, I expect it to be more than that, especially in the Medtech field in the coming year, excluding COVID to be very. Yes. Thank you. I think we end the session now. And somebody else was on, Anna, please?

I just have a quick question on the adjustment that you did on the COVID related sales. Have you restated your organic growth for 2020 Q4 then? Or is it just acquired growth that has become COVID-related sales?

I must say, I'm just looking at my final people in the room. Yes, I think you have restated it. I hope they have it for 2020, yes, because we had to change the figures, unfortunately, but we -- after a lot of -- going through all the figures, we realized that it has been a mismatch. So I think all that has been perfectly restated in the report.

Okay. And the majority is that from M&A sales going into COVID-related or is it...

Yes, we acquired a company. And it was -- last year, it was the first time we tried to -- that was Q3 last year, was the first time we reported COVID-related sales. And of course, it was troublesome for the companies to really sort out what do you mean? What is this? What is that? So the major difference comes from acquired sales, but it was a classification or periodic differences between Q3 and Q4, actually. Unfortunately. But I think now we see that this is the best we have for 2020, I think. Yes. Thank you. I just got to confirm from the finance team. Yes, all figures are correct now. Okay. I don't know if there's anybody else. So thank you very much for listening in. You know I'm available. Just give me a call or a mail, and I will try to talk to you or try to explain everything. And looking forward to talk to you again at next quarterly report, which will be in April because I'm still here. Have a good day and wish you a nice weekend. Bye-bye.