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

Good morning, and welcome, everyone, to the AddLife Fourth Quarter Presentation. We will take you through today an overview of the quarter and the outlook for the future. And then after, of course, the presentation, we will have a Q&A session. But as usual, we have recorded a great video of a company within the group. And this time around, it's Triolab. So I encourage you all to stay on to watch that video of a fantastic company within the Labtech business area. AddLife was able to finish 2024 in a very strong way. The company has performed really well, driven by healthy customer demand, but also a diligent work on the business fundamentals, improving efficiency and profitability continuously. And this is, again, an important piece of the AddLife DNA. Sales increased by 11%, a quite healthy development. Organic and currency adjusted, the growth was 9%. In Labtech, we saw strong instrument sales after a bit of a weakness in Q3 2024 and also a very healthy invoicing and sales development in Eastern Europe. On the Medtech side, we saw strong development in multiple countries and the positive margin trend really continues in a very good way. This means that we were able to increase the EBITA by 24%, reaching 12.3% EBITA margin, which represents a significant improvement over last year. The profitability improvement initiatives that we have ongoing in multiple parts of the group and in multiple companies are progressing very, very well, and we can see the results of that in the numbers in this quarter. The cash flow improved significantly by almost 50%, reaching almost SEK 700 million in cash flow in the fourth quarter, enabling us to reduce debt in a significant way. So with that, we will move on, and Christina will take you through a summary of the company financials. So welcome, Christina.

Thank you, Fredrik. So sales growth was 11% with strong organic growth of 9%, acquired growth was 1%. Medtech organic growth was 11% and Labtech was 6%. The acquired growth comes from Labtech and the acquisition of BonsaiLab. Our company has, throughout this year, worked diligent with defending the gross margins. This has been done via price increases, but also while working with the product mix, and the addition of new advanced high-margin products is one component when working with the product mix. OpEx increased slightly 1.5%, impacted positively by the closure of Camanio. This quarter, we had less capitalized R&D in the other income and expenses compared to last year. Financial net and looking specifically at the interest cost, that has gone down. So it's now SEK 70 million compared to SEK 77 million last year. We did have a negative impact in the financial net by currency. Last year, we had a gain while we had the loss this year. Looking at last year EBITA, that included some extraordinary items. We had reversal of contingent consideration that was a positive thing, but also we had restructuring costs related to Camanio and AddVision. When we talk about adjusted EBITA, we have excluded those 2. Also last year included a write-down of intangible assets. So summarizing and looking at adjusted EBITA, we saw a growth of 33%. The EBITA margin was 12.3% compared to 10.2% last year. We ended the year with a very strong EBITA margin, 12.3% in the fourth quarter. Looking at the full year, the EBITA margin was 11.3% compared to 10.5% last year. Also, the profit expansion or the EBITA growth for 14%. That is just below our financial target of 15%, and that is despite the fact that we have only done limited acquisitions, one, this year. Fourth quarter is normally the strongest when it comes to operating cash flow. This year was not an exception. We had almost SEK 700 million in operating cash flow. If you look at the accumulated operating cash flow, we achieved above SEK 1 billion 2024, which is higher compared to last year. Also looking at the cash conversion, that has improved. And right now, we are at the highest level, excluding the COVID years. This has been done via a continued focus on inventory reduction and working capital efficiency in general. With that strong operating cash flow that, of course, comes from the increased EBITA, but also via positive working capital. And this was achieved even though we had strong organic growth. So the company has worked hard with collecting account receivables and also lowering the inventory. With a strong operating cash flow, we could pay off debt with SEK 450 million in the quarter. So net debt decreased in the quarter, of course, with the repayment of the net debt -- of the bank debt, but we had a negative impact from FX since the majority of the loans are in euro. With a strong EBITA development and also a decrease of net debt, the leverage was 3.2 in the quarter. Net debt-to-equity ratio was just below the internal guidance and ended on 0.9. As said previously, debt is to be reduced via self-generated cash flow. The interest rate in the quarter was 5.3% lower than last quarter, which was 5.7%. And interest cost is expected to continue to come down with the recent interest rate cuts that has been communicated by ECB. So for the coming 2 quarters now, we will see the interest rate going down. We have 2 covenants. Interest coverage ratio should be above 4. It was 5.5 in the quarter, increased since last quarter. And equity ratio should be above 25%, and that was 41% in the quarter. And with that, I hand over to Fredrik again.

Well, thank you, Christina, for taking us through a nice set of financials. And now we dive into a little bit of an overview of what happened in the different business areas, starting with Labtech, of course. Organic currency adjusted growth was 6% in this business area and acquired growth was 3%. So this is, of course, linked to the BonsaiLab acquisition, which we did in the third quarter of 2024, and this remains a very successful acquisition, growing very healthily with strong margins. So very pleased with that. The activity in diagnostics and pharma, as previously communicated, that remains very high and very healthy. We have also seen a slight weakness or hesitation perhaps in the academic research field. That seems to have improved somewhat in the fourth quarter. So a healthy positive development there. This led to, we had really good instrument sales in the quarter, a significant improvement over Q3. So very healthy development there. We saw a lot of deliveries related to recently won tenders that we talked about in Q3 and also finally completing a number of customer projects that we have been working on for multiple quarters now. We also saw a very nice and healthy growth in Eastern Europe, similar to what we saw in last year. So that meant that we were able to finish the year at 14.1% EBITA margin, very high, but not quite as high as the fantastic fourth quarter of 2023. So moving on to the Medtech business area. We had a very nice growth of 11%. So this is driven really by a broad strong performance across all the companies within the group. This was driven by expanding product portfolios. Multiple companies have been taking initiatives to grow into new segments and successfully so, and now we're seeing the results of that. We are also able to take market share driven by this strong product portfolio, of course, in combination, as always, with our very strong service provision. Patient waiting lists have not really come down in the fourth quarter. This is -- this can be a driver for us. But in this fourth quarter, they didn't really come down. So that means there's still a lot of patients waiting for surgical procedures, and this is expected to have a positive effect for us in 2025. And the reason is probably mostly because of the staffing shortage that we see in the health care system really across all the countries in Europe. Also important to note that in December, of course, we had fewer operating days compared to last year because of the Christmas holidays. The EBITA strengthened to 11.6%, which is a significant improvement over last year. And this is driven by healthy development in high-margin segments, but also, of course, efficiency improvement initiatives that we have been taking on and that are ongoing in multiple companies, most notably, of course, in a division, where we have taken some important steps during the quarter, and I feel confident in saying that we are on the right track here. We have taken probably all the major steps that we need to make. And now since a couple of quarters, the main focus is indeed on commercial development, driving the right product portfolio, training our teams, training our customers and focusing on the segments where we can make a difference. So positive development there. Camanio was indeed closed in the fourth quarter as planned. So now as we had expected, costs are completely out in the fourth quarter. And this is a significant improvement for us. As many of you know, this represents about SEK 60 million on an annual basis on the cost line, but also SEK 90 million roughly in improvement in cash flow on an annual basis. So significant improvement there. So moving forward, the priorities we established back in 2023 will remain in 2025 again. And that is to protect and improve profit, to drive organic growth, to improve cash flow, and finally, to drive acquisition in a selective way. I think it's fair to say that we have made solid improvements in all these areas, meaning that we can now increase the activity when it comes to acquisitions, in line with our updated strategy and our evolved processes. So a little bit of a look on market trends might be useful as we enter a new year. We talked about significant waiting lists, and that will mean increased demand for surgical procedures. So this needs to happen. The people and patients waiting for surgical procedures are often in pain. So this needs to be addressed, and we think it will be, but it will take time, and we will be able to support the health care system with that, and this will help our growth going forward. But again, a long-term effect. Staffing shortage is an issue in the health care systems across Europe. And here, we can actually contribute by offering time and resource-saving products combined with a strong service offering as well. So this can really help the health care system to become more efficient. And we'll talk more about that when it comes to the technology side of it. In 2024, we saw some health care budget constraints, I guess, as the health care systems were adjusting after COVID and so on. We do think that this situation will improve in 2025. We see in multiple countries, very targeted and clearly communicated improvement efforts, new resources and funding being put into the health care systems. And again, the value and productivity to get the most out of these resources will be critical. And here, we can certainly help as a company. Finally, large companies in the Medtech and Labtech space are indeed updating their go-to-market strategies and focusing more on narrowing the portfolios and even pulling back from some markets. This offers opportunities for us where we can take on new product portfolios and increase the market share. So moving on. Of course, we are all seeing a bit of a turbulence in the world market right now and the risk of global trade disruptions. This is something that we are keenly aware of, but also something that we feel we are well positioned to handle. As many of you know, our business is primarily in Europe, actually more than 90% of our sales are in Europe. And when it comes to supply, more than 80% of our products are indeed sourced within Europe, 9% in North America and 7% from Asia. This means that we have limited exposure to the disruptions that we are seeing happening right now. So in addition to these general market trends that we have discussed, I also want to highlight 3 quite exciting technology trends that we stand to benefit from. The first one is next-generation sequencing, a technology that's been around for some time in the area of research, but now increasingly moving forward into diagnostics, also an area of strength for us. This market is growing at around 20% per year. We have a fantastic range of suppliers in this field, and we can build on that to drive that business further and also grow it through acquisition like we did with BonsaiLab. Another area, which is quite exciting is robotic surgery. Here, we expect a growth of around 15% to 20% going forward. And we are right now building our portfolio of products and in discussions with a broad range of very competent technology suppliers. This is an area where new technology is rapidly being brought to market offering to improve clinical outcomes and reduce reliance on staffing. So this is very exciting, and I think we are well positioned to benefit from this technology trend. And finally, artificial intelligence, which is an interesting area for the health care system as a whole. Here, we have seen proven improvements in diagnostic accuracy and health care efficiency. We have a number of collaboration partners in this field already, and we can base that on our strong customer relationships, on our thorough understanding of hospital procurement systems and the unique combination of software, products and services. So to wrap up this presentation, I think it's fair to say that the companies in the group finished the year in a strong way, and I really want to congratulate all our team members do a tremendous job. You have done a fantastic job throughout the year and finished it in a very strong way. So well done. Thank you, team. Profitability improvement initiatives are progressing well, and we are seeing the effects in the numbers, which is great. The cash flow improvement initiatives are also yielding results, and this is the effect of a diligent work across many companies to really improve the processes that we have in a very, very structured way. So with this, that we have improved profitability and also been able to increase the cash flow, we have been able to reduce debt, and this gives us the confidence to continue with the acquisition activities that we have been planning for quite some time now. So we will gradually increase our acquisition activity during 2025, in line with the previously communicated strategy. So -- and I also want to say that during the month of January, I've been able to travel quite a bit and meet with many companies within the group, and I'm really impressed with everyone that we have in the team, fantastic customer relationships and solid plans for 2025. So with this, I can comfortably say that we look forward with confidence to a strong 2025. So thank you very much for listening into this presentation. And now we open up for the Q&A.

All right. Hello, and good morning, everyone. So I think we are ready now for questions. So please raise your hand and then don't forget to unmute as we move forward. So, I guess, we start with Charles here, right?

A few questions, if I can, just touching on the various different divisions. First of all, on the laboratory side, it has been reasonably widely reported that the larger equipment or demand for larger equipment sort of CapEx rather than consumables has been quite weak over the last year or 2. You obviously reported a strong result. Do you see that environment changing? Or is that remaining an area of pressure?

Well, I think the large investment, there might be a little bit of a subdued sentiment there. But it's also important to note that our equipment oftentimes is not the biggest in terms of size and the price, so to speak. So this may be worse for larger type of investments. We have seen a little bit of hesitancy as we talked about in the past in primarily academic research. I think it's fair to say that it has eased a little bit. It's not -- the challenges are not over, but it's eased a little bit, I think we saw signs of -- in the fourth quarter here. And also the instrument sales that we saw was quite healthy for us in the quarter. That was also linked to what we talked about in the third quarter, new tenders that we won and projects that we have been working on for some time now and that we were expecting to finish before the end of the year, and that also happened to a large extent as expected. So maybe a little bit lighter environment there, not a dramatic shift, but a little bit lighter, but I think you probably need to differentiate a little bit between the really, really big production-oriented investment versus the smaller, more research-oriented ones.

Okay. Helpful. And on the Medtech side, you said it was -- I mean, it was a really good growth number. You said it was very broad-based. So it's difficult, therefore, to obviously pick out areas of strength, but you said it was broad-based across portfolios. Is there any way that you can sort of highlight areas that are stronger, for example, sort of bigger ticket items or smaller or particular countries? Anything to give us a flavor of what's happening there?

Yes, I think we can say something around that, but it was a broad-based improvement. Pretty much all our companies did really well this quarter. So -- but some things stand out. U.K., Ireland, Spain, Portugal doing extremely well, and we're quite happy with that. These are our new home markets, right, since a couple of years and where we made some significant acquisitions that have done a fantastic job growing the business, very impressive. It is broad-based. Orthopedics and surgery stand out perhaps a little bit extra. I'm also pleased to note that we were growing very strongly in Germany, thanks to the companies we have active there that are taking market share. So that's very good. And it's not an easy market, Germany per se, but I think our team has done a tremendous job there. So that's another highlight. And in Scandinavia, I think we have fantastic positions and continuing to grow in a steady way and strengthening the margins as well. Anything we should add to that, Christina?

No, I think you mentioned the strongest countries.

Just one more, if I can squeeze it in. On the sequencing side, you highlighted that as a potential growth driver. Can I just check, is it more on the sort of sample prep and consumables side that you operate? Or do you have any relationships with any of the sequencing companies themselves?

It's all of the above. So it's sample prep, it's these reagents, but we also provide instruments. We have a relationship with a few key instrument suppliers.

Sorry, is that in like the automation phase or the actual NGS?

The actual NGS. Yes.

Can you say which ones?

Well, we prefer not to. We have a lot of suppliers, but many of the big names that you will recognize. Okay. So thanks, Charles. So we'll move on with the list here. So we have Karl raising your hand. So please don't forget to unmute. Karl, can you hear us?

Yes. Can you hear me now?

Yes, we hear you.

Perfect. So I have a question on the organic growth within Medtech. I mean, it's been quite strong here in Q4. And you say that you expect continued improvement of the, what you say, the surgery activity going into 2025. And I think for the full year, Medtech grew 7% organically this year. I mean, should we expect kind of similar growth for '25? Or how do you see it within the Medtech side?

Yes. We're always cautious when it comes to outlook and put numbers to it. But I think the message here, I think it's -- we don't see a major shift or change in the trends. The trends that we have been seeing throughout 2024 remain. What we can say is that, these waiting lists that have been not really moving in the fourth quarter, they should be addressed. They will be addressed most likely because we have seen quite clear statements from any governments and also with the funds attached to those strong statements of ambition to reduce the waiting list. So I think there will be investments made during 2025. I think that's fair to say. So -- but I don't want to give kind of a number or a range, but we -- the trends persist, and I think we're -- our companies are doing a good job. They're well positioned.

Yes. Clear. And just on the U.K. there, I mean, it came back here in the fourth quarter after a weaker Q3. I mean, new budget here going into 2025 for the NHS. So I was wondering what you're hearing and maybe what do you expect in your largest market?

Yes. Well, it's a big market, and we have a fantastic team there. So -- and of course, with the new government, it's becoming a little bit more detailed now only recently exactly what the initiatives will be and there is an investment in new capacity. There's also the commitment to use the private sector to handle certain types of surgical procedures. So that is getting more firm how it's going to happen. So I think we will start to see some effects of that in 2025. I think that's reasonable. And then, of course, we have the final quarter of the fiscal year with NHS here in Q1. So that will be also normally a positive for us.

Yes, that's good. And then just a question on the number of employees or the cost base, I guess, because I noticed that you have around 100 less employees going out of Q4 versus when you entered the quarter. And, I guess, some of that relates to the winding down of Camanio. But I'm wondering is there anything else there at which -- that is impacting or...

Yes. No, you're absolutely right, Karl. Camanio, of course, is one factor, then AddVision and the fact that we closed down the headquarter last year as well. But then it's more, I would say, shifts between the companies, some leaves, some comes and there might be just between the quarters that there are differences.

Yes. And then a final one from me before I jump in the queue is on the working capital side. I mean, it looks like working capital to sales has come down a bit now. I mean, is it fair? Or can you improve that even more going forward, do you think? Or what should we expect?

You want to answer that?

I think that we are at a good level, I think, right now. And looking at the cash conversion, that is all-time high. So we've done a great job with that. But that is also part of our business model to work with that continuously. So the work will continue, of course, and there's always things to be done on that area.

But we will say that the companies have done a fantastic job. They've taken on this challenge, which is for some companies represent a little bit different way of working, but they've taken it on in a diligent and structured way, and we see gradual improvement step by step. So that's great. So we will continue to focus on that for sure. And so, we have Ulrik as well, right? So let's connect Ulrik here and don't forget to unmute, Ulrik.

Hopefully you can hear me?

Yes, we can.

Great. A few questions on my end. Starting off with Medtech. It now sounds like you are focusing more on growth and less on improving the profitability. Can you just give us sort of -- is that a fair assumption to begin with? And what should be expected in terms of the margin for that segment going forward on the balance of growth versus margins?

Yes. So I think we have worked, as you well know, on a few companies where we've had some challenges. And there, we have reduced cost significantly and so on. So your impression that most of that work is done, and I think that's correct. That doesn't mean, however, that we let go of the margin focus. We always try to do that. So what I think we can expect going forward is indeed investment and continued successful initiatives to grow the business and expand the portfolio into segments that are quite attractive in terms of profitability as well. So this continuous evolution of the portfolio towards more advanced and more high-margin products will continue. But I think the more drastic cost reduction and letting go and discontinuing unprofitable businesses, that bigger part of that work is probably done. So more growth, more evolution into more high-margin products. That's what we will be focusing on. And your final question there, what should we expect in terms of margins going forward? I prefer not to answer that at this point in time. I think we have had a time where we were in the range of 8% to 10% in the Medtech business area. Now, I think we have been clearly improving that. Some of these things we've been talking about for some time now, have not really materialized in the numbers such as the Camanio shutdown and so on. So that -- we should be better than that going forward. Yes.

Okay. Great. And you talked about a global trend or sort of a trend on the manufacturing side focusing less on direct sales and more on their product development. Is this a product-wide trend you would say? And does this also tie into your focus on -- focusing more on higher-margin products versus sort of lesser margin products? And how does this play into sort of that entire thesis?

I think that is a common theme I see -- we see all major manufacturers acting in a similar way, both in -- on the Medtech side, as well as Labtech. So I think it's a common trend. And we see it -- we see multiple examples of it continuously, so to speak. So that means for us, opportunity to take on new product lines, which can be with attractive margins. So that's good. And it may also mean that some competitors withdraw from some markets and we can take market share. So it is a positive trend, and we can form good relationships and good partnerships with some of the leading suppliers in the world. So that's exciting. So that trend is there, and we think it will continue. So -- and it will help us in our effort to bring new advanced products to the market. But we also combine that, as you well know, with smaller and new challenger type of companies that bring new and exciting technology to the market. So it's a combination.

Yes. And since we were like new products to the market and you highlight robotic surgery, there aren't that many companies on the European market with regulatory approval, CMR, Medtronic, Intuitive, like -- have you sort of, a, I know that you don't want to talk about supplier names, but do you -- would you call it that you have more than one of the manufacturers that you distribute? Or have you sort of doubled down on a certain player?

Yes, we have multiple companies that we actively work with. So that is -- there's a lot of -- when you talk about that, there are a lot of examples of companies that we are already working with. But it's a market, if you say, if you will, in an early stage, at least for these new brands, the challenger company. So we have great relationships with many of those. So I think -- and as you know, there are also many that are about to launch products. And so, we think that there's many -- quite many, 80 companies or something like that, that provide various types of surgical systems, robotic surgical systems. But it's also in some niches that maybe the large competitors are not active in yet. So it's coming in many niches and many therapeutic applications. So we're excited about that. But it is early stage for sure, but it's exciting and the movement is quick.

Great. And last question on my end before I get back into the queue. In Labtech for Q3, you talked about slow launch of new products. And then you talked about this being balanced by new tenders being awarded. How like have -- in Q4, have these newly launched products taken off? Or is it just that they're being balanced out by these awarded tenders?

Yes. I think both of those are correct. The newly launched products have picked up again a little bit. So that's good and positive trend there. And these newly awarded tenders that we talked about, they did indeed impact the numbers in a significant way. So that's great. And that's -- and as you well know, these are long-term contracts, right? So that will be a positive effect from that going forward as well. So both of these things are happening as we hope they would. Yes. So let's see what more questions we may have. So it looks like Charles has another question. Is that correct? Yes. Charles? Are you there, Charles? Don't forget to unmute.

Apologies. That's a hand that remained up. But I did have one follow-up. Just in terms of just how the year started, are there any comments that you can make? You talked quite positively about the trends across the whole market. You talked about NHS last quarter of the year typically being quite strong. I appreciate we're early on in the year, but has the year started off as you would have expected?

Well, I guess, we want to refrain from commenting on that. But well, the trends that we have been seeing and the trajectory, there's no change to what we've been seeing. There's no shift in trends or anything like that. Okay. And let's see. We have [ Rickard ] as well. So please don't forget to unmute, [ Rickard ].

I just had a follow-up question on the trend of more companies looking to find a distributor or sort of finding new customer routes. Is it possible to, in any way, quantify the growth from these new players with distribution agreements in 2024? Just trying to get a sense a little bit on what type of growth tailwinds you're seeing from such moves, trying to break down a little bit the drivers behind the growth.

That's a great question. But I think that will be hard to put a number to that. It's multiple businesses in multiple countries and so on. So it is meaningful on a company level and for the group as well, but we haven't disclosed the number.

Okay. That's fair. And then just also a little bit on the sort of portfolio mix. Do you have any initiatives to trim down or slim down some less profitable parts of the business to make room for higher-margin products? Or is it more sort of adding higher-margin products on top? Just trying to get a sense of how you're thinking about that.

Yes. But that's happening all the time, I would say. There was a lot of that going on in AddVision, for sure, discontinuing unprofitable businesses and refocusing and driving newer and more profitable ones. And that process is ongoing within all the companies, but not as drastic, I guess, as in AddVision. So it's a continuous effort. And it's kind of linked to the AddLife working methods that we have. We continuously analyze the different product lines, how they contribute in relation to their costs and we continuously work to evolve those portfolios towards more high margin. So that's -- in all the companies, that's a day-to-day ongoing work that we follow up in each Board meeting and in the management team meetings and so on. The more drastic things we've seen in the past within [indiscernible] and so on, that's not the normal pace or magnitude, but it's an ongoing effort, and we will continue to drive that.

Okay. So a bit more incremental than it sounds going forward compared to...

A bit incremental, but also discontinue certain suppliers, for example. Anything? And then we have Karl again as well.

Yes. One question...

Yes.

Yes. Can you please repeat that one, Karl, because we lost you?

Someone muted me it seems. Now the question is on AddVision and yes, just an update on how it's performing and plans to improve profitability further, I guess?

Yes. So we've taken a few more steps in the quarter that just passed, and I think that was good. So all the major steps, I think, are now taken. And I'm really happy to note that we've seen improvement and stabilization of margins and business in some parts of the business. We have solidified the relationships with key suppliers. That's really great. We are also signing up new suppliers and the team seems to be happy. And so, I think it's looking quite good. But we have some ways to go. I mean, even though the margins have improved, they are far from where we want them to be. So -- but it's now becoming more of a day-to-day gradual work with the customers and suppliers and to get it back to the profitability levels that we like to see. But again, some good and tangible and real improvements there. So very happy with that.

Okay. That's good. And then just a final one on acquisitions. I mean, quite good cash flows, still a bit high debt maybe, but can you give -- just say anything on how the acquisition pipeline is looking? And I think you said before maybe some smaller ones this year, but could be multiple smaller ones? Or how should we see it?

Yes. I think that's a great question. So we are happy to see the debt coming down now net debt-to-EBITDA is 3.2, right? Yes. So that's good. And -- but still some ways to go, as you correctly state, we have stated earlier on that we wanted to be in the closer to 3 or even below that. So we've got some work to do. But we've also said that we're not going to stop everything until we get to that 3 level. We are in active dialogue with a number of companies. So the ambition is to hopefully close one or a few smaller acquisitions this year. And so, we have some good discussions ongoing, and we think the market conditions are pretty good. So yes, I hope we can do that. All right. Thank you, Karl. So let's see. Do we have any more questions? It doesn't seem that way. That's it. Okay. Well, then thanks all for joining our call here today and looking at the presentation and asking great questions. Now, if you have a few more minutes, please stay on to watch a great video of Triolab, which is one of our diagnostics companies. They are doing a tremendous job. So -- and it's a great story there as well. So please stay tuned for a few more minutes. Thank you, and take care. Bye-bye.

Thank you. [Presentation]