ADDvise Group AB (publ) (ADDVA) Earnings Call Transcript & Summary

Welcome to ADDvise Group Q2 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Staffan Torstensson; and CFO, Johan Irwe. Please go ahead.

Thank you, operator, and good afternoon, everyone. Our performance in the second quarter was in line with our expectations across revenue, earnings and a bit stronger when it comes to cash flow. We saw a strong momentum in our lab equipment and clinical trials business, which helped offset the tough comparison to last year's Q2 when we benefited from several large clean room orders. While the macroeconomic environment remains uncertain with rising geopolitical tensions and the new tariff developments, the market we operate in are holding up relatively well. That said, we are seeing some softness in large CapEx-related sales cycles. We are also experiencing a headwind from the recent strengthening of the Swedish krona, which has impacted our top line and earnings through translation effects. Looking ahead, our focus remains clear: to continue pushing our acquisition strategy and to deliver sustainable value creation for our shareholders. With that, let's take a closer look at our Q2 numbers. Our net sales came in at SEK 396 million, which took us to a year-over-year growth of 4% adjusted for FX, and minus 4%, including FX. EBITA came in at SEK 61 million, in line with last year's SEK 62 million, which take us to a margin of 16%, slightly stronger than last year's 15%. Looking at the cash flow from operation, it came in strong at SEK 17 million compared to minus SEK 19 million last year. During June, we finalized our new finance structure -- financing structure. We have now added proper bank financing combined with bond financing at better terms. If we apply the new financing structure for this quarter, our pro forma net profit will be more than double what is reported. The pro forma figure will be the SEK 23 million and compared to the reported of SEK 10.8 million. Net leverage came in at 3x. Having a bit more closer look to our new financing structure. Gross debt reduced with approximately SEK 480 million. Our old SEK and U.S. bonds was partly refinanced with new SEK bond of SEK 800 million with a margin of 350 basis points over STIBOR. A new bank facility with a total of SEK 450 million with the U.S. term loan of USD 15 million and an RCF of SEK 300 million. All in all, we have reduced our annual financing cost with approximately SEK 56 million, 2/3 comes from lower gross debt and 1/3 from better terms, meaning lower interest margins. The capitalized transaction costs going forward will be about SEK 6 million a year, which is SEK 15 million less than the previous structure. This will just affect the net profit, I mean no cash flow effect. Coming into the commercial and operational highlights of Q2. We saw a stable business momentum in both Healthcare and Lab during the quarter. We continue to focus on efficiency initiatives to make sure that we are maximizing our potential to create shareholder value. Managing working capital is one of our top priorities. During the quarter, we saw cash flow increase compared to the same quarter last year. In terms of geographically, approximately 42% of our sales in the quarter came from Europe. And second largest market is North America and the third is South America. Looking at our sales by product category. The top 3 for the year are laboratory equipment 41%, followed by medical consumables of 33%, and medical equipment of 21%. High activity in laboratory equipment and also in clinical trials U.S. On the topic of tariffs, the direct impact at -- I mean, Level 1, referring to products manufactured outside U.S. and imported for sales in the U.S. is relatively limited. We have stated before, and we -- it's the same at this stage, it's SEK 30 million to SEK 40 million. Most of our U.S. based companies both manufacture and sell their products domestically within the U.S. market. That said, we do rely on certain components sourced internationally for our U.S. production. The positive aspect is that our products are essential in nature, designed to extend, improve or even save lives, which provides a certain degree of resilience regardless of broader trade dynamics or geographical tensions. Splitting ADDvise Group into Healthcare and Lab and looking at Healthcare, our sales came in at SEK 235 million in the quarter, an organic growth of 1% FX adjusted and minus 8% non-adjusted. Looking at the first 6 months, we saw an organic growth of 1% and 6% FX adjusted. The Lab segment reported sales of SEK 161 million for the quarter. Organic sales came in at 3% and 8% FX adjusted. Looking at profit margins. Healthcare came in at 15% EBITA margin and Lab came in at 21%. Lab delivered a strong margin, and I would say Healthcare came in at a stable level. Looking at net sales by geographic. For the Healthcare segment, North America continued to be the key market with roughly 51% of sales. And we don't see any big changes going forward. Having said that, Europe has a good development. In the Lab segment, Europe is the largest market followed by the U.S. We remain focused on profitable growth, stable returns and maintaining a well-balanced debt level, all underpinned by the execution of our acquisition strategy. A strong emphasis is placed on EBITA growth and return on capital employed as our key financial performance indicators. EBITA growth will be driven by a combination of organic expansion and strategic acquisitions. Our long-term target is to double EBITA every 5 years. Dividend remains part of our long-term financial framework, but distribution will be considered once all other long-term financial goals are at satisfactory levels. We are committed to maintain a maximum of net debt level to EBITDA ratio of 3x, while the dividend remains part -- I mean the dividend will come into play when all the others of our long-term financial goals are met at the sustainable and appropriate level. I'm now handing over to Johan to take you through the group's financial performance.

Thank you, Staffan, and good afternoon all. I'm happy to be here today and take you through the numbers for the second quarter of 2025. EBITA, which is ADDvise's main key metric for measuring profit, gives a fair view of the financial performance of our company. EBITA is defined as operating profit before amortization, impairment expenses and revaluation related to acquisitions as well as nonrecurring items. EBITA is our key metric from this year and figures in this graph have been historically adjusted for the new definition. EBITA in the second quarter amounted to SEK 61 million, which corresponds to a margin of 16% or 15.5%. Both EBITA and EBITA margin are in line with the same quarter last year. As we have pointed out in earlier quarterly reports, 2024 faced tough comparables from 2023. However, the individual quarters of 2024 should be considered a normal level of profit, which means that from Q4, we are now on a normalized level of sales and profitability on a rolling 12-month basis, which is confirmed by this quarter as well. And for the last 12 months, EBITA amounts to SEK 267 million, which corresponds to a margin of 16%. Moving on to cash flow and capital efficiency. On this slide, when we talk about cash generation, we look at the underlying cash flow generated by our companies with deductions from changes in working capital as well as depreciation and investments in our asset base, including lease payments. And in the second quarter, we see a moderate working capital build of SEK 4.8 million. And working capital efficiency and optimization is and will always be a key focus area for us and our companies. Depreciation include depreciation on fixed assets as well as depreciation on right-of-use assets related to leases. And the net between depreciation leases and investments is SEK 2 million, indicating higher new investments than the depreciations on existing assets, mainly driven by production efficiency investments in our South American business. Total cash generation from operations in the quarter was SEK 54 million. Relative to an EBITA of SEK 61 million, we consider this a solid level of cash generation in the quarter. Return on capital employed, which measures profitability and how efficient we use our capital, was 12% in the quarter. And from this year, this metric is one of ADDvise's long-term financial targets where the long-term goal is 15% return on capital employed. Moving over to financial position. Here, our long-term net leverage target is 3x net debt over EBITDA. And in the quarter, net leverage was 3.0 EBITDA. And the issue -- the rights issue was finalized in April and added SEK 457 million before transaction costs to the company. It also included a warrant that could potentially add an additional SEK 172 million in Q1 2026 if fully exercised. As Staffan mentioned earlier, the new capital structure with bank financing and bonds at better terms will reduce our yearly interest expenses by around SEK 56 million compared to the old financing structure. Available liquidity is good. Cash at the end of the quarter was SEK 140 million with an additional SEK 111 million available in unused credit facilities. And that was all for me. I will now hand over to Staffan for some closing remarks.

Thank you, Johan. I will summarize and give you our takeaways from Q2 before we open up for questions. Organic sales, minus 4% and plus 4% if we adjust for FX for the quarter. EBITA on a stable level despite the FX headwind. Production and operational expenses in the same currency as revenue. So this has a good effect for us. Cash flow, solid cash generation. New financing is done, bond refinancing at better terms and bank facility. All in all, better flexibility and lower financial costs. On the acquisition side, we continue to work on a couple of interesting opportunities. As said before, it has to be right. We are not stressed, meaning that we look for very good quality to a reasonable price tag. With that said, we open up for questions.

[Operator Instructions] The next question comes from Philip Ekengren from ABGSC.

So first Staffan, just a quick clarification. The direct impact from tariffs. I know it's limited, but you said SEK 30 million to SEK 40 million. Is that an annual number, is that correct?

Yes.

Yes. Perfect. Good. Okay. So let's...

Philip, make sure that this is -- I mean, that's Level 1, right? And I also stress that there is another level. Yes. Okay, good.

Sure, good. Now let's look at the sales growth because both segments seem to deliver organic growth and kind of in line with expectations if we look past the currency effects. But could you please give some color on that? Are there any particular companies or subsegments that are performing well or worse, if that's the case?

Well, as I said, I mean, laboratory equipment did very well. Clinical trials U.S. was also performing very well during the quarter. And I would say the remaining is delivering on a stable level. So I mean there is no really surprise on the downside.

That's good to hear. And what's the -- what would you describe the visibility as? Could we expect continued growth? Or should we see -- I mean you talked about some larger CapEx projects being a bit suspended or at least are more hesitant. But could you say anything about the visibility?

I mean it's, of course, very difficult to look into the future. But I mean, looking at our orders and if we then adjust for FX and also adjust for our -- I mean the big clean room orders that we had last year, I mean we are more or less flat to a bit positive. So I mean that's a good indication that we are still growing, and we are still set for growing.

Sounds reasonable. The Lab margin surprised me somewhat. I know it can be volatile. But what can you say about -- because you say kind of that Lab also surprised you a bit. I got that impression at least. But what can you say here? What do you think about the margins for the rest of the year in terms of volatility and a kind of normalized level? What do you think is reasonable here?

From quarter-to-quarter, of course, it's difficult to -- and it can be volatile. But I will say that Lab is performing where they should perform. So -- but having said that, I mean, we are pushing for even higher margins. But as you also know that there is a bit of project-related business in Lab, which can disturb the picture a bit.

Sure. And then finally, I was reading the prospectus from the 11th of July now from the bond prospectus. And it states, and I'll quote here that you're involved in a dispute regarding an earn-out claim amounting to approximately EUR 6 million. Could you give any color on that at its current state? What is that about? And what should we think about it going forward?

It relates to also, if you recall, we had this big clinical trials Europe, which had one order that got -- a contract that was terminated. It was supposed to run for 3 years, and it got terminated year 1 due to the client was not able to recruit sufficient number of patients. So what happened there is that we received all cash -- all sales on that contract in 1 year. And that, of course, affected the performance of that company. So I guess, that's relating to that, and we are in talks with them. But we have a clearly other view in terms of how we should deal with that when it comes to earn-out calculation.

[Operator Instructions] The next question comes from Christian Lee from Pareto Securities.

My first question is regarding the market hesitation regarding larger CapEx investments. Do you see this affecting both Healthcare and Lab?

I would say it's mostly Lab, and that's maybe a bit contradictory because Lab was performing good, I mean in terms of laboratory equipment. So I'm not saying that it takes longer time, that is my feeling.

Okay. And the EBITA margin on a rolling 12 months was 16%, which aligns with the level of 2024. Is this the normalized level we should expect going forward? Or do you see any headroom for improvements given your comment about the Lab being at the healthy level and the Healthcare being at stable margin level?

Christian, we are always pushing for higher margins. So I mean we are not satisfied at all. But we say that there is, of course, as you -- from quarter-to-quarter, 1 or 2 percentage. But it's extremely difficult to line out if it's a stable level or where it is. But I mean, it's clear that the companies now are operating well, and we can continue to do that even better, which then will result in even higher margins. I mean we have a clear target that we would lift the margins above 20%.

All right. Given that EBITA for the first half of the year is down 3% year-over-year, do you still expect to reach your new target of increasing EBITA with 15% this year?

But that will -- I mean, we need to do a pro forma and need to do an acquisition. I mean stand-alone, where we are now, it will be tough. And as we have said before, I mean the 15% growth will be -- I mean will be -- must be helped by acquisitions.

Right. And you also commented that you saw a good acquisition opportunities at attractive valuations. But given that your net debt leverage is at 3x as of Q2, do you expect to continue your consolidation strategy this year? Or will you focus on decreasing the debt ratio first?

I mean, we are -- hopefully, we will succeed to do both, even though that's a tough thing. But we will continue and we're looking into acquisitions. You never know when you can actually close the acquisitions. So we are working with a couple of opportunities as we speak. So we have a clear ambition to do so, to do acquisitions. Having said that, of course, we need to have a healthy debt level going forward.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Thank you all and have a continuous good day and a good summer. Thank you. Bye-bye.