BICO Group AB (publ) (BICO) Earnings Call Transcript & Summary

Welcome to this Finwire webcast hosted by BICO. In today's call, we will shed some light on the following topics: information about the leadership change; representation of newly appointed President and CEO, Maria Forss; brief update of the Q2 report; and the goodwill impairment. This will be presented to you by BICO's Chairman of the Board, Rolf Classon; President and CEO, Erik Gatenholm; and CFO, Jacob Thordenberg. If you wish to ask questions, just post on to the right in the section name, ask your question. And by that, I will hand over to Rolf.

Thank you, Isabelle, and thank you for joining us, and welcome to the call this afternoon. My name is Rolf Classon, and I am the Nonexecutive Chairman of BICO since the Annual Meeting in May of this year. Before that, I had very closely followed Erik Gatenholm and BICO for quite some time. And I'm -- I can tell you that I'm very excited and enthusiastic about joining BICO and the BICO team. I have spent my entire working career in the pharmaceutical and health care and life science industry. So I have -- as a customer, I have seen the impact that BICO's product had on developing new products and new drugs. So it's with great, great interest that I joined BICO. Shortly after I joined, Erik Gatenholm approached me and wanted to discuss different aspects of his working situation, some of it related to health care issues in his family. And later on, he also raised the issue with me if he really had the right profile and background for BICO in the next phase of development. We discussed this back and forth, I raised it with my colleagues on the Board and we concluded after a few sessions and after some discussions that maybe this was a good time to listen to Erik and to consider a leadership change. So by the end of June, we actually started a search. And what we were looking for was someone with a profile with a much -- with a stronger commercial operational profile. That search, we found a number of candidates and at the end, Maria Forss, who has been for the last 10, 11 years with Vitrolife, she has been with the company and been part of scaling that company from around [ SEK 300 million ] up to where we are today. Maria has been -- is running currently the single biggest business unit in Vitrolife, the consumables area, with a very impressive growth and performance. She has both the commercial experience, the track record of building a global commercial organization and she has a leadership style that Erik, myself and our colleagues on the Board thought is the right profile and the right kind of background and experience in the next phase. As impressed as I was with BICO and with Erik and the company he had put together, and the amazing product line that we have with fresh, differentiated, unique, very innovative products servicing the pharmaceutical and biopharma industry and the academic sector, I was equally impressed by Erik's maturity and how he himself as a major -- as a single, loyal shareholder came to the conclusion and raised with us that maybe for the benefit of BICO, its employees and its shareholders, now maybe was a time, in a seamless way, to transition into a new CEO. Maria accepted and we offered her the position. Late yesterday after the Board meeting we announced that immediately upon that decision. She will start no later than November 27. That depends a little bit on discussions with her current employer. And Erik, of course, will be with us as President and CEO until that moment. Whilst Maria has joined, Erik has also promised that he will continue to dedicate time to BICO and will continue to serve as a Senior Adviser to Maria and to the Board. So it's a situation with a refresh and strengthening of a CEO with a different profile, but with all continuity also with Erik and his vision for the company now and going forward. So with that, I would like to hand over to you, Erik.

Thank you, Rolf. And before I start commenting on the Board, I can just add my view on what Rolf just said. I initiated this discussion with the Board and the timing for the new President and CEO for BICO is just right. And I'm grateful for the tremendous work the entire team has done over the years building this company and getting it to the size and the level it is today. It's really been an honor serving our customers, investors, shareholders, Board of Directors and the team members. And of course, I must also give my greatest appreciation to Rolf. He has been an extremely supportive Chairman throughout the process. And of course, then in the near term, I'll focus on helping the leadership transition here at BICO. So with that being said, to start off, it's pleasing to see that the Bioprinting and Biosciences business areas showed strong sales growth in the quarter of 14% and 21%, respectively, compared with corresponding quarters last year, especially given that it's a slower market at the moment. We're also delivering stable growth margin of 71.4% excluding effects of inventory write-down of SEK 42 million. We've also signed an agreement to divest the Berlin facility for EUR 21 million, which will strengthen BICO's financial position and is expected to generate a positive cash flow contribution in Q4 2023. And as also announced yesterday, we have a one-off noncash flow item affecting EBIT and EBITDA, resulting in effective EBITDA of SEK 94 million and an effect on EBIT of negative SEK 830 million in Q2. So now I'll hand over the word to Jacob.

Thank you. Well, some short comments on the one-off noncash flow items affecting EBIT and EBITDA. These items primarily relate to goodwill impairment, where we have resolved an impairment need of SEK 768 million in the quarter after conducting our impairment test in the quarter. This is predominantly related to increased weighted average cost of capital, which is due to the higher interest rate environments. In addition to that, we have also revised earn-out liabilities, and we have done valuation of group earn-out liabilities and concluded that we estimate that some of these liabilities likely will not be paid out. Hence, we have reversed the liability, which has a positive effect on our EBITDA of roughly SEK 161 million. In addition to that, we have also done additional write-downs in Ginolis and as we have talked about in previous earnings calls in Q4 and Q1, we have been rightsizing Ginolis to a minimum cost base and organizational level with the ability to still accept new orders and honor service obligations to customers. However, in connection to this then, we have now also done adjustments to the balance sheet. So we have rightsized the organization and now we have also -- and this has caused consequences in our balance sheet and have now adjusted the balance sheet accordingly to the -- in the operations in Ginolis. Next slide, please.

And by that, we will begin with the Q&A session. I just would like to remind our listeners that if you wish to ask questions, you can post them to the right in this section named ask your question. So let's begin. We have a first question here, which I think it's both for Rolf and Erik. Why is Erik leaving right now?

Well, Erik is leaving right now because he himself has come to a conclusion and the recommendation that BICO, where we are now would benefit from a CEO with a stronger operational track record and experience and also a strong and a stronger commercial track record. And Maria Forss has already in her current role she has done exactly the journey that's awaiting BICO in terms of scaling an effective global commercial organization. And it's a lot of credit to Erik that he himself was the one who initiated that and came with this recommendation. Erik, I think, maybe you also should weigh in on why now.

Of course, I can only echo what Rolf says. I truly believe that someone coming in with the right experience, the right toolbox and the knowledge of how to do this very important transition is going to be essential for the future of BICO. And as mentioned in the past, I'm very excited about the company and its future. I'm one of its biggest supporters and I will continue to be in the future. So I'm excited to have Maria come on Board.

There was an article yesterday in [indiscernible] about Erik's compensation and that he will keep his CEO salary as a Senior Adviser. Is this correct?

Thank you for that question. And I'm very glad that you raised that. I have seen a headline flying by that claims that Erik will keep his current CEO compensation as a Senior Adviser. That is not correct. Erik is keeping his current CEO compensation until November 27, when he is still the President and CEO. We are currently in discussion with Erik on his relationship as a Senior Adviser and what compensation that will entail and I would also like to have our incoming CEO, Maria Forss, participate in that because as Chairman of the Board, it's not really my role to set the compensation for an adviser or Senior Adviser to the CEO. So I want Maria to participate in that. Erik is fine with that. And the only thing I can say, I don't want in principle, want to discuss that the level of compensation, but it is quite likely, Erik, and I has concluded that it is meaningfully lower than as the CEO compensation. That's the only thing I can comment on that question, but I'm glad that the question was raised.

Moving on to the next question. With the new leadership change in BICO, what should investors expect from this change?

Well, I can start and then Erik, maybe you can. BICO has an unbelievably strong and differentiated and innovative product line that has been acquired over the last few years. I think today, that from a commercial point of view, I think we can and should be able to leverage this more and to do more. So what you should expect from this is, I think, a strong focus on building up and strengthening the commercial effectiveness of the company. I think also we are moving into the next phase of operationalizing and industrializing the company. Keep in mind that this company was built fairly quickly and the number of very significant acquisition has been made that has resulted in the group that we have today. Of course, it takes work in order to operationalize and industrialize this properly and to get the full benefit of it in the next phase. Erik, I think your perspective on this is also important.

Yes, and I couldn't agree more. I think that the stage that the company is in today with -- again, is very innovative, fresh product portfolio that covers a wide range of segments and application areas, anywhere from tissue printing to sample preparation for a wide range of laboratory needs. I believe that really professionalizing the way that we work with our commercial channels, ensuring that we have the right people in the right place and of course, having the right commercial setup to fully take advantage of this great product portfolio so that we can get it into the hands of our customers.

I think this next question is also for you, Erik. Looking at partnerships, can you comment on anything in your pipeline?

So I generally don't comment on pipelines, but I assume that when you referred to partnerships, you referred to our Sartorius partnership, which we're very excited about and extremely thankful to have such a strong partner in the APAC region. When it comes to sales and distribution of some of our Bioprinting products. I think from that perspective, I believe things are going in the right direction. We're now training each other. We're getting application support to now start getting the products into the hands of great customers throughout the APAC region. So I believe with excitement, we're moving in the right direction.

What risks do you foresee that could impact BICO Group not reaching your goals for 2023? I think this one is for you, Jacob.

First off, we haven't communicated any goals for 2023. We have our financial targets, which is that we are to reach double-digit growth on a midterm basis. So we don't have any goals for 2023. However, any risks, I think, I mainly see is due to the somewhat post-pandemic decline that we have seen in 2022 and also the macro environment. But with that said, we're optimistic about the future.

I think we can continue with one more question here for Jacob. Looking at your sales in Bioautomation, you mentioned in the report that ongoing pandemic normalization impacted negatively. When could we expect these sales numbers to increase?

That's a good question. And as I briefly mentioned that the industry saw, not only BICO, but saw a general increased demand in 2021 in relation to COVID. And now in the second half of 2022, we saw a somewhat of a decrease following COVID or a post-pandemic decline. And how long that decrease will last? I don't think that anyone will know -- knows, but I think we are as well as the industry, quite confident that we will come back to normal levels. When in time that is, I can't predict, but surely we will see the market demand coming back to more normal levels in Bioautomation.

What factors have been driving up the strong sales growth in the business areas, Bioprinting and Biosciences? This is something for you, Erik, to answer.

Yes, gladly. So I believe we're quite satisfied with the sales growth levels in both the business areas. They've performed quite nicely. When it comes to the growth levels and the customer segments, I believe that the academic customer segment continues to be quite strong given the continued funding in exciting areas such as Bioprinting, tissue engineering, biomaterial sciences. In addition, for the Biosciences, there is strong demand coming from larger pharmaceutical companies. And from last year, we've done a quite conscious decision to target more of the pharmaceutical segments as well as the academic segments, which I believe is now bearing fruits.

Yesterday, BICO released 2 major events within 10 minutes of time, why did you do this?

Well, that is probably not a schoolbook example of a good communication plan, and that's not what you would normally do. However, these were 2 very parallel work streams. The work stream where Erik and I had the dialogue that ended up with us announcing yesterday the appointment of Maria was completely independent from the other work stream that was triggered by the closing of Q2, the Audit committee went through together with Jacob and our auditors and financial advisers, an impairment test that is one is obligated to do and all of this came together. We had a full long-day Board meeting yesterday. And at the end of that, we, the Board decided to appoint Maria and shortly thereafter the Audit Committee also recommended the impairment and the write-downs. And that made it mandatory and necessary for us to announce this. Not ideal, not what you normally would like to do, but those 2 events independent of each other were completed basically at the same moment. So that's why it happened that way. Not ideal, but now it's out.

And we have a question here about Maria Forss. When will she be joining BICO?

Well, we don't know other than the latest she will join will be on the Monday, November 27, then it depends on discussions with her and the current employer and the current employment agreement. So sometimes between now and November 27, but no later than November 27, but I can't give a more precise answer today.

I think we're up for the last question for today that we have received and it's about the write-downs. Can we expect more write-downs going forward? Jacob?

Yes. We are required according to IFRS to conduct an impairment test on a quarterly basis if we believe that such need exists. However, how that would look in future quarters I cannot say now. We have done an impairment test for Q2 and resulted in an impair write-down need as per Q2 2023. But how things will look for coming future quarters, I cannot comment on that.

And as I just said, this was the last question for today. We would like to thank you for your questions and for listening in. Wishing you all a great Tuesday. Thank you, and goodbye.

Thank you.

Thank you. Bye-bye.