EuroEyes International Eye Clinic Limited (1846) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for joining us on the EuroEyes International Eye Clinic Limited Webcast Conference this afternoon to review the company's financial results for the fiscal year 2020. Today's representers are Dr. Jörn Slot Jörgensen, President and CEO; and Dr. Markus Braun, our CFO. After the presentation, we will have a Q&A session for you. The result announcement of our fiscal year 2020 was issued just after market closure on March 17 and is now available on the EuroEyes' website on www.euroeyes.hk. Before we begin, let me quickly remind you that during the course of this webcast, the company will make forward-looking statements. We caution you that any statement that is not a statement of historical fact is a forward-looking statement. This includes remarks about the company's projections, expectations, plans, beliefs and prospects. These statements are based on judgment and analysis as of the data of this webcast and are subject to numerous important risks and uncertainties that could cause actual results to differ materially from these described in the forward-looking statement. Except as required by law, EuroEyes assumes no obligations to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so. In addition to supplement the IFRS numbers, we have provided non-IFRS adjusted numbers in constant currency. We believe that these non-IFRS numbers provide meaningful supplemental information and are helpful assessing our historical and future performance. A table reconciling the IFRS information to the non-IFRS information is included in today's presentation. Following our presentation, we will open the line to questions from participants. [Operator Instructions] We thank everybody in advance for their cooperation with this process. And now I would like to introduce Dr. Jörn Jörgensen, our President and CEO. Thank you.

Yes. Thank you to Jannik for his introduction. Yes, ladies and gentlemen, welcome here to our yearly conference call to our announcement of our financial report for 2020. I'm very happy to welcome you here from Hamburg, and I'm also very happy to show you our very good numbers. On the first slide, you see here our total revenue. We have an increase about 10% against the year 2019. The adjusted gross profit grew by 18.3%, and our adjusted net profit grew 40% to a total of over HKD 70 million. I think remarkable is here that we grew 10% by EuroEyes Clinic in this fiscal year 2020. When we saw the global market in refractive surgery, they have a decline of 21%. So we were really against the trend in a positive direction. So we are very proud about that. Next slide. What were the factors really that we performed so strongly despite COVID-19 pandemic? I have put up here 4 possible reasons for that. First of all, people stayed at home offices. They stayed at home, and they have time. They have a lot of spare time. Point two was people were cash-rich. They couldn't use their money on vacation or on other things, so they had the possibility to use the money on themselves, and we know that this played a big, big role. Point three was mask and complaining about foggy glasses. This played an even bigger and bigger role, people outside the door with the mask, they have foggy glasses, and this is a big, big strain. And last but not least, we have the impression that all these Zoom conferences make people very, also, complaining, and this was also a reason. Next one. I have here the gross -- the group revenue development in 2019 and 2020. And you see here in the -- on the right side, Q1 and Q2, we had -- well, we had a stagnation. But the reason was -- for that was a very hard lockdown in China and also sometimes -- and also in Germany and in Denmark. This hard lockdown that, really, we couldn't open up our clinics, so we were not able to perform businesses. In the Q3 and Q4, you see -- saw a big, big rebound, especially in Q4. And you saw here in Q4, we have a 20% increase of revenue in contrast to Q3 and also to Q4 in 2019. Next one. I have here revenue country-by-country. You saw here, again, in Germany, we have, on year-on-year, a growth of about 14.9% in contrast to 2019. In China, we had here a small decline, and it has something to do with the hard lockdown we saw in the beginning of 2020. And in Denmark, we had here increase of revenue over the -- almost 20% in contrast to 2019. Next one. We have put in here something what we find is very important that you understand our businesses. We call that the capacity utilization rate. It has something to do with which capacity do we have in our clinics, which capacity do we have in different countries. And you see, in Germany, we only, in 2020, used our capacity of 24%. So we have a lot where we can have more capacity to do more operation: in China, 21%; and in Denmark, 21%. So you can see with this about 20%, we generated a revenue on HKD 473 million, a gross profit margin of 45% and a net profit margin of 14.9%, and we had a net profit of HKD 70 million. Next one. I have put in the next thing here. We have -- that's one of the highlights of today. We call it the new normal of 2021. The revenue in Q4 was very big. And we saw here that we, in Q4, had a net profit of HKD 35 million. And this Q4 that made -- when we say the whole year of 2020, we had HKD 70 million, so alone, the Q4 made more than 50% of our net profit. And also for generating this 50% of the whole year, we only need to use 5% more of our capacity, which then totally 28%. So we have still a lot of room to expand our capacity to 100%, what you can see here, as we only used 28% of this. So we think for the future, the new normal is very much to see in Q4. We expect Q4 may be the new normal for '21. Next one. We also have looked into the profitability of our competitors in Asia and in China, what you see here, very good. We have 5 competitors, and we saw the profitability index of the different clinics. We put them all together in 1 line, and you see here the blue line, the thick blue line that EuroEyes is very profitable in contrast to our main competitors in Asia. Next one. How will it go on by EuroEyes in the future? How will it go on in merger and acquisition and organic growth? We have put up something here. We expect to grow by new centers in Germany 2 and by new clinics in China by 2. And what you have seen more, we wish to even more expand our -- we have a big capacity in our existing clinic. About 28% is only used, so we wish to grow in this way what we saw what happened in Q4. It will have a big effect. And also, in acquisition, we expect to do merger and acquisition in Europe, where we will acquire eye clinics in Europe, and we would also like to do acquisition of hospital to broaden our scope of services to be that we have a bigger fundament in our scope of services and also to have a capacity and acquire inpatient treatments, which would give us much more possibility in education and training of our EuroEyes' surgeons. Next one. What happened more in 2020? We saw -- in every month, we saw that our bookings, our consolidated bookings made an all-time high in every month. And this is a very -- you can see a precursor that's what's coming in the pipeline. The bookings are very, very important, while they signal what to come in the form of operations. So this is a very positive sign we saw in the whole 2020 into '21. And we have shown it here, number of consultation bookings in 2019. 2020, we had a dip in March and April, which signals the very hard lockdown, and you see '21 has begun very solid. Denmark, we forgot a little about Denmark. In Denmark, we are just finishing our new flagship clinic. It will be in the former Olympic Stadium of Denmark. And it will have huge -- you see on the left-hand side, our CAGR in revenue, it's growing very solid by 28% per year. And to be able to increase even more operations, we have decided to go into this new flagship clinic, will be finished this year in '21. Also in China, we have -- we will make, hopefully, a cooperation with iKang Evergreen group. We're hoping in this way to being able to introduce more consultation services in the iKang Group Beijing starting in Beijing, and in this way, get entrance to much more operation. When this will work good in Beijing, we will elongate and broaden that to iKang clinics in Shanghai, so iKang clinics in the Southern Shenzhen and Guangzhou. So we hope here to establish a very good future cooperation. Also, Chongqing. Chongqing has been on the way for a longer time. We were stopped during the pandemic. We couldn't do it, but now we will open our Chongqing Clinic in April '21. I have made here a little timeline, how long it -- who started in '19, and then we had the hard lockdown. We couldn't get the workers in to finish the clinic. So we will get the medical license in March this year and hope to do the first operation in April.

Good morning, ladies and gentlemen. Let me introduce myself. My name is Dr. Markus Braun. I'm the CFO of the EuroEyes Group. And following up on Dr. Jörgensen, I would like to give you a little bit more insight on our financials. To give you that overview again, I would like to focus here on the right-hand side, where we see the increase in our adjusted net profit margin from 2019, 11.7% to our, let's say, new normal Q4 2020, where we reached 23.2%. And I have to say, I'm very proud of these results in the COVID situation, where we have realized this huge increase despite the fact that the whole refractive market, according to industry studies, is going down more than 20%. If I look at the revenue by geographical reasons and by our types of surgeries, we clearly see how much the different countries are affected by COVID, but we also see how we are hedged between Europe and China. Germany has grown 15%, Denmark has grown 20%, while China, with 2 months of hard lockdown, with our clinics closed for 2 months, went down 4.7% in 2020. In contrast, type of surgeries, all of our surgeries increased. Revenue in refractive laser surgery went up 6.8%; ICL, 16%; and lens exchange surgery, 13%, again, showing that we are able to grow in all areas and also showing that we focused on the more expensive surgeries in ICL and lens exchange surgeries. If we look at the number of surgeries itself, again, we have grown 10%, in line with our revenue growth. And again, just to remind you, the refractive market itself, according to industry studies, went down 20% in 2020. And we were also able to keep our prices stable and by moving to more profitable surgeries in ICL and lens exchange, we were able to increase our gross profit margin as well. Looking at our gross profit, gross profit margin, very decisive is the development of our cost of sales. One effect we see is from the higher utilization of our clinics, what Dr. Jörgensen already elaborated on, that we see that on the cost of sales side, we are also able to control our costs. The higher utilization of our existing clinic does not lead to an increase in the cost of sales in the same ratio, but we only increased our cost of sales by 3.1%. Main driver here is the salaries and doctor fees, but all the rest is more or less staying stable or even going down. What I'm very proud of is actually the very low increase in the raw materials and consumables that are more or less our variable cost for doing surgery, and we were able to negotiate some very favorable prices with our biggest suppliers to keep down the growth of the raw materials and consumables to 4.3%. Overall, gross profit margin now has reached 45%, up 18% from 2019, nearly our 5-year CAGR of 26%. And again, all this happened in a COVID year, where we have seen the market going down actually. On the selling expenses, I would like to elaborate a little bit more because what we have seen in 2020 is a decrease overall in the group from 15.6% to 13.7%, mainly driven by Germany and PRC. We made better use of our marketing strategies. We have optimized our patient acquisition process. And what also helps us is the word of mouth. For every patient we acquire by our marketing activities, there are 3 or 4 more coming by word of mouth, and that also helps us broaden our patient base. If we look at the steep decrease in China, that's mostly a result of the fact that in 2020, we opened up 2 new clinics with a lot of marketing expenses necessary there. And now we are seeing the fruits of that, that in 2020, especially our clinic in Beijing East went very, very well. And also in Germany, what I said, with this word of mouth, we were able to keep our marketing spend over -- total marketing spend even lower than in 2019 and that resulted in marketing expense ratio of 5.1%. And finally, looking at the net profit after tax, we see that we have increased to HKD 70 million adjusted net profit after tax, 40.4% more than in 2019. And again, half of the HKD 70 million were made in the fourth quarter of 2020, with nearly HKD 35 million in the fourth quarter. And also, when I look at the 5-year CAGR of 43.5%, that is -- it's the fact that in 2020, we reached this CAGR nearly despite COVID, despite the general decrease in the market. And that also shows the strength of EuroEyes that we were able, even in this difficult market situation, to grow in this kind of way. Thank you very much.

Yes. Many thanks to Dr. Braun for presenting the financial numbers. I would like here in the end to make a short summary, a small takeaway from the most important information for today. We are very proud to grow 10% in revenue in such a market, where the general market in refractive surgery globally have declined by 21%. So thanks to our staff, and thanks to our people. Point two, as we also find it remarkable and we have called that the new normal, and here I'm focusing on Q4. We found it very remarkable and very takeaway message that we were able to generate half of the net profit in Q4. So you can say half of the 70 -- more than HKD 70 million, HKD 35 million was generated in Q4. And this may signal something to come, and we saw also the net profit margin rose by 14% to 23%. And that has totally something to do with our capacity rate. We are, at EuroEyes at the existing clinic, able to easily grow and in this way, really, get a higher profit rate and get a much more solid profit, net profit. And I would like today to thank Jannik, I would like to thank Dr. Braun, and I would like to thank all of you for your attention today. And we are open for questions. Thank you.