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

Dear shareholders, dear future shareholders, I would like to welcome you to the 2022 interim results presentation of EuroEyes International Eye Clinic Limited. Thank you very much for your interest in our company, and I hope that you find the next 30 minutes well spent. My name is Dr. Markus Braun, I'm the Group Chief Financial Officer of EuroEyes. Before I hand over to Dr. Jörgensen, I would like to draw your attention to Page 2 of the presentation. Please read the disclaimer carefully. Dr. Jörgensen, please give us an overview on the company performance of the first 6 months 2022.

Thank you, Dr. Braun. Ladies and gentlemen, my name is Dr. Jörn Jörgensen. I'm the CEO of EuroEyes International Group. I'm here today to show you our interim report from the first half year of 2022. You know all of us, 2022 was a very difficult year. We had the pandemic. We had the war in Europe. We have financial crisis. We have high interest rate and so on. So we had a lot of things in the first half year for a group like EuroEyes. But anyway, I'm happy to present you the data today, and on the first page, you see here our total revenue for the first half year of '22, it was HKD 315 million. It was, let's say, a reduction comparing the first half year of '21 of 1.3%. Adjusted gross profit, we had HKD 144 million, and it was a reduction of 11.7% comparing to 2021 with a margin of 45.7%. And adjusted net profit after tax, it was HKD 53 million. It's a reduction of 28%. But don't forget we had the record year in 2021, where we have the record numbers comparing the all-time high in the EuroEyes Group. So you see here reduction because of the well-known reason. Next one. One of the reason has also been the very strong U.S. dollar. The Hong Kong dollar is tied to the U.S. dollar. So of course, it will follow that point to point. We are -- our accounts are in Hong Kong dollar, so we have felt that very painfully, and we have seen here a reduction in this year of almost 8% to 9%. So this has had a really high effect on our numbers. When you see it adjusted -- next one. When it adjusted in terms of the fluctuation in the Hong Kong dollar, you see here, we had an increase in total revenue of HKD 345 million and only a reduction in 3.4% in adjusted gross profit and 21.6% in net profit after tax. Coming a little back to the reason we have this reduction. Of course, China was very -- had a big impact because we had the totally locked down in Beijing and Shanghai and also partly locked down in other cities like Shanghai, Guangzhou. And all clinics was affected in a way or another. People could not travel that they used to do. We have many people coming from outside the big cities. So we had an impact there. And you also see that here on our revenue when you compare that here in China, you see a reduction from HKD 36 million to HKD 53 million. Going to Europe, you must imagine because of COVID-19 all European has not been in holiday for more than 2 years. It was forbidden, and it was difficult to call -- before that time to go in holiday. So this year, from the beginning of the start of this year where the restriction was lower and people were allowed to travel on holiday, we saw a huge impact on people going to holiday. And we've, of course, felt that in our daily businesses. At the same time, we also had many people who were hit at COVID, who couldn't come, make cancellation of their operation and was hit in this way. So we had many cancellation, and we have expectation that this patient will show up later this year. Going to the next one and going to Copenhagen. Copenhagen, again, our flagship clinic, which were in construction this year were also severely hit. It was hit because of corona. The construction companies couldn't finish that in time. So we almost lost in the first half year of '22. We almost lost 2 months, and of course, you can feel that. You can see it here in our revenue, which also declined. And -- but we expect a rebound. We are expecting a rebound in the second part of the year. We already see that a little in our numbers, what we already see now, July and August. And the rebound is, of course, because of the strict lockdown in China is -- has become lifted. We see the numbers is growing. Also in Denmark, clinic is opening, and people suddenly will get back after the holidays here in Europe, and we hope to see a big rebound in the end of -- the second part of this year. Very happily, again, EuroEyes implanted most trifocal lenses worldwide. It's a 7 year in a row that we have this award from Zeiss. So we are a company. You see that also in terms of revenue. We -- a big part of our revenue is lenses and [indiscernible] or presbyopia play a big role in terms of revenue in our businesses. And also when you are going here on the other, the ICL is also a big part where we this year awarded from STAAR Surgical, having put it in implanting most ICL in Germany. You know all of you, we took over London Vision Clinic. It's in actually January, and we had here a strict business plan together with the former owners, and we are -- they are following this business plan. We are in line. We are in line in terms of revenue target and in terms of EBIT targets. Business is going very well in London. And when we are going to the strategy forward to 2025, you can see here -- next one, a little here, what have happened. We opened up Chengdu in the second part or the first part of 2022. Copenhagen, the flagship clinic over there, have opened the doors, and they are doing full surgery there right now. We will open up in London, the second EuroEyes Clinic, we hope in the beginning of next year is under construction right now. We have signed the lease contract, and it will be a Knightsbridge, where you've the Harrods -- big store Harrods, and we will be almost a neighbor to Harrods. So we are looking forward to that. Hong Kong, we have plans to go to Hong Kong in the city of Hong Kong. You will hear more about that. And we have Beijing and Shanghai to have consultation centers, and we will open. We are constructing right now 3 clinic in Germany in Wiesbaden, in Baden-Baden and Kiel. It will all be 3 clinics where we also will be performing surgery. Here, the clinic organic growth here with Chengdu. We took this retail store principle in Chengdu, and this is fantastic to see where you people can go from the street and enter our shop, and we have free marketing. So this is the way we will go also in Hong Kong and already what we did in Knightsbridge in London. It's also a retail store where we are on the Brompton Road and many people see us every day. So what's more new. I told you, flagship clinic in Copenhagen. It has started. We have here good marketing, and we will -- we are sure we will outperform in the second part of this year because we now have 3 operations address. So we can operate it in 3 rooms, in 3 address in the new clinic. So we will higher our utilization capacity rate very much. Knightsbridge. I told you, Knightsbridge is on Brompton Road, and that's next to Harrods, and we see here London to be a very good place to do presbyopic treatment. And I expect that we -- with our experiences we have in the area of that presbyopia really can contribute to the market in London. And the 3 clinic in Germany, which will open that would be really nice clinic. We have signed a lease contract in all these 3 locations, as you see here, Wiesbaden, Baden-Baden and Kiel. And this will -- that's in very rich cities in Germany, and it will all be very well equipped and no consultation center is these 3. They are all clinics where we perform surgery. We got this year our advice report. We have also announced that. We got here 2 new members. We got Dan Reinstein, who is my partner in London, very famous, well-known. And we got Professor Auffarth. Professor Auffarth is leading professor at the University Eye Clinic in Heidelberg. So he will also support our advisory board. So I think here when you see all these gentlemen also here with Professor Yao Ke, who is the President of the Chinese Ophthalmological Society, I have very many good specialists who can support me in daily trends, which way to go medically in ophthalmology. And it's ended also up this year in a 3-party mutual agreement between EuroEyes, between the University Eye Clinic of Heidelberg and between the University Eye Clinic in Hangzhou with Professor Yao Ke. Very shortly, it will end up in -- it has been signed. It has been approved from the government in China, and naturally, also from Germany and end up in that Professor Yao Ke and they will identify very smart and good Chinese doctors, and they will go to EuroEyes and so University of Eye Clinic in Heidelberg for doing the PhD. At the same time, we have talented German doctors who will go to Hangzhou and do cataract surgery. As we have got the allowance to do the training at the University Eye Clinic in Hangzhou. So we hope in this way, really to, let's say, to get in contact with smart and good Chinese eye doctors for our clinics in China or in Europe. And we hope also it could attract good German, English, Scandinavian eye doctors who wish to go to China to, let's say train even more in cataract surgery. Something where we know which will come this year is that we will start to introduce PRESBYOND. PRESBYOND laser surgery into the EuroEyes Group. PRESBYOND is something developed by Dan Reinstein, and it is used a lot in our English or London Vision Clinic. They are treating presbyopia by way of laser. They are not only treating that by lens exchange, trifocal lens exchange, but it's only treating that with laser. It has been implemented by Professor Reinstein, and we are introducing that in the group now. We will go on air with that in China now. So we hope, especially we can attract many of the younger presbyopic patients, who are a little too young to get a lens replacement. And we hope to attract them and could offer them these services. We hope to attract from our competitors who are not able to deliver the service yet. So I think we can say, in the end, China is on track. We have seen that July, August, [ pandemia ] and opening. Many people are coming back to our clinics who wish to have performed their -- clean their eyes, but they couldn't do during the lockdown. So we are confident here. So I will give the word now to Dr. Braun about our financial overview. Dr. Braun?

Okay, Jörn. Thank you very much. Thank you very much again for your attention. I would like to give you a little bit more details on the financial development of the group. And I still remember when we had the press conference for the full year results 2021, I said, we were quite positive on the outlook at that point in time, not aware of the new corona variants, which would lead to the static management in China, which would also lead to a lot of COVID cases here in Germany and in Denmark. And Dr. Jörgensen already said what was happening here that we had to postpone the opening, for example, of our flagship clinic in Copenhagen for nearly 60 days. With all that in mind, still the numbers, I think, are still very, very impressive, not matching the record year or record half year of 2021, but still, the revenue is up to HKD 315 million. And as we already said, if I correct that for the currency fluctuation taking the same FX rate as for first half 2021, we are seeing even an increase of 8% on the revenue side. While on the adjusted gross profit, we still have the very, very healthy margin of nearly 46%, reaching HKD 144 million adjusted gross profit. And also the net profit after tax, the adjusted net profit after tax margin is still at 17%. Yes, it is down compared to the first half 2021, but I think that's more than understandable with the strict COVID measures in China and the effects we have seen here in Germany. If I break that down a little bit the revenue side, Dr. Jörgensen already said about the type of surgery. Whereas a refractive laser surgery is contributing the smaller part of total revenue, while lens exchange surgery is still leading and together with ICL, making up 55% of our revenue. So the lens surgery overall is the revenue contribution -- the top revenue contribution for the EuroEyes Group. And if I look at the geographical breakdown, we immediately see the effect of the first time consolidation of the London Vision Group. U.K. contributes 18% to the total revenue of the group, and this 18%, as Dr. Reinstein is the inventor of PRESBYOND, laser treatment of presbyopia, these 18% are almost all of them are refractive laser surgery revenues. China is at 15%, Denmark at roughly 10%, and Germany still our biggest country, even with the purchase of London Vision Clinic contributes 57% to our revenue. If I take a little bit closer look to the revenue development in the countries, we see that all countries suffered from the COVID effects. We have seen in the first half of the year. Revenue in Germany is down to HKD 180 million, revenue in China is down to roughly HKD 49 million and revenue in Denmark is roughly at HKD 30 million. What I would like to say is, with the positive numbers we have already seen in the first 2 months of the second half in July and August, which is almost done and also with the fact that we see a declining number of COVID cases in Denmark and in Germany. Let's say, there are nearly no restrictions left, we think that we will rebound in Denmark and in Germany to pre-COVID levels. And especially in China, we also think that we will come back to the level of the second half of 2021. Always with the disclaimer that we -- and we all hope that, that we won't see any more static management due to the COVID pandemic in China. And this will also help us when we don't see any more restrictions there that our management, Dr. Jörgensen, for example, can travel to China again with a reduced quarantine time to enter into China. For sure, we already said that the number of surgeries in the first half has decreased slightly and this is due to COVID. We had less patients, and this also led to a lower capacity utilization rate naturally because we had performed less surgery on the one hand. On the other hand, we have the new clinic in Chengdu. We have some new clinic in Copenhagen, increasing our capacity overall, and this leads to the adjusted net profit after tax margin of 17%. If I look a little bit into our expenses, I'm quite happy that already in the last year, we had always had a look at our cost structure, kept this under control quite clearly. So we see that for -- if you look at the upper right side, that's raw materials and consumables are actually decreasing. We have a ratio of only 13.3% left per surgery. So that's really a sign of our strong position against our suppliers, especially in these times where we see a rising inflation and rising production costs on all sides. With the salaries and doctor fees, that one is going up. We had to adjust our workforce, especially in the second half of 2021, with the increasing demand for our surgeries. And we believe that with a rebound in the second half of 2022, which we expect, these ratios will go down again a little bit. Depreciation ratio has increased slightly due to the fact that we have 2 new clinics now, which are in the depreciation phase. Also on the sales expense ratio and administrative expense ratio, we see the effective cost control with only slight increases of these ratios. So I'm very happy that all of our staff is very well aware of the situation, and they are all looking after our costs there. And one thing more I would like to mention here. With the business model of EuroEyes, we are very cash rich, and we experienced even in this difficult times a very healthy cash flow with an operating cash flow of nearly HKD 135 million. And also our cash reserves are still at a very high level even despite the fact that we had to pay part of the purchase price of London Vision Clinic. With this, I would like to end my few words on the financial situation of EuroEyes and would like to hand over again to Dr. Jörgensen to sum up the first half of 2022 for you.

Yes. Thank you, Dr. Braun. Yes, let me try to recap where we are today and where we are going forward. We had a difficult half year. It was a pandemic. It was a financial crisis with high interest rate. The U.S. dollar were surging, and we have pandemic. And we especially had the German summer vacation, but we see a rebound now. We went through that with -- also, at this time, we had a high cash flow and we went through it, and we see many new thing is coming right now. So I'm looking forward to the second part of this year. We are seeing a rebound, as Dr. Braun said, and so I'm confident. And with all the things we right now have in the air and what we are going to launch within the next 6 to 8 months, like a new clinic in London, like maybe a new clinic in Hong Kong and like our many clinics in Germany, what we are going to open. And in China, I'm very confident that really now we see some light in the end of the tunnel and that -- so I'm thinking very positive for the near future. Many thanks for your attention.