AddLife AB

STO:ALIF B

Earnings Call Transcript 2018-Q1

[Kristina Willgård, President & Chief Executive Officer]

Well, it's 10:00. And I hope that most of you have come into the line. Most welcome to this telephone conference in AddLife, where we will discuss the Q1 report. It's me, Kristina Willgård, who is the CEO of AddLife and it's...

[Martin Almgren, Chief Financial Officer]

Martin Almgren, CFO of AddLife.

[Kristina Willgård, President & Chief Executive Officer]

We will try to present our report as good as possible for all of your. And whenever -- in the end, we would like to open up for questions. So I think, we will start. It's few seconds more than 10. So we will start. On the -- on our website, you hopefully have seen that there is a presentation, where you can follow what we will talk about right now.First of all, a short presentation of AddLife. We are leading independent player in the Life Science market. We work in different niches, mainly in the Nordic market in Life Science. The Nordic market is about SEK 50 billion -- so we, who has a turnover of -- a bit more than SEK 2 billion, we are -- we, of course, see a lot of possibilities to grow further in this market. And when we talk about independent, we are independent when it comes to -- that we are mostly a distributor in the market. 80% of our sales comes from other suppliers' product. About 20% of our sales in the group come our own branded products, of which, a small part we produce ourselves. In the market, we sell equipment, instrument, medical devices and different consumables to our customers. And very important for us is the added value that we can give the customer and that is mainly service in the market, which is so important when we sell advance instruments, mainly in the diagnostics area and in the research area.Today, we have 34 subsidiaries. I hear that is coming a lot of -- new people into the line. I hope you have a chance to follow. We have 34 subsidiaries, and we act in 2 business area, and we call it Labtech, where we have diagnostics and research; and then the Medtech -- it's Medtech and home care in that area. And 12 months rolling, we have sales of SEK 2.3 billion, close to SEK 2.4 billion. We have a vision to strive to improve people's lives, by being a leading value-adding player. And we just ended the call internally in the group, where we informed our employees and our MDs in the group about the results. And I think all of them can sign in that they, in one way or another, work with products or services that in the end try to improve the lives of our -- our offering is standing on 4 legs, you can say. In the bottom, we have the products, which is really what we do with our products mainly in the market. And the products are very important for us. It's important that we have the right suppliers who have a good innovation in the product development and that we can really make sure that the customer can choose the products that they really need either for their research or for doing a good surgery on the patient. But to be successful in the market, it's not just enough to have products, because when you just sell products, the only thing you can work with is pricing. So we work a lot with added value to our customer, and I would say, the basis for our earning and our success so far is the knowledge we have internally in the group, where we sell a lot of advice with training in the way that we see that a lot of our customers really need the help to decide what products, what instruments they should use to do what they want in their businesses. Very important for us, mainly in the Labtech area, is the technical service that we give to our customers. Because the worse that could happen is that we have an instrument where we do a test and the instrument doesn't give the right answer on the test, which, in the end, could make sure that -- or could happen that a patient will have the wrong medicine and nobody wants that to happen. So technical service is very essential for our performance in the Labtech business. As most of you know, we work in a decentralized organization, where we have our subsidiaries who are very entrepreneurial, and they really have their own business acumen. They are flexible, they are efficient in the market and they have a large part of freedom to develop and to conduct their own business. What we try to do is to put this together as a group and really to find synergies between our companies. We want to find ways of working smarter to use each others' resources [smarter]. We are working hard to build a network between different people in different companies to share knowledge and to find ways also to go-to-market and to meet customers. And we are working hard to be a sustainable company, both when you talk about CSR questions, but also when you talk about financial sustainability. We are aiming to have a strong balance sheet, which means that we can invest and develop our business and continue acquisitions going forward.Then let's start to talk about our Q1 report. The Q1 report, which has growth continues. That's what we have seen happen in the first quarter. In the quarter, we had net sales close to SEK 600 million, which was a 4 percentage growth from last year. We had an EBITDA margin or an EBITDA that was SEK 57 million, which was a growth of 7 percentage and the margins strengthened to 9.6 percentage from 9.3. And you all know that we have a target that we want to grow, at least, 15% a year on our EBITDA. And if you look at the rolling 12-month figures, we see that we have a net sales growth of 14 percentage and an EBITDA growth of 14 percentage, which was quite close to our financial target. The EBITDA margin was stable on 10.1 percentage. If we then look into the Q1 figures, we see that organically we had a decrease of 4 percentage; and of course, we have the questioning, how come this happens? What we have seen is, as you also read in last year's report, is that the first quarter in 2017 was an exceptional good quarter. We have 27 percentage growth of -- which was organically 12. In this year, we had Easter in March. Last year, Easter was in April. And in all the Nordic countries, we see that, around Easter, people tend to take a lot of holidays, and we see that the hospitals don't have so much planned operation or activities. And we also see that we should just attempt to not work in the last days into the Easter.So when we calculate, we see that we had at least 3 to 4 less sales days in March this year than last year, and of course, that makes this year a bit slower. But I would say the most -- the thing that really affected us mostly was the weak sales we had in our Medtech division. We talk sales to hospitals in Finland. Last year, we wrote in our report and we have seen the trend throughout 2017 that Finland had been a bit weak throughout the year. There is some uncertainty in the Finnish markets around the health care and social service reform, which we think has a big implication of the decrease in sales in Finland, but this hit us really this quarter. The positive in this quarter was the strong flu season in the fourth quarter. We had that as a discussion point when we saw that the fourth quarter 2016 we had a strong flu season, which was very positive, and this is for the diagnostics companies. This is big impact because we sell a lot of tests to the laboratories during the flu season. And this year, it came in the first quarter. So our diagnostics company did a very good quarter when it comes to results because this is really just, do we adjust sales in the quarter, which we have good margins on. So if you summarize the first quarter, we see that the results in the quarter or the improvement in the results comes from our diagnostics business and that's mostly in Finland, where we had 2 diagnostics companies that have done a very good job in the first quarter.In the quarter as well, we did 2 smaller acquisitions. It's a company called Food Diagnostics, which we will integrate into our Swedish diagnostics company in second quarter. This was a first step for us in the diagnostics area to go into more food industry because we see that a lot of interest around the world and also in the Nordic countries about what do we really eat and what -- how does the food look. So we see there are much more tests around the foods in a lot of laboratories, and we think this is a small step to go into that area.In the Medtech business, we did a smaller acquisition of a company called Ossano Scandinavia, which works in back and hip surgery, and they are a really specialized company, which is a good company to integrate into our business we have in the medical company in Medtech.About the market in the first quarter, I would say the business conditions remain unchanged. It's a positive market. We have the underlying trends with the growing and aging population, which means that there is a greater demand both for hospitals, both for researchers to find new innovative medicine to treat the different diseases that comes up. There's a lot of new technology coming in, who are interesting and that we can take into our companies and distribute to the market. But we also see that the tenders are larger and larger, and in some companies -- countries like Denmark, the discussion is about doing national wide tenders in 2020. And of course, the competition is tough on these tenders. If you are in the tender, you are a winner; but if you are out of the tenders, it could be a bit tougher. But so far, I would say, we have been very successful both in Denmark and other countries to be -- take part in the larger tenders. The different governments in the Nordic countries are focusing a lot on Life Science, which we have written in the report, both in the last year and again in this quarter.Swedish government, for example, are investing a lot to make sure that Sweden comes back to be a leading Life Science nation. A few years ago, we were there, but a lot of our pharmaceutical industry left the country. But there is lot of investment, where we see funds going into, especially smaller research companies, but also investments into the healthcare. And the government has really decided to put in a special Life Science Office, where they tried to push these questions even harder. And for us, at AddLife, we are very proud that we will have a meeting with the person in charge for this office within the coming weeks, and see how we can, as part of the business, help Sweden as a nation to be even stronger in Life Science.On the Swedish market, there was a positive situation both in the Labtech and the Medtech areas. What we saw in our diagnostics area was that we had high instrument sales to laboratories, which is very positive going forward because that means that we have got a lot of new tenders. Because the first thing that happens in a tender is that we put out instruments, not that positive is that the margin on the instrument is very low. And we know that the reagents we will sell coming in the last 4, 5 years will have a very good margin going forward. The sales to health care was good and in line with last quarter. The Danish market, as I said, has a very high activity. There are continuously investments in the hospitals from the government side. But what we have seen in the last year is that there have been a bit of cut backs in public funding for researchers in Denmark. So the research people are much more dependent on the private fundings. But we see that the fundings are still coming a lot from the private investors in the market. So for us to supply the market, we haven't seen any change due to the difference from a government and a private prospective from the funding side. We have seen that the sales have been stable and the pharma industry is continuously their investments, not as much in the research side but still very much on the production side in the pharma industry. Finland, as I said, is a market, it's very 2-part market for us. We see that in our Labtech business. We have a very good market. It has been improved both for our research companies and for our diagnostics companies in this quarter. And they had reported a really strong sales. Influenza in the Finnish really was on the top level that -- I would say, all-time high in Finland in that sense.As we said before, the health care reform is postponed, and we see a weaker sales into the health care. We expect this to be a bit more stabilized when we go further into 2018, because we think that there will be much more clear what will happen in the reform coming forward. So the market is a bit hesitant, and unfortunately, we got hit in this quarter about that.Norway market conditions, I would say, positive, stable demand in all areas. We have delivered very good as normally, I would say, both in the diagnostics and in the lab side. What has been a bit more challenging in Norway is that we see higher increased competition in the larger tenders in home care. In the home care market in Norway its tender-based, and they are national-wide. It's an organization called NAV, who do all the tenders from the government perspective. And the market is -- in the home care, in Norway, is [Audio Gap] for a long time and is still developing very positive, but we see international tenders, and of course, want to grasp a part of the market. And we talk about the exports. Export is around 9% of our total sales. They have developed very good for health care. And Benelux, which has been a small part of our business is growing steadily and has done so very well for the last year. And when we talk about the instruments that we sell outside of the Nordic countries, it has been more stable, and we have also seen that it has stabilized in the U.S., which has been weak for a long time and Martin will come back and talk about the things we do in the U.S. business.

[Martin Almgren, Chief Financial Officer]

We look at the business area, Labtech. In the first quarter, we had sales growth of 3%. All of the growth is organic here. And we had EBITDA increase of 11%, and EBITDA margin increased from 10.3% to 11.2%. And as Kristina said before, we had a strong flu season, which is behind this, and also the diagnostic part had a good positive quarter.If you look at the rolling 12-month figure, we have a 10% increase in sales and EBITDA increase of 1%. And in the comparison figures, in March 2017, we have pension plan adjustment of SEK 7 million, which, if we adjust for that, we had an EBITDA growth of 6%. Our operations in Baltics that we talked about in the last quarter is developing according to the plan. We have had positive discussions with the suppliers. And in the first quarter, we have a small profit, also, from the Baltic company.In the U.S., we have signed an agreement with a distributor, who will take over our sales that we had in the sales company in the U.S., and they were selling instruments, our own instruments. This will take effect in Q2, and we expect here to have a good sales in the future with lower expenses. And as Kristina said, we have one small acquisition in the Labtech area in this Food Diagnostics.If we continue and look at Medtech, we had sales increase of 5%, and here we have organic sales decrease of 11% and acquired sales growth of 15%. And as Kristina said, we have an Easter effect here, and we have the weaker sales in Finland, that's behind the decrease, the organic decrease. On the other hand, the sales growth comes from our home care business that we have acquired in Norway. We see that, as Kristina said, there are greater competitions in the nationwide home care tenders in Norway. The EBITDA margin in the quarter is 0%, so it's unchanged compared to last year. And if we look at the rolling 12-month, we have a sales increase of 21% and an EBITDA growth of 41%.If we look at the cash flow and look at the operating cash flow, we have in the first quarter SEK 39 million compared to SEK 47 million last year. And the main change here is income tax paid. And in the first quarter, we have had a change in payments in -- mainly in Norway and Finland. We have made the payments in the first quarter this year. Last year, we had the payments in the fourth quarter. So it's -- taxes are paid in a different period here that we see. We have a good development in the working capital, but that couldn't compensate for the taxes. So a little bit weaker operating cash flow in the quarter. If we look at the profitability, profit for working cap on our financial goals, we have a stable development here, and we continue to be around 65%. The quarter, we ended at 64%. If we continue to the balance sheet, there are only minor adjustments here. We had a stable net debt to equity of 0.7, which is a little bit decreased compared to last year and equity ratio of 42%. So we have a stable balance sheet and a good balance sheet to continue our growth. We have, also, good liquidity of SEK 263 million available to continue the growth here. And finally, the selected financial ratios that we -- we see that we have stable trends now of EBITDA of [about] 10%. And we are at the moment, 601 employees at AddLife.

[Kristina Willgård, President & Chief Executive Officer]

I think we should open up for questions right now.

[Kristina Willgård, President & Chief Executive Officer]

Do you have any.Okay. Seems to be very quiet. So those of you who have questions and don't want to raise them in this telephone meeting, I hope that you either call Martin or me or send us a mail and we will try to answer or discuss with you as soon as possible. And hope to hear from you forward. So this was the 25 minutes call for today. If you don't have any questions, I wish you all a great weekend, and hope that we hear from you next quarter again. Thank you.

[Martin Almgren, Chief Financial Officer]

Thank you.