AddLife AB

STO:ALIF B

Earnings Call Transcript 2021-Q1

[Kristina Willgard, President & CEO]

So hello, everybody. I think it's now 10:00 o'clock, and we will start this presentation about the interim report for AddLife. Before we start, I would like to inform you that we will record this presentation, and we are trying to mute you everybody, so we manage with that. And I also would like, if you don't want to be part of this sort of the recording, you can also hide your video, so you will not be seen at the same time on the sort of the film that we are now doing for this presentation.And I can hear, it's a lot of people coming in right now.

[Unknown Attendee]

[Foreign Language]

[Kristina Willgard, President & CEO]

So it's actually 10:01, at least on my phone, so let's start. And I wish you all most welcome to this meeting with AddLife. We did a release this morning of our Q1 report.My name is Kristina Willgard. I'm the CEO of the group, and on this call, we will also have Martin Almgren, who is our CFO. We are not today in the same office because Martin is -- has to be at home due to the COVID restrictions that we have in Sweden.So what are the highlights for this quarter? Well, this quarter was really a record quarter for AddLife. It was a strong organic growth, mainly in our Labtech business. And we also, of course, then with the strong sales -- so, lot of people coming in, and it's a lot of noise. So can you please mute, everybody?So, again, we had a very strong sales in this quarter. And, of course, we also got a very strong EBITDA. A big part of this presentation as well as the report, we also wrote about our 2 large acquisitions that were made here early in April, just after the reporting period.If you look at the business situation in the quarter, it was relatively unchanged if you compare with Q4 2020. And we all know that we are still in the COVID pandemic.But the sales we achieved was SEK 1.7 billion, plus 65%. The EBITA ended on SEK 326 million, which is plus 209 percentage, and the margin ended on 18.8 percentage. And as you understand, we are very pleased with the results that our organization has been able to achieve during these times.And if we just look at the EBITA results of SEK 326 million, that is actually more than we did the full year 2019. So I must say it has been a great quarter for us all.You can't talk about us and the quarter without talking about COVID pandemic. We were all hit in the quarter by the third wave of the pandemic, and I would say that the COVID-19 still has a grip of the world, on us. It was continuously a lot of challenges in the quarter. There were high infection rates, a lot of new mutations of the virus and health services in more or less all countries were very strained.The vaccination in a lot of countries haven't, in the first quarter, really come so far. A few countries, very good, but a lot of others have a lot of still of vaccination to do. Especially, if you look at Sweden, where we are today, we have only right now 10% of our population is vaccinated so far here in April.So looking at the quarter, the COVID-19 sales in the quarter was SEK 620 million, which, of course, is a big part of the success. It was intensive COVID-19 testing in the quarter due to the pandemic.We have also in our research companies, very high activity. And of course, researchers throughout the world are really working with finding new solutions for this virus that has -- that we all talk so much about. And there is a lot of money into the virus research in all countries.We have due to the pandemic still a setback in elective surgery, which, of course, is a minus for our Medtech business. And we also see that the hospitals really had to reallocate resources to take care of all the COVID patients.In the quarter, we had challenges still in our home care companies. We have not been able to try out different aids and install products in the elderly homes as much as we wanted.Coming back to the net sales, SEK 1.7 billion. It was a strong growth, 65% up compared to last year. Organic, 54%, which is a fantastic organic growth. If we take out the sales of COVID-related products, we have still an organic growth of 4% in the group as a whole.And you can see the net sales bridge on the right side. That we did a little bit acquisition added on to sales, but the main part was, of course, this organic growth. And we were hit negatively by the currency in this quarter as well.Looking at our results, a fantastic result in the quarter. SEK 326 million, 209% up, and a very strong margin of 18.8% and last year, we had a 10% margin in the same quarter. This is mainly due to the high sales volume and a very good cost control in our companies.If we look into our gross margin, it's fairly stable in our companies, if you compare before COVID and now in the COVID pandemic. So we haven't really been able to increase the margins so much, but we really get these results out of the high sales volumes.If you look at the EBITDA bridge, you see that the growth comes mainly from our Labtech business.So looking into the Labtech, the growth was 84%, everything organic. The intensive COVID testing that we have has really been in all markets where we are. We are doing diagnostics in the Nordic countries and in Central, Eastern Europe. But all these markets, we have a very positive growth.The demand, as I said, was strong within research as well. Labtech ended up with SEK 1.1 billion in sales, and the EBITA margin was 23.2 percentage. It's a fantastic performance from these companies that we have in our Labtech business.And if you look at the future a little bit about the Labtech and, of course, a question we all have, what will happen here after the pandemic? Well, we foresee that the COVID testing will, of course, continue for a while, at least as long as we are in the pandemic.But we still think that we will continue to sell COVID-19 test after the pandemic, more or less has sort of decreased a lot, because that will be a continued parameters in a lot of tests for the future. Of course, the volumes will not be as strong as they are today, but that is continuously a parameter that will be tested on all of us, I would say, for the future as well.And a little bit more details in the diagnostics field. Right now, we have, as I said, the 19 testing. We mainly sell PCR tests and PCR test has developed very much over the last 6 to 8 months, I would say. So PCR tests right now, you could get quite a quick answer. So these tests and the suppliers' tests that we have, have been able also to sell their point-of-care products to a lot of private actors.For example, to airport that issue travel certificates. And we also sell these instruments and tests to companies like the offshore business in Norway, military, et cetera. So there are different types of customer now who really needs this test for driving their normal business you could say.Our companies in diagnostics are having a full focus right now on post COVID sales. It's a bit tricky, of course, to meet the customer. But since we now have a big install base, we really focus on selling tests on the installed base that we have for the future.Looking a little bit into the research and laboratory. High risk, high activity, as I said, and I think we all see that for the future. There will be continuously need for Life Science research. And a lot of private actors and foundations actually push in money into these areas.The most focus that we have with our customer is really around gene sequencing, where they study all the mutations of the virus. And of course, everybody wants to find a vaccine that really can treat all the different mutations that now have come on this COVID-19 virus.Increased sales of own instruments. We have had some problems the last 9 months, I would say, with our own instruments because of the pandemic, but it opened up again in this quarter. Not in China, though, because in China, we have a new 5 years plan. So we see a slower start, as always, when they have new 5-year plans in China. But we are quite confident that, that will come back a little bit later.So summarizing Labtech business, organic, very, very strong. And even if we take away the 19 sales, we had a growth of 8 percentage in this quarter.Looking into our Medtech business. We had a strong growth of 38%. Organic it was 2%, so very different if you compare to the Labtech business. We all know about the setback in procedures in all countries. And if you look back last year, we had a lot of PPE, onetime sales in the Nordics. We don't have that right now. We have more normalized -- normal sales, I would say, of PPE.We have, though, some extra PPE sales in Central Europe to both military and healthcare and private actors actually who now want extra personal protective. So sales ended up in this quarter on SEK 611 million, and EBITA margin increased from 8.3% to 10.6%.Health services…

[Unknown Attendee]

[Foreign Language]

[Kristina Willgard, President & CEO]

If you talk about the health services, we actually expect that the elective surgery will come back as soon as possible after the pandemic. But I would say it will probably take some while because I think that the workload has been very heavy on the hospitals, so employees on the hospitals probably will need some time or vacation in the summer. So in our expectations, we really think it will start more or less after the summer, according to normal procedures.But we are -- if you look totally on the health service, we are very happy that we still have very stable volume of other supplies to the rest of the health services in this quarter as well.Home care, we had challenges, but we are very confident that the underlying demand continues. And we saw already in March that when a lot of elderly got the vaccination, some elderly homes really opened up. So we started to install the last weeks of March.If you look at the organic growth, excluding the COVID sales, it was negative on 4% in this quarter.So summarizing our long-term financial goals. You know, we have EBITA growth and profitability as our main goals. The growth for this 12 rolling month period is 200% on EBITA. And the profitability measured as profit over working cap is 122%. And compared to the target we have on 15% in EBITA and 45% on profit over working cap. I would say we have really overperformed during the last 12 months, you could say, in our company.And summarizing the 5 last years, you see that our average growth we have had is 50% per year, the last 5 years. So AddLife, since March 2016, I would say, have done a fantastic journey coming on the growth side.I think many of you have read our press releases that we did recently. We did 2 large acquisitions after the period, Vision Ophthalmology Group and Healthcare 21. These 2 companies actually add another 40% to our sales volume in the group. So this is a big new step for us.And summarizing the last year's totally 8 acquisitions, we have added more than SEK 3 billion in sales to the group. So we are really taking a big step for the future.And the acquisitions, as I said, Vision Ophthalmology Group, they are headquartered in Germany. But their markets are Germany, Switzerland, U.K. and Poland, sales of some SEK 700 million or had it in 2020, actually, and 190 employees. Healthcare 21 gives us the Irish and U.K. market and sales of SEK 1.7 billion to the group and 450 employees.Last week or 2 weeks ago, when we talked about these acquisitions, we had more detailed information. But right now, I just wanted to show you this slide. And -- I mean, the reason for the acquisition of VOG is the really strategic expansion into this niche ophthalmic surgery. I think it's an interesting niche. It has very strong growth potential. And potential that is driven by, of course, the aging population and a lot of technology development that we see around different new lenses, for example.VOG is a large European player. As a distributor, I think, they are the only player today that are in a lot of markets actually in Europe, and they have good opportunities with the strong relations with the suppliers and also very strong relations with the customers.The market offering that they have consists of 80% distribution and 20% is own brands. And we see this acquisition as a fantastic platform for further organic and also acquired growth to our organization.A few words also on Healthcare 21 group. That was, for us, a really strategic expansion coming into Ireland and the U.K. These 2 countries has a very big Medtech market, EUR 13.7 billion. So it's, of course, a very interesting market to be in.We see them as an excellent strategic fit. They are in a lot of therapeutic areas where we also have been in AddLife before. So we are really pushing us 2 together. We see a lot of common opportunities with both own products that we now can sell in more markets, but also a lot of suppliers that we now can share within the group. Healthcare 21, I would say, is also a very good and strong platform for further organic and acquired group in Ireland and the U.K.So looking at AddLife, together with these 2 acquisitions, we are now a true European player, but we don't have companies in Portugal and not in France, but in the rest of the European market, we are present. And on the right side here, you see the net sales per market, as we reported in 2020, where we still had the majority of our sales in the Nordic countries. But now after the acquisitions, we see that sales outside of the Nordic countries are 55% of the group sales or will be for the future, which, of course, gives a big difference for us.Now, I will ask Martin to continue.

[Martin Almgren, Chief Financial Officer]

Thank you, Kristina. And just a few words about our pro forma income statement that we have included in the interim report for the first quarter. There are some assumptions that I want to clarify in these figures for 2020.We have used the AddLife reported figures for the 12-month period. And then we have added the normalized business for VOG and HC21, meaning we have excluded one-off costs in the companies related to restructuring and also part of COVID-19 effects.We have also estimated financing costs and amortization on intangible assets, but we haven't included any synergies or transaction costs in these figures that you see. And as we communicated in our press releases, net sales will end up at about SEK 7.6 billion with an EBITA of SEK 1.1 billion, which gives us an EBITA margin of 14.7%.We continue to next slide, please. And looking at the balance sheet for 2020, also pro forma. The assumptions we have made here is that we have included the external loans and also included the intangible assets. We have not included leasing for IFRS 16 in the new companies.And if we look at the balance sheet here, we have a net debt-to-equity ratio of 1.1 and an equity ratio of 36% in this pro forma calculation. So we continue to have a strong balance sheet also after the 2 acquisitions.Income statement then for the first quarter. If we go back to year 2021, Kristina has talked about the net sales and the EBITA margins already, but what we are really happy to see is that we get the result down to profit for the period, which ended up at SEK 226 million compared to SEK 54 million the quarter -- same quarter last year, which is an increase with 318%.And we see the same trend also when we're looking at the rolling 12 months. The result is getting down to the last row. And diluted EPS ended up at a little more than SEK 6 per share.The balance sheet for the first quarter, as you see here, we continue to have a really strong balance sheet. But as we all know, the acquisition will change how the balance sheet will look in Q2. But the end of Q1, we had a financial net liability of SEK 548 million, which gives -- million -- which gives a net debt-to-equity ratio of 0.3 and an equity ratio of 48%.Looking at the cash flow for the first quarter. We had an operative cash flow of SEK 184 million compared to SEK 80 million last year, which is a strong cash flow in the quarter, mainly driven from the good result that we have had in the quarter. We have had increased working capital, as you see, SEK 170 million, main reason for this is the increase of accounts receivable due to increased sales, but also payment of suppliers that shift between quarters.Looking at the net investments, they continue to be on the same level as last year, SEK 24 million this year compared to SEK 21 million.Looking at the financial key indicators. We have talked about all of those, except number of employees. We -- at the end of March, AddLife had 1,128 employees all in all. And after the 2 acquisitions, we will be almost 1,800 employees in the AddLife Group.I'm mute, Kristina. Can you go back to the presentation also?

[Kristina Willgard, President & CEO]

Do you see it? Perhaps not.

[Martin Almgren, Chief Financial Officer]

No.

[Kristina Willgard, President & CEO]

No? Then something happened. Sorry for that. I think I will just -- I will -- I don't know what you see on this -- on the picture, actually.

[Martin Almgren, Chief Financial Officer]

I will…

[Kristina Willgard, President & CEO]

I will just end the session and talk without any picture. So the new AddLife that you will look at is really a European player. We will though continue, as we have always done, to be a decentralized organization, working with small-scale business, large scale-wise, which is the way we have operated for so many years and that we think is very good.And we think we have that culture and the model has really made AddLife where we are today. We will continue to focus on vision and corporate philosophy and work a lot with our AddLife Academy.These acquisitions, of course, give us access to larger markets, more customers, and it's a big opportunity for us to broaden our internal network. And, of course, we are really looking forward to see the opportunities. And I'm also very glad to see that our financials continue to be very strong even after these 2 acquisitions.So very sorry for the problem with the presentation. But, yes, I think we can unmute for questions right now.

[Charles Robert Weston, Analyst]

Kristina, should we just file questions in?

[Kristina Willgard, President & CEO]

Yes. Please do that.

[Charles Robert Weston, Analyst]

Sorry, somebody had to go first. Thank you very much for the presentation and questions. I'd like to ask 3, please. My first question is on the research funding outlook in Europe. You talked about pharma and academia, I think, largely being stable. But I just wondered if you could comment on what that looks like for the next year.My second question is on your margins. How much can AddLife sort of protect its margins going forward, obviously, when volumes decline from the very high testing levels we're seeing now? Potentially, travel is back on the card, so OpEx goes up. Just if you could give us some understanding of perhaps what normalized margins might look like?And then my last question is on acquisitions. Obviously, you've been very, very busy recently. Do you need time to consolidate and digest these acquisitions? Or are you able, from a management bandwidth perspective, to do more deals? And if so, how would you think about financing them, given the financial leverage on the balance sheet now?

[Kristina Willgard, President & CEO]

Thank you very much. I will see if I can try to answer all these. If we start with the research funding, I must admit, I don't have the funding for the whole of Europe fully clear. But for the countries where we are, we are in the Nordic countries and mostly in Italy, that's really where we have companies today working with research. We see that we get a lot of private funding, for example, and mostly, we see that in Denmark with Novo Nordisk. In Sweden, we have, for example, Wallenberg, who put in a lot of money. So we see a lot of money coming into these areas. And it will -- and the discussion we also have with governments in these countries is what we foresee, that there will continue to be a flow into -- in these markets.But I cannot, unfortunately, give you any figures on the details. It's too early, I think. But I think we all have understood how important it is to continue with Life Science research. And I doubt that it will be a drawback in funding for a few years to come.Coming back to the margin questions. You are perfectly right. When it's more a normalized market for us, we expect the margins to decrease. When we have done sort of calculations, I would say that the more normalized long-term margins will probably be around 12-plus percent or around 12% -- 12-ish percent. If that means 11% or 13% is a bit too early. But I think if you should calculate for the future, I think it's a bit too early for us to say that we can continue on a higher level. But I don't expect it to come back to sort of 10-minus percent, that's not the expectation when we do forecasting internally.And I would say also one sort of a comment to that, even though, I mean, traveling, of course, will start, but I think we all have learned also how to work digital. So I think a lot of costs that we had before will not be any cost for the future. So it will be a new -- sort of new normal cost as well in these organizations.Talking about acquisitions, I must say, it has been very interesting weeks that we have seen in our group. I don't think I've had so many new deal opportunities on one day as I got the day after we reported on these 2 big deals. So we have a very strong inflow. And we have, as you know, a lot of discussions always ongoing.Of course, it will take some time to digest these 2, because it's 2 big companies, but it's also so that these 2 big companies with existing management has very good organization that has been working standalone. And they are -- will continue as standalone groups within our Medtech business area. But of course, that will nevertheless, take some time and effort from us.But we foresee that we can continue to do a few smaller add-ons in the future. Probably not some SEK 700 million at stakes, but more like the normal where we see between SEK 50 million to up to SEK 200 million where sort of our normal sweet spot. I think add-ons like that, we hopefully see that we will do during this year.And to finance these, well, we still have very good -- if you look at the cash situation after the deals, we still have available funding, but we also know that we are looking into a very good cash flow for the future. So we will finance them with own cash flow and existing financing.

[Charles Robert Weston, Analyst]

Just one clarification question, please. On the 12% -- approximate 12%. Just that you were talking about EBITA margin there, where you?

[Kristina Willgard, President & CEO]

EBITA, yes.

[Charles Robert Weston, Analyst]

Yes. Okay.

[Kristina Willgard, President & CEO]

Thank you.

[Unknown Analyst]

Hi, Kristina, [ Wahad Ahmad ] from [ Shukra Investments ].

[Kristina Willgard, President & CEO]

Hello.

[Unknown Analyst]

Thank you for a very helpful presentation. And, yes, congrats on the strong set of results. So one -- I have 2 questions. The first one being about COVID-related sales, and it is great that you've done the split yourself. The only thing which I'm a bit uncomfortable about is. So we had like in the Labtech business, NOK 980 million of sales in 2020. And in the first quarter, we are at SEK 540 million. So my question is, is it fair to assume that this almost like SEK 500 million of COVID-related sales in the Labtech business will continue? Or if, let's say, COVID continues till the end of this year, could we assume COVID-related sales in the Labtech business to stand around SEK 2 billion.

[Kristina Willgard, President & CEO]

Oh, that is a very difficult. I mean, when you look at the COVID actually, I think we all realize that we will get vaccination coming in and the testing will decrease, of course. So I expect -- I don't expect it to be around SEK 2 billion on a yearly basis. But I still expect it to be rather high in the coming quarter. But if we get a big part of the population vaccinated, of course, that will decrease on the second half year of this -- in 2021 already.But I don't expect it to be 0. Exact level is -- I wish I had the crystal ball, but I don't.

[Unknown Analyst]

And my second question is with respect to the elective surgery business. And I feel that a bit of this -- EBITDA margin compression in the Medtech business is, because there is -- I mean, there has been certainly a less elective surgery, at least in the last 4 quarters. So just trying to get a sense of where -- what would be like a normalized EBITDA margin for the Medtech business? Could we see -- I mean, once things get back to normal, could we see this going back to like 14% as we saw towards mid-2020?

[Kristina Willgard, President & CEO]

But if you look at mid-2020, we also had a strong PPE sales that we had during that year. But you are very right. If you talk about elective surgery, in that area, we have quite a big portfolio of own products, and the margins on these products are much higher than sort of the more medical disposables that we sell in the rest of the Medtech business. So, I would say you can expect them to be more than the 10%, but if we come back to the 14%, difficult.

[Charles Robert Weston, Analyst]

Kristina, do you think I could just ask one more? It's Charles Weston again from RBC. Can you just comment on the historical performance of Healthcare 21? I do apologize for missing your conference call on the day of the acquisition. But obviously, it's gone through several owners and has done lots of acquisitions as well. Just can you give me a sense of what the performance has been on an organic basis, please?

[Kristina Willgard, President & CEO]

Yes. They have -- if you look at the -- as you said, it has been both a strong organic growth but also acquired growth. I think -- I'll try to remember from my head. I think the average organic growth has been between 6% and 8% the last 6-7 years, which is very close to the average organic growth we have had in AddLife. So we are more or less on par on those figures.But if you add on the acquisition, it's, of course, a much higher growth. So they have had a strong growth there, and they have had an even stronger growth on the EBITA side. And that comes both from the way they have structured and organized their group, using a more common platform and worked a bit with cost rationalization within the companies. And I think they’ve done a very good job on that side as well. So they have been able both to grow top line and grow result even more after these acquisitions.So if we don't have any more questions, it's already 40 minutes. So this was a bit longer call than normal. Please come back to me or Martin with questions or mail or phone or we can set up a separate meeting if you have more things you want us to discuss.Thank you very much for your interest today. I wish you all a great day. Bye-bye.