Vitrolife AB
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Earnings Call Transcript

Earnings Call Transcript
2022-Q1

from 0
Operator

Good day, and thank you for standing by. Welcome to the interim report January to March 2022. [Operator Instructions] I must advise you that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Mr. Thomas Axelsson. Thank you, and please go ahead.

T
Thomas Axelsson
executive

Thank you very much, and welcome to Vitrolife Interim Report January-March 2022. The speakers of today will be the CFO of the company, Patrik Tolf; and myself, Thomas Axelsson, and I am the CEO of the company. Please go to Page #2, so we can look through this report.

This is the first quarter that we have done within the Vitrolife group, the combination of the service business within the genetic field and the device business from, let's say, the earlier Vitrolife. What we are doing and the ambition between this group is to continue to have good, good growth, and a good momentum is what we can see in this quarter.

We will go through in this presentation, the sales growth and explain where it's coming from, both from the regions and also from our business units. Initially, I would like to address that our Consumable business, that is based on repetitive business, has shown incredible good results and also market region Americas is something that are showing definitely a good trend.

The Genetic Services and what we are focusing on there has been and currently are the preimplantation business, and that's showing good growth. Always, when you do a big acquisition and when you are transforming a company, that we currently are doing, it is a challenge in getting a good response from the customers.

And so far, the response has been very good from the market and that is seen within the numbers. Should we go to Page #3 and look more into the sales and growth per market region. I'm not going to do too much number crunching because there are many numbers regarding the organic growth and then the currency effect and all of that. Patrik will come back and explain it more.

I would like to focus on actually 2 things. I take away the currency effect. One is that the company is growing with 85% then and also that we are growing organically pro forma then with 11%. And that's good, good numbers. Then the market regions then, and I'm saying that it's good, good numbers, it is always for us to compare with a normal case.

And I don't want to discuss COVID or those things. Let's say that overall, the global market is back to what it was before COVID came, of course, with some regional differences. Let's start from the left side on the Page #3. You can see that the Q1 growth in local currencies was 255%. Of course, that's due to acquisition, but also due to good underlying growth in all of those regions.

What I'm pleased with is that one of our ambitions has been to actually grow within the Americas and then especially within the U.S. And we can see that the product portfolio with the registrations that we have got and with the acquisition of the Genetic Services business, Igenomix then, where they are quite strong in Americas has, for sure, contributed to these numbers then. What's good is that today, the Americas is around 1/3 of the Vitrolife sales.

EMEA. EMEA is our biggest territory then. And what I would like to say there is the same kind of organic growth, pro forma, that we are having in Americas at 16%. And especially good there is that more or less all markets are showing good progress and are also showing good, let's say, support for our acquisition and integration activities.

Next area on the page is what we are calling Asia, and that is mainly China, and that's growing with 2%. And there is a mix then on the sales in different product lines. I'm going to go through that when we are going into the business areas.

And then finally, Japan Pacific (sic) [Japan and Pacific], that is mainly Japan and Australia. There, we see, unfortunately, a drop of 5% then in the organic growth. Explanation later on, on what product areas there. So good, good growth organically and in the right markets.

Okay. Let's then go to Page #4 and look upon the different business areas. We currently have 3 business areas. One of them, and our largest business area are the Consumables. It grows with 18% in local currency. Very pleased with that result.

And as you can see on the right side, the different arrows, it is growing well in all territories, 21% in Americas, 32% in Asia and 20% in Japan Pacific (sic) [Japan and Pacific]. Then taking that into consideration and what was on the earlier page regarding the organic growth of 2% in Asia and minus 5% in Japan Pacific (sic) [Japan and Pacific], you can then read that our base earlier products with scalability is having a good growth in all our markets.

Regarding China, that has been our biggest market, and with this, it is not anymore our biggest market. A question, how is China doing then and if you see this? With Asia, 32%, a lot of that is the China business, but the China business is a difficult one to judge. And why is it difficult to judge?

Yes, we can see that if you change page and go to Page #5, where you see that the Asia business on the right side has a decline for the business area technologies with 51%. That is due to the situation that we can work with the clinics and support them with Consumables, but it is a difficulty to actually do installations and training, and that is, of course, due to the restrictions in the Chinese market.

Enough regarding COVID and the situation in Asia then. Japan Pacific (sic) [Japan and Pacific], down 36%, completely due to that last year, first quarter, was 2 large orders to 2 different clinics in -- 1 in Japan and 1 in the Pacific area. What's so good with this quarter is that we are within the biggest market for Time-lapse within the EMEA showing definitely good growth and also within the Americas.

It is 2 different reasons for the growth in those territories. In the EMEA, it is a continuing use of Time-lapse for morphology, for efficiency, for workflow, but also that the growth that of 44% shows that customers are using the hardware frequently, so it's been standard of care, but also that we have the software that we can sell in the EMEA region are impacting currently the growth number, which is good.

In U.S., the software -- the artificial intelligence is not yet approved by FDA. So we can see that the growth there is coming from a completely different reason. It is that they are introducing Time-lapse as part of getting more efficiency, workflow into the IVF laboratories.

Okay, let's go then to Page #6 and the new area, Genetic Services. If you're not familiar with Genetic Services, it is easier to make the sale and reflect on the Igenomix business.

What we see there is the growth in local currency with 10%, and that's a growth of SEK 46 million. The most important market here is for us, the Americas. In the Americas, it is a growth of 16%. And that growth is coming from the preimplantation business, the endometrium testing business then.

In EMEA, 9% more or less in line with what some of the consumer business were, [ then ] repetitive business. And, of course, then growth in the other 2 areas. There was growth in all areas. The growth was coming from the preimplantation and endometrium testing business.

One reflection on the Genetic Services is that a buildup on a part of that business is the genetic disorder, which has then created the GPDx. Currently, sales is quite low. It is still -- or it's growing well, but it's a very, very small number compared to total sales around 2%, 3%. So overall, I'm pleased then to hand over to Patrik in Page #7.

P
Patrik Tolf
executive

Thank you, Thomas. So I'll talk you through then on this slide and the financial highlights. So if you then look in this one, you see the table, you see then the light blue numbers then in net sales, which is then the number from last year. And in light gray, you see the pro forma numbers for Genetic Services and the dark blue is then the actual Vitrolife Group at the end of the first quarter.

And as you can see, we increased then the first quarter sales with SEK 373 million (sic) [ 379 million ] or 98% with then the acquired growth of SEK 304 million, that sums up to SEK 752 million. More importantly, it's also then to compare them with the pro forma where you can compare then the SEK 684 million with SEK 752 million, which then gives a pro forma growth of approximately 10%.

Also, the Genetic Services business are reducing the activity in COVID testing. And as we wrote in the report, that has fell quite strongly during the first quarter from SEK 58 million to SEK 11 million during the first quarter, which, of course, then has an impact on the sales numbers. And if you then exclude the COVID testing, then the growth in SEK then was 18% and 11% in local currencies, as we showed in the previous slides.

Moving on to gross income. We increased the gross income then compared to last year with SEK 166 million from SEK 253 million up to SEK 419 million. And this is also where you see then the effect then on the combined business because the gross margin then for the Q1 last year was 65%, but combining then the business, meaning that the pro forma analysis is of more importance. And there, you see that the pro forma for last year was 57%. And for the first quarter, it was slightly lower then on just south of 56%.

Okay. Moving on to EBITDA, that increased then to SEK 228 million. Also then in comparison what it was for the Vitrolife during Q1 last year, then it was an EBIT margin of 43%. But again, the comparison should be done with the pro forma which was then 34.4% versus then 30.4%. And the EBITDA margin then on pro forma was then 4% units lower, which I'll come back to in the coming slides.

So if we move then to Slide #8. First of all, we see that the EBITDA per share that has increased from SEK 1.50 to SEK 1.69, which is then an increase of 13% compared to last year. Starting then on the EBITDA net sales increased with SEK 242 million, positively then impacted by the strong sales that we had in Consumables, but also then the product mix in Genetic Services phasing out the COVID testing.

The gross income is then a negative impact, as I mentioned previously and on the business combination, but also then cost related for the supply chain and general cost increase, and then also on OpEx, which is for the group then at a high level, moving them back then to the EBITDA of SEK 228 million.

Moving then to Slide #9, which shows OpEx, and that increased then in comparison with last year with SEK 40 million or about 17%. And the main drivers for that one is increased activity levels. The selling and admin expenses have increased and that is then based upon that we are going more into, we meet more customers, we increase that activity on customer events and so forth, but also then related to the buildup that Thomas talked about previously here for the genetic testing activities in GPDx -- genetic disorder testing on the GPDx that we have as an impact then on the buildup on the OpEx cost.

So SEK 40 million increase in comparison with the pro forma numbers. Moving on then to the next slide is a summary of the financials. So if I summarize then, we say the sales growth is 98% of which then acquired growth is 74% with a currency impact of 13%, leaving then an 11% in the local growth in currencies -- in local currencies.

On pro forma basis, the growth was 10% in SEK. And if we then exclude then the discontinuing COVID sales, that I mentioned previously, going from SEK 58 million to SEK 11 million, and the currency impact, the growth was 11%.

On currency impact, it has an impact then on sales with 13%, but also impacted EBITDA negatively with SEK 20 million. If we then look on the gross margin. What you see here is then both the gross margin and then the adjusted gross margin and the difference between those are related to amortization of acquisition-related intangible assets.

So if you then take the adjusted gross margin of 58% and the gross margin of 56%, we see then a larger drop in the adjusted gross margin. Due to that, we have a higher part of amortization for this year. But again, the gross margin 56% versus 57% for last year.

I mentioned previously also then EBITDA per share, SEK 1.69 versus SEK 1.50. Earnings per share is SEK 0.60 versus SEK 1.09 and also the net debt-to-EBITDA has come down a bit lower than it was during the first quarter. So we are just south of 3x net debt-to-EBITDA, which is in line with our objective.

And in addition to that, we have a strong position and undrawn backup facilities of about EUR 70 million. With those words, I hand over to you, Thomas.

T
Thomas Axelsson
executive

Thank you very much and then look on Page #11 then. Our long-term outlook has not changed, but I would like to mention a couple of things regarding the long-term outlook. As you've seen within this quarter, we have broadened the product portfolio, and we then also have a service offering. In our long-term outlook, that's what we will continue to do, of course, now through product development, but also through expansion within our product range and continue the M&A situation then.

Expansion of sales, yes, with the integration activities that we have started, is one of the things that we will work with is to have, hopefully, a better support by going more direct in some key markets and expansion of sales will then happen then.

If we are looking on then why we believe that we will continue to have good growth within this market? It's that long-term market growth is 5% to 10% in monetary terms. I would like that we go over to Page #12 and just pinpoint a couple of things.

You know that the demographic and social trends is still a thing that will drive the market. I would like, especially for Vitrolife situation that the technical improvements that we are working with within the genetics, within the vitrification techniques and also, of course, regarding the improvements of IVF lab procedures, where we, for instance, have products such as the Time-lapse equipment. We will also see that with favorable regulation that markets are starting to opening up for genetic testing in more and more countries, and that is an underlying growth.

And of course, also that I mentioned within the CEO comment that there are public reimbursement programs being changed. And in all cases, where it is changed, it is going to become more favorable as it looks like. The major change right now in this quarter going forward is the reimbursement system started 1st of April in Japan.

Also, that is the same trend, and that's a trend that is behind the growth on the U.S. market is a different kind of program that are supporting the employees and also, to some extent, the changes within the mandatory things regarding the IVF in the U.S. states. By that, this first presentation is ready before Q&A. So I would like to hand over to the operator. Please, Maria.

Operator

[Operator Instructions] Our first question comes from the line of Ulrik Trattner.

U
Ulrik Trattner
analyst

I have a few questions mainly related to sort of the cost here of GPDx. Looking at the pro forma numbers for last year where Igenomix, if it were to be included, would have been a lower part of total sales, but still reported roughly 61% gross margin and roughly 35% EBITDA margin. Obviously, some COVID revenues there, but just how much of sort of the additional costs here, both on the gross margin and the EBITDA is related to, one, COVID; and two, this GPDx expansion?

And it looks like also just taking the numbers that you provided at time of the acquisition until sort of full year that a lot of more OpEx costs have been put on this GPDx given sort of the margin development? And is that set to continue?

T
Thomas Axelsson
executive

I will go into some of your questions then try to answer those. The GPDx business, yes, it was a business -- and last quarter -- last year, the GPDx business has had not started to take the expenses and investments that they started to do within late Q2, something like that, and going forward.

So we don't see any major revenue yet. I said that roughly around 3% of the Genetic Services currently are from the GPDx business. There are investments in that field, of course. It is a combination when we look on the OpEx where we should not only say it is due to the GPDx business; it is a combination of that COVID business has gone down and the efficiency, let's say, that could come within the organization of the Genetic Services is not really done.

So the combination of OpEx is investments, let's put it that way, in the GPDx and also less efficiency within the operations. That's the 2 main things. So we should not blame just the GPDx, definitely not, because there are also combined resources that can be used for supporting our customers in genetic counseling. Because what we do -- what we try to do is to grow the business by having extremely good support, and that is through genetic counseling.

U
Ulrik Trattner
analyst

Perfect. Would there be any reason for why not Igenomix should be able to return to its former 28% EBITDA margin?

T
Thomas Axelsson
executive

I don't see that it should be, why it would not. I am addressing the situation that we have looked into this. And of course, you know that different kind of program has started or will continue to get scalability and some efficiency into it.

A situation when you have a long time between signing and closing and when a business has an investment area that they started then is a reason that probably most likely, I'm trying to be humble here, that some of the resources was -- were having less focus on the expansion on OpEx from management since it was a selling process.

And we are having a full, full focus on running a scalable, good, good business. I don't see any reason why we should not come back to normal efficiency within the Genetic Services, Ulrik, definitely not.

U
Ulrik Trattner
analyst

Great. And just looking at old Vitrolife, it looks like a super solid quarter, and this despite sort of the regional lockdowns in Asia. Just 2 questions. Obviously, you already touched upon sort of the regional lockdowns and the fluctuations there. But what we have seen in recent is reimbursement in Beijing as a sort of pilot project and reimbursement in Japan, some additional sort of mandated states in the U.S. with cost coverage for IVF.

But just your take on underlying market looks really solid as well as sort of what type of accelerated growth have you seen within the technology space in Europe when you introduced this new AI technology? Just trying to decipher what to expect in the Americas once you have that approved.

T
Thomas Axelsson
executive

Okay. Your own reflections regarding reimbursement system and your reasons for underlying growth in Japan and China, I definitely agree with you. Regarding then -- and you're saying that Consumables has had a good, good, good quarter then in underlying growth.

The question regarding technology, as I guess, you have then and the EMEA situation and in the Americas and what to expect is that it is 2 different views on the market on what technology to use and how should they charge for different things within the IVF clinics? In U.S., the first and third choice of doing embryo selection is genetic testing.

In a few markets in Europe, especially in Spain and in U.K., for instance, genetic testing is part of the offering. But in Europe, it is, in most cases, an IVF cycle without genetic testing and then having good performance and what they have is that they then are using and working a lot with IVF laboratories efficiency and part of that and also as a selection tool is Time-lapse.

And with then improvement and easiness of use, for instance, iDAScore. For sure that iDAScore is a reason for underlying growth. I mean it's easy to do, it goes quicker. So where they have introduced it and they feel confident it is reducing time. That's the key thing.

In U.S. then, I don't think they're going -- first, it's going to be complicated. We see that with the FDA to have AI software is approved. In U.S., the good growth there is coming from that they have lack of competent staff, especially embryologists within the IVF laboratories. So if they can get efficiencies, they can reduce a lot of time in doing the morphology then Time-lapse is a tool that they buy not as a selection tool, they buy it as an efficiency tool. So it's 2 reasons behind it, and I do believe that both of those reasons in those different markets will be growth factors.

U
Ulrik Trattner
analyst

Great. And last question, and this might be to you, Patrik, on the tax rate. It has gone up quite a lot between quarters now you have sort of the Igenomix business included. What should we expect here in sort of the coming quarters and years?

P
Patrik Tolf
executive

I mean as you said, we have then acquired Igenomix who then is based with headquartered and tax based in Spain, which then has a high corporate tax than we have in Sweden. So the combination here is higher, as I say. Don't expect anything dramatic to happen on that level in the short run for that one. This is obviously something that we will look through over time, but don't expect any major activities on that side in the short run.

Operator

And your next question comes from the line of [ Jacques Siberly ].

U
Unknown Analyst

Just 2 questions for me. Could you first just give us some more detail about what you're seeing in your supply chain? Do you see any issues? Or are you impacted by cost inflation?

And then alongside that, could you sort of let me know if you're seeing -- or if there are any points in the future where you see important regulation coming up, which could be good for your business? And with this, in particular, on the U.S., in the U.S., is it going to be on a state-by-state basis or is it going to be on a national basis?

T
Thomas Axelsson
executive

Okay. Thank you. Thank you very much. Take the supply chain first. Yes, I'm sorry if I didn't talk so much about the supply chain during the presentation because I -- it is the same for us as everyone else. We are working hard. We have been able to through extremely good work to get supply. We have started own production of some of the things that we earlier have supply from outside sources.

We have and are moving also from different regions our supply then. What our biggest challenge is, is to combine the supply with the growth. So -- and we have, right now, is starting from April going into a situation where we do more [ ships ] for the Consumables, especially for those that are more in industrial then.

The most impact -- you talked about inflation, the most impact currently is -- yes, I would like to say the ridiculous increase in our freight cost. And with the supply situation, that has been a struggle, we have had a lot of air freight situations that are not efficient. And that has, of course, driven down some of our profitability.

But with the growth, we've been able to, let's say, compensate that. So it's perhaps like everyone else, but I think we are doing it well. Regarding the reimbursement system then you said state by state and also from the U.S. This is just my own opinion, I don't think there's going to be any U.S. regulation on a national base. It is going to be state by state, and that will, of course, as it currently is within the mandatory state be quite different between those.

The main driver for the support within the U.S. market will be through the normal insurance system that they pay and they are including IVF as part of the treatment, but especially also then the benefit from the employers that they are including then some check, they put it that way, for an employer to use for IVF or fertility treatment. So it is a positive trend there, but I believe more is coming from that situation. It is difficult to recruit good staff, and this could be a factor that would make an employer look a little bit more attractive to go to.

Operator

And the next question comes from the line of [ Henrik Soderberg ].

U
Unknown Analyst

Could you please just put some shed -- or shed some light on the scalability between your different business area considering the acquisition also? So sort of more of the returns and capital employed rather than margins.

T
Thomas Axelsson
executive

Okay. Okay. Okay. Scalability within Consumables is -- and Consumables, I would like to then to divide up into 2 product groups. It is the Consumables that are nutrition solutions, the scalabilities that are in every way good -- very, very good. And we also have a scalability opportunity there without investing in a new manufacturing plant [ all those ]. But still good, let's say, productivity, but we can increase that mainly by more main power then.

Within the Consumables and the disposable devices then like needles, pipette, and lab work, the scalability there is from the automation side and having an opportunity to do those. There, we have some investment, but the investments are not huge. It can be a new handling robot and those things.

The asset situation would be then if we needed to build a new manufacturing plant itself for Consumables such as needles or pipette. We are trying to avoid that and avoid it by adding and doing shifts, for instance, for the production of 0-size needles. So I don't see an immediate, and immediate for me is 2, 3 years range of having an investment into new manufacturing plants.

Genetic Services, yes, there, the scalability is not as it is within the Consumables. It is a service business. We have to remember that, that depends upon people. And of course, we have started and we will continue with automation within the laboratories of a lot of handling, for instance, pipette fitting and those things. And the scalability is less, it is service business.

Is there any larger investments then if you take upon the balance sheet assets? Not really. Growing within one territory you might will need for new equipment, but we are talking about EUR 100,000, EUR 200,000 at the most, if you have a good expansion.

Operator

[Operator Instructions] Your next question comes from the line of [ Sergio Alegre .

U
Unknown Analyst

Listen, I just want -- just it would be great if you could shed some light on the reason why of the deceleration in China? Is this just COVID related or is there any other issue, reason why you are not able to increase your install basis on the technology side?

T
Thomas Axelsson
executive

For -- you mentioned China, and as I said, I think we have a good market intelligence regarding China. If we see on Consumables, we feel that we have been growing quite well there due to that some others have had some delivery problem due to the supply situation and also that we have had an underlying growth.

Some of the Consumable growth also in Asia, if you look on Asia itself, is coming from the comparison number last year with Southeast Asia was extremely low and also in India. So that's good on the Consumables side.

On the technology, yes, China is a challenge for us currently with the hardware installations and that's driving down our business area, technology sales in Asia. It was down to 51%. That is not showing the interest from the market, definitely not.

U
Unknown Analyst

But the difficulty in increasing your installed base there is due to COVID or is there any other reason, like cultural reason?

T
Thomas Axelsson
executive

Yes, yes, yes. No, it's not any cultural reason. You're on it. The situation being able to travel between different regions has been a challenge. And in some cases, when we do larger installations and are supporting with training, we are not doing that with only Chinese staff, we are doing it with staff from Europe. And that has been an obstacle that we have not been able to solve. Long term, we will increase the number of people working on the Chinese market with all of those aspects.

U
Unknown Analyst

Got it. And on the Americas side, I mean, the growth there has been really, really good. What is driving mainly your growth there? And what's your strategy to penetrate even further in the market?

T
Thomas Axelsson
executive

Are you then referring to technologies in Americas?

U
Unknown Analyst

I mean your business as a whole, technology for example.

T
Thomas Axelsson
executive

Yes. Consumable business -- we can start saying like this, we have had a U.S. market as a key priority for a year or 2. In that ambition, we have increased our activities to get products through FDA. Earlier, it was first get it through Europe and then getting into U.S.

Currently, we have an attitude that they should have both first track. So that's helping in getting products into the market. Secondly, there's underlying growth, especially in the U.S., that is helping us. I mean, it's not anything that is that we have done a good job. U.S. are increasing the number of cycles, and that's a driver for it. But also a situation that, as I mentioned, that U.S. and with the growth and with the ability to do therapy, you can do genetic testing, and you have a completely different market.

The genetic testing has been the first choice to go for currently and that is getting up to maybe 40% -- 40% to 50% of the market using genetic testing, then they are including more technologies to support, and in many cases, also reduce the cost for the end user, for the patients that do not want genetic testing or really can't afford it.

Then Time-lapse is a good equipment to support them with their decision process or selection process of an embryo. But most important right now, the extremely good growth in Americas is due to that some clinics have efficiency programs and especially related to number of embryologists within the IVF lab, and that is helping our sales. Long, long explanation, but you need the mechanism between all of these factors.

Operator

And the next question comes from the line of Anders Rudolfsson.

A
Anders Rudolfsson
analyst

Sorry, Anders from DNB here. Two questions from me. The first one, you mentioned regarding China, there's been problems with IVF there as we saw. But my question is, if you look into how much your sales has been affected during this period, is it possible to sort of be given the amount of the normal market would be if we didn't have the COVID, if you understand what I mean there?

And the second question is, you -- hopefully, we go back to a more normal market in a year or 2, what do you expect from the gross margin to be there now when you had the combined company?

T
Thomas Axelsson
executive

Okay. First, China had constant growth within the IVF and good, good growth for many years up until the beginning of 2020. So I would like to say to compare a number of cycles, what's happening in China, we should go to the base year 2019. And from 2020 up until today has been up and down. And currently, on the Consumable side, we see that we are back into growth number with the trend that we had before the COVID, customers going for our products. We are able to support the market quite well with the Consumables.

Going forward, it's difficult to guess, it's difficult to guess. As Ulrik mentioned, there are discussions, trial periods on some kind of reimbursement. We don't know if that will come in place or not. What has happened in China is that the private IVF clinics have been suffering. So they have declined quite a lot through political, let's say, pressure and the situation then.

Going forward, regarding margins, yes, we will -- I'm not satisfied. I can tell you, Okay, I'm not satisfied with the EBITDA margin. I'm satisfied if we compare the pro forma. I'm very satisfied where we are on the device businesses and how it has changed. I'm very satisfied with what we do with our key core revenue base within Genetic Services.

I'm, of course, not satisfied with the consequence of having extra resources for growth areas. But you can never grow if you are not putting resources into a field. So it is, let's say, the equity story, then you can talk about that is currently, yes, we are suffering from lower margins. Going forward, growth will take care of our problem -- partly to take care of it, Anders.

Operator

[Operator Instructions] And your next question comes from the line of Patrik Ling.

P
Patrik Ling
analyst

I actually have a couple of follow-up questions on GPDx. I mean you mentioned that this is only around 3% of sales within Genetic Services today, so it should be around SEK 9 million. Could you say a little bit about how much of the investments that actually went into that and whether or not this operation is profitable as of today, which I suspect it might not be?

And what type of volumes do you need to reach before you actually start to make a profit on GPDx?

T
Thomas Axelsson
executive

Okay. First, yes, you are right, it is not a profitable business. And you are -- your estimate is quite good regarding sales. That field will have a better margin with success if we are able to grow it into a good business then, let's call it, the COGS will be lower and the margins will be better when it is an existing business.

The challenge is to get up to those volumes on the different fields. And that I do believe we can do by having a focus on right geographical area and on the reproduction cycle. I mean we are within the reproduction cycle. It is in those fields that we have the competence, the database and the context. So it is regarding focus. And yes, that's what I can say there.

How much is it we need before we can become profitable? It's a good, good question. I do not have that completely, but we can do a quick, quick exercise that with a little bit better margin than the rest of the business, and there are some of those extra OpEx goes to that field. It can become at least plus/minus 0 business within a reasonable time, yes.

P
Patrik Ling
analyst

And Thomas, when you say with a little bit better margin, I suppose you referred to gross margin then in the rest of the business?

T
Thomas Axelsson
executive

Yes, yes, yes.

P
Patrik Ling
analyst

Could I ask you, if -- has it always, from day 1, been given that you should keep this business? Or could there be other interested parties that would like to acquire it from you?

T
Thomas Axelsson
executive

Yes. When we looked into it, we -- and I said that, that my own skills with that field was more or less 0. From the process, due diligence and up -- between the time between signing and closing, we looked into it and after closing and as communicated, we are continuing the business. And as I said, we will continue the business then for doing it more focused.

Do we want to sell the business? Not right now. We see that there are definitely synergies with growth in a couple of areas. So there are opportunities we need to define a little bit better than what has been done or what we are doing on where, to whom and with what database and how we will then introduce that kind of competence in the different geographical areas. It is a combination there.

Operator

There are no further questions at this time. Please continue.

T
Thomas Axelsson
executive

Okay. Thank you very much. It was a long session today, a little more than 50 minutes. I'm very pleased with all the questions and that you have been listening. And thank you and goodbye from Patrik and myself. Bye.

P
Patrik Tolf
executive

Thank you. Bye.

Operator

Thank you, everyone. That does conclude our conference for today. Thank you all for participating. You may all disconnect. Speakers, please stand by.

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