U.S. Markets closed

Edited Transcript of ALIFb.ST earnings conference call or presentation 6-Feb-20 9:00am GMT

Full Year 2019 AddLife AB Earnings Call

STOCKHOLM Feb 11, 2020 (Thomson StreetEvents) -- Edited Transcript of AddLife AB earnings conference call or presentation Thursday, February 6, 2020 at 9:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Kristina Willgård

AddLife AB (publ) - President & CEO

* Martin Almgren

AddLife AB (publ) - CFO

================================================================================

Conference Call Participants

================================================================================

* Charles Robert Weston

RBC Capital Markets, Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Kristina Willgård, AddLife AB (publ) - President & CEO [1]

--------------------------------------------------------------------------------

Okay. Good morning, everybody. It seems like we have had some problems with, of course, the technology here, and you couldn't hear us with that information. But most welcome to this telephone conference in AddLife. We will now present the Q4 figures to all of you. My name is Kristina Willgård, and I'm the CEO here.

--------------------------------------------------------------------------------

Martin Almgren, AddLife AB (publ) - CFO [2]

--------------------------------------------------------------------------------

My name is Martin Almgren, and I am CFO.

--------------------------------------------------------------------------------

Kristina Willgård, AddLife AB (publ) - President & CEO [3]

--------------------------------------------------------------------------------

And we are very pleased to report the fourth quarter where we see strong growth in the full group. We have a growth of 44% in net sales this quarter, and net sales ended up close to SEK 1 billion. We see a strong growth in both business areas, and the growth comes mainly from our acquisitions.

EBITA strengthened a lot in the quarter. We came out on SEK 102 million, which is a growth of 39%, and we are very pleased with the margin that we could get out from the business. It ended up on 10.4%, which is a real strengthening compared to all previous periods during this year, where we have been approximately on 8%.

Another highlight in this quarter is that we have now received a few large contracts in the area of welfare technology. The main contract that we press released comes from municipality of Oslo. It's a contract of NOK 120 million. It's a 2-year contract with possible extension for another 2 years. What we sell to the municipality is a digital platform with assistive devices for home -- senior housing facilities. This contract will be delivered somewhere middle of 2020.

In this quarter, we also report a strong cash flow from our operation, and that also accounts for the full year. So we are now on a good platform to continue the future growth.

To boil down a little bit more in the net sales in the quarter, as I said, it's strong growth, 44%. The organic side came out on 8%, which is much more than we have reported earlier this year. The year itself summarizes of 5% organic growth. What we see and summarize in the market is that market as such in Europe and in the Nordics is somewhere between 2.5% and 3% growth. Of course, it's different depending on what segment in the huge medtech market you work in.

Look at Sweden and Denmark particularly. We see good development, continued investment both in hospital, home care and also in the research side. In -- there is a high activity in the market, especially in Denmark. A lot of grants comes from private investors to academia, and we also see building on new laboratories. So we are pleased right now with the market we see in Denmark.

Norway in the quarter came out very strong. It's strong growth both in diagnostics but especially also in the home care part. And the home care part is, of course, the welfare technology that has taken off in this quarter.

Finland, which has been some trouble for us during the past in the Medtech segment, has stabilized in the fourth quarter, and it's the first quarter for a long time where we see growth in the Medtech part. So this is very positive, we see.

Out of the Nordics, we see that we have had really strong sales in the whole Central/Eastern Europe. The growth is especially in Austria, Poland and Hungary. And that is mainly in the field of diagnostics, but we also see growth when it comes to Medtech, which is most the clinical IT services that we sell in Austria. An area in the diagnostics that is good, it's really the food and vet and the point-of-care diagnostics in these markets. Summarizing the full year, we see that the growth is 40% for net sales.

Looking into the EBITA in the quarter, as I said, the growth is 39%. And we are very pleased that we strengthened the margin to 10.4%. The improvements in the margin comes mainly for a good organic growth in a lot of subsidiaries. We also have, as I said, strong sales in Biomedica, which meant that we had got better margins this quarter than previous during this year. And we also have some companies who really has focused the efficiency in how they work and the procedures, and some companies are actually doing some [pay] cutting to take away less profitable suppliers, and therefore, of course, the margin increases.

We look at the Wellspect deal that we did in April. We haven't still got a final registration for the full product range. So this has, for the full year of 2019, given us extra cost due to both registration and quality assurance. We are still awaiting from the authorities to get the registration, and we are in weekly dialogues to make sure that we can push that as much as possible. We expect this to be solved during the first quarter of 2020. And as I said, summarizing full year, a good growth of 24% and a margin of 8.8%.

So if we move into the Labtech business. This quarter as well as previous quarters in the year, it includes 60% of the Biomedica Group. We have an organic growth in the quarter of 4%. And what we see is that this is better than the average market growth in the Labtech business. The diagnostics, which is a main part of the Labtech business, have a good performance in most markets. We see especially good performance in the niche, which we are strong in the Nordics, and that is the blood gas analysis. And that growth comes from more installed instruments as well as more tests on the already installed instruments.

What we, though, see in the diagnostics field is higher competition in more traditional fields like coagulation. We see more actors coming into that niche. And therefore, we also experienced some price pressure right now in all the markets where we have coagulation.

The focus in point-of-care diagnostics increases, especially in the Central/Eastern Europe countries and Austria in particular. This is a very interesting niche where we have been very strong for many years in the Nordics. And we are really building that up now also in Central/Eastern Europe.

Another area in diagnostics that is growing is food and veterinary. These parts of diagnostics is more and more important in the Central/Eastern Europe countries. The only market where we have some hesitation in the last quarter is the Finnish market because we have some postponed customer projects in the diagnostics field. And overall, we can say that diagnostics, during last year, we didn't have -- it was a very weak influenza season, so we had a minimum of tests during this year.

Going into the research market, we see good growth in most markets with a lot of grants both to academia and to extra investments also in the private sector. Pharma in Denmark continues to be a driver, and they continued their investments. And we also see that there are new laboratories built in Denmark.

In this area, we sell our own advanced research instruments. That part of the business has performed very strong both in the quarter and also for the full year. We are very pleased how they have strengthened the margins during 2019. And that business is most important for us in China and U.S. And as you perhaps read in the report, we have also moved into the Indian market with a distributor because we think that is an interesting market who is in -- doing more and more research in the field where we can deliver.

If you're now in the presentation, you see on the next slide more details about the Labtech business, but I will jump that over. If you have questions, please come back later.

Moving into the Medtech business, 40% of Biomedica is in that business. We had an organic growth of 15%. And as you probably know, part of that growth comes from the integrated Wellspect product portfolio into Mediplast and Biomedica during the year.

Nevertheless, health services has a solid performance. We see positive development both in Sweden and Denmark. The growth in Norway has been really strong as well. Finland stabilized in the latest quarter. And as I said previously, Austria also has proven a good growth.

If we look at Central/Eastern Europe, we now have taken the first contract where we have sold our Nordic-owned products into these markets. So we are pleased to see that the work we have done the latest months have now got some new contracts in the pipeline. And as I said before, the integration of Wellspect product portfolio continues, and we have, therefore, lower margins in this area of our business.

Moving over to the home care. It has been a really strong growth in home care both in the quarter and for the full year. The driver for this growth is the welfare tech installations that we have done. Even though we took the big contract in Norway in Oslo, we have also taken another 80 Norwegian municipalities as customers during this year, and they have signed in for our solution with a digital platform. And we have, as you understand them, started a lot of deliveries already in 2019 to these municipalities.

In home care, we are also strong when it comes to bathroom aids and bathroom equipment, and we see good growth in the demand. But we have some delays when it comes to building projects for elderly care in Finland, which has put a bit hesitation in the Finnish market the last 2 quarters of this year.

The next slide in the presentation is some more details in the Medtech segment.

So if we then summarized 2019, this is what I think we said before. This is a real game changer for AddLife. It's a year where we do a lot of changes through the expansion out in Europe. We have built a great platform where we see a lot of future growth possibilities, both when we -- that we see that we can attract new suppliers or that we can attract existing suppliers to the new geographies that we have. We also see a lot of sales synergies between companies both in the Nordics and out in Europe. And we also now start to sell our own products in the new geographies. This platform gives us now also more opportunities to add even more acquisitions.

Summarizing the full year. I think we have had a strong growth both in sales and EBITA. The EBITA is still a bit lower than last year -- or the margin, and that is due to the reason we have seen or I have discussed earlier. But I think looking into the fourth quarter, we see that the focus we have on increasing efficiency and getting more synergies out in the business looks very promising for the future.

The Board has, to the Annual Meeting, proposed that we raise the dividend to SEK 2.40 a share. And they also proposed a split of the share into 4. The reason for this is that we see this as a possibility to increase the liquidity in the AddLife share.

So summarizing the year, close to SEK 3.5 billion of net sales, SEK 305 million EBITA and we are now 932 employees in the group.

I also wanted to share with you a little bit more details on the geographic sales split that we have right now. If you look at 2018, we had sales of 9% out of the Nordics. But in 2019, sales out of the Nordics is 31%, which is, as you see, a big change for us. If you look at the Nordic market, we see that Norway and Finland has -- are the countries that have really increased their proportion of sales in the Nordics during this year.

--------------------------------------------------------------------------------

Martin Almgren, AddLife AB (publ) - CFO [4]

--------------------------------------------------------------------------------

Looking at AddLife trends and if we go back to the listing in 2016, AddLife had a turnover of SEK 1.5 billion, and now we have SEK 3.5 billion. So yearly growth since the listing has been 24% on the sales side.

If we're looking at the EBITA at the time when we listed AddLife, the EBITA was SEK 135 million. And now in 2019, we ended at SEK 305 million. Also here, we have had an annual average growth of 24%. And if we look at the financial goals that we have in AddLife, we should grow the EBITA profit of 15% annually. So we have had a strong EBITA growth during those years.

If we look at the acquisitions we have done. So during 2019, we made 5 acquisitions with a total turnover of SEK 278 million. And we did acquisitions in both business areas, Labtech and Medtech. We have also done one acquisition in January 2020. We bought EuroClone, a company in Italy, who is working within cell and molecular biology, which is a segment where we are already present in the Nordics with our subsidiaries. The turnover in EuroClone is around SEK 280 million.

If we look at the income statement, as we've said before, we have a solid growth both on net sales and EBITA both in the quarter and for the full year 2019. And as Kristina said, this comes from good organic growth and increased efficiency in the companies.

I want to comment the increased tax cost that we have in the quarter and for the full year. And as we wrote in the report, this relates to changes in previously capitalized loss carryforward in one of our subsidiaries. Earnings per share is 4% lower. It ended up at SEK 5.14 for the full year 2019. And the main reason is that we did the rights issue, which increased the number of shares.

Going to the balance sheet. And the first I want to comment is that we -- since the last quarter had small changes, but as you all know, during 2019, we have an effect of the implementation of IFRS 16 leasing contracts, which has increased our tangible assets and interest-bearing liabilities with about SEK 216 million compared to last year. The increase in the equity comes from the rights issue that we did early in 2019. The strong cash flow that we have had during the year has had a positive effect on our interest-bearing liabilities. We have been able to lower those. So at the end of the financial year, the financial net liabilities ends at SEK 902 million.

The net debt to equity ratio is 0.6 compared to 0.9 for 2018. At the end of 2019, we had cash and cash equivalents of total SEK 439 million. So all in all, we continue to have a strong balance sheet that we can use to continue to develop our existing companies and also to expand the business with acquisitions.

Looking at the strong cash flow that we had in the fourth quarter and for the full year. The improved [upgrade still] comes both from earnings improvements, also lower tax payments and efficient management of working capital during 2019. The implementation of IFRS 16 had a positive effect of SEK 87 million on the operating cash flow in full year 2019 and SEK 22 million for the quarter.

Finally, some key ratios. As I said before, the financial goal is profit growth of 15% annually. And for 2019, we ended at 25%. Our next financial goal is return on working cap. EBITA through working cap should be more than 45%, and we ended 2019 at 51%. So both are well above our financial goals.

Now we open up for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Kristina Willgård, AddLife AB (publ) - President & CEO [1]

--------------------------------------------------------------------------------

Okay. Are there any questions to us?

--------------------------------------------------------------------------------

Operator [2]

--------------------------------------------------------------------------------

(Operator Instructions)

--------------------------------------------------------------------------------

Kristina Willgård, AddLife AB (publ) - President & CEO [3]

--------------------------------------------------------------------------------

Are there any questions in this call to us?

--------------------------------------------------------------------------------

Charles Robert Weston, RBC Capital Markets, Research Division - Analyst [4]

--------------------------------------------------------------------------------

I have a question, if I may. It's Charles Weston from RBC. Can you hear me okay?

--------------------------------------------------------------------------------

Kristina Willgård, AddLife AB (publ) - President & CEO [5]

--------------------------------------------------------------------------------

Yes, very good. Thank you.

--------------------------------------------------------------------------------

Charles Robert Weston, RBC Capital Markets, Research Division - Analyst [6]

--------------------------------------------------------------------------------

Great. So 3 questions, please. First of all, the 15% organic growth in Medtech in Q4 was obviously very strong. You mentioned Wellspect products, IT as 2 of the key drivers. I wonder if you could perhaps break that down, that 15%, and give us a little bit of a quantification in terms of the key drivers there from both a product perspective and a geographical perspective, please.

--------------------------------------------------------------------------------

Kristina Willgård, AddLife AB (publ) - President & CEO [7]

--------------------------------------------------------------------------------

Okay. Thank you for the question. I hope everybody hear, to explain more about the 15% growth in Medtech during the quarter. The IT -- if I start with the IT part, the IT part we sell today only in Austria, which is the clinical IT where we have installation in a few hospitals in Austria. I cannot -- since we didn't have that last year, that is not part of the organic growth. So the clinical IT is acquired growth in the quarter. So the 15% growth we see, that comes from the business we have in Mediplast before, the business we had in the home care part and some of the Wellspect integration.

So how to divide the 15%? I must say that I will probably do you disappointed. I don't have the split on how much of the 15% comes from partly the Wellspect business and the rest. The only thing I know is that -- or no. In Sweden, we see that -- and in the Nordic market, we see that we have good growth in a lot of areas like Nevro surgery in this quarter. And that is product that is outside of the Wellspect business. So I haven't got really good breakthrough to you. I'm sorry to say that.

--------------------------------------------------------------------------------

Charles Robert Weston, RBC Capital Markets, Research Division - Analyst [8]

--------------------------------------------------------------------------------

That's okay. My second question on EuroClone, please. Could you tell us what the margin profile of EuroClone is? And is it possible to disclose the consideration paid at this point?

--------------------------------------------------------------------------------

Kristina Willgård, AddLife AB (publ) - President & CEO [9]

--------------------------------------------------------------------------------

The margin as such in EuroClone is on average 10-plus, I would say, in that deal, which is the margins that we see normally in companies who work in this environment. The rest of that, Martin, how we...

--------------------------------------------------------------------------------

Martin Almgren, AddLife AB (publ) - CFO [10]

--------------------------------------------------------------------------------

Can you repeat the...

--------------------------------------------------------------------------------

Charles Robert Weston, RBC Capital Markets, Research Division - Analyst [11]

--------------------------------------------------------------------------------

I was just -- can you disclose what -- how much you paid for it?

--------------------------------------------------------------------------------

Martin Almgren, AddLife AB (publ) - CFO [12]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Kristina Willgård, AddLife AB (publ) - President & CEO [13]

--------------------------------------------------------------------------------

We did that disclosure in the press release. I don't have it right now, but probably Martin can...

--------------------------------------------------------------------------------

Martin Almgren, AddLife AB (publ) - CFO [14]

--------------------------------------------------------------------------------

I would. Normally, when we -- we have it in our report, but we don't mention exactly the amount for that. But I would...

--------------------------------------------------------------------------------

Kristina Willgård, AddLife AB (publ) - President & CEO [15]

--------------------------------------------------------------------------------

But that's not included in the figures for Q4 because we paid it in January.

--------------------------------------------------------------------------------

Martin Almgren, AddLife AB (publ) - CFO [16]

--------------------------------------------------------------------------------

No, it's not. No, sorry. Yes, we paid it in January. Yes.

--------------------------------------------------------------------------------

Kristina Willgård, AddLife AB (publ) - President & CEO [17]

--------------------------------------------------------------------------------

But you can say like this, we normally pay a more -- somewhere between 6, 6.5 on a company like this, EV/EBITA.

--------------------------------------------------------------------------------

Charles Robert Weston, RBC Capital Markets, Research Division - Analyst [18]

--------------------------------------------------------------------------------

And my last question, you mentioned sales synergies across the division as being a positive development. How do you do -- incentivize the different subsidiaries to cross-sell? And how do you manage any sort of conflict of interests in terms of the products that they -- these are potentially competitive products that they might sell?

--------------------------------------------------------------------------------

Kristina Willgård, AddLife AB (publ) - President & CEO [19]

--------------------------------------------------------------------------------

The incentive is, of course, each MD are incentivized by growth, profit growth in their company. And they also have incentives when it comes to do a few activities. So activities incentivized is really to take on new products internally from your sister companies, we call them. So that is one incentive.

But I would say really to give incentive, we don't do -- really need to do it because we see so high interests from all parties to really get out more and more from the business. So people really like to sit down, talk and meet each other and see -- go through -- what can I offer you, what can you offer me to make this happen when it comes to sales synergies? And of course, in the end, they will get that on their bonus. But short term, it's such high interest in the group, I would say, to really share and take from each other and build their own business. So I don't think I have to give so much extra incentives for that.

--------------------------------------------------------------------------------

Charles Robert Weston, RBC Capital Markets, Research Division - Analyst [20]

--------------------------------------------------------------------------------

Yes. Okay. And is there much conflict of interests between the -- between some of the suppliers within the individual sort of sister companies? Did they -- are there other areas in which they compete against each other?

--------------------------------------------------------------------------------

Kristina Willgård, AddLife AB (publ) - President & CEO [21]

--------------------------------------------------------------------------------

There are -- in some markets, we have competition between companies. Like, for example, in Finland, we have 2 very strong diagnostics companies. And these 2 MDs, they don't sit together and share business ideas because they really are competitors in the market. And that is one of the beauties with our model, is actually that we can have subsidiaries who are really strong in niches, and sometimes they are competitors in the market.

And we have them to make sure that we don't sort of -- that they can drive their business by themselves and do not share so much. So we really try to drive this separately just to make sure that the suppliers are happy with us because there are suppliers who otherwise would think it's difficult to sit with us if we have their largest suppliers in the world market in the same company. So we are really good at dividing that within the business, and that's part of our culture.

Okay. If there are no more questions, either you call us directly, mail us directly or otherwise send it to us, and we will try our very best to answer to you. Thank you for listening to us today. Have a good day. Bye-bye.