Good afternoon, and welcome to Revenio Group Q3 Earnings Call. My name is Jouni Toijala. I'm the Group CEO, and with me here today we have also our Group CFO, Robin Pulkkinen. The plan for today is following. I'm going to go through the business highlights of the quarter, then we have got a lot of questions related to sustainability, so we released the sustainability report part of the 2021 reporting package. I'm going to give a short update on the recent developments on that one as well. Then Robin is going to go through the financials and then shareholder structure as of today, and then reiterate the financial guidance. Let's go to the highlights of the quarter.
Q3, a very strong reported growth followed by the strong profitability and especially the cash generation. Demand for both product groups continued to be at a high level. A couple of highlights. Australia growing really well, same for Japan, same for Germany. Also India and Korea were among the top performing countries during Q3. If you look at the product portfolio, actually same story on Q1 and Q2. DRSplus was selling really well, EIDON family selling well, all the models actually. A basic EIDON AF and FA. I would say even the FA it was clear highlight, especially the EIDON FA was selling really well during Q3.
We have been continuing receiving a good feedback from the iCare HOME2. That has exceeded our own internal expectations also on the sales side, which is really good. In addition to the usability, we have also received a good feedback related to the device durability. Why this is important because from the business model point of view, of course the clients are able to, to do one time buy for the device, but the rental model where you actually rent the device for a couple of weeks and then return it, and then that device goes again to another client, so that has gained importance on a kind of business model side as well.
That's good that we have received good feedback related to durability as well. We have been going to the market, we had a couple of big events across the globe. Especially the ESCRS here in Europe, good feedback and good attention related to the ILLUME platform. We have now quite many pilots going on and more in a pipeline. Good feedback related to the ILLUME as well. Related to market conditions and uncertainties, I think everybody is, as in earlier quarters, paying attention to the electronic components. That remains still challenging. We haven't had any challenges on delivering the products, but it's still causing a hassle on two fronts.
Of course, the increasing cost pressures on the cost of goods sold point of view. We have been constantly preparing that if there's component shortages, we should have plan B's and plan C's related to the actual design. That has been a constant impact on the component side as well. If we come and go to the visibility of the coming quarters, Robin of course is going to reiterate the current guidance, that has not changed.
Of course if you look at the geopolitical situation and then possible slowdown of the economy in coming months, I think it's fair to say that the market is at least pretty turbulent when going forward. Let's switch gears and go through the numbers. The reported net sales at EUR 24.1 million, 24.6% up from last year. Then strong EBIT performance, so EUR 7.7 million up from last year, 28.9%. I think it's fair to say as in Q2, so also Q3 we got a strong tailwind from the US dollar exchange rate. The currency adjusted growth rate was 12.2%, so we got roughly EUR 2.5 million tailwind related to the exchange rate.
Cash flow, very strong, so that's really good. That is money which sits in the bank account, so EUR 7.1 million up from EUR 5.8 million last year. Robin is going to go a bit more detailed the numbers in his part. Then related to sustainability and the ESG. We have got many questions related to this one, plenty of questions from analysts, plenty of questions from our existing shareholders. I'll spend a bit time on this one. United Nations has declared the commitment to vision for everyone by 2030, and this resolution was adopted by all, meaning all 193 countries in 2021. The objective of this is to tackle the preventable sight loss as part of the UN Sustainable Development Goals.
Already years ago, we have selected 8 different buckets from UN Sustainable Development Goals. Then we further group them into four different buckets. The first one is that our goal is to improve the quality of life by the products and services what we offer to our clients and patients. Why this is important. If we think the mortality rate, this is a study coming from The Lancet Global Health, reputable study from the last year. Mild vision impairment increases mortality rate by 29%, and the severe vision impairment increases mortality rate by 89%. I think that's the basis where everything starts. That's the basis of why we come to the work every morning.
We aspire to keep the wonderful world visible for all, and this is the basis why we believe that we improve the quality of life. If we go back to the strategy, one of the key cornerstones had continue profitable growth. The logic here is that our aim is to grow together with our partners, with our stakeholders, and bring the value throughout the whole supply chain as well. If we can grow in a profitable manner, all our business partners are able to do the same. We are able to invest money to the continuous development of processes, the product, so that they are going to be more sustainable in a long run.
Then also we are able to better monitor also the whole supply chain, and let that, in the end, is going to then lead to the much more better environment. Last, but definitely not least, we have a strong commitment to the responsibility and transparency, whether it is related to the code of conduct, whether it is related to all the equality-related items. Concrete things after the 2021 ESG report. Sustainability is key part of our operations. It's key part of our strategy, and I think the good illustration of that one is that already this year, starting from this year, the total leadership team have had the sustainability ESG-related items in a short-term target setting.
That's, of course, going to continue next year. We have been conducting two independent sustainability-related studies. First one is the EcoVadis. We run that one during the reporting period here in Finland. We achieved the silver level status on there, so room for improvement, but we are on the top 75% of the companies. The plan is to extend that study at the other locations as well. We have been working with the Upright in order to understand the Revenio's business impact to society, knowledge, human health, and the environment. There, the net impact ratio was 68%. Just to give a kind of a benchmark for that one, the Nasdaq Helsinki main list index is -21%.
Definitely still plenty of work to be done on the ESG side for us, but I hope that everybody understands and perhaps hears a bit more light that this is core of our strategy and core on our operations as well when going forward. The next report is going to be released part of the 2022 yearly reporting package. With these words, I hand over to Robin to go a bit more detailed through the financial part.
Thank you, Jouni. You can jump to the next one, maybe. There we go. Like Jouni already covered a bit the Q3 numbers. The full year so far, we've been really happy with the performance. The reported growth roughly 25%, reaching EUR 68.7 million. Looking how we've done earlier, 2021 for the first three quarters, our FX adjusted growth, basically for the comparable period, our FX adjusted growth was 34%. We have been going against really tough comparables and still performing really well. We know that the FX has helped us a lot. For the whole beginning of the year, the FX impact has been some EUR 5.4 million. Even though it's FX, it still is real money.
It hits our bank account every month. Basically it is not just something that makes the numbers look nice, it also actually in reality flows through to the balance sheet and the cash. Profitability and the gross margin at a really good level. The FX also, roughly half of our sales, just a reminder, is US dollar-based. We do have also costs in US dollars, so all the FX doesn't flow through to the bottom line. Some of the gross margin or the cost of sales group that has some dollar-based costs like the commissions in the U.S. and some of the components in our product are US dollar priced, but also some of the operating expenses are in dollars.
Basically more than half of that FX actually does flow through to P&L. The gross margin actually up 1.6% from last year is also having a positive support from the FX. Operating profit 7.7 million for the last quarter or the Q3. That's up roughly 29%. If we looking at the full year, we have also the adjusted operating profit here. For just a reminder, we acquired the Oculo business last year in April. For that, we've adjusted for the full year numbers, the EUR 0.7 million kind of acquisition-related costs. The comparable number not being the EUR 15 million reported, but EUR 15.7 million against our year to date, EUR 20.3 million.
The adjusted comparable number adjusted operating profit actually is up roughly 28.3%. EPS EUR 0.61. Full last year was roughly EUR 0.65, we're some 6% to 7% behind the full last year EPS after three quarters. Net gearing also back to below zero. Equity ratio really strong. The balance sheet has remained at a really good and strong level. We basically hired some 30 people during the quarter compared to the year earlier. Some of the historical views. You can see our net sales how it's performed over the last quarter. Our top line does have certain seasonality. Typically we start lower ending up with the stronger Q4.
Not hinting what it's gonna be this year, but historically, Q4 has been the best quarter for us. That you can also see on the profitability graph on the right. You can see operating profit going up very much hand in hand with the top line. Our business model is very scalable. The operating expenses is 60% salaries. We have been hiring a lot of people over the years. Basically the model is very scalable, as it goes, and you can see it as well in the operating profit and how that actually flows through to the profitability line as well. Next. Cash flow also following a typical trend. We start the year off typically quite low.
It's related to us paying out our bonus payments or the LTI and STI target settings, and the payments are annually paid for majority of the employees in the company. Taxes go out in the Q1 . Basically then throughout the year, we hopefully improve also. That's been the trend typically. The Q1 is the worst, and then it starts to get better towards the end of the year. So far this year has been following a quite typical trend. I think this also the working capital actually did go up a bit last quarter. Basically we'll make sure to work hard to make sure that actually in the accounts receivable, we'll be able to get that down by the end of the year.
There are certain drivers behind that which it's not a surprise to us that it did go up. On the equity ratio, you can see it's actually at its strongest level it's been since the acquisition of CenterVue. We used to have really strong equity ratios back in the day when we only had the tonometer business. Since the acquisition and the balance sheet changing dramatically, this is actually as good as it's been since 2019. The net gearing also actually below zero now. If you look at the prior years, the net gearing has been actually 6.7% in 2020, more than 11% in 2021, and now it's minus 1.1%.
How it works is basically the dividends pull the net gearing up, and then Q2 last year we also acquired Oculo with the cash reserves. The net gearing went up to 20, and now it's Q2 this year we paid dividends, and now it's actually just coming down again when building our cash reserves. Some of the main shareholders, nothing much changed here. William Demant, the largest owner, has actually continued to buy some more shares. They've, they were closer to actually exactly 15% if I recall right after Q2. They bought some 0.4% or so of the company shares during the last quarter. Finland ownership.
Finnish ownership is still the majority, but the nominee register and the foreign ownership has continued and does continue still to grow. So the foreign ownership, I think it was still end of last year, Finnish ownership was more than 50% and this year, the foreign ownership has grown to become larger than the Finnish ownership. The guidance, like Jouni mentioned, hasn't changed. Our exchange rate adjusted net sales are estimated to grow strongly from the previous year, and profitability excluding non-recurring items is estimated to remain at a good level. Here on the right you can see some of the longer trend, looking back how the company's performed.
Thank you, Robin. I think we are ready for the questions, please.
Thank you much, sir. Ladies and gentlemen, if you've dialed in and you have any audio questions, please press star one on your telephone keypad. Please also ensure mute function is not activated unless, say, to mute your equipment. Once again, ladies and gentlemen, please press star one to ask a question. Once your line is open, you will get a prompt saying your line is open, and just please introduce yourself and your company before asking your question. We'll take our first question now. One one, please.
Hi, it's Daniel Lepistö from Danske Bank. I have a couple of questions. The first is about growth. Looking at this, currency adjusted growth of 12% during the quarter, it seems to be the slowest we have seen in past few years even. I guess my question is that, are you happy with this current level, maybe reflecting to your current guidance of seeking strong growth? And is this level of growth strong enough for you looking forward? Thanks.
This is Robin. I can try to answer. Looking at historically how the organic growth has been, the cleaning out, if I remember, the CMD which we had, we're looking back from 2016 towards 2020. Our kind of organic growth back then has been 13%, 14% roughly, when you clear out the acquisitions. Now the corona time has made our numbers act quite strangely. Like you remember 2020, the tonometer group has grown really strongly. The imaging group products had been growing strongly since then and still had continued throughout last year. Last year, our organic growth was 34% for the first three quarters.
If you look at the comparables we're looking at from this year, it's 34% growth compared to basically the historical of 13% to 14%. The comparables are tough, but I think our target is to be at a higher growth level in the longer term. One quarter is not really. They are quite a short-term or kind of a time window to do any longer judgments.
I would still like to state that the guidance remains the same.
Yeah
for the rest of the year.
All right, thanks.
Well, thank you.
Maybe to ask a further on that one. Can you estimate a bit what's the impact on the sort of new volumes sold in terms of tonometer or the imaging devices? Because you made some price hikes earlier this year. Can you give any sort of clarification on this one?
Yeah. The volume units haven't grown as much because of the FX. Kind of you can see that the reported, right? The reported growth is higher than the unit growth because of the FX. It acts pretty similarly than the FX adjusted.
All right, thanks. Maybe the second question is about the, your current customer base and this sort of economic slowdown and recession we are heading globally. How resilient do you see your current customer base in terms of their investment decisions and activity if we are heading towards this global slowdown?
I might try to answer this one, and I think we have two things here. The first one is kind of a higher level, a macro spin on this one. That's for sure that there's going to be more patients who are going to need care, and then there's going to be pressure on the eye care specialists to treat them in the coming quarters. That's a clear sign. At least the patients are not going to vanish anywhere. Rather, there's going to be more patients coming in to have care. The second thing is that the medical industry, that's quite defensive.
If we then come back to our business, our view is that of course, if something I mean really goes haywire on the geopolitical situation, I think we are not immune either to that one. If looking at the two main client bases that we have, at least if looking at the Q3 and going into the Q4, the ophthalmology practices, they are feeling the pressure of patients coming in. Then in our scenarios, of course, we are slightly concerned at how the optometry side is going to go.
If costs are going to go up on the energy, if they are going to go up on the food, are there going to be as many people going in and buy new spectacles or spending money on the optometry side of the business? That might lead to the weaker investment willingness also for the devices and for the software. I think that's one aspect in an overall equation. At least so far the feedback is that we haven't seen the slowdown, at least not yet. Remains to be seen. We don't have a kind of full solid crystal ball on that one. I think that applies for all of us.
Anything, Robin Pulkkinen, to add on that one?
No. I think historically the medical technology or the health side of industry in general hasn't been that immune or kind of impacted that much by the economic slowdowns. There are many other industries that are swinging up and down more. The demand, at least for us, has historically shown to be quite stable even in rough times.
All right. That's helpful. Maybe if I continue on that one. The optometry side, which you mentioned that could be a potential concern, any estimate how big of a portion this is from your current customer base?
I mean, the answer is that we don't have a full visibility on that one, so we have visibility in the U.S., more visibility in the USA, but then when we work through our distributors, actually we don't have the detailed data on that one. So sorry for that one, but that's the case.
All right. My final question is about that you note in the report that HOME2 has received some excellent feedback. When do we get to see some numerical highlights or some sales performance or any market size estimates for this great product?
I think we currently don't release any numbers on any product sales units, so we haven't really decided or discussed either when or how would we open up a bit more how the HOME2 is doing. At least I don't see that happening any of the near next year or next year quarters at least, or my estimate would be. It's maybe something we really haven't decided yet either.
Okay. That's all from my side. Thank you.
Thank you, mister. Ladies and gentlemen, once again, if you have any questions, please press star one. Also please when you get the tone saying your line is open, please introduce yourself. one one, please.
Hello. This is Niko Ronés from SEB. I hope you can hear me.
Yep.
I'll have a little bit continuing on the topic that Daniel asked about, the volumes and, like, organic growth rates. Can you a little bit open up the growth rate differences between tonometer and fundus imaging in Q3 where there are huge differences in the growth rates?
Both product lines were doing really well, so very strong growth. I think the imaging did actually a little bit better. Basically, I think the tonometer in general have been performing really well this year. Looking at the Corona times, it's been growing really fast. Looking at the end of 2019 and then going into the Corona pandemic, it's actually performed really well and still has continued to do so this year. Also has the imaging, so we really haven't had any weak areas in our portfolio. I think the perimetry side we could do better, but basically the imaging and the tonometry are doing really well.
Understand. Are there notable differences how much the price increases and FX help the sales growth between your different areas?
I don't have that detail right now available to answer that very well. Do you, Jouni?
No. I think from the price increase point of view, we increased the prices 21%.
Yeah
3%, and then beginning of May, 4% this year.
Yeah.
That was across the whole portfolio.
I don't really have the split effects related to that, so hard to answer from right now.
All right. Understand. Then about the ILLUME, you mentioned about it in the report that you have a customer pilot starting. Have you received any further feeling about that? When will this be earnings generating for you?
I would say so, and kind of restate what we discussed also during the Q2. We are estimating that because of having a screening solution and being able to bid for the screening cases. Next year we are able to get more DRSplus sales related to the screening cases. Then I think that still holds even that there's a lot of discussions, there's a lot of interest related to ILLUME as a platform. I think this applies for all AI players in general. The amount of the money come from the software business models and the pricing, so that's still work under development for whole all industry.
We are not forecasting to have too much money coming next year on the software side, but from the device side related to screening, yes. There's growth coming.
All right. Understand. One last question from me. Could you talk about how much salary inflation are you seeing, and do you see that accelerating next year?
This year our increases have been pretty much the union increases in Finland, Italy, maybe 3%. U.S. 4%. Next year we are estimating or kind of planning ourselves that the globally roughly 5% placeholder, but I think that's still to be seen, but that's what we are, we're kind of expecting at this moment.
All right. That's clear. That's all from me, so thank you.
Thank you.
Thank you.
Thank you very much. Ladies and gentlemen, once again, if you have any questions or follow-up questions, please press star one. We'll now take our next question.
Hi, this is Pia Rosqvist-Heinsalmi from Carnegie. I got three questions. First of all, this autumn the traditional trade fairs have started both in Europe and in the U.S., and you've been present in these. Have you seen the interest from those trade fairs turn into orders or into sales yet? What kind of activity levels did you see, and should we expect, you know, a boost in sales from that?
I may pick up. Hi, Pia. I was in ESCRS that was held in Milan. Lot of people and I mean lot of traction in our side. That was really good. I think that we don't have clear data that how much out from that one is fully turning to the sales, but at least related to ILLUME, so on that side, we have had after that one many continuation discussions. If we talk about Europe, we can see the sales realizing through the distributors then. It's slightly hard to fully say that what came out from the exhibition and whatnot.
I must say that it was, there were a lot of people, so it was really good. We were also in AAO, so I was personally present in AAO in Chicago. I would say that in the trade shows in the USA, trade shows have been now active. I think the number of participants, it's not as big amount as before the COVID, but then there's more quality clients coming in. There's not too much people who just pop in. From the AAO, we managed to close pretty well deals on the tonometer side and then also on the imaging side.
There, because we work directly, there we have much more better visibility.
All right. Good. That sounds encouraging. In the report, I think you mentioned something about the multinational clinical research trial in the Q3 . Just a clarification, is this something you have recognized revenues for in Q3 , or is it something we should expect, you know, to be gradually converted into revenues over the next quarters?
This is Robin. Yes, we signed it and closed the deal in Q3. We did do some deliveries, but there are still deliveries to be done in the coming quarters. It's not a multi-year distribution of revenue, so rather the next coming quarters.
Okay. When you mention it, mention it separately, I mean. Can you give some kind of indication of what size this trial is in terms of revenues?
No, we haven't disclosed the size or the price value for the deal. I can't. We're actually quite tightly tied with the NDAs on the contract, so.
Okay. Is it like it's still multi-million?
Yeah, it's more than EUR 1 million, yes. We wouldn't probably mention it otherwise.
Looking at your balance sheet and your cash position, it really allows more M&A. Would you say you are any closer to finding a suitable partner or acquisition candidate, or is this, as you said earlier, a moving target and work in progress?
I might pick up this one. It's Jouni. We actually have been constantly working, so I think it's fair to say that nothing is not going to close this year, but I think that we have been working on that topic, and that's on our agenda. But I mean, nothing further to comment on that one. It's as said earlier in earlier quarters, so that's definitely an area that we are looking into.
All right. Good. That's all for me. Thank you.
Thank you, Pia.
Thank you very much, ma'am. Ladies and gentlemen, as a final reminder, if you have any questions, please press star one at this time. Gentlemen, we do not appear to have any further questions.
Okay. Hey, thank you, everyone. Thank you for your participation and interest, and have a extremely good autumn and the forthcoming holiday period. Thank you very much and see you next time, it's February 23. Bye.
Bye-bye. Thank you.