Earnings Call: Q4 2020

Feb 11, 2021

My name is Robin Pulkinen, and I'm the CFO for our revenue group. I'm joined by Joni Tojela, our CEO. We plan to run you through the presentation where Joni will go through the business summary followed by my section where we run through the numbers. And after this, you will have a chance for any questions you may have. With these opening remarks, I will hand it over to Joni. Hey, welcome, good afternoon, Everybody, my name is Jonny Tojela, and I'm the CEO of Revenio Group. So let's start by Going through the effects of the COVID-nineteen pandemic for the revenue group during 2020. So we could divide last year in 3 different sections. So the first section is The time before the lockdown, then the lockdown period and then the life after the lockdown and the recovery period for us. So if we go for the early 2020, so January, February, Our biggest concern was, is the supply chain going to be impacted by the COVID-nineteen? That Went really well. So we didn't have any disruptions to supply chain. No electronics, no plastics part coming from the China and so forth. So the supply chain was in really good shape, and it has been in good shape for the whole time. Then if we go to March, we go to April, we go to the May time frame. So that was the hardest period for us. And in a way, that was double sided. So the tonometers were selling actually really well because of the COVID-nineteen and the hygienic requirements. But then we had really difficulties On the Imaging Product side, because of the lockdowns and sales team was not able to see the clients, we were not able to deliver or install the devices. And then if we go for the Q3, Q4, so we saw Bit by bit then recovery also in terms of the imaging devices. But let's jump in more detail to the Q4 performance. So net sales, strong growth there. So We ended up to €19,700,000 with roughly 32% year on year growth. And the EBITDA It was €8,300,000 and the growth was quite significant, so plus 43.7 percent. And during the Q4, we also issued a positive profit Warning concerning the July December. And the big reason for that Was that the we were expecting much more kind of a modest growth, especially in the U. S. A. For the second half. But it turned out to be that the actually U. S. Business was growing really fast for us In terms of the tonometers plus the probes, and we also saw on the imaging side that the Q4 was Stronger than the Q3. And then the overall, we could say that the second half Was a way stronger also in an imaging side compared to the first half twenty twenty. And because of the growth, we were also scaling up the production also on the probe side. So these were the highlights for the Q4. And if we are looking at the Overall performance of the year 2020. So really, the hardest time for us was The April, May time frame and especially on the Imaging device side. And Then gradually, we have been seeing that the Q3, Strong pull from clients in the tonometer and the probe side, same for the Q4. And also increasingly, we have seen that the imaging product sales is rebounding in the levels of the pre COVID during the Q4 2020. So that's where do we stand today. And I Let now Robin to go through in more detail the key financials for year 2020. Thank you, Joni. So like Jonny mentioned, our sales performance was in these conditions extremely good, especially the second half and the Q4 closing with 31.7% growth and that's the reported number, of course. So the FX was giving us some headwind. So the currency adjusted growth was almost 36% for the Q4. In this table, you can see there's some adjustment lines for the EBIT and EBITDA. Those are actually helping us to adjust the numbers to more level where we can really compare apples to apples. So there's some one time items in the reported numbers, which kind of mix the picture a little bit. So what we've adjusted for the comparing, so the reference Meaning 2019 is that we've taken out the onetime kind of centrifuge related transaction costs. And for this year, we've adjusted the Kootika write down. And then when you look at this adjusted EBIT line, for example, for the full year, We've actually been able to grow over 24% the EBIT level and then also the profitability has grown. And the same thing goes for the EBITDA line, 24.8% growth and also 35.5% out of the revenue. And also the profitability has increased during the COVID year. What we've done here is we have not let any people go. We have got no running legs in the company. Actually, we have continued hiring some more people during the year. We continued all the R and D development project we had planned originally. So we haven't cut anything from the day to day business and the future investments we have been doing. The area where we are Spending has been a bit lower, is the travel, trade shows and marketing rated cost for some part. And of course, maybe there's some people that we planned originally hire more, which we didn't fill. So we did hire, but necessarily not all the positions that we originally thought. If you look at the Q4 numbers, I noticed that many of the analysts have already picked that there also was some one time revenue or other income from the CenturyV transaction related. So actually, we had a similar €1,000,000 item also in last year Q4. So last year, there was €1,000,000 adjustment to the original purchase price of CenterView. And this year, there were some contingent considerations, which we had accrued in the balance sheet, which never took place. So We're able to release that accrual and then now it's also sitting in the other income. So basically, in both years, we had that same SEK 1,000,000 impact. What's quite extraordinary is that when you look at the full first half versus the second half and especially the growth. So if you remember, we acquired Centerview in the end of April 2019. So for the first half of this year, we had 4 months of unorganic growth from the Centerview business and Our currency adjusted growth for the first half was 25.5%. It's actually a little bit less than the reported growth. When you compare that to the second half where we truly we had Centovir in both year numbers for the full year, The second half reported growth 21.4 percent, with currency adjustment 26.6 percent is actually Stronger, so we are able to grow on the second half currency adjusted over 1% more than on the first half. And even in the first half, we still had the 4 extra months from the unorganic growth compared to Centerville acquisition. So a very, very strong second half for the year. Here's some of the key figures and their development. So Of course, COVID caused uncertainty during the year and it actually still continues to do so when we go into the New Year. Our balance sheet has remained very strong. Also, our cash position has been improving. So our operating cash flow grew by 23%, was over NOK 15,000,000. Basically, we have more cash on the balance sheet than we have interest bearing debt. So our net gearing is actually back to negative after one positive year after the Centerview acquisitions. So basically, we're in a very strong financial position also from the balance sheet point of view. And it's an important Item that we'd like to keep it that way because we like mentioned earlier, we also continue to consider unorganic growth opportunities if they emerge when we move forward. Shareholders and share. Our ownership table, basically, there's been actually a lot of turnover over the year. So The revenue share liquidity has been really high. There's almost SEK 500,000,000 of turnover over the year, comparing to NOK 125,000,000 in 2019. So the turnover actually went up 2 60% year over year. And actually, the number of shares even, so we have 54% of the shares traded during the year compared to prior years when it has been a lot lower. So in 2019, 22.5% of our shares were traded. Some of the big owners of William DeMant has become the largest owner. They flagged that they went above 10% ownership in June. Also another flagging on the ownership list is the Capital Group, which fell below 5% in October. Some of the new larger investors on the list, you can see Columbia Threadneedle, number 3 Tin Funds, number 9 BlackRock and Artisan Partners 14 and 16. Our nominated nominee registered owners Count to approximately a little bit over at 42% at the moment and the private individuals still hold about 40%. Our number of shareholders went up significantly during the year. So last year, we had about 12,400 shareholders. Today, at the end of the last year, we had 20,200. So there's a big growth in the number of owners we have. Share price development, I'm sure everyone on this call knows how it's been performing. We started the year at 26 25% closed at 50.3% for the full year, 91.6% increase in the share price. If you look at the drop in March for the COVID pandemic hit really hard, there was a drop from the opening kind of share price of 26, 25. It actually dropped 30% to be lower lowest point at 18.48. From that low point, it's gone up about 175 percent to where it closed the year, and the market cap for the year end was 1,340,000,000 Eurus. Our financial guidance. So though the COVID pandemic continues to cause uncertainty Related to the markets, revenue group's exchange rate adjusted net sales are estimated to grow strongly from the previous year and profitability is to remain at a good level without non recurring items. The board has proposed a dividend of €0.32 To be paid to Vitol shareholders, that represents a 63% payout ratio. So also kind of going back to the comment earlier on maintaining a strong balance sheet also for the future opportunities that they may lay. But That's it from the numbers point. Thank you. If there are any questions, we will be happy to answer. Thank Our first question comes from the line of Julius Rapley from SEB. Please go ahead. Good afternoon, guys, and congrats on the great report once again. I have a couple of questions. Firstly, Starting, is it any possible you could provide some help for us on the split between Onometry and Imaging sales now in Q4 and We haven't hi, Jonny, it's Jonny here. So we haven't, of course, fully disclosed The detailed numbers about the division between the tonometry and imaging. But I think it's fair to say that if you look to first half 2020, so tonometer sales, we were up, but the imaging sales was Significantly down compared to 2019. And then if you look the on especially on the imaging side, Q3, so we started to see the rebound Compared to 2019, but it was still a bit under. And then the Q4, we started to be on the same level. So there's a clear rebound now what we saw during the Q4 also on the Imaging side. And now let's have a see how it's going to go through during the Q1. But these are, in a way, the levels that we are able to disclose because we don't disclose the exact A split between the tonometer business and imaging business. Anything on this one? All right. Perfect. That's very helpful. Yes, maybe if I can have another question as well. On the gross margins, I mean, you had still Your gross margin is still at relatively good levels in Q4, but slightly down from previous quarters. Was this due to the change in mix From increased sales in imaging devices and just thinking how sort of how should we think In 2021 on respect of the gross margins? Yes, I think this is Robin. Hi, Ulios. Basically, the Jonny mentioned the imaging has been gaining and improving throughout the whole year, basically since April. So April was a really bad month, tonometers and imaging point of view. But basically since then, it's been recovering. And of course, Q4 is a very strong month also for the imaging or kind of back to normal month for the imaging devices. So that also plays into the gross margin. But also we did have some larger deals or not specifically large deals, but Some quite nice orders on some of the older devices, which have lower gross margins, so which also played a little bit into the overall number for the company. All right, perfect. Thanks. That's all from me for now. And the next question comes from the line of Paolo Lohe from Nordea. Please go ahead. Hi, I'm Paolo Lahiri from Nordea. Thanks for the presentation. I would have a couple of questions. First of all, about the fixed costs in Q4. I think the costs recovered a bit Sequentially after Q2 and Q3 costs being down a lot year on year, do you see that you still got benefit From COVID-nineteen that there were less travel and marketing expenses. Yes, those costs haven't rebounced at a full level. So they are and most likely will remain below normal, of course, for even the first half, at least for this year. So that is not the case for Q4. There were some certain larger projects that closed and also some conversation related items that We're a bit higher than in the earlier quarters, but basically, there will be general spending in travel and trade shows, for example, is still quite low most likely for this beginning of this year. So we haven't really started traveling heavily in the company. Okay. If we exclude the COVID related or travel related costs, what kind of Outlook you would have for the fixed cost in the coming 1 to 2 years? So I think the We plan to hire more people, so that is in the plan. Of course, we're now following carefully how the pandemic continues or develops. So even in the board level, we have kind of we haven't really made a full decision on all the investments for the So we're kind of keeping a close eye on how the pandemic develops. But the plan is if the world returns Back to normal at some stage, of course, we plan to continue to grow aggressively. Okay. And then one more question about imaging. You commented that demand was actually Almost normal in Q4. Was that very clearly about the new product CRS Plus Or do you see kind of broad based demand increase and maybe pent up demand after After pandemic, like in all products? Yes. So if we look at the 2nd half twenty twenty and the Q4. So we there were quite high demand, of course, for the DRS Plus because it's a quite unique product, it has true color confocal, which is really affecting to the image quality and it's in a reasonable price point compared to the competitors. So we have had constantly quite high demand for that product. Then also so called ADON family, So that was selling really well. And then we managed to clear a bit Of older DRSs actually from the stock during the Q4, so That was really good. And we basically see also for the ongoing basis that there's continued continuing to be the demand for the Aiden family and for the DRS Plus. So those have been selling pretty well. Okay. Thank you. No further questions from me. And the next question comes from the line of Pia Roskris, Carnegie. Please go ahead. Yes. Hello. It's Pia from Carnegie. Thanks for taking my questions. On tonometers and the exceptionally Strong growth you saw in 2020. You have disclosed, of course, that part of the reason is a strong growth In U. S. And you also received some larger orders, but now looking into 2021 and particularly for tonometers, Can you describe the growth elements? Are there any particular elements Driving growth on top of the very strong growth you saw in 2020, please. Perhaps I pick Hi, Pia. Joni here. So I think that what has Been the trend here is actually around the hygienic requirements and the easiness Of the use and I think that's according to our understanding, that's going to continue still when going forward. So I think there's definitely a trend now regarding the rebound tonometry And related clinical workflow that it's quite easy to handle the increased hygienic Requirement, so you only just change a probe and that's it when you change the patient. And I think this has been the trend already during the Q2, which was driving And in a way, our growth and the resilience during the Q2, still on the Q3, Q4. And I think that's in a way a one single, if I had to point out one point that would be What's the perhaps the growth driver also for 2021? And then that, of course, Impacted to the use of probes during 2020, and our assumption is that it's also going to impact the probe usage during 2021. Anything, Robin, to add on here? Yes. And I think or of course, we hope that the imaging also continues on the trend it's been, But it's hard to say, it's more delicate what comes to any changes in the pandemic situation clearly. So We need to keep a close eye on how that develops. Okay. Thank you. And If I can continue then, still on tonometers. Can you help us understand how much of the demand is So called replacement demand or is still most of your sales kind of New sales. Sorry, Pia. I don't have a full answer on that one. So I would assume that the products what we have sold, so there's still TAO-1s, which They have been there for a long time, so they are still working. And then I kind of have a feeling that There's also now a trend that we are taking market share from the Goldmans and from the NCDs, I. E. The air So I but we I don't have kind of full figures, but I we have been gaining market share from others, that's sure. Anything you want me to add? We have ongoing replacement campaigns in the U. S, for example, which is the biggest market for us. So There we do get some tonometers back. It's a vast majority, of course, is new customer sales. The good thing about the replacement kind of offers we have out also is get we get a lot of competing technologies, which we replaced with our instruments. So It's kind of working nicely there, but basically, it's still the big volume in new customer sales. Okay, very clear. Thanks. If I still may continue on tonometer, So do you have anything particular to share on the home device and how the take up Of that develops? I think it's this exactly the same status what we Discussed during the after the Q3, so from the percentage point of view, The sales is increasing a lot. But then in terms of the euros, so of course, compared to the other business, so we Would be really willing to have more euros in as well. So percentage wise, Growing fast, but there's still room to grow in absolute euros. Okay. Thanks. Still a question on Costs. So can you quantify the so called temporary cost savings or cost savings from Travel less travel, less marketing, less campaigns during 2020? Well, we haven't really disclosed it, but basically, it's very significant. So we're talking about in the millions. I think I'm just trying to remember what we disclosed in Q3. I think it was 1,700,000 we disclosed there as the saving. And on the travel side and marketing and the trade shows, that, of course, Mostly also was true for Q4 and probably is, of course, because nobody can travel, it's probably true for the beginning of this year, too. I think the one change perhaps to that cost base is that, of course, we have been constantly Increasing the investments on the digital marketing side, I think that's one caveat, if taking out the travel and kind of trade fairs and so forth. So I think their situation is going to be about the same. But the digital marketing, we are putting more money on that one during 2021 and during the Q1 and Q2. Yes. Okay. Thanks. Then to your capital allocation policy or I try to remember, do you have a dividend policy? I'm Just looking at the dividend and it's still sizable compared to the earnings per share. But is it fair to assume that looking at the changes in your ownership structure that the Payout ratio is rather declining over time or should we assume it to remain At the current level? I think the my maybe not Fully studied answer would be that my feeling is that our current Board is kind of And as we think consider ourselves a growth company where the dividend payment is not necessarily the number one target for us when it comes to dividend policy. So I think the ownership and the board seems to support the idea if we have better use for the money, Then that's also a consideration to or an item to take into consideration. So it's not really Something we can guarantee that we will continue to grow the dividend every year, but for the last 4 years, it's been growing with $0.02 a year, so from $0.26, $0.28 to $0.30 now $0.32 So it's been on a growing trend, and I think if we don't have any better use for the money, it will continue to do so also in the future. But there's no commitment to that. Okay, clear. And then final, Before I jump into the queue, the European Medical Device Regulation, you talked about that in the report. What kind of I mean, in fact, What kind of impact does it have on you now in 2021? So we, of course, started so if thinking the MDR, so we were already doing the homework Last year, then it was postponed 1 year. And then, of course, the work is ongoing. So of course, we are going to be compliant based on that one. And I think the one of the biggest change there is going to go then What's going to happen is related to the software. So as an example, software, I say, medical device regulations and so forth. So of course, in the products that are requiring that part of the regulation, so Our Qualit team is already working heavily to be compliant on the MDR related requirement. So it's the, in a way, bread and butter what We do because otherwise we are not able to sell anything. Okay. Thank you. Hopefully that answers, Yes. Yes. Thanks. We have one more question from the line of Daniel Lupisto from Danske Bank. Please go ahead. Hi, this is Daniel from Danske Bank. So I have a couple of questions. First about the guidance. So You state that you expect the profitability without non recurring items to remain at good levels. So does this translate And that you expect no further margin expansion from the current levels, at least near term? Or how should we see this? I think the I can't really open exactly what I mean in percentages wise, but I think The wording is pretty similar. We've used in the full year guidance in the earlier years. And of course, in this COVID environment, We don't want to be too aggressive also in the guidance, so I think it's kind of a it was a very long discussion in the board yesterday regarding the earnings. So I think our current earnings probably kind of idea is that we don't probably expect to have a similar Full year than we did like, for example, Q4. So lower kind of Guidance compared to the second half were kind of objectives we used. Okay. So the next question is that, is the best related tonometer market included in your US200 $1,000,000 global market size estimate? And How is this how big is this wet business currently for you? The wet is not in there. It's quite small market. Our product has a very, very large market share actually. So but it's not in the €200,000,000 but it's a very limited Market size in the whole, our market share is, my estimate would be above 80%, my understanding of the market share. So It's a very big share and it's a very profitable business because there is no regulations and no kind of sales permits that you need to apply from FDA or China or anywhere I think Taiwan, I think there's 1 or 2 countries that will require any sort of documentation or approvals for selling it. So It's the kind of the costs related to running the businesses are very efficient. Okay. And finally, when are you planning to unveil your new strategy? And are you still planning to hold the Capital Markets Certainly with this. Yes. So we are going to have a Capital Markets Day 16th March. Right, Robbie. It was in the release at the end. So the day before our AGM It's the Capital Market Day. Okay. I must have missed it. But yes, thank you. That's all from me. Thank you, Daniel. Thank you, Daniel. And as there are no further questions, I'll hand it back to the speakers for closing remarks. Hey, thank you, everybody, for your time. And of course, if there's Questions popping into your minds. So, later on, so you can, of course, ping me and Robin, so we are happy to help. But with These words, I really hope that everybody is going to have a sunny spring, and we are definitely going to then meet When we have the CMD, so for mid of March, so have a Good start of the spring and see you hopefully in Capital Markets Day 16th March. Thank you, everybody. Thank you.