Earnings Call: Q2 2020

Jul 17, 2020

Name is Christina Wilgaard, and I am the CEO of Ad Life. Hello. My name is Martin Arouge, and I am CFO of Ad Life. We are very happy today to present to you our 2nd quarter report, which was a very strong quarter for us. In ad life, we have a fantastic vision and that is to improve people's lives by being a leading actor within the field of life science and that has felt extremely meaningful in the light of the COVID-nineteen pandemic. If you look at the quarter result, we had a very strong quarter. We have an all time high quarter of both to sales and to results. The demand has been mainly driven from the COVID-nineteen pandemic. We have a product portfolio that has been very strong in these times and our customer has really asked and had a high demand on most of the areas where we can deliver solutions and products. We see the same trend in more or less all geographies where we are working today throughout the world. If you look at the drivers mainly in our portfolio, it is diagnostics, both tests and instruments and its medical supplies and protective equipment for personnel working in hospitals. So summarizing the quarter, we have sales that has increased with 48 percentage to EUR 1,248,000,000. Our EBITDA ended up at the margin of 40.5 percentage, which is SEK 180 81,000,000. If we talk about the market and the market conditions right now, everything is about the COVID-nineteen pandemic still. The COVID-nineteen has been an exceptional situation for all of us, for our lives, for our ways of working under for society. And during this crisis, we have been able to support health care and other customers with a lot of products and solutions so that they could do their very best to treat all the patients that had strong needs during these awful times. We saw, as I said, strong demands both from healthcare and from diagnostics laboratory mainly. The sourcing in the quarter has been very challenging just as we informed in our last report. Initially in the quarter, we have a high demand throughout the world to the same suppliers in Asia. We saw that it was difficult also to get transportation because a lot of countries closed the borders. At that time, price rise a lot. We also saw a lot of new suppliers coming into the market and we also saw that suddenly there was a lot of products with different quality if you compare to what is stated in the regulatory demands for different products in the market. This has unfortunately caused a lot of problems for the healthcare and actually a lot of patients have suffered very ill from the low quality of some products in the market. We with our vision and our core values for us it was very easy to go back where we think that's most important and that is to make sure that we improve quality for customers. So high quality was much more important than high quantities. And to fulfill the orders that we already received from customers was more important for us than to do profit maximization in this market. What has happened in the market is as we all read in the newspapers, a lot of surgeries has been delayed, postponed in many, many markets and 100 of thousands of people are waiting in queues to get the procedures that they so urgently need. This will take a lot of time for the health services to really do in a good way coming forward. And for us as a group, we see that the products solutions that we sell in these areas has been much, much lower than normally demand has been in the surgery side. In the middle of the quarter, we saw that academia started up again since the universities opened throughout Europe. Very short of the debt, demand raised a lot and we deliver a lot of products mainly to a lot of researchers working with different solution on the COVID-nineteen pandemic. And that is a very important work to see what can we do in the world to really solve this difficult situation with the COVID-nineteen virus. Most of our employees have been working and are still working from home and thanks for a lot of digitalization tools, this has made it quite yes, we have managed to do it during these times. It's not easy, but we've done the utmost we could. But of course, people working in logistics have been able or had to be in the offices during this time and a lot of people have worked extremely hard to do whatever they could to help the customers. And I would really like to thank all employees of Adelaide for the huge work they have done in this last quarter. If we look forward, we expect a lot of changes in the procedures for procurements from the customers. We also expect increased demand for self sufficiency and to be more prepared because I think all of us believe that it will come new pandemic even in the future, but we have to be more prepared for new things coming in. We also see an increased need of a more sustainable and efficient health care going forward. And I must say, I'm really convinced that we at Ad Life has strengthened as a long term sustainable partner to all of our customers during this quarter. So some more figures. Summarizing net sales in the quarter, we had a strong growth in both business area. It was 48 percentage up, ending up at SEK 1,200,000,000. The organic growth was really high, 39%, more or less the same in both business and the impact is very positive from the COVID-nineteen products and solutions that we have sold. Direct procurement has been the way that customers in many areas has purchased products and that is of course there was a big need to get products as soon as possible. So the procurement processes have been different from usual processes in our market. The product mix has also been offset in the market since there was less elective surgery and normally, we are very strong in surgery and we have a big part of our own products in that area. So now we see that gross margins has declined somewhat in the quarter since distributed products has been in the major part of sold. Looking at 12 months, sorry, we see 39% growth year to year of the net sales. Coming to EBITDA, EBITDA grew even further 160 7 percentage is a huge number actually and the margin went up to 14.5 percentage And the margin increase is mainly coming from our organic growth that we have in a lot of our subsidiaries. The margin improvement is mainly due to high volumes and very restrictive and cost efficiency way of handling the business. We have no travel. We have no fares. We have less marketing costs like that are close to 0 in the quarter. The growth year over year has been 73 percentage and the margin rolling 12% ends up on 11.1%. So looking into the business area of Labtek, we see the same here as we saw on the total. It was a good growth, good organic growth of 37% and the COVID-nineteen is, of course, doing the most part of this. Diagnostics is the main driver, as we said before, and research really picked up from the middle of the quarter. So lab tech increased sales with 55 percent and EBITA increased with 180 percent to SEK109 1,000,000 and that is a margin of 15.1 percentage. Diagnostics, well, we saw a high demand in diagnostics due to a lot of testing of the COVID-nineteen patients in the ICUs during that period. And especially, we see a strong sale for instruments and reagents for blood gas analysis. Blood gas analysis has been one of our major areas where we have been strong for since 1941. So this is an area where we are really good in the market. And in these times, we have really helped out the ICUs as much as possible. The growth is very strong in markets in the diagnostics field. Looking at the research, as I said, demand is picking up. Academic customers started in the middle of the quarter in most countries again. And we have seen increased grants to a lot of research companies and to different researchers around the COVID-nineteen. And we are happy to help them out with different products and instruments to really do their research successful in the end. Significant, we have lower sales in the U. S. And China of our own products because this market has been closed for more or less the whole quarter. Pharmaceutical industry has been good, but food industry and vet industry has been lower during the quarter. And the same goes for the Bentec business area, strong organic growth, big impact from volumes that has been sold to different hospitals during these times. We saw a positive development in home care, which in a normal quarter would have been very good because it's more than our average organic growth. But in this quarter, it's on the lower side compared to other parts of our business. Net sales ended up SEK 530 million, it's 40% up. EBITDA ended on SEK76 million, that is 148% up and the margin tech. Well, we talked about strong demands in the health services. We have product mix offset. We sell large volume of personal protective equipment and medical supplies with less volume of instruments and products to specialized surgery, which means that we have a negative gross margin development in the quarter. If we look at the future, we see that, of course, the demands in the surgery side will ramp up. It started already in June. But after the summer, we think all countries will start to really do the best they can to make sure that most patients are treated as soon as possible. In the quarter, MEDIOPLAS delivered the order of SEK 100 1,000,000,000 extra that came in, in the Q1 and that was to Sweden and Norway for the protective equipment. But both MEDI plus and BioMedica has received extra orders in the quarter for protective equipment. That is extremely important in this time. Do That is extremely important in these times to remember why we have so strong requirement on medical devices and what can happen if we don't fulfill them. Home care, as I said earlier, a positive development. We see a lot of demands for our welfare technology as well as our different aids, especially in the bathroom. Unfortunately, it has been difficult to meet customers as we all know and to come out to different elderly homes to install the products during the last quarter. Martin? Thank you. Talking a little bit about our financial goals, I will start with profit growth that we calculate increase in profit has been really high looking at the rolling 12 months. It ended at 73%. And the interesting here is also to see the long term trend that we have had since we were listed in March 2016. We have been able to generate a yearly profit growth of an average of 33%. If we look at the profitability, which we calculate as EBITDA through working cap, we see the same trend here. Of course, the strong result is the main driver to the 67% return on working capital that we have in end of June. If we look at the acquisitions, we did one acquisition in January when we bought the Euro clone, and that's the only acquisition we have done so far in the year 2020. Going to the income statement and as Kristina said before, we had a strong increase of sales. We end up at SEK1.2 billion. Now what we also see is the effect on gross margin that we that Cristina mentioned. We have in the quarter gone down to percent. And this is, of course, due to the product mix that we have in this quarter. And what's interesting here also to see is that we are able to keep the profit all the way down to profit for the period that increased with 2 80 4 percentage. If we go to the balance sheet, we see that we have an impact on the current receivables in the quarter compared to what we had in December. And this is mainly inventory that we have increased to be able to do deliveries in the coming quarter. And also we see that we have advances to supplier due to the new way of doing the supply chain. We continue to have a strong balance sheet for the future and we have SEK680 1,000,000 in available cash. The net debt to equity is 0.6 percent and the equity ratio ended up at 45%. Looking at the cash flow, we have a strong cash flow both in the quarter and for the 1st 6 months in 2020. The only thing that has a negative impact is the working capital effect and that is, of course, due to higher accounts receivable and as I said before, advances to suppliers that we see especially in the quarter. Finally, some key And at the moment, end of June, we are 985 people working in Ad Life. Also during this quarter, in end of May, we registered our shares with 41, which means that we now have 112,000,000 shares and we have also calculated all historical data due to this split. Okay. That was it. I hope you enjoyed listening to us. And we if you have any questions, just call us, mail us. We will do our utmost to