Earnings Call: Q1 2020

Apr 28, 2020

Good morning, everybody. It seems like it's 10 o'clock on this rainy and really great day in Proxima, please. We are happy to conclude our 1st quarter report for 2020. My name is Christian Mandelgaard and I am the CEO of Ad Life. My name is Martin Aalrien and I am CFO of Ad Life. And we have new to our visitors today, and we'll be open up for questions after the report in the end of the conference call. Okay. I hear that lots of new incomers is coming into the call, but nevertheless, let's start. If you look at the highlights for the Q1, we have a top line that we say we have high demand and a strong profit growth. And I would say that's really the report that I have put there. We see that in March, we got a positive impact related to the COVID-nineteen pandemic. January, February was strong, But in March, we saw an increased sharply demand of products related to COVID-nineteen. And actually, some of our companies reported their best results ever in month of March. So sales were strong. It's the first time that we have more than SEK 1,000,000,000 in net sales. The sales increased with 25%. We grew EBITDA with 51 percent to SEK 106 1,000,000 and the EBITA margin strengthened up to 10%. In the quarter, we also completed the acquisition of the Italian company, Uther, who works in Cell and Molecular Biology. So I think all of us read, listen and hear and actually our lives have changed a lot during the last one and a half months or 2 at this time. This is really a different quarter. The COVID-nineteen came as a major and climate change. I would say it's an extreme situation in the whole of the world. It has changed the society, the lockdown and we have to realize that we have to do things in a very different way. For us at Adlife, this crisis meant that we as a supplier really could fulfill a lot of new demand arise, especially in the health care sector. So I would say we have had the first time experience of the effects of the crisis. And we are really trying to help hospitals and health care to do the outcome to make sure that they need the product, They get the product that is so well needed to treat all these patients. As I said, high demand in March is for more or less all products. It's the crucial medical supplies. It's a lot of metal products. It's a lot of diagnostic tests and especially a lot of personal protective equipment. As you've probably seen, we have been informed that we received a huge order of 100,000,000 cubic promos in our subsidiary Modikas and that was for close to most protective equipment. This leverage should be made in the coming 2 quarters to the largest business season and 2Q to ensure in Norway, which is the main purchasing organization in Norway. In the quarter, we must say that it has been really challenging to source products and to deliver transport products. At the same time, we have seen an increased demand all over the world for similar products simultaneously. And of course, that has pushed a lot to manufacturers and freight companies. We have been working very hard to ensure that all products that we get in these regulatory requirements and that the quality standards are according to the needs from medical staff. I would say this situation has also proven to the world that we have a high dependency on Asia and mainly China and we also saw the problems when the Chinese society closed down for approximately 2 months. But I would say we are thankful that a lot of suppliers also that are coming from other parts of the world who have done incredible good work to help us to receive products in these difficult times. What we're also see in our organization as well as in most organizations, our employees work for home. Very early, we asked employees to follow all regulations that came from the different governments in the different countries. So most employees work from home, except for people who work with logistics and warehousing, because we see that it's essential that these functions have been up and running for the whole time. And we have been able to strengthen our warehousing because people who normally work in sales sometimes have now started to work in warehouse just to make sure that we can send all the products that's needed. The work in front of us has made us use digital tools, which is one way we do today. I would say in Atlas, we work with Teams meetings more or less all day long. But this also limits the meetings with customers, which makes it more difficult to maintain service and, of course, difficult to work with long term sales. Even if the picture is very bright for Adelaide, we have different scenarios in our different companies because we work in different niches. So most companies have an extremely hectic period, but for other companies, it's a little bit more quiet and depending on what niche and especially for the companies working directly through academic research. I must say I'm extremely proud and very humble to see how our strong digital life model in these times. Our MDs and our employees in our subsidiaries have taken full responsibility and acted fantastic in this situation. We see a great commitment, high loyalty and engagement from our colleagues to really help us, their customers, in this tough time. So more figures. Net sales Q1, as I said, strong growth in both business areas, totaling 25%. The organic side ended up 12%. What has happened for the COVID-nineteen phase is that the phase to public customers has been done through direct procurement. And that is not the normal procedure in most countries. But the reason for that is the need for, you see products as soon as possible. So normal processes for procurement has been very differently during these times. If we look at year over year, we see that the net sales growth is 35% and was down 7% organic. If you look at EBITDA, as I said, EBITDA rose 51%. So we even strengthened the EBITDA during these times And the margin improvement is a little bit due to increased gross margins, but mainly due to high sales volume and that our organization has been very cost efficient during these times. Of course, some parts relate to less traveling, but it's still the normal cost efficiency work that we see in our organization has made this possible. And if you look at year over year, EBITDA has been growing 33% and the rolling margin 12 months is now 9.2 percentage. So we are stepping upwards towards the margin level that we would like to achieve long term. Coming into Labtech, in this quarter as well as last year, 60% of the Americas is included in the previous check. In that check, we saw the organic growth of 5 percentage, a bit low in the group. But it's actually double digit in the part of diagnostics, but it's weaker in the part where we have research. We see a big impact from COVID-nineteen for all segments in the month of March. And as I said before, we completed the acquisition of EuroClone in January. And coming back to EuroClone, I would say that EuroClone has delivered according to expectation. Of course, we have all seen how the Italian market looks like and the problems they have in the society in Italy. But Euroglone has achieved a really good work during this time. It's open. All employees are still working. But of course, it's a bit challenging and difficult to assess how will this move forward. And that is also difficult to say for many subsidiaries, especially the ones in the research field. So summing up LAPTECH in Q1, we had a net sales of SEK 611,000,000. EBITA ended up 72%, which was an increase of 39 percentage and the margin is now up to 11.8. Some more details, as I said, strong organic growth in Diagnostics. We see strong growth in all Nordic countries, actually except for Sweden that is more flat. But other countries is strong And also Poland and Austria has been really strong in this quarter. There is, I would say, the world is screaming for tests. That's what we hear at least in the Nordic countries. It's not only the COVID-nineteen test, but all other tests of patients are used very frequently in the hospitals today. So we see high demand for diagnostics right now. Our major supply in diagnostics, radio meter, which you probably recognize since we have had them for more than 70 years, And they are a supplier of blood gas analysis. And blood gas is used for checking lung capacity. And that is of course used a lot in IT rooms and emergency departments during these tough times. If you look at the product mix, we have a high proportion of the agents right now. We also have significant sales of instruments, but right now it is a ligand that is the main product in the mixture in Diagnostics. Looking into the research, as I said, it was stable demand until the outbreak of COVID-nineteen. Pharma companies are still robust and the pharma companies that we mainly work with are the delinquents. We also see that food testing is high still in most markets. But what we have seen is that several academic customers are closed down. Markets have decided to close down the universities advanced equipment worldwide. And the lockdown of China has really lowered their sales. And China has 30% of the sales in this company. And coming back to that company, which is Building Scientific, I also want to present to you that we are very proud that for the own products that we have, we are really strong. And we have during this quarter got an award that is called the Red Dot Award and Best of the Best, which is an award for International Design and Innovation. And I think it's a German award actually. So we are proud that during this time got a fantastic award for the product development. And then looking into MedTech, 40% of the Americas is included in MedTech and we here see an organic growth of 22%. And here as well, big impact for COVID-nineteen. And as I said before, we got a huge order in the quarter, but that has not been delivered and will be delivered during the coming 2 quarters. Net sales ended up to CHF442,000,000, which is an increase of 30 percent. EBITA increased with 64 percentage, ending up to €37,000,000 dollars and the margin increased to 8.2 percentage. In Mailchak, we had a really strong growth in the health services. We see strong demand for medical supplies and especially protective equipment due to the outbreak of COVID-nineteen. Normally, personal protective equipment is somewhat 10% to 15% of the sales in the hospital area for us. In this quarter, we have now completed the integration also of the Welltec product portfolio. We have made sure that we meet all the regulatory requirements and procedures and now foresee that we will be able to increase margins on the product portfolio that we acquired from our perspective. West Bank. What we also see in the health services that is not that positive is the weaker demand for products, so not emergency procedures. I think we all read that in the news paper that everything today in the hospital are focused to treat the COVID-nineteen area. And the hospitals have more or less closed down some parts of the circular area. But what we see is that they would probably have to open again somewhere in this quarter, May, due because all the patients actually waiting for us to do that during this year. So that will come up again within the Q2. Moving into Home Care. Home Care has shown a high demand, which is really according to the trends we see in the market. And the high demand and sales growth is for all assisted equipment. We are very happy that we have had a large installation in Sweden of products bought in 8 that originates from our finished distributors. And I will say that clearly shows the sales synergies that we now get between the 2nd companies. And the high demand for assistive equipment has really proven so that we now see that customers starts to ask for earlier deliveries after the pandemic outbreak. So we will start to deliver to the Ustu municipality already before the summer instead of after the summer. We have in the quarter also received several new contracts for WellCare Technology in Finland. So just to give you a short update on Allied on the total line. We have changed a lot the last year. 1 year ago, say the Nordic was approximately 90% of our sales, but now it's actually 70%. So 30% of our sales goes to markets outside of the Nordics. And of course, that is of increased importance. With all trends that we discussed and see in the Nordic market, it's proven to be the same in the market that we entered during 2019. During the quarter, we have repurchased 125,000 loan shares. And the reason for this repurchase is to cover the ongoing incentive programs that we have in our life, but also to make it possible to pay with own shares in future acquisitions. We have also signed new credit agreements with Handelsbanken and Deutsche Bank, and we have increased our credit our credit limits with another SEK 200,000,000. The Board has proposed to make a split of the Ad Life share 4 to 1 and that was communicated to the AGM. The board has also proposed to withdraw the payment of the dividend in the connection to the AGM. And the Board see a possibility to have an extra AGM later in 2020 to have a new decision. If we look at the acquisitions, as Kristina said, we have made one acquisition during the Q1, and that is EuroClone in Italy. EuroClone is a leading supplier of instruments and consumables in the field of cell and molecular biology, lithium. And today, we have this kind of products in the Nordics and we're selling them through our bionorvik companies in the Nordics. So it's not it's a new derivative for this kind of products, but a very proven segment for us. If we continue to the income statement, as Christina said, we have a good growth on net sales of 25% And we have been able to keep the gross margins and even strengthen them a little bit. So we have been really, really cost efficient during the quarter. And all this together has come down to an EBITDA of 100 6,000,000 and the EBITDA margin of EUR 10.1. And what was really good to see is that we are able to keep the profit growth all the way down to the profit for the period in this quarter, which increased to 53%. Looking at the balance sheet. We have in this quarter included euroflow balance sheet, of course. And that's why the load with an increase in life has increased and also the interest in value of this. During the quarter, as I said, we had repurchased on shares for SEK 31,000,000 and the share price was SEK248 per share. The impact from IFRS 16 on the balance sheet is now DKK235,000,000 and that is on the interest bearing line related side. We continue to have a strong balance sheet. The net debt to equity ratio is 2.7 percent and the equity ratio ended up at 42%. Looking at the cash flow. The operating cash flow in the Q1 was SEK 80,000,000, so it's a little bit lower than last year. And the main reason for this decrease in operating cash flow was related to working capital changes. And it's mainly the accounts receivable that we see that have increased in working capital and that's due to the higher sales in March. We also see that prepayments to suppliers has increased in the late part of March and that is prepayments to suppliers in Asia to be able to deliver the products that we need, especially in the residential side. Finally, some financial ratios. And the profit growth on EBITDA was 43% for the growing 12 month period, which is well above our financial goal of 15%. Return on working capital ended up at 54%, which is also well above the financial goal of 45%. And finally, we are now 1,003 employees at Ad Life end of March. We now open up for questions. All guests have been unmuted. So please, everybody, if you have any questions, Hello, this is Charles Weston from RBC. Can you hear me okay? Yes, you can hear me. Hi there. Thank you for taking my questions. First of all, what is the proportion of your MedTech sales that are specifically related to elective non urgent procedures? 4, Okay. And then very strong Q1. Could you just comment perhaps qualitatively on what you've seen in April so far, excluding the large PPE order? Are the trends the same? Are they more extreme? We never use prognosis for Q4. But I think we're already here to use a model that right now. And of course, the first thing is continuous in diagnosis Sorry, I'll try one more question. I'm struggling to hear your answers. Sorry, I'm afraid I can't hear very well. Maybe I'll follow-up. Thank you. Thank you. Hi, it's Roger Heffel with CN. Can you hear me? Yes, we can hear you. Yes. On pricing, could you please comment on the pricing environment in general now once the demand is extremely high? And more specifically on Mediplas, they received orders of some SEK 100,000,000 outside the ordinary agreement, you're right. I would assume maybe that you could receive better prices outside the agreement. Is that correct? If you could comment on the pricing, please. All guests have been muted. We tried to mute everybody so that you probably can hear us. Yes, the pricing right now is extreme, I would say. The need in the world for the same suppliers increased a lot. So the price increase we see from a lot of suppliers. And unfortunately, that also means that we have to raise the prices to our customers. And we are very transparent in this discussion. So all the customers, they actually know the normal price. And now when we see the price increase in the world, we have to inform them and say that the prices that for some easy products like you said, prices that before the COVID-nineteen was 1 Swedish Krona each has now increased to somewhat 8 to 10 Krona each. So it's 8 to 10 times normal prices on some categories. And unfortunately, that we have to take out from the customer, we do not expect any extremely higher margins because we think at these times, the most important is that we actually help out hospitals, etcetera. So we try to be very transparent with our customers. They have to, of course, stay part of this high price rise that we see. And it's not only price and products that rises, it's also the price on working location that has come out tremendously during these times. But again, we are very open to discuss that with our customers. So yes, we take out higher prices because we have to. Otherwise, our margins will be totally disrupted right now. It seems like we don't have any questions, and I realize it's a bit difficult to hear. So if you have any questions, do not hesitate to call me or Marcin, and we will try to answer your questions as soon as possible. Send the mail or call us. We are here the whole day for you. Thank you for listening in, and have a good day. Thank you.