Earnings Call: Q1 2019

May 10, 2019

Welcome to the QNET interim report presentation for Adlife. My name is Martin Aungen, and I am CFO for Adlife, and I will have the presentation today. I will start short with Adlife in brief presentation. And Adlife, as you all probably already know, we are a leading independent player in the life science market in the Nordics, mainly Nordics. And from 2019, we have also taken a step out to Europe. We provide equipment consumables related to services, mainly in the health care sectors in the Nordics and also the rest of Europe. We are today 40% of insurance and close to 900 employees. We're divided into 2 business areas, LaveTech and MedTech. So we have a sales rolling 12 months of SEK2.7 billion. And during this quarter, we have done the right issue of SEK 500,000,000, and I will come back to that a little bit later. As I said, we are a Nordic player to start with. Nordic is our home market and has been our home market for quite some years now. And the Nordic market has a population of about 32,000,000 people. Within 2018 and in December, we did an acquisition as we have announced. We bought BioMerica in Austria. And now we have done the market expansion, and this is our first interim report where we have sales included from the Gaia and Edeka acquisition. And this acquisition is, as we used to say, the game changer for the Ad Life Group. We reached a new population of about 132,000,000 people in Central and Eastern Europe. Together with our €32,000,000 in the Nordics, it's a quite substantial market of about 160,000,000 pizza. And as we have seen here, we have had a good growth since we were listed in 2016, and the BioMedica acquisition will, as we expect, continue this growth, both in sales and in EBITDA. That was a short presentation. So let's go to our Q1 report that we released yesterday afternoon just before we have our AGM meeting here in Stockholm. So we call this report a step out into Europe. And if we look at the sales in the Q1, we had an increase of 41%. So our net sales in the Q1 totaled SEK 845,000,000 compared to SEK 5.90 7,000,000. As I said, 41% increase, and most of this increase, 35% comes from acquired companies. So this is mainly Biomedica. The organic growth in the Q1 was 4%. If you look at the EBITDA, we had an EBITDA of SEK70 1,000,000 compared to SEK 57 1,000,000 last year, with a growth of 22%. And EBITA margin ended up at 8.3% compared to 9.6% last year. If we look at the growth that we have had in the quarter and we look at the press release that we had in October when we released the acquisition of Bohemia De Kia. Then we said that the net sales effect of this acquisition would be 26% and EBITDA +18 percent. So we are a little bit stronger on our sales than we expected and a little bit stronger on the EBITDA as well in comparison. If you go to the rolling 12 months, we have a net sales, as I said, of SEK2.730 billion compared to €2,354,000,000 last year. It's an increase of 16%. Our EBITDA has amounted to €257,000,000 compared to 2 37,000,000, which is an increase of 8%. The EBITDA margin comes ends up for the rolling 12 months to 9.4% compared to 10.1 percent. We see that the EBITDA margin in the quarter is lower than the last year. And the reason for this, as you also write in our interim report for this quarter, is mainly due to the reason that EBITA margin in the acquired companies in Central and Eastern Europe has a lower EBITA margin than with the former Ad Life Companies. If you go to the business update for Q1, you see that the business situation in the Nordic markets is stable. We see an increase in the underlying demand in the health care and for products used by researchers in life science. So on the top, in the Nordics, it's a stable market. If we look at the Swedish market plan, we had a good increase in sales. And it's in both business areas and aimed at both health services and laboratories. You see that the research market has a positive market trend, and that's also thanks to the ambition that we have in Sweden to be a leading nation within life science. This is good for our companies selling in the research areas. Looking at the Norwegian market, the business situation has been favorable and continued to be favorable. We see it in many areas and primarily in the quarter in the welfare technology and also in the research and health services. Looking into the Danish market, the first the last quarter 2018, we had to comment that the market and the investments were a bit lower. And we have now seen a turnaround here in the Q1 in Denmark. We see that the investments, especially among the pharmaceutical companies, has come back. And they have announced increased initiatives, both in production units and in their research centers. So there is a positive feeling in the Danish market in the Q1. Going to the 4th Nordic country, Finland. The controversial health care reform has now been put on hold after the preliminary election that's ahead. So on March 8, they put this health care reform on hold. And we have been talking about this in our earlier reports. And what we see here is an increase in uncertainty in the market at the moment. And what we foresee is delays in different various projects, both in lab and in medtech. If you look at our new markets in Central and Eastern Europe, they have reported stable growth, and they are in line with our expectations. We have had a favorable market in Poland and in Hungary during the quarter. But on the total, they are in line with our expectations. And looking at the market for our own products, mainly in Benelux and China, where we see a continued favorable market in this quarter as well as in the previous quarters. If we go to Wabtec and just first comment on our BME Addeka company, 60% of our DME Addica business is allocated to the business area LaveTech. So when you see these figures here, we have 60% of Ayomedica included. The net sales amounted in the Q1 2019 to SEK 504,000,000, which is an increase of 43%. Acquired sales growth was 33% and organic sales was 7%. So we had a good organic growth in our lab tech business area, and we had good growth in both our diagnostic companies as well as from our research companies. So both business lines delivered 7% organic growth, which is really positive. The EBITA margin increased or the EBITA increased with 32%, corresponding to an EBITDA margin of 10.3% compared to 11.2% last year. We see that we have an increased number of users and increased usage of consumption on previously installed instruments, which means that we see a higher usage of reagents that's on our already installed instruments in most of our Nordic countries. This year, we don't have the same flu season in diagnostics as we had last year. Last year was a strong flu season. This year, it's a quite weak flu season. But we have had good growth in our more traditional areas and also in our microbiology and molecular biology segments in this quarter. So they have grown better than last year. As I said before, we see an uncertainty in the Finnish markets after the reform in the health care system has been put on hold. This has affected the Labtech business. We see slightly lower instrument sales and reagent sales in this quarter. But as I said, what we see here is that projects are postponed. So we hope to say we'll come on later. As I said, we had an increased or better research market in the Danish companies in the quarter. Through increased sales to academic researchers and also to the pharma industry in Denmark. In the LaveTech business, the Central and Eastern Europe has been in line with our expectations. And if we go out to the rest of the world, our own instrument sales in China has been good in the quarter. And we also see good performance from U. S. And as we have informed before, we still continue to see the positive signs after the restructuring of the U. S. Company where we shift the model and started to sell through distributors in U. S. Instead, which has been good for our margins in Lubbock. If we go to our Medtech business, here we have 40% of Biomedica allocated to this business area. We have a sales increase of 39%. Most of this is acquisition and comes from BioMedica, but also a small part from Korpenen that we acquired in July. Organic sales in Medtech was minus 2%. EBITDA in the quarter was CHF22 1,000,000 compared to CHF21 1,000,000 last year, which is an increase of 8%. And we have EBITDA margin in our MedTech business area that's amounted to 6.5% compared to 8.4 And as I said before, we part of this is due to the lower margins that we have in the new acquired business in Central and Eastern Europe. But also, we don't get any help from our weak Swedish krona either. So there are several factors behind this drop in margin. But main reason here is the lower EBITA margin from Central and Eastern Europe. In Health Services in Nordic, we have a stable business situation except from Finland. This is, of course, due to the health care reform. So we are continuing company in Finland and restructure their market offer in order to strengthen the company in the long run. This we have informed also about in our Q4 report, and we continue that restructuring work also in the Q1. With the increasing requirements in public procurements in the medtech industries in all countries in the Nordics. And here, they are focusing more and more on sustainability, on delivery positions and also on prices. But we see both challenges here, but also, of course, opportunities. And now we have during 2018 'seventeen, we reported we restructured our warehouse and our logistics function in within MedTech. So we are well staffed, and we have a good logistic function in our MedTech business at the moment. So that is sees as an opportunity for us. In Benelux, the favorable growth trend has continued. And in Benelux, we sell our own branded products. If we look at the Central and Eastern Europe, it in the MedTech, it was somewhat better than we expected, mainly from Poland and Hungary. It's also positive to be able to say that we have initiated our first sales of own branded products into MedTech in Biomedica. So some of the own branded products in MediCloud, we have started to learn and to take part in tenders in Austria. Home Care in Norway, we had a weaker last month in the Q4. We see now that the market has come back in Norway in Home Care, and we have had increased sales in the Q1. And here, especially sales to the welfare technology has been really good. And as we announced on April 30, we did the acquisition of Welsbeck Healthcare's business within operation and respiratory. This will be incorporated into our business in Medi Plus for the Nordic countries and in BioMedica for those countries that BioMedica will cover. We will also have a new company in Australia. Due to the acquisition of the Wellspect products. Looking at the cash flow. For the Q1, we had a really strong operating cash flow. It amounted to SEK 99,000,000 compared to SEK 39,000,000 last year. Here, we have a positive effect of SEK 20,000,000 from IFRS 16. But we also see that the profit increase will help us. And last year, we had higher tax payments during the whole 2018. And now we see that the tax payments have gone back to more levels that we expected. We have also been working effectively with our working capital in the Q1. So here, we also have a positive effect on our operating working capital. The net investments have gone up slightly compared to previous year. This year, we invested SEK 60,000,000. For the Nordic countries, they are in time with previous year. And we see some more investment in Central Europe on instruments that they have installed but and rent out to their customers. So I think this will be in line with the future investments. If we look at our profitability, profit through working cap, we continue to perform above 45%. We ended up Q1 at 58%, a little bit less than the previous years. And the reason is that we have another business model in Biomedica, and they tie up a little bit more working capital especially in accounts receivable compared to our normal pad life business and pad life companies. If we look at the balance sheet and there are some changes since December. And one is, of course, the new standard IFRS 16, which has increased our own current assets with around €240,000,000 and also increased interest bearing creations with the same amount around €240,000,000 As I said in the beginning, we did the rights during the Q1, and the rights issue was of SEK 500,000,000. And this has, of course, affected our equity, which has increased and also our interest bearing provisions since we have been able to repay loans with this money. So if we look at the net debt to equity with the end of March, we have EUR 0.4 compared to EUR 0.9 end of December. So that is a quite good strengthen of our net debt to equity. And the equity ratio ends up at 52% compared to 35% in December. So we have a strong balance sheet at the moment with good possibilities to continue our growth, both organically and through acquisitions. If you look at the last page, you see that we have a profit growth of 8% for the rolling 12 months ending March 2019. And if we look at the profit growth since we were listed, we will end up at 24%, which is well above the goal that we have on the 16% annually over the long time. We have increased, of course, the number of shares. So now end of March, we have 28,219,000 shares, and we are around 888 employees in our group at the moment. So that was all I had. And now we open up for questions. Okay. I guess that we will not have any questions today. So if you want to call me or send me an e mail, you can do that after this meeting. And you can also reach Christina from Monday. You can send her an e mail also as well if you want to get in contact with us. So thank you a lot for listening and calling into our short presentations. And if you have any questions, don't hesitate to contact us.