Earnings Call: Q4 2018

Feb 12, 2019

Good morning, everybody. It's 10 dotcom time, and we wish you all very welcome to this short call about the year end report and the quarter report that we just have sent out from Ad Life earlier this morning. In the room, it's me, Kristina Wilgaard, and it's Martin Angen, our CFO, who will take part in this call from our side. So what I would like to start is a few words about ADLIF and how we look right now. And as you saw in the report, this last quarter is really an acquisition intensive quarter, and we had done some changes in the group. We are a leading independent player in the life science market in the Nordics, and the primary business that we drive is to distribute suppliers in the Nordic market within different niche segments. We have, over the last years, increased the portion of our own products, mainly within medtech business and in the niche of home care. So today, more than 20% of the total sales are our own branded products. I just hear that a lot of people is coming into the call right now. And if you cannot see the presentation directly, you can find it on our web page under Investors Presentation, and we are right now on Slide 2. During through these recent acquisitions, we have increased the number of operating subsidiaries in the group to approximately 40, and we are right now close to 900 employees. In the Q4, we built the foundation for the next step for Ad Life through our acquisition of BioMedica in Austria, which will add annual sales of approximately SEK635 1,000,000. And we also signed an agreement with Wellspect Healthcare, which will add another annual sales of own products of approximately SEK170 1,000,000 during Q1 2019. We have, in the Q4, taken the step out of the Nordic region, added interesting new markets and expanded the share of own products in the medtech segment. As you know, we have an ongoing preferential rights issue with a maximum level of SEK500 1,000,000, and the issue is aimed to raise capital to continue growth and to do more strategic acquisitions. Just to summarize, the net sales for 20 18, it was close to SEK2.5 billion. It's an increase of 6% compared to 2017. As you all know, our Nordic is our home market. It's an interesting market with high spend on health care research, and it's technically advanced. In the Nordic market, including the Baltics, we reach a population of approximately 32,000,000 people. Today or well, still, we have subsidiaries also in Benelux, U. K, Italy and China. Through the acquisition of BioMedica, our market has expanded from the Nordic region to also include Central and Eastern Europe. BioMedica engaged in operations in 13 countries, where the 6 biggest ones account for more than 80% of the company's sales. And just like Adlife, Biomedica supplies products and services in the fields of laboratories and medical technology, primarily to publicly funded health care. So Adlyse will expand its geographic market from 32,000,000 people to about 164,000,000 people. The acquisition of BioMedica thereby sets the stage for long term profitable organic and acquisition driven growth in new markets. So what we did in the 4th quarter is really a game changer we just add the existing DiaMedica sales and earnings to what we just reported from Ad Life, we summarized an annual sales of more than SEK3.1 billion and an EBITDA close to SEK300 1,000,000. Since the listing on NASDAQ in March 2016, we have made a big step from an annual sales of SEK1.5 billion and SEK135 1,000,000 in EBITDA. This is a growth rate that exceeds our financial goal of 15% long term profit growth. But as I think most of you wanted to know also is what happened during 2018 Q4. So let's walk that through with you. Our headline in the report is, as I said, acquisition intensive quarter. If you look at the sales in the 4th quarter, it increased with 3% to CHF685,000,000 And for the full year of 2018, the sales increased with 6% to close to €2,500,000,000 The sales growth for both the quarter and the full year comes from our acquisitions. Some of our companies didn't reach the same net sales as in previous year, both in the quarter and the full year. The recurring business that we have within diagnostics and medtechs with long term tenders keeps on running as usual, but the more digital sales with instruments has been weaker, especially in the last quarter. And as we wrote in the report, we see specifically that Instrumentl sales to academic research and to the Danish pharmaceutical companies were weak because of the customer savings requirements and staff cutbacks. Already in our Q3 report, we wrote that the Danish market was somewhat weaker than in other geographies, and this turned out to be effect in the last quarter of the year. In Norway, we have had a high demand in home care for the full year, but our customers made temporarily fewer purchases in December. The main customer in Norway, it's Norwegian government, you could call it. It's called NAV, who does the home care purchases in Norway, they simply didn't call off any deliveries during the last weeks of December, so we couldn't deliver after mid of December. And what happened is that the products that we sell in the home care market in Norway, that's mainly our own branded products, and the margins in that niche are significantly higher than our average. After year end, it seems that deliveries have come back to the normal. So we really see that this was a temporarily drop in the purchase from the government. As I also as you also probably remember, we had sales in the medtech business in Finland. That was weak during the 1st 2 quarters in 2018, but it has stabilized now and were on par with last year during the last two quarters. But we have not fully been able to compensate for the drop with the organic growth. In the quarter, we report an EBITDA of 74,000,000 That is including acquisition related costs of more than £6,000,000 due to the BioMedica acquisition. And just to remind you, the figures in the report are not included either sales nor profit from the acquired business. So if we exclude these acquisitions costs, the EBITDA margin ends on par with previous Q4. EBITDA for the full year, including acquisitions costs, increased by 5% to 245,000,000 and our EBITDA margin is also on par with previous year. As you know, normally, we do not comment on acquisitions cost, but this year, it was higher cost than normal due to the size of the BioMedica acquisition and that we don't have any results from that business in the reported figures. So if we summarize 2018, we didn't reach our long term target of 15% increase. And of course, that is a disappointment for us. But I think for us, we see that the recurring business keeps on running as normal, which is the most important for the long term. Going into the business update in the quarter. Overall, demand is good in the majority of the market, and the products area with stable growth are just a recurring part of the business. The positive long term trend, I would say, is unchanged since earlier. There is a stable growth in Sweden and Norway. Norway, we have a favorable market situation, both in health services, diagnostics and research. In Norway, we also have a long term stable growth within health care, but not for the Q4. If we look at the Swedish market, a trend that we see is that all public tenders in Sweden are increased demand on sustainability, on time deliveries, and they are not just focusing price. So this is challenging what we see for many smaller competitors in different niches. It can be a good advantage for us as a larger player in the market. In Norway, we see that the Norwegian government is continuing to invest in both research, diagnostics and new hospitals. And for example, that's the main region, which is called Health Therbest, they invest about NOK 8,000,000,000 in new hospitals during the coming year. The Danish market is long term growing investments in newer hospitals and also with large privately financed investments research. So we see that the grants to researchers in Denmark are more and more coming from the industry rather from the government. For example, have the Nordic Nordic Foundation given a grant of close to DKK 1,000,000,000 to genetic research, And the genetic research is really an interesting niche where we are very active in a few of our companies. The Danish government has also presented a new health care reform in order to increase efficiency within the health care in the country. They have more than 20 different initiatives, and it's mostly about digitalization, increased national cooperation and reducing administration. If we look at the Finnish market, the Finnish companies are performing well, especially in our diagnostics companies. They have done a strong quarter and a strong full year. Medtech, as we discussed earlier, has stabilized during the second half year. We see that the process with the health care reform is ongoing, and we still have some delays in different projects. But we also see a positive sign that the Finnish government has decided to increase the grants to different researchers into 20 19. Business outside of the Nordics, excluding Biomedica, of course, since they are not part of the reform, In that business, we mainly sell our own products, and that business has performed well and better than the Nordic business, both during the year and during the last quarter. Especially, we see a good growth in Benelux in the medtech segment. And in the lab tech segment, we see good progress both in China and in U. S. And the change we did in the 2nd Q3, sorry, from our own sales office to a U. S. Distributor has paid off in results during the year. Martin, I will hand over to you then. Talking about LUBTECH business area. Sales declined somewhat in the Q4. In general, the business area reported slightly lower sales growth throughout 2018 compared with previous years. Several of the companies focused on strengthening their margins and profit increased in the business area for the full year. Diagnostics showed good growth, and we have a strong performance in our traditional niche segment blood gas and our companies capture additional market share. Positive that we have good growth in the newer areas of food and veterinary, outstanding performance in diagnostics in Finland with increased instrumental sales, increased consumable sales to already installed instruments and also increased service sales. Our start up in Baltics that we have done during 2018 has a positive 1st year, and the main focus has been on activities in the Estonian market. As we said before, more robust sales to research and also a positive trend outside of the Nordics. Going to the medtech business area. Growth in medtech has increased both for the quarter and the full year, driven by acquisitions carried out during the year. Activity in Health Services and Home Care is good. Through December was generally though December was generally weaker, as we talked about earlier. The business situation is stable, but growth during the year has not been sufficient to compare compensate for the weak first quarters. During Q4 and the full year, the sales to health services were strong in Norway and the Benelux countries. It was stable in Sweden. Sales in Denmark and Finland were on par with last year during the last two quarters. We see an increased underlying demand in home care in the Nordic countries for products in welfare technology and the bathroom segment to various institutions and senior housing facilities. Going to the cash flow, starting with the 12 month period. Our cash flow from operating activities reached SEK177 1,000,000 compared with SEK208 million for 2017. The main reason for the lower operating cash flow in year 2018 is increased paid income tax, and this we have already reported in the previous quarters. It's mainly attributable to the payment of tax for 2017 in Norway as well as increased preliminary tax payments in all Nordic countries during 2018. The net investment in noncurrent assets are in line with previous year and amounted to SEK45 1,000,000. And during 2018, we have a cash flow effect from acquisitions of €336,000,000 And this has been financed with external loans, as you can see under other financing activities. In 2018, we paid a dividend of SEK 53,000,000 to our shareholders. And the Board has proposed a dividend of SEK 2.2 per share, which is unchanged compared to last year's dividend. Looking at the quarter cash flow, it's the operating activities the cash flow from the operating activities are in line with previous year, €92,000,000 this year compared with €97,000,000 1,000,000. Also, the net investments are in line with previous years. And as I said, we have the acquisition of Bergamirteka in the cash flow in the Q4. Looking at the profitability, profit through working cap. We are stable on a little bit lower than 65%, but still well above our financial target of 45%. For 2018, we ended at 62% compared with 63% or through RK last year. Looking at the balance sheet. This year 2018, we have included BioMedica Group in the financials for December 2018. So there are a lot of changes in the balance sheet. And the total assets have grown with nearly €700,000,000 due to the BioMirthic acquisition compared to the Q3 report. I still have a strong and solid balance sheet with a net debt to equity of 0.9% and an equity ratio of 35%. And as Kristina said, we are looking to further strengthen our balance sheet with the ongoing rights issue of SEK 500,000,000 so we can have a strong balance sheet to even more focus and continue our growth strategy. Finally, looking at the financial fee ratios. And we have, as we said before, a 5% profit growth and a 62% working capital. That are our 2 financial goals. And we have, at the end of 2018, 873 NPEs in Ad Life Group. Okay. I suggest we open up for questions if there are any. Okay. Very quiet. For those of you who have questions, you can either call me or Martin or send us a mail and we will talk about that. Otherwise, if you want to hear more and we will explain about AD Life going forward and what we do in the group, I invite you all to the Capital Markets Day. That is on Monday, 18th February, at 10 a. M. And if you cannot be in the meeting, we will, for the first time, try to do a webcast on our YouTube channel. So you're most invited to the Capital Markets Day on Monday. I think tomorrow is the last day to send say yes or no if you come.