Earnings Call: Q2 2018

Jul 13, 2018

Wish you welcome to this call for our Q2 report in EdLife, which we have sent out in the market this morning. So then let's start. We go to Page 1 in our report. I'm not sure or in our presentation. I'm not sure if all of you have it. Either you can follow that on I'm not sure or in our presentation, I'm not sure if all of you have it. Either you can follow that on this link or you can find it on our website to take down. Just a short recap of Air Life. We are a leading independent player in the life science market, mainly in the Nordic countries. We provide equipment consumables related services mainly to the healthcare sector, but also to research and industry in the Nordics. We have now 29 subsidiaries and many of you probably remember that we in last quarter reported that we had 34 subsidiaries. During this quarter, we have done some internal mergers. We haven't changed anything really, but we have just done a sort of more operational changes for how our subsidiaries are divided. So same business as before, but less legal entities really. We operate in 2 business areas, Labtech and Medtech, and we report sales for the rolling 12 months ending quarter 2 on SEK 2 point 4,000,000,000. Since 2,004, we have had growth CAGR of 13 percentage on average a year. And of that, we have seen 7% organic. This is the long term trend and the goal that we have is to continue to have more or less half of our growth should be organic. And long term, we will we foresee that we will manage and then of course we see from quarter to quarter that that growth can vary. For the next slide, our vision, not sure if all of you know our vision, but it is a vision where we strive to improve people's lives by being a value adding player within life science. And I think that's really what makes us going to work every day is to be able to in one way or another improve people's lives. We offer, as I said, products on the basis. Mainly, we are a distributor, but 20% of our sales is our own branded products. But together with the products, we sell a lot of advice, technical service and training because that's really a need from our customers, mainly in the research side and in the healthcare side. We work as a decentralized organization with a strong focus on the entrepreneurial business acumen. So, what we try to achieve is a small scale business and work with that large scale. And I would say, I think this business model we have, which stands really firm, is one of the keys that makes us having a good development in the market because we really get a lot of responsibility out in our companies and they are really eager to perform the best they can. And we who work on the group level do our utmost to really use the resources and to make sure that we have a good network internally in the group, a lot of focus on development of the people and training our Ad Life Academy. And one of the most important things that we work on a group level is of course sustainability. And as being part in this sector, selling products mainly to the public in the Nordics, the public is 95% of our sales. It's extremely important that we are sustainable and work in a behave work in a good manner. So that's a key focus as well for us in the group. I would jump now right into the figures and some update about the quarter. Our headline is continued favorable development. We had a favorable development this quarter as well. We had a net sales increase of 9 percentage of which organic 3% and we are pleased that we in this quarter have positive organic growth in our both business areas. Perhaps you remember that we didn't have a positive growth organically last quarter due to problems we have seen in the Finnish market in the medtech segment. Net sales reached SEK 622,000,000 and our EBITDA reached SEK 63,000,000 also that growth of 9 percentage. And we have stable EBITDA margins of 10 0.1 percentage in the quarter. On the 12 month rolling, we have also a net sales growth of 11% and an EBITDA growth of 11%. And as you see, that's on our way to reach our goal of 15% EBITDA growth long term. So up till now, we have 11% and we hope that we can increase that even further during the autumn. Also on the 12 month rolling, we have a stable EBITDA margin and 10.1 percentage. I go to next slide where we talk about the market update. We act in the market of life science, and that's a very positive development we see in this market. We have the underlying trend with the demographic changes. We now see that the population in the Nordic countries on age more than 80 or older will double over the next 20 years. And of course, this is demanding for the society and we see that there is a huge need of changes on how we have health in all of the Nordic countries. So we see a lot of initiatives in the market where the authorities try to shift care and treatment from hospitals to homes because we don't actually have enough beds in the hospitals or in the elderly care to take good care of all our people in these countries. We also see that all of the Nordic countries are really focusing the life science from more of an academic and research side. They are in different ways try to help research to be stronger in life science areas. Both Sweden and Denmark's government have specific plans for the life science areas on how to really be a strong life science nation. Norwegian life science industry was quite small a few years ago, but are really increasing because of Wish in Norway, of course, not only being an oil company, they also want to find something else and have focused, I would say, research, especially within cancer as their key going forward. In Norway, there is really also a political goal to make sure that elderly people live longer at home, which for us is positive because we think home care and the investments we do in that market will be even more important going forward. Overall, on the Finnish market, the discussion is about healthcare and social care reform. In June this year, the government announced that the reform will go will start January 2021. So it's postponed even further. We have now learned that behind the reform is wished to save €3,000,000,000 in this area until 2029. And we realize that this postponement is will make a bit hesitation in the market because today the Finnish healthcare operates through 190 different authorities. And the idea for this reform is to change and do a transformation to 18 counties who will be responsible for healthcare. And we can all understand that this change of taking 190 authorities to 18 will be a big transformation. And I would say probably a lot of internal focus from a political side during the coming years. So, we are really following these changes in Finland as good as we can to understand what will happen for us who are suppliers in the market. Going forward into the business, I would say the business conditions are favorable, stable, high demand in most of the niches where we are active. Our companies have during this quarter performed well in general and has also improved the results in general. And as I said before, both business areas had positive organic growth. The strongest market we have seen is really Sweden, Norway and the export market during on a total basis. The Swedish market has favorable market conditions in both business areas. We see that we had a little less sales of instruments to the diagnostics laboratory in this quarter, but it was fully and more than that compensated with sales of commodities to these laboratories. The sale to healthcare was also increased when we talk about consumables. The important thing we see in the healthcare areas, there are a big increase in number of larger tenders out there, which we have been able to apply for when we will during the coming 6 months know if we have succeeded or not because many of these tenders have take about 3 to 6 months before we know if we are the supplier. Those public procurements are still very challenging. It's tough competition and price pressure, But I would say up to now, we see that we have really been good in governmenting throughout this landscape and we have managed well in many of the tenders in the market. So, we foresee good possibilities going forward also in Sweden. The Danish market has been a bit more stable in both business areas, but we have seen good revenue growth even though the market wasn't that positive in this quarter. It was a bit slower in April May, mainly in the academia due to negotiation in the labor markets. And therefore, there was a slowdown in sales to academia because they didn't dare to do investments if there would be a lockout in the market. So, they postponed their orders in April May, but we see that came back in June. Pharma Industry, who is very important in Denmark, is continuously doing investments both in the research side, but also in the production side. And we supply both of these areas. Finland, as I said, a bit problematic when we talk about the healthcare reform, but we have had still very positive development in the lab tech business area, mainly high activity level in the diagnostics field and these companies perform very well in the market, but we see continuously weaker when we talk about the medtech business, the same scenario as we had last quarter, but in this quarter, other markets could compensate for that slow sales in Finland in MedTech. Norway, good conditions, good growth and we see really interesting continued investments in both research, healthcare and especially home care. This is the Nordic market, but exports, which is approximately 10% of our sales, has good development and has for a long time had a better development than the Nordic market. And I would say the reason behind that is that we have very attractive product portfolio of own products because it's our own product that we sell right now outside of the Nordics. Benelux has been the markets who have been strongest for us, but in this quarter we had a really good sales in our Chinese market as well, where we have our own instruments in Labtech, which have seen good sales really. We have in this quarter closed down our U. S. Operation just as we communicated in last quarter and the extra cost for that in Labtek is approximately SEK 2,000,000. We go further to the Labtech business. The Labtech business in the quarter had 8% growth, 5% year to date. So, we see a good growth. And all of that, you could say, is organic. Part of that is exchange rate, of course, but we don't have any extra coming in from acquisitions into that segment. In the EBITDA part, we have increased in the quarter with 6 percentage and the EBITDA margin is 11.2%, a little less than last year. But if we take in consideration the extra $2,000,000 in the U. S. Business, we are more or less on par with last year's margin. But if we look at year to date, we have an EBITDA increase of 8 percent and an increased margin of about 11 percentage. As I said, improved performance in the diagnostics business, and I would say the diagnostics business is really the locomotive in our lab tech business and have for a very long time achieved good progress both in the sales part and also in the results area. And I think I'll comment more or less the rest of the bullets we have on the Labtech segment. The Medtech segment have had even a stronger growth on a total both in the quarter year to date, but that is mainly through the acquisitions we've done in this business area. Organic, we had a positive growth in the quarter with 1 percentage, but last quarter it was negative. So, on total year to date, we have a decrease organically on 5 percentage. In this quarter, as I said, Sweden, Norway and Benelux did very good job in the market and the weaker sales continued in Finland. EBITDA margin has increased with 15% in this quarter, very good. So, the EBITDA margin is coming closer and closer to 10%, which of course is something that we work hard with in our companies to make sure that we continuously grow our margins. So it's 9.7 percentage in the quarter compared to 9.2% last year. And also if you look at year to date, we are getting forward with 9.1 percentage compared to 9%. Home Care segment, as I said, very positive and we think that the demographic trend is really helping us out. And as you probably have seen, we did an acquisition on July 2 in Finland, a Finnish company in the home care segment. It's for us nice business with sales of about €8,000,000 15 employees and they are working in the bathroom with bathroom solutions intended for nursing homes, both private and public environment. And we see that together with the companies we already have in the home care, we can really strengthen our offering to the market in these areas. Maarten, then I leave the word to you. I will have some comments on the cash flow. And the first thing I want to comment is on the operating cash flow we have during the 6 months, dollars 68,000,000 compared to 84,000,000 and the decrease comes mainly from income tax paid as we wrote in the report. And what we see here is that we have during the first and the second quarter increased tax payments, preliminary tax payments mainly in all Nordic countries and also especially in Norway. This is an effect of that we have had 2 preliminary tax payments in 2016 2017. Together with these preliminary tax payments, we have also had final tax payments for year 2016 in the 1st and second quarter. We see that the preliminary tax payments for 2018 is also increasing. So a lot of tax payments in the 1st and the second quarter and then it will be a little bit lower in the coming quarters. But the efficient tax rate is? The efficient tax rate is not increasing. It's still around 22%. So it's not increasing in tax. It's about when the tax payments are done. During the quarter, Q2, we have also paid a dividend to the shareholders of $53,000,000 So that was the cash flow. Going forward to the profitability, our key financial ratio, profit through working cap, we had 65% profit through working cap this quarter, an increase since December of 2 percentage. This comes mainly from our Medtech business who has decreased their inventory in the last months. So good work with inventory there. Going forward to the balance sheet, there are only small changes in the balance sheet. We continue with a strong balance sheet, the net debt to equity of 0.7% and the equity ratio of 42%. So we have a strong balance sheet to continue our journey. And then some of the key ratios, we are as Justyna just said, the profit growth EBITDA is 11%, the margin 10.1 percent and we have our employees at the end of the period is 593 people. So we are on the same level as in December. That's what I wanted to comment on. So let's open up for questions. Please, if you have any questions. Hi. Can you hear me? Yes. Yes. Hi. I have a question regarding the sales growth of home healthcare business. How much does that business grow? We don't deliver specific figures for parts of our business areas, but that's part of the MedTech business, of course. But we don't supply that information because we have Medtech as one segment. Okay. So which segments within the Medtech business saves the negative development in Finland? Could you elaborate on that? Could you give us a sense? Yes. I can that's part that's 2 parts. That's exactly what you asked for. It's the home care segment who has done a good development in the quarter and it is health care in the markets of Sweden, Benelux and Norway. So, it's a combination of healthcare and medtech in other markets than Finland. Okay. Thank you. And one more question about the product mix within Labtech. It's quite so much more products sold as a share of the total product mix in Q2 compared to Q1. Or is it because of the flu in Q1 and Q4, which explains the deviation on more product sales rather than instruments? You have really a point there. Yes, we had a lot of flu sales in the last quarter, not in this quarter, because the flu season sort of ends after Q1. But I would say the main reason why we have more consumable sales is that historically we have put out a lot of instruments and we see that on these instruments there are more there's more use the use is higher than we thought when we sold the product or the instruments. So, of course, we now have higher sales of consumables on the already sold instruments. And the new instruments in the market, when we have high instrument sales in the quarter, that is normally shows that we have just won larger deals because otherwise you sell the instruments upfront and then for a couple of years, 4 to 6 years, you more or less have just sale of products to the instruments together with the service, of course. Okay. No more questions. If you have questions, don't want to speak them out loud, you can call or mail either me or Martin and we will try our utmost to answer as good as possible. We thank you for listening to us and we wish you all a great summer. Bye bye.