Earnings Call: Q1 2018

Apr 27, 2018

Well, it's 10 o'clock, and I hope that most of you have come into the line. Most welcome to this Telekfum conference in Ad Life, where we will discuss the Q1 report. It's me, Kristina Wilgaard, who is the CEO of Ad Life and it's Martin Allgem, CFO of Ad Life. And we will try to present our report as good as possible for all of you. And whenever in the end, we would like to open up for questions. So I think we will start. It's a few seconds, more than 10. So we will start on the on our website. You hopefully have seen that there is a presentation where you can follow what we will talk about right now. First of all, a short presentation of AdLife. We are a leading independent player in the life science market. We work in different niches, mainly in the Nordic market in life science. The Nordic market is about SEK 50,000,000,000 large. So we, who has a turnover of a bit more than SEK 2,000,000,000, we are we, of course, see a lot of possibilities to grow further in this market. And when we talk about independent, we are independent when it comes to that we are mostly a distributor in the market. 80% of our sales is comes from other suppliers' products, but 20 percentage of our sales in the group come from our own branded products, of which a small part we produce ourselves. In the market, we And very important for us is the added value that we can give the customer, and that is mainly service in the market, which is so important when we sell advanced instruments, mainly in the diagnostics area and in the research area. Today, we have 34 subsidiaries. I hear that it's coming a lot of new people into the line. I hope you have a chance to follow. We have 34 subsidiaries, and we act in 2 business areas, and we call it Labtech, where we have diagnostics and research. And then the med tech, it's med tech and home care in that area. And 12 months rolling, we have sales of SEK 2,300,000,000 close to SEK 2,400,000,000. We have a vision to strive to improve people's lives by being a leading and value adding player, And we just ended the call internally in the group where we informed our employees and our MDs in the group about the results. And I think all of them can sign in that they, in one way or another, work with products or services that, in the end, try to improve the lives of our all. Our offering is standing on 4 legs, you can say. In the bottom, we have the products, which is really what we do. We sell products mainly in the market. And the products are very important for us. It's important that we have the right suppliers, who have good innovation in the product development and that we can really make sure that the customer can choose the products that they really need either for their research or for doing a good surgery on the patient. But to be successful in the market, it's not just enough to have products because when you just sell products, the only thing you can work with is pricing. So we work a lot with added value to our customer. And I would say the basis for our journey and our success so far is the knowledge we have internally in the group, where we sell a lot of advice, we sell training in the way that we see that a lot of our customers really need their help to decide what products, what instruments they should use to do what they want in their businesses. Very important for us, mainly in the lab tech area, is the technical service that we give to our customers because the worst that could happen is that we have an instrument where we do a test and the instrument doesn't give the right answer on the test, which in the end could make sure that all could happen that a patient will have the wrong medicine, and nobody wants that to happen. So technical service is very essential for our performance in the LabSec business. As most of you know, we work in a decentralized organization where we have our subsidiaries who are very entrepreneurial, and they really have their own business acumen. They are flexible. They are efficient in the market, and they have a large part of freedom to develop and to conduct their own business. What we try to do is to put this together as a group and really to find synergies between our companies. We want to find ways of working smarter to use each other's resources smarter. We are working hard to build a network between different people in different companies to share knowledge and to find ways also to go to market customers. And we are working hard to be a sustainable company, both when you talk about CSR questions, but also when you talk about financial sustainability. We are aiming to have a strong balance sheet, which means that we can invest and develop our business and continue acquisitions going forward. Then let's start to talk about our Q1 report. The Q1 report, we said growth continues. That's what we have seen happen in the Q1. In the quarter, we had a net sales close to SEK 600,000,000, which was a 4 percentage growth from last year. We had an EBITDA margin or an EBITDA that was $57,000,000 which was a growth of 7 percentage, and the margin strengthened to 9.6 percentage from 9.3 And you all know that we have a target that we want to grow at least 15% a year on our EBITDA. And if we look at the rolling 12 month figures, we see that we have a net sales growth of 14 percentage and an EBITDA growth of 14 percentage, which was quite close to our financial target. The EBITDA margin was stable on 10.1 percentage. If we then look into the Q1 figures, we see that organically, we had a decrease of 4 percentage. And of course, we have been questioning how come this happens. What we have seen is, as you also read in last year's report, is that the Q1 in 2017 was an exceptional good quarter. We had 27 percentage lows, of which was organically 12. In this year, we had Easter in March. Last year, Easter was in April. And in all the Nordic countries, we see that around Easter, people tend to take a lot of holidays, and we see that the hospitals don't have so much planned operation or activities. And we also see that researchers tend to not work the last days into the Easter. So when we calculate, we see that we had at least 3 to 4 less sales days in March this year than last year. And of course, that makes this year a bit slower. But I would say the most the thing that really affected us mostly was the weak sales we had in our MedTech division when we talk sales to hospitals in Finland. Last year, we wrote in our report and we have seen the trend throughout 2017 that Finland has been a bit weak throughout the year. And there is an uncertainty in the implication of the decrease in sales in Finland, but this hit us really this quarter. The positive in this quarter was the strong flu season. In the 4th quarter, we have that as a discussion point when we saw that the Q4 2016, we had a strong flu season, which was very positive. And this is for the diagnostics companies, this is a big impact because we sell a lot of tests to the laboratories during the flu season. And this year, it came in the first quarter. So our diagnostics company did a very good quarter when it comes to results because this is really just reagents sales in the quarter, which we have good margins on. So if you summarize the first quarter, we see that the results in the quarter or the improvement in the results comes from our diagnostics business, and that's mostly in Finland, where we had 2 diagnostics companies who have done a very good job in the Q1. In the quarter as well, we did 2 smaller acquisition. It's a company called Food Diagnostics, which we will integrate into our Swedish diagnostics company in Q2. This was a first step for us in the diagnostics area to go into more food industry because we see that a lot of interest around the world and also in the Nordic countries about what do we really eat and what how does the food look. So we see there are much more tests around the foods in a lot of laboratories, and we think this is a small step to go into that area. In the MedTech business, we did a smaller acquisition of a company called Osano Scandinavia, which works in back and hip surgery, and they are a really specialized company, which is a good company to integrate into our business we have in the MediCloud company in Medtech. About the market in the Q1, I would say the business conditions remain unchanged. It's a positive market. We have the underlying trends with a growing and aging population, which means that there is a greater demand both for hospitals, but both for researchers to find new innovative medicine to treat the different diseases that comes up. There's a lot of new technology coming in who are interesting and that we can take into our companies and distribute to the market. But we also see that the tenders are larger and larger. And in some companies countries like Denmark, the discussion is about doing national wide tenders in 2020. And of course, the competition is tough on these tenders. If you are in the tenders, you are a winner. But if you are out of the tenders, it could be a bit tougher. But so far, I would say we have been very successful both in Denmark and other countries to be and take part in the larger tenders. The different governments in the Nordic countries are focusing a lot on life science, which we have written in the report, both in the last year and again in this quarter. Swedish government, for example, are investing a lot to make sure that Sweden comes back to be a leading life science nation. A few years ago, we were there, but a lot of our pharmaceutical industry left the country. But there is a lot of investments where we see funds going into especially smaller research companies, but also investments into the health care. And the government has really decided to put in a special life science office where they try to push these questions even harder. And for us at Arlakh, we are very proud that we will have a meeting with the person in charge for this office within the coming weeks and see how we can, as part of the business, help Sweden as a nation to be even stronger in Life Science. On the Swedish market, there was a positive situation both in the Lab Tech and the Med Tech areas. What we saw in our Diagnostics area was that we had high instrument sales to laboratories, which is very positive going forward because that means that we have got a lot of new tenders because the first thing that happens is in a tender is that we put out instruments. The not that positive is that the margin on the instrument is very low. And we know that the reagents we will sell coming the last 4, 5 years, we'll have a very good margin going forward. The sales to Healthcare was good and in line with last quarter. The Danish market, as I said, has a very high activity. There are continuously investments in the hospitals from the government side. But what we have seen in the last year is that there have been a bit of cutbacks in public finding for researchers in Denmark. So the research people are much more dependent on the private fundings, but we see that the fundings is still coming a lot from the private investors in the market. So for us to supply the market, we haven't seen any change due to the difference from a government and a private perspective from the funding side. We have seen that the sales have been stable, and the pharma industry is continuously their investments, not as much in the research side, but still very much on the production side in the pharma industry. Finland, as I said, is a market it's very 2 part market for us. We see that in our Labtech business. We have a very good market. It has been improved both for our research companies and for our diagnostics companies in this quarter. And they had reported a really strong sales. Influenza in the Finnish really was on the top level that I think, well, I would say all time high in Finland in that sense. As we said before, the health care reform is postponed, and we see a weaker sales into the health care. We expect this to be a bit more stabilized when we go further into 2018 because we think that there will be much more clear what will happen in the reform coming forward. And so the market is a bit hesitant, and unfortunately, we got hit in this quarter about that. Norway market conditions, I would say, positive, stable demand in all areas. We have delivered very good as normally, I would say, both in the diagnostics and in the lab side. What has been a bit more challenging in Norway is that we see higher increased competition in the larger tenders in home care. In the home care market in Norway, it's tender based, and they are national wide. It's an organization called NAV, who do all the tenders from the government's perspective. And the market is in the home care in Norway is for a long time and is still developing very positive, but we've seen to the national tenders and, of course, want to grasp part of the market. And we talk about the exports. Export is around 9 percentage of our total sales. They have developed very good for the health care. And Benelux, which has been a small part of our business, is growing steadily and has done so very well for the last year. And when we talk about the instruments that we sell outside of the Nordic countries, it has been more stable. And we have also seen that it has stabilized in the U. S, which has been weak for a long time. And Martin will come back and talk about the things we do in the U. S. Business. If we look at the business area, LABTECH, in the Q1, we had sales growth of 3%. All of the growth is organic here. And we had an EBITDA increase of 11%, and EBITDA margin increased from 10.3% to 11.2%. And as Kristina said before, we had a strong flu season, which is behind this. And also, the diagnostic part had a good positive quarter. If you look at the rolling 12 month figure, we have a 10% increase in sales and EBITDA increase of 1%. And in the comparison figures in March 2017, we have a pension plan adjustment of SEK 7,000,000, which if we adjust for that, we had an EBITDA growth of 6%. Our operations in Baltics that we talked about in the last quarter is developing according to the plan. We have had positive discussions with the suppliers. And in the Q1, we have a small profit also from the Baltic company. In the U. S, we have signed an agreement with a distributor who will take over our sales that we had in the sales company in U. S, and they were selling instruments, our own instruments. This will take effect in Q2, and we expect here to have good sales in the future with lower expenses. And as Kristina said, we have one small acquisition in the Labtech area, and it's food diagnostics. If we continue and look at MedTech, we have a sales increase of 5%, and here, we have organic sales decrease of 11% and acquired sales growth of 15%. And as Kristina said, we have an Easter effect here, and we have weaker sales in Finland that's behind the decrease, the organic decrease. On the other hand, the sales growth comes from our home care business that we have acquired in Norway. We see that, as Kristina said, there are greater competitions in the nationwide home care tenders in Norway. The EBITA margin in the quarter is 0%, so it's unchanged compared to last year. And if we look at the rolling 12 month, we have a sales increase of 21% and an EBITDA growth of 41%. If we look at the cash flow and look at the operating cash flow we have in the first quarter, dollars 39,000,000 compared to $47,000,000 last year. And the main change here is income tax paid. And in the Q1, we have had a change in payments in mainly in Norway and Finland. We have made the payments in the Q1 this year. Last year, we had the payments in the Q4. So it's the taxes are paid in a different period here that we see. We had a good development in the working capital, but that couldn't compensate for the taxes. So a little bit weaker operating cash flow in the quarter. If we look at the profitability, profit through working cap, one of our financial goals. We have a stable development here, and we continue to be around 65%. The quarter, we ended at 60 4%. If we continue to the balance sheet, there are only minor adjustments here. We had a stable net debt to equity of 0.7%, which is a little bit decreased compared to last year and the equity ratio of 42%. So we have a stable balance sheet and a good balance sheet to continue our growth. We have also good liquidity of SEK 263,000,000 available to continue the growth here. And finally, the selected financial ratios that we see that we have a stable trend now of EBITDA of above 10%, and we are, at the moment, 601 employees at that life. I think we should open up for questions right now. Do you have any? Okay. It seems to be very quiet. For those of you who have questions and don't want to raise them in this telephone meeting, I hope that you either call Martin or me or send us a mail, and we will try to answer or discuss with you as soon as possible. And hope to hear from you forward. So this was the 25 minutes call for today. If you don't have any questions, I wish you all a great weekend and hope that we hear from you next quarter again. Thank you.