Welcome to BICO Q1 2024 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to CEO Maria Forss and CFO Jacob Thordenberg. Please go ahead.
Hello, and a warm welcome to everyone for joining BICO's earnings call for quarter one, 2024. My name is Maria Forss, and I'm the CEO and President of BICO, and together with our CFO, Jacob Thordenberg, I will present our report for the first quarter of 2024. Let's present today's agenda. Our agenda is divided into five sections before the Q&A section. We will give a summary of the quarter and highlight significant events from the past quarter, and brief you on the communication yesterday about the change in method for impairment test of goodwill, resulting in retroactive impairment of goodwill and other intangible assets. We'll give you a brief comment on the market development and outlook, and thereafter present our financial performance for the quarter, as well as how our business areas performed during quarter one. These sections will be in listening-only mode.
After the presentation, we will move to a Q&A, where you can participate and ask questions. The operator will be back with further instructions. This section will be a little more extended for this quarter, and if we take a brief overview of the quarter, it's pleasing to see that we improved our organic growth. However, the mixed performance impacted our profitability. We continued to see slower sales in both academia and diagnostics, and this hampered both sales levels as well as profitability. Jacob will comment more on the numbers in the financial section, so I will just conclude on a high level. I will brief you on the strategic review of our current R&D projects and the group product portfolio. This is work that we carry out in preparation for the launch of our updated strategy later this year.
I will also brief you on the whistleblower investigation, which we communicated out back in March. Jacob will inform you about the discussions with the Council for Swedish Financial Reporting and the retroactive impairment of goodwill and other intangible assets announced yesterday evening. But before that, I would like to spend a minute on presenting our latest additions to the executive management, Catharina Nordlund and Anders Fogelberg. We welcome Catharina in April, and Anders will join us mid-June. So yes, those events took place after quarter one, but I think it's worth mentioning during this call. Catharina is our new Chief Human Resources Officer, and her focus will be to enable, shape, and execute BICO's global HR strategy to build a people and high-performance culture.
Anders Fogelberg's position, Chief Commercial Officer, is new on the group level, and his main responsibilities will be to scale the BICO business, increasing the commercialization efforts of the portfolio, and further explore opportunities for collaborations and partnerships. They are both great additions to our management team and important cornerstones when we are reinforcing both investment in people and culture and our increased commercial focus. The conclusions from a whistleblower investigation conducted by an external party, by the request from the Board of Directors, was communicated in March. Three aspects should be underlined. First, the whistleblower report refers to historical events, 2017 to 2021. Secondly, the report has not been able to show any criminal act, and third and last, it doesn't lead to any further accounting measures.
The work with strengthening our internal control systems have been in place since 2022, and we will continue to make sure that we stay proactive, as well as fostering and developing the right BICO culture. I will now hand over to Jacob for a summary about the impairment of goodwill and other intangible assets.
Thank you, Maria. This information was released yesterday evening, Central European time, since we resolved on a change of method for impairment test of goodwill, resulting in retroactive impairment of goodwill and other intangible assets for 2022 and 2023. It is important to mention that these adjustments are all non-cash flow items and will not impact Q1, 2024 P&L figures negatively. The impairment follows discussion with the Council for Swedish Financial Reporting regarding impairment tests of goodwill made by BICO in 2022 and 2023. The Council has, as part of their normal oversight of listed companies, reviewed BICO's annual report for 2022, and more precisely, the impairment tests of goodwill according to IAS 36.
We have had a good and constructive dialogue with the Council, where they have advocated that BICO should use a five-year forecast period instead of a 10-year model, as a 10-year model according to IAS 36 only can be motivated if underpinned with high forecasting accuracy beyond year five. As disclosed in our annual reports, BICO has historically, in its impairment test, applied a forecast period of 10 years. This chosen period of 10 years, which has been audited and accepted in our annual reports for 2022 and 2023, was used to reflect what BICO believes to be the right value of the businesses, given its growth prospect. It should be noted that BICO has only made changes to the length of the period used in the impairment test, as instructed by the Council, from 10 to five years....
All other parameters, such as projections and work rates, have remained unchanged. I will now brief you on the retroactive financial effects on the balance sheet and the profit and loss statements. If we begin with the P&L, when applying the five-year forecast period, it has the following EBIT effect. For 2022, it will be SEK -2.574 billion, and then a positive effect of SEK 785 million in 2023. The reason for that, for this is that the new forecast period of five years results in a larger historical impairment in 2022, and less impairment in 2023, as previous goodwill impairments made in 2023 are shifted to 2022.
If we go to the next slide and look at the balance sheet, this is a rather busy slide, but here you see previously reported adjustments and adjusted reported per year-end 2022 and 2023. For intangible assets, including goodwill, we have the following retroactive changed. Decreased intangible assets with SEK -2.668 million as per year-end 2022, compared to the previously reported balance. The corresponding effect as per year-end 2023 was SEK -1,838 million. Second highlighted item, total equity, where the retroactive change has decreased equity with SEK 2,663 million as per year-end 2022 compared to the previously reported balance. The corresponding effect as per year-end 2023 was SEK -1,808 million.
The final box, deferred tax liabilities, decreased by SEK -5 million as per year-end 2022, compared to the previously reported balance. The corresponding effect as per year-end 2023 was SEK -30 million. In total, the goodwill value per year-end 2023 has decreased with SEK 1,736 million. Detailed information can also be found in note 10 in our Q1 report. Back to you, Maria.
Thank you, Jacob. As previously communicated, the review consists of assessment of the current R&D projects and the group's product portfolio. This work is carried out in preparation before launching the updated strategy. The project management office in BICO is working with a review of our R&D projects across the group, and an R&D board has also been established, where key projects will be reviewed by executive management, ensuring focused and customer insight-driven R&D investments. Due to the heavy dependency on the academia and the diagnostic sectors, where the business has been softer for some time, there are certain measures being made in our operating companies, CELLINK and SCIENION. For CELLINK, a new management is in place, and measures have been concluded in two specific areas: the commercial offering and cost savings.
The commercial offering will be focusing on the core portfolio, and a new strategy has also been implemented to ensure profitable growth. In terms of cost savings, we target savings of SEK 20 million. For quarter one, BICO has concluded that there was a need for write-downs of capitalized R&D in CELLINK of SEK 85 million, which impacted EBIT. For SCIENION, we are continuing to actively work with structuring and reshaping of the business, both from an offering and cost perspective. A new commercial lead is in place, and in terms of cost savings, we are targeting EUR 1.5 million. This was the last slide of the summary of quarter one, so I will move into the next section and comment on market development and outlook.
This is a new section where I will give some more flavor on the market development and outlook, as well as commenting on sales per geography. I believe that we see the same trends and patterns as our peers have reported in quarter one. Indications to slower businesses in academia and diagnostic segments continuing during quarter one this year. We also saw geographical differences in demand, where sales in North America and Europe are beginning to show positive signs, whereas Asia remains softer. As you can see, our sales were strong in North America, and this can mainly be explained by strong sales from biosciences. Europe is performing within the same range as corresponding quarter last year, as well as the rest of the world. We do see, though, that Asia performed weak in quarter one, and this was primarily attributable to CELLINK and SCIENION.
I will now hand over to Jacob again for a summary of our financial performance.
Thank you, Maria. I will now summarize the first quarter of 2024. All numbers presented is in SEK, except when otherwise stated. Furthermore, this is also the first quarter where BICO reports in functional reporting, and all organic growth figures are in constant currency. BICO delivered sales of SEK 510 million, with an organic growth of 5% in the quarter. Adjusted EBITDA amounted to SEK -9 million, and EBITDA was SEK -19 million, impacted by softer business in bioprinting and bioautomation. As previously communicated, this is the first quarter where BICO applied functional reporting, and comparable numbers has been adjusted. The reason for this is to increase comparability in the company's cost structure and adapt to the most common market practice.
The change has affected the reported gross margin negatively, as more costs than before, for example, production costs, depreciation on production equipment, et cetera, have been included in the reported cost of goods sold instead of OpEx. The gross margin for the quarter amounted to 45%, which was seven percentage points less than the corresponding quarter last year. This is explained by the product mix, with more revenue from Biosero, with a different gross volume profile compared to our instrument companies, with more costs included in COGS, given its project business, as well as lower sales in bioprinting and bioscience, resulting in less economy of scale on production staff, et cetera. The net loss for the quarter amounted to -SEK 29 million.
If we deep dive into our net sales for the first quarter, the first quarter showed sales of SEK 510 million, as mentioned, and a total sales growth of 4%. Our business areas delivered mixed sales performance, where biosciences delivered strong sales levels. Historically, Q1 is normally a seasonal weak quarter, and this was not an exception for the bioprinting and bioautomation businesses, with big development in CELLINK and SCIENION. It was, however, pleasing to see strong sales levels for bioscience. The indication of slower business in the academia and diagnostic segment continued during Q1 2024. We also saw geographical differences in demand, where sales in North America and Europe are beginning to show positive signs, whereas Asia remains softer. If we move on to profitability, adjusted EBITDA for Q1 amounted to SEK -9 million, corresponding to a margin of -2%.
Softer business in bioprinting and bioautomation, primarily CELLINK and SCIENION, had a negative impact, which was offset by the strong sales from bioscience. Staying on course with cost control, the group has been guiding for the quarter and will continue to be during the quarters to come. If we move on to cash flow, cash flow from operating activities for the quarter amounted to SEK -17 million, impacted by the financial performance in the quarter. This also includes a positive effect from changes in working capital of SEK 27 million. Out of this, decrease in operating receivables amounted to SEK 163 million. This is primarily related to accounts receivables being collected in Q1, following our seasonally high sales in Q4 2023. Inventories decreased by SEK 22 million, continuing the trend of decreasing inventory levels, as also seen in Q4 2023.
Cash flow from changes in operating liabilities amounted to SEK -158 million, primarily related to supplier payment connected to sales in Q4, 2023, and contract liabilities converted to revenues. Investments in intangible CapEx amounted to SEK 8 million. Several R&D projects have been completed in the second half of 2023, with a reduction in capitalized R&D as a result. Investments in tangible CapEx also amounted to SEK 8 million. Earnout payments amounted to SEK 28 million in the quarter, and the total estimated remaining earnout payments amount to SEK 20 million. Total cash flow during Q1 amounted to SEK -77 million, and cash reserves by end of March 2024 amounted to SEK 796 million. On this slide, I will further elaborate on net working capital improvements during the last quarters. Please note that all net working capital numbers are excluding the notes.
Between Q1 2023 and Q1 2024, net working capital decreased from SEK 608 million to SEK 463 million. Main drivers for this development include accounts receivables, which improved from SEK 442 million to SEK 362 million, an improvement by SEK 80 million, explained by more, more robust processes, including better collection, payment processes, and group guidance. Inventories decreased from SEK 506 million to SEK 414 million, an improvement of SEK 92 million. More stringent processes and agreements in place have stopped further increases in 2023, and we expect to slowly show decreasing effects throughout 2024. Working capital liabilities increased modestly by SEK 26 million. Total improvements amounted to SEK 145 million, or a decrease from around 33%-21% of net working capital in relation to last twelve months sales.
Maria will now comment on our business areas' performance.
Yes, I will guide you through our business areas for quarter one. The bioprinting business area reported net sales of SEK 113 million in quarter one. The organic growth in the segment was -21%, and the adjusted EBITDA was SEK -21 million, corresponding to a margin of -19%. The business area reported significantly weaker sales compared to the corresponding quarter last year, and the lower sales levels can be explained by a softer market, as well as weaker sales from CELLINK. For CELLINK, measures have been concluded in two specific areas, commercial offering and cost savings, as mentioned earlier in this call. Moving on to our next business area, biosciences. In quarter one, the business area's net sales amounted to SEK 313 million....
The organic growth was 36%, and the adjusted EBITDA was SEK 35 million, corresponding to a margin of 11%. Biosciences delivered strong sales levels compared with the corresponding quarter last year, and also affected by the project effect of the business. The significantly stronger sales, as well as continuous cost control, contributes to the positive development in EBITDA margins. Our third business area, Bioautomation, reported in quarter one net sales of SEK 84 million. The organic growth for the quarter was -27%, and adjusted EBITDA amounted to SEK 6 million, corresponding to a margin of 8%. The business area's sales growth was negative compared to the corresponding quarter last year, with sales levels still hampered by a weak demand from the diagnostic industry.
The profitability for the quarter was negatively impacted by SCIENION, and we're continuing to actively work with the structuring and reshaping of the business, both from an offering and a cost perspective. The Finnish group company, Ginolis, was divested in November 2023 and has been treated as discontinued operations from quarter four, 2023. With that being said, it's time to open up for our Q & A. Please follow the instructions from the financial hearing host.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Rickard Anderkrans from Handelsbanken. Please go ahead.
Good morning, and thank you for taking my question, so I have a few, please. So first, if you could elaborate a little bit on the weaker gross margin. Perhaps if you could provide more commentary and details around the gross margin contribution, and how we should think about that for the Biosero business, which seems to be pushing down the gross margin. And should we then expect similar gross margin levels in quarters to come, given the quite significant decline year over year? I guess that would be helpful for us to understand the trajectory of the gross margin for the full year. Thank you.
Sure, good question, Rickard. Yes, as we said, the gross margin decreased with seven percentage units, quarter-over-quarter, and this was primarily explained by Biosero then. And the reason for this is that Biosero has a different gross margin profile than our other instrument companies, and that is that it's a project business. And in a project business, you allocate more costs to specific projects, but the consequence of that is that you have less OpEx, so you have an even more fully loaded costs in a project-based business as Biosero. So, going forward, any dilution on our margin, you could expect a dilution from our margin if you expect Biosero to continue to grow, and we do see a strong underlying growth in terms of lab automation.
All right, thank you. I noticed also that, you know, consumable sales were down year-over-year. Could you elaborate why that is, and if we should anticipate similar, you know, softness in the consumables development? Maybe if you could square that also with the sort of installed base and how that's been growing. Thank you.
Mm-hmm. Yeah, the decline that we see in consumables is related to what Maria and I commented on, related to SCIENION and CELLINK, which had weaker sales in Q1, and that also includes sales of consumables.
All right, but do you... How should we think about the, sort of, the other business areas in terms of consumable pull-through and the momentum there?
I think the way you should see it, we had this question also in the last quarter call, and that is that we have indeed also identified that our levels of consumables or services are too low, and this is a gap that we will address during 2024 to increase the consumable pull-through. But to answer the question about the decline in Q1, it's related to SCIENION and CELLINK.
Okay, clear. Could you quantify the percentage contribution of sales roughly for SCIENION and CELLINK respectively, and when should we expect them to achieve sustainable profitability? I'm trying to figure out, you know, how far you've come in the restructuring and the changes you are doing there. Thank you.
In terms of weights, I don't want to go into specific weights of these individual companies, but clearly, they, they are sort of substantial weights within the group. And we are actively doing cost cuts and also actively strengthening the commercial organizations in both CELLINK and in SCIENION. When it comes to CELLINK, we also have a new CEO in place since roughly a quarter, and in SCIENION, we have also recruited a new chief commercial officer. I won't be able to give you any guidance on when we can sort of expect to see improvements, but we are working hard on all aspects, both costs and top line, and in both companies.
Okay, but the EUR 1.5 million target cost saving, sort of a timeline on that one?
It will be implemented during Q1 and Q2. So it is, it has gradually been implemented in Q1, and it will also be implemented partially in Q2.
... Yeah, good. A final question from my end. So, you know, I think given the extended whistleblowing announcement in March and their review by the Council for Swedish Financial Reporting, I am wondering if there are any other active and ongoing investigations into BICO or potential for additional impairments or similar charges. I just wanted to get that out of the way and get a comment on that. Thank you.
There are no other investigations.
Thank you for taking my questions.
Thank you.
The next question comes from Ulrik Trattner from Carnegie. Please go ahead.
Thank you very much, and good morning. A few questions on my end, and perhaps I’ll start off where Rickard had ended off, and on the goodwill impairment here for Q1. And sure, this is purely mechanical. You’re going from 10 years to five years in your estimation of goodwill. How should we view this in terms of risk going forward of additional goodwill write-downs? Is this, although it’s not a decision on your end, and you haven’t changed the valuation of each of the individual acquisitions, but is this to be considered more of a conservative view versus previous denoted goodwill?
Yeah, to answer shortly, yes. Now it's a much more conservative view, because what happens is you basically cut the forecast from 10 to five years. So instead of calculating terminal value after 10 years, you calculate it after five years, where we then believe that the companies have not reached a steady state in terms of sales and profitability. So this is indeed a much more conservative approach.
Okay, great. And again, going back to a previous question here, and you mentioned gross margin declining with potentially Biosero accelerating, giving it to service business. But since this is a bit of a special segment in terms of its reporting and dynamic between gross margin and EBITDA margin, could you give us some guidance on how acceleration in Biosero will affect the EBITDA margin for the bioscience segment?
I mean, that would be giving guidance on Biosero, and as I said to Rickard, we do see a strong underlying demand for lab automations. We expect to see nice, healthy growth in Biosero during 2024. With this, you will see a diluted effect on our gross margin, given the explanation I gave to Rickard, that is related then to Biosero having a different gross margin profile than the other companies.
Okay. Let me then sort of rephrase it. Is Biosero, and this is essentially not guidance, but is Biosero reporting higher EBITDA margin versus the overall group?
Uh, yes.
Okay. So essentially, it will be margin accretive, not decreative, if it accelerates.
Yeah. Yeah, yeah. Yes, yes.
Great, third question-
I think that, I think that's important, I think that's important to understand, Ulrik, that the gross margin profile in Biosero is that it's much more fully loaded than the instrument companies. But that means that the level of OpEx in Biosero is much less.
Yes. Yeah, that was more or less my point. And on bioprinting, it seems to be a bit of a struggle here for Q4 and for Q1. And how much would you like to attribute this to the underlying market, especially given that you're taking some cost savings related to this segment and streamlining of product offerings?
When it comes to the market, it's especially the Asia market that is affecting the sales negatively for CELLINK, as well as the heavy dependence on the academic sector. The measures that we're taking for CELLINK are two: one, it's ensuring that we have focused product offering, ensuring that we're selling profitable products; and secondly, that Jacob also referred to, is to do cost savings. And for CELLINK, it's in the range of SEK 20 million now for the next quarter. So it's a mix of underlying market, where academia is still softer and Asia is also still soft, and the product offer. So it's a mix, Ulrik. I hope that answers your question.
Yes, absolutely. On bioautomation, I know diagnostics underlyingly have been a weak market for some time, but we're hearing comments from industry peers that it's looking a bit brighter here for the second half of the year. Can you give us any rough indication on current trading or when this sort of negative trend will change?
I think it's difficult to give indications on when we will see sort of a stop to the negative trend. We do see that the market is picking up for our peers, so that's a positive sign. What we are mainly focusing on in SCIENION is to do these cost cuts to have a more sort of right-sized business. And in addition to that, we're also strengthening the commercial team in SCIENION quite significantly.
... Okay, last question on my end. I note that you're currently in a strategic review, and I'm guessing you would like to reveal the highlights of this, the Capital Markets Day. I did note that you were planning something in September. Just broad-based here, you have invested throughout the years a lot in R&D. Do you feel that that is a level where that needs to be maintained and just allocated differently? Or is there a case here where you can reduce R&D based on your current product offering, as well as in this strategic review, does it only include sort of your keeping or focusing on your current portfolio, or also to potentially divest certain parts of your portfolio, which might not be a good strategic fit for BICO?
The strategic review is done both in terms of the current portfolio, ensuring that the needs that our customers have are addressed in the best way. And in terms of those gaps that potentially exist with, in relation to the current portfolio, in relation to market trends and in relation to competition, we will then have to complement those gaps with either collaborations, agreements with different companies, or to develop in new R&D projects. And the second part then in reviewing our R&D pipeline is not only to ensure that we deploy our R&D investments in the right fields, but also ensure a focus of that portfolio. Whether we are to...
I would presume that that review that we're doing now means that we will close some projects, but that doesn't necessarily mean that we will invest less money. I'd rather invest appropriate money and to more focused and fewer projects and ensure that they are successful. In terms of divesting any assets, no such decisions has been made.
Okay, great. Just a follow-up question, and Jacob, you mentioned that additional investments have been made in SCIENION expanding its commercial capacities. Just some clarification, is that related to SCIENION or is that related to Cellenion?
Both.
Both.
Both. Okay, great,
I think overall, as part of the commercial excellence and driving that, that is measures that is being done in SCIENION slash Cellenion with the new commercial lead. We have a new CEO, also commercially driven in CELLINK, but it's the same kind of initiatives that is taking place throughout the group to ensure that we leverage our commercial abilities to a larger extent than previously made.
Okay, great. And if I can just squeeze in one last question, and I know that you talked about the struggling Asian market. Have you seen any positive effects from the Sartorius commercial collaboration?
When it comes to the Sartorius collaboration, that was set in stone last year. We have both a commercial collaboration as well as R&D collaboration, and mainly the collaboration in terms of their distributing our instruments is in Asia, and Asia is being softer. So yes, there is traction, not in the speed potentially that I think both parties would have wanted to, but Asia is what it is at the moment, and I don't see that it's going to remain like that moving on. So we see positive on that collaboration.
Okay, great. That was all on my end. Thank you, Maria and Jacob, and I'll go back into the queue.
Thank you.
Thank you.
The next question comes from Rickard Anderkrans from Handelsbanken. Please go ahead.
Hi, a follow-up on Biosero. So at the time of acquisition, Biosero in 2021 had around, you know, 25%+ EBITDA margin. Is that level where the company is performing at the moment?
Uh, yes.
Perfect. Very helpful. Thanks for taking my question.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Thank you, everyone, for joining us today, and thank you for all the questions. Together with Jacob, I would like to wish you everyone a great Tuesday. Thank you, and goodbye.