Earnings Call: Q4 2019

Feb 7, 2020

Okay. So let's start. Welcome everyone to the conference call for q four for Bool Diagnostics. So this is Christina Rubenbank, and I also have Okay. Okay. A conference call for Voole Diagnostics. This is Christina Rubenhagen, and I also have Peter, chairman of the board here. And can I ask everyone that don't have questions to mute their phones? Because otherwise, there will be an echo. Okay. Okay. Julia, please mute your phones. Okay. Then we start. It would be appreciated if everyone mutes, but otherwise, we we continue here. I think that we skip this you can find the presentation on the home page where it's uploaded. And I think that everyone calling in knows pretty much what the company is doing, so I think that we skip the first slide. And then if we continue a little bit, you will see the updated product portfolio that we have had since '17, '18 with an addition of 16 products, which is one of the reasons for the growth during this year. So if we go into the details of Q4, which is the Slide number five. Q4 was a quarter where we saw all time high in instruments delivered. The growth continued, and we also had improved profitability. Net sales was SEK 129,000,000, and this corresponds to growth of 22 percentage. Looking in fixed currencies, it was SEK 18,000,000. We had very strong instrument sales during the quarter and number of delivered systems increased with approx 12 percentage, which is a new all time high. And revenue for instruments increased with 13%, meaning that the ASP was higher compared to previous Q4 last year then. And that is mainly impacted by increased prices in Asia. Because if we look a little bit closer to the delivered systems, you will see that main part of the instrument sales was to Asia, specifically India. And for the ones that have followed the company, you know that instrument sales to AsiaIndia normally takes down the gross margin, and that is also an impact of that in this quarter. But still, with higher ASPs, the revenue increase of 13%, which is quite good then. Consumable sales for own instruments continued to increase during this last quarter as well, 31 percentage. Full year, it's a growth of 21%. Specifically, in Q4, sales was driven mainly by consumable sales to India. And it very good that we now finally can see that the instruments that we delivered in the big tender to India has started to generate consumables much later than we thought when we did the did that sales, but now we finally see revenues generated from that one. And and can I please there's a few people that haven't been with you? Can you please mute the phones? It's okay. Then in this quarter, we also had a second shipment to the African tender that we had in '17. '17, we delivered instruments and consumables to Africa, and the consumables covered consumption for approx two years' time, meaning that we haven't delivered so much to Africa since then. So this is the second delivery that has happened to Africa. This time, it's approximately one year consumption. So, of course, it's a big one and probably will cover next year. If we look at the full year, I think that the main reason for the growth this year is the initiatives that have been taken during the last year and and and of '17. We broadened the product portfolio both in the human and veterinary area. We have strengthened strengthening the sales and marketing resources, and we have also made changes in the distribution structure, mainly mainly in East Europe and Russia specifically. With high instrument sales and main part to Asia, gross margins was 44.6 percentage, much higher compared to Q4 last year, but it's slightly lower compared to the full year gross margin. Even though we had high consumable sales, the instrument has an impact, so that's why it's slightly lower. But we should remember that instrument sales is important because that will that will lead to to, increase in consumer consumer the sales going forward. Expenses was slightly above last last year's q four and mainly driven by investments in sales and marketing. And the EBIT margin improved 11.7 percentage in q four. Last year was 3.2. Cash flow was $920,000,000, mainly impacted by the positive operating profit then. Any questions on on the financials? K. Then we continue to the next one where you can see instrument sales per quarter, the blue ones that is showing a number of instruments. And then you have the gray the gray one is the rolling 12 sales of the instruments. And as you can see, it weekend '17 and '18. But with the addition of the broadening product portfolio and other, changes that has been made, instrument sales has increased over the year, and consumable sales has a very healthy growth as you can see on the on the red slash pink line. And the consumables, as as I have said, main main reason for the growth in q four was was driven by Asia, but also deliveries to Africa. And if we continue to the next one, you will see growth per product line in the different product categories. And you have first the q four, and then you have the year to date. And q four was driven very much by by increase in consumables on own instruments, but also increase in instrument sales as such. And year to date, consumable sales increased, that is the main driver, and also instrument sales. And instrument sales is mainly the new five part systems that was launched in '18 and the broader product portfolio. And consumable growth is mainly driven by changes in the distribution structure in Eastern Europe that has resulted in increased prices and increased sales and also a healthy growth in all the regions. And at the top, you can see the percentage and the share of the different product categories where you can see that consumables own instruments represent 43% of the total product portfolio and the revenues. And if we look at sales per region in q four, Asia had a very good growth driven by instrument sales and also by rail and sales. And sales to Africa is mainly based on on the on the second delivery on this Africa tender, but also instrument sales. Growth in the Eastern Europe was a little bit declining this quarter, but they have had a fantastic year so far. And if we look at year to date, you can see that Eastern Europe is growing compared to last year. The main growth component is Asia, but also U. S. And in U. S, we have both sales of own instruments and consumables, but also the OEM business, which has continued to that has been growing quarter over quarter during this year. And for the first time, Asia and U. S. Is equal in size, 29 percentage. Historically, US has also been forward in the the major region, but Asia is is catching up. So now they are equal. So if we take the next one, looking a little bit into the gross margin, this is a little bit bit of a busy slide. But what you have is that you have number of sole instrument, that is the blue bars, and then the gray ones are sales of instrument to Asia. And you also have in percentage, that is the gray one. So you can kind of see that quarters where we have had high instrument sales and especially high portion of sales to Asia, the gross margin has normally been lower. And we have a slight impact of that this quarter. But even though it's extremely high instrument sales, all time high, and a very high portion to Asia, gross margin is still 45 percentage, which is historically quite good, actually, if if you look back in the same numbers. And we normally talk about the fact that gross margins are dependent on both geographical and product mix and especially than instruments. And we can have tender sales in the in the different quarters impacting both instrument sales and gross margin. We have not had any instrument tender sales during this year. And actually, the only kind of big chunk of off tender related sales is this sales to Africa this quarter of consumables. Page 10. Page 10. Yes. FDA. So what has happened, as as you probably know, third quarter twenty nineteen, we addressed we completed the warning letter and to end the and everything that we had committed towards the FDA. In July, when they conducted on-site audit, we received two new observations. Those observations have also been addressed according to the committed plan and was finalized now in mid January twenty twenty. So right now, we are in dialogue with FDA and positive dialogues, I would say. So we we we will we will need to wait and see what the next step is, but we have done what we have promised and committed, and we have checked everything that has been that has been committed to the FDA. So if we take the last page or the the next one at least. Yes, sir. So the Chris has been appointed as CEO, and he will join Bull May 11. So that we are looking forward to. Other changes that have been made both when it comes to organization, but also how we how we organize the company is that to be able to strengthen production and really focus on further improvements on quality work, cost efficiency, and also start the preparation for the new five part platform. And we have taken the decision to establish local production of consumables in Russia, we have decided to divide the responsibility between production of instruments and production of consumables. So in The US, we have one site producing reagents and controls, and Eduardo Pagini is the product manager for that site. He has now also taken on the responsibility for reagents production here in Sweden. And at the same time, Michael Eakholm has recently started and will be responsible for production of instruments here in Sweden. And the reason for this is to increase the pace of this work and really make sure that we drive this in a diligent way. And just to summarize, going forward, we don't give any guidance or any forecast, but what we normally say is just to guide what will happen depending on where the business in what direction the business goes. And veterinary market and increased growth in that will have a positive impact on revenue and also on gross margins. Distributed products is great when it comes to revenues. But of course, since they are distributor, the gross margin is not as good as if we have had own production. So that is negative on the gross margin side when it comes to the percentage. Continue to develop in the distributor network that has a positive impact on both revenue growth and gross margins. And then we are growing, as you saw, in emerging markets, and that we think will continue having a positive impact on revenue, but a slightly negative impact on the gross margin since instruments prices often are lower in gross margins. And then, of course, we continue to work with cost reductions and the Diving with sanctions regional manufacturing that we are working on right now with the new factory site in Russia. Yes. So for and with that, we open up for questions. Hi, this is Victor from ABG. Hey, hey. Hey. So I'll start with a question regarding your consumable development here or sales development. Could you elaborate a bit more on your five part systems and the growth you've generated in instruments during this year? What do foresee for next year in terms of consumables for those systems? How that will support both sales and and also margins? It will, of course, support sales. So so with higher in I mean, with the higher installed base, no matter if it's five part or three part that we generate consumables going forward. When it comes to five part consumables, the new five part systems that we have launched, we do not produce those consumables on our own, but they are sourced as well. So that means that the margin is lighter lower compared to production of own consumables. Right. And also another question. I mean, given the main growth opportunities are still in emerging markets. And what do you foresee in terms of gross margin development given that we perhaps will see a continuously strong sales of instruments to the Asian region or the Latin American region? How how is the consumables going to, say, offset that type of growth into next year in terms of margins? So we don't really give forecasts in that detailed level. But I think you can assume that growth will continue in those regions. When it comes to instruments, the margin is different if it's a Asian country or if it's more developed countries. When it comes to the consumables, the difference is not that big because the prices are approximately the same globally on consumables, then it can vary how much you use the system. So that that is the dependency, of course. Right. Great. And one last one on the biosurfate. Do you have any further news there or impressions from from recent fairs and and congresses? How's that developing for you? Sales has been slower throughout the year versus what we had expected. But if we look at conferences, etcetera, we have just been this week, we had Medlab conference in in exhibition in Dubai. And as always, attending those conferences and exhibitions, it's a great interest from the distributors and the customers. So so that, of course, we hope for the future at least, even though sales has been slightly slower. And have you seen any any attraction for your the distributor rights of of the Celevision DC one? That was actually launched now for the first time at MedLab in Dubai. And saying that that it was it was quite good interest. So let let's see what will happen with that entering 2020. But this was actually the official launch for for Bullet List with that product. Okay. Oh, that's great. I'll get back in queue. Thank you. Okay. Thank you.