Ladies and gentlemen, thank you for standing by, and welcome to the Vitrolife Report on Operations 2019 conference call. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. I must advise that this conference is being recorded today, Thursday, 6th of February, 2020. I would now like to hand the conference over to your first speaker today, Thomas Axelsson. Thank you. Please go ahead.
Thank you very much, and good morning to Vitrolife Report on Operations 2019. The speakers today is Mikael Engblom, the CFO, and myself, Thomas Axelsson, the CEO of Vitrolife. Let's start right now, and we go into page number two and have a quick summary on Q4 and also year-to-date numbers. I would like to say, starting with the Q4 and the full year is almost the same in key figures. The same growth in Q4 was 28% compared to 29% for the full year. If we are looking on local currency growth, it was 21% for the quarter and 22% for the full year. What I like to say then is the organic growth was 11% for the quarter versus 12% for the full year. The EBITDA margin followed the same kind of pattern. It was 39% this quarter compared to 40% for the full year.
In summary, I would like to say that it was a year of high growth, and it was especially a good year for the Time-lapse and also for some of our market regions. To explain that more in detail, let's go to page number three and see where the sales was coming from and also some comments on it. When we're looking into page number three then, I would like to go from the left side and start with Americas. Americas has shown numbers this quarter and during the year that they had not been showing before. It has been a very good growth for our overall business organic growth. It has been growth within all product assortments. Especially, I would like to mention that the Time-lapse is the most remarkable thing during the year.
It seems like T ime-lapse is also starting to be accepted in U.S., and we had good growth within that line. Of course, also that the genomics is a business that is well accepted in U.S. since they're doing more PGT-As there than in other regions. If I then are continuing to the EMEA region, where the sales there was SEK 167 million, it was a good growth of 11%. When comparing that 11% growth compared to the 55% earlier in the Americas, I would like to say both of those regions has some inorganic growth through genomics, but both regions has good growth in all areas. A good thing with EMEA, what I would like to say is it was growth within the media and especially with vitrification, and vitrification is something that I've talked about before, is a growing segment within the media field.
In the EMEA market, it is a situation where the direct markets, where we have our own sales force, has grown more than the distributor business. With the distributor business, we have some fluctuations between some quarters, if they are, for instance, buying a little bit more at the end of the quarter or not. That's a normal pattern for having a mix between direct and distributor market. The third market, going into that one, I would like to mention a couple of things regarding Asia, in Asia, in this case, is Asia without Japan. It is, in our case, China, of course, India, Thailand, et cetera. China is our biggest and most important market in that region. The Time-lapse, as you know, has been approved there for some while, we are starting to see good sales within Time-lapse, even in that territory.
What we are seeing as an interesting thing is that our expectations that we had, that we should, in Q4, be able to transform customer back to our product assortment when our supply problem was solved, has not been so successful as we expected. The positive thing, and the discussions with customer, is that we will, and are able from the end of Q4, but actually now Q1, depending upon the inventory level, to be able to sell our global assortment. The situation where we are having a special sourcing and also inventory for the China media markets is out of the picture. Some of the delay regarding the customers switching back to Vitrolife has come from that situation.
The customer knew that we were having regulatory approvals and that we were going to introduce the program during Q1 this year, and therefore, they don't want to switch back for a month or a couple of weeks and then switch back to something that they were waiting for. In Thailand, Vietnam, India, it is slow growth, and we could see that the upgrading of the clinics there and the growth is there are regarding providing more and more quality treatments within IVF, and that fits quite well with our strategy and our work together with those customers. The growth then, as you can see, was 1% in that region, and it was good growth. The Time-lapse, it was then a decline in media that you see it when we're looking upon the different kind of [audio distortion] . Japan Pacific. I will start then with the Pacific.
Pacific region, Australia, and New Zealand, is following more or less the growth within the market. Underlying growth within those region is unfortunately just around zero or maybe a little bit growth. We are seeing the same kind of situation here. The outstanding performance then for that region, we have a growth of 50%. I would like to mention a couple of things. One has been mentioned before, and that is that our media is growing due to our new products that has been introduced, antioxidants in Japan, together with that the clinics has accepted, and it's accepted for quite a while, Time-lapse. With the introduction of the, especially EmbryoScope Flex , where in Japan they are doing more low stimulation. The Time-lapse product, EmbryoScope Flex , has been very well accepted in larger clinics.
Also that they're buying our traditional, already introduced products due to that you see efficiency and clinical advantages of it. If I then are looking on the reporting per segment, it is Japan and Americas, of course, due to their increase. That has increased the market contribution then. It is the sales effects that we are getting. As discussed before, the genomics had some negative impact on the gross margin, especially also within the EMEA, since we have built up our structure and support structure for the genomics is mainly based in Europe. By that, please change to page number four, we look on the business units. I will go from the top and down on that picture. Start with genomics. I don't think it is anything special to mention during that quarter. The genomics sales was SEK 34 million.
Compared to the [33%], it is 37%. We can see that we have been able to transform the business to Vitrolife, and we are keeping up the kind of pace. As mentioned, we are continuing with building the support within the field. During the year, it will be full support, and also we are continuing with the development of our own products for the PGT-A. Stable situation. We've been able to transform the customers, and we are working with product development. ART equipment is a negative growth of 14%. It is our smallest business unit. The sales are SEK 13 million. What we can see is the same trend, and we've been working with it, and it is a situation where we are focusing on our own products, and we have during the year, more or less stopped with most of the distributor products.
There are some [audio distortion] left. Otherwise, most of that space is coming from our own products, Lasers and Log&Guard. We are continuing with our work to get market approvals for U.S. and China. We are not seeing any differences within those processes where we do believe, and it's always difficult to judge, but we do believe that it's going to be an approval in U.S. 2020, this year, and unfortunately not this year in China. Time-lapse, as mentioned before, when I talked about the regions, it is a magnificent quarter. It is 41% in growth. It is SEK 153 million in sales. I'd like to mention that it's good growth in every region.
By saying that, I should not even mention anything specifically, but I would like to repeat that it's U.S., China, Japan that is really continuing the good trend, and those are the biggest market too in doing cycles and also in revenue for the clinic. That's good that they're getting acceptance for this product line there. Our product offering has also been strengthened during the year and also during the quarter. After closing day, we have introduced even a new product for a different segment. We are doing differentiation on what kind of hormone treatment, what kind of performance they do inside the clinic, and that's mainly based upon size of the clinic then. EmbryoScope 8 is the one that is suited for most mid-sized clinics. By that, we don't have disposable devices.
It is -5 during the quarter and is +2 during the year. We see that there is some fluctuations also there between the quarters, depending upon the delivery of especially containers to some of the distributors. We are right now out of all backorder situations. During the coming year, 2020, this year, we can concentrate more about sales. Okay, let's go down to media. I've mentioned before, the only challenge we have had on media is the growth in China. The total growth in media is +1%, sales is SEK 164 million. The limited sales growth of 1% is only due to the negative situation in China with our transformation back to the Vitrolife some customers.
It's good that our global product assortment is more or less the same right now, and that's positive for our culture media, and transfer media that we have now working with our customers. What I would like to mention when we are on the media, in the same situation on China, since China is an important business for our media and of course for Time-lapse. I would like to mention that, within the report today, we are saying that we can't foresee what's going to happen with the Chinese market short term regarding to the coronavirus. What we can say is that the patient inflow, is usually was closed before the new year, and still, the same kind of pattern where larger clinics and labs were kept working during the new year to handle the culturing and the transfer that already was started.
With the coronavirus and what authorities have done in China, the expected recovery of inflow patients that was expected from February the 3rd, is now delayed to the 10th of February. That will mean that we are at least seeing a slow start of the [audio distortion] . That's why we are saying that we believe that Q1 in [audio distortion] came down in China, we presume will hold down. Information from this morning had been updated in just a few minutes before this meeting. According to the IVF lab group, where they have more than 500 members of embryologists and doctors this morning, they are saying there's very few patients coming in this week as expected, due to authorities warnings regarding, as you well know, that they are not supposed to travel.
Major clinics are saying that they expect to open up next week, but we don't know what's going to happen. No one knows that. For our product line, the Time-lapse, the hardware equipment, we are not seeing any changes except delay in installations. Regarding the consumer's media, that will pick up when the cycles will pick up. Thank you very much. By that, I will ask Mikael to go through the financial and other things on page number five.
Thank you. When it comes to the fourth quarter financials, the gross margin was 62% compared to 67% in the same quarter last year. The negative variation is primarily related to the product mix, as we've seen earlier this year, with the genomics business unit having a lower gross margin than the average for the group. The other key variance is related to scrapping, amongst others, related to media as a consequence of difficulties in planning the right production volume for China. Looking at the EBITDA margin, it's down from [audio distortion]% to last year to 39%. Besides the gross margin variances that I mentioned above, also the IFRS 16 had an effect here, a positive variation of about one percentage point. We are also seeing in the EBITDA result a positive effect of currency of about SEK 7 million.
Off the end of the period, the board proposed a dividend to the shareholders of SEK 140 million compared to SEK 92 million last year. That equals SEK 1.05 per share compared to SEK 0.85 last year. That's equivalent to a 24% increase. We move to page number six on the outlook. We continue to see a long-term market growth of [audio distortion] to 10% in monetary terms as before. We expect it to be driven by less parents to be continued to wait longer to have children. There's a higher average income in the society enabling paying for IVF and also increased social acceptance of IVF. Vitrolife will, as before, continue to expand sales. To support this, we have during the year invested in, for example, a broadened product portfolio. We have also invested in a strong sales and support organization.
We will continue to broaden the product offering, we are working with product development projects in all our business units. We are also exploring M&A opportunities as they arise. Finally, as Thomas mentioned, we expect the first quarter sales to be negatively impacted by the coronavirus outbreak. With that operator, we are ready for questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask questions, please press star one on your telephone and wait for your name to be taken by an operator. Again, if you have questions, please press star and number one on your telephone to be added. We have questions coming in. We're just waiting for your name to be taken, sir. Your question comes from the line of Björn [audio distortion]. Please ask your question.
Start with the typical CFO question on the gross margin. You mentioned there's a one-off impact on the gross margin due to the media situation in China. Could you quantify that?
Yes. Normally we have scrapping costs in our running business as a consequence of short shelf life on the media. This quarter, the abnormal scrapping cost constituted about 2 percentage points, negative variation on the COGS margin.
Okay. Thank you. That's very helpful. Moving on to Time-lapse. It has had an extraordinary development over the last couple of quarters or perhaps years, growing 41% in the quarter. Obviously, the acceptance of the technology is getting more sort of established. What proportion of procedures are performed with Time-lapse in the different regions? I suppose the U.S. is the leading one. How's the situation in other markets?
Hi, Björn. Thomas. We are not going to go through the regions exactly, that will take forever. I'm trying to answer your question. I do think that what you are asking is, where is it accepted and where will the growth be, more or less. It is well accepted in the U.K., it's well accepted in the Scandinavia area, it is well accepted in the Pacific, well accepted in Japan, and some other few markets within this territory. Those has been from the beginning, and we had a constant growth in those markets. The markets that then are starting to pick up are China due to regulations that their products approved, and also due to their own, let's say, research, where they are finding clinical advantages from it, and also efficiency regarding how to run the clinics.
In U.S., where we have had, honestly, a lot of resistance regarding Time-lapse for many, many years, I would like to say that that has slowly changed. That's why we see a change there. It's coming from a low level on how many cycles is being done with the Time-Lapse. It's also there, the midsize to larger clinics to see advantages. That is regarding efficiency and also from good clinical situation where they can perform the genomics, if they would like to do the genomics differently. They are only doing genomics on the embryos that has morphology good development. That's hopefully I can give you that's what I can guide you with. As I said before, we were expecting that around 15% of the market are using Time-lapse. We are looking into this. It is higher currently with the growth.
We can see then with the disposables that they are using, that there are growth within the field for sure.
I suppose most of the sales is equipment. How much is the disposables for the Time-lapse segment?
We calculate with that over a five-year period, the recurring revenue for disposables and service contracts constitute about 1/3 of the total revenue for Time-lapse. The consumables and service constitute together about 1/3 and equipment 2/3.
Yeah. Since you're growing, I suppose the install base is growing. Most of the, I mean, a very large proportion of the current sales is related to equipment sales rather than disposables, right?
Yeah, you're right. As we are in a growth phase, of course, equipment will constitute a little bit higher share in relation to that.
A final question, I'm not sure if we get better answers from that, the situation in China. Right now, it seems that we have sort of less than a week of sort of lost performance in China due to this. What is your expectation? Eventually, this will sort out. Is it fair to assume that, yes, this will affect Q1, but those couples who are interested in the treatment will come back later on, so are we on a full year basis, there will not be that large impact from this? What is your thought about that?
What we believe, and is from discussing with the customers, because since people can't be out working, we have discussions on chat sites and also by calling and having different kind of team meetings during [audio distortion] . We can just follow one thing, and that is that all clinics, and some of them are already closed, is saying that the treatment cycles, it's always starting with a hormone treatment. The information that we have got is that the hormone treatment that's been started has drastically been reduced the last one and a half week. That will, of course, impact the oversight, the pickup, and the capturing and the treatment. All IVF clinics, they want to resume their operations as soon as possible, and they have goals to reach.
When the situation is solved or when other information will come, they for sure believe that there's going to be a pickup and back to the normal situation. We can't judge that. I don't think that anyone can judge it. Of course, it's going to be a situation where the consumable products will go down for a couple of weeks, and that will impact Q1.
Okay. Thank you very much.
Your next question comes on the line of Patrik Ling. Please ask your question.
Hi, good morning, guys. Sorry if some of these questions have already been answered. I missed parts of the call. When it comes to Time-lapse, Thomas and Mikael, could you elaborate a little bit if you had any larger single orders like you had before in that number that we saw this quarter?
Yes, in Time-lapse, it is hardware, and as I said before, there is the clinics that is buying hardware, and that can't be looked upon as a single larger order. The last five quarters, with the pickup of Time-lapse, it is different clinics that are buying. Since the value is quite high on each order, we are depending upon sales of hardware. In Japan, it is in the EmbryoScope Flex. In the U.S., for instance, the clinics are not as big there, so there is more clinics. In China, it is the same, it is more clinics. Overall, the space in this quarter is not based on just a few larger order. It is based on many orders.
Okay, great. Good to hear. Could I also follow up on media space, where you said that you had a challenging time in China and overall growth is just 1%. If you break out China, how much did media sales in China fall in this quarter?
We don't report the media growth per region, Patrik, but the growth rate in excluding China was at a satisfactory level.
Just remind me what you think is satisfactory for media since it's a pretty mature product. Is it 8%?
The market growth rate is 5%-10%, so in that level we're talking about.
Okay, great. Good. Could I also ask, when it comes to China, I know that it's difficult to answer this, but in the scenario where a couple have started hormone treatment and for some reason now they are unable to go to the clinic and continue, what happens? Can you just continue hormone treatment for another month and then just wait, or do you have to restart the process all over? The impact on your consumable part might be something that lingers on a little bit longer, while, for example, you mentioned that for hardware and Time-lapse, that it will just be delays in installation, that might recover quicker. Could you elaborate a little how we should see this?
Yes. Quickly, it is still in the new year, during the new year, they are planning normally for less hormone cycles and also less treatment. If we are looking from the hormone treatment, take some time when they started up. The ones that they were doing hormone treatment with and they had started to plan for a pickup, those have been done if there's been a possibility for the patient to come to the hospital. In Wuhan region, that has been impossible then. The few ones that have already started, they have done it. Where they have started the culturing, and they're not able to do transfer, they have done a trial on those embryos, which means then that they have vitrified them or they have done slow freezing on them. The situation that they are not starting up any new treatments.
If I understand you correctly, the patients that have started hormone treatment that were planned for doing egg extractions, they are really the ones that might be having to start the process all over. If they were already growing the embryos, they could just freeze them and wait and do the transfer later. That part of the sales might come back to you quite rapidly.
Hopefully. It is a difficult situation. The ones that are so lucky, so they've been able to vitrify or, let's say, cryo the embryo. It's just a matter of delaying the transfer. In China, they are still doing mostly fresh transfers. This is also a situation where I don't have any projections. There is limited information that we can get from all clinics right now.
Okay, good. Thank you very much, guys.
Your next question comes from the line of Andrea Ruyo. Please ask your question.
Yes. Hello, thank you very much for this call. I would like to ask what percentage of your revenues come from China?
Yes, between 15% and 20%.
Okay. Also, do you serve the clinics that are in the cities that are closed because of the coronavirus?
Yes. We have a distributed network there, and our system built is trying to cover all China, of course, but our major distribution points are Beijing, Wuhan, Shanghai, Changsha, and Guangzhou. Of course, that in the Wuhan province, there has been a completely stop in all deliveries of products whatsoever into the region. For Beijing, Shanghai, and Guangzhou, there is still possibilities to get products into those areas, but it is not functional as well as [audio distortion], of course.
Okay. Thanks very much.
Thank you.
Next question comes from the line of Victor Forssell. Please ask your question.
Good morning. Thank you for taking my question. I will start with one on genomics. Could you tell us anything about the demand, how that has developed since the first quarters, and if you could say anything about the underlying growth in that segment, plus what you expect for next year?
First to say that we took over the distribution rights in Americas and in EMEA from quarter one. The quarter one was a transaction phase between Illumina and Vitrolife. From, let's say, Q2 then, we have been dealing with all customers with support and the logistics. We are then running the business. You can see that in the sales in Q4 was almost the same as in Q3. That is the current normal sales pattern within that line. The growth, as we believe, within the genomics overall then, mostly right now taking place in Asia. We are doing product development. I can't tell you when it is ready. When it is ready, we will then also have the distribution rights and start to deal with the Asia market. Current growth in genomics from Spain, U.K., U.S.A. is maybe 5%, 6%, 7%, roughly.
Difficult to say. Asia is coming from a very low number, and the growth is there in India, Thailand, Japan, for instance.
Okay. That's great. Thank you very much. Two minor questions for Mikael. The pickup or the sequential pickup that we're seeing here, in terms of R&D costs as well as D&A, is that something extraordinary or is this more of the new levels we see from here?
Yeah, when it comes to the R&D costs, they have beefed up over the year. For example, we have invested more into Time-lapse development and through the development of the AI technology. Of course, they also vary a little bit between quarters, depending on the activity level of different projects between quarters. We have seen also during the year that we expect R&D cost in relation to sales to increase somewhat, and we have seen it. When it comes to the D&A, yes, when we did the Illumina transaction in the end of 2018, we also had some amortizations as a consequence of that transaction. We also did the Paralux acquisition even though it was a little bit smaller. We have seen more amortizations coming into the P&L during the year.
Was it something extraordinary in this quarter?
There was not anything extraordinary in this quarter when it comes to D&A.
Okay. Thank you very much.
Your next question comes on the line of Daniel Albin. Please ask your question.
Thank you. I have three questions. First one is regarding China. Let me just rephrase this. With discussions with the distributors in year to date 2020, how much are the number of IVF cycles down? That's my first question. The second question relates to Time-lapse and what we should expect going into 2020 in terms of growth rates. The third question is really on genomics, and I wonder if you could maybe elaborate a bit on the non-invasive genomics test that you are developing and how that is progressing. Thank you.
A couple of quick answers then, Daniel. China, we have no numbers on it. I don't think there is anyone that knows the numbers right now. Unfortunately, that would be good to have. Growth rate regarding Time-lapse. What do you mean there, really? I'm trying to understand you, there is a couple of things. It is clinics using it or cycles being done by Time-lapse.
Your assessment of how you believe Time-lapse sales growth would be in 2020. Obviously, market growing with 5%-10%. Are you closer to 10%-20%, or should we expect a similar scenario as in 2020? I don't know if you could elaborate a bit on penetration rates regarding larger clinics versus smaller ones when it comes to Time-lapse.
Okay. I'm not going to go into those details. I can say, what I have said before is that the early information in doing projections regarding Time-lapse cycles being done, let's say cycles being done with culturing within Time-lapse has been around 15%. We thought that we had maybe 12%, 13% of those, which means around 85% market share. We see that the Time-lapse market has been growing a lot in the last year, and we do believe it's also to continue to grow. Looking on the consumer side, I don't want to say any real numbers right now because we are looking into this in our market assessments regarding 2020. Of course, there are +15% easily that are currently doing cycles with culturing with the Time-lapse. The trend as we see it is not a changing trend.
We have said that we believe it's going to be center of care. It always takes a long time within the medical field to change behaviors and also the investment in hardware. We believe it's going to grow, of course. The genomics, all of the, let's say, current thoughts regarding future ways of doing it, genomics will be regarding, is it going to be a biopsy on the embryos or not? The non-invasive taking directly from the media is one of the tracks that we are looking into and also all the competition that is doing it. When it will be ready, there are different products out on the market that I would like to say is maybe not, how should I say it? There are different attempts to come up with those.
There is not any significant data currently on those things from anyone that I see. We, as well as others, are looking into it.
Okay. Yeah. Good. Thank you.
There are no further questions at this time. Please continue.
Okay. Thank you very much for the questions and also for listening in. By that, thank you very much for listening in on the report on operations 2019 for Vitrolife. Thank you.
That does conclude our conference call today. Thank you for participating. You may all disconnect. Speakers, please stand by.