Revenio Group Oyj

Good afternoon, and welcome to Revenue Group Q1 earnings call. My name is Jouni Toijala, and as always, we have Robin Pulkkinen, our CFO, in a call as well. Plan for today is to go through the highlights of the quarter. Then I'm going to cover that one. Then we have Robin covering in more detail the financial part, plus the current shareholder structure, and then the reiteration of the financial guidance. But let's start with the highlights of the quarter. So we saw very strong growth in sales, and especially in North America, UK, Germany, Finland, Italy, and Australia. And if coming back to the Q1 growth drivers, so tonometers, including the probes, started to grow in a double-digit manner, and there the leaders from the product perspective, where actually I see 200 and then the home two. Then exactly as in the earlier quarters, so we achieved very strong sales from the retinal imaging devices. And again, the same trend continued, so the ADON product family sold really well during the Q1. plus, of course, the DRS+. Then we have been able to move forward related to the iCare iLoom screening solutions. So we installed on the production use more systems during the Q1, plus then we also established new pilots there. as well during the Q1, so also the ILUM solution is moving forward as planned. From the market conditions, uncertainties point of view, not too much change on here. What we saw during the Q1 is that the component situations is now slightly better than in the end of the Q4. Then a bit on the client side, we are seeing a bit more cautious decision making. Our view is that it's because of the cost inflation, but otherwise Things are more or less looking the same as in Q4. Then if going through a bit more to the numbers, so Robin is going to cover numbers in more detail, but a couple of highlights here. So net sales 23. 0.2 million so that's up from the last year at 20.2 million so up roughly 15 percent then the ebit performance 6.2 million euros 10.9 percent growth and if we look the Q1 at 22. So we are slightly below. So out from the net sales, the EBIT was operating profit was 26.6%. And there's a couple of reasons for that one. So product mix was having an impact to the cross-marching and then a bit of a currency fluctuation in the numbers as well. But Robin is going to cover those in more detail. Then earnings per share came down slightly. So that was due to the financial costs and tax rate items. So Robin is going to cover those ones in a bit more detail. detailed as well. But I think at this stage, Robin, over to you.

Thanks, Joni. So like Joni mentioned, 15% growth roughly in the quarter, first quarter. Not that much FX impact. So basically the FX adjusted growth was 15.2%. Looking at the profitability level, EBIT came down less than 1%, like the EBIT percent compared to last year. The biggest reasons are basically the gross margin where the product mix and FX had an impact. But then when you look at operating expenses, basically last year our operating expenses were 41% of sales and this year they were 40% of sales. So we caught back a bit of that loss that we did in the gross margin and then back in the operating expense and ended up 26.6%. The earnings per share came down, like Joni mentioned. The financial expenses in Q1 were roughly 700,000 up or a little bit below that from last year. That's mostly unrealized FX. Of course, the interest were slightly up, but also the interest income was up. So those kind of more or less net off each other. So more or less the whole thing is from unrealized FX from currencies we have in the balance sheet. So US dollar and Australian dollar being the biggest part. In addition, also taxes that we paid were up 380k more related to which legal entities we actually had the profits coming in in the quarter. So in Q1, we had more profits coming in from Italy where the tax rate is slightly higher than Finland, 27.9% versus 20 in Finland. Net gearing I'll cover in the next slide a bit more. Equity ratio is slightly down. Here it's important to keep in mind that this year our AGM was in Q1, so the dividends were posted off the balance sheet or the equity side to the liability side at the end of the quarter, while last year our AGM was in Q2. So the dividends were still in equity at the end of Q1 last year. Cash flow from operations up by half a million. On the cash flow side, the beginning of the year is typically the worst quarter for us. We pay out all our annual short and long-term incentives for the whole company and as well the tax payments were quite high in the first quarter. Looking more on the graphical view. Net sales developed really well in the first quarter. Looking at kind of FX, last year we had very positive tailwind from the FX. I think all the signs, at least what we see now, are kind of giving the hint that the tailwind will not be as strong this year. So last year, the FX impact was roughly 6 million euros. So now that most likely we will not see that kind of positive support this year, at least not in Q1. The adjusted operating profit are actually still in the revenue, looking at the trend line. So you can see the first quarter typically drops below the trend line. So it typically is the the slowest quarter from a sales point of view for us. And then when we go towards the end of the year, then we're going to start to pick up and ending up the year with above the trade line. The Q2 is interesting, so looking at the The earlier years, we've kind of been close or slightly below the trend line. Last year, we were slightly above, mostly due to FX. But anyway, the last year number is very challenging. It puts the bar really high for us, where to target and try to get to this year. The operating profit, also like we've talked before, is a very scalable business model. So when the top line goes up, the profitability follows, so the operating expense are pretty fixed. On the cash flow, here you can see the first quarter typically is on average, if you look at the past years, it's been close to zero. Now we're slightly positive this year. Like mentioned, the short-term and long-term incentives and the taxes paid out, and then of course the lower Top line and bottom line in the first quarter are the reasons behind this typical trend. The equity ratio is still really strong. The balance sheet is in a really good solid condition. It did come down slightly like I mentioned earlier due to the AGM taking place in a different quarter than last year. The dividend of 36 cents was paid in April, so basically even though the AGM was in Q1, it didn't leave our balance sheet until Q2. On the shareholder side, no big changes. Basically, the top seven are still the same. The foreign ownership has gone up slightly, but in the bigger picture, really no major changes in the first quarter in the ownership. The guidance for 23 revenue groups, exchange rate adjusted net sales are estimated to grow strongly from the previous year and profitability excluding non-recurring items is estimated to remain at a good level. That's it. Thank you, Robin.

I think we are ready for the questions, please.

If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Niko Ruakangas from SEB. Please go ahead.

Hello, this is from NCB. Thanks for taking my questions. I have a couple of ones. First of all, you mentioned that your clients have been slightly more cautious with decision making. So how much has this been visible in your numbers and do you expect this impact to be higher going forward?

Not visible currently, so I think that's the case. So, we haven't seen an impact on that one on numbers yet.

All right, all right. But you are a little bit closer going forward.

Sorry, Nikko, can you repeat?

No, just mentioning that, but you are a bit more cautious now going forward than earlier.

Not yet, but I think that at least we have noticed that the people are thinking and the clients are thinking more carefully where they put the money. But I mean, as you can see from the Q1 numbers, the impact is not kind of visible yet on the numbers.

Yeah, I understand. understand. Then on the cost side, so so as your imaging sales is gaining more and more share of the total revenue. So how much have you been able to decrease the gap between profitabilities of imaging and tonometers is still a wide.

So when we kind of release the new products, we kind of that that kind of host kind of the the build stays the same so we don't kind of do much uh kind of physical changes to the products as we move forward so the biggest changes in the prices are when we launch new products um like the drs plus like we discussed before it was a lower lower price to manufacture higher price to sell um then there are for example the ultra wide field lenses and the modules that we sell that are kind of add-ons to the existing hardware which are uh then again um higher gross margin products for us compared to the devices. So there are improvements. Of course, the tonometer, it's a quite simple product from a hardware kind of cost point of view. So it's not that difficult and complex to manufacture compared to the imaging. So I don't think we'll I don't know, but probably never going to be as profitable on the imaging devices than the tonometry at least is the price level stay at the similar level. I don't know, Johan, what you think. There's just so much more expensive components in the imaging devices than the tonometry. Yeah, I agree.

All right. All right. Then one more question from me. So your operating costs were quite at Q3 level from last year. Now in Q1, so I guess you have salary inflation in expectations, but can you discuss a bit more about the other costs, increases you're expecting this year?

Yes, timing things, for example, clinical trials that are not really easy to forecast or kind of say when it's going to take place. So those are kind of one-off costs. We didn't have much in Q1. And then the salary increases, for example, are not taking place in Q1 numbers yet. So that's going to be more visible in the Q2.

All right. Thanks. That's all from me. So I'll leave the room for others.

Thank you, Nikko.

The next question comes from Daniel Lepisto from Danske Bank. Please go ahead.

Yeah, thanks. It's Daniel Levisto from Danske Bank. So, if we still go back on the sort of cautiousness you mentioned, that you have sensed from customers during this quarter. So, are we talking about maybe hospitals and GP side, or maybe this optical change you have also in your customer portfolio?

I think that it's, in a way, slightly general and not too, I mean, not too much cautious, but I think everybody is now thinking that when and where to put the money, so I wouldn't too much perhaps highlight on kind of too much causes or concern here, but I mean, generally people are evaluating that where they put their money. So I think that was the comment because of the higher inflation.

Okay, but are you seeing any sort of a

relative difference between maybe maybe these more more defensive hospital customers or or these maybe more you know cyclical optical change no no and still i want to emphasize sort of the i mean uh still want to emphasize that we haven't saw uh any uh kind of a dependence on the q1 demand on this one all right that's that's very clear uh maybe

if we could discuss the gross margin headwinds you saw in the Q1 a bit more. I guess there was the impact from the sales mix, but also from the less favorable effects you had now in Q1. So could you elaborate a bit more on these topics?

Yeah, the imaging product line is growing faster than the tonometry, and it has slightly lower gross margin. So that's the the kind of the biggest impact there. And then FX is the other one. So the kind of the FX impacts on the top line were higher last year than this year. So that's kind of the other driver. But the product mix is kind of the biggest change there.

All right. So, okay. And maybe about the exchange rates. as we saw in the report, now the tailwind has sort of turned into a small headwind already in Q1. And as you sort of discussed already during the call, I guess we should start to be seeing even bigger headwind now in Q2 and Q3 especially. Are you planning to take any actions on this one, or should we expect to see sort of this margin, maybe margin pressure also incoming quarters coming from this less favorable FX?

At this point, still with the board, we've discussed this over here and there, and we have not decided on any hedging on the currencies.

So we should be a bit more careful in terms of looking at the margins we saw last year. especially in those Q2 and Q3, now that the currency is upturned against you this year.

Yeah, if they had a turn. I think last year, I can't remember right now where the Q1 ended, but the exchange rate came down quickly after Q1, if I recall right, last year. So by the summertime, it was closer to par or parity almost, if I recall right, so. So the change last year was really fast in the first half, euro to dollar.

Yeah, that's clear. My final question is about the tonometer patents that are actually expiring this year globally. So can you remind us when exactly are the patents gone and is it early this year or maybe later this year? Can you elaborate on this?

Yeah, it was the middle of this year, and it's the first patent, so-called TAO1 design patent. So we have other patent families as well, which are still valid, like the probe magnetization and eye detection for home tubes and so forth. So it doesn't kind of give... full view if we say that the patents are expired, because one patent family is expiring, and we have quite many others which are still valid as well.

All right, but I guess this is nevertheless, there is sort of a risk of competing rebound technology, maybe being the first generation, you know, globally this year.

Yeah, I think that's, Daniel, yeah, that's true. if somebody would like to come into the market with the product like DA01 used to be sold, so they would have a freedom to operate, so that's sure. And we haven't heard now, so no news yet on the Raihertz, so we know that they are coming, but they don't have the FDA approval yet, and no entry to the Europe either, to the human side, so that's the latest status.

Okay, my final question would have been that, have you sort of sensed any or heard any rumors about any other competitors, you know, maybe looking to get rebound devices on the market outside US?

Not yet. There's Chinese copies, but they have been on the market for a really, really long time. But nothing else except TriHeart now.

All right, that's clear. That's all from me. Thank you.

Thank you.

The next question comes from Pia Roskvist-Heinzalmi from Carnegie Investment Bank. Please go ahead.

Hello, this is Pia calling from Carnegie. I've got a couple of questions and I come back to this. slightly maybe softer outlook from your clients. So can you describe the trading conditions now in early Q2? We have one month behind us. So how has your clients ordered devices?

I think that's a kind of a forward looking, but as I said in the earlier questions, so we haven't seen any any kind of weaker demand during the Q1 and kind of houses in order on that sense. So that's where we stand as of today. And sticking with the guidance, of course, so that's the other thing.

Yeah. And still, can you remind us on your inventories? What kind of inventories do you have for imaging devices? Is the inventory larger than for tonometers?

It's pretty similar. I think we have like, depending a bit when you look at it, but two to three months inventory on average on our products.

Okay, thank you. Then I have got a question regarding the earnings growth. So now in Q1 we saw slower earnings growth compared to the sales growth, and I think we saw a very similar trend in Q1 last year, and then we saw a recovery. and more kind of normal operating leverage. So now with your comments in mind, should we expect a slower earnings growth now in the upcoming quarters as well?

I think the six million tailwind, I would be really careful to assume that that would continue. It doesn't look like it will. So that of course had a big impact on last year numbers, but I think in general, I don't think we have other than the guidance comments on the kind of organic sales towards the end of the year.

All right, thank you. And maybe finally, any specific worries or challenges for 2023 you would like to highlight to us?

Not at this stage, at least. Anything, Robin, you would like to add on that one?

No, just the currencies. I have to keep a close eye on them, because our US dollar exposure is so high.

All right, good. Thank you. That's all for me.

Thank you, Pia.

As a reminder, if you wish to ask a question, please dial star 5 on your telephone keypad. The next question comes from Niko Ruokangas from SEB. Please go ahead.

Hello, this is Niko Ruokangas from SEB again. I have one additional question. uh in your q4 call you mentioned that you are focusing on on perimeters this year so so can you describe a little bit how are you progressing with this one uh that's linking uh to the certain r d activities what we have on on the pipeline and and if we look if we go back uh the end of uh

21 and kind of the mid of 21 when we launched the ADON ultrawide field lens for the ADON family so we did the strategic decision for like for second half 21 and then for the year 22 that we focus and we push globally the ADON and the ADON ultrawide field and that has been successful so now It's a bit same kind of a thing. So we are now putting a bit more effort on the Compass perimeter for this year and perhaps bringing some new goodies and functionalities to it. So that's the reference what we made during the Q4.

All right. And do you feel that you have been successful with this in Q1 now?

So that's linking to what's on the pipeline. So not fully yet, Nikko.

All right. Yes, I understand. So we'll wait for that to realize. Thanks.

Thank you, Nikko.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Hey, excellent. I think we are done. Have an excellent forthcoming summer and see you next time during the early August. Thank you very much for participating.