Medistim ASA

Good morning everyone and welcome to Medistim's four quarter and preliminary full year results for 2023 presentation. My name is Kari Krogstad and together with CFO Thomas Jakobsen, we will take you through the results. And as always, we will go straight into the highlights for the fourth quarter. So in this quarter, in Norwegian currency, we see a decent quarter for sales. Absolutely not great, but decent because we're comparing to the strongest quarter we have ever delivered. So a revenue of 135.6 million means a decrease in Norwegian currency of 4.4%. In this picture, we see that our own products are decreasing by 5.8%, while the third-party products is growing by 4.3%. And we are segmenting our business into imaging products and flow products, also vascular business segment versus the cardiac business segment. And we see for this quarter that all are down with exceptional vascular sales. And it's good to see that that is still growing at 21.2% this quarter. We also see that currency continued to play an effect here. So when we're looking at the currency adjusted sales, we see that total sales is showing a decline of 13.7%. Currency neutral decline for our own products was minus 17.4%. And we can see that all regions this quarter is down. Americas is down by 14.3% and this continues to be related to lower amount of sales of capital systems, in particular of the flow and imaging type. In EMEA, we see a decline of 20% this quarter. It has been, I would say, a lumpy ride for EMEA this year. It started out a bit weak in the first quarter, then it delivered to strong quarters, and four quarters is then again a bit down. So we will see for the year it is slightly up. Asia Pacific also down for the quarter 13.9%. For the quarter, we are still impacted by the transition that we are going through from going from a distributor sales channel to establishing our own sales organization in China. But we're also impacted from lower than normal sales to Japan and other Asian distributors. So I would say all in all, we are still impacted on a more general macroeconomic situation where virtually all parts of the business is slightly down. This leaves us at an EBIT margin for this quarter at 16.4%. So this is, of course, pretty painful to present such a low EBIT margin. It's not what we're used to, but it's, of course, a direct consequence of the investments that we have been doing this year by establishing our own organizations in China, in Canada and in Sweden. And we're increasing also this year the headcount in our operations in production in order to allow for a second shift. We also have other expenses that my colleague will go through later on. Obit, this result for the quarter, the board is suggesting a dividend at the same level as last year, so 4.5 NOx per share. Let's move into the highlights for 2023. It's good to see that we are exceeding half a billion NOx in sales for the first time. And we're also seeing that our own products is increasing by 7.4% and third party is growing by 4.7%. So while the flow sales is up, vascular sales is up, cardiac sales is up, we see that imaging sales is slightly down. And again, we are relating this to a less inclination to buy the more expensive flow and imaging systems. We continue to see for the whole year a positive currency effect. And when we're adjusting for this, we are seeing that currency neutral, the total sales is going down 2.5% after two very good years of growth. Currency neutral decline for our own products as 5.1%. And we're seeing that with the exception of EMEA, both Americas and APAC is down. So Americas, the same story for the whole year, less number of capital sales in particular affected by less imaging system sales as capital is influencing the overall result in Americas. In EMEA, as I alluded to, we had a slow start and two strong quarters and then somewhat slower four quarter ending up at a slight growth of 2.6% currency neutral. And Asia Pacific in total for the year is down by 7.1%. But actually China is coming back pretty strongly. And we're seeing for the year that currency neutral China is flat compared to last year. And actually Norwegian currency, we are growing. So Asia Pacific is down for the year due to weaker performance in Japan, which also is a big part of the Asia Pacific region. The EBIT margin then ends at 25%, so a more decent result, still slower than the previous year and related to the same factors that I just mentioned for the fourth quarter. So directly influenced by the direct establishment and the investments that we're making for the future. So with that as highlights, we will go further into the details.

Hi Kari, thank you for the introduction. I will as usual go through the numbers in more detail. Kari will take us through sales figures later on related to geography split and product split. So I will dive directly into the expenses as usual and I will start with cost of goods sold. We do have a higher level of cost of goods sold this fourth quarter. There are three major reasons for this. First of all, we had an inventory write down of 1 million related to an inventory count in the fourth quarter. We also have a royalty expense, which is unusual in Medistim to our former distributor in China of 1.7 million. And last but not least, is related to product mix. We have an increase in sales of third party products and a decrease in sales of our own products compared to last year. And the major market US has softer sales this fourth quarter compared to last year and is obviously a large contributor to Medistim's profit. So these three factors are affecting cost of goods sold. Salary and social expenses, Kari mentioned briefly, the two major things that affect our expenses in the fourth quarter. We've introduced a double shift in production in order to meet future growth. but also the direct representation and the direct markets that we now are represented in, which are new for Medistim in 2023, China, Canada and Sweden. Of course, when we build organizations here, we need employees and the expenses increase as a consequence. The latter is also the reason why other operating expenses are increasing related to these new initiatives and expansion in the three new markets I just mentioned. EBIT ends at 29.3 million. Depreciation is increasing by 1 million. The majority of the increase is related to lease contracts. We have new facilities in China and we also have a new facility for R&D in Horton related to our R&D initiatives. Operating profit ends at 22.3 million. Yes, disappointing 16.4% EBIT percentage, which in medicine history is considered to be very low. We are normally between 25 and 30% on EBIT margin. Financial expenses and income is a net positive contribution of 4.1 million and related to foreign currency, either realized or unrealized gains. So our pre-tax profit ends at 26.4 million and profit after tax ends at 19.1 million. Last year ended at 32.5. If they look at the numbers for the year, when it comes to the expenses, the explanations are the same as for the quarter, only larger numbers. I don't think I need to go into those details for the year. What I can mention though is that the EBIT margin for the year that ends at 25% is affected obviously by the fourth quarter week EBIT margin. When we went out of September, our EBIT margin was at 27.9%. And yes, we had expenses increasing every quarter compared to 2022 in the first, second and third quarter. But then we had also an increased top line. We're not able to produce an increased top line for the fourth quarter. And therefore, it affects our total EBIT margin also for the year. So it's not at the 28% range, but it then ends at the 25%. Net finance is still positive, 3.8 million. Pre-tax profit ends at 35.2 million. And profit after tax ends at 103.8 million NOX versus 14 million last year. So the weak end of the year is the reason why we are not having a higher profit this year than compared to 2022. Looking at the balance sheet, tangible and intangible assets are increasing because of increased efforts in especially R&D and product development. Inventory is still high and we mentioned earlier that we need to secure critical components for our products, long regulatory approvals and also end of life components related to long regulatory approvals. When it comes to accounts receivable, we've done a good job. We've been collecting cash quite nicely throughout the year and receivables is down from over 100 million to under 75 million when we go out of 2023. Equity and liability. Yes, we have a very strong balance sheet equity at almost 80%. The long-term debt here is not traditional long-term interest-bearing debt where loan from bank with covenants and such. This is related to our lease agreements, 9.2 million and 4.2 million is related to deferred revenue. related to our extended warranty contracts and service contracts. With that, I leave the word again to Kari to continue the presentation.

Let's have a look at further details on sales here. So taking a look first at the imaging probes and systems in units sales. Here we can see that we have six less flown imaging units sold this quarter. But also recognizing that they're actually selling five more in Asia Pacific and China had actually a good finish of the year in that respect. So this is the result for the quarter for 2023. We are then eight imaging systems down for last year. And of course, the impact of This decline is greater than when we are going down on flow systems only, since the price of these types of devices are about twice as high as flow only. When we look at the imaging probes and units, we see that that is pretty flat or stable, so not a particular impact here. Then when we move into flow probes and systems also in units, starting with looking at the flow systems, we see that this is also at a sort of normal level. We are seeing that the Asia-Pacific is down for the quarter by 11 systems. And this is, of course, also related to this transition that we are going through a lot of variation in this part of our business right now. When we look at probe sales, we see that in total it is decreasing significantly. But in isolation, the sales of probe this quarter is not bad at all. But we have this very, very strong comparable of Q4 2022. partly related to this transition in China that we have been talking about, but also related to an announced price increase from January 2023. So this is clearly also impacting the overall sales in all the regions. This is a slide going through the development in Norwegian currency for the various regions and also taking into account the variation between these numbers and the numbers in units. So to make sense of that, we had to consider both currency effects. We need to consider the sales channels. So are we selling our products through the direct sales channel, of course, giving both higher sales margins or the distributed sales channels. The type of business model also plays into this picture. In the US, are we selling as PPP or lease, or are we selling as capital? And also, to a less extent, the system configurations also comes into play here. So I don't intend to go through the comments in detail here, but this is to explain these variations. Similarly, we can also look at the revenue performance by product category. So here we can see the procedure sales in the USA going down in Norwegian currency by 9% for the quarter, but going up 7.3% for the year and coming back to this. And we can also see that flow probes being done for the quarter up for the full year. And so on. And here again, there are discrepancies between the numbers in Norwegian currency and the units. So there are some explanations here in details. I think we move forward to providing some comments on how we are implementing the strategy. And first, I want to highlight that during 2023, we also done some market research to get a better understanding of the size of our vascular surgery opportunity. In particular, looking at peripheral bypass surgery and also AV access surgery. And the good news from this research is that we have confirmed our suspicion that we have been very conservative and we have estimated the size of the vascular surgical market opportunity for Medistem. So after this research, we're actually doubling the market opportunity in vascular from two to four billion NOx. So this takes the total annual revenue opportunity for our products in the target segments that we are addressing up to seven billion. So these are of course very good news to bring into the future. USA contributes with almost 50% of our sales from our own products and is also the most important growth area for us. So we are paying particular attention to what is happening in the US. So as we have said, currency neutral, not a good year, 14% down for the quarter, 6% down for the year. And it's due to soft capital sales. So looking at this in detail, so for the quarter we're selling seven units this quarter compared to nine last year and for the year 39 units compared to 49 units in total last year. So nine fewer flow and imaging units that is actually meaning an estimated loss in sales of around 18 million NOx. So just to illustrate that it's very important to keep up the level of capital sales of imaging products. Some good news here is that when we're looking at the total number of procedures, when we are counting both procedures from our PPP smart card sales and also from the flow probe sales that we are selling to capital accounts, we're seeing a good 14% uptake for Q4 and And the slide 4.4 growth also for 2023. So this indicates that we still have very, let's say, loyal and also indicating an increased utilization within our current account. So this is a healthy signal. Also for the year, we're seeing that we have this growth. So we are now at 89.5 thousand procedures for 2023. We are keep winning new customers, but not at the same pace as we did last year. Still, this is of course also very important and encouraging when we are now entering into 2024. This map is illustrating where Medistim are direct in this orange color. And this year we have been able to paint the map quite more colorful in orange due to our increased sales footprint in China, in Canada and in Sweden. So why are we doing this? Well, first of all, it's of course to increase the top line and also to acquire more of the margins in this value chain. By now, we have local teams in place in all three countries, which have been trained and are up and running and really getting active with building close relationships with all our current users and also building new relationships with new potential users in these geographies. In all markets, we have great opportunity to convert flow system install base to imaging and also to develop the vascular markets in these geographies. So we went direct in China from April, in Canada from May, and in Sweden from November last year. Looking at China, we typically want to enter a market when we have already built a strong position with cabbage based on the flow technology. And that's certainly true for China, where we have about 70% of the more than 60,000 cabbage procedures that are being performed every year. So we are also well positioned with numerous, numerous devices in all the top 10 centers, cardiac centers in China. So it's a great starting point. And it's, it's a great position when we know that China is one of the highest growing markets for cabbage surgery, growing at high single digits. When we look at the revenue development for the year, so last year we made 37.2 million in sales to our distributors in China. From this year, of course, it's been a mix of sales to our distributor and then from Q4 through our direct sales channels, but we actually achieved 42.6 million sales. at the end of the year. So very strong Q4 there. And currency neutral, it's about flat. But in Norwegian currency, this means a 14.5% increase. So it tells us that, you know, we have been able to start our operations in China in a solid way. And we are expecting this also to continue in 2024, although we have to expect some ups and downs also from quarter to quarter. When it comes to Canada, it's about the same story. We have a strong position. We have about 37% of the 18,000 cabbages being performed. We are in 15 out of the 38 cardiac centers. And we have a very strong key opinion leader, Professor Theresa Kieser, which has been really a longstanding advocate and key opinion leader for medicine and our technology for years. Also in Canada, we've had a good development. So in 2022, we had revenues of 3.3 million NOx. And this year, we are making 6.7 million NOx. Of course, there are currency effects here as well. But just reminding us that it has been a good start, although somewhat challenging in total. In Sweden, we went direct in November. We have a strong position here as well, I would say, for all practical purposes, a saturated market when it comes to the use of flow measurements in cabbage surgery. We also have a solid position in vascular, although there is still room for growth here, and there is certainly also room for conversion to imaging. But perhaps even more interesting, we are, by this latest addition, establishing a broader Scandinavian distribution franchise. So meaning that Norway, Denmark and Sweden is creating this pan-Scandinavian operation and making us much more attractive for international manufacturers to select Medistim as a representative in the Nordic or Scandinavian region. And two great examples of this are the Swiss company AMI and also the US company Tishgenics, which are the first examples of this pan-Scandinavian type of agencies where we are covering all three markets. So this is also providing very interesting growth opportunities for a third party business. By that I'm going to finish off just mentioning that this year we are actually going to celebrate our 40th anniversary since the inception of Medistim. And although we feel that we have had some headwind out of 2023, we remain very optimistic and positive with regard to the opportunities that lays ahead. So then we say thank you and we will meet again for the first quarter presentation.