ADDvise Group AB (publ)

Thank you and once again welcome to Advice Group 2024 second quarter earnings call. The second quarter this year showed mixed financial performance. Our net sales came in at 412 million SEC which takes us to a year on year 20% growth. However, we saw challenging pharma and clinical trial comparables following last year's exceptional performance in two of our businesses. That took us to a negative organic growth isolated in the quarter of minus 21%. However, just to give you some color on the underlying businesses, normally I don't like to adjust for items but just to kind of get the magnitude of the effects of these two businesses and how the rest of the 19 businesses performs, stripping out the two exceptional businesses pharma and European clinical trials. Without these two our organic growth in the quarter isolated came in at 13%. Of course, the reported number is the reported number but this gives you more color on the negative organic growth. And worth mentioning is also that the two businesses that outperformed last year, even though they are not at these levels during 2024, they are still in line with or above the performance that they had when we acquired the businesses. EBITDA came in at 102 million which takes us to a 25% unadjusted EBITDA margin. We had our best quarter ever in terms of order intake. The overall order intake came in at 67% and 13% if you measure it by organic levels. And of course, it is specifically within our laboratory segment where the drivers behind these large numbers, where you can find the drivers behind these large numbers. As you remember from last year, we had not as good conversion as we wanted from operating earnings down to net profit. And a few of these reasons was the tax inefficiencies that we had in advice group last year, but also the size of the depreciations we had due to large volume of clinical trial rental revenues. So we have put a lot of effort into improving the or kind of minimizing the delta between operating profit down to net profit, which we have succeeded in. And if you look at the net profitability in the quarter, we are around 30 million SEC compared to 3 million last year. Earnings per share 0.15 SEC, also an improvement versus last year. Looking at the cash flow in the quarter, I'm not satisfied with the levels. We have had some networking capital or working capital build up due to the product mix and I will come back to that later in the presentation. Liquidity, we have ample liquidity in the group right now, plus 400 million in cash and cash equivalents and an undrawn credit facility on top of that. In our Nordic businesses, we saw a strong momentum in the quarter, but as mentioned, the demand for climate and clean room solutions outperformed in the quarter. And that is in terms of geography driven by our Middle Eastern customers based on the willingness to steer away from oil dependency and investing in more sustainable businesses in that region. And of course, research and pharma development is something that is sustainable and drives the demand in our businesses operating in climate and clean room solutions. And in May, we also saw our largest single order to date, 11.3 million US dollars to an Omani customer building a research facility in Oman. South America is also a very strong market for us at the moment. We see high growth rates in that region and our businesses operating in Brazil have very good momentum. Unfortunately, that business is not part of the organic growth calculation yet, because we haven't owned that business for 12 months. So that will come into the numbers mid fourth quarter this year. As mentioned before, the clinical trials saw some challenging comparables after the exception of 2023, but that is only in the European part of the clinical trial business. Our just recently acquired North American business within clinical trials is performing according to or slightly above the levels we were promised before the acquisition. Same thing there, not part of the organic growth calculation yet. It will come into the numbers later this year. Demand for capital goods in the US remains a bit soft in the quarter. We saw some improvement late in the back end of the second quarter. And the signals we get from our customers is that interest rates still hurts investment in capital equipment. And when feds start to cut interest rates, we believe that the demand in that market will bounce back. In terms of geography, 44% of our sales in the quarter isolated came from North America, or mainly US. Second largest market for us is Europe, excluding Sweden. And the third one is South America. So we have a well diversified geographical exposure in the advice group as we stand today. Looking at the four or five product categories that we measure, the largest one year to date, second quarter, is laboratory equipment. Followed by medical consumables and medical equipment. And as you can see on this pie chart, pharma is now down at 7% of advice group sales year to date, second quarter. If you compare that to last year, we were around -25% of advice group sales. And as I've said several times before, the pharma revenues that we have comes with much higher margin. But at the same time, the flip side of that is that the revenues are more volatile than the rest of the advice group. But when we are down at -8% where we are right now, I see the volatility on the upside rather than the downside. So for us, the 7% that we see today are very robust compared to where we were last year. Sales on this slide, you see the growth trajectory over the last four years. As you can see now, we are for the first time well above 1.5 billion SEC in sales. And if you look at the quarter isolated, we came in at 412 million. Organic drop 21% due to the things I just mentioned. If you look at the advice group on group level, we split our revenues also in own proprietary products. Basically products that we develop and manufacture and products that we distribute. Basically not owning the products and the IPs. And in the quarter or in second quarter year to date numbers, we had own products standing for close to 60% of our sales. And that is typically the balance that we would like to have going forward. Around 60% on products and 30%, 35% distribution and the rest as service revenues. Order intake, the strongest quarter ever, 434 million. 67% total growth on order intake. Organically 13% up. And the main driver as mentioned, several companies contributed to the growth. But the main driver that sticks out was the laboratory, clean room and climate room solutions. That kind of boosted the order intake in the quarter. So going into the second half of this year, we have a solid order backlog to convert into sales in the upcoming quarters. Splitting advice group into healthcare and lab. Looking at healthcare, our sales came in at 256 million in the quarter. Organic drop of 12%. If you take out the pharma revenues from this segment, the organic growth would have come in at 9% or comes in at 9% in the quarter. So basically the two businesses that skews the numbers, one is in the healthcare segment and the other one is the laboratory segment. Total sales grew with 28% in the quarter and we closed the quarter at 19% EBTA margin. Looking at the laboratory segment, slightly smaller as part of advice group, 157 million in sales. Organic growth came in at minus 33% reported. Doing the same calculation here, stripping out the European clinical trial business, organic growth would have been 24% in the quarter isolated. Margin wise operating margin 25% in the quarter isolated. Geography, you can see on the pie charts that we have slightly different geographical exposures in the two segments. North America is the key market for the healthcare segment and will continue and be that for a long time. However, South America is a very fast growing market compared to the other markets that are slightly more mature. South America is a very fast growing market. In the laboratory segment, the rest of the world is now the largest market for us. That is driven by, as I mentioned in the presentation earlier, the Middle Eastern customers investing heavily in sustainable businesses. We are the largest market for us, most of all in research and pharma businesses. We supply them with clean room facilities, climate rooms and equipment used in these facilities. Europe excluding Sweden, the second largest market and 25% or a quarter of the sales comes still from Sweden. That is of course where it all started in an advice group many years ago in Sweden. Financial performance. We are now on a rolling 12 basis at around 420 million in EBITDA. On the margin level, we came in rolling 12 at 27%, isolated in the quarter 25%. The margin drop is mainly affected by the product mix. As mentioned before, pharma, which is a much smaller portion of the advice group today compared to last year, comes with a much higher margin versus the project business for clean rooms and climate rooms, which carries a lower margin. That of course affects the group margin. Weaker operating earnings but improved net profitability. Our EBITDA came down from 122 million to 102 million in the quarter. If you look at earnings before interest and tax, you saw a drop of 8% from 87 to 80. On the other hand, net profitability increased significantly from 3 million to 30 million. The drivers for the increased net profitability are several. It's more tax-efficient structure, improving or lowering the tax rate, lower amount of depreciations in the quarter based on less volume of clinical trial rental business. We also had in the second quarter last year the cost for refinancing our SEC denominated bond. We also have positive effects in the second quarter this year from the net effect of write-ups and write-downs of earn-ups in the quarter. Not happy with the cash flow in the quarter. We had a huge working capital build-up in the quarter, which is something that we are taking that seriously and we are working hard now to improve that in the upcoming quarters to finalize the year in strong fashion on cash conversion and cash flow. That also means that return on capital employed was lower, isolated in the second quarter compared to the first quarter. Hopefully by late this year we will be back on track again on return on capital employed. Our financial position remains solid. We are below our long-term leverage target. We are now at 2.9 times in net leverage. We have a strong financial position, 430 million SEC in liquidity, that is cash on the bank and cash equivalents. And we also have an undrawn credit facility. Net leverage is 2.9 per forma. Leverage is of course a big focus area for us. That goes into our M&A strategy. We are cautiously evaluating potential M&A deals with our net leverage in mind. We of course prioritize deals where we can see immediate or fast deal leveraging on the deals we can finalize. We have a few of them in the pipeline that we are evaluating right now. Hopefully we can finalize one or two before the end of the year, but no promises on that yet. And our first material debt maturity is not until May 2026. So this is my final and 55th interim report as CEO for Advice. So I would like to give you a few takeaways from the second quarter and a small recap and historical expose before I open up the floor for questions and in a few weeks hand over the CEO chair to my successor, Staffan Torstensson. So key takeaways from the quarter. Sales growth 20% in total. Very strong order intake growth 67% and double digit organic. Profitability product mix resulted in weaker but still robust profitability. We have done improvements on converting operating profitability into net profitability especially on the tax efficiency in group and also when it comes to depreciations. Cash flow not in line with my expectations. Working capital build up. We are on that and I believe that the second half will see improvements during the second half of this year. Ample liquidity and on the M&A side we cautiously monitor net leverage and have that in mind on every deal that we evaluate and hopefully we will finalize something before the end of this year. So this is as said my 55th and last interim report for advice group and I just want to give you a small historical expose in the columns that you have in the chart on the right hand side. The first quarter I reported in 2010, the fourth quarter, advice group had 11 million SEC in sales. So it was a very small local laboratory equipment supplier focusing on I would say the Swedish market but more or less the Stockholm region market. And the second quarter this year, a little bit more than 14 years later, we came in at 412 million in sales. My first quarter we didn't do any profit, it was zero basically. And this year in the second quarter we came in at above 102 or above 100 million in operating profit or EBTA profitability. So it has been quite a journey and I would like to take the opportunity to thank all the team members of advice group that has stood by my side during these 14 or more than 14 years. I would like to take the opportunity to thank the board members, the investors and all the stakeholders that have been part of or believed in this journey because it has been a fantastic journey for me and for most of the people or many people in the organization and in the businesses and last but not least also for our customers with the products and services that we put on the market. So with that said, I'm handing over the CEO chair to my successor Mr. Staffan Torstensson and I'm 100% sure that he will take advice group to new heights. So with that I open up the floor for questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Philip Ekengren from ABG Sundial Collier. Please go ahead.

Thank you operator and good afternoon Iqad. To start I would just like to get some more color on the healthcare segment. So you're right that it's down organically mainly due to the generic pharma business but you're also in that is there any other business going kind of progressing negatively in the quarter and also regarding pharma what type of visibility do you have for the rest of the year?

As you know we do not report on unit level, we report on segment level but I mean we have a number of businesses the majority of the businesses are performing in line or above our expectations if you strip out the generic drug business. So I'm very confident that once the skewing numbers roll out rolls out which it does kind of in the back end of the fourth quarter this year and with the four new businesses coming into our organic growth calculation we will be back on organic growth mid to late fourth quarter this year. And we have a pipeline of products that we are putting on the market in the pharma revenue stream or pharma businesses. So I would say and I think I mentioned that during the presentation that the volatility is still in the pharma segment but right now we are at very low levels in terms of sales in the pharma segment in the second quarter. So the volatility is on the upside in the pharma business. So yeah that is kind of a summary of the healthcare segment.

Okay and if we move on to the lab segment then there was a substantial growth in orders as you talked about now when can we expect these to start materialize when can we see it on sales?

And you will see that gradually and of course some of it came in already in the second quarter but I mean as you know with large projects and some of these projects runs for 12 to 24 months. So we have typically the same kind of revenue recognition as you have in a construction company you take you take revenues in line with how much effort or work you put in but that is not always aligned with cash flow and that is the reason why you see the working capital build up in the quarter. So we have a huge we have a very solid order backlog now in advice group giving us good visibility on upcoming quarters. So some of it a small portion of the large order intake you already saw in the second quarter but it's most of these orders runs for 12 to 24 months the big ones.

Perfect thank you and if we continue on lab a bit Q3 last year you had some negative growth in Q4 some quite positive what can we expect for the for the remainder of this year? Will Q3 continue to be soft or growth to pick up in Q4 or how should we think about that balance considering the comps you face?

I mean as I mentioned we have one business or company in the lab segment and one in the healthcare segment that skews the numbers so it will be hard to perform organic growth at least on group level until mid fourth quarter this year. If you look at the first quarter this year we didn't have any skewed numbers in the laboratory segment we only had skewed numbers in the healthcare segment. So it's extremely hard to make for me to say exactly when we will see organic growth on segment level but my view is that mid fourth quarter this year you will be back or we will be back on organic growth on group level.

Okay but just again here to get the full picture correct here so should we kind of assume that both segments will perform organic growth in Q4 or will one kind of drag the other? I know this is a hard question of course but

I mean in the third quarter obviously as since I say that group will be back mid fourth quarter my view on the third quarter is that we will not have organic growth on group level and I would like to I don't want to go into the kind of the segments and give you numbers on segment level on my expectation on organic growth I just want to keep that on the group level because I don't have 100% visibility on that it's much harder to see that on segment level but what I can say is that when we come into the fourth quarter this year the skewing numbers or the exceptional levels that we saw last year will roll out from the numbers starting maybe if I remember correctly -November-ish.

Thank you and if we move on to to gross margins here down across the board this quarter of course Toplan was down but what can we expect for for H2 here do you have any visibility on that?

I think that if you look at the third quarter I believe that we will be pretty much in line where we are now or slightly better and then of course working on pricing and the initiatives that we always work with hopefully gradual improvement.

Perfect thank you and lastly from me just one

more comment on that and just to clarify I mean we we finalized four large acquisitions by the end of last year and we obviously have a playbook to improve businesses and work together with the local management to improve pricing, gross margin etc but we can't do that day one it's a gradual improvement before we start seeing the initiatives that we take.

Perfect that sounds reasonable and lastly is there anything else we should be mindful about for the rest of the year anything we missed anything we're not covered here?

No I think the the most important thing is the clarification on and as I said I hate stripping things out just to show you good numbers that that's not my intention but in order to give you color since we had such an incredible performance in two businesses last year and I'm just kind of lifting the bonnet and showing you how it would have looked like if we kind of stripped these out that that is kind of the key takeaway here we will be back with solid organic growth but it will not happen in the in the third quarter but it will happen late this year and then we are back on formalized levels that is kind of the key takeaway here we have solid businesses that perform organic growth not 100 percent of the businesses do that every year but the the large or the the majority of the businesses perform in line with our expectations or above our expectations but they are skewed now because of the because of the exceptional performance in two businesses last

Perfect thank you I'll get back into the line.

The next question comes from Christian Binder from Redeye please go ahead.

Thanks so much for taking my question most of them have already been answered but one additional question around M&A you said that you hope to maybe finalize something this year but given the slightly elevated net leverage towards the upper end of your target and then leadership transition should we still expect it to be more likely for M&A to resume next year?

I mean if you if one of the criteria's in the M&A strategy is to delever then of course you can narrow down the pipeline and you don't get as many you don't get as many kind of prospects as you as you had when you were able to to pay more in line with historical multiples so of course it takes a little bit more time but we have a few businesses that we can delever immediately or very close to acquisition date and that is something that we would like to do because for us to have 430 million sitting on the bank that is a huge cost for us and the shareholders at the same time we are we are extremely cautious on that leverage so that's kind of the balancing act for us it takes a little bit more time to find the exactly right acquisition when you have deleveraging as one of the kind of search criteria's

okay got it and just to clarify so you don't think the leadership transition will slow down of M&A in any way?

No I mean my view on M&A is that I haven't I mean for the last or the first 10 years I was actually M&A and advice group but for the last four years we have had a solid team working on M&A independently of me of course I've been part of the I've been part of the team that approves or disapproves potential M&A deals but the M&A team is still in play we have the same people it's not part of the leadership and even more so when bringing Stafan on board he has 20 years of experience from capital markets of which I guess probably 15 or 16 17 of these years are within M&A corporate finance so I think that bringing Stafan on board makes it even more I mean it even improves the M&A team but still the M&A team is run by our head of legal and head of M&A Hanna with her team members so so that is kind of that is kind of the that is kind of the my answer to that I think we will be at the same level in M&A capacity or even better with Stafan on

board Perfect got it they also offer my side thank you so much thanks

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there seems to be no more questions for today so thank you everyone for listening in and have a nice day