AddLife AB (publ)

Good morning, everyone, and welcome to the AdLive first quarter presentation. This morning, we will take you through the slide presentation and then open up for questions afterwards. And as always, if we don't have time for every question, don't hesitate to reach out to us for follow-up questions after the call. I'm very happy to announce the fact that Adlife is starting the year in a very strong way. For a long time now, Adlife has been positioning the company for an expected recovery in the healthcare system after the pandemic. During the first quarter, we have seen this expected development happen in a significant way. Surgical procedures have been increasing all across Europe. And with that, we can see a strong organic growth of 13% in the medtech business area and 10% in labtech. On top of that, we see the margin development is in a positive trend, supported by significant volumes, but also product mix and an efficient price management. Looking at COVID-19, this may be the last time we actually present this slide. As many of you know, the COVID-19 testing has decreased significantly and is now part of a broader respiratory test panel, so therefore not meaningful for us to report separately going forward. Nevertheless, in Q1 last year, Q1 2022, we had a significant COVID sales of around 500 million Swedish. So that does impact the comparative numbers for the current quarter. But now the market has really normalized. We see elective surgeries growing again. We see customer access is restored. And with that, our ability to interact with customers and drive commercial activities. Looking at some of the numbers, we saw that the net sales as a total declined by 5%. And this is, of course, driven by the reduction in COVID-related sales that came from around 500 million to zero in the current quarter. At the same time, we see organic growth is compensating for that in a very nice way. also supported by acquired growth and some beneficial currency effects. EBITDA margin is holding up nicely, but it's important to note that we have also reversed some contingent considerations, so excluding this, the EBITDA margin for the group as a whole is 11.5%. We continue to invest in digital solutions in the home care area, and that investment has increased compared to the corresponding quarter last year. As I mentioned earlier, we are happy to see that the EBITDA margin is indeed in a positive trend and has been now for the third quarter in a row. In Labtech, we can see that, of course, the COVID-19 sales that has contributed to the profit margin has now ceased. But on the other hand, we see a solid underlying volume growth and effective price management in a good way countering that effect. We also see a very strong revenue development in MedTech combined with the product mix. The companies are doing a fantastic job in handling the prices in a time of inflation and the increases in cost from our suppliers. Worth noting, of course, as we look at the complete group EBITDA margin is that we do have growth in the eye surgery business, but the profitability is still lower than it was in Q1 2022. So looking at the graphs in the bottom, you can see that the lab tech profitability is, of course, coming down because of the COVID-related revenues that are gradually being phased out. But it's holding up still, and we maintain a level of profitability that's higher than it was before the pandemic. And in the medtech business area, we see a positive trend in the margin as well. So if we take a little bit more look at the Labtech business area, as I mentioned earlier, we have a 10% organic growth. We are successfully defending the EBITDA margin in spite of the reduced or discontinued COVID-19 sales. We are very actively working on developing the portfolio and introducing new products. Looking at the subsegments of Labtech, The business unit diagnostics, there we see testing volumes is really stabilizing now after the pandemic. A very healthy underlying growth in the business paired with active price management has given a strong development to the business as well as the profitability. We do see an increased interest in service and efficiency improving solutions due to the staffing shortage that's evident also in the diagnostics field. This staffing shortage can also, in some cases, delay tenders and the initiation of new product implementation. In the biomedical research area, we see some concerns regarding new product initiation in tax-funded research, but I would say that that is more than countered by very strong activity in the drug discovery and biomedical field. We see also a very positive trend and huge customer interest in emerging technologies such as gene sequencing, bioprocessing, cancer immunology. And also in the biomedical and research business unit, we are doing a great job in active price management. Also very happy to announce the fact that one of our companies within the group, Biolin, has launched a very innovative new product line in surface science that has been very well received in the market. Moving forward to Medtech, as I mentioned earlier, the healthcare markets are clearly recovering, something we see across the board all over Europe. And this has resulted in a positive organic growth for us at 13 percent. We also see a positive margin improvement, again, supported by volume, product mix, and active price management. We are also increasing our activities in terms of adding new products. also sometimes in collaboration between the different companies where we are becoming a stronger partner to our suppliers. If we take a look at the business units within the MedTech business area, we can see in the health service and hospital business that the trend is really clear. Elective surgical procedures are increasing all across Europe. We see, based on this, an increased demand particularly in orthopedic surgery, anesthesia, laparoscopy and general surgery, which are all areas that we, over the past few years, have invested a lot to position ourselves within. As I mentioned earlier, the organic growth confirms this trend, and we are happy to report a 13% growth. The team is defending the margin through good price management, Sometimes, of course, we see challenges still based on foreign exchange exposure, freight costs, and so on, but the team is doing an excellent job in managing that. In the eye surgery business, we're happy to see that revenues are indeed growing, and the margins are in a positive trend compared to mid-last year. But in comparison to the first quarter 2022, it is a lower level of profitability, mainly due to an unfavorable product mix. On the home care side, we see a very healthy revenue development in all our businesses. And of course, the home care portfolio really does address the need that's really growing in society, where we want to allow for people to... to live at home for longer and also have a better quality of life and care at home. In relation to this, we're very happy to see that our recently launched digital solutions for home safety and security systems is growing really well. We are adding users at a good pace. We continue to invest in these digital services. And for this quarter at the level of 15 million Swedish, which should be compared to 7 million previous year. And of course, that impacts the results in the quarter. So a little bit of an observation around market trends and implications for ad life. We are clearly now in a post-pandemic environment and elective surgery is recovering at a rapid pace. We think that this will have to be an increased level of activity for a long period of time to handle the waiting lists and backlog in the healthcare system across Europe. At the same time, the healthcare systems are are challenged by staffing shortages, and this is true across the region. And these things, of course, means that the hospitals will have to focus quite a bit on improving efficiency and outcome, and that opens up an opportunity for us. Of course, with increased costs for staffing, the hospitals will also have to be more selective and outcome-focused in how they choose their technologies. and they will rely to a larger extent on services and efficiency-enhancing products, which we are well positioned to provide. If you take a look at the competitive situation, We do see that the trend that's been there for quite some time in terms of distributor consolidation is continuing. There is a strong logic for the smaller local or regional distributors to join forces, and that's of course part of the AdLife strategy, but we are seeing other companies also doing the same thing. Interesting, we are also seeing that the global suppliers or global manufacturing companies are changing their business model quite a bit right now. We see that there's a lot of spin-offs, there's a focus on the core businesses, and we also see that some people are struggling with profitability and laying off people in multiple countries. All of these changes, of course, opens up opportunities for us, the opportunity to perhaps take on more product portfolios that are that are not viewed as core anymore, and also a change in staff will also likely affect the focus of the teams so that we remain a strong partner to our customers and be unaffected by those changes that our competitors are going through. So all in all, a pretty good situation for AdLife and the position that we have chosen. So, of course, when we look at the business outlook, we need to think about what's going to happen in the healthcare system going forward. And if we take a look at the AdLife current footprint, we can see that we have changed the profile of the business from previously being a majority in the lab tech area to nowadays the majority of the business is indeed within med tech with over 60% of the revenues coming from that business area. Within MedTech, home care is a smaller business, but with good growth prospects, and the hospital business area, very large, and now benefiting in a strong way from the recovery in elective surgeries. And as you can see on the map, we are quite geographically diverse nowadays, exposed to almost all countries in Europe in a very balanced way. So that, of course, gives a further level of stability. Looking at an updated picture of all the segments that we're in is a quite impressive picture. As you can see, we are present in many, many segments, and these segments are all selectively chosen because of their growth and profitability characteristics and the fact that we can play a leading role within all these segments. The broad segment exposure in carefully selected areas, of course, also provides a good stability in our business going forward. It's interesting to take a look at healthcare spending and how that has historically developed over time. And as you can see here on the slide, healthcare spending grows in a very, very stable way irrespective of GDP growth. And as you can see on the graph, sometimes there are dips in the GDP, but the share of money spent on healthcare is stable and growing. And of course, that can be reflected as well in the ad life performance, in this case, dating back to 2014, where we have a very stable revenue development as well as EBITDA margin development. Of course, a bump in the numbers during 2020 to 2022 with the impact of COVID, But the underlying trend is quite stable and positive. So wrapping up the overview of how the business is performing, of course, you all know the targets we have set for ourselves, and those remain in place. We shoot for a 15% annual profit growth through a combination of organic and acquired growth. And, of course, focusing on profitability, and in our case we define it as profit over working capital, is key. That helps us to finance growth through our own cash flow generation. During the quarter, the EBITDA declined, of course, compared to probably the final quarter of significant COVID revenues. So that explains the decline. We hope to see a change in that direction soon. And on the profit over working capital, we are still way above our target of 45%. So with that, I hand over to Kristina to take us through some of the financials.

Yes. Thank you, Frederick. So, looking at the financials, we had a solid 12% organic growth in the quarter, which was great. And zooming out, you can see that Labtech has been quite stable over the quarters, with the pick-up during this quarter specifically. And as Fredrik said, sample volumes, et cetera, are normalizing, so that is good looking forward. With Medtech, we have seen a clear recovery starting last quarter and definitely continuing into this quarter. And the increase in surgeries has also been supported by introduction of new suppliers and new products supporting the organic growth. The revenue growth during the last two, three years has been supported by organic growth, COVID sales and acquired growth. This is the last quarter where we have tough COVID sales in the comps. The last quarter's revenue growth is supported by recurring revenue and recovery in the market. Looking forward for 2023, we will continue to focus on organic growth and also introduction of new products and new suppliers. The gross margin this quarter is slightly lower compared to Q1 2022, but it has been a positive development over the last quarters and our companies have done a great job making sure that the strengthening of the gross margin continues. That has been done through product mix and also active price management where they have been able to pass on price increases to the customers. The COVID sales was handled within the current organization, meaning that the EBITDA margin increased during this period of time. But it also shows the ability for us to handle more products within the organization and also add on more products. The increased EBITDA margin during the last quarters, if we reverse the continued consideration like Fredrik talked about and showed earlier, has been achieved via a recovery in the MedTech, mainly via the newly acquired companies, the ability to defend the gross margin and also cost control. Cost has, though, increased slightly in this quarter, mainly driven by increased sales activities, marketing and salary increases. If we look at the cash flow, it's been just about 100 million operating cash flow in the quarter. We've seen also in this quarter increased inventory. We have had historically problems with the supply chain services. That has definitely improved, so it's not as such a big problem, but we still have some component shortages disturbing the picture. Also, we have introduced new suppliers and new products, which is great, but it often ties inventory in the beginning. The newly acquired companies, which are strong within surgery, have a slightly different business model compared to what we have seen in the lab tech companies historically. They do carry more inventory because they need to have demand for quick deliveries. And also, that often comes with higher margins. Cash flow is a constant focus, and to deleverage is definitely something that we will focus on going forward continuously. We have been working with awarenesses in the companies and also introduce processes, etc. This is a structured work that will take some time though. Looking at the depth. The loan towards the banks has been unchanged between the two quarters, and it is normal bank loans that we are carrying. But the EBITDA rolling 12 months has gone down as a consequence of Q1 last year being the last COVID-boosted quarter. So that is the reason why the leverage has increased from 3.5 to 3.7. focusing on cash flow and reducing the leverage where self-generated cash flow is a continuous focus going forward.

In February this year, we announced an update to the organization and I'm very happy to share with you all that that organization is off to a great start already. Within the Labtech business area, we're retaining the business unit structure with strong and experienced business unit leaders. On the Medtech side, We're strengthening the team because of the strong growth historically and in the future that we're planning for. And we have added two new leaders to the team, Luca and Tara, who both have very long operational CEO background within the company and also certainly bring an international perspective to the extended management team. Peter, who was previously the head of the lab tech business area, has accepted to take on the role as chief commercial officer. He has a long history within the company, both within AdLife and before that, AdTech. So with this new organization, we're securing continuity. We're making sure that we can take good care of the growing business that we have, and of course, setting ourselves up for future growth as well. And in addition, We are ensuring an international perspective, strong operational experience, and a continuation of culture and our well-tested and successful business processes. So if we sum up the quarter, we can say that we have indeed, as a company, positioned the business to handle the post-pandemic market. And now we're seeing that change happening and a significant increase in elective surgery all across Europe. And we're finding that that positioning and that approach is indeed working. So in orthopedic surgery, anesthesia, laparoscopy and general surgery, the demand is significantly growing. and these are areas where we have become increasingly strong over the past few years. So this market change is indeed resulting in a strong organic growth for both Labtech and Medtech, and we are really happy to see a positive margin trend driven by volume, product mix, and active price management. We are active in a market with a strong stability in spite of business cycle, and also thanks to the fact that we are represented all across Europe in many carefully selected segments. We have a stability in revenues, profit and cash flow, irrespective of the market conditions. We have strengthened our commercial team to continue this successful business model and the successful business development going forward. And our priorities remain first to protect and improve the profit, to drive organic growth, to make sure we are efficient in our capital management and generate a healthy cash flow, and start preparing again for acquisitions. So with that, we sum up the quarter and thank you for your attention. And now we can open up for questions.