AddLife AB (publ)

Good morning everyone and welcome to the AdLife third quarter presentation. Today we will go through some of the business highlights as well as the financials and then we will open up for questions and discussions. We're very happy to report a strong growth in the quarter. All the companies are performing very, very well and in the lab tech business area we have a 9% organic currency adjusted growth and in the med tech business area 10% organic growth. We see the healthy demand in all the segments in which we're active. The increased activity in elective surgery remains strong and we expect that trend to continue in the coming quarters. Positive market trends are supporting our business in home care, in diagnostics and in research. The EBITDA improved making adjustments for continuing considerations and that is true in spite of the fact that we have some negative impact from the profitability in admission. The cash flow is significantly improving. We are releasing cash from inventory and accounts receivable in spite of the fact that the volumes are growing significantly. We have been able to also reduce debt by 200 million in the quarter. If we take a look at the sales, as I mentioned earlier, indeed the COVID-19 related sales are now gone but we are able to more than compensate for that with organic growth and we also get a bit of a support from currencies in the quarter. On the EBITDA level, of course, we lose some profit as well from the reduced COVID volumes but the underlying business is able to compensate for most of that and in the medtech business we see a very healthy profit development in all parts of the business and we are able to compensate for almost all of that continuing consideration adjustment. So with that we hand over to Kristina to talk more about the financials.

Thank you, Fredrik. So as Fredrik mentioned, we had a strong growth in the quarter of 10%. If we exclude the currency impact as well as COVID sales from last year, the organic growth was continuously strong in the quarter, also 10%, 9% for lab tech and 10% for medtech. The funding to gross margins has been a focus area throughout the year and due to good price management as well as a favorable product mix, the gross margin increased from 36% last year to 37%. The commercial activities have been ongoing and increasing during the year. We are visiting customers, we are at exhibitions, on-site trainings and site meetings, etc. We have also strengthened the sales organization in areas where we foresee future growth. The result of this is, of course, the sales and marketing expenses have increased but bear in mind that the prox and actually slightly above half of the increase in million Swedish crowns relates to currency. In the bucket income and expenses, the other income and expenses, you will find the reversal of the continued considerations. If we exclude this, we had a profit expansion of 12% in the quarter. Financial debt has increased, explained by increased interest rates and increased interest costs. Based on the rules limiting deduction of interest costs, we have updated our tax assumptions. This means that we have adopted a cautious but most likely realistic position and we do not carry losses forward relating to the interest cost. If we adjust for non-current items throughout the year, the adjusted effective tax January to September is 34%. This will also serve as the guidance going forward for the year. Even though the tax cost in the quarter was higher than the profit and loss, it will not have a cash flow impact going forward. Moving on to the cash flow then. Operating cash flow in the quarter was 138 million compared to 20 last year. As you know, during the first half year, we invested cash flow into growth, current as well as future. Inventories and accounts receivables increased when revenue grew. Also we have added new suppliers and new products and we are still carrying buffer inventory due to component shortages. In this quarter, inventory and accounts receivables has gone down. Not much, but it is a decrease. And as you know also, we have during this last quarter and also going into Q4, implemented work and capital initiatives. This means, for example, that the largest five companies representing 75% of the inventory have received specific inventory reduction targets and we do foresee an improved operating cash flow in the fourth quarter. Net debt was reduced in the quarter with 200 million Swedish crowns, meaning that the net debt versus EBTA was 3.9 still. The rolling 12 EBTA has been impacted by the reversal of the continuing consideration last year as well as COVID sales rolling out of the figures. The net debt towards equity was just above for internal guidance, it was 1.1 and the ambition is to reduce debt by a self-generated cash flow. The revolving credit facility of 1 billion Swedish crowns has been prolonged one year until Q1 2025, meaning that both short-term loans will have due date in Q1 2025. The long-term loan, which represents approximately half of the loan, is due in September 2027. The average interest rate in the quarter was .6% and interest coverage ratio amounted to 6.3 according to the definitions in the covenant calculations. And with that, I will hand over to Fredrik again.

Well, thank you, Kristina, for that review of the financials. Now we move on to the market trends and their implications for AdLife and the companies within the group. So, clearly, we are in a post-pandemic environment and we do see a strong development in terms of elective surgical procedures. So this means we will see this increase and the heightened activity for this quarter and many quarters ahead. At the same time, there is a staffing shortage in the healthcare systems. There are capacity constraints. So this means that the patient backlog cannot be handled quickly, again, meaning that this trend will be something we will see in the coming quarters as well. At the same time, there is an increased demand for time and resource saving products and services, something that the AdLife companies are really, really good at, both in terms of the service that they provide, but also very efficient products. So that is a positive for us and we will be able to help the healthcare system with coping with these volumes. The healthcare systems are also back to normal budgets after a period of time where there was a lot of extra funding available to handle the COVID pandemic. So now there is an increased focus on the value and productivity selling aspects that we can provide, something that we are good at in our companies, but also something we're driving as a strategic initiative between all the companies in the group. Very interestingly, we see many of the large global manufacturers are reassessing their -to-market strategies. They're focusing on some components of their portfolio that they deem as core and are reviewing their approaches to other products in the portfolio. So this means, in some cases, staff reduction in country organizations. It means reassessment of the -to-market strategy, maybe moving away from a direct sales and back to a distribution model. So we are having many interesting discussions. We have opportunities to grow the portfolio, take over strong and experience team members and so on. So a positive development for the AdLife companies. Moving into the LabTech third quarter, as we previously talked about, very strong organic growth adjusting for the COVID sales at 9%. We continue to develop the portfolio with a lot of new products being brought to the market and the interests are high for high-tech products. There is a high activity and a stable funding situation in the customer groups that we are focusing on and that is, as many of you know, mainly hospital labs, academic research and pharma companies. We have seen in the Eastern European market a little bit of delay in some projects but we're confident that those projects will be invoiced in the fourth quarter of this year. Looking at the diagnostics side of the business, again, strong growth driven by high activity in the hospitals and labs. The testing volumes are increasing and quite buoyant. Our market position is really strong based on the product portfolio that we have that is continuously evolving and the service offering is becoming an even stronger asset in this market situation where there is also a shortage of staff within the labs that can handle all these advanced technologies that we do provide. On the biomedical and research side, also there is very solid growth. We see in some isolated cases a little bit of a reluctance in terms of investing in high cost products but that affects only a very small part of our business. The vast majority of our business is smaller capital investments accompanied by recurring revenue streams. In general, the funding is quite stable in the areas that we focus on, academic research and pharmaceutical companies. If you take a quick look at the long term EBITDA margin development, you can see there is a level of stability now once we have passed the COVID bump in profits. Moving on to the medtech business, very, very strong growth at 10%. Currency adjusted. Again, the elective surgery activity continues. This is expected to continue for a long time. All the hospital companies are performing really well, I'm really happy to say. And that goes for the smaller companies, the larger companies, the companies that have been a part of the group for a long time and the relatively recent additions. So very happy to see a very positive development really across the board. As some of you know, we have a little bit of a margin problem within admission but that's being addressed in a good way and we have a high confidence for that in the future. And on top of that, the home care business is developing very well, not only showing strong growth but also solid profit improvements. Moving on to some of the details in the hospital area. The we see a good performance in this quarter in spite of the fact that there is a seasonality effect. All the companies are performing well and we are working on the improvements in admission. Looking at home care, the demand is strong, profitability improvement, and then we of course continue to invest in digital investments even though we have started to take a look at some of those to make sure we are focusing on the right areas. And in general, healthy development in the EBITDA margin as well. Taking a look at our priorities and actions that we have communicated previously in reports and also at the recent capital markets day, it is indeed to protect and improve the profits as the highest priority followed by organic growth, cash flow, and acquisitions. And I think it's fair to say that we are seeing results in all of these areas and we are taking some really strong actions. I want to focus a little bit now on number one, the protecting and improving profits. Looking at admission, we see a lot of healthy developments in this company. New suppliers are being added and are now in place. We are launching new products. We have updated and strengthened the commercial teams and also happy to share with you that we now have new manufacturing capacity in place as of October. This will be useful for us in our ability to meet the increasing demand. We are also restructuring the organization and the goal of this is to improve the efficiency and establish a more decentralized business model very much in line with the AdLife approach. With this, we think we'll have a more focus on the commercial aspects and the ability to quicker adapt to market needs. So what is really happening is we are dismantling the headquarters function and this will also give us a positive profitability effect. So we will remove costs of around 15 million and this will start to come into effect after year end. There will also be a restructuring cost of about 5 million in Q4 2023. Moving forward to our investments in digital technology in the home care business. So we have reviewed those investments and we have made some decisions to focus the activity. So this is a very important step in the development of the company. We are also working on the acquisition of the company. We are also working on the acquisition of the company. We are also working on the acquisition of the company. We are also working on the acquisition of the company. We are also working on the acquisition of the company. We are also working on the acquisition of the company. We are also working on the acquisition of the company. We are also working on the acquisition of the company. We are also working on the acquisition of the company. We are also working on the acquisition of the company. We are also working on the acquisition of the company. We are also working on the acquisition of the company. It is a relatively small business with a turnover of 28 million Swedish on a rolling 12 basis. It is a high margin business with great future prospects. We are really happy to be able to add this company to the family of AdLife. To wrap up, we can conclude that we had a strong quarter with very solid growth in all parts of the world. The companies are really well positioned to take advantage of the current market situation. The elective surgery is growing and we expect that to continue. We see a strong and stable demand from academic and pharma companies. And the macro trends are really supporting the growth in our home care business. And internal measures are supporting the profitability improvement. So profitability is a high priority for us and we are pleased to see that the EBITDA is indeed growing in spite of the fact that we don't have the COVID volumes that we had last year. There is a strong focus on profitability improvement in multiple parts of the organization. And we expect to see effects of that going forward. The cash flow improvement has been something that has been a great focus for all the companies within the group. And I'm pleased to note that the companies have done a fantastic job. In the first half of the year, we saw a buildup of inventory and accounts receivable driven by the strong growth in volumes, of course. This quarter, we actually saw that stabilizing somewhat reduced level in inventory and accounts receivable despite the fact that the strong growth continues. We were able to reduce the debt by 200 million in the quarter. So certainly a strong step in the right direction in our effort to reduce overall debt. We are continuing to drive these cash flow activities in multiple parts of the organization. And we do expect that the positive trend that we saw in Q3 when it comes to cash flow will improve in the fourth quarter and become even stronger. And finally, again, we are very happy that we have been able to add another company to the group. And this is a company that is exactly in line with the previously communicated strategy and the prioritized segments. So with that, thank you for listening. And now we move into the part when we have a discussion on questions and answers. Thank you very much. All right. I hope that provided you with a good overview of where we stand in the quarter. And now we're opening up for questions. And I think we have a list already. So maybe we start with Matthias.

Yeah, good morning. Thanks so much for my question. I had to. So maybe you can help us frame expectations for organic growth for 2024. I'm not expecting an absolute terms, but maybe elaborate whether we should expect organic growth rate to return maybe towards the historical trend for the group, which has been around 5%, I believe. Or is it likely that we should anticipate an extended phase of stronger than historical trend due to the waiting lines that you elaborated on during your prepared remarks? And then secondly, curiously, if we can get some help to quantify what to expect in terms of working capital release for the fourth quarter, you built a lot of working capital during the year, you hint towards the working capital release for the fourth quarter. But anything you can say, maybe the magnitude compared to the last few years of Q4 release, which has been in the magnitude of 200 to 300 million krona. The build up this year has been larger. Is it fair to assume a larger working capital release or in light of the continued strong demand organically for the top line and your products? Is that something that's going to hold back the working capital release for the fourth quarter? Thanks so much.

Thank you very much, Matthias. Great questions. Well, I'll start with the last one on the cash flow. I think we have many reasons to believe that the cash flow will indeed improve in Q4. And why do I say that? Well, one is there is certainly seasonality in that. We normally see a cash flow release in the fourth quarter. Now we have put some pretty serious extra effort into that. We have all the traditional metrics and approaches we use. But on top of that, we have put together a number of specific measures for the larger companies as well as the small. So we are seeing some effects of that already in Q3 and we expect more of it in Q4. We won't be giving you a number, but I think it's fair to assume that driven by seasonality as well as the strong efforts, there will be a significant improvement in cash flow. But I will say we are also pretty happy with the trend we are seeing right now. Remember that we were building a lot of inventory, a lot of accounts receivable. Now that trend has slowed down but actually shifted over. We do see a small release of inventory and accounts receivable. Accounts payable is countering that effect to some extent, but certainly the trend has started in a positive way. So I will not give you a number, but for many reasons we are confident in the fact that there will be an even better cash flow in Q4. And your first question was really around what to expect in terms of organic growth. So right now we are at 9 and 10 percent, which is very strong compared to the underlying market and to the historic numbers as you accurately state. I think the surgical tailwinds that we are seeing, we see no reason to believe that that will slow down. So that will remain a positive for us going forward in the coming quarters. And of course the hospital segment is nowadays a large part of our business. We see a positive trend in the other parts of the business as well, but it is of course a little bit difficult to give an outlook for 2024. And we won't, but I think we see positive trends and we have selected segments that are growing faster than the general market and we see no changes at this point in those positive trends.

Perfect. Thanks so much.

All right. So then we move on. So I see Carl, you raised your hand as well.

Yes. Good morning. So a question from my side as well. Maybe if we start on the cash flow again, just curious, I mean, the last day in the quarter was on holiday and some companies reported that cash flow was a bit weaker driven by that. And I guess you have some public companies as well, or some public customers as well. So has that impacted cash flow in the quarter to some extent?

Yeah, the holidays, they do impact cash flow for sure. I think when people are not at the office, in our businesses, but even more so at the government institutions that manage these things, things do slow down. So the holidays are absolutely a

factor in this. Okay. And then, I mean, you're not giving a guidance around working capital, but I mean, you built 300 million year to date in working capital in the cash flow statement. Do you expect that figure to be positive for the full year or can you say anything regarding how much you could release? I

don't want to give a number to that. But I do think that for the reasons previously explained, the seasonality and the efforts we're driving, it will improve. Some of these things are a bit longer term. The inventory can improve and we can reduce the addition to the inventory and we can push the sales. But the inventory is rather big in some companies and it's not a quick fix. We can of course, we can work on many fronts, but part of it is short term, part of it is a bit of a longer term effort that is being pushed with some strength from really starting in the first half of this year. So, okay. But the change

in working capital line, that should be closer to zero than the minus 300 that it is right now for the full year.

Yes, it should improve for sure.

Yeah. Yeah. That's good. Is there anything you would like to add,

Christine? Yeah.

Yeah.

Sounds good. And then a question on margins. I mean, MedTech margins up quite significantly here year over year. So, the underlying development must be quite good. And I'm just wondering on ad vision, how was their margin developed year over year in Q3? It must be not right.

Actually not. Ad vision is not improving, unfortunately. So, that means that all the other companies are doing extremely well. So, we are very happy with that. The large companies, the small companies, the ones that have been in the portfolio for a long time and the recent additions to the family, all of them are doing really well. Ad vision remains a significant drag on the average margin. That's what it is. But on the other hand, there's some pretty firm measures being taken that we have already announced and given a little bit more flavor of today. And we continue to work very diligently on that.

Okay. I'm just wondering because the margin was 10% in Q3 for MedTech, which usually is the weakest quarter. So, it looks like a quite big improvement compared to last year's second half. Yes. It's .7% in Q4, which usually is the strong quarter.

Yes. It is a good improvement. We see in pretty much all companies and of course, the most impact, the larger companies like MBA and Healthcare21 have done a fantastic quarter. So, very good, very positive development there.

Okay. That's clear. And then just a question on the, what do you say, kind of not restructuring, but the Commonew segment. I mean, just wondering a bit there because you said 10 million in savings, but when you do like some research on it, I mean, Commonew, at least the company, the company register has losses of around 60 million per year. So, I was wondering, can you do more than 10 million or what is the plan? Because I guess, yeah.

Yeah. Well, that's a great question. We've done a pretty thorough review and we've arrived to this decision, which I think is the right one. It will give us some savings and also the ability to focus more on the areas that have a better outlook. But we look at all areas in terms of costs and efficiency improvements and so on. So, that's as much as we can say right now.

Okay. That's all for me. Thank

you. All right. Gustav, you have a question as well?

Yes, exactly. And sorry, my internet has been quite poor. So, if I missed anything. Just to build on Carl's question around the margin in admission. So, he asked if the margin delta from last year is positive and you said no, but is it negative in Q3, would you say?

Yeah, unfortunately, yeah. We were hoping for an improvement, but that has not happened yet. So, that's also the background for a little bit more firmer actions we've taken in the past few months. Okay. So, the overall margin in admission is negative? It has moved in the wrong direction, if you put it like that.

Okay. And then I was just wondering regarding the strong med. Is there any geographies driving this? You talked about MBAs sort of has quite solid margins. I mean, is it sort of Spain driving the margins or what can you say?

It's pretty much across the board, right? Happy to say that it's pretty much across the board. You know, MBA has done a fantastic job, Health Care 21, Mediplast, the smaller companies in the group as well. So, it's all geographies and businesses in the hospital area. So, they have different conditions and different segments focused, but they're all doing really well.

Okay. And then we have talked sort of about the interest expenses, you know, the Uribe are lagging for you a bit, but I mean, given sort of stable macro environment today, would this be a good proxy going forward?

As we have said previously, we are one quarter after, we always have a delay of one quarter. So, with that said, probably there will be one more increase since there has been an increase already. So, but hopefully it will stabilize going forward as it sounds right now.

Is it possible to give any guidance on the increase?

If you look at the euro board increase quarter by quarter, you will probably see.

And then maybe on sort of the M&A here, I mean, the question has been or the overhang has been sort of, you know, the balance sheet and the cash flow and so on. I mean, you must be very confident in the balance sheet. Or how should we interpret this? Yes,

you interpreted correctly. We are confident in the balance sheet. We are confident in the cash flow generation of the business. We are very confident in the positive trend that we're also seeing. So, yes, we are. And after all, acquisition is a key part of our strategy. We are active in that field. And when we find a good fit, we want to move forward. I will say, though, this is a fairly small acquisition. So it's quite manageable from that standpoint, but it's very, very attractive, you know, good fit, good profitability. It will be easy to find a home for it in the group that we have. So, yes, so we're confident. And this is part of our strategy.

Okay, perfect. And then just one last one here. You mentioned in the slides about the delayed invoicing in Eastern markets. Are these material or how should we interpret this going forward?

I think, you know, you could argue that there was a slight weakness in the lab tech profitability. And this is really the reason that we have a number of projects that we that we have, you know, we have one and the only remaining part is the invoicing. We had thought that that would come in Q3, but it's now happening in Q4. So that had an impact, not an enormous one, but a little bit. And so we think that that will improve the business in Eastern Europe in a not insignificant way in Q4, on the margin level. So that we have high confidence around those are those are deals that are done in a way. It's just a matter of the invoicing.

Perfect. Thank you very much.

All right. So I think we have a second question from Carl, right?

Yes, coming back to the balance sheet once again, it's a lot of focus on it. But I mean, you just want to get it clear that you stated on the CMD that you wanted to have a net or that net that the BDA should be at below three times before 24 and is that still the base case for you?

Well, we certainly want to get to that level and the timelines we won't commit to in a very detailed manner. But I think you're on the right path here in terms of how we look at it as well. And that remains the plan. Nothing has changed there. We are confident about the cash flow generation, as I mentioned earlier. So, yes, no change.

OK, and then just a nitty gritty question on the reversals of the purchase considerations. Eighteen million in the quarter, if I get it right. But you write that 15 million is in lab tech. Is the rest in med tech or?

I think it's actually 17 and you're right, too. In the lab. Yes, correct.

OK, yeah, that's good. Thank

you. All right. Well, thank you. Good questions. Yeah, Aline, yes, we have a question from you as well.

Yes, sir. I don't know if I missed this, but the refining of the loan, is it unchanged bank terms? Yes, that's correct. And also in the working capital, we had a working capital buildup looking at cash flow. But if you look at balance sheet, inventory receivables has decreased. Could you elaborate and discuss that a bit? And I

can have that works. Yeah, I can start and then you continue, Christina. So that is correct. Inventory has come down a little bit, not dramatically, but a little bit. And that's also true for accounts receivable. And that's reflecting the efforts we are driving now with some good force in terms of improving those accounts payable. We had a little bit of a reverse effect, but that's also natural in a way, since we have been adding a lot of new products to the inventory that those are being paid for. So a very logical development if you look at the working capital. And even though the effect is not massive, we're quite happy that inventory actually decreasing, accounts receivable decreasing when we see 10% growth. So I think that's a pretty good number and it's also an indication of where we're heading. So that's good. I think thanks for bringing up the fact that we did prolong that revolving credit facility as well. So same terms, but that means that there will be no refinancing activities during 2024. All of that is in 2025 now, right? Yes. Anything you'd like to add to that, Christina? No, I think

you summarized that very good. Thank

you. Good, good.

Super. Thank you so much.

All right. Thank you, Aline. So are there any other questions? All right. Well, then thanks for taking the time and thanks for good questions here. And as always, do feel free to contact us over email or phone if you have any follow up questions. But indeed, I think we are quite happy with this quarter, very strong organic growth for another quarter. EBITDA is improving if you make the adjustments for the continuing considerations and cash flows certainly moving in the right trend in spite of the fact that the growth continues. So pretty good quarter from our standpoint. And I'm very happy to welcome the Emmett Company to the family as well. All right. Well, thank you very much and have a good day.