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 medtech 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 contingent 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 Christina to talk more about the financials.

Thank you, Fredrik. So, as Fredrik mentioned, we had a strong growth in the quarter, 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 Labtech and 10% for Medtech. Defending the 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 has 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 strengthening the sales organization in areas where we foresee future growth. The result of this is, of course, the sales and marketing expenses has increased. But bear in mind that the prox, and actually slightly above, half of the increase in median Swedish crowns relates to currency. In the bucket income and expenses, the other income and expenses, you will find the reversal of the contingent considerations. If we exclude this, we had the profit expansion of 12% in the quarter. Financial debt has increased significantly. 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 a 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 high order 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 working 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 EBITDA was 3.9 still. The rolling 12 EBITDA has been impacted by the reversal of the continuum 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 5.6%, and interest-caverage 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, Christina, 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 health care 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 go-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 go-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 experienced team members and so on. So a positive development for the AdLife companies. Moving into the lab tech third quarter, as we previously talked about, a 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 today. 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 a 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. So in general, the funding is quite stable in the areas that we focus on, academic research and pharmaceutical companies. And 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. So 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 a strong growth, but also solid profit improvements. Moving on to some of the details in the hospital area, 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're taking some really strong actions. I want to focus a little bit now on number one, the protecting and improving profits. Looking at Advision, 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 an 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 positive profitability effects. 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 means our remote patient monitoring business will be discontinued and the customer relationships will will be handed over to another company in the sector. So this is expected to generate a saving of at least 10 million on an annual basis starting Q1 of next year. I'm also very happy to announce that we have made an acquisition in the quarter. This is a UK-based medical device company in the area of surgical products and, of course, a strong technical service component as well in one of the areas that we have defined as attractive for us going forward. It will be an add-on acquisition to the very competent team of Healthcare 21. It's a relatively small business with a turnover of – 28 million Swedish on a rolling 12 basis. And it's a high margin business with great future prospects. So we're really happy to be able to add this company to the family of AdLife. All right. So to wrap up, we can conclude that we had a strong quarter with very solid growth in all parts of the business. And 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, a high priority for us, and we're 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 and even 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 Mattias.