AddLife AB (publ)

Good morning, everyone, and warm welcome to the AdLife fourth quarter presentation. We're very happy to present the fourth quarter to you today, and then after that, we will open up for questions and answers. And after that, there's also going to be an opportunity to review a very nice video describing our biomedical and research business unit, as well as one of our very exciting Italian companies, Euroclon. Thank you. So let's move on to the numbers. I'm very happy to present today a very healthy fourth quarter for AdLife. We had a strong growth and a significant improvement in cash flow. Customer demand remains very healthy across the board, and we saw a growth of 9% in the quarter. And with that, we conclude the 2023 with 10% organic growth, which is a quite strong number for us. In the Labtech business area, we saw a growth of 13%, so quite strong, and 6% in Medtech. EBITDA grew by 7%, keeping margins relatively stable. However, in Labtech, we had a very strong margin at 14.5%, and in Medtech, in around 9%. Here in Medtech, though, we saw some negative impacts from admission and home care. And after a number of months of significant work and analysis to assess this situation, we have taken a number of efforts in the past few months That will significantly improve the profitability in these businesses, and we will start to see effects of that already early 2024. Last, but certainly not least, we're very pleased to announce a very strong cash flow in the quarter. $450 million in cash flow compared to $350 in the corresponding quarter of last year. We also saw a significant improvement compared to the previous quarter, and we were very pleased to see the release in inventory. So with that, we were able to reduce the debt with around $400 million in the quarter as well. So now moving towards the net sales development and EBITDA development. Of course, the COVID revenue is now gone. But as we've seen now in many quarters, our organic growth is able to well compensate for that. And in this quarter as well, we had a little bit of a help from the currencies. Looking at the EBITDA development, we can see that both Labtech and Medtech are contributing nicely and in a balanced way. We have a number of one-off items, but this will be presented by Christina when she does the financial presentation. So, Christina.

So, yes. Thank you, Fredrik. So, let's start with the write-down and one-offs that has impacted the fourth quarter with a total of 134 million. They are all actions related to admission and Camagno, and Fredrik will speak more about this later. We had a recurring cost or the restructuring cost in admission of $8 million. Then we have a write-down of fixed assets within Camagno of $19 million. And we had the write-downs of intangible assets within both Camagno Health and Camagno Care, summarizing to $106 million. The annual savings from those actions will be a total of 80 million. In admission, there will be savings of 20 million starting in January going forward. In Kamanu Health, 10 million also starting in January going forward. For Kamanu Care, there will be a saving of 50 million. This will be gradually realized until the third quarter of this year. So the total annual positive cash flow impact from those activities is a total of 110 million. This will also be gradually realized during the year. In the interim report, there is a table that explains and shows the allocations in the income statements for the ones that want to know more. The write-down in Camano also had a tax impact, since losses are not carried forward. If those would have been excluded, that is the write-downs, we would have had a tax rate of approximately 34%, which we talked about in the third quarter. In the quarter, we have also made a reversal of the continued consideration related to Health Care 21. They had an ambitious goal and the performance came in just below that ambition goal, meaning that there will not be a payout for this contingent consideration. Moving into the profit and loss, strong sales growth again, 9%. Also, the organic growth excluding currency impact and COVID was 9%. There is a slightly lower gross margin, mainly related to high instrument sales. Also, the increased operating expenses mainly relates to increased commercial activities and strengthening of the sales organization within areas where we see future growth. There is also a component on the currency in the operating expenses. 30% of the increase relates to this. Other income and expenses, there we have the reversal of the continued consideration. Interest costs increased in the quarter, but we had positive exchange rate gains, meaning that the net was plus 15%. If we then take out the write-down and the one-offs of 134, we end up with the profit before tax of 2 million Swedish kronor. Operating cash flow in the beginning of the year was weak due to the fact that we did use cash flow for investing in current as well as future growth. But we did end 2023 in a strong way. This is both relating to seasonality, as you can see, the fourth quarter is normally the strongest one, but also to release of working capital. Now we have left COVID behind us. We have an increased MedTech business, meaning more orthopedics, more consignment stock, demand for fast deliveries, etc. With a strong ending of the year, I would say that we are back on track on the cash conversion with 76% ending the year. Operating cash flow was strong, 448 million in the quarter. There has been a huge focus on working capital during the last half year, and our companies have done an amazing job with the working capital release of 264 million. We have seen inventories decline, accounts payables increase, and with no surprise, accounts receivables have also increased due to continued strong growth. Working capital will continue to be a focus entering into 2024. The net debt was reduced with approximately 400 million and leverage decreased to 3.5. The aim is still to continue to reduce debt via self-generated cash flow. And if we look at our loans, the majority of them are in euros, meaning that we did have a positive FX impact in the quarter, but we also repaid loan of 276 million euros. And looking at the structure of our loans, which are traditional bank loans, approximately half is short-term, half is long-term. The short-term loans are due in Q1 2025 and the long-term is due in Q3 2027. We have variable interest following durable, meaning that the interest rate increased in the fourth quarter since we had one quarter delay. So now we are hoping that this was the last increase. And the average interest rate for the quarter was 5.9%. We have two covenants. One is interest coverage ratio, and the other is equity ratio. We have good headroom in both of them. And with that, I will hand over to Fredrik again.

Well, thank you, Christina, for that thorough review of the financials. And now we move on to market trends and implications for ad life. Clearly, we are in a post-pandemic environment, and the healthcare systems are addressing the significant need for surgical procedures. So with that, we see elective surgery procedures increasing. That has been the fact for us in 2023, and we expect that trend to continue. So for AdLife, that means an additional boost in demand for all of the businesses that we have that are engaged in surgery. There is a staffing shortage in the healthcare system and some healthcare capacity constraints. With that, we see an increased demand for time and resource-saving products and services, and this is something that the AdLife companies are really, really good at, so an opportunity for sure for us as a company. The healthcare systems are back to more normal budgets, so we see some hesitancy in investments in larger capital-intensive projects, That, for AdLife, is not a big piece of our revenues, so it's not a huge impact for us. However, we are quite strong in value and productivity selling, and we see the greater interest from customers in that area, and that is something that we are quite good at within our different companies. And finally, and quite interestingly, this trend that we have seen now for a couple of quarters with larger global manufacturing really reassessing their go-to-market strategy, that trend continues. It means that some of the companies are reducing their product portfolios. They are going back to a distribution model. And this is, of course, for ad life and opportunity both to take market share and add new products. So many of these trends are really a positive for us as a company. So Labtech had a very strong fourth quarter with a currency adjusted growth rate of 13%. The EBITDA was strong at 14.5%. The diagnostics business was quite stable as is the nature of that business unit and the margins were quite good. Biomedical and Research had a very strong quarter, we're happy to see, with both strong growth and margins. And after the Q&A session, you'll have an opportunity to get to know that business unit a little bit better and also one of our key companies in that group. In general, we see a high customer activity in all the businesses and all companies within the lab tech business area. And in particular, the activity was high in the pharma industry. And that's a very important customer group for us, so we're very pleased to see that positive development. In addition to that, we did talk in the third quarter about expectation of invoicing in Eastern Europe, and I'm very pleased to see that that indeed materialized. So that triggered extra revenue, profitability, and also inventory reduction. So all in all, a quite strong quarter for Labtech. Moving on to MedTech, we have also a solid quarter. Organic currency adjusted growth at 6%. The elevated elective surgery activity that we have seen continues. It varies a little bit country by country, but all in all and on a European scale, we do expect this positive trend to continue as well in the coming quarters. The hospital companies in general are performing quite well, so that's very great to see. In admission and home care though, there are some challenges and we can see that those challenges are indeed reducing the overall EBITDA margin for that business area. But I am pleased to note that we have been reviewing that situation for quite some time now and taking some firm actions that will indeed improve the profitability, both in admission and home care, and we will start to see those effects quite soon during 2024. So taking a look at the priorities for 2024, they do remain the same. Our first priority is to protect and improve profit, and that's why we will focus a little bit soon here now on the measures we are taking within admission and in home care. Organic growth and cash flow are two very important factors for us, and you can see in our numbers as we present them today a very strong improvement in both of those areas. And, of course, that opens up for us in the mid- to long-term to, again, increase the activity in terms of acquisitions. So as I mentioned, improving the profitability is of high priority, and as many of you know, we have had some challenges within the Advision group over 2023. However, we think that the foundation of that business is indeed strong, and our goal here is to position Advision for success in a market that is indeed undergoing a lot of changes in terms of reimbursement, competitive landscape, and customer structure. So the improvements that are required can really be divided in three areas. We need to do a cost reduction effort. We need to become more agile and efficient as an organization. And we need to improve the commercial offering as well as the working methods. So we have taken a number of actions to improve things in AdVision. And the first one is restructuring. So we're restructuring the admission group, removing the headquarters function, and that will, of course, reduce cost, but more importantly, improve the efficiency of the decision-making and make it more decentralized and more able to respond to local customer needs. Then in the local businesses, the subsidiaries by country, we have also reviewed the organizational working methods, and we have made organizational changes in Germany, in UK, and in Switzerland. This will lead to greater efficiency and more customer focus, but also cost reductions. On the commercial side, we have worked a lot on improving the portfolio, replacing some products that we have taken out of the portfolio with new ones. We have clarified the priority in terms of profit and revenue potential, and we have improved the working methods in the whole commercial team. We have strengthened the sales team significantly in many of our markets, and we have put a lot of effort in training of the sales teams to improve efficiency and customer focus. And then finally, we have also invested in increased manufacturing. We have had a situation where we have had capacity constraints and not being able to respond to customer demand. Now we have invested in new manufacturing capacity, and now we are ready to meet that growing demand. So all in all, these efforts are expected to result in a cost reduction of around 20 million coming to effect in early 2024. But most importantly, bringing a more decentralized and agile business model back to Advision. And with that, we expect to see additional and gradual performance improvement throughout 2024. As I mentioned earlier, we have had some challenges with the profitability in home care, and this challenge is centered around digital development projects that we have in that business. We have taken a thorough review of that product portfolio, the digital development product portfolio, during 2023, and we have taken a few decisions in that area. So Camonio Health, which is the remote patient monitoring development project, has been discontinued in the fourth quarter of 2023. Camonio Care, the safety alarm development project, in this area we have initiated trade union negotiation regarding a planned closure of that development project as well as the whole subsidiary Camonio. This will lead to a cost reduction of around 60 million and a positive cash flow impact of around 90 million. This was not an easy decision to make. We feel strongly for the employees as well as the users and the customers. But we will make sure that the customers and users will be provided with support and functionality during this discontinuation period. And we will also make sure that they are offered attractive alternative solutions. The home care companies will continue to offer digital products and services, but no longer internally developed. As we wrap up this presentation, I want to start by thanking everyone within the AdLife Group for an amazingly strong contribution and dedication during 2023. I'm very pleased that we were able to wrap up 2023 in such a strong way with a very solid fourth quarter. If we take a look at the market, we see that the customer demand is solid and expected to continue that way, and our companies are very well positioned to benefit from that customer demand. The companies are doing a fantastic job developing the products and the service portfolio always with the customer in focus. We have taken significant actions during the quarter that will improve profitability going forward. And I'm very pleased to see that we have a strong cash flow generation in quarter three, but even more so in quarter four. And that has been the result of a lot of efforts across all the companies. This increased cash flow, of course, gives us a lot of confidence in our ambition to reduce debt through our own generated cash flow. And doing that, we will gradually be able to increase our pace of acquisition again. So this past few weeks, I've been fortunate enough to go visit many of our companies and attend many of the sales meetings that we have in the beginning of each year. And the impression from all those meetings has been amazingly positive. We have a very, very strong team in all parts of the organization. The commitment is very, very strong and the passion about what we do. Everyone in this company is very much focused on the patient and improving people's lives. So with that, I'm very confident in saying that we have a very positive team Perspective on 2024, we expect to see continued growth, continuous focus on improvements in profitability and cash flow, and we see a lot of new and exciting growth initiatives. So with that, we start by opening up for the questions and answers sessions. And for those of you who have time, do take a few minutes to listen to a very nice video of the Biomedical and Research Business Unit and the exciting activities we have there. Thank you. All right. Hello, everyone. So now we're ready to open up for any questions that you may have. I hope that you found the presentation informative, but apologies for the little bit of a glitch in the beginning there. So let's go. I think we saw some questions coming up. Did I see Carl? Did you have a question?