AddLife AB (publ)

Good morning everyone and welcome to AdLife's second quarter call. As usual, we will be providing you with an overview of the quarter and then go through the financials and then have the Q&A. And after the Q&A, as always, a video from one of our subsidiaries, this time around from Ropebox, one of the companies within the home care area, which we are focusing on a little bit extra in this quarter. So let's move on to the numbers. In the second quarter, we are really pleased to note that we see positive development across AdLife's companies. Margins, our highest priority, are improving significantly, so 12.6% EBITDA margin for the group compared to 11.9% in the corresponding quarter of last year. margins improved in both business areas. In lab tech a full percentage point up to 13.4%. In med tech a strong improvement to 12.8% EBITDA margin. Improvement initiatives are part of our DNA and in many areas we have had long-standing improvement efforts. In home care we are pleased to note that we see significant growth in the quarter and margins are clearly improving. In eye surgery there has been a long effort to gradually evolve the business and now we are in a very positive margin trend and we think this demonstrates stability and confidence in the future. Overall, sales is in a positive trend. Advanced products are driving growth and margins. We see strikes in Spain and a little bit subdued capital spend in the UK market. That did hold back revenue growth a little bit, but strong growth in the Nordics, solid improvement in Eastern Europe and continued positive development in research, as we have talked about in the past, and then, as I mentioned earlier on, very good growth in home care, so a lot of positives when it comes to growth. And then finally, we are pleased to note that our recent acquisitions are really meaningfully contributing to earnings growth. And now, I hand over to Kristina to take us through the detailed numbers.

Thank you, Fredrik. So, organic growth in the quarter was 4%, while acquisitions contributed with additional 3%. Organic growth of 4% had been adjusted for the divestment of the endoscopy business in the UK end of last year. Also, the doctor strikes in Spain had a negative impact on organic growth. profit expansion or EBITDA growth was 11% in the quarter. Organic growth was 5% and acquisition contributed with additional 6%. Revenue increased with 6%, underlying organic growth was 4% and acquisition was 3%. Growth margin improved in the quarter with half a percentage point. This is due to diligent price management within our companies and also product mix with a higher share of advanced products. OPEX increased. This is reflecting both growth investment into current companies, but of course also the completed acquisitions and acquisition costs. And if we divide both of them, it's about half-half between current business and new acquisitions and acquisition costs. EBITDA margin increased to 12.6. from 11.9 last year and profit before tax was up with 29%. EBITDA margin has clearly established on higher level. It was 12.6 in the quarter compared to 11.9 last year and EBITDA margin increased in both Labtech and Medtech. Labtech increased with one percentage point to 13.4 while Medtech was at 12.8 from 12.4 last year. Margin expansion has been a key priority for us since 2023 and that remains going forward. Operating cash flow increased 165 compared to 119 last year and last 12 months cash conversion remained strong at around 100%. Operating cash flow 165, working capital was a negative 149 compared to a negative 180 last year. Working capital includes lower accounts payables but also slightly higher inventory driven by introduction of new products and suppliers. We had an expectation of an account receivables release in the quarter due to strong sales end of Q1, but we also had strong sales end of Q2 in June, meaning that it was approximately the same numbers. Closing cash was impacted by acquisition and dividend payments. Acquisition and dividend payments of around 400 lowering the cash balance is the main reason for net debt to increase in the quarter. Also with majority of the loans in Euro we had the negative FX impact of 58. The acquisition also comes with earnouts and we have booked earnout liabilities of 114 million in the quarter. Leverage increased to 2.6 in the quarter, mainly driven by acquisition and dividend payments. This is comfortable below our ambition of being at 3 or below. Also net debt equity ratio was 0.8, below the internal guidance of 1. And the balance sheet now clearly supports both organic and acquisition-driven growth. And with that, I hand over to Fredrik again.

So Labtech had a strong second quarter. Currency adjusted growth was 7% and EBITDA margin improved the full percentage point to 13.4%. The positive demand trend that we have talked about for a few quarters now in research, that really did continue and strengthen further during the quarter, so that's a positive sign. And then also customers in Eastern European countries are investing significantly in research and diagnostics, so we see a positive development in multiple countries, including, for example, Poland. Recently completed acquisitions really are making a significant contribution to the positive development both in sales and margins. Moving on to Medtech, the acquired growth was 2% and the organic growth 5%, so solid growth there, and EBITDA margin also improved to 12.8%. Growth and profitability was quite strong in the Nordic region. Advanced products is really driving this growth and the margins improvement as well. In Spain, we had a good underlying growth. Our strong companies there are really delivering. However, there was a doctor's strike in the country that affected each month of the quarter in a significant way, so that certainly held back revenues a bit. And in the UK, the subdued market for capital investment in the healthcare system was still ongoing, so it was a bit slow, but the order book for capital goods for us is strong, so we are confident in the future. In eye surgery and home care, as I mentioned earlier, we have been driving long-term significant improvement programs. And we are really pleased to see that in both of those areas we are making strong improvements. And I will talk a little bit more about home care. That's an important area for us and also where we will be focusing with the video after the call. So moving on to home care, here we have a quite comprehensive product offering. Our products include home adaptation to update and adapt homes for people to be able to live at home for longer. We have technical aids that are portable and fixed. We have welfare technology, various digital solutions such as fall detectors, safety alarms and so on, and also construction supporting indoor work to create adapted homes for elderly and the people with various disabilities. So all in all a very comprehensive product portfolio and this is indeed important because just one product cannot achieve the goal of having a higher quality life in your home for longer. You need a range of products which we are pleased to be able to provide. So the product portfolio that we have really corresponds well with the macro trends that we see in home care. We all know that the population in Europe and in other parts of the world is aging and so with that comes the requirement for allowing people to age at home for longer. So that is a quality of life topic but also a way for the societies to handle that potential burden. Fortunately, there are a lot of new things coming, new technologies. So the digital products, for example, are a big piece of the puzzle, allowing for a safer environment at home, and we have those products in our portfolio. Taking care of all these elderly people is, of course, a challenge to society, in particular in light of the fact that we see healthcare staffing shortage across Europe. So with these technologies that we are able to provide from home care, can really help address these things in an efficient way taking care of more people with fewer staff. So all in all we have a portfolio that fits really well with the market trends. So, the Adlife home care offering then, to summarize. It's a comprehensive, combined product portfolio, which we're quite proud of. We have a large share of proprietary products, much more than the rest of the company, actually around 50% of the products we make ourselves, so that's clearly a strength. We are well established in the Nordic region, and the Nordic region is leading in many areas of home care. We have a growing export business, and we certainly have the ambition to expand this business outside of the Nordics. The business unit consists of six well-established companies, a turnover of around 700 million Swedish, and with improving margins. So, to summarize the second quarter, we see consistent positive development across the board. Sales, earnings, operating cash flow, all developing quite well. We have been driving for quite some time the initiatives to increase the share of advanced products in our product portfolio and we are certainly seeing that in this quarter that it is generating both growth and improved margins. We are also consistently and diligently driving improvement efforts in our companies, and sometimes these are long-term efforts. In home care and eye surgery we have really seen in this quarter strong improvements and stability that gives us good confidence for the future. We see strong growth in the Nordics, in Eastern Europe, in research, in home care, And we are really pleased to note that the recently acquired companies are making a significant and important contribution to our earnings growth. And also, of course, we are actively pursuing a number of new acquisitions. We are developing our processes and we are developing the resources to further pick up the pace when it comes to acquisition. So with that, we can sum up the quarter and open up for Q&A. open up for questions. Yes, I will answer that. So, the question was around the UK capital investment. So, you are correct. We had a quarter where we continued to see a bit of a hesitation around the capital investment as we've seen in previous quarters. Also, this continued in the second quarter, but I would also say that we are fairly confident in a positive development there because we do have a good order book. We have instruments in stock and we have orders so we will be delivering those as it suits the customer. So, you know, a little bit of still a slow-moving activity there but, you know, the orders are coming in and we are ready to ship.

Yes, so the final question on the same topic. I'm wondering if the hesitation that you're seeing, if you could talk a bit more about the underlying drivers behind that, but since you have increased ordering, or it sounds like that, if there are any concrete shifts you can talk about that happen during the quarter.

Okay, that's a great question. I think the The challenge that we've seen for quite some time now in the UK has been that there's been a knowledge that there's going to be changes in how things are done in the NHS. I think that change is continuing. We have been seeing, for example, new guidance for procurement that was issued in June. So this change towards more, for example, more value-based procurement is continuing, so that's a positive. I think the slow sales of capital has been there for a while, but we all know that cannot go on forever. equipment needs to be changed and updated and so on. So I think what we're seeing is a decent development after all, but in this quarter we know that some of the customers preferred to wait a little bit with deliveries. For what reason, we don't know. So I think we shouldn't expect a massive change in the short term, but I think what we've seen in the past is that You know, gradual, slow but gradual improvement, and I think that's the case this time around as well. The number of procedures seems to be, you know, growing. The waiting lists are coming down, not drastically, but a little bit. So I think what we can conclude is gradual improvements, not a dramatic shift.

Thank you.

Okay, let's move on. So we have, let's see, Elvin here. Are you ready?

Yes, good morning.

Good morning. Thank you for taking my questions.

Maybe beginning of looking at the acquisition breakdown in the report, from what I can gather, you consolidated the businesses and they kind of performed the first half of the year, the margins. in these companies seem really, really strong. Is there anything we should have any respect for in that regard that has affected these companies' performances so far during the year, or is this the level where you expect these companies to operate at, given that it's more or less twice the margins of a bad life as a whole?

Yes, that's correct. I mean, you've done a good analysis there. The acquisition we have made in the past few quarters are quite solid when it comes to growth and margins. And there's nothing out of the ordinary, really. in the margin levels in the quarter. So we do expect continuing roughly at that level. Is there something you have to add to that, Kristina?

No, I think that that's a fair assumption. I think those are high-margin companies, so we could expect this to continue.

Okay, great. Maybe looking a bit on eye surgery as well and home care, it's obviously positive to see that home care is that the initiatives are yielding such good results in home care and in eye surgery, that there are gradual improvements there. Can you perhaps give us some color on how far you've progressed within eye surgery and how much improvement potential do you still have left in that area of your businesses, and how far away in time do you feel that that is until you're quote-unquote done with those improvements, so to say?

Yeah, great question. So if we start with eye surgery, it's been a long-standing improvement project. We have addressed costs, we have addressed product portfolio, and having done that, we have shifted over to focusing on sales. And now, There's been a while where we actually had a negative EBITDA margin. Then we have started to move upwards. And so in the last year we had around around mid single digits margins so you know over the past year but now we have seen a gradual improvement from that and we also did not see the drop in margin that we did last year in the second quarter so instead the margins continue to improve over the years so that gives us much better confidence that we are on the right track here so we are now above that that 5% level that we were at last year. You know, graining a few percentage points. So we do think that evolution will continue. We know that some of the companies are in double-digit territory. We think that the whole group should get to that level in the coming quarters. Not super quick, but gradually in that direction. And when it comes to home care, here we have also had a number of improvement initiatives. And here we see a combination of stronger growth new product launches and more streamlined operations, more efficient operations. So with that, we are confident that we are on the right track there as well, and we are at a very good margin level in this quarter. Q2 tends to be the strongest quarter in home care, but I think we're We're still pretty confident that this is also a business that will be contributing to margins, and on top of that, it's a fast-growing business as well. So I think we're fairly optimistic about home care as well, and the position is strong. Many companies are showing improvements. So I hope that was an answer to your question.

Yes, of course. And maybe if I may, one last question. It's regarding working capital. You had quite a big a build-up in Q1, if I remember, due to quite significant late deliveries toward Q1, and then you have a more favorable, I think you have to look at it year-over-year here in Q2, but I would have expected perhaps a bit more favorable effect, so to say, in the quarter given the build-up in Q1. Is there anything specifically driving these dynamics here in Q2 that we should be aware of, and should these AFFECTS KIND OF REVERSE TO A LARGER THAT EXTENDS THE NORMAL TOWARDS H2 OR HOW SHOULD WE THINK ABOUT WORKING

I think that's a great question and good observation there. I think we still had a fairly high inventory in the quarters, and that was partly driven by, of course, these deliveries related to the order book that we have that didn't happen in the quarter. And then in the first quarter, in the final month of the quarter, we had a strong sales increase, and that then, of course, ties some more capital in. in accounts payable, or accounts receivable. And then actually, you know, if everything would have been stable throughout the quarter, you would have seen a little bit of a release in accounts receivable. But we had, in some ways, a similar pattern in Q2, a strong final month of the quarter. So therefore, we didn't have, you know, maybe a release of accounts receivable that we thought. So maybe you want to add to that something, Kristina?

Well, as you said, we also expected a release in the accounts receivables, but like Fredrik said, strong ending to the Q1 was the reason in Q1 for building working capital, and we had the same situation in Q2 down with the strong June. And also, inventory increased a bit, but that is mainly driven then, one, that we haven't delivered on order intake that we have in orders, and then also that we're introducing new products to the market. So we do We are hoping that we will have a release in accounts receivables, assuming a more steady pattern throughout the quarter in sales then. But no worries otherwise. As usual, this is a focus area for us.

Absolutely. So, yes, so should we move on then? I think I see that Jakob, you have a question or two?

Good morning. My first question is on M&A. I appreciate the comments here in the report that you have a lot of active processes. From my perspective, you were talking about the intention to do more for some time now. When I calculated over the past year, you've only added 2% to top line for M&A, which I guess is below your ambitions. I'm just wondering Yeah, if there's, you know, hard to close deals or if it has taken some time to sort of get going with the M&A engine or, yeah, what you're seeing there.

Yeah, well, thank you, Jakob. That's a good comment. So we do need to increase the pace. It depends a little bit on how we look at it. If you look at the past seven months or so, we have done four deals, but some of them have been on the smaller side. And then, as was previously commented, they have been also with quite nice margins. So that also helps for sure. We do have a lot of discussions ongoing. The timing of it is sometimes a little bit tricky, especially when we focus on these small and medium-sized companies and we have processes exclusive with the seller. So we do feel quite confident about the pipeline and about the processes that we're in and that we're about to enter. So I think we're on the right track here. But the pace when it comes to revenue in relation to the total, We'll need to pick up a little bit, I agree with that, but I think we are fairly confident that that will happen.

Okay, and if I may follow up, if you look at the sort of active processes you have now in a late stage, and I guess the sort of sales or data potential of those, is that sort of materially higher than it was a year ago?

Yes, I would say so, absolutely. I mean, in the number of processes that we are in an advanced stage, for sure it's higher than last year.

Okay, good. Then I have a question on lab tech, which boosted the strong profitability here in Q2 and has been at strong profitability levels for some time. So I guess my question is, is there any sort of one-offs or large orders or something that is helping that, or do you see the current profitability level as sustainable?

Nothing particular in terms of one-offs, really. No, it's not. So it's progressing well, as it usually does. Diagnostics quite stable, moving forward, adding products, winning tenders, research. We see a pickup in demand, as we talked about earlier, but that continues, so that's a nice development there. So, no, I think it's nothing out of the ordinary, but we have also noted a good demand development in Eastern Europe. That's another positive. And, of course, last quarter we talked a lot about genomics, and that's also a positive in lab tech. So nothing out of the ordinary, but a lot of good things going on.

Okay, good. And then on Medtech EBITDA margin, I'm wondering if it's possible to quantify how much gain or tailwind you get from improvements in home care and ophthalmology in this quarter?

I wouldn't want to quantify that, but I can give you some hints then. I think that when it comes to eye surgery, We have talked about mid-single-digit margins in the past. Now that has improved a few percentage points and we haven't seen the reduction in margin in the second quarter that we've seen in previous years. So that gives us confidence that we are on the right track. And then when we talk about home care, a very strong growth there and a lot of companies contributing to that growth. and then pleased to note that due to product launches, product mix, increased sales and the margins have increased so normally it tends to be slightly below the average of the group but in this quarter it was actually a positive contributor and I think that should be in the future it should be something important for us in terms of margin support and then also quite healthy growth. So I think that's a positive. So I think we cannot give into the specific numbers there, but so good contribution there and good outlook, I would say. Is there something you'd like to add now?

If I may have a final question, just on Spain, It looks like it was quite good growth despite the strikes here in the quarter. So I guess the question is, is there anything in particular that is driving Spain or something you're doing well there?

Yeah, I think I would highlight two things. First of all, our medtech business in Spain is this MBA. They're doing a fantastic job. They're continuously evolving the product portfolio, adding more and advanced products to the mix. So they have a fantastic underlying growth. But then again, the strikes that have been ongoing for about a week per month during the quarter, they have held back on on many of the planned surgical procedures. So that has been a, you know, not insignificant sort of drag, but overall still growth. And then, of course, also on the lab tech side, we have strong primarily genomics business in Spain and Portugal, and that developed also very nicely. So Spain is going well in many ways, in spite of the little bit of a headwind there when it comes to the strike. Thank you, thank you. So let's see, do we have more questions? Gustav?

Yes, good morning, it's Gustav here from Nordea.

Good morning, good morning. Good morning.

Just to build on Spain here and Jakob's question, is it possible to say, you know, quantify, maybe you don't want to quantify, but just elaborate a bit on the margin impact, negative impact from the strikes in the quarter? I mean, what could Melte have been, so to say?

So I probably will not give you a detailed answer to that, but I'll give you some flavor at least. In the Spanish business, and now we're focusing on medtech then, we are seeing one week per month of strikes, and during that week, of course, it's not that there are no surgical procedures, but it is a significant reduction in procedures during that week, for sure. Then it's compensated in some ways, but that's a significant impact during that week each month, so that's one thing. Then there is a lot of work to add new products and that's going very well. and that also drives an improvement in gross margin so the gross margin is improving in our Spanish business because of the product mix primarily so of course adding new products also requires a lot from us in terms of staffing and running trade shows and what not so that there's a cost associated with these advanced products but I think it's being Do you see any risk of strikes in Spain or UK here in Q3? I think from what I understand, and these are difficult topics to speak with confidence about, but my understanding is that the strike situation in UK has improved a little bit. There has been some agreements and whatnot, so maybe a little bit less worry there. The Spanish one has been ongoing now for five months, so that's a long time. And I don't want to speculate on how quickly that can be resolved, but in general, I mean, you know, there will be pressure to get that sorted one way or the other. So that's certainly, I hope that that will go away soon.

Okay, perfect. And then just one last question on lab tech here. I mean, you comment on... In the quarter that you're seeing some results from the previous larger tenders that you won, but you also comment on securing new tenders. Are these material and should we expect them to come through already here in Q3?

Yeah, I think material tenders and so as you correctly state, we are benefiting from previously won tenders and sometimes the installation of instruments and machines can go on for, you know, can be one to two years after the tender has been won. So I think we're benefiting from that and then of course the consumable side of things. We have spoken about tenders won and then I'm particularly thinking of a number of tenders in various parts of Eastern Europe, but also another big one in Sweden. And these tenders should start to come into fruition in the coming months, I would think. So I think that's a positive. And the Swedish one you can find, it's Östergötland. So positive there. And those things tend to be long-term positive additions. Well, some of them can be, you know, a big immediate effect if it's big instrument installations, but I think more normally it would be such that there is an overtime replacement of previous instruments so that can, you know, stretch over like a two-year period and then then of course the new pricing would come to effect immediately. So that should be a positive normally and then consumable. So I think it's both a bump and then establishing business at the higher level. Perfect.

That was very clear. Thank you for taking my questions.

Thank you, thank you. So let's see, do we have any other questions? Well, I know it's a busy reporting day today as well. So thank you for listening in and we do apologize for the challenges with the sound there and If you have a few more minutes, we do encourage you to stay on to see a nice video from the home care business unit focusing on Ropebox, a really strong company that has great product range but also quite qualified manufacturing. So thanks and please listen in a few more minutes and after that, we wish you a good Thursday and a nice summer.

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