BICO Group AB (publ)

Welcome to BECO Q2 2024 Report presentation. For the first part of the presentation participants will be in listen-only mode. During the questions and answers session participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to CEO Maria Fors and CFO Jacob Sordenberg. Please go ahead.

Hello and a warm welcome to everyone for joining BECO's earnings call for Q2 2024. My name is Maria Fors and I'm the president and CEO of BECO and together with our CFO Jacob Sordenberg I will present our report. And let's begin with today's agenda. Our agenda today is divided into five sections before the Q&A. We will give you a summary of the quarter and highlight significant events. We will also comment on the market developments and thereafter present BECO's financial performance for the quarter as well as deep dives into the business areas performance. I will also comment upon the development of our strategic priorities. These sections will be in listening only mode. After the presentation we will invite you to our Q&A session where you are welcome to participate. The financial hearing host will be back with further instructions. Let's begin with summarizing the quarter. In quarter two we delivered stable sales levels in line with our peers despite volatile market environments. We delivered sales of 534 million and an organic growth of negative 2 percent. Jacob will give you more details on the financials later in this presentation. All business areas were profitable in quarter two, reporting a total adjusted EBITDA for the group of 46 million generating a margin of 9 percent. And as I mentioned during our earnings call for quarter one we had some additions in the executive management team as well. Both Katarina Nordlund and Anders Fogelberg have joined us during the past quarter. Katarina as our chief HR officer and Anders as our chief commercial officer. After the quarter we have also announced that Andreas Joersjö has been recruited as general counsel. He will succeed Lotta Bus and will be joining us latest mid-October. Andreas' previous experience and commercial mindset will contribute to further developing our legal function. All in all we are continuing to build an organization suited for the next phase for BYCO. Later in this presentation I will also comment upon the work done with our strategic priorities and how that has developed since they were launched earlier this year. I will now move on to the second section for today and comment on the market development. This section was introduced last quarter and gives more flavor to the market development and I will also comment on sales per geography. The indications of a slower business for BYCO in the academia and diagnostic segments continued during quarter two 2024. And as you can see on the map the sales in North America increased mainly driven by biosciences whereas Europe was flat. Asia and foremost China experienced significant drop in sales levels due to lower demand compared to quarter two 2023. I believe that we see the same trends and patterns as many of our peers have reported in quarter two. And as mentioned during my previous slide BYCO is performing in line with peers in unpredictable market conditions. It's time for me to hand over to Jakob for a summary of our financial performance.

Thank you Maria and yes I will now comment on the second quarter of 2024. Please note that all numbers presented is in Swedish crowns. Also I would like to remind you that from the first quarter of this year BYCO reports in functional reporting and comparable numbers have been adjusted. Furthermore all organic growth figures are in constant currency. BYCO delivered sales of 534 million with an organic growth of negative 2 percent and I will comment more on sales on the next slide. Adjusted EBITDA amounted to 46 million and EBITDA was 36 million for the quarter which is an improvement compared with the first quarter of 2024. I also have a separate slide where I will present EBITDA development during Q2. The gross margin for the quarter amounted to 52 percent compared to 46 percent for the corresponding quarter last year. This can be explained by the product mix and the extraordinary bright-offs made in Q2 2023. This is the second quarter we report with functional reporting structure. The reason why we changed is to increase comparability in the company's cost structure and adapt to the most common market practice. As mentioned also in the Q1 report this change has affected the reported gross margin negatively as more costs than before. For example production staff, depreciation of production equipment etc. have been included in the reported cost goods of sold instead of OPEX. The net loss for the quarter amounted to negative 79 million. And if we look into sales for the group for the second quarter, the second quarter generated sales of 534 million and a flat total sales growth of negative 0.6 percent and a negative organic growth of 2 percent compared with Q2 2023. Q2 showed mixed sales performance among our companies following the same pattern as in Q1 where bioscience showed good sales levels especially in the lab automation part of our business and a positive organic growth. Bio printing continued to show weaker sales due to the dependency on the academia and research segment as well as softer sales in Asia and foremost China compared with Q2 2023. Or by automation, Cyanian showed improved sales levels compared with Q1 2024. However, Cyanian was negatively impacted by their dependency on the diagnostic segment. And if we move on to profitability, adjusted EBITDA for Q2 amounted to 46 million corresponding to a margin of 9 percent. EBITDA amounted to 36 million corresponding to a margin of 7 percent. All business areas were EBITDA positive in Q2. The improvement compared with the corresponding quarter last year can be explained by lower cost levels primarily related to personnel. EBITDA trended positively compared with Q1 partially due to seasonality but mainly due to cost measures and product mix. As always, staying on course with cost control has been in focus in the quarter and will continue to be during the quarters to come. And if we move on to the next slide and our cash flow. The cash flow from operating activities for the quarter amounted to negative 51 million. This includes a negative effect from changes in networking capital of 54 million. Out of this, 20 million was related to increases in operating receivables. Inventories decreased by 32 million continuing the trend of decreased inventory levels as also seen by the end of last year and which followed in Q1 this year. Cash flow from changes in operating liabilities decreased by 66 million which was driven by contract liabilities in biosciences converted to revenue as well as a decrease in accounts payable. Investments in intangible capex amounted to 6 million. Several R&D projects have been completed in the second half of 2023 with a reduction in capitalized R&D as a result. Investments in tangible capex amounted to 15 million. We didn't pay out any earnouts during the quarter and total estimated remaining earnout payments amounted to 20 million. Total cash flow during Q2 amounted to negative 101 million and cash reserves by end of June amounted to 688 million. Activities to further strengthen cash flow will continue to be a priority for the group. On the next slide, I will further comment on the development of networking capital. This slide shows the development in networking capital between Q2 2023 and Q2 2024. During this period, networking capital has decreased from 527 million to 519 million and has been stable around a level of 20 to 25%. Hence, to conclude, BICO has for the past quarters now showed that the actions implemented in 2023 to improve working capital were successful and resulted in BICO now having levels of networking capital in line with industry peers. Maria will now comment on our three business areas performance.

Thank you Jakob. I will guide you through our business areas performance for the second quarter starting with bio-printing. That area reported net sales of 156 million in Q2. The organic growth in the segment was negative 12% and the adjusted EBITDA 23 million corresponding to a margin of 15%. Bio-printing generated weaker sales of negative 12% compared to the corresponding quarter last year and this can be explained by a softer market primarily for the instrument oriented companies within bio-printing business area. Adjusted EBITDA was in line with the corresponding quarter last year with a margin of 15% and trended positively compared to quarter one due to continued cost control. Moving on to biosciences. In Q2, the business areas net sales amounted to 280 million, the organic growth was 7% and the adjusted EBITDA was 23 million corresponding to a margin of 8%. The business area showed stable sales levels in the quarter compared with the corresponding quarter last year as well as an organic growth of 7%. The growth in sales for the quarter and general cost consciousness generated an adjusted EBITDA margin of 8%. The bio-automation business area reported net sales of 99 million in Q2. The organic growth for the quarter was negative 6% and adjusted EBITDA amounted to 18 million corresponding to a margin of 18%. Bio-automation's organic sales growth was negative 6% compared to the corresponding quarter last year and still hampered by continued weak demand from the diagnostic industry. The business area bio-automation showed improved sales levels compared to quarter one and delivered an adjusted EBITDA margin of 18% thanks to improved sales during the quarter and cost cutting measures. Before we move into the Q&A, I would like to comment on the development of our strategic priorities. These were launched earlier this year, Chalky Art for our joint by Go, and we have worked with them to keep momentum while working with the updated strategy. So if we move on to the next slide, I will here give you a brief update about the development in the strategic areas. It will start with the first area, driving commercial excellence. This has been strengthened by the recruitment of our chief commercial officer Anders Fogelberg, who joined us in June this year. He has taken the lead on strengthening the commercial excellence as well as several commercial group initiatives, such as ensuring collaboration both within the group as well as with external parties. I'm very much looking forward to see the results of Anders' work. This will be a key area also in our updated strategy. For strategic review, I gave an update in the quarter one report about the extensive review being made of our R&D roadmap and also product portfolio. This has provided us with additional insights about what to focus on and also how we should scale and align our businesses. We have also invested more in people and culture than Katarina Nordlund, chief HR officer, joined us in April. During quarter two, she has set a global HR organization in place, implemented that as well as putting in HR strategy. And these are important cornerstones when building a people and high performance culture. In addition, strategic recruitment and appointments have been made in our operating companies during the quarter. At last, but not least, we have continued to work with initiatives related to operational excellence for a sound cost structure and increased efficiency. We have worked with preferred supplier portfolio, consolidated the number of suppliers and standardized our agreements with them, as well as lowering our inventory levels to mention some examples. All in all, these four areas are paving the way for the updated strategy by 2.0, which will be presented during our capital markets day on September 17. In addition, a deep dive within lab automation will be presented during the capital markets day. And you can choose to either participate by attending physically at BICO's head office in Gothenburg or digitally. If you intend to participate in Gothenburg, please send an email to IR at BICO.com no later than September 12. For digital participation, please visit BICO.com or use the QR code that you see on the screen. We look forward to welcoming you. Now it's time for the Q&A. Please follow the instructions from the financial hearing host.

The next question comes from Ricard Anderkranz from Handelsbanken. Please go ahead.

Good morning and thank you for taking my questions. So starting off, maybe you could comment a little bit on what trends you are picking up in the quarter, as we've come quite far into Q3, and maybe comment a little bit on what trends you're seeing in underlying investment appetite for CAPEX, for instrumentation or general customer activity. I know in Q1 you called out some positive signals in North America and Europe. So maybe you could comment a little bit on the trends and direction on demand and customer activity here. Thank you.

Thank you, Ricard, for that question. As we saw, quarter two now was continuing on what we saw in quarter one, and that is also what we see moving forward. When it comes to trends in the market, we can see that there is still some hesitancy in capital equipment investments, especially academia, as well as the diagnostic sector, while companies that are more focused on consumables or lab automation is paving the way in a different way. And that's in line with what we also see that peers are reporting. So when it comes to the different geographies, I would say that since we have sales in 65 countries and also our presence in many different segments, we are not as dependent on China as others might be. But there is still a slow market in Asia, especially China, where some of the structural support coming from the Chinese government have not yet seen the results. But sales for Europe and North America, we are present in both of those markets. So nothing different compared to quarter one and quarter two. Jakob, do you want to add anything?

I think that's a fair summary.

But to put a bit more fine point to it, do you expect to deliver organic growth above the sort of 1% level we see in the first half as we move into the second half? Or do you see momentum pretty much similar to what we've seen in H1 in the second half?

Well, Rikard, as you know, we don't give any financial guidance. So it's very difficult to comment that without giving financial guidance.

Okay. And just a question on Cellink and Cyanion. Can you confirm that both these subsidiaries had sort of a negative impact on both growth and earnings in the quarter? And when do you expect we should start seeing positive earnings contribution from these two subsidiaries?

Yeah, that again then is going into sort of giving specific financial guidance for specific operating companies within Byco. But I can confirm that they were both loss making in the quarter and loss making in the first half of 2024. However, we will not give any guidance to when we think when or what amount we can expect in terms of profitability.

Okay. And a final question on the cash flow. So even though, you know, there's some positive development on inventory, still a quite negative networking capital development here on weighing on the cash flow. So maybe you could elaborate a little bit on the bit more on the moving parts and when we should start to expect seeing some significant improvement in free cash flow with the, you know, on the positive side of things.

Yeah. So it's two questions in one, right? It's the cash flow from sort of the business and the cash flow from working capital. And let me start down with the cash flow from the business. As you know, we have full focus on delivering on all the strategic priorities that Maria mentioned, including sales and sort of doing all the measures within our operational excellence program to strengthen profitability. So that's something that we do, which is related to P&M. But then when it comes to working capital, as I mentioned also in the presentation, we have now reached stable levels in our working capital of around 20-25%. However, in our bioscience segment, especially related to lab automation, then, which is a project based business, there is a dynamic where working capital to some extent jumps a little bit up and down when when we finish or start larger projects. But all in all, we are very satisfied with the development in networking capital.

All right. So I guess then we should expect continued improvements on that front in the coming quarters.

Not material, not the way that we have seen sort of from the levels, the very high levels in 2023 to now the levels around 20-25%. So the major improvements in working capital were done at the end of 2023 and onwards. But of course, we continue to work with working capital and try to improve it even further. But most of the improvements have now been implemented and we are now at the acceptable levels of working capital.

OK, that's clear. Thanks for taking my questions.

All right.

Thank

you.

The next question comes from Ulrik Trattner from Carnegie. Please go ahead.

Thank you very much. And a few questions on my end. Obviously, this is the first quarter in company history where all segments reports a positive EPTA contribution to the group. And you talk about the cost savings that have run through the last year and some additional savings for Cyanion and for selling. Thank you Ulrik. But can you help us decipher here the sort of improvements in margins versus Q1? Is it purely volume or additional cost savings? And you hint here in the report that we should expect more financial impacts in the second half of the year. And if you can help us give us some directional what that should entail for the second half of the year, that would be my first question, please.

As I said to Rickard, we don't give any financial guidance, but I can of course talk a little bit about the dynamics in our business. And that is that H1 for Baiko and Q1 and Q2 are the softest quarters in terms of demand. And then that grows during the year. So Q3, Q4 is by far the seasonally the strongest quarters in terms of top line. Hence, the savings that we have now implemented in Cyanion and SELINK and also in other group companies, the results from these savings will be more sort of transparent when we see top line increasing in Q3, Q4 if we follow the same seasonal pattern.

And is it just possible to give some indication on how many companies currently in the group are loss making? And we can do it by sort of rolling 12 or currently if you're able to provide that type of information. We

will not provide that type of information. But of course, we have sort of explicitly mentioned Cyanion and SELINK as companies where we have had profitability issues. But we won't go into sort of details, more details than that.

And I guess you would not provide what sort of the top tier companies within the group, at what margin they are operating at. I know we previously have discussed that Bioshero is operating above 20 percent. We won't

provide those details.

OK. And next question would be on biosciences segments, which obviously includes Bioshero. And there is some volatility, if we were to call it that, between quarters in both organic sales as well as on the margin side. And I guess that mainly relates to the project based business, which would have been Bioshero or is Bioshero. Are there any big deliveries expected in the second half of the year? And were there a normalized quarter here in Q2? And just for transparency reason, were there any exceptional deliveries in Q1 of this year?

Well, yes. I mean, Q1, as I believe we mentioned in the Q1 report, we had an exceptional delivery in Bioshero related to the project that we won at the end of last year, which was worth $28 million. So that was the effect that we saw in Q1 in our lab automation business. Q2, we did not have sort of the same positive impact from one larger project. But with that said, we expect the lab automation business to continue to trend in a positive direction. However, perhaps not in line with what we saw in Q1.

Fair enough. And just on the general market demand, and you mentioned and I guess obviously you have very close ties to the rest of the life science tool industry. But did you feel that like lab automation diverts from this underlying muted trend or communication that we have seen from your peers?

I would say Ulrik that given that we are a market leader within lab automation with Bioshero on our software green button go, with enabling and orchestrating lab flows with Bioshero, we are addressing the cost efficiencies and the improvements that are needed in the life science industry, especially for pharma. So with Bioshero, we are a solution for some of the life science businesses challenges. So yes, we are going out from that with something positive for something which for the market overall is negative. So that's correct. And to your previous question as well. Yes, there is a volatility because of the project type of business that this is. And that will be continued to be seen when you win large projects. Those are when instruments are being bought, you will see those effects in a quarter and then there will be continuous work. And then when factor acceptance tests and SATs are done, then you will see the next revenue generation. So it's a lumpiness of a project business and has nothing to do with the shape of the business.

Great. And last question on my end would build a little bit into Richard's previous question here on cash flow. So operational cash flow is looking like it does. Like it's flat year on year. No big improvement. CapEx down quite substantially. You're now within net depth of likely above 700 million. Just sort of how reassured are you that you are able to refine your convertible depth throughout? I guess timing wise would be in 2025. In addition, I couldn't find any comments on factoring used in Q2. And if you would see factoring as an instrument to decrease your leverage from current levels.

Yeah, so I can comment on that. I mean, when it comes to the convertible bond, we are, as you know, we are focusing a lot on delivering on all our strategic priorities, including the top line and improving profitability. And we will continue to focus on that. We will also talk more about our updated strategy in our upcoming capital market state. And to answer your question, we are very confident that we will be able to refinance the convertible bond. Your second question around factoring, we have used many levels of factoring in the quarter. And we are hoping to offer options to find sources to refinance the convertible bond, including credit facilities, etc. Related to working capital.

Yeah, that's perfect. Thank you very much. That was all questions on my end and I'll get back into the queue. Thank you.

Thank you.

The next question comes from Holger Eickhoff from Private. Please go ahead.

Thank you, Jakob and Maria for the presentation. I was just curious that beside all the ongoing work that you are doing on kind of cost savings, is there any activities of divestment of the companies which are not performing right now?

There have been no decisions on divesting any of the companies within the group.

So you will continue to kind of restructure the companies. Can we expect as a part of the ongoing work there might be a new structuring that companies like Sinyon and BioZero will interact more in the future?

That's definitely a potential part of the future and something that we will address even further in our upcoming Capital Market Day where we will talk about the Byco 2.0 and our updated strategy. I

might add to that as well. Given that we now are integrating some of the things that were not possible to be done during the pandemic, there is a very positive momentum in terms of the opportunities and collaboration spirit between the companies where we have together with our new CCO Anders Fogelberg identified both internal collaboration opportunities as well as external collaboration opportunities and that will continue also moving forward.

Very good. Thank you very much.

Thank you, Holger.

Thanks a lot, Holger.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you everyone for joining our earnings call and thank you for all the questions. Together with Jakob, I would like you to wish everyone a great Tuesday. Thank you and goodbye.