BICO Group AB (publ)

Welcome to BICO Q2 2025 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 five on their telephone keypad. Now I will hand the conference over to the speakers, CEO Maria Force and CFO Jacob Thordenberg. Please go ahead.

Hello and welcome to Beico's earnings call where we will present the second quarter of 2025. My name is Maria Fors and I'm the President and CEO of Beico and I will together with Beico's CFO Jakob Thorndenberg present the report. Here's today's agenda. First the summer of the quarter to be followed by group financial performance and after that a deep dive into our two business areas, lab automation and life science solutions. This is the first quarter where we report our new business area structure, post the divestment of Matic and Visigol. And I will also give some concluding remarks before the Q&A. The sections before the Q&A will be in listening only mode. And the earnings hall host will be back with further instructions if you wish to participate in our Q&A. I will start to summarize the second quarter of 2025 for the group and comment on the market sentiment and other important events from the past quarter. In the beginning of the second quarter, in early April, we announced an agreement to divest Matek and Visicol to Sartorius. The closing took place July 1st, after customary regulatory approval was obtained. This transaction significantly strengthens our balance sheet, which means that we now have a net cash position. Jakob will give you some more details in a few slides. When looking at the performance for the second quarter, it's a mixed picture for the group, which means that I need to comment on business area level. And if we begin with lab automation, We had fewer project starts and project delays that impacted the quarter negatively, as the organizational capacity has been outpaced by the high demand for Bicero's market leading solutions. To scale the business and unlock the full potential in the growing lab automation market, we're implementing leadership and process changes in Bicero. And I will address these more in the business area section. If we move on to the performance of our largest business area, Life Science Solutions, the business area delivered flat sales with growth in line with peers. The performance of our companies within Life Science Solutions differed depending on the market and customer base. We saw a soft market for our instrument companies catering to academia, while Cyanian showed healthy growth and profitability. And if we continue with the macro environment, this quarter was just like the previous quarter affected by macroeconomic headwinds and uncertainties remained persistent. Like many of our peers, we continue to experience the effects of these dynamics. For example, cuts in NIH funding in the US have, along with the ongoing tariff turbulence, introduced further uncertainty and led to hampered demand and delayed CapEx investments, especially in the academia segment. At Baico, we have had readiness to manage those uncertainties. And in this quarter, we have, for instance, adjusted some of our logistic routes and reviewed and amended our freight and delivery terms where necessary. Let's move to the next slide and the summary of Baico's quarter two results. For the second quarter, sales amounted to 324 million, corresponding to a negative organic growth of 17%. Adjusted EBITDA amounted to a negative 49 million corresponding to a margin of negative 15% and the cash flow from operating activities were negative 28 million and the networking capital per the last 12 months sales amounted to 11%. I will now hand over to Jakob to present the divestment of Mattek and Visicom.

Thank you. As Maria mentioned, the transaction was announced in April and closed on July 1st. This divestment of Matic and VisiCall follows our updated strategy with a focus on lab automation and selected workflows. Sartorius has acquired 100% of the shares in both Matic and VisiCall for 80 million US dollars on a cash and debt-free basis, corresponding to a 2024 sales multiple of 3.7x, and an adjusted EBITDA multiple of 15.3x. Following net debt adjustments and transaction costs, net cash from the transaction amounted to 740 million SEK, which with the current cash position of 636 million SEK as per Q2, increases Biocos cash position to approximately 1.4 billion Swedish krona. The proceeds from the transaction will be used to strengthen our balance sheet and reduce our debt on our convertible bond. Matic and Visigoth have been treated as discontinued operations in this interim report. I will now move on and comment on the group's financial performance for the second quarter. Please note that all numbers presented in this section are in million Swedish crowns. If we begin with sales, all in all, sales amounted to 324 million for the second quarter with a total sales growth of negative 23% and negative 17% in constant currency. The difference of the six percentage points is explained by a weaker US dollar against the Swedish krona and that Baico has over 90% of sales in US dollar or Euro and around 70 to 80% of our costs in the same currencies. resulting in a significant translation exposure to Swedish crowns, but no significant transaction exposure on EBITDA due to revenues and costs largely being matched and thereby naturally hedged. As Maria mentioned, sales for our largest business area, Life Science Solutions, were flat in the quarter, year over year, which is in line with peers, and amounted to 277 million. Sales for lab automation amounted to 48 million, corresponding to a negative sales growth of 58%. This was impacted by fewer project starts and project delays, where the latter resulted in a substantial re-estimation of remaining project hours of around negative 40 million. It is also worth mentioning that the corresponding quarter last year was positively impacted by the large order that Biosera won in late December 2023. And if we move on to profitability, The gross margin amounted to 44%, down 8 percentage points year over year, negatively impacted by the development in business area lab automation and the re-estimation of remaining project hours. Adjusted EBITDA amounted to negative 49 million, corresponding to a margin of negative 15%. The negative adjusted EBITDA can be explained by the development in lab automation and the re-estimation of the remaining project hours. We are not satisfied with the profitability levels for the quarter. And in combination with the leadership and process changes being carried out in BioZero, we will continue to have a clear focus on structural cost reductions and tight expense management for the group. Although the transformation in BioZero requires investments in operational resources. And if we move on to the next slide and our cash flow. Cash flow from operating activities for the quarter amounted to negative 28 million and primarily related to negative profitability in the quarter. The effects of changes in working capital amounted to positive 29 million in the quarter. Investments in tangible capex amounted to less than 1 million and investments in intangible capex in the quarter amounted to 2 million. Total cash flow during Q2 amounted to negative 54 million. In connection with this, I will also comment on Baico's outstanding convertible debt and cash position. We have made three buybacks in our convertible bond to a nominal amount of 118 million in November 2024. an additional 276 million in February 2025 and 98 million yesterday as of August 18th. Post buybacks, the convertible debt now amounts to nominal 1 billion and 8 million. The rationale for the bond buyback is to optimize BICO's capital structure and further reduce long-term debt and the net proceeds of 740 million from the divestment will be used to resolve the outstanding convertible bond, which matures in March 2026. To conclude on our cash position, we closed Q2 with 636 million in cash, and with 740 million divestment proceeds, our cash reserves stood at around 1.4 billion on a pro forma basis at the quarter end. Following the post Q2 convertible bond buyback announced yesterday and the remaining convertible debt of 1 billion 8 million, Baico had a net cash position of roughly 270 million, all else equal. As mentioned on the previous slide, the effects of changes in working capital amounted to positive 29 million in the second quarter. Out of this, 9 million was related to an increase in operating receivables. Inventories decreased by 8 million and operating liabilities increased by 29 million. In percentage of last 12 months, sales networking capital in the quarter corresponded to 11%. confirming that the operational excellence actions implemented in 2023 and onwards have been successful. For Q1 and Q2 2025, the further decrease in net working capital to low double digits is primarily an effect of less net working capital in BioZero due to decreases in receivables and the re-estimation of project hours. I will now hand back to Maria for presentation of the business area performance.

Thank you, Jakob. I will start by briefly outlining the rationale behind our new business area structure and then move on to the performance of our business areas. After the divestment of Matic and Visigol, the remaining companies from the business area bioprinting, that is Cellink and ABM, have moved to business area life science solutions. Consequently, from this quarter, Beico reports in two business areas, lab automation and life science solutions. The divestment also increases our focus towards lab automation and selected workflows, where lab automation products and solutions can be found in both our business areas, which you can see on the next slide. Products from Citina, Dispendix, Q-Instruments, Selenium and Cyanium has automation ready products and solutions, which are used all the way up to fully integrated lab automation solutions. Let's now move to the business area's Q2 performance, where I will start on commenting on lab automation. As we have commented on earlier during this call, fewer project starts and project delays in the business area lab automation impacted the quarter negatively, as the organizational capacity has been outpaced by the high demand for by serious market leading solutions. Sales amounted to 48 million, which resulted in negative organic growth of 58%, and adjusted EBITDA amounted to negative 56 million, corresponding to a negative adjusted EBITDA margin of 116%. The project delays resulted in a substantial re-estimation of remaining project hours of around negative 40 million in the quarter. In Biosero we apply percentage of completion, which is commonly used for project-based businesses. it's based on anticipated costs and revenue is recorded as costs occur in the projects including labor hours spent this means that if the expected remaining hours increase the level of completion decreases resulting in a negative impact on revenues As I mentioned on the previous slide, quarter 2 was impacted by fewer project starts and project delays, as well as the re-estimation of the remaining project hours, which generated a negative impact of 40 million. And it's also worth mentioning that lab automation had a tough comparable quarter, where quarter 1-24 was boosted by the large order 1 in December 2023. We are now executing a comprehensive action plan and significantly enhancing processes, leadership and operational capabilities to scale up BioZero to meet the high underlying demand. Recently, we have made turnarounds in both Cellink and Cyanian, and we are now focusing our efforts on BioZero to scale the business. We're coming from a situation with rapid growth and large demand that has outpaced our internal processes, impacting scalability and product delivery. Earlier commercial decisions, including contract structures, have pressured our margins. Legacy projects and resource intensive deliveries have limited flexibility and tied up our capacity. And our current operations require better coordination to unlock the full margin potential. as well as longer project timelines have delayed repeat orders from key customers. As the strong demand continues, steps are underway to free up capacity and better balance intake with delivery. We have refined the commercial model, including pricing strategies and stricter contract reviews to protect our margins. We're actively managing the complex projects and legacy commitments to free up resources and have put in place new operations and project management leadership alongside a gate stage model to enhance governance as well as execution. We're also standardizing components and developing new concepts driving shorter lead times and a scalable growth. And this will all in all ensure that we can deliver on our mission to be the first choice lab automation partner and provider of selected workflows to pharma and biotech. So to conclude and to unlock the full potential of the lab automation market where now executing a comprehensive action plan significantly enhances enhancing processes, leadership and operational capabilities. We have improved leadership during the quarter and instill operational excellence by strengthening management and executive resources on-site at Biosiero's headquarters in San Diego. To enhance the resource planning and project executions, we have increased contract stringency and employed a gate state project model. And this ensures more robust project management and reduces the risk of scope creep. To free up resources for both existing as well as new projects, we have made substantial investments in operational resources for the benefit of our customers to accelerate closing of delayed projects. We're also implementing more standardization to scale the business and introducing new commercial concepts with shorter lead times to balance the project portfolio. We have made good progress in the transformation of iZero this quarter and we are confident that these actions will show results over time in the coming quarters. However, it will require patience and time before reaching the full effect. And these actions, along with our commitment and tenacity, will in time realize the full potential of BioZero. If we move on to life science solutions, the business area life science solutions delivered flat growth in line with peers compared with the corresponding quarter last year. The mixed performance resulted in a revenue of 277 million, resulting in an organic growth of 1% compared with Q2 2024. The business area's adjusted EBITDA was 19 million, which corresponds to an adjusted EBITDA margin of 7%. So within our largest business area, Life Science Solutions, as previously mentioned during this call, the performance of our companies differed depending on the market and the customer base. Academia especially saw a softer quarter due to the macro development in the US. However, it's really encouraging to see that the diagnostic market is picking up and that operational improvement initiatives made in Cyanium has resulted in a healthy growth and profitability. Before the Q&A, I will give some concluding remarks on the quarter and the road that lies ahead of us. We continue to execute on our strategy BICO 2.0 towards an integrated group, harnessing both operational as well as commercial synergies. We are collaborating as an integrated organization, which allows us to streamline resources, harmonize processes and fully leverage our critical assets for greater impact in lab automation. In the short term, we face challenges with macroeconomic uncertainties, particularly in the US. and the transformation to strengthen and scale up by zero. However, the transient macroeconomic conditions do not offset the long-term trend of growth and high demand in the life science sector. In this quarter, we have made meaningful progress in transforming BICO to capitalize on these long-term trends. And this was our final slide before the Q&A. I will now hand over to the earnings call host for further instructions.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Ulrich Trattner from DNB Carnegie. Please go ahead.

Thank you very much. And just a few questions on my end, and most of them regarding your lab automation business. The 40 million roughly in reestimation of projects, how much do you still believe is left to adjust for in the second half of the year? Or do you think that you have done most of the work to clean out the project portfolio as well as how much of a quick fix is this? And obviously you've done organizational changes and if you can speak a little bit more into what exactly you've done and that would be helpful.

Thank you, Ulrik. Maybe I can start with answering the first question around the re-estimation of hours, and then Maria can answer your other questions. So if we start with that, we always do each monthly end and quarterly end, we do an estimate of remaining hours in the project as percentage of completion is based on anticipated costs. And in this labor hours is one of the elements or one of the anticipated costs. And we continuously do re-estimates of remaining hours. In this quarter, however, which Maria described in the earnings call, we have done accelerated efforts in BioZero to strengthen the organization. And in these efforts, we have concluded that the remaining hours in our project portfolio are longer than we have previously estimated. And when doing this work, we concluded that we needed to do a negative Re-estimation then amounting to 40 million Swedish kronos. But with that said, with the operational excellence activities and the action plans that we're now implementing, we are confident that we will not see similar revisions in upcoming quarters.

If I go to the second part of your question, Ulrik, in terms of the organizational changes. So, I mean, in essence, we are not only enhancing the processes, but also strengthening the leadership to execute on these processes, as well as improving the operational capabilities. So we have, during the quarter, strengthened the management substantially and other executive resources on site in Biosero's headquarter. And also to improve the project planning and project executions. improving contract stringency as well as implement implemented gate stage project model and and this both these in combination will ensure a more robust product management as well as reducing the risk for scope creep which is one of the major reasons for for project delays and to also free up resources not only for the existing but also for new projects We have also made substantial investments in operational resources to benefit our customers and of course also to accelerate the closing of the delayed projects and those are the minority of the total number of projects, the majority are trading the way they should do. and we're also then implementing more standards and standardization in to scale the business as well as introducing some more new commercial concepts that has shorter lead times and this is then to balance the product portfolio overall so these are some some examples of the comprehensive action plan that jaco mentioned that we also talked about in the call and we have made good progress during the past quarter in this transformation by zero and we will show good results in the coming quarters but it will require of course both patience and time before we reach the full effect sure that's great but just on the topic like you

talk about sort of delayed projects or sort of late completion of projects and you're talking about investing into managing new contracts but does that entail that you are a bit limited in the second half of the year to take on new contracts and new project starts And how does the pipeline look like for the second half of the year to initiate new starts? What is your ability?

I would say in terms of commenting on our pipeline given that we are the only lab automation company that are listed and reports lab automation separately that would be exposing us to something which would be not good competitively wise but I can say that with the changes that we have made it's definitely not an issue to take on new projects but we will work in a different way in terms of when promising when you can start and also when these projects can be finished. So with the gate stage project model, we now have much better scrutiny of how the different stages of the projects can be done and a much better dialogue with the customers on when done is done. So the scope is much clearer, which will change the way that we are working together with the customers. That has been received in a very positive way.

Okay, and last question on my end. Throughout the last year, you've done quite a lot on the cost side of the business and improved the probability of buy-go. And in this sort of struggling environment that you're in currently, what is your ability to, like if we were to assume that this underlying market development continues, what's your ability to increase

probability further or is this sort of where we're at the level that is manageable without doing cuts that would impact you significantly in the medium term i think we need to i mean in this environment you need to have both one foot on the gas pedal and another one on the brake so ensuring now as a more integrated group that we can utilize the synergies by centralizing more functions there there are some cost synergies to reap But at the same time, we need to make sure that we invest in the growing areas such as lab automation and also in new product development. And you have seen some recent launches from us. So I don't foresee that you will see major cost cut initiatives, but we will cut where needed and on an ongoing basis. basis as all companies do you have a stringent cost management but at the same time you make sure that that cost management allows you to invest where you can reach the best return on investment

I think what I can add, Ulrika, is because I think what you're alluding to is what will happen to margins when the market comes back, right? And I think the way you should look at it is the margin development that we had Aspect Q4 last year, where we had sort of high 20% EBITDA margins. So the operations in VICO are indeed scalable. And when the market comes back, we should surely be able to scale on our current cost base. if that was part of your question.

Yeah, absolutely. That was all on my end, and I'll get back to you. Thank you.

Thank you, Erik.

The next question comes from Ludvig Lundgren from Nordia. Please go ahead.

Hi, and thank you for taking my questions. So first I wanted to continue on Ulrik's question here on lab automation. So I appreciate the color on what caused this sales low down here in Q2, but I wonder if you can help us set reasonable expectations here for sales for BioZero in H2. Like with the current project pipeline as it looks today, is it fair to assume H2 sales to be higher than H1 given that Q2 here was negatively affected by somewhat of a one-off effect? That would be my first question.

Yeah, thank you Ludvig. And as you know, we don't give any guidance, but I think it's safe to assume that we will not see any negative revisions as we saw in Q2 and thereby all ends equal. The second half should be stronger than the first half. But with that said, we don't give any guidance, but we can be confident that we will not see a similar type of negative revision as we saw in Q2 this quarter.

And to add to that, Ludvig, the investment that we're making now in BioZero is to make sure that we can really, really capitalize on the underlying growing lab automation market. So the underlying demand is definitely there. So that is not the issue.

Perfect. Thank you very much. And then secondly, I had a question on life science solutions. So slight organic growth here or constant exchange rate growth here in the quarter. So I wonder if you have seen any significant difference or like change in the market dynamic during this quarter, comparing the end versus the beginning, so to say.

I would say that we see a continued uncertain macroeconomic environment just as in quarter one. In quarter one we saw there was uncertainty of what would happen with tariffs and that itself together with the stipulated NIH cuts instilled further insecurity in the market. It's been the same trend in Q2 really, so not much of a difference. Of course, we can see how it has impacted us and with the measures that we took prior to the Trump administration when it comes to where we manufacture and also how we route goods, etc. The changes that we have made has meant that our impact by the tariffs have directly been quite small and so but indirectly the overall insecurity that all the changes that is happening in the macro economic environment has of course made the less investment in capital investments which we can see especially then in the academic segment well the diagnostic market is picking up even further so that's positive

Okay and just a quick follow up on that. So both Q1 and Q2 saw quite solid diagnostics demand it seems. Do you expect there to be some kind of tariff pre-buying effect here or is it just that market is coming back?

It's a good question Ludvig and we have seen both some buying earlier and some delaying so the net effect for us in quarter two is really really neutral. So let's see what the tariffs will mean this coming quarters but so far it's been neutral.

Okay that's all of my questions thank you very much. Thank you.

The next question comes from Susanna Quekborner from SHB. Please go ahead.

Hello, Susanna Quekborner, Hannah Spankin. I also have a question on BioZero. I just wanted to find out a little bit more about the new commercial concepts that you're introducing with BioZero, and then maybe also can you talk about how you think the investments in BioZero are going to impact your profitability there, and how should we think about those going forward?

I'll start with your first question, Susanna, in terms of the new commercial concepts. It's still in development and the launch is happening soon. It's about using an existing installed base of instruments are in the market and these new commercial concepts are developed together with collaboration partners we have started with two collaborations partners and I cannot at this stage pre-announce anything since those collaboration partners are also listed companies and we are preparing joint releases so you will have to to bear with us but it's utilizing existing equipment on the market and automating those as a more off-the-shelf solution which means shorter lead times and that also means that we can balance our product portfolio with shorter lead times and less complex projects with the more complex projects that we have. And then you had a question about the investments in BioZero. And we are doing investments in operational resources, ensuring that we can execute and accelerate the closing of our legacy and delayed projects. And this will mean that we will increase our capacity to even further improve our ability to grow with the lab automation market.

Okay, and how should I think about that going forward in terms of the specific profitability of BioZero?

Susanna, as I told Ludvig earlier, we don't give any type of guidance but the way you should think of it is that we will continue to do everything in our power to execute as quickly on the projects and install sort of a stronger operational excellence in BioZero and by doing so we should over time reach much higher profitability levels but the timing of that we cannot comment on but we will as Maria also said earlier continue we'll have to continue in investing into operations which most likely will have a negative impact on profitability for the coming quarters

I can also say that part of the, as I commented on Ulrik's question, part of the issue with eroding margins is not only the lack of scalability at the moment, but it's also that we have had contracts that have not been in our favor so the fact that we now are implementing more contact stringency as well as a better project management means that there will be less risk for scope creep and hence less risk of delays and that will also protect our margins moving forward great okay one one very simple question can you just explain what what is the the source of these delays where where is the bottleneck here we have done a full analysis of every single project and we have a top list of what are the the key crux and the key reasons for the delays and for competitive reasons i will not go into what those details are but we are addressing every single piece of those and we're seeing good traction in quarter two in improving those

Okay. And then just one quick question on life science solutions. You've previously said that your intention is to pivot away from academic clients more towards pharma and biotech. Maybe you can give me an update on that. And then also the same with regards to the geographies that you're looking more to Europe and APAC to sort of counterbalance the macro uncertainties.

Oh, that's great. That's correct Susanna. In BiCo 2.0, our strategy there was to improve and increase our sales to pharma and biotech at the expense of academia. And when we are decreasing the bioprinting part of our business, that also means that we will have less sales to academia since bioprinting is mainly academia. Although part is also pharma, but most is academia. But we still have some companies that are catering to academia, but trying to move towards through regulatory readiness, move to more professional customers in pharma and biotech, because that will also give more repeated business since they have several labs around the world. In terms of geographies, as you can see, we're still quite exposed to the US and there are several initiatives to increase our distributor base in Asia and to also cater to European and Asian customers to a larger extent. And hence, we're investing in further sales resources in those regions.

Okay, thank you.

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 for the questions during the Q&A session and all for your participation. Together with Jakob, I would like to wish everyone a great Tuesday. Thank you and goodbye.