Surgical Science Sweden AB (publ)

Surgical Science has closed the books for the entire year 2021 and with us on the link is of course our CEO Gisli Hennemark. Welcome.

Thank you so much, Martin.

The net turnover for the entire year ended at 367 million, but 200 of these millions in terms of net turnover ended here during the fourth quarter. Could you summarize a little bit of what 2021 has looked like and how the company has changed?

Ja, vi har ju gjort två förvärv, för oss väldigt viktiga förvärv, så det är fantastiskt roligt att se nu i fjärde kvartalet, som är det första hela kvartalet med alla verksamheter som har integrerats i Sörgo Science, och se hur bra det går. We can imagine how things are going to be, and we really feel that it has been freed up, maybe more so. I mean, about 30% growth on comparable units here in the fourth quarter. And if you look at the whole year, so to speak, pro forma, growth was 19%, which in itself is very good. Vi ser ju då på jämförbara enheter, det vill säga efter vi har tagit över de här verksamheterna så har de växt ännu mer. Så det har varit en väldigt stark avslutning på året. Så det är jättekul.

If we dig deeper into the numbers, the result was roughly 57 million. This was also a bit affected by the initial costs, the educational costs and the gross margin. What do you have to say about those two?

Yes, there is a lot to read in this report. This is a little financial manager's dream to put all these things together. The report is full for those who want details. But you can say this, that on the conversion, we have brought together bookkeeping principles. And then it hits so that we have about 9.5 million in the quarter that is of one-off character. So to speak, real sales, but it has ended up in this period rather than in some period forward. Then we also have one-off costs in the same way for a few million. And then, as we commented in the VD word, we had an incredibly strong demand so that we go out of the quarter with a backlog, so to speak, orders that we could not deliver on, which is very much larger than normal. And that has to do with the fact that it is difficult in our own production when we do not have staff. And that is a direct pandemic effect. There has been a lot of health care and it has also been difficult with transport. And then we also have on the medical technology companies where there have been some component shortcomings. So again, it's not that you lose any revenue, but they come a little later. So we have different effects that go a little in different directions. But in total, almost 200 million in the quarter is fantastically good.

Gisli, you mentioned here that the demand was greater than you expected, and that the pandemic is behind that a little bit. Does this have any impact on competitors? Have they had the opportunity to stick around and steal from customers who noticed that you could not meet their needs directly? Could you paint out the competition picture a little bit?

We have competitors within the educational products, simulators to the university hospital, where you work with corresponding ST-doctors, for example. And there we have competitors on the vascular side, arthroscopy, laparoscopy and so on. But we are the supplier that has the entire product range and very strong market channels with support and service organizations. So it's not that we lose some business when it has been difficult to deliver in time on all the demand that exists, but it's more that the deliveries are missed. No, no lost business because of that, absolutely not.

One word that you also mentioned was supply chains, component shortage, of course, has made a small impression, especially in the report I read that it is for industry OEM. Could you describe a little more practically what is happening? What components are missing?

Now we work very close to our customers, so you can't give any Specific examples, but if you have a robot surgery company, for example, that will deliver to its customer a robot with simulation, and then something is missing in the hardware part to be able to make that delivery precisely in this quarter, then the delivery is pushed forward and therefore also our royalty. So again, there are no lost revenues, but As it is with the pandemic, it's getting a little faster. It has become a little more hopeful. And then we can see that Q4 could have been even stronger if you had not had those challenges. But on the other hand, it will spill into the next quarter. It's just to try to give a nuanced picture of what the 200 million actually means. Right.

And right now we see that more and more countries are opening up, at least here in Europe, there are many who have started to declassify the pandemic as a socially dangerous disease and it seems to have reached a slower stage. Would you say that you see a light at the end of this pandemic tunnel? Do you notice anything on the supply chains?

I definitely see a light in the pandemic tunnel, and I also see that the healthcare system around the world is ready to invest in healthcare. There is a political will, and it wins votes to invest in healthcare. So I think that will benefit many, including us. With the delivery chains, it is a little more difficult to foresee. For example, in periods, it has been very difficult with transport capacity. We also saw that at the end of 2021. It was basically impossible to book transport from Israel, where we produce a lot of simulators, to, for example, the USA. full on the plan. And I think I can continue to hit that a little bit for a few more quarters. So it will take a while before it ends up in some kind of status quo. But it is definitely the case that the pandemic affects less and less business-wise. And we see that many, both in private healthcare and publicly funded healthcare, think about what to do after the pandemic. And I think that will be positive for us.

You also write in the quarterly report here, or even in the annual report, that you are entering 2022 with profitability, with strong growth and a large cash flow. How are you going to put this cash flow into work?

Yes, that's a good question, Martin. And we have a continued ambitious internal development agenda. Then we have a continued acquisition agenda. And we see just within Educational Products, for example, how incredibly strong it is to have this broad product portfolio and these very strong marketing channels. So there are some interesting There are still gaps to fill in the product portfolio so that you can, so to speak, acquire some smaller companies that are very good in a certain area and become even stronger in the product portfolio. So there will be things to do even in the future. But of course, it's nice in times like this when We are in a very interesting position now before last year.

Gisle, I have followed the company for a long time and noticed that you have a certain pride in setting goals and beating them too. So I think I'll ask a more tricky question in that regard. You have a goal now to reach 1.5 billion in revenue. Would you say that this goal can be achieved without any complementary acquisitions?

We have made an organic plan for our business over the next five years. acquisition has been and is still an important part of our strategy and how we create value. But the plan is not based on any major acquisition-like symbionics. If we were to carry out such a thing, then we will adjust our target. However, it may include less comprehensive acquisitions in order to reach that target. But just as you say, we Vi är ett bolag som tycker om att sikta högt, jobba hårt och systematiskt och nå fram dit. Om vi omsätter Proforma 2021 600 miljoner, det är ungefär vad hela koncernen omsatte tillsammans 2021. För fem år sedan omsatte Circus Science 50 miljoner. Om fem år ska vi omsätta 1,5 miljard. Det tror vi vi kan nå.

And the way there, the question is these five years, would you say that you see growth as a straight line, as much growth continuously over each year? Or is it more in the beginning or more at the end of this five-year period?

It is more at the end. And there you have to keep in mind our two different business areas. If we take Educational Products, where we work with our university hospitals, with our own simulators, The sales growth will be between 10-15%. And it will vary a little during the period. While at Industry OEM, it is an increasing growth. And that comes together with the fact that today the penetration in robot surgery is 2-3%. We are with all the major manufacturers. And since installed bases grow, you sell more robots. gives us more one-time licenses, but it will also be a larger installed base where we can then sell prerogative content so that we continue to make money on the installed base. And that is then an increasing growth. So that will also be seen in how our gross margin over time is positively affected. There will be a larger share of license revenues. And in that way, we will reach our goal with 40% adjusted EBIT in 2026.

One last question. I always like to have one finger on social media and see what shareholders and shareholders interested in have to ask. And there the question follows today as follows. You have made a journey on First North. Would you benefit from jumping one step and switching to the main list?

Yes, we'll see. That's a good question. And if we were to earn, then you have to keep in mind who we are. Just operationally, Södertälje as a company, we think First North has been a fantastic list for us. We have, so to speak, had access to capital to carry out our plans. And that we have, you saw when we acquired Symbionics, we did a capital acquisition of 2.8 billion Swedish kronor in the middle of the summer. So it is possible to be on First North and to see its capital needs. But it is possible for the shareholders that it would be positive to climb up from First North to the big list, since it opens up more opportunities for some funds to invest in us, which may be difficult today to invest in Silicon Science on Nasdaq First North's growth market. It requires a larger list. And then you have to weigh the shareholder interest with the extra work. Then we follow many of the requirements that are on the big list, but it is still a broad work that you should have respect for. So, that's where you have about the deviations. So, yes, I think it would benefit the marginals in the shareholders and can be worth doing. But there are no decisions in that direction in the current situation.

Then I have to thank you so much for being with us today and answering my questions and good luck for next year.

Very good. Thank you very much.