Boule Diagnostics : interim report Q4 2022

Year-End report October-December 2022

Improved gross margin for the quarter

Quarter October-December 2022

Full-yearJanuary-December 2022

Net sales amounted to SEK 149.2 (140.3) million, an increase of 6.4 percent. Adjusted for currency effects, a decrease of 8.3 percent.

The number of instruments sold amounted to 794 (1 326), a decrease by 40.1 percent.

Gross profit was SEK 66.7 (57.9) million, corresponding to a gross margin of 44.7 (41.2) percent.

Operating profit was SEK 10.0 (13.8) million, corresponding to an operating margin of 6.7 (9.9) percent.

Profit for the period amounted to SEK 2.9 (17.3) million.

Basic earnings per share amounted to SEK 0.09 (0.65) and diluted earnings per share amounted to SEK 0.09 (0.63).*

Cash flow from operating activities amounted to SEK 13.3 (11.9) million.

Net cash on December 31 amounted to SEK 32.1 million compared to last year when net debt was SEK 0.7 million.

The new share issue that was finalised on November 30 was over-subscribed and generated approximately SEK 150 million to Boule before share issue related costs.

Key figures

Sales growth, %

Net sales, SEK million

Gross margin, %

Operating profit (EBIT), SEK million

Operating margin (EBIT), %

Profit after tax, SEK million

Net cash (+) net debt (-), SEK million

Return on equity, %

Net cash (+) net debt (-)/EBIT (R12), times

Diluted earnings per share, SEK*

Net sales amounted to SEK 548.1 (463.3) million, an increase of 18.3 percent. Adjusted for currency effects, an increase of 3.9 percent.

The number of instruments sold amounted to 3 990 (4 227), a decrease by 5.6 percent.

Gross profit was SEK 227.9 (198.6) million, corresponding to a gross margin of 41.6 (42.9) percent.

Operating profit was SEK 29.0 (36.0) million, corresponding to an operating margin of 5.3 (7.8) percent.

Profit for the period amounted to SEK 12.7 (23.3) million.

Basic earnings per share amounted to SEK 0.46 (0.87) and diluted earnings per share amounted to SEK 0.45 (0.86).*

Cash flow from operating activities amounted to SEK -11.4 (43.3) million.

Oct-DecOct-DecJan-Dec	Jan-Dec
2022	2021	2022	2021
6.4	51.4	18.3	15.7
149.2	140.3	548.1	463.3
44.7	41.2	41.6	42.9
10.0	13.8	29.0	36.0
6.7	9.9	5.3	7.8
2.9	17.3	12.7	23.3
32.1	-0.7	32.1	-0.7
0.8	6.2	3.6	8.2
1.1	0.0	1.1	0.0
0.09	0.63	0.45	0.86

• A bonus issue element from the new share issue in Q4 2022 has been taken into account in the calculation of earnings per share before and after dilutive effects, which means that the comparative figure has been recalculated.

1

Strengthened financial position and good growth for the OEM business

I am pleased that we were able to deliver milestones during the fourth quarter, both in the development of the new product platform and in our quality work.

Sales for the fourth quarter increased by six percent compared to the previous year, totaling SEK 149 million. Organically, sales fell by eight percent. Sales of consumables continue to take a positive direction. The use of instruments is back to pre-pandemic levels. We had lower sales of 3-part instruments, which is partly explained by

1. shift from 3-part to 5-part instruments. However, I believe that 3-part instruments will continue to be used in the decentralized market and will make up the majority of the installed base for many years to come. Weak local currencies are currently reducing the scope for investment, especially in developing countries. Several countries have also had restrictions imposed by central banks on payments in foreign currency. The OEM and CDS brand business continued to show good growth, with fourth quarter sales up 49 percent and full-year growth of 33 percent.

In mid-2022, Fuji began selling veterinary products in three countries in southern Europe. We have received positive feedback from the first installations and we are now discussing an extended distributor-agreement.

Strengthened gross margin

The gross margin in the fourth quarter was 44.7 percent, which is 3.5 percentage points better than last year and

4.0 percentage points better than the third quarter of 2022. This was due to greater penetration of price increases and to a favorable product mix with a higher share of consumables. In the fourth quarter, gross margin and earnings were again affected by high component costs and purchases at spot prices, as well as a negative currency effect. Purchases at spot prices negatively impacted the gross margin by about three percentage points. Operating profit totaled SEK 10 million, and the operating margin 6.7 percent.

Cash flow from operating activities in the fourth quarter totaled SEK 13 million, which is approximately SEK 1 million better than in the previous year. As previously communicated, we are continuing to bring forward some material purchases and are building buffer stocks of critical components to ensure supply. As a result, we have increased inventories by SEK 4 million.

2

First formal release of our new product platform

Intensive work is underway to finalize the prototypes to be used for clinical trials and study implementation in 2023. These study results will be used for regulatory filings for the first product, a 5-part instrument, for which filing is planned for the end of this year. At the end of last year, we passed an important development milestone with the first technical release of our cloud solution. By putting this infrastructure in place, we can acquire experience in the operation and use of this type of service ahead of the full commercial launch in 2024.

Investments in the new product platform totaled SEK 15 million for the quarter.

Key milestones in quality work

Over the past year we have invested a lot of time and effort in the implementation of the IVDR, the new European regulatory framework, and in improving our quality systems. Clear proof of our dedicated quality work is that in November we obtained the CE mark according to IVDR for our 3-part instruments. Only a small number of companies in Europe have obtained new ISO13485 certificates and CE marks under the IVDR.

The US Food and Drug Administration (FDA) conducted an inspection of our Swedish operations in November. The observations noted by the FDA have been corrected. Our US subsidiary, CDS, is in the process of addressing the observations noted by the FDA in the summer.

With the IVDR certification completed, we are well prepared for future regulatory submissions for new products.

Improvements in production to support growth

One key growth initiative generating increased revenues is our OEM business, where we saw strong growth during the quarter. In the autumn, we invested in our US production to increase capacity for our OEM customers and to prepare for the manufacture of reagents for our upcoming product platform.

Establishment of local licensed production of hematology reagents in India with our partner Q-Line Biotech is progressing according to plan. We continue to expect customer deliveries in India to start in the third quarter of 2023.

Adaptation to new market conditions

To address the macroeconomic challenges of rising costs and the tougher market environment, Boule will also make cost savings in the first quarter of 2023. We are conducting a review of our operations to identify areas that can be streamlined to compensate for inflation-driven higher cost levels. We are simplifying and streamlining the organization. This includes adjusting staffing levels, both employees and consultants, which will reduce running costs going forward. The savings will result in one-off costs that will be recognized in the first quarter of 2023.

We completed a rights issue of SEK 150 million, which will be used to complete the development of the new product platform. It was gratifying to see that the rights issue was significantly oversubscribed.

Finally, I would like to extend my warmest thanks to all distributors, suppliers and employees for their fantastic efforts in a very challenging 2022. It is difficult to predict what geopolitical and macroeconomic challenges may lie ahead. Thanks to the support of our shareholders, the rights issue has strengthened our financial position and, together with the savings and efficiency improvements we are now making, we are well equipped to meet the challenges of the world around us.

Jesper Söderqvist

CEO and Group President

3

Group performance October-December 2022

Net sales

Net sales for the quarter amounted to SEK 149.2 (140.3) million, an increase of 6.4 percent. After adjustment for currency effects, net sales decreased by 8.3 percent. Instrument sales decreased by 19.4 percent, sales of consumables increased by 9.8 percent and OEM and CDS brand sales increased by 48.7 percent compared with the same period the previous year.

The growth during the period was negatively impacted by fewer sales of 3-part instruments. During the fourth quarter the market continued to be volatile, which was impacted by the macroeconomic situation. In addition there has been a shortage of currency-reserves in certain markets, for example in Egypt which has impacted the sales during the quarter. The Central-banks imposed temporary restrictions and payments in other currency than the local was not possible.

	Oct-	Oct-
	Dec	Dec		Jan-DecJan-Dec
Net sales by region, SEK million	2022	2021	change	2022	2021	change
USA	60.4	43.6	39%	189.8	152.6	24%
Asia	37.3	39.6	-6%	150.7	121.3	24%
Eastern Europe	15.8	18.9	-17%	62.3	61.1	2%
Latin America	7.8	8.3	-6%	45.0	37.7	19%
Western Europe	12.1	10.8	12%	39.6	32.2	23%
Africa/Middle East	15.8	19.0	-17%	60.7	58.4	4%
Total	149.2	140.3	6%	548.1	463.3	18%
Net sales by product, SEK million
Instruments	36.1	44.8	-19%	158.5	148.7	7%
Consumables, own instruments	65.5	59.6	10%	233.0	193.5	20%
Consumables, OEM and CDS brand	38.8	26.1	49%	112.5	84.7	33%
Other	8.8	9.7	-9%	44.1	36.5	21%
Total	149.2	140.3	6%	548.1	463.3	18%

Gross profit

Gross profit for the period was SEK 66.7 (57.9) million, an increase of 3,5 percentage points, and amounted to

44.7 (41.2) percent during the period. The gross margin was positively impacted by price increases, that now have started to impact and a beneficial product mix with a higher share of consumables. It is, nevertheless, still certain difficulties in the supply-chain with expensive purchase of components, even if the impact has become lower and lower over the months in the fourth quarter. During the period the purchase variances amounted to approximately SEK 4 million which corresponds to 3 percentage points.

Net sales and EBIT, rolling 12 months

	600																							300
	500																							250
sales	400																							200
300																							150
Net
200																							100
	100																							50
	0																							0
	Q1	2020	Q2	2020	Q3	2020	Q4	2020	Q1	2021	Q2	2021	Q3	2021	Q4	2021	Q1	2022	Q2	2022	Q3	2022	Q4	2022

Net sales, SEK million		Gross profit, SEK million

4

Expenses

Operating expenses for the period amounted to SEK 50.9 (44.6) million excluding other operating costs and income.

Selling expenses amounted to SEK 29.1 (25.1) million. The increase is mainly due to personnel expenses, expenses for trade fairs and a stronger USD.

Administrative expenses amounted to SEK 8.3 (7.2) million.

Research and development expenses, including costs related to the quality assurance organization, amounted to SEK 13.5 (12.3) million, corresponding to 9.0 (8.8) percent of net sales. Expenses includes redesign of components due to shortages and increased cost for the new European IVDR and the FDA inspection. Development expenses of SEK 15.4 (15.3) million were capitalized. Total research and development expenses correspond to 19.4 (19,.7) percent of net sales.

The net of other operating income and other operating expenses for the period amounted to SEK -5.8 (0.5) million and consists of positive and negative exchange differences.

Operating profit

Operating profit amounted to SEK 10.0 (13.8) million, corresponding to an operating margin of 6.7 (9.9) percent.

Net sales and EBIT, rolling 12 months

	600																							100
sales	500																							80
400																							60
300																							40
Net
200																							20
100																							0
	0																							-20
	Q1	2020	Q2	2020	Q3	2020	Q4	2020	Q1	2021	Q2	2021	Q3	2021	Q4	2021	Q1	2022	Q2	2022	Q3	2022	Q4	2022

Net sales, SEK million		EBIT, SEK million

Q4 2020 incl. a write-down of intangible assets of SEK 40 million.

Inventory of installed base

Following an inventory count of instrument installed base in collaboration with our distributors during 2021, our previous assumptions about longevity and use of the instruments have been confirmed. This resulted in an estimated life of instruments of 7.5 years from 2021.

At the end of the quarter, active installed base is estimated at 30,000 instruments.

5