Ambu A S Ord

Ladies and gentlemen, welcome to AMBU Annual Report 2019-2020. For the first part of this call, all participants will be in a listen-only mode, and afterwards, there will be a question-and-answer session. Today, I am pleased to present AMBU CEO Juan Jose Gonzalez and CFO Michael Haycott. I will now hand the word over to Nikolai from IR. Please begin your meeting.

Thank you. Good morning, everyone, and welcome to our full year 2019-20 conference call. My name is Nikolai, and I am from the investor relations team. With me here at the AMBU head office in Copenhagen, I have our CEO, Juan Jose Gonzalez, and our CFO, Michael Heigardt. During this conference call, Juan Jose Gonzalez will talk about the highlights for the quarter and for the full year, and Michael Heigardt will review the financials, and then we will take your questions. Please limit your questions to only three at a time and get back into the queue if you have additional questions. The duration of this call will be approximately one hour, and you can, via our website, follow the investor presentation we will go through live. Now, I would like to give the word to our CEO, Juan Jose Gonzalez.

Hello, everyone, and thank you for joining us this morning. It's an important day today. We are going to share our full year results, the progress on our strategic priorities, on our innovation pipeline. and give you an outlook for this new year. Now, when we talk about AMBU, it's always important to start with two key factors regarding the company. One is, what is the potential for the single-use endoscopy market? And we have always shared in that single-use endoscopy is one of the most attractive medical device markets. And I have to say, after what we have experienced last year, we are even more convinced regarding the potential of this market, a market that will go from 0.5 billion in 2020 to 2.5 billion in 2024. And all the drivers behind the creation of this market, the higher focus on cross-contamination infection control, the convenience and compelling economic offering, the rapid technology advancements, whether it is sensors or lighting or software, combined with support from the government and regulators. You know, each of these trends are becoming stronger every year, and combined, making the transition from reusable to single-use unavoidable. Now, within a market as attractive as this one, we will expect to see more competitors coming in. So the question is, what will be AMBU's ability to compete in this market? And there are three reasons why we believe AMBU is uniquely positioned to remain the leader in single-use endoscopy. Number one, we have 10 years of experience in single-use endoscopy. In many ways, we have created this market. Number two, we have a modular innovation engine. We basically brought the modularization expertise from automotive, combined with a high cadence from consumer electronics, to create an innovation engine that allow us to develop and launch new products faster and at a higher scale than any other company. And this is augmented by the fact that we have a high-scale local manufacturing. Today, we sell over a million of scopes a year that basically give us a scale advantage of five times versus our next largest competitor. And the highest scale locus manufacturing also allow us to introduce advanced innovation at prices that allow hospitals to migrate from reusable to single use. And of course, all this innovation is supported by a dedicated commercial organization. Today, we have the largest dedicated single use endoscopy commercial organization globally, which has been strengthened over the last two years significantly. And you can see how all of these competitive advantages have already translated into superior performance. If you look at three years ago, our visualization business was about 600 million DKK and last year it was nearly three times the size that shows an ability to execute to bring innovation and commercialize it in a way that delivers results and of course going forward all of these things our modularization our high scale our commercial infrastructure are much bigger than what we have seen in the previous three years, which should be translated into superior growth. Now, let's talk about the key messages for this meeting. First of all, on the back of the COVID-19 pandemic, we see that the single-use endoscopy market is developing at a rapid pace. health care systems are looking at ways to restart elective procedures in efficient and safe ways, and single-use endoscopy is part of a solution. And in addition, the focus on contamination levels in endoscopy continues to increase, and last year was a record year in terms of peer publications on what are the real issues with reusable endoscopy and what are the contamination rates and what can be done to be able to move away from that. Now, in terms of performance, last year was an important milestone for the company. We exceeded our one million single-use endoscopes, which consolidate us as the largest a single-use endoscopy manufacturer. We grew 26% on the back of our visualization business, growing 81%. In the U.S., actually, we saw an underlying growth of 23%, and we not only increased our market share in bronchoscopy, but we also strengthened our position on the back of GPO contract wins. These GPO wins, by the way, did not require price discounts. The pricing impact from these contracts is minimal. And the main reason why we are able to secure preferential position in these contracts without conceding in price is that we already had the most attractive economic offering. There was no need for AMBU to reduce prices to match any competitor. but actually the breadth of our portfolio, combined with the economic offering, combined with the pipeline, make GPOs conclude that the best strategic partner as they create the single use endoscopy categories was Sample. And finally, we finished the year as a stronger company. We have a larger commercial infrastructure. Our commercial infrastructure in the US For visualization, it's three times the size as the previous year. It's twice the size in Europe and Asia Pacific. And we enter two very important endoscopy markets, urology and GI. And I'm going to share how excited we are with the momentum we are seeing with these launches. And finally, we remain committed behind our aspiration of being the world's most innovative single-use endoscopy player. And on the back of that, you will see a rapid expansion of our innovation pipeline. Just to give you a sense, in the last three years, we introduced five new products in single-use endoscopy. And for the next three years, we are planning to introduce 20 new products. It's four times the number of new product launches. That will make us by far the most innovative company with the broadest portfolio in the market. Now, to support this innovation and the rapid volume growth, we are also going to invest in a second single-use endoscopic perfacturing plant in Mexico that will be dedicated to support our largest market globally, the U.S. And all of this investment in commercial infrastructure, in innovation, in manufacturing capabilities, is being translated on a guidance of an organic revenue growth of 17% to 20%, an EBIT margin of 11% to 12%, and a target in terms of a number of single-use endoscopy cells of 1.3 to 1.4 million. Now, there are very few companies in medical devices that are able to grow in a year 26%. And there are even fewer that on the back of that are able to set a guidance of 17 to 20%. With this guidance, we are also showcasing that AMBU is today one of the fastest growing medical device companies globally. Now, let's go through some of the details behind this. And let's start with a case for single-use endoscopy. And every quarter, I have been sharing with you how much more activity there is behind it. And I have to say, if we look at 2020, Number one, the patient safety organization, ERCI, actually listed device cleaning, disinfection, and sterilization as one of the most important safety concerns of 2020. And it is on the back of that that in 2020, we had the highest number of peer review studies. And for me, something which is very important is having already concluded the contamination issues in bronchoscopy, having already evaluated and showing the serious issues around contamination in colonoscopy, how now investigators are starting to focus in colonoscopy and gastroscopy. And some of the initial studies are showing a contamination rate of over 10%. And as you can imagine, that is very important as gastroscopy and colonoscopy account for more than 75 million procedures globally. And in addition to that, we have seen the FDA and the National Association supporting the creation of single-use endoscopy. The FDA had a second safety recommendation, CMS implemented a special reimbursement for the outpatient channel where they are absorbing the full cost of single-use endoscopy. And national bronchoscopy associations around the world have indicated that if there is a need to do a bronchoscopy, that they recommend to do single-use bronchoscopy. And it is on the back of that that we move into 2020 and 2021 with the single-use endoscopy market continuing to accelerate and develop. Now, if we look at our performance as a company, let me just say a few words regarding our anesthesia and PMD business. Our performance last year was minus 1% in terms of organic growth. And there was a lot of volatility as these businesses are driven by elective procedures. So when we saw the impact of COVID-19 in quarter three, we saw, of course, that elective procedures were canceled. the market reduced, and on the back of that, our performance declined. But since then, we have seen a stabilization, and we finished in quarter four more or less at the same level as we were in quarter one before the pandemic started. Now, within the portfolio, there is a lot of volatility. As you know, our resuscitators within anesthesia are using the treatment of COVID-19 patients, and we experienced a significant increase in demand. And that, of course, is being offset by the negative impact in patient monitoring, which is linked to these selective procedures. But overall, we are finishing the year with a more stable core business. And we expect that next year, especially in the second half, as the COVID-19 pandemic is stabilized, that our core portfolio is going to grow faster than in a normal market. Now, if we go into our visualization business, it has been an incredible performance last year. A growth of 81% exceeding the one million endoscopy mark. The investments in our commercial infrastructure, the New Mexico plant, that basically shows the momentum that we had behind what is our number one engine of growth as a company. And if you look at the performance by region, Europe basically doubled their visualization business. In bronchoscopy, it took 15 points of market share. In the rest of the world, whether it was in Japan or Australia, we also saw very rapid growth. And in North America, our 71% growth is... Higher also driven by the fact that we did our distributor transition the previous year. But if you adjust for that, our North America business grew 23% last year, with 19% growth in quarter four. So basically, our growth has recovered as the COVID-19 pandemic subsides. and all of our investments will make North America a very important growth engine of growth next year. Now, if we look at the performance of the two businesses that we had at the beginning of last year, Pulmonology and ENT, overall in the case of Pulmonology, we gained 700 new customers since the start of the COVID-19 pandemic. We expanded our market share. We finished the year with a 30% market share in pulmonology with significant market shares both in the U.S. and in Europe and with a very strong underlying demand, as I mentioned, in the U.S. And in addition to that, if you look at ENT, which is primarily an elective business, the run rate on ENT also has increased significantly. So if you compare September of 2020 with February before our COVID-19 pandemic started, our run rate has increased by 60%. Actually, we have won 550 new customers in the U.S., throughout the year with 100 new customers in Q4. And there is a very strong uptake in terms of unit sales, which will make ENT an important cross-engine for us this year and in the years to come. But it's not just about pulmonology and ENT. We have very strong momentum there, but we also enter into urology and GI. And in the case of urology, the initial performance of the product is very promising. First of all, we had positive results from our control market study, and I will share in a minute regarding the results. But our ESCO 4 system has our most advanced technology. So it's the first time that we are introducing a product that we believe It's very competitive with the most advanced reusable cystoscopies. And the traction actually has shown that as soon as you get to parity with reusable endoscopy performance, then the transition to single use will accelerate. 650 pro demonstrations, 220 ongoing trials with a major U.S. urology accounts, Thirty of the top 100 U.S. urology organizations have already converted or they are on trial phase to adopt our single-use system. Approval for Europe to start commercialization this year. And what you see on the right-hand side, is how all of this is being translated into sales. And what we have is a comparison regarding our ESCO three in Bronco compared with the first month of our ESCO ENT compared with the first weeks of our ESCO Cisco. And we were always saying that ENT was penetrating the market at four to five times faster rate than Bronco. And as you can see, Cysto is penetrating the market at an even faster rate than ENT. It's early on, but Cysto is a six million procedure market. It's the largest urology market. And everything that we know today indicates that our entrance into urology is going to be successful and our escop system is going to be a very important growth engine for the company. And let me just share with you what is so special about this product that is making this level of performance. And if you look at the clinical results that we have in terms of our system, First of all, we have 65 cystoscopy procedures performed. We use 32 top urology physicians across 12 sites. And we ask them to use our S-COP system for both diagnostic and therapeutic procedures. And we have obtained 100% success rates. Our product can be used across all different types of cystoscopy procedures, across all different aspects. And more importantly, 93% of all the ratings were very good or good ratings around image quality, bending, navigation, and the overall performance of the scope and the monitor. Now, the reason why the adoption is so fast is that when you take a reusable cystoscope and you send it for cleaning and sterilization, the image resolution of the performance of the probe deteriorates. So if you do that every day, every week, every month, after a year, you have a product with a diminished EMAS resolution and that reusable product compared with a verescope system is inferior. And that's basically what is driving the rapid adoption. Now, it's of course not just about urology. We also enter into GI. And we believe that single-use colonoscopy is going to be one of the most important markets in single-use endoscopy. And that's why this launch is so important for the company. So first of all, we advanced our control market release, which confirmed adequate performance across ERCP procedures. We are actually expecting a rapid penetration of single-use endoscopy. First of all, our US GI commercial organization is 100% in place. We are talking about 190 dedicated self-forcing GI, most of them coming from the GI sector, from the largest GI endoscopy players in the country. And they have actually performed not just over 550 pro demonstrations, But actually, they have lined up 300 of the largest ERCP hospitals in the country. These hospitals account for more than 60% of the total U.S. duonoscopy market volume. We are gearing towards a full commercial launch starting in December. And we also have submitted our U.S. clinical trial to clinicaltrial.gov. and we are expecting to start in January 2021. On the back of what we are seeing in terms of the engagement of duonoscopy accounts to adopt single use, our commercial infrastructure, the receptiveness on the product, we believe that our S-COP2 is going to be a major growth engine in 2020, 2021. Now, That makes, that's why 2019 and 2020 was so important. But we plan to continue to innovate and to continue to innovate rapidly. Our aspiration is to be the world's most innovative single-use endoscopy player. And what you have here is a pipeline that we have shared with all of you. And a couple of things. Number one, We increase our R&D organization by 80% in 2019, 2020, to make sure that we maintain our advantage in sensor technology and lightning and software. Last year, we introduced three new products. I spoke about our ASCOP Sisto and our ASCOP Duo. But, of course, we also introduced our most advanced monitor, our AVU2 Advanced. And all of our scopes works with same ABU2Advance, which also gives us modularity and synergistic effect. Hospitals don't need to buy new monitors or processors to use our technology. But once they do their initial investment, they can leverage that across our entire portfolio of offerings. Now, this new year, 2020 and 2021, is also going to be very important in terms of number of launches. We are planning to introduce four launches, out of which three are going to be in GI. We are going to enter into colonoscopy and gastroscopy in the second half of the year. We are going to introduce our new AVOX, which is the advanced processor that will allow us to deliver a superior EMAS resolution. And we are also going to expand into the Bronco suite. And right now, we have 30% of the pulmonology market, which is about 3 million procedures. But we have not entered into the Bronco suite, which is another 3 million procedures. And the launch of our S-COP5 is going to help us to double the market size in bronchoscopy and enter a market with a product that has very advanced image resolution, which will be used for physicians to do very complex diagnostic procedures. And that's going to be a very important launch and one that will ensure that our bronchoscopy portfolio continues to grow. But it's not just about our launches next year. Let me show you what we are planning for the next three years. And what you have here is a comparison of the number of launches that we had in the previous three years with the number of launches that we are going to have over the next three years. And basically, in the last three years, we introduced five new single-use scopes and monitors. And for the next three years, we plan to introduce 20 new products. For this year, eight the following year, and eight the following year. But basically, we'll make sure that AMBU continues to have by far the broadest portfolio in single-use endoscopy. It will make sure that we are the company that moves faster to the next generation technology to make sure that every time, disregarding of the endoscopy procedure, a physician tests our product and compares it with any other single-use competitor product, that it has the best clinical performance. And it will allow us also to complete our offering. All of these launches are focused on bronchoscopy, on ENT, on urology, and GI. So it's not about entering into new markets, but in the markets that we have already declared that we are going to enter, to go deeper and consolidate AMBU as a leading single-use endoscopy company. So this is what I wanted to share with you. We have a promising and exciting journey in front of us, but let me pass it with our CFO, Michael, that will talk about our financial performance.