Ambu A S Ord

So good morning, everyone. Very nice to have you on this call this morning for AMBU's Q4 and full year results, as well as our strategy update. I'm Britt Milby Jensen, the CEO of AMBU, and this morning I'm here with Thomas Frederick-Smith, our Chief Financial Officer, and Basil Rafai, our Chief Marketing Officer. So we will, in the agenda today, first go through our financial results and key events from the year that we have just closed. After that, we'll provide an update on our strategy and we'll finish the call with a Q&A session. So looking back at the past year, it has been an eventful year for AMBU. Our two main new products, Cystoscope and our Rhino Laryngoscope, have had a very good year, selling over 700,000 scopes in the year. Also, we have had two major launches towards the end of last fiscal year. The Ascope 5 Bronchoscope and our Gastroscope, which I'll come back and provide an update on later today. Also during the year, we have expanded our production capacity, opening our largest and most modern factory to date in Mexico, which is close to our largest market, the US, and will provide products to that market and others in the years to come. It's also very clear that our financial performance this year did not live up to the expectations we set going into the year. So we had a management change during the year. As new management, we came in and did a cost reduction where we unfortunately had to say goodbye to a number of employees. And we have also initiated a number of other improvement projects with the clear aim to improve our growth and profitability. If we look at the year and the fact that we have delivered this in a volatile environment, I'm extremely proud of what we have been successful with as a company, and I would like to thank all our employees for their strong work. But with the challenges we have had, we have also had a lot of great learnings, and I would actually like to highlight four of the learnings that sets us up for a very strong future going into the fiscal year 2022 But before coming back to that, let me start with the revenue. So we grew by 4% in this fiscal year organically, and if we look at the reported growth, that came in at 11%. Our EBIT margin was 2.7%, and if we look at the last year, it was 8.5%. So these results should be seen in an environment with high volatility. we have had inflation or we do have inflation, we have had challenges in China with COVID and also with global supply chain, all of that which hits our manufacturing and distribution costs. Now let me move in to talk about the different visualization segments. Starting with pulmonology, and here I would like to provide some transparency into what has happened in the past couple of years. This is our most important and largest visualization segment. And it's also a segment where we are starting to see things normalizing coming out of COVID. So as you can see on the graph here, the volatility we had meant that when COVID broke out, we had a very high demand for our bronchoscopes to treat COVID patients, which led to a high increase in demand. Then we had a couple of waves that led to fluctuations. And looking back at the past year, we saw a decline, mainly driven by three things. high COVID comparables, high in-market inventories, and also we started to see competition. Overall, in the past three years, we have had a CAGR of 16%, and in total, we have grown 58%. As you see in the last quarter, we had a 6% organic growth over the previous quarter. But going into the next fiscal year, as the last part of this graph illustrates, we will for the first part of the year be up against high comparables, which will also mean that we can expect modest growth in the beginning of the year. Now turning to our two newer segments that we entered a couple of years ago, here we continue to see impressive growth, and we have had above 100% revenue growth combined in these two areas. And if we look at the sister scope alone, we have sold over 400,000 scopes during the year. Given that these are segments that we entered two to three years ago, we have seen a rapid adoption in these two segments. Driven very much by the efficiency that we provide to hospitals in terms of their workflow and their ability to plan their work better. We continue to have high expectations to this segment as we continue to see growth in the recent quarters as well. So let me move to the big launches that we had earlier this year. We launched Ascope 5 Bronco towards the end of the year. It was approved in EU and US over the summer. And by launching this product, we are actually expanding the market, the total addressable market by 2 million, because this product is able to also address the needs in the bronchoscopy suites, which no single use in Endoscope has done to date. It's still early days, but we get a lot of good feedback. And as you can see on the quote on the screen here, Professor Kerman concludes in a recent study that he did that actually the performance of AScope 5 Bronco was either superior or equivalent to reusable scopes in most categories. So really putting the single use in the scopes in a different league, which we are very proud of. This new innovation also means that we will launch the product as a price premium to the ASCOPE 4 of between 30 to 50%. So overall, there's a lot to be excited about when we look into the pulmonary segment. This launch is the first step to strengthen our position, but we will have the video laryngoscope 2.0 as well as a relaunch of the VIVA site coming, which will help to further strengthen our position in this segment. So let me finish the full year announcement with the gastro GI market and the GI focus. Ascope Duodeno is a product that we launched and where we continue to see a high market need in this segment. What we have also seen in the year that we just came out of is that these procedures, the ERCP procedures, are procedures that are clinically complex and we experience that there continues to be some product gaps with our product to fully penetrate this broad market. They seem to be very well adopted in some niches of this market and what these learnings means is that we take a slightly different approach which we'll come back to. We have worked with customers, we are now far in the development of an updated version of the Duodeno 2.0, which significantly better addresses the needs of the product. More to come on that. When we then turn to Ascope, the gastroscope, it's a completely different story. It's a very different product. The commercial launch started early summer in the US and a bit later in Europe, and the initial product feedback we get is very positive. You can see two quotes on this slide, one addressing how we are helping the customers with their more efficient workflow and procedures in the hospitals, and the other one around our product features, where in particular they highlight the strong maneuverability with our gastroscope, which is a very important feature. So in all, this is a product where we start in a niche segment and where we will gradually expand as we get more traction and experience. And I'm very excited about the early feedback we have with this product and look forward to update you on an ongoing basis. So with this, I'd like to hand over to Thomas to go through the financials.

Thank you, Britt. And also a warm welcome from my side. Let me start with a few short comments on the initiatives that we have initiated a few months ago. The cost reduction program, the change in pricing practices, and the strategic initiatives to further improve our financial performance. We've been fast to conclude and realize on the cost reduction program. And the cost relating to the program has been captured in the Q4 and the full year results. while the benefits will start to materialize and fully materialize in the new financial year 2022 to 2023. The initiatives will strengthen our financial performance and together with the updated strategy, they form important building blocks to secure long-term financial success for AMBU. In the strategy update later, we will address how we execute on those initiatives in more detail. For the financial year 2021-2022, our reported revenue growth is 11%, corresponding to a 4% organic growth and a positive currency impact of 7%, primarily driven by the strengthening of the US dollar versus the Danish crown. Looking into our business areas, the combined businesses of ENT and urology have posted very strong sales inside the segment or business area of visualization with more than 100% growth for the year. The growth, however, has been offset by decline in pulmonology, which means that the visualization segment and business grows for the year one percentage point. Our anesthesia and patient monitoring and diagnostic businesses were for the year positively impacted by increasing pent-up demand and from the recovery post-COVID and the continued reduction of our backlog orders. In terms of organic growth, Anesthesia has posted 5% growth and patient monitoring and diagnostics have posted 13% growth. From a geographical perspective, it's been a year with strong differences and significant differences across the regions. North America was a strong growth driver with 11% growth driven by visualization, Europe reported 1% growth driven by high anesthesia and PMB growth, and rest of the world had a negative growth of 8%, mainly due to in-market inventories that was brought down and COVID-related lockdowns in China. Our EBIT margin ended at 2.7% for the full year. The low EBIT margin is driven by a decline in our gross margin, where the main reasons have been change in sales mix, higher input prices and distribution costs due to the high inflation and high freight rates, ramp-up costs related to our Mexican production site, and inventory write-down of our VivaSite 2 scope due to our voluntary recall in May. We ended the year with a negative cash flow of 458 million Danish crowns and a gearing ratio of 3.9. Whilst our gearing is fully within our covenants and our plans, it's clear that both our profits and also our cash flow needs to improve. And cash flow improvements will be realized through revenue growth, through our cost reduction program, as mentioned, and through reduced investments into CapEx, while we at the same time still invest into innovation and improvements in our working capital with significant reductions in our inventories. And this brings me to the financial guidance for the financial year 2022 to 23, and we'll be guiding on two elements, organic revenue growth and EBIT margin before special items. It's important to stress that 2022 and 2023 is a transition year for AMBU. And at the same time, we will see high external volatility. The combination means that and creates a financial guidance that is associated with more uncertainty than usual. Our guidance for organic revenue growth is 5-8%. We see highest growth in our endoscopy solutions, formerly referred to as visualization, driven by continued growth in ENT and cystoscopy. Pulmonology will grow year-over-year in half-year too. as first half year will still have high comparables from Omicron sales last year. Anesthesia and patient monitoring will see low single digit growth. And growth will accelerate quarter over quarter, with Q1, however, expected to be flat versus Q1 last year. Our guidance for the EBIT margin before special items is 3 to 5% of revenue. And a few comments of some of the underlying drivers. Our gross margin is expected to decline by approximately 2% due to higher input costs, further Mexico ramp-up costs, product mix, and lower margins for recently launched scopes. This is a result of past decisions and certainly something that we are determined to improve. Improvements in our EBIT margin will be more prominent in the second half year as we will grow revenue quarter over quarter, as mentioned. Cash flow is a key focus, and we expect to improve cash flow by 350 to 450 million Danish crowns, and thus for the full year we will be approaching cash flow neutral levels. Improvements will happen gradually over quarter over quarter with negative cash flow expected in Q1 and Q2. Lastly, but not least, our CAPEX investment is expected to be approximately 9% of total revenue reduced from last year but still with a sizable investment in innovation. And with that, I hand it back to you, Britt, to give an update to our strategic update.

Thank you, Thomas. And now to our strategy update. So Thomas and I joined Ambu before the summer, and together with the rest of the management team, we started taking a hard look at what needs to be done at Ambu. As you know, our first decision was to do a cost reduction to strengthen our financial position and cash flow. But what we also did was that we started to look at our investments. at our strategy, and I went out to meet a lot of colleagues, a lot of customers, to really get an in-depth understanding of our business. Today we will share the conclusions of that strategy review that we have done in management. It builds on a strong legacy, a strong heritage that Ambu has. And this is also why I'd like to start with this slide, Holger Hesse, who founded Ambu 85 years ago and who today could have celebrated his 122 years birthday. He was very eager to bring people together and to engage with customers to develop solutions to their problems. And this is also why it makes so much sense for us with the purpose that we have of together we rethink solutions to save lives and improve patient care. So taking a quick look back at Ambu, we have actually been quite successful. And if we look at the past five years, we have seen a growth of 85% in the business overall. coming from success in many areas. We have had a strong penetration with our single-use bronchoscope and has now built that market with a very strong leadership. We have entered three new segments, ENT, urology, and latest, GI, with multiple scopes, building on a strong modular approach where we have synergies across the portfolio. This is built by a strong innovation where we have deep understanding of technology, mechanics and software that you need to build the best single-use endoscopes. We have also had success in anesthesia and PMD. We have spent a lot of time and resources to make sure that we were compliant with the new EU regulation and we have fully achieved that. We have strengthened our supply chain with our Mexican factory. In terms of our commercialization in 2019, we went fully direct in the US with our own sales force. And then we have overall expanded our sales force and strengthened our reach to customers. I'm very proud of what we have achieved together in the organization. But it has not been easy. But we have learned a lot which also sets us up nicely for the future and some of these learnings that we have brought into the strategy work that we have been doing. And I'd like to highlight four learnings that we have had. The first learning was that a market like the GI market does not develop very fast. We have learned that and our competitors have learned that. What we have also learned is that we need to fully understand the customer insights, which are very different from the segments that we operate in. And then we need to adjust our approach to that. Secondly, we have also learned that we should not initiate too many projects at the same time. The market in our industry does not develop as fast as we anticipated. And when you try to do too much work, you lack the clear direction and it creates inefficiencies. Thirdly, we were first mover in the single-use area with the bronchoscopes. But as we entered into a new market, the GI market, it attracts competition in the first market that we entered, the bronchoscope market, and we need to continue within our main segments to stay on our toes and fully focus, which we did not do. The final point is about trust. Trust and building credibility. This is something that you earn by proving that you can deliver on the commitments that you set out. We did not fully do that. And looking ahead with our strategy, we remain ambitious, but we also want to make sure that we build credibility to deliver on the targets that we set out to deliver on. So all of these are great learnings that we take forward as a company as we enter the next chapter in our journey. So let's look at the attractive market that we operate in with our endoscopy solutions and how we penetrate that. So in our priority markets, there are around 100 million procedures done every year with endoscopes. And if we look outside that, including the full global market, it's more around 150 to 200 million. However, and there is a general consensus that this market will continue to grow. However, it is not this full market that we see being addressable today with the products that we have in the market and with our immediate portfolio. But it doesn't mean that there's not a great opportunity. We are leading in this market, and we currently have a market share of 1.7% in the markets that we're in with the 1.7 million scopes that we are selling. The penetration is slightly higher when we include competition, but our plan is to gradually continue to grow this market by addressing the niche by niche in the different segments that we are in. And I'm very convinced that we are going to be addressing the market where we see the highest need for single-use endoscopes. We are also doing this in an environment with high volatility, and I'd like to highlight three areas because these have been essential in our strategy work and how we built that into our strategy. The first one is around our health systems, which are under pressure. by many things, but in particular the staff shortages that we see in the hospitals. Our solutions are actually solutions that help make our workflow in the hospitals more efficient. So we would like to continue to provide solutions that help address the hospitals with the needs that they have and to help mitigate some of the challenges they have with staff shortages. Also, economic instability is a key challenge we see in the market. And how we take that into our strategy is by being strongly focused on cost management and by focus on deleveraging, as Thomas also have alluded to. The third point here is that we see higher geopolitical instability than we of decades and we therefore need a different mindset when we look at our supply chain. Our factory in Mexico does provide more resilience to our business which we are very happy with and at the same time we have decided to exit Russia and we are almost complete with that process. So with that I'm happy to provide some of the highlights of our strategy. And with our strategy comes an ambition to be the most customer-centric in our field. I'm very excited about the opportunity we have to transform AMBU under this aspiration and how we also with this can create value for our customers, our employees, and our shareholders. So our focus remains on strengthening our leading position in single-use endoscopy solutions. Our new strategy also confirms that we want to remain in the four key segments that we are in, pulmonology, urology, ENT and GI. Innovation remains a key topic and we continue to push for more advancement and also more synergies with our modular approach in innovation. Improving execution is a key topic in our strategy. That takes up a lot of focus because this is where we see opportunities to do better, which can strengthen our business. We will continue to be direct commercial present in our key markets as we believe that we have great knowledge in how we sell single-use endoscopes and great customer relationships. But we will, in particular when it comes to GI, take a more targeted approach, focusing on the niche segments that has the highest customer needs. For anesthesia and patient monitoring, we continue to be in these segments which we have been in for decades and continuing to optimize our value proposition and profitability. Sustainability, organization, and culture are also key themes in our strategy. And then last but not least, we will, with our strategy, drive long-term revenue growth and steadily increase our profitability through a transformation program that we are also launching as a company. So with this, our strategy is called Zoom In. The reason why we call our strategy Zoom In is because it's all about focus and execution. So in our strategy, we have identified four areas that we prioritize. The first area is about providing innovative solutions for true customer needs. Innovation is in our DNA. It has been in our DNA for 85 years, and it's an area that is important as we continue to drive innovation and growth, rethinking endoscopy with a focused pipeline and market expansion solutions in each segment we compete in. Also, we will advance our modular innovation to drive both scale and also to drive fast development as we see demand in the market. The second strong area is around excelling in execution across the full value chain. This is an important topic, and when we look at our commercial setup, this is where we focus on the highest value customer segments and geographies to drive progress. This we will do by slightly reducing complexity as well. We will advance our commercial excellence to drive this value efficiently. We will increase our focus on supply chain and improve our gross margin through a strong focus on our COX. And then we will strengthen our operating model where we balance between efficiency and having the autonomy to make decisions that needs to be made close to the customers. Then we want to take leaps towards a sustainable future. Sustainability is a core area of our strategy, and the two key focus areas we have here is around circular products and packaging, and it's about responsible operations, something we'll get back to. Lastly, as we embark on a strategy to transform AMBU, our people and culture are critical elements in that journey. And this is also where it's key for us to unlock the potential that we do have in our organization by prioritizing the right culture and prioritizing high engagement and an inclusive working environment. We have the opportunity to both attract and develop the best people, and this is something that is very close for us to do so. So delivering on these priorities, we are convinced that we will, in the years to come, deliver strong, profitable growth. So looking at the different segments that we're in, endoscopy solutions, which we previously referred to as visualization, make up half of our revenue today, or slightly more than half. We will, as mentioned, remain in these four segments that we are in today. We will leverage our modular approach, and then our systems, monitors, and software will continue to play a huge role where we see synergies across these four areas and where we see a lot of room to improve in the years to come. Anesthesia and patient monitoring, the last one previously referred to as patient monitoring and diagnostic monitoring, are areas that we have been in in decades. It comprises a number of sub-segments where we, in most of these sub-segments, are either number one or number two in our fields. And combined in these, we serve over 100 million patients every year. So we remain in these segments. They vary in profitability, and our focus is to increase profitability overall and also reduce complexity overall. partly by taking some of the low margin non-strategic products out. So back to endoscopy solutions. So we are, as mentioned, in four major segments. And the segments, as you see on the graph here, they are all at very different maturity levels or adoption levels, basically based on when we entered these segments. So pulmonology is the most penetrated area, and it was also the area that we went into first where we have basically created a meaningful adoption. Then we have urology and ENT areas that we went into two or three years ago where we are starting to see a nice overall uptake in these segments towards single use. And then we have the GI segment where we are just getting started. So, overall, the drivers of adoption in these segments vary slightly across the different segments, which highlights the importance of understanding the granular customer dynamics in each of the fields that we operate. Overall, there are four main areas that are drivers of penetration across the segments. One is improving workflow and availability with our customers in the hospitals. It's about the health economic benefits that we provide with our products. It's patient safety, reducing the risk for cross-contamination. And it's about the rapid technology advancement that we believe that we are delivering with our products. So with that, I'd like to hand over to Basil to go through the different segments that we're in and provide details on our strategy across the areas that we operate in.