Ambu A S Ord

Good morning, everyone. Nice to have you online and on the call this morning for AMBU's Q1 results meeting. Together with you on the call, I'm Britt Milbjensen, the CEO of AMBU, and with me today, I have Thomas Frederik Smit, our CFO. Let's start the meeting by reminding ourselves about AMBU's purpose, something that is very close to our heart and our everyday work at AMBU. We help healthcare systems and healthcare professionals both improve safe lives and improve patient care in the hospitals. The agenda we have for today, I'll start by going through our business update for the quarter, and then I'll hand over to Thomas to go through the financials. And then at the end, we'll wrap up with a Q&A session. Also, I'd like to remind you that we have today opened the registration for our Capital Market Day, which will host in our head office in Ballerup on the 21st of March outside Copenhagen. So let's dive straight into the results. So in Q1, we delivered organic growth of 4%, corresponding to reported growth of 10%. The growth came from our endoscopy solutions business that grew 3% and our anesthesia and patient monitoring, which grew 6%. Looking at the EBIT margin, we had a 6% growth in the quarter over last year, where we had 3.9%. So overall, I believe it's a good start to the year. I'm very excited as we embark on the next quarters and the opportunities we have ahead of us. Let me update you on some of the key events that we had in the quarter and the progress on our zoom in strategy. So mid-November, we launched our new strategy, and we are well underway rolling that out in the organization. When it comes to innovative solutions, we had a couple of product approvals in the period and this quarter. First of all, we had regulatory clearance in Europe of our AMBU-AVU2 Advance, our newest endoscopy system. Also in the US, we had FDA clearance of our Ascope 5 Bronco HD sampler set, also a very important solution together with our Ascope 5. And then as one of the first medtech companies, we are very proud that we now have 100% of our portfolio fulfilling the new MDR regulation requirements in Europe. When it then comes to execution, this is a key focus in our strategy and a key focus in AMBU every day. So we launched a transformation program together with the strategy, which I'll update on in a minute. At the same time, we are continuing to ramp up our production in Mexico and also selling to customers and more and more customers from this side. And then lastly, when it comes to commercialization, the two big launches we had of Ascope 5 and Ascope Gastro in the last year, we are continuing to roll that out, something that I'll also update you on later. Sustainability is a very important priority for EMBU and we are fully dedicated and working on making plans to be more focused on sustainability, identifying key initiatives that we are going to roll out in the years to come. At the same time, something I'll come back to as well, we saw the launch of results in a new study comparing reusable to single-use and actually showing that it's more environmentally friendly to use a single-use endoscope, cystoscope. I'll come back to that. And then when it comes to the organization, We have worked a lot internally on rolling out the strategy, making sure that it's clear to each and every employee how they contribute, not only to customers and better patient care, but also how they fit into the strategy. And that rollout is going also as planned and very well. Then let's take a look at our transformation program. So we launched the transformation program mid-November with a clear focus to sustainably increase both growth and profitability in the years to come. And we have a much better balance between achieving maximum growth and profitability than we have had in the past. This is a program that I'm personally very close to and where we are fully on track in identifying initiatives that will deliver on these ambitions. It's also a program that is taking time. We expect to gradually both in this fiscal year but also in the next fiscal year to see improvements from this program. It's something that takes time, and we are very focused on making sure that the improvements that we're making are improvements that are sustained in the organization and fully anchored. So we already in November identified a couple of areas that are very important, and that's the four areas that you see here. It's about a focused go-to-market approach, It's about making sure that we drive even more commercial best practices. Improving our gross margin is a major focus for us as well. And then it's about strengthening our operating model. So I'm going to update you on the progress on this program in the quarters as we move forward, but overall off to a strong start, but also a program that is reaching out in the next many quarters. Let's get back to the business results. So going forward, we will report on our endoscopy business on two main categories. One is pulmonology, which is our biggest segment, and the second is our endoscopy solutions excluding pulmonology. So the latter category comprises of urology, ENT, GI and our endoscopy systems. And I'm very excited to report that compared to Q1 last year, this segment has grown 47% and now make up 44% of our total endoscopy solutions. When it comes to pulmonology, that remains the largest endoscopy segment. And there we had, in line with expectations, a decline of 17%. This is due to the high comparables that we have from last year due to COVID. But the numbers are also positively impacted by the flu, which we saw peaking earlier than we have seen in previous years. Despite this negative growth, which we expect to continue into Q2 that we are in the middle of now, I'm very excited about this segment when I look ahead, both due to our Ascope 5 launch, due to our increased focus on this segment, as we have allocated more resources some months ago. And then we also have a couple of other new launches coming up. The slim versions of our Ascope 5 Bronco. We have VivaSight 2 relaunch coming up. And then we have our video laryngoscope that we are working on bringing to the market. So if we look at the flu, just to make sure that we all look at the same picture, what you see on the graph here is influenza-like illness, where you see the red curve, and this is US data peaking at... high peak compared to previous years and also peaking much earlier, which is exactly what I referred to before that we benefit from in particular in the US in the Q1 of this year in terms of higher revenue. It's also clear from this graph, as you see, that the flu is declining, and that means that basically what we had anticipated to get of benefits from the flu in Q2 came in Q1, so slightly earlier than we anticipated. If we look at the flu pattern in Europe, it's somewhat a similar pattern that we see as we see in the US with a slightly lower peak, but also on its way down again here in Q2. So let's look at some of the other drivers of the attractiveness of the single-use segment. So there continues to be stronger and stronger evidence that shows both the cost benefits and sustainability benefits and patient benefits of using single-use endoscopy solutions. What we have on this picture here is three new studies that have come out. The first not being published yet, that shows benefits and attractiveness of using single-use endoscope systems. So if we look at the first one, it's a study done in the UK. with our ENT study comparing a single-use ENT scope with a reusable scope, and it shows that the average cost per procedure using a single-use scope is declined or is 35% lower than with a reusable scope. So there are clear cost benefits of using single-use endoscope solutions. The second study looks at the patient outcomes, patient safety. This is a retrospective study that is done in the US in over 800,000 patients using Medicare claims, where it basically looks at the infection rates following an ERCP procedure using a single-use scope versus a reusable scope. And what the study shows is that there is 60% fewer infections when patients are being treated with a single-use scope compared to a reusable scope. The last study is the sustainability study that I referred to earlier. This is in urology with a cystoscope using our cystoscope compared to a reusable scope that basically shows that the impact on the environments measured as CO2 impact is reduced by one third when using a single use endoscope compared to a reusable scope. So these results are in line with some of the feedback that we hear from our customers every day. On top of what we illustrate here from the studies, we also hear clear efficiency and workflow benefits being more and more in focus with our customers. A lot of that driven by the fact that we do see significant staff issues in hospitals, both around Europe and in the U.S., If we look at our two new launches, it's the ASCOPE 5 Bronco and the Gastroscope. We are also progressing in Q1 as planned in line with the expectations with these two launches. So to remind you, the ASCOPE 5 Bronco expands the total addressable market by 2 million procedures, so from 3 million to 5 million procedures. We have launched this product in US, Europe and Australia. In the recent months, we have seen major US GPOs adopting the product. We see continuous, very strong feedback from our customers, also when it comes to the workflow benefits, but more importantly, also the clinical performance. It's a product that we continue to focus on, and we have now major hospitals in particular in the US using the product. And when we look ahead, there's no doubt that the pulmonology segment remains a very important area for us. And with the launch of ASCOPE 5, combined with the new launches of our video laryngoscope, slimmer versions of ASCOPE 5 and the relaunch of VivaSight 2, we are very excited about the future position that AMBU has in this segment, which we were the first to enter. When it comes to our ASCOPE gastro, we are also seeing strong progress with this product, which we have also launched both in US, Europe and Australia. We do see GPOs also adopting this product. We see initial success with our customers, a lot of this being outside the GI suite, where we are focusing initially on customers that benefit the most from the workflow benefits and the performance that we see with our product. So GI remains a focus area for AMBU. And as we said in connection with our zoom-in strategy mid-November, it's also an area that we are addressing niche by niche. So we are balancing the resources in this area relative to the return as we continue to gain traction. So I'd like to finish off with an overview of our portfolio in endoscopy, both the products that we have on the market and those that you see in the boxes, those that we have in development. So it's very clear that as the only company being developed present in the four major endoscopy segments we continue to focus in these segments both on strengthening the position of the products we have in the market but also of bringing new products to the market that has clear benefits for our customers and for patients and we are well on track with some of the product new products that we have in development after we late summer refocused and rebalanced our portfolio. And we continue to drive the progress on these in line with also additional features on our endoscopy systems that supports the full portfolio that we have. So this concludes my part of the presentation, and I'd like to hand over now to Thomas to go through the financials.

Thank you, Britt, and also a warm welcome from my side. I'm glad to present the key financial figures for the first quarter of our financial year 22 to 23. It's been a good start. to the financial year as we for the first quarter delivered 4% organic revenue growth and reported revenue growth of 10%, positively impacted by the appreciation of the US dollar versus the Danish crown. Looking at our business areas, the combined endoscopy solutions business, excluding pulmonary, have posted very strong growth rates of 47% growth in the first quarter. The growth rate has, however, and as expected, been offset by a 17% decline in our pulmonology business, which means the organic growth for the endoscopy solution business for the quarter was 3%. Our anesthesia and patient monitoring business for the quarter was positively impacted by increasing pent-up demand, and recovery post-COVID and continued reduction of our backlog orders. In terms of organic growth, anesthesia posted 4% growth and patient monitoring posted 6% growth for the quarter. From a geographical perspective, the Q1 was characterized by some significant differences across our regions. Our biggest region, North America, has delivered strong growth of 9%, driven by endoscopy solutions. However, Europe saw negative growth of 4% due to high COVID comparables from Q1 last year. The rest of the world delivered 14% growth, also strong growth within endoscopy solutions and patient monitoring business. With 4% revenue growth, our EBIT margin ended at 6% for the quarter compared to 3.9% quarter last year. The increase in EBIT margin has been driven by revenue growth, operational efficiencies in our sales and marketing organization, tight cost management and positive impact from our cost reduction program. the selling and distribution as a percent of revenue have improved by 5.3 percentage points compared to last year. So a good achievement. This has, however, been partly offset by a decline in gross margin compared to Q1 last year, where the main reasons for that decline relates to change in sales mix, as sales growth has been higher in anesthesia and patient monitoring business than for our endoscopy solutions business. Secondly, we've seen higher input prices and higher distribution costs due to high inflation and higher costs for sea and road transportation. And last but not least, we also have higher ramp-up costs related to our Mexico production side. We ended the quarter with a negative cash flow of 174 million and a gearing ratio of 3.9 times EBITDA. The main reasons for the negative cash flow relates to our net working capital. We are yet to see benefits from reduction of our inventories. And we've seen in Q1 cash outflow related to non-recurring cash items such as severance costs. It's important to say that this is in line with our expectation. However, improving our gearing ratio and cash flow over the coming quarters remains a key focus of ours. And we have a plan to improve the free cash flow in range of 350 to 450 million DKK for the full year. And we are addressing networking capital, our cash conversion, cost containment and profitable revenue growth. Within Networking Capital, we have a clear plan of how we will reduce and normalize our inventory levels. In Q1, we've started to see initial and early inventory reduction. However, we will, over the coming quarters, accelerate that reduction and we will be reducing both our finished goods and our raw material inventories. Initial benefits have also been seen from our cost reduction program and tight cost management in Q1. And this has helped improve our EBITDA, and it has helped improve our capex ratio to sales, and we will continue to have full focus on this throughout the year. Finally, and last but not least, we will drive profitable growth. and accelerated revenue growth is expected and planned for the quarter over quarter, and we will therefore improve cash flow from operating activities, especially in the second half of this year. This brings us to our financial guidance for the financial year 2022-2023. We maintain our guidance for the year, and it's also at the same time important to stress that this year is still a transition year for AMBU. Our guidance for the organic revenue growth is maintained at 5% to 8%. As we've earlier mentioned, the growth is expected to accelerate quarter over quarter, with higher growth expected in the second half of the year. Our guidance for the EBIT margin before special items is maintained at three to five percent of revenue. Gross margin is expected to decline for the year by approximately two percentage points. And this is due to higher production costs, continued Mexico ramp up and also product mix for the entire year. My last slide is, as Britt has mentioned earlier, she's highlighted focus and execution in our strategy. This also means that we'll be more focused in our capital allocation, where we aim to have high return on invested capital, and as a result, create value for our investors. We will drive strong, profitable growth And we have an aspiration to be a company that delivers long-term sustainable double-digit revenue growth and a company that has an EBIT margin that is continuously trending upward to industry levels. With that, I hand it back to you, Britt.

Thank you, Thomas. And I'd like to conclude the session again by inviting you and putting attention on our Capital Market Day that we host the 21st of March at our headquarter outside Copenhagen. It's from 10 to 3. PM CET followed by a product demonstration. The meeting can be followed online, but the product demonstration session from three to four will only be for people that are there live. So we hope to see as many of you in person for this day. And with that, I'd like to conclude the presentation and open up for the Q&A session.