Ambu A S Ord

Good morning everyone and welcome to this Q2 2022-2023 results call with Ambu. My name is Britt Melby Jensen. I'm the CEO of Ambu and I'm joined today by Thomas Frederik Smit, our Chief Financial Officer. So the agenda for this meeting is that I'll go through and update on the business. I'll hand over to Thomas to take you through the financial results. And then we will, as usual, finish off with the Q&A session. But let's dive straight into the results. So in Q2, we delivered an organic growth of 4%. And if we look at the reported growth, this was 6%. And overall, for the first six months of our fiscal year, we delivered also 4% organically and 8% reported growth. Our EBIT margin is in line with our expectation, reporting 3.9% on the quarter and 4.9% on the full half-year period. If we look at the market and let me put a few comments on the health care market in general, what we do see out in the hospitals where activity levels is a main driver for our business, we do see the activity level coming back to close where it was pre-COVID. However, in most countries, slightly below the pre-COVID levels in terms of number of procedures and that slightly lower level is much driven by the staff shortages that we see both in Europe and in the US. And then we also continue to see our customers being challenged on their financial results. We launched our zoom in strategy in November and we are progressing well in terms of delivering on the strategy. Our focus on the strategy is to be the most customer centric in our field and by doing that and by delivering on our strategy we will deliver strong profitable growth. So if we look at the four areas on our focus on innovative solutions, we made progress in particular in two areas over the quarter. The first one is pulmonology, where we end of March relaunched Vivacyte 2, which we recalled voluntarily in May last year. We also achieved a CE mark in Europe on the smaller sizes of our Ascope 5 Bronco, which is expanding the market. And we do expect also clearance in the US relatively soon for this range of products, which will further support the Ascope 5 Broncoscope that we launched last year. Within GEI, which is also a focus area for us, we announced that we have a new product in development in the quarter, GastroLarge, a gastroscope with a larger working channel that allows more therapeutic use. So this is one that we are excited to have in development and where we have not communicated on the launch timelines. Our focus is very much on execution across the value chain and a large part of this is our transformation program that we launched with the strategy. We are overall progressing well with the strategy and with the transformation program. A major highlight I'll say is that we returned to slight positive cash flow in the quarter driven by the inventory reductions which is part of the transformation program. We continue to be very focused also on pricing with a number of initiatives, although we still have some restrictions in the part of the business that is contracted. And then we are focusing on streamlining the portfolio. So basically looking at some of the areas where we have better products that we can offer to our customers and looking into some of the offerings that we have in selected smaller geographies. Then on the people and culture side, this remains a key focus because we are very committed to our people who are delivering the financial results. And as a natural part of the strategy that we launched end of or mid November, we a couple of months ago did some changes to the executive leadership team to strengthen the capabilities and the competencies to deliver on our strategy. I'm therefore also very pleased that earlier this week we had Henrik Birk joining us as the new Chief Operating Officer who will be responsible for all our operations globally. Then finally, sustainability is a very important part of our strategy as well. When we hosted our Capital Market Day end of March, we announced some of our 2025 target when it comes to our products and packaging. We focus on using more bioplastics in our products, We focus on the packaging being fully recyclable and we focus also on helping our customers address the challenges with waste by making sure that we are also responsible in how we get rid of the products in the hospitals. These are some of the initiatives, but it goes broader than this when it comes to our commitment. The second focus we have is on net zero emissions, and that's where we are this fiscal year developing a detailed plan on how we will achieve that, which entails a number of relevant initiatives. So let me dive into the different segments now, and I'll for a change start with anesthesia and patient monitoring. So overall, when we look at this area, we saw a decline starting with anesthesia of 11% in the quarter. This comes on the back of a couple of quite strong quarters last year where we came out of the supply chain challenges so we were able to clear both our backlog and we also saw in particular in Europe some stockpiling last year driven by the geopolitical uncertainty that increased just over a year ago. When we then look at our patient monitoring business, this business, we saw a growth of 8% in the quarter. And a key driver of this was our cardiology business in the US that developed very strongly. Turning to endoscopy, we delivered 11% growth in the quarter for this business, leading to a 7% growth when we look at the full half-year period. This was driven heavily by growth in Sisto and ENT, and also we saw for the first time in a couple of quarters growth in our bronchoscopy business. If we look at pulmonology then where bronchoscopy is the most part of, you can see here that that is actually declining by 3% in the quarter versus 10% for the full half year period. So when I talk about growing the bronchoscopy business, You have to remember that how we report on this pulmonology category, we also include Vivacide, the product that we voluntarily recalled last year in May and that we are just relaunching end of March. So that is what drives the overall minus 3%. Having said that and looking at our new product, the Ascope 5 Bronco, we continue to see very strong performance and satisfaction with the performance among our customers in the Bronx suites doing the advanced procedures. So we are continuing to see a growing customer base here. And when we combine that with the launch of the smaller sizes in Europe and coming up later in the U.S., this puts us... in a very strong position in this area specifically. Broader in bronchoscopy, we do continue to see some level of competition, as we have communicated earlier, and this is where the combined portfolio with ASCOPE4, ASCOPE5, vivacide, and then also the video laryngoscope, which we have in development, will be a very important part of this full offering that we have in this segment. Looking at the remaining part of the endoscopy business, so the one that excludes pulmonology, so this is urology, ENT, and GI. Starting with urology, we had a very strong momentum, and the total category here grew by 36% in the quarter. We see very strong growth with our sister scope in Europe, but in particular in the US. And when we look at the urology space, we also have our ureteroscope in development, which will be an attractive product for us to launch, in particular because a big part of this market has already converted to single use. Then when we look at ENT, this had a strong quarter, in particular again here in the US, and where we see our fees indication supporting the expanded clinical use. And then finally, when it comes to GI, this is the area that we stepped into the latest, but also the biggest market. So an area that we continue to be very focused on. Our key focus right now is our gastroscope, where we are continuing the launch and rollout with that product, where we are present now in all major target markets. And we are also receiving very strong feedback on the performance of the product among customers. So if we take a step back and look at the single-use market, I would like to show a picture that we showed at the Capital Market Day just to recap the market that we are playing in with our endoscopy solutions. So when we look at the big market, there's 150 to 200 million procedures that are done annually worldwide with endoscopes. And when we look at our target markets, this is roughly 100 million. What we aimed to do was to look at the pipeline that we have, the marketed and near-term pipeline. And this is what you see on the left-hand side here. And when we map that across the different segments, we estimate a total of 23 million procedures is what we believe that we can address with this portfolio over the coming years. If we assume, moving to the next part of the slide, that these 23 million procedures are fully penetrated using a blended ASP, we see a total market potential of 45 million. However, we believe that the uptake in these segments of single-use endoscopes takes time. We also believe that the uptake will be driven at different speeds across the different segments. So when we try to put our best estimate of how this will evolve, you see the pies or the Harvey balls on the On the right-hand side where you can see how we estimate the penetration to be in these markets in a five-year time frame. And then when we also add that this is the market that we are playing in together with the competition that is coming in, we estimate that this total market in five years will be roughly 15 to 20 million Danish kroner. So with this, and before I hand over to Thomas, I'd like to conclude with saying that these numbers, at least to us, documents that we have a fast-growing market potential also with very clear customer needs that we see when we are out there every day. We also get confirmation every day from our customers that we have a leading and very attractive portfolio. And we believe that the focus areas that we have with our transformation program and other initiatives to develop a scalable business model, it is what will bring us to deliver the strong, sustainable, profitable growth that we are aiming for. So this concludes my business update and I'll hand over to Thomas to go through the financials.

Thank you, Britt. And also a very warm welcome from my side. And I'm glad to be able to now present the key financial figures for the Q2 of our financial year. It's been a good second quarter, as Britt also has mentioned, with a quarter where we delivered 4% organic growth and 6% reported revenue growth with a positive impact coming from our exchange rates, the foreign exchange rates. For the half year, as also mentioned, it's also 4% organic growth and with a reported growth rate of 8%. Again, also here, a positive impact from foreign exchange rates. Another key event in the second quarter has surely been our capital raise. So on March 24th, we completed a capital raise where we strengthened our capital base of around about 5% of our total share capital. This has enabled us to reduce our financial leverage faster than we planned and also has enabled us with enough flexibility from a financial and operational point of view, which again gives us some flexibility to invest into attractive growth opportunities. financial leverage has been reduced from 3.9 times EBITDA in the Q1 to now 1.6 in the Q2. And that certainly gives us also a buffer in terms of the microeconomical uncertainty that we operate in. And I'm very pleased with what we have accomplished here from a balance sheet strengthening perspective. Looking at our revenue and looking at our revenue by geography, North America, which is our biggest region, showed organic growth of 8% driven by endoscopy solutions. And within endoscopy solutions, record demand for our products within urology and ENT. And also within patient monitoring, we've seen high growth rates coming from cardiology. This is certainly also very pleasing to see and is also a strong indicator of the benefits that our single-use endoscopes bring and how that actually also resonates well with our customers. Europe showed organic decline of 1%. Britt mentioned that just earlier, mainly driven by anesthesia, where we had high comparables last year coming from backlog or reducing backlog in Q2 last year, and also stockpiling due to geographical uncertainties or political uncertainties last year. In the rest of the world, we have shown organic growth of 7%, and similar to North America, this was also driven by high demand for our urology and ENT business, and also solid and high growth within patient monitoring, and more specifically also there within cardiology. four percent revenue growth has resulted in that we achieved an ebit margin of 3.9 for q2 which is comparable with 4.2 percent from the q2 last financial year the decrease in ebit margin uh is mainly driven by reduction in gross margin. And the gross margin is due to higher input prices, but also continued ramp up of our Mexican production site. Whereas a slightly better mix have somewhat offset that increased cost from a gross margin perspective. If we compare the gross margin with Q1, there is a further deterioration or decline in our gross margin in Q2 of 2.7 percentage points, which is mainly driven by indirect production costs, as we've been very successful, and I will come back to that later, in reducing our inventories. The decline in gross margin has to a large extent been offset by improvement in our OPEX ratio and OPEX ratio where we've improved by 1.5 percentage point versus Q2 last year. Our cost reduction program has certainly helped in improving our OPEX ratio and also a very good and tight cost management throughout the year. So in Q2, we've maintained a cost from an OPEX ratio perspective of 52% due to, as mentioned, cost consciousness, allowing us far better control of our finances. So that is very pleasing also to see. And it's certainly also a testament to the focus that we have put into this. As we've also mentioned in the recent Capital Markets Day, scale in our OPEX is one of the key drivers for us to improve our profitability, and it will therefore remain our focus also in the remaining year and also in the following years to come. Another key focus is cash flow. Has been cash flow, still will be cash flow. And we have had a very strong focus on that throughout the year. And also in Q2, we now start seeing how those efforts are materializing. So we've posted positive free cash flow for the quarter of 21 million versus a negative cash flow in Q1 of 147 million. So it certainly also shows that our free cash flow in relation to revenue now starts showing the right trajectory in Q2. The improvement is mainly coming from improvements in our net working capital, and more precisely in the net working capital, a good and solid reduction of our inventories. We've reduced our inventories by 136 million versus last financial year. and we start moving into a more normalizing level of that. Still work to be done and still focus, and we are coming down from a high level also. Furthermore, Trade receivables has also been reduced. So we have been looking at our processes and how we more efficiently could also collect cash. And within Q2, we have also improved our trade receivables and cash collection by 76 million compared to the financial year 2021-2022. So achieving a lower net working capital, as mentioned, also reducing our inventories are starting to show, but still will be a key focus of ours moving forward. We still have a net working capital at a relatively high level, but as you can see also here, inventories certainly moving in the right direction. And it certainly is a key focus, and we remain committed to improving our cash flow for the year by 350 to 450 million DKK versus the financial year 2021-2022. That brings us to our financial guidance for the year. And we maintain our guidance for the year. It's important to yet again note that we are in a transition year in this year for AMBU. Our guidance for the organic revenue growth we confirm to be 5 to 8%. We have also earlier mentioned that the growth is expected to accelerate quarter over quarter, which also means that we do expect a slightly higher growth rate in the second half of this year. EBIT margin before special items we also confirm according to the guidance of 3-5%. The EBIT margin as one of the assumptions is also that the gross margin is expected to decline. by roughly two percentage points compared to last year due to input costs, Mexico ramp-up and product mix. And that will also impact the EBIT margin in the second half of this year and also due to some postponed investments that we will do in the second half of the year. But EBIT margin, as mentioned, confirmed between 3% to 5% of sales. With that, thank you very much. And we now move into the Q&A session of our presentation. And I therefore hand back to our operator to navigate and take the first questions.

Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you are using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. And the first question comes from Christian from Danske Bank. Please go ahead.