Ambu A S Ord

Good morning everyone and a warm welcome to this morning's call where we are going to announce our full year 22-23 financial and business results for Ambu. My name is Britt Milby Jensen, I'm the CEO of Ambu and with me today I have our CFO Thomas Frederik Smit. The agenda for this morning's call is that I'll go through a business update first. I'll hand over to Thomas for a financial update. And then I'll come back and share our outlook for 2023-2024. And then after that, we'll open up the floor for questions. So starting with our highlights, overall we had a very strong year in 22-23 with a lot of progress on many fronts. Highlighting the three main financial results, starting with the organic revenue growth where we had for the full year 7.6% organic revenue growth and for the fourth quarter an organic revenue growth of 14.1%. If we compare with what we delivered last year, this is almost a doubling of our organic revenue growth compared to the 4% last year. Then moving on to our EBIT margin before special items, we ended the year with 6.3% margin, and that's also more than doubling compared to last year where we finished at 2.7%. Then moving to our free cash flow, we are proud to announce today a positive free cash flow of 192 million DKK for the year. I guess you all remember the last year where we finished with a negative cash flow close to half a billion Danish kroner. We were at that time in a serious situation and we have been very determined to turn this situation around and therefore I'm very pleased with the results that we are reporting today on free cash flow. It's also one year ago since we launched our ZoomIn strategy, and on that we have also had solid progress on a number of fronts. If we start with our innovative solutions and our abilities to serve our customers, we have made progress in our offering to customers. In pulmonology, we throughout the year launched a full range of products within our newest and most advanced single-use bronchoscopy portfolio, the ASCOPE5. If we look at our systems that supports endoscopes across the different therapy areas, we have also, during the year, had advancements with our AVU2 advance, adding features to that throughout the year. In urology, a high growth segment, we have launched Ascope 5 Cysto HD. And then in GI, which I'll come back to later, we had in the recent quarter two important approvals, the CE mark of our gastro large in Europe, and then the FDA approval of our colonoscope. Moving on to our focus on execution, we have continued to improve how we execute throughout the year across the entire business. We launched a transformation program one year ago in connection with the strategy, and we have continued to have improvements on our cost and efficiency. We have also reduced complexity, and an example of that is that we have exited 40 markets where we had no profits and very low sales in the individual markets. So that is behind us now. which means that we are now selling to 60 countries instead of the 100 countries that we were selling to before. So we are still in all major markets. Then when it comes to pricing increases, in particular in anesthesia and patient monitoring, In our focus to improve profitability across our business, we have had a dedicated focus to bring up prices at different levels, including solid double-digit price increases on some contracts and some products. And I'm also very pleased with how we have made good progress on that during the year. Then focusing on the people and culture side, we have had a strong focus on improving throughout the year how we work as an organization, reducing our complexity and providing clearer direction setting on what our priorities are internally. Then we have launched our new purpose and we have launched updated values to be clear about how we as one AMBU work together. Also we have strengthened our executive leadership team. Most recently we have announced a new CFO that will join us January 1st. Overall, when it comes to people, it's our colleagues at AMBU worldwide that has provided the strong results that we are announcing today. I'm very pleased about the progress we have made. It has been a year of change, which has been required on several dimensions, and I'm extremely proud of how the organization has responded to this. Then comes sustainability. Sustainability is an area that we elevated as a focus area around a year ago, and where we have also made very strong progress. I'll come back to that a bit later in my presentation. But overall, some highlights are the SBTI targets that we have submitted for... for 2030 submitted this year. And then we have also launched the first scope in the world where we use bioplastic, something that we are very proud about and that is only one of the full portfolios so far. So looking at the results, we have, as mentioned, delivered 7.6% growth and reported growth 14.1% in the quarter. We saw a quite heavy impact on the exchange rate in the fourth quarter, so the reported growth for the fourth quarter was 8.3% and 7.4% for the full year. On EBIT margin, we had in the fourth quarter 7.7% was where we landed, and that corresponds to a 6.3% for the full year. Then moving into our endoscopy segment, our focus segment that now contributes to 56% of our total revenue. Overall in the year, we grew our endoscopy revenue with 15%. What we said one year ago when we gave the guidance was that we expected this to be higher growth in the second half of the year compared to the first half of the year. And that's where we're also reporting today a strong 25% growth for the fourth quarter. If we look at what is driving the growth, I'd like to highlight the urology and ENT areas, which have grown a lot this year, and then at the same time also pulmonology, where we have seen a growth in the last half of the year, also again as we predicted when we started the year. Then moving into the two segments that we report on. Firstly, we report on everything excluding pulmonology. And this is urology, ENT, and GI. And this area with 1.2 billion DKK in revenue for the full year, this now makes up 45% of our total endoscopy revenue. What has driven an impressive growth of 38% for the year and 37% in the fourth quarter has primarily been a very strong growth in our urology business, driven by a mix of new customers that are being added and then also serving our existing customers more than we have done previously. A lot of the growth has come from our U.S. organization, but we also see strong momentum elsewhere, in EMEA particularly. On ENT, we also maintain a high growth level, and this is also a lot related to our U.S. business, and we see the growth there coming from fees, procedures, and also improvements in our systems that are adding features that benefits our ENT customers. Then coming to GI, and I'll come back to this later, we also see the launch of Ascope Gastro continuing to progress nicely. Our focus is very much on specific niches as previously communicated. Significant part of these are in the OR, so outside the suites. And we continue to see good momentum and progress, and not least, very good feedback on the product performance, which we are very happy and proud about. Then moving to our largest segment, which is pulmonology. And this one looks a little more busy than the previous one. But let's just start with the highlights here that overall for the year, we grew 2% on the revenue in pulmonology. And if we look at the fourth quarter, we grew 16%. We said when we started the year that the first part of the year would still be affected by a period of normalization after Corona. We saw the inventories that our customers had bought during the Omicron wave but that were not used still impacting the sales in the first half of the year where the customers still had inventory that they had to use. But the good news is that we believe that we are behind this. So now we are fully normalized when we look at our business. What we have tried to illustrate on the graph here is an illustrative estimated impact of corona, because we did see a huge demand driven by corona over the past years of our bronchoscopes. And this, again, is normalizing. But when we look at a CAGR on a four-year horizon, it still was at 12.5%. And if we go one year back, because we had the triathlons by back in 18-19, it's actually also close to 12%. So we have seen a good uptake. What I'd like to highlight here also is our Ascope 5 portfolio, because this one we launched as the best performing single-use endoscope to date. It was targeted initially at the Bronx suites in the hospitals where they do the most advanced procedures, but we also see the demand in other segments in the hospital, which is driving good momentum and which is very promising for our future in pulmonology. Then moving to our anesthesia and patient monitoring business. For the year we saw a decline of 1% in this business and if we look at the fourth quarter we had a 2% organic growth. This segment has been impacted. If we look at The graph here, we have three years where it was more or less flat. And then because between 2021 and 2021-22, we saw some supply chain contractions due to COVID. So last year, we have a very high comparable because of the stockpiling and the backlog that impacted that year. And now we have continued to be on the same level where they had the inventories at the customer level going into the year. And we expect to continue to also have a fully normalized business year where we, as previously communicated, have taken some strategic initiatives to also improve our profitability in this area, some of them also impacting our revenue growth. But this is what I'll come back to some of the balance that we are making between growth, which is our key focus, but also improvements in profitability. If we look back to endoscopy and look at the portfolio that we have in the market right now, what you see here is our full portfolio and products in development across the four segments that we operate in. The red or pink dot represents products that are already in the market. The blue dot represents products or solutions that have been approved during the fiscal year we just exited. And then we have the green dots that are products in development. Overall, I think there are two areas that I would like to highlight. And one is pulmonology, where we continue to be focused on our video laryngoscope in development, but where we also have a new program here, which is our next generation bronchoscope, which is a scope that is... supposed to continue the success of our Ascope 4, which will coexist in the market with the more advanced Ascope 5 Bronco. The other thing that I would like to also draw your attention to, which is new here, is under the system where one thing is that we continue to have advancements on our system which benefits our endoscopes across the different areas. But we have also in the past couple of years done work within AI. And recently we launched our AI solution in bronchoscopy for training purposes. So basically we have a bronchoscopy positioning system that allows new healthcare professionals to use it as a training where you can basically, with our AI solution, see in what parts of the body has the endoscope been. So you're certain to make sure that you have... looked into all relevant parts of the body when using AI. So we have a lot of other features in development where AI can benefit our customers going forward. This one is for now for training purposes and not yet approved by regulatory bodies, but it's already in the hands of customers with very good and positive feedback. So I talked about GI and that I wanted to return to GI. And as mentioned, we had in the quarter two new solutions approved. We had our GastroLarge, so the first gastroscope with a 4.2 millimeter working channel, which improves the suction function, which is very important for gastroenterologists. Then we also had a project approved by the FDA, our colonoscope, a project that has been in development for a number of years now. We continue to be very excited about the GI market and potential in this area. As you can see to the left of this graph, the total market in terms of procedures is over 68 million procedures that are annually performed within gastroenterologists. Right now, with our portfolio consisting of Ascope Duo 1.5, Ascope Gastro, and now GastroLarge and our Colonoscope, and the niches that we are targeting, we are only targeting 5.5 million of these procedures. As we have also previously said when we launched our new strategy, we reshuffled our commercial resources and took some focus away from GI to focus on the more immediate revenue drivers in pulmonology, urology, and ENT. So for GI, we have a much more limited commercial focus right now. It's an area that we see being very attractive for AMBU on the long-term horizon. It's an area when we visit customers and engage with key opinion leaders that we see significant unmet where we believe that we can address those with our solutions. it's also an area where we didn't get it right in the first place so we have moved even closer to our customers to make sure we fully understand their needs and therefore we are very excited to continue to focus in this area but again with a balance of resources so we take a very niche based approach commercially just in the same way as we did when we launched our bronchoscope some 15 years ago So hopefully that clarifies our focus. We still have two solutions in development in this area, a cholangioscope and then our DUDENU2, so the second generation, which is built on the same system and platform as the other endoscopes we have in the market, and where we also aim to take a much more niche-based, stepwise approach when that comes to market. Then I also said I would return to sustainability. And let me just talk about the achievement that we are very proud about in that we have, as the first company in the world, launched the bio-attributed plastic handle in our gastrolage that is on the market. And this is only the first step because during the next fiscal year, we expect to use the same material for all our scopes. And we aim to be done with that in around a year from now. So this is faster than what we set as a target for ourselves, but we believe our commitment to the sustainability agenda is extremely important. The material that we are using here will actually reduce the carbon footprint by 70%. And given that the handle takes up a significant part of the plastic used in the endoscope, this is something that will have a meaningful reduction and something that we get very good response from with our customers. And turning to why we're doing this, it's twofold. It's first of all because we have a strong commitment to sustainability ourselves, but it's also because we see increasingly that this is a focus for our customers. Our customers also want to be more sustainable, and we actually believe by being leading in our area that this is also a competitive advantage. We see this being a criteria in an increasing amount of tenders. We see this also being something that is introduced in more and more countries. So we are very excited about this step. But this is only one of many things that we are doing. If we just look at a few other areas that we have focused on in sustainability, we submitted our near-term targets for SBTI, not only Scope 1 and 2, but now we also have a plan for Scope 3. We also continue to improve on the energy sources that we use, and we increased our share of renewable energy by 1.3 percentage points this fiscal year compared to last year. And then we have a number of things that we do to continue to optimize our production. Not only does Ascope 4 now have a 55% lower CO2 footprint than Ascope 1 had when we launched that, but we also focus on other measures. Examples mentioned here is reduction in water consumption and total waste over 7% on both of these individually in the year. Where others has a strong focus on net zero, our focus has been expanded also to focus on the products and packaging, exactly because this is something that our customers find important. The bioplastic in the handles of all our scopes is just one example that I just talked about. We are also taking initiatives on our packaging for high volume products that we have in our portfolio. And then we are offering recycling programs in our main markets, something that we are learning from and expanding because we want to help our customers also be more sustainable. So with that update, I'll now hand over to my colleague, Thomas, who will go through the financial results from the year.

Yes, thank you, Britt, and also a warm welcome from my side. So let's jump into the financials. It has been a good year with solid performance and strong progress throughout the year. And where we've delivered 7.6% organic growth, And throughout the full year, with a little bit up and down, but for the full year, limited and modest currency impact from foreign exchange by a modest 7 million, resulting in a reported growth rate of 7.4%. The 7.6% organic growth for the full year has been driven by good momentum in our endoscopy solution business across all regional geographies. And the main growth driver also resulting in an overall Q4 organic growth of 14%. North America grew revenues in endoscopy solutions by 32% in Q4 and 23% for the full year, with continued high growth in urology and ENT. As a result of high comparables, last year anesthesia and patient monitoring remained flat with organic growth respectively of minus 1% for anesthesia and 1% for patient monitoring, resulting in a total growth for North America of 12% for the full year. Europe, full year organic growth of 3%, driven by endoscopy solutions also in Europe, a growth of 16% in Q4, and 5% for the full year. Patient monitoring in Europe declined by 1%, while anesthesia grew 2% for the full year. And rest of the world grew organically by 5%. Also here in this part of the world, we saw positive growth in endoscopy solutions and also patient monitoring, respectively with 18% and 10% for the full year. While our anesthesia business also here declined by 13%. Again, also impacted by high comparables and stockpiling last year. If we then have a look at our EBIT, we have delivered an EBIT margin before special items of 6.3%, resulting in that we have more than doubled our absolute earning compared to last year from 112 million in 21-22 to now 302 million in 22-23. The improved EBIT margin of 3.6 percentage point is a direct result of the activities and initiatives that we have started in the beginning of the year to drive profitable revenue growth and also scale in our operating expenses. And if we have a look at our gross profit and gross margin, gross profit was a total of 2.7 billion, representing also an increase of 6% compared to last year. And our gross margin in Q4 reached 56.8%, also equal to the full year gross margin level of 56.8%. It does represent a decline of 0.7% versus last year, primarily due to higher input prices, but also higher overheads from our scaling of our factory in Mexico. However, also offset by a strengthened revenue mix for the full year. Clear focus of ours has also been in driving efficiencies and scale in our OPEX cost. And that's part of our strategy and also part of the long-term financial targets. In the second half year, we've executed well and also fast to drive scale in our OPEX. So we've reduced our OPEX ratio down from 55% end of last year to 52% at half year, and now down to 49% in Q4. For the full year, it represents an OPEX ratio of 50%, meaning a full 5 percentage point improvement over last year. And that we have achieved by our cost reduction program and lower staff costs throughout the year, from lower freight rates and distribution costs, especially also lowering of air freight. and by driving efficiencies and general cost containment throughout our operating expenses. So very pleasing to see the good progress that we have made in the OPEX scaling, and also, as mentioned, very much aligned with our long-term target of an EBIT ratio of approximately 20%. Cash flow and positive cash flow, of course, is key for us to be able to fund our innovation and therefore, of course, of high importance of ours. And we've been very focused throughout the year to improve our cash flow and to secure that we deliver sustainable, positive cash flow through a more disciplined capital allocation. And through a detailed plan and execution, we've delivered significant improvements in free cash flow quarter over quarter. So starting from an improved, however still negative cash flow in Q1 to a slightly positive cash flow in Q2. to a good and strong cash flow in Q3, and then even further strengthening that cash flow in Q4 to 188 million DKK for the fourth quarter. Therefore, of course, I am particularly pleased and also proud to report a full year free cash flow of 192 million DKK. DKK and an improvement of a full 650 million DKK compared to cash flow last year. That certainly puts the company in a good position from a cash flow perspective, but also from a balance sheet perspective. And the improvement in free cash flow we've achieved by delivering on our improved EBITDA through a drive for profitable growth, efficiencies, and scalability in OPEX, as just mentioned, resulting in a very healthy EBITDA improvement from 6.6% Q4 last year to now 15% for the Q4 2022-2023. We've reduced our inventories from an all-time high inventory end of last financial year of 1.2 billion DKK to now 907 million DKK end of this financial year. So an improvement of more than 300 million within 12 months. Networking capital. Ahead of plan, we've actually achieved our mid-term target of a networking capital ratio of 20% end of this financial year through inventory, as just mentioned, but also better payment terms and improved cash collection. And last, but certainly also not least, we have a lower CapEx spend. This achieved due to a better project prioritization, better planning, and certainly also better cost control. So in conclusion... 2022-23 has been a very good year with strong progress and where we've strengthened our financial position and where we've delivered on our financial targets for the year. And with that, that includes my presentation for the financial year 2022-23 and I now hand it back to Britt.

So thank you, Thomas. And before opening up for questions, let me go through our financial guidance for the fiscal year that we already entered strongly for 23-24. So commenting on these numbers, but first taking a step back. If we look at the year that we just left, it was a year that was affected in the macro environment by a lot of volatility on the geopolitical front, on inflation and so forth. And this is something that we expect to continue. But I also think that we have taken the measures needed so we are not that exposed on the geopolitical front. Also, when it comes to our key customer group, we continue to see health systems and hospitals being under pressure, suffering both from human resource challenges as well as financial challenges. And this is also something that we expect to continue, which is both for Ambu and Opportunity, but also that causes some challenges. So with that in mind, we feel very confident to put out an organic revenue guidance for the year that we have started now of 7 to 10% organic revenue growth. This growth we expect to be driven by our key focus area endoscopy solutions, which we expect to grow by 15%. If we compare these with our long-term targets that we set out in March, our long-term CAGR over a five-year period for the total revenue was plus 10%, and for endoscopy, 15% to 20%. So we are with the 15% at the lower end of this. Also, when we look at our growth, and this is important to note, some strategic initiatives that we have taken related to our anesthesia and patient monitoring business, we talked about these in the last quarter as well, exiting countries, product discontinuations, that actually is baked into the outlook but would have had or does impact the outcomes. the revenue by one to one and a half percent. But again, included in our guidance. Then when it comes to EBIT margin, we also have a long term target of 20% potentially to be offset by opportunities to invest. Here we expect and we are very committed to increase from the 6.3% that we existed this year with. So we are guiding for 8 to 10% next year. And then last but not least on our free cash flow, we continue to improve that and our guidance is to be above a free cash flow of 270 million for the year. driven by both a higher EBIT margin and also continuous saving from our cost reduction program. So let me finish by concluding that we strongly believe that we are an interesting company with a very attractive potential. We are in endoscopy in an attractive, fast-growing market for single-use endoscopy, where there are significant unmet needs that we can target and also a focus on more patient safety. So the single-use benefits in terms of workflow improvements, patient safety, health economics and sustainability resonates well. And we are well positioned with the largest single-use endoscopy portfolio to win in this area. And with our dedication in sustainability that we talked about today, that should be a competitive edge in the years to come. We have a scalable business model that is also a key focus in our transformation program. We built on a strong legacy of high innovation know-how and continue to expand our capabilities. We have scalable production facilities and a strong global commercial infrastructure with our own presence in all major markets. We launched an exciting transformation journey that we are continuing to have as a focus for the next couple of years. And with a strong balance on growth as our number one, but also improving profitability, we confirm also our long-term targets and are looking forward to deliver on these in the period to come. So that concludes Thomas and my presentation, and I'll now hand over to the operator to open up for the Q&A session. Thank you.