Ambu A S Ord

Good morning, everyone, and welcome to this earnings call this morning where we will report on AMBU's first quarter results in our fiscal year 2023-24. My name is Britt Mielbe Jensen, and it's a pleasure for me to welcome our new CFO, Henrik Skagbemberg, who joined us the 1st of January to lead our finance, legal, and IT function as our Chief Financial Officer. For the agenda today, Henrik and I will first go through our financial results. I'll present a business update and hand over to Henrik for the financials, and then we will finish the call with a Q&A session. So starting with the highlights of the business, we are off to a strong start for our first quarter this year with a 14% organic revenue growth hereof, at 25% growth in our key business area, our endoscopy solutions area, compared to 3% in endoscopy last year. This strong revenue growth is partly the reason why we also can report a strong EBIT margin before special items of 10% for the quarter compared to 6% last year. And then looking at our free cash flow, we report 135 million DKK for the quarter, which is an improvement over last year's quarter of 309 million. So overall, we are very satisfied with the strong start to our fiscal year. Let's look into the progress that we have made on the different zoom-in areas in our strategy. So as usual, we report on these four different areas. And this quarter, I'm happy to announce that we have had progress across all four areas. If we start looking at our solutions, the key events that we have had in the quarter has been in our urology business where we both had our ureteroscope, Ascope 5, approved in Europe end of November. It's still pending in the U.S. I'll come back to some details on this. And then we had also our Ascope 5 Cysto, so our advanced CystoScope receiving European regulatory clearance. When it comes to our focus on excelling in execution, I'm also happy to announce that we continue to be on track on our plan with the transformation program to deliver improved efficiency and scalability. I'll let Henrik later in his presentation comment on some of the plans and progress that we have in this area of our transformation program. Then looking at sustainability, this continues to be a key focus area for us across the business and we continue both on a corporate general level and also when it comes to our solutions to deliver strong progress and I'll report on that a little later where in the quarter that we report on we set our net zero emission target for 2024 and we also had our short-term SBTI approved. Then the last area is around our people. This continues to be a key focus area and we are continuing to make progress in optimizing how we work within our values of the company that we launched last year. At the same time it's also a pleasure to announce that we now have our executive leadership team complete with Henrik joining January 2nd and we have announced a few weeks ago that On February 1st, we will have Romana Hassan joining us as the Chief Marketing Officer. So with that, to conclude, this represents solid, continued progress across the four areas of our zoom-in strategy that we continue to be on track on delivering on. Let's look at some of the different business areas that we are in. Overall for the quarter, we delivered revenue of 1,254,000,000 DKK, which represents a reported 14% growth, 25% in endoscopy, and 1% in anesthesia and patient monitoring. This also means that for the quarter, endoscopy solutions now represent 60% of the total revenue versus 40% for anesthesia and patient monitoring. If we look into the different business areas, starting with endoscopy solutions, again we grew 25% in this area and continue a quarter-over-quarter growth within endoscopy solutions. The growth is mainly driven by progress with our already marketed solutions in a single-use market that continues to grow. If we look into the different components starting with pulmonology, we had solid growth in pulmonology in the quarter, but also bearing in mind here that we have relatively low comparables from last year where we were still through the normalization after COVID. Our ENT and urology areas continue solid double-digit growth due to both new customers and expansion of our presence within the existing hospitals that we are in. So overall a very good momentum in our endoscopy solution business. For endoscopy we report on pulmonology and we report on everything else so excluding pulmonology. If we dive into the pulmonology segment first, Again, 18% solid growth when we compare to the relatively low comparable from last quarter, but still a quarter-over-quarter increase compared to the last couple of quarters. Last year we had the normalization from COVID where we still had inventory in some hospitals that they had bought from the last wave of COVID that they didn't need and this we are completely through now so we are looking at completely normalized data in this segment. What is also exciting in pulmonology is that we have a strong portfolio that we are continuing to advance We still have strong progress on our most advanced solution, our ACE Group 5 Bronco. In December, we could report that we had, with the Center for Medicare and Medicaid Services, CMS, in the U.S., we had been granted a special additional payment that I'll explain a little bit on later in this call. If we look at one of the factors that partly influence the pulmonology sales, that's flu levels. And just as a snapshot into how the flu season is looking and was looking in the previous quarter, what you see on the graph here is the U.S. numbers. The pattern when we look at European data is quite similar. And what you can see is that if we look across a five-year average, the flu levels in the quarter that we just exited were higher than what we have seen over the five years, past years in average. But if we look at last year, so where we're immediately comparing to, we can see that the levels last year were slightly higher. What you also see in the graph is that in the past couple of weeks, we track this on a weekly basis, the numbers have been going down. But again, it's very difficult to predict how will that move from here, in some years as you can see in the graph it goes back up and in other years it doesn't. So this is something that we follow and that typically impacts the revenue positively in the Q1 and Q2 of our financial years. If we go back to this status that we got with CMS that I alluded to, let me just explain a little bit what this is about. So CMS has granted as the only bronchoscope, we have been granted this TPT, so the transitional pass-through payment. The reason why we have been granted this payment, which is in effect from January 1st this year, is basically, as CMS referred to, it's based on the evidence that our bronchoscope is a substantial clinical improvement over currently available options. This is very good news for us. It's something that will last at least 24 months, potentially expanded another year, where it basically means that we will, in terms of financials, that for the large part of the procedures being performed, the device cost should be covered by this additional payment by CMS. This is not something that we expect to have immediate financial impact. It's something we expect to see gradually and it's a little difficult right now to fully estimate the financial impact. But it's something that we of course are following closely and we are making sure that this is as broadly known among our customers as possible. Now let's look at the part of our endoscopy business that is not pulmonology. Here we saw an impressive 34% growth in the quarter. And the main growth driver in this segment continues to be our ENT and urology offerings that continue to grow very strongly in quarter over quarter. When we look at the quarter, as I mentioned before, we have seen a strengthening of our urology offering with our sister high definition for the more advanced procedures, And then also with our ureteroscope, which received CE mark in Europe end of November. Let's look at the ureteroscope and how we see this new product. Basically, as I said, it was approved in Europe. It's not yet approved in the U.S. For AMBU, this is the first time that we launched a single-use endoscope into a market where we are not first movers. This is because this market has partly already been starting to transition into single use. We have a very strong value proposition to our customers in this segment. The image quality is very high for our product that we launch to the customers. We are also launching this as part of our integrated urology platform, so basically with a system that can cater for our ureteroscope and cystoscope combined, and also that integrates on a number of parameters into the hospital systems. And then with our sustainability focus, it's also the first single-use ureteroscope that is made of bioplastic material in the handle. So on the right side on the graph here, what you see is where we are in the launch process. And just to recap one of our launch processes, because what happens when our product has been approved is that we for the first time are able to test our product in real-life cases and in real-life patients. So this is a process that we refer to as our controlled market release. where we test the technical features and the quality of our product in a number of cases before we proceed into the launch phase. This is also why we refer to the launch phase of our product that is a period of six to 12 months that we are right in the middle of, and why you should not expect any significant revenue from the ureteroscope in this fiscal year 23-24. So let me finish off by looking at the business area, anesthesia and patient monitoring. In this area we grew, when we look at organic growth, 1%. Reported it was slightly less due to FX impact. The comparison from Q1 last year, it's slightly higher compared to where we are today, due to the fact that we, by end of the last fiscal year, exited 40 markets to reduce complexity and increase focus. In these 40 markets, we had a rough revenue corresponding to 20 million DKK, where the vast majority were anesthesia and patient monitoring products. Also, what is a key focus in this business area is improving profitability. This is where we have a very strong focus on pricing where we in some instances are taking quite significant price increases in order to also improve our profitability and where we are also prepared to let go of some contract and volume in some cases in order to strengthen profitability. This is something that we are in the middle of and where we still see a lot of opportunities to drive more price increases in the year that we are we're through now. Our contracts are typically anywhere from one to three years. A large part of our business is contracted, so this is something that happens gradually. And where once a contract is negotiated, it still takes some months before we have a full overview of the volume impact. So last but not least, before I hand over to Henrik, let me look at the sustainability progress that we have made in the past quarter. Sustainability is a core part of our strategy and something that is a key focus for us in management. This quarter, we not only finalized our plan and our commitment to be net zero emission by 2045, something that is also becoming a requirement for some of the big buyers and big customers. We are also very happy with our SPTI target approved our total emissions targets where we have set an ambition for Scope 1 and 2 to reduce our emissions by 35% by 2029-2030. When we looked at our Scope 3 emissions, which is a large part of our total emissions, we have set a target of 82% of suppliers to set time-based targets by fiscal year 2026-2027. So an area where we now have completely focused on delivering and progressing. Another key part of our sustainability focus is on our products and packaging and how we can also help our customers to operate more sustainable. We reported in the last quarter on our circular product with the bioplastic that we are on to roll out and implement on all our endoscopes, which is happening gradually over this fiscal year. Then our focus is also on circular packaging and we're doing different pilots on recycling to also optimize that part. So overall this concludes my section and I'm pleased to hand over to Henrik to go through our financials.

Thank you very much, Rit. Thank you for the warm welcome. I've been with ABU now for a month and had a chance to With the organization, I look forward to now and over the course of the next weeks and months between you, investors, and analysts. Today, I will start out by talking about the key financials. Then I'll talk a little bit about our transformation program and then end with some comments on our guidance. So starting with revenue, as Britt said, we had a very solid Q1, a very solid start of the year. overall revenue of 1.254 billion DTK, corresponding to a 14 percent organic growth, partly offset by a negative FX effect, leaving us with an 11 percent overall reported growth. Next to all of the segment updates that Britt provided, looking from a geographical perspective, all of our three major regions grew, both North America, UK, North America, Europe, and the rest of the world. U.S. in particular impacted obviously by the negative currency effect as that was mainly a negative effect from the USD, DKK development during the year. Still it's important to say as Britt also noted when looking at the revenue growth that we are looking at a comparable Q1 from last year where we had some effects with NHS reordering coming in this year. and in particular within the pulmonology as strong Q1 versus last year, also because of the weaker Q1 last year. Looking at margin, we also posted a very solid EBIT margin at 10% corresponding to a 4 percentage point increase versus last year. The majority of that driven by scale effects on our OPEX. In other words, we had a strong organic growth and managed to to still invest in our organization but drive a higher scale on our OPEC ratio. I'll come back and comment both on the gross margin and OPEC development on the following slides. Starting with gross margin, a slight increase in gross margin of about 0.4 percentage points, driven by a combination of a favorable product mix, having our endoscopy business growing by 25% with a higher margin than our A and PM business going by 1%, obviously driving up the gross margin. Offsetting that in part, both FX effects, but also still a higher than planned overhead cost in Mexico driving down the margin partly, but still a very satisfactory result and a good step on the journey towards increasing our gross margin. Looking at OPEX, our OPEX ratio decreased by 3.6 percentage points. driven by a combination of the higher sales and still a proven approach to how we manage our costs while investing in more resources into our commercial organization. The OPEX costs will still continue to be a focus area both on one hand to ensure that we can drive long-term organic growth, but also on the other hand to ensure that we can deliver on our ambitions to scale OPEX costs more. In the quarter, we had Slight increase in management and administrative costs, mainly because of higher administrative costs. The rest developed as planned. Turning then to cash flow, as Britt said earlier, we had a strong cash flow for Q1. Posted a 135 million DKK positive free cash flow, which is more than 300 million DKK better than the same quarter for last year. This is driven by, in part, obviously the improved earnings that I described before. but also a continued positive development on network and capital. If we double click on some of the key drivers, our network and capital ratio, which is total network capital at the end of the quarter divided by the last 12 months rolling revenue, ended at 19%, slightly below our expectation level of around 20 that we have earlier communicated. And we are expecting to see a little bit of increase also relatively speaking in the quarters to come. So this is also driven by some one-off effects with slightly lower inventory, slightly lower AR than we would normally see. Next to that, our free cash flow was also positively impacted by lower capex ratio of revenue at 4%. Again, this is more timing. We're expecting this to pick up in the coming quarters, but with some of our key development projects only really starting up and scaling up now, it ended lower in the first quarter. So all in all, a very satisfactory development on our revenue line, on our margin, and in particular also on our cash flow. With that, let me turn a little bit to the transformation program. We've communicated earlier, back a year and a half ago, initially when launching the zoom-in strategy, that there was an initial phase of scoping, then a phase of quick wins, and then a phase running from this year and onwards on building the foundation for the future. I'm happy to say overall that with what I've seen, I think a lot of great things have been done already. Still, I think from my perspective and from the management perspective, we have more to do on quick wins, and therefore we will still continue to initiate on quick wins for this year and driving up towards summer, while initiating the work that is required to build the foundation for the future. Speaking about the foundation for the future and coming back to our longer-term guidance, Having been part of AMBU for a month now, I'm happy to confirm that we believe still in the long-term guidance and the potential of over time driving a 10% organic growth kicker and driving towards a 20% EBIT margin with potential trade-offs in potential growth investments over time. We've talked a lot about growth, and Britt has already mentioned some of them, so I will focus more now on some of the drivers for improved margin. We are still seeing a potential for driving a higher gross margin through better pricing. We talked about pricing in anesthesia patient monitoring, but also in our manufacturing and distribution footprint, we see potential for further improvements. Even more so, we see potential within our OPEX. But balancing it against, on one hand, investing in our commercial organization to drive organic growth, which will be a key focus also going forward, while really ensuring that we work more efficiently globally as one to drive growth while also increasing the margin. I, we, are optimistic that we can still deliver on these going forward. And then lastly, let me comment on the guidance. We are maintaining our financial guidance for this financial year. i.e. a revenue growth, organic growth, in a range of 7% to 10%, a bid margin of 8% to 10%, and a fee cash flow of $270 million plus. With a strong Q1 behind us, obviously we are happy with how we started the year, but still maintaining the guidance as we still continue to see some risks in terms of how the momentum will continue for the rest of the year, particularly on revenue, and therefore we are leaving the guidance unchanged. though still on a solid Q1. With that, I thank you for your attention and hand over for questions. So handing over back to the operator.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and 1 at this time. Our first question comes from Rikard Anderkars from Handelswagen. Please go ahead.