Ambu A S Ord

Hello everyone and welcome to today's conference call with AMBU where we are going to announce and talk about our results from Q2 and the first half of our fiscal year 24-25. My name is Britt Milby Jensen, I'm the CEO of AMBU and with me today I have the pleasure of introducing Henrik Skagbender, our CFO. We will start with the presentation of the results and then we will open up the floor for questions. But let me start with the highlights and the key messages that we have. If we look at the first half of our fiscal year, we delivered a solid organic revenue growth, bringing our first half of the year up to a total organic revenue growth of 15.4%. This is in line with our own expectations and in line with our adjusted guidance from January. Also, we had a strong start on our very important launch, Ambul SureSight Connect, and we continue good momentum on our urology launches when it comes to our Ascope 5 Cysto HD and our ureteroscope. I will come back later and talk about these launches. Then we continue a strong EBIT margin where we have 15.2% EBIT growth in the first half of the year. And then last but not least, today we confirm our guidance that we came with an upgraded guidance in January this year with 11-14% organic revenue growth and 13 to 15 percent EBIT margin before special items. Let me look at some of the results that we have for the quarter. So in this quarter we delivered In this quarter we delivered 11.7% organic revenue growth and if we break that down into our two business areas its endoscopy solutions growth grew by 13.1% and we had 9.8% growth in anesthesia and patient monitoring. These results come on the back of very strong results from our first quarter in this fiscal year and also strong results in our second quarter last year, which is the year we used to compare. Also, when we look at our EBIT margin, we delivered before special items an EBIT margin of 14.4% and we had a positive free cash flow of 80 million. Let's look at some of the progress on our strategy, because we do remain ahead of our plan when it comes to our strategy. And there were a number of highlights in the quarter on all categories. When we look at our solutions, the two key highlights and the two key news was, first of all, the SureSight Connect launch both in US and UK, our video laryngoscope solution that I will come back and talk more about. And then we also strengthened our urology portfolio in Europe with the CE mark expansion, where we can now also use our Ascope 5 Sisto HD to function in cisteroneurophrosy. These are procedures that are used either when you diagnose or when you treat the full urinary tract. Then when we look at operational excellence we continue to progress with our transformation program where we are looking and completing different areas of improvement across the company. These are continuing to deliver in alignment with our long-term EBIT guidance and we are also continuing to invest in growth as we optimize and bring the organization to a scalable setup that allows for the future growth targets that we have. Then specifically on Mexico I want to highlight that this is a factory that we opened two and a half years ago now and where we have ramped up quite a lot and now we have a very high efficiency level in our manufacturing which is comparable to to the other sites and specifically to Malaysia, where we have our endoscopy manufacturing. On sustainability, we kicked off in the quarter our ReCircle program. It's a program that we are, as a start, rolling out in four markets, Germany, France, UK, and US, where we, across all four countries, have hospitals signed up where the idea is that we collect and recycle our endoscopes. Then on the culture, we continue to be very focused on the people and culture. And under this headline, I'm particularly happy and proud that we last week welcomed Jesper Jonsen Steen as our new chief marketing officer, and who's also part of our executive leadership team. Let's look at some of the business results in the different areas, starting with anesthesia and patient monitoring. Here we delivered an organic revenue growth of 9.8%, as mentioned earlier, and on a reported growth taking into account FX, it's 11.6%. This brings our, when we look at our rolling 12 months, we are still above 10% with 10.9% growth versus our long-term target, which is slightly lower. And what we have seen is both an increase in price levels, but actually also an increase in volumes in the quarter. We continue to focus on pricing governance as a key lever in this segment. But I also have to say, as we have previously communicated, that some of the above normal price increases that we have taken were primarily in effect in Q2 last year. So that means that this quarter was the last quarter where you should expect an abnormally high effect from prices. I also have to say that what happened was that we basically didn't lose any significant amount of contracts as we had as a plausible scenario. However, what happened was that in some of the contracts we did lose exclusivity, which means that we are still closely monitoring whether we will lose some of the volume in some of these contracts because they are starting to test competitive products. So far, we have only seen a very minor effect of this, but it also typically can take a couple of quarters before this kicks in. Now let me turn to pulmonology. In pulmonology, we had an organic revenue growth of 8.5% reported, including FX, 9.8%. And if we look at the trend, which is what we are very focused on, we still see an above 10% growth when we look at rolling 12 months. If we look at some of the growth drivers in the quarter, I would like to highlight the Ascope 5 Bronco, where we in particular in the USA continues to see that being a strong growth driver. Then I'd also like to comment on the flu season because that did have a small impact on our overall growth. However, when we go back and analyze with our customers, it looks like the The 18% growth that we had in the previous quarter was also impacted by customers buying in expectation of a high flu season. So you should look at the impact on the flu season being distributed both on Q1 and this quarter, Q2. Also, I think it's worth noting that the impact of the flu continues to have a lower impact on our pulmonology business because the mix of sites of care that we have is getting more balanced. So it's to a larger extent being used for procedures that are not relating to the flu. However, when we then look ahead on this pulmonology segment, I am extremely excited and confident about future growth, and this is not least fuelled by our SureSight launch, which is a launch that is so far in the USA and UK, and which will both open up to a new market, and it should also have a positive impact on our bronchoscope revenue in these markets. And let's take a closer look at this launch. So we launched, as I said, in USA and the UK. And we did that after a shorter period for what we call our controlled market release than usual. So what many of you will know is that we typically, when a product is approved, we test it with a number of customers for a certain period. to confirm that there are no quality problems or challenges with the product, and it's also part of ramping up our manufacturing. We had overwhelmingly strong feedback and didn't see any hiccups, so that also means that we quickly moved into what we call our commercial launch of this solution. As I said before, what is important to keep in mind when you look at this product is that it's a video laryngoscope, which is a market that is very well established in particular in the USA and UK when it comes to the OR. And it's also a market that is getting more and more established in ICU and emergency care. The benefits of using a video laryngoscope over a direct laryngoscope is that it improves the visualization, so the success rate when the doctors are using a laryngoscope because of the visualization, and then it also improves the patient's safety. For us, because we have designed it in a way that it works on the AMBU systems platform, it means, as you can see on the picture here, that you can use it together with our bronchoscope and actually have a dual view on the screen and you plug it in and use it separately if that's what you prefer. And that means that that whole solution is really helping both advance our bronchoscopy revenue, but also to open up to this video laryngoscope market. So we are very excited about the feedback that we see and the uptake that we have seen in the very early phases of the launch. Although I should say that it still has a very minimal impact on the revenue in Q2 that we are reporting on today. Let me turn to the remaining part of our endoscopy revenue, urology, ENT and GI. Here we posted an organic revenue growth of 18.3%. This is slightly lower than the last 12 months rolling revenue growth of 23.4 percent when we look at what is driving growth it's primarily it's the system a scope for system it's our rhino laryngoscope and it's both new customers buying and existing customers buying more This growth is lower than what we have in the last 12 months. And the lower growth, we believe, is to some extent temporary, or to a large extent temporary. What is mainly driving it is if we look into the US, where we have seen new competition primarily coming from Chinese players. Remember that we were the first to come out with an Ascope 4, Cystoscope, and we have been alone in that market until recently. These competitors are coming in and they do exactly as our sales cycle. They do tests and use the product in procedures before they are open to sign up to a product. And that whole testing period does mean that we are temporarily extending our sales cycles. We are, of course, taking this competition serious, but we are also reminding ourselves that these solutions are, we don't perceive them to be better than our solutions. Also, I mean, for these, and it's primarily or only Chinese companies that are entering, we don't, see them having a manufacturing cost comparable to ours. So we of course expect that we should remain very competitive in this segment and it's also a way for us to continue to see an expansion of the segment where there's still a lot to gain from customers using reusable today. Then I also want to highlight for this segment our new product launches because we launched in Q1 of this year, we had the Euridro scope and we had the Ascope 5 Sisto HD launched. These are products that we believe over time will contribute to an accelerated growth in this segment. However, due to our sales cycle, this is not yet producing meaningful revenue. And to illustrate these dynamics in our sales cycle, let's stay with this segment and look at what is driving our revenue. Because what we actually do see is that our endoscope solutions that we are bringing to the market, they in general have long life cycles. What you see on the graph here, where we have taken the urology ENT and GI last 12 months rolling revenue, you can see that when we look at the Q2 last year, we had over 90% of the revenue coming from existing solutions. So this is Ascope 4 Cysto and Ascope 4 Rhinolaringo. And that means that our new products generating less than 3% of the revenue. If we then look at this one year later and new solutions being defined as solutions that have been launched within the last two years, we actually see that still over 90% of the revenue is coming from our existing solutions. So this just underlines the message that I just had before around that the sales cycles are long, which means that the launch uptake curve that you see for our endoscope solutions is in general not very steep in the beginning. This is in particular true as we have seen for new solutions that address more advanced procedures which is the case with for example our ureteroscope which as you are well aware is for kidney stone management which is typically a procedure that is longer. We, of course, as we should do, continue to see how we can learn and optimize our launch process. And we take customer feedback and learn from that. And in the case of our ureteroscope, we have also deliberately had a slightly lower manufacturing ramp up in order to make sure that we were able to manage the right quality. Because this is a product that is characterized with very specific features that are both for the reusable and for the single use can be difficult to get right. Before handing over to Henrik, let me finish with an overview of the four business areas that we are in, because we are actually excited as the pioneers and first movers into single use endoscopy. We are still the leading single use endoscopy player globally across all these segments. Also, as you see on the bars here, we continue to have a lot of white space in all of the segments, less in the pulmonology segment where we entered first, and white space meaning customers that are using reusable endoscopes today that can convert and are converting to single use. Also, what you see on this is that what we see as growth drivers when we look ahead is both for pulmonology and urology. It's very much the mix of the existing products that we believe will continue to grow and then some of the new launches, new solutions that I've talked about in this presentation. When we look at ENT, I mean, we have a next generation in development, but we continue to see solid growth coming from the first version that we launched around six years ago. And in GI, it's an area that we are newer into where we see growth coming from some of the new solutions, mainly being our Gastroscope and GastroLarge. All of this, last but not least, we have a benefit with our leadership position that we can leverage the digital, our Endoscope systems platform, our digital system that also includes increasing amount of software. We have the benefits of also having a cost-efficient setup and the flexibility for the customers that they can plug any of our scopes into that system and then start working immediately. So with this, I'll hand over to you, Henrik, to go through the financials.

Thank you very much, Britt. And before I dive into the financials, I just want to reiterate what Britt also started out with saying, being we are very satisfied with what we feel is a good Q2 in line with our own expectations and also in line with the increased financial guidance that we upgraded back in January. So if we start looking at revenue, as Britt explained, we reported a revenue of 11.7% organic revenue and in reported currency 13.7%, mainly driven up by positive effects in the US dollar DKK currency. If you look at how that splits beyond the product split also geographically, we were happy to see continued solid growth both in North America and in Europe, driving our overall base up and also driving up across all categories of products. From revenue then driving into margins, we also delivered a solid EBIT margin in quarter two, mainly driven by continued progress on expanding our gross margin, but also with what we feel was a good result in terms of our OPEX and OPEX leverage. This is a continuation of the journey of expanding our EBIT margin, which is part of our zoom-in strategy, and I'll come back to how we view the current status and also how we view the journey ahead. On EBIT margin, if we start looking at gross margin, we had a gross margin of 60.6% in quarter two, which is an increase of a bit more than a percentage point versus the same quarter last year. This increase is mainly a combination of one, that we continue to grow more in endoscopy solutions than ANPM. And even despite the price increases in ANPM, that is still a higher gross margin. That said, the price increases in ANPM are still supporting an increasing gross margin also. And last but not least, we also continue to see improvement on production efficiency across all our sites. And as Britt also mentioned, particularly now also more efficiency in terms of output from our Mexico side, even though we are still not fully utilized. And therefore, we still see potential for even further production efficiencies ahead of us. If we turn to OPEX, we had an OPEX ratio in the quarter of 46.2%, which is actually higher than the quarter two of last year. This increase was planned and part of the commercial acceleration, the commercial investments we've been talking about for the last quarters, investments particular in supporting our sales growth within the pulmonology and urology space, where as Fritz said, we've had new product launches. Furthermore, we also continue the investments in generally ensuring we have a strong and scalable organization and ensuring that we can continue to deliver and support the organic growth targets that we have ahead of us. That also means that for the rest of the year, we continue to see some further investments, but that said, also see more and more leverage as we look further ahead in the future. And on that note of looking further ahead of the future, if we look back towards when we launched the zoom-in strategy and ahead towards the targets, we as part of the zoom-in strategy communicated for 27, 28, we feel very confident on the progress we've made already. As illustrated on the slide, we are now more or less, you could say, halfway through the strategy period. And with this quarter delivering more than 15% EBIT margin, which we are very satisfied with. As communicated in our Q3 and Q4 of last year, we still see more EBIT margin expansion ahead of us, of which generally speaking we feel around a third of that expansion should come from gross margin improvements, further price increases, better production efficiencies, and generally better utilization of our manufacturing footprint. and two-thirds of the remaining margin expansion coming from OPEX leverage, making sure that we make the most of the investments we do in new product launches with new innovation, and also making sure we leverage our sales force even further than we do today. So overall, we feel very confident that these are still continuous steps towards the direction of meeting our long-term financial target of approximately 20% EBIT margin. In conjunction with talking about EBIT margin and in conjunction with looking at the world, it's clear for everybody that the first quarter of this calendar year, our second quarter in our financial year, has been a quarter with a lot more geopolitical turmoil. Therefore, we today, and with our Q2 message, also wanted to reiterate that we remain confident about our guidance and we feel well positioned to manage the potential impacts on tariffs on our business. Our main priority remains to support our customers around the world. And that also means that our focus is very much on ensuring that we can deliver products despite tariffs and despite challenges in parts of the supply chain or potential challenges in distribution. If we double down on our manufacturing footprint, we feel that our setup with manufacturing sites in US, Mexico, in Penang, in Malaysia, and in China enables us to be flexible around where we produce. And now with an even stronger output efficiency, particularly in our Mexican side, it enables us to also move across production where we see fit, both for short-term optimization and for long-term strategic opportunities. Generally, therefore, we feel confident that we can deliver on our guidance, we can continue to support our customers on every basis of what we know today on the tariff situation. Turning from margin and growth to cash flow, we also had a solid cash flow in Q2, we feel, with a free cash flow of 80 million DKK. That said, it's also clear that in our cash flow, we still continue to have a higher network and capital ratio, which I'll come back to in a second, than we've had in previous quarters and particular than we had in the last financial year. This is in part due to preparations for the product launches, particularly both the VL and the Euridro solution, but also in part us making sure that we, as I said before, can continue to supply products to our customers around the world. And therefore, we are accepting slightly higher inventory levels across our supply chain. Therefore, if we double-click on the key drivers of this, we feel, generally speaking, that a cash flow of about 150 million, just short of 150 million for the first two quarters, is a good start, and also that we can still deliver on our soft guidance of delivering around or plus 500 million DKK free cash flow for the year. The cash flow continues to be positively impacted by our increasing EBITDA margin, but then again, as I said before, negatively impacted by a higher net working capital ratio, in particular, higher inventory levels. Last but not least, ending where Bridge started and where I started, we remain confident in maintaining our guidance, financial guidance for the full year, the financial guidance that we upgraded in January, both on organic revenue, where we remain confident guiding 11 to 14% growth based on where we are year to date and based on the continued momentum we see both in the market and with new product launches, both within endoscopy and within anesthesia patient monitoring. Secondly, we also feel confident about our EBIT margin guidance of 13% to 15%. Obviously, that means that we are still expecting a slightly lower EBIT margin for the second half of the year, given that we are just above 15% year-to-date, mainly driven by continued investments in the commercial organization and also continued investments in our product launches. Last but not least, we also remain confident on our guidance on cash flow, plus 500 million DKK, despite the slightly lower cash flow for the first half year. That ends our presentation, and again, we feel confident and now ready also to answer any questions you may have. Thank you for your attention.

Star N1 on the telephone. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Our first question comes from . Please go ahead.