Ambu A S Ord

Hello, everyone, and a warm welcome to this earnings call where we will present our Q3 24-25 financial results. I'm Britt Mielbjørnsen. I'm the CEO of Ambu. And with me today, I have Henrik Skagbender, our Chief Financial Officer. We'll give a short presentation on the business results, the financial results, and then we will open up for questions. If we move to the next slide, the usual disclaimer, and then moving into the highlights of this quarter or the first nine months of our financial year ending September 30th. We have seen solid growth momentum continuing and looking at the nine-month period that we have had, we have a total growth of 14.3%. Again, with our fiscal year ending September 30th, that also means that we are comfortable with today's results to also lift the lower end of our guidance. So the guidance on our organic revenue growth for the full year is now 12-14% instead of previous 11-14%. On the new launches, we continue to have good progress both on the pulmonology and urology side. I'll come back to that, but exciting advancements in the quarter of the portfolio. In terms of sustainability, which also remains important both for us and for our customers, we also have great progress on our ReCircle program. And then on the EBIT margin after nine months, we are at a solid level of 13.9%. A lot of this driven by continued improvement in our operational leverage, but also we are continuing to invest in future growth. And then we have, and I'll let Henrik talk more about this, we've had some FX headwind in the quarter as we are reporting in Danish kroner and have a lot of our business in Let's look at some of the momentum that we have had in the quarter. So more specifically, our organic revenue growth in the quarter ended at 12%. And if we break that down to first endoscopy solutions, we are at 15.9%. And that is for the full nine months of the year, corresponds to 16.4%. On the anesthesia and patient monitoring side, we are growing 6.4% in the quarter. Our EBIT margin before special items in the quarter in actual FX is 11.3%, and then we report a free cash flow of 128 million DKK. Let's look at some of the progress on the strategy front, where we continue to progress across the different zoom in areas that we define in the strategy that we launched over two and a half years ago. On the solutions for the customer needs, We are continuing to expand our portfolio both with the SureSight Connect where we now have a full range of 10 blades launched and available for customers. Most recently in the quarter we had our pediatric blades included as well. And then on the urology front we have the FDA clearance for the first ever CystoNephroScope, which is an opportunity to use our Ascope 5 Cysto for more complex procedures. We continue, and that's also where we track it on our margin and other internal KPIs. We continue to be on a very good track on our operational leverage and our execution excellence. That was a key focus area in our strategy. On sustainability, as I mentioned, we are making progress on the ReCircle program, which is basically our take-back program, where we now are in full operation in four of our largest markets, US, Germany, UK, and France, where we are actively, in collaboration with a third party, taking the endoscopes back from the hospitals after use, and they are repurposed for other use. And then we continue to also have a strong focus on our culture and how we work with strong engagement scores, strong retention, able to attract very talented colleagues. And then most recently, this morning announcing that we are making a leadership change in North America. And we will on Monday look forward to welcoming Scott Heinzelmann as our new president for North America. And let me just put a few words to that, given the importance of this role and this market. Scott will be replacing Steve Block, who has been with Ambu for the past 12 years and done a fantastic job driving and growing our North America business to where it is today. I've had a very good collaboration with Steve since I joined over three years ago, and we have had a planned process for the past number of months as Steve had a wish to see me retire, which has been actually a very good way for us to have ample of time to also look for the best candidate to take over from Steve to drive the next chapter in the exciting growth journey that we are on with Ambu. And that's where Scott Heinzelmann has a super relevant background. Over 20 years in medtech, most recent as a divisional vice president in a large medtech company where he has led a business that is more than double the size of our North America business today. He comes with a lot of experience both from big and smaller medtech. And I think he's the perfect replacement taking over at a time where our performance in North America is very strong, and then taking that even further. So a huge thank you to Steve from my side also, personally having enjoyed a lot working with him, and then also a very warm welcome to Scott. Let's move on and look at the business and the pulmonology segment where we had organically 11.2% growth in the quarter. And if we look at how does that look on a rolling organic growth for the last 12 months, we are at 10.7. So still at the double digit level that we have also previously talked about is where we see this business. We do see the growth coming a lot from continuing to expand our existing portfolio, both in terms of continuing to get new customers and also expanding the penetration with existing customers. And I would like again this quarter to single out our ASCOPE 5 in the US as a product or a solution that continues to show very strong growth. Also, our SureSight Connect is a new solution that we are bringing to market where we are off to a super strong start in the launch of that. And this is one that I'll like to put a few more comments on. So this is the product that you see on the picture here where we launched the product initially early this calendar year with five blades. It got tremendous positive feedback from the customers as a superior, very strong offering. We have then, in the quarter that we are reporting on, launched additional five blades, including also the pediatric blades. So now we have a super strong portfolio that we can both expand our customer base on, but also expand the challenges that we are solving for our existing customers who are today using our BroncoScope, Ascope 4 and Ascope 5. The beauty of this solution is that it works on the same platform, the same monitors, the same software system as our BroncoScopes. So it's very easy to To plug the Connect version in, you can even have both the SureSight, the video laryngoscope and the bronchoscope on the screen at the same time. And then you can use both products at the same time during the procedure and then add the disposable blades that come with light and camera. Very excited about the customer feedback that we have and we look forward to continue to also see gradual uptake on this solution together with our full portfolio in pulmonology that we are strengthening. Let's move to the other segment in endoscopy, our urology, ENT, and GI. In this segment, we report an organic revenue growth for the quarter of 20.8%. If we look at how that translates into the last 12 months rolling growth, it's 21.9, so a good percentage point higher. If we look at where the growth is driven from here, it's a continuous growth of single use offerings versus reusable across the three different areas. Our ASCOPE4 is the main growth driver when it comes to amounts, both when we look at specifically urology and ENT, where we are seeing both a good traction on continuing to get new solutions in, even though these solutions have been on the market for six, seven years by now. And also we are continuing to expand the penetration among existing customers. So I think this also shows the cycles of use among our customer base that they're gradually continuing to expand and we are continuing to see new customers seeing benefits with our solutions. very much driven by improved efficiency in the hospitals and clinics where they simply believe that with fewer people, fewer staff, they can treat more patients. Something that resonates very well in the health systems of today. Then also we have our good focus and good traction on our new product launches, the Ascope 5 urethra, the Ascope 5 Cysto, also with the expanded Cysto-neuroscopy indication. And then when we look at our overall single our overall single-use market share, that we see with the addition of the new segments continuing to grow, although the revenue, as we have talked about earlier, continues to be limited in the bigger scheme of things from the newly launched product. But I think this also reflects very much what we have talked about numerous times, the typical time of the sales processes that we have. If I just put a few words on urology where we have expanded the portfolio and take a step back, this is an area that AMBU was not known in or not in five, six years ago, and where we today have managed to redefine how endoscopy is done, leading what I talked about before, the higher patient throughput, the efficiency in the hospitals and clinics, and doing it in a sustainable way. The addition of the indication for Ascope 5 Cysto, as well as the uretero launch, is basically positioning us in a way where we are able to address the needs of more, in particular in the hospital, more departments, more doctors. As we are moving away from where the CystoScope has been super successful, a lot focused on the bladder cancer screenings and treatments into the more complex procedures around kidney stone management and more complex urology procedures. This is a way where we also can leverage our full system and platform where it's the same basically monitors and software that supports across the full portfolio in urology, thereby having a very strong offering to drive growth for the next many years to come as we're continuing to focus on urology. Let me, before I hand over to Henrik, put a few comments to anesthesia and patient monitoring. Here we saw growth in the quarter of 6.4% overall. And if we look at the last 12 months rolling, it's 10.9%. It's as expected and previously communicated. It's lower than the rolling 12 months. The reason being that, as you may remember, we last year took some quite high price increases that made the comparable relatively lower. And those took place in the spring, one and a half years ago. So those lower comparables are now over. So that's why we're also expecting to see slightly lower growth rates or more normalized growth rates, if you will, than the double digit that we saw for a couple of quarters. If we look at what has driven this growth, we had a very strong quarter when it comes to patient monitoring with 9.3% organic growth. And then the growth in anesthesia was 3.9%. So still a nice growth driven both by volume and pricing. Pricing is the area, as I just talked about, where we have won a lot, and it continues to be a focus, but we are more down to normalized gradual price increases than the high prices that you saw some one and a half years ago. So that concludes my part, and I'll hand over to you, Henrik, to go through the financials.

Thank you very much, Britt, and happy to take you through the financials. So I'll start where Britt also landed and comment on overall growth first and reiterate that we feel we had a very strong growth in Q3, an organic growth of 12% overall. Of course, then, if you convert that to reported growth, 9% growth is quite a bit lower, and this was mainly, in fact, affected by the US dollar depreciation versus both the euro and the DKK. a factor that I will come back to also both the impacts on margin, but also what that means for how we see the rest of the year. If you look at the growth by geographical region, we were very happy to see strong continued growth in US and in Europe, and also very solid growth in rest of the world. So overall, a very solid quarter across all of our business areas and also all of our geographical regions. If you look at the EBIT margin, we also landed at what we think was very solid EBIT margin, obviously lower than the previous quarters at 11.3, but heavily impacted by the FX. Taking aside the FX effect, we more or less landed actually slightly above the same quarter last year, i.e. the 12.9 that we had in Q3 of our 23-24 financial year. And that for us therefore means that this shows a continuation of our margin expansion with balancing on one hand solid organic growth and the resulting operational leverage that drives higher EBIT margin, and on the other hand continuing to invest in growth, continuing to invest in commercial activities that will drive growth going forward. But let me pause a second and look a little bit more into two factors that are impacting our results and our margins. One that had a significant impact in the quarter and one that we are more monitoring that had a minor impact in the quarter. Those two are obviously not surprising, FX and tariffs. And let me start with FX. So overall, as I said before, our numbers are impacted by the fact that we have slightly more than 50% of our total sales in US dollars. That means that with a U.S. dollar depreciation, as we saw in Q3, it has a negative impact on growth, but also a negative impact on margins. Ambo has a natural hedge from the perspective that we have a significant part of our production in China and in Malaysia. And therefore, with the correlation between the U.S. dollar and the Rinki, the Malaysian currency, and the U.S. dollar and the Chinese currency, there is a natural hedge that typically helps us. That said, the way that the FX impact down numbers is that with a drop in FX, you have an immediate impact on revenue. That is what you also saw in the difference between organic growth and reported growth from the page before. Whereas the impact on COX comes with a few months delay, driven by the fact that the full FX effect needs to go through production, on inventory, and actually be sold to a customer before you see it in the P&L. That also means that when we look further into margin and separate EBIT margin into gross margin and our OPEX ratio, you will see a negative impact on the gross margin, mainly driven by FX and mainly driven by the fact that we in Q3 more or less purely saw the negative effect on revenue and saw limited effect on the lower COX, something that will then come and support the margin in Q4. So overall, FX is a topic and we also therefore decided more explicitly to call out that for the quarter alone, we saw a negative impact on EBIT for slightly more than 30 million DKK in that quarter alone. If we look at the tariffs, it is still a very limited impact for the quarter. We are monitoring the effects that we see now implemented from the most recent changes, and those are still coming with short notice. We still overall have a solid setup, as we also commented in the previous two quarters, and believe we can limit the effects, particularly the effects in this financial year, where it will be a small still total effect, even with what we know today. So the key message here is that when we look at margin, I think in FX effects and separating that from the operational performance, super important. Tariff is something that is on our radar, but still a very small item for Q3, something that we're more monitoring for Q4 and as we go along further out, also into next financial year, but where we still see we have a lot of mitigation actions to limit the effect. With that and those two specific items explained, let me go back and explain a little bit more what are the dynamics on the margins. So if we start on the gross margin, we landed the quarter at 58.9, which is 1.3 percentage point lower than the same quarter last year. This is mainly driven by FX, where if we adjust for FX, we were actually again slightly above last year, driven mainly by the fact that our positive effects from higher gross margin in endoscopy solutions still on a relative basis, strong pricing in NPM and still on an overall level, a better and better utilization in our manufacturing setup, particular in Mexico. All of this, though, still when we consolidated all up, was more negatively impacted by FX, and therefore the comparison is slightly lower. That said, therefore, we still feel we are on the right journey, and setting aside FX, we had actually a very solid quarter also on gross margins. If we look at the operating leverage, our OPEX relative to our revenue, we had a small increase. This is mainly driven by our sales and distribution costs, which were mainly affected by the continued commercial investments in sales and marketing aimed at driving higher organic growth. Still something that we will see the full effects of going forward and something that we are investing in now also to keep the growth momentum into next year and the following year. On the longer run, as I've also explained before, we remain very confident that with the growth journey we are on, that we can continue the journey of operating leverage and driving down the OPEX ratio. And therefore, that is still, as we see it in the longer run, the main contributor of our further margin expansion towards our 27-28 goals. If we turn from margin to cash flow, we had a solid cash flow in Q3 at 128 million, something more similar to the previous quarters, if you take aside quarter one and quarter two. That said, the cash flow is still negatively impacted, particularly by network and capital, which we deliberately are investing a bit more in and allowing to be slightly higher to manage the whole geopolitical situation and the uncertainty around tariffs. Therefore, the quarter was quite solid, actually, considering that we had this higher level, and we continue to maintain a higher level for the full year. Next to that, we also had slightly higher capital investments, which is something I'll come back to on the next page. And last but not least, with an FX effect on our earnings that also impacts our cash flow. Putting all these things together, we've therefore decided to update our soft guidance on free cash flow from plus 500 million to around 400 million for the year. Again, mainly driven by our higher networking capital ratio to support the business in this geopolitical situation. If we break it down into the different drivers of free cash flow, as I said before, if we start on the right side, the EBIT margin did drop. I explained before the impact particular from FX being the main driver. CapEx did move up. As I also explained, we did decide consciously to invest more amongst others, particularly in R&D, where we are seeing an increase versus previous quarters. deliberately with investments we're making for the future. And last but not least, with a higher network and capital ratio that did drop relatively speaking to the previous quarter, but are still higher than our longer term target of 20%. We still believe we can get to the 20% longer term, but are deliberately allowing it to be slightly higher given the geopolitical situation. So despite the revision in the free cash flow, we still feel quite solid performance and also on the right track towards our longer term targets. That means in summary, if we summarize it all, we are happy today to specify that our organic revenue growth guidance is now narrowed from previously 11 to 14 percent to 12 to 14 percent with a strong continued growth for Q3 and with the prospects we see into Q4. We feel a very strong testament to the continued growth journey we are on. Secondly, we are happy today to confirm our guidance on the EBIT margin. keeping it at 13% to 15%, though noting that with the current assumptions, particularly on FX, as I mentioned before, it needs a positive effect for FX in Q4 for us to end in the upper range of that guidance. And therefore, with what we know today, it is still, we feel, a solid testament to our performance that we can keep it as it is. And then last but not least, a revision to our free cash flow from the previous plus 500 to around 400. We feel still a deliberate intended investment in higher networking capital, slightly higher CapEx being the two main drivers next to FX, a strong position to be in and a position where we continue to build balance sheet strength with more and more liquid funds and a negative net interest bearing debt. Overall, That concludes our presentation on what we feel is a very solid quorum, and we're now happy to hand over the word to the moderator and take questions from the participants.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and then 1 on their 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 then 2. Questionnaires on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star 1 at this time. Our first question comes from Thira Lee, UBS. Please go ahead.