Ambu A S Ord

Ladies and gentlemen, welcome to the AMBU Q1 2026 conference call. I am Valentina, the chorus call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Britt Melbud Jensen, CEO. Please go ahead.

Thank you very much and good morning, everyone. Welcome to this Q1 2025-26 conference. quarterly call. I'm here this morning with our Chief Financial Officer Henrik Skagbender and we will go through our results and I'll start with a business update. So if we look at page 3 as a start and then moving into slide 4 starting with the headlines for this call. So on the back of a a strong Q1 and even a strong H1 last year. We have delivered a very solid Q1 for this year with strong revenue growth, in particular on our endoscopy business. We said in November that our growth was going to be stronger in the last part of this fiscal year compared to the first part of this year, but we are quite satisfied with the strong start of the year that we have had. In particular, what I want to highlight is that we have had very strong momentum across all our endoscopy business areas. We continue to see a very strong underlying momentum in conversions from reusable endoscopy to single-use, where we are both winning new customers on a very high rate, as well as we are increasing the penetration with existing customers. In particular, we had a strong quarter on respiratory soil, but also the other areas look strong. I'll comment on that in a short while. On margins, Henrik will come back to this, but we continue to drive a very high operational leverage while we invest in growth. So that's the balance that we continue to focus on. And then we are adjusting for temporarily high tariff costs that we have seen and also some FX headwinds. Finally, what has been a highlight for this quarter is that we launched our summer head growth strategy. We see that this has been well adopted and we see strong early momentum as we continue to be on track for delivering on our full year outlook. Please turn to the next page and let us then look at the financial results from Q1 2020. And if we look at our overall business, we now have endoscopy solutions making up 63% of our total revenue and anesthesia patient monitoring 37%. Overall, the business grew 8.6%. percent on the quarter, and that is a split between endoscopy solutions of 14.4 percent and then almost flat as anticipated on anesthesia and patient monitoring with minus 0.1 percent growth. On the profitability side, we delivered 164 million DKK EBIT margins before special items, and that corresponds to a 10.5% EBIT margin. And then we have a free cash flow of 13 million DKK. Before diving into the segments, if we move to the next slide, I'd like to talk a little bit about the market that we operate in. And here I have... two key points that I would like to highlight. The first one is that we as a company are benefiting from an overall trend towards an increase in global procedures performed with an endoscope, whether it's reusable or single use. And at our capital market day, we communicated an underlying growth rate of around 5%. And if we look at the quarter that we just exited, we see also an endoscopy volume growing at around that number. So I think that's one thing that, of course, affects our business. If we then look at what is a stronger growth driver for us, then it's the single-use endoscopy penetration. And here we see across all four areas that we are in a very strong increase If we take respiratory first, here we see efficiency and economics is really supporting the conversion from reusable to single use. And we do also have some flu-related demand that is increasing the penetration in this segment. Then in urology, we also see the accelerated conversion in particular with sister scopes, but also with our newly launched ureteroscopy market. And this is, again, driven by efficiency and economics among the customers. And on the ureteroscopy side, also a move towards single use because of the tough procedures and the scopes being more fragile by nature. Then on the ENT market, this is a market for single-use that is in particular strong in the US and in the UK. And here we continue to see a strong growth in single-use endoscopy penetration, very much driven by moving from reusable to single-use when performing the procedures. And then gastroenterology, this is a market that has not really converted to single-use. It's the lowest single-use penetration of all. just below 1%. However, what we track is some niches that are out of the suite where we see a very nice and solid conversion to single use as they are seeing the benefits of these solutions in the clinics. So if we then move to the portfolio and some of the highlights on the next slide of progress across our portfolio, then I'm excited about our respiratory area where we have recently introduced our SureSight Mobile. So this I'll come back to later, but it's basically a handheld and much more... mobile version of our video laryngoscope solution. And this one we have introduced so far in North America and Great Britain. Then when it comes to urology, what we see here is two things. One, we see a continuous progression penetration increase of our advanced solutions, Ascope 5 Sisto and also Ascope 5 Euridro. And then what we have launched in the quarter is Ascope 4 Sisto in China, which is locally manufactured at our factory in China. And this is the first time we're introducing this solution in China. Then when it comes to our indoor intelligence, we are also continuing to focus on this as an area of growing importance. And here we have in the quarter advanced our documentation to help optimize efficiency for our customers and reduce the administration burden. And we are also continuing to expand our capabilities that can support our hospitals in integration to the EMR systems at the hospital where they can upload pictures and videos to the patient files. Now let's look at the results in the different areas starting with the respiratory. So this is an area where we continue to see very strong momentum across respiratory. We saw organic growth in the quarter of 8.3% against a very strong Q1 last year. And if we look at where the growth is coming from, it's actually driven by the broad bronchoscopy portfolio we have with different sizes, both across ASCOPE 4, but also strong growth with our ASCOPE 5, where we see customers being willing to pay for these premium solutions. And then we have SureSight, the SureSight video laryngoscope that we launched around a year ago, that that is starting to generate meaningful revenue. So when we take a step back and look at some of these strong trends that we see in this market, and to guide a little on what to expect when you look ahead, we expect an acceleration in our growth levels in this segment for the coming quarters, which will be driven by both the ASCOPE 4 and 5 increased penetration and also driven by increased adoption of our SureSight solution and cross-selling of that into bronchoscopes. And talking about SureSight, let's move to the next page and look at the launch of our mobile version, which is expanding our overall portfolio in respiratory. So maybe a short recap on what we have shown before, that the video laryngoscope market, if we look at the U.S. where the market is largest, this represents a 4 billion GKK market in the U.S. alone. If we then look at laryngoscopy, it's also a method that is increasingly done using a video laryngoscope instead of direct laryngoscope. So that's basically using a laryngoscope method with a camera, and in the U.S., this method represents now 50% of all intubations that are done in the U.S., and it's a number that we see growing with around 20%. Then moving to our own solution, so we have launched the SureSight Mobile, which is basically the solution that you see at the top picture here on this slide. And what this supports is very much emergency airway management because it's a product that you can basically see the picture from the intubation directly on the screen. It means that you can have it in the pocket in an ambulance at different parts of the hospital and then have easy access to that, which opposite the Connect version that you put into and connect with one of our two screens, the AVU2 Advanced or the ABOX2 Advanced. So overall, this is a very strong addition to the already attractive portfolio that we have in respiratory. It works with the same templates that we have launched for the SureSight Connect, where we launched, as a reminder, five blades together with the Connect version around a year ago. And just before summer, we launched the additional five blades. So we now have 10 blades that both support this SureSight mobile version as well as the SureSight Connect. So now let's move to the other endoscopy products. on the next slide, which is urology ENG and GI, which is a segment that has become slightly higher than the respiratory segment now with a 21% growth in the quarter versus last year. So momentum is strong, as I mentioned in the beginning, across all the different areas that we have here with urology being the largest and biggest growth contributor, something we also expect will continue When we look at urology, growth was primarily driven by continued penetration of our Ascope 4 solution, where, again, revenue is coming from continued new customers being added, as well as increasing penetration with existing customers. And then we also see revenue increasing from our more newly launched solutions, and that is our Ascope 5 system and our Ascope 5 urethral system. Reflecting also, I mean, the speed of the uptake of these solutions, in particular when it comes to our ureteroscope, reflect the length of the sales processes that is slightly longer for these at the hospitals because these are more complex procedures by nature. So in these segments, if we look at what we expect as we look ahead, we did see a strong underlying momentum, which we expect to continue. What we also saw was that towards the end of the quarter, we saw a slight increase in the number of orders that came in before year end, which also means that we think that there are good reasons why the growth in the coming quarter can be slightly lower than the 21 percent that is highlighted here. But I do want to say that this is more the timing of orders that is a result of that, and it's not related to the underlying growth momentum that we see in urology as well as the other segments represented here. So before leaving endoscopy, maybe on the next slide, let me briefly comment on endointelligence, which is our area of growing importance that supports our endoscopes across all the areas that we operate in within endoscopy. Because where we really stand out is that we have one software platform, our endointelligence, that all our endoscopes connect to. So that basically means, and we see health systems paying more and more attention to this, that they can have our information. either our ABU2 Advanced or our ABOX2, and then basically they can use our full industry portfolio on these monitors. And it's exactly the same user-friendliness, the same functionality that you have for a number of the functions. So it's very easy to use across all the different areas. And this is where we are unique with our board portfolio. Then it also has a lot of benefits and scale advantages because as we invest in advanced software features, we can also easily apply these across all the different areas that we are in. And an example here is also that we are working on and that we launched for training purposes is the AI bronchoscopy navigation training where basically you can use the solution to see where in which parts of the lungs you have expected. Something that is not available on our A-View 2 Advanced or A-Box 2 yet, I should say, but which is again part of our overall endo-intelligence offering. When we then look ahead, there's a lot of development ongoing within this area where we are looking at how we can solutions that can improve our navigation, detection, and documentation in the different areas as we see a clear need and demand among our customers. Also, we see increasing benefits of using technology to improve our image quality across the different areas, which again is a a key lever to improve detection rates. And then last but not least, the whole integration with connected devices and with the hospital systems is also something that we see is remarkably increasing or easing the workflow at the hospitals, which is a key focus as they are overburdened with a lot of administration and still face in many countries staff shortages. So overall, an area that we will continue to talk more about and integrate in the solutions that we have. Then let me briefly also comment on the next slide on our anesthesia and patient monitoring business because this was more or less flat versus last year when we look at it organically. Our anesthesia declined by 1.2% and patient monitoring grew then on the other hand 1.1%. We still see the same dynamics in these markets as previously. And you may remember that last year we grew in the quarter 18 percent, very much driven by selective high price increases. So we are more back to normalized growth levels now, where you should expect going forward growth around 3 to 5 percent, as we have communicated previously. Also, you should expect the growth coming a lot from volume increases, but also still have some price increase development, although much more modest than we have seen in the past couple of years. And looking at the coming quarters, we remain very confident around, again, the dynamics in this segment and that we continue to see nice growth rates driven by already very strong solutions as well as a highly loyal customer base. So before handing over to Henrik, let's move to the next slide and let's well finish with a few highlights on the key focus areas of our strategy. So customer centricity remains a key area where we are doing a lot of initiatives to continue to serve our customers better. What I want to comment on in this quarter specifically is our recircle program. So our program where we take back endoscopes for recycling, which is live in four markets and where we have now expanded to cover 50 hospitals and over 100 clinical departments. And in the quarter, we also expanded this to not only include the endoscopes, the full range of endoscopes, but also now the sure-sight blades. On innovation relating to the endo-intelligence that we discussed, we continue to also strengthen our capabilities within software and AI technology and have some very strong capabilities to drive the innovation in this area specifically. And then on the business platform, an important point here is that we continue to invest in in expanding our commercial execution to support the high growth agenda that we have. And then also what we do is that we continue to also have our Mexico factory improving both utilization and output, which is very much supporting specifically the growth in North America. So with that, let's move to the next slide. This concludes my presentation, and I'll hand over to Henrik to go through the financials.

Thank you, Britt. Morning and welcome to the call, everybody listening in. Happy to take over and take you through a couple of keynotes on the financial review. Before we go to the next page, I just want to reiterate what Britt also opened the call saying we are Very happy with the solid start of the year and very satisfied both with the results, but also particular on the strategic progress. With that note, let's take us to page 15. So overall, as Britt opened with saying earlier, we had a growth of 8.6%. Adjusting for FX, the reported growth was 3.2%. We continue to still be impacted by a US dollar DKK depreciation. which impacts our reported growth, particularly for North America, but also with the mix of effects, the growth in the rest of the world, something that I'll come back to later. Overall, the growth is particularly driven by endoscopy solutions, now representing 63% of our total revenue and a total growth for the quarter of 14.4%. Anesthesia, as Britt just mentioned, had a negative growth, while patient monitoring had a slightly positive growth, meaning that overall that segment was more or less flat. With that, let's have a closer look at the geographical split of our growth on the next page. Overall, we're still on a very, very solid growth trajectory for our key markets in North America and for EMEA, both going close to double digits. The solid growth in North America, particularly driven by endoscopy solutions, and for EMEA, driven by both endoscopy solutions and actually also still on a decent patient monitoring business. For the rest of the world, we did see a decline in organic growth, mainly driven by auto fluctuations As we do see in some of these markets, very big orders for one quarter or the other, as many of these markets are still covered by distributors, which means that there will be order fluctuations across the year. Looking at the same numbers in reported currency, North America's growth was almost flat because of the USD, DKK depreciation, and the rest of the world had a higher negative growth, again, in reported currency because of the negative FX effect. If we then turn to margin and start with gross margin. Overall, our gross margin was in line with expectations. We had a solid first quarter at 60.8%, which is lower than last year, same quarter, but higher than the average for the full year last financial year. The overall gross margin is continuing to increase, driven by a combination of higher endoscopy sales versus NPM, continued stronger and strengthened price governance, And as Britt mentioned on the strategic update and increasing utilization particular of our Mexico factory, which helps us ensure that we have lower production overhead and therefore supports an increase in gross margin. Overall, we therefore feel well on track on how gross margin should develop both for this financial year, but also towards our long-term targets, supporting our EBIT margin expansion journey. And speaking about EBIT margin, let's go to the next page. Overall, the EBIT margin for Q1 landed at 10.5% report, which was a decline of 5.6% this point versus the same quarter last year. We did, as communicated in our Q4, expect and also report a significant cost of tariffs, which is driving down the EBIT margin for the quarter. And combined with that, we also had a negative development in FX. meaning that if we adjust for the combination of the two, we saw an underlying adjusted EBIT margin of above 15%, which actually is very well in line with our EBIT margin expansion plan for this year and again also for the long-term targets. Overall, therefore, we feel on a solid start. As Brits had also in our opening, we communicated that we see a lower EBIT margin for the first half, and we are going to see a higher EBIT margin for the second half of this fiscal year. And this represents a solid start in accordance with our plans. Turning to free cash flow, we did report a low free cash flow for the first quarter. Overall, this is fully in line with the typical pattern of our free cash flow, where we always pay bonuses and tax in the first quarter. And therefore, this is also in line with expectations. Specifically, the free cash flow for the first quarter was impacted by negative development in net worth and capital, in part due to us lifting some of our safety stocks across the world to manage and mitigate some of the political uncertainties we see. Furthermore, the free cash flow was also impacted, of course, particularly by the higher tariff costs for this quarter specifically, if you compare this quarter to the same quarter last year. But overall, on free cash flow, also a solid start. And speaking about solid start and then looking at our outlook on the next page, we therefore also, as Britt also said in her opening, maintaining the outlook for the full year with a solid growth of 10% to 13% organics. driven in particular by industrial solutions at plus 15% growth. We see still further acceleration in respiratory. As Britt said, for the first quarter, the respiratory growth was impacted by the very high comparables for the same quarter last year. But we see that accelerating throughout the quarter. On the R&D and GI, we see a continued momentum growth. versus where we landed fully last year. We had a good first quarter. We are seeing some order patterns that are benefiting Q1, which means that we are seeing slightly lower growth expected for Q2, but overall across the year, a continued momentum versus the same growth levels we saw for the last financial year. For the decent-based monitoring, despite a flat growth for the first quarter, we still maintain a guidance of mid-single digits, as the first quarter was mainly impacted by high comparables. On EBIT margin, the impact from the external factors, particular tariffs, we are still seeing playing out as expected. And these will mainly impact the first half of the financial year. So the first quarter, which you saw, but also now into second quarter. Overall, we feel on a solid track on delivering on the 12 to 14 percent guidance, despite the tariffs and despite the FX headwinds. Last but not least, I said the first quarter had a lower cash flow and therefore also lower cash conversion fully in line with expectations and we also still feel very comfortable that we'll be able to deliver on the cash conversion guidance for the full year so overall again a solid start of the year something we're very happy with and also a lot of great progress on our strategic focus areas and with that i hand it back to the operator and open for questions we will now begin the question and answer session

Anyone who wishes to ask a question may press star and 1 on the 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 2. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and 1 at this time. The first question comes from Tira Lee from UBS. Please go ahead.

Hi, good morning, Britt. Morning, Henrik. Thank you for the questions. I just have two, please. Firstly, I wanted to follow up on your comment about the pull forward into Q1 within the urology, ENT, and GI business. Could you just give us a little more color on why you saw this customer behavior? If you could size the benefit that it contributed in Q1 and also how you expect Q2 growth to be impacted from this. And then the second, please. you saw an absolute tariff impact of over 50 DKK million. On my map, and please correct me if I'm wrong, this suggests an impact from tariffs only of almost three and a half percentage points on the margin this quarter, which sits significantly above the average two percentage points that you're flagging for this year. Could you just tell us whether we should expect Q2 to also see an impact above two percentage points to a similar quantum, or should it be more in line with two percentage points? Thank you.

Thank you for good questions. Let me answer question, the first question on urology ENT and GI, and then I'll let Henrik answer on your terrorist question. So I think overall, I think I want to take a step back and say that if we look at the overall business urology ENT and GI, and let's maybe focus on urology, which was where your focus was in the questions, We see very strong momentum in our urology business, so that means that we continue to see an inflow of new sizable customers, and we also continue to see an increasing penetration with the customers that we serve. already have. So I think that makes me very confident. If we look at the past year, and as you also see on the slides, the way that we show it and measure internally, we very much focus on the rolling 12 months because we do see some fluctuations quarter over quarter. And what we saw, and this is basically also what we are highlighting here, in the last Four quarters we have had growth between 16 and 21 percent roughly. So that also illustrates that. And this quarter it was 21. That illustrates some of the fluctuations we have because orders are placed in one quarter relative to another. And we, of course, track our orders. And I do want to highlight that we do not, I mean, encourage with rebates or anything like that customers to buy in one quarter versus another. So let me just make that clear. But what we did see towards the end of the... Q1 that we're reporting on, we did see a stronger order, number of orders coming in. So this is basically also, we then look at the overall rolling 12 months and look at how we see the pattern of new customers and increased penetration. That leads us to believe that there could be a slightly lower growth rate in Q1. So this is basically just what we are in Q2, sorry, yes, in our Q2. So this is basically what we are flagging and what to expect. But again, I want to highlight it doesn't take anything away from the underlying momentum where we see a scope for system continuing to be very strong performing and a product that we are selling a lot. And then we do see the growing momentum on a scope five system where actually customers are willing to pay a premium for that product. And then we also see a very good increase in our ASCOPE 5 urethra, but again with longer evaluation times and thereby longer selling cycles than we see in the SCOPE's targeting simpler procedures. So I hope that explains a bit what we see and again highlighting that we don't see any cautious or any need to be negative, have a more negative view on this segment. It's simply the quarter over quarter fluctuations here.

And to follow up on the second question and perhaps just a final note on the first, I think for us also, we are illustrating this as a symbol and a signal of how we are becoming better and better at understanding the dynamics with our customers and predicting what patterns we should see, exactly as Britt said, not pushing order flows into the customers, but rather managing it together with the customers. On the absolute tariff cost, you are right with an above 50 million DKK tariff cost realized in the first quarter. That means an above three percentage point negative impact in the first quarter on EBIT margin. And yes, you should expect also an above two percentage point tariff cost for the second quarter. That basically brings me back to when we, as we explained earlier, end of last financial year, the tariff cost impacts our P&L with about a one quarter delay. And given that we are still in a tariff regime where we are moving production to Mexico and thereby compensating for the tariff costs, and we've been doing so for the last six, nine months, then there will still be an above average for the year tariff costs impacting us into two. which will then go down further into Q3 and Q4.

Great. Thank you both. That's very clear.

Thank you.

The next question comes from Jesper Ingvidsen from Carnegie. Please go ahead.

Hi. I have a couple of questions as well. On the other industry business, I don't think you've called out specifically how much this basing – It's equivalent to, but also whether we should see this in context of the 21% growth you're delivering in Q1 or more, so like against the 20% trend line that we are typically seeing for this segment. And then maybe on margin, even when adjusting for the tariffs, it seems like you have a pretty big step up in OPEX here in Q1, particularly in the administration cost. Anything to call out here in terms of one-offs, or how should we think of this for the rest of the year? And then lastly, on the margin side as well, You have updated your FX table in your report as well, so you're obviously assuming more pressure from FX, both on top line and on margin. Maybe if you could specify what kind of pressure we're talking about, and then maybe also, similarly, what kind of potential impact we could see from increasing silver prices when it comes to your simply used ellipsoids.

Thank you, yes, and I'll maybe take the first one, and I'm not sure, I mean, please correct me if I'm not fully answering your question, but again, the 21% growth that we had in urology, ENT, and GI, that, I mean, we focus mostly on the urology because that is the largest part of this segment, but actually when we look across, we actually see solid growth across the all of these three areas. So that's just one thing to be clear about. Then I think your question was around the effect on the order flow when we had a higher than normal order flow towards the end of December. And maybe just a comment on that also relating to what I said before. I think why did we see this, you may ask. I think what Some of the dynamics that we expect is that, as you know, many are finalizing their fiscal years of our customer service. 31st of December and sometimes depending on where hospitals and clinics are in their own budgets and that has actually we have seen in previous years also has an effect on how they place their order. So that is what we have seen. I mean we are monitoring this obviously very closely into this quarter and it's not because we are flagging a big concern that we see right now but it's more as we try to predict the inventories that we know are at the customer levels and when we should expect orders. This is basically where we see some of the quarter over quarter fluctuations and which is also why we are not really concerned because the key numbers that we track internally and I know we don't share this is that we see a steady flow of new customers coming in and we also see when we have the customers in that they are So the share of the procedures where they use our scope relatively to typically a reusable scope, that that is going up. And we do not see anything of concern here. So this is also why we feel quite comfortable around the growth here. So hopefully this clarifies the answer. And that, I mean, that is not only for that trend for urology. It's also when we talk about ENT and the customers we have in GI. Okay.

My question was maybe more if we were talking about, like, let's say, one to two percentage point that supported the growth in Q1, or are we talking a significantly larger contribution?

Yeah, so I think we don't cite it explicitly, but it's a few percentage points. So I think that this is why we want to be a little bit more clear on the impact and, therefore, how you should interpret the 21%. On the margin question, Jesper, then I guess the two points you asked about was one on OPEX, OPEX ratio development, and secondly, impact from FX and other commodity prices. So on OPEX overall, you're right. There was an increase in OPEX. In the OPEX level, both on selling and distribution costs, where you see obviously the tariff cost impacting, but also on top of that, even if you adjust for that, you can see, as Brittik explained also in the strategy update, Our investments in commercial execution, i.e. salespeople in the front line, but also the whole infrastructure around our commercial execution, still materializing. And this is a part of the plan of expanding our footprint of driving further organic growth and ensuring we have a strong fuel force in place. Specifically on admin costs, there's not anything particular to call out. There's a few extra costs related to some of our transfers and implementation of the changes involved. that impacts the quarter one, but there's not anything other structural to point out, and neither a structural higher cost level than what we have been indicating before. In terms of external factors, you are right. We also in the table called out the FX developments between when we reported to four last year, i.e. beginning of November, And now we're here at the start of February. And most notable from that table in the report, of course, is the U.S. dollar drop, which is also what we monitor the closest. And, of course, therefore, further drop in the U.S. dollar depreciation versus the DKK would still have a negative impact on our business. Net-net, the business is still, you could say, naturally hedged with the fact that we have our production across China, Malaysia, and Mexico. But that hedge comes with about a quarter delay, as we also explained in quarter three and quarter four last year. So there are still some FX fluctuations. And with the geopolitical uncertainty, that is still a topic that we will follow closely, but might impact one quarter over the other structurally over time, not something that we are concerned with versus our 27, 28 or 29, 30 targets. On silver price explicitly, obviously, there's been quite some fluctuation in silver price over the past weeks even, and even this week. I think the short of along is that, yes, it impacts some of our blue sensor business within patient monitoring. It's not a significant impact, as I think I explained to a number of you on the call also during the last few months, and therefore not something that we point out specifically.

Okay, thank you. So in terms of the FX track and potentially from silver, it's not like we're looking more towards the lower half of the EBITDA target for the full year at this point in time?

We don't guide where we are in the range, but just maintain our view that this is still the range despite what we've seen in terms of external headwinds.

Thanks. The next question comes from Martin Breno from Nordea. Please go ahead.

Hi, Henrik. Hi, Britt. Thank you for taking my questions here on your Q1 results. I actually have a few, but I'll just start with two questions, and then I'll jump back in the queue again. Maybe just catching on what you said in the prepared remarks, Henrik, I noticed that you said that there was an acceleration of respiratory in the quarter. So could you maybe help me explain how that... development that trajectory looked like and what the exit rate was in Q1. Let's start there and then take the second question after that.

Sure. So, as you correctly noted, both Britt and I talked about an expected acceleration in respiratory. We don't comment on, you know, what was it one month versus the other, but what we're clearly pointing out is that Respiratory had a relatively speaking lower growth in Q1 at the 8.3%, particularly given the high comparables for the quarters ahead. We are expecting an acceleration from a combination of the underlying conversion to single use of A-scope 4 and A-scope 5, the pickup in a higher ratio of A-scope 5's share of that bronchoscopy sales, and then specifically the shoreside launch was now with the mobile version increases our ability to do conversions, full conversions at hospitals, which both drive short-sighted sales and also drive even more bronchoscopy sales. And that acceleration we expect to see continue throughout the rest of the financial year, not commenting on how you should see one quarter versus the rest, but more commenting on you should see an acceleration across the year. And I just want to remind you all that We also guided for this financial year as part of our guidance, which we released in Q4, that we are expecting an acceleration of the respiratory overall growth, where last year landed at 11.4%, and we're expecting that to accelerate for the full financial year.

Very clear. Thank you, Henrik. And then, with the risk of sounding a bit like a stalker here on this call, I noticed, Britt, that you have been... in the very east, in China, and you also flagged the Ascope 4 Sisto launch in China. So I'm just a bit curious about this move that you're making here. Can you maybe just talk a little bit about the timing of the launch? What is the ASP versus your global ASP of the Ascope 4 Sisto in China? And potentially, not holding it up against you, but... But when should we expect China to become a meaningful contributor to your urology franchise?

And thank you for those questions. And I'm happy to comment on China. So basically, maybe where I should start is that China is quite a small part of our business. It's significantly below 5% of our total business. So it's a very small market now. But obviously, I mean, it's a market where we... despite healthcare reforms and volume-based procurement, we actually see opportunities. And I think that's really where we have spent some time diving in to that, to understand more the long-term potential. And it's correct, I was in China last week, also to understand a little further and to follow up on some of the decisions we made based on previous visits there. And I would actually say that, I mean, when we look at the market, despite some companies really being significantly challenged in China, we actually see a healthy potential for our solutions in China. And the key difference relative to other companies, you could say, is that we have actually products that are serving a real need and that are also sustainable. innovative. And we have spent quite some time understanding the situation with the volume-based procurement before we invest. And I would also say, coming from a very low base, I mean, it will take a number of years before this is meaningful revenue. But as part of the strategy, we also said that we invest in selected markets in Asia, China is one of them. India is another one, again, coming from a low base. But on a longer term, we believe that this is the right thing. We have a manufacturing facility in China that we have had for over 25 years that is actually running very well. So we can actually leverage that also for our position in China and in urology, where we are very competitive with the solutions there. that we have. And I think, again, what we are really leveraging here is that we have very strong and attractive manufacturing costs because of our scale relative to many other players. So that also means that we can be competitive. And then we also have solutions that are differentiated on a number of areas. And we continue to invest in innovation to a different level than other players. So that's actually what makes us quite confident. But let me just finish by pointing out that U.S. and Europe will continue to be the biggest opportunity and where you will see most of the DKK growth coming from in the future.

That's very clear. Thank you, Henrik, and great for answering my questions.

The next question comes from Tobias Berg-Nyssen from Danske Bank. Please go ahead.

Tobias Berg- Hey, Fred, and hey, Henrik. I just have two questions. Also, you mentioned these order pull forward in Neurology and T&GI, actually suggesting some budget switching in this area. What kind of similar pattern have you seen or have you seen a similar pattern in respiratory and what are the underlying customer dynamics here? And also in terms of flu, anything specific to call out here also into year end and perhaps something you've seen here in January? That would be my first question.

Yeah, and thank you, Tobias. I can take that. So I think in respiratory, we have seen more of what I would call a normalized order pattern. So I think that, I mean, we have not seen anything that, I mean, where we think that there has been an increased buying for customers' own inventories. So that's, I mean, that's number one. Number two, in terms of flu levels, I mean, there has been I mean, the flu levels peaking also here around the year end with the increased hospitalizations in the U.S. in particular. Now it has in the last couple of weeks been going down again. I think, I mean, we do benefit from hospitalizations from flu, but it's a lower and lower driver of our respiratory business because our scopes are increasingly used for other purposes. So that's also why, I mean, a couple of years ago, this took up much more space than it does now. But we do have some impact that I will not quantify overall. I think when both Henrik and I talk very positively about the respiratory segment, that's not something that should be seen as a short term or as the next quarter momentum. This is actually more of a longer term. term underlying momentum that we see because we simply see, I mean, number one, an increased conversion to single-use endoscopy from reusable, where we see very strong win rates from our solutions. So this is number one. And then number two, with an expansion of our portfolio with SureSight, I mean, that is tapping into a new market, but it's also helping boost the bronchoscopy sales, both of ACE Group 4 and ACE Group 5 bronchos. So that's more of an overall positive effect that is less driven by some of these short-term elements.

Perfect. That makes sense. Just as in terms of, you mentioned your higher strong win rates here. Have you seen those go up after you expanded the portfolio, both with your side? And also the newest SureSight Mobile might be a little bit earlier to come in on that one.

Yeah, exactly. Yeah, so the, I mean, the SureSight Mobile, I mean, it's too early, as you say, because we're introducing it and we're doing that just to clarify where we are testing it with some customers to make sure before we do the broader commercial loan. So we are not at the broader commercial loans of that yet. But we definitely see that, I mean, and this was also very much our expectation with the loans of SureSight that the In particular, after we launched the full set of blades so early summer where we had 10 blades available, we have seen actually a stronger momentum because many of our customers actually like that we have the full solution where they can use both the Ascope 4, Ascope 5, Bronco and SureSight on the same monitor and system. So this is actually very much something we see as a positive and that we see also helping our win rate and our general penetration in the hospitals.

That's perfect. I just have two short ones here. Perhaps just on west of the world here, organic growth has been on the softer side around minus 2%. And just looking at Q4, it was slightly up at 1%. Anything specific to call out here? Or is there some order fluctuation? What's going on? And then just on anesthesia and patient monitoring, on the softer side of this border, with the likelihood of these tough comes. But what are you seeing in terms of leading indicators that should underpin this mid-single-digit growth you're guiding for the full year?

So I can take both, Tobias. So on rest of the world, if we start with that, then it's a mix of two things. So first, as I noted in my presentation earlier, part of the rest of the world beyond the markets, as Chris said, where we are deliberately focusing China and India, two examples which are part of this category. Then this category or these geographies also represent a number of distributed markets where you will see one or two orders a year. And therefore, depending on whether it is one quarter or the other, that will, of course, impact the growth rate quite significantly. And specifically, if you go back and look at the same quarter last year for Q1, we had a number of big orders in this rest of the world's geography last year, same period. And that's a big driver of why you're seeing a lower growth now. On top of that, these markets are also still, relatively speaking, more linked to our legacy business, and it's patient-based monitoring, relatively speaking, less to our industrial business. And therefore, they're also more impacted on Where are we on ANPM versus where are we on ES? Something that we're trying to change. And frankly, back to the question from one of your colleagues on the China visit, one of the reasons why we're pushing this agenda in the endoscopy agenda in these markets, because, of course, we see the same potential, though only at an earlier stage of the maturation curve. So that also means, to follow up on your question, that rest of the world, we believe, will be a very nice growth driver over time once we are through the change of the legacy business and even more focus on industry. Then ending on ANPM and the softer growth, I think, as we explained, again, the growth for the quarter is mainly actually related to comparables. Comparables will become easier across the year. So that's one part of the answer to why we still feel comfortable about the mid-single-digit outlook for this business group. The other one is that we also still see us winning volume and also still see some areas, though much smaller, for potential price increases. One of your colleagues again asked about raw materials. Obviously, when we see these raw material prices increase, we also go out and work on price increases in our products. So it's a combination of those two things. That means that we still feel comfortable with a mid-single-digit growth for this segment, our business group, despite the low growth in 2021.

Thank you.

Thank you. The next question comes from from SEB. Please go ahead.

It's from SEB. Thank you for taking my questions. I have two left here. Firstly, on the, just follow up on the tariff payments impact in Q2. I previously got the impression that the payments would be at a similar level as in Q1, so that would be a bit more than $50 million, but less than $60 million. I was just wondering, in Q2, can you confirm that it would be the case? So the margin impact would be more than 2 percentage points, or 3 percentage points instead of 2 percentage points.

So I think it's nice that you're trying to make us become more specific, but I think I will just repeat my answer from before and say, as we communicated earlier, tariff costs will be higher in H1. Now you saw a level for Q1 alone. I'm not going to comment specifically on Q2 relative to Q1, but just repeat what I said earlier, being that we do expect tariff costs to be above the level for the full year, also for Q2, i.e. above 2%.

Okay, fair enough. And in this context, if we calculate, I mean, you got 2% point for the full year and you are confident to mitigate when you go into next year. So how should we understand the second half? I mean, if I understand correctly, first half, you already have like more than 15 million Q1, Q2 will also be pretty high. then you need to deliver a step up in the second half sort of to mitigate and also to ramp up the production. But we understand, I mean, this production ramp up will take effect gradually through the year. So how should we understand the step change in sort of the margin impact here?

So two clarifications, I think. One, we are guiding around 2% for the four years. So not explicitly 2% exactly, but around 2%. I think the second thing I will say is that, as you correctly note, the production transfers are a gradual process. But particularly products that have the highest cost impact in terms of tariffs, are the ones that are now really ramping up and have actually been ramping up for the last few months. Because, as I also said earlier, the realization of the tariff costs happens with about a three-month delay in our P&L. And in other words, therefore, I feel very comfortable in terms of the momentum shift, to use your word there, i.e. drop in tariff costs that we are expecting to see in Q3, Q4. because it's driven by the production transfers we're seeing happening right now and the ramp up that have been started and are in the middle of taking full effect as we speak. So in that sense, those are the main drivers of that cost momentum shift, i.e. drop in tariff costs between Q2 and into Q3 and ultimately Q4.

Okay, that's very clear. Thank you. And then next question to Breit. also on the sister scope potential in China. To my knowledge, this market segment in China has been very competitive and there has been a lot of conversion post-COVID. And there's also a number of Chinese SINC use players competing to each other pretty intense. Brady, what gave you the confidence to enter this market?

Yeah, no, this is a good question, and I think you are absolutely correct that there are a number of players in this market. However, I think, and I mean, you know a lot about this market, obviously, but I think if you are in a position like we are, where you have, number one, very competitive, low manufacturing costs relative to competition, and then number two is a company that invests in innovation, then you can actually have a strong position in the marketplace. And it is also a large and attractive market. So far, it has not been included in the volume-based pricing. I think when you look at China overall, the market that is slightly more competitive, I would say, is the market for ureteroscopy specifically. So I think that... with our experiences in the bronco segment with our broncoscope where we are actually i mean we where we are uh despite also competition we are by far market leaders in the segment and and some of the i mean uh the benefits that we have in terms of a competitive solution we believe that there is a i mean we will not be the only player in this market that's for sure but uh But I think we should be able to gain a sizable position winning over competition also over time.

Great. And I just want to follow up on this. In the Chinese endoscopy market in general, we know that the Japanese reusable manufacturers used to have very high market share. and China has always been their main focus. But given sort of the increased geopolitical tensions now between China and Japan, I mean, based on your learnings from the trip, are you seeing that, do you think there should be potentially push sort of a faster market conversion to the single use in China?

Yeah, no, this is actually a good point. And I discussed with a couple of different locals out there around the whole Japan situation. I'm not fully convinced, to be honest, around how much that will impact. I think what will more drive the market growth is, I mean, there's a need in China for healthcare to a broader part of the population and the fact that we are able actually to support with our solutions delivering that they can do more procedures at lower cost and also the whole investments into the capital equipment that some of them also struggle with. I think that is more one of the drivers. And it could be the whole China-Japan issue can have an effect, but I'm not fully convinced that that's more maybe based on the mixed signals that I got, but it's a good perspective.

Understood. Thank you so much, and I jump back to the queue.

Thank you. The next question comes from Delphine Lelouet from Bernstein. Please go ahead.

Hello, good morning. Just a quick follow-up effectively on the tariff and specifically to the Mexico ramp-up and actual level of manufacturing and production and the one we can expect over the course of the year. So I really understand and thank you for the precision regarding the lag effect in between the manufacturing and the tariff. And in a way, the invoicing. The second question will be and will deal with the CapEx allocation probably broadly and just thinking about the free cash flow. thinking about the CAPEX when it comes to allocation to innovation, and when you think about the innovation in between the products and also in between the, let's say, endo-intelligence you've been axis on. So that would be interesting to see, and also there is a bit of a seasonality here. And finally, can we get a broader view, Britt, on the Salesforce organization in North America today? How did I change over the course of Q1? What is left to be made? Any comment on that would be appreciated.

Thank you, Delphine, for good questions. Let me start with the last one and then I'll hand over to Henrik. I think we have definitely, while we have a strong presence in North America in terms of our own commercial field force that is actually working well, we have based also on the growth and the demand, seen a number of areas where we could optimize. And as you also know, we brought in a new leader, Scott Heinzelmann, who joined us end of August. And together with the team, he has been implementing a number of projects of initiatives that can basically support also our way of serving the customers and improve how we do that. So you can say one thing is, I mean, slightly restructuring how we approach the customers, not only in terms of territory restructuring of product focus, but very much also in terms of how we are set up to better address the health systems rather than the individual doctors, given how the U.S. market is evolving. And then, I mean, we already have a pretty good position and set up to work with IDNs and GPOs, but that's also where we have seen some ways that we can further strengthen our presence. So I think some of what we are doing to just sum up is that we are adding some more headcounts. And as we have been adjusting the structure a bit to make sure that we have enough feet on the ground to serve our customers. And then some of it is also improvements in how we operate that will also give us some more efficiency in terms of the customers and better ability to serve the customers. So I feel quite confident we have, to your question on timing, we have done everything some of these initiatives in Q1, but it will actually be more something that we are focusing on in this quarter and next quarter.

All right. Thank you. So on your other two questions, I'm not sure I fully understood what exactly you were looking on in tariff costs specifically, but I think the ramp-up, as I understood your question, I think was mostly related to the ramp-up in Mexico, the timing effects and how much further we can ramp up. I think the overall message there remains that we have a very big factory, fortunately. In Mexico, we feel very good about that, and particularly now under the USMCA trade agreement with the US, that of course has been and remains a very critical strategic side of ours in North America next to our factory in Noblesville. We still have plenty of extra space in Mexico. And I think I've been quoted before for saying we only take up about 50 percent of the physical space there. I think now we're starting to go a little bit above 50 percent, but not much. So there's still a lot of space left. And that ramp up is a continuous ramp up at the same efficiency level, as we also discussed before. As we see in Malaysia, when you account for slightly higher direct production costs, but on the other hand, of course, lower distribution costs. between Mexico and Malaysia. So it's happening at a net zero gross margin impact when we transfer our product. So overall, we're really comfortable about that. And that ramp up is happening. And as per an earlier question, particularly now on some of the higher value products that have been driving higher tariff costs. And therefore, as we see that happening right now, that will also flow into the P&L, not in this second quarter, but particularly in the third and fourth quarter of this financial year. So I hope that answers the question on tariff costs and the link to Mexico. On CapEx allocation, you are right that we are continuing to increase our CapEx allocation or CapEx investments in general. I think they mainly fall in three categories. So there's, of course, the serving of the existing hardware portfolio of particular endoscopy products, which is the vast, vast majority of the focus of our investments. But a larger and larger share of this also goes towards endo-intelligence, i.e. software, AI, but also the monitor and the monitor processing itself. I'm not going to split that in detail, but those are taking up a higher and higher portion. And as you can see also in the notes of the quarterly announcement where you can see R&D cost adjusted for depreciation and amortization and then added back CapEx. You see quite a significant higher investment R&D-wise this quarter versus the same quarter last year. The only last thing on CapEx is, of course, we're also then looking at what are other investments across the company. They fall in the category of, like Britt said, some of the systems and tools we're doing for commercial investments. And ultimately, also, what are the inorganic opportunities we see next to all of this that could accelerate our innovation roadmap and could, you could say, yield further growth potential on top of our organic growth ambition?

Okay. All right. But please, just to be back into this prediction ramp up, can we think about a 60% by the end of the year in Mexico? Or is it too, in a way, too aggressive?

I think that's probably a little bit too aggressive in the sense that the physical space is so big. So I think the way you should rather see it is that we want a higher and higher share of the North American market to be served by Noblesville and Mexico. Again, we're not giving specific percentage ratios, but there's a substantial step up happening that has actually been undergoing for the last 12 months, but now is still undergoing right now, as you speak.

Thank you very much. Thank you, Douglas.

We now have a follow-up question from Jesper Ingvidsen from Carnegie. Please go ahead.

Hi. Just a question on the Section 232. I wonder if you had a view on the timing of a potential outcome here and whether you think that the USMCA will still stand if this goes through. I just wonder if you had any insight to that and maybe on the back-up discussions with the AdvoMed team.

Yeah, no, thank you for that. And I think we are, of course, in close contact with people that are close to the matter. And I think it's a little premature to speculate too much. However, I think, I mean, the signs at least that we see now, and obviously we are preparing for different scenarios, is that it's, number one, it's likely that that it will come out in the next month or maybe two. I think that seems to be the case. Then you could say also in terms of USMCA, that seems to be so fundamental in terms of how, I mean, and important to the US market. So it seems also, again, that this setup is expected to continue. So I think we, of course, prepare for different outcomes, but but it seems to go in a direction like that. And then, of course, on top of the Section 232, there's also the whole court case around tariffs in general, and we're a little unsure right now about whether they're waiting for that before the 232 conclusions. But I think it looks, I mean, with the different scenarios that we have been planning for, it looks very likely right now that, I mean, that... it will end in a way that supports our ongoing plans.

Perfect, thank you.

We have a follow-up question from Martin Renaud from Nordea. Please go ahead.

Hi, thank you again. Actually, most of my follow-ups were taken in the previous follow-up, but just one simple question. When you are doing these mitigation actions, can you just verify for me whether you are behind the plan in terms of the mitigating actions, you are on the curve, or you are ahead of the plan here in W1? That would be very helpful. Thank you.

That was a clear and simple question. We are on plan, neither ahead or behind. So we are on plan.

Okay, perfect. Thank you very much.

Thank you. Thank you.

Ladies and gentlemen, that was the last question. I would now like to turn the conference over to Britt Malbu Jensen for any closing remarks. Thank you very much.

And my only closing remark will be thank you for listening in on today's call. And also thank you for very good questions. So we wish everyone a good rest of the day from here.