AddLife AB (publ)

Hello everyone and welcome to the AdLife second quarter presentation. Thank you for spending some time with us here in the middle of the summer. We will take you through a presentation talking about how the performance is looking in the different parts of the business, as well as some of the numbers. And after the presentation, we will open up for questions. So we will start now with a description of the development in the market. And then Christina, our CFO, will share some of the numbers with you. We will dive right into the numbers. And we are happy to share with you the fact that AdLife continued to grow in a very, very strong way during the second quarter. So the strong development is true in all parts of the business. And we achieved a 14% revenue growth. The organic growth, the currency adjusted, was 9% in Labtech and 8% in Medtech. Increased activity in the elective surgery sector continues. We see that the health care systems all over Europe are continuously very active. However, a significant backlog does remain, mainly because of the staffing shortage that we see across the board. So this means that there is still a lot of patients to take care of before the backlog is handled. And that means for us the outlook for a continued strong growth in this area. On the commercial activity side, that has certainly picked up. Our salespeople are again out visiting customers, doing demos, and also participating in a lot of commercial activities such as trade conferences and so on. So that's a good sign, but of course also adds a little bit to the cost. We are very happy to see that we have been adding a lot of new supply agreements, a lot of new products being added to the portfolio with great potential for the future. We are seeing an increased EBITDA. We are defending the margins in spite of the price increases we have seen previously from suppliers. That situation is improving. We're seeing fewer price increases from suppliers in the recent months. And we have been able to pass on most of these price increases to our customers, even though not in all cases, because indeed a large part of our business is long-term contracts, in which in some cases we cannot always change the prices on short notice. All in all, AdLife is quite well positioned for the current market position as we see it, as evidenced by the strong growth, and also for the future market development as we expect it to evolve. Taking a look at a little bit more details on net sales and EBITDA, we can see again, the growth was 14%, and of course COVID is no longer a sales item for us, and that is a small reduction if you compare to the corresponding quarter in last year. Organic growth, significant driver at 8%, and then of course we had a positive currency effect as well in the quarter. On the EBITDA side, we're happy to see that the profit did indeed grow by 3%, and the EBITDA margin arrived at 10.4, so slightly lower than the previous quarter. We continue to invest in digital solutions in the home care area, and for this quarter the EBITDA amounted to 15 million. So taking a look at the margin and how it has evolved over time, the lab tech margins is in a higher, above actually the historical range of 10 to 12%. We arrive at 12.2 in the quarter. The COVID sales are of course gone, but that's partially counted by strong organic growth. On the med tech side, the strong revenue developed has been supporting the margins as well as the beneficial product mix. We are at the higher end of the previous range of 8 to 10%, arriving at 9.7 in the quarter. The eye surgery business is reducing the average margin a little bit, but it's fair to say that all the companies in the hospital segment are doing very, very well and performing in an improved way compared to previous quarter. The teams are doing an excellent job as it relates to price management, and thanks to our strong market position, we are in a situation where we can pass on most of the price increases to our customers if we have a strong pricing power position. Taking a little bit deeper look at lab tech, the organic currency adjusted growth was 9%, very, very strong. As I mentioned, the COVID-19 sales is now behind us. It was 36 million in the corresponding quarter last year. We're working a lot on developing the portfolio and introducing a lot of new products, at the same time, actively working with the price to protect the margins. If we take a look at the diagnostic side, we can see a solid growth. We have fantastic market position in this segment based on a very competitive portfolio, as well as a market leading, I would say, service offering. The team is doing a fantastic job as it relates to managing the prices here as well. We do expect more tenders to start coming up again. Many of them have been delayed previously, but that seems to be changing now, so we do expect that. And that should be mostly a good thing for us. And we are continuously, as I mentioned, evolving the product portfolio. Looking at the biomedical and research side, we see a very strong growth. Fantastic job done there by the team. We do see that some of our competitors are seeing a little bit of a weakness in demand on the academic research side. That is not something that we have been suffering from. We think it's probably mostly in the instrument side of this system, major instruments. The consumables seem to be relatively untouched by this. And even if there is a bit of a reluctance in the demand, it's certainly completely offset by a very strong demand on the drug development, the side where we provide products to pharmaceuticals and the biomedical industry. And also here, we are very active in terms of price management and continuously evolving the product portfolio. Moving forward to MedTech, we had a strong organic growth here as well. Currency adjusted growth came in at 8%. As I previously mentioned, the healthcare markets are indeed recovering, significant increase in elective surgery. Some countries and hospitals have been able to actually reduce the waiting lines a little bit, coming up to the levels of procedures conducted similar to 2019 levels. But that's not true across the board. So I would say many hospitals and countries are still behind the 2019 activity levels. And this means for us that there is plenty of room for continuous growth. And this recovery and the handling of the patients that are on waiting lists will probably continue for a number of quarters ahead. On top of these, we are very active in the field with sales activities, but also selectively actually strengthening the sales team in the businesses where we are growing well and see great future potential. And again, adding a lot of new exciting supply agreements. Looking into the hospital more specifically, the surgical procedure is certainly growing. And this is again, the long-term trend. All the companies within our hospital segments are performing quite well. The eye surgery business is growing. New products are launched to compensate for some of the products that were removed from the portfolio earlier. And we have also strengthened the sales organization. So a lot of things are falling in place there as well, even though in the quarter we have not yet seen the improvements that we're expecting. On the home care side, we see a very healthy revenue development. Here we have a very comprehensive portfolio. And this is of course, a key need in the society to handle more of the patients in their homes and certainly something for the benefiting the patients as well. So here we have a good portfolio and future oriented and we have seen great performance in the quarter. We continue to invest in digital solutions in this area at the volume of 15 million in this quarter. So talking a little bit about the market trends, we are certainly in a post-pandemic environment right now. Elective surgery is recovering as we talked about. The staffing shortage that we see in the hospitals is certainly holding back that recovery. And in some countries like the UK, for example, we have also seen a lot of strikes and so on. And that's of course, again, slowing down the recovery. This staffing shortage as well as some concerns about budgets in the future of the hospitals will indeed create an even stronger focus on clinical outcomes, the efficiency of the procedure and to make sure that the healthcare spending is spent where it has the most effect. And probably this will be a benefit for us in terms of providing on the one hand, strong service and support, offloading some of the strain from the hospitals, but also of course, leading products that indeed improve the outcomes for the patient and improve the efficiency of the procedure. On the distributor side, we do see a consolidation ongoing and continuing. We of course, as a consolidator in this industry, we see the value of belonging to a larger group like AdLife and that is also seen by many players in the field. And there are others also taking the consolidator role, if you will. We do see that there's some movement in ownership in some of those bigger chains. And that's probably a benefit for us, as it may cause a little bit of a defocus from the customer. But the logic is certainly there. And finally, we see that a lot of larger manufacturers and suppliers, they are indeed looking through, they go to market strategies and reassessing their portfolios. And that has a positive impact for us. It will open up for taking over the distribution of more products. And it also may cause some defocus from our competitors. So this is a healthy development for us. So as I mentioned, there is a change in the perspectives of the -to-market strategy, opening up for us to take over new product portfolios and also leveraging our European footprint. So I wanted to share with you a few examples of that that have been announced during the quarter. So we have, for example, in the area of next generation sequencing, which is an area of focus for us, we have since long collaboration between an important provider and supplier in this field called MGI. Our Italian subsidiary, Euroclone, have had a long-term relationship and a very successful relationship with this company. Now we have expanded this collaboration to also cover the Nordics, Finland, Sweden, Denmark, and Norway through our subsidiary, Triolab. So we're excited about this new collaboration. This is a technology that is gaining more and more acceptance and used more and more in routine use. So this is a product portfolio with great potential. Another example is the collaboration we have with Android Dynamics. It originated with Healthcare 21 in UK and Ireland. And now we have expanded that collaboration to also include Sweden and Denmark and the Benelux countries. So this is now a collaboration that covers multiple countries in Europe. And it's a very interesting product portfolio in the area of surgery and oncology with leading edge products that also contribute to what we see the need of, and that is minimally invasive surgical procedures. So two examples of very promising collaborations that we have established in the recent months. And with that, I hand over to Kristina to talk more about the financials.

Looking at the profit and loss for this quarter, comparing with last quarter, we had strong growth, 14%, of which organic was 8%. Our companies has received price increases from the suppliers. They have been handling this in a good way, forwarding the increases to the customers and also working with product mix. So the gross margin has been under pressure and we see that slightly, with a slightly reduction from 39% to 38%, but great job. Commercial organization is back in full swing. They are visiting customers, exhibitions, they are doing training. We are also strengthening the sales team where needed. Interest rates continue to go up, meaning that the financial net is increasing compared to last year. Looking at the cash flow, during this quarter, we have paid dividends. Also, we have invested in growth. That means that accounts receivables has gone up and also inventory driven by the increased revenue. But also, inventory has increased with introduction of new suppliers and new products. And that means that often we will take on new product suppliers, we need to increase inventory in the beginning before we have started to sell the products, et cetera. So it is a short term increase. We still carry some buffer inventory, not due to the supply chain disturbances, but still to component shortages. So whenever we get hold of those rarely components, we need to buy them, meaning that we buffer for a while. Cash flow has been a focus area and it's still a focus area. We need to generate operating cash flow to de-leverage. We will continue to work with this going forward, even though it doesn't show in the figures this quarter, but we have implemented some structured processes, et cetera, that we are working with. It takes some time, but for sure it will improve. What happened this quarter then, since we haven't been de-leverage, the leverage has gone up from 3.7 to 3.9. Looking at the size of our business area, Medtech is today definitely the larger one. Pre-COVID, pre-acquisitions, Medtech was just below 40%. Today is 60 plus of total revenue. That has some impact on the working capital because the companies that we have inquired is more focused into orthopedics. That means that we need to carry consignment stock, it's fast deliveries, and also it's a broad product range. So that of course has an impact. We also have expanded into South and Europe. And even though we like it or not, but the payment habits in those countries are slightly different compared to the Nordic companies. And last but not least, the companies that we have acquired have been quite sizeable companies. They have their own business models and KPIs, and they have not really been aligned in all areas with the ad-life ones. And it takes time to implement a new way of working. We are getting there, and we are implementing the way we are thinking around working capital and tying capital, but it will take some time. And that has an impact on the working capital since the size of the business has changed, and we are currently carrying more. So with that, I hand over to Fredrik again.

So now we move on to just the summarized picture of the second quarter. So all in all, we do have very, very strong market positions that are well aligned to the market development that we see right now. And this is clear when you see the solid growth that we see, not just from a part of the business, but from all our businesses. So very, very strong growth, and we are very excited to see that. The sales and marketing activities are indeed back to full scale, which is a strong sign and a good sign for also the future growth of the company. Of course, it does cost a little bit extra in terms of that travel expense and the trade shows and so on. We have also selectively, I would say, strengthened our commercial teams in some of the companies. But of course, doing that based on a strong trajectory and a positive outlook. We are expanding the product portfolio with quite advanced products. This is something we have mentioned before, and we were able to give you two quite concrete examples and recent examples. We do expect to see more of that, and we have an increased strength with a new and stronger European network that we indeed have. The EBITDA has increased in spite of some of the little bit of challenges on the cost side. So we're happy to see that. The team is working very hard to protect the margins, and we are in general quite good at passing on those price increases to the customers, and we have been doing that successfully. But there are some longer term contracts where it takes a little bit more time. On the other hand, we are also, for sure, seeing much, much fewer price increases coming through from our suppliers. So that's a good thing for us. The margins are strong compared to what they were pre-COVID. So that's also an improvement. We are tying a little bit more working capital in the quarter, again, related to the strong growth, and that of course increases the accounts receivable. And of course, as also was mentioned by Christina, the portfolio has changed a bit. Orthopedics is nowadays a more important part of our business, and there the inventory levels are higher. And then of course, when we take on a new product line with a new supplier, that often means that we take on some inventory to be able to immediately start selling the new product line. So it is a short-term effect that increases the inventory, but that of course should improve over time. So our priorities that we have previously mentioned, they remain valid. And that is of course to protect and improve the profit, to drive organic growth as a sign of the value to the companies of belonging to AdLife. And I think we have proven that certainly in this quarter. The cash flow can improve and it will improve as we work diligently on the working capital initiatives that have been mentioned. Acquisitions are also a key part of our strategic agenda, and we run an interesting pipeline of potential targets for that. And with that, we are wrapping up the second quarter presentation. Thanks for listening into this in the midst of the summer again. And now we open up for questions. All right. So thanks, everyone. Thanks for listening in. And I apologize for some challenges we had with the sound. I think there was a mute during a period of the presentation. But let's open up for questions now and we will clarify where needed. So I think we see that Carl, you raised your hand here for a question. Please proceed.

Yes. Hi. Good morning. A couple of questions here from my side. So maybe if we start with the MedTech side, I was a bit surprised on the Mardin side here that the Mardins were down year over year, as I would have thought that good growth within the elective surgery business would have a positive mix effect. So maybe if you can explain that a bit. And also given that digital investments seem to be down year over year, that should also have a positive Mardin impact. So just some color on that would be helpful.

Yeah. Yeah. Digital a little bit lower than previous year, but nothing dramatic there, I would say. And I agree with you. It's fair to expect that the margins in MedTech should evolve over time. In this quarter, we have had a little bit of a weakness. And a key driver of that has actually been the eye surgery business that did not evolve as we had expected. So that has indeed pulled down the margin a little bit. But apart from that, the overall performance in the companies are strong. We also, for the Nordic-based companies, there is a little bit of a challenge where they are facing purchasing prices in euros and dollars and selling in Swedish krona and Norwegian krona. That has also been a bit of a negative for that business. But all in all, doing really, really well. We see a little bit of isolated, but relatively small, detriments based on the eye surgery and that currency exposure for the Scandinavian companies.

Okay. So it's fair to assume that Edvige had a lower margin year over year then?

Yes. Unfortunately, we had expected that it would gradually or cautiously improve. It didn't really go that direction. Operationally, we see some good steps being taken. We have replaced the products that we lost previously due to supply problems from some of our suppliers. And we have replaced pretty much all of those. And we have strengthened the sales team. We have done a very effective training of the sales team. So things are falling in place in many ways, but it hasn't yet shown in the numbers.

And then should it then be better

in

Q3, I guess? I think Edvige really deteriorated the margin in H2 last year. So can you give any sort of guidance on how to think regarding the Mentech margins in Q3 and the second half?

On the long term, we are certainly optimistic about the eye surgery business. It's one of those that has many positive trends supporting it. It has been a bit of a disappointment in terms of performance. That's clear. It's taking a little bit longer to turn the trend, but we will turn the trend. And I'm not going to promise a dramatic improvement in Q3, but it will improve for sure. And once we improve, I would say it will be a nice effect on the whole Mentech business, because the rest of the business is performing quite well.

Yeah. Yeah. Sounds good. Just one more on the Mentech segment, on the digital investments in the digital solutions for home care. I think we discussed it before, but how do you view this business? Because I guess it leaks quite a lot of cash and negative earnings right now. Do you see it as... And I don't know, can you give any comments on how sales is developing and how to think about it? Because it seemed like it's taking a bit of a longer time maybe to commercialize than expected. So how do you view this in the coming years?

Yeah. Well, a great question, Carl. I think that is a pretty broad business, not too big, but it has a nice range of products that we are able to provide. And it's all around the home care area, hardware and more advanced digital solutions. The vast majority of that business is really fairly well-established products and with well-established payment methods and whatnot. And we're actually happy to see in the quarter, it is improving in all areas. You know, we have had a good trajectory, I would say, on the revenue side. We are also seeing good profitability improvements in that group of business. So that's great in many ways. Of course, we always review the investments and look at how the digital market is developing. And it's fair to say that it's developing quite strongly in some sub-segments, a little bit slower in others. So that's something we're constantly reviewing for sure. But the overall home care business is in a good trajectory. The digital part of it, you need to continue to monitor the market. But the most important business of it is actually developing well.

Okay, and then just a couple of questions on the balance sheet as well, because I think that is a lot focused today here. So I'm just wondering a bit because the net debt increased quite a lot sequentially. And the net debt to EBITDA, I guess, if adjusting for the reversal of additional purchase price considerations is at 4.4 times. So, I mean, it looks to me that cash flow really needs to come through here. And well, because I think it's a little bit of a mix to understand how we should think about it. Because in some way, you say that cash flow is temporarily weak. But another presentation, you say that it's, you know, MedTek is a larger part, we should expect working capital to be a higher percentage of net sales, I guess, over time. So how can we think about this? And should we expect cash flow from working capital to contribute already in H2? Or is it maybe a more long term work with the working capital that is needed to be done?

I think a quick answer, we should see improvements in the second half of this year. That's the quick answer. I think what we're trying to explain here is the fact that the business structure has indeed changed. And that explains why working capital has increased over time. When we look at the future, we expect it to improve. That structural change has already happened, right? And now we see improvement potential going forward.

There are really three ways in which we are addressing this. One is

what has been traditionally the ad life model of a number of KPIs quite focused on efficient capital management. Those are certainly in place and are starting to take hold. And on top of that, we have initiated a number of activities that are more specific and targeted to the larger companies in the group, where we support a very thorough review of all aspects of working capital and cash flow generation, supported by the finance team. So that's an activity that's been ongoing for a number of months. And then on top of that, we have larger companies that are in the time, the majority of the capital, we have set some quite firm and direct targets on what we are expecting in the coming quarters for reduction of the working capital. So it's a really, it's a three level approach, if you will, that's been in place for some time. And so we think the direction from here is improvement.

Yeah, and just a question for maybe Christine on the debt. How much is in euros versus in Swedish krona?

The majority is actually euros, which is also then reflected on the interest cost going up since FX is going in that direction. So yes, and that also impacts the size of the net debt. Yeah,

exactly. And the interest cost of 73 million in the quarters, that's something we should expect going forward around that level or? I

would guess so, because as you know, it influenced by euro for increases. Which has happened then. And we always have a quarter of delay in the interest rates. And then also FX is impacting here as well. And of course, in this quarter, utilization of credit facilities.

Yeah. And then just the last one on the earn out. Yeah, I think you have 160 million of earn outs left, which is included in the net debt. When is that expected to be paid out? And which companies is that relating to?

The majority is related to Hellscare 21. And that, if so, is beginning of next year. So it's a smaller piece to other companies end of this year, but not any big ones. So next year, I would say, is the majority.

Okay. I think that was all of my questions. So thank you for answering them and have a good summer. Thank you, Carl. Have a good

time on YouTube. So let's continue with some questions here. I think we have Mattias.

Yeah. Thanks so much, Mattias. So a couple of questions, please. So first topic on the high effective tax rate in the quarter. First, if you could clarify if this general interest deduction rule affects pay tax in the cash flow statement as well, or only in the P&L. And then secondly, in light of your high interest costs and no substantial underlying growth of EBITDA, how long do you expect it to take before the tax rate is back to normal?

If we start with the tax then, unfortunately, we have made a correction from last year. And it relates to the rules of deduction of interest costs like you were talking about. So far, it has only implemented and impacted the profit and loss, but it will have an impact on the cash as well. Not as much as we have in the profit and loss, but it will be some 10, 12 million, I think, later on in the year. Most likely. We should also say that we have applied a cautious standpoint in this case. So we are looking into if there are any structural changes or things that can be done within the tax flow. So right now, we have decided to take the full effect of the profit and loss, but let's see where we end, finally.

And how should I think about tax rate then going forward? Because you talk about this correction from last year. So I'm just trying to figure out, we had, I think, 19% in Q1 and then now 52% in Q2. So seems to be a lot of moving parts here. So if you could help me in the market understand where this is going for the next quarter, I think that would be helpful.

The tax rate in Q1 was impacted by the reversal of the continuing consideration. So that was lower. This was unusual high then, of course, for the correction for last year. And going forward, I think that you should look at historical figures and apply those.

Okay, good. So that's clear. And then second question relating to lab tech margins. So second quarter, where you were able to be above the historical 10 to 12% range, although close to the upper end, of course, in this quarter. But still, since there are no COVID related sales boosting that sales line anymore, I'm curious to understand, you know, whether you think we found a new trough here, or if it's still correct to think about the 10 to 12% level. And if so, what would it take to get you to the low end of that range?

Well, I think, you know, that upper part of the range, you know, around 12 seems to be, you know, fairly reasonable. We see no reason why it would, you know, fall. And the effects of COVID are gone, that's out of the business, out of the situation, so to speak. So now going forward, it's more about the continuous evolution of the business, and the addition of new products with a higher technology level and higher margins. So I think we see no dramatic reasons for change in that profitability level from where it is today. The new products is a factor. We're also pretty happy to see a strong development in many areas. Certainly happy to see, for example, the recent acquisitions in Germany and Netherlands are improving nicely in their profitability. They're not enormous companies, but they're in quite positive trends. So I think, you know, we're fairly optimistic about where we stand on the lab tech side.

Good. A final question for me then back to the balance sheet. Of course, a lot of investors are contemplating what kind of alternatives companies have in terms of funding their balance sheet these days. So with the sequential uptick in gearing due to the tied up of capital plus the dividend paid in Q2. So I'm just, you know, curious to hear more about how you feel about the balance sheet today and how you think about alternative funding sources.

Well, I think we have no plans for any alternative funding sources. We, of course, have communicated clearly and that remains the position that we do want to repay the debt over time. And I think we will be able to do that. We're actually happy, you know, with the fact that we see a fantastic growth in all parts of the business. So that's happening as we had planned and expected. Now the work is for us to tweak some of the internal operational aspects, which is certainly within our power. And then, you know, cash flows should improve. So we don't see this quarter as, you know, changing any of those priorities or the direction. Rather, we're increasingly confident in the strength of the business and the stability of the business, you know, in this business cycle as well, where some other sectors might be worried about demand. We certainly do not have that problem. It's a very high stability of our business and the demand going forward as well.

Perfect. That's all for me. Thanks so much for taking my questions.

Thank you, Mattias. Good questions. Yeah. So we have some more questions, right? Please feel free. So Gustav, yeah, please go on with the question if you have.

Yes. Good morning. It's Gustav here. Just a lot of questions have already been answered, but just shortly, I understand there's a lot of moving parts here in the medtech margin, but you comment on Spain being sort of reaching 2019 levels already. Is there a risk that MBA is not performing as well as when you acquired it?

Not at all. MBA is performing really, really well. Fantastic quarter delivered by the team. Very strong growth, good profitability improvement. So they're doing very well. So as I mentioned as well, the companies are doing quite well, performing nicely with the exception of in the eye surgery business that we've talked about that is pulling down the averages in a not insignificant way. But then again, we are on top of that situation and actions are being put in place. Product portfolio is restored, I would say. Sales teams fully up and running. So all good in that sense. When we talk about the elective surgery, so it's clear that some countries have been doing quite well in recovering the activity in surgery. And Spain seems to be doing surgical procedures almost at the level that they were in 2019. That means that the waiting lines are no longer increasing. They are being addressed to some extent, but there is still a lot of surgical procedures to be conducted. And for a Spanish situation, then it means that probably many of the surgical procedures that have now been conducted were of the more standard, little bit more simple types of surgical procedures that they have been able to relatively quickly handle. Now a lot of what is remaining are more complex ones, which is probably also a good thing for us because it's more advanced products and requiring more support and with good likelihood also some good margins coming from that. So MBA doing very well.

Okay, perfect. But Arvishen, is that sequentially

from Q1? Is that down the margin? Unfortunately,

yes. And then of the 8% organic growth, can you give us a rough split of the volume there?

So I'm not sure. Okay, I see what you mean in terms of the price increases. So I think it's fair to say that the price increases are a component of that, but exact share is hard to say because we have such a broad product portfolio with so many SKUs, more than 9 million in total, so hard to say the exact mix effect there. But the volumes are certainly up as well.

And then just sort of on the balance sheet cash flow discussion there, is there a risk that you will sort of prioritize the cash flow instead of the growth going forward?

Well, it's a delicate balance, right? So I think that we have shown that we are developing the business. We are not taking a short-term approach. We are developing the business for the long term and we are responding to customer demands and so on. And we dare to selectively, but still, invest money on the commercial side, trade shows, commercial activities, selective additions to the commercial team. So I don't think we need to worry about taking a too short-sighted approach here. But on the other hand, with this good trajectory in the demand in all parts of the business, certainly we have plenty of opportunity to tweak the parameters of that impact the cash flow and we will for sure.

Perfect. And then just the last one here, sort of on the covenants, I don't know, you do the adjustments on the interest coverage ratio. Can you just provide us where you are today?

Eight. So slightly below for most time, but eight is the number this quarter.

All right, perfect. So plenty of headroom then. All right, good. Any more questions?

Hello, this is Charles Weston from RBC. Can you hear me?

Yes, we can.

Great. Thank you for taking my questions. I have three. The first is just to follow up on Gustav's point actually around pricing to hospitals. Can you perhaps, it doesn't look like you're going to give us a specific number, but can you talk qualitatively about how receptive hospitals are currently to price increases and whether that should be a tailwind to margins as you sort of annualize higher prices and you've already had to take the higher costs from your suppliers?

Well, I think in general, there is an understanding for the increased cost levels. So in that context, the hospitals are to some extent or a large extent open to the price increases that we are implementing. That being said, there are a few, many contracts are long term. We have like 80% probably of the sales are tied in long term contracts, but there are a few instances where there are no currency clauses, there are no inflation clauses, and there's a little bit of a rigidness around the interpretation of the contract. And in that case, we will have to live with the price of a certain contract until it expires. And in those cases, we tackle it through product mix approaches, charging for services in many ways. So we are able to over time handle that reasonably well. But of course, the contracts will expire and we will have time to renegotiate. We have seen for some time that the healthcare system has actually postponed new tenders because of the workload associated with it. That seems to lighten up a little bit now. So those tenders are going to come into action again. And that's probably a good thing for us, because that gives us the chance then to indeed increase the prices. So we have been able to move and address those prices in general well, but not in all cases. And so that should, again, over time improve. And with the addition of the fact that the price increases are not being given to us by suppliers in the same way as before, much, much less of that nowadays.

And just to finish off on this topic, is there an average inflation that you've suffered over the last, let's say, year in terms of your input price, specifically pricing from your suppliers? Appreciate over 9 million SKUs. That's a pretty wide average. But if you can give us a sense of whether that's sort of mid single digit, low single digit, that sort of area, that would be helpful.

I would say in the range of maybe three to five, three to four percent, something like that. That's an estimate, right? It's not something we have calculated, but it's around that

area. Thank you. The second topic on M&A, please. So can you, you know, you see all the deals that are out there in Europe. Can you discuss what's happened to the competitive landscape in terms of your peers and private equity in terms of prices paid and just, you know, appetite for those deals? And more specifically for Adlife, can you also comment on your appetite, given your leverage and obviously higher interest rates at this point?

Yeah, I think there has been a little bit of a shifting environment there for, you know, maybe between a year and six months ago, the number of deals that we were approached with was significantly lower. Now, very recently, maybe it has picked up a little bit. But again, we are indeed approached by with some deals, but our preferred type of deals are actually the ones that we actively seek out ourselves, you know, based on the vast network that we have nowadays all over Europe. And these would be the small to medium sized companies that we can, again, find through our network. So that will be our preferred way forward. And those discussions are alive. The prices are, of course, coming down. And as in any market, there is normally, you know, when your price change environment, there is a discrepancy between the seller expectations and the willingness to pay from the purchaser or the acquirer. So, but that gap is probably, you know, shrinking a little bit. The sellers have to adapt and accept a little bit lower prices. But that's quite OK. We are active in a few of these negotiations and we have no rush. It's more important for us to do the right acquisitions at the right price. So I think, you know, time is on our side in that area. And so that means that sometimes we are, you know, competing with other, you know, consolidators in the field, if you will. But some cases, we are actually not because we have identified the deal ourselves. So that's how we look at the environment right now.

Thank you. That's helpful colour. And just lastly, you touched on it in Spain specifically, but just in terms of the elective backlogs, you know, activity is picked up, but, you know, perhaps on an inpatient basis is not materially higher than it was pre-COVID, which it perhaps needs to be to deal with these backlogs. So, you know, in your experience and speaking to these, you know, different hospitals in different countries, can you give us your sense, perhaps, of how quickly activity might be able to ramp higher than sort of 2019 levels in order to be able to address some of these backlogs? You know, how long that might take, you know, when we see that sort of uplift?

Well, I think it's a lot around, you know, the activity level on the political side, the willingness to kind of allocate a little bit more money to it and to apply a little bit new approaches, if you will, to handle it. And I think in Spain, you know, there has been, you know, it's election year as well. I think that has meant that there's been a lot of money allocated to handling these types of backlogs, and that has proven to work pretty well. So, there the activity level is at 2019 levels, or at least very close. So, that shows that it can be done, but that needs to continue, though, and we expect it to. In other parts of the continent, certainly, if you look at, for example, the UK, there's been a lot of strikes and a pretty challenging staffing shortage, and that's probably slowed down the recovery, even though there are some innovative actions taken there as well, and the willingness for the government, we think, to support. Now, I understand that recently there has been an agreement on payment in the healthcare sector, so hopefully the worst part of the strikes are now behind us. So, that should help to pick up the pace in the UK as well. In Scandinavia, we see it's a little bit more hospital by hospital. Many hospitals have been, you know, been very active and indeed moving towards a more efficient model where they apply new technologies and a more efficient workflow, so obviously it can be done. We also see, you know, in other parts of the Nordic region, an increased activity to use private hospitals to help sort the situation out, that also works. I think, you know, the trend is positive, it can be done, it is happening, it is in the activity is increasing, but we think for a number of quarters more, we will see, you know, that there are still waiting lines, and the activity increase will persist over a number of quarters more. I think that's the estimate we have.

Thank you very much, that was from me, appreciate your help. Thank you.

Thank you. Thank you, great questions. Do we have some other questions from the team? No, it doesn't seem that well. Charles, are you, but you got your questions answered, I hope, so I think with that, any more questions? All right then, well, thanks a lot for spending the time with us here, and, you know, to wrap up, we are quite happy with the fact that the business is growing substantially in all parts of the geography, as well as all businesses. We have a little bit of work to do on the working capital side, for sure, but we have a lot of activities that have been initiated a while ago already, and we certainly have a great track record in this company to improve working capital efficiency, and so all of those approaches are applied and will be evident in the coming quarters. Thank you, everyone, and have a great summer.

Thank you.