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 Kristina, 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 currency adjusted was 9% in Labtech and 8% in Medtech. Increased activity in the elective surgery sector continues. We see that the healthcare 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 many of 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 and 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, a 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, it amounted to 15 million. So taking a look at the margin and how it has evolved over time, the lab tech margins, is in the higher or 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 countered by a strong organic growth. On the MedTech 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 eight 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 improvement 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 and we have a strong pricing power position. Taking a little bit deeper look at Labtech, 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 business, the 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 and 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 this, we are very active in the field with the 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 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 health care 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, 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 is 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 manufacturings and suppliers, they are indeed looking through their 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 go-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 a 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 AndroDynamics. It originated with Healthcare 21 in the UK and Ireland, and now we have expanded that collaboration to also include Sweden and Denmark and the Benelux countries. So this is now 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 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 have 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 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 gap, 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 the 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, etc. 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 deleverage. 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, etc. 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 deleveraged? 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, its 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 sizable companies. They have their own business models and KPIs, and they have not really been aligned in all areas with the AdLife 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 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 of the presentation but let's open up for questions now and we will clarify where we're needed so i think we see that carl you raised raised your hand here for 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 martin's idea that the margins were 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 are seem to be down year over year that should also have a or that has a positive modern impact so

some color on that would be would be helpful yeah yeah digital a little bit a little bit lower than previous year but nothing dramatic there i would say and i agree with you uh you know it's 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 in 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 the 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 hard to assume that AdWish had a lower margin earlier then?

Yes, unfortunately, we had expected that it would gradually or cautiously improve. It didn't really go that direction. you know operationally we see some some good steps being taken we have replaced the products that we that we lost previously due to supply problems from some of our suppliers and 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 so things are falling in place in many ways but but it hasn't yet shown in the numbers okay and then should it

them be better in Q3, I guess? Or how should we say it? Because I think AdVision really deteriorated the margin in H2 last year. So can you give any sort of guidance on how to think regarding semantic margins in Q3 and the second half?

Yeah, I think on the long term, we're 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.

once we improve i would say it will be a nice effect on the whole medtech business because the rest of the business is is performing quite well yeah sounds good and just one more on the medtech 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 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 seems 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, great question, Carl. I think that, you know, 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 a well-established payment methods and whatnot so 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 in that 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 there is a lot of focus today here. So I'm just wondering a bit, because the net debt increased quite a lot sequentially. And the net up 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 it's temporarily weak. But then on the presentation, you say that it's, you know, MedTech is a larger part. We should expect working cap 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's needed to be done?

I think 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 expected to improve, that structural change has already happened, right? And now we see improvement potential going forward.

And 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 focused on efficient capital management and 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 for the larger companies that are indeed tying 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 three-level approach, if you will, that's been in place for some time and so we think the direction from here is improvement.

And just a question for maybe Christine on the debt. How much is in Euros versus in Swedish krona?

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

Yeah, exactly. And the interest cost of 73 million in the quarter, is that something we should expect going forward around that level?

I would guess so, because as you know, it's influenced by euro-bore increases. which has happened then and we always have a quarter of delay in the interest rates and then also essex is impacting here as well and of course in this quarter utilization of credit facilities yeah and then just the last one on the earnouts yeah i think i have 160 million of earnouts left which is included in the net depth when is that expected to be paid out and which companies is that relating to The majority is related to healthcare 21 and that is always 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 with you too.

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

Yeah thanks so much Mattias from Handelsbanken. 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 paid 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. 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 millions, 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 group. So right now we have decided to take the full effect over 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 where I think 19% in

q1 and then now 52 percent 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 capital quarters i think that would be helpful the tax rate in q1 was impacted by the reversal of the continuing consideration so that's why boss 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 up to the upper end of course in this quarter but still since there are no covered related sales boosting that sales line anymore i'm curious to understand uh you know where do you think we we found a new trough here or if it's still uh correct to think about the 10 to 12 percent 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 business. 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 key 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 a quite positive trend. So I think 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 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 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 cash flows should improve. So we don't see this quarter as 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 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 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 move 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 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, a 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 surgeries, 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, a little bit more simple types of surgical procedures that they have been able to relatively quickly handle. 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 the admission, is that sequentially from Q1? Is that down the margin?

Unfortunately, yes. Okay.

And then of the 8% organic load, it can 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 the exact share is hard to say because we have such a broad 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 here. 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 so I don't think we need to worry about taking a too short sighted approach here. But on the other hand, you know, with this good trajectory in the demand in all parts of the business, certainly we have plenty of opportunity to 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 know you do the adjustments on the interest coverage ratio. Can you just provide us where you are today?

Eight. So slightly below from last time, but eight is the number this quarter.

All right, perfect. That's all for me, thank you. Plenty of headroom then, yeah. 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 gonna 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 handled 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 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 sort of 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 3% to 5%, 3% to 4%, 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 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 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 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 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 this 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 the price change environment, there is a discrepancy between the seller expectations and the willingness to pay from the purchaser or the acquirer. But that gap is probably shrinking a little bit. The sellers have to adapt and accept a little bit lower prices. But that's quite okay. 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 time is on our side in that area. And so that means that sometimes we are 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, Kala. And just lastly, you touched on it in Spain specifically, but just in terms of the elective backlogs, you know, activity has picked up, but, you know, perhaps on an inpatient basis is not, you know, materially higher than it was pre-COVID. uh 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 a your sense perhaps of um 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 might see that sort of uplift

Well, I think it's a lot around 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. And 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 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 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 in other parts of the Nordic region an increased activity to use private hospitals to help sort the situation out. So that also works. So I think the trend is positive. It can be done. It is happening. The activity is increasing. But we think for a number of quarters more, we will see that there are still waiting lines. 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 it from me. Appreciate your help. Thank you.

Thank you. Great questions. Do we have some other questions from the team? No, it doesn't seem that way. Charles, you got your questions answered, I hope. So I think with that, any more questions? All right then, thanks a lot for spending the time with us here. And 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.