Arjo AB (publ)

Thank you very much and also from our side, welcome to our Q2 2024 earnings call where Niklas and myself look forward to give you some more details on the Q2 report that we just released. If I can have the next slide please. The agenda for today will start with a business update from Q2, financial update and our outlook for 2024 before we open up for questions. And we intend as always to keep this call to an hour and finish no later than 9 o'clock. Next slide please. Q2 continues on the path from Q1 with a .7% organic growth and continued good growth across most of our markets. We continue to see a healthy demand for our products and solutions with service and rental continuing to develop strongly also in this quarter. We are still not up to speed with our outcome programs in patient handling and pressure injury prevention. In patient handling, the progress in US on customer decision making is still slow while our pipeline continues to develop favorably. In pressure injury prevention, we continue to see good traction on customer discussions. Given that the distribution agreement with BBI for the Provisio SEM scanner will not be extended beyond the 31st of December 2024, we are now focusing on our core business in this area in a clearer way and we believe that this focus will bring traction globally. Our gross margin came in at 43.6%, an improvement versus Q2 of 2023 and also a slight improvement sequentially from Q1 of 2024. This is well aligned with plans to continue to improve gross margin for the full year of 2024 and as stated before, we believe that we have further potential to improve year over year. Also in this quarter, we see good development in both patient handling and service volumes where both categories are contributing to the gross margin expansion. As the share of rental in our net sales is increasing faster than capital goods sales right now, this has a slight dampening effect on our gross margin for the group as rental has a lower gross margin than capital sales but an equally good effect on EBITS. We continue to see good gross margin improvement in our rental business also in this quarter, an improvement trend that step by step will close the gap to the REO average gross margin for this category. Our focused activities around price adjustments, internal efficiency and product mix continues to generate forecasted results compensating for the higher cost levels driven mainly by salaries. We continue to have good cost control throughout the organization and OPEC's asset percentage to net sales is stable versus last year despite the high inflationary salary increases. We continue to invest where we drive profitable growth for the future while making sure to safeguard our short-term commitments. Adjusted EBITJ for the quarter increased to 496 million SEC versus 471 million SEC in Q2 of 2023. Adjusted EBIT improved with more than 10% from 210 million to 232 million despite significantly worse outcome on currency items mainly around the revaluation of AR and AP in other operating expenses costs. We are trending well aligned with our forecast for 2024 and we continue to have good stability in our earnings progress. Our operational cash flow for Q2 was 344 million leading to a cash conversion of almost 70% for the quarter which is the same level as last year. Niklas will take you through further details but from my perspective another solid quarter with good actions to develop further and meet our full year target of 80% cash conversion for the full year. As you probably saw as briefly mentioning in the report we are also announcing some changes to the REO management team. Kavashina Bobrov, our head of quality and regulatory compliance has been with the company for more than 17 years in total and after being in her current role since before the year of 2015 she has now decided to pursue new opportunities outside of REO. In addition Jonas Hederhage, head of supply chain and R&D has decided to take on a role within the Thule Group. Jonas will remain in his current position until year end. Recruitments are ongoing for both positions and we have solid internal solutions in place to ensure that the operations continue according to set plans. I would really like to thank both Kasha and Jonas for their efforts and wish them all the best moving forward. In summary we put another solid quarter behind us well aligned with our plans for the full year. The organization have done a good job in navigating somewhat challenging market conditions and we have set ourselves up for good continuous improvement in the second half of 2024. Service and rental continues to positive trend. Transactional capital sales in North America develops according to plan and we strongly believe that the long term factors that affects our business will continue to be a main priority to healthcare systems over the coming years offering us, REO, a significant potential for further growth and development. Next slide please. And moving on to North America where we grew with almost .6% organically in the quarter and we are now up .3% on organic net sales for the first half year. Canada had another very good quarter with rental, service and capital all developing well. The trend continues to be positive and we focus to continue on this path on this important market also going forward. The overall positive trend in the US continues. Healthcare providers are seeing their financial situation improved which gradually will open up for investments outside of short term focus and tilted versus operating room initiatives. We are not back to the decision making speed that we saw before the pandemic and it remains challenging to get process improvement investments in our area like our outcome programs to be signed off by all related parties. We continue to have very good acceptance for outcome programs from clinical personnel but it is clear that we still lack the focus and full commitment from C-suite to get the traction we want. Where we saw the headwind in US in the quarter was around our DVT business where we last year had larger project in Moising in Q2. In this area we continue to see some price pressure as discussed in previous telcos but it is our opinion that we are now seeing stabilization and we are also happy to see that we have secured important new contract in the US that will build further volumes from end 2024 and onwards. Our AirPal product line that we acquired before the pandemic is now truly picking up speed in the US with some good new customers on board. The advances in consumables will secure even better transparency and consistent growth in the US for the coming quarter. We continue to see good development of service, rental and our patient handling capital sales. The transactional capital business in US continues to improve especially in our acute care part whereas the long term care site and government business definitely have more potential. But we are confident that we will regain traction in these areas in the coming quarters. Both service and rental post good improvements in the quarter with operational leverage and thereby better profitability. Overall a solid quarter in North America with potential especially in the US to further develop the organic net sales in the quarters to come. Next slide please. Our global sales region grew with .2% organic in Q2 with continued good performance in many of the larger markets. Western Europe grew with .4% in the quarter. Market trends are as before the same with solid demand for our products and solutions and we continue to have good development in both service and rental. We have good growth in countries like France, Ireland, Italy and Austria in the quarter whereas countries like Netherlands and Belgium saw postponement of decisions mainly in capital spend. As we have talked about in previous telcos the uncertainties around capital spend levels in European healthcare continues to be present. Our pipeline is good and growing and in some countries we expand our already significant market shares but we also continue to see postponements and delays of capital spend decisions. This is something that we believe that we will have to continue to navigate for some quarters to come but we are positive around our possibilities to continue to see growth and continued improvements on profitability in Western Europe for the rest of this year and onwards. Our service and rental business remain the main drivers together with a sharp focus on pricing. On both the UK and French markets we saw additional hesitations to make investment decisions in June very much related to the elections held in both countries. I believe that we can expect continued uncertainty until the newly elected governments give clear directions but it is encouraging to see the long term commitment from both these important markets to investments into solving the large scale problems facing healthcare around demographic change and the need for more efficient care of patients. Also in Germany the political plan for the coming 10 years will, in our view, open up further possibilities for Oreo on a market where we are already very well established. A few words on the development of our diagnostics business where we also in this quarter saw a decline versus very strong comps on Q2 of 2023. We are down with more than 10% or more than 10 million SEC in the quarter in this business which is obviously affecting the group's overall growth in Q2. But with that said, our order intake is picking up in a good way in this area and we expect, as we stated in the Q1 telco, that we will be back on growth mode for our diagnostic solutions in Q3 and Q4 based on this and also easier comps. Next slide please. Then over to rest of the world where Q2 was another solid growth quarter, this time growing with 8.1%. We continue to see good growth in Australia and New Zealand where we have good development in capital and also continued good traction in service and rental. Other examples of good growth comes from our Africa region, Hong Kong and India. India is a country where we see good opportunities for profitable growth going forward. And based on the plans in place we believe that we can support health care in India even more effectively while growing our share of this very interesting market in the quarters and years to come. The organizational changes done in Japan during Q1 is now fully implemented and we already now start seeing good traction. Japan sees good organic growth in the quarter and we expect that journey to continue for the coming quarters. Again, an example of a market where we have good potential to add profitable growth long term. Our plans to strengthen our market activities in Eastern Europe, especially in Poland and Czech Republic, are ongoing. The larger investment programs to health care in, for example, Poland which is supported by EU funds are now gaining traction and we expect to be a strong contender in these programs which we forecast will give healthy growth to this market for IO in the coming quarters and years. Next slide please. And moving over to gross margins, the improvement journey on profitability continues and the gross margin improved to .6% for the quarter versus .7% in Q2 of 2024. It is also a slight improvement sequentially from Q1 of this year. As expected, we have higher salary cost in supply chain, rental and service which we have effectively mitigated through continued work with internal efficiencies and continued focus on price alignment. The main effect from these price increases are from activities done in 2023 where the increases done in the beginning of this year will have full effect mainly in the last three to four months of this year which is the same pattern as we had last year. And as discussed also in the Q1 telco, our forecast is that we will see price adding between 1 to .5% growth on top line for the full year and we are trending according to this plan also after Q2. We still struggle a bit with our gross margin in our medical beds capital side but do see an improvement within this category versus Q1. Overall, we have continued to perform well on patient handling gross margin and with additional traction in this category during the latter part of this year, we expect to see continued improvement of our product mix. Service continues to improve mainly through operational leverage, through the good organic growth connected with price adjustments to counter the high inflationary pressure on salaries that we see in service. We also continue to see good efficiency gains based on implementation of our supply chain strategy. Transportation came in approximately 4 million higher than expected due to the situation in the Red Sea and Suez Canal. This is something that we now believe will affect us with approximately the same sum per quarter also in the second half of the year. Material cost is generally decreasing a little bit, well aligned with overall plans, but we see larger fluctuations between categories. But the trend is positive and we follow our plans in this area. Next slide please. OPEX continues to be well managed within the group and OPEX as a percentage to net sales declined slightly despite the higher salary cost. We will drive initiatives for profitable sales development also in the future, but we will of course continue to watch OPEX and the OPEX site carefully going forward. R&D gross investment is at almost 3% for the quarter, well aligned with our product development and portfolio planning. As before, we expect larger launches in hygiene, pressure injury prevention and patient handling to come in the end of 2024 and beginning of 2025, followed by more of the same in the rest of 2025 and 2026. Our adjusted EBIT grew with more than 10% from $210 million to $232 million in this quarter, despite the negative currency impact of approximately $23 million from the revaluation of our accounts receivables and our accounts payable that we as before report under other operating expenses. Adjusted EBITDA grew .5% to $496 million. Restructuring came in slightly lower than expected in the quarter and we still expect restructuring for the full year to be around $40-45 million as communicated after Q1. And then I hand over to

Niklas and next slide please. Thank you Joakim and good morning from my side as well. The operation in cash flow improved sequentially in quarter two versus quarter one, but this down versus quarter two last year due to difficult comparison with strong release from higher than normal inventory last year, which is not repeated this year based on more balanced inventory levels. Working capital improved in the quarter, coming from good work with all parts, including inventory, accounts receivable and accounts payable. Our long-term improvement activities regarding working capital is continuing to pay off and this will of course continue throughout this year. Working capital days sees a significant improvement year over year in the quarter, now down to 79 days compared to quarter two last year with 95 days. It's also sequentially down from quarter one which had 82 days. The improved profitability together with the working capital improvement gives a stable operating cash flow of 344 million SEC. Sequentially up from quarter one which was 256 million. The operating cash flow for quarter two last year was 512 million SEC, mainly driven by strong release of higher than normal inventory levels last year. Cash conversion improved sequentially to 70% versus the 54% in quarter one. We are well on track towards our target of 80% cash conversion for the full year. If we were to give you more information, cash flow from investing activities was minus 112 million SEC versus 136 million SEC in Q2 last year. This is mainly containing investments in our rental fleet, R&D and fixed assets. Next slide please. Our net debt is down year over year from 5.3 billion SEC in quarter two last year to the 4.5 billion in this quarter. Sequentially the 4.5 billion net debt is slightly up versus the 4.4 billion in quarter one, mainly due to normal seasonality with the yearly dividend payout in quarter two. Our financial net has increased compared to the same period last year and is mainly connected to currency effects, while the interest net is stable versus last year same period. The interest net was also sequentially stable from quarter one based on the stable debt level and interest rates. We expect our reduction journey on the net debt to continue in the coming quarters and together with potentially lower interest rates the second half of the year, we anticipate decreased financial costs during the year. Our cash position remains strong. Our leverage net debt adjusted EBITDA improved year over year and came in at 2.4 in this quarter versus 2.8 in quarter two last year. And this is a result of the last year activities regarding improved profitability, working capital and cash flow. Sequentially the leverage came in 0.1 above quarter one and as a reference point the dividend payout in quarter two corresponds to 0.1 impact on leverage. The equity ratio came in at 50.1 percent. It's a small decrease from 50.7 percent in last quarter and is mainly due to effects effects. And then a final comment from my side is on our reported tax for the quarter, which gives an effective tax rate of 27 percent and is reflecting our latest estimates for the full year tax. Based on our current geomix of profits and also planned dividends from group companies up to RUAB to optimize our internal capital structure, which driving one time withholding tax effects this year. Then I hand back over to Joerg. So next slide please. Thanks Nick and

some short words on our outlook 2024 where we given the solid start in the first half year continue to guide from organic net sales increase well within our target interval of three to five percent. Next slide please. And just some key takeaways. And Q2 was another solid quarter where we have continued to navigate the market opportunities in a good way. Demand for our solutions and products are good and the healthy trend on service and rental continues leading to an organic growth of three point seven percent well within our target interval for organic growth. We continue to strengthen profitability with increased gross margin and good opus control leading to an increase in adjusted EBIT of over 10 percent year over year and our focus to further improve profitability obviously remains. Based on this solid start to the year we feel comfortable with the organic net sales outlook for the full year. We are now looking forward to a second half year that will be characterized by high activity levels in both organic and inorganic sides of our business and we look forward to finish the year in a strong way with projections for the important fourth quarter assuming the same pattern as we saw last year. With that we can open up for questions so moderator please go ahead.

If you wish to ask a question please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question please dial pound key six on your telephone keypad. The next question comes from Ricard Andercrans from Handelsbanken. Please go ahead.

Good morning and thank you for taking my question. So I have two please. So first question maybe if you could break out the second half outlook for your key Western European markets you know UK France and Germany given elections and hospital reform there. Is your base case that we should anticipate some turbulence here in the shorter term and some pressure. I think the messaging in the report was a bit mixed so maybe if you could just break out the key base case assumptions on these markets and your visibility there. Thank you.

Yeah absolutely I'll try to do my best as I indicated both in the report and also during the presentation we have seen hesitation in UK and in France on decision making on capital goods. We were not sure what that would mean when really after we knew that the elections came but we have seen an hesitation to sign capital orders in the end of June. We are however both in both market confident on the end when I say long term I don't mean 12 months down the line but if we look back end of this year or Q4 we are confident that as soon as there are directional from the new government that we will continue to see good traction on capital sales within this year in UK and France. But what we might see in July and August is a little bit of continued hesitation and then a good flow in let's say the last four months of the year. That's how I would interpret it but long term for both UK and France good outlooks especially when you read through what for example the Labour government in the UK would like to do and would like to invest in energy or something that we believe will be positive for us. On the German market the new political plans that are in place are also talking about significant investments in areas where we have a possibility you walk away from the very strict ERG system that they have and we believe that given that many of our solutions are not connected to that that will be quite a positive thing for us mid and long term. The good thing in Germany is that we have after a little bit of a slow start in capital in the beginning of the year in Germany started to see a good uptick on capital activity and also capital order intake in Germany and that is something that we foresee will continue in Q3 and Q4. Was

that

clear Rickard?

Yeah I think that's clear thank you for taking the question and the second question please you mentioned you know expecting a strong finish to the year and it seems like this will be driven by investment in capital equipment maybe if you could just confirm that this is a key driver for you and do you have a book to build notably above one for the group heading into Q3? Thank you.

What we are seeing is that we as you say we are expecting with the same pattern as we saw Q4 last year that we will be finishing off strongly and every year we have an above average amount of capital projects that are finalized in Q4 and therefore giving an overweight of capital net sales in Q4. And that's also why we usually have a good uptick of our gross profit in quarter four. But what we see going into Q4 is that we continue to see good growth on our service and rental business as well. So we believe that it is all three areas that will continue to bring good growth into Q4 net sales. That's how we see it right now and we feel based on the order intake that we have that we have a good flow of the order intake that will support a good Q4 also in this year. But it is really good to see as I said during my telco it is good to see how we are advancing in service, how we are advancing in rental, how we are advancing in the area of disposables which is obviously giving us better and better transparency in the short and midterm of our business.

Alright, I just got a super quick follow up if I could. Do you expect the gross margin to be aligned with the Q4 level we saw last year in Q4?

Yes, as we have indicated that we are looking to improve the gross margin for the full year in a good way we obviously need to continue to see good year over year improvements in the second half year as well.

Okay, thank you. That was all. Thank you.

The next question comes from Christopher Liljeberg from Carnegie. Please go ahead.

Thank you. Three questions. Could you comment what you expect operating costs of the Centre of Sales to do for the full year and also whether that includes the other cost lines, so I.e. the FX balance sheet revaluation. That's my first question. The second one is if you could just highlight how much the FX impact was on the financial net and if you could repeat what you said about one of tax items here in the full year and what type of long term normalised tax rate we should expect going forward. Thank you.

Thanks Christopher. I'll take the first one on OPEX and then I'll hand over to Niklas on the two others. Looking at OPEX we still believe that we will do what we have said since before and that is to have OPEX as a percentage to net sales on the same level as last year despite the high inflationary pressure that we have seen on salaries. Now with that said we are trending slightly better than that and as you have seen also in Q2 we are slightly better than last year on that KPI and we continue to be very mindful about the OPEX development and we'll obviously continue to be so also in Q3 and Q4 to make sure that we both safeguard the short term commitments that we have financially but obviously investing where we need to drive profitable growth. The guidance on the OPEX side is outside of the other operating expenses because that line is more or less impossible for us to give indications on. As you saw this quarter is affected negatively versus last year with minus 23 million and that is obviously making the comparison on the EBIT line difficult. If we would have been neutral to last year obviously the comparison on EBIT would have looked significantly better. So it is difficult to give you indications where that line will go. It very much depends on the Swedish Kronas development versus other currencies in the quarters to come here. But on the operational OPEX side which is the selling admin and R&D that is where we believe that we will continue to see at least the same level that we had to last year also going forward. Niklas on

the two others. Yes, when it comes to the finance net and the currency impact in the quarter it is the 15 million that is the difference because the interest net is flat between the quarters. So that's the simple answer. And tax, yes we have the 27% that estimates the level for this year but that includes some as I mentioned more of one time impact. So I think going forward it is between 25 to 27. So I would look at the 26 number long term after 24 and onwards.

Thank

you. The next question comes from Matthias Vadsden from SEB. Please go ahead.

Hello, a follow up on the gross margin. I think it looks quite solid with 90 bits expansion here in the quarter versus last year. And that's a higher increase than what we saw in Q1. So this is despite sort of North America growing much stronger year over year in Q1 versus what we see now here in Q2. So maybe some more flavor on the gross margin in the quarter and what we expect in Q3. So should that be a similar increase year over year versus what we saw here in Q2? That's the first one.

Before we answer that question more from a global perspective, we are over the entire, or all markets doing a good job in my view in a, making sure that we're compensating for the higher inflationary costs that we are seeing in supply chain, that we're seeing in service and that we're seeing in rental on salaries. And we do that through the internal efficiencies. We do it through price increases and we do it through a step by step better product mix. And we strongly believe that that is a journey that will continue. I wouldn't be able to give you a detailed number of on Q3, but that we will have a good improvement year over year also in Q3. That is absolutely something that we expect and something obviously that we believe will happen given that we are saying that we will for the full year see a good increase of gross margin and continue from that based on further development in the years to come. Patient handling is a strong contributor in that area. We continue to see patient handling developing favorably on product mix. We see that we are selling, given that the transactional sales of patient handling in the US is picking up speed, continue to have good traction on this. Also, for example, in Canada, that is something that is helping the gross margin in patient handling to increase both year over year and sequentially in Q2. And that trend is something that we believe will continue to go in our favor. So, Mathias, it is very much a global work. And obviously, if we get further traction on, for example, the outcome programs in patient handling in the US, as we expect to see in the second half of the year, that will have a positive effect to both product and geographical mix.

That's all clear. Then the next one, the diagnostics will return to growth here. I think you mentioned in the second half. Could you maybe extend a little bit how much of a headwind this has been on growth in recent quarters?

As I indicated, I believe I said it during the presentation that it's a little bit more than 10 million sick in negative organic growth for diagnostics quarter over quarter in Q2. So that's probably an 0.3, 0.4 percentage points for the for the food group in organic net sales that that sort of thing is held back by the development in diagnostics. Diagnostics entered into 2023 with a significant backlog, given the fact that we had problems delivering in the end of 2022. And that backlog was invoiced out in Q1 and Q2. And then we saw because of lower order intake that now is then picking up in a good way again, we started to see lower quarters in Q3 and Q4 of 2023. Important with the diagnostics business is that we are now seeing an improved order intake. We also start to see a return on profitability. The diagnostics business has always been a good profitability contributor, but unfortunately during 2022 and 2023 was hit with significant extra cost in supply chain and mainly through material. And something that is now step by step compensated by the management in diagnostics. We not only see a good potential of growing the diagnostic business in the second half year, but also improving on the profitability of our diagnostic business in the second half of the year. And obviously from there on as well.

Good thanks. The last one would be on, you know, balance sheet is improving in the second half, quite obviously. And you flag inorganic opportunities here Joakim. So what kind of acquisitions are of interest for ARIO maybe? That's the last one for me.

Yeah. And thanks for the question because it leads me into something that we are working very diligently on right now. I mean, we've always said that we have M&A in focus, which we have had. But I believe that with a slightly clearer strategic agenda, now when we can focus only on, so to say, our core business, this is also giving us some extra room to focus even more on the M&A side and on the inorganic side. We have, as you say, a stronger and stronger balance sheet, but also allows us to move there. What we are looking at in the first room, as I said, and it's the same setup that we have had before. One bucket is around infrastructure projects or targets around service and rental. There is a part where the tunnel is now building in a good way. And those targets are quite often companies turning somewhere between 30 to 70 million, somewhere around there. Pretty easy to integrate into our business with good synergies without, so to say, having to struggle too much to get those energies when we're implementing. So very interesting both from a bolt on perspective, but also from a profitability perspective. The second part is product companies where we are looking for companies that, again, as where Airpal again is one good example, Airpal where we are now seeing really good traction, especially in the US. Product companies that is filling a hole in our product portfolio where we already have the call point with the customers. And then the third part is obviously more larger possibilities that might come to market and where we're obviously looking very carefully on the targets that are coming out and are taking active decisions strategically, whether it's good for us to pursue or not. And then I say probably adding a little bit of strategic views as well is that with more time to do this, we're obviously also looking into how we can use M&A going forward over the next zero to five years to build an Oreo that looks maybe a little bit different in five years than what we have right now. But that is a much more longer term thing, well aligned with our strategy, and it's always going to be something that is well connected to the business that we are doing right now.

Thanks. I think that's a good run through. So thanks for taking my question.

The next question comes from Stan Gustafsson from ABG Sundial Collier. Please go ahead.

Yes, good morning. Thank you. If we could talk a little bit about North America and what you see will drive growth in the second half. You're facing fairly tough comps, and I was wondering if you could perhaps talk a little bit about the growth outlook for North American market in the second half and where do you see the full year growth number to start off with? Thank you.

Thanks, Dan. North America divided into the important market of Canada and then the US and Canada, we believe, will continue to see good development. Capital sales rental will continue to develop favorably in Canada also for Q3 and Q4, well supported by good oil reintake and continued financial flow, or sorry, positive financial inflow on the Canadian market. In the US, we believe that growth will come from a pickup in patient handling mainly, patient handling transactional sales and patient handling on the consumable side through Airpal, but also a step by step improvement of the patient handling outcome programs where, again, that is an area we have been active in many years. And we believe that we are step by step finding the ways of, so to say, getting back to that decision rhythm that the good pipeline deserves in the US. We also believe that rental, which is trending on a very high level in the US, has further potential to take in more customers to continue to gain market shares. We believe that we have further potential of growing our service business in the US. And we also believe that we are starting to see a stabilization around our DBT business, as I said, so we don't see a decrease or, so to say, something that is bringing down our organic net sales in the coming quarters. So it is a mix of everything. We have a watch out in the US around we need to get better traction on our long-term care business. The governmental side in the US needs to be navigated in a good way. But all in all, we believe that we continue to have a good growth potential in the US based on the factors that I just mentioned.

And is it fair to assume that the North American market for the full year will grow above the group's target of 35%?

Well, I would be, if we don't do that given the size of it, then as we see it, is that the West Europe market, as we have been discussing again, is a market where we already have significant market shares. And it is obviously difficult to grow those significant market shares to something substantially bigger, but we have good traction on service rental and also capital sales in some countries. But I would probably expect a slightly more, I would say, moderate growth in Western Europe and then the rest of the growth in the group for the coming quarters, which will be well within our net sales interval that we have indicated, will come from rest of the world, obviously. But that's only a small part of our business and then Canada and the US.

Great, thank you. Coming back to the DVT, could you remind me of sort of the size of that business in terms of total sales and also maybe say a word on, you said you had entered into new contracts which will help growth, but are those on lower price levels? I think you indicated in the remarks or in the presentation that there was some increased competition on those products.

On DVT, I believe we have indicated over the last telcos that we, that is the area where we have had the most difficulties of adjusting our prices based on the inflationary pressure. What we have done instead in DVT is worked very diligently, especially in supply chain on the efficiency around our operational side. And we are seeing that we are compensating well for that price pressure through internal efficiencies and better work in supply chain in the DVT range. So, DVT in total is trending quite alright on the gross margin side, but mainly through the internal activities and not so much through the price as we have seen in other product groups. The DVT business that we are taking on as I said during the telco, we believe that we now see stabilization in the prices, so it's not that we are attacking and trying to defend market share through further price erosion. We are rather seeing a stabilization and a slight trend in the other direction. Great, thank you very much.

The next question comes from David Johansson from Nordia Markets. Please go ahead.

Hi, good morning. Maybe to expand on the capital situation in Western Europe. I think as you highlighted in your remarks, a number of political election in the last week or so in the UK and France. So if you could elaborate a bit more on the implication of the selection and perhaps longer term beyond 12 months as you commented, I would assume the Labour Party winning would be positive for NHS, but perhaps your perspective here I think could be helpful. Thank you. Thank you David.

Short term, as we said, and I believe we talked a little bit about that after Q1 and also on other conferences that we didn't really know what was going to happen in the UK or in France when that election came, whether that was going to create a boost in the second quarter or if it was going to be neutral or if it was something that would work negatively for us. So it was a short term for Q2. It turns out that it was

in

fact the latter part that happened. The hesitation to take decisions on projects that were very, very far in the decision process was there. And like in the UK, there were a number of orders that it's not in any way, shape or form been lost, but moved into Q3 and Q4 and customers will reactivate on signing those contracts once there is a clear direction from the new government. France, a little bit the same thing. We are seeing hesitation on the capital side. What will the new government give out in the coming month here as clear directions? But the good thing in France is that as we have such a dependency on service and rental in France, we are navigating that very well. And again, there is no project that has been, so to say, delayed or cancelled. It's just a postponement of decision making. And now we speak about the very short term part of this, as I said during the telecom. If I look long term and beyond the 12 months that you are saying, if I look at UK and what Labour is saying, we believe that the plan that they have, the points that they have within that plan, where they speak about reducing the number of elective surgeries that are in line to be performed, which will absolutely benefit, for example, our rental business, it will benefit also our capital sales side. There is still a big need to address the efficiency and the in the healthcare environment to make sure that they can get around the problem that not only the UK market has around the lack of staff. And where again, our solutions and programs are very well suited for that. And also the UK and NHS is starting to speak very actively around prevention, which we believe speaks very much in favour of what we are offering. So both in UK, in France and also in Germany, as I said, and indicated the journey beyond the 12 months. And even if we would, so to say, reduce the political words that they have a tendency to speak quite a lot and then it takes some time to implement it. But even if we would reduce those promises significantly, it is a promising couple of years coming our way, the way I see it from an organic perspective, it is driven by the demographic change. The fact that we've been talking about around obesity and also the dementia problem. And on top of that, a political agenda that now starts to turn in the right direction in these areas for us. So 12 months plus, it looks positive.

Thank you for the clarity there. And just to follow up on the gross margin. How do you think about the phasing of the margin improvements year on year? It sounds like you continue to believe in a strong ending for Q4, partly to the price effects and price effects coming through and also the capital projects, as you mentioned. But does that also mean that Q3, it could be maybe a bit more challenging at least looking at last year or do you still think we could remain on a somewhat higher level also sequentially? Thank you.

I think that, well, sequentially with will, as always in Q3, be difficult. But if you look year over year, I believe that we will continue the same type of improvement journey that we have seen in Q2. And continue on the path of strengthening and gross margin and that then as a tool to strengthen the overall profitability of Oreo. But year over year, Q2, we have good expectations that we will continue to improve our gross margin.

Okay, great. And just the last one for me and maybe answer this before. But if you're able to quantify the impact, the growth from the DVT business in the quarter and do you foresee this having a similar effect in the US for H2 as well? Thank you.

No, well, we will not have the same effect in Q3 because as I said during the presentation, we had project invoicing in Q2 of 2023, which obviously impacted negatively the organic growth. And it is a number that represents somewhere around 20 million SEC on project sales last year in Q2 that we didn't have this year in the DVT business. And that will not, we didn't have that in Q3. So in Q3, we will compare more on a normal basis, DVT.

Okay, that's great. That was all for me.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Thank you very much and thanks for dialing in. We look forward to further discussions after a quarter where we are posting continued good organic growth at .7% and where our profitability journey continues. We look forward to especially a good ending the last three, four months of the year to make sure that we get well within our organic growth interval of three to 5% and continue to make sure that profitability comes with that in a very good way also in 2024.