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, we'll 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 nine o'clock. Next slide, please. Q2 continues on the path from Q1 with a 3.7% 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're 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 EBIT. 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 OPEX as a 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 EBITDA 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 contexts. 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 mentioned in the report, we're also announcing some changes to the REO management team. Katarzyna 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 spinoff, she has now decided to pursue new opportunities outside of REO. In addition, Jonas Ederhage, 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. And I would really like to thank both Kasia 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 the 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 as significant potential for further growth and development. Next slide, please. And moving on to North America, where we grew with almost 2% or sorry, 2.6% organically in the quarter, and we are now up 6.3% on organic net sales for the first half year. Canada had another very good quarter with rental service and capital, all developing wealth. The trend continues to be positive, and we forecast 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 improve, which gradually will open up for investments outside of short-term focused 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 U.S. in the quarter was around our DVT business, where we last year had larger project invoicing 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 contracts in the U.S. 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 U.S. continues to improve, especially in our acute care part, whereas the long-term care side 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 5.2% organically in Q2, with continued good performance in many of the larger markets. Western Europe grew with 4.4% 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 supporters 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 from Q2 of 2023. We are down with more than 10% or more than 10 million SEK 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 the 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 healthcare 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 healthcare 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 oil 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 43.6% for the quarter versus 42.7% in Q2 of 2024. It is also a slight improvement sequentially from Q1 of this year. As expected, we have higher salary costs 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 1.5% 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 side 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 asked before report under other operating expenses. Adjusted EBITDA grew 5.5% 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 to 45 million, as communicated after Q1.

And then I hand over to Niklas and next slide, please. Thank you, Joakim. Good morning from my side as well. The operational cash flow improves 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 SEK, sequentially up from quarter one, which was 256 million SEK, The operating cash flow for Q2 last year was 512 million SEK, mainly driven by strong release of higher than normal inventory levels last year. Cash conversion improved sequentially to 70% versus the 54% in Q1. We are well on track towards our target of 80% cash conversion for the full year. For your information, cash flow from investing activities was minus 112 million SEK versus 136 million SEK in Q2 last year. And this is mainly containing investments in our rental fleet, R&D and fixed assets. So next slide, please. Our net debt is down year over year from 5.3 billion SEK in Q2 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's 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 the 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%. It's a small decrease from 50.7% in last quarter, and it's mainly due to FX 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%, and it's reflecting our latest estimate for the full year of tax. Based on our current geomix of profits, and also planned dividends from group companies after RUAB to optimize our internal capital structure, which is driving one-time withholding tax effects this year. Then I hand back over to Joakim. So next slide, please. Thanks, Niklaus.

And some short words on our outlook 2024, where we, given the solid start in the first half year, continue to guide for an organic net sales increase well within our target interval of 3% to 5%. 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 3.7%, well within our target interval for organic growth. We continue to strengthen profitability with increased gross margin and good OPEX control, leading to an increase in adjusted EBIT of over 10% 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