Arjo AB (publ)

Thank you very much everybody that have called in to this Q4 year-end report 2025. My name is Andreas Elgård and with me today I have Christoffer Karlsson and I will start the meeting and then we'll hand over to Christoffer when we come into the financial figures and we'll do this together. So before we begin, I mean, I've started now in Arjo since three plus weeks back. So I'm still new at work and I'm super excited to lead this first call and also to share a little bit with you guys what I'm experiencing as a new entrepreneur. person discovering Arjo. And I thought also that maybe it's a good idea that there could be some newcomers to this call who are interested in getting to know Arjo a little bit. So just very, very briefly, we are experts in improving mobility in acute care and long-term care settings. Our products truly make a difference when people are at their most vulnerable. They provide safety, dignity, and integrity to patients, and they also provide good working conditions for the caregivers. And of course, they deliver value to the clinics and to the institutions where they are in use. Arjo is founded in the south of Sweden in Eslöv by Anna Johansson. That's also where the name comes from. It has a long tradition leading up to where we are today. An 11 billion company with almost 7,000 co-workers and with active sales in 100 plus countries. I think we can take the next slide. And you know, when you're new, of course, you discover the company, and I discover Arjo through all the products and our business, but mainly I discover it through the lens of all of our people. And we have a very, I would say, rich company in terms of diversity. We have many businesses. We are active across many countries, and we have many versions of Arjo out there. And it's really... the people that represent these different versions. So a lot of diversity across Arjo. We're not always using that to our benefit to drive maybe best practice or learn from successes or failures. But there is one thing that we have in common across Arjo and was a big reason for why I wanted to join as well. And that's we're all connected and really I would say passionate about the purpose and it is the purpose of doing good to be there when patients are at their most vulnerable situations and provide products that truly help the care situation. I already said it, but integrity, dignity are super important when you are in this position and also to provide that in a safe way. So it is something that is truly a superpower in Arjo and something we will build on for the future. So let's talk about Q4. So first of all, I would say that we had stable demand throughout the quarter. And then towards the end of the quarter, we saw maybe not the development that we would have wished. We are being challenged by, of course, currency and tariffs. And we have also been challenged a little bit on price pressure in parts of our markets and in the mix where we're selling, where we have slightly higher growth in markets with lower margin versus markets with a little bit higher margin. But overall, healthy organic growth, very strong cash flow in the quarter. So we almost hit our yearly cash conversion targets, but really, really strong in the quarter. And of course, we had hoped for more when it comes to the gross margin and maybe some of our cost controls. We can look a little bit into the full year. So when we zoom out and look at the full year, we see a growth figure that is within the range that we have promised. And we can see that we deliver this despite being challenged, I would say, mainly in UK, where we all know that the market in UK and the political situation, the struggles in the healthcare system in UK is also something that hits Argo and has been a red thread throughout the year. That is impacting our performance, I would say. And then the headwinds in terms of tariffs and currency together with price pressure in parts of our range. And then the mix is challenging our profitability and our margin. All in all, our EBITDA, we expect a little bit more from the quarter, but if you look at the full year, given the adjustments that have been throughout the year, some of the write-offs, this is the level that we landed on. As I mentioned previously, thanks to the strong performance in the Q4, we managed to almost come up in line with our target of 80% cash conversion. We are just south of that. And then very important to highlight is that we propose to stick to the same level of dividend that we had last year. And the board is recommending to the AGM a dividend of 0.95%. Just very briefly on North America and global sales, the two segments that we have, you can see that the quarter in North America was slowed down a little bit, but looking at the full year, it was quite strong growth. And looking then at global sales, we had the reverse trend where we had a stronger finish and a full year that was more, I would say, stable. And important to note this is that some of the more emerging markets in what we call rest of the world have high growth. And that's also areas where we have growth. a slightly different profitability, gross profit level. And that hits the overall gross profit of approximately 1%, and then tariffs, currency, et cetera, is approximately another percent when you look at us from the outside and compare with last year. And by that, I think it's time to hand over to Gustaf.

Thank you, Andreas. Yes, my name is Christopher Karlsson. I'm the CFO of RU. As Andreas mentioned, profitability was a challenge in the quarter. Our gross margin came in at 42.1% compared to last year's 44.7%. We continue to have headwinds from currency and US tariff, representing around one percentage point of the drop. In addition, one percentage point can be explained by the unfavorable geo and product mix due to higher sales in global sales with higher volumes of medical beds. On top of this, the DNA flu season in US pressured our rental margins. And we also saw impact from continued price pressure in the DVT business in the US in the quarter. Meanwhile, we had a good momentum and margin development in the rental business in continental Europe, especially France, Germany, and Italy in the quarter. However, the market condition in UK continued to be a challenge And the 11 percentage point drop in UK sales consequently had a negative impact on the gross profit and offsetting the positive effect from continental Europe. All in all, a disappointing finish to the year from a gross margin perspective, where we did not have a seasonal uptick that we usually see due to a number of headwinds. Next slide, please. Adjusted EBIT in Q4 came in at 249 million SEC versus 375. The main driver is the drop in gross profit and an OPEX increase of 23 million SEC. We had a negative effect from revaluation of accounts receivable and accounts payable of 3 million in a quarter, booked under other operating expenses. And this was plus 19 in the same quarter last year, resulting in a delta of 22 million SEK year over year. Total FX impact on adjusted EBIT amounted 73 million SEK in the quarter. The even margin decreased to 8.9% versus 12.5% last year. On the OPEX side, the increase in the quarter is mainly driven by higher sales of capital sales in the US, resulting in higher GPO fees and sales commission. The organic OPEX increase was 1.9% in the quarter, which means that adjusted for the variable cost, we see a good traction from the cost efficiency initiative implemented early in this year. Adjusted EBITDA for the quarter was 526 million SEK versus 653 million SEK in Q4 last year. The adjusted EBIT margin decreased with 3.2 percentage point versus last year. Restruction costs came in at 68 million SEK in the quarter, where 35 million is a write-on of capitalized IT costs related to an ongoing IT harmonization program. This initiative is expected to lead to annual savings of at least 30 million SEK from 2028 and onwards. Another 33 million related to ongoing improvements in our global sales structure to improve the cost and situation for the future. Next slide, please. Operating cash flow continued to improve in the quarter amounting to 600 million SEK This was 121 million SEK higher year over year, primarily due to inventory reduction and a good receivable collection. The decrease in inventory is significant in the quarter, and it turns also to the full year number into a positive number. Our increased capital sales together with the supply chain inventory reduction program is now starting to show results. Working capital days decreased to 76, down from 82 in Q3. And it's good to see a continued positive trend here. The working capital improvement is also the driver for improved operating cash flow of 600 million SEK in the quarter. Consequently, cash conversion in the quarter was almost 120% compared to 82% last year. For the full year, we came in at 79%, which is in line with our target of 80%, and an increase versus 2024. For reference, cash flow from investing activities was 172 million SEK compared to 191 million SEK in Q4-24. The decrease is mainly due to 23 million lower investment in tangible assets. This quarter includes 19 million SEK investment in a Dutch entity Simicare, which was announced in the Q3 report. Next slide. The decrease in net debt in this quarter is mainly due to the improved operating cash flow. Our financial net came in at minus 77 million SEK, which includes a non-cash flow impact of 35 million SEK. Negative revaluation of our holdings in Atlas, Infonomy and Replus. Adjusted for this revaluation of our financial assets, the financial net was minus 42 million SEK and on par with last year. Our cash position remains strong. Net debt to adjust the EBITDA stayed flat versus Q3, easier and came in at 2.2. Our equity rate stood at 49.8%, up from 49.5% in Q3, mainly due to the improved cash flow. With that, I will hand it back to you, Andreas. Thanks, Kristoffer.

So let's look ahead. How will we define our future direction? And I would like to say that, I mean, there's always ongoing positive work in preparing for the future. During 25, we launched the Maximum 5 that many customers think is really a game changer. We have just recently also launched the new hygiene solution, Simblis, that has received a lot of positive acclaim so far. And we're going to continue to rejuvenate our offer and how we go to market going forward. But maybe just a few words on what it means to work on this. So we have a solid foundation to build on. We have a macro solution. economics, I would say, or trends that are incredibly positive for us, which is people live longer, more people come out of poverty. The need for care is growing faster than the population is growing and the GDP is growing. So from a macro perspective, all things are positive. At the same time, we know also that many political systems and many healthcare systems are set under pressure because it is difficult to keep up with the growing need of care. So there are changes in how care is being administered and given to patients. All of these things will create a more dynamic market in the future, and it's very important for Arjo to set our point of view on that. Part of our foundation is also that we have a very passionate team dedicated and committed to the purpose of doing good for our patients and caregivers. So that said, there's also a lot of things that Arjo can do that is not about the macro, that is not about the patients, but that is about our own performance. And there's significant opportunity across Arjo to share best practice and learn by that and implement going forward and use decide on the future in order to be able to take out maybe costs and drive efficiency. So we can look at the next slide. So how do we realize our potential? Part of that is to know where we're going and setting a strategy, setting a direction. And we intend to present this back to the market in the second half of this year. The work has already started and we'll bring together leaders from all parts of Arjo. We are going to workshop with them and decide on where we want to go for the future, how we will get there, what to prioritize, what not to do, which markets to have focus on, which parts of our product portfolio to put emphasis on, and if needed, acquire additional capability, additional market position, or maybe additional portfolio offerings. And those things are all easier when you have clarity in your strategic direction. And I think that for Arjo, the last time we set a strategy was back in end of 2019. So we are due to create that clarity for ourselves and for all our shareholders. We, the only outlook that we give right now is of course the usual one about three to 5%. And we are really looking forward to presenting our future direction. And with that also update the financial targets in the second half of 2026. So that's what you can expect from us during this year. And by that, I think we are at the Q&A.

If you wish to ask a question, please dial pound key 5 on your telephone keypad. To enter the queue, if you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Sten Gustafsson from ABG Sundahl Collier. Please go ahead.

Thank you. Good afternoon. A question on the quarter. You talked about a strong start, but then it slowed down. I was just wondering if you could clarify exactly what happened there and also if that change in the market has continued into now the beginning of 2026.

Thank you for your question. I would say, no, that's not how to interpret it. I would say that it's more how we see the result developing across the quarter. So we don't see any trend shifts that we bring with us. We more see that we expected more from the quarter. And I would say that you all know that when you close the books, there are some decisions that you need to take. And as you have seen, we have had a couple of write-offs, write-downs. uh during the quarter um um that of course impacts the the situation so i would say that there's no there's no nothing to interpret what comes to bring forward into 2026. okay that's good would you like to add something to that maybe no i mean it's it's always an uncertainty about about the flu season that is possible to predict exactly of course how that will develop yeah okay i can go in both directions

Alright, thank you. And then specifically the UK, when do you expect that to improve or do you expect it to improve near term or is it too difficult to say today?

I would say that, I mean, there are two things here. I mean, one is, of course, what is going on in UK within NHS and the UK healthcare system. That's one part of it. And of course, we can try to contribute with as much value as we can and to be a good partner to healthcare. to our customers and NHS in particular. So that's one part. Then it's also about our own performance and what are we doing in this situation? And we've had a lot of actions throughout 2025 to improve our efficiency and productivity. So we have done several things throughout the year that we expect will have effects. If it's enough or not, or what will happen in the bigger picture around NHS, that's another topic. And I think most of you guys that follow this sector, you know that UK is really troubled. The pressure on the healthcare system is very high and there has been some fundamental challenges and still are going forward. At the same time, this is a top priority for all political parties. So we also believe that there's a lot of interest in solving this for the benefit of the people across UK.

Okay, thank you very much. I'll get back into the queue.

The next question comes from Mattias Vadsten from SEB. Please go ahead.

Hi, thank you for taking my questions. First one is just a follow-up on the UK. Did you say it was down 11% year-on-year in local currency in Q4?

Yes, that's correct. In the quarries, down 11%.

big local currencies yes organic the delta is 11 down thank you then you talked about the gross margin development it's quite clear description and you talked about the mixed effect both from a region perspective and product perspective So I'm just asking, this mix effect that you saw in Q4, is that likely to sort of sustain here into the coming quarters? Or are you seeing anything to reverse that trend near term, so to speak?

Maybe if I try to start, then I just often can correct my mistakes or add on flavor. No, I don't think that you can draw any major conclusions like that, that is now a sustained level. I think it's, as always, it's a product mix question. It's a market mix question. Then also parts of our business is project driven and tender driven. And depending on how these projects or programs land, you get different mixes that will vary naturally between different quarters. So that's, I mean, that's the natural flow. So we don't have that kind of super stable underlying trend. So that's one thing to bring with you. And then also, I mean, of course we expected, we said this earlier that we expected maybe a different pattern from the flu season in US. And when you look at statistics and data, if you just look at the, high level, you can see that the flu season looks to be more severe. When we dig down in the areas where we have strong representation, especially Western US, the hospitalization is not as high as last year. And also in general, the flu seem to not cause as much hospitalization as previous years. But it's very early and all data is not accessible. But we have seen that trend in our data. So I don't know if you want to add some flavor in terms of if this mix or this trend is moving forward.

No, as we said, medical beds has a strong development in this quarter, but that is also very much a business depending on tenders and bigger shipments. It's not a continuous business in that sense. So it could be a different mix in the next quarter for us.

Yeah. When you equip a hospital, you do that once, then it takes a number of years before you get the chance to come with a big order again.

Okay, thank you. Then I had a question on the ERP systems that will be replaced by global system. And you said you will find savings of, I think it was 30 million 2028 onwards. I'm looking to understand what this will cost you. So, yeah. Can you comment on the cost for this in 2026 and 2027 and also how you aim to report it if it's sort of non-recurring item or if it will be a drag on adjusted earnings metrics?

That's more of the cost for this implementation is actually capitalized because we are having a system where we actually own the product. So it's not a cloud solution.

Maybe to add something, this has been ongoing for a couple of years in Arjo already. So we only have a few markets left to do this change. So it's not something that is new to us. It's something that has been ongoing for a couple of years. So we are, yeah, we had a couple of go lives during 25 already. And yeah.

We went live with Australia and New Zealand this year. That was kind of the key point where we actually, with the successful implementation in Australia and New Zealand, we decided to also go ahead for the rest of the countries. Otherwise, with a less positive outcome in Australia, we would probably have, you know, put on the brake and reverse this program somehow. So this was kind of a key decision point for taking this cost as well.

Okay, is it possible to say how much it has cost you already?

No, we have not shared that, but I think, I mean, the write-down is for the old system. This is important because we discontinue it before end of life. So... It's not connected to the new.

Okay, thank you very much.

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

I have three questions. I'll take them one by one. First, what do you say about the flu hospitalization? I agree it started slowly, but looking at the public statistics, it picked up a lot in the last three weeks of the fourth quarter. But you didn't see that in your rental business, if I'm correct.

Like we said before, we have seen that the flu season has been stronger or more severe than last year. But it is also distributed differently across the US. So in the states where we are strong, we have not had the same pattern of hospitalizations. And also we have seen a pattern that fewer patients are being hospitalized or they quickly get out of hospital versus before. So we don't see a one-to-one pattern as before.

Okay, that makes sense. Then I wanted you to clarify then what still seems like a pretty poor visibility for sales in North America. The message after the third quarter was that you had you know, delayed deliveries that was expected to pick up in Q4. So did you see this happen, i.e. was the disappointing sales for you in Q4, was all of that flu related, i.e. that capital equipment sales were according to plan?

The vast majority is, of course, the flu season, but we also have seen, you know, less improvements in Canada, which had very strong comparison numbers. So they actually have a lower growth in the quarter versus the US. And to some extent, I mean, it didn't pick up at the end. Normally, there are quite a lot of transactions and sales, what you say, that, you know, Hospital calls the last week or the last two weeks when they know that they have X dollar remaining of the budget and they just need to purchase something before the year end. And that volume did not repeat from last year's all-time record, actually.

Do you know why that was the case?

I think there are general budget constraints in the Canadian market. We do see some of the states being more and more restricted in the budgets, but that's the main reason, I think.

Okay. And then my final question, you talked about the mix effect that could, of course, vary a lot between quarters, but Otherwise, is there anything you could do here short term to turn this negative modern trend?

Yeah, I mean, from my point of view, being new now into the company, if I answer first and then Christoffer can add on. I would say that IO has a lot of potential to drive efficiency, I would say both in cost and capital out. That's clear. So we are going to work on that to do our own homework, so to say. Then also, I think that we need to look into parts of our business where market conditions have maybe changed a little bit or market dynamics have changed a little bit. We also need to update our commercial models and make sure that we share best practice in a more rapid way so we can uh be quicker to react uh so there are always things that you can do uh on your own sometimes there's a lag in that of course because you don't know what's what is changing before it's happened and then take some time to adjust but there are always things that we can do on our own and we intend to do that and in the strategy work there will be parts of things that we want to do for the future that is long term to build capability build expand our offering or our market position but we also need to fund that journey and to large parts we're going to do that through also I would say efficiency initiatives across the group.

If you start the strategy work now then you're going to present this in the second half of the year it sounds that 2026 will be yet another lost year when it comes to, you know, margins for RU, or am I missing something here?

Yeah, I mean, there are always there are always parts that require, you know, direction and maybe long term and that you come together as an organization and that will take some time. But there is plenty of also quick wins that you can activate around procurement, IT and your own efficiency. So there is not... So I've worked a lot with change in the past, and I'm a firm believer in that you have to transform yourself. You have to change, but you also have to perform while you do that. And you need to fund the journey of when you need to invest in capability or in products or in M&A. Somehow you need to fund that journey, and you do that by driving efficiency in both capital and cost out of the company. So I think that you cannot say that you need to wait another year. I think we're going to have, we will be very, very focused on these also short-term actions.

Okay, thank you.

The next question comes from Ludwig Germunder from Handelsbanken. Please go ahead.

Good afternoon. Thanks for taking my questions. I have two please. The first one is follow up on the last one around the strategy work that you will initiate during the spring. I understand that you will do work in the meantime as well, but what should we expect regarding margins for the beginning of 2026?

I mean, we usually don't give any forecasts, and we will continue not to do that. I mean, the only outlook we give is what we believe how sales will develop on top line, the three to five percent interval. So beyond that, we will not share any outlook until we maybe have a reason to do that. And as I said before, we expect to come back and explain our view on the future and also at that point, also potentially revise our financial targets. So we need to work this through before we communicate it. But we are going to be super focused on trying to drive efficiency before we present our future direction.

Okay, I got it. Thank you. And the second one is also kind of a follow-up on the discussion that was around the flu season. So I got you that the hospitalization levels are lower in the parts of the U.S. that you're most active. Could you say something about the sequential development or demand you're seeing from the flu season? Is it at the same levels so far in Q1 as you saw in Q4? Or has it moved in any direction from the Q4 levels?

We're not reporting Q1 today, so we stay on Q4. So I think that what we said is what we have seen, that the flu this year seemed to end up in fewer hospitalizations. That's what we've seen in Q4.

Okay, I got it. Thanks for taking my question.

The next question comes from Eric Castle from Dansky Bank. Please go ahead.

Hi, first question on North America. If my modeling is decent, it looks like the rental business now is in organic decline over there. Could you potentially comment anything if that only has to do with the ICU rental part, or if you're also seeing that for, say, the more long-term contracts as well?

No, that is more from the short-term perspective and the flu season, I would say.

All right, thank you. And then on DVT, that business has been under pressure for several years now. I think, I mean, Cardinal started cutting back in 21. So how much additional pressure can you face there now? And can you talk a bit about the sort of current levels of sales and profits to some extent that you're seeing and sort of who we should expect that pressure to continue now throughout 26 as well if there were any say pricing cuts now in Q4 that would sort of feed over into at least H1 of 26.

I mean, so we will not talk about 26, but what we can say is that, I mean, there's fierce competition on, I would say, the consumables in the VT part of our business. And I think that Cardinal and others have, I would say, they have pushed the prices down. We also believe that we've come... We are either at the bottom or close to the bottom of how far down you can go. And then you can say also that triggers the need for us to counter by looking at our business model, if it is set up for this level or if we need to do any adjustments. But we don't expect the decline to continue in the same pace that it has the last couple of years. Is that correct, Gustaf? Yes.

So the vast majority of our business is on a new price level.

Okay, good. Thanks. And then in the UK, are you seeing continued rental pressures for more and more contracts being lost? Or is this still an effect of those initial, or was it five or seven contracts that you lost earlier in 25? That, in a way, should be out of comps soon. And also in the UK, if I could do a follow-up to the follow-up, How much of the negative 11% organic growth that you saw in the UK was from the rental part of the business versus the product side?

So when it comes to the rental business in general in the UK, I mean, we have not lost any new contracts in the quarter. So it's more an effect of the early ones that we communicated in 2025. And then I have to come back to you on the rental margins for the UK.

And how do we usually communicate them? So I think that if we don't communicate them, we will probably not come back. But if we do that, then we'll come back to you just to be clear.

Okay, I'll wait to see them. And then just a final question. There's been a hiring freeze now outside of sales for quite some time, I believe. So I'm just wondering in terms of those pruning additional costs, etc., How much are you actually able to slim the organization from this point? It seems like this sort of pruning has been done for years now. So are you nearing a point where you can't really cut any more fat?

I don't think I would express myself in that way about the organization, but we can see that we have, as any organization, we have room to improve, and we are going to focus on that. And part of that will, of course, be released to improve our profitability, and part of that might be part of also funding the journey of investing in creating a strong future, Arjo. So, but me, I mean, just often can add some flavor, but I have now three and a half weeks in the company. I've spent some time during my onboarding as well, but the only thing I can share is that I see opportunity. across Arjo. It's a really mature business, but we also have some inefficiencies. We don't always use our best practice. We don't always share our failures or successes across the company. And there's a lot of commercial excellence in that. And if we can release that, that has a really positive effect. I have first-hand experience of doing that in other contexts and then also we need to take a good look in the mirror and put question marks to ourselves when it comes to our administrative costs because we are high and we need to be able to do things more efficiently by leveraging our IT systems and by also delivering the administration that is necessary and not something beyond that. So There are clear opportunities for us to address. Then it is too early to say when the effect will come and so on. But we will focus on this together as an organization.

Okay, great. Thank you very much.

The next question comes from Ludvig Lundgren from Nordia. Please go ahead.

Yes, hi, and thank you for taking my question. I only have one. So you've highlighted quite strong order intake in the last few quarters, in particular in patient handling products in the US. So can you say anything about how this has developed here in Q4 and whether you're still way above one in book to bill?

The order intake has come in a little bit weaker in the quarter. But from an order book perspective, we are almost at the same level as last year. Thank you very much. But also please remind yourself that 80% of our transaction is in and out in the same period. So it's an indicator, but it's not the actual true of the sales in the coming quarters. Understood.

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.

So by that, we close this call, the year-end report for 2025. I thank you for listening. I also thank you for bearing with me as being new. And I am really looking forward to coming back and presenting Q1 to you guys. And in the second half, presenting our future strategy. By that, we say thank you.

Yeah, thank you all.