Nordnet AB (publ)

Welcome to the Jettinga Q3 Report 2025 presentation. During the questions and answer session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to the speakers, CEO Matthias Peerjus and CFO Agnetha Palmer. Please go ahead.

Thank you very much and welcome everyone to today's conference. Today we will first look into our performance in the third quarter and then also reflect a bit on the current market situation and our expectations for the remainder of 2025. So we can move over to page number two, please. So if we start then by looking at the development of some of our long-term or strategic KPIs, we can see that we continue to clearly track in line with our plan to increase the share of sales from recurring revenue products and also accelerating the share of sales from high margin products like our Paragonics offering, our ECLS portfolio, consumables in infection prevention and beta bags in sterile transfer. This is all supported by solid and effective quality processes as well. Sales from recurring revenue is now at 65% and high margin products make up more than two-thirds of sales today. When it comes to quality, the number of field actions in relation to sales has decreased significantly and we see this positive trend continue also in the third quarter of this year. These improvements should of course be achieved through responsible leverage and an attractive long-term return on invested capital. We can move then to page number three, please. So if we focus then on the third quarter for a moment and the key takeaways for the quarter, we can see that we show strength in the quarter with significant growth on the top line. Net sales grew by 9.5% organically with positive development in all business areas and all regions. Order intake also increased by 4.7% organically. Adjusted growth and EBITDA margins improved mainly due to acquisitions, healthy price increases, positive mix and also productivity gains. And this is in spite of continued strong headwind from tariffs and also currency on the EBITDA margin, which then is a signal that the underlying development is even stronger. Our financial position remains solid with our financial leverage well below 2.5 times EBITDA. We can then move over to page number 4, please. So taking a step back then and looking at some of the key activities and events in the third quarter, when it comes to our offering and the customers, I'm happy to see that Sweden's first fully automated central sterile supply department at the Malmö University Hospital has been inaugurated with the getting its TDOC providing the intelligence that optimizes sterile supply management. And by enhancing quality, patient safety, cost efficiency, and also improving the work environment, TDOC is really the critical enabler for successful operations. And this is something that we've seen for over 25 years now with this product. Productivity is a key priority for us and by implementing the getting a manufacturing excellence program we've been able to for example cut lead times by more than 20% and also reduce the cogs by about 10% for some of our key products in the product category WIS which is washers, isolators and sterilizers. We've also joined forces with Philips to offer hospitals in CE markets an integrated anesthesia workstation for the operating room. So this new solution unites the precise anesthesia delivery and the state of art patient monitoring technologies. When it then comes to sustainability and quality in the quarter, we got the CE mark for a CardioSafe Intra-Ortic Balloon Pump back. This is, of course, subject to certain conditions, and we plan to gradually resume deliveries towards the end of this year. When it comes to our implants business, we received EU MDR approval of three further indications for a V12 balloon expandable covered stent, and this will now strengthen our position, and it's a critical enabler for success on the European endovascular market. When it comes to our environment KPIs, I'm happy to see that our CO2 emissions from operations continue to decrease. Let's move into page number five and look at our top line performance in a bit more detail. So overall we had a specifically strong top-line performance in acute care therapies and life science. Our order intake grew 4.7% organically and the organic order intake for acute care therapies increased mainly due to ventilators in critical care and ECLS consumables. Life science showed double-digit growth in the organic order intake for the quarter due to very strong performance in cell transfer. And the organic order intake for surgical workflows declined a bit in the quarter despite the strong trend that we've seen for operating tables and also consumables in infection control. When it comes to sales, we grew 9.5% organically. Both acute care therapies and life science had double digit growth in organic net sales. In acute care therapies, this was mainly due to the very strong performance in ventilator, ECLS therapy and also within cardiac surgery. Organic net sales for life science primarily increased as a result of healthy growth in sterile transfer and also capital goods in the washer, isolator and sterilizer category. In surgical workflows, organic net sales increased due to growth in infection control and also thanks to operating tables within surgical workplaces. We can then move over to page number six and I'll hand over to you, Agneta.

Thank you, Mattias. I will start on a positive note and highlight that despite some severe headwind from tariffs and FX, we continue to see improvements throughout the business leading to higher margins. When it comes to adjusted gross profit for the group, adjusted gross profit increased to 4 billion 51 million SEK in the quarter, primarily on the back of volume, acquisitions, healthy price increases and positive product mix. Adjusted gross margin was up by 0.9 percentage points in total, primarily supported by price and healthy mix. Looking at adjusted EBITDA, the positive effect from adjusted gross profit on EBITDA margin was 1.4 percentage points, thanks to what I just mentioned. Adjusted for currency, OPEX had a slight positive impact on the margin in the quarter. FX impacted negatively by minus 0.6 percentage points in the quarter. All in all, this resulted in an adjusted EBITDA of 1 billion 79 million, improving our margin by about 1.6 percentage points year over year to 13.1%. We move to page 7, please. Let's have a closer look at the impact from tariffs. Earlier this year, in our Q1 call, we shared some insights on our sales flows. So just to reiterate that, about 60% of our sales in the US are produced in the US. For EU and China respectively, about 10% is produced in the US and about 1% of sales in EU and US is coming from China. As you know, the tariff discussions are highly dynamic, but this overview should provide a good understanding of our exposure. In the third quarter, costs of tariffs amounted to approximately minus 108 million SEK. Adding the impact in Q2, we are then at minus 280 million SEK year to date. Let's move to page eight, please. So how are we then mitigating this and what has been the impact on the margin? In our previous earnings call we talked about the three main areas that we focus on to address this topic and they are pricing, cost reduction and reviewing and challenging our structural setup for sourcing and production. This is of course nothing new but we have intensified the efforts in all three of these areas. The chart on the right illustrates the margin development year on year for Q3. First thing to note is the great comeback in adjusted EBITDA margin from 11.5 to 13.1% for the quarter. What the chart also illustrates with the blue line is what the margin would be without tariffs and with the turquoise line what it would be without tariffs and at last year's currency rates. So without tariffs we would have landed on a 14.4% margin and when also neutralizing currency we would have been at 14.9%. So this is a clear signal of our strong underlying performance and potential. Let's move to page 9 and look at our financial situation. We remain in a solid financial position. Free cash flow amounted to 0.8 billion SEK in the quarter. Compared with last year, free cash flow was positively impacted by improved operating profits and changes in working capital. Working capital days continue to develop well, and on operating return on invested capital, we improved to 12.5% on a rolling 12-month basis, which is well above the cost of capital. At the end of Q3, net debt was 11.1 billion SEK. If we adjust for pension liabilities, we are at 8.6 billion SEK. This brings us to a leverage of 1.6 times adjusted EBITDA, which is well below the 2.5, which we have set as the internal threshold. If we adjust for pension liabilities, leverage is at 1.2 times adjusted EBITDA. Cash amounted to approximately 2.8 billion SEK by the end of the quarter. So all in all, we can conclude that the financial position continues to be strong. Let's move to page 10, please, and back to you, Mathias.

All right, thank you very much. So we're just moving then to our outlook for 2025. We will have a better balance between Q3 and Q4 this year. If you remember last year, we had a rather weak Q3 and a super strong Q4. And I think from an operations perspective, I think we will have a smoother second half of the year in 2025. So even though we're entering our fourth quarter with tough comparative figures, we believe that thanks to our leading position in key niches that meet the long-term increasing healthcare needs globally, we remain with our expectation for organic net sales growth to be in the range of 2% to 5%. And our long-term financial target of over 12% EPS growth is also intact despite the headwind from tariffs and currency. So with that, we can move over to page 12, please, and just summarize the state of the union after the third quarter end. So we've delivered strong organic growth with improved margins despite the significant headwind from tariffs and FX. Our financial position remains solid as just highlighted by Agneta. And we stick to our outlook for 2025 where we guide for organic net sales growth of two to five percent and the priorities for 2025 are the same as they've been throughout the year. which means addressing the remaining challenges in acute care therapies when it comes to the important quality work that is the number one priority for us. It's about sustainability, productivity improvements and cost consciousness when navigating the current geopolitical uncertainty and, of course, addressing the impact from tariffs as well. And most importantly, we continue to create added value for our customers, which I think is something that is shown also through the third quarter when it comes to our order intake growth and our net sales growth. So with that summary, I open up for questions. Thank you.

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 Christopher Liljeberg from Carnegie. Please go ahead.

Yeah, hi. Good morning. My question relates to the strong ACT growth, and you highlighted ECMO, for example. Is it possible to comment a bit more on that, maybe quantify how much ECMO consumables are growing, what markets, and particularly interesting to hear if there's any change when it comes to the competitive dynamics in the U.S.? ?

Yeah, good morning. Thank you. No, I think there's no, to take the latter part of the question first, there's no significant change when it comes to competitive dynamic, I think. And the strong growth in ACT is, in addition to ECLS disposables, we have the growth in critical care and also in cardiac surgery, that's also positive. So U.S. is obviously one of the key markets that have been performing well in this regard, but we don't break down and disclose numbers for different product groups within the quarter.

Papa, can you confirm that you're growing ECMO consumables in the U.S.?

Yes, we can.

Okay, good. And the same thing, sterile transfers within life science, any specific drivers for that strong growth?

I think generally, of course, the whole destocking is over. I think that's an important prerequisite. That's something we suffered from for a couple of years. And that's clearly over a year now. The other part is, of course, that there is a gradual comeback in the end market for these products. And I think in addition to this, one needs to be aware that this is a business that is also...

partly dictated by large contracts and there's certain lumpiness in the business between quarters just to be aware of that also great and then the other question i had is if you could comment about the upcoming timing here for filing the new card you save and call your health solutions in in europe

In Europe, we've already received the CE mark back for our CardioSafe product. So that's behind us.

The new updated version of CardioSafe and the new...

Okay, we've not provided any updated timeline on this. This is into 2026. So the first milestone is the 510k submission in the US for CardioSafe. That's the next milestone that we're working towards. And today, no update on the time plan.

Thank you.

Thank you.

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

Yes, good morning. Thank you for taking my question. I was a bit curious to hear how it looks now with demand in ventilators. Again, a good quarter. I think it's the fifth quarter in a row with very strong demand. So just describe a bit more in detail what you're hearing from customers and I am at least thinking about should we expect this trend to continue given the competition dynamics or are comps increasingly tough going forward, which will slow it down a bit on a year-on-year basis. Anything that can help us here would be appreciated.

Yeah, I think it's yes on both questions. We do expect this conversion to continue. There's been, as you probably are aware, there's been a bit of a sped up conversion of the Vair install base and a more drawn out conversion of the other two players install base. And that part, I think, will continue. But you're also right that we are meeting tougher comps now. I think the first positive developments were in Q3 last year, and then from Q4 and onwards, we had very strong momentum when it comes to ventilator conversion in critical care.

Thank you. And then a follow-up on sterile transfer looking very strong. Could you just describe a little bit where we are versus maybe peak volumes during COVID in this area now? Are we higher than that? And maybe... Yeah, there's some comments on specifically beta bags also, you know, in terms of how they follow the higher demand in sterile transfers.

Yeah, I think the beta bags definitely follow the high demand in sterile transfer. They're the biggest individual product within sterile transfer for us. And as you may remember, we had 30% decline after COVID for two straight years. So we're not back at those levels yet, but it's a really encouraging comeback, I would say, where we stand right now.

Thank you very much. And then the last one for me, perhaps, in terms of the tariffs, rather flat vision impact Q3 vis-a-vis Q2. Maybe some further comments on that and then also sort of outlook for the upcoming quarter here. I could assume you maybe shipped some products in July already, maybe to take away some impact. I don't know, but some comments here would be helpful.

Yes, you're right. We managed to get some product into the US before the raise of the tariffs from 10% to 15% that were then delivered later in the quarter. So we did not have the full 15% impact in the third quarter. when it comes to what we have ahead we will not speculate and not get guide on this it is as you know very dynamic situation and there are many factors impacting this and one of them is of course also product mix thank you

The next question comes from Sten Gustafsson from ABG Sundahl Collier. Please go ahead.

Good morning. A question, and it's related to page or slide 8, where you show the margin development and what it would have been without tariffs and FX. How much of that improvement is driven by by price and how much is cost reduction and supply chain structure.

Yeah, thank you for that question. We will not break it down in the details, but price is an important contributor to the underlying performance, as is productivity improvements. So the main pieces are around what we mentioned. It is mixed. We have contribution from our recent acquisition on the gross margin and also on the margin. And then we have those factors, pricing and

Okay, would it be possible to get, you mentioned price increases, how much you have raised your prices?

No, for reasons we do not disclose exactly the price increase.

But is it fair to assume that the sort of the majority of the increase comes from price?

Again, I will not break it down, but we know that we are fairly successful in price realisation.

We said earlier that between 2% and 3% price increase is what we're aiming for this year, and we are within that span. We won't break it down further.

That's very helpful. Thank you very much. My second question would be if you can talk about what kind of drivers you see for the cross margin in Q4 and also in terms of OPEX spending, if there are any things we should be mindful about going into Q4?

Firstly, just to repeat what Mattias said, it is tough comps when we come into Q4. We had a really strong delivery quarter last year. Some of what would normally be in Q3 were postponed into Q4 of 2024, which is a tough comparison. When it comes to the margin we will not guide on that but as per usual in Q4 we have the higher share of capital equipment deliveries that impacts the gross margin. And for OPEX, the same there, we will not give any specific guidance, but generally speaking, we have a seasonal pattern that we have some elevated costs from that in Q4 related to the higher volumes. And also to mention that from now the end of the third quarter and ahead, we have paragonics fully in our organic comparison as well.

I think also beyond Q4, our main focus is on the underlying improvements that we're doing to our business for the longer term. They of course have factors like our manufacturing excellence that we mentioned for life science in the report. There's still a lot of work to do when it comes to purchasing and things like that as well. We remain optimistic that we can continue to improve our business, but you will have some swings between quarters. That's important to keep in mind.

Okay. Excellent. Thank you very much for your comments. Thank you.

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

Hi, good morning. Not to beat a dead horse, but I want to talk about guidance. You only need to deliver roughly 1.7% organic growth in Q4 to get to the upper end. And I guess lower end is quite a frightening thought. And yeah, sure, I get that comps are a bit more challenging, highlighted ventilators, for example. But can you help us pinpoint a bit more areas that you might be concerned about and as to why the upper limit is there to say and do you still believe that the lower end is even on the table and what would need to happen for you to get there?

Yeah, thanks for the question. I think we're not concerned about anything in particular in Q4. I think we have a well-working supply chain. We are mitigating tariffs and currency effect to the best of our ability. And I think the demand situation is fairly robust as well. So there's nothing that stands out as concerning. And we've just not spent a lot of time on narrowing the guidance span here. But obviously, if you look at the way things are tracking and so on, you can work with different probabilities when it comes to the lower and higher end of the span, of course. But we just not decided to invest a lot of time in that. Like in line with the previous question, we're a lot more focused, of course, finishing the year serving our customers the way they need and helping patients. And really then the longer term, 2026 and beyond towards what we've guided for in 2027 and 2028, which we feel that we are well underway towards.

Okay, thank you. That's fair enough. And then on CardioSave, I know that EU is a relatively small market, but what have you been seeing now for CardioSave that the C-Mark is back? Does there seem to be any sort of pent-up demand from customers that they're eager to order again or... Is it fairly slow? And then also on CardioSave, have you started to see any sort of change of use in the US after the guideline changes that happened earlier?

When it comes to the situation in the EU markets, we don't expect the resuming deliveries will have any positive impact or material impact on the fourth quarter. But we can see and hear from customers that there is a pent-up demand. There are customers who would like to replace their existing balloon pumps, but it takes a while until we can actually... have our factory focus on meeting demand for those customers. So therefore there's no big impact in Q4 for this. When it comes to use in US, we've not seen any real change there either. We're trying to serve the customers with the consumables for the installed base while working on the 510k submission. That's really our key priority there, but no other changes from like a market or customer's perspective to call out here.

Okay, good. Last question. I mean, you're reiterating long-term guidance again, essentially. And I guess with both tariffs and FX being worse than at the Q2 report, reiterating the long-term, I guess, implies to sort of upgrade to the underlying performance that you see. And I guess if you agree with that, where have you found that sort of upside? Or rather, what sort of questions have you maybe removed from the initial guidance now compared to Q2?

Yeah, I mean, you're right. I think the underlying development is good at the moment. So that supports us reiterating the longer term targets, despite the slightly stronger headwinds from tariffs and currency. And the main levers for this is we touched on all of them. I think pricing is one where we're seeing good traction. There is still a lot of work for us to do when it comes to purchasing. Even though we have good material cost control, it doesn't mean that it can get better. We're still, I think, only partly reaping the fruits from the hard work that was done to mitigate inflation during 2022 and 2023. So we still expect that to help as well. We have a positive mix rotation also, which you can see in some of the longer term strategic KPIs. And we have now also acquisitions that help towards this target. So those, I'd say, are the main factors for feeling confident despite the short term headwinds.

All right. Great. Thank you, Mattias. I'll jump back into you.

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

Yes. Hi. Thank you for taking my questions. So two on life science, please. So first, in Q1, you highlighted the slowdown due to or partly due to NIH budget constraints. And is some of this sales growth here seen in Q3 related to these projects, or is it some other types of customers that are driving this sales growth in Q3?

It's very limited, I think, the positive effects from the comeback in NIH. I think there are still decisions pending to be made, both when it comes to NIH funding cuts specifically, but also the general wait and see because of geopolitical uncertainty. So that's probably the bigger factor. Things have developed in a positive direction since Q1, but there's still some lingering uncertainty around these key projects, I'd say.

Okay, great. And then second one, just so with the strong order intake you saw in the segment as well, which I assume is mainly related to capital equipment. Do you expect a Q4 budget flush similar to what we saw last year for the segment? Or have you seen any other indications for this year, so to say?

It's a good question, but very, very hard to answer. We didn't expect any budget flush last year, but there certainly was some of that. So fingers crossed for that this year as well. But it's too early to have any indication or view on this.

OK, thank you very much. Thank you.

We have one anonymous caller, so could you please present yourself with name and company? Please go ahead.

Hi, it's Ludvig Jermunde from Anders Banken here. Thanks for taking my questions. I have two, please. First one, just to get a bit more clarity on the tariff mitigations. In the report, you mentioned that you're successful with your price adjustment strategy, but in the short term, you need to absorb a large share of the tariff cost. And now I believe you said that you still have a good effect from price increases in your margin. Could you give some clarity on what to expect going forward? How much more margin can we expect you to gain from price adjustments?

Yeah, I think the comment should be seen like this, that when it comes to mitigating the tariffs specifically that we pay, the price increases aren't lined up to compensate for those. So the price increases we talk about, they are across the board, across all our products, across all geographies. So in that sense, They help, but they're not specifically mitigating the tariffs on the product categories that are mostly going into the US. So the two to three percent price improvement is a global figure. And the ones when it comes to specific product groups hit by tariffs, we don't disclose in detail. But that's where we're still absorbing some of this effect.

Okay, thank you. And just to follow up on the tariffs again, you mentioned you managed to do some shipping before the increased tariff rates. Can you give any comment on how close the 15% total hit from tariffs you saw over the entire quarter? Is it close to 15% or under 15%?

No, we will not break it down like this. But it is... Still, if I put it like this, it did not impact, the full 15 did not impact fully in the two months that it would have if you just normalize it over the quarter. Maybe a fairly big portion of what was sold in the third quarter we managed to import before the raise of the tariffs.

Okay, thank you. And just a final question on quality, please. Could you provide any update around the 510k submission for balloon pumps in the US?

Yeah, there's no update on this right now. We're still working towards the end of this year and the second half of next year for the ECMO 510k submission.

All right, understood. Thanks so much for taking my question. Thank you.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

All right, thank you very much for participating in the discussion today. We've already made the summary here, and I just wish everybody a good rest of the day. Thank you very much.