Ambu A/S
CSE:AMBU B
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Ambu A/S
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Welcome to the Ambu Earnings Release Q2 2021/'22 Call. [Operator Instructions] As a reminder, this call is being recorded.
Today, I'm pleased to present Juan Jose Gonzalez, CEO; Michael Hojgaard, CFO; Bassel Rifai, Chief Marketing Officer. Please begin your meeting.
Thank you, and welcome, everyone, to our quarter 2 earnings call, and thank you for joining in such a short notice. If we can go to the agenda, what we will do is as similar to previous calls, we will provide a brief introduction of the company. for investors who are not familiar with Ambu. We'll provide a strategic update on the main developments over the last 3 months. And then we'll go through the financial update, and then we'll open for questions.
So when we look at Ambu, it's important to understand 2 things. One is the market attractiveness. And the second thing is Ambu strategy and performance within this market.
So if we go to the next slide, single-use endoscopy is one of the most attractive medtech market. The market is expected to grow from DKK 500 million last year to DKK 2.5 billion by 2025. There are 3 main drivers behind the creation of the single-use endoscopy market. Number one, an increased focus on infection control from both regulators, health care systems. A benefit around workflow and efficiency, a benefit which is important as health care systems are under more pressure to do more with less resources.
And then the rapid technology advancement, the technologies powered in single-use are moving very rapidly, where it is a sensor technology, image enhancement software, that's basically making single-use endoscopy products more and more powerful relative to reusable endoscopy. And it is a combination of these 3 drivers, what is behind the transition from reusable to single use.
Now if we go to the next slide. Ambu is a #1 player in single-use endoscopy. If you look at our performance over the last 3 years, we have an organic revenue growth of 15%, with a visualization growth of 37% and a volume growth of around 40%. Actually, our volume has tripled in the last 3 years. Last year, we finished north of 1.5 million endoscopes sold. And at the same time, on the back of the visualization growth that has a higher gross margin, our overall company gross margin has improved by 8 points over the last 5 years.
Now our strategy in Ambu is very simple. We have created this R&D model arranging, and we are using it to build the most comprehensive and technologically advanced portfolio. We are creating an ecosystem where different single-use scopes connect to monitor and processors, and are able to do different endoscopy procedures anywhere in a hospital. We are leveraging our high-scale low-cost manufacturing setup to enable hospital to transition from reducible to single-use in a cost-neutral way.
And finally, we are maximizing our first-mover advantage by rapidly scaling up our dedicated commercial infrastructure. Those are the 3 key elements behind our strategy, and that's why we believe that as the market is created, Ambu will consolidate and strengthen its #1 position.
Now having said that, in terms of introduction, let's talk about the main developments in the market since the last time we got together. And if we go to the next slide, in terms of key messages. Number one, the drivers creating the single-use endoscopy market continue to accelerate. We have had two of the most important U.S. organization setting hospital quality and safety recommendations, increasing the requirement for reusable endoscopy reprocessing. And we have had another recall of a major reusable urology player, which is another example of the FDA focused on producing endoscope-related contaminations.
In terms of our performance, we have had a solid Q2 performance while advancing our visualization pipeline, which is putting Ambu in a strong position towards accelerated growth in the second half of the year. Adjusted by the NHS safety-stock orders in Q2 last year, both Visualization and Anaesthesia and PMD grew double digits. We actually, in Visualization, achieved a record volume growth of 444,000 units sold in Q2 and 863,000 for the first half of the year.
Our Visualization growth is driven by ENT and cystoscope rapid penetration, which will further accelerate in the second half. As a result, we are increasing our ENT and cystoscope forecast for a number of endoscopes sold to approximately 800,000 versus above 700,000 last quarter. Our bronchoscopy demand is normalizing back to pre-COVID but at a higher single-use penetration. And I will spend a couple of minutes giving you more on that.
And finally, we continue to advance our GI strategy with a global launch of aScope Gastro. At the same time, we get ready to extend our leadership in pulmonology with introduction of aScope Broncho 5 into the broncho suite. Those 2 are very important launches for Ambu, and will be key growth engines going forward.
Now in terms of our full year financial guidance, we are revising it down to reflect a lower-than-expected benefit from electric procedure pent-up demand and macroeconomic headwinds. Now in the case of Ambu, our calendar year finished at the end of September, we had some expectations in terms of the recovery of the elective procedures, which we have seen. But at this point, we believe that the benefit of the pent-up demand is going to be later than what we expected on the back of labor shortages, which is limiting the ability of hospitals to be able to address more procedures.
And then the macroeconomic headwind on the back of Russia-Ukraine conflict, inflation, supply chain congestions are further increasing our production and distribution costs. And it is in the back of those 2 themes that we are reviewing -- we are revising our full year guidance to an organic revenue growth of 13% plus and an EBIT margin of 5% plus. This assumes that Ambu is going to grow over 20% in the second half of the year and finish the year as one of the fastest-growing medtech companies globally.
Now let's go one by one. If we go to the next slide, market transition to single-use continues to accelerate. On the left-hand side, we see the most important announcement either from regulators or reusable endoscopy recalls in the last 12 months. And this is when you actually step back and see all the announcements we have seen. 12 months ago, we had Olympus issuing a field safety notice on reusable duodenoscopy. Then the FDA issued a warning letter on contamination levels in urology endoscopes.
Then the FDA issued a commendation for hospitals to consider single-use broncoscopy due to that risk around contamination. Then CMS granted additional reimbursement for outpatient procedures for single-use broncoscopy. Then we have Karl Storz recall of part of the reusable urology portfolio because of risk of contamination. Then we had one of the most important organizations setting quality and safety guidelines for hospitals, AAMI, updating guidelines for reprocessing. And shortly after, we had AORN, which is another very important organization, updating guidance for reprocessing.
This is just a very good example in terms of why we believe that the transition from reusable to single-use will happen. We expect in the following years to see more focus from regulators, not just in the U.S., but outside of the U.S., increasing the requirements in terms of reprocessing of reusable endoscopy players making the processes more complex and more expensive. And we are going to see difficulties around reusable endoscopy players showing that they are able to be properly clean based on the current standards and on the back of that, having to revise their standard.
Now let me just spend a couple of minutes talking about this U.S. organization update in the guidance. And basically, AAMI and AORN have identified duodenoscopy, bronchoscopy, cystoscopy and ureteroscopes as higher-risk scopes, and they have put further reprocessing steps to address the contamination issues. The recommendation vary from sterilization, mandatorilization, cleaning verifications, enhanced drying. And basically, this will add further complexity and cost and time to what were already complex reprocessing models.
And depending on whether you are a hospital or a clinic, your ability to follow this guidance is actually limited. This guidance is, of course, following FDA communication on duodenoscopy and bronchoscopy, while expanding into urology scopes given the recent contamination issues. In the case of AORN, for the first time, they actually have a section on single-use endoscopy. And one of the recommendations is that hospitals as a surface step need to decide based on their ability to reprocess, to do reprocessing and cleaning, where they should take a usable scope or a single-use scope.
Hospitals follow these guidelines as a standards in terms of the way they operate. And we believe that as more health care system adopt these guidelines, the overall attractiveness of single-use endoscopy will increase.
Now if we go to the next slide, let's talk about our performance in Q2. And first of all, we see -- we basically saw the impact of Omicron in terms of depressing elective procedures in January. We saw a recovery in February, and then we saw in March the market rebounding. And within this environment, our Anaesthesia and PMD performance was very strong as it is driven by elective procedures.
We posted in the quarter, 12% growth in Anaesthesia and 14% growth in PMD. Now part of this growth is also driven by the reduction of backlog orders that were current from Q1. Now we expect to continue to see elective procedures to go above 2019 levels, but with less benefit from pent-up demand due to the hospital labor shortages. We also expect especially in terms of PMD that we will continue to gain share. As a result, we are maintaining our full year double-digit growth expectation for Anaesthesia and PMD combined.
Now let's talk about our Visualization business. If we go to the next slide. Adjusted for the NHS, our Visualization revenue to continue to grow double digits with a record 444,000 units sold. And the main highlights are again, adjusted for NHS, Visualization growth of 10% in revenues and 25% in volume. If you look at our volume during the first half of the year, it's already above our full year volume in 2018 and '19. And our volume growth is mainly driven by the rapid penetration of ENT and cystoscope products in spite of an elective market that actually contracted in Q2. And that is very encouraging and just shows the rapid penetration that we are having with these products.
Now let's talk about our most important businesses within Visualization. If we go to the next slide, our bronchoscopy franchise continues its long-term growth trend post COVID-19. And the graph on the left shows the quarterly global units sold since 2015, '16, all the way to our quarter 2 this year. And you can see some important highlights.
First of all, our bronchoscopy performance is declining in Q1 and Q2 due to the high comparables from last year COVID wave. That's why we say that the market is normalizing back to pre-COVID-19, but at a higher single-use penetration. Our average selling price remains stable across all of our bronchoscopy products. And a single and most important highlight is that on a multiyear basis, our bronchoscopy business continued to grow on the back of increased penetration.
And more importantly, going forward, we expect it to continue to grow driven by penetration and new product launches. As you can see from this chart, the impact from competition is really small. And the reason why this is small is because competitors are also driving penetration of single-use endoscopy. So part of that growth is not coming from Ambu business, but from areas in the hospital where we are not present.
And again, going forward, when you look at our launches of aScope 5, new sizes, our aScope 5 BronchoSampler, we have significant innovation to be able to continue to drive this level of performance.
Now if we go to the next slide, let's talk about ENT and cystoscopy. And they are basically continued the rapid acceleration, growing double digits quarter-over-quarter for the last 7 quarters. This is a remarkable performance, and this is driven by all of our key markets globally. Actually, for the first half of the year, aScope 4 Cysto has already exceeded the full year sales in 2021. The main adoption drivers continue to be convenience, flexibility and superior product performance.
This is because a reusable ENT and cystoscopy products lose performance as they go through very complex reprocessing and cleaning processes. So if you're a hospital and you have a reusable cystoscope, for example, that it is 1 year old, that cystoscope has a performance which is already deteriorated. And single-use aScope Cysto has a superior performance. This is more of a case as we improve the image quality with our newest display monitor aView 2 Advance.
Our continued growth will be fueled by our dedicated ENT and urology commercial resources, the expansion into ENT and FEES, ENT FEES, which is a 1 million procedure market that have higher levels of reimbursement and that we were not addressing today. And the recent recall of a major urology reusable player.
Let me spend a minute talking a little bit more about this recent recall. If we go to the next slide. Karl Storz recall represents a large opportunity to further accelerate our penetration for our aScope Cysto in the U.S. And just in terms of context, Karl Storz is the largest reusable cystoscope player in the U.S. with 40% market share. They have about 50% market share in clinics and 30% market share in hospital.
They are covering 1.6 million procedures annually. Last year, the FDA requested Karl Storz to conduct additional testing on the reprocessing methods, which identify failures following high-level disinfection in some selected scopes. Based on these test results, Karl Storz issued a voluntary product recall at the beginning of April this year, requiring customers to move 100% sterilization or to discontinue and return the products. We believe this recall will represent an important growth opportunity going forward.
The relative benefits of single-use cystoscope has increased as new requirements add significant burden to customers. For a clinic, this voluntary recall require them to invest more on capital, the cost of using reusable scopes is going to go up, and their ability is going to decrease as a reusable cost will have to go through longer reprocessing products. And that's why relative now to single-use cystoscopy, we have an even more attractive value proposition.
As a result, we have started to see, over the last 4 weeks, an even faster pace of adoption of our aScope system. And that's why we're increasing our ENT and cystoscope forecast for the number of endoscopes sold this year to approximately 800,000 from 700,000 and above. This is still unfolding, and we are taking a measured view in terms of what this means for us. We believe that most of the upside is going to be in Q4 and mainly into next year, but it just position us in a very strong way to ensure a continued accelerated growth of this platform.
Now I talk about the developments in the market. We talk about our performance, both in terms of Anaesthesia and PMD and then Visualization. You have had a chance to see the evolution of our bronchoscope business, and the one-off effects of the COVID-19 pandemic, but how we continue to drive penetration and growth in a market which is more normalized. And then you have seen the rapid growth of ENT and Cysto.
Let's now move to talk about innovation, and I'm going to pass it to Bassel Rifai, our Chief Marketing Officer, who will give an update.
Thank you, Juan Jose. And as Juan Jose shared earlier, our Visualization pipeline is putting Ambu in a very strong position towards accelerated growth. And that's driven by our innovation engine, which has become a clear competitive advantage for Ambu. So if we go to the next slide. Today, I'm going to share an update on our key launches. Our GI bet with aScope Duo and Gastro. And in pulmonology, launch of aScope 5. But I wanted to start by acknowledging the team behind it and what they've accomplished.
So our innovation engine is a 500-person strong team across 3 sites in Denmark, in Germany and in Malaysia. And that represents the largest single-use endoscopy innovation infrastructure in the world. We believe it could be all of our major competitors combined. And of course, one thing is the size and the other is the way that we're organized around modular innovation, which means that our full range of scopes benefit from each technology advancement we made, and the rapid launch cadence that we draw from consumer electronics.
And the result of that, the size and the organization of our innovation infrastructure means that just over the past year, we've doubled our Visualization portfolio. And you can see on the left, our current portfolio and what's been launched just in the past 12 months. Of course, 2 of our most exciting recent launches are Gastro as part of our GI strategy in aScope 5, where we just received CE Mark, and both of those, I'm going to talk more about.
And then in terms of future launches, we're looking forward to secure FDA clearance of aScope 5. And then next up after that will be aScope Duo 2.0. So starting with GI. If we move to the next slide, we have an aggressive innovation agenda in GI. It began with Duo. Now it's continuing with Gastro and it's going to follow with Duo2.0 cholo and cholangio, so that we build a full range of GI single-use scopes in our portfolio.
And today, I'm going to focus on Duo 1.5 and Gastro.So for Duo, as we advance the Duo 1.5 launch, there are 3 main messages to take out from today. Number one is that this is going to be one of the largest single-use endoscopy markets in 2025 because the market environment for Ambu is continuing to become more attractive. And basically, the 2 main developments we've seen over the past 3 months: first is that we're continuing to see expanding reimbursement coverage by private insurers in the U.S., and that's a driver towards single-use adoption.
And then second, our main single-use competitor recently issued a safety notice in Europe related to injuries during scope insertion. And we expect this to have a negative effect on their traction levels in Europe, and will be positive for our share within the single-use market. The second key message is that for aScope Duo 1.5, we continue to strengthen clinical evidence. So in our last call, we shared that we submitted 2 abstracts on Duo 1.5 to DDW, and we're pleased to see that both were accepted to present in just 2 weeks.
One is going to showcase the results of our 150-patient multisite study. And the other is specifically focused on liver transplant patients, which is an immunocompromised population where sterile single-use is very important and where aScope Duo has shown excellent results. So we're looking forward to be at DDW, not just for that but also to showcase all of our launches and our upcoming pipeline.
And the third key message is that as we advance the launch of Duo 1.5, we expect uptake to be gradual. And that's because even as we move past Omicron, we see Duo as having a long-term attractive opportunity but being driven by a longer selling process compared to some of our other scopes.
Now in terms of Gastro. As a reminder, this is a 20 million procedure market, more than pulmonary, cysto and ENT combined, and it's a market which has very similar conditions to what is driving single-use adoption in those segments. You have procedures taking place at multiple sites in the hospital, you have a need to do more and more procedures going up against hospitals that face capital constraints and reprocessing that's getting more and more complex.
And of course, you have the contamination risk with reusable scopes. So those are the conditions that support single-use penetration in gastroscopy as we launch Gastro and aBox 2 globally. Now on the regulatory front, we've now secured clearances across all of our major markets. That's the U.S., Europe and Japan. And I've actually just returned from the U.S. where we completed our controlled market release these past 2 weeks.
Now the goal of our CMR was to test the performance of the scopes across a range of customers, so we work with endoscopist and surgeons, a range of sites of care, everything from academic hospitals to ambulatory surgery centers. And most importantly, across a range of procedures, everything from pre- and post-op checks to basic diagnostics, biopsies, balloon dilations, stent placements and removals, energy devices and resections.
Basically, a CMR, which overall represents the vast majority of the case mix that we'd expect to see if we launch. And for the CMR, we did 75 cases across 10 sites and the results have been encouraging. So we saw a 98.5% clinical success rate and a 0% crossover rates are reusable, which means that the one case that wasn't completed, the patient had altered anatomy, so the physician didn't even try it with a reusable scope either.
Now beyond clinical performance, we also got encouraging customer feedback, too. Very high satisfaction rates, especially among surgeons who gave aScope 100% satisfaction rate and a 97% rating of image quality being acceptable. And that was important because image quality is an area where customers have very high performance requirements in GI. And it shows that with our latest generation camera sensor in aBox 2, we're starting to meet those requirements and target procedures.
Now across all sites, GI and surgery, 96% said insertion and maneuverability were on par or better than reusable. And in fact, 70% said those were superior to a reusable. And that's, of course, because reusable scopes degrade over time. And so this is fresh and new right out of the box. Now of course, beyond the quantitative results, some of the qualitative feedback was encouraging as we move into launch. And you can see the quote from one of the surgeons in our CMR that "aScope Gastro's ability to retroflex far exceeds any reusable scope I've used."
We had one site that did 11 cases in the morning before noon. And the feedback from the doctor was that my staff loved it today. They said that word for word that they feel like they're not worn out or dreading having to spend the rest of their afternoon cleaning the reusable scopes. And instead, they can be doing some other responsibilities. And that's exactly the type of feedback that we heard and that we hear in Cysto that we're basically freeing up worn out staff and in a strained labor environment, that's becoming a more and more important purchasing factor.
So with those CMR results, we've now shifted to full commercial launch. We're targeting about half of the 20 million procedures out there. A key starting point for us is surgeons and GIs who are doing cases outside the endosuite because those are 2 areas where we see some of the strongest pull from our customers. And then we expect to continue to expand our footprint from there.
So to summarize in GI, we're confident that both Duo 1.5 and Gastro are set to be important growth engines for the company as we expand our presence.
And if we move to the next slide and now shifting to pulmonology. Earlier this week, we announced the CE Mark of our aScope 5 Broncho HD, which is the fifth generation of our market-leading aScope platform. Now we designed aScope 5 with one key purpose, and that was to perform at a high enough level that we can enter into and take share in the bronchoscopy suite.
And that's -- as a reminder, that's a new segment of 3 million procedures for us, and it's one where the 3 most important things our endoscope performance, workflow and availability and number 3 is safety. And that actually is becoming even more important with the FDA guidelines towards sterilization of reusables as they and other organizations categorize it as a high-risk scope. So our design goal is to be able to enter into the bronch suite. We believe that we've achieved that and that aScope 5 is our highest-performing bronchoscope yet.
We've set a new bar in terms of high-performance imaging with a 4x higher sensor resolution and 4x greater processing power compared to aScope 4. We have robust and familiar mechanical performance and maneuverability. Of course, there's full compatibility with the Ambu ecosystem. And in the development of this scope, we tested it with over 200 bronch suite KOLs globally in preclinical and benchtop settings. And that's basically the largest-ever customer engagement that we've done prelaunch.
And from that engagement, we've received very positive feedback. So we just finished a round of testing and feedback with a group of interventional pulmonologists global KOLs, and 100% rate of aScope 5 is acceptable based on preclinical testing. And in some areas, they even rated it superior, areas like bending performance, especially with tools inserted.
Now that's an important factor because compared to competitor single-use scopes like EXALT, where they have a warning in their label against inserting tools while the scope has been, we're showing high performance in that area, which we expect to be a strong competitive advantage on top of other advantages like image quality.
And then compared to reusables, one of the KOLs put it well when he said to me, aScope 5 is a great bronchoscope and it just happens to be single-use. And that just shows how much we've closed the performance gap versus reusables for the bronch suite.
Now on top of the 100% saying aScope 5 is acceptable, 100% also said they would use it immediately when it's available. So we're very pleased with the preclinical feedback. We're moving forward with the product launch based on the European clearance, and we expect the clearance in the U.S. and other markets to follow.
Now in terms of pricing, aScope 5 Bronch is going to be priced at a premium versus aScope 4. And of course, with the long-term growth trend of aScope 4, we plan to keep both products in the market.
And if we move to the next slide and just to ramp things up for pulmonology. In pulmonology, we have a strong leadership position. And our strategy is to extend that leadership through innovation. Now against our main competitors in single-use, we have aScope 4, which is by far the market leader in bronchoscopy. We have BronchoSampler with its award-winning design and VivaSight 2, both of which are unique offerings. Now we have aScope 5, which we believe will set a new bar for single-use bronchoscope performance, and all of those are compatible with our aView and aBox 2 ecosystem.
And then, of course, on top of that, we have a future pipeline, which is 2 main things. Number one is to round out our aScope 5 Bronch additional sizes and with the BronchoSampler. And then later this year, we're going to introduce our next-generation video laryngoscope, and that's going to close our only real portfolio gap in pulmonology, and offer what we expect will be actually a superior option versus our competitors. And all that means that we'll be exiting the year in an even stronger position to sustain our market leadership in pulmonology.
So to wrap up, we're, again, proud and thankful to our 500-person-strong innovation engine that's doubled our portfolio this last year. We're excited about the recent launch of Gastro and the clearance of aScope 5. And those, together with our upcoming pipeline, we believe we're well positioned to extend our spot as the #1 player in this rapidly growing single-use endoscopy segment.
And with that, I'm going to hand it over to Michael to share our financial update.
Thank you, Bassel, and I'm excited for this opportunity to take you through the key highlights for our first -- our second quarter and our first half of '21, '22. And then after, I'll hand over for the guidance for the year to Juan Jose.
But if we go to the next slide, I think Slide 20. The organic growth in the second quarter came in at 8%. Adjusted for last year's NHS safety stock orders, the organic growth was 12% with both Visualization and Anaesthesia and PMD, growing double digits. Reported growth also came in at 12%. Combined for all regions, we sold 444,000 endoscope units equal to a quarterly volume growth of 17% and 25% adjusted for the NHS. The gross margin ended at 57.7% with a 4.5 percentage points decline over last year.
The decline is driven by sales mix and increased production costs, including write-down of raw materials. The sales mix has a negative effect on gross profit due to the strong growth in Anaesthesia and PMD relative to Visualization, and we estimate this impact to equal a decline of the gross margin of approximately 1 full percentage point.
The EBIT earnings for the second quarter ended at DKK 47 million with a margin of 4.2% compared to 10.9% in Q2 last year. In addition to the impact that we saw on the gross margin, the reduction of the EBIT margin is driven by higher distribution costs for sea and for air freight as well as amortization of products that has been launched over the last 12 months.
And if we go to the next slide, which shows the geographical distribution of the quarter's organic growth rates. Visualization delivered organic growth of 3% and 10% adjusted for the NHS. Anaesthesia and PMD grew double digits due to recovery of elective procedure activities over last year, which were very depressed levels. The order backlog carried for the first to the second quarter has been lowered.
North America reported an organic growth of 11%. Growth in Visualization came out at 15% driven by strong performance in ENT and urology. Anaesthesia and PMD grew combined 6%, reflecting the continued return of electric procedures and some market shares. Revenue in Europe reported organic growth of 7% and adjusted for NHS, the region grew 16% in Q2.
For Visualization in Europe, the organic growth for the quarter were negative at 6%, but positive 8% adjusted for NHS. Anaesthesia and PMD showed a remarkable comeback with 28% organic growth. Rest of World posted negative organic growth at minus 1% due to continued COVID-related restrictions on the main markets in Asia Pacific. Visualization showed service growth due to temporary market disruption, but with a strong underlying performance on the key markets.
Anaesthesia and PMD showed negative growth of minus 3% as the region continued to suffer from COVID disruptions. And if we go to the next slide where we have comments for the financial highlights for the quarter. Production costs increased 26% over last year's as we scale up the factory in Mexico, paired with impact from raw material inflation and labor shortages.
Relative to revenue, these factors had a negative effect in the quarter of approximately 1.5 percentage points on gross margin. In addition, there's an impact from the DKK 19 million write-down of raw materials equal to a 2 percentage point impact. The write-down is related to a range of components that is becoming obsolete, and according to policies, should be removed from the balance sheet.
We continue to see that our global distribution costs are increasing relative to revenue. And for the first 6 months, we have seen an increase of DKK 80 million or 3.7 percentage points relative to revenue. The increase is caused by higher freight rates as well as an increased need for use of air freight. But also the cost of warehousing is increasing, driven by the higher cost of energy.
And finally, a milestone payment of EUR 20 million for the gastroscope that was conditional upon achieving the FDA clearance has been reversed. When we acquired Invendo Medical in 2017, the milestone payment was agreed upon FDA clearance no later than end of December '21. Since the FDA clearance was obtained in February '22, the milestone payment has lapsed and the provision of DKK 141 million has been reversed, which you can see in our net financials.
And let me go to the next slide, where I would like to say that we're happy to share that the construction of our new factory in Mexico has been completed, and we are now in the midst of setting up production lines. The plant will be more than double the size of our current site in Malaysia, and we are on plan to be to support the U.S. with selected single-use endoscopes out of Mexico starting in the fourth quarter.
The capacity will gradually be expanded to include production of Anaesthesia and PMD products as well. The factory will give us a dual sourcing, which is an important risk mitigation. It will provide proximity to our largest market in the U.S., and it will enable more simple and less cost of distribution into U.S. compared to Malaysia.
With that, I'll hand the word back to you, Juan Jose.
Thank you very much, Michael. And I have to say it's an incredible achievement for the Ambu organization to be able to build this plant in record time in the midst of COVID-19 pandemic. It is going to be a very important asset for us, not just to reduce our supply chain costs, but also to make sure that we have a dual sourcing strategy and be able to supply the work in case of any major events.
Now let's go to the next slide, and let's talk about our revised financial outlook. There are 3 main highlights. Highlight number 1. Our fiscal year finished at the end of September. We had an expectation, not just in terms of elective markets recovering, but also seeing some of the benefit from the pent-up demand. And based of our assessment today of the situation and driven by the hospital staffing shortages, we believe that the benefits in terms of pent-up demand will be more limited and that we will see it in our following fiscal year.
As 70% of our revenue come from elective procedures, we are adjusting our outlook for our organic revenue growth from 15% plus to 13% plus. The macroeconomic headwinds on the back of Russia-Ukraine conflict is also having a sharp impact in terms of inflation, cost and congestion of the global supply chain, and that is sort of increasing our cost of production and distribution.
If we look at the energy costs over the last 2 months, it has increased significantly, and we want to reflect that in our EBIT margin for -- in our EBIT margin projection. Now we have a lot of measures that we are taking to be able to address the impact of inflation and supply chain costs. The Mexico plant is probably the most important one in terms of supply chain costs.
By the end of next year, we expect the entire U.S. demand for broncho, ENT and Cysto to be supplied by our Mexico plant, which basically will reduce the need for sea freight and airfreight from Asia. And that's going to be a very important efficiency driver. And of course, it will reduce the inventory in transit and our working capital and so forth.
We are also looking at our pricing and start taking price increases in selected products to address some of this inflation. We are also looking at the pricing of our new products to ensure that we introduce products at a premium price and to also be able to address this. And we have a whole procurement program to reduce our raw materials.
But having said all of that, over the next 5 months, we are going to have the impact of this deteriorated macroeconomic environment. Now this revised guidance in terms of growth means that we expect to grow over 20% in the second half of the year. It's going to be driven by 3 things. Number one, the combined double-digit growth for Anaesthesia and PMD. Number two, the continued rapid adoption of ENT and cystoscope, aiming for a combined unit sale of 800,000.
And number three, the benefit for present product launches, especially in Q4. And this is important to know the growth of ENT and Cysto and the benefit coming from the Karl Storz recall is going to be mainly in Q4, and the benefit from recent product launches is also going to be mainly in Q4. As a result, our Q4 revenues will be larger than Q3. So this is in terms of our financial guidance.
Let's go to the next slide because we also have 2 very important messages to give. Number one, I would like to thank Michael Hojgaard for everything he has done over the last 10 years. To be the CFO of a high-growth company, creating a new market in a very volatile environment is very difficult. And if I look at the track record during his tenure, when he joined, Ambu was a small company with DKK 1 billion in revenues. Today, it's over DKK 4 billion. When he arrived, Ambu was mainly a European company. Today, it's a truly global company.
When he arrived, it was a company thinking about creating a new Visualization business. Today, our Visualization business is the largest business for Ambu, and #1 growth engine and with a competitive advantage that will ensure the long-term success of the company. Michael has been an effective CFO, thoughtful partner. It's worth building not just a finance organization, but ideally has been remarkable, and we are very grateful, and we wish him all the best in the future.
And of course, we are also welcoming our new CFO, Thomas Schmidt. Thomas will be our Chief Financial Officer as of June 1, 2022. We are excited with his arrival survival. He has deep global finance and health care experience with the Roche Group. He was the CFO of their largest business outside of the U.S. in Germany. He was a Global Finance Leader for Roche Professional Diagnostics, which is one of the largest medtech businesses globally. And he was also a Finance Vice President for Roche Western Europe.
He is a Danish national. He holds a Master of Business Economics and Auditing from Copenhagen Business School, and he will relocate back to Denmark after having lived abroad for over 20 years across Europe and Asia Pacific. Thomas will have the journey of scaling up and what an accelerated growth of globalizing it even further of advancing our innovation not just in terms of hardware but also in terms of software. We are excited to be able to attract this quality of talent, and I'm sure he's going to be very successful as the new CFO.
We finish our Q2 with very strong momentum. There are very few companies that can grow over 20%. And that is what Ambu's going to do. We do it facing significant volatility, volatility that we were not expecting, but volatility that we are prepared to be able to address effectively. So all these changes, the revised outlook doesn't change our view regarding the potential of single-use. And more importantly, our view regarding the potential of Ambu, and we will become one of the largest European medtech companies.
And with that, let's finish the presentation section, and let's open for Q&A.
[Operator Instructions] Our first question comes from Benjamin Silverstone from ABG.
I just have a quick question in terms of the gross margin related to the Mexico plant impact. So we do know that the overheads of ramping up the factory did have a negative drag this quarter. But could you just give us an indication of whether or not this is only due to us seeing the Mexico plant being put in place now? Or if this sort of negative drag will continue after the summer when production is also starting up.
And the second question is in terms of the guidance for this year. Juan, you did mention the specific factors that you see as driving this quite back-end loaded year. But could you just give us an indication of which things you're already seeing now in the beginning of Q3? You do mentioned in the report that you are seeing a more normalized access to hospitals. But any sort of indication of the current signs you're already seeing would be much appreciated.
This is Mike. Maybe if I take the first question. What you see -- the impact you see from Mexico is very straightforward. It's simply a result of, you could say, idle capacity as you're building the platform. So we started taking over the buildings. We're starting in installing equipment and so forth, and that is triggering some depreciations. And then we have staff doing all the qualifications, the testing and the measure that needs to be set up.
So soon in the next quarter, in the fourth quarter, when we see output will be coming up, we will see that there will be a return on these investments that we have from the factory. So it's very straightforward.
Thank you. Ben, I mean, in terms of your question with the guidance, I mean, we are being prudent and reflecting everything that we are seeing as of today. In terms of the market, in China, I think everybody is familiar with the lockdowns and I think this is something that we expect to continue all the way to the end of our fiscal year. Omicron is highly continuous, so we expect it to go from province to province, and the country to go into opening and closing, opening and closing.
But outside of China, for the most part, we see access back to normal. Again, we see elective procedures recovering. What we believe is that from now to the end of September, we will not see benefits in terms of pent-up demand. And this is just because of the level of shortages and the ability of hospitals to be able to absorb that level of volume.
But we see a more stable environment in terms of elective markets and access. And again, our growth is driven by core growing double digits. ENT and Cysto continue its accelerated growth and, of course, the introduction of our new products in GI and then aScope 5.
The next question comes from Thomas Bowers from Danske Bank.
A couple of questions from my side here. So just maybe sticking a little bit to the full year guidance. So I'm just trying to sort of understand the moving parts here. So it looks like you have a 3 percentage point lower impact from Broncho, especially assuming that the rate you do on Cysto and ENT is around 2 percentage points to the upside. So anything driving Broncho expectations down in the second half? Or is this primarily reflected in a weaker Q2 than you expected? So I'm just trying to figure out whether you are maybe a little bit more conservative on Broncho going into the second half year.
And then just on your EBIT guidance, your updated EBIT guidance. So assuming, let's say, 5% for the full year, so assuming that would be around 6% for the second half. So how should we see the development quarter-over-quarter. And maybe if you could comment a little bit on sort of the exit rate on the margin going into the next fiscal year, that would be very helpful.
And then just lastly on NPS. So starting the year and then correct me if I'm wrong here, but you highlighted in -- at least in your slides presentation for Q4 that there was a 3.5 percentage point negative impact to your initial guidance. So that's 15% to 19%. And that would be mainly hitting the Q1. And then maybe also impression there would be a modest impact in Q2.
So I'm just trying to figure out what is actually the full year impact? Is it still 3.5 percentage points? Or because to my calculations, you must be a little bit higher now with the impact you have in Q2. So maybe just clean up by my memory here.
And then just a very brief comment just on your pricing power. Have you actually been able to reach prices already in some of your products? Or is this something that will materialize in the relative near term? So anything that's included in your current fiscal year guidance. Or is this something for next fiscal year?
Let me take the first question, and then Michael will take the next two. So first of all, in terms of our Broncho business, what we have seen over Q2 is a normalization of the market back to pre-COVID level but at a higher penetration. And that's why we wanted to share that graph so you can get a better feel for the evolution of our Broncho business. I mean, right now, our assumption is, of course, that we are not relying on any upside in terms of COVID waves going forward. And 1/3 of our bronchoscopy business is actually driven by elective procedures.
And as we are more measured in terms of elective procedures, we are also more conservative in terms of what will be the development of our Broncho business in the second half. Now in terms of pricing, we have started to take pricing already this year, especially in our core products, and we are moving to continue to take price increases as our contracts expire with the hospitals and so forth.
So it's going to be a process that we will take over the next couple of years. One of the advantages that we have is that we have such a high cadence of innovation that we can also adjust the pricing of our new products to be able to drive an overall increase in terms of our average selling price. Michael, do you want to address the other...
Yes. Thomas, but maybe could you just maybe reshape your question? Just so I make sure what you exactly are asking about.
Yes, yes, sure. So maybe just -- if we just kick off with the EBIT guidance. So with the updated 5% plus so assuming 6% for the second half, I'm just curious on how we should see development quarter-over-quarter. And maybe also if you can put a bit of color on the exit rate going into the next fiscal year?
Yes. But I think you've got a very important piece of information, namely that our Q4 is going to be higher than our Q3. So when you model out, you need to consider that. And then you also know that our financial scale, our level of EBIT is super dependent on our top line. We're investing for growth, and you will see the growth is coming quite strong in the second half with the 20% number that Juan Jose also gave you. So when you model that out, Thomas, you need to be sure that you take that into due consideration.
I cannot give you the numbers, of course, but it all depends on the top line. And with the top line in the fourth quarter above the third quarter, you almost have the answer there.
Okay. But will it be sort of a very much hockey stick going into Q4? Or would you also see improvement in Q3? Because I'm just -- I'm actually more curious about seeing what to expect for next year, basically?
But definitely, we will see improvements as we move into Q3. But the point is that when you make your model, you need to make the allocation between the quarters and the second half.
And on the NHS, just to understand fully on how you initially guided -- you guided initially for 3.5 percentage points for the full year, but that was primarily Q1. And then you have a quite significant impact in Q2, which is, at least for me, a bit surprising.
Yes. I think what we saw last year was that the NHS in general was very significant. And in isolation, what we had in the second quarter was also significant. But what we had in the first quarter was much, much small. And I think that was what we talked about at that time. But you're right, there's also an impact here in the second quarter.
Okay. So the full year impact is still around 3.5 percentage points. Is that what you're saying or?
It's probably a little bit higher, Thomas. I don't have the exact number.
Okay. And then maybe can I just ask -- so where are NHS right now? So I understand that there will not be any impact in Q3 and Q4. So that, of course, should benefit your growth somewhat. But is it your impression that the inventory levels have normalized by now? So should we expect any new orders starting to come in? Or is this not going to be until next year?
Yes. Maybe I can take on that. So after the safety orders in Q1 and Q2 last year, there has been no more NHS England orders in Q3 and Q4 last year, and we don't expect to have anything this year. So actually, our growth is mainly going to be driven by the fact that we don't have the safety stock high comparables, basically in Q3 and Q4. But we don't rely on NHS England to start ordering to achieve our targets.
Next question is from Yiwei Zhou from SEB.
Actually, I have a couple of questions. I will try to limit. Firstly -- I do one question at a time. Firstly, on the gross margin, you mentioned there was 2 percentage point impact from the raw material write-downs. Could you elaborate a bit on this item?
Yes, I can. It's -- of course, it's a significant amount which we don't like. But when you look into, it's a very operational issue. It's products from a range of suppliers that for one or the other reason, have proven to be in excess, and we're, according to our policies, we simply just have to take it down. It's not a single explanation that you can iron in, but something that has been going on in our operation. So it's probably the most I can say about it. It's really not very sexy, but extremely unfortunate.
Could you say which product is it relating to?
No, I'd rather not comment on that, but it's from a range of suppliers. So that's not one common nominator to it.
And I also realized there was a DKK 7 million impairment due to the production line no longer in use, you booked in this quarter. Is it fair to assume it's relating to the raw material? Is there any sort of relation between these two?
Not necessarily. Not necessary. It's related to how we are updating our structures.
Okay. Okay. And my second question here is also on the guidance, just trying to understand the dynamics underlying the guidance change. Now you expect higher unit sales of ENT and Cysto. So what is sort of lower expectation? Which product? Is bronchoscope or is it Gasto or duodeno? Or maybe you can also comment a little bit about the volume and the price.
Sure. No, thank you for the question. And if you remember last quarter, we said that our target for ENT T and Cysto combined was above 700,000 scopes. And what we are doing today is we are confirming that, that above is actually 800,000. But the adjustment we are making it really reflects on our view today of the assumptions behind the pent-up demand this fiscal year. And we are basically taking a more conservative view in terms of how that will be.
And that goes across most of our businesses. 70% of Ambu business is driven by elective procedures. That's why it's not that you have kind of variance in assumption for the product. This is just reflecting our sense that we are going to execute our agenda and that we should not rely on a much faster bounce back of the electric market than what we though previously.
Okay. So it's fair to understand you have low expectation for bronchoscope, Gasto and also duodenoscope for this year?
Yes. I mean all of these are electric procedures, ENT, Cysto Anaesthesia, PMD. We are actually more prudent in terms of what we seeing the market is going to grow from now to the end of September.
Okay. Fair enough. And lastly, and a follow-up question on the NHS order. And for Q3 and Q4, you mentioned you don't expect any safety order. But how do we understand -- do you still assume sort of sales to NHS of Broncho? Or is this 0 revenue from this channel?
Yes. No. I mean, we -- so basically, last year, in Q1 and Q2, NHS England ordered products and in addition, ordered safety stock that they wanted to use to prepare for any emergency. Since last year, so starting in Q3, they stopped ordering, and they are using that safety stock. So basically, we haven't had NHS England orders from last year Q3, Q4. This year, Q1, Q2, and we expect -- we are assuming not to have any NHS England orders Q3 and Q4.
So if I compare the second half of this year with the second half of last year, we are assuming no NHS England order, which we also did not have last year. That's why there is no -- it's basically a neutral effect basically for the second half.
Okay, clear. If I'm allowed, one last housekeeping question on the ASP level for aScope 5. Could you maybe give us a range? You said -- you only said it's going to be a premium to the aScope 4?
Yes. And listen, we want to -- we don't want to give our pricing ahead of starting the commercialization. Today, you can assume that it is premium. And I think in our next quarter, we'll be able to give you a view in terms of our ASP. So you just need to wait a few more weeks to get that. But our pricing is steady around parity to reducible, to enable the transition, it's still the main principle behind our pricing.
So listen, first of all, thank you again for joining the call in such a short notice. And if you look at the core drivers behind Ambu, if you look at the growth of our core business, if you look actually at the long-term growth of our bronchoscopy business, if you look at the accelerated penetration of ENT and Cysto, the pipeline that we have, we have doubled it in 1 year, the size of the market that we are entering. I'm wishing a very strong position not just to delivering over 20% growth in the second half of the year, but continue to grow at an accelerated rate in the future.
We are doing it in the midst of significant volatility. And I think there are some reflections in terms of being prudent with our guidance that we are reflecting today and that we are going to reflect for the next few years. But we are on our way to become one of the largest European-based medtech companies, and we are all very confident in terms of our ability to fulfill our vision.
Thank you very much, and enjoy the rest of the day.
Thank you. This does conclude today's conference call. Thank you all for attending. You may now disconnect your lines.