Ambu A/S

CSE:AMBU B

Earnings Call Transcript 2018-Q2

[Operator]

Ladies and gentlemen, welcome to the Ambu A/S Report for Q2 2017-2018. Today, I'm pleased to present, Lars Marcher, CEO for the first part of this call. [Operator Instructions]

[Lars Marcher, President, CEO & Member of Executive Board]

Thank you, very much, and welcome to the conference call and announcement of Ambu's Second Quarter 2017 and '18. With me today, I also have my CFO, Michael Højgaard.Let's go to Slide 2 for the agenda. We have chosen the following agenda today. I will start off with the most recent past, which is the Q2 highlights and key figures and then I'll talk about the Big Five plans, in particular on our Visualisation agenda. Michael will take you through the financials. And I'll finally update you on our outlook for the year. And as usual, there is an opportunity for you to ask questions before we conclude the conference call. So let's have a look at the Q2 highlights on Slide #3. As every quarter Q2 has been a very busy quarter in Ambu. We post strong organic growth of 15%, which shows that our business is moving at a full speed. For the half year, we post growth of 14% in local currencies. Our unit sales of single-use endoscopy product is up 53% versus last year's Q2 performance. At the moment, we're primarily present within pulmonary endoscopy, but I will talk about this a little bit more in detail and how we can expand into other areas as well. Our earnings were further improved this quarter as we added 4.3 (sic) [4.0] EBITDA percentage points to our EBIT margin. This brings us up to EBIT margin of 24% for the quarter and 20.5% for the half year. With the acquisition of Invendo Medical in October last year, Ambu entered the GI gastro into surgical market. Now we are working on product development, manufacturing setup and marketing. And our GI projects are on schedule. And as you will see, we adjusted the full year outlook upwards with regards to our organic growth outlook in local currency for the full year. Let's turn to Slide #4. Overall our Q2 results show that we have achieved a new level of scale in our business. The organic growth of 15% is an increase of 1 percentage points compared to the Q2 last year. That means we have increased our revenue with another 15% on top of an already strong 14% growth last year. And we have now generated double-digit growth for the past year and half. This growth give us a revenue of DKK 651 million, up DKK 35 million compared to Q2 last year. For the first time, we have crossed 60% gross margin as we posted 60.5% in the quarter. If I was to pick a single number in the Q2 report, then the gross margin may very well be the number that I am most proud of. It shows that our business in a healthy shape and that our daily effort pay off. And compared to last year, we have lifted the gross margin percentage with almost 5 percentage points. For the half year, we are just below 60% with a gross margin of 59.4%, which is really satisfactory and give me a hope that Ambu's path involves strong double-digit growth as well as continued increase in profitability. On the earnings we have another Ambu record. 24% EBIT margin for the quarter, up 4.3% on the last year. EBITDA for the quarter was DKK 156 million, which is DKK 35 million more than Q2 last year. For the half year, EBITDA is DKK 247 million. All in all, the second quarter of our Big Five 2020 strategy shows that we continue to increase our top line, and at the same time grow our earnings. And despite the weakening U.S. dollar, Ambu has an almost natural hedging when it comes to EBIT. Now let's go to the next slide.We are now on Slide 5 and where you see the split and the growth in our 3 business areas for the quarter. In Q2, our Patient Monitoring & Diagnostics sales were up 3% in local currency, totaling our revenue of DKK 212 million. For the half year, growth was 3% and PMD accounted for 33% of revenue in the quarter. In Q2, electrodes used in cardiology and neurology, which account for combined approximately 80% of the PMD business saw a growth of 4% and 9%, respectively. The aggregated growth of 3% for PMD in the quarter was due to relatively negative growth for small number of niche products such as our manikins. PMD is still expected to generate growth of approximately 3% to 4% for the financial year. Sales in Visualisation increased by 43% in local currency reaching DKK 211 million and thus accounting for 32% of our Q2 revenue. This is up from a share of 26% of our revenue in Q2 last year. For the half year, growth was 49%. Growth in Anaesthesia was 8% in local currency, with a revenue of DKK 228 million in Q2. The relatively share of revenue was lowered to 35% from 39%. Developments in Q2 was very satisfactory with growth being reported for all significant product lines within Anaesthesia. We are therefore on plan to achieve the goals of 4% to 5% organic core growth as outlined from the beginning of this financial year.Let's have a look at Page #6. It is quite a pleasure for me to talk about our 3 sales regions. All in high gear and very well managed. The 3 sales regions posted double-digit growth for the quarter, and you can read the revenue and revenue split on the slide. There is a strong momentum across our markets and the relevance of our product offerings is evident. The organic growth in North America was 16% for the second quarter in a row. This indicates that our investment in U.S. sales are starting to pay off. Visualisation has high growth in U.S. but I would like to point out that PMD grew 5% in a market where our electrode growth has traditionally been low. Europe report growth of 14% driven by a strong growth in Visualisation sales. It is positive to note that Anaesthesia sales are up 8% after a slow Q1 that saw negative growth. In Q2, PMD only grew 1% in Europe, which is mainly due to periodic variations and tender contracts. Growth in rest of the world was 16% and we continue to see strong core business. Anaesthesia and PMD and then Visualisation, which is steadily increasing in markets that for the most part of that not as advance as the health care system in Europe and U.S. In other words, our core business is healthy and very profitable globally and our Visualization product platform continues to conquer the world with high growth rates, in both the western world as in Asia and new emerging markets.Let us turn to Slide #7. The sales of single-use endoscopy product continues to impress, and we have increased the unit sales by 53% measured compared to Q2 last year. This means that we have sold 145,000 scopes in Q2. And as previously communicated, we expect to surpass 500,000 units within this financial year. The competitive landscape of single-use endoscopy product has not changed, and we do not see any competitors that can challenge our position in short term. During Q2, we received market clearance as we expected for the first GI product, the colonoscope aScope, which we cleared in both Europe and U.S. And the aScope 4 Broncho, which was already on the European markets and now is also available in the U.S. We also have a strong pipeline of hospitals waiting for the aScope 4 product in U.S. And with this, let me go a bit deeper into the Visualisation business as the prospect for the future. And this is on Slide #8. Visualisation is no doubt the business with the strongest growth and the greatest potential for Ambu. I'm really pleased to see that Ambu has been able to reinvent ourselves and in just 3 to 4 years launched the platform that is now 32% of our overall business. Ambu has a unique opportunity to expand on our market position as first mover and move into more areas within single-use endoscopy.Now, I'm going to talk a little bit about that on Slide #9. Ambu was the first ever vendor to launch a single-use endoscopy product and it was a [ hard burst ]. You need to persuade many stakeholders that this was the future. The story you already know. So since then I have seen the endoscopy market changing even more rapidly after 4 years of slow and incremental developments. Now several parameters are in favor of single-use. The easy access to endoscopy is important for simplification of hospitals' processes, but the key driver of the single-use endoscopy market right now is cross contamination. Medical authorities continue to react to the patient risk related to reusable endoscopy products and FDA warning letters issued in March is just the latest example of how the attention to risks associated with reusable scopes is increasing and making the requirement even harder for the reusable suppliers. As recent studies show there is a staggering 71% of reusable scope deemed ready for use in patients tested positive for bacteria at 3 major U.S. hospitals. On the next page you see 1 indication that the cross contamination issue is getting more and more attention. It's the increase in reports of contaminated scopes. As you can see on this slide, there have been a lot of reports from health care professionals about contaminated scopes in recent years, both bronchoscopes and duodenum scopes. This does not mean that the problem is new, but likely the issue has been underreported for many years. However, the increase in report shows that the problem gets a lot more attention right now. There is a mountain of awareness of the problem, at the same time, a realization that it is possible to deal with the issue of cross contamination. And for the first time in history, the solution is available from Ambu in terms of clean endoscopy products. And stakeholders are more and more buying into our value proposition and communication, as you can see on the next slides.We are now on Slide #11, just to let you know, where you can see the major benefits of single-use endoscopy or the reusable endoscopy products. We hear this from doctors who use Ambu's single-use bronchoscopes, and we hear it from doctors in other areas of speciality who do not have a single-use [indiscernible]. There are many details on this slide that I will not go into now, but allow me to read one of the quotes. This is from Dr. Overholt from Knoxville, in USA. And he says, "A cost-effective, sterile, single-use endoscopic portfolio for the GI space will instantly change the entire practice of gastroenterology. All the concerns with reprocessing and potential cross contamination would be eliminated. When utilization begins, sterile, single-use endoscopy product will represent a classic example of the term 'disruptive technology' as applied to endoscopy." As Ambu, we believe that we are the right people to bring about this disruption into the endoscopy market.Please turn to Slide #12. Our Visualisation business is boosted by 3 growth drivers. #1 is that we leveraged our sales force and optimized our coverage. We have been working towards this during the last couple of years through a specialization of our sales reps in Visualisation, Anaesthesia and PMD, respectively. And in the U.S. we have invested solidly in dedicated sales force for Visualisation. Growth driver #2 is our disruption within pulmonary endoscopy. With the Ambu aScope, we have converted more than 10% of the Western market potential in operating room and incentive care units to single-use. Now we are developing a new type of solution, we call it a BAL scope, which is for the pulmonary use. The aScope BAL will help us further penetrate ICU and OR in the bronchoscopy suite. And along with the continued conversion by aScope 4, we will aim for market share in 2020 of 20% in pulmonary endoscopy, which equals to more than 1 million procedures per year. Growth driver number 3 is our expansion into other major flexible endoscopy areas. This means that a single-use endoscopy product will not only be solution for airways, but for the majority of hospital endoscopy needs.Please turn to Slide #13 for you to get a full picture of the endoscopy products that we will make up in endoscopy portfolio in 2020. It is our ambition that we, by the year 2020 or before, are the first to offer a full range of single-use flexible endoscope products. The pulmonary endoscopy we already have, the aScope Broncho and VivaSight products, and we will soon introduce the BAL scope that I mentioned earlier. Within urology, we have the Isiris product on the market produced by Ambu and sold by Coloplast. In addition, we will also launch a cystoscope. For ear, nose and throat, we will soon come up with a rhino-laryngoscope, a slim version and an interventional version. And for gastroentero surgical endoscopy, which is by far the biggest market for endoscopy, we have recently introduced a colonoscope, and we will develop a duodenoscope and a gastroscope as well before 2020. This means that our ambitions are that our Visualisation offering in 2020 or before will address all major flexible endoscopy procedures. We believe that this shift from reusable to single-use will be truly significant changes in health care in the years to come and obviously also be transformational for Ambu. A change that will save lives, improve hospital workflow and reduce health care expenditures. And now please turn to Slide #14 for brief update on our endoscopy products. Our ambitions for 2020 require a number of endoscopy products to be launched and they are on track. As I mentioned, our colonoscope was approved by both the U.S. and EU authority in Q2. The approvals were expected. And during the second half of the year, prelaunch activities and the formal evaluation and testing will be undertaken in cooperation with selected hospitals in USA. Therefore, as we have said earlier, we do not expect any revenue in the current financial year from the sale of single-use endoscopy product for GI procedures. Until the end of the current financial year, the colonoscope was produced by Invendo in Germany. But from Q1 2018, '19, production is expected to be transferred to Ambu's factory in Malaysia, and to be included in the same production processes as Ambu's other endoscopy products.And on the product development side, we have a number of endoscopy products going on in order to reach a full range of single-use flexible endoscopes as outlined on the previous slide. I'm obviously not prepared to tell you exactly what we are introducing and when we are doing it. However, it is important for the hospitals to know that this is happening so they're already today can start to plan for the transformation for multi-use devices to single-use endoscopy products, Therefore, our sales force is in the process of working with hundreds of hospitals and inviting them into our vision, ambitions and plans for endoscopy. With this brief overview, I would like to hand this over to Michael for a more in-depth view of the financials. So over to you, Michael.

[Michael Højgaard]

Thank you, Lars.We are now on Slide 16. In Q2, we have posted revenue of DKK 651 million and that represents an organic growth of 15% in local currency and 6% in Danish kroner. The lower growth in local currencies is due to the depreciation of the U.S. dollar versus Danish kroner by 13%. Our gross margin for the quarter ends at 16.5%, which is an increase of 4.9% over Q2 last year, and which is record high. The improvement resulted from the increased scaling created by revenue growth and more efficient absorption of factors overhead. And of course, the fact that growth is now being driven by high-value Visualisation products. Our operating expenses totaled DKK 238 million for the quarter compared to DKK 230 million last year. And for the half year, DKK 468 million compared to DKK 430 million last year, an increase by 9%, including FX effects. The half year includes 5 months of operating expenses by Invendo and expenses incurred in connection with the expansion of the sales force in the U.S. These items totaled DKK 27 million and thus accounts for significant part of the increased cost when measured in Danish kroner. EBIT for Q2 was DKK 156 million versus DKK 121 million last year and with an EBIT margin this year of 24% compared to 19.7% last year. This corresponds for an increase of 4.3% and 29% in absolute value. EBIT for the half year was DKK 247 million with an EBIT margin of 20.5%. The impact of exchange rate on absolute EBIT measured in Danish kroner is minor. Financial items contained a significant noncash item relating to Invendo with regard to the time value of the contingent payments. For first half year, this amounts to DKK 48 million or EUR 6.5 million. Net results for Q2 are hereafter posted at DKK 92 million compared to DKK 84 million last year. For the half year, net profits were DKK 111 million versus DKK 132 million last year. Net results are significant and negatively impacted by the tax reform in the U.S. back in Q1 and the noncash financial items relating to Invendo as referred above. Please turn to the next slide for free cash flow and balance sheet. Cash flow from operating activities totaled DKK 70 million for the quarter and DKK 157 million for the half year. This is a decline of 3 percentage points over last year to 11% of revenue due to a normalized collection pattern on accounts receivable offset by lower tax payment. In Q2, total investment equates DKK 48 million or 8% of revenue of which 2 percentage points can be ascribed to investments in buildings. Adjusted for these items, free cash flow equates 5% of revenue. For H2, remaining DKK 28 million of investment in factories where after these investment products will be completed with total investments of DKK 94 million included what has been paid last year. The free cash flow before acquisitions hereafter total DKK 22 million for Q2 and DKK 58 million for the half year with an improved net working capital ending at 22% by end of second quarter. Acquisitions totaled DKK 851 million due to Invendo. The net interest-bearing debt at the end of the quarter was DKK 1.2 billion corresponding to 2.0 of rolling 12 months EBITDA. In March 2013, Ambu issued a corporate bond loan of DKK 700 million, which was due now in March 2018. By end of Q2, the loan has been repaid in full out of existing credit facilities and unused credit facilities hereafter amount to DKK 1.1 billion. On February 1, Ambu initiated a share repurchase program in accordance with the safe harbor rules for the purpose of acquiring 3.8 million class B shares in April. At the end of Q2, 2.6 million shares have been purchased corresponding to 2/3 of the maximum at an average price of DKK 122 or DKK 320 million in total. After the closing of Q2, the share buyback program was completed with a total investment of DKK 495 million. Please turn to Slide 18. Invendo was acquired on 25 of October 2017. And in Q1, we announced a preliminary allocation of the purchase price with a goodwill of EUR 121 million. During Q2, more detailed PPA work has been made and due to primarily changes in deferred taxes goodwill has now been reduced to DKK 103 million. As you know, DKK 110 million out of the total acquisition price is agreed as deferred payments and DKK 10 million out of this has been paid in April due to the FDA approval of the colonoscopy. With a risk-weighted cost of capital of 18%, the net present value of the contingent payments equals EUR 75 million and the difference up to the deferred payments payable of EUR 35 million will pass through financial items during the coming years. EUR 12 million will be expensed this year, out of which EUR 6.5 million is included in H1. The final allocation of the purchase price is expected to be completed no later than in the annual report for this year. And now, Lars, will go through the adjustments to our full year outlook. Over to you, Lars.

[Lars Marcher, President, CEO & Member of Executive Board]

Thank you, Michael. That brings us to the outlook for the full year. And as you know, the development in sales in Q2 was generally more positive than we expected. And with aggregate growth of 5%, the business area in Anaesthesia and PMD maintained a strong momentum and with total sales of 145,000 endoscopy products sales of these products were close to exceeding our original forecast. Against this background and based on the expansion of our sales force in U.S. in the first half of the year, we are seeing higher growth potential in the second half of the year than we expected at the end of Q1. Therefore, we have decided to raise our expectation for our financial year for the organic growth from approximately 13% growth to now in an interval of approximately 14% to 15% of organic growth. The outlook for the EBITDA margin of approximately 20% to 21% is unchanged, and so is the outlook for the free cash flow at approximately DKK 300 million. So with this outlook in place, let me just quickly summarize the quarter on Slide #20. On the back of the first half year of the Big Five 2020 strategy, we can say that we are on plan. We experienced a healthy and sustainable momentum and the core business of Anaesthesia and PMD is back on track for full year growth of 4% to 5% and the Visualisation business continues with high growth. We have established a strong infrastructure, which give us a scaling affect that increases our probability and at the same time our product mix and low-price erosion support our expansion of the EBIT margin. A significant part of the Big Five strategy is to expand our offering in Visualisation and we are on the path to a full range of single-use flexible endoscope meaning that we expand within pulmonary and urology and that we enter ENT and GI, and last but not least will lift our full year outlook with regards to organic growth to 14%, 15%. With this brief overview on our commercial and financial performance in Q2, I would like to open up for questions. Over to you, operator.

[Operator]

[Operator Instructions] And we have our first question from Mr. Thomas Bowers from Danske Bank.

[Thomas Schultz Bowers, Analyst]

Couple of questions from me here. Just to begin off with the EBIT margin. Midrange of your full year guidance already here after H1 and hence seems sort of difficult not to already beat that outlook that you have maintained. So I am just wondering, how much impact should we expect from increases in sales costs from new hirings? And if there are any other items that we should be aware of in H2? Then second question, you mentioned also the report that you're close to exceeding your original forecast for aScope sales. So how much is that given that you targeted minimum of 500,000 units sold, but of course, it is somewhat open-ended. So if you -- for example, if we were looking at 600,000 plus right now, will that have triggered you to adjust the outlook to the full year guidance on the aScope? Then my last question for now, just on the duodenum scope, it seems like you are looking to fast-track this one at least now prior to the gastric scope, so maybe even for 2019 launch. So could you maybe just add a bit of flavor here? And also whether you are in a dialogue with the U.S. authorities, of course, given the FDA warning letters for the reusable. So I'm just curious what's going on there?

[Lars Marcher, President, CEO & Member of Executive Board]

Let me just start with the top. In terms of the EBIT outlook, you are correct that we have not adjusted our EBIT outlook as we did in Q1. With the positive scale we have, it's a fair comment that we are already with 2 strong quarters, of which Q1, is not necessarily the best quarter in terms of EBIT margin that we are very much on track. But I also see that, that the momentum we have right now give us an opportunity of potentially further invest and fine tune our commercial sales force. So we have the freedom to invest into the momentum we have on the continuation of the growth and that also includes product launches. And of course, the Invendo kind of expenditures we are putting in there. So the outlook for EBIT is maybe a conservative one. But we believe that it's more or less the level we're going to end up at. In terms of the aScope, we said from the beginning that we would expect to sell 500,000 plus aScope for the full year. We still expect to do that. We have now sold half of them for the first 2 quarters. It's very hard, as you can imagine, to predict a market that are growing with almost 50% growth. So we still believe that the 500,000 plus is an indication that we are within that kind of range. We're not talking about 700,000. We're not talking about 600,000, but we are within that range. So we are not commenting anymore on that. On the duodenum aScope, your comment about fast-track is correct. We believe that the health care issues you have, in particular with the duodenum scopes in U.S. in particular that we have an obligation to invest all our power in bringing a duodenum scope faster to market than what we hoped before we bought Invendo. So we are trying to push that as hard as we can. And that actually linked to your question #4, Thomas, about the FDA. It is so that, as you know, there is lot of attention on endoscopy products right now and the contamination issue. And because of that, we are in dialogue with the FDA and hope that we can fast-track the FDA approval and have some preclearance during the development process. So this is what we are doing right now.

[Operator]

We have another question from Mr. Niels Leth from Carnegie.

[Niels Granholm-Leth]

So you are talking about soon entering the ENT segment. Could you talk about how many addressable procedures that we should be looking for in the ENT segment? And what kind of pricing we should expect for your product in this segment? Also could you update us on what -- how you think about the pricing of the 3 GI segments that you plan to enter over the next couple of years? I think I will stop there.

[Lars Marcher, President, CEO & Member of Executive Board]

Thank you, Niels. It's correct that we have a pipeline of ear, nose and throat products in the endoscopy market. The amount of procedures that we have from our intel in the western world is that this is between 7 million to 9 million procedure market a year. In terms of the pricing, I would like to just keep that a little bit from ourselves for the moment, but there is no doubt that, that with a single-use product that we will be able to be as competitive as we are with the aScope for bronchoscopy. On the GI pricing, I guess, what you are indicating here Niels is that, the differentiation in terms of different procedure is widespread. So for example, in the colonoscope, we are talking about roughly a $300 price point. If you're talking about duodenum endoscopy products, you will see pricing that could be as high as 3x as much. So it just show that the pricing in the different application has different kind of implication for the hospitals because also the sterilization processes and the workflow cost of using those kind of products are higher than necessarily in bronchoscopy.

[Niels Granholm-Leth]

Okay. And perhaps just a follow-up question on the competitive situation. So you are saying that, you still don't see any competition of any relevance out there. But could you talk about when you view the competitive situation because -- I mean, there are obviously smaller players here and there that offers single-use technologies? So are you mostly watching out for the bigger med tech companies? And how are you trying to monitor this? Is this through the patent offices? Or is it when you see the products in the markets? Could you just talk a little bit about that?

[Lars Marcher, President, CEO & Member of Executive Board]

Yes. That's a good question. The way we -- I mean, our statement right now is that we don't see Ambu being challenged in short term. And when I say, short term, that means the outlook that we are talking about here. Simply because before you launch a product, so you have the volume, you have your sales force up and running. You have the evaluation. It's a long process. And that is a favor for us, obviously, when you already in good shape in the penetration curve. In terms of the competition. Of course, there a lot of smaller brochures around and we see some samples at the exhibitions. But from thereon and then have a workable product there seems to be a long way. We still don't believe that the big ones are coming out with anything that will challenge us short term, that means Olympus and PENTAX and Fuji. And the other thing is also that we don't see that companies will come out with the full portfolio as we are talking about here. They might come out with single niche products like Boston, for example, have today with the urology product. So we are monitoring, of course, what is happening and all the rumors that we have. And your point about IP is a valid one as well that we can also see from our IP analysis that we have here on site, who is actually on the IP landscape and who is not, and the most active right now from that perspective is Boston Scientific.

[Niels Granholm-Leth]

Okay. Are you able to confirm that GlideScope is about to launch a bronchoscope, a single-use one?

[Lars Marcher, President, CEO & Member of Executive Board]

No. I'm not. I mean, we are hearing rumors, but we are not being able to validate them, and we don't know when and if and how. But there is definitely, as I also told you before, they're definitely on our screen in terms of companies that would have an interest in doing this.

[Operator]

We have another question from Mr. Thomas Bowers from Danske Bank.

[Thomas Schultz Bowers, Analyst]

Just a couple of follow-ups. I am just wondering, if it's too soon to ask for any initial feedback you have on the colonoscope launch. And then just a question on your DKK 5 billion revenue target. I know this was, of course, pre-Invendo. And clearly, back then at the Capital Markets Day it was for me clear that the M&A was part of this target. But how do you see this now when you include Invendo and the outlook to believe that this DKK 5 billion target is reachable from organic growth alone? And then maybe just very lastly, on the proposed China duty for products sold in the U.S. do you see any material impact for you guys with the products in China?

[Lars Marcher, President, CEO & Member of Executive Board]

Thank you, Thomas. In terms of the colonoscope that -- we are basically in a process where we have selected about 6 of the major hospitals in U.S. They will work with us in terms of evaluation of the colonoscope, and we are in the process of sending products over for that evaluation. So we will be able to inform you and give you some feedback on that most likely in the second of the next quarter we come out with. In terms of the DKK 5 billion Big Five target, it's important for you to have the chronological order in place because the 1st of October last year when we had our market -- Capital Market Day, in London, we introduced the Big Five Strategy, and the DKK 5 billion. And at that time, we said to you that the DKK 5 billion would be a combination between our own organic growth and acquisitions. And then, 2.5 weeks later, we acquired Invendo. And since then, we have not communicated on the Big Five plan, and we are not going to do that today either. We will do that when we are finished with this financial year, and we know exactly where the product development and the perception of our current product is. But obviously, our hope is that we are closer to the DKK 5 billion with Invendo than without them. In terms of China, and the import duty you are talking about, there are some of our products that are on that list. It's a long, long list of medical and life science products that is on the list in U.S. Most of those product, we have is, basically, life-threatening in the way that if you don't have the product, then hospitals are in trouble. Personally, we were still confused about where all this is going to end. And I can tell you so is European trade ministers and commissions. So we tried to just take a look here on this and say that, we don't really know, and if it happens, we will have to deal with it. But so far we tried to play down.

[Operator]

We have another question from Mr. Niels Leth from Carnegie.

[Niels Granholm-Leth]

Yes, coming back to your colonoscope and the evaluation process. I understand that you are going to manufacture this product initially out of Germany. So could you talk about, how much would be your production capacity in Germany at this point in time? And is it something that you plan to invest in before you relocate to Malaysia?

[Lars Marcher, President, CEO & Member of Executive Board]

Yes. That's also a good question. I mean, the manufacturing right now is increasing. We can manufacture about 100,000 of the product, we call SC210. So simultaneously, we are ramping up or making production ready in Malaysia. So we believe that, that kind of scaling down in Germany is scaling out in Malaysia will happen seamless in the next 2 to 4 quarters or so. So we are able to basically deliver products to the hospitals we are working with right now so they can get some volume and therefore, also some feedback that is available for us.

[Niels Granholm-Leth]

Okay. And then, just on your M&A strategy? So is it -- it indicates that you are basically not actively looking for M&A target for the time being?

[Lars Marcher, President, CEO & Member of Executive Board]

No. That's not the case. What I am just trying to paint for you is that, that obviously a big part of the achievement of the Big Five target was acquisition modes. And we have already made one in Invendo. But we are also in dialogue with many other companies right now to see how we can strategically plug in either products, companies or portfolio that will make sense for us. So we are definitely not slowing down on acquisitions. But you can say, we are not under that high pressure as you may be saw that we were in October from an outside in.

[Operator]

So we have no further questions, gentlemen.

[Lars Marcher, President, CEO & Member of Executive Board]

Okay. That's good. Thank you for the questions and for listening today. I want to thank all our global employees, again, for contributing to another fine able quarter. And I look forward to report back to you on Ambu's result for Q3 on the August 23. Thank you very much, and have a good day.

[Operator]

Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.