Ambu A/S
CSE:AMBU B
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Ambu A/S
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Yes. So good morning, everyone. We would like to welcome you to our investor call this morning, which we are hosting on the basis of the company announcement that was sent out yesterday evening. We appreciate that you are joining the call today with, both the short notice, but also in the middle of the summer to discuss the updates that we announced.
So if we turn to Page 2, I would like to introduce the host of today's call, and that is a new management, myself, Britt Meelby Jensen, joined as the CEO of Ambu end of May. And with me today, I have Thomas Frederik Schmidt, who joined as the CFO of Ambu the 1st of June.
So if we go to the next slide, with the announcement yesterday, we are communicating 3 different topics. First of all, we are announcing preliminary results from Q3 ahead of time. We grew 8% in the quarter. The anesthesia and PMD business were the key drivers of growth where visualization was flat. Also, we are announcing a cost reduction program that we are launching. We have identified a number of necessary adjustments that we need to do to strengthen our financial position and financial flexibility. Thirdly, we are announcing a revision of our financial guidance.
So the revenue guidance is reduced based on our July performance, which we had data on yesterday, late afternoon. The guidance presented by the previous management in connection with the Q2 financial results, we're assuming aggressive Q4 growth. And July was significantly below our expectations for rapid growth acceleration, and we have, therefore, revised our guidance to reflect our expectations.
So it's now my pleasure to turn it over to Thomas, who will walk you through the Q3 results and July financial highlights.
Thank you, Britt. And also good morning to all of you on the call from my side. Looking at the data here, our preliminary Q3 data, as mentioned, showed organic growth of 8%. This has been driven by continued strong growth in our cystoscopy and ENT business, however, offset by a decline in the bronchoscopy due to high COVID comparables, increased competition in the U.S. and a general lower ICU admission.
From a regional perspective, North America shows, actually, very strong double-digit growth rate of 15%; and Europe, a solid growth rate of 4%. However, rest of the world markets declined 4%, heavily impacted by the lockdown in China. Looking at the gross margin of Q3 of 55.8%. It shows a decline versus last year of 6.7 percentage points. And this is driven by inflationary effects on our input prices, ramp-up of our Mexico plant, shifts in our product mix and an inventory write-off of our Vivasight 2.
EBIT margin before special items ended for the quarter at 3.7%, mainly impacted by increased distribution costs. As just mentioned also here, the write-off of Vivasight 2 inventory due to the product recall that we voluntarily did in May 2022. Combined for all regions, we've sold 400,000 endoscope units in Q3, which was a unit growth of 4%. The growth is coming from urology and ENT and compensating the decline in pulmonology.
July trading -- as mentioned already by Britt, our July trading posted a sales growth of 6%. This was significantly below our expectations and also here, mainly driven by weaker bronchoscopy sales and significant slower-than-expected uptake of our recent product launches. This following slide shows the numbers and the developments that I've just spoken to, so I won't spend too much time on this.
I will, of course, here mention, as you also can see, when we do look at the reported number, we show a reported growth rate of 16% which is primarily driven by a stronger U.S. dollar compared to the 8% on a constant exchange rates. But otherwise, most of the other data, I have already spoken to.
Thank you, Thomas. Moving on to the other point that we announced around the cost reduction program. So taking us back, we have identified strong opportunities, as new management, to strengthen our position as the world's leading single-use endoscopy company. And this is an ambition that we remain fully committed to. As new management, we have also assessed our current situation, and we have identified a number of necessary adjustments to strengthen our financial position and flexibility.
We have, in recent years, significantly increased our investments, in particular, in innovation and commercialization. And we have also made meaningful progress. However, it has become clear that the market creation in single-use endoscopy is taking longer than expected, mainly in segments like duodenoscopes, where we see a continued slow uptake. So we decided to launch a cost reduction program to improve both our cash flow and our profitability.
This cost reduction program is expected to result in DKK 250 million annualized pretax sales. Hereof, DKK 165 million in CapEx and the remaining DKK 85 million is in the P&L from the financial year '22, '23. The size of this program has been set at a level that ensures that we can continue to invest competitively in innovation and commercialization while securing an improved cash flow. We believe that these savings will achieve this.
So to be more specific on the main affected areas. In innovation, we will take a more focused approach, continuing strong investment levels on par with med tech industry benchmarks. And we've also maintained a strong commercial presence in key markets. We will scale back in the GI segment as a result of lower immediate expectations, but we do remain fully committed to this area and with the new gastro launch, which, we see very strong early signs on this, becomes important.
This program will, together with other changes that we announced, result in a change in guidance for this year. And I will hand back to Thomas to elaborate on this.
Yes. So our revised financial guidance. As previous -- our previous guidance assumed rapid growth in Q4, and as mentioned already with the 6% organic revenue growth, this was far from and below our expectations. So the adjusted and revised guidance now reads 4% -- no less than 4% organic revenue growth.
The main drivers for this reduced revenue guidance is due to lower forecast on our existing products accounting for 5 percentage points and a lower forecast on recent product launches accounting for 3 percentage points and then changes to our pricing practices that accounts for 1 percentage point. So in total, the 9 percentage point change on the guidance.
The EBIT margin before special items is derived from the 5-plus percentage point to no less than 2% due to the reduced outlook for the organic revenue growth, as just mentioned. And we're guiding on EBIT before special items. Obviously, as the special items are all nonrecurring and the special items that we do have are all related to our cost reduction program, being severance cost write-off of capitalized project costs and inventory write-off as mentioned. And with that, this concludes our presentation, and I will now hand over to the moderator for the Q&A section.
[Operator Instructions] And we'll take our first question from Vikram Kumar with Kuvari Partners.
Can you hear me okay?
Yes.
Yes.
Great. Just to be clear, in terms of the products outside of ENT just -- and broncho, what have you said at this stage in terms of what you think is feasible from the pipeline that you've inherited? Because you mentioned in the statement that duo market share take-up is not what you want. We've, obviously, had a cost linked to the potential GI franchise as a whole. Is the right size of your cost also addressing the fact that some of those programs are not to be commercialized? I've got a follow-up to that as well, please.
Thanks for that question. So I mean we have not been more specific in our communication around that -- but what -- around the specific product groups, but it is very clear that we are -- I mean, we do remain committed to the products that we have also in the gastrointestinal area. I mean, we are saying that, too, I mean, is taking longer to penetrate than what we initially had expected, but we are committed and continuing to both focus on that and also with our gastro launch, which -- where we have received encouraging early feedback. We are focusing on the gastrointestinal segment and still, with also a strong commercial presence, so we will be able to serve customers in this segment.
Okay. So from a cost rightsizing point of view, you won't be taking cost out that reflects the fact that you need, for example, salespeople dedicated in those areas. You will be keeping the cost base at a level that enables you to potentially commercialize those new areas. That seems like a fair assumption based on what you just said.
Yes. Exactly. And I think it's fair to say that we aggressively, I mean, have grown our sales force in, I mean, overall. And of course, building it in this area over the past 2 years. And as we are seeing that -- I mean that was built for a different set of expectations and that we're not -- as we're not seeing that materializing, we are making -- I mean, the commercial focus in GI is slightly more focused, but continuing also to have a strong commercial presence that ensures that we can create a leading position over time in this segment. So it is a segment that we are heavily investing in both from an innovation point and from a commercial point.
And then one last follow-up, and then I'll go to the back of the queue. You mentioned about, I think you used the word market share or competitive pressures with regards to the core broncho. What's your expectation medium term for the ability for your broncho franchise to grow? Do you think that's kind of reached a natural plateau now? Or do you think that has ability to keep growing? And if so, what's your sort of expectation of that medium-term?
Yes. So I think for the bronch segment, I mean, we have seen some short, recent dynamics where this was a market that was heavily, positively impacted by COVID and now we are seeing, I mean, in the recent quarters that the last wave of -- from COVID building safety stock is putting up some, what do you call that, some -- leveling off to some of the demand, in particular, also in EU.
What we are saying around competition is that -- I mean, we are seeing more competition in that segment in the U.S. And I think that's when you're in an attractive and growing market, I think that's only natural and expected to see. And our focus continues to be heavily under bronch segment, and we do expect, after we have seen, that, I mean, those COVID dynamics level out to see strong growth in this segment.
We have, as you have seen, recently announced the approval of aScope 5. This is a product that enables us to also be competitive in the market with -- for more advanced procedures so that we also expect -- to help grow. And we have the products in the pipeline in this Pulmonology segment that we will communicate on a later stage. So we remain committed to this segment. It's a market with 5 million procedures. The single-use penetration is growing. So I mean, we do see growth looking ahead.
[Operator Instructions] We'll take our next question from the line of Yiwei Zhou with SEB.
It's Yiwei from SEB. I have a couple of questions. I'll do 1 at a time. Firstly, on the product pipeline, could you please give us an update on the aScope launch -- gastroscope launch? You just mentioned a little bit. Could you elaborate a bit more? And also on the duodenoscope version 2, any change in the time line for the product? And also, maybe -- could you also comment on the colonoscope?
Yes. Thank you for those questions. So I mean, as you are mentioning, we have a strong pipeline of product in the GI segment. As for the gastro launch, I mean, we are -- I mean, we have launched that in -- both in Europe a couple of months ago, and more recently in the U.S. And we are seeing very strong feedback in -- sorry, it's the other way around. I mentioned wrong. We started first in the U.S. in controlled release in April and then full commercial in May. And then it's -- more recent, we have launched in the EU, where we are now in the middle of the commercial loans. So I mean, what -- we are seeing encouraging feedback on that product. We're in the process in -- of going through the value committees to also make sure that we get full commercial customers. And the early feedback is -- I mean, is very positive. And we do expect the uptake to be gradual, but still very encouraging.
On the Duo 2.0, I mean, this is a product that we have in -- where we have made significant progress relative to the version Duo 1.5, based on the customer feedback and the learnings we have had being in that market. We have not communicated specific time lines on the launch of this product. It's, of course, very important for me as new and for the management that we -- I mean, that we deliver on the demands of our customers when we bring that product out. So I cannot communicate on the time lines, but I think what I'm seeing is very promising.
And on the colonoscope, that's also a product that has strong progress in our development, and we will not communicate on the time lines at this stage for the launch. But these are all products that are continuing to progress well and are still, I mean, even with the cost reductions, kept as focused products going forward.
Okay. Great. My next question is regarding the aScope 5 launch. Maybe -- could you comment on -- do you see the need for a clinical trial ahead of a full market launch?
No. I mean, this is not what we have seen. I mean, it's a product we have developed in close collaboration with our customers. We both have the CE mark in Europe, and we have the FDA clearance, and we are in the early phases of commercialization. So we -- I mean we expect for this one, a gradual uptake of the product going into the next financial year. And in terms of pricing, I mean, you can expect the product to be at a premium to aScope 4. And that's mainly driven by the added benefits it has. And also, I mean, the -- potential it has to address more advanced procedures, as I mentioned before.
Okay. And will you replace aScope 4 in the ICU and operating rooms with aScope 5?
No, we actually expect both of the products to be on the market. Again -- I mean, aScope 4 is a very successful product. I mean, as -- I mean, it will have a slightly different price point due to the difference in the product from aScope 5. So we see a need for both products in the near term going forward.
Okay. And my last question regarding ENT and cystoscope. You mentioned the uptake is still very strong, but what are the reasons for you to change the sales expectation back to 700,000? I remember last quarter and the previous management actually increased from 700,000 to 800,000 units. And now it's just back.
Yes. So I think, I mean, previous management saw an opportunity, as was communicated in relation to Q2 that was related to the stores' product. And that was -- I mean, that led the management to -- I mean, to increase the forecast. We still see a very strong growth engine in this product. It's still going. But we -- I mean, we do not see the same growth coming from that, I mean, competitive challenge that as previous management. I think 700,000 is still a high number after 3 years in the market for ENT and 2 years with cysto. So -- and when I -- I've also been out seeing customers, I mean, they really love the product. So we are very -- continue to be very confident in the high growth in this segment looking ahead.
We'll take our next question from Vikram Kumar with Kuvari Partners.
Yes, I'm surprised I got a chance to come back again. I guess listening to your answer to my questions and those questions from SEB, I guess I'm kind of surprised, to be honest. Because I was expecting post such a statement for the message today to be that you reviewed the products, some products you'll not be able to commercialize, others you'll focus on. Whereas what it sounds like you're saying is, yes, we want to take some costs out, but pretty much all the programs we planned to do and the previous management planned to do, we will be doing despite some of the pressures we're under in e.g. broncho market share, e.g. the duo commercial take-up.
And despite the fact we're starting with an even lower margin starting point, slower organic growth momentum and a balance sheet that perhaps cannot cope with this kind of level of very low cash burning margin. So I'm just kind of confused as to what is actually changing here versus messaging we've heard from your predecessors other than the numbers that have changed with a little bit of cost in CapEx have come out. There's something I kind of feel like I'm missing here that's different to what we've all experienced the previous 2 to 3 years from this company. Maybe you could explain what I'm perhaps missing in your messaging here.
No, thanks for that. And I mean there's no doubt. I mean, we have been focusing on a lot of projects simultaneously. So I think what I commented on was on the GI segment there and the other key visualization segments, where we, I mean, have products. I mean, with the investments we have made, we have products that are very close to being brought on the market and products on the market that are well received by the customer.
So we do not see, I mean, any changes there based on, I think, what we have seen now 2 months with the company. Where we are -- what we have also been doing is we have had a lot of investments across the other segments in particular in our anesthesia and PMD segments. And that is where we are from an innovation point scaling down and not working on our new products to the same extent that we were already doing.
But we will -- we do see a good business case in commercializing and continuing the visualization pipeline in line with the ambition we have of being the world leader in single-use endoscopy. And then there is also areas in with new technologies where we are scaling back and considering where is it we need to, I mean, build all the capabilities internally.
I should maybe also add that, I mean, what we are doing here also -- I mean, 2 months into our new roles is that, I mean, we have seen an urgent need to focus on the -- cutting the cost level down. But we will, over the coming months, continue to assess how we best deliver on this strategic ambition. So it's not a -- I mean, this should not be seen as a full update on how we see that we best deliver on the strategy going forward, but more a need to immediately take action and secure and improve the cost base.
Okay. Let me ask you 2 specific follow-ups to that, 2 examples, what I mean by it. Even if you believe that commercially [ is ] possible, 1 thing we've learned is that it requires a dedicated sales resource. That may or may not have been overstretched under previous management, but it needs dedicated sales resource to go into areas like gastro, like duo. So that kind of limits you to take significant cost out, if you're keeping the idea to commercialize pretty much all those key products, particularly duo and gastro from here. And that limits, therefore, potentially margin expansion from this very, very low level without, obviously, significant sales pickup, which isn't currently in the forecast. So I guess that's 1 thing I wonder is, does that not just limit your ability to really revamp the margin if you committed to all these programs from a margin point of view and ability to rebuild the profitability of the group?
And second question I'd ask you is the balance sheet. Because the balance sheet, with this low level of margin and therefore, cash generation, is your starting kind of balance sheet really in a position to be able to cope with such a broad range of programs where commercialization, as we've seen with duo, is uncertain and unproven?
I think I'll let Thomas comment also on the balance sheet, but I understand your point around the dedicated sales force and -- I mean, and sales force effectiveness. And this is where we are with this looking into our sales force and how it is we best structure our sales force across the segment to make sure that we will be in a position to also get a return on our investment and efforts in sales and be able to, I mean, generate a higher profitability.
So that is definitely something that we have not addressed to the full extent now, but that we are looking into now and will do, over the coming months, how we best commercialize our products. But we have, in the past, had big successes with -- in some markets with a combined sales force with bronch, cysto and ENT. And we are, of course, looking in the big markets, market by market, how do we best set us up to rightsize as we continue to have the right growth ambitions. Do you have a comment, Thomas, in the...
Yes, maybe just to reiterate, the cost reduction program does indeed also help us from a balance sheet item. As it also says in the release, we will be reducing CapEx costs as part of the cost reduction program. And I think an important point -- so that in itself will help us. And it certainly also will help us on our cash flow position for the coming years.
And as Britt says, I think it's also important to keep in mind that we have, in the past, have had successes in combining some of these teams. So I think the key around our pipeline is also to have new products that we can add to some of the existing lines out there. So that shouldn't drive too much constraint on our balance sheet. But most importantly, the cost containment program zooms exactly in on that point.
And our next question comes from Carnegie.
This is Niels Leth from Carnegie Bank. A question on your cash flow assumptions. So would you expect to return to positive cash flow as you implement the announced cost reductions? And could you perhaps elaborate on your cash flow generation for the fiscal Q3, and what we expect to see in fiscal Q4 with your updated guidance?
Yes. Thank you, Niels. From a -- so just, again, the cost reduction program, indeed, is very much focused in on improving our cash flow. As this obviously will strengthen our financial performance and also the financial flexibility that we then will have with that. The ambition we have set ourselves is to become a cash flow-positive company. So this cost reduction program is the first step in that direction.
But the ambition is very clear. We should and we will become cash flow-positive. And with that, of course, also, that will avoid -- help and avoid us to need to raise capital. So that's also the clear ambition behind that. From a cash flow, Q3 and Q4, it hasn't changed on a very short notice. So we have the same forecast for the full year as we've had prior to this, but it will kick into effect as of the new financial year with this plan.
Okay. So you say that you want to avoid raising new capital. So I guess it also means that you would, basically, not consider even to do a directed issue to say just one investor providing new and fresh money into your business?
So no, we do not have any plans for that. So the goal is certainly that we, with this improved cash flow position, will be able to finance our business and development needs.
Right. And then a question on your strategy, which as far as I understand, is undergoing assessment here over the coming months. So combining the -- potentially combining the sales forces between the different endoscopy categories, so would that also mean that you would essentially consider to redirect the sales force of your important gastro product to the OR and ICU? And by that, you would, of course, limit the addressable market for your gastro products, but towards, I would say, perhaps a more -- towards an end-user segment that would be more ready to adopt the gastroscope over the next 1 to 2 years.
Yes. I think very good questions, Niels. And I would say that, I mean, combining our sales forces is not a specific part of the strategy as such. But as I mentioned, we will, of course, look at how -- and we will do that market by market, how are we best set up to serve the market and to commercialize our products. So that's very much how we see it.
In terms of the gastroscope and where we are focusing, we -- I mean, we see a strong pull and strong interest in the surgery segment. But we also see beyond that. And we -- I think we have a lot of good experience and learned a lot from the duo launch in -- I mean, in where the demand is and how to address that market. So we do see opportunities to go, I mean, a little outside that segment to -- where we see the demand.
And there are no further questions at this time. I'll turn the floor back over to our speakers.
Okay. So if there are no further questions, then I would like to thank all of you for joining the call this morning with short notice and for the good questions, and we will come back with the full Q3 report later in August as planned, where we will elaborate more on some of the dynamics from the quarter on 25th of August. So thanks a lot, everyone, and have a good day.
Thank you.