Ambu A/S

CSE:AMBU B

Earnings Call Analysis

Ambu Reports Strong Growth and Positive Future Outlook

Ambu showcased impressive fourth-quarter results with 10.6% revenue growth, driving a full-year organic growth of 13.8%, primarily from Endoscopy, which grew 19.7%. The EBIT margin stood at 10.6%, reflecting a solid performance despite increased operational expenses. For FY '24/'25, the company anticipates organic revenue growth of 10-13%, with Endoscopy projected at over 15%. Free cash flow is expected to exceed DKK 500 million. Ambu's strategic focus on new product launches, including a ureteroscope and videolaryngoscope, is expected to positively influence growth. The long-term EBIT margin target remains at 20%【4:3†source】【4:4†source】【4:2†source】.

Strong Fiscal Year 2023/2024 Performance

Ambu delivered a robust financial performance for the fiscal year 2023/2024, achieving a remarkable 13.8% organic growth driven primarily by their Endoscopy Solutions, which surged 19.7%. Their fourth quarter saw a solid 10.6% revenue increase, indicating strong business momentum even as the growth slightly declined due to tough year-over-year comparisons. Overall, the company feels confident moving forward, backed by a solid performance despite facing challenges from currency fluctuations, primarily the U.S. dollar.

Profitability Metrics and Cash Flow Insights

The company's EBIT margin stood at 10.6% in Q4, reflecting a stable trajectory even though it was slightly below the second and third quarters. The gross margin improved to 58.9% in Q4, falling just short of 60% for the full year, a notable advancement attributed to their increased sales efficiency and a larger portion of higher-margin Endoscopy products in their revenue mix. Cash flow remained solid at DKK 98 million for the quarter and totaled DKK 524 million for the year, affirming a strong financial foundation for future growth.

Strategic Focus: Product Launches and Market Position

Ambu is actively enhancing its product portfolio through significant launches, including the FDA-approved aScope 5 Uretero and the aScope 5 Cysto HD. The management expects these new products to contribute to growth, although they will have a more pronounced impact in the following financial year rather than the current one. Ambu remains optimistic about their competitive edge in the growing single-use endoscopy market, particularly in Urology and ENT segments, which should support future revenue trajectories.

Guidance for FY 2024/2025: Organic Growth Expectations

For the upcoming fiscal year 2024/2025, Ambu provided guidance of organic revenue growth between 10% and 13%. Specifically, they project Endoscopy Solutions to exceed 15% growth, driven by established products and new launches. Anaesthesia & Patient Monitoring is expected to see mid-single-digit growth, bolstered by prior price increases. This establishes a cautious yet optimistic outlook as they navigate the market landscape.

Margin Expectations and Financial Strategy

The company’s EBIT margin guidance for 2024/2025 is set between 12% and 14%, indicating a measured improvement as they optimize operational efficiencies and respond dynamically to their market conditions. Ambu also reaffirms a long-term target EBIT margin of around 20%, projecting that increased investment in sales and operational resources will foster this growth. Additionally, to create value for shareholders, they proposed a dividend of DKK 102 million, which indicates confidence in their cash position while maintaining flexibility for growth initiatives.

Earnings Call Transcript 2024-Q4

[Britt Jensen, executive]

Hello, everyone, and welcome to this call where we from Ambu will present our Q4 and full year results from our fiscal year '23/'24.

The agenda for today is that we will first present our results on the business and the financials, and then we will hand over to the operator to moderate the Q&A session.

I'm Britt Meelby Jensen. I'm the CEO of Ambu. And with me today, I have Henrik Skak Bender, our CFO. So let's dive into the results from our Q4 and the full year.

In Q4, we delivered 10.6% revenue growth, split into 4.5% growth in organic revenue growth in Endoscopy and 4.3% in Anaesthesia & Patient Monitoring. In terms of profitability, we had an EBIT margin also amounting to 10.6%, and then we had a positive cash flow of DKK 98 million. For the full year, this means that in terms of revenue growth, we delivered 13.8%, and this was mainly driven by Endoscopy, where we grew 19.7%.

So this strong performance comes after a year where we have had a lot of momentum in the business at Ambu, and where I'm grateful for the strong commitment and dedication by all the around 5,000 colleagues we have in Ambu worldwide who has made this happen so we can present these results, 2 years, into our ZOOM IN strategy.

So talking about strategy, let's look at how we progressed on the strategic pillars in or ZOOM IN areas in the quarter. Starting by our Solutions, we continue to make progress on expanding our offering, in particular, in Urology, where we had two main milestones in the quarter that we just ended. One was that we got the FDA clearance of our aScope 5 Cysto HD, for our two technology platforms, aView 2 Advance and aBox 2. Also, we moved towards the end of the quarter into what we call a full commercial launch with our aScope 5 Uretero. I'll come back to some of this later.

Our focus on strengthening our execution also continued. We have a number of transformation initiatives ongoing and will continue to make progress in this. And this is what has also resulted in the strong results when it comes to both our revenue growth and when it comes to our improved EBIT margin.

On sustainability, this remains an area that we focus a lot on. And in the quarter, we received from the EcoVadis, which is a recognized measure for sustainability, we were happy to, for the first time, be on the radar and achieve the "Committed badge" from this organization. At the same time, a while ago, we introduced that we will convert all the handles for the full portfolio of endoscopes into bioplastic. And I'm actually happy to announce that this has now been completed. So now all our endoscopes across all segments are manufactured with bioplastic in the handle.

Then on the culture and on the people side, which is our strongest asset. We continue to also improve in how we work in terms of delivering value to our customers and also are very focused as we grow and expect to have strong growth in the years to come, that we managed to have complexity reduced to a minimum, so we can be flexible and act fast to the market conditions and customer demands.

Let's look into the results in more detail. As I mentioned on the first slide, we grew 10.6% in the quarter. And what you see on the right side of the curve here is the rolling 12 months revenue, where you can also see a steady growth quarter-over-quarter, resulting in the 13.8% growth for the year.

In the top corner, you can see that we now have Endoscopy in Q4, representing 59% of the total revenue and then the remaining around 40% on Anaesthesia & Patient Monitoring.

If we look overall the market, underlying market growth that we see, meaning both the number of procedures that are done, the dynamics around single-use endoscopy continues to be stable and strong. And we do see that we are getting recognized for the benefits that we have on our Endoscopes in that progression.

Let's look into Anaesthesia & Patient Monitoring. There, we grew 5.3% in the quarter. And if we look at the full year, we delivered 6.1% growth. Again, as you see with the rolling 12 months revenue, we see a solid quarter-over-quarter growth resulting in the 6.1%.

What drove the growth in Anaesthesia & Patient Monitoring is some underlying market growth that is also translated into volume growth for our business. But then a number of the -- or a couple of the percentage points growth that we see in this business has been driven by price increases that we have talked about in the previous quarters as well, where we had significant price increases on some selected product areas and contracts, which were successful, and we didn't lose the value that we saw a risk of going into the year, but where we had decided to move ahead anyway, because we do want to ensure a certain level of profitability in this business area.

Looking ahead, and I would like to flag that -- I mean, despite the fact that we haven't necessarily lost a lot in the -- with the contracts that we have now, we have, in some cases, lost exclusivity. So that means that, that can still, over the coming quarters, be some revenue lost as some customers may decide to try other products. But so far, this has not been seen to the extent that we saw a risk for 1 year ago when we talked about this.

Let's move to Endoscopy Solutions. Here, we saw a growth of 14.5% in the quarter. And if we look at the full year, again, showing the 12 months rolling revenue, we grew 19.7%. If we look at the overall growth, it was in Pulmonology driven by the aScope 5. I'll come back to Pulmonology in a second. ENT and Urology, we saw a solid continued double-digit growth, and we saw the same in Gastroenterology just coming from a lower base and driven by our aScope Gastro and aScope Gastro Large.

Let's dive into Pulmonology and look a bit at some of the dynamics that we see in this segment. So for the quarter in Pulmonology, we report 5.7% growth. What's important to note here is that we do in our business have some quarter-over-quarter variations when it comes to the actual percentage growth. And in this case, in particular, because we had in Q4 last year some large orders that grew a higher Pulmonology revenue 12 months ago.

When we look at the overall 12 months of the business and the full year, again, showing the rolling 12 months revenue here, you can see that we delivered overall 11.7%, but also a continuous upward trend.

We have to remember for this segment that where we typically see the highest revenue is in the first half of a fiscal year. So our reported Q1 and in particular, our reported Q2, because it's normally associated with flu levels where that has a positive effect, which is, of course, something that we cannot predict. But if we look at our overall business, you can say that aScope 5, as I alluded to before, was a key growth driver in the quarter and in the full fiscal year. We got as the only bronchoscope, this transition has passed through code with Medicare in the U.S. And we are happy to see that this continues to get interest and traction. However, it's difficult to exactly monitor the net effect from this. This is something that we have in total for 24, potential 36 months. So this is something that continues. And we also see and a continuous increase in the awareness level among our customers.

If we look at the overall Pulmonology segment, we continue to be very positive around the trends and also how we see both the underlying growth in terms of procedures, but also the conversion to single-use, where we do also see in some markets, competition and expect that to continue, which does have a positive effect on the total size of the single-use market as the -- as that accelerates also the conversion to single use.

We also have, in this fiscal year, a new product that we will add to our pipeline, a videolaryngoscope, named SureSight that should also help strengthen our position in Pulmonology and thereby accelerate growth as we look ahead.

If we look a little into the portfolio, just for -- to put some comments on the full Pulmonology portfolio. We now have and in particular with the upcoming launch, a comprehensive portfolio that should drive future growth. So what you see on the slide here on the right side is the different segments that we serve. The intensive care units was where we started with our bronchoscope many years ago and where we started with a strong penetration.

We then, a number of years ago, expanded into the OR and the surgery that is under general anesthesia, where we also have seen a strong uptake and today has a solid penetration of single-use endoscopes.

And then when we launched aScope 5 Broncho, which has a superior functionality and the superior image quality, we were able to also serve the needs of the more complex procedures that are done mainly in the suites.

The way procedures are done varies a little bit from country to country. But in general, we do see we have a portfolio that can meet the needs across all these segments where the suite is where we, by far, are lowest penetrated today and where we also see that we make progress, but still with a lot of potential to capture.

On the right side of this picture, you see our portfolio. On the two sides, you see our aScope 4 and aScope 5, which comes in different sizes with a broncho sampler which is the majority of our portfolio and revenue driver. We then, at the lower end or below the system here, you see the product, the VivaSight, which is a product that is used for procedures requiring one-lung ventilation primarily, which is also fits into the portfolio being integrated with our system.

And then, we have on the top here, our videolaryngoscope, which will come in two versions, both in a mobile connect version that will be used in intensive care and in ambulances when you need a fast view of for intubation or other procedures requiring that you need to view the upper airways. And then, we have also a solution that can -- that is fully integrated to our system, and that will also be used in many cases, together with the bronchoscope in the same procedure.

So what we do have here is a full system that is built on the same technology platform, be it the aView 2 Advance and also some of the products working on our aBox 2. And this is where we are continuing also to advance the functionality of these platforms, including adding new software that also serves the needs of our customers.

So this platform and this portfolio actually makes us very confident when we look ahead that we have a solid position. We are leaders in pulmonology, and as we continuously expand our portfolio with products that also helps address a more comprehensive part of the needs of our customers, we are actually fully committed and also very optimistic around the future growth in Pulmonology.

Now let's turn to the other part of our Endoscopy business. What we before referred to as Endoscopy, excluding Pulmonology, now we can call it Urology, ENT and GI. These three areas combined grew in the quarter with 24.8%. If we look at the last 12 months, we saw a growth of 29.6%. And this means that we -- I mean, that this segment, as we report on is close to being the same size as the Pulmonology business. What we see in this segment is solid double-digit growth across both ENT, Urology and GI.

Let me double-click a bit on the two last segments, starting with Urology. As I mentioned, we now have FDA approval of aScope 5 Cysto, which is a scope that has a better image quality than aScope 4 Cysto, which also -- which is what some doctors need in particular, when they have to look for cancer screenings and so on, where still aScope 4 Cysto is used, but there are some specific cases where aScope 5 is preferred by healthcare professionals.

With this launch, it actually means that we have a full portfolio of two cystoscopes and also our ureteroscope, which we recently went from what we call our CMR process where we do extensive clinical market release or testing the product before we go into full commercial launch, which we did recently. So now we have that full portfolio.

And what we are excited about when it comes to the ureteroscope is that, it's a significantly higher value scope compared to the cystoscopes. It's used for kidney stone removal and a number of other procedures. And the market has already partly converted to single-use. So it's actually the first time that we are launching an endoscope into a market that is already partly converted to single-use and where we are not the first. That gives us some opportunities for faster uptake in the beginning. And combined with the fact that we are well known in Urology among our customers and well recognized for our cystoscope, it's perceived as attractive from a customer's perspective to have the full portfolio as many of our customers will use the different products at different times.

So let me, before I hand over to Henrik, finish putting a few words around our GI portfolio. I'll let Henrik comment on the details on the impairment, but I want to leave you with one important message, which is that, we, from a management perspective, are still very confident in the long -- mid- and long-term potential when it comes to gastroenterology.

As many of you know, some years back, we invested heavily into R&D within GI and bought in 2017 a company in Germany called Invendo. After that, we have had some great learnings and also some painful learnings in that it takes longer to penetrate this market than we anticipated. But today, we have a strong portfolio that we focus on with the gastroscopes being aScope Gastro and aScope Gastro Large, the latter being approved in the U.S. in the fiscal year that we just exited.

These two products are marketed still with relatively limited commercial resources, but these are marketed and where we have taken a slightly different approach being more niche-based in the market.

Then we have two other products. We have the aScope Duodeno 2, which was approved in the '23/'24 fiscal year, both in U.S. and Europe. Given our learnings from the first generation of our aScope Duodeno, we have been able to make a significant upgrade to the product also based on the aBox 2 technology platform, which is much better suited for our Endoscopes. And we are right now in clinical evaluation and have some strong feedback and momentum among our customers. But we are also taking time to make sure that we have that properly tested before we go in a broader commercial launch.

Then we have just over a year ago, we had our aScope Colon approved by the FDA. This was a product that we knew a couple of years back that was maybe not delivering fully on the needs of our customers when it came to the broader mass market of cancer screening. However, it has been very useful to have this approved, and we have done selected testing with this product, deciding that because we have such a broad portfolio with the current version, we are not planning to do any broad commercial launch but we are planning instead to leverage some of the innovation we do in new technologies across the portfolio to make some improvements on the features of this product before we go commercial.

So this is well in line with the message that we had 1 year ago, but I just want to reiterate this as we have made progress on the GI portfolio in the year that we just exited and that we remain very positive around the mid- to long-term outlook for growth, because we see that some of the needs that we are fulfilling for our customers in the other segments are the exact same needs that we see among many customers in Gastroenterology.

With that, I'll hand over to you, Henrik, to go through the financials.

[Henrik Bender, executive]

Thank you, Britt. Thank you all for listening in. And I want to start where Britt also ended saying that we are very happy with the financial year that just landed. We feel a very good result and a strong momentum also into next year. So let's focus first on where we landed '23/'24, and then I will end my presentation talking a bit more on guidance and the further outlook.

Starting with revenue. We landed on revenue of 10.6% in organic growth for quarter 4, 10.2% in reported currency, slightly negatively affected by currency, particularly the U.S. dollar, DKK development. And on the full year, we landed on 13.8% organic growth, as Britt mentioned, mainly driven by ES at 19.7% and secondary by A&PM, also with a solid growth of 6.1%. Overall, we feel a very strong result for the year, a strong momentum in many ways and also a strong momentum going into next year, even though quarter 4 was slightly lower, as Britt said, mainly because comparisons in Q4 last year had a few high single orders at year-end, last financial year, which we didn't have this year.

In terms of earnings, we also feel we landed in a strong way in Q4 at 10.6% EBIT margin, slightly below Q2 and Q3. As also indicated in our last two quarterly updates, mainly driven by further investments in OpEx, which I will also come back to.

Double-clicking then a bit further on gross margin. We landed at a gross margin of 58.9% in quarter 4, bringing the full year gross margin just below 60% overall. Again, we feel a very strong improvement. Quarter 4 alone was slightly negatively impacted by currency, but in many ways, otherwise impacted positively versus last year by price increases in A&PM, the price increases we implemented in February and March, in particular, and the price increases, which will continue to also have a positive impact, particularly in first half of '24/'25, which I'll come back to.

Secondary, the fact that our Endoscopy business is now a bigger share of the total business and Endoscopy business has a higher gross margin. And lastly, that with higher sales, we've also been able to utilize our production footprint in a more efficient way. So overall, we feel a good step towards increasing and strengthening our gross margin.

Looking at the OpEx ratio to total OpEx cost to revenue, we ended at a slightly higher OpEx ratio in Q4 versus the two previous quarters at 48.3%. Again, we feel a satisfactory result. We are seeing continued scale effects on OpEx in terms of administration costs, but we have continuously decided to invest in commercial resources, and therefore, you're also seeing a step-up in our selling and distribution costs, which is basically us laying the foundation both for existing growth now, but particularly going forward with the upcoming product launches and with continuing momentum in the market, ensuring that we continue the push to sell more particular Endoscopy Solutions.

Turning to cash flow. We also landed at a solid cash flow for Q4 at DKK 98 million, very similar to previous quarters, strong EBITDA, a satisfactory development in net working capital. We did increase our inventories a bit, mainly related to supporting organic growth and also related to supporting our upcoming product launches. We had a slightly higher CapEx for the quarter, as also indicated in the last quarter. And therefore, we feel overall DKK 98 million is a strong result, bringing the full year free cash flow to DKK 524 million.

Highlighting a bit more on the details of cash flow. Our net working capital ratio is now just around 19% of rolling 12 months revenue. We feel a solid level which ensures that we have the necessary inventory to support continued organic growth and also that we still balance the management of accounts receivables and payables in a reasonable way.

As I mentioned before, also CapEx was slightly higher, again, as expected, particularly, this is related to some of our R&D investments and was also planned for. And we expect this CapEx level will also be indicatively the CapEx level for next year.

Then I want to turn to two key items from my annual accounts before I look at guidance. The first one being the impairment. Britt mentioned our overall strategic view on the GI segment. And before going into all of the details, I just want to reconfirm the message from the annual report and that we provided now, which is our mid- to long-term view on the potential in GI remains very solid. We see it as a significant potential for the future. At the same time, it's also our responsibility to continue to view what is the overall balance of the potential, and what is both the mid- and long-term view, but also what is the short-term view.

As Britt described, we have two products in the market right now commercially available, the Gastro and Gastro Large. We are clinically testing the Duodeno, and we are doing selected testing on Colon. With this in mind and reflecting what we've learned so far in terms of how we launch products into this segment. We've clearly experienced a longer time to penetration than what was originally foreseen, particularly dating back to the original acquisition in Invendo.

And with Colon and Duodeno still being tested, we've decided to make a strategic evaluation of our short-term potential, particularly related to the Colon and Duodeno products. That means that we booked a total impairment for quarter 4 of DKK 327 million, next to a smaller adjustment also to our production line relating to these products, meaning that we are booking a total special item of DKK 334 million.

That, of course, a significant impact on our Q4 numbers alone. But still, if we turn to the balance sheet and look at our total intangible assets, excluding goodwill, GI overall across Colon, Duodeno and Gastro still represents about 1/3 of our total intangible assets, reemphasizing the fact that we fundamentally believe there is significant potential still within the segment on the mid- to long term.

The second key item I want to point to is our dividend and financial policy. We had a very strong year in terms of growth, in terms of margin, and as I said, in particular, in terms of cash flow. And with that in mind, we are happy to say that we, in alignment with the Board are proposing a dividend distribution at a total of DKK 102 million, corresponding to DKK 0.38 per share. This reflects, we feel a strong cash position and still leaves us with a very strong balance sheet even after this dividend distribution.

In this connection, we've also with the Board discussed what should be our financial policy going forward and are proposing two adjustments. One that previously, we had a financial policy that on dividend suggested we would pay out 30% of our net profit after tax. We're now suggesting to update that to payout of up to 30% of net profit after tax. Secondary, we are also clarifying that this can be both in dividends but also in share buyback. So a combination of these two really being the way we would distribute cash back to investors.

I still want to reemphasize that for us, it's important to maintain a strong balance sheet, and to also make sure that we keep a strong balance sheet that allows us to look for inorganic opportunities as they come along. Our overall growth strategy is organic and will remain organic, but with a strong balance sheet, we also have the opportunity to look for inorganic opportunities. And that we will do under the guidance of an objective, 2.4x or -- 2.5x, sorry, net interest-bearing debt divided by EBITDA. Gearing ratio that can -- we can allow to deviate on shorter-term potentials if we see opportunities, but still within the overall frame of a max gearing of 2.5x, net interest-bearing debt divided by EBITDA.

Again, we feel this reflects on Ambu on the other side of a strong transformation with a strong cash flow and a strong balance sheet, and therefore, again, now with the ability to pay out dividend to investors.

Lastly, I want to turn to our guidance for '24/'25 and also reflect on what that means in a slightly longer-term perspective. For '24/'25, we are now guiding a total organic revenue growth of 10% to 13%. More specifically, within Endoscopy Solutions, we are guiding a plus 15% growth driven both by in-market products by continued solid momentum in Pulmonology, by continued high momentum in Urology and ENT and also by our new product launches, as Britt referred to, particularly our Ureteroscope, which we are already in the market with our and our VL solution within the Pulmonology segment which we will launch during the financial year.

Secondary, we are also expecting solid mid-single-digit growth in A&PM. This is going to be slightly different in first half versus second half where the first half will still be positively impacted by the price increases, that we implemented in February and March in the past financial year. And this will still help us drive over and above normal market growth in this segment for the first 6 months, whereas the last 6 months are expected to be slightly lower.

We maintain a cautious view on the segment, as Britt also said, balancing on one hand, that we see positive reception still on the price increases, but are also cautiously observing if any customers are moving away from our products and changing to alternative solutions and thereby, that we might still see some risk, though still smaller and smaller for potential smaller volume losses within the segment.

Overall, we feel this represents a strong momentum into next year. And as I'll get back to in a second, and also on the next page, we feel also a very solid momentum considering our long-term financial guidance.

Looking at the EBIT margin, we communicated in Q3 that we have an ambition to step wise towards our long-term ambition of reaching around 20% EBIT margin, improve year-by-year. And therefore, we are now guiding an EBIT margin for the year of 12% to 14%, driven by both gross margin and operating leverage.

As you noticed in our Q4, we had a slightly higher OpEx, particular investments in selling and distribution, preparing for our product launches and supporting our continued growth momentum and the organic growth momentum remain our core focus. That said, we feel this represents a good step towards delivering on our long-term ambitions. And we also feel this continues to solidify the fact that we're running a solid, strong company performance also when it comes to EBIT margin.

Last but not least, on free cash flow, we are guiding plus DKK 500 million in free cash flow compared to this year's DKK 524 million. This reflects a continued ambition of solid margins, but also an expectation that our CapEx investment will go slightly up in the year to come to support our investments both in R&D, but across our production footprint.

Overall, we are very happy to provide this guidance and feel this really represents a strong guidance overall and a continued strong momentum. And on that note, I also want to end at reflecting on where are we therefore versus the financial ambitions that we presented and long-term targets that we presented at our last Capital Markets Day of a plus 10% overall growth, a 20% EBIT margin. And overall, we feel reflecting back on '22/'23 now in the past '23/'24 and on the guidance for '24/'25 that we are on a very solid momentum when it comes to total growth.

We're in a solid momentum when it comes to our Endoscopy Solutions growth. We're pushing hard to also continuously drive that up. We're in a good place on A&PM with much fewer losses on volumes with solid price increases that will still help us in '24/'25. And lastly, we're also making good step-wise improvements on our EBIT margins next to ensuring that, that solidifies a very strong cash flow and therefore, a very strong balance sheet.

Thank you very much. This represents our presentation for now. And with that, I'll hand it over to the operator, and we will take questions.

[Operator]

[Operator Instructions] The first question comes from the line of Anchal Verma, JPMorgan.

[Anchal Verma, analyst]

I have two questions on your guidance, please. I'll ask them one at a time. The first one is on your top line. Your Endoscopy guidance is for 15% plus. I'm guessing this implies, this is perhaps the floor for your guide. Could you elaborate on your assumptions here as on how much have you baked in from contributions from your new product launches, including the ureteroscope? And how are you thinking of the durability of Cysto and ENT growth and the competition in that category? Can you also be a bit more specific around the timelines with videolaryngoscope launch?

[Henrik Bender, executive]

Yes. I'm happy to start. So on overall top line guidance and on the segment guidance of plus 15%. We're not commenting on our subsegment guidance, or what exactly that means for Pulmonology on one hand and the Urology, ENT, GI segment separately. But overall, I think it's important to reiterate the new product launches will help momentum, but still only be smaller impacts for the year. The main impacts of these product launches will only be in the subsequent financial year, both for the Uretero, but in particular, of course, for our VL solution, which will only be launched during the financial year.

In terms of the timeline, specifically for the Uretero launch, as Britt mentioned, and I reiterated, we are commercially in the market with that product. It's fully approved. It's still in the early phases. The way that converts is that it's still in evaluation procedures with our customers at the hospitals before we see significant commercial upticks. So right now, we are in a number of evaluations. We're still seeing positive feedback for customers, which we're very happy with. And back to Britt's point, we feel we have a very strong Uretero product, but in particular, a Urology platform to offer to our customers.

In terms of the other segments, we are seeing -- I think, if I heard your question right, competition, yes, but we overall feel both within Pulmonology, but also with Urology and ENT that we have a good competitive position. And therefore, this supports our plus 15% guidance for our overall Endoscopy Solutions segment for '24/'25.

[Anchal Verma, analyst]

Perfect. And then, just my second question was on margins. Your guidance remains wide with the lower end of the guide implying flat margins and the upper end showing significant improvement. What are the key moving parts to the bottom end, top end of the guidance? Essentially, what is -- where is the biggest uncertainty? Is it at the top line or around the magnitude of OpEx step-up required for next year? And also if you could -- I'm not sure if you'll be able to give us any guidance, but also, if you could comment on the gross margin trajectory into next year?

[Henrik Bender, executive]

So we only comment on margins that are actually into the next financial year. But I will say what we also said in the last quarterly update in Q3 that we are still believing in our long-term financial target of 20%, subject to investment opportunities. But overall, 20% for our business. We feel that's the right level. And we see a step-wise approach from where we are today towards that where 2/3 of that will be driven by OpEx leverage and 1/3 of that being gross margin improvement.

For the next year, more specifically, the range is driven by mainly two things. One, obviously, our organic growth. The organic growth level is very much still a driver of our margin expansion. And secondly, the speed by which we continuously invest in further organic growth. Therefore, the way you should also see it is that if we continue a very strong organic growth momentum, which is what we are seeing right now, we will also allow ourselves with this guidance to continuously invest in further organic growth initiatives, in particular, in commercial resources to support the growth into '25/'26, and ultimately, even further also into '26/'27. In many ways, we're still on the early part of the curve or converting many of our segments. And we fundamentally believe, therefore, continuous investments in organic growth, particularly in our sales organization, in our commercial organization are crucial to deliver on this organic growth potential.

[Operator]

The next question comes from the line of Rickard Anderkrans, Handelsbanken.

[Rickard Anderkrans, analyst]

Two for me, please. Given the exit rate on growth and margins in Q4 and then more comparing -- sort of challenging set of comparables for next fiscal year. How conservative should we view the guidance here? I mean, last fiscal year, you clearly had quite nice headroom and to upgrade guidance partly helped by price increases in Anaesthesia & Patient Monitoring business. But I guess you're unlikely to have similar positive swing factor to the guidance this year or -- it would be interesting to hear a bit more on how we should view sort of the guidance dynamics here?

[Britt Jensen, executive]

I can maybe comment, and you can add there, Henrik. Thanks for that question, Rickard. So I mean, overall, I mean, the guidance we put out is what we believe is no surprise what is realistic for the year. You can say, if we look at the comparables, I mean, there's -- obviously, we had a strong year, and we also expect that trajectory to continue. That's also back to the 10% to 13%, and that we expect above 15% on the Endoscopy Solutions growth.

So coming out, I think, if we look at Q4, which some of you have commented on, was a little weaker compared to the previous quarters in terms of growth rate. I think it's important to note that while our key focus is to run a sustainable, predictable growth business in terms of having a solid upward trending revenue, we do see some swings quarter-over-quarter related to some big orders that comes in one quarter to the next.

So I think it is still important to look at the overall, which is also why we decided to include the rolling revenue curve. So you can see that trajectory that we are driving the business towards.

If we look at then the revenue that we expect and focused on Endoscopy, we do think that the revenue will come from good mix of solid continuous growth in terms of what we see of a continuous inflow of new customers and increasing revenue among its existing customers. So a good combination of that is what we saw last year continuing into this year. And then, we do have also some product launches where, as Henrik mentioned, the ureteroscope launch is one that I mean, we just went into what we call our full commercial launch. So that is where we are very focused now, and we will see that uptake.

Again, I mean, we are lot -- off to a very strong start, but a lot to learn as it is the first time we launch into a market that is already partly single-use. And then we will, later in the year, have the videolaryngoscope launched. And I think for that one, I mean one should expect not as big an impact as the Uretero, because it will only be a shorter amount of months. And as you also know from our product launches, typically, I mean, we don't see a hockey stick right after the product is launched. But typically, we have some softer months before we go into the full commercial stage where customers try it out.

So I hope that gives some color. But overall, I mean, we do see a strong momentum in the business, and we are very encouraged about the future outlook for the company.

[Rickard Anderkrans, analyst]

All right. And the final question, a little bit following on, I guess. So guiding for mid-single-digit growth in Anaesthesia & Patient Monitoring helped by price increases in first half. So what assumptions have you made in terms of potential loss of contract volumes for the year if you've made any assumptions around that?

[Britt Jensen, executive]

Well, I think, it's fair to say that we look at some different scenarios because, I mean, as I mentioned when we were here last year, we -- I mean, we had a lot of unknowns in terms of how would the customers react in particular to some of the -- I mean, strong price increases that we ask for in areas where we were not really or only limited profitable. So we have seen that come through. And we will, as Henrik mentioned, in the first half, see a continued momentum based on some of the price increases that some of the big ones came in February and March.

I think it's hard to say. I mean, we are trying to model like a bit of loss on some of the -- in some of the customers where they will partially switch to some other competing products. And then, we'll have to see how it plays out whether this is probably what we risk to see with some customers and then with others, I mean, it may be bigger and then we may see customers growing.

And I think, that's -- again, it's a market characterized by limited competition, limited innovation of new products and very strong loyalty among our customers. So it's not a very dynamic market compared also to the Endoscopy market. So that's why we feel quite comfortable saying mid-single digit also because we are not bringing significant new innovation to the market in these segments that should accelerate our growth further.

[Henrik Bender, executive]

Exactly. So to supplement, I think -- and going back to your first question, our guidance philosophy remains still to ensure that we are -- we build trust and we are trustworthy in terms of delivering on our guidance.

As Britt correctly said, that both for overall, but for A&PM includes that we believe this is the right guidance for how we look at '24/'25. And specifically for A&PM, as Britt also said, that means that Rickard on potential volume losses, the guidance also allows for us to have certain volume losses, some that we are relatively sure might happen and others where we are less sure. So yes, of course, if we have none of those, there might be a small upside. For us, it's also very important to communicate as we did on the price increases that what you'll see in the first half is still a continued effect from these price increases, which is not a recurring growth momentum. What you'll see in the second half is then, more of, what is the recurring A&PM growth momentum that we should also see going forward.

[Operator]

The next question comes from the line of Martin Brenoe from Nordea.

[Martin Brenoe, analyst]

Congrats with the solid progress that you are continuously showing here. I would just maybe take a little bit into the question that Rickard was also asking to maybe just with a different angle here. Just to understand the exit rate here. You had 6% Pulmonology organic growth. How should I see that in a broader context? Is this -- do I understand you correctly that this is mainly about some phasing and a little bit of tough comps and the run rate -- underlying run rate of Pulmonology is more like around the 9%, 10% with the Broncho 4 and Broncho 5 and also the VivaSight?

Or is there anything I misunderstood on that part, that would be the first question. And then, just to understand that the Endoscopy Solutions organic growth guidance that you provide, you have a plus 15% and you are currently trending around 14.5%. Is that a step-up that you expect? Is that mainly going to come from Pulmonology coming back to, let's say, the 9%, 10% organic growth? Or is that based on an acceleration of the ENT, Urology and GI, where you've got product launches coming in. That would be my questions.

[Britt Jensen, executive]

Yes, I can start, and then you can continue. So I think on the Pulmonology -- and that's also why we try to spend a bit of time to also give some perspectives on the portfolio. Because I think -- I mean, we at least do not put too much emphasis on the 5.7% in Q4, because that was somewhat expected in terms of the benchmark or the high comparable, sorry, from last year.

So I think what we do see is a continuous, I mean, positive upward-pointing trend. We do not guide on specific percentages, but that is driven by the portfolio with aScope 5, in particular, generating more and more traction and then the underlying aScope 4. And then, as we look ahead because we are continuing to also be very focused on this segment in terms of commercial resources, in terms of expanding the portfolio, we are quite encouraged about that potential. Of course, we have been faced with competition, which has both driven the market to the single-use market to accelerate in growth and also, of course, also, I mean, taken some of our aScope 4 business, which is a product that we have had in the market for years.

So as we have also communicated, we have the next generation in development, which is -- which has a little longer timelines than the videolaryngoscope. So in all, I think we are quite confident and we also believe that the videolaryngoscope is an attractive offering, that's the feedback we get from customers now that should help also, I mean, secure a solid growth rate in the Pulmonology segment going forward, whatever that exact number is. I'll not comment on that.

Then we do see, of course, also when we look at the ENT, Urology and GI, we also continue to expect a high growth rate in these segments. Of course, I mean, you can see as we penetrate the market and as the revenue base gets larger, that will percentage-wise, I mean, be needless to say, harder and harder to achieve that actual percentage, but that's also where the new product launches will come in and help.

And if we just take the Urology market, as an example, I mean, we are the only ones who have represented today in the Cystoscope market, which is a on a price point, a lower price point compared to the Uretero where we then have the Uretero, where there's a couple of players that actually has occupied in that market where, I mean, overall, the size of that market, single-use is probably slightly higher than the single-use cystoscope market right now.

So we do see strong potential also with the offering that we have and the feedback that we have on our ureteroscope. So I think that combined makes us very comfortable around the future growth, hence, the plus 15%. The uncertainty is a little bit around how fast can we accelerate that ureteroscope launch, because we do know -- I mean, partly, we should be helped by the fact that they are used to single-use and that it's partly converted, but we still sometimes see procedures in the buying process with the hospitals taking several months. So that's -- I mean, some of the dynamics that we are little unsure of. I don't know if you have anything to add?

[Henrik Bender, executive]

So I think, the only thing I want to add, probably to end that, I fully agree, I think is margin. I think, for us, fundamentally, we are, as Britt said, as a first comment, putting less emphasis on Q4, because I think, from our tiers, if you look at the underlying momentum, there are some effects that drove the Q4 numbers alone, Pulmonology, specifically, ES overall down. But if you look at the full year, the Pulmonology growth was 11.7%. If you look at ES growth, it was 19.7%. So I think in that sense, we feel we leave '23/'24 with a very solid momentum. That's also what we see in the market, and that's what we're seeing continuing into this year, '24/'25.

And just, again, reiterating the new product launches are very important for us. They drive long-term growth, but it is not a massive factor for growth in the '24/'25 guidance. So it is really underlying organic growth, continued momentum in the single-use conversion, particularly in Urology and ENT.

[Operator]

Your next question comes from the line of Yiwei Zhou from SEB.

[Yiwei Zhou, analyst]

I have three. I do one at a time. And firstly, I just want to follow-up on the Pulmonology growth here in the quarter. You mentioned that there were a few large orders in Q4 last year. But was it a one-off order you received? And should we expect similar large orders facing into the coming quarters?

[Britt Jensen, executive]

Yes. I think, maybe I can say that -- I mean that was -- there were some one-off orders that I think you should not think about that these are not coming, but that these are more coming through a different order pattern that is more spread out quarter-over-quarter. And I think that's also back to our 11.7% full year Pulmonology growth. I think that's the number that I think more illustrates the underlying trend and how we see the Pulmonology market has developed in the previous year.

[Yiwei Zhou, analyst]

I just want to also better understand here. So what has triggered or driven the change in the order pattern here? Is it upon the customer request or you have changed your own commercial structure?

[Britt Jensen, executive]

Yes. So I think, -- I mean, it's a little bit of a combination, I would say, but a lot -- I mean, we have, in a number of cases, a customer buying pattern where they bought more in large -- some of the big customers bought more large orders and then they would place them and then it would take some quarters before the next one.

This is where we have had a focus, of course, in close collaboration with the customers to see how can we have an order pattern that more resembles the actual usage. Because it -- I mean, it brings a lot of benefits for the customers in that, they don't have large inventories. For us, in that we are better able to plan our manufacturing capacity and deliver.

So that's really what is driving this and what is also driving -- I mean, back to the whole fundamental logic around driving sustainable, predictable growth where we don't have these big spikes that if you go some years back, we have had some of this as well. So it's that more predictable growth that we are targeting, which is in our interest and in the customers' interest as well.

[Henrik Bender, executive]

And we've not made changes in our commercial model, you were just to be clear. I think, some would had misunderstood that. We've not made change in our internal commercial model. The only commercial impact of this, of course, is when you have big single orders like we had in the past, you often have to get bigger rebates, which obviously you don't when it's more continuous flow. So I think for us, the commercial upside is it's more predictable and the margin on the individual order is more attractive.

[Yiwei Zhou, analyst]

Okay. So this has nothing to do with any change in your bonus -- sales bonus structure or anything?

[Britt Jensen, executive]

No. We have not changed anything on the sales bonus. And I think, that's also something that is very important for us that we -- I mean, we set bonus targets and then the -- I mean, the sales reps continue to run, I mean, based on these full speed and fully dedicated. So we have not changed any of that.

[Yiwei Zhou, analyst]

Okay. Great, clear. And next question is on the GI products. I can say you provided some revenue growth assumption for each product. And quite interesting that you also gave the revenue CAGR. I was wondering if those numbers are too representative of the current gross run rate, for each product? Or is it just your own assumption forecast?

[Henrik Bender, executive]

Great question, and you're referring to for everybody else listening into -- in our annual accounts, in our footnote to the -- or in our note to the annual accounts on Note 3.2. There are certain specifications that illustrates the assumptions that have been put into this impairment tests that we've done. And I think two key points on your question.

One, these percentages do not represent exactly where we are on the individual products. On Gastro, the current growth rates are much higher than what you see in the footnote because obviously, the starting point is much lower today and therefore, any marginal absolute growth will also be a higher percentage growth. They represent an average CAGR across the period of the -- across the relevant period for the product in question.

And it is more to illustrate our view on the long term on the potential of these products where you do see very high growth on both Colon and Duodeno. What you cannot see here is what we're assuming exactly in terms of launch year and impact, et cetera. Because that's not a detail we provide here, but it does signify over the full period of the product technology what our average growth rate should be to say -- to satisfy or to basically quantify the assumption we have behind what is left as an intangible asset for the product.

[Yiwei Zhou, analyst]

Okay, clear. And just one follow-up on the assumption for the Gastroscope. I can see, you did a headroom adjustment for the product, but then it's based on the same revenue CAGR assumption. What has driven the adjustments here? I guess it's not impairment, is actually plus.

[Henrik Bender, executive]

No, correct. So what the note illustrates is that we actually have a headroom, we believe, when we look at our Gastro technology versus what we have in our annual accounts on the balance sheet and the accounting rules are that you only do an impairment, obviously, if the number is lower than what you have book value, and therefore, we've made no adjustment to the gastro numbers. Therefore, the book value remains unchanged.

I think the Gastro flow number here is more a reflection of we continue to see this momentum, also considering where we are growth-wise right now coming out of '23/'24 and going into '24/'25. So I think the way you should deduct or the reflection on the footnote here is actually more to say on Gastro specifically, we believe we can comfortably support the balance sheet value we have. Because right now, we see even with the current momentum that can confirm and support the balance sheet value we have for that technology specifically.

Whereas for Colon and Duodeno, as I said before, we had a slightly different conclusion, mainly because the growth assumptions on the short term are different than they were when we originally made the Invendo acquisition and subsequently did the R&D products internally.

What you also note is that the growth percent of assumptions then are obviously high and particular for Duodeno much higher. Because still to support the book value that is required in terms of supporting the growth long term and, therefore, the value that is still left on Duodeno and Colon.

And I think as a final note on this, without going into too many technicalities for us, this, therefore, really represents that we still have a very solid ambition for the mid and long term across GI. And combined with that they still represent, if you add up Colon, Duodeno and Gastro together, a 1/3 of our intangible assets excluding goodwill, we feel actually signifies the potential we still see mid- to long term. It just takes longer to unlock that potential than what was originally assumed.

[Yiwei Zhou, analyst]

Great. Very helpful. And I will do the last question, and I'll jump back to the queue. And regarding the cholangioscope, what triggered you to put the development of this product on hold? Is it sort of technology challenge? Or is this market segment is too small?

[Britt Jensen, executive]

Yes. I think, it's fair to say that, I mean, this is a product that is used together with the duodenoscope in roughly 10% to 15% of the duodenoscope procedures. And given that the duodenoscope, I mean, it's just I mean, approved now and gone through clinical evaluation. It was basically when we had to prioritize across our portfolio. Because of that dependency and that it's not a specific need that you need to use our cholangioscope. We said, let's pause that for now and then focus on some of the other projects. And then it -- I mean, we can reopen it at any day, but that's also why we thought it was fair then to make, I mean, the impairment of this product based on where it is.

[Operator]

The last question comes from the line of Niels Granholm-Leth from Carnegie.

[Niels Granholm-Leth, analyst]

Firstly, an accounting question. Shouldn't you have written down goodwill rather than the value of acquired technologies and development costs? You're keeping that technology, but the lower revenue profile would then lower the term loan value, hence the goodwill value of Invendo Medical. And the reason I'm asking is obviously that as you write down the value of acquired technologies and development cost, it would improve your future EBIT margin by, I guess, by 0.5 percentage point or so, which makes it easier for you to reach a 2028 EBIT margin? So that would be my first question.

And then secondly, do you still foresee a contribution from your duodenoscope or your colonoscope in your revenue before 2028?

[Britt Jensen, executive]

Yes. I can take the last one. I think, for the colonoscope, I mean, we -- I mean, that is limited right now given also, as I mentioned, we are not putting commercial resources behind at this stage. And we are looking for, I mean, potentially applying some of the new technologies that we are developing for that product really to be one that we put more resources behind.

And then on the duodenoscope, I mean, we do -- based on the feedback we also get on the second generation, we do see potential in that when we look at the '27/'28 time horizon.

[Henrik Bender, executive]

Exactly. So I think that is also, Niels, what is reflected in the question we had before from Yiwei on the Note in 3.2 in our annual accounts that you say with these growth assumptions across the period of the amortizable period for the technology, there will be an impact before '27/'28. We are not commenting on how big that will be. But obviously, with the size of Duodeno, the Duodeno product needs to have a bigger impact than the Colon product, which I think is -- in terms of your first question, good question on accounting practice.

The very short answer, Niels, is that the goodwill for Ambu, as is also stated in our accounting policies, is basically tested on a total Ambu company level. We consider Ambu one cash flow generating unit, so-called CTU. And that means that the goodwill both for Invendo for King System and the combination of the two is tested against the overall market value of Ambu, which clearly is, of course, much higher. And therefore, there's no impairment need on goodwill.

You're right that there is a small positive impact from lower amortizations from this impairment on the GI technology. I think, when we look at it in the longer term, it is still underlying smaller. But you are right that it will mean, we have smaller amortizations for the coming years, because now we're taking a bigger impairment in Q4 here in '23/'24.

[Niels Granholm-Leth, analyst]

Great. And then just lastly, if I could ask. Last year, you called out a positive effect from the high flu season in quarter 1 and quarter 2. Can you just briefly talk about what is the importance of flu patients to your pulmo sales during the year?

[Britt Jensen, executive]

Yes. Yes. And this is a very good question, Niels. And to be fully transparent, also one that we don't have the exact -- we don't know exactly for sure how that relationship is. We do see -- and again, I mean, flu season, it's difficult to predict. And once we have it, it depends also on how many patients are actually hospitalized due to that. And in some countries, there is a higher tendency to use the bronchoscope for patients with a flu than in other countries. So it is -- it is a little bit difficult to predict.

It's obviously mainly the ICU departments where we see the increase in revenue. So I think we -- as we are getting closer to this, the picture is quite fragmented across geographies and then adding on top of that, predicting how the flu season will pan out is -- and what the type and severity is challenging. But that's how it typically affect us. And why we can see overall that I mean, when there is a flu season that the ICU departments across many countries are increasing their order levels.

[Operator]

Time is up. So I hand it back to you, Britt Jensen. Thank you.

[Britt Jensen, executive]

Thank you very much, and I would like to thank everyone for good questions and for joining this morning's call, and I wish everyone a great rest of day.