CellaVision AB
STO:CEVI

Watchlist Manager
CellaVision AB Logo
CellaVision AB
STO:CEVI
Watchlist
Price: 217 SEK 1.17% Market Closed
Market Cap: 5.2B SEK
Have any thoughts about
CellaVision AB?
Write Note

Earnings Call Transcript

Earnings Call Transcript
2020-Q2

from 0
Operator

Ladies and gentlemen, welcome to the CellaVision AB Q2 report for 2020. Today, I'm pleased to present the CEO, Zlatko Rihter. [Operator Instructions] Mr. Rihter, please begin.

Z
Zlatko Rihter
President & CEO

Thank you very much, and welcome, everybody, to the quarter 2 report from CellaVision. With me today -- so I'm Zlatko Rihter, the CEO. I also have me Maria Morin, she's heading the HR and Corporate Communications for CellaVision; and Magnus Blixt, CFO. So we hope that we can address all types of questions that might pop up later. But first of all, I will walk you through the numbers and also a little bit, of course, our strategy and so on as usual. And I suggest that we move to Slide #3. And of course, our vision, as before, is to be the global leader within digitalization, automatization of the blood analysis. We offer a method that really contributes to both improve diagnostics, but also efficiency in labs. And our primary target or call point at this time is the hematology labs, as you all know. We have a vision, over time, to replace traditional microscopes in labs. And this is, of course, something that we will continue to work towards in all the efforts we do and all the activities. If we move to Slide 4, and I think you've seen all this before, but I think just to underline and under -- pinpoint a few important aspects of it. There are 17,000 labs out there. That's our market. And a large lab, as it's defined here, is a lab that had more than 130 samples per day. All in all, there are roughly 4 billion blood samples taken in a normal year. And there is 2 steps in the analysis of a blood sample. Usually, there is some kind of suspicion that something is critical in the patient's blood and has to be analyzed. And the first step is basically to -- and direct process all the samples. The first step is to ensure that there are no abnormalities. And if there are, there has to be a second step in analysis, which is the microscopy analysis. And that's kind of where we come in. And roughly 15% of all blood samples has to be analyzed that way. And that means that the global market is around 600 million samples, but in the large labs, it's about slightly below 400 million samples per year.And CellaVision, of course, once the sample comes that far, it needs to analyze it in a microscope. There are 2 alternatives. Either it's the CellaVision way, which is a digital analysis, automated digital analysis, or we do it in the traditional microscope. And throughout the years, the last 10 to 15 years, CellaVision has managed to penetrate a little bit more than 20% of that segment, which means that we have a little bit more than 3,500 installations. And there are roughly 30 different, I would say, blood-related diseases that needs to be analyzed out there. And you can cluster them into 3 groups. One is different types of cancers. Leukemia, myeloma, lymphoma are a few examples of that. And then you also have different types of anemias, where you need to study the red blood cells, which is, of course, also part of the analysis. And then you have more severe infections that also affects the white and red blood cells in different ways. So we are a great support in that sense for analysis. We are very dependent on -- since we're a part of the whole hematology line, we're very dependent on our partners, and that's the companies that implement or install the cell counters, basically. And I think we'll come back to that a little bit in this COVID time, how important it is because we're not installed stand-alone, since we're integral part of a hematology line installation. And our partners that provides the cell counters also do the installation. So it's extremely important that they get access to labs to be able to do that and do the planned installations. The other segments where we are present is small and medium labs, roughly 100,000 of those. So please move to Slide 5. And that's, of course, labs that have less than 130 samples per day. I'll come back to those a little bit later as well. But here again, we have 2 steps. A little bit of a simpler cell counter and then you have the whole slide preparation and microscopy analysis. And here, we launched the DC-1 for this segment last year. And we're, of course, also both in large labs and small labs after acquisition of RAL Diagnostics. We also offer slide-preparation equipment and reagents or stains. So basically, we are covering a much larger part of the hematology workflow today than we maybe did a year ago before we launched DC-1 and acquired RAL. So that's also extremely important here to mention that the cell counter is driving this. And this is, of course, a segment that's been pretty hard hit by COVID-19, the pandemic, because -- pandemics because in many markets, these type of labs has been operating on lower -- low levels or even been closed the last few months. I'll come back to that discussion as well. But this is the flow a little bit. And we started to ramp up production in Q4 last year of DC-1 and have delivered, I would say, close to, if not more than 100 units now to the market. But due to the corona pandemic, this area is a little bit challenging at this stage. So that's the 2 main segments. The business model that we work with, which is indirect, where we collaborate very closely -- please move to Slide 6 -- where we collaborate very closely with our work partners. The whole hematology market, which is a USD 4 billion market is pretty much consolidated by 6 players that kind of [ own ] the customer interface. Sysmex, close to -- more than 65% of the market, is the leader. And then we have Beckman, Mindray, Siemens, HORIBA and Abbott. That's the -- that's kind of the -- if you are a customer and you need a hematologist -- support from hematology, these are the partners you go to. We operate in an indirect business model, which basically means that if the customer choose to go for digital microscopy instead of traditional, they would approach 1 of these 6 players. And then 1 of these 6 players would integrate our solution to theirs. They will also install and take responsibility for the aftersales service. What we have though, because this is a high-tech sales, and there is need of a lot of support locally, also creating awareness in the market and support installations and aftersales, we decided some years ago to develop or establish these market support organizations. We are now present in 18 markets and cover more than 40 countries. That means we can support our partners but also end customers in all the ways they need, from application to installations and everything else, to make sure that we improve penetration in each market. Manufacturing-wise, CellaVision historically has an outsourced production of 3PM support -- supported by 3PM, while for the stains or reagents are manufactured outside Bordeaux in France. And we are, all in all, close to 200 people today, HQ in Sweden, and that's been the status for some years. If we then move to the strategic agenda, Slide 7. We operate within -- we have a strategic agenda focusing on 6 areas, and that will continue. I think right now, maybe it's a little bit of a lower activity level in this, but as soon as, I would say, we are back to normality, we plan to again accelerate activities in all this. It's geographic expansion. As you all know, we moved from 4 to, I would say, 18 markets the last 4, 5 years. So we have a much, much higher presence in the markets today. And we can support the local partners' teams, distributors' teams in local language and in local presence. Segment expansion. We have, through the years, moved from only addressing large labs. With DC-1, we address the small labs with reagents. And RAL will also address the slide-preparation market. And we also recently launched new and upgraded veterinary portfolio. So we moved from 1 to 4 segments, I would say, the last few years, even in last year. Innovation is key. We are steadily somewhere between around 15 or -- percent or higher as R&D and net sales, which means that we have a very high investment into innovation since we believe that it's a very important part. Streamlined supply chain. The last few months has meant just to make sure that we're up and running and can deliver according to customer orders. I think another important aspect here is, again, that we have a very high-tech product in a very conservative markets. We also have to make sure that we have the latest and greatest components all the time in our systems. And of course, this is something that we spend a lot of focus on. Developing partnerships. Just to underpin, we are continuously adding distributors. Of course, we are now with DC-1 and also with the RAL's acquisition moving into new areas, especially in the small- and midsized lab market where there is, I would say, it's not as consolidated as the large labs market. Of course, still the major partnerships are with the big players, but we will continue to develop our presence as much as we can. And also, we'll see a little bit more of, I would say, local distribution partnerships coming up. So we'll have both a global aspect, but also more of the local aspects going forward or regional in some cases. And of course, business development is key. I think we've proven that the last few years by acquiring RAL but also developing the DC-1 and so on. So that's also a very important activity for us to continuously try to move into new areas. So all in all, I think this has been the same type of strategic agenda for several years for CellaVision. But I think what we try to do is, of course, always have a lot of activity in each of the boxes. And I think that's what you see in -- outcome of -- well, you've seen our development the last few years. If we then move to Slide #9. And just kind of to outline, since it's been a lot of development the last year, I think it's important that we can show a little bit how our portfolio looks like. And for those of you that have followed us for many years, I mean, just a year ago, we mainly had a presence, I'd say, in Slide 9, in the upper [ right ] box, which is a large lab systems. We had, during the last year, added the whole slide-preparation portfolio by the acquisition of RAL. We have launched DC-1, and we're still in launch phase here because it's not approved regulatory in our markets yet for commercial sales. And then also, I think what is a very big activity right now for us is to develop the stain protocols to make sure that the reagents and our digital morphology systems work together in an optimal way and provide an optimal analysis out there in the labs. And of course, we aim to deliver a very strong offering here. And at the time, we don't really do that, but I think it can be improved even more. And that was, of course, one of the key rationales for acquiring RAL Diagnostics. So that's a little bit about the background, a quick overview. Then let's move to Slide 11, so that we move into the financials. We, as everybody else, I would say, in the world today are affected by COVID. So I'll just try to give you a little bit of an update how we see the situation from our perspective. I mean of course, it's a big world out there so it could look slightly different in different markets. But I think that we have seen the same pattern in every country, basically how COVID develops. So we have kind of one I would call during the COVID-19 outbreak scenario and then post. If we then take the hematology part of that, of course, we are going to see that we are in the middle of a during-COVID-19 outbreak, and of course, this all started in China, I would say, in January this year and now half of the year or more has passed, and we see the same pattern. So first of all, initially, it's big cautiousness in the country when COVID-19 outbreak happens. And we've seen there that there are quarantines or quarantines or lockdowns happening. So there's reduced access to hospitals. There is less screening, fewer elective surgeries, fewer organ transplantations and also prioritization of the COVID-19 patients. We see less cancer cases or heart defects, et cetera, in many, many countries. So early -- I would say, early in this quarter, and that hit in EMEA and Americas, I would say. We saw sample -- reductions of samples up to 40% to 50%. And this has also been, I would say, verified by our partners and other big players in the market like the lab chains. And then it took a few months. And now I think towards the end of the quarter, we saw a normalization, and maybe we'll now have a reduction of less or around 10% versus a normal situation when it comes to number of blood samples. Now again, that's the 4 billion samples I talked about. So that, of course, has a pretty heavy impact on our industry. When we talk about review rates, that's the 15% that are the abnormal samples, which is basically the base for our business, we see, of course, slightly less reduction there, because if you are critical, you're critical. And that also means that probably the review rate has increased a little bit during the quarter. And we also saw that the impact on, for example, the RAL reagent sales was not that negative, for example, from our perspective. What has both affected us and is affecting us is, of course, the large labs installations. Of course, we are not doing them. We are supporting our distributors, and they've also been hit. So both Sysmex and Beckman has been negatively hit the last quarter. And during the break, which also happened in, for example, China in Q1, there was a big issue to get into the labs and be able to install since they're not -- people aren't allowed to get there. So planned installations are basically postponed, and we see that happening in each of the markets. And then on the small labs, it's even more so, more down-prioritized because in some countries, they were even, I would say, closed for a while, and at least being there and installing new products, newly launched products was not always that highly prioritized. So this has had a short-term negative impact on the DC-1 sales. So that's kind of what happened during. So during, in this case, means impact to Q1, if I simplify it a little bit, in EMEA, and U.S. or/ Americas in Q2. We also now see a post-COVID situation. And then we see a more return towards normalization. I think to the 2 major markets where we've seen this really happen is in China and South Korea. And they are now back in a normal situation, basically. We see installation rates in China, for example, being back on or they were prelevel -- yes, the same level as before COVID emerged. And we also see -- it's kind of a step-wise. So the stop comes very fast when COVID out -- during a COVID outbreak, and then step by step, it's going back to more normal system installation volume. So I would say that we, today in China and South Korea and large parts of APAC, are back to normal or close to normal volumes. We also see EMEA now slowly returning towards normalization. It's opening up in every -- each and every country. And also, we and our partners can go out and then start to install again and then also visit customers under more or less normal situation. I think where we see a more unclear picture now is in Americas. I think we'll see, and you're probably as informed as I am, if not more, that there are challenges in markets like U.S., Mexico and Brazil. And we see the number of cases increasing, and there are a little bit of uncertainty in some of those markets because they're going back in and out of lockdowns in different ways. And hopefully, we'll see a light in the tunnel there as well later in this quarter. But right now, today, it's a little bit unclear. From a supply status perspective, we have managed to keep production up or fully operational through this pandemic. And I would say that the risk level for us not to being operational is pretty low right now. It was -- the risk was much higher 2, 3 months ago. So we are -- we have adapted, adjusted and ensured that we have all the components needed. So that's pretty stable. So when orders come, we can deliver. So that's a little bit about that. I think it's important because it has some short-term effects. And if we then move to the numbers, Slide 12. Yes, we had an SEK 118 million in the quarter, an organic development of minus 15%. And since the Swedish kroner was strengthened, we also see a negative exchange -- [ constant ] exchange effect this quarter. You see an extreme volatility between the different regions. Americas, as we said, due to closedown, was down 57% versus last year. Normally, Americas is the #1 region in sales for us. And now it was the smallest region, which is, yes, extremely unusual, I would say. What we have to remember when it comes to Americas and our 2 big markets there, which is U.S. and Canada, we have very high attachment rates. So that means that every time there is a hematology line installation, CellaVision is also part of that. And I said above 90%. I think the truth is close to 100% these days. We're the golden standard, so that means that when installations happen, CellaVision will follow. So this is very much in the hand of the American market and our partners basically when they can start to install again. So that will drive the comeback or the return to normalization in these markets. We did submit the 510(k) for DC-1 in March, early March this year. And we are preparing for a U.S. launch later this year. We're in the middle of the discussions with FDA. They came with some additional questions, and then we have answered those, so I think that's more or less on plan versus what we said before. And that means that we should hopefully have availability of DC-1 in all of Americas by the end of this year because the other markets are up and running since some time. Another thing that we've done in the quarter is that RAL, the slide-preparation company that we acquired Q4 last year, we have now signed the global distribution partnerships with key players there. So that means that we are about to launch the reagents portfolio in Americas also in the coming period, which basically means that we have a complete portfolio offering in Americas as of end of this year -- as of end of this year, yes.APAC had a very strong quarter. This was primarily China and Japan -- or China and Japan, I would say, that bounced back. We grew more than 100%. We have very high activities in, I would say, all APAC markets, maybe except for India, that is in a lockdown mode. But in the other areas, I think -- well, no, maybe not back to normal and then people cannot travel freely between countries, but within countries at least, there is a possibility to move around, and which is important, of course, so that we can visit labs and do installations. We still, in the early parts of the quarter, had some negative impacts due to COVID-19. But towards the end, I think the situation has improved quite a lot. And also here, we have signed up global partnerships within slide preparation. As you might remember, RAL was very much a European company, and we're now starting to sell slide-preparation offerings also in this region, just as we do -- just as we sell the other CellaVision products, basically. EMEA, now 89%. It's -- part of that is not organic, since RAL is -- the most of RAL sales is there. I think it was 7% organic growth in EMEA this -- growth group. And here, we had a negative impact of COVID. Again, we are in an indirect business model. So sometimes, there are some stock-ups in one isolated quarter, could be a little bit hard to analyze, but it's been a tough quarter in Europe, but we see now that the markets are opening up again. And towards the end of the quarter, we see that we are starting to visit customers and then going back to a more normal situation. We spent a lot of focus, of course, to commercially integrate RAL Diagnostics together with CellaVision. And since the historical base sales is in Europe, of course, it's been a big activity here. And we also, as of April, end of April, have established our support -- market-support organization in Russia. So now we are present there as well. Russia is, of course, a big and important future market for CellaVision. So I would say that's the highlights. If you look a little bit at Slide 13, which is the other kind of important aspects that we should go through. We did a -- we acquired RAL in Q4 last year. And of course, as of then, we also quickly integrated the financial activities. I think the process has gone very smooth. RAL had a few quite strong quarters, I would say, or the staining, the reagents business has been less effective than installations. And of course, we are continuously executing basically the strategy we had. One is to make sure that we would like to extend current -- our addressable from the top part of the hematology market segment. So far, it's been a lot of co-promoting CellaVision-RAL offering, but now more and more, we're moving to a scenario, we have validated protocols, which basically means that we can integrate the 2 solutions and offerings and kind of claim that we can improve diagnostics since we have control over the whole flow -- workflow, so to speak, together with our partners. The other important aspects, proven that we now signed up distribution agreements with key partners, is that we would like to sell all our products everywhere in the world. That means that both CellaVision, DC-1 large lab systems and RAL reagents/stains are now step-by-step being offered in all markets globally. And then that's, of course, a very important part of our growth strategy going forward. And then we have the nonhematology or outside-hematology market that we are continuously now assessing and see how we can move ahead there, but focus so far has been very much on the hematology side. If we look at the other key events in Q2. Of course, with the corona, we moved very fast into a virtual work environment. We managed to sign global distribution agreements with the launch products, et cetera, et cetera, in this context and framework. We've done a lot of customer training and many other things. So that we've proven our, I think, from our perspective, that it can run a global business virtually as well. I think long term, it would be good that we, in some cases, can meet our customers and so on more live, but we do what we can under the circumstances. And I think that's been a great achievement by the team. When it comes to DC-1, as I said, we submitted a 510(k) on March 6. We got some additional questions from FDA that we have answered or are in the process of answering. So we still expect commercial clearance in the end of this year. And then, of course, attached to that, we're also starting up a more concrete NMPA, which is the submission for commercial approval in China. So we believe that, that will happen next year. So this is according to plan. And I think all other key markets are more or less up and running from a commercial clearance perspective as was before. During Q2, we also formally launched the new updated CellaVision veterinary portfolio, where we have added the DI-60, which is the integrated Sysmex solution and also DC-1 Vet versions to [ perform ]. So now all our systems have that version available. And we also have avian bird analysis complementing the previously dog and cat or canine and feline analysis. So we have broader portfolio here, and hopefully, we'll see that, step by step, taking off. And then reagents, which is the RAL Diagnostics, which is the -- or slide preparation. Again, in the process of being launched globally. We have signed global distributions contracts during the quarter, as we planned to do. And now we are, step by step, pushing this into other markets. And of course, historically, RAL had a high presence in some European markets. Now we tried to conquer the rest of Europe. And we have also plans to launch RAL in China, Japan, Americas, U.S., et cetera, to make sure that we have a global offering in place. So I think that's also proceeding according to plan, more or less. So I think we have a lot of activities in place. And we will, of course, continue to execute those. If we then move more and more into concrete numbers, Slide 14. Again, we had a growth of 5%; organic growth of minus 15%; gross margin, around 66%. Of course, it's hard to compare with last year's quarter because there was CellaVision only. Now we have RAL included, and they have a little bit lower margin, slightly below 50%. So the total is 66% in the quarter. We will, of course, try to, step by step to have plans in place to, step-by-step, improve that over time. But if you look at OpEx versus sales, we still have the same kind of, I would say, efficient business model as before. And despite a pretty tough top line situation where we, as you all know, have hard times to do some of the installations currently, we still managed to -- managed our costs in a very good way and ended up with an EBITDA margin of 31% in the quarter, which I think is pretty good under the current circumstances. And I'll come back a little bit on some of the activities that we have there. So if we move then to Slide 15, going a little bit more in-depth on the financials. I think we mentioned the sales. I think on the expenses side, if you look versus last quarter, which is not fully comparable since RAL wasn't part of the business at that time, we have an expense increase of 1%. But if we adjust the -- if we adjust for that, we have an organic or -- we have decreased expenses of 16% versus last year. So we've been -- we spent a lot of time early Q2 to really try -- or late Q1 to really try to understand, I mean, what can we do now to keep the ship tight during these times. And we took a few activities at the time being, one of them being trying to prioritize a little bit in overall activities. Some came out a little bit more naturally, since we're not allowed to travel, and so there has, of course, also been cost reductions. And I think that's been an important part of our operating -- operations the last few months to make sure that we, despite the tough times, takes -- get fruit in any good way. And I think we've proven, at least this quarter, that we're on the right track there. We have a very scalable model, which means that when we have a top line growth, we also see a pretty good expansion on bottom line. And now we have used this scalable model in the other way that when top line is challenged, we can also quickly adopt to that. So we have a flexibility here. And the day we see that the pandemic is going down and things are going back to normal, we can pretty fast accelerate some of the activities and projects again and get back to another level here. So we have a, I would say, an extreme flexibility in the way we are operating our business from that perspective. So basically that. Cash flow was quite strong. We had no dividends paid this year. We normally do that in Q2. So that is the main, I would say, explanation why that's improved so much versus last year, which is also an aspect of that. So if we then basically summarize the world we're living right now on Slide 16. This is also not much more to say. We have a challenging environment when it comes to the market right now. I think APAC is through the worst. EMEA is probably also through the worst as we see it. Americas, a little bit more unclear. And of course, that will have continuous effect on our business. I think we're extremely well staged to manage this situation. And we will, of course, monitor the situation very closely. And should things go back to normal, we can accelerate the number of activities and get back on track, if needed, as well. So by that, I will close my part of the presentation today and open up for potential questions if there are any. Thank you.

Operator

[Operator Instructions] And our first question comes from the line of Ulrik Trattner of Carnegie.

U
Ulrik Trattner
Research Analyst

Could we start off with sales development? Quite surprised at least to me was sequential growth in both EMEA and APAC. Could you please explain how that comes? And is there any inventory buildup from your distributors?

Z
Zlatko Rihter
President & CEO

Thank you. Yes, I heard the question. Again, it's a little bit dangerous just to isolate one quarter, so now we talk about April to June, since we're working in indirect model and there is some elasticity in how it looks like. So I think if there could be any order buildup, maybe a little bit in EMEA. I think in Americas, not. And APAC has been more of a -- if you look a few quarters back, it's been a little bit ups and downs. Now we had 2 very strong quarters in a row. But APAC is back on track. EMEA is back on track, but I think quarter 2 has been a little bit tough. So I think maybe in this quarter, it's slightly more optimistic. And Americas, I think, reflects the reality in Q2 and end of Q1. Again, hard to give you like isolated quarterly comments since we are in this indirect setup. But as I said, I think APAC is through the worst. EMEA is through the worst. And we should see a step-by-step improvement. Americas' unclear. So I think that's from the level I can comment that on.

U
Ulrik Trattner
Research Analyst

And do you see any further restrictions in Americas? I know it's hard for you to comment short term, but Brazil and Mexico seems to be on complete lockdown and seems like installation there will be limited in the following quarters.

Z
Zlatko Rihter
President & CEO

Again, hard to say. I mean obviously, both, if you take Mexico and Brazil, in the big perspective, it's important but still small markets, I would say. So the big impact is in the U.S. and Canada. And would you have asked me if 3, 4 weeks ago when U.S. was kind of opening up, you will get 1 answer. Now 3, 4 weeks later, with what happened in the last few weeks, maybe the answer will be slightly different. Now who knows? Things might improve in a few weeks and you will get a further answer. So that's why it's so hard to -- we can look at how it looks today, but God knows where the situation will be like in a few weeks' time, if it improves again. I think there are a lot of planned installations. So our partners in U.S. and Canada, which is basically -- mainly Sysmex and Beckman, they are little bit in the same boat as we are, since we have this high attachment rate. So they will do their best to start to install again because they're also dependent on doing that. And as soon as they do that, we are together with them in that sense. In Brazil and Mexico, we have little bit less attachment rates because we haven't developed our business so much yet in those markets. So there is a little bit slightly different situation. But it's unclear right now. It's extremely hard to give you numbers -- exact numbers here. And I think we need to be honest by that.

M
Magnus Blixt
Chief Financial Officer

Numbers changes fast.

U
Ulrik Trattner
Research Analyst

Understood. And then 2 questions on RAL. First off, if you could please specify the exact sales contribution of RAL. It seems like there is some hardware sales in the number given that the gross margin is down. And the second question on RAL is the distribution agreement that you talk about. Which are they, since they already have distribution, global distribution agreement with your largest distributor, Sysmex?

Z
Zlatko Rihter
President & CEO

Yes, so for the -- with the second question, RAL only had agreements pre-acquisition, so to speak, with Sysmex in Europe. So we did not have global agreements. So that's what we put in place now as we came in the picture. So now we had moved into a global context with not only Sysmex, also with the other major -- some of the other major distributors, example, Siemens and also looking into Beckman. So that's the aim to move from a European context to global context for RAL. And that's where we've been working together with -- yes, in the team. And that's basically what's come into place the last few months, so they had not global agreements before. And that also means, once the agreement is in place, that does not necessarily mean that you had a walk in the park, start to sell, but you have -- at least have the tickets to start to sell. And now of course, the next step is to utilize our local market support organization that's been trained on reagents in depth, was a lot of time to do that during this pandemic. And they are now ready to start to support the local Sysmex and Beckman and other partners in the markets to start to push sales and convert other stain providers into RAL in the kind of where we have CellaVision presence. So that means that we, step by step, think that we can start to see some uptake on sales in some key markets. And then, of course, the question is always how long this takes. And under these circumstances that we are in right now, it's hard to give exact dates, but I mean, we are ready to go. And we'll probably see some sales already this year in some of these markets. But of course, we have to build that up. So that was that. And the other question was around reagents, reagent sales. We don't kind of fully separate that because the way we report now on kind of product lines is that we have instruments, reagents and others, basically. So of course, a large part of the RAL sales is in reagents, and a large part of that is in Europe or EMEA. So that's basically where we can be seen. But I think RAL has been -- or the reagents part has been much less effective than instruments, so we've seen a pretty stable -- we have this 15% growth target globally. And I would say that despite the tough times, the reagents part has been not far away from those targets in development the last few quarters.

U
Ulrik Trattner
Research Analyst

Okay. That's great. And the last question is on the operational expenses expansion, and you mentioned cost control and the EBITDA margin. But to be fair, capitalized R&D is increasing quite a lot in this quarter. And if you add that to your operational expense accounts, especially only the ones included for capitalized R&D, it seems like it's still quite a heavy cost expansion. Is this something that we should expect throughout the rest of the year as well?

Z
Zlatko Rihter
President & CEO

No. I don't agree with you there. I don't know exactly where you got those numbers from because if you look at -- you have 2 scenarios. You need to look -- a year ago, we did not have RAL as part of the business. It was CellaVision stand-alone. And of course, when we added RAL, I mean there also structurally exists some OpEx at that time being. So if you exclude and then compare that with Q2 and CellaVision only, if I may say so, we have a 10% reduction if you exclude capitalized R&D versus Q2 last year, 16% if you include capitalized R&D percent reduction. And if you look at like since we were in a very -- expansion mode at that time last year, if you look at the last quarters, quarter 4, quarter 1, just OpEx is much less volatile than the top line in this -- in our business, in our company. We have a pretty, I would say, dramatic or high decrease in OpEx. That's my take on it at least.

U
Ulrik Trattner
Research Analyst

All right. RAL is more related to in percentage of sales and especially in comparison to your sales growth, but it seems like for the last at least 4 quarters, the OpEx growth had been significantly higher than the sales growth. So it's more or less -- are you expecting sales to pick up or OpEx growth to abate?

Z
Zlatko Rihter
President & CEO

I mean we will keep the costs under control -- our OpEx under control. That's, of course, target under these times. And I think we've proven the case, at least this quarter. And of course, this is kind of the steady-state situation we have right now. We have not laid off anybody, so we kind of kept the team intact because we believe that as soon as we've passed by, we need to accelerate our activities and execute the plans we had. But of course, if you have a dramatic top line impact, it's a little bit hard to keep all the margins up and running. But I think we've done a pretty good work here. That's my take on it at least.

Operator

[Operator Instructions] And there are no further questions at this time. Please go ahead, speaker.

Z
Zlatko Rihter
President & CEO

Okay. So thank you for listening in and so on. And yes, I wish everybody a nice summer. Hope that you get some time off despite the tough times. And thank you very much for calling in. Take care, everybody.

Operator

This now concludes our call. Thank you for attending. Participants, you may disconnect your lines.