AMBU-B.COAMBU-B.COCPH
Loading
Operator: Ladies and gentlemen, welcome to the Ambu Q1 2026 Conference Call. I am Valentina, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Britt Meelby Jensen, CEO. Please go ahead.
Britt Jensen: Thank you very much, and good morning, everyone. Welcome to this Q1 2025-'26 quarterly call. I'm here this morning with our Chief Financial Officer, Henrik Skak Bender, and we will go through our results, and I'll start with a business update. So if we look at Page 3 as a start and then moving into Slide 4, starting with the headlines for this call. So on the back of a strong Q1 and even a strong H1 last year, we have delivered a very solid Q1 for this year with strong revenue growth. In particular, on our endoscopy business. We said in November that our growth was going to be stronger in the last part of this fiscal year compared to the first part of this year, but we are quite satisfied with the strong start of the year that we have had. In particular, what I want to highlight is that we have had very strong momentum across all our endoscopy business areas. We continue to see a very strong underlying momentum in conversions from reusable endoscopy to single-use, where we are both winning new customers on a very high rate, as well as we are increasing the penetration with existing customers. In particular, we had a strong quarter on respiratory, but also the other areas look strong. I'll comment on that in a short while. On margins, Henrik will come back to this, but we continue to drive a very high operational leverage while we invest in growth. So that's the balance that we continue to focus on. And then we are adjusting for temporarily high tariff costs that we have seen and also some FX headwind. Finally, what has been a highlight for this quarter is that we launched our ZOOM AHEAD growth strategy. We see that this is being well adopted, and we see strong early momentum as we continue to be on track for delivering on our full year outlook. Please turn to the next page and let us then look at the financial results from Q1. And if we look at our overall business, we now have Endoscopy Solutions making up 63% of our total revenue and Anesthesia Patient Monitoring 37%. Overall, the business grew 8.6% on the quarter. And that is a split between Endoscopy Solutions of 14.4%, and then almost flat -- as anticipated -- on Anesthesia and Patient Monitoring, with minus 0.1% growth. On the profitability side, we delivered DKK 164 million EBIT margin before special items, and that corresponds to a 10.5% EBIT margin. And then we had a free cash flow of DKK 13 million. Before diving into the segments, if we move to the next slide, I'd like to talk a little bit about the market that we operate in. And here, I have 2 key points that I would like to highlight. The first one is that we, as a company, are benefiting from an overall trend towards an increase in global procedures performed with an endoscope, whether it's reusable or single-use. And when at our Capital Market Day, we communicated an underlying growth rate of around 5%. And if we look at the quarter that we just exited, we see also an endoscopy volume growing at around that number. So I think that's one thing that, of course, affects our business. If we then look at what is a stronger growth driver for us, then it's the single-use endoscopy penetration. And here, we see across all 4 areas that we are in a very strong increase. If we take respiratory first, here, we see efficiency and economics is really supporting the conversion from reusable to single-use. And we do also have some flu-related demand that is increasing the penetration in this segment. Then in urology, we also see the accelerated conversion in particular with cystoscopes, but also with our newly launched ureteroscopy market. And this is again driven by efficiency and economics among the customers. And on the ureteroscopy side, also a move towards single-use because of the tough procedures and the scopes being more fragile by nature. Then on the ENT market, this is a market for single-use that is in particular strong in the U.S. and in the U.K. And here, we continue to see a strong growth in single-use endoscopy penetration, very much driven by moving from reusable to single-use when performing the procedures. Then -- gastroenterology, this is a market that has not really converted to single-use. It's the lowest single-use penetration of just below 1%. However, where what we track is some niches that are out of the suite, where we see a very nice and solid conversion to single-use as they are seeing the benefits of these solutions in the clinics. So if we then move to the portfolio and some of the highlights on the next slide of progress across our portfolio. Then I'm excited about our respiratory area, where we have recently introduced our SureSight Mobile. So this I'll come back to later, but it's basically a handheld and much more mobile version of our video laryngoscope solution. And this one, we have introduced so far in North America and Great Britain. Then when it comes to urology, what we see here is two things. One, we see a continuous penetration increase of our advanced solutions, aScope 5 Cysto and also aScope 5 Uretero. And then what we have launched in the quarter is aScope 4 Cysto in China, which is locally manufactured at our factory in China. And this is the first time we're introducing this solution in China. Then when it comes to our EndoIntelligence, we are also continuing to focus on this as an area of growing importance; and here, we have, in the quarter, advanced our documentation to help optimize efficiency for our customers and reduce the administration burden. And we are also continuing to expand our capabilities that can support our hospitals in integration to the EMR systems at the hospital, where they can upload pictures and videos to the patient files. Now let's look at the results in the different areas, starting with respiratory. So this is an area where we continue to see very strong momentum across respiratory. We saw organic growth in the quarter of 8.3% against a very strong Q1 last year. And if we look at where the growth is coming from, it's actually driven by the broad bronchoscopy portfolio we have with different sizes, both across aScope 4, but also strong growth with our aScope 5, where we see customers being willing to pay for these premium solutions. And then we have SureSight, the SureSight video laryngoscope that we launched around a year ago that, that is starting to generate meaningful revenue. So when we take a step back and look at some of these strong trends that we see in this market and to guide a little on what to expect when you look ahead, we expect an acceleration in our growth levels in this segment for the coming quarters, which will be driven by both the aScope 4 and aScope 5 increased penetration and also driven by increased adoption of our SureSight solution and cross-selling of that into bronchoscopes. Talking about SureSight, let's move to the next page and look at the launch of our mobile version, which is expanding our overall portfolio in respiratory. So maybe a short recap on what we have shown before that the video laryngoscope market, if we look at the U.S. where the market is largest, this represents a DKK 4 billion market in the U.S. alone. If we then look at laryngoscopy, it's also a method that is increasingly done using a video laryngoscope instead of direct laryngoscope. So that's basically using a laryngoscope with a camera. And in the U.S., this method represents now 50% of all intubations that are done in the U.S., and it's a number that we see growing with around 20%. Then moving to our own solution. So we have launched the SureSight Mobile, which is basically the solution that you see at the top picture here on the slide. And what this supports is very much emergency airway management because it's a product that you can basically see the picture from the intubation directly on the screen. It means that you can have it in the pocket in an ambulance at different parts of the hospital and then have easy access to that, which opposites the Connect version that you put into and connect with 1 of our 2 screens, the aView 2 Advance or the aBox 2. So overall, this is a very strong addition to the already attractive portfolio that we have in respiratory. It works with the same 10 blades that we have launched for the SureSight Connect, where we launched, as a reminder, 5 blades together with the Connect version around a year ago. And just before summer, we launched the additional 5 blades. So we now have 10 blades that both support this SureSight Mobile version as well as the SureSight Connect. So now let's move to the other endoscopy segment on the next slide, which is Urology, ENT, and GI, which is a segment that has become slightly higher than the respiratory segment now with a 21% growth in the quarter versus last year. So momentum is strong, as I mentioned in the beginning, across all the different areas that we have here with urology being the largest and biggest growth contributor, something we also expect will continue. When we look at urology, growth was primarily driven by continued penetration of our aScope 4 solution, where, again, revenue is coming from continued new customers being added as well as increasing penetration with existing customers. And then we also see revenue increasing from our more newly launched solutions, and that is our aScope 5 Cysto and our aScope 5 Uretero, reflecting also -- I mean, the speed of the uptake of these solutions in particular -- when it comes to our ureteroscope, reflect the length of the sales processes that is slightly longer for these at the hospitals because these are more complex procedures by nature. So in these segments, we -- if we look at what we expect as we look ahead, we did see a strong underlying momentum, which we expect to continue. What we also saw was that towards the end of the quarter, we saw a slight increase in the number of orders that came in before year-end, which also means that we think that there are good reasons why the growth in the coming quarter can be slightly lower than the 21% that is highlighted here. But I do want to say that this is more the timing of orders that is a result of that, and it's not related to the underlying growth momentum that we see in urology as well as the other segments represented here. So before leaving endoscopy, maybe on the next slide, let me briefly comment on EndoIntelligence, which is our area of growing importance that supports our endoscopes across all the areas that we operate in within endoscopy. Because where we really stand out is that we have one software platform, our EndoIntelligence, that all our endoscopes connect to. So that basically means, and we see health systems paying more and more attention to this that we -- that they can have our -- either our aView 2 Advanced or our aBox 2 and then basically, they can use our full endoscopy portfolio on these monitors. And it's exactly the same user-friendliness, the same functionality that you have for a number of the functions. So it's very easy to use across all the different areas. And this is where we are unique with our broad portfolio. Then it also has a lot of benefits and scale advantages because as we invest in advanced software features, we can also easily apply these across all the different areas that we are in. And an example here is also that we are working on, and that we launched for training purposes, is the AI bronchoscopy navigation training, where basically you can use the solution to see where in which parts of the lungs you have expected, something that is not available on our aView 2 Advanced or aBox 2 yet, I should say, but which is again part of our overall EndoIntelligence offering. When we then look ahead, there's a lot of development ongoing within this area, where we are looking at how we can -- solutions that can improve our navigation, detection, and documentation in the different areas, as we see a clear need and demand for among our customers. Also, we see increasing benefits of using technology to improve our image quality across the different areas, which again is a key lever to improve detection rates. Then last but not least, the whole integration with connected devices and with the hospital systems is also something that we see is remarkably increasing or easing the workflow at the hospitals, which is a key focus as they are overburdened with a lot of administration and still face in many countries, staff shortages. So overall, an area that we will continue to talk more about and integrate in the solutions that we have. Then let me briefly also comment on the next slide on our Anesthesia and Patient Monitoring business, because this was more or less flat versus last year when we look at it organically. Our Anesthesia declined by 1.2% and Patient Monitoring grew then on the other hand, 1.1%. We still see the same dynamics in these markets as previously. And you may remember that last year, we grew in the quarter 18%, very much driven by selective high price increases. So we are more back to normalized growth levels now, where you should expect going forward growth around 3% to 5%, as we have communicated. Also, you should expect the growth coming a lot from volume increases, but also still have some price increase development, although much more modest that we have seen in the past couple of years. And looking at the coming quarters, we remain very confident around, again, the dynamics in this segment and that we continue to see nice growth rates driven by already very strong solutions as well as a highly loyal customer base. So before handing over to Henrik, let's move to the next slide and let's -- well finish with a few highlights on the key focus areas of our strategy. So customer centricity remains a key area where we are doing a lot of initiatives to continue to serve our customers better. What I want to comment on in this quarter specifically is our Recircle Program. So our program, where we take back endoscopes for recycling, which is live in 4 markets and where we have now expanded to cover 50 hospitals and over 100 clinical departments. And in the quarter, we also expanded this to not only include the endoscopes, the full range of endoscopes, but also now the SureSight blades. On innovation relating to the EndoIntelligence, that we discussed, we continue to also strengthen our capabilities within software and AI technology and have some very strong capabilities to drive the innovation in this area specifically. Then on the business platform, an important point here is that we continue to invest in expanding our commercial execution to support the high-growth agenda that we have. And then also what we do is that we continue to also have our Mexico factory improving both utilization and output, which is very much supporting specifically the growth in North America. So with that, let's move to the next slide. This concludes my presentation, and I'll hand over to Henrik to go through the financials.
Henrik Bender: Thank you, Britt. Good morning, and welcome to the call, everybody listening in. Happy to take over and take you through a couple of key notes on the financial review. Before we go to the next page, I just want to reiterate what Britt also opened the call saying we are very happy with the solid start of the year and very satisfied both with the results, but also in particular on the strategic progress. With that note, let's take us to Page 15. So overall, as Britt opened was saying earlier, we had a growth of 8.6%. Adjusting for FX, the reported growth was 3.2%. We continue to still be impacted by a U.S. dollar/DKK depreciation, which impacts our reported growth, particularly for North America, but also with the mix of FX, the growth in the Rest of World, something that I'll come back to later. Overall, the growth is particularly driven by Endoscopy Solutions now representing 63% of our total revenue and a total growth for the quarter of 14.4%. Anesthesia, as Britt just mentioned, had a negative growth, while Patient Monitoring had a slightly positive growth, meaning that overall, that segment was more or less flat. With that, let's have a closer look at the geographical split of our growth on the next page. Overall, we're still on a very, very solid growth trajectory for our key markets in North America and for EMEA, both growing close to double digits. The solid growth in North America, particularly driven by Endoscopy Solutions and for EMEA, driven by both Endoscopy Solutions and actually also still our Anesthesia and Patient Monitoring business. For Rest of World, we did see a decline in organic growth, mainly driven by order fluctuations, as we do see in some of these markets, very big orders for one quarter or the other, as many of these markets are still covered by distributors, which means that there will be order fluctuations across the year. Looking at the same numbers in reported currency, North America growth was almost flat because of the USD/DKK depreciation, and the Rest of World had a higher negative growth again in reported currency because of the negative FX effect. If we then turn to margin and start with gross margin. Overall, our gross margin was in line with expectations. We had a solid first quarter at 60.8%, which is lower than last year same quarter, but higher than the average for the full year last financial year. The overall gross margin is continuing to increase, driven by a combination of higher endoscopy sales versus A & PM, continued stronger and strengthened price governance and as Britt mentioned on the strategic update, and increasing utilization, particularly of our Mexico factory, which helps us ensure that we have lower production overhead and therefore, supports an increase in gross margin. Overall, we therefore feel well on track on how gross margin should develop both for this financial year, but also towards our long-term targets, supporting our EBIT margin expansion journey. Speaking about EBIT margin, let's go to the next page. Overall, the EBIT margin for Q1 landed at 10.5% reported, which was a decline of 5.6 percentage points versus the same quarter last year. We did, as communicated in our Q4, expect and also report a significant cost of tariffs, which is driving down the EBIT margin for the quarter. And combined with that, we also had a negative development in FX, meaning that if we adjust for the combination of the two, we saw an underlying adjusted EBIT margin of above 15%, which actually is very well in line with our EBIT margin expansion plan for this year and again, also for the long-term targets. Overall, therefore, we feel on a solid start. As Britt said also in our opening, we communicated that we see a lower EBIT margin for the first half, and we are going to see a higher EBIT margin for the second half of this fiscal year, and this represents a solid start in accordance with our plans. Turning to free cash flow. We did report a low free cash flow for the first quarter. Overall, this is fully in line with the typical pattern of our free cash flow, where we always pay bonuses and tax in the first quarter. And therefore, this is also in line with expectations. Specifically, the free cash flow for the first quarter was impacted by negative development in net working capital, in part due to us lifting some of our safety stocks across the world to manage and mitigate some of the political uncertainties we see. Furthermore, the free cash flow was also impacted, of course, particularly by the higher tariff costs for this quarter, specifically if you compare this quarter to the same quarter last year. But overall, on free cash flow, also a solid start. Speaking about solid start and then looking at our outlook on the next page, we therefore also -- as Britt also said in her opening, maintaining the outlook for the full year with a solid growth of 10% to 13% organic driven in particular by Endoscopy Solutions at plus 15% growth. We see still further acceleration in respiratory. As Britt said, for the first quarter, the respiratory growth was impacted by the very high comparables for the same quarter last year, but we see that accelerating throughout the quarter. On Urology, ENT, and GI, we see a continued momentum versus where we landed full year last year. We had a good first quarter. We are seeing some order patterns that are benefiting Q1, which means that we are seeing slightly lower growth expected for Q2, but overall across the year, a continued momentum versus the same growth levels we saw for the last financial year. For Anesthesia and Patient Monitoring, despite a flat growth for the first quarter, we still maintain a guidance of mid-single digit as the first quarter was mainly impacted by high comparables. On EBIT margin, the impact from the external factors, particularly tariffs, we are still seeing playing out, as expected, and these will mainly impact the first half of the financial year. So the first quarter, as we just saw, but also now into second quarter. Overall, we feel on a solid track on delivering on the 12% to 14% guidance despite the tariffs and despite the FX headwinds. Last but not least, as I said, the first quarter had a lower cash flow and therefore, also lower cash conversion, fully in line with expectations; and we also still feel very comfortable that we'll be able to deliver on the cash conversion guidance for the full year. So overall, again, a solid start of the year, something we are very happy with and also a lot of great progress on our strategic focus areas. With that, I hand it back to the operator and open for questions.
Operator: [Operator Instructions] The first question comes from Thyra Lee from UBS.
Thyra Lee: I just have two, please. Firstly, I wanted to follow up on your comment about the pull forward into Q1 within the Urology, ENT, and GI business. Could you just give us a little more color on why you saw this customer behavior? If you could size the benefit that it contributed in Q1, and also how you expect Q2 growth to be impacted from this? Then the second, please. You saw an absolute tariff impact of over DKK 50 million. On my math -- and please correct me if I'm wrong -- this suggests an impact from tariffs only of almost 3.5 percentage points on the margin this quarter, which sits significantly above the average 2 percentage points that you're flagging for this year. Could you just tell us whether we should expect Q2 to also see an impact of above 2 percentage points to a similar quantum, or should it be more in line with 2 percentage points?
Britt Jensen: Thank you for good questions. Let me answer the first question on Urology, ENT, and GI, and then I'll let Henrik answer on your tariff question. So I think overall, I think I want to take a step back and say that if we look at the overall business, Urology, ENT, and GI -- and let's maybe focus on urology, which was where your focus was in the question, we see very strong momentum in our urology business. So that means that we continue to see our new -- an inflow of new sizable customers, and we also continue to see an increasing penetration with the customers that we already have. So I think that makes me very confident. If we look at the past year and as you also see in the slides, the way that we show it and measure internally, we very much focus on the rolling 12 months because we do see some fluctuations quarter-over-quarter. And what we saw, and this is basically also what we are highlighting here. In the last 4 quarters, we have had growth between 16% and 21% roughly. So that also illustrates that and this quarter, it was 21%. That illustrates some of the fluctuations we have because orders are placed in one quarter relative to another. And we, of course, track our orders, and I do want to highlight that we do not, I mean, encourage with rebates or anything like that customers to buy in one quarter versus another. So let me just make that clear. But what we did see towards the end of Q1 that we are reporting on, we did see a stronger order -- number of orders coming in. So this is basically also when we then look at the overall rolling 12 months and look at how we see the pattern of new customers and increased penetration, that leads us to believe that there could be a slightly lower growth rate in Q1. So this is basically just what we are -- in Q2, sorry, yes, in our Q2. So this is basically what we are flagging and what to expect. But again, I want to highlight, it doesn't take anything away from the underlying momentum where we see aScope 4 Cysto continuing to be very strong performing and a product that we are selling a lot. And then we do see the growing momentum on aScope 5 Cysto, where actually customers are willing to pay a premium for that product. And then we also see a very good increase in our aScope 5 Uretero. But again, with longer evaluation times and thereby longer selling cycles than we see in the scopes targeting simpler procedures. So I hope that that explains a bit what we see. Again, highlighting that we don't see any cautious or any need to be negative -- have a more negative view on this segment. It's simply the quarter-over-quarter fluctuations here.
Henrik Bender: To follow up on the second question and perhaps just a final note on the first, Thyra. I think for us also, we are illustrating this as a symbol and a signal of how we are becoming better and better at understanding the dynamics with our customers and predicting what patterns we should see, exactly, as Britt said, not pushing order flows into the customers, but rather managing it together with the customers. On the absolute tariff cost, you are right with an above DKK 50 million tariff cost realized in the first quarter. That means an above 3 percentage point negative impact in the first quarter on EBIT margin. And yes, you should expect also an above 2 percentage point tariff cost for the second quarter. That basically brings me back to when we -- as we explained earlier or end of last financial year, the tariff cost impacts our P&L with about a 1 quarter delay. And given that we are still in the tariff regime, where we are moving production to Mexico and thereby compensating for the tariff costs, and we've been doing so for the last 6, 9 months, then there will still be an above average for the year tariff cost impacting us in Q2, which will then go down further in Q3 and Q4.
Operator: The next question comes from Jesper Ingildsen from Carnegie.
Jesper Ingildsen: So I have a couple of questions as well. On the other Endoscopy business, I don't think you've called out specifically how much this phasing is equivalent to, but also whether we should see this in context of the 21% growth you delivered in Q1 or more like against the 20% trend line that we are typically seeing for this segment? Then maybe on margin, even when adjusting for the tariffs, it seems like you have a pretty big step-up in OpEx here in Q1, and particularly in the administration cost. Anything to call out here in terms of one-offs? Or how should we think of this for the rest of the year? Then lastly, on the margin side as well. You have updated your FX table in your report as well. So you're obviously assuming more pressure from FX, both on top line and on margin. Maybe if you could specify what kind of pressure we're talking about? And then maybe also similarly, what kind of potential impact we could see from increasing silver prices when it comes to your single-use electrodes?
Britt Jensen: Thank you, Jesper. I'll maybe take the first one. And I'm not sure. I mean, please correct me if I'm not fully answering your question. But again, the 21% that we -- growth that we had in Urology, ENT, and GI, that -- I mean, we focus mostly on the urology because that is the largest part of this segment. But actually, what -- when we look across, we actually see solid growth across all of these 3 areas. So that's just one thing to be clear about. Then I think your question was around the effect on the order flow, when we had a higher-than-normal order flow in -- towards the end of December. And maybe just a comment on that also relating to what I said before. I think -- why did we see this, you may ask. I think what -- some of the dynamics that -- I mean, that we expect is that, as you know, many are finalizing their fiscal years of our customers, the 31st of December. And sometimes depending on where hospitals and clinics are in their own budgets and that has actually, we have seen in previous years also has an effect on how they place their orders. So that is what we have seen. It's -- I mean, we are monitoring this obviously very closely into this quarter. It's not because we are flagging a big concern that we see right now, but it's more as we try to predict the inventories that we know are at the customer levels and when we should expect orders. This is basically where we see some of the quarter-over-quarter fluctuations and which is also why we are -- I mean, we are not really concerned because the key numbers that we track internally, and I know we don't share this is that we see a steady flow of new customers coming in, and we also see when we have the customers in that their penetration. So the share of procedures where they use our scope relatively to typically a reusable scope that, that is going up. And we do not see anything of concern here. So this is also why we feel quite comfortable around the growth here. So hopefully, this clarifies the answer. And that -- I mean, that is not only for -- that trend for urology, it's also when we talk about ENT and the customers we have in GI.
Jesper Ingildsen: If we were talking about like, let's say, 1 to 2 percentage point that was -- that supported the growth in Q1 or we're talking a significantly larger contribution.
Henrik Bender: Yes. So I think we don't size it explicitly, but it's a few percentage points. So I think this is why we want to be a little bit more clear on the impact and therefore, how you should interpret the 21%. On the margin question, Jesper, then I guess the 2 points you asked about was one on OpEx, OpEx ratio development and second, the impact from FX and other commodity prices. So on OpEx overall, you're right, there was an increase in the OpEx level, both on selling and distribution costs, where you see obviously the tariff cost impacting. But also on top of that, even if you adjust for that, you can see, as Britt explained also in the strategy update, our investments in commercial execution, i.e., salespeople in the front line, but also the whole infrastructure around our commercial execution still materializing. And this is a part of the plan of expanding our footprint of driving further organic growth and ensuring we have a strong field force in place. Specifically on admin costs, there's not anything particular to call out. There's a few extra costs related to some of our transfers and implementation of the changes that impacts the quarter 1, but there's not anything other structural to point out and neither a structural higher cost level than what we have been indicating before. In terms of external factors, you are right. We also in the table called out the FX developments between where were the -- when we reported Q4 last year, i.e., beginning of November and now we start of February. And most notable from that table in the report, of course, is the U.S. dollar drop, which is also what we monitor the closest. And of course, therefore, further drop in the U.S. dollar depreciation versus the DKK would still have a negative impact on our business. Net-net, the business is still, you can say, naturally hedged with the fact that we have our production across China, Malaysia, and Mexico. but that hedge comes with about a quarter delay, as we also explained in quarter 3 and quarter 4 last year. So there are still some FX fluctuations, and with the geopolitical uncertainty, that is still a topic that we will follow closely, but might impact one quarter over the other structurally over time. Not something that we are concerned with versus our '27, '28 or '29, '30 targets. On silver price explicitly, obviously, there's been quite some fluctuation in silver price over the past weeks and even this week. I think the short and the long is that, yes, it impacts our -- some of our BlueSensor business within Patient Monitoring. It's not a significant impact, as I think I explained to a number of you on the call also during the last few months and therefore, not something that we point out specifically.
Jesper Ingildsen: So in terms of the FX drag and then potentially from silver, it's not like we're looking more towards the lower half of the EBIT margin target for the full year at this point in time.
Henrik Bender: We don't guide where we are in the range, but just maintain our view that this is still the range despite what we've seen in terms of external headwind.
Operator: The next question comes from Martin Brenoe from Nordea.
Martin Brenoe: I actually have a few, but I'll just start with two questions, and then I'll jump back in the queue again. Maybe just catching on what you said in the prepared remarks, Henrik, I noticed that you said that there was an acceleration of respiratory in the quarter. So could you maybe help me explain how that development or trajectory looked like and what the exit rate was in Q1? Let's start there and then take the second question after that.
Henrik Bender: Sure. So as you correctly noted, both Britt and I talked about an expected acceleration in respiratory. We don't comment on what was it 1 month versus the other. But what we're clearly pointing out is that Respiratory had a, relatively speaking, lower growth in Q1 at the 8.3%, particularly given the high comparables. For the quarters ahead, we are expecting an acceleration from a combination of the underlying conversion to single-use of aScope 4 and aScope 5, the pickup in a higher ratio of aScope 5 share of that bronchoscopy sales and then specifically the SureSight launch, which now with the mobile increases our ability to do conversions, full conversions at hospitals, which both drive SureSight sales and also drive even more bronchoscopy sales. And that acceleration we expect to see continue throughout the rest of the financial year, not commenting on how we should see one quarter versus the rest, but more commenting on you should see an acceleration across the year. I just want to remind you all that we also guided for this financial year as part of our guidance, which we released in Q4 that we are expecting an acceleration of the respiratory overall growth, where last year landed at 11.4%, and we're expecting that to accelerate for the full financial year.
Martin Brenoe: Then with the risk of sounding a bit like a stalker here on this call, I noticed, Britt, that you have been in the very East in China, and you also flagged the aScope 4 Cysto launch in China. So I'm just a bit curious about this move that you're making here. Can you maybe just talk a little bit about the sort of the timing of the launch? What is the ASP versus your global ASP of the aScope 4 Cysto in China? And potentially not holding it up against you, but when should we expect China to become a meaningful contributor to your urology franchise?
Britt Jensen: Yes. No, and thank you for those questions, and happy to comment on China. So basically, maybe where I should start is that China is quite a small part of our business. It's significantly below 5% of our total business. So it's a very small market now. But obviously, I mean, it's a market where we -- despite health care reforms and volume-based procurement, we actually see opportunities. And I think that's really where we have spent some time diving into that to understand more from a -- more the long-term potential and is correct. I was in China last week also to understand a little further and to follow up on some of the decisions we made based on previous visits there. I would actually say that, I mean, when we look at the market, I mean, despite some companies really being significantly challenged in China, we actually see a healthy potential for our solutions in China. And the key difference relative to other companies, you could say, is that we have actually products that are serving a real need and that are also innovative. And we have spent quite some time understanding the situation with the volume-based procurement before we invest. I would also say, coming from a very low base, I mean, it will take a number of years before this is meaningful revenue. But we -- as part of the strategy, we also said that we invest in selected markets in Asia. China is one of them. India is another one, again, coming from a low base. But on a longer term, we believe that this is the right thing. We have a manufacturing facility in China that is -- that we have had for over 25 years that is actually running very well. So we can actually leverage that also to -- for our position in China and in urology, where we are very competitive with the solutions that we have. I think, again, what we are really leveraging here is that we have very strong and attractive manufacturing costs because of our scale relative to many other players. So that also means that we can be competitive. And then we also have solutions that are differentiated on a number of areas, and we continue to invest in innovation to a different level than other players. So that's actually what makes us quite confident. But let me just finish by pointing out that U.S. and Europe will continue to be the biggest opportunity when you -- and where you will see most of the DKK growth coming from in the future.
Operator: The next question comes from Tobias Berg Nissen from Danske Bank.
Tobias Nissen: I just have two questions. Also, you mentioned the order pull forward in Urology, ENT, and GI, like suggesting some budget flushing in this area. What kind of similar patterns have you seen, or have you seen a similar pattern in respiratory? And what are the underlying, you can say, customer dynamics here? And also in terms of flu, anything specific to call out here also into year-end and perhaps something you've seen here in January? That would be my first question.
Britt Jensen: Yes. Thank you, Tobias. I can take that. So I think in respiratory, we have seen more of a what I would call a normalized order pattern. So I think that -- I mean, we have not seen anything that -- I mean, where we think that there has been an increased buying for customers' own inventories. So that -- I mean, that's number one. Number two, in terms of flu levels, I mean, there has been -- I mean, the flu levels peaking also here around year-end with increased hospitalizations in the U.S. in particular. Now it has in the last couple of weeks been going down again. I think -- I mean, we do benefit from hospitalizations from flu, but we -- it's in a lower and lower driver of our respiratory business because our scopes are increasingly used for other purposes. So that's also why, I mean, a couple of years ago, this took up much more space than it does now. So -- but we do have some impact that I will not quantify overall. I think when both Henrik and I talk very positively about the respiratory segment, that's not something that should be seen as a short term or as the next quarter momentum. This is actually more of a longer-term underlying momentum that we see because we simply see, I mean, number one, an increased conversion to single-use endoscopy from reusable where we see very strong win rates of our -- from our solutions. So this is number one. And then number two, with an expansion of our portfolio with SureSight, I mean that is tapping into a new market, but it's also helping boost the bronchoscopy sales, both of aScope 4 and aScope 5 Broncho. So that's more of an overall positive effect that is less driven by some of these short-term elements.
Tobias Nissen: Just as in terms of -- you mentioned your high strong win rates here. Have you seen those go up after you expanded that portfolio, both with SureSight and also the newest SureSight Mobile might be a little bit too early to comment on that one.
Britt Jensen: Yes, exactly. Yes. So I mean, the SureSight Mobile, I mean, it's too earlier to say, because we are introducing it, and we are doing that just to clarify, where we are testing it with some customers to make sure before we do the broader commercial launch. So we are not at the broader commercial launch of that yet. But we definitely see that -- I mean -- and this was also very much our expectation with the launch of SureSight that, in particular, after we launched this -- I mean, the full set of blades, so early summer where we had 10 blades available, we have seen actually a stronger momentum because many of our customers actually like that we have: the full solution where they can use both the aScope 4, aScope 5 Broncho and SureSight on the same monitor and system. So this is actually very much something we see as a positive, and that we see also helping our win rate and our general penetration in the hospitals.
Tobias Nissen: I just have two short ones here. Perhaps just on Rest of the World, here, organic growth was a bit on the softer side, around minus 2%. And just looking at Q4, it was slightly up at 1%. Anything specific to call out here? Or is there some order fluctuation? What's going on? Then just on Anesthesia and Patient Monitoring on a bit softer side this quarter due to these tough comps. But what are you seeing like in terms of leading indicators that should underpin this mid-single-digit growth you're guiding for the full year?
Henrik Bender: So I can take both, Tobias. So on Rest of World, if we start with that, then it's a mix of two things. So first, as I noted in my presentation, part of Rest of World beyond the markets, as Britt say, where we are deliberately focusing China and India are 2 examples, which are part of this category. Then this category or these geographies also represent a number of distributor markets, where you will see 1 or 2 orders a year. And therefore, depending on whether it is one quarter or the other, that will, of course, impact the growth rate quite significantly. Specifically, if you go back and look at the same quarter last year for Q1, we had a number of big orders in this Rest of World geography last year same period, and that's a big driver of why you're seeing a lower growth now. On top of that, these markets are also still relatively speaking, more linked to our legacy business, Anesthesia and Patient Monitoring, relatively speaking, less to our endoscopy business. And therefore, they are also more impacted on where are we on A & PM versus where are we on ES, something that we are trying to change. And frankly, back to the question from one of your colleagues on the China visit, one of the reasons why we are pushing this agenda in these -- the endoscopy agenda in these markets because, of course, we see the same potential, though only at an earlier stage of the maturation curve. So that also means -- to follow up on your question, that Rest of World, we believe, will be a very nice growth driver over time once we are through the change of the legacy business and even more focus on endoscopy. Then ending on A & PM and the softer growth, I think as we explained, again, the growth for the quarter is mainly actually related to comparables. Comparables will become easier across the year. So that's one part of the answer to why we still feel comfortable about the mid-single-digit outlook for this business group. The other one is that we also still see us winning volume and also still see some areas, though much smaller for potential price increases. One of your colleagues again asked about raw materials. Obviously, when we see these raw material prices increase, we also go out and work on price increases on our products. So it's a combination of those 2 things that means that we still feel comfortable with a mid-single-digit growth for this segment or business group despite the low growth in Q1.
Operator: The next question comes from Yiwei Zhou from SEB.
Yiwei Zhou: It's Yiwei from SEB. I have two left here. Firstly, on the -- just follow-up on the tariff payments impact in Q2. I previous got impression that the payments would be a similar level as in Q1. So there will be a bit more than DKK 50 million, but less than DKK 60 million. I was just wondering in Q2, can you confirm that it will be the case? So the margin impact would be more than 2 percentage points or 3 percentage points instead of 2 percentage points.
Henrik Bender: So I think it's nice that you're trying to make us become more specific, but I think I will just repeat my answer from before and say, as we communicated earlier, tariff costs will be higher in H1. Now you saw a level for Q1 alone. I'm not going to comment specifically on Q2 relative to Q1, but just repeat what I said earlier, being that we do expect tariff cost to be above the level for the full year also for Q2, i.e., above 2%.
Yiwei Zhou: Now in this context, if we calculate, I mean, you guide 2 percentage point for the full year, and you are confident to mitigate when you go into next year. So how should we understand the second half? I mean, if I understand correctly, first half, you already have like more than DKK 50 million in Q1. Q2 will also be pretty high. Then you need to deliver a step-up in the second half sort of to mitigate and also to ramp up the production. But we understand, I mean, this production ramp-up will take effect gradually through the year. So how should we understand the step change in the sort of the margin impact here in the second half?
Henrik Bender: So two clarifications. I think, one, we are guiding around 2% for the full year. So not explicitly 2% exactly, but around 2%. I think the second thing I will say is that, as you correctly note, the production transfers are a gradual process, but particularly the products that have the highest cost impact in terms of tariffs are the ones that are now really ramping up and have actually been ramping up for the last few months. Because as I also said earlier, the realization of the tariff cost happens with about a 3-month delay in our P&L. In other words, therefore, I feel very comfortable in terms of the momentum shift, to use your word there, i.e., drop in tariff costs that we are expecting to see in Q3, Q4 because it's driven by the production transfers we are seeing happening right now and the ramp-up that have been started and are in the middle of taking full effect as we speak. So in that sense, those are the main drivers of that cost momentum shift, i.e., drop in tariff costs between Q2 and into Q3 and ultimately Q4.
Yiwei Zhou: Then next question to Britt. Also, on the cystoscope potential in China. To my knowledge, this market segment in China has been very competitive and there has been a lot of conversion post COVID. And there's also a number of Chinese single-use players competing to each other pretty intense. Britt, what gave you the confidence to enter this market?
Britt Jensen: Yes. No, this is a good question. And I think you're absolutely correct that there are a number of players in this market. However, I think -- and I mean, you know a lot about this market, obviously. But I think if you're in a position like we are, where you have number one very competitive, low manufacturing cost relative to competition. And then number two is a company that invests in innovation, then you can actually have a strong position in the marketplace. And it is also a large and attractive market. So far not -- I mean, it has not been included in the volume-based pricing. I think when you look at China overall, the market that is slightly more competitive, I would say, is the market for ureteroscopy specifically. So I think that with our experiences in the Broncho segment with our bronchoscope, where we are actually -- I mean, where we are -- despite also competition, we are by far market leaders in the segment and some of the -- I mean, the benefits that we have in terms of a competitive solution, we believe that there is -- I mean, we will not be the only player in this market, that's for sure. But -- but I think we should be able to gain a sizable position winning over competition also over time.
Yiwei Zhou: I just want to follow up on this. I mean in the Chinese endoscopy market in general, we know that the Japanese reusable manufacturers used to have a very high market share and China has always been their main focus. But given sort of the increased geopolitical tensions now between China and Japan, I mean, based on your learnings from the trip, are you seeing that -- do you think this will potentially push sort of a faster market conversion to the single-use in China?
Britt Jensen: Yes. No, it's a good -- this is actually a good point. And I discussed, I mean, with a couple of different, I mean, local out there around the whole Japan situation. I'm not -- I mean, I'm not fully convinced to be honest, around how much that will impact. I think what will more drive the market growth is, I mean, there's a need in China for health care to a broader part of the population and the fact that we are able actually to support with our solutions delivering that they can do more procedures less -- I mean, more at lower cost and also the whole investments into the capital equipment that is -- that some of them also struggle with. I think that is more one of the drivers. I'm not -- and it could be the whole China, Japan issue can have an effect, but I'm not fully convinced that that's more maybe based on the mixed signals that I got, but it's a good perspective.
Operator: The next question comes from Delphine Le Louet from Bernstein.
Delphine Le Louet: Just a quick follow-up effectively on the tariff, and specifically to the Mexico ramp-up and actual levels of manufacturing and production and the one we can expect over the course of the year. So I really understand, and thank you for the precision regarding the lag effect in between the manufacturing and in a way, the invoicing. The second question will be -- and will deal with the CapEx allocation, probably broadly and just thinking about the free cash flow. And so thinking about the CapEx when it comes to allocation to innovation and when you think about the innovation in between the products and also in between the, let's say, EndoIntelligence you've been axis on. So that would be interesting to see and also if there is a bit of a seasonality here. Finally, can we get a broader view, Britt, on the sales force organization in North America, how that has changed over the course of Q1? What is left to be made? Any comments on that would be appreciated.
Britt Jensen: Yes. Thank you, Delphine, for good questions. Let me start with the last one, and then I'll hand over to Henrik. So I think we have -- I mean, we have definitely -- while we have a strong presence in North America in terms of our own commercial field force that is actually working well, we have -- based also on the growth and the demand, we've seen a number of areas where we could optimize. And as you also know, we brought in a new leader, Scott Heinzelman, who joined us end of August. And together with the team, he has been implementing a number of initiatives that can basically support also our way of serving the customers and improve how we do that. So you can say one thing is, I mean, slightly restructuring how we approach the customers, not only in terms of territory restructuring of our product focus, but very much also in terms of how we are set up to better address the health systems rather than the individual doctors, given how the U.S. market is evolving. And then, I mean, we already have a pretty good position and set up with -- to work with IDNs and GPOs, but that's also where we have seen some ways that we can further strengthen our presence. So I think some of what we are doing to just sum up is that we are adding some more headcount and as we are -- we have been adjusting the structure a bit to make sure that we have enough feet on the ground to serve our customers. And then some of it is also improvements in how we operate. That will also give us some more ability to serve the customers. So I feel confident we have -- to your question on timing, we have done some of these initiatives in Q1, but that will -- I mean, it will actually be more something that we are focusing on in this quarter and next quarter.
Henrik Bender: So on your other two questions, I'm not sure I fully understood what exactly you're looking on in tariff costs specifically. But I think the ramp-up, as I understood your question, I think it was mostly related to the ramp-up in Mexico, the timing effects and how much further we can ramp up. I think the overall message there remains that we have a very big factory, fortunately. In Mexico, we feel very good about that and particularly now under the USMCA trade agreement with U.S. that is, of course, has been and remains a very critical strategic site of ours in North America next to our factory in Noblesville. We are still have plenty of extra space in Mexico. And I think I've been quoted before for saying we only take up about 50% of the physical space there. I think now we're starting to go a little bit above 50%, but not much. So there's still a lot of space left. And that ramp-up is a continuous ramp-up at the same efficiency level, as we also discussed before, as we see in Malaysia, when you account for slightly higher direct production costs, but on the other hand, of course, lower distribution costs between Mexico and Malaysia. So it's happening at a net 0 gross margin impact when we transfer our product. So overall, we're really comfortable about that. And that ramp-up is happening. And as per an earlier question, particularly now on some of the higher-value products that have been driving higher tariff costs. And therefore, as we see that happening right now, that will also flow into the P&L, not in this second quarter, but particularly in the third and fourth quarter of this financial year. So I hope that answered the question on tariff costs and the link to Mexico. On CapEx allocation, you are right that we are continuing to increase our CapEx allocation or CapEx investments in general. I think they mainly fall in 3 categories. So there's, of course, the serving of the existing hardware portfolio of particular endoscopy products, which is the vast, vast majority of the focus of our R&D investments. But a larger and larger share of this also goes towards EndoIntelligence, i.e., software, AI, but also the monitor and the monitor processing itself. I'm not going to split that in detail, but those are taking up a higher and higher portion. And as you can see also in the notes of the quarterly announcement where you can see R&D costs adjusted for depreciation and amortization and then added back CapEx, you see quite a significant higher investment R&D-wise this quarter versus same quarter last year. The only last thing on CapEx is, of course, we are also then looking at what are other investments across the company, they fall in the category of, like, Britt said, some of the systems and tools we're doing for commercial investments and ultimately, also what are the inorganic opportunities we see next to all of this that could accelerate our innovation road map and could, you can say, yield further growth potential on top of our organic growth ambition.
Delphine Le Louet: All right. But please, just to be back into this production ramp-up, can we think about a 60% by the end of the year in Mexico? Or is it too -- in a way too aggressive?
Henrik Bender: I think that's probably a little bit too aggressive in the sense that the physical space is so big. So I think the way you should rather see it is that we want a higher and higher share of the North American market to be served by Noblesville and Mexico. Again, we're not giving specific percentage ratios, but there is a substantial step-up happening that has actually been undergoing for the last 12 months, but now is still undergoing right now as we speak.
Operator: We now have a follow-up question from Jesper Ingildsen from Carnegie.
Jesper Ingildsen: Just have a question on the Section 232. I wondered if you had a view on the timing of potential outcome here and whether you think that the U.K. -- USMCA would still stand in if this goes through. Just wonder if you had any insight to that and maybe on the back of discussions with the AdvaMed.
Britt Jensen: Yes. No, thank you for that. And I think it's -- we are, of course, in close contact with people that are close to the matter. And I think it's a little premature to speculate too much. However, I think -- I mean, the signs at least that we see now, and obviously, we are preparing for different scenarios is that it's, number one, it's likely that it will come out in the next month or maybe 2. I think that seems to be the case. Then you could say also in terms of USMCA, that seems to be so fundamental in terms of how -- I mean -- and important to the U.S. market. So it seems also, again that this setup is expected to continue. So I think we, of course, prepare for different outcomes, but it seems to go in a direction like that. And then, of course, on top of the Section 232, there's also the whole court case around tariffs in general. And we are a little unsure right now about whether they're waiting for that before the 232 conclusions. But I think it looks -- I mean, with the different scenarios that we have been planning for, it looks very likely right now that -- I mean, that it will end in a way that supports our ongoing plans.
Operator: We have a follow-up question from Martin Brenoe from Nordea.
Martin Brenoe: Actually, most of my follow-ups were taken in the previous follow-up, but just one simple question. When you are doing these mitigation actions, can you just verify for me whether you are behind the plan in terms of the mitigating actions, you are on the curve or you are ahead of the plan here end of Q1 would be very helpful.
Henrik Bender: That was a clear and simple question. We are on plan, neither ahead or behind. So we are on plan.
Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Britt Meelby Jensen for any closing remarks.
Britt Jensen: Thank you very much. And my only closing remark will be a thank you for listening in on today's call and also thank you for very good questions. So we wish everyone a good rest of day from here.
Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.