Ambu A/S (AMBUB) Earnings Call Transcript & Summary

Hello, everyone, and welcome to today's conference call with Ambu, where we are going to announce and talk about our results from Q2 and the first half of our fiscal year '24-'25. My name is Britt Meelby Jensen. I'm the CEO of Ambu. And with me today, I have the pleasure of introducing Henrik Skak Bender, our CFO. We will start with the presentation of the results, and then we will open up the floor for questions. But let me start with the highlights and the key messages that we have. If we look at the first half of our fiscal year, we delivered a solid organic revenue growth, bringing our first half of the year up to a total organic revenue growth of 15.4%. This is in line with our own expectations and in line with our adjusted guidance from January. Also, we had a strong start on our very important launch, Ambu SureSight Connect, and we continue good momentum on our urology launches when it comes to our aScope 5 Cysto HD and our ureteroscope. I will come back later and talk about these launches. Then we continue a strong EBIT margin where we have 15.2% EBIT growth in the first half of the year. And then last but not least, today, we confirm our guidance that we came with an upgraded guidance in January -- in January this year, sorry, with 11% to 14% organic revenue growth and 13% to 15% EBIT margin before special items. Let me look at some of the results that we have for the quarter. So in this quarter, we delivered -- just go one back. In this quarter, we delivered 11.7% organic revenue growth. And if we break that down into our two business areas, it's Endoscopy Solutions growth grew by 13.1%, and we had 9.8% growth in Anesthesia and Patient Monitoring. These results comes on the back of very strong results from our first quarter in this fiscal year and also strong results in our second quarter last year, which is the year we used to compare. Also, when we look at our EBIT margin, we delivered before special items, an EBIT margin of 14.4%, and we had a positive free cash flow of DKK 80 million. Let's look at some of the progress on our strategy because we do remain ahead of our plan when it comes to our strategy. And there were a number of highlights in the quarter from -- on all categories. When we look at our solutions, the two key highlights and the two key news was, first of all, the SureSight Connect launch, both in U.S. and U.K., our videolaryngoscopy solution that I will come back and talk more about. And then we also strengthened our urology portfolio in Europe with the CE Mark expansion, where we can now also use our aScope 5 Cysto HD to function in cysto-nephroscopy. These are procedures that are used either when you diagnose and when -- or when you treat the full urinary tract. Then when we look at operational excellence, we continue to progress with our transformation program where we are looking and completing different areas of improvement across the company. These are continuing to deliver in alignment with our long-term EBIT guidance. And we are also continuing to invest in growth as we optimize and bring the organization to a scalable setup that allows for the future growth targets that we have. Then specifically on Mexico, I want to highlight that this is a factory that we opened 2.5 years ago now and where we have ramped up quite a lot. And now we have a very high efficiency level in our manufacturing, which is comparable to the other sites and specifically to Malaysia, where we have our endoscopy manufacturing. On sustainability, we kicked off in the quarter our Recircle program. It's a program that we are, as a start rolling out in four markets: Germany, France, U.K. and U.S., where we, across all four countries have hospitals signed up where the idea is that we collect and recycle our endoscopes. Then on the culture, we continue to be very focused on the people and culture. And under this headline, I'm particularly happy and proud that we last week welcomed Jesper Johnsen Steen as our new Chief Marketing Officer and who's also part of our executive leadership team. Let's look at some of the business results in the different areas, starting with Anesthesia and Patient Monitoring. Here, we delivered an organic revenue growth of 9.8%, as mentioned earlier, and on a reported growth taking into account FX, it's 11.6%. This is -- this brings our -- when we look at our rolling 12 months, we are still above 10% with 10.9% growth versus our long-term target, which is slightly lower. And what we have seen is both an increase in price levels, but actually also an increase in volumes in the quarter. We continue to focus on pricing governance as a key lever in this segment. But I also have to say, as we have previously communicated that some of the above normal price increases that we have taken were primarily in effect in Q2 last year. So that means that this quarter was the last quarter where you should expect an abnormally high effect from prices. I also have to say that what happened was that we basically didn't lose any significant amount of contracts as we had as a plausible scenario. However, what happened was that in some of the contracts, we did lose exclusivity, which means that we are still closely monitoring whether we will lose some of the volume in some of these contracts because they are starting to test competitive products. So far, we have only seen a very minor effect of this, but it also typically can take a couple of quarters before this kicks in. Now let me turn to pulmonology. In pulmonology, we had an organic revenue growth of 8.5%, reported, including FX, 9.8%. And if we look at the trend, which is what we are very focused on, we still see an above 10% growth when we look at rolling 12 months. If we look at some of the growth drivers in the quarter, I would like to highlight the aScope 5 Broncho, where we, in particular, in the U.S.A., continues to see that being a strong growth driver. Then I'd also like to comment on the flu season because that did have a small impact on our overall growth. However, when we go back and analyze with our customers, it looks like the 18% growth that we had in the previous quarter was also impacted by customers buying in expectation of a high flu season. So you should look at the impact on the flu season being distributed both on Q1 and this quarter, Q2. Also, I think it's worth noting that the impact of the flu continues to be to have a lower impact on our pulmonology business because the mix of sites of care that we have is getting more balanced. So it's -- to a larger extent, being used for procedures that are not relating to the flu. However, when we then look ahead on this pulmonology segment, I'm extremely excited and confident about future growth. And this is not least fueled by our SureSight launch, which is a launch that is so far in the U.S.A. and U.K. and which will both open up to a new market, and it should also have a positive impact on our bronchoscope revenue in these markets. And let's take a closer look at this launch. So we launched, as I said, in U.S.A. and the U.K. after -- and we did that after a shorter period for what we call our controlled market release than usual. So what many of you will know is that we typically, when a product is approved, we test it with a number of customers for a certain period to confirm that there are no quality problems or challenging with the product, and it's also part of ramping up our manufacturing. We had overwhelmingly strong feedback and didn't see any hiccups. So that also means that we quickly moved into what we call our commercial launch of this solution. As I said before, what is important to keep in mind when you look at this product is that it's a videolaryngoscope, which is a market that is very well established, in particular, in the U.S.A. and U.K. when it comes to the OR. And it's also a market that is getting more and more established in ICU and emergency care. the benefits of using a videolaryngoscope over a direct laryngoscope is that it improves the visualization. So the success rate when the doctors are using a laryngoscope because of the visualization and then it also improves the patient safety. For us, because we have designed it in a way that it works on the Ambu systems platform, it means, as you can see on the picture here that you can use it together with our bronchoscope and actually have a dual view on the screen and you plug it in and use it separately if that's what you prefer. And that means that, that whole solution is really helping both advance our bronchoscopy revenue, but also to open up to this videolaryngoscope market. So we are very excited about the feedback that we see and the uptake that we have seen in the very early phases of the launch. although I should say that it still has a very minimal impact on the revenue in Q2 that we are reporting on today. Let me look -- turn to the remaining part of our endoscopy revenue, urology, ENT and GI. Here, we posted an organic revenue growth of 18.3%. This is slightly lower than the last 12-month rolling revenue growth of 23.4%. When we look at what is driving growth, it's primarily it's the Cysto, aScope 4 Cysto, it's our rhinolaryngoscope, and it's both new customers buying and existing customers buying more. This growth is lower than what you have -- what we have in the last 12 months. And the lower growth, we believe, is, to some extent, temporary or to a large extent, temporary. What is mainly driving it is if we look into the U.S., where we have seen new competition primarily coming from Chinese players. Remember that we were the first to come out with an aScope 4 cystoscope, and we have been alone in that market until recently. These competitors are coming in, and they do exactly as our sales cycle, they do tests and use the product in procedures before they are open to sign up to a product. And that whole testing period does mean that we are temporarily extending our sales cycles. We are, of course, taking this competition serious, but we are also reminding ourselves that these solutions are -- we don't perceive them to be better than our solutions. Also, I mean, for these -- and it's primarily our only Chinese companies that are entering, they also -- we don't see them having a manufacturing cost comparable to ours. So we, of course, expect that this -- that we should remain very competitive in this segment, and it's also a way for us to continue to see an expansion of the segment where there's still a lot to gain from customers using reusable today. Then I also want to highlight for this segment, our new product launches because we launched in Q1 of this year, we had the ureteroscope and we had the aScope 5 Cysto HD launched. These are products that we believe over time will contribute to an accelerated growth in this segment. However, due to our sales cycle, this is not yet producing meaningful revenue. And to illustrate these dynamics in our sales cycle, let's stay with this segment and look at what is driving our revenue because what we actually do see is that our endoscope solutions that we are bringing to the market, they, in general, have long life cycles. What you see on the graph here where we have taken, I mean, the urology, ENT and GI last 12 month rolling revenue, you can see that when we look at the Q2 last year, we had over 90% of the revenue coming from existing solutions. So this is aScope 4 Cysto and aScope 4 rhinolaryngo. And that means that our new products generating less than 3% of the revenue. If we then look at this 1 year later and new solutions being defined as solutions that have been launched within the last 2 years, we actually see that still over 90% of the revenue is coming from our existing solutions. So this just underlines the message that I just had before around that the sales cycles are long, which means that the launch uptake curve that you see for our endoscope solutions is, in general, not very steep in the beginning. This is in particular true as we have seen for new solutions that address more advanced procedures, which is the case with, for example, our ureteroscope, which, as you are well aware, is for kidney stone management, which is typically a procedure that is longer. We, of course, as we should do, continue to see how we can learn and optimize our launch process, and we take customer feedback and learn from that. And in the case of our ureteroscope, we have also deliberately had a slightly lower manufacturing ramp-up in order to make sure that we were able to manage the right quality because this is a product that is characterized with very specific features that are both for the reusable and for the single-use can be difficult to get right. Before handing over to Henrik, let me finish with an overview of the four business areas that we are in because we are actually excited as the pioneers and first movers into single-use endoscopy. We are still the leading single-use endoscopy player globally across all these segments. Also, as you see on the bars here, we continue to have a lot of white space in all of the segments, less in the pulmonology segment where we entered first and white space, meaning customers that are using reusable endoscopes today that can convert and are converting to single-use. Also, if you -- what you see on this is that what we see as growth drivers when we look ahead is both for pulmonology and urology, it's very much the mix of the existing products that we believe will continue to grow and then some of the new launches, new solutions that I've talked about in this presentation. When we look at ENT, I mean, we have a next generation in development, but we continue to see solid growth coming from the first version that we launched around 6 years ago. And in GI, it's an area that we are newer into where we see growth coming from some of the new solutions, mainly being our gastroscope and gastro large. All of this, last but not least, we have a benefit with our leadership position that we can leverage the digital -- our endoscope systems platform, our digital system that also includes increasing amount of software. We have the benefits of also having a cost-efficient setup and the flexibility for the customers that they can plug any of our scopes into that system and then start working immediately. So with this, I'll hand over to you, Henrik, to go through the financials.

Thank you very much, Britt. Thank you very much, Britt. And before I dive into the financials, I just want to reiterate what Britt also started out with saying being we are very satisfied with what we feel is a good Q2, in line with our own expectations and also in line with the increased financial guidance that we upgraded back in January. So if we start looking at revenue, as Britt explained, we reported a revenue of 11.7% organic revenue and in reported currency, 13.7%, mainly driven up by positive effects in the U.S. dollar DKK currency. If you look at how that splits beyond the product split also geographically, we were very happy to see continued solid growth both in North America and in Europe, driving our overall base up and also driving up across all categories of products. From revenue then driving into margins, we also delivered a solid EBIT margin in quarter 2 mainly driven by continued progress on expanding our gross margin, but also with what we feel was a good result in terms of our OpEx and OpEx leverage. This is a continuation of the journey of expanding our EBIT margin, which is part of our zoom-in strategy, and I'll come back to how we view the current status and also how we view the journey ahead. On EBIT margin, if we start looking at gross margin, we had a gross margin of 60.6% in quarter 2, which is an increase of a bit more than a percentage point versus the same quarter last year. This increase is mainly a combination of, one, that we continue to grow more in Endoscopy Solutions than A&PM. And even despite the price increases in A&PM, that is still a higher gross margin. That said, the price increases in A&PM are still supporting and increasing gross margin also. And last but not least, we also continue to see improvement on production efficiency across all our sites. And as Britt also mentioned, particular now also more efficiency in terms of output from our Mexico site, even though we are still not fully utilized. And therefore, we still see potential for even further production efficiencies ahead of us. If we turn to OpEx, we had an OpEx ratio in the quarter of 46.2%, which is actually higher than the quarter 2 of last year. This increase was planned and part of the commercial acceleration, the commercial investments we've been talking about for the last quarters, investments, particularly in supporting our sales growth within the pulmonology and urology space, where, as Britt said, we have had new product launches. Furthermore, we also continue the investments in generally ensuring we have a strong and scalable organization and ensuring that we can continue to deliver and support the organic growth targets that we have ahead of us. That also means that for the rest of the year, we continue to see some further investments, but that said, also see more and more leverage as we look further ahead in the future. And on that note of looking further ahead of the future, if we look back towards when we launched the zoom-in strategy and ahead towards the targets we, as part of the zoom-in strategy communicated for '27, '28, we feel very confident on the progress we've made already. As illustrated on the slide, we are now more or less, you can say, halfway through the strategy period and with this quarter delivering more than 15% EBIT margin, which we are very satisfied with. As communicated in our Q3 and Q4 of last year, we still see more EBIT margin expansion ahead of us, of which, generally speaking, we feel around 1/3 of that expansion should come from gross margin improvements, further price increases, better production efficiencies and generally better utilization of our manufacturing footprint and 2/3 of the remaining margin expansion coming from OpEx leverage, making sure that we make the most of the investments we do in new product launches with new innovation and also making sure we leverage our sales force even further than we do today. So overall, we feel very confident that these are still continuous steps towards the direction of meeting our long-term financial target of approximately 20% EBIT margin. In conjunction with talking about EBIT margin and in conjunction with looking at the world, it's clear for everybody that the first quarter of this calendar year, our second quarter in our financial year has been a quarter with a lot more geopolitical turmoil. Therefore, we today and with our Q2 message, also wanted to reiterate that we will -- we remain confident about our guidance, and we remain -- we feel well positioned to manage the potential impacts on tariffs on our business. Our main priority remains to support our customers around the world. And that also means that our focus is very much on ensuring that we can deliver products despite tariffs and despite challenges in parts of the supply chain or potential challenges in distribution. If we double down on our manufacturing footprint, we feel that our setup with manufacturing sites in U.S., in Mexico, in Penang, in Malaysia and in China enables us to be flexible around where we produce. And now with an even stronger output efficiency, particularly in our Mexican site, it enables us to also move across production where we see fit, both for short-term optimization and for long-term strategic opportunities. Generally, therefore, we feel confident that we can deliver on our guidance. We can continue to support our customers on every basis of what we know today on the tariff situation. Turning from margin and growth to cash flow. We also had a solid cash flow in Q2, we feel, with a free cash flow of DKK 80 million. That said, it's also clear that in our cash flow, we still continue to have a higher net working capital ratio, which I'll come back to in a second, than we have had in previous quarters in particular than we had in the last financial year. This is in part due to preparations for the product launches, particularly both the VL and the Uretero solution, but also in part us making sure that we, as I said before, can continue to supply products to our customers around the world. And therefore, we are accepting slightly higher inventory levels across our supply chain. Therefore, if we double-click on the key drivers of this, we feel, generally speaking, that cash flow of about DKK 150 million, just short of DKK 150 million for the first 2 quarters is a good start and also that we can still deliver on our soft guidance of delivering around or plus DKK 500 million free cash flow for the year. The cash flow continues to be positively impacted by our increasing EBITDA margin. But then again, as I said before, negatively impacted by a higher net working capital ratio, in particular, higher inventory levels. Last but not least, ending where Britt started and where I started, we remain confident in maintaining our guidance -- financial guidance for the full year, the financial guidance that we upgraded in January, both on organic revenue where we remain confident guiding 11% to 14% growth based on where we are year-to-date and based on the continued momentum we see both in the market and with new product launches, both within Endoscopy and within Anesthesia and Patient Monitoring. Secondly, we also feel confident about our EBIT margin guidance of 13% to 15%. Obviously, that means that we are still expecting a slightly lower EBIT margin for the second half of the year, given that we are just above 15% year-to-date, mainly driven by continued investments in the commercial organization and also continued investments in our product launches. Last but not least, we also remain confident on our guidance on cash flow, plus DKK 500 million despite the slightly lower cash flow for the first half year. That ends our presentation. And again, we feel confident and now ready also to answer any questions you may have. Thank you for your attention.

[Operator Instructions] Our first question comes from Anchal Verma with JPMorgan.

Britt, Henrik, I have two questions, please. The first one is on endoscopy. You've mentioned that you expect to return to 20% plus growth rates. Are you able to put a time frame on that? Is that potentially a target for next year when you start seeing the benefits come through from the new product launches? And then the second question is on tariffs. We understand you're relatively well protected this year given the September year-end delay in implementation and supplying USMCA products from Mexico. But how should we be thinking of next year? Are you able to provide any quantification in terms of sales or EBIT impact for FY '26? How quickly can you move the facility to Mexico? And what products do you think or potentially not -- you wouldn't be able to move from the Malaysia facility into Mexico? And any numbers around this would be really helpful.

Yes. Thank you. And maybe I can start. I think when we look at the segment and our statement around we will return to 20-plus, we deliberately didn't put a time frame because the way that we look at this is that, I mean, this was an illustration of this is the level that we believe we should be at, and we also feel quite confident that this is, I mean, where we will get to. So I think that's how you should look at it. And I think we talk about some of the -- I mean, that it was lower than the 23% that we have in the rolling LTM is really something that we see as temporary. And we still see on the aScope for both system and rhinolaryngo that we continue to see a solid progression with new customers and with also existing customers buying more. And then we will gradually, as we also explained, see our new customers have -- our new launches, sorry, have an increasing impact that is not going to be big in this quarter or the coming quarter, but this will be a gradual uptick as we have tried to explain our launch curve. So I think that's how to think about it. Maybe a few comments from my side on the tariffs and then Henrik can add. So what we feel very confident about is the Mexico factory that we opened 2.5 years ago. And as we also talked about, where we actually have both an efficiency level that is on par with what we have elsewhere. So that has been -- as it does when you open a new factory, it takes a little bit before you get to that efficiency level. And then secondly, where we also have a lot of spare capacity. So that actually means that we are able to -- and we have had in our long-term plans that we gradually will move more manufacturing to Mexico in order to also have a fully global setup where we manufacture our products close to the customers. Right now, the -- I mean, the majority of our products that we are -- or solutions that we are selling in the U.S. are actually produced either -- I mean, some of it in the U.S., but actually also a large part of this in Mexico. So that's also where -- I mean, we see no reason, and it was in our plans tariffs aside to continue to ramp that up so we can also be more flexible and produce close to the customers, reducing freight costs. So that's very much in line with our plans. We are not -- we, of course, have different scenarios, not knowing where the tariffs will end, but we do feel that with that flexibility, we are actually able to manage some of the different scenarios that we have. And the good thing is that we do have a lot of very recent experience in moving production lines because this is what we have done as we have ramped up in Mexico. So that also enables us to act quickly to some of how the dynamics are changing.

Yes. So I think already provided a good answer. So I think the only thing I would close out with saying if we obviously don't comment on what this could mean for our financial performance next year. But building on what Britt said, I think we feel quite confident that if -- because I think it's important to underline that if tariffs, as we at least know them today, are actually implemented, then we have a lot of measures to mitigate impact from those tariffs. And therefore, it's not a concern for us that this will have a major business impact.

And then maybe the last thing, I think this is pretty clear for most of you, but the products that we are manufacturing in Mexico, they are under the free trade agreement, USMCA between U.S., Mexico and Canada. So we don't have any tariffs on these products just to make that statement super clear.

Absolutely. Thank you.

Maybe just a follow-up on that. I'll ask it in a different way. Can you tell us how much of your U.S. products are currently produced in Malaysia? And out of that, how quickly do you think you can move those products into Mexico? Or are there specific lines that you think will take a little bit longer to ramp up in Mexico?

So I can perhaps take that. So we don't comment on the volume split and for many reasons, one, because we don't go to that level of detail externally, but two, because the volumes are actually already moving as we speak. So I think the comment I will give is that we are, as Britt said, moving more and more towards Mexico or Noblesville where we can. And most of our high runner products now, particularly obviously within Broncho and urology are now mainly produced in Mexico.

The next question comes from Niels Leth from Carnegie.

First question on your gross margin. So what kind of gross margin progression have you built in for the next few quarters. Should we still expect a headwind from the launch of the videolaryngoscope going into quarter 3 and quarter 4? And I guess there will be an effect from the U.S. dollar and potentially from tariffs as well if you book tariff cost under cost of goods sold? And then my second question would be around your tax. You didn't pay or your effective tax rate was unusually low in this quarter. Can you just comment on that and give us some kind of guideline for the full year?

Absolutely. And thank you, Niels, for the good and detailed questions, as always, much appreciated. I think in terms of gross margin, first, we don't comment on all the details, but I will give you a couple of hints also building on what we communicated before. So if you -- if we start with VL and our product launches in general, you are right, as we communicated also in connection with Q1, we are expecting partly in Q3 and in Q4 that there might be extraordinary investments to support the launch of these products, mainly investments in capital equipment, so monitors that at the initial sale will come at a slightly lower gross margin. So that is also built into our forecast for this financial year to allow for some of these investments that obviously are investments to secure future growth as they are part of converting customers into our solutions. Secondly, also, as you correctly note on gross margin, obviously, here, we are still also in the quarter we are talking about now positively affected by the U.S. dollar, and that helps on our margin, both gross margin and EBIT margin. In terms of the future, with a depreciating U.S. dollar, that could have a negative impact on our business and both on gross margin, but also EBIT margin. And that's also why in our Q2 report, you will see we comment on the currency risks also as we look ahead in the full year financial guidance. And given that we guide on reported EBIT margin, then of course, that's something we are observing towards. But with what we know today, we also feel confident that even despite or even with, sorry, potential negative currency effects, we can still stay within our EBIT guidance of 13% to 15%. Last but not least, tariffs is a little bit of a mixed story. Actually, a significant part of the tariffs cost would impact our OpEx and a little bit less our gross margin. Simply put, if we import a subcomponent, so a not finally assembled product, it will mainly hit our gross margin. if we impact a finally assembled product into the U.S., it will mainly impact our OpEx. So actually, the potential impacts of tariffs will, to a larger extent, impact our OpEx cost and a lesser extent, impact our COGS and therefore, our gross margin. Tax, also thank you for asking that question. It is correct that we had a lower tax ratio in quarter 2, mainly because we have had an old tax case with the Danish tax authorities. You'll find it in the note where we now got confirmation from the tax authorities that we were right in our position. And therefore, we actually reversed an accrual that we have put aside for a tax upside in the quarter and also had a payment from the tax authorities that just came in just after the quarter actually. So this will not impact -- it has not impacted the Q2 numbers as you've seen it for now, but it's more impacting cash flow-wise, the Q3 numbers. This is an extraordinary case. Otherwise, besides this, it's normal business and the effective tax rate, therefore, also going forward, you should be expect to be as you've seen in the past.

So you're still expecting the effective tax rate for the full year to arrive at around 23%.

It will be a little bit lower because of this one-off effect that will still impact this financial year. So I'm more talking Q3 and Q4, you will see effective tax rates that are more similar to what you've seen in normal quarters. For the full year, the effective tax rate will be a little bit lower to your point, because it is lower here in Q2.

And just to understand the tariffs that you have built into your guidance. So you have assumed that you will start paying tariffs from quarter 3 or quarter 4 this year?

Yes. So as also based on the question from JPMorgan, I think the point here is that we only pay the tariffs really when -- or you see the tariff cost when we start selling the products that have been impacted or imported, sorry, with tariffs. So the real impact, you will only really see partially in Q3 and then secondary in Q4, again, depending on where the final tariffs end. Back to Britt's point, obviously, everything produced in U.S. and everything produced in Mexico under the USMCA compliance free trade agreement is completely tax -- sorry, tariff-free. So it's only the products that we produce either from China and of course, mainly the products in volume at least because that's the biggest relative split coming from Penang in Malaysia. There, you will see some of these tariff costs impacting partly Q3, mainly Q4 based on what we know today.

And I think as Henrik also said earlier, we are not providing any details on how much is coming from where. But I think we can say that from the tariff-free area, so U.S., Mexico, it's more than half of the revenue in the U.S. that is from these areas. So that's also part of the mix. And I don't think we can be more specific...

I think also on the question of how fast can we move production lines, it is a 6 to 9 months period. So I think in that sense, also coming back to the question previously from JPMorgan, I think we feel comfortable that there's a lot of mitigating actions we can take also going into next financial year if the tariff situation plays out as what we know today. And obviously, we are in preparation mode for whatever might come, but really focused also on making sure we follow through with the longer-term strategic plan, which is to rebalance our production footprint to bring it closer to our customers. to add agility and lower distribution cost and cost of goods towards the customer in the end.

Our next question comes from Martin Brenoe in Nordea.

I have three questions, if I may. First question would be on what you're seeing in -- particularly in the U.S., but in general, also what you're seeing as a consequence of the tariff announcements. So have you seen any change in behavior shortly before the tariff announcements, particularly from Chinese competition. And maybe if you can also comment a little bit what you have seen after the tariff announcements and whether you have seen any change in behavior, for example, have the Chinese manufacturers stopped shipping to the U.S. in the time afterwards? And have there been any stocking impact if you have seen any flushing of the market during the last quarter? That's the first question. And the second question is, and I really hope that this is the last quarter I will have to formulate this question in this way, but you have now seen a slowdown six quarters in a row in ENT, urology and GI. when do you expect Ambu to trough out on this particular segment? I can see you've got easier comps going forward. I can see you have a lot of interesting product launches that are seeing encouraging trajectory. So if you can specify that a little bit, it would be very helpful. And then lastly, just on net interest-bearing debt continues to be more and more negative. And I guess that it must be nice to have a big war chest, but I am keen to also hear how you plan to make use of this strong balance sheet as it continues to grow.

Yes. I think I can start on some of the first questions. So first, on the tariffs, what we see, I mean, in the actual marketplace. And I think it's -- I mean, we are, of course, trying to stay very close, and it's a little bit difficult to separate facts from rumors. But I think overall, what we did see also before the tariff was that we saw, as I talked about specific for the urology segment, we did see some Chinese companies increasing their activity level in the U.S. and also coming in with fairly -- in selected cases, we saw fairly aggressive price competition, which we can assume is below, I mean, their ability to make profits on it. We have seen -- and this is, again, very early stages, but we have seen that -- I mean, that we are -- that's becoming much more silent on that front is one thing. The other thing in terms of stocking of their products in the U.S., it's really hard to fully understand because I think we hear contradicting rumors from different places. But I think also -- I mean, I think it's broadly known also outside our industry that there's a lot of products that are, I mean, not able to get into the country because you have to pay the tariffs upfront. And that in many cases, it has been limited how much you have been able to both produce and then also get into the U.S. market in time. So I think if we just look at our own, as Henrik talked about, relatively flexible setup, I would say, even with a flexible setup, I also think it has to be limited how much they've been able to get into the country, in particular, because a lot of these companies, and it's only a few that we see in the U.S. market. It's relatively smaller companies. So there is also a limit here. So -- but we're, of course, monitoring this closely, but we do see net-net that the Chinese competition that we started to see in the U.S., I mean, that being much less aggressive and that they will have a much harder time given all of that is coming from China. But of course, you could say until they may, if they do find other ways, but it changes the dynamics for sure. Then your comment on ENT, GI and urology. I mean, I think we tried again with the plus 20% also to share some of our expectations on the business and how we see this segment, which is -- and that's also why we tried to say -- to show the picture of new versus existing products to try to in a transparent way without revealing too much to competition to show how is it that we see the dynamics. And again, you have to put on top of that, that the dynamics are different when you have products for very simple procedures and products for more advanced procedures like kidney stone management with the ureteroscope where you typically have a longer sales cycle because they do many more trials before they buy. So we do see a gradual uptake of this. And then again, we do also remain confident in our ENT and cystoscope business that we continue to see white space in the market to capture and also that our customers are continuing to ramp up. And part of our expansion of our indications is also to help and to allow them to be able to fully convert to single-use when they can use it for also some of the niche procedures that they can get their equipment out. And this is what resonates, for example, in the U.S. very well because then they get freed up rooms for -- where they had the washing equipment that they can then do more procedures. So we do see those dynamics in the market and how we help improve the efficiency for the hospitals that, that continues to resonate very well. So this makes us confident. But I'm unfortunately, Martin, not able to tell you when we will see that turn because we don't guide on the individual areas.

So if I use that as a bridge to the vest, I just want to reiterate the last point on Uretero, ENT and GI. I think we share also your sentiment, Martin, that we look forward to coming out with a quarter again where we're above 20%. And as Britt said, we don't comment on the specific time, but feel very confident that is still the trajectory we are looking towards when we look further out. Just one last comment on U.S., which we didn't mention explicitly only indirectly is I think what we are seeing in U.S. and why we explicitly mentioned this point about higher inventory and ensuring the stability in our supply chain is that there are specific areas, ports where you're starting to see some congestions. We're not concerned with our distribution setup. But again, how that affects the rest of the market is difficult to see, but particularly in some of the main ports in U.S. with import from U.S., I'm sure you've probably seen the news that there are some congestion areas and something we are observing to ensure that we can continue to support our customers and supply products to our customers and why we have slightly higher war chests on inventory also. Speaking of war chest and net interest-bearing debt, then you're right. We still have a building war chest and both in terms of our negative net interest-bearing debt. We also, in the Q2 announcement, confirm that we've now extended the revolving credit facility, amongst others, with two Danish banks and one international bank, exactly with the intent to have balance sheet strength in what is to come. And I think the short of the long is that we will keep you waiting until our Capital Markets Day where we will come back on more. We deliberately last year opened the point that we are looking at M&A, but we are not in a hurry. And obviously, I think right now, with the geopolitical turmoil, we are certainly not in a hurry to jump into something where uncertainties are even higher, but more ensuring that we are sharper on exactly what is it we want to focus on and also observing and discussing with participants in the market what is coming both on public and more on rumor basis. So in that sense, we are getting ready, and I think we will have more to say at the Capital Markets Day. But I also just want to confirm again to all of you on the call that we are not in a hurry to do a big M&A. We are still mainly an organic growth company, and we're running an organic growth strategy. So we're more looking at how can M&A support that either with specific products, companies or capabilities.

If I may be a little bit Nordea and just ask one last question here before jumping back in the line. The recircle program that you have announced today, I find that highly encouraging and could probably set you apart from most of the competition if you managed to set up such a program. I don't want to be a party pooper, but could you maybe tell us how much such a program would cost if it were implemented on a global scale?

So given it's a cost question, I'm happy to take that. So I think the short answer is, Martin, it is still unclear exactly what it will mean because, obviously, there's both a cost side of it, but there's also a revenue side of it. And in particular, that revenue side, i.e., the customers paying us for a program like this is different depending on where you are in the world. In U.S., it's actually very much a waste management program also where there is a high willingness to pay, even though the sustainability agenda might not have highest focus these days in U.S., whereas in Europe, it's a slightly different angle. So I think the short of the long is that we are exactly as you're hinting, seeing this as a distinction versus our competition. We fundamentally believe it is part of us proving that our single-use endoscopy solutions are actually more sustainable if you look at the full cycle, we believe. And therefore, it is all about ensuring that we create scale in the program. If we create scale and we have customers supporting like we see right now, then it would not be a margin-dilutive program to run something like this. It could more be a revenue contributor in the end, but it's still too early to say. And again, it's today still with the starting point, we feel this as part of the solution rather than a new business unit, if you can call it that.

The next question comes from Wei Zhou with SEB.

I have three questions here. Firstly, just one follow-up on the -- your comment on your competition from China in the U.S. And you have answered that you're seeing more activity before the tariff and less aggressive now. But could you maybe a bit more specify that if you have lost any customers to the Chinese companies, I guess, it's more on the Cysto and ENT scopes or it is only extending the sales cycle for you without any concrete loss?

Yes. Okay. So I can answer that now. Thanks for your question. And again, I think we are still in the early stages, and that's also why I said I think that we are collecting every evidence that we have around some of the specifics we have not lost a lot of customers. We have one or two accounts that are in the process of being lost, but -- and that's where we see some of the dynamics that I talked about around the whole pricing situation given also the tariff situation making this picture a little bit blurred because we cannot -- they cannot have the same guarantees for the pricing. So that's where we -- I mean, we do see that a lot of moving pieces right now. We would like to come back when we have a little bit more a clear picture, but it's a bit anecdotal on this point because it's relatively new that they came in. So we have had all these sales processes being ongoing and now the tariff situation is disrupting some of this.

But I guess to build on what you say, Britt, I think what we can say is that we are more seeing the slower growth as a result of the longer sales cycles. than we're seeing it as a result of lost customers. It more or less only relates to our urology portfolio, so the Cysto product within ENT, we see very, very little competition, if any, single-use at all. So it is still, as Britt said, anecdotal. And we wanted to, of course, then all that said, still be transparent around this because it's a dynamic where we've gotten a lot of questions on what should we expect. And it's really a dynamic that we mainly see -- have seen in U.S. historically.

Great. Very clear. And maybe also a follow-up on this. If we -- if you're looking at ureteroscope, does the tariff now, the U.S. tariff now change also the competition landscape in this new product? I know you have not seen that a meaningful sales contribution yet. But have you seen that you're getting more requests or easier to sell with the U.S. customers and hospitals?

And that's a super good question. And again, I think it's also very premature because, I mean, as you very well know that the competition that we are up against here is that there's a ureteroscope out there from Boston Scientific that has been out in the market for around 7, 8 years. And I mean, we are getting very -- we are in a very strong position against that. And then we have also seen some Chinese manufacturers come in with ureteroscopes, which are not better than our solution, but still they are slightly more aggressive on the pricing. I mean, because we are so early in our own stage, it's very hard to see what are the drivers for what. But in general, we have the same observations and views as when we talk about -- and as we just talked about that there is more reluctancy from customers, and there is more uncertainty around what does it mean, I mean, when you engage with these companies and then in particular, because ureteroscopes are much longer procedure time. So it's a little higher complexity. So you want to make sure that when you switch and get used to a different endoscope that you can also continue to rely on this. So we cannot -- I mean, it's too premature to separate these things, but we do have some indications that this is -- the competitive picture in this area is changing as well to our favor.

Great. And then maybe a question to Henrik. You mentioned the currency impact here on OpEx and EBIT -- sorry, on the gross margin. And I was wondering, in Q2, could you maybe quantify the impact on the OpEx in absolute value and also on the EBIT margin?

So we don't quantify in absolute value on OpEx alone. On the EBIT margin, I don't think we have it specified specifically in -- you're talking about first half -- full first half year or just Q2?

Just Q2.

Just Q2. So I think there is still also in Q2, a slight positive, but much smaller positive impact on EBIT margin, where, as you might recall, in Q1, I was very explicit that there was a quite meaningful positive impact in our EBIT margin from the -- at that time, higher U.S. dollar. So I would rather go back and say, if you compare to where we guided or made our guidance when we started the year, where we also had currency estimates around it, we were at that time estimating a U.S. dollar currency of DKK 6.85. Obviously, now we are below that level. So I think if the current U.S. dollar level continues for the rest of the year, then it would go from a positive impact, which is what we communicated without quantifying in Q1 to potentially a negative impact for the full year.

[Operator Instructions] Our next question comes from Cyriaque Blanchet with Bernstein.

Cyriaque Blanchet on behalf of Delphine Le Louet from Bernstein. So three questions, if I may. Just the first one on inventories. If you could give us some precision on how we should see inventories in terms of days of sales for 2025? And when can we expect to see a normalized figures? Regarding also on your free cash flow guidance, which is above DKK 500 million, I would like to know what you mean by transformation efforts in the presentation? And if you can give us more precision on the mitigation plan that you aim to achieve this guidance? And last one regarding tariff. You specified also different scenarios. I would like to know more about what would be, for example, your best scenarios, your assumption and if you could quantify these impacts?

Thank you. Good question. It sounds like I'm -- I have a lot of good things to answer here. So if we start with your first two questions on inventories and free cash flow, those 2 are connected. We don't inform on days of sales split or inventory days specifically. But if I refer back to the page where you see our net working capital ratio as the net working capital as a ratio of revenue, you see how that has creeped up for the last now 2 quarters, and we are close to 23% -- that is again mainly driven by inventories. In terms of expectations for how that look going forward, we don't guide detailed on this, but I think this plays back to my comment about how we have been investing in preparing for product launches, both for the VL, the SureSight solution and for our Uretero solution, both products and also display units, monitors to support that. And obviously, the more traction we get, the faster we get that traction, the faster you will also see an inventory decrease. The longer it takes, the slower the inventory decrease. So whether that happens in this financial year or more into next financial year depends a little bit on how fast we gain traction. And therefore, I think overall, in terms of mitigating plans for the rest of the year to meet still our guidance, a lot of this is around how we manage net working capital specifically. And then back to the question we got also from Niels from Carnegie, a little bit of a helping hand on tax, which we will only see the positive effect from here in Q3, where our effective tax ratio for this year will be lower because we have a repayment from the tax authorities on an old tax case dating back to 2019, '20. So those are the main effects in terms of how we still feel that we can stay within our guidance of plus DKK 500 million free cash flow for the year. In terms of tariffs and assumptions, I think it's important to reiterate that we base our confirmation of our financial guidance on what we know today. And I think like you will know, then there's been a period here, particularly in April, where it's almost changed by the day. So we feel this is the best basis on which we can do that. And then, of course, one thing for Canada and for us, most importantly, Mexico and everything produced in U.S., where we, as Britt said, feel comfortable and we are under the USMCA compliance product registration, which means tariff free. For Rest of World, excluding China, there is the basis tariff right now of 10% that, of course, we are observing what happens, but really looking at how do we manage the flow out of Penang, Malaysia towards Mexico from a short- and long-term perspective. And there are some mitigating actions, as we said before, we can accelerate or maintain as they were planned already. And then on China, I think it's difficult to really say what will happen. But then again, the current guidance is based on what we know today and the tariffs that have been communicated. And obviously, if they are implemented in full force, then there are several other mitigating actions we're looking at how we speed up. All of that said, I think it also comes back to an earlier question on how fast will you see this impact in the year, a lot of this financial year and the margin impact from tariffs will not really be seen as the products we are selling in U.S. are products we imported into U.S. and have our inventory in U.S. pre any tariffs. So this is mainly a question of what will it mean for next year. And as we don't guide today next year, and I think really nobody knows where this lands yet, I think we will wait with that discussion until we get further towards the end of the year and talk about guidance for the next year. So we are also not quantifying what will this mean in DKK million, but more coming back to confirming our guidance for this year of an EBIT margin of 13% to 15%.

Our next question comes from Tobias Berg Nissen with Danske Bank.

I have two questions, if I may. The first one on pulmonology. It just pulmonology growth seems to be like increasingly getting lumpy. Is this something we should also expect to continue going forward? And how is this new launch of the videolaryngoscope in the U.S. and the U.K. affect this growth going forward? Should we also expect to be smooth more out? Or should we still expect this lumpy growth? Then just on CapEx, it was around this 5% of revenue for the quarter. And as you mentioned, Henrik, this is below your expectation of 7% to 9% on long-term projection. When should we expect that CapEx to return to this range, if you give any insight on that?

Yes. Thank you. And I can start on the pulmonology and then you can talk about. So I think what's important to say is that, I mean, we continue to see overall momentum in this segment. And when we look at the LTM growth of plus 10%, we believe that, that is also -- I mean, with -- when you look at the different fluctuations, solid -- you have to remember that we had in Q1 around 18% growth and then the growth was 8.5% in this quarter. So if you combine these, you can say we still -- which we think is the meaningful way to look at it rather than looking at the quarters isolated. Then I think we are still at that level, solid level. Then for the videolaryngoscope, and it has been important to say this has not really had an impact on the revenue because we did the launch midway into the quarter in U.S. and later in U.K. But the way that we look at this going forward is that this should be a growth accelerator for the segment. And again, on two different dimensions. One dimension is on the videolaryngoscope market, where we are now getting access to a new market where we already have the customers, many of them using our bronchoscope today. So that should be a fairly, you can say, less cumbersome selling process that we have seen in some of our other segments, in particular also because you can use the system that they already have in place and then simply plug the videolaryngoscope into that. I think we are, of course, still early days watching the dynamics, but we feel quite encouraged by the positive customer feedback and the early start in that market. Then the other thing to look at here because it's -- I mean, the same one system that you use, we also believe that it does have an impact and potential to accelerate our bronchoscope sales, so the aScope 4 and aScope 5 Broncho, which we are also seeing some signs of, again, because they like to have the convenience of one system and in particular, that you can look at the screen when you do procedures with both products or solutions at the same time that you can see them both on the screen. So of course, we have some internal scenarios and plans that we are not sharing externally, but we feel that this should position us very solid for the next couple of years, at least in this segment. And then we will also continue to be focused on pulmonology and come out with our next-generation bronchoscope at a later point. So overall, I mean, this is a segment that has high priority. It is also a segment, as we have talked about before, where we -- in the U.S., while we were very focused some years ago on GI, we saw competition coming from Verathon, a company that came from having a videolaryngoscope and then also went in with the bronchoscope. So we also do see that there is some share that we can gain back now that we have that full solution so that the growth is not only coming from growing the market. So I hope that puts a little into perspective how we think about this. But I want to highlight that we are super excited to finally have this on the market and in particular, because we have a very solid offering to the customers, and they are also confirming this.

And if I build on that, just briefly to follow up on pulmo, very much agree. And I think the only -- on your point on lumpy sales, I think what we've said before, and I think we want to reiterate is that we are not driving specific month-end lumps to use that terminology. We are more explicitly tracking what is the procedure level we see at the hospitals. And I think when we spoke in Q1, we were at the time also indicating the point about timing of orders where it was a bit unclear for us had the customers already made more orders in expectation of a higher flu season or not. And I think part of what you're seeing in the numbers is that more of the hospitals had done that. And obviously, we are improving our way of tracking that, but certainly not encouraging that inventory stock up, but more trying to balance it through our sales force. So it is something we are continuously monitoring. And last but not least, it's important to say also, it is particular in the ICU within pulmonology, where we see some of these swings related to flu. It's not something we see as much in the other sites. And therefore, so we expect that the lumpiness should go down over time, at least that's how we expect to see the order flow when we look forward, even though timing of orders is still a topic you will probably hear us talk about also going forward. On CapEx, we don't guide on the specific CapEx percentage. But to your point, we've been below now for the first two quarters. So we're probably also for the full year coming in a little bit short. What you did see last year is that we, in the last quarter, had a number of investments. And I think my point in mentioning that and referring to that is it depends a little bit on the timing of certain investments we're doing, both in relation to launch, but also in relation to some of our manufacturing equipment. So our target remains the same. Our focus is very much one of ensuring we invest enough in innovation in R&D and ensuring we continue to invest in our manufacturing footprint and production optimization and efficiency. And there might be swings temporarily, but generally speaking, we still want to continue to invest above normal levels because we believe that's important to support the future growth.

Ladies and gentlemen, this was our last question.

Thank you. And then I would wish everyone a good rest of day and thank all of you for participating in today's call and also for good questions. I will, before I leave you, just mention one final thing, and that is that we do have our Capital Market event coming up October 1st that will happen at our premise here in Copenhagen, and we hope to see many of you. This is where we will talk a little about some of our focus areas and priorities when we look ahead. Thank you for listening today, and have a good day.