Arjo AB (publ) (ARJOB) Earnings Call Transcript & Summary

Welcome to the Arjo Q4 presentation for 2022. [Operator Instructions] Now I will hand the conference over to CEO, Joacim Lindoff; and CFO, Daniel Fäldt. Please go ahead.

Thank you very much, and good morning to everyone, and welcome to our Q4 2022 call for Arjo. I am, as always, joined by our CFO, Daniel Fäldt, and we will together give you some details on the Q4 report that we've released an hour ago. Next slide, please. The agenda today includes a summary of activities and results from Q4 and the full year, details on balance sheet items, and we will address the outlook for 2023 before we open up for questions. And as always, we intend to keep this call to an hour and finish no later than 9:00. Next slide, please. Let me start with an update on the business during Q4 and then later on in the full year. So next slide. In Q4, we continue to see good demand on most major markets for our solutions as well as capital sales Service and Rental. We saw good organic net sales growth in all major markets except the U.S. and with good traction in most areas. As expected, our overall net sales was held back by U.S. with significantly lower Critical Care Rental volume and where we also clearly saw the lower capital spend come through. The activity level in U.S. and the interest in our solutions remain on a high level. However, it is the conversion from lead to order that is stone because of the current financial situation of many healthcare providers due to staffing shortages and increasing costs. What is good, and I will come back to that one later on, is that our core Rental business in U.S. is developing well, and implementation of new contract is now starting to gain the speed we have forecasted. In December, as example, we recorded the highest number of units in use for our U.S. Rental business since the listing, and this business remains well positioned for the coming quarters. Another factor that held back growth was inbound delivery problems within our Diagnostics business in the first part of the quarter, and approximately SEK 25 million of profitable net sales in this category could not be shipped to customers in Q4 as planned. On the good side, we saw good growth on major markets like Canada, U.K., France, Germany and Australia, where both capital, Service and Rental developed well. Our gross margin for Q4 came in at 41%, again, heavily affected by the decrease in Critical Care Rental, higher material costs and inflationary pressure on energy, fuel and salaries. In addition to the postponement sales of Diagnostic products, we also had significantly higher costs than expected for inbound supplies of electronics in this area. In general, electronics remain the area where we must put highest focus in the coming quarters to drive additional stabilization. Our actions to mitigate the current headwinds with long-term improvements on efficiency and pricing initiatives continues, and the organization is navigating the situation in a professional way. On pricing, we did not fully compensate material cost increases as expected due to the unforeseen development in Diagnostics. I will come back to that shortly. OpEx was well under control in the quarter, with lower levels than Q4 2021 in comparable currencies. Internal efficiency project, the continuous improvement remains high on the agenda to mitigate inflationary pressure and set ourselves up for good strategic implementation. Adjusted EBITDA came out at SEK 500 million, which is lower than our expectations after the Q3 report. We have solid plans in place to improve profitability over the coming quarters. Another positive development is around our cash conversion, but due to high inventory levels throughout 2022, has previously been below our [ top ]. In Q4, we have done a good job lowering inventory and thereby record a cash conversion well above our target level. It is also good to see that our combined performance for the second half year is coming out on the 80% target. The work now continues into 2023 to keep full focus on our working capital and especially on inventory reduction. The interest for our Pressure Injury Prevention Solutions and the SEM scanner remains strong, and we exit the year with run rates and plans that make it realistic to believe that we will hit our target of SEK 200 million of net sales in this area in 2023. In summary, good development on most major markets besides the U.S. Growth in the quarter was held back by significantly lower Critical Care Rental levels in the U.S., lower capital net sales in the U.S. and the disruption in our inbound deliveries to our Diagnostics business. Our Service and Rental business across almost all markets developed favorably and will be an important growth engine for 2023 and onwards. Next slide, please. I am looking at the full year. And when summarizing that year, I must put forward the continued good underlying demand for our products and solutions, supported by a continued healthy development of our Service and core Rental business. Our main European markets have been developing well, both on capital, Service and Rental, and we have regained significant traction on our Rest of the World markets after COVID. Australia, France, Germany and U.K. are all examples of larger markets, where we have continued to build a positive momentum during 2022. In North America, Canada has delivered yet another record year, further growing both capital, Service and Rental. The U.S. has been facing headwinds mainly in the second half of the year in sales of capital equipment and programs due to the financial situation of most U.S. healthcare providers. In addition, the significant drop of more than USD 13 million of Critical Care Rental versus COVID in years 2021 is obviously making the comparison hard. Looking at the group in total, we managed to keep net sales more or less on the same level as the record year of 2021. And if we were to exclude the Critical Care Rental drop of more than USD 13 million from the comparison, the underlying business grew with almost 3% organically. Our profitability is not on the level we want and what should be expected from Arjo. On top of the negative product mix effect from Critical Care Rental, we have been navigating a difficult market environment throughout the year and feel that in 2023, we'll see continuous rebound in profitability, based on plans and initiatives. However, short-term headwinds over the last 15, 16 months of more than SEK 400 million in extra cost has affected our gross margin and overall profitability for the year. When looking at details for 2022, we have material costs increasing with slightly more than SEK 150 million. Transportation increasing SEK 110 million and inflationary costs on almost SEK 80 million affecting in a negative way. But we feel comfortable that we, through the plans and continuous work on price increases and efficiency initiatives, will mitigate this from 2023 and onwards. Our cash conversion has not reached our target of 80% for the full year, and this only due to the increased inventory levels as an effect of the very turbulent market situation on material and logistics. After Q3, we carried more than SEK 400 million in extra inventory, but also communicated a clear plan on how to get it to more normal levels over 2023 and 2024. Our work in Q4 in this area has been following these plans well, and we look forward to continue this traction in the full year of 2023. Next slide, please. In North America, we continue to see a very solid performance in our Canadian business, growing almost 8% organically for the quarter and more than 10% for the full year. We see good traction in all focus areas of the business with core Rental on all-time high when exiting out of 2022. In U.S., the quarter has been affected by the lower capital equipment investment activities in the U.S. Our activity level and interest from our customers on our products and solutions continue to be on a high level, but the short-term willingness to invest has been [ diminished ] due to the current financial situation for most U.S. healthcare providers. The situation caused by staff shortages and higher cost to run their business, but also need to focus on day-to-day activities instead of short-term change protocols and way of working, even if that makes clear financial sense for the long run. In Rental, we saw a drop of USD 7 million in Critical Care Rental, slightly more than expected. Our core Rental business has picked up conversion speed well during the quarter. And in U.S., we exited the year an all-time high in terms of units in use for core Rental, also when we adjust volumes for the normal flu effect that we have in this area. Our DVT business in the U.S. picked up some pace in the latter part of the quarter, and we continue to work with our customers here to understand the implications of elective surgery development and stock levels at distributors. Patient Handling is significantly lower in the quarter in the U.S. due to what I already mentioned, which impacts the group both from a product and geography mix perspective. Patient Handling is a category with above-average gross margin. And the U.S. is the market where we generate the best gross margin in this area, through the normally high volumes of caregiver injury programs, normally implemented during any Q4. Due to staff shortages and the need to focus on here and now, this part of our business was low in the quarter. We continue to see a high interest for our Pressure Injury Prevention programs in U.S. and the sales here, including the SEM scanner, is developing according to our communicated bands. The exit rates on the scanner usage and high level of confidence in our growing pipeline, again, makes us confident that we will meet the target of around SEK 200 million in net sales for 2023. Our U.S. rental efficiency program is running according to plan, aiming at saving approximately USD 5 million on a rolling 12-month basis from the end of 2022. The final restructuring has been made in January, and the program is fully implemented in Q1. Together with the good development of core Rental, this will drive higher and more stable gross margin levels in 2023 from Q2 and onwards versus a sluggish 2022. In January, we also initiated a major realignment of our U.S. sales organization to gain further efficiencies but most importantly, set ourselves up for success with our new strategy. In my view, a very thorough work addressing both efficiency from a cost perspective but also addressing our need to add significant amount of clinical expertise to support our outcome programs and capital sales over time. It will obviously take a lot of focus in Q1 in setting the new organization, but we have a good plan in place to be able to both fix the plane and fly it at the same time, especially given the traction that we currently see on core Rental and Service. All in all, we are looking back at a significantly weaker than expected 2022 for U.S., but we are confident that we will get U.S. back on good growth trajectory and also that we will continue to see a stable development on our important Canadian market in 2023. Next slide, please. And moving over to Global Sales and details on both West Europe and Rest of the World. In total, the region sees organic growth of a healthy 2.6% in the quarter, and a good 3.9% for the full year. A solid performance, given the challenges that we have seen, mainly around supply and the war in Ukraine. In Western Europe, we continue to see good demand for our products and solutions, together with a good development of both Service and Rental in the quarter. While we had a slower quarter in Italy and Spain, we continue to see good growth on major markets, where France, our third largest market, again post a solid quarter with more than 3% organic growth and 6% for the full year. Also in, for example, Germany and Austria, we see good growth, and our activity levels throughout the West European region is on a good level, going into 2023. In U.K., our second largest market, we see okay organic growth in the quarter of almost 4%, held back somewhat by the delays in our Diagnostics business that I talked about earlier. In U.K., we continue to see good traction on both Service and Rental, which is expected to continue into 2023. The SEM scanner implementation continues with high interest in U.K. and based on the successful work with NHS frame agreements during 2022, pipeline and the exit rates from 2022. We feel confident that after the U.S., U.K. will be leading the way in this area. In general, our European business follows previous trends with good demand in acute care and in long-term care, based on the increased focus of this area is experiencing as an effect of the pandemic. We continue to see a good pipeline development, with potential for 2023 and onwards. Then on to next slide, please, and let me some further details on the Rest of the World. In Rest of the World, again, had a healthy organic net sales development, with good market demand and high activity levels, recording above 10% organic growth for the quarter. Our business in Australia continues to develop well across both capital and [ recurring ] business like Service and Rental. We had almost 8% organic growth in Australia in the quarter. And looking at the full year, the growth is even better with more than 10% organic growth. Our business in India and Middle East is developing very well in the quarter, and we're now back on growth mode in India, going into 2023, driven by a well-managed Rental business. Our activities in Hong Kong and China have been heavily affected by the COVID restrictions in the first part of the quarter, and then later in the quarter due to very high infection rates, especially China has potential to become bigger in our overall business. But currently, we are navigating on a smaller scale. Our Japanese business continues the positive trend in 2022, with significant growth in both quarter and for the full year. As stated before, we are now back on track in Japan after COVID restrictions, and we forecast good growth in 2023 and onwards on this very interesting market for our products and solutions. Next slide, please. And moving over to financial details. And next slide again, please. In Q4, we have a gross margin of 41%, which is slightly below expectations, mainly due to the higher cost for electronics in our Diagnostics business, somewhat higher transportation costs and price increases not fully up to speed. In the quarter, we continued to see a negative product and geographical mix from the significantly lower Critical Care Rental in U.S. and lower Patient Handling sales in U.S. as well. On material, we had a negative P&L effect of minus SEK 52 million versus Q4 of 2021, which, as I said, was approximately SEK 10 million more than expected coming from our Diagnostics product branch. This unforeseen cost increase is now better under control and covered when we later speak about our outlook for 2023. Transportation costs came in SEK 14 million lower versus Q4 of 2021. It was still slightly higher than expected, only due to the continued high cost levels of land transportation. On sea freight, rates for Asia to Europe and Asia to North America has come down almost below previous expectations, whereas the rates in Europe to North America yet has to fall to predicted levels, and they are still around 200% above pre-pandemic levels, but first positive signs are there. We saw lower levels of air freight needed as supply chain stabilizes further. Increasing inflation and energy costs are affecting the gross margin negatively in the quarter with minus SEK 18 million versus Q4 of 2021. This number is obviously high, but aligned with our assumptions made for 2023. On a full-year basis, we have almost [ SEK 16 million ] in additional inflationary cost hitting gross profit and margin versus 2021. We are, as before, working very hard to mitigate the effect with continued long-term efficiency gains throughout the value chain. The U.S. Rental efficiency program is on track into 2023. Our continuous improvement plans in supply chain is well underway, and we are starting to see external factors move both towards stability and in some cases, lower cost levels. Price increases continues to be of highest focus. And given the unforeseen electronic cost in Diagnostics for the quarter, we did not see full compensation of the increased material costs from price increases, as expected. However, given the actions implemented and the additional price increases taking place in the beginning of the first quarter this year, I feel confident that we will get to our previously communicated effects from pricing, adding at least 1.5 percentage points in organic net sales for the full year of 2023. Next slide, please. We have continued to manage our OpEx well during the quarter. In comparable currencies, we see lower absolute levels than in Q4 of 2021, despite approximately SEK 8 million in additional inflationary costs. OpEx as a percentage of net sales is going down in the quarter. And for the full year of 2022, we are more or less on par with 2021, despite significantly higher inflationary costs, changed accounting for IT investment and lower comps from a 2021 affected by COVID. R&D gross investment is at 2.5% of net sales for the full year, well aligned with our portfolio planning and upcoming launches in 2023 and onwards. And as mentioned before, the adjusted EBITDA in Q4 was SEK 500 million. And now over to Daniel, and next slide, please.

Thank you very much, Joacim. And before I comment on some of the working capital development and cash flow, perhaps one additional comment to the P&L and related to currency effects on other operating income and expenses, where you will see a number of zero in the P&L, but we actually had higher than expected negative impact from revaluation of receivables and payables of SEK 16 million, which you will find also in the currency table in the report. This SEK 16 million was offset by some of the positive impact from other transactions in the quarter, just felt the need to perhaps clarify that a little bit more. Now coming into working cap and operating cash flow performance. As you know, we're coming off relatively weak quarters 1 to 3. And we managed to finish the year in a strong fashion, as Joacim said, in terms of operating cash flow and cash conversion. Through continued high focus and improvement on working capital management in quite a challenging environment, we managed to generate almost half of the full-year cash flow in the last quarter. And looking at the second half of 2022, we were spot on our cash conversion target for a 12-month period of 80%. Challenges with regards to material and logistics continued, made on electronics components during the fourth quarter. Availability and high cost relative to transportation and components meant that the need to maintain additional safety stocks, although at a lower level than previous quarters in the year in order to safeguard production supplies and customer deliveries. Given that and the lower capital equipment investment activities in the U.S., we still managed to break the trend of increasing working capital days in the first 9 months of the year and reduced the days in the last quarter. Encouragingly, the main positive effect comes from inventory reduction, which has been a struggle for us in the first 3 quarters, and we expect the continued progress in this area in 2023. We want to stress the fact that the additional levels of inventory is current and not a concern in terms of looking at our stock aging analysis. So no additional balance sheet foreseen in this area to be worried about. Having said that, I'd like to point out that roughly half of our SEK 55 million of items affecting comparability originated from a onetime asset write-off related to the discontinuation of a product line in our French Rental business, besides some legal costs related to settlement of a legal dispute in the U.S. We continued solid work on receivables management from previous quarters, and we expect this performance level to continue and to be built on, going forward. Important to note here is that we did not see receivables dropping into older buckets in our receivables aging analysis, and we have historically very low levels of credit loss on our receivables. Despite the external challenges just described, along with the decrease in current liabilities, we managed to decrease the working capital days level by 4 days in the quarter to a level of 102. The EBIT level in the quarter, along with the positive impact from working capital, means that we're posting an operating cash flow number of SEK 452 million in the quarter, so a very strong finish to the year, given that this makes up almost half of the entire cash flow generated in the full year of 2022. Subsequently, cash conversion improved considerably and came in at 101.1% in the quarter. However, even though we reached the 80% level in the last 6 months of the year, we ended up far off our year-end target for the 12-month period with 51.8% for the full year. We foresee a return to form the 80% target level for 2023. Cash flow from investing activities was SEK 258 million negative, mainly containing investment in our Rental fleet, R&D and fixed assets. Next slide, please. As a consequence of the net profit level in combination with improving cash flow performance in the quarter, the net debt decreased to SEK 5 billion, which is SEK 0.1 billion lower than the previous quarter, and we expect our reduction journey to continue in 2023. Meanwhile, our cash position remains very strong. And the net debt to adjusted EBITDA came in at 2.5%, which is an improvement of 0.2% versus Q3, but a minor setback compared to year-end 2021 due to the external challenges described earlier that we faced more or less during the full year 2022. Finally, the equity ratio came in at 47.2%, which is 0.1 percentage points above the recorded level in Q4 2021. And with those words, I'll give the word back to Joacim.

Thank you very much, Daniel, and let's move over to the next slide and some details on the outlook. And the guidance that we provided at the Capital Markets Day in October remains. Based on our current visibility of the market, we expect the organic net sales growth for 2023 to be within the group's target interval of 3% to 5%. Let me also give some more details on our view on 2023. We continue to expect a good demand situation for our products and solutions outside of the U.S. in 2023. U.S. will continue to experience a dampened market demand, based on staff shortages and high for healthcare providers. This will probably affect the half -- the first half year, and we expect continuous improvements in investment levels from the second half year and onwards. Capital sales in volumes will, in total, grow slightly for the full year, with a forecasted positive development in Patient Handling and Pressure Injury Prevention. While capital sales of medical beds most probably will decline, given the over demand driven by COVID in recent years. Our development in organic net sales for 2023 will be held back -- sorry, will be back-end tilted, especially given the forecasted development in U.S. And as we, in Q1 2023, are anticipating the last negative correction in Critical Care Rental of approximately USD 4.5 million, which also will have a negative product mix effect on the first quarter. As communicated in the Capital Markets Day, we expect our Service and core Rental business to continue to develop well during the year. The core Rental, especially driven by the current implementation of new contracts in the U.S. Price increases are still expected to add at least 1.5% organic growth across the group. In Pressure Injury Prevention, we expect good development on volumes with around SEK 200 million of sales coming from our SEM scanner in 2023, which will also contribute to a positive product mix in this category, mainly towards the second half of the year. From a gross profit and margin perspective, the message remains the same as on the Capital Market Day. We expect material prices to continue to increase, mainly in the area of electronics and driven by inflation. We currently expect that increases -- that, that increase will be around SEK 50 million to SEK 60 million versus 2022, with main effects in the first 2 quarters. The positive trend on transportation cost is expected to continue. And based on current trends, we estimate that our overall transportation costs will decrease with SEK 50 million to SEK 60 million versus 2022, based on this and lower air freight needed as supply possibilities stabilize. We expect energy and fuel to remain on today's high level, which means that we will see higher costs quarter-over-quarter in Q1, but then gradually even out from there. Inflation effects on salaries will be clearly visible in COGS, both in manufacturing but also in Service and Rental. And we continue and will continue to work on implementing our supply chain improvement plan, including further in-sourcing of activities and automation projects. Together with other efficiency gains in our sales and service organizations, like the effects of the U.S. Rental efficiency program, this will be one part of mitigating current headwinds. On OpEx, we have good understanding today of the inflationary effects on salaries for 2023. Based on this, we expect OpEx as a percentage to net increase for the full year of 2023 and then start to decrease again from 2024 and onwards. We continue to work on continuous improvements on our OpEx and will, during the year, initiate further shared service initiatives to drive efficiency across the group. We will also work as a part of our strategy implementation on clear commercial excellence plans for the major countries to address both an efficient setup and clinical focus. U.S. is, as discussed, the first country here, with others to follow during the year. And finally, as already stated, price increases will be of highest focus in 2023 to mitigate our increased cost base from 2022 and 2023. We feel confident about our plans in this area and that we, over time, will be able to generate a positive delta versus our cost development. With that said, summary would be a year 2023 tilted towards the back end on both net sales and profitability improvements. However, with confidence that we can meet our guidance of 3% to 5% organic growth and start the journey to improve our profitability already for the full year of 2023. And next slide, please. And next slide again. And some key takeaways and a short summary. We put a challenging 2022 behind us, where we matched last year's organic net sales despite significantly lower levels of Critical Care Rental. Our underlying business is growing in a good way, and all major markets outside of U.S. shows good growth. We continue to see good traction in our Service and Rental business. The traction that we foresee will continue in 2023. We have solid plans in place to mitigate the headwinds that we see in material costs and increased inflationary pressure. Our price increase activities will continue with full speed, together with efficiency plans both in supply chain and in our sales and service units. Our strategy implementation is starting to gain speed, and we are looking forward to continue the development around, for example, our Pressure Injury Prevention solutions and also continue to drive our caregiver injury prevention plans. We are looking forward to deliver upon our plans in 2023, where we feel confident to reach a net sales development within our interval of 3% to 5% organic net sales growth, and step-by-step improve our profitability during the year, while at the same time, make sure to adapt inventory levels to a more stable supply chain environment. With that, I would like to open up for questions. Please go ahead, moderator.

[Operator Instructions] The next question comes from Victor Forssell from Nordea.

Firstly, I think, Joacim, you stated that you expect volumes for capital to be slightly up in 2023. Just to understand, was that included the SEK 200 million that you foresee for SEM scanner? And also, if you could please provide a ballpark figure of what SEM actually delivered here in Q4, please.

Yes. The volume estimate, including the SEK 200 million and where we believe that we will see increase or where we forecast to see increase in 2023, is in Patient Handling and also around our Pressure Injury Prevention solutions. Where we will see volume decline is forecasted to be in the medical bed side, where, as we -- as I explained during the -- during my presentation, where we believe that there has been an over demand over the last years and that we will now see that part of our business go back slightly. But yes, main driver of volumes in Patient Handling and also in our Pressure Injury Prevention solutions, which, obviously, over time, will also generate a step-by-step positive product mix for us. The outcome of -- for the SEM scanner was somewhere SEK 35 million to SEK 40 million, in total, for the year, so slightly lower than expected. But again, as I said, good plans in place, and we feel confident that we will reach towards SEK 200 million for the full year of 2023.

Moving on to the gross margin, of course, hurt by a few factors here in Q4. But it seems that this is the trend that we should foresee for Q1 to start off with as well. Any sort of comments on the gross margin trajectory in Q1 and for the remainder of the year in the expansion that you foresee?

I think you're right in that forecast that we should take a cautious, I would say, stance on gross margin development in Q1, but that we, over the year 2023, will see gradual improvements on our gross margin, especially with the comments that I made during my presentation around that we are not of the main changes, for example, in material prices, the main push that we will see on the energy cost and fuel costs versus 2022 will be seen in the first part of the year. So I think that you're -- or we are looking at a 2023 where the Q1 will be more or less on levels what we have seen now for Q4, and then we will see good and gradual improvement over the year.

And just a final one for me. And on the OpEx side, you alluded to it already by the Capital Markets Day that you expect OpEx as a percentage of sales to increase this year. Is there any sort of figure that you could provide us with this? Is it just a slight sort of a few basis points up? Is it a full percentage point that you foresee if you end up in your interval targets, et cetera? Any sort of comments on that?

This, obviously, is dependent on where in the interval that we will end up, but it's going to be more than a few basis points, but lower than a percentage.

The next question comes from Kristofer Liljeberg from Carnegie.

A follow-up on this margin question. So if we focus a little bit on the EBIT margin and what all this boils down to, is this gross margin improvement enough you think to lead to a better EBIT margin for you in 2023?

Yes. Kristofer, yes, I absolutely think so. I think that's what you will see. As we said at the Capital Markets Day, and the message there has not changed, really is that we are going to start our journey back not only on net sales but also on profitability for the full year of 2023. We are forecasting that it will be back-end tilted, given the factors that I just mentioned. But that we will come out and have started our journey towards the 23% adjusted EBITDA by 2025 is something that we feel confident about.

Okay. And two questions on sales growth in North America. First, maybe you said that, but I missed it, organic sales in Q4, if you would have adjusted for Critical Care volumes in North America. And also on that topic, given that you still had a lot of COVID related volumes in U.S. ICUs in Q1, does that mean that comparison is still difficult that organic sales for the group might be down year-over-year in Q1 before improving?

On the U.S. side, we would have seen a decline in U.S. isolated organically also, if we would have excluded the USD 7 million in Q4 of 2022, given the lower rates of patient handling that we saw in the quarter. So that would have been a negative, but it's negative in those areas. Core Rental as an example, grows very nicely. We will, in Q1, as we forecast right now, drop with between USD 4.5 million to USD 5 million in our Critical Care Rental and since -- well, that will be the last time I speak about drops in Critical Care Rental because then we are on, I would say, forecasting levels, which is very much in line with what we did in 2022, which was not more than around USD 1.5 million per quarter. But in Q1, there will be a drop of USD 4.5 million to USD 5 million of Critical Care Rental. But I still think the group will show growth in Q1, based on the activities that we had, also driven by the price increases that we are putting in place.

The next question comes from Rickard Anderkrans from Handelsbanken.

So could you add some details on the realignment on the U.S. sales organization, some of the initiatives and more concretely what you expect from that initiative?

As we discussed during the Capital Markets Day as well, when we move our organization towards more and more outcome programs, the need for even more investment into clinical staff and clinical expertise will be needed. And at the same time, we believe that the need for the normal sales reps, so to say, will be less important. We are going to move various skilled people into more corporate sales and move skilled people in areas where we believe that it can drive sales on, I would say, with the new expectations that we have on the U.S. market, but very much focusing on also adding clinical expertise and clinical capacity into our organization. It is obviously a move and a realignment to make sure that we set our organization up as efficient as possible. And overall, this will mean step-by-step a lower cost level for the U.S. sales and service organization. But the main focus for us in this one is to set us up right for strategic implementation and make sure that we have enough clinical capacity in the organization to drive the strategic implementation.

Great. And would be interesting if you could quantify the delayed sales in the Diagnostics side and when you expect that could be recovered and if it will be fully recovered?

The answer to the last question is, yes, it will be fully recovered, but I think it will be spread over the full year of 2023. The disruptions and the turbulence around the electronic suppliers is something that we have significantly better under control, but we believe that it will be with delays throughout the year. So I would say, the SEK 25 million will come during 2023, but it will not be, let's say, an isolated Q1 effect. It will be split out over the 4 quarters during the year.

Perfect. And then just a final quick one for me. You talked about expecting an improvement in second half in terms U.S. capital sales and the overall environment in the U.S. Are there any particular data points that you've seen that support this visibility or expectation from your side?

Yes. Well, data points, they differ on the U.S. market as we speak. A number of the customers that we are talking to or speaking about a step-by-step improvement, [ others ] speak that they have a wait and see. We have never done as many analyses around our outcome programs in caregiver injury side, where we have the analysis ready where we have positive discussions with our customers. But it is pretty much a waiting mode, where the information we get is that we need to have 2, 3 months more of visibility before we can go into ordering mode and so on. So there is a lot of different data points. But based on the information we have today, we feel that it will be a slower first half of the year and then a continuous improvement of the investment levels, based on the good pipeline that we currently carry.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Thank you very much, moderator, and thanks to everybody who has dialed in. We are closing a [Audio Gap] 2022, where we have been able, despite significant headwinds to get our organic net sales to the levels where we were in 2022. And if we would have corrected for the decrease in our Critical Care Rental, our underlying business is growing with almost 3%. So good growth on many of our major markets. And we expect that we will meet and come into our net sales -- organic net sales interval of 3% to 5% for the full year of 2023. Thank you.