Investor AB (publ) (INVEA) Earnings Call Transcript & Summary

Hello and most welcome to Investor's Q1 presentation. We are very happy that today, we are joined also by Molnlycke's CEO, Zlatko Rihter and Molnlycke's CFO, Susanne Larsson. We will start out with a presentation of investor results with our CEO, Johan Forssell and CFO, Helena Saxon. Once Johan and Helena have presented the investor results, we will ask Zlatko and Susanne to join us. And after that, we will have a joint Q&A session with Johan Forssell and Zlatko Rihter. You will be able to ask your questions either over the phone and we will have -- be supported by an operator or you can also ask your questions over the web. But now it's time for the Investor presentation. Johan, please go ahead.

Thank you, Viveka and also from me, welcome to this presentation. And I'm also very glad that we have the CEO and the CFO from Molnlycke, Zlatko and Susanne. And they are, of course, the highlight of today, but let's start by digging into Investor's quarterly report. And that was not the picture, right? Sorry about that. We are 15 pages ahead. We normally look forward, but this was a little bit too much. So let's go back here. All right. Let me then start by saying a few words about the macro situation. As we all know, the central banks around the world, they face a different dilemma, a very difficult dilemma, I should say. On the one hand, they need to reduce inflation, on the other hand, they need to do that without breaking the economy. In addition to that, the geopolitical attention continues to be high, not the least when it comes to the situation between the U.S. and China. So it's fair to say that the challenges remain out there. Having said that, there are also positives and one being that we are seeing quite broadly now that the supply chain challenges are easing. In addition, as you have seen from our report, we are seeing a strong demand for most companies in our portfolio. So here and now, it looks actually quite good. How the future will play out? We don't know. But we and our companies are really prepared for different scenarios. And I've talked about agility and flexibility before. And normally, when we do that, we talk about it in relation to a potential weaker outlook. I think it's important to stress that flexibility is equally important in a strong demand situation. And I'm very pleased to see in this quarter that our companies have been able to really grab the opportunities from the strong demand and deliver strong sales growth and also strong profitability. So overall, a very strong start for Investor in the beginning of this year. Moving over to the figures. You can see that our total shareholder return was up 9%, and our net asset value growth was up 7% in the quarter. If I then start with a few comments on the listed companies, the total return was just behind the stock market at 8%. There were a number of important activities in the portfolio in the first quarter. EBITDA continued to adjust this portfolio by announcing the divestment of power conversion. As you know, they have done a number of divestments to basically focus that portfolio even stronger on the core segments within automation and electrification. Previously, they have, for example, done the spin-off of Acceleron and also the divestment of Deutsche. I'm glad to say that the Epiroc landed its largest ever automation order. It's a big order for autonomous trucks in Australia in an iron ore mine. It's a SEK 0.5 billion order. And the software that has been developed by Epiroc here is actually used to convert more than 90 Caterpillar and the commercial trucks to autonomous driving, building the biggest autonomous mine in the world. And then finally, Wartsila, a good example of a company working on the climate footprint in the quarter, they announced that they have now tested a commercial engine running with 25% hydrogen blend at the U.S. power plant and that, of course, leads to significant CO2 reduction. And in addition, it was run with very good efficiency. The focus for Wartsila remains to really continue to develop the green fuel offering. Moving then over to Patricia Industries. I have to say that in this quarter, this is a clear highlight. The value increase was 13% driven by profit growth and multiple expansion. But more importantly, the operational performance was very strong with a sales growth of 22%, of which the organic growth was double digit at 11%. And also, we saw a very strong profit growth, as you have seen, up 35% in the quarter. Also here, we saw a number of important activities during the quarter. Permobil launched a new electronics platform on the power wheelchairs. I think this one has a number of very important caveats that you really want to see in product innovation. First of all, it's better for the customer, the users of the wheelchair because we can make it more personalized. Secondly, it's easier to produce, and actually, the material cost is also lower to producers. And finally, there is reduced service time. Another good initiative in the quarter is that we -- sorry, for the full year 2022 is that the CO2 emission within Patricia was down 24% compared to 21%. And the reason why I bring it up is that we have seen a very strong and good development on the CO2 footprint in our overall portfolio. But that has mainly so far been driven by the big listed companies that have been a little bit further ahead compared to our subsidiaries. But in 2022, we saw a significant step change for our subsidiaries in improving the CO2 footprint, and I'm very glad to see that. And then a couple of examples on add-on acquisition is Piab. They acquired the French company, COVAL and also a German company IB. Let me say a few words more about those because we injected a little bit less than SEK 0.25 billion to finance these acquisitions. COVAL is a company that have produced suction cups; suction caps that are especially strong for plastics. And they also have very good intelligent vacuum pumps. And especially these pumps are very compact, which is a very important purchasing criteria for the customers of vacuum pumps. This acquisition, we clearly strengthened the position of Piab in automotive, food and packaging and also in the France and the U.S. market. As you can see, this is a well-run company with sales of EUR 23 million and a profit margin of some 22%. A smaller acquisition, but still very important is the acquisition of the German company, IB. It complements the portfolio within additive manufacturing. Piab has a cooperation here with Höganäs since earlier. So this is a complement further strengthening position in this area. And this is clearly a strategic focus for the business unit back in conveying within Piab. Looking at Piab from a little bit longer perspective, we acquired this company in 2018. At that time, the company had revenues of about SEK 1.2 billion, SEK 1.3 billion. With these acquisitions on a pro forma basis, you can see that we are getting close to SEK 3 billion. This has been driven by both organic growth, especially during the last couple of years. The first years, of course, we integrated in -- integrated it and also a number of acquisitions, and then we have the pandemic. But now we are seeing good organic growth, combined with the acquisitions. And I should stress that we have done this journey with a lot of acquisition with remained high profitability. In the first quarter, the profit margin was -- the underlying profit margin in the company was around 27%. So very good development in this company. And it's not only acquisition, of course, it's also a lot of innovation, lot of focus on geographical expansion. To give one example, the exposure to China has more or less doubled since we acquired the company some 5 years back. Moving then to the little bit more on the figures here. Here, you can see the figures for the whole of Patricia Industries. We are now running at the level of -- on a 12-month rolling basis of revenues of about SEK 57 billion and in -- a profit of about SEK 13 billion. We now have 6 companies generating more than SEK 1 billion in profit. And you can see from the blue bars here that the performance in the first quarter was actually a record high profit. We generated SEK 3.5 billion in profit compared to SEK 2.7 billion last year. Moving then over to the different companies. As you see, Molnlycke delivered very strong performance. And I will not say more about that since we have the true professionals here with Zlatko and Susanne. But if you look on the overall picture here, you can see that 8 out of 9 of the subsidies, all grew organically between 7% and 13%. And for these companies, they did that with improved or unchanged profit margin. This shows that there is a very broad improvement in the portfolio. And actually, for all these companies, it's probably something like 35 business units. If we look on the different business units in the companies, also different geographies, we see that the quarter -- in the quarter, we saw a very broad-based strong demand. There is one exception, as you can see, with Advanced Instruments where the organic sales was minus 9%. And the reason here is that we continue to see in the quarter weak demand when it comes to instruments being sold to the biopharma sector. I should stress a couple of things though. First, if you look on the pure consumable business and the service in Advanced Instruments, we actually saw good growth in the quarter. Secondly, the segments that Advanced Instruments are exposed to, whether it's biopharma, clinical or food actually have very strong secular growth for the long term. So we are very optimistic about the long-term growth for this company. It's just a matter of when the short-term will twist further more positive. A few words about the EQT. Total return was minus 4% in the quarter, and the cash was slightly negative after the record year of SEK 6 billion in cash flow last year. And the reason in this quarter is just that the drawdowns were bigger than the exits. The listed company, EQT AB was minus 5%, and the fund investments were down 2%, which is minus 4% in local currency. As you know, we report fund investments with 1 quarter lag. So these figures are actually the fund investments valued as of 4Q '22. Yesterday, EQT had a trading update and in that trading update, they showed that in the first quarter, the value change in the larger funds in their portfolio was either unchanged or slightly up. And that, of course, will be some guidance for our second quarter result. Saying a few words about the important topic of ESG. We have 3 priorities that is from Investor being an owner in the company's business ethics and governance, that's, of course, very close to us. The second one is the climate area, and the third one is diversity and inclusion. I will not go through all the details on this, but let me say a few words on the climate part. We now have 100% of our companies that have set targets that are aligned with the Paris agreement. And we can now say -- see that we have compared to 2016, which is the base year, we can see that for the whole portfolio of listed companies and the companies within Patricia, we now see a 57% CO2 reduction for Scope 1 and 2 compared to 2016. So we have come a long way on our target to hit minus 70% in 2030, and I'm very glad to see that. Equally important or even more important is that almost 2/3 of our companies now have set targets related to Scope 3. My final slide then before handing over to Helena, priorities going forward. Of course, this was a very strong quarter. Let's see how 2023 play out. We continue together with our companies to stay close to the market, stay close to the customers. They're able to manage whether it will continue to be strong or if it becomes weaker. Here and now is always important. The second one is to continue to focus on investment in prioritized areas. And the third one, we have a strong balance sheet. And when we find attractive opportunities, we will try to grab them. And with that, I hand over to Helena.

Thank you, Johan. Let's move over then to the financials. And I will start with the slide showing the net asset value. The adjusted net asset value has developed in the quarter. And we can see at the end of the quarter, we reached SEK 724 billion, which is almost an all-time high. And the average annual growth, with dividend added back over the last 5 years was 16% compared to 6 -- 12%. And we talked about the total return of 7%. Of course, all business areas contribute to this number, and we can see that in this quarter, Patricia achieved a total return of 13%, while investments in EQT were down 4%, as Johan mentioned earlier. Listed companies developed in line with the stock market at 8% and looking more closely at this part of the portfolio, 70% of our assets, it has a market value of more than SEK 500 billion. And as I said, the TSR was more or less in line with SIXRX 9%. But within the portfolio, of course, performance was mixed, and we saw a significant contribution to net asset value from the larger companies. But looking at it from a total return perspective, we can see that, in particular, Saab had a very, very strong return of more than 50% in the quarter. Moving over to Patricia Industries, a fit of the portfolio with an adjusted market value of SEK 156 billion. I want to stress that the drivers of estimated market values in the quarter were earnings mostly, but also multiple expansion. And the total return was 13%, as I said, and 12%, including cash. Looking at the change in estimated market values by company in the Patricia portfolio, of course, we see a significant contribution from Molnlycke, and we will hear more from them here today. But we can also see that all companies contributed with increased values, except for 3. And here, it was the multiples that contracted and impacted the value negatively. Our financial position remains strong, and our leverage is still at the lower end of the target range of 0% to 10%, and we ended the quarter at 1% leverage. This is the slide where I usually end my presentation. And here, we see the average annual total return for the investor B share. And we can see that over the longer term, we have significantly outperformed our internal return requirement of 8% to 9%. And we can see also that for all periods on this slide, we have outperformed the SIXRX Index. And on that happy note, I will hand over to today's main attraction, Zlatko Rihter, CEO of Molnlycke and Susanne Larsson CFO of Molnlycke. Welcome. This is for you.

Thank you. So pleasure to be here from me and Susanne. So we'll try to cover little bit around Molnlycke and deep dive into that. And of course, since we're a healthcare company, we will focus very much on the development in our world and where we try to go. And of course, as you all know, we are world-leading medical products and solutions company, just to be clear. So short data about Molnlycke for you to know is that we are a company, with our global headquarters in Gothenburg. We are globally present, have a long history. And last year, I think we ended up almost above EUR 1.8 billion net sales with 8.4% growth. So that was kind of just to set the stage a little bit. We'll go more into the details later on. Close to 9,000 employees, and we are today organized into 4 business areas, which I will cover a little bit more. Wound Care is around 58% last year, operating room solutions 25%, gloves 14%; and antiseptics 3%. So that's kind of Molnlycke in short. Good to know. But let's then move into macro and strategy. And I think to start with, I think it's extremely important to understand the environment and context we are working in. We see a very, very clear global healthcare trend, especially now after the COVID, but we have a situation where the systems around the world have an immense pressure, and we see that in our daily lives that we try to monitor and manage in different ways. And we see a situation where, in many, many markets, we have a lot of vacancies in the healthcare system. A few numbers. I think it's 150,000 vacancies in U.K. NHS right now. Sweden around 20,000. I think Germany, not far away from 100,000 also. And then that's the same wherever you go. So the consequences of that, and I think that is important to understand because this is kind of where we have to find our way is that we see that many tasks are pushed towards less skilled and experienced healthcare professional, and that will continue. That means that the non-professionals have a bigger and a larger part of the healthcare given. We also see that care is pushed out closer to the patient. We are asking more of relatives and others to support patients and other in the daily life. Having less skilled healthcare professional, having more relatives involved in the healthcare delivery of patients also means that there are less skills, you need more intuitive products and solutions at the end of the day. That comes as a natural fact. And of course, if you want to be relevant in the future, you have to provide that. One way for the healthcare system in general to kind of address this and make sure that we can survive is that we see an immense investment into digital and connected health services. I think the organic growth there, I mean, if you look at digital, it's around 20% per year right now, and that will continue. So that's one way to mitigate the gigantic gap in staff -- lack of staff. So I think this is a good starting picture. And we've done -- and I'll come back to that a little bit broad, what we call ethnographic study to come to this conclusion and that kind of drives our strategy. So when we did that, we have based the whole Molnlycke strategy on what we call an ethnographic study. So basically, what you do is that you go out and you study your customers' behavior in your daily life. So if you want to study animals, you don't go to the zoo, you go to the jungle basically. And that's what we try to do. And when you do that enough, in enough places and I'll show little bit later on where we've been, you start to see patterns. And then for our 4 different business areas, this is the number 1 issue that we need to sort out or at least help to sort out. And I think we are ready to take on the challenge. So if I just quickly take them one by one. Wound care, we know today that if you are a patient with a chronic wound, venous leg ulcer or diabetic foot ulcer or a pressure ulcer, and you come to a hospital or primary care clinic. The likelihood that you get the right assessment and the right treatment for optimal healing is around 30%. So that means that 7 out of 10 patients that comes to a hospital globally today, probably won't get the right assessment. And the consequence of that is that the healing time will be much longer than it could have been. So that's kind of the number 1 issue. And the reason for that is that there is a lot of generalists meeting patients. We don't have enough wound care specialists. And today, in every given Western country at least around 2% to 4% of the population have a chronic wound. So only in Sweden, that's a few hundred thousand, but you can do the math in each country. So it's an immense burden. And I think the challenge now is, of course, that how do you train all these healthcare professionals. There might be 10 million, 20 million, 30 million of those, and maybe face-to-face training is not the right way to go. You have to find other means. So that is the challenge for our Wound Care team. If we then take operating room solutions, we know today that one of the big challenges in operating room is lack of staff, but also that the flow or processes, the working flow is not optimal. And as a part of the studies, we also discovered that in average, there are around 1,200 hours of death time, so to speak, in an OR room per year. And if you convert that into money, EUR 40 per minute times whatever, it's around EUR 2.5 million cost per year in every OR room. And then you know many hospitals have a lot of OR rooms. And our role, of course, here is to see, can we be part of making this flow more efficient by our product offering. And if we -- I think we can. So we can take out some of that burden. We can add value. Then we have our surgical gloves, the third BA. We have been very much historically focused on safety. You don't want the surgeon to be contaminated by blood or other things in the -- during surgery. But also, I think what we have discovered is that they want to have both safe but also tactile glass. If you're doing a 12-hour surgery, you're pretty numb in the finger. So basically, the combination, and that's, of course, a big challenge for an innovation team to address that because you have to have 2 features in the same glass. So that's kind of what we try to figure out there. And then I think in antiseptics, and I think here we have a good example. We did a study in Germany where we saw that despite -- this was made last year, 1 month or 2 months after Omicron. Only 4 out of 10 nurses follow the procedure when they went into the OR room of how to disaffect their hands, for example. And the reason for that is not that the products are bad is that the protocols are not followed and they are quite complex. So going back and find more intuitive solutions and workflows to make sure that when they go into the operating room, they definitely have followed the protocol and we don't have the immense number of hospital-acquired infections that we have today because today, 1/3 of all patients that go into hospital bring some kind of infection with them out that was not planned for. So this is kind of the foundation for our strategy and where we try to figure out what is our next steps. And I think if we as company want to be future-proofed, we have to address this. We have some other kind of macro things that affects us, and I will not go through the upper half here because you have all seen them. But I think where we see opportunities and challenges is that, first of all, we see despite the German case an increased focus on infection prevention after COVID. And we have several product areas or business areas that address that. I think one comment I have to make on elective surgery is that was a big backlog during COVID. And it's true that it went back to normal pre-pandemic levels for a while, but we still struggle here because -- but it's not the COVID now, it's more than -- the reason is the lack of staff. So we see still markets where we're not fully back on 100% versus pre-pandemic. Another thing that we see is the increased -- unfortunately, an increased number of chronic wounds. The reason for that is pretty simple. Patients were not treated the right way because you have to -- in elderly homes and other places you have to reposition and manage patients in a good way. And during COVID, that was deprioritized basically. And today, we see a higher amount of chronic wounds. So short-term, that, of course, also affects us. And then, of course, staff shortages, whatever you can do as a healthcare provider to help them to become more efficient, not having to fill vacancies helps out. And I think that is a key focus for us as well. So that was a little bit setting the stage and what we have based our strategy on. And to come to that, what we did is, as I said, we did this ethnographic studies. And I think this is something that distinguishes Molnlycke may be from some other companies, where we really took the effort to go out for each of our 4 BAs and study our customers, how they behave in their daily life. And you see a few numbers here. This is -- and we did this during the pandemic with all the limitations. So we went to many, many hospitals, we talked to many nurses, doctors to kind of get our foundation for our strategy going forward. And I think this was a super important work to be done which we know can benefit from. And we did this globally. I think we are in all 4 continents and 9 countries. So to address this, so what we would take as a next step? And I think this has been mentioned a few times during -- linked to Molnlycke. 1.5 years ago, may be more than that, we decided to go to this kind of decentralized BA structure basically where we have gone for our 4 key customer groups as we defined and then organized according to that. So now we have 4, I would say, end-to-end business areas with driving power to drive their business with slightly different customer groups. And then we have kind of an operating model in Molnlycke that is common, but then we drive the businesses. So we have moved in all the key functions into the BAs, sales, marketing, business development, innovation and operations basically. So when you summarize Molnlycke, that's the sum of the 4. Then we have defined 3 major areas where we have said this is areas where we would like to be industry leaders over time. So if you ask a customer, which companies, most customer-centric, they should say Molnlycke then we've been successful. We'll figure out if we're there, maybe not yet, but we are heading towards that. And that goes for sustainability and digitalization as well. So we have really invested into teams to support that. And so that's kind of the 3 PA strategic initiatives that we are driving over time. And as an example, I have just submitted our SBTI targets, for example. And we've done many other things, I could give example in [indiscernible] I think customer centricity is what we're doing but then -- and already before. So we have an operating model now that we believe that we can drive business within. So to summarize a little bit from my perspective before I hand over to Susanne in a while to talk about numbers. So this is kind of our kind of mission for HPA that we will -- we measured against over time. First of all, in wound care to deliver innovative and intuitive solutions for prevention. I think the best wound is the wound that never occurs. So if it can occur -- because if you can do proper prevention, you can remove a lot of wounds from patients that sort of never occur. And I think we have very good solutions for that. Once the wound is there, of course, faster healing and better quality of life or to other important things that we should be part of addressing. When it comes to ORS, which is, of course, focused in the operating room, we are now on a mission to create an ecosystem of solutions and services that ensures what we call a frictionless flow in the operating room. And what we've done there is we mapped out all the steps you do pre, during and post operation basically to understand where can we contribute to help out to reduce the 1,200 hours of death time in the OR room every year. Gloves going from safety, more to ductility, and talk about hand health, and we've also moved our focus on glass to a concept we call hands deserve better. So that's kind of our mission in that area that we're trying to drive and also for innovation, but also to really focus on how can we help the surgeons to have -- and the nurses and the techs in the operating room to perform better because they had long hours in the operating room and then they need glass. And then we have antiseptics, we're talking about prevent infection across the patient journey. Patients should not go from hospitals with hospital-acquired infections. So that's kind of the missions and what we are kind of driving now as a strategy globally. So by that, over to you, Susanne.

Thank you, Zlatko. Hello, everyone. Starting off with a little bit of longer history. I think what I would like to try to convey here is that we have been able to grow some EUR 400 million over the last few years, which represents in reported numbers 26%. In the top, you see a percentage that is excluding the one-off PPE business that we happened to be able to successfully take and deliver during 2020 and 2021. So if we put that aside, the message I would like to send here is that we have been in a growth situation all through COVID in spite of both COVID and the following elective surgeries that Zlatko talked about. And you can see that we managed them to have a strong growth of 8.4% last year. Throughout this journey, wound care has been able to contribute really strong all through the years and for the other business areas, they have had a little bit ups and downs then, but I will come back to that now when we look at quarter 1. Profitability-wise, those of you who know Molnlycke well can look back and say that we have been able to be around 28%, 29% for many, many years. Then during 2020, we managed to actually excel and get up to a 30% level. And to be fair, I think we need to realize that a lot of OpEx were very, very suppressed at that point in time. We held back a lot of events and activities to kind of work with the COVID environment we all faced. Since then, we had 29% and ended last year with a full year EBITDA margin of 26%. And here, I would just like to spell out that over the last 2 years, 2022 then compared to 2020, we have had material handling and sourcing costs additionally SEK 130 million higher 2022 than what we had in 2020. And that in itself represents 7% margin points. So in that, we have, of course, worked a lot to compensate with sales, price and mix management and the general cost consciousness, somewhat fueled by positive FX. So that's the history. More narrow history than quarter 1. I think we're really, really happy to provide a 13% growth. And what is super great is that we have that growth coming across from all 4 business areas. So for the second quarter in a row, we have growth in all the 4 business areas, although fueled by wound care and operating room. One thing that has also eased is the supply chain situation and our manufacturing output and that has also helped us to further fuel sales in this very quarter. So looking into our 4 business areas, we can see the very strong development in wound care 14%, ORS 16% growth quarter-over-quarter, gloves a 4% growth and antiseptics, a 6% growth. I think this picture also very well illustrates the dependence how big wound care is followed by ORS, gloves and antiseptics. So again then, I think we have now for quite some time, had a double-digit growth from wound care. And I think that tells us we have a very strong commercial execution. We are close to our customers. And this quarter than we have even been able to have a backlog that we have been able to catch up on with the improved manufacturing and supply chain. ORS, on the other hand, we see strong growth in trays but also in drapes. And here, we can certainly see that trays is helping in the effectiveness of the operating room despite the difficulties with the staff shortages coming through down. In gloves, we are happy to say that we are in a balanced environment with supply and demand and the output is improved compared to the weaker quarter 4 of last year. And finally, antiseptics that has struggled for quite some time with supply chain difficulties that started to ease for Americas last end of last year, and now we see it continuous, is also for the European business. So that is really how the sales development looks across our 4 businesses. What else? I think I probably said a lot about this already. So again, the wound care, just to stress out also that we have a growth all through our region. So we can see that very strong development coming through everywhere. On operating rooms, I think we have also here many markets which is contributing with a really good momentum. And I would just like to highlight the last bullet there that we have been during the quarter, awarded a EUR 28 million business in Norway, and sustainability is certainly one of the key drivers for us to have been able to differentiate ourselves towards competition there. Results then. So the EBITDA. So here, we have improved from SEK 112 million last quarter 1 to SEK 136 million this year. And that certainly leads to leverage result because where the growth was 13% on the net sales, here, we managed to deliver a 21% improvement compared to last year. So what does that reside from them? So first of all, of course, a lot of this comes from the strong organic sales growth also with a positive sales mix. For the first quarter in quite some time, we have an improved material handling. So here, we can actually see that we have a positive impact, and that was quite some time ago, plus SEK 6 million. Increased cost of production, we can see. So there, we have a slight negative impact. And we see that with the material being higher, but not the least also the energy and utility costs down. So that is contributing negatively. And for OpEx then, where we are investing, the quarter 1 last year, we have to recognize that, that was still suppressed Omicron was impacting us all. While this quarter is one of the normalized quarters again where we can invest both in sales both for current and future growth, but also for innovation, R&D and digitalization. So that's the explanation for that. And then the FX is completely negligible quarter-over-quarter. This is an illustration of how the profitability looks for our businesses. So wound care then operates in the quarter here for more than 40% EBITDA margin. ORS have had a really difficult time with a lot of supply chain and material costs. That is now easing, and we have a -- have the profitability of more than 5%. Gloves is operating more than 15%, while at this point, antiseptics is still below 5%. So that's how uneven our profitability is between the 4 business areas. I believe that's my last slide. Yes.

Just to summarize, and thank you, Susanne. Summarize is that I think we show now that we have a pretty long track of profitable solid organic growth. And we have to also understand that right now, at least for the last year, we have been outperforming competition in 3 out of our 4 business areas, not antiseptics but the other 3. We have a strong strategy in place. It's truly based on ethnographic studies, which means that you capture the key issues at customers or at least we believe that we've done. And it's also based on a solid geographic expansion. We have invested into several Asian markets like China, LatAm, et cetera, the last -- during the last year. So we have a customer insight strategy that is driven with customer centricity, sustainability and digitalization at core. So that's where we invest. We have our 4 business areas, and then we also set up an operating model where we put what we believe serves the business best incorporate functions and that we now execute. So we are like in the execution phase of our strategy since some time, which is important to note. I think what we're looking into right now is how can we accelerate innovation even more and also starting to look into business development. As you know, I mean, Molnlycke has a long tradition of organic growth. And can we do something more to look into non-organic. That doesn't necessarily mean a big M&A. It could also mean collaborations, joint ventures and try to find our ways into new channel segments into the market because there are opportunities. We aim to become an industry leader within sustainability. I think that's super important for us, and we invest a lot into that, and we have a pretty good development in the last 2 years. And also, I think an important note, MDR, which is an important part of kind of the quality and regulatory aspect of medtech companies. We are MDR ready by this year. And that means that we have done our homework. And most companies still are not. So that means that we can invest those resources into true innovation and not just compliance because it's usually the similar type of resources at the end of the day. So I think we are well positioned to capture long-term sustainable profitable growth. And of course, we aim to continue to outperform market growth. And that's kind of our goal. So thank you so much.

Thank you, Zlatko and Susanne. And we will now open up for a joint Q&A session. So we will be joined again by Johan Forssell. And we will start out by taking questions over the phone, and we have our operator, Sharon with us. So I hand over to you, Sharon, to facilitate the Q&As over phone or the queues over phone.

[Operator Instructions] We will now go to your first question. And your first question comes from the line of Joachim Gunell from DNB Markets.

So starting off with some questions for Molnlycke. Having said this decentralized operating model now, can you just comment a bit on how you think your strategic priorities will be different over the, call it, coming 2 years and what we capture most of your focus.

No, I think -- I mean, we've been in this model now for soon 2 years. The organization became effective July 21. And then since then, we try to, of course, to tweak it and optimize it. And then we set a new strategy. And I think it's not only the operating model, it's also kind of the, as I said, the customers that based ethnographic strategy that is in place. But we clearly have 4 different kind of customer groups, and we have organized ourselves against the customers. So in that sense, it's not super complicated. But that also means that you get more focus and you can drive business and specialized for each BA. And I think as always, when you start in a journey, you'll find new opportunities as you go. So we spend a lot of time right now on the commercial business model, for example, to fully understand where are the more opportunities, can we go even further and more in depth in different markets. So that's kind of the next step for us. So becoming more and more, I would say, granular in our journey. And then we also can spend some time to figure out how can the corporate functions like finance, people or the HR organizations, et cetera, supporting the best way. And I think we landed that quite well now. So we are really focusing on execution right now.

And also, you mentioned a bit here on the inorganic strategy you have, but can you just elaborate a bit more on whether you think M&A is more about broadening the market plus technological depth or what have you? And also if there are any like differences in that strategy depending on what the operating segment you -- or business area you think about?

Yes. I think to answer that question, I think it's all -- I mean, in my role at least, you have like the 3 pillars with -- first you set the strategy, then the structure and then the people at the end of the day. And I think our focus has been setting the strategy, and then you can definitely use different tools. I mean, you have organic growth, you have, of course, collaborations, joint ventures and M&A. So that's all tools for me. And we will -- we have defined the segments we would like to grow in and develop and be successful in. And then M&A could be one of the tools to support that if we find the right match. But in most cases, it will be organic business development, we'll find collaborations, and we have a few examples of that where we brought in partners, and we do things together. And so there are many different tools. And I think M&A is one of those. And that is always ought to plan for, of course, if that happens. But we are very active in the market to try to understand the segment we address and how to do that in the best possible way. And M&A is one component in that. But the organic growth is our key part.

And then just finally, to what extent, I mean, given the quite stellar results here in Q1. To what extent have you seen a normalization of the challenges you saw in Q4 for the production supply chain, staffing strategies? And how do you expect those headwinds to weigh on profitability into 2023? So how is in the full normalization and how do you expect that trajectory to play out into the next year?

No, I think you take a close look at me, so you have a lot of gray hairs. I joined Molnlycke end of '20. And it's been 2 years of supply disruptions is all over the place, basically, trying to survive. I think now we had -- and I have to knock on wood here, where the first normal quarter in Q1 this year where we really could focus more on constructive things than trying to close fires. So that's kind of the positive part. We still have a few elements of that. I think we still have a little bit higher inventories to secure us since past week. We've seen that a lot of the cost has gone down, but still, it's longer lead times on the sea. It's not back to the 4, 5 weeks between Asia and Europe as it was pre-pandemic. It's still 8, 9 weeks. So there are certain elements left. But I think it -- it's without doubt, very close to a normal situation. We also see that in the back-order situations, et cetera, that we are -- we clear that out to the most basically. I think some final elements in Q1. So we're really, from that perspective, quite optimistic now moving into Q2, but we're out of that.

We will now go to our next question. And the next question comes from the line of Derek Laliberte from ABG Sundal Collier.

Okay. I have some questions for you, Zlatko. First off, wanted to ask you on pricing. We have seen public spenders for ones here accepting higher prices in certain areas. I was just wondering how this is looking from your perspective? And if you could have -- perhaps give some flavor with regards to your different segments as well. Thank you.

Yes. No, I think it's a good question. And I think also there is inflation and there has been supply disturbances and many other things. And I think we call it price management, it's maybe a better term, but -- we have a very active price management, especially in the ORS part, it's been a lot of activities around that. And what we see if nothing else is that the price erosion that we had -- that we had a few years back is less now basically. So we are like, there is a price increase in all BAs. I think the challenge for us is that we're a little bit -- we're in the health care environment. So we're stuck in tenders. So sometimes you have a 4-year tender and even if you do active pricing, it takes a few years before it's fully coming through. So you kind of get the fourth per year or third per year because normally, it's 3, 4 year deals, where we cannot affect them. And I think it's much easier for a kind of a B2C company to be active on that and getting immediate impact than if you're in our environment. But yes, we are active. We also see that the customers are asking more for -- if you take the ORS business, for example, even if the elective surgeries are going down, they ask for help in efficiencies and then the trays business, which is helping them to reduce their kind of logistics efforts in the hospital is extremely attractive at this stage. And there, we have value and of course, prepared to pay more at the end of the day. So that's kind of the thing we have to do. But over time, of course, we need to make sure that we have good innovation in the pipeline that addresses their key needs. But short term has, of course, been little bit easing burden there.

And on the margin or rather cost side, you mentioned some very positive developments and the easing here, I mean, how would you say the margin outlook looks for the overall business because it seems like raw materials input cost must have eased as well, right?

Yes. But there are many factors here. There is also high inflation right now. So there are a lot of things moving around here. And it's hard to kind of give a prediction. I mean we're working really hard to commit and deliver sustainable growth, both top line and bottom line. That's kind of our commitment over time. And I think despite the turbulence in the last 2 years, we had a lot of activities to keep mitigate cost. I think Susanne showed that we had EUR 130 million extra cost '22 versus '20. And we didn't have the same amount of loss on the bottom line. So we've done a lot of activities to ensure efficiency in the business and operations. And hopefully, that will pay out. But to give you any numbers, I want to.

And I also wanted to ask you on this Chinese reopening and how that is looking for the hospitals? And what type of effect is -- potentially could have for yourselves?

We've been doing quite well in China during the pandemic, even despite the lockdown. And I think the reason for that is we talked about one of our kind of key strategies and that's digital. We went digital. We used the e-commerce channels like WeChat and Alibaba much more than our competitors, and we found that kind of a digital channel to the market. And despite -- since you couldn't visit hospitals and other institutions during the pandemic due to the lockdown, we managed to have a consistent double-digit growth, organic growth in China during the whole pandemic basically. So there we have a very, I would say, strong business model that has been working in our way during the pandemic. And of course, now when things go back to normal, maybe we can still utilize that going further, but maybe you don't have the same upsides, maybe as we had in the last 2 years, but continuously strong, strong performance there. And we have invested a lot in China into this type of tools.

And finally, want to -- wanted to ask you on -- I think you launched a new version of this battery-powered Avance Solo negative pressure system. Just wondering how that's been received so far.

Yes. That's one of our kind of organic growth initiatives, basically, where we now have a solution, I mean, in one of the key segments in the wound care business. And it's launched, it's now commercialized and we're ramping up. In our world, when you do launch, you need to get all the regulatory approvals and really kind of build the businesses, it takes quite a long time to get traction here. So far, okay, but we have a long way to go. But we have a solid product that is competitive. So now we have to kind of execute the commercialization basically. That's the focus. So we're beyond the innovation to a large degree.

We will now move to the next question. And your next question comes from the line of David Johansson from Nordea.

So starting off with a question for Zlatko and Susanne on Molnlycke may be. So looking at your wound care segment, I guess, in particular, the U.S. manufacturing plant, how much impact do you still see from staffing shortages and supply constraints for this business? And can you say anything about what the situation looks like exiting Q1 compared to Q4 last year?

I can comment like we have -- what we discovered in mid last year was that we had quite large staffing issues there, basically. Our factors are based in Maine, which is not the most -- kind of the most attractive place to be in from that perspective, but that's where we are. And what we did then during the second half of last year is that we really put efforts into it and really, really focused on being much more active in recruiting staff. And it always takes some time to get staff up and going. But I would say, as of now, as of Q1, at least end of Q1, we are in a stable position here. Now a lot of challenges, of course, we have growth ambitions. So that means that if you grow double-digit, you need more staff. So -- but we have a very proactive approach there right now. And currently, it's under control.

And to build on what you say is that because I think we do not have any major issues any longer and what we have been able to do during the quarter is to ramp up to the third shift, and that is also why we managed to get further output compared to what we have been facing previously. So I think we are in a good situation currently from a U.S. manufacturing perspective.

And then my other question was in regards to the operating room solutions business. So both growth and margins looked quite muted during last year, but now seems to have improved a lot from strong demand in, I guess, in several European markets. Maybe you can give us some more flavor what's the potential for margins for this business? And maybe you could also comment what you expect in terms of elective surgery levels throughout the year?

If we start from a customer perspective in elective surgeries, it's extremely hard to plan for. I think the sad news is that I think if you look out in the healthcare environment, the staff shortage is a chronic problem and it will not be fixed in 3 months. It will take years, I think. And we and other providers and also the healthcare system have to find new ways to sort out. I mean, at the end of the day, we will all be patients in different fleets and ways over time. So that is a challenge. And we still see that below the pre-pandemic levels even if it's closing up. But I think that being said, I mean, profitability wise, of course, we're not satisfied long-term with where we are today, not even in Q1, which is much better than it was last year. You have to remember that the majority of the EUR 130 million, we took that as a total number, that hit or that's where the biggest issue has been and the majority of that increased cost hit them. And that's, of course, now step-by-step going back. Then you know spot prices is one thing. And before we have on the contracts, et cetera, converting into the new numbers, it takes some time. So that's kind of where we are. So we should see and we expect higher margins. But to give a specific number, it's too early, I think. And I think the growth we see there is a lot around price management and that we are converting the business into more kind of high value. The trades are more high value than if I may call it a single pack, which is you sell the components one by one. So that's where we see now a clear trend, and that's kind of driven our performance there, the last part. So it's not the market that is growing. And that also means that we are gaining market shares in Europe, especially where we are strong.

[Operator Instructions] I will now go to the next question. And your next question comes from the line of Johan Sjoberg from Kepler.

I continue to ask you Zlatko, sorry about that. But on -- looking at your Q1 results here, looking especially at the impressive 13% organic growth, how -- what was the impact would you say from the order backlog in that number?

Yes, I'll allow Susanne to take that.

So I think that we have been able -- if we talk about wound care where I commented that specifically then with the manufacturing and supply chain improvements we have been able to do. I think we have been able to prove now for many consecutive quarters that we have a double-digit growth, so -- but it was somewhat additional if you will then. So I think the 14% where we see that the organic growth is certainly sitting on a double-digit part while a little bit of the extra that came over is actually because of our ease now in the manufacturing and supply chain.

And just a comment. I think that is for the back [indiscernible] 3 BAs are not affected in Q1.

Exactly.

So if I were to push you for a number here, would you say that you still would report like 10% plus. Is that what you're saying?

I would say that we will try to have a lot of activities to make sure that we have a good growth.

Just also now after you've been here for a couple of quarters here, what would you say for going forward here, how do you estimate the underlying market growth for Molnlycke, if we were to say all the 4 divisions as one?

I think there are fantastic opportunities everywhere. As long as you move up to the kind of the value, and I think that is the strength of Molnlycke historically. We are a premium company. So if the customer looks for a total value, if you want cheap products, we're not the right partner. But if you look for total value beyond the product only and where we can save money and get better outcome, we are a perfect partner in these areas where we -- in all 4 areas where we are participating. And I think with a staff shortage and all the issues they have, I think that's playing in our way, and we have to continue to do that because we have -- one of our strengths versus competition in all areas is that we usually have more clinical outcome data. We've done more clinical studies. We can support our products and solutions more with outcome data. So that's one. And we also have a pretty good case in most areas on health economics basically. So if you really take into look, take the Trays as example versus single tax, we reduced the amount of logistics in the hospital can really even remove it if they go full on Trays. That's where we can contribute. And we have to continue on that path. Then we are an attractive partner. So for those customers that really are squeezed now on staff, we can deliver lot of value or be part of it at least solving the problem. I think we need to stay there.

And also then just to try to push you for a number also, how would you say that when we are -- we love to live in our XL model, we analysts. And if you want to get some guidance on the underlying market growth for Molnlycke, if you could give some sort of growth guidance for us, please?

I'd -- it's I won't give you a specific number. But I think what we've done in the last year or so, I mean, we would like to continue to do, and we have gone from being a business that's grown around 5% points -- 5% per year now, we -- last year, we ended up 8.4% now on the first quarter plus 10%. And of course, I mean, our ambition is to ensure that we have a sustainable growth that is in this region basically over time. And then it's extremely hard to say exact numbers.

Isn't it fair to say also that we intend to continue to outperform market like we are currently doing, that's also -- as you get with a number. Yes, exactly.

And thanks a lot for your transparency also. I really appreciate all the details on the EBITDA margins in all business areas. It was super good. Not many companies do that. It was very good. Thank you.

I don't think we have any more questions on the phone. We have some questions on the web. Several of them have been covered already. And so in the interest of time, we think, as we are past the hour now, we would like to thank you all for joining us today and especially thanks to Zlatko and Susanne.

Thanks.

And we will be back mid-July with our Q2 numbers.

Thank you.

Thank you.