Arjo (Stockholm:ARJO B) Q2 2026 Earnings Call

0:00 Hello everybody. So first of all, for taking time off from your hopefully good start of the summer. Today we're going to present the Q2 reports and I would like to begin by just going through some basic information about Arjo, so those who are new to the call or new to following us get a better grip on what we do. We really are purpose driven. We have an organisation that is really inspired by the purpose of helping patients when they need it the most, to protect their dignity, their integrity, and also to help caregivers do their very important job. We are experts in improving mobility, mainly in acute care and long term care settings, a little bit also in home care, but mainly in acute care and long term care.

0:55 So everything from patient handling, (publ) hygiene and wellness, medical beds, pressure injury prevention, the ETE prevention, diagnostics and disinfection. We were founded in 1957 in Essler by Arjo and that's where the name Arjo comes from. We had in 2025 11,000,000,000 SEK in turnover and we have approximately 7,000 employees globally. Our sales arms reach more than 100 countries around the world. So a summary of the Q2 reports. So really happy about the growth, very solid organic growth of 4.7%, still pressure on margin.

1:47 This comes from cost increases, it also comes from some price pressure in certain segments of the market, but all in all we believe that the quarter was good. Global sales was really leading the way and we'll come back into that on the next slide. What is important to highlight is that there is an increasing demand for our sustainable solutions and today quarter Renew had their all time high sales. And Renew is our business of taking disposables, cleaning them in a safe way and being able to use them again and not dispose of them. We have a very slight EBIT improvement.

2:35 This has helped despite the pressure on the margin and this is mainly due to us being able to get some of the tariffs back this quarter. We also have a positive development of the cash flow this month and we have an improved cash conversion, not really according to our goals, but improvements from last year. So I will continue. Maybe I can shout out this that we have also made our strategy. I will mention that towards the end as well, but as a summary we inform in the Q2 report that we see clear potential to improve Arjo's value generation and we are going to share all about that in more specific numbers and terms in the Capital Markets Day on September 24.

3:29 So just to shout out that North America continued to grow, The US was leading there, Canada was slightly behind last year, and Canada also came from really high numbers last year, as did also The US, so both countries in North America really had very tough numbers to beat. So we're happy that they managed to grow. Global sales with Western Europe and the rest of the world grew by an impressive 7% and Western Europe were on 6% and it was really nice to see UK being back to growth.

4:12 And by that, I hand over to Gustaf Carlson to go into the financial performance. Thank you, Andreas. And as Andreas stated, we had a solid growth in the quarter. Our gross margin came in somewhat lower than last year. Looking at the drivers. During the quarter, we experienced an unfavorable sales mix driven by strong growth in global sales and relative lower growth in North America. Increased transportation cost and cost of materials pressure the margins in all categories. Part of the increased transportation cost is an implementation of a new transportation management system where initial implementation challenges resulted in approximately 10,000,000 SEK of one time transportation costs during the quarter, but this will be fading out during the third quarter.

5:03 Group rental margin declined in the quarter, primarily due to weaker profitability in The US rental business. During the quarter, we received an initial reimbursement of SEK22 million related to US tariffs. In addition, a 30,000,000 SEK is currently being processed with the majority expected to be reimbursed during the third quarter. The reimbursement is recognized as a reduction in cost of goods sold. Excluding the reimbursement, used tariff costs were at 12,000,000 SEK lower than in corresponding quarter last year. FX had a minor negative impact on gross margin. In absolute terms, gross profit was negative affected by 23,000,000 SEK year over year.

5:51 Nevertheless, this represent a significant improvement compared with previous quarter. Gross margin was impacted by a number of factors during the quarter. But as as you will see on the next slide, this mean cost control helped offset part of that pressure. Let's move to adjusted EBIT. Next slide, please. As you can see, adjusted EBIT for the second quarter amounted to $211,000,000 SEK compared to 208 in q two last year. Despite continued inflationary pressure, underlying profitability was broadly in line with last year when adjusting for one off effects and FX. One of the drivers was continued improvement in operating expense efficiency.

6:36 The opex to sales ratio decreased by one percentage point year over year to 34.6 compared to 35.5 last year. Organic OPEC growth was 1.9%, which is lower than the increase reported in the first quarter. Overall, the total FX had a negative impact of 12,000,000 SEK on adjusted EBIT during the quarter. Moving on to the adjusted EBITDA, which amounted to $482,000,000 SEK compared to $475,000,000 SEK last year. The adjusted EBITDA margin was 17.5%, broadly in line with last year. The EBIT margin improved to 7.6% compared with 6.5% last year.

7:24 The improvement was supported by lower restructuring costs, which amounted to zero in the quarter compared with 34,000,000 SEK in q two last year. Turning from profitability to cash generation. Let's look at our working capital and operating cash flow development in the quarter. Next slide, please. Operating cash flow improved during the quarter and amounted to 257,000,000 SEK, an increase of 52,000,000 SEK compared with the same period last year. The improvement was driven primarily by stronger operating profit, partly offset by less favorable development in working capital. Working capital changed by negative 122,000,000 SEK compared with negative 87,000,000 last year.

8:10 Following a relative soft start to the quarter and a very strong June, a large share of the receivable remained outstanding at the quarter end. The increase in inventory is mainly raised to finished goods transit intended to support sales during the second half of the year. Working capital days increased to 87 compared with eighty three days in q two last year. Cash conversion improved to 53.3 compared with 46.6 in the corresponding period last year. For reference, cash flow from investing activities was minus 194 compared to minus 171 in q two twenty five. The number includes an acquisition of a service business in Australia amounting to 30,000,000 SEK.

8:59 Cash flow remained solid during the quarter. And with that context, let's move on to the net debt and leverage. Next slide, please. The increase in net debt during the quarter was primarily driven by the annual dividend payment of SEK $259,000,000 and higher investment levels. Net financial items amounted to negative SEK 49,000,000 compared with negative SEK 48,000,000 in Q2 last year. The improvement was mainly driven by lower interest expense. As is typical in the second quarter, following the annual dividend payment, net debt to adjusted EBITDA increased and ended the quarter at 2.4 times. Our equity ratio stood at 49.5%, slightly down from 49.8 at year end twenty five.

9:48 To summarize, we delivered stable profitability, improved cash generation, and maintained a solid balance sheet. With that, I will hand it over to Andreas. Thanks, Christopho. My voice is breaking up a little bit, but I hope it will be okay for those listening in. So I'm happy to announce, as we wrote in the report, that we have appointed five regional leaders to join the management team and report to me. This is something that will help us to really strengthen the voice of the customer in all group decision making. It's also something that will help us to improve product development, it will help us to drive common agenda and efficiency across the group. So all of these regional managers are already part of Arjo and they lead some of our biggest markets today, but now I'm happy that they have accepted to step up and lead a region then.

10:57 So, and then I want to just make a small advertisement for our Capital Markets Day that will take place in Stockholm on September 24. And at that meeting, we're going to share our strategy, what it consists of, the direction Arjo is intending to take the next few years. And we're also going to validate and put concrete numbers on what shareholders can expect from Arjo in the coming years, the value creation behind and the timing of it. So this is something for everybody to look forward to. We have a strategy approved by the board, we have activated approximately 90 leaders around this and we are now then calculating the effects and the timing of the strategy.

11:47 So I'm really looking forward to share all of that with you in September. The next question comes from Christopher Lilleburg from Carnegie. Please go ahead. Yes. Two questions. First, could you maybe talk a little bit about how you view the underlying demand situation in North America and globally?

12:36 And then I would like to dig in a little bit more into the reason here for the margin pressure or the gross margin pressure despite strong organic sales growth. So is it possible maybe to split the impact you see here from the negative mix and the underlying transportation and purchasing costs? And also, have you viewed the potential to offset this more near term? Thank you. Okay. Gustafo, would you like to take that?

13:10 Yes. So when it comes to underlying demand, we see a strong demand in North America. The growth in the quarter is, of course, a little bit holdback due to strong comparison numbers, and we we know that we have a strong pipeline for the second half year. And also in the global sales market and and European markets and rest of the world, also see good demand and healthy demand in the markets. When it comes to margin pressure, yes, there is an unfavorable mix due to both from a product and country mix, so to say. We have the medical beds increase is part of the growth, especially in Europe and UK.

14:00 But we also have

14:04 a weight against the products group in rest of world and in Europe that is lower margin compared to what we have in the North America countries. So when North America is not growing so fast, their share of the total is then declining, and that'll have an

14:26 effect. We also have in some kind of installation projects in Europe that is typically lower margin for the first time, and then that will drive consumable and service business going forward. So that is also part of the product mix explanation.

14:45 Could I ask, would you say that it's this mix effect is is a bigger impact in the quarter than higher, material cost and higher transportation cost? I would say transportation cost is actually higher. Okay, thank you. The next question comes from Sten Gustafsson from ABG Sundal Collier. I

15:19 would like to follow-up there on Christopher's question on the gross margin. Could you potentially share with us how much of sales is related to transportation costs? That would be my first question. And also, if you look on a sort of country by country basis, do you see any pressure on the gross margin in any market or is this purely mix?

15:59 That would be my second question. So the price pressure has been for quite some time, we've reported on this, in the DVT business there has been a clear price pressure that is eroding our margins. And that is we don't think that is going to jump back. That's that's the market situation. And then Christophe, I'm not sure if we have a number on total transport cost. No, we have to get back on that one. Understand the DDT business, but is that still eroding?

16:46 And my question was more like if you look at The U. S, for example, would you say that the underlying margin is under pressure? Or is it flattish? Right now we believe it's depending on the mix it plays a big role. But we don't see eroding margin more than the price pressure in certain segments. I say like that, Christoph, can we add any flavor to that? No, mean, of course, it depends a little bit what product categories we are talking about. We we have a healthy development in certain country categories, and for some other, there are more pressure.

17:38 And as I mentioned also that the rental business in US is under pressure from a profitability standpoint. Okay, thanks. If I may squeeze in a last question here and it's related to Canada.

17:56 If maybe you could remind me about the how the comps will look like in the second half. I believe they become easier. Is that correct?

18:08 Yes. They were a little bit softer second half. It's still growth. I I can't come back with the exact numbers, though, but they had a tremendous first half last year. Okay. Thank you. The next question comes from Philipp Wetterquist from SB1 Markets. Please go ahead. Good morning, guys. Just one follow-up on the gross margin and transportation costs. Given that oil prices have come down slightly in Q3 compared to Q2, should we then expect some positive effect quarter over quarter on transportation costs? Or how long does it take before these swings impact the P and L?

19:02 We usually don't forecast anything and right now I think it's hard to say that the oil price is coming down in the quarter. There are attacks on Iran going on as we speak. Of course, if the oil price is going down and it hits the pumps, transport cost will also go down. But we will not do any forecast on that at this moment. Yeah, but so you don't have hedged any freight costs or so, so it affects you directly if the oil price jumps or goes down so to say?

19:42 It depends on how we report and of course we try to resist all increases as much as we can, but it's it's not everything that we can resist. And of course, we when the oil price is going down, then of course, we want to be able to capitalize on that. So but Yeah. Arthur, do you have do you have any more details on this? No. I mean, there's no major program in terms of hedging transportation costs. But I mean and this is also just to understand the whole value chain. I mean, it's not only the the global big transportation from our factories to sales units. It's also a lot of our rental business and service businesses with tracks going back and forth between customers and our rental and service, they also driving quite a lot of the fuel cost, for instance.

20:40 Yeah. And then my second question, you mentioned that June was very strong. What drove that? Was this was it like one particularly strong order or was it just in general a good momentum across the board? It was a fantastic month and I must say now I'm six months into the job here at Arjo, there is a pattern of having strong last months in the quarter, so very nerve wracking. So it was really a fantastic month, I must say.

21:18 So that's the background. It's also Our order intake is also positive when we look forward. Thank you. That's all for me. The next question comes from Matthias Vatston from SEB. I have three questions. I'll take them one by one. First one, I think the wording in the report suggests improving conditions in The UK. Could you comment if this is underlying or more of a timing effect? Maybe you can just describe the situation in The UK right now based on your experiences?

22:02 Yeah, so I mean UK, we are really happy that we saw growth in the quarter because we've had a very troublesome time and not just Arjo, many companies have issues with the business in UK. So for us, we're really happy. It's too early to say if this is a trend or not, but it's really positive signs. We believe that there is no particular change in UK, I would say politically or in the healthcare system. NHS is really struggling and needs to do a lot of transformation. So I would say that it's more our focus that helped us to come back to growth. But the market has not changed. That's how I would express it.

22:51 Would you say the recovery was across most categories of Arjo? Or was it some specific item or categories product categories that drove the improvement? I don't have that level of detail in front of me right now for UK. Christophe, do you have that? It's primarily driven with medical beds. That is one category in The UK that is increasing. Okay. That's perfect. And next question, the organic OpEx increase you saw during Q2, I think, pretty good cost control. Would you say this is likely a good proxy also for the second half of the year? Or would you say we should keep any specific drivers in mind here for the second half? That's the next question.

23:45 We keep a very sharp eye on our costs and that's also something we'll come back to with further detail in the Capital Markets Day because it is really clear that we need to drive value generation both in terms of growth and additional business but also then to be efficient in our cost costs and look at cost out. But that will come back to in September. Okay, perfect. Then the last one, higher costs related to the transportation management system implementation challenges that you mentioned in the presentation. Are those costs would they remain at some magnitude going forward? Or are they fully taken here?

24:31 Our belief is that the majority of the problems we have seen, we are still not entirely happy with how the system is working. So we are we're still working on it, but the bulk of the problem is behind us. Okay. Thank you very much. As a reminder, if you wish to ask a question, please dial 5 on your telephone keypad. The next question comes from Ludwig Germundur from Handelsbanken. Ludwig Germundur here from Handelsbanken. Just want to start with a quick follow-up on the gross margin. You mentioned the mix effect here. Should we see this as a mix effect in terms of the North America not growing, meaning that all the other markets are growing faster? Or is there any markets outside of North America that is standing out in terms of how much is growing?

25:34 I think we were really clear earlier in the presentation that North America faced some really strong comparable numbers and we have seen really strong growth in, I would say specifically what we call rest of the world. So even if Europe grew really strong, rest of the world was really where we had a lot of strengths in the growth. Okay, thank you. And then just a quick one. Get that you want to say the detail for the Capital Markets Day in terms of the new strategy. But just a quick question on the increased investments that you mentioned in the CEO letter. Is there anything we should expect to change dramatically in the near term here in terms of increased CapEx or anything like that?

26:27 No. I I would say no. Just now, Flor, would you like to comment? No. I I think we leave that for for the Capital Market Day. Okay. Perfect. Thank you so much. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments. Big thanks guys for joining us on this call and I hope you could hear me in a good way despite my voice is breaking up a little bit. So by that we say thanks from me and Joseflo. Bye bye. Thank you and goodbye.