Arjo Aktie

Good morning, everyone, and welcome to Arjo's Capital Markets Day. It's great to see so many of you here today, both here at Epicenter in Stockholm and online. Thank you for taking the time to join us. My name is Maria Nilsson, and I lead Communications at Arjo, and I will be moderating our session here today. We have been looking forward to sharing an update on where we stand today, presenting our new strategy, the plan to deliver it and the priorities moving forward. We also want to go into how we will create value for patients, caregivers, customers and shareholders over the coming years.

And we want to give you a clear understanding of the priorities, the strategic choices we've made so far and why we believe that Arjo has significantly greater potential than what we've demonstrated in recent years. The plan we will present today has been developed through a broad and collaborative process involving leaders from across the company. It is a plan we are confident in, not only because of the opportunities we see, but because it's been shaped together by the people who know our customers, our markets and our business best.

So we have an interesting morning ahead of us. You will first hear from our CEO, Andreas Elgaard, who will present his view on where Arjo stands today, the new strategy we set in place and the priorities that will guide us forward. We will then take a closer look at 2 of the markets where we see significant potential for further growth and value creation. This session will be led by 2 highly experienced commercial leaders. First, Jessica Shatzer from the U.S. will share her perspective on our largest markets and how we see that we can further strengthen our positions there.

Then we'll hear from Canada and Jim Findlater, who will share insights into a very interesting market for Arjo and how we can continue to further grow profitably in this market. Following the presentations, we will conclude with a Q&A session where you have the opportunity to ask questions. And with that, I'm handing over to our CEO, Andreas Elgaard.

So, really nice to be here. My name is Andreas Elgaard. I've had the privilege to be the President and CEO since almost 9 months now. So, I am as excited as you are to be able to talk about what we've been up to during these months. And it's been -- for me, personally, it's been a true privilege to discover Arjo, all the people, all the good things that we do. And I think there is more good to be done, and that's what we will start to share today and in the coming periods. So, let's see if we get the slides up, yes.

So, we just sent out a press release. So, for those of you that start to see that, I will not -- I will come into that a little bit later, but we make a commitment today that within the next 30 to 36 months, we will do a clear profitability improvement of SEK 350 million. And the majority of that, the vast majority will happen within the next 24 months. So -- but first, I would like to begin by talking a little bit about who we are before we talk about the reality for health care and what Arjo needs to do in order to address that in a better way going forward.

So, I will begin by -- with our starting point. And you can say that our core and our purpose is very well aligned. We really help patients when they need it the most, and we'll come into that. So, the starting point is really to be experts in -- across different care settings and help people with their mobility in and out of bed, coming from a chair into the bathroom, taking care of personal needs and to do that with respect and dignity. So, that's what we do.

And we are a company that has grown both organically and inorganically. And we were founded and the name comes from Arne Johansson back in 1957 when the company was first started, and then it has, of course, grown and added more capabilities to the company. We had in last year SEK 11 billion in turnover. We're almost 7,000 coworkers around the world. We have sales in more than 100 markets, and we're truly a diverse company. I must say that, both from a market perspective and employee perspective and, of course, customer perspectives and what we offer. And we produce, assemble, manufacture our offer in 5 different facilities, but we also work with several partners that help us to fulfill our offer.

So -- and our -- I mentioned that we really have a diverse markets and diverse customer base before. So -- and that is something that is truly good. We both have segments that are diverse. We have customers that are diverse, and we have then the different markets, which means that we become quite a stable company when it comes to finding our revenue. And you can see that the segments that we're in, it's, of course, patient handling that is very much closely connected to mobility is the biggest area. And medical beds and injury pressure prevention is also very important. And all these help patients to stay mobile and prevent the dangers of being static in the care setting.

You can see that when we have our different quarterly reports or discussions with different members of the finance markets, there's a lot of questions about North America. So, today, we will have Jim and Jessica that will help us to get a deeper look into that. So, North America is almost 40% of our sales. We have activities as far away as Australia. We are in South America. We are our -- I think last year, our 10th largest market was India.

And it's amazing the business that has been built up there. So, we're truly a diverse company, I would say. And it's a mix between capital goods, recurring revenue through services and rental. And of course, then we have disposables as part of this also that helps to create the stickiness in how we do our business. So, we believe that we have a really solid foundation in our core to base our growth on when we move forward. So, everything from the customer base to our teams, our know-how, our competence to really an underlying business that gives us the foundation to be able to move into the future and to also know that we have something to build that upon. Circularity is something that is really important.

I mean more and more markets in more and more tenders and more and more kind of public, I would say, expectations on us, circularity is kind of a hygiene requirement. And almost 45% of our business has really circular qualities, both in the rental business and in our service business, and we try to build this into our capital goods business as well. And I think this is probably what's most important, most striking. And when I was new to Arjo, this is what I felt the strongest. It is that we have a true purpose. We do good for people when they need it the most.

When they need their dignity and integrity kept, we're there to help them. And that is something that is really -- it's -- there's many companies that have a purpose, but when you really feel it across the organization, then it becomes really something to build upon. And it's really something I felt when I have traveled and met all of these people is that this is something they come back to. And when a rental technician is late with the delivery, they know because they meet the patient, they see the caregivers that are waiting. So, the purpose is so close to everything we do, and that is what is being brought back into everybody that works more centrally in the group.

So, in many aspects, Arjo is really, really great. Great people, great leaders, great solutions. But as you know, sometimes that's not enough, and we are not good enough. We know that in recent years, we have not lived up to the expectations that we put on ourselves. We have not delivered up to the expectations that the market put on us. And I will just show a little bit on kind of a retrospect before we look forward in what we need to do then. So, as I said, recent years' performance have kind of left us a bit unsatisfied, both I think this is something that all shareholders share, and it's definitely something that everybody within Arjo is also sharing.

And you can see that when Arjo stood alone as a company on the stock exchange the first time in 2018 after the spin-off from Getinge, there was a couple of years with, I would say, entrepreneurial spirit, pioneering, being free, building up everything that you need to have as a freestanding organization. And that was also some good years, I would say. The market was predictable. We were moving forward. And then we came into the COVID period. And I would say, for Arjo, that was really good in some aspects.

But when you look deeper, there were some problems already back then that we maybe did not see because we were busy satisfying the tailwinds that we had, and we did not really see that parts of the business actually was facing headwinds. And after COVID, I would say that reality became super clear because when some of the kind of free, I would say, more easy sales that we got disappeared, the reality came back, and you can see that our performance then after that has not been satisfactory. What is good to say is that we have managed to keep the top line growing throughout this period. So, the CAGR has been there. And I think that has also helped us to keep up the profitability. And -- but still, this is not what we expect from ourselves. We need to do much more and much better.

And part of this is also that the strategy that was launched in this period did not really work. So, the outcome-based ambitions that we had, they never really materialized. And I would say, since 2022, that became a really harsh reality for many. And I think that Arjo have been a little bit in a waiting mode in some aspects. And the other aspects, I would say, all the markets, everybody is taken care of customers, the underlying business, it has continued to focus. But we got a little bit derailed and we lost a little bit of our focus during those years. And of course, then when you look at the financial targets, we've had a hard time to live up to those.

We have met the growth targets, but we have had a hard time to generate true cash flow. We have had a problem to reach our desired EBITDA margin. And this is -- I think we have continued to have a dividend, but it is time now. I think when these goals were set, they were set to last until 2025. And right now, we are in the process of figuring out which goals we need to have for the future because we need new financial targets that is reflecting the new strategy and the new reality that we live in. So, we'll come back to that in Q1. We wanted to today that the focus should be on strategy and not on the financial targets. And what you can expect out of the strategy is really what the message is today.

So, before I come into the strategy, I just want to pause a little bit because health care is not standing still. It is evolving. And I would say that, that's also why Arjo needs to evolve. We cannot provide yesterday's solutions to tomorrow's problems. So, we really need to speed up the change in our company because the reality out there is really clear. So, there is a number of megatrends. You all know this when you cover other similar companies to Arjo, other med tech, but also other industries because many of these things are shared.

So, if you look at the aging population, it just means that we need more -- we need care during a longer period of our life. It puts a lot of pressure not only on the pension system, but on the health care system because that we live longer is something fantastic, but it also puts a lot of pressure on the health care system. At the same time, young people don't see the same appetite to go into and work in health care, which means that health care is kind of squeezed. And they need solutions that help them to be more efficient. They need solutions that helps to protect the health and well-being of the caregivers, but they also need the solutions that helps to provide the care that they are -- that they need to do.

So, this is something that, of course, have implications for Arjo that are positive that the solutions that we provide and the competence that we have is needed even more in the future. Of course, increasing global welfare, people -- more and more people come out of poverty and into the middle class, that also comes with expectations. They expect more. They're not satisfied maybe with the type of care that they saw their parents get. They want something more. They are more aware of their rights. This is putting also increased pressure on our health care facilities and institutions and the public funding or the private funding of those.

Then, of course, digitalization and AI, democratization of information, we kind of single out them both because one is more driven by being able to leverage data and automate and drive efficiency. And the other one is really about what people expect. People expect to have access to information. They expect to be able to keep up with what's going on with their loved ones and also people that are in -- that need care and require care, they want to know what is happening.

And we can see that more and more that they expect more, they expect information. They expect to be updated. They expect to be able to follow. This is increasingly putting pressure on systems that historically are quite late to change and that are big and that requires a lot of kind of trust before they try to change. And those of you who are from Sweden in the room today, you know how the regions across Sweden are struggling when they need to update their IT systems, when they need to drive their efficiency because they're not always the best orderers. They don't always are experienced in driving these types of things. So, being a partner to health care providers is also a big part of what we need to be better at.

The good news is that we are in markets and in care settings that are growing because of the trends, the need for care is just growing. And our health care settings are struggling to keep up both with funding and the ability to provide that care. And as a result, you said that acute care, it's not -- it is still growing, but the number of nights that you are in acute care is going down. It's almost in hours. And of course, that puts more pressure on long-term care to keep up.

And we know that the number of years that you are in a long-term care facility today has also gone down dramatically and more and more care happens in the home. And that care that happens both, I would say, in long-term care has become more advanced, more clinically advanced and also at the home, it becomes more and more clinically advanced. So, the needs are being pushed down in order to be able to cope with the bigger reality of what patients require. But of course, we operate in this. This is our market. So, that the market is growing, that the need is there, that we can make a difference. That is something really, really positive.

And we just wanted to share a little bit that, of course, acute care is the biggest market. Long-term care is also really, really interesting. And adjacent care with home care, that's where the growth is biggest. And you can see that our position today in some of our categories is quite strong. Patient handling, VTE prevention, pressure injury prevention, hygiene, we are all in top 3 positions, and that is something really, really strong. And then medical beds, we are in a top 10 position.

And the beds are -- if you look at it from a gross profit point of view, maybe it's a little bit lower, but it's also something that creates a stickiness in the relationship and it's something that gives you a need to come back because we have the mattresses that goes on the beds, we help the patients to get in and out of the beds, and it's really a part -- a really, really big part. It's the center of each care setting. So, it provides us both with, I would say, the know-how and the market position that is required.

So, that's a little bit what's ongoing in the market and about our position. But -- so -- and we're not happy with our performance the last year. So, now we need to focus, and we need to build on our strengths. And we need to kind of remove some of the clutter that maybe got us unfocused in recent years and to really focus on our core business and build a platform that is more scalable, both for growth and for expansion into new markets, new care settings. And if we want to accelerate M&A in the future, we need to do that also from a scalable base. So, by that, I go into our strategy.

And for Arjo, it's all about making the move and to do that together. And that we emphasize the together part is because I am new in this industry. I come from another type of industry. My profile is that I'm a people person, I'm a leader person, I'm a transformational type of leader. It's all about people, getting people to develop and grow and pull in the same direction, then you get Arjo to also develop and grow. And if we start to pull in the same direction, that's where the focus comes in, and that's where you can expect positive output.

So, this strategy has been made by gathering people from all around Arjo -- it's not a top-down initiative. It's really a well-founded strategy with all our professionals and with all the diversity and all the experience that we have. But maybe that has been kept in pockets and that is a little bit unknown to parts of our own organization. And I would like to begin with this. In the strategy work, we decided to kind of put our foot down and try to describe how we want our customers to perceive us.

So, we formulated this that we call the Wish position, and that is to be the partner health care providers look to when shaping better care, trusted for understanding their needs, being easy to work with and delivering value through purposeful solutions. This is -- it's easy to put it down on paper. It is already what we are known for by some of our customers, but it's really, really hard to keep that consistently that perception and to live up to that promise that we make to ourselves. Because that's really who we want to be seen as and it's who we are striving to also become when we're not meeting up to it. And this is something that is constantly evolving.

This is not a static place that you can reach and then you're there. This is something that's always moving ahead of us, that the expectations and the needs and what is purposeful will always change. So, now I will go into and talk a little bit more. So, what is it that we're going to do? What is behind the plan that will put Arjo back on track. So, we have clustered this a little bit in 3 buckets. The first one, we call win where we have the right to play. This is all about us having confidence. We have the competence. We have the solutions. We have the position in the market.

We have the trust from our customers. So, we know that we have a right to play here. We know that we have the offer. We know that we have the know-how. This is super important because it means that we can act with competence. What we have not done is that we have not always used that. So, we sit with this fantastic situation, but we don't execute it consistently across Arjo. So, that's what we -- what this is all about. It's really about owning and expanding leadership in long-term care, strengthen our position and scale up in acute care and then selectively expand into new care settings.

This could be home care. It could also be transitions between different care settings. And the word selectively is important here because we've had in the past, we have made promises about stuff that is small today, but that will be big in the future. Here, we want to prove, we want to be sure before we make commitments that we open into new types of care settings where we are more pioneering. We'll come into this. I will spend the majority of the time explaining a little bit more about this, so you get a feeling on that.

Then I will also come into the area that we call simplify to amplify and the partners working better together. So, if we start here in the first one, these 3 priorities are very, very important. It's all about our core strengths. And you can say that if you talk about home care, we already, in most of our markets, do parts of our business comes from home care. So, we know much more. We just need to spread that across the company. So, let me come into it. So, if you look at the long-term care situation, we have approval leadership.

We have market-leading positions in many, many markets. So, we have the know-how, we have the offer. We have the solution. We have the relevance. And then you can look at the neighboring country, and you can see that the situation is completely different, but the care need is the same. We people need the same thing. The trends are the same. The reality of the health care system is the same. It's just that there are different ways and routes to market. But when you have the know-how and the confidence, it is easier to then explore that. So, this is all about us seeing that we have a lot of penetration that we can do and build on our internal know-how.

And it's so much easier to unlock that when you have a colleague or 2 or 3 or 100 that have done this versus if you need to do a project where somebody comes in from the outside and tells you how to win. Here, we already know how to win. And just to make a kind of point out that Canada today, 65% of the sales in Canada are in long-term care. And we all know that U.S. being our biggest market, there's so much we can do. We already cover the country. There's so much more we can do from that base, and that's the plan going forward. So, you can see that here are potentials. Acute care is our most important sector.

We see that long-term care maybe has the biggest growth with profitability position and opportunity, but acute care is most important in terms of scale for us. And we also have most of our know-how and most of our, I would say, relevance here. Again, the strong position gives us the confidence that we know that we have the offer, we have the competence, we have the position, we have the trust, we have the examples. We have such good relationships with our customers that they're willing to also help and share that with others that are willing to try and test Arjo in acute care.

And we see that there is substantial room to scale this up. And in our plans, we think that we should not promise too much, but we see that there is really, really good opportunities for us here across all our markets to do better. Maybe in U.S., it's hard to keep on penetrating, but there, we have the opportunity of long-term care. So just to see how the internal situation looks like, and you can imagine what we will be up to the next few years. It will require investments, but I think that will be really worthwhile because we -- they will be less risky than some of the investments that we have done in the past.

And then the third and last one, and this is just to point out on the bottom here, you can see that in Great Britain today, 12% of our sales is actually in home care. And we have not really maybe had a shout out on that. And we mentioned a couple of other markets. So, if we can start to move the needle here, if we can start to become a little bit more relevant in some of these care settings because today, we enter home care with solutions that have been developed for professional care settings. Since the care need is becoming more and more professionalized across care settings, that's a good trend.

But probably we need to be more relevant also just for the home care setting. We have -- yes, we have a foothold. So, also here, we have competence, but we are not as confident. So, that's why we say that we need to be selective. So, let's pick some -- if we do something in U.S. or Canada, let's pick a part of the country. If we do something in Europe, let's pick a market where we think is good for us to move forward with. And when we have the proof, we can be more bold in our commitments to you and to all our shareholders.

Yes, the simplify to amplify part, that is all -- if the first one to win where we have the right to play, that's all about what we do, how we leverage our market position, our commercial know-how and our value proposition. This is more about us getting our act together. Over the years, we have grown, I would say, organically in our offer, in our value proposition. So, we have a need to prune our portfolio. We have a need to make sure that we are efficient across our value chain. Today, we have not done that job in a good way.

This is something that I am really passionate about. I have seen how much value that can be unlocked when you do that. And it's something that we have seen also when we've made the strategy that there is appetite for this in Arjo. So, that will be very, very important. And commercial excellence, since we are such a diverse company, since we have so much empowerment, we have so many examples that are great. And you can -- as you know, you can figure out that we also have examples that are not as great. So, we have a lot to do here to be more diligent in our commercial excellence and execution.

I will not go into this too much on how we become a digital and AI-enabled partner. But for us, this is mainly about driving internal efficiency. Most of our products are not connected. We do know that the need to be connected is something that is growing. We have a couple of pockets of excellence visited one of those just last week together with our Board of Directors in France, where we keep track of all equipment in a long-term care facility, not just the Arjo equipment, but also all of our competitors' equipment.

And we have know-how, but we have been a little bit careful in scaling that. We have not built the organization to scale it. So, that's something that we need to do in the future. So -- but I will not come into that today. I will just kind of show this to you. So, this is actually -- it looks like it's just illustrative, but these are actually real data behind. So, we have a super long tail. And those of you that have worked more operationally, you know when it looks like this in an organization, you have a lot of capacity. You carry a lot in inventory. You need to have all your documentation in order for everything.

And there has been many, many years of launching new solutions updated versions, but not removing. And that just adds on to the complexity. And complexity in a value chain is cost, and that is something that we need to address. But we cannot do that just by optimizing from a procurement point of view or from a manufacturing point of view, we need to make sure that we have our markets and our customers with us on that journey. So, this is really an end-to-end initiative that we need to do. But there is significant potential to be unlocked here in making Arjo more straightforward, more simple and also help us to release the space to come with new innovation.

I just showed -- this is also coming from real data. This just shows how our how our pricing is varying depending on where we are in -- across different products and our margins in different markets and different settings. There is always a normal variation, but you can see we have quite big variations here. So, we believe that there's a lot we can do in terms and conditions, pricing, service charges and so on that can help us to move the needle here.

And then the last cluster of strategic priorities is working better together. So, that is about how we get all the know-how, all the diversity that we have in Arjo to start to pull in the same direction. Because when you have so much diversity, but you don't make use of it, it becomes complexity, it becomes noise, it becomes clutter. So we need to pull together. That's also why we made the strategy together. And I think that we have engaged around 80 of the most senior leaders around our strategy that half of them were part of creating it. The other half is now onboarded, and we are rolling it out step-by-step across Arjo.

So, this -- if we get the people to develop and grow, then Arjo will develop and grow. That's really one of my mantras. One part of that is to work on our operating model. But I will come back to that. But this is probably most important to build a performance-driven culture where our purpose is always at the center. And that purpose is really to help patients when they need it the most. And that's for real. But we need to -- that is not enough. We also need to have a performance culture built into that. So, making profit, being successful helps you to invest in yourself, in your people, in your competence.

It helps you to invest in R&D. So, we need to make sure that we have that culture end-to-end across Arjo when we move forward. And that starts with investing in our leaders and empowering our people. That is super important and to make sure that we are then striving towards the same goals. That's why strategy, it's not about what you are -- what you put on the slides, it's about making sure that you have the motivation in your organization to start to pull in the same direction. And the only thing that counts is what you execute. What we have up here, it's only what we execute that will count.

And then you need to make sure that everybody understands that. It's not Andreas, who will do the execution. Now we made the strategy together, then somebody else will execute. No, it's us that need to execute. And then I would say working better together is very closely connected to how we deliver our care, how we help caregivers, how we then become more efficient in that. But it's also -- so it kind of relates to our purpose. And that purpose more and more becomes also about when we do things that are good, it also needs to be sustainable.

And so much of our business already today have circular qualities, but we need to make sure that, that is something that we build into how we design new products how we design our packaging, how we design our value chain. And with my own background, what I have experienced of the more you work with that, the more you work with efficiency because it's all about removing clutter, removing noise, doing things smarter, doing things greater. But I will talk a little bit about our operating model now. We have communicated just before summer that we are organizing ourselves in 5 regions. These are not 5 segments. It's 5 regions in how we cover our customers.

So, U.S. and Canada, and I would say, for obvious reasons, we don't bulk in North America together. It's also 2 very different health care systems. They are funded very differently. We have different cultures. And then we know we also have this beef going on now that I think is not healthy for anyone. But there is -- U.S. is our biggest market and Canada is one of our most profitable markets. So, it's naturally so that U.S. and Canada deserves a seat at the table. South and West Europe, so that is France, U.K., 2 of our biggest markets, but also Italy, Spain, Belgium, that we keep that part of Europe, the Southwest cluster together.

North and Central Europe is really the Nordic countries, Netherlands, the DACH region and parts of -- yes, Poland and Czech, I would say. And then we have the rest, 88% of the population, but not 88% of our sales, but it's still a major part. So, that's where we have Africa, it's where we have LatAm, it's where we have our different activities across Asia, but also then in Australia. And in that cluster, Australia is our biggest market. with India being the second. And then the reason why we want to do this is because we want to raise -- I mean, this sounds -- I almost feel bad saying it, but we need to increase the proximity to our customers.

We need to make sure that the voice of the customer is present in every decision that we make as an organization in how we prioritize our investments, in how we prioritize our portfolios, our development, how we assess if a product will be commercially viable or not. We need to make sure that we do that in a much more commercially relevant way than what we have done before and that we do that early in the processes and not towards the end of a process. That is really how you speed up time to market, how you increase quality and most important maybe is how you can then drive profitability by being relevant to your customers.

To support that, we also put in a new function that we call group sales. Group sales is not kind of leading the regions. The regions lead themselves and they report to me, but group sales has the job to help with commercial best practice and with commercial excellence and to coach the regions and help them to collaborate. Arjo doesn't have a strong collaboration culture today. So, that is something that we need to drive and enable and group sales has that role in that dimension.

Group portfolio is a new function that we have created where we bring R&D and group marketing and our portfolio leaders together into one group, and they will have the responsibility that with our own resources and with our external partners drive the development of our portfolio, but also drive the portfolio pruning that we need to make in order to become more efficient. Group operations is, of course, our procurement, our assembly, our manufacturing, but also this will now include the responsibility for our OEM partners. That has not been the case in the past.

So, we are kind of -- we are taking end-to-end responsibility for operations, just like we're doing that for portfolio. In the past, we have had let some of our countries do their own thing without support from group functions, and that has left the markets very vulnerable, and that's something that we need to help them to straight out. And then, of course, we have all the other good stuff that you need to have in a company, finance, quality, HR, legal communication and whatnot, of course, IT. But most important here is that also we are going to be really, really focused on execution.

So, the strategy that we present will be executed. that's kind of how I function. I would not make a promise if I didn't know that we're going to execute it. So, we're going to execute this and deliver what we have said. And by that, I think it's time for you to have the opportunity to stop listening to me. And instead, I would like to welcome Jessica up on stage.

Good morning, everyone. I'm so happy to be here with you today. My name is Jessica Shatzer. I'm the Vice President of Marketing in the U.S. and I've been working in U.S. health care for the past 16 years, 13 of those at Arjo and the last 5 leading the U.S. marketing organization. And I'm thrilled to be here today to talk a little bit about the U.S. market overall, the U.S. Arjo organization, and then we'll go into a little bit more detail on a couple of the strategies that Andreas has already laid out that are most relevant for the U.S. So, let's dive in. Starting with market characteristics.

Many of the kind of high-level market characteristics are similar to what Andreas described in some of the trends. So I won't go into detail on those, but I did want to highlight a couple that are most relevant for the U.S. The first one, I need to call out the bariatric trends in the U.S. because of the prevalence of GLP-1s. We've had a lot of questions on whether we see a decline there. What we have seen is a slow in the trends around obesity, but we have not seen massive reductions like some people may have anticipated. We've actually got 42% of U.S. adults as clinically obese. So there is still a massive need for bariatric solutions that we offer.

Next, if we look at financial and operational, I feel like I've been here so long, so I've seen this kind of history of financial issues with customers, kind of what happened pre-COVID, during COVID, post-COVID, now in an exceptionally post-COVID world, I would say that there are 3 different tiers of customers. And actually, our credit rating agencies have called a trifurcation within customers. Some are doing really exceptionally well. Some are doing quite poorly and a good chunk of them are right in the middle.

So, the average operating margin today for our U.S. hospital is about 1.3%, which has risen over the last number of years. Interestingly, though, 2 areas where they are investing. One is around capitalization. We've seen more capitalization over the last 1.5 years than we have in many years, meaning instead of renting products, maybe they want to make a purchase of medical beds or surfaces or other equipment in their facilities. And the other area is new health care construction. And that could be a new facility, that could be a renovation of an existing facility or a new tower. And we've seen that increase 11.2% year-over-year in the market as a whole.

Next, the increasing focus on preventable events. This has been a focus for a long time in the U.S. and it's mainly been a focus in acute care. What we're seeing now from the U.S. government is a lot of those regulations pushing down to the long-term care world. So, think of things like patient falls or pressure injuries where there will be a financial impact for not meeting certain standards. On the right there was customer dynamics, Health care mergers and acquisitions are accelerating.

A lot of these things that I'm mentioning, the new construction, the health care M&A, these are all in efforts for them to increase their profitability, also diversify. Another area that they're doing that is moving some patient volumes into ambulatory surgery centers. So, more and more surgeries are moving from traditional inpatient to an outpatient situation where they're leaving maybe same day. And then lastly, something that we'll talk about today in more detail is sustainability. Sustainability has been a strategic initiative for maybe a smaller subset of hospitals and health systems within the last years.

I would say it's becoming more mainstream and more important for them, and we've been able to position ourselves as a good partner within that space. So, I hope the key takeaway here is that the underlying demand for our products and solutions at Arjo is strong based on the U.S. trends. At a high level, Andreas already shared where we get the bulk of our revenue and sales from, and that is in acute care. We also have about 10% that comes from long-term care, a smaller 2% from home care and then an even smaller -- excuse me, 3% in home care and a smaller 2%, which is other things like prisons or schools, things like that.

In the middle, you can see the categories that drive most of our revenue. We have market-leading positions in categories such as patient handling, rental, VTE prevention, and those really drive the bulk of our revenue. We also have a very strong service offering. So, that is very important to what we do as well. How we deploy? We're deployed across the United States. We have around 850 employees and 63 service centers. That's really important for the rental and service component of what we do. And we deploy through a direct sales and service model, which is very important because that customer intimacy that Andreas talked about is highly related to this and the relationships that we can drive.

One way that we truly differentiate is through our clinical expertise and our clinical support that we provide. That's something that we highly value and our customers highly value. And then we are home to the flagship Arjo ReNu reprocessing facility. So, Arjo acquired ReNu Medical back in 2018. That facility is in the United States, and that has remained a large component of our strategy. So, as you can see, we have a very strong position in the U.S., and that's really built upon our U.S. -- excuse me, our acute care leadership position.

We've had 7 quarters consecutively of profitable growth. You can see that we have a greater than 7% CAGR in our capital categories that actually jumps up to low double digits when we're talking about patient handling on its own. And we have a 7% CAGR in what we call core rental. So, many of you who've been following us for many years know that there is a product that is within critical care that it's been highly volatile. It's one specific product that drives or has historically driven a large amount of revenue. Because it's so volatile, we'll tend to take that out and call that core revenue.

So, you can see that the base of the business and the underlying business is quite strong. On the right, some of the key drivers for us. We have a large, what we call installed base. We've been in the market for many years. We've been in the U.S. since 1979. There's a lot of products out there that are Arjo products. Because of those deep relationships, because of the quality that we offer, because of some of the new products that we've offered, customers opt to choose Arjo again when they go to replace those products. That's very important. Next, we have strong traction in project sales.

On the previous slide, I mentioned the trends within new construction. We've been able to leverage that not only from a product portfolio standpoint, but with relationships with architects and new construction planners and things like that, where it's a full Arjo solution, not just a product solution. And then lastly, expanding partnerships with key hospital networks, what we call integrated delivery networks. So, some of these big consolidations that are happening across the U.S. We have the relationships at the highest levels with some of these facilities and great partnerships that really drive not only one product category, but we try to drive the full breadth of Arjo solutions within that.

I'll just give a quick example here. We had a customer recently. The opportunity actually started from a replacement opportunity. They had some equipment they needed to replace. we were able to go in and have a more consultative conversation, realize there were some problems with pressure injuries and falls and mobility. We were able to elevate that conversation. And then it went even further away from patient handling into DVT prevention or VTE prevention and rental. So, again, just a small example about how we were able to drive the full breadth of Arjo solutions.

So, obviously, things have gone well from an acute care standpoint, but there's a lot to lean on from an opportunity side. So, let's go into a couple of those being long-term care and reprocessing. I don't think I need to sell you on the value of long-term care. You saw how much revenue Canada does. A lot of our other markets are very strong in long-term care as well. We have the product portfolio here. We have the solutions to really deliver, but we haven't tapped into this market.

There are 16,000 nursing homes and skilled nursing facilities in the U.S. Today, we access only about 3,000 of them with our existing footprint and sales force. Within those 3,000, mainly we're only selling patient handling equipment. So, obviously, there is a huge opportunity here to work with our existing customers and partners and pull through the rest of that Arjo portfolio. We also have an opportunity to sharpen our value proposition. We don't want to be seen as just a product provider for our partners. We want to be seen as a full solution provider who is able to be consultative.

We can help with patient outcomes and resident outcomes. And in doing that, we really need to lean on that clinical expertise that I mentioned earlier. And lastly, in order to fully penetrate and address this market, there does need to be investment in the direct sales force and also distribution partnerships that already have access and partnerships in some of the areas that we'd like to go to. Next, advancing sustainability. This is that reprocessing that I talked about. And for anyone who's not familiar, most of the products that are sold into the U.S. market are disposable single-use products.

So, they're used with one patient and they're thrown away. You can imagine the waste and cost that, that drives into the health care landscape. And so customers have a desire to reprocess or reuse those items again. The main method that they do that through or U.S. reprocessors do that through is with ETO, which is a toxic gas, we call it ETO. So, Arjo ReNu offers a solution that is cleaner and greener and does not use ETO whatsoever. It uses a hot water method. I only say that just to kind of set the foundation for why this is so important, there are massive amounts of equipment and devices going into landfills that we will now be able to divert and use again for customers, not only helping their sustainability conversation, but also helping reduce cost savings.

Within the reprocessing world, it's much more cost effective to reprocess a single-use device than it is to manufacture a new one. So, there is a good amount of profitability in this category for us. So, what do we need to do here? The first thing is expand our reach. We work with some of the nation's top and foremost thought leaders here from a health system standpoint, and we need to leverage some of those relationships to bring on new Arjo customers. We also are working on deploying new business models. Today, we only reprocess noninvasive medical devices, and we're working on a program that allows us to capture some -- excuse me, invasive devices and reprocess those through partnerships.

And then lastly, broaden our capabilities. One thing that's really important with reprocessing is that you're continuing to look for new types of products to reprocess. So that is something that is consistently part of our strategy to try to drive new business within existing customers as well as new customers. So, what I hope that you've taken away from this short presentation is that the U.S. remains an attractive market. We are going to continue penetrating the acute care market and doing everything we can do to grow that.

We're going to be leaning on some of our counterparts like Canada to help us really dive deeper into long-term care and get good penetration there as well as continue on the path with reprocessing. And we'll do everything we can to execute on the strategy that Andreas has laid out for us today. So with that, I will hand it over to Jim Findlater, our Vice President of Sales and Marketing for Canada.

Thank you, Jessica. Thank you, Andreas. Really great to be with you all today. My name is Jim Findlater. I lead our sales and marketing team in Canada. I've been with -- I've been in the health care industry for about 17 years, 15 of which I've had the privilege to work for Arjo and support our customers across the country. I've had the ability to do that in many different capacities within Arjo, leading sales teams, marketing teams. I've had a unique ability to interact with stakeholders externally from frontline staff to C-suite, which provides a lot of really interesting insight that I can share with you today.

So, I start with what's going on in Canada, and Andreas talked about this as a trend at the beginning of his presentation. But in Canada, we have the average age of the patient and the resident increasing on an annual basis, and they're staying at home longer and then coming into institutional care with much higher acuity needs and less mobility. And then they're coming into institutions that are overburdened right now and have significantly less resources than they've had historically. So, essentially, what we're saying is our customers are being asked to do a lot more with a lot less, and we are uniquely positioned to be able to support them there.

The Canadian health care system in general, looks something like this. Just under $400 billion were spent on health care in Canada, which is about 12.7% of the GDP. What's unique about our situation is that you might look at it and see one country. But in fact, what we have is 13 separate markets across the country who operate very differently. You take that 71% of public funding and how it's disseminated in each market, in each province and each territory is different.

So, we're working with different health authorities, regional health authorities, provincial health authorities, municipalities. But what I will say is that there does seem to be shared priorities across the chain. So, we're looking at expanding access to primary care, supporting health care workers and reducing the backlog there and supporting access to home care and safe long-term care. And what our customers are craving for in Canada right now with the long-term care homes and the acute care homes are craving is creating efficiencies. Once again, we're uniquely positioned to be able to provide that to them.

The takeaway here is it's a vast geography that we're supporting with 13 buyers and problem set, but it seems to be aligned. This is Canada in brief. This is where we sit. Andreas talked about the long-term care penetration that we have in Canada and market leaders. So, 65% of our revenue today comes from the long-term care sector. And 27% in acute care. So, there is a presence there for sure. You'll hear in a little bit, we're looking to grow that more significantly. What is presented as home care is our representation in the community, which we largely use a network of dealers to help penetrate.

And then there's a 2% of other, which is distribution of a small portfolio of products. But more importantly, if I bring your attention to the middle here, we see the breakdown by product category. So, if Arjo Canada was a house, what you can see here is that the pillars of that house are patient handling, hygiene, rental and service, right? So, that's what keeps the house up. We have market leadership positions in patient handling, market leadership positions in hygiene, market leadership position in rental solutions, which are almost exclusively distributed through acute care.

And then we have our strong service offering to support all of those products. We also sell medical beds and surfaces across the country, predominantly in acute care, DVT and disinfection. When we look at the footprint of Canada, we see 240 employees across the country, central warehouse just outside of Toronto, Mississauga, Ontario. We have, like the U.S., almost exclusively direct sales, service and clinical offerings, which, again, to mirror the U.S. creates a more intimate experience for the customer. We have 11 service centers that we utilize to execute our rental operations throughout the country and a production facility in Magog, Quebec, which is a global manufacturing facility.

Very vast, big geography, 8,000 kilometers almost from coast to coast and pockets of population, not dissimilar, I think I had a conversation outside earlier to Sweden and just creates some opportunities for us to -- when we talk about being direct with our customers, some of the pockets where the population isn't as dense, we have large territories to cover. So, we'll take a look here and transition to how we've been doing recently. So I'd say 5-plus years of growth, but really, this goes back to Arjo becoming a stand-alone in 2018. We see consistent results.

So, we have a plus 9% revenue CAGR from 2021 to 2025, 22 consecutive quarters of growth going back to Q4 2020 and consistent year-over-year development in profit improvement. That's the what we've accomplished recently. The how is even more exciting. So, the introduction of a dedicated consistent sales management process, accompanied by a really targeted commercial excellence program where we've intentionally pursued defining who are we talking to and what are we talking about with our customers.

When I take a look at the corporate groups that we've been able to enhance our relationships with, we've, like the U.S., really focused on progressing towards solution selling from products, so being less of a vendor and more of a problem solver, which has had a big impact on our relationships with our corporate groups and has allowed us to expand that business by bringing on competitive corporate groups. We've been able to do that because the rental business is so stable for us in Canada. And the rental business has allowed us to be able to divert resources and opportunities outside.

And so focusing on what we've been able to accomplish with that rental business since the acquisition of it in 2012. And then lastly, and Andreas also spoke about this a little bit, this has never been more important to us that we have a direct global manufacturing facility in Canada, and we utilize that. We utilize that to create efficiencies in our supply chain by direct shipping from that global manufacturing site as well in recent months and years, it's been really impactful for us to claim made in Canada, and we've been able to utilize that to penetrate our customer base.

And we've been able to really navigate the geopolitical impact of the supply chain for patient handling specifically. That growth that we've experienced recently has come from a very disciplined execution in the segments that we know best. And the question is, where do we go from here? And how do we press that advantage? Andreas introduced a strategy to you today where one of those strategic imperatives was win where we have the right to play. And that's exactly what we intend to do in Canada, a deeper penetration into long-term care, a stronger penetration into acute care and the exploration of home care a little bit more intimately.

And I'll talk about each of those just very briefly here one at a time. Strengthen and scale in acute care. So, we have an opportunity to leverage the footprint beyond our rental business. There's approximately 94,000 beds that are in target for us in Canada. And the opportunity there is to expand to the full Arjo portfolio. Despite the beef between the 2 countries, Arjo Canada and Arjo U.S. work very closely together. And there's a lot of learnings, key learnings that we are looking to grow on from the U.S. is penetration into acute care. Our commercial strategy here has been to introduce a direct acute care sales team in the most populous areas of the country.

We find that -- we believe that, that dedicated effort will allow us to be able to create stronger relationships and penetrate further with the fuller portfolio. And at the same time, the need to defend and expand on our rental solutions, right, which is one of the core areas of our business. And we supplement that by growing via the solutions in patient handling and wellness. In long-term care, we are viewed and we are market leaders. And yet, it still remains an attractive area for us to expand. There are approximately 200,000 long-term care beds in Canada, and that number is growing because there has been recent announcements of funding for new beds in Canada for long-term care beds, knowing the impact of the aging population, of course.

And yet we feel like we are underpenetrated with one of the key product portfolios that we have, which is therapeutic surfaces and to a lesser extent, medical beds. But the commercial strategy here is to utilize that brand reputation that we have in acute care of having solutions that treat and prevent pressure injuries and bring those solutions into long-term care, establish partnerships with long-term care homes who are struggling a little bit with resources to have outcomes-based programs that target pressure injury prevention and minimize transfers between long-term care and acute care.

And lastly, aggressively pursue winning these new build projects, which we have been securing over the past several years. But as they're ramping up to make sure that we're well positioned to work with architects and builders and some of our big contract -- big customers to make sure that we're winning these new build projects. Lastly, we look at selectively exploring our enhanced presence in home care. We know that provincial governments are actively investing in keeping people at home for as long as they can. We know that people want to stay at home as long as they can. We also know that there are not enough institutional beds.

So, this creates an opportunity for being able to have a bigger presence into home care. So, we're also investing in a dedicated team here, a more dedicated team, I should say, here, with a stronger strategy and set up for commercial execution. We want to utilize, again, therapeutic surfaces to promote prevention in home care. And we look at stakeholders that we don't have a strong relationship with today that we'd like to build a stronger relationship with tomorrow in the occupational therapists and physiotherapists in the community. And lastly, introduction of more flexible models to be able to effectively navigate through the home care sector in Canada.

So, in summary, Canada remains an attractive market for continued success. What we have to do going forward is build on our commercial momentum that we've built up over the past few years, the significant momentum we've built up, pursue key targeted opportunities across all sectors or win where we have the right to play. And lastly, I'll leave you with this. I mean, we're positioned to deliver consistent, sustainable results, and that's what we strive to do. And with that, I'm going to welcome Andreas back to stage.

Thanks, Jim. So, big thanks to Jessica and Jim. I think it gives a deeper perspective, especially considering that I'm up here. We need somebody that actually is a professional as well. So, jokes aside. So, I hope so far that you have seen that we are kind of ambitious about the future, but we're also honest about where we have maybe not done so good in the past and where we have also room to improve. I mean that is so clear that every person I meet in Arjo, every topic we discuss, it's like there is a potential there. There is a potential to grow and develop. There's a potential to do better.

And that's really what we kind of then -- when we combine in what to expect for the coming years, that's what I will go into now and that we can be confident in what we say. So, we've been looking across all parts of Arjo. And what we then commit to today is this SEK 350 million EBIT improvement compared to 2025. We need to have a base when we kind of make these promises. We don't know about the future. And we have a clear line of sight of the things that will deliver towards this. And also, we have potentials that goes beyond.

So, we have mainly focused on efficiency, coming out of clarity in roles and responsibilities, enabling the organization to work better together to empower our regions and markets to do what they do best, and that is to lead and take care of our customers and make sure that patients get the health care that they need. But also by doing that, also harmonize the best practices that we have, the most efficient way of delivering our rental solutions, the most efficient ways of driving our service organization and so on. So, there is a lot of that.

But it really starts with empowerment and collaboration and that we need to be humble that as individual leaders or individual teams, we don't know everything. We are not the best. Even if we're great, there's always somebody else that has something that we can learn from. And that's really a big part of this. And the operating model will come with some cost restructuring because we have grown over the past years, our staff has grown more than what the company has grown. So, there is some efficiency there, but a lot of that comes from clarity in roles and responsibilities. What will happen in individual markets, what will happen on a regional level and what does that mean for our group functions.

Then we have seen a significant opportunity on procurement. And I have led these types of initiatives in different organizations in the past. I also have many years in an organization that was super focused on procurement efficiency. And I can see in Arjo that we have a lot of potential. And this is something that we have spent large parts of the first half of the year validating, and we have started the execution of that. So, we're off to a good start. So, it's all about leveraging and being professionalizing our procurement and also challenging our current ways of working.

So, really significant potential there. And then we have spent the day today to talk about commercial opportunities. But we have not built in any growth. So, this SEK 350 million figure is not fueled by growth over those years. So, it's really about things we can do with our own hands, stuff we have control over that will deliver the total sum of EBIT improvement then. And we talk about mid-2029, but the vast majority of this will happen earlier than mid-2029.

But then what's also important is then because this is maybe a little bit back to basic, focusing on the core, the core business, our core strengths, spreading the good gospel of best practice and making sure that we are more consistent in our execution. So, that's all good. But what about the future? What about new markets, new customer segments, new product segments? What about M&A? And today, we don't focus on that. We focus on what we can control and that, that has significant value. But of course, we have looked into what will this mean when we also then start to drive growth.

What will product portfolio optimization mean in terms of efficiency and across the value chain. This will impact our capital efficiency a lot, but it's another initiative that we will look deeper into in the coming period. Supply chain optimization, I think there is some things to do, not as big potential maybe as we have in the other ones. And then, of course, we need to drive our growth. We need to use -- we need to maybe build capability or enhance our competence. And one way to do that is also to leverage M&A in a more clear and a more strategic way than what we have done in the past.

So, that will also be part of the portfolio. But it's important for me to communicate today that this that we talk about comes from these 3 and that there is more value creation to be delivered beyond this. And I put together an indicative slide in when to expect this to happen. So, the vast majority will happen within the coming 2 years, but we say that mid-'29 is when the full effect is in place. This also comes with a onetime investment in restructuring in order to free this up. And I would say that we have been conservative here when we make this promise because we know that we have to deliver. Arjo have promised things in the past, and we have not delivered. This time we're going to deliver.

So, we've been a little bit conservative here. We have not been as conservative here because we also don't want to say, okay, we said this number, but now we have exceeded. So, we're trying to be prudent in the promises that we make. And you can see that this ramps up progressively over the period. But it's not something that you need to wait a long time for. It's something that we have in the coming short period. And I think this is super important. And as I said in the beginning, so right now and today, we're focusing on how we will make the move together.

And that is really about unlocking the potential of our core business, building on our strengths that we have, controlling and becoming more efficient in how we spend our money, where we invest and how we collaborate and work across the value chain, clarifying a lot of things, making sure that we become more scalable and more efficient before we kind of take the next step and put more on our plate or maybe then use M&A as a tool. And I don't want to say that, that's so M&A is off the plate, and that is something that only happens in the future. No, that is something that you need to work with long term. Sometimes these time lines happen sooner than what you expect. So, it is something that is part of our parallel world.

But we need to build a stronger core, a more efficient core because the way that we grow today, when we grow, our costs follow. And that is not an efficient way of growing. We need to be able to grow in a way where profitability grows more than the top line. So, this is really what to expect from us in the coming years. And in the short period that we just have ahead of us, of course, we have an interim report coming up soon. So, we still have some -- yes, we still have some days to get the Q3 in place, and then we'll present that to you guys in October.

We have a year-end report coming end of January, and then we'll present new financial targets and what to expect from Arjo also from that aspect, and that will be presented during Q1. And by that, I will just kind of highlight again the opening slide I had that this is the commitment we're making. It's all about unlocking the potential of being Arjo, and it is a plan that we know we can deliver on. And I can say that because it's not my plan. It is our plan. It is these people that have made that plan. So it is all the professionals like Jessica and Jim that you have met today that have put this plan together.

So, it's really the result of a co-creation. And I told -- maybe a bad joke, but I told my -- I told the teams when I was new that we're going to do this and we're going to co-create it. And I told them that you're going to develop Stockholm syndrome. And that's kind of -- that you become part of a journey, and you will realize through that journey that you are actually being kidnapped. And you will start to sympathize with the kidnapper because that's really what's going on. When you invite people to co-create, to participate and to contribute, it's no longer your baby, it becomes our baby. And then the trick is and the trap is that guess who is going to execute.

It's the same team that have developed the plan. It's now their plan. Now they also get the privilege to execute. And that is something that has been really well received. It's what these leaders want. They are really good executioners in their everyday life, but now they have a shared plan, and this has been understood. And they may be -- as you know, when you bring a group of people together, they don't always think the same thing. So, they have really challenged each other. But they've also been part in them selecting where do we put our money, where do we put our time, where do we put our focus and how can we deliver that to our purpose in the best possible way.

So, this is why I'm confident that this is a plan that we can deliver. And by that, I say thank you from my side, and we open up the floor for Q&A. And I welcome Maria, Jessica and Jim to the stage to join me, and let's see if we can -- if we get some good questions, tricky questions or how we move forward.

Okay. So if you want to ask a question in the room, raise your hand and wait for a microphone to be -- Who wants to start over here?

Kristofer Liljeberg-Svensson from DNB Carnegie. Two questions. Just to make sure the base you assumed for the SEK 350 million improvement, that's adjusted EBIT for 2025, I assume.

You can do that. This is the improvement. So, you can take that as you wish. This will be a net improvement.

And it seems you see this as a saving more than an actual EBIT improvement because you don't include any sales growth here or.

We don't include sales growth in this number, but it is an element of efficiency in how we work together. It is procurement, but it's also on the commercial excellence side. So, it's all of these things.

Okay. So the actual EBIT improvement, if you grow the business, continue to grow 3% to 5%, the actual EBIT improvement will be more than SEK 350 million in this period?

If the assumption is that we will be more efficient as we grow, yes.

Yes. Sten Gustafsson from ABG Sundal Collier. I have a question for Jessica. When you talk about the opportunities in the U.S. in the long-term care segment, well, I guess, that opportunity has been there for quite some time. So I was wondering if there are any structural reasons why you haven't focused on that before and what sort of the competition looks like for you?

Yes, that's a great question. Starting in 2022, many of you know, we separated North America into U.S. and Canada. And post COVID, we had been struggling from a revenue and financial standpoint. And we kind of made a decision at that time. We had to work to turn around the acute care and the government business that we had, and we've successfully done that. And that's why today, we feel like we can really take on this element of the strategy. From a competitive standpoint, the market is highly fragmented in long-term care.

And that's why I think from our position, we're able to capitalize on some of that consolidation of the chains. So, smaller regional chains are getting bought up into bigger and bigger chains, and they want consistency across their homes that they have. So, Arjo is positioned in a really nice way to do that with the scope that we have.

But you do have the products in place today?

Mainly, we have a couple of product launches that are due, one of them in Q1 and another later next year that will help significantly.

Mattias Vadsten from SEB. First one would be if you could talk a little bit more about the initiatives taken to be able to charge better for the value add you provide to your customers. And if you could talk also a bit about where this is working today for Arjo and where we sort of need a material improvement.

Yes. So, we did not share, I mean, individual countries there, but we have several good examples where we have a great, I would say, diligence and we're being meticulous in our terms and conditions in our commercial execution. And I don't want to maybe point out individual countries that is not doing it as well. But we see that, that is clearly within our own reach. And I would say that in many markets, we are a bit unaware. And to understand why will we succeed in doing something that we could have been able to do in the past is that we have not fostered this, I would say, cross-border collaboration.

We have not had the forums. We have not had the mechanism. So, we have largely managed country by country. We have not had the mechanisms for the countries to interact with each other. So, that's also a background between. So, when Canada and U.S. were separated in a couple of years ago, there are very few networking opportunities or best practice sharing that happened. So, those are some of the capabilities that we're putting in place.

And in terms of elements of sort of price pressure you see today and what segment is this more accentuated and not?

I mean, maybe I shouldn't look at Jessica. But of course, you know that our DVT or VTE or we sometimes we call it IPC. We like our abbreviations. I mean we know that in U.S., that's a huge business, but we have seen new very, very tough competition. And so the average price level has dropped significantly, and that will be followed up in every quarter. I don't see my crystal ball that is going to return. That's the new reality of competition, and we need to face that and adjust our business models because I think that we've had business models where we knew we would catch up if we just got the customer, but now we need to make sure that we're profitable from the get-go.

And one last, if I may. In terms of the new operating model, you talked about commercial execution and so forth. So, I would expect to hear a bit more on growth perhaps. But -- would you say this is what we can look forward to as of the Q4 report then?

I would say that, as you know, we don't give guidance. But today, we have given a guidance. So, this is something that we will follow in every quarterly report. And we will then follow how we -- I would say, how our execution materializes in the P&L, so that can be separated. And until we have reached our promises, and then we can go into a more business as usual. But I think that you will expect to see effects of this coming in during 2027 and 2028 and that we'll be able to talk about that, I would say.

Then you can -- when we have new financial targets, of course, that will be a more wide set of focus, and it will not just be about what we have presented from the strategy. We know that we have an underlying business. I just said that this is a subset of the things that we're working on, but they are so material and they are so concrete that we want to share them today.

Next question.

Ludwig Germunder from Handelsbanken. I want to start with a follow-up on Mathias' question about the price pressure that you've seen. You said, Andreas, that you do not expect it to return, but how should we think about that going forward? Will it be stable in your view? Or do you think there will be more price pressure?

I mean if you talk about the VTE category specifically, I think that we are probably flattening out in terms of price pressure. It's been a steep journey downwards. And I don't know, Jessica, if you want to add something.

Yes, I would say that's accurate. I feel like we're very close to the bottom at this point. And so now we're really looking to capture additional customers, keep the existing customers that we have and then whenever we can try to increase price in other categories.

And to build on that, it also means that if this is the reality of the market, the way that we deliver our solutions has to also improve where we manufacture, how we manufacture, how we drive supply chain operations, how we package the goods, so it's easy and efficient and also how we build stickiness in our customer relationships because this is a segment that is with high level of consumables. And it's really -- once you're in there with the customer, it's a really recurring revenue type of business. So, we do want to keep being there.

But then -- but generally, price pressure across all categories, I would say I don't see that, that is something that will be I think that the pressure on Arjo and the whole market, given the pressure that the health care systems are under, I don't think that we will have an easy sailing in the future. So, we need to work on our own efficiency. We need to work on our own relevance. And that's also linking back to, I think, both Jessica and Jim were talking about that we need to show how we deliver our value being more of a solution provider than just a product provider. We need to show how this solution delivers reduced costs and release pressure from staff and so on.

If I could add to that just briefly, it also connects to the sustainability and the reprocessing that we mentioned today. That's a big element where if you combine the offering that we have with reprocessing, you can provide additional value. There's cost savings on our side. So it's really a win-win for customer and Arjo.

Great. And just a second question to understand where you stand today. S,o, I understand it's been an extensive work with this strategy that you've presented today. But in terms of financial targets that you aim to present in Q1, what are you missing today that is holding you back from presenting targets today, for example?

I would say that it's part of the line of questioning that you guys have had. So, I think it is -- what we will come back with is how we will manage capital in a better way. I think that is important. I think we've all seen that, that -- I mean, the cash flow generation has not been where it should be. So, there will be additional focus on, I would say, capital efficiency and what that means in terms of financial targets. I think that what we have seen when we've been working on the strategy and the energy we get out and I would say, also inspiration when you bring people together to explore a little bit our own company again and our own opportunity that has been really revealing.

So, of course, if we see potentials that are there that are untapped, of course, that needs to be built into our growth ambition. So, that's something we need to come back to. Then I think also maybe it's our own fault, but I think that we have talked maybe a little bit too much about gross profit and growth and not enough about bottom line. So, I think that we will have more focus on profitability and making sure that whatever we do, if the margin is high or low, that by the end of the day, we are being -- we measure if we are actually delivering value to our shareholders. And I think that needs to be stronger, that element when we present our financial targets.

So, I'll take a quick question from online as well. Andreas, would you like to elaborate a little bit on where we intend to invest for the future?

Yes. In terms of -- I mean, it's a broad question. So, I think if I start on the people side, we intend to invest in developing the leadership of our leaders. We have great people, but they are not used to collaborating across borders. They're fantastic within their own domain, but they have not been given the opportunity to collaborate and manage, I would say, multiple priorities and multiple needs and to be comfortable with that. Also to help them to better navigate when you're being in the unknown because we know that the world is not as stable and predictable as it used to be.

And as a leader that has many years in an industry, when the fundamentals around you are changing, you lose your own kind of leverage that you have towards your organization. We need to help them to realize that leading in the unknown is very different from leading in the known. You need to engage your people, you need to empower much more and you need to bring more people into that. So, we will invest in our people for sure, that is -- we also need to invest in our capabilities in how we drive efficiency.

Then when it comes to looking forward into the market, I think that we have said already today that if we want to penetrate in long-term care, that doesn't happen by itself. We need to have dedicated investments. So, we need to invest in people. We need to invest in, I would say, sometimes facilities. I think we cover -- if we talk about the U.S. and Canada, we cover the markets pretty well. So, we have a lot to leverage from. But that's where the investments will be in the market penetration.

And then if we do more targeted -- if we do something that is more M&A related, of course, that will also be part of that. When we look into the portfolio, I would say that we need to mature how we work with our partners. Arjo needs to lead. We can never advocate our leadership, but we need to also leverage the competence that comes from some of our partners. And we have not always done that and not always realize that they also have engineers, they also have creativity. So, we need to empower also our partners to be closer connected to our product development processes and to how we then deliver that offer to our markets. So, the investments will happen broadly across. And if we come into stuff like M&A and so on, that will be communicated when it happens.

Erik Cassel from Danske Bank. First, on timing of the savings. When you say mid-2029, is that some sort of annualized run rate by that point? Or is it realized on a rolling 12-month basis by that point?

It will be realized on that point, and the vast majority will happen before that.

And then I was wondering on the SEK 370 million onetime investments, what's the proportion of that affecting cash flow? Is there any sort of noncash component to it?

In that, there is -- no, that will affect cash flow. So -- and it will be connected to capability investments, I would say, in operations. It will be also investments in, like I said, in market penetration, and there will be investments in, I would say, organizational efficiency.

Okay. And then can you share a bit more which proportion comes from the different buckets that you show. You had some indicative circles in there. But is it possible to say how much is more certain headcount reductions and maybe a bit, say, unsure procurement factors that you may be uncertain on timing and magnitude, for example, Basically, how much is certain of the total savings?

Yes. So, of course, we work internally with targets that are even higher because we need to have ambitions that makes us able to deliver on the ambitions that we share today because we all know that there is there are risks in execution and not everything that you do will be delivered, but we are confident that we have seen enough ambition and enough potential that we can do this promise today. So, we have not broken down exactly how much will come. I would say the illustrations there are there for a purpose. They are indicative, but you can also see what they indicate. So, I think that's the answer that we give today. And I'm pretty sure that when we come back in the coming quarters, we will be able to share more about that.

Good. And then I was wondering if the new model have any implications for cash flow generation. Do you expect to have some sort of leaner net working capital effects from this?

We believe that -- I mean, the new operating model definitely will help us to reach better cash flow generation. I would say that a lot of what I talked about when it comes to portfolio pruning, efficiency, that will help us to drive cash flow generation because we can be able to also -- and cash efficiency because we are tying up the capital in many places today that is -- that we can do better going forward.

Okay. Last question. As you talked about retiring products and slimming SKUs, do you expect that to be a notable headwind on growth in the coming years? Are you willing to give up, say, the recent years growth rate in favor of lifting margins?

I would say that shareholder value will be our ultimate purpose. So -- but we do know that we have -- I would say that we still take care of products that were launched more than 20 years ago, sometimes 30 years ago, and we still keep them alive even though they are not part of significant sales. So, of course, when you do portfolio pruning, it comes with arbitrage. And what usually happens is that in the beginning, it feels difficult.

But in the end, you actually unleash sales to have more predictability in availability of product. It usually is a good growth driver. Intuitively, it seems like the opposite, but usually, it actually helps you to become more efficient and that helps sales to be more efficient. But of course, this is not something that we will do from an inventory point of view. It will be something that we do from a value chain point of view. So, how do we create the best value and how do we then create that across.

Do we have any further questions? Yes, over here?

So, we talked about pricing, but another reason for lower profitability in the last year has been geographic mix where the U.S. and Canada has grown slower than other regions. And now you talked about the new strategy in North America. So, going forward, do you anticipate that negative trend to reverse and we'll see higher growth in North America compared to the rest of the world?

I think that if you look at the gross profit, it's one story. If you look at the bottom line, it's another story. So -- and I think that is also part of -- we need to focus on -- by the end of the day, when we've been busy executing everything we're doing and realizing the growth we have created, it is what is left on the bottom line that we need to be much more focused on. And I think that Arjo have had too much focus on top line and gross profit and not enough focus on -- so I'm not saying that we'll stop thinking about that. I'm just saying that we need to make sure that keeping ourselves busy needs to result in something. And that's part of becoming more performance driven in our culture. So, I hope that answers your question.

So, for instance, we made a -- earlier this year, we communicated that we won a huge deal in South Africa, a huge medical beds deal. And of course, the gross -- you can imagine yourself, we're selling medical beds to health care institutions across South Africa. The gross profit is not the best. So, it brings down the average. But the bottom line is good, and the capital efficiency was excellent. We got paid before we had to pay our own invoices.

So, sometimes there is more behind the gross profit. And I think that we have been maybe too focused on a couple of indicators that are maybe true for parts of our categories. But for other categories, they tell a different story. And I think that's why by the end of the day, the bottom line is where we need to have our focus. And that's also why I send a message today about talking about EBIT improvement and not on a higher up in the P&L.

One more question, if I may, on cash flow. You currently spend around SEK 600 million on capital expenditures each year, which is approximately 5% of sales. And you mentioned that expanding into acute care will result in some investments. So, what's the normalized level of capital expenditures to maintain the current base and deliver on the new growth targets? I mean, currently, you only deliver about or around 20% to 30% of EBITDA is down to free cash flow. So, what's a level you will be happy with?

So, we're not setting financial targets today. So that's -- I mean, so sorry for that boring answer. But I think the other answer I gave before was that we need to look at our capital efficiency because we know that we are not being efficient today. And we know that not enough is being then released in real cash flow by the end of the day. And we can see that on our debt that it's been flat for a period here, and we came from a period where we gradually worked our debt down and then it has stopped. So, portfolio focus has many aspects to it. It's not just about developing an offer that the customers like. It's also developing an offer that is more efficient across the value chain. It's more efficient in assembly.

We need to leverage our OEM partners as well. So, we make sure that we take the right make-or-buy decisions. And I think that historically, we have maybe taken these decisions in silos, and we have not done that in a value chain optimization point of view. And I'm used to that way of working. And I think a lot of people across Arjo also have similar experiences. But as an organization, we've not had that decision-making or that operating model governance. So, there will be -- I expect us to be able to improve also the capital side. But today, we cannot talk about that. We've been super busy coming to the point where we are today, and we think it's significant enough to take our time and your time to share that. And then we really hope to come back in Q1 with financial targets where we can talk more about that.

Ludvig Lundgren from Arctic. So starting with a bit of a follow-up on the SEK 370 million onetime investments. You highlighted that this will be incurred by 2027, but can you elaborate a bit on the timing of these costs? And will we see material effect already in?

They will be largely incurred in 2027, but also part of it will also go into 2028 because we will do some changes across the company that has -- that needs longer lead times before you can execute it. You need to build up a capability before you can execute on some parts of it. But -- so we don't elaborate into exactly what it consists of. Of course, we know that based on our plan. The figure that we have put out is conservative, which means that it might be less. But we also put out a conservative figure in 350 million. It might be more. And so we're trying to match those 2. So if the 350 million becomes higher, I don't want the 370 million to grow. I want to be able to deliver more value.

Okay. Very clear. And yes. And then I had one for Jim, because I believe the long-term care candidate operated by both public and private facilities. So, I just wonder if you can give some flavor on what type of facilities like Arjo is strong in currently? And if we see any trends on like the market trends for both types of facilities?

No, that's a very good question. Yes, currently, I mean, we are in about just under 75% of long-term care facilities across the country in some capacity over the past 10 years. And that number really does split between the public and the private. I would say that we have equal partnerships with both. I think when you look at the private, that's where you get more into the corporate accounts or group purchasing organizations, which may have a bigger ability to be impacted from a top level down.

But still, the publicly funded system is -- they view us as market leaders and they trust us and we work with them effectively. I'd say the big difference between the 2 is that you have a more top-down approach with the privately funded corporate groups, if that answers the question.

Yes. And then if I just can squeeze one more in, just a bit of a follow-up to my first one. Like it sounds like the cost -- some of the costs will be in the P&L, some will be maybe capitalized. Like then should we expect a bit of a margin -- like initial margin decline from these investments, which will then drive margins in the longer term? Is that how to interpret like these initial investments?

I think that -- I mean, I think all of you understand that we talk a little bit in riddles about some of these things because we -- it's not until we have executed some of the initiatives that we will have the true cost. So, it will be mainly a P&L effect in that restructuring. That's kind of the message that I can give today.

Any further questions in the room? No. So, then I think we are ready to wrap this up. Before I hand over to you for some final comments, I just want to say that if you have any further questions or want to connect, feel free to reach out to any of us. And then over to you, Andreas.

Yes. And I don't have much to say. I just want to say thank you for listening to us. And also thank you to Maria, Jessica and Jim because I think you were dynamic today, so really good. So, big thank you, guys. Thanks. And thanks to all of you.

Welcome to the Arjo Q2 presentation for 2026.[Operator Instructions]

Now I will hand the conference over to President and CEO, Andreas Elgaard; and CFO, Christofer Carlsson. Please go ahead.

Hello, everybody. So first of all, thanks for taking time off from your, hopefully, good start to 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.

So we really are purpose-driven. We have an organization 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. So everything from patient handling, hygiene and wellness, medical beds, pressure injury prevention, VTE prevention, diagnostics and disinfection. We were founded in 1957 in Eslov by Arne Johansson, and that's where the name Arjo comes from. We had in 2025 SEK 11 billion 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 the margin. 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 to that on the next slide. What is important to highlight is that there is an increasing demand for our sustainable solutions. And today, this quarter, ReNu had their all-time high sales. And ReNu 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. This is despite then the pressure on the margin, and this is mainly due to us being able to get some of the tariffs back this quarter. So 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. Yes. 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 informed 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.

So just to shout out that North America, they continue to grow. U.S. was leading there. Canada was slightly behind last year. And Canada also came from really high numbers last year, as did also U.S. 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 impressive 7% and Western Europe were on 6%, and it was really nice to see U.K. being back to growth.

And by that, I hand over to Christofer Carlsson 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 relatively lower growth in North America. Increased transportation cost and cost of materials pressured 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 SEK 10 million of one-time transportation cost during the quarter, but this will be fading out during the third quarter.

Group rental margin declined in the quarter, primarily due to weaker profitability in the U.S. rental business. During the quarter, we received an initial reimbursement of SEK 22 million related to U.S. tariffs. In addition, SEK 30 million 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, U.S. tariff costs were at SEK 12 million lower than in corresponding quarter last year. FX had a minor negative impact on gross margin.

In absolute terms, gross profit was negatively affected by SEK 23 million year-over-year. Nevertheless, this represents a significant improvement compared with previous quarter. Gross margin was impacted by a number of factors during the quarter. But as you will see on the next slide, disciplined 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 SEK 211 million compared to SEK 208 million in Q2 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. The OpEx to sales ratio decreased by 1 percentage point year-over-year to 34.6% compared to 35.5% last year. Organic OpEx growth was 1.9%, which is a lower than increase reported in the first quarter.

Overall, the total FX had a negative impact of SEK 12 million on adjusted EBIT during the quarter. Moving on to the adjusted EBITDA, which amounted to SEK 482 million compared to SEK 475 million 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. The improvement was supported by lower restructuring costs, which amounted to 0 in the quarter compared with SEK 34 million in Q2 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 SEK 257 million, an increase of SEK 52 million compared with the same period last year. The improvement was driven primarily by strong operating profit, partly offset by less favorable development in working capital.

Working capital changed by negative SEK 122 million compared with negative SEK 87 million last year. 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 related to finished goods in transit intended to support sales during the second half of the year.

Working capital days increased to 87 days compared with 83 days in Q2 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 SEK 194 million compared to minus SEK 171 million in Q2 '25. The number includes an acquisition of the service business in Australia amounting to SEK 30 million.

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 million and higher investment levels. Net financial items amounted to negative SEK 49 million compared with negative SEK 48 million 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 2.4x. Our equity ratio stood at 49.5%, slightly down from 49.8% at year-end '25. To summarize, we delivered stable profitability, improved cash generation and maintain a solid balance sheet.

With that, I will hand it over to Andreas.

Thanks, Christofer. 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 5 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 a 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 our regions then. 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's intending to take in 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. So I'm really looking forward to share all of that with you in September.

[Operator Instructions] The next question comes from Kristofer Liljeberg from Carnegie.

Two questions. First, could you maybe talk a little bit about how you view the underlying demand situation in North America and globally? 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 how you viewed the potential to offset this more near term?

Okay. Christofer, would you like to take that?

Yes. 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 held back due to strong comparison numbers. And we know that we have a strong pipeline for the second half year. And also in the global sales market and European markets and Rest of World, where we also see a 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 medical beds increase is part of the growth, especially in Europe and the U.K. But we also have a weight against 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 will have an effect.

We also have 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.

Could I ask -- would you say that this mix effect is a bigger impact in the quarter than higher material costs and higher transportation costs?

I would say transportation cost is actually higher.

The next question comes from Sten Gustafsson from ABG Sundal Collier.

Yes. I would like to follow up there on Kristofer's question on the gross margin. Could you potentially share with us how much of sales is related to transportation cost. 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? That would be my second question.

So I mean, the price pressure, I mean, there is -- has been for quite some time, and we've reported on this, that 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 the market situation.

And then Christofer, I'm not sure if we have a number on the total transport cost.

No, we have to get back on that one.

So yes, I understand the DVT business, but is that still eroding? 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 -- yes, depending on the mix, it is -- it plays a big role. But we don't see eroding margin more than the price pressure in certain segments, if I say like that. Christofer, can we add any flavor to that or...

No. Of course, it depends a little bit on what product categories we are talking about. We have a healthy development in certain categories and for some other, there are more pressure. And as I mentioned also that the rental business in the U.S. is under pressure from a profitability standpoint.

Okay. If I may squeeze in a last question here and it's related to Canada. If you 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?

Yes. They were a little bit softer second half, still growth. I can come back with the exact numbers there, but they had a tremendous first half last year.

The next question comes from Filip Wetterqvist from SB1 Markets.

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&L?

I mean, 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. So of course, if the oil price is going down and it hits the pumps, our transport cost will also go down. So -- but it's -- we will not do any forecast on that at this moment.

Yes. But so you don't have like hedged any freight cost or so? So it affects you directly if the oil price jumps or goes down, so to say?

It depends. It depends on how we report. And of course, we try to resist all increases as much as we can, but it's not everything that we can resist. And of course, we -- when prices come down, then, of course, we want to be able to capitalize on that. So -- but Christofer, do you have any more details on this?

No. I mean, there is no major program in terms of hedging transportation costs. But I mean -- and this is also just to understand the whole value chain. It's not only the global big transportation from our factories to sales units. It's also a lot of our rental business and service businesses with trucks going back and forth between customers and our rental and services, they're also driving quite a lot of the fuel cost, for instance.

Yes. And then my second question, you mentioned that June was very strong. What drove that? 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 6 months into the job here at Arjo, it's always -- I would say, there is a pattern of having strong last months in the quarter, so very nerve-racking. But -- so it was really a fantastic month, I must say. So that's the background. So it's also -- our order intake is also positive when we look forward.

The next question comes from Mattias Vadsten from SEB.

I have 3 questions. I'll take them one by one. First one, I think the wording in the report suggests improving conditions in the U.K. If you could comment if this is underlying or more of a timing effect? Maybe you can just describe the situation in the U.K. right now based on your experiences.

Yes. So I mean, U.K., 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 U.K. 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 U.K., 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.

Would you say the recovery was across most categories of Arjo? Or was it some specific items or categories -- product categories that drove the improvement?

I don't have that level of detail in front of me right now for U.K. Christofer, do you have that?

It's primarily driven with medical beds, and that is one category in the U.K. that is increasing.

Okay. That's perfect. 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.

We keep a very sharp eye on our costs. And that's also something we will 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 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 in that magnitude going forward? Or are they fully taken here?

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're still working on it. But the bulk of the problem is behind us.

[Operator Instructions] The next question comes from Ludwig Germunder from Handelsbanken.

I 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 market outside of North America that is standing out in terms of how much is growing?

I mean, I think, we were really -- I mean, 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 strength in the growth.

Okay. And then just a quick one. I get that you want to save the details 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?

No, I would say no. Christofer, would you like to comment?

No. I think we'll leave that for the Capital Market Day.

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

So 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 Christofer. Bye-bye.

Thank you, and goodbye.

Welcome to the Arjo Q1 presentation for 2026. [Operator Instructions] Now I will hand the conference over to President and CEO, Andreas Elgaard; and CFO, Christofer Carlsson. Please go ahead.

Thanks a lot, and thanks everybody for dialing in and listening to Arjo's First Quarter of 2026. So we believe we have been able to pull together a stable first quarter and we're happy to share that with you. And also, we will talk a little bit on how we are progressing the work with shaping the future Arjo. So just to begin a little bit from my side. And to remind everybody of who we are and what we do because we are really very purpose-led in everything we do. This is something that is very strong in Arjo. We exist and are present at people's most vulnerable moments, and we help them to keep their integrity and dignity and really make sure that they have the best possible situation when they need it the most.

We, as you know, we work across several product segments and categories. So from patient handling and hygiene to medical beds, the mattresses that goes on top often focused on helping to relieve pressure injuries. We work with VTE prevention, diagnostics and disinfection. So these are our product categories. We are about 7,000 people and with an annual turnover of approximately SEK 11 billion. And we are truly a global company with sales to more than 100 countries.

So let me just start by fly over a summary of the first quarter of 2026. So we delivered solid growth in Q1, 3.8% is within our guidance. And it's really driven this year by a positive trend in U.S. in capital sales and strong sales in rest of the world. And also this year, as you saw in Q4, the flu season was not as strong as it usually is for us in U.S. and that has continued. So this is despite a somewhat weak flu season. So we are -- we think this is really a stable result that we deliver.

The gross margin is slightly below last year, and we are, of course, put under continued pressure when it comes to currency and the tariffs in U.S. We are working with trying to compensate this through efficiencies and also to manage our costs in a good way and then looking into price adjustments, especially considering the situation that is in West Asia. So still uncertain how this will affect us, but we are preparing for making sure that we manage those effects.

So just to also highlight, we had healthy cash flow in the quarter compared to last year, it's an improvement, and it follows the seasonal pattern. So this is also something to mention. The adjusted EBITDA came in at SEK 456 million. And maybe one thing to highlight is that we started in the quarter to work on our future strategy, and we've had very intense work and a lot of engagement across the company, and we are progressing in a really good way. And I will come back to this a little bit more towards the end.

So if I zoom in a little bit on sales in North America, we had both in Canada and U.S., really strong end to the quarter. So month of March was really strong. In total, I would say that U.S. continued to grow in the quarter, and Canada came in slightly below last year. But they really met some very strong comparable number. So all in all, a really strong performance is what we have seen, meeting very strong comparable numbers.

Of course, when you meet stronger numbers, the percentage growth is, of course, affected. And as I mentioned before, for U.S., the flu season was not as strong as it usually is but we compensated that through capital sales in Patient Handling.

If you look at the rest of our sales beyond North America, in Western Europe, we were struggling a little bit and it's mainly U.K. that is helping us with it -- not helping us, but that stands with the decline. And most other markets are performing in a good way, and especially France and Italy have had a really good performance in the quarter. Rest of the world beyond Europe then and North America was really, really strong, and the growth was really carried through several markets performing, but the shout out, especially to South Africa that delivered a large medical beds order in their region. And I just want to hang on that topic just because it gives some flavor to what we're doing.

So we have modernized 36 health care facilities in South Africa, this was a special product tailored for their needs. So 2,300 new, more than 2,300 new beds and mattresses. And this to us is not just -- it's a logistic exercise. It's an installation exercise. It needs to be done when it suits the hospital and it needs to be done with good margin and good cash conversion. And all of this came to life through really good strong teamwork from customer to back in supply chain.

So by that, I hand over to Christofer.

Thank you, Andreas. As Andreas stated, we had a stable start of the year. Overall, our gross margin came in at 42.6% compared to last year's 43.7%. Looking at the drivers. The growth in Patient Handling improved group margins, driven by strong development for our floor lift Maxi Move 5 and ceiling lift. Also, our Diagnostic business improved margins driven by higher volumes and a favorable sales mix. The Rental business gross margin slightly increased, driven by France, U.K. and Australia, while U.S. had a negative development due to weaker flu season and some capital conversion among customers.

However, the main part of the gap came from an unfavorable product and country mix impacting the gross margin by minus 1 percentage point, mainly related to a large medical bed order in South Africa. At the same time, U.S. tariffs had a negative impact of SEK 10 million year-over-year, representing a 0.4 percentage point decline in gross margin. In addition, FX had a minor negative impact on gross margin but in absolute numbers, the gross profit and negative FX effect of SEK 123 million.

Finally, our Service business margins were in line with last year when excluding U.S. tariffs. If we now move on to the EBIT slide. Next slide, please.

As you can see, adjusted EBIT in Q1 came in at SEK 190 million compared to SEK 208 million last year. However, when excluding U.S. tariffs and FX, the result is in line with last year. Looking at the costs, OpEx declined in the quarter due to FX effects, at the same time, the organic OpEx increase was 2.8%. In addition, we had a positive effect from revaluation of accounts receivable and accounts payable of SEK 3 million in the quarter reported under other income and expenses. Last year, the equivalent amount was minus SEK 34 million, resulting in a delta of plus SEK 37 million year-over-year. So overall, the total FX impact on adjusted EBIT amounts, therefore, to a minor amount of minus SEK 7 million in the quarter.

Moving to EBITDA. Adjusted EBITDA for the quarter was SEK 456 million compared to SEK 486 million last year. And adjusted EBITDA margin was in line with last year and came in at 16.9% versus 17.0% last year. The EBIT margin increased to 6.8% versus 5.9% last year. This improvement was supported by lower restructuring costs that came in at minus SEK 6 million in the quarter versus SEK 40 million last year.

Now we move over to working capital and cash flow. Next slide, please. Operating cash flow improved in the quarter amounting to SEK 237 million. This was SEK 53 million higher year-over-year, mainly due to improved cash flow from working capital. Following our normal season pattern, the change in working capital were minus SEK 142 million versus minus SEK 180 million. Working capital days increased to 83, up from 81 in Q1 '25. Cash conversion in the quarter improved to 52.7% compared to 41.3% last year. For reference, our cash flow from investing activities was minus SEK 135 million compared to minus SEK 215 million in Q1 '25. The decrease is mainly due to SEK 48 million lower investment in rental assets. If we now move over to the net debt and leverage. Next slide, please.

The decrease in net debt this quarter is driven by improved operating cash flow, lower investments and positive FX effects. Our financial net came in at minus SEK 36 million compared to minus SEK 43 million in Q1 '25. The improvement relates to some positive FX effects. Our cash position remains strong. Net debt to adjusted EBITDA stayed flat versus the year-end and came in at 2.2. Our equity ratio stood at 50.5%, up from 49.8% at year-end '25, mainly due to positive FX effects in equity.

With that, I will now hand it back to you, Andreas.

Thank you, Christofer. So I thought that it would be good maybe to just share a little bit on how the work of shaping the future of Arjo is going. And too early to reveal anything, but I can still try to give you a flavor on what we're doing. And we put the headline here, but it will be a story of untapped potential because being new now into Arjo soon, 4 months into the role, I see a lot of potential in the people, in our relationships with our suppliers and in the relationships with our customers. It's really -- it's not just an industry that has healthy growth expectations, but it also Arjo as an organization is really filled with potential. But this in order to be able to untap that, we really need to have clarity on where we're going and make sure that we build the capability to execute as well.

So one way of doing that is by inviting leaders from across the organization to make sure that we build a common ground, we create alignment, we create understanding on where we are and where we need to be in the future. And by doing that, you don't just get the strategy that comes from top, you get a strategy that is well anchored across the organization, and that really helps you when it's time for execution. So our ambition is to go from strategizing straight into execution, that is the ambition. And creating a clarity in where we're going is really important for everything from product development to supplier relationship development and to product development.

But it's also very important if we want to continue to grow also in new product segments or if we want to open new segments where care is moving. It will also be something that will guide us if we need to accelerate our growth or our strategic movement through acquisitions in the future.

But strategy and talking too much about the future, sometimes can dilute the focus on here and now. And I, for one, is super focused on that we need to deliver two things. We need to deliver clarity for the future, so we know how to execute and build the future Arjo, but we also need to deliver results short term.

So what you can expect from us is a strategy that will focus both on the here and now and how we lay the foundation for the future. so you will have both of it so to say. And our ambition is to get this strategy approved during summer and that we will be able to communicate that to you after the summer. That means the second half of 2026 so that's a little bit the status on where we are by in the work of creating the future Arjo.

And by that, we hand over to the Q&A section.

[Operator Instructions] The next question comes from Filip Wetterqvist from SB1 Markets.

I have a couple. First, can you quantify a little bit more on the contribution from the 36 facilities in South Africa to global sales organic growth? Like what would the underlying organic rate have been ex this order? And how does that inform into the exit run rate into Q2? The first one.

Okay. Thank you for your question. I don't think we have communicated the size of the single order. And I do think that when we have orders of materiality, we will do press release and specify those things. So we have not done that. So we are not giving guidance on that because that will reveal information to competitors that we don't want to reveal. But 2,300 -- more than 2,300 beds to 36 care facilities. It is a substantial order, but we don't judge it being material.

And my second question, you mentioned Middle East cost pressure from Energy & Transportation as a fresh headwind here in the report. Did you see any impact already here in Q1? Or do you anticipate it in Q2? And what is the current run rate assumption for '26?

Yes, thanks for the question. So we have seen a minor effect in Q1. But of course, we and everybody else in the world are very much aware of how much oil affects not just the energy sector, but every -- I would say every process industry and every food production farm in the world through the production of fertilizers. So of course, this will have effects. But we -- so we are preparing to try to mitigate that in the ways that we can. We don't give forecasts on what that might be because -- and I don't think Arjo is the best equipped to give forecast on the financial consequences of the crisis that is ongoing right now.

But given that, of course, we are preparing us for the scenarios that we see internally. So I hope that answers your question enough. And I mean if this conflict becomes short term, hopefully, there will still be effects. That's for sure. But if it becomes short term, I also think it will be something that the world will be able to manage. And this is something that affects Arjo in the same way as it affects everybody else.

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

Okay. Thank you very much. So today is the Annual General Meeting. So we are super excited. There will be more than 120 shareholders that will come and listen to us, and we will give a similar message to them. But of course, we will focus on 2025. We'll give a short highlight of the first quarter this year, and we will also give some flavor on the strategy work. So we'll share a movie where different leaders from Arjo is talking about that. We are really excited about that. And by that, we say thank you for this call, and we remain at your disposal. Bye-bye.

Bye-bye.

Welcome to the Arjo Q4 Presentation for 2025. [Operator Instructions]

Now I will hand the conference over to President and CEO, Andreas Elgaard; and CFO, Christofer Carlsson. Please go ahead.

Thank you very much, everybody that have called into this Q4 year-end report 2025. My name is Andreas Elgaard, and with me today, I have Christofer Carlsson. And then I will start the meeting, and then I will hand over to Christofer, when we come into the financial figures, and we will do this together.

So before we begin, I mean, I am -- I've started now in Arjo since 3-plus weeks back. So I'm still new at work, and I'm super excited to lead this first call and also to share a little bit with you guys what I'm experiencing as a new person discovering Arjo. And I thought also that maybe it's a good idea that there could be some newcomers to this call who are interested in getting to know Arjo a little bit.

So just very, very briefly, we are experts in improving mobility in acute care and long-term care settings. And our products truly make a difference when people are at their most vulnerable. They provide safety, dignity and integrity to patients, and they also provide good working conditions for the caregivers. And of course, they deliver value to the clinics and to the institutions where they are in use.

Arjo is founded in the South of Sweden, in Eslöv by Arne Johansson. That's also where the name comes from. It has a long tradition, leading up to where we are today, an SEK 11 billion company with almost 7,000 coworkers and with active sales in 100-plus countries.

I think we can take the next slide. And you know when you're new, of course, you discover the company, and I discover Arjo through all the products and our business, but mainly I discover it through the lens of all of our people. And we have a very, I would say, a rich company in terms of diversity. We have many businesses. We are active across many countries, and we have many versions of Arjo out there. And it's really the people that represent these different versions. So a lot of diversity across Arjo.

We are not always using that to our benefit to drive maybe best practice or learn from successes or failures, but there is one thing that we have in common across Arjo and was a big reason for why I wanted to join as well, and that's we are all connected and really, I would say, passionate about the purpose, and it is the purpose of doing good, to be there when patients are at their most vulnerable situations and provide products that truly help the care situation. I already said it, but integrity, dignity are super important when you are in this position and also to provide that in a safe way. So it is something that is truly a superpower in Arjo and something we will build on for the future.

So let's talk about Q4. So first of all, I would say that we had stable demand throughout the quarter. And then towards the end of the quarter, we saw maybe not the development that we would have wished. We have been challenged by, of course, currency and tariffs, and we have also been challenged a little bit on price pressure in parts of our markets and in the mix where we are selling, where we have slightly higher growth in markets with lower margin versus markets with a little bit higher margin.

But overall, healthy organic growth, very strong cash flow in the quarter. So we almost hit our yearly cash conversion targets, but really, really strong in the quarter. And of course, we had hoped for more when it comes to the gross margin and maybe some of our cost control.

We can look a little bit into the full year. So when we zoom out and look at the full year, we see a growth figure that is within the range that we have promised. And we can see that we deliver this despite being challenged, I would say, mainly in U.K. where we all know that the market in the U.K. and the political situation, the struggles in the health care system in the U.K. is also something that hits Arjo and has been a red thread throughout the year. That is impacting our performance, I would say. And then the headwinds in terms of tariffs and currency together with price pressure in parts of our range, and then the mix is challenging our profitability and our margin.

All in all, our EBITDA is -- we would have -- we expect a little bit more from the quarter. But if you look at the full year, given the adjustments that have been throughout the year, some of the write-offs, this is the level that we landed on.

As I mentioned previously in the -- thanks to the strong performance in Q4, we managed to almost come up in line with our target of 80% cash conversion. We are just south of that. And then very important to highlight is that we propose to stick to the same level of dividend that we had last year. And we -- the Board is recommending to the AGM a dividend of SEK 0.95.

Just very briefly on North America and Global Sales, the 2 segments that we have. You can see that the quarter in North America was slowed down a little bit. But looking at the full year, it was quite strong growth. And looking then at Global Sales, we had a reverse trend where we had a stronger finish and a full year that was more, I would say, stable. And important to notice is that some of the more emerging markets in what we call Rest of the World have high growth, and that's also areas where we have a slightly different profitability, gross profit level. And that hits the overall gross profit of approximately 1%, and then tariffs, currency, et cetera, by approximately another 1% when you look at us from the outside and compare with last year.

And by that, I think it's time to hand over to Christofer.

Thank you, Andreas. Yes, my name is Christofer Carlsson. I'm the CFO of Arjo. As Andreas mentioned, profitability was a challenge in the quarter. Our gross margin came in at 42.1% compared to last year's 44.7%. We continue to have headwinds from currency and U.S. tariffs, representing around 1 percentage point of the drop. In addition, 1 percentage point can be explained by the unfavorable geo and product mix due to higher sales in Global Sales with higher volumes of medical beds. On top of this, the delayed flu season in U.S. pressured our rental volumes, and we also saw impact from continued price pressure in the DVT business in the U.S. in the quarter.

Meanwhile, we had a good momentum and margin development in the rental business in Continental Europe, especially in France, Germany and Italy in the quarter. However, the market condition in U.K. continued to be a challenge, and an 11 percentage point drop in U.K. sales consequently had a negative impact on the gross profit, and offsetting the positive effect from Continental Europe. All in all, a disappointing finish to the year from a gross margin perspective, where we did not have a seasonal uptick that we usually see due to a number of headwinds.

Next slide, please. Adjusted EBIT in Q4 came in at SEK 249 million versus SEK 375 million. The main driver is the drop in gross profit and an OpEx increase of SEK 23 million. We had a negative effect from revaluation of accounts receivable and accounts payable of SEK 3 million in the quarter, booked under other operating expenses. And this was plus SEK 19 million in the same quarter last year, resulting in a delta of SEK 22 million year-over-year. Total FX impact on adjusted EBIT amounted to SEK 73 million in the quarter. The EBIT margin decreased to 8.9% versus 12.5% last year.

On the OpEx side, the increase during the quarter is mainly driven by higher sales of capital sales in U.S., resulting in high GPO fees and sales commission. The organic OpEx increase was 1.9% in the quarter, which means that adjusted for the variable cost, we see a good traction from the cost efficiency initiatives implemented early in this year. Adjusted EBITDA for the quarter was SEK 526 million versus SEK 653 million in Q4 last year. The adjusted EBIT margin decreased with 3.2 percentage points versus last year.

Restructuring costs came in at SEK 68 million in the quarter, where SEK 35 million is a write-down of capitalized IT costs related to an ongoing IT harmonization project. This initiative is expected to lead to annual savings of at least SEK 30 million from 2028 and onwards. Another SEK 33 million related to ongoing improvements in our Global Sales structure to improve the cost and situation for the future.

Next slide, please. Operating cash flow continued to improve in the quarter amounting to SEK 600 million. This was SEK 121 million higher year-over-year, primarily due to inventory reduction and good receivable collection. The decrease in inventory is significant in the quarter, and it turns also to the full year number into a positive number. Our increased capital sales together with the supply chain inventory reduction program is now starting to show results.

Working capital days decreased to 76, down from 82 in Q3, and it's good to see a continued positive trend here. The working capital improvement is also the driver for the improved operating cash flow of SEK 600 million in the quarter. Consequently, cash conversion in the quarter was almost 120% compared to 82% last year. For the full year, we came in at 79%, which is in line with our target of 80%, and an increase versus 2024. For reference, cash flow from investing activities was SEK 172 million compared to SEK 191 million in Q4 '24. The decrease is mainly due to SEK 23 million lower investment in tangible assets. This quarter includes SEK 90 million in investment in the Dutch entity, SlingCare, which was announced in the Q3 report.

Please, next slide. The decrease in net debt in this quarter is mainly due to the improved operating cash flow. Our financial net came in at minus SEK 77 million, which include a noncash flow impact of SEK 35 million, negative revaluation of our holdings in Atlas, Infonomy and Veplas. Adjusted for this revaluation of our financial assets, the financial net was minus SEK 42 million and on par with last year.

Our cash position remains strong. Net debt to adjusted EBITDA stayed flat versus Q3 this year and came in at 2.2. Our equity ratio stood at 49.8%, up from 49.5% in Q3, mainly due to the improved cash flow.

With that, I will hand it back to you, Andreas.

Thanks, Christofer. So let's look ahead. How will we define our future direction. And I would like to say that, I mean, there is always ongoing positive work in preparing for the future. During '25, we launched the Maxi Move 5 that many customers think is really a game changer. We have just recently also launched the new hygiene solution, Symbliss that has received a lot of positive acclaim so far. And we are going to continue to rejuvenate our offer and how we go to market going forward.

But maybe just a few words on what it means to work on this. So we have a solid foundation to build on. We have a macro economics, I would say, or trends that are incredibly positive for us, which is people live longer, more people come out of poverty. The need for care is growing faster than the population is growing and the GDP is growing. So from a macro perspective, all things are positive.

At the same time, we know also that many political systems and many health care systems are set under pressure because it is difficult to keep up with the growing need of care. So there are changes in how care is being administered and given to patients. All of these things will create a more dynamic market in the future, and it's very important for Arjo to set our point of view on that. Part of our foundation is also that we have a very passionate team dedicated and committed to the purpose of doing good for our patients and caregivers.

So that said, there is also a lot of things that Arjo can do that is not about the macro, that is not about the patients, but that is about our own performance and there is significant opportunity across Arjo to share best practice and learn by that and implement going forward and use -- decide on the future in order to be able to take out maybe cost and drive efficiency.

So we can look at the next slide. So how do we realize our potential? Part of that is to know where we're going and setting a strategy, setting a direction. And we intend to present this back to the market in the second half of this year. The work has already started, and we will bring together leaders from all parts of Arjo. We are going to workshop with them and decide on where we want to go for the future, how we will get there, what to prioritize, what we want to do, which markets to have focus on, which parts of our product portfolio to put emphasis on. And if needed, acquire additional capability, additional market position, or maybe additional portfolio offering.

And those things are all easier when you have clarity in your strategic direction. And I think that for Arjo, the last time we set the strategy was back in end of 2019. So we are due to create that clarity for ourselves and for all our shareholders.

The only outlook that we give right now is, of course, the usual one, about 3% to 5%, and we are really looking forward to presenting our future direction and with that also, update the financial targets in the second half of 2026. So that's what you can expect from us during this year.

And by that, I think we are at the Q&A.

[Operator Instructions] The next question comes from Sten Gustafsson from ABG Sundal Collier.

A question on the quarter. You talked about a strong start, but then it slowed down. I was just wondering if you could clarify exactly what happened there, and also if that change in the market has continued into now, the beginning of 2026?

Thank you for your question. I would say, no, that's not how to interpret it. I would say that we -- it's more how we see the result developing across the quarter. So we don't see any trend shifts that we bring with us. We more see that we expected more from the quarter. And I would say that you all know that when you close the books, there are some decisions that you need to take. And as you have seen, we have had a couple of write-offs and write-downs during the quarter that, of course, impacts the situation. So I would say that there is no -- nothing to interpret when it comes to bring forward into 2026.

Would you like to add something to that, maybe?

No. I mean it's always an uncertainty about the flu season, that is impossible to predict exactly, of course, how that will develop. And that can go in both directions.

All right. And then specifically, the U.K., when do you expect that to improve? Or do you expect it to improve near term? Or is it too difficult to say today?

Yes, I would say that, I mean, there are two things here. I mean one is, of course, what is going on in U.K. within NHS and the U.K. health care system. That's one part of it. And of course, we can try to contribute with as much value as we can and to be a good partner to our customers and NHS in particular. So that's one part.

Then it's also about our own performance and what are we doing in this situation. And we have had a lot of actions throughout 2025 to improve our efficiency and productivity. So we have done several things throughout the year that we expect will have effect. If it's enough or not or what will happen in the bigger picture around NHS, that's another topic. And I think most of you guys that follow this sector, you know that U.K. is really troubled. The pressure on the health care system is very high, and there has been some fundamental challenges and still are going forward. At the same time, this is a top priority for all political parties. So we also believe that there is a lot of interest in solving this for the benefit of the people across U.K.

The next question comes from Mattias Vadsten from SEB.

First one is just a follow-up on the U.K. Did you say it was down 11% year-on-year in local currency in Q4?

Yes, that's correct. In the quarter, it's down 11%.

In local currency?

Yes. So organic, delta is 11% down.

Then you talked about the gross margin development. It's quite clear description. And you talked about the mix effect, both from a region perspective and product perspective. So I'm just asking, this mix effect that you saw in Q4, is that likely to sort of sustain here into the coming quarters? Or are you seeing anything to reverse that trend near term, so to speak?

Okay. Maybe if I try to start, and then Christofer can correct my mistakes or add on flavor. No, I think it's -- I don't think that you can draw any major conclusions like that, that is now a sustained level. I think it's, as always, it's a product mix question. It's a market mix question. Then also parts of our business is project driven and tender driven. And depending on how these project or programs land, you get different mixes that will vary naturally between different quarters. So that's -- I mean, that's the natural flow. So we don't have that kind of super stable underlying trend. So that's one thing to bring with you.

And then also, I mean, of course, we expect -- we said this earlier that we expected maybe a different pattern from the flu season in U.S. And when you look at statistics and data, if you just look at the high level, you can see that the flu season looks to be more severe when we dig down in the areas where we have strong representation, especially Western U.S., the hospitalization is not as high as last year. And also, in general, the flu seemed to not cause as much hospitalization as previous years. But it's very early and all data is not accessible. But we have seen that trend in our data.

So I don't know if you want to add some flavor in terms of this mix or this trend moving forward, Christofer?

No, as we said, medical beds has a strong development in this quarter, but that is also very much a business depending on tenders and bigger shipments, it's not a continuous business in that sense. So it could be a different mix in the next quarter for us.

Yes. When you equip a hospital, you do that once, then it takes a number of years before you get the chance to come with a big order again.

Okay. Then I had a question on the ERP systems that will be replaced by Global System. And you said you will find savings of, I think it was SEK 30 million 2028 onwards. I'm looking to understand what this will cost you. So yes, can you comment on the cost for this in 2026 and '27? And also how you aim to report it if it's sort of nonrecurring item or if it will be a drag on adjusted earnings metrics?

The vast majority of the cost for this implementation is actually capitalized because it's -- we are having a system where we actually own the product. So it's not a cloud solution.

And maybe to add some flavor. This has been ongoing for a couple of years in Arjo already. So we only have a few markets left to do this change. So it's not something that is new to us. It's something that have been ongoing for a couple of years. So we are -- yes, we had a couple of go-lives during '25 already. And yes.

We went live with Australia and New Zealand this year. And that's, of course, kind of the key point where we actually -- with the successful implementation in Australia and New Zealand, we decided to also go ahead for the rest of the countries. Otherwise, with a less positive outcome in Australia, we would probably have put on a brake and reverse this project somehow. So this was kind of a key decision point for taking this costs as well.

Okay. Is it possible to say how much it has costed you already or with this?

No. We have not shared that. But I think -- I mean, the write-down is for the old system. This is important, too because we discontinue it before end of life. So it's not connected to the new.

The next question comes from Kristofer Liljeberg from Carnegie.

I have three questions. I'll take them one by one. First, what do you say about the flu hospitalization? I agree it started slowly, but if looking at the public statistics, it seems it picked up a lot in the last weeks 3 weeks of the fourth quarter, but you didn't see that in your rental business then, correct?

Like we said before, we have seen that the flu season has been stronger or I mean, more severe than last year, but it is also distributed differently across U.S. So in the states where we are strong, we have not had the same pattern of hospitalizations. And also, we have seen a pattern that fewer patients are being hospitalized or they quickly get out of hospital versus before. So we don't see a one-to-one pattern as before.

Okay. That makes sense. Then I wanted you to clarify then what still seems like a pretty poor visibility for sales in North America, the message after the third quarter was that you have delayed deliveries that was expected to pick up in Q4. So did you see this happen, i.e., was the disappointing sales for you in Q4, was all of that flu related, i.e., that capital equipment sales were according to plan?

That majority is, of course, the flu season. But we also have seen a less improvement in Canada, which had a very strong comparison numbers. So they actually have a lower growth in the quarter versus U.S. And to some extent, I mean, it didn't pick up at the end. Normally, there are quite a lot of transactional sales, what you say that hospital calls the last week or last 2 weeks when they know that they have x dollar remaining of the budget and they just need to purchase something before the year end. And that volume did not repeat from last year's all-time record actually in Canada.

Do you know why that was the case?

I think there are general budget constraints in the Canadian market. We do see some of the states being more and more restricted in the budgets. But that's the main reason, I think.

Okay. And then my final question, you talked about the mix effect that could, of course, vary a lot between quarters. But otherwise, is there anything you could do here short term to turn this negative margin trend?

Yes. I mean from my point of view, being new now into the company, if I answer first, and then Christofer can add on. I would say that Arjo has a lot of potential to drive efficiency. I would say, both in cost and capital out. That's clear. So we are going to work on that to do our own homework, so to say. Then also, I think that we need to look into parts of our business where market conditions have maybe changed a little bit or market dynamics have changed a little bit. We also need to update our commercial models and make sure that we share best practice in a more rapid way so we can be quicker to react.

So there are always things that you can do on your own. Sometimes there is a lag in that, of course, because you don't know what is changing before it's happened and then it takes some time to adjust. But there are always things that we can do on our own, and we intend to do that.

And in the strategy work, there will be parts of things that we want to do for the future that is long term to build capability, build -- expand our offering or our market position, but we also need to fund that journey. And to large parts, we're going to do that through also, I would say, efficiency initiatives across the group.

I mean, if you start the strategy -- yes. But if you start the strategy work now, then you're going to present this in the second half of the year. It sounds that 2026 will be yet another lost year when it comes to margins for Arjo, or am I missing something here?

Yes. I mean there are always parts that require direction and maybe long term and that you come together as an organization, and that will take some time. But there is plenty of also quick wins that you can activate around procurement, IT and your own efficiency. So there is not -- I am -- I've worked a lot with change in the past, and I'm a firm believer in that you have to transform yourself, you have to change, but you also have to perform while you do that.

And you need to fund the journey of when you need to invest in capability or in products or in M&A. Somehow, you need to fund that journey and you do that by driving efficiency in both capital and cost out of the company. So I think that you cannot say that you need to wait another year, and I think we're going to have -- we will be very, very focused on these also short-term actions.

The next question comes from Ludwig Germunder from Handelsbanken.

Ludwig Germunder from Handelsbanken. I have two, please. The first one is a follow-up on the last one around the strategy work that you will initiate during the spring. I understand that you will do work in the meantime as well. But what should we expect regarding margins for the beginning of 2026?

I mean, we usually don't give any forecasts, and we will continue not to do that. I mean the only outlook we give is what we believe how sales will develop on top line, the 3% to 5% interval. So beyond that, we will not share any outlook until we maybe have a reason to do that.

So that's -- and as I said before, we expect to come back and explain our view on the future and also at that point, also potentially revise our financial targets. So we need to work this through before we communicate it. But we are going to be super focused on trying to drive efficiency before we present our future direction.

Okay. Got it. And the second one is also kind of a follow-up on the discussion around the flu season. So I got you that the hospitalization levels are lower in the parts of the U.S. that you are most active. Could you say something about the sequential development or demand you're seeing from the flu season? Is it at the same levels so far in Q1 as you saw in Q4? Or has it moved in any direction from the Q4 levels?

We're not reporting Q1 today. So we stay on Q4. So I think that what we said is what we have seen that the flu this year seem to end up in fewer hospitalizations. That's what we've seen in Q4.

The next question comes from Erik Cassel from Danske Bank.

First question on North America. If my modeling is decent, it looks like the rental business now is in organic decline over there. Could you potentially comment anything if that only has to do with the ICU rental part or if you're also seeing that for, say, the more long-term contracts as well?

No, it's more on a short-term perspective and the flu season, I would say.

All right. And then on DVT, that business has been under pressure for several years now, I think, I mean, Cardinal started cutting back in '21. So how much additional pressure can you face there now? And can you talk a bit about the sort of current levels of sales and profits to some extent that you're seeing and sort of we should expect that pressure to continue now throughout '26 as well, if there were any, say, pricing cuts now in Q4 that will sort of feed over into at least H1 of '26.

I mean -- so we will not talk about '26. But what we can say is that, I mean, there's a fierce competition on, I would say, the consumables in DVT part of our business. And I think that -- and that Cardinal and others have -- I would say, they have pushed the prices down. We also believe that we've come -- we are either at the bottom or close to the bottom of how far down you can go. And then you can say also that triggers the need for us to counter by looking at our business model, if it is set up for this level or if we need to do any adjustments. But we don't expect the decline to continue in the same pace that it has in the last couple of years. Is that correct, Christofer?

Yes. So the vast majority of our business is on the new price level.

Okay. Good. And then in the U.K., are you seeing continued rental pressures for more and more contracts being lost? Or is this still an effect of those initial -- or was it 5 or 7 contracts that you lost earlier in '25 that, in a way, should be out of comps soon?

And also in U.K., if I could do a follow-up to the follow-up. How much of the negative 11% organic growth that you saw in U.K. was from the rental part of the business versus the product side?

So when it comes to the rental business in general in the U.K., I mean, we have not lost any new contracts in the quarter. So it's more an effect of the early ones that we communicated in 2025. And then I have to come back to you on the rental margins for the U.K.

And how do we usually communicate them. So I think that if we don't communicate them, we will probably not come back. But if we do that, then we'll come back to you, just to be clear.

Okay. I'll wait to see them. And then just a final question. There's been a hiring freeze now outside of sales for quite some time, I believe. So I'm just wondering, in terms of those pruning additional costs, et cetera, how much are you actually able to slim the organization from this point? It seems like this sort of pruning has been done for years now. So are you nearing a point where you can't really cut any more fast?

I don't think I would express myself in that way about the organization, but we can see that we have, as any organization, we have room to improve, and we are going to focus on that. And part of that will, of course, be released to improve our profitability, and part of that might be part of also funding the journey of investing and creating a strong future Arjo.

But I mean, Christofer can add some flavor, but I have now 3.5 weeks in the company. I've spent some time during my onboarding as well. But the only thing I can share is that I see opportunity across Arjo. It's a really mature business, but we also have some inefficiencies. We don't always use our best practice. We don't always share our failures or successes across the company. And there's a lot of commercial excellence in that. And if we can release that, that has a really positive effect. I have first-hand experience of doing that in other contexts.

And then also, we need to take a good look in the mirror and put question marks to ourselves when it comes to our administrative costs because we are high, and we need to be able to do things more efficiently by leveraging our IT systems and by also delivering the administration that is necessary and not something beyond that. So there are clear opportunities for us to address, then it is too early to say when the effect will come and so on. But we will focus on this together as an organization.

The next question comes from Ludvig Lundgren from Nordea.

Yes, I only have one. So you've highlighted quite a strong order intake in the last few quarters, in particular, in patient handling products in the U.S. So can you say anything about how this has developed here in Q4 and whether you're still way above 1 in book-to-bill?

Yes. The order intake has come in a little bit weaker in the quarter. But from an order book perspective, we are almost at the same level as last year. But also please remind yourself that 80% of our transaction is in and out in the same period. So it's an indicator, but it's not the actual true of the sales in the coming quarters.

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

So by that, we close this call, the year-end report for 2025. I thank you for listening. I also thank you for bearing with me as being new. And I am really looking forward to coming back and presenting Q1 to you guys, and in the second half, presenting our future strategy. By that, we say thank you.

Yes. Thank you all.

Welcome to the Arjo Q3 Presentation for 2025. [Operator Instructions].

Now I will hand the conference over to Interim President and CEO, Niclas Sjosward; and CFO, Christofer Carlsson. Please go ahead.

Hello, and good morning to everyone, and welcome to Arjo's Quarter 3 2025 Earnings Call. With me here today, I have Christofer Carlsson, our CFO. We will give you some details on the quarter 3 report that we released an hour ago. The agenda looks as usual and includes a summary of activities and results from quarter 3, the balance sheet items and the outlook for 2025 before we open up for questions. We intend to keep this call to an hour and finish no later than 9:00. Next slide, please.

We closed the third quarter in a solid way and could see how demand continued in the quarter with organic net sales growth well in line with our targeted range and as expected, sequentially higher than first half of the year. We had continued strong momentum for our service business and now also supported by stronger growth in our capital sales, while our rental business was slower this quarter. Our North America business is showing stable growth also this quarter, while global sales is now delivering from a strong order book and healthy customer demand and is showing the strongest growth quarter for several years. This all together makes us close the quarter with plus 3.8% organic net sales growth for the group.

We continue to have materially higher order book than the same period last year, and we are looking forward to a strong finish of the year in quarter 4. Our gross margin came in at 41.1% compared to last year, 42.0%. We continue to get support from lower material costs and price adjustments, while these improvements are offset by currency and U.S. tariff headwinds. In quarter 3, we also had unfavorable geo mix impact due to the relatively higher sales volume in global sales and the Rest of the World markets as well as higher medical bed sales, which also impacts the gross margin. Excluding currency and U.S. tariffs, the gross margin would have been on par with last year despite the geo and product mix effects.

For the rest of 2025, we will continue to drive efficiency focus throughout the value chain based on the plans that we have put in place, for example, within supply chain. Our focus on price adjustments will obviously also remain to secure compensation for salary inflation and the U.S. tariffs. The organization is doing a good job on the OpEx side, and we have been able to slow down the cost increase versus quarter 2. Our efforts to increase cost efficiency are showing effect, bringing down the organic OpEx growth versus last year to almost flat. Adjusted EBITDA for the quarter increased to SEK 436 million versus SEK 434 million in quarter 3 last year, a result coming from higher sales and improved OpEx to sales ratio.

The adjusted EBITDA margin improved with 0.6 percentage points versus last year. Overall, our underlying profitability continues to improve and excluding the effects of currencies and tariffs, the adjusted operating profit increased over 20%. Our operational cash flow came in at SEK 446 million, leading to a cash conversion of 105% for the quarter. Both cash flow and cash conversion improved versus last year same period. So in summary, we are delivering a stable third quarter of 2025. Our underlying business develops in a solid way, and we can see how our business model with capital, rental and service is helping us to deliver stability in growth and underlying earnings trend.

In addition to this, we see several important markets showing good signs of increased activity level and healthy demand for our products and solutions. We see increased sales growth and an overall positive momentum in the business, making we believe in a strong finish to 2025 in quarter 4. Next slide, please.

Our North America business continued to show stable growth also this quarter. In our largest market, U.S., we have this quarter a stable but sequentially versus last quarter, a more modest growth due to timing of customer deliveries following on a very strong quarter 2. We have a positive momentum in the U.S. business and overall high customer activity level and expect a stronger quarter 4. Canada also had a stable quarter, but sequentially versus last quarter, a more modest growth after some exceptionally good quarters. And also here, we expect sales growth to increase again in quarter 4.

Then over to Western Europe and the Rest of the World that make up the global sales region. In quarter 3, this region grew net sales organically with plus 5.7%, coming from a strong order book and high customer activity level. In Western Europe, the organic net sales growth was plus 2.1% despite the continued weak market development in U.K. Several other European countries saw good demand and strong organic net sales growth in the quarter, such as France, Germany, Italy and Spain. Our service business in Western Europe continued to develop well in the quarter as well. Our business in the rest of the world markets had an organic net sales growth of 15.9% in the quarter, with most markets performing well. Many important markets grew double digit in the quarter, where India stands out with an impressive 40% growth for the second sequential quarter, which now makes India one of the top 10 markets for Arjo. In addition, Australia, Africa, Singapore all performed well, and we enter into the last quarter of the year with overall good momentum in the Rest of the World markets. Next slide, please.

Our gross margin came in at 41.1% compared to last year, 42.0%. We continue to get support from lower material costs and price adjustment, while these improvements are offset by currency and U.S. tariff headwinds. In quarter 3, we also had negative geo and product mix impact due to relatively higher sales volumes in global sales Rest of the World region with high volume of medical beds. Excluding currency and tariffs, the gross margin would have been on par with last year despite the geo and product mix headwinds. We are, as before, working hard to mitigate the headwinds with continued long-term efficiency gains throughout the value chain, including solid focus on continued supply chain efficiencies. We will also continue to work on price adjustments as one part of the puzzle to mitigate the U.S. tariffs and other external cost increases. Next slide, please.

Adjusted EBIT in quarter 3 was in line with last year despite headwinds in gross profit due to increased sales and improved OpEx to sales ratio. The EBIT margin improved slightly. Excluding the effects of currencies and tariffs, the adjusted EBIT increased over 20%. On the OpEx side, we have been able to slow down the cost increase versus quarter 2, and our actions to mitigate cost increases are showing effect, which makes organic OpEx development now almost flat versus last year and gives us an improved OpEx to sales ratio. I'm happy to see the response from the organization with much sharper focus on cost improvements over the last quarters, and we have now set the tone going forward to manage OpEx in a good way.

We had a negative effect from revaluation of AP and AR of minus SEK 4 million in the quarter booked under other expenses. This was minus SEK 13 million in the same quarter last year. Adjusted EBITDA for the quarter was SEK 436 million versus SEK 434 million in quarter 3 last year, a result coming from higher sales and an improved OpEx to sales ratio. The adjusted EBITDA margin improved with 0.6 percentage points versus last year. Restructuring costs came in at minus SEK 13 million in the quarter related to ongoing improvements in global sales structure to improve the cost situation for the future. Next slide, please.

And here, I hand over to our CFO, Christofer Carlsson.

Thank you, Niclas. Operating cash flow improved significantly with SEK 241 million compared to the second quarter '25 and was SEK 9 million higher year-over-year, primarily due to good receivable collection, which includes the vast majority of the temporary VAT receivable from Q2. The increase in inventory is modest and in line with last year. Our supply chain inventory is declining and instead, the goods are now residing in sales units for deliveries in Q4. As a result of the decline in working capital, working capital days decreased to 82, down from 83 in the second quarter '25. Combined with lower interest costs, this led to an operating cash flow of SEK 446 million versus SEK 437 million in Q3 '24. Consequently, cash conversion was 105% compared to 102% last year.

The last quarter is typically our strongest cash flow quarter. For the full year, we expect to be in line with last year, just below our full year target of 80% for the cash conversion. For reference, cash flow from investing activities was SEK 148 million compared to SEK 190 million last year. The decrease is mainly due to SEK 38 million lower business acquisition. This year, we made a small SEK 5 million acquisition in Australia of Arden service business, while last year, we had the acquisition of GerroMed in Germany. Next slide, please.

The decrease in net debt this quarter is mainly due to the improved operating cash flow. Our financial net improved to minus SEK 41 million, an SEK 18 million improvement from Q3 2024, and it's driven by lower interest rates. Our cash position remains strong. Net debt to adjusted EBITDA improved versus Q2 this year and came in at 2.2, which is on par with Q3 '24. Our equity ratio stood at 49.5%, up from 48.7% in Q2 '25, mainly due to the profit made in the quarter.

With that, I hand it back to Niclas.

Thank you, Christofer. Let's also update you on some other business highlights during the quarter. We received the U.S. FDA approval for our fetal monitors in our diagnostics business. Furthermore, we completed 2 small supplementary acquisitions, which will strengthen our local business in Netherlands and Australia, both of which will start contributing positively already during quarter 4 this year. During the quarter, we also received the latest ESG rating from MSCI, and Arjo was upgraded to the highest possible scoring, AAA. And finally, earlier in the quarter, it was announced that Andréas Elgaard has been appointed to President and CEO starting in January. Next slide, please.

Our outlook for 2025 is that the organic net sales growth will be well within the group's target interval of 3% to 5%.

With that, I would like to summarize today's telco. We have continued healthy demand for our products and solutions with net sales growth comfortably in line with target and sequentially higher growth than the first half of the year as expected. Global sales is the growth engine in the quarter and is showing the highest sales growth in several years. Several markets are standing out positively, and we see good opportunities to continue to build on this momentum moving forward. We see clearly that our cost efficiency measures are paying off, and our focus in this area will continue moving forward. The underlying profitability continues to improve as seen in this quarter with adjusted EBIT, excluding the effects of currency and tariffs, increasing over 20%.

Our cash flow and cash conversion improved in the quarter, and our work to improve working capital is paying off. Overall, a positive quarter for us despite the current macro environment and related uncertainty, and we remain confident that we will be able to deliver a strong finish to the year in quarter 4.

So with that, we can open up for questions. Moderator, please go ahead.

[Operator Instructions]

The next question comes from Ludwig Germunder from Handelsbanken.

It's Ludwig Germunder from Handelsbanken. My first one would be on the tariff impact for the quarter. Is it possible for you to quantify a general impact that you saw from tariffs over the quarter? Is it close to the 15% rate? Or is it below the 15% rate still? And then my second question is around the development in the U.K., which we know is a weak market for you right now. Do you see any changes in the development there? Any color would be helpful.

Yes. Thank you, Ludwig. Regarding the tariffs, the way we explain the impact there is in million SEK as we did last quarter. So we are slightly above SEK 10 million negative impact in the quarter -- in quarter 3. So it's similar impact as last quarter. On the U.K. market, we are working very hard, of course, to find a way forward in the difficult market situation. And of course, we have plans in place. But with uncertainties with NSA's restructuring in the market, we think probably that we can improve from where we are, but it will continue to be a difficult market the rest of the year. I think we need to see it like that.

Okay. And then one more, if I may. You have had a positive development in your net debt to EBITDA. Do you have any plans? Or could we expect any bigger M&A going forward or anything to -- anything in different?

Yes, we have a good development there. And of course, if there are any M&As that we see are helping our business forward, we are open for that. But short term, nothing in the pipeline that we can talk about.

The next question comes from Sten Gustafsson from ABG Sundal Collier.

So a question on the U.S. market. It sounds like you're quite upbeat there and you -- I think you mentioned that you have a strong order intake and expect strong deliveries in Q4. I assume you don't want to comment on the sort of growth rate in orders you have received there. But if that could be sort of the first one. But maybe you can comment on what type of products where you see growth for Q4 in the U.S., please?

Yes. But what I can say is that we have a strong order book in U.S., materially stronger than same period last year. That's why we are upbeat. We had some, you can say, timing issues in quarter 3. We grew very, very strongly in quarter 2, more modest in quarter 3. But the order book is still there and should be delivered. And the piece of the order book that has been growing quickest is the patient handling part in U.S.

And rental, how is that in the U.S.?

It's comparable to last year. So it's no big growth in quarter 3. We are a little bit waiting and anticipating the flu season, which has not kicked in yet, but it will depend on the magnitude of the flu season, how quarter 4 plays out.

Okay. My second question would be on India. If you could comment on how much lower profitability you have there in sort of in general compared to group average on the gross margin?

Yes, exactly. So I think, generally speaking, it's not so bad in India, if we put it that way. But medical beds was one of the drivers of the sales in India this quarter. So you get a combination of geo mix and product mix in quarter 3, you can say. So that's what we're trying to say there. Otherwise, generally, we are selling our products as premium products in India. And with that comes lower than Western Europe and North America, obviously. But for being an emerging market, not bad at all.

[Operator Instructions]

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

Okay. Thank you very much for joining and listening in to our quarter 3 update, and we close the meeting by that.