Good morning, everyone, and welcome to the AddLife's third quarter conference call. Presenting today will be Christina Rubehagen , CFO, and myself, Fredrik Dalborg, the CEO since September first. Let's get started with the presentation, where we go through some of the highlights, the quarter and the first nine months of the year, and then we'll open up for questions after that. The third quarter was really a growth in a changing market. We saw a growth of 14% in the business, which is pretty strong. We did see, of course, a significant and expected growth in the COVID sales. But as expected and planned, this was compensated by acquired growth. Looking at the organic growth, it was 2% for the quarter.
On the Medtech side, we saw that the organic growth and margins were a little bit lower than expected, primarily driven by low surgery activity during the summer months. We'll get into more of that details later on. The COVID sales dropped by about 50% compared to the same quarter last year, but slightly up actually compared to the previous quarter, the second quarter of 2022. Here we see a little bit differences in the different countries. In some parts of Southern Europe, we saw a surge of COVID during the summer, and in some countries, we see a continued high level of testing going on. It's fair to say that in most parts of Europe, we see testing going on primarily just before surgery or for healthcare professionals.
Taking a little bit closer look at the sales and EBITA for the third quarter. As I mentioned earlier, the growth was 14% and organic at 2%. Of course, representing the significant part of growth was the acquired growth of 16%. We also saw a positive currency effect in the quarter. It's important to note here that we saw an effect of a reversal of a contingent consideration of SEK 85 million. That has had a big effect, a positive effect on the profitability. That we have to take into account. Looking at the quarter, the growth was 15%. Here we can really see a strong effect of the strategy that the company has applied.
That is, foreseeing the impact or the negative impact of reduced COVID sales, compensating that by acquisitions. As you can see in the graph, this approach has worked both in terms of sales, so more than compensating for the drop in COVID-related sales by acquisitions and the same thing on the EBITA level. Moving into the Labtech business area, indeed, the growth from COVID was -48%, but very positive organic growth was 5%. One small acquisition was completed. The COVID testing primarily now is done by PCR, and that's primarily used for hospital staff and patients before surgery. Right now, the team is working quite hard to make use of this installed base of instruments that can also be used for other types of tests, for example, influenza.
Looking on the more traditional types of testing, such as blood gas, pathology, microbiology, the business there is quite stable. On the research and laboratory side, we saw a strong development there for research and drug discovery, and that's something we expect to continue going forward. The team is quite active in launching new products and growing in areas such as next-generation sequencing, cell therapy, bioprocessing, and cancer immunology. We also entered into new agreements for distribution of sepsis products. Quite a lot of interesting activities going on there. Moving on to Medtech. Again, acquisition-driven growth there. While we saw the organic was flat in the total of the quarter, that it was mainly driven by a little bit slower number of surgical procedures happening all over Europe.
In particular, in the Southern part of Europe, we saw that during the summer months, there was some reoccurrence of COVID, and so that probably slowed down surgeries as well. Of course, it's important to note that all over Europe, the recovery addressing this long waiting list of patients that do need surgery is happening, but it is slower than expected. This is largely due to the fact that many of the healthcare systems across Europe are really facing challenges in terms of staffing. Nurses and doctors have to some extent left the hospital world. We see that recovery is happening, but it will take time. It will be happening over not months, but years, probably.
That was one factor that slowed down a little bit expected growth for us in that area. We also saw some supplier challenges, meaning that some suppliers were not able to deliver to us the way we had expected. There was also a bit of a turnover in suppliers, where we're replacing older products with new ones from current and future suppliers. Looking at the margins, it was of course impacted by the SEK 85 million contingent consideration. If we adjust for that, the EBITA margin was 7.5%, obviously lower than we had expected. Looking at the health services in general, the elective surgeries were a bit slow.
It's positive to see that during the later part of the quarter in September, we saw an increase in the number of surgeries started. That was also evident in the order intake. A bit of a weakness during the summer months, but as we approached the end of the quarter, it did improve. On the home care side, we see a strong interest in our unique complete solution for home care. This is something that's really addressing an important need in society as the population gets older, and we see a significant potential for cost savings in the society here. For one of our products, Camanio Care, we have signed contracts with six municipalities in Sweden and started activities in four of those.
We expect to invest continuously in this platform to further develop it, but it's important to note that it is indeed in a commercial phase right now. On the organic growth side, it's important to note that it was flat during the quarter as such, but again, towards the end of the quarter, it did improve. Talking about the home care portfolio that we have, this is something quite unique. I think we all realize the fact that the population is getting older and more and more people do need support in their daily living. For the society, this is of course a challenge to manage this increased number of patients. And for the patient themselves, it's much preferable to be able to stay at home for a longer period of time.
Of course, with retaining the quality of life and safety. Many companies are active in this field, but I do think that AddLife has a unique approach to this. We are active in a number of hardware products in the home adaption and mobility area, where we provide different products to adjust and adapt bathrooms and kitchens, for example, for new needs of elderly people and also mobility. In addition to that, we have alarm systems and sensors provided by many of our portfolio companies. Finally, the Camanio additional offering in digital solutions.
All of these three, we can tie together in a nice package allowing for the societies and the individuals to indeed actually live home for longer, with a reduced need for hospital and home care. The Camanio product fits very nicely into this overall portfolio, which does set us apart. In addition to this, we are also quite used to dealing with the somewhat complex buying patterns in this area, consisting of both private persons, municipalities, and regions. I also wanna take a look at our acquisition approach during the past two years and clarify some of the things around that. Here you see a slide showing the most recent acquisitions across Europe. As you can see, it's a mix of Medtech acquisitions as well as Labtech.
We made a few acquisitions on the Labtech side that includes Bio-Connect Group, for example, building a position for us in the Benelux area with advanced research and biomedical products. The JK Lab acquisition was a nice example of an add-on to our current portfolio, and the BioCat as well, research and biomedical products. Looking on the Medtech side, the Healthcare 21 acquisition that many of you are quite familiar with was a major one, but indeed a platform acquisition allowing us to be able to do interesting add-ons. O'Flynn is a nice example of that. With the Healthcare 21, we broadened our portfolio quite a bit, got access into new countries, and open up a new platform for smaller add-on acquisitions.
The same thing is true for MBA, which is a company with quite advanced surgery products, giving us a strong foothold in southern part of Europe, and also a platform to build on for future acquisitions. We talked about Camanio and Telehealth Monitoring really strengthening our portfolio on the home care side with a we would say market-leading digital offering. Fischer Medical, a smaller company in Denmark, but also in advanced surgery and allowing us an opportunity to build a Nordic business in this very interesting segment and with based on a very high service provision. Finally, AddVision, also a relatively large acquisition for us, providing a strong platform in Central Europe. This also in advanced surgery, but here in the eye surgery, ophthalmology area.
That wraps up a little bit of a background on this, on the acquisitions, on the strategic rationale. The main message here is with those acquisitions, we have a very interesting future ahead of us here in the ability to add to these, new platforms with more acquisitions. With this, I hand over to Christina to talk a little bit about some of the financials.
We have two long-term financial goals. One is profit growth measured as EBITDA, and the target is 15% year-over-year. Currently, we are at 3% with reference to the very profitable quarters where we benefited from COVID sales. The other goal is profitability measured as profit over working cap with a target of 45%, where we are currently at 69%. Summarizing the quarter in figures, we had sales growth of 40% at a gross margin that was at the same level as previous year. The increase in overhead expenses relates to the acquisitions that we have done. Looking at EBITDA, that has been impacted by the investment in digital solutions that Fredrik talked about. If you compare that to previous year, this is an impact. The EBITDA margin, excluding the reversal of the contingent consideration, was 9.7%.
Going down further down in the profit and loss, we have interest expenses amounting to SEK 22 million, approx half of the financial net compared to 17 previous year. Cash flow from operating activities was very weak in the quarter, mainly relating to buildup of inventories. We have during the quarter had disturbances in the supply chain, meaning that we have increased inventory to be able to ensure deliveries to customers. Also, we had delayed deliveries at the end of the quarter that reached our inventories. The debt level is somewhat high right now, and we are actively working to lower that one. That is the ambition. Looking at the covenants in the bank agreements, we have two of them, interest coverage ratio and equity ratio, and we have good headrooms on both of them.
During the year, we have increased the bank facilities relating to the acquisitions, and during the quarter we have renegotiated bank facilities, approx half of them, from current bank facilities to a three-year loan with an option to extend that for additional 24 months. With that, I hand over to you again, Fredrik.
Thank you very much. Okay, to sum up, we are seeing a solid and growing underlying market demand in the areas where we are active. In those areas, in the selected niches or segments that we have chosen, our market position is quite strong. Looking at the organic growth in Medtech as well as the margin, it was indeed lower than expected, as we mentioned earlier, due to lower surgery activity during the summer months and some supply challenges relating to changes in our supplier base. These have been identified and we are working to improve them. We are also, of course, working to improve the cash flow in the future quarters.
The teams are actively working on price increases because of course in an inflation market we see that happening. This is really a strength of the companies in our group. They're very active always on price management, working with negotiations, updating prices, and also working on the product mix and the mix including additional services. This has historically been a strength of ours and of course with a strong service and support that we provide, we do have a good negotiation position in that sense. Our ambition is of course to reduce debt, and in parallel to that, we are working quite proactively to develop our acquisition pipeline for future growth.
We do see in this current market environment a lot of opportunities for value-creating acquisition, and that's based on the fact that AddLife is now a much bigger company with a strong presence, not only in the Nordics but all over Europe. With the recent platform acquisitions, we have many more options to choose from. That combined with the fact that we do see valuations in potential acquisitions targets coming down, we see a lot of opportunities for value-creating acquisitions going forward. That's a bit of a summary of the AddLife third quarter. Now we open up for questions.
Hope you hear me well. Regarding the covenants, are they soft or hard? What would happen if you break one of the covenants? I know that there's a lot of space now, but what if?
If so, we will have a discussion with a bank to see what will happen. Like you said, there are lots of headrooms right now.
Okay. Yeah. On the Labtech division, the COVID related sales, I expected quite less COVID related sales, but it was higher than expected. How should we think about the COVID related sales going forward in the coming quarters as well? Are they sustainable levels at SEK 150 million or what should-
That's a little bit hard to predict. Yeah, they were indeed significantly lower than the quarter, the similar quarter last year, but compared to Q2, they were indeed higher. It's a little bit hard to estimate, but we do think that they will remain at a relatively low level going forward. It is indeed really hard to say. It will be impacted by if there are new flare-ups of the pandemic in some countries. We also see there are differences in how these things are approached. Some countries continue to do a significant amount of testing. It's a bit hard to predict, to be frank.
Okay, super. Thank you. I will get back in line with that. Thank you.
Yeah. Thank you. Thank you, Eileen. Maybe Carl, if you want to raise a question.
Yes. Good morning.
Mm.
I have a couple of questions.
Yes.
I have a question regarding just the Net Debt/EBITDA ratio here, because it seems to me that you have included the reverse contingent consideration in the rolling twelve months EBITDA. I'm just wondering if excluding this, is it correct that we get to a Net Debt/EBITDA of around 3.7-3.8 on a rolling twelve months? Is that approximately correct?
That sounds correct, yes.
Yes. Just to check there, then maybe I have a question on the Medtech side. I think that's what stands out in this quarter here, and what people are interested in. Maybe if you can say anything regarding the Medtech activity. What are you seeing in September and also maybe in October? Are you expecting to see positive organic growth in Q4? Yeah, start with that, and then we'll go into margins later on.
Yeah. No, thanks, Carl. I think indeed, Medtech was weaker than expected. As we did mention, we saw primarily in Southern Europe less activity than expected in terms of surgery. We did see an increase in COVID in that period and in that geography. So that slowed things down. We also see that healthcare systems are kind of recovering from COVID. A lot of strain, a lot of extra work for the staff, meaning that they were not able to immediately take on this huge backlog or waiting lists in terms of surgery that we all see. So this recovery hasn't been as quick as we had thought.
We do see it happening, though, and it will happen over time, but it will take longer than expected. It will be an effect of many months and probably years before this entire backlog will be addressed. Of course, it varies by country, but we can see across Europe there is this staffing shortage that is happening, meaning that immediately addressing it will not be possible, but it will take time. Answering your question there, the first two months of the quarter were quite slow on that end, but as we came into September, indeed, the situation did improve. We saw organic growth in September, and we saw also improvement in order intake.
We think that the situation will improve in Q4 in Medtech.
Okay. Sounds clear. Looking on the margins then, I think that was also a bit weaker than I had anticipated. Is it possible to give some flavor on what is driving this? I mean, a lot of Medtech companies have seen margin pressure now during the last couple of quarters. Maybe, yes, I mean, it's the fair assumption that your acquisition of AddVision is not really performing according to plan, given that you reversed this consideration as well.
We did reverse the contingent consideration. I would say, though, that consideration was based on quite high targets that were set up during the process. Those high and quite ambitious targets were set up also not taking into full account the impact that COVID would have on elective surgeries. That needs to be stated. We are not performing as well as we were hoping in that part of the business. We know pretty well what needs to change. Some of it is external. You know, we do expect the number of surgeries to increase, but also there were some challenges on the supplier side.
Some suppliers were not able to deliver as expected due to internal problems, really be it MDR, IVDR or internal quality problems and so on. As usual in our business, there was a change in some of the manufacturers, suppliers, and we are replacing those products with new products from either the current suppliers we already have or new products. Those were really the main items that made both revenues and profitability to be a little bit weaker in that particular area than we were hoping.
Okay. Just a question there on the supply side, because it's also next question relating to the inventories. Is that demand driven that you're seeing that, you know? Or has there been, like, shortages, or do you understand the question? Like, is it that you haven't been able to deliver due to supply, or is it demand that has been weak, or what?
It's a combination. The demand is weak due to the fact that surgeries have been postponed.
Yeah.
During summer months due to resource constraints in the hospitals. Some of our suppliers were not able to deliver, so that also had a clear impact both on sales and profitability. The profitability issue that we have in that area is largely driven by volumes and issues with some of the suppliers.
Okay. On the cash flow, are you expecting that to reverse or be better in the upcoming quarter, or are you seeing continued inventory buildup?
Well, we will be addressing it clearly, and we think it will improve in the coming months. I mean, maybe it requires a little bit of explanation. What has happened here is that we have seen for some time during the quarter and earlier than that also disruptions in the supply chain, right? Many of the deliveries that we were expecting were delayed. Then towards the end of the quarter, some of these disruptions seem to have eased. A lot of shipments were completed. Many weeks of shipments arrived towards the you know in the end of the third quarter.
That means indeed we filled up the warehouses, but that's a good thing in certain ways because we were able then to meet many of the orders that were on, kind of in waiting mode. But on the negative side, we weren't able to ship all of that volume during the third quarter, so we continue to work on that. That's clearly a big factor here. There is one other factor, and that's since we have seen for quite some time, disruptions in deliveries and an increased level of uncertainty and unpredictability in how the products come to our warehouses, we have built a little bit of inventory to be able to retain a good service level for our customers.
That's in certain ways what they've become accustomed to expect of us. That's also a factor that now should ease given that we see an improvement in the predictability of deliveries into our warehouse. We do think that that should improve.
Great.
We should see an effect on that during Q4.
Okay. Sounds like better volumes in Q4 than in the Medtech side. That's great. Just the last one from my side, and that's a little bit more big picture regarding inflation, higher salaries, et cetera, which we're seeing. I mean, a lot of Medtech companies seem to be under some heavy pressure right now with inability to raise prices, et cetera. I'm just curious regarding how you think going into next year, what one should have for kind of margin expectations. Because I think historically the former CEO has been talking about maybe EBITDA margins of around 13% or so. Would just be interesting to hear your thoughts on how one should think on the margin side next year.
Well, you are raising an important and good point here. I mean, we do see, we are in an inflation environment. Obviously, we do see suppliers increasing prices, so that is happening. That's also partly a negotiation topic, but it is happening. On our end, what we are doing to tackle that is of course to talk to our customers and talk about pricing increases and so on. We are in the situation that we have many long-term contracts, which is a good thing. It's a stability in the business, but it means that we will have to renegotiate prices with our customers in a good way. We see that there is an openness for that.
You know, sometimes of course, a long-term agreement is a long-term agreement, but we feel that we are oftentimes able to have a fruitful and good discussion with customers about that particular issue. Of course, price increases are not only coming from us, it's coming from all suppliers. Given the fact that we are a company with a strong customer relationship and providing valuable service, we do think we can have that dialogue. It will be something that we will be working on very diligently, and it's happening already, of course. That's something we have to keep in mind.
I will also say that our company has a strong history of working quite actively with pricing, not only with list prices that we update oftentimes more than once a year, but also with working with product mix, working with service provision, and so on. That's important going forward. We think we can manage this, but of course, it's not without effort, and we don't give profitability outlook. But what we have mentioned that once the dust settles from the COVID situation we should be roughly in the range that you're mentioning.
Okay. Because I guess just looking on the margins, I think Labtech, of course, will be down next year, or that seems reasonable to me at least, given a very strong Q1 results here. Depends on COVID, of course. Medtech, are you seeing a pressure, continued pressure there also into next year? Or do you think it's more like volume related to Q3?
Well, I think the drop here is more volume related and related to these certain situations with suppliers that I mentioned. We do think that we will improve profitability in Medtech, absolutely. You're correct, of course.
Yeah
that the high COVID margins in Labtech, that's not sustainable. It's important to note that even if we sell a little bit of COVID products still in this year and maybe a little bit going forward as well, some of that may be a little bit lower margin than.
Yeah
At the peak.
Yeah
of the COVID.
that is due to lower, let's say, what do you say? You don't get a lot of volume leverage, I guess, or the same volume leverage as when you sell SEK 500 million a quarter as a SEK 150.
Yeah. There is that. We don't get the volume leverage in the same way. Of course, our business is volume sensitive in that way. Also some of the COVID sales more recently may not have been at the same profitability level.
Okay. Yeah, I think that was all for me. Thank you for taking the questions.
Yeah. Thanks, Carl. We have Charles. You wanted to ask some questions as well.
Hello. Yes. Thanks for taking the questions. A few topics to cover, please. First of all, on acquisitions. You mentioned valuations are coming down. What's the reason for that? Are they just becoming a bit more sensible or a bit more stressed themselves, perhaps by COVID and the impact on volumes? With pricing coming down, has the competitiveness increased from other potential acquirers? In fact, has the volume of potential opportunities changed as well?
We do think that over time, the pricing expectations should be coming down given the market expectation. We see some of that already, but you know, that's a trend we do expect to see going forward. I think in general, the activity has been you know somewhat reduced in terms of we're not being approached as frequently by sellers. But our strategy is of course to work quite proactively in this area. We have a great network. We always had a great network, but now the network is even bigger with platforms all across Europe. As we're working through our prioritization and strategy for the coming years, we can be much clearer in which segments we wanna expand and grow.
From that sense, we can be more proactive as well in finding attractive business opportunities. In short, we do think we do see some of it, but we do think going forward, valuations will come down a little bit. We don't see the stress perhaps that you mentioned, but we do think that valuations will come down. Activity in terms of how many companies are approaching us has been a little bit reduced, but with that we can compensate our own more proactive approach going forward. I hope that's nice, Charles. Yeah.
It is. Yeah, just in terms of that, the strategy on the Medtech side in particular, you mentioned that quite a few of the smaller bolt-on deals were in advanced surgeries of different sorts.
Yeah.
Is that part of that strategy that you mentioned? Can you give us a sense of what multiples are being sort of required to pay for to win those sorts of deals?
You're correct. You know, advanced surgery is an area that we like for many reasons. It's a good niche and good segment for us that we combine you know, a great selection of products with a strong, really strong, service and support offering as well. That gives you know, a unique value. This is something that the companies that we have acquired recently are really strong in and something we wanna build on going forward. I think it's you know, talking about multiples, it's a little bit hard to give a generic statement on that. I mean, historically, we've paid around 7x EBITDA on acquisitions, on like an historical average. If looking at the bigger companies that the multiples have been higher.
If indeed we find a nice add-on acquisitions to support strategies, for example, in advanced surgery, as you mentioned we're thinking that it will be smaller company and more close to our traditional multiples that we have been paying.
Just finishing off this acquisition topic. In terms of your balance sheet, do you think you still have balance sheet flexibility to continue to pursue these bolt-ons?
We do think we have that, for sure. As mentioned, we want to reduce the debt first. We feel no rush to you know to close deals you know in the coming months like that. You know, maybe something smaller will happen, but we have no rush in that sense. We prefer to pay down debt a little bit more. Maybe something smaller happens in the coming months, but we don't see a huge uptake in activity this year for sure.
Okay, thank you. Just two small ones to finish, please. In terms of COVID's effect on demand, do you think that over time healthcare systems are becoming more resilient to COVID waves, and therefore there should be a little bit less volatility going forward? Or should we just assume that further waves will equate to lower volumes?
I think they are. Obviously, I think we're close to the end of this pandemic, it seems, but who knows what's going to happen in that area. I think the pandemic and other factors did indeed result in you know, a staffing shortage in the healthcare system. That seems to be consistent as we talk to companies, our companies across Europe. But that means also that they need to focus more on that to sort out the staffing situation. We see that the number of surgeries are increasing again after the summer. That's what we expect. It won't be a huge effect to quickly just handle the waiting lines. That won't happen.
It will be a more gradual effort to kind of piece by piece reducing that backlog. Of course, for us as a company, we need to try and help the healthcare systems in any way we can to make that more efficient, be it service provision or more automated products or other ways to increase the productivity in the healthcare system.
Okay. My last one, please. You mentioned on the supply side, one of the reasons why there was difficulty in sourcing from some suppliers was to do with MDR.
Yeah.
Is that a major reason? Is that across lots of different suppliers? Is it in any particular sort of therapeutic area or product type? Just a bit more color on that would be interesting, please.
Yeah. Well, I think it's not a huge thing. It happened to a few suppliers of ours that they are facing some challenges in that area. Of course, as you probably know, it's a big shift for companies in this space. There is a race now to complete everything that is required for those approvals to be put in place. This is something we are watching closely in the coming months and quarters here to make sure we handle well. Not a big thing at this point, but it may, you know. It will probably impact more suppliers going forward.
Thank you very much.
All right. Thank you, Charles. I think we have Anna here as well raising her hand.
Yes. Hello, it's Anna from Handelsbanken. I have a few questions. You touched upon the margins quite a bit, but if we maybe could look into the details of the gross margin. For example, it's stable year over year, but it's down a bit sequentially. Could you maybe just give us some explanations and maybe your expectations going forward in the more shorter term?
Do you mean gross margin on the group level or on-
Exactly.
Yeah. Yeah. I think I'll give a short answer. Maybe Kristina can fill in as well. I think over time we are seeing a reduced volume from COVID related sales, and that's a big one because the margins in that space used to be quite favorable. It varies also by country and over time. I think we do have some COVID sales still, but that is probably at a slightly lower margin than some of the really big deals earlier. That is one effect for sure.
Of course in the Medtech business area where we've seen some shifts in the products that may also have had a gross margin impact because some of the products that we saw a reduction in volumes or a shift towards other products that also had a little bit negative impact on gross margin. Maybe you want to fill in something there, Kristina.
Product mix has quite an impact like Fredrik is saying. I think that's how it's.
All right. Anything in addition to that, Anna?
Yeah. Maybe expectations going forward. Do you think the product mix is gonna continue then to maybe be less favorable from the current levels, or do you think you're gonna be quite stable or?
In the longer term, if you look further back, of course, that COVID impact will not change. You know, it should gradually decrease the number of the volumes of COVID sales. And probably the COVID sales we still have won't be as profitable as during the peak of the pandemic. That effect is probably there. Otherwise, I think we can't really estimate exactly how that's going to develop. It will be a product mix question. It will be a question about of course, price increases from suppliers, our increases, and that we can use in relation to our customers and improved increased prices there. Those are some of the moving parts.
Okay. Thank you. My last question is basically on, mainly looking at Labtech. I mean, for this quarter, you were able to deliver additional COVID sales, in comparison to the last quarter. If we're continuing to see the volumes going down within the COVID related ones, is there any cost savings to be made? I mean, do you have a cost base currently that is set up to handle these sort of sales, or how should we think about the cost aspects of the margins going forward?
Yeah, that's a great question. I think we're quite proud of how the companies have been able to handle the pretty significant surge in volumes from COVID. I will say that has been handled very much within the framework of the organizations as they stand. Meaning we haven't added a lot of people to handle that increased volume. It's been great work by the teams to handle that with the current company profile that they have. There's not a lot of extra capacity for COVID, if you will. Of course, that's been a huge workload and reasonably at the expense of other activities.
In that sense, we're quite happy about a number of new businesses that are being added in the Labtech side, a lot of new distribution agreements that we have signed for new and exciting products like we mentioned earlier on. We mentioned some growing areas in the Next-Generation Sequencing, cell processing and so on, but also in the area of sepsis. We're seeing that the companies can now perhaps work on addition of other products and to increase the volume again. We have proven quite tangibly that we can handle higher volumes in our current structures. That would be a focus now to indeed grow the volumes based on the current profiles of the companies.
One thing to maybe add is, of course after many months of COVID restrictions, we haven't been able to travel to meet customers or and so on, and we haven't been able to attend all the conferences. Those conferences have been canceled. Now that type of customer interaction and commercial activities are resuming, so that may give a little bit extra cost in the organizations. Apart from that, our focus now will be to increase volume. We have proven that we can increase volume without significant cost increases.
That's very clear. Thank you.
Thank you for a good and insightful question and for attending this conference call. Of course, if you have follow-up questions, you're free to contact Christina or myself on the phone or email. We'll try to answer your questions as well as we can. In summary, we're pleased to see that we are growing nicely as a company. Our strategy of replacing COVID sales that is in decline with new and acquired growth in Medtech, that is working. We see a strong underlying demand. We see it growing because of increased need for elective surgeries and an increased capacity for that over time. There is indeed a strong underlying demand here, and we have a good stability in that sense.
We are a bit disappointed with the margin development, and that will be an important area of focus, and those are already active initiatives to sort that out. The cash flow was not as good as we were expecting, and that's largely due to the warehouse buildup, which is a positive thing over time because we are now able to deliver in a better way to customers. In this quarter, we did tie up too much capital in warehouses and so on. That will be an area of focus going forward. Debt reduction is a key factor combined with our growth ambition to continue organic growth as well as acquired growth going forward.
That, I think, sums up this call. Again, thank you for your time and interest and for good questions. We will be open to further questions offline if you want to call or email. Thank you very much and have a good day.
Thank you.
Thank you. Bye.
Thank you.