Good morning, everyone, and a warm welcome to the Ad Life second quarter report. Kristina and I will take you through the highlights of the report. And after that, we will have a Q and A session, as always. And as you may remember, we like to show you a little bit of a summary of some of our companies. So this time around, we are we have recorded the video with MBA, our Spanish and Portuguese company that are fantastic in orthopedic surgery and now expanding into other fields of advanced surgery and hospital products.
But let's get started now with the numbers. So I'm really pleased to share with you all that the Ad Life companies continue to deliver on the priorities that we have set out. And the number one priority, as you may remember, is to improve margins and profit. So we saw a significant margin improvement in both business areas actually, both Labtech and Medtech achieving a level above 12% EBITA margin, so and that's a significant increase for both business areas. We saw a healthy customer demand, and the currency adjusted sales increased by 5%.
Organic growth was 3%. And really pleased to note that we see a meaningful impact of the acquisitions we have made recently, so acquisitions contributed with 2%. In Labtech, we had a very strong revenue development at 9%, excluding currency effects. In Medtech, we had a little bit of fewer operating days, a little bit of change in product portfolio and some reduced capital sales, but nevertheless, 4% increase excluding currency effects. So very healthy development there as well.
We are working with a number of profitability improvement initiatives in a few companies. That is progressing well, but we also see that there is more potential in the future. And of course, cash flow and net debt is a key topic for us. We are now at €3,100,000,000 slightly above the ambition that we have set out of 3,000,000,000 or below. Cash flow was healthy in the quarter.
And if you look at the full year or the year to date effect, it's a very strong growth in cash flow. But we also did pay dividend. We paid for the Edge Medical acquisition. We paid out an earn out, and we saw some strong currency effects as well. But we remain committed to staying at three point zero or below. So with that, I hand over to Kristina.
So thank you, Fredrik. Our companies delivered solid growth in the quarter if we summarize organic and acquired growth adjusted for currency. So looking at revenue, the organic and acquired growth summarized to 5% and EBITDA growth was 10%. In the currency, we have had exchange rate effects. And in the revenue, it was negative 4% and in EBITDA it was negative 5%.
Looking at the profit and loss. We had sales growth including currency effects of 1%. The acquired growth was 2% and the organic growth was 3%. Labtech organic growth was 6%, while Medtech organic growth was 2%. And Fredrik will give more details on the different business areas later on.
The gross margin improved from 38 to 39%. This is a combination of price increases, but also a favorable product mix. This means that we have added advanced high margin products as well as pruned the product portfolio for non profitable products. If we look at total OpEx, the increase was three percent. Being a company with acquisition as part of the business model, that means that acquisition cost is included in the OpEx.
And this quarter, we have acquisition costs of CHF 8,000,000 related to Edge. Also, of course, in OpEx, we include acquired companies' OpEx. So if we divide the OpEx from the acquired companies as well as acquisition costs, OpEx was pretty much flat, thanks to good cost control in the companies. And with that said, that also means that the contribution from EDGE in the quarter was set off by the acquisition cost. So the positive contribution will be seen from next quarter going forward.
EBITDA margin was 11.9% compared to 11.4 in the corresponding quarter last year. Interest rate has come down, meaning that interest cost is lower compared to last year. Profit before tax was 29% growth. Lower interest cost also has an impact on the tax rate, depending on the rules on deduction of interest cost. So profit after tax increased with 39%.
The EBITA margin is clearly in a positive development. And the EBITA margin in this quarter was 12.4% for both Labtech and Medtech Labtech increasing from 11.6% last year and Medtech from 11.9 If we look at the year to date EBITDA margin, that was 12.3% compared to 11.5% last year. Accumulating operating cash flow improved with 25 compared to last year. If we look at the quarter, it was slightly lower compared to last year and that is due to reduction of accounts payable and increase of accounts receivables. Inventory remains flat despite revenue growth in the quarter.
And if we look at the ratio, inventory compared to sales, last year it was 17% throughout the year, while this year it's gone down to 16%. Cash conversion is stable at a high level, about 19%. And inventory reduction and working capital efficiency is a continued focus area. The negative working capital is, as I said, a result of lower accounts payable but increased accounts receivables, and that is due to sales high sales in the latter part of the quarter. In the quarter, we have paid for the Edge acquisition as well as earn out for previous acquisitions and we have also paid dividend.
The total sum of the acquisition for Edge, earn out payments and dividends is million, those has been financed by using of Catch and also increased utilization of the credit facilities. Net debt has also increased with earn outs related to hedge and exchange headwinds. And with the majority of the loans in euro, the negative impact from FX was million in the quarter. When we summarize the net debt, we include bank loans, leasing liabilities, contingent consideration, pension liabilities, provisions and then we deduct cash. If we look at the financial net debt, that would summarize to 4,200,000,000.0 compared to the GBP 4,900,000,000.0 as total net debt.
EBITDA last twelve months has increased Interest rates has come down, and in this quarter, it was 4.2%, with the recent interest liabilities. Net debt has also increased with earn outs related to hedge and exchange headwinds. And with the majority of the loans in euro, the negative impact from FX was CHF 115,000,000 in the quarter. When we summarize the net debt, we include bank loans, leasing liabilities, contingent consideration, pension liabilities, provisions and then we deduct cash. If we look at the financial net debt, that would summarize to billion compared to the CHF4.9 billion as total net debt.
EBITDA last twelve months has increased, but with the increase in net debt in the quarter, the ratio net debt to EBITDA increased to 3.1 from the 2.8 last quarter. The ambition remains to be at or below three. Net debt to equity of 0.9 is below the internal guidance of one point zero. And as said previous, debt is to be reduced via self generated cash flow. Interest rates has come down, and in this quarter it was 4.2.
With the recent interest cuts from ECB, we expect interest costs to be lower in Q3. We have two covenants, and we have good headroom to both of them. One is interest coverage ratio that was 6.8 in the quarter, should be above four and then equity ratio that was four:one in the quarter, and that should be above 25. And with that, I hand over to Fredrik again.
Thank you, Kristina, for a great summary. Now we move into the business area, starting with Labtech. So Labtech had a very strong quarter, growing at 9%, excluding currency effects. And really pleased to note also that we could see an acquired growth of 3%. The EBITA margin improved significantly to 12.4%, a solid improvement over 11.6% that we saw last year.
The demand in Diagnostics is, as always, stable but growing very nicely in this quarter. And multiple companies have had tremendous success with tenders, both new ones where we take over business from competition and others where we get a renewed confidence to continue for multiyear contracts and oftentimes with renegotiated terms that leads to improved margins. Demand in pharma remains quite high and high activity there, so that's great. And we see some hesitation, as we've spoken about before, in the academic research investment, but that's mostly on the capital side. Reagents and consumables are continuing to be frequently bought and used.
So all good there. The companies within Labtech are really renowned for their strong service provision, and that's a key differentiator in helping us to win the confidence of customers, but also helps us to launch new products and take over product portfolios from competitors and suppliers. So a great quarter for Labtech. Moving into Medtech, also had a good quarter. The growth was 4%, and really pleased to note that the acquisitions are actually able to add a meaningful 2% to the mix.
The EBITA margin improved to 12.4 as well compared to 11.9% in the previous quarter, and that is adjusted for contingent considerations as well. So overall, a very healthy development in demand for the business area. But we saw a little bit slowness in revenues in The UK. And as you know, UK is one of our most important markets. That is, with all likelihood, driven by uncertainty about the government budgets.
And we have also seen some of our industry peers speaking about the same issues. And that has led to a little bit slowness on capital spend. However, we are confident that there is a strong will to invest in the health care system in The UK. So with all likelihood, this will improve going forward. We also saw a little bit of weakness in some areas as we shift the product portfolio towards more advanced and high margin products.
That can, in the short term, lead to reductions in revenue and a little bit of inventory buildup as well. But over time, this is one of the key factors to drive growth and higher margins over time. So back in 2022, we set the following priorities for the group: number one, to protect and improve profit number two, to drive organic growth number three, to improve cash flow. And when we are delivering on those, get back into acquisition mode again. And now I'm really pleased to note that all the companies are performing really well and are delivering on these priorities.
So that means that we are gradually getting ready for a more active acquisition agenda. And a great example of this acquisition strategy is, of course, the acquisition of Edge Medical, which we completed early in the second quarter this year. Edge Medical is a leading distributor of advanced products in orthopedic surgery, but also spine and neurology, and they are active in UK and Ireland. It's a fast growing company, revenues of around GBP 8,000,000 with really high margins. And this acquisition is perfectly in line with the strategy that we have laid out.
We do want to grow in orthopedic surgery. And a good thing about this acquisition is also that we have a lot of competence in orthopedic surgery within the AdLife Group, and other companies will be able to contribute with products and services to help Edge Medical grow faster going forward. So a warm welcome again to the Edge Medical team. And of course, we are keeping a close eye on the developments in the world and in the world trade in particular. So in this time of trade disruptions, we can conclude that Ad Life is well positioned.
We have more than 90% of our revenues in Europe and actually more than 80% of our suppliers also in Europe. North American products represent around 9% and Asian products, 7%. And out of that, only 4% are products from China. This may be important also when we now have seen new regulation when it comes to tenders in Europe that restricts Chinese products. On top of this, we have a limited exposure to changes in the business cycle due to our focus on the health care and hospital and diagnostics market.
And of course, last but not least, our decentralized business model. This makes us able to act quickly and adapt to changes, and we have proven that previously, for example, during the pandemic. Of course, we remain focused on analyzing these things to prevent any negative impact. We are analyzing our subcontractors and component exposures. We are paying attention to academic research investment.
We can sometimes slow down a little bit in times of uncertainty. And we are continuously evolving our product portfolio to further reduce reliance on suppliers that are more at risk. But overall, a great position that we are in, very little exposure to potential trade disruptions. So to summarize the quarter, we are really pleased to note that we see significant margin improvement in both business areas, and on top of that, a quite healthy revenue growth. The work to continuously evolve our product portfolio continues, and we are moving towards more and more profitable advanced products.
We have been able to strengthen our balance sheet. And with that comes the ability to increase the acquisition activity. And in the quarter, we have worked a lot on various changes and updates to the organization so that we are ready for an increased organic and acquired growth going forward. And of course, finally, the acquisition of Edge Medical is a fantastic addition to the Ad Life family, and we are also pleased to note that acquisitions are really meaningfully contributing to growth in this quarter. We have completed the presentation of the Ad Life second quarter, and we are opening up for questions.
Please stay tuned after the Q and A session as well because we do have a fantastic video describing the MBA business coming up right after the Q and A. Alright. Hello, everyone. So I hope you got a good overview of the quarter here and during the presentation. And now we are ready for, whatever questions you may have.
So I think we have we see some raised hands here already. That's great. Maybe we start with, Ulrik. Are you ready? Remember to unmute.
Yes. Good morning. Hi, Christian.
Good morning.
Few questions on on my end.
Sorry if I did not catch you there, Christina. Would you call the the 8,000,000 in acquisition related cost to to sort of fully match the EBITDA contribution from Edge Medical in the quarter?
Yes. Pretty much. Yes. So that's true. So so since we include acquisitions cost in the quarter when we do acquisitions, that is pretty much setting off the EBITDA contribution from Edge.
And so that will be seen, the positive one, from next quarter going forward.
Okay. So this is a considerably EBITDA margin accretive acquisition to the group based on
Yes.
Great. And second question relates kinda to to the cash flow and the operational cash flow that we did see in the quarter. Is there any risk that the change in product mix that you have done have affected your cash conversion? I you're into more advanced products. Are there sort of prolonged payment cycles where account receivables are expected to become a bit more elevated versus historically, or is it just an unchanged situation?
Well, I think it's a it's a good question. I think that we we have been watching that carefully. There is a risk that we build a little bit of inventory when we take on new products, especially advanced type of products. And so we've seen a little bit of that, but improvement efforts in other areas have actually been able to offset that because you could see that there's no real increase in the in the in the inventory over the quarter. So, yes, there is a risk, but I think that has been handled by efficiency in other areas.
When it comes to payment terms, we're pretty we're pretty, you know, strong in in those negotiations generally. So I think, that risk is is certainly being handled. Something I'd to add to that?
No. I'm sorry.
Definitely on the question on payment terms towards customer, I don't see a change in those going forward with advanced products. No.
No. K. Great. And MedTech performed pretty decent despite some negative calendar effect. But is it possible on your end to quantify what impact the power outage had in in Spain and Portugal?
Well, I wouldn't say it's dramatic, but it's it's probably two two days of planned surgery, so in in Portugal and Spain. So for for MBA, that is, you know, you know, considerable. Sure.
Great. And and last question on my end. You have, for the last few course, talked about wrong tender activity and and award rates in in lab tech. Is it just that the tender activity itself have increased and and you are going along with it, or or are you continuing to take market share? And is it across the board, across all areas, lab tech, or is it specifically within laboratory equipment, diagnostic equipment?
Any specific sort of avenue here, or or where where are
you taking more? Yeah. I think, there's been a slowdown, of course, with tenders and a lot of tenders being prolonged during COVID and and and in in the period after that. It's maybe picking up a little bit, but still fairly slow. The the staffing shortage is is still affecting not only care provision, but also the actual awarding of tenders.
So so we we we see that delay still in in The Nordics, in in The in UK and Ireland and and many parts of of of Europe. So so there's still a bit of slow slow movement there, but it has picked up a little bit. And, we have been renewing tenders, you know you know, continuing to deliver on the confidence that we have with with the customers, but we have one of few, new ones for sure. And and I think that is in know, you blood gas is one example. Digital pathology is is another.
So so we we tend to to not only, you know, continue and get a new long term contract with with with higher prices normally, but we also tend to to win, more and then gain market share.
Perfect. Thank you very much, and and I'll get back into the queue.
Alright. Thank you. Thanks. Alright. And then we have, Gustav, right?
Are you ready for us? Please don't forget to unmute.
Yes. Hello. Can you hear me?
Yes, we can. Yes.
Perfect. I thought maybe just to start off with accounts receivable here. You comment that you see a strong sort of end to the quarter. I guess this is just related to, and correct me if I'm wrong, Easter, and then you had the power outage, etcetera. You are not really saying that you're seeing a dramatic shift in end market demand? Or it's just business getting back to usual?
Well, that's a that's a great question. Not a I would say, yeah, you're right. Not a drastic shift in in in the demand, but but a a healthy development in in Europe. Sure. So that so that's good.
Yeah. Okay. That's great. But if connect this to sort of your comments on hesitancy, capital items and also sort of uncertainty of of the future budgets in The UK, I guess, When we look at the numbers from, for example, UK, still looks quite healthy. But is it something that has become sort of incrementally worse when you drop those comments or in the report?
No. It's not it's not getting worse. I think, capital spend has been noticeably, you know, subdued, I think it's fair to say, The UK. And I think that's something that that we read about and we hear from other other industry act players as well. So so that's that's clear.
Consumable sales is is healthy and and and strong. So but I think it's all natural given the the level of uncertainty what's gonna happen with the budgets in in in The UK. But as we've said in the past, I think there is it's it's clear that there will be increased spending in UK. There is a strongly communicated effort to improve health care system and adjust and so on. So I think, as we've said in the past, this should lead to improvements in the second half of the year.
And I think we we stick to that that idea that it should it should improve.
Perfect. And then just the the last one here on the med tech margin. If we look on a year over year basis, would you would you say that sort of the step up here is due to AdVision? Or would you say that AdVision is rather relatively flat and it's more driven by other factors such as Kamanu, etcetera? Or how should we look at the upside in potential in AdVision still in the case?
Well, I think AdVision has improved quite a bit, but it's not it's not a drastic uptick in this quarter. It's just a little bit of steady improvement. And and what we have said also, there's a lot of potential still. We're still not, you know, where we want it to be and where we think we can realistically get that business too. So some work to to do, but upside potential for sure.
So I think, in general, there's a very healthy development across the board in in in the in MedTech. We we're seeing many of the smaller companies are showing fantastic margins, you know, at really, really impressive levels. The larger companies, I think it's fair to say all of them have improved, from the time that they were acquired and and and a gradual increase in in margins. It's just happening quarter by quarter. So so impressive performance across the board, really.
We can do better in in addition. We can do better in home care and so on. But, overall, a very healthy business and trending in the in the right direction.
And then also, of course, this quarter, we do have the impact from Camano that will remain for next quarter as well.
Yeah.
Okay. That's very clear. Thank you very much, and have a great summer.
Yeah. Thank you. Thank you, Tristan, and same to you. Alright. So then I think we have Matthias here. Right? Yes. Are you ready?
Yeah.
Now you're on mute.
So much, for taking my question. I have two, please. So following up on the situation in The U. K, so could you help us understand any insight to the timing of demand situation for capital equipment improving? I guess, Q3 is a holiday quarter.
So is it fair to assume an improvement is more likely for a calendar Q4 to set fair expectations? Or is it rather to think about calendar Q1, which is their final budget quarter for the budget year, so to say? Or how should we think about that timing? I know it's early in the quarter, but any thoughts on that would be helpful. And then secondly, in light of the gearing of 3.1x and your ambition to stay below or around 3.0x, can you talk about the magnitude of that appetite for M and A?
You talked about normalization into 2026 and and perhaps also talk about the funnel of prospects, how excited you are on what's, on the list, so to say. Thanks so much.
Yeah. Thank you. So so what to expect in The UK? I I think, that's a great question. It it's a little bit difficult to, to say that with high level of certainty, but our expectation is is, like you said, you know, it's a little bit of a summer quarter in q three normally.
Something may happen. Q four should be should be, you know, more normalizing capital spend levels. That's certainly to be expected. And and I I think you're right. Q one should also be a a good one.
It normally is in in that market. Right? So I think after summer, we it's we can, we can expect an increase. And and clearly, as we well know, the the government in UK have been super vocal about their ambition to improve health care. And they're talking about a lot of the things that we that we drive as well in digital solutions, AI, robotics, near patient diagnostics and care.
And a lot of these things play play very well to what we are able to offer. So so I think it's a serious effort, and and it's something that we are well positioned to handle. So so so that's the question number one. Question number two was around the acquisition. So, yes, you're right.
We the debt level increased a little bit this this quarter as expected mostly, I would say. We did we did pay an increased dividend. We did make the acquisition of Edge Medical, which we're very happy with. We also paid out contingent consideration, so, you know, confirming that some of our earlier acquisitions are performing really well. So and then on top of that, there was a currency effect, which is a little bit harder to predict.
And and if that currency effect hadn't happened, we've we've at three three point zero. So so so we're not, we're not concerned about that. And the acquisition agenda is is is solid. We have a nice pipeline, I would say. I think we have a lot of really interesting acquisition opportunities that we're looking at for the second half of this year.
We are a bit picky. We we we also stop processes if we don't think that the the quality of the business is where we need it to be or the price tag is is reasonable. So we are selective, but I feel very good about the many of the leads that we have and that we're working on and have been working on for quite some time. So so I think we we will be driving acquisitions for second half of the year and and at a higher pace in in next year. I hope that was an, you know, a good answer to your question.
Absolutely. Thanks so much.
Thank you. Thank you. So let's see if we have more questions. Nothing right now that I can see. Yeah.
Okay then. Well, thanks everyone for for calling in and for asking good questions. I hope you will have a fantastic summer. But but before you disconnect, stay home for a few more minutes to see a great video about MBA, our Spanish and Portuguese company. They are really strong in orthopedics as we talked about, but they are really on the forefront of new technologies as well as you will see in this video.
So thank you very much, and have a wonderful summer.
Thank