Welcome to BICO Q2 presentation 2023. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. Now, I will hand the conference over to the speakers, Rolf Classon, Chairman of the Board, and CEO, Erik Gatenholm, and CFO, Jacob Thordenberg. Please go ahead.
Second quarter 2023. Here's today's agenda. Before we begin the presentation of the report, BICO Chairman of the Board, Rolf Classon, will brief you about yesterday's announcement that Maria Forss has been appointed new president and CEO of BICO. Over to you, Rolf, and the next slide, please.
Thank you, Isabelle. Good morning, everyone. My name is Rolf Classon. I am since May ninth this year, Non-Executive Chairman of BICO. Something that I'm doing with a lot of enthusiasm, and it's a privilege, actually, to have the opportunity to serve in that capacity. I have followed BICO and Erik Gatenholm for many years, I must say, I'm very impressed with what they have done and the kind of technologies and products they have been able to put together. For someone like me, who has spent my entire professional career in pharmaceutical and life science, it's really exciting and really interesting for me to once again be involved in, in something that is at the forefront in the development of drugs and pharmaceutical products. You know, I have...
Just to give you a little bit a hint of a few things I've done, I have grown up in two companies, basically, Pharmacia, and they later on in Bayer, and then retired from full-time executive roles as the CEO of the Bayer HealthCare in Leverkusen. I lived in the United States for most of the last 39 years but split my time between Sweden and the United States. Just a couple of hints of other things I've been involved in. I've been on the Board of Millipore. I've been the Chairman of Tecan. I've been the Chairman of Hill-Rom Corporation. Currently serve as vice Chairman of Fresenius Medical Care, the dialysis company, Catalent, the CDMO, and I have also been involved in Sweden, mostly with, until now, with private equity companies. I was the Chairman of Swedish Orphan, when we sold that to Biovitrum.
I was a Chairman of Aidian Diagnostics in Finland, that they sold to Nordstjernan early last year, and I'm currently on the Board of another Priveq-owned company. For me, to have the chance to be involved with BICO, having spent so much time in the life science industry, is really, really exciting. Yesterday, the Board, late in the afternoon, the Board concluded and made a decision to offer the position as President and CEO of BICO to Maria Forss, currently with the Vitrolife. This was a result of a process that started very shortly after I joined the company. About a week or 10 days after I came in as Chairman, Erik Gatenholm raised with me the question about his work situation.
He had, at that time, some, some health issues in his, immediate family, and, and I took that serious, and, and we were prepared to deal with that, whichever way that would develop. Later on, in end of May, early June, Erik and I continued this conversation, and to some extent, to my surprise, Erik raised with me the question: "Do you think, Rolf, that I am the right profile, that I have the right profile, that I'm the right CEO for BICO going forward in, in the next phase?" Erik and I had several, deep conversations, heart to heart about this. I have to tell you that I was really, really impressed with, with Erik's self-awareness, his maturity, that he raised that question.
As our single largest shareholder, he was also looking at what was most important to, to him. At the end of June, together with the Board, who fully supported Erik's thinking and, and the conversations he and I had had, we started a tentative search to see if we could, in a reasonable time, find someone who would qualify as Erik's successor. During that process, Maria Forss and other people involved, and eventually, we focused our discussions on Maria Forss. She has spent the last 11, 12 years in Vitrolife. She has done in the past, exactly the journey that is the head of BICO.
She has commercially scaled a company globally from a few hundred million to today, I think, around SEK 3 billion, where she is responsible for the single biggest business area. She has a tremendous background, experience, and track record in scaling a commercial organization. Her leadership and her leadership style is also very strong, especially in a company as decentralized as BICO is in, in many ways. Maria has, yesterday, we made the decision, Maria accepted, Erik will stay as President and CEO until Maria will join us at the latest, hopefully, November 27th. We will also provide continuity. Erik will remain in a capacity as senior advisor to Maria and the Board.
I think this is important because the company has been built on Erik's vision, and it's kind of his soul that is manifested in the company. We are very keen on maintaining that continuity. In order also to facilitate a smooth and seamless transition, we will form a temporary executive committee of the Board with myself and the two committee chairpersons, Helena Skåntorp, the Chairwoman of the Audit Committee, and Ulrika Dellby, the Chairperson of the Remuneration Committee, not in any kind in an operative setting, but as a support to management and to the leadership on a temporary basis, maybe for the next four months to five months, something, something like that. It's what we are seeing here is not unusual, in my opinion.
I have twice before been involved in situations where a founder of a company, come to the conclusion that after an initial intense phase of building the company, the day will come when the focus has to be more on the operational side and on the execution and on consolidating what we have. I think that's a transition that we are doing right now, and it's, I'm so pleased and I'm so impressed with Erik Gatenholm and the way he himself came to that conclusion. With that, I think we are moving into the next phase, and I'm very hopeful, very optimistic about what we can accomplish. Now comes this phase of really trying to maximize the commercial output, the commercial benefits of a unique and differentiated product line that we have. With that, enough from me, and I would like to hand over to you, Erik.
Thank you. Next slide, please. Thank you for the introduction, Rolf. I'm Erik Gatenholm, President and CEO for BICO. By my side, I have BICO CFO, Jacob Thordenberg. Before I start commenting on the report, I can add my view on what Rolf just said. I initiated this discussion with the Board, and as Rolf said, the timing for a new president and CEO for BICO is right. I'm grateful for the tremendous work the entire team has done over the years, building this company and getting it to the size and level as it is today. It's been an absolute honor serving our customers, investors, shareholders, Board of directors, and team members. I must also give my greatest appreciation to Rolf, our Chairman, for supporting this important transition.
In the near term, I will focus on helping with the leadership transition here at BICO. With that being said, let's focus on the report. To start off, it's pleasing that bioprinting and biosciences showed strong sales growth in the quarter, with 14% and 21% respectively, compared with corresponding quarters last year, especially given that it is a slower market at the moment. We're also delivering a stable growth margin of 71.4%, excluding effects of inventory write down of SEK 42 million. We have signed an agreement to divest the Berlin facility for EUR 21 million, which will strengthen BICO's financial position and is expected to generate a positive cash flow contribution in Q4 2023.
As announced yesterday, we have a one-off non-cash flow items affecting EBIT and EBITDA, resulting in an effect of SEK 94 million and an effect on EBIT of negative SEK 830 million in Q2. With that being said, Jacob will go into more detail on the financial performance. Next slide, please.
Next slide, please. Thank you, Erik. Before I will start with the Q2 results, I will elaborate on the one-off non-cash flow items which affect EBIT and EBITDA in the quarter. I will comment on each item so you can get a clear view and comment on the respective impact on EBIT and EBITDA, which all have been defined in the table to the right. Starting with goodwill impairment, we have in the quarter resolved a write down of goodwill in the group companies totaling SEK 768 million, after conducting a quarterly impairment test. The impairment need is predominantly related to increased WACC, driven by the higher, higher interest rate environment. We have in the quarter also revised estimates regarding valuation of group earn-out liabilities, resulting in reduced liabilities at a positive EBITDA effect of SEK 161 million.
These liabilities have been adjusted since BICO estimates that the targets, which were set at very high levels, primarily in 2021, or targets for 2023 and 2024, will not be paid off, paid out. During Q2, BICO has also reevaluated estimates relating to vesting of options in LTIP 2021 and LTIP 2022. It is no longer deemed probable that all the financial criteria will be met for the options to vest. Therefore, a reversal of previously recognized costs has been booked in Q2, resulting in a positive EBITDA effect of SEK 28 million. Regarding Ginolis, and as communicated in our Q1 report, Ginolis has been rightsized to a minimum level, and in connection to this rightsizing, writedowns have been resolved related to intangible assets, the property in Oulu, inventory, contract assets, and valuation adjustments of other assets.
The write-downs of SEK 102 million are related to remaining intangible assets in Ginolis, due to the limited cash flow generating capacity and as a result of the further scale down. The building in Oulu, Finland, has been valued by a third party, and this has resulted in a write-down of SEK 54 million to reflect a prudent market valuation of the building. We have also identified an estimated obsolescence need in inventory of SEK 15 million, where the inventory has been evaluated and BICO has concluded that the likelihood of new orders for these specific inventories is deemed as low. BICO has also resolved the need for a write-down of SEK 28 million in two larger customer projects, including contract assets. The projects have been reevaluated, where one has been concluded as confirmed bad debt , and one has been renegotiated due to changed customer needs.
BICO has, through an internal review, also concluded a need for a valuation adjustment of other assets amounting to SEK 25 million. A review of the valuation is currently ongoing, and BICO will, by the latest, in conjunction with the release of the year-end result 2023, communicate any additional financial effect connected to this, if any. In connection to our inventory management work, and in order to have a prudent approach, we have also resolved a writedown in inventory of SEK 27 million in other group companies. This will have a negative impact on the gross margin for the second quarter. The gross margin for Q2 amounted to 63.7%. However, excluded for the writedowns, the gross margin was 71.4%, which is in line with previous quarters.
In total, these non-cash flow one-off items impact the Q2 2023 EBIT with negative SEK 830 million, generates a positive effect on the Q2 EBITDA of SEK 94 million. Next slide, please. Thank you. Given all, given the one-offs in the quarter, I will, on this slide, go through the impact on the P&L and explain what BICO's underlying EBITDA was when excluding the one-offs in the quarter. We have, in the adjacent table, also listed all items affecting comparability in Q2, including non-cash flow items on the previous slide, as well as items affecting cash flow. Starting with reported EBITDA, it amounted to SEK 66 million in Q2. However, this was largely driven by the revised earn-out estimates that I mentioned on the previous slide, resulting in a positive EBITDA effect of SEK 161 million.
Second item on the list, cost income related to option programs, amounting to negative SEK 28.4 million, relates to the IFRS 2 revaluation connected to the LTIP programs. Third and fourth item in the table relates to the one-off provision of bad debt of SEK 27.7 million in Ginolis contract assets, and the valuation adjustment of other assets of SEK 25.1 million. Fifth item on the list relates to extraordinary inventory writedowns of SEK 41.7 million, related to the inventory writedown in Ginolis of SEK 15 million, and SEK 27 million in group companies related to the ongoing inventory management work.
The three final items in the table, restructuring costs related to personnel changes, is related to cost associated with additional cost saving programs, extraordinary governmental support, and acquisition-related costs and bonuses. These are affecting cash flow, but of one-off nature. Summarizing this, of the non-cash and cash flow affecting items, adjusted EBITDA for the second quarter amounted to negative SEK 11.5 million. Next slide, please. Going into the results for the quarter, I will on this slide give you an update on our key financials in the second quarter. Net sales amounted to SEK 541.1 million, compared to SEK 537.6 in the second quarter last year, which corresponds to a total increase of 0.7%.
Compared to industry peers, it's pleasing to see that BICO shows stable group sales development, giving a slow global life science market. The business area's sales development follows the same pattern in Q2 as in Q1, with bioprinting and biosciences showing healthy growth numbers, despite temporary soft demand in the industry of 14% and 21% respectively. Bioautomation sales levels are, however, far below expectations, due to the ongoing pandemic normalization across the life science industry. Organic sales growth for the quarter amounted to 0.5% and 8.3%, excluding COVID-19 related sales in Ginolis, where the latter can also be stable compared to industry peers. Adjusted EBITDA in the quarter amounted to negative 11.5 million SEK, as just mentioned, compared to 11.1 million SEK in Q2 2022.
This is impacted by the one-off items being described on my previous slide. Business areas Bioprinting and Biosciences showed a positive adjusted EBITDA for the quarter. This was offset at group level by negative adjustment EBITDA for the business area Bioautomation. Reported EBITDA in the quarter amounted to SEK 66 million, compared to negative SEK 62.9 million in Q2 2022. Our focus on transformation towards increased profitability continues. Vicore has, during the quarter, implemented further cost-saving actions, as well as initiated an extensive review of our operating model. The gross margin in the quarter amounted to 63.7%, as previously mentioned, compared to 73% in the second quarter last year. As mentioned, this can be explained by the write down in inventory of SEK 42 million.
Excluding the write-downs, the gross margin for the quarter amounted to 71% in line with previous quarters. Net loss for the quarter amounted to minus SEK 898.4 million , driven by the one-offs in the quarter. Next slide, please. A few comments on the development in Ginolis. As been mentioned in the Q1 earnings call, Ginolis has been right-sized to a minimum cost and organizational level, with the ability to still accept new orders and honor current service obligations to customers. Excluding Ginolis, organic growth in the quarter would have amounted to 8.9%, decreasing total group organic growth by 7.8 percentage points. Adjusted EBITDA for the quarter, excluding Ginolis, would have amounted to positive 11.8 million SEK, decreasing the EBITDA margin by 4.3 percentage points.
If we move on to the next slide, I will comment on the cash flow in the quarter. Before I start commenting on the cash flow and working capital, I would like to reiterate that both improving cash flow and working capital will continuously be a priority for the group. In the quarter, cash flow from operating activities amounted to negative SEK 48 million, driven by the underlying performance of the business. This includes a positive effect from release of net working capital of SEK 46 million. Of this, operating receivables contributed with SEK 65 million, driven by good collection in the quarter, explained by the important net working capital improvements started in 2022. Inventories increased by SEK 80 million. As previously mentioned, we consider inventory levels still to be elevated, and we are actively addressing this within the group.
Cash flow from changes in operating liabilities amounted to negative SEK 1 million. Investments in tangible CapEx amounted to SEK 61 million in the quarter, of which investments into our facility in Oulu and Berlin comprised SEK 35 million. The remaining investment schedule for these buildings are estimated to SEK 20 million. Investments in product development amounted to SEK 27 million. We had earn out payments that amounted to SEK 27 million in the quarter, and after the revision made in the quarter, remaining earn out liabilities amount to SEK 104 million. Total cash flow during Q2 amounted to negative SEK 167 million, decreasing total cash reserves to SEK 691 million per June 30th.
Despite the increase, decrease in cash reserves, significantly impacted by the investment, investment into the buildings, Vicore cash balance remains strong and will be further to strengthen with approximately SEK 245 million in Q4, when the divestment of the building in Berlin is expected to close. Next slide, please. This is a slide that was introduced in Q3 last year. I will follow up on actions being addressed in order to strengthen profitability and cash flow. The cost-saving program of SEK 100 million has been completed, and BICO has, during Q2, implemented further cost-saving actions, as well as initiated an extensive review of our operating model.
Working capital management, as well as reducing the group's inventory levels, continues to be a priority for the group. BICO has made an extensive overview of inventory levels, which has resulted in a write-down in inventory of SEK 42 million. We saw a positive development in operating liability, operating receivables, as mentioned in the previous slide. Some of the European companies have continued with factoring to a limited extent, around SEK 15 million in Q2. While factoring remains an option, it only had a minor effect on the working capital in the quarter. As mentioned, the group's inventory is still at elevated levels, which are being addressed by action plans of all over the group, focusing on improved inventory management guidance. As mentioned on the previous slide, we have divested the building in Berlin, Germany.
For Oulu, Finland, we actively seek to lease out the facility, and we are also evaluating the opportunity to divest. With that, I leave the word back to Erik to comment on the performance of business area in Q2.
Thank you, Jacob. Next slide, please. Next slide, please. For Q2, the bioprinting business area reported net sales of SEK 175.8 million, representing 32.5% of the total Group sales. The organic growth in the segment was 13.8%, and the adjusted EBITDA was SEK 26.4 million, corresponding to a margin of 15%. The business area delivered strong sales both in the quarter and the first 6 months of 2023. Profitability improved substantially as a result, both from increased sales and efficient cost control. We continue to see steady demand worldwide for our core bioprinting business with our flagship BIO X and Quantum X platforms. It's very exciting to see the demand for these 3D printing platforms.
The field of 3D cell culturing and tissue engineering continue to be strong drivers for our bioprinting products, where customers are developing new types of tissue models for drug discovery applications and where the academic customer segment is showing continued strong demand. We're also excited to continue to expand our bioprinting portfolio with the latest launched light-based printer, the LUMEN X 3.0, with added resolution and being more adapted to microfluidic printing applications. Next slide, please. Moving on to Biosciences, where the business area's net sales amount to SEK 256.9 million, representing 47.5% of the total group sales. The organic growth was 20.9%, and the adjusted EBITDA was SEK 6.7 million and corresponding to a margin of 2.6%.
The business area sales were strong in Q2, though boosted by some currency tailwind effects. For the 6 months period, improvement is less but still shows positive organic growth. The improved profitability during Q2 and H1 was mainly a result of cost control in general and effects from the 2022 cost savings program. While we continue to see a solid demand for our laboratory automation products from the pharmaceutical customer segment, the biotech customer segment is still experiencing slowdowns due to lack of funding and slower financial markets. Small and pre-revenue biotech companies are mainly dependent on external investors for capital to further develop their new treatments and products. This slowdown in capital injections has ripple effects on the buying behavior of many of our biotech customers.
The pharmaceutical segment, on the other hand, is showing continued healthy demand for laboratory automation and sample preparation systems. Next slide, please. Our third business area, Bioautomation, reported net sales of SEK 108.5 million, representing 20% of the total group sales. The organic growth for the quarter was -36.7%, and adjusted EBITDA amounted to SEK -26.1 million, corresponding to a margin of -24.1%. The heavy decline in COVID-19 related sales is still a challenge for the business area, with very slow sales in Ginolis. The market has also been challenging for the entire business area, resulting in decline in sales for the quarter compared to last year. Negative development in sales has resulted in further cost savings programs implemented in Q2, with expected cost savings effect from Q3 and onwards.
What we are seeing is a slowdown in normalization of the pandemic, where diagnostic companies, who make up the majority of the customers within the area, are taking longer time to place orders and have reduced spendings for the time being. When excluding Ginolis, the business area reported adjusted EBITDA of negative SEK 2.8 million, corresponding to a margin of negative 2.7%. Before the Q&A, I will give you a brief outlook. Next slide, please. This can be summarized in two main themes for BICO. We will continue to focus on our transformation towards profitability and activities to strengthen our financial position, where implementation of the customer-centric operating model will be key. This is something we're working with in the management for the time being, and something Maria will be leading when she steps in.
The second one is worth repeating from previous quarter, and it's working proactively with cost control and networking capital improvements in all business areas to further strengthen our balance sheet. I want to end this call thanking the entire BICO team around the world for your hard work. With that, we would like to welcome any questions and comments that you may have.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Ulrik Trattner from Carnegie. Please go ahead.
Thank you so much. A few questions on, on my end, and, and good morning to you all. Perhaps if Mr. Classon is, is still on the line, it would be interesting to hear from a Board of Directors view, if this should be interpreted that you, you feel regard BICO to be heading in the right direction, and the transition here of, of CEO is just entering a new phase of, of the developments and perhaps maturing the company a little bit faster?
Thank you for the question. I'm happy to do that. I, I feel very strongly that BICO is heading in, in the right direction. I feel strongly that we have unbelievable assets in our technologies and our product lines. We, we have a very fresh product line. Most of our sales come from products that have been launched in the last three, maybe four years. We have a whole host of new products coming out in the next 24 months. We have, we have everything, Ulrik, we need to be successful. The thing that we need to do better and more and more efficient is to get the full commercial potential out of this. Many or most of our entities are relatively small.
They have come up because they are very good on technology and develop product, and the commercial matureness, or maturity, isn't as great as it could be or should be in many of them. That's where someone with Maria's background can help us to accelerate that. Then you will see that not only are we moving in the right direction, we are doing it with some speed and with some, some good outcomes. I know that we have work ahead of us, and that's why we are here, but I'm very optimistic about the way ahead, Ulrik. Thank you for the question.
Great. Thank you very much for your answer, perhaps some questions for Erik and Jacob. Starting off with market outlook for each segment. Quite surprisingly, very strong development for bioprinting and Biosciences. On the flip side, looks like really weak underlying development, as well as on your side, for the segments addressing diagnostics. Could you just highlight, I know you touched upon this, but the market fundamentals here and the underlying market, what makes you perform so well in bioprinting and Biosciences? As well as how is the market looking for the diagnostics, and is there anything in the near future that can make us a little bit more optimistic about that segment?
Very good question, Ulrik. I, I can gladly share some more insight and perhaps elaborate a little bit on your on your points. Let's start with bioprinting. It's a healthy and fast-growing market. I believe that, and as Rolf mentioned already, the freshness and the portfolio of products that we have really gives us a leading position to continue to expand in all markets, North America, Europe, and APAC. I believe the bioprinting business area is performing very well, and we hope to see both the academic and pharmaceutical customer segment continue strongly over the coming years, of course. Looking at biosciences, similar signs, also fast-growing markets, driven by the demand for laboratory automation and sample preparation technologies. Same thing here.
We have a very fresh product line, along with new products coming out in the next 24 months. This will, of course, continue to deliver good growth and profitability as we head into the near future. Looking at the bioautomation segment, of course, as you mentioned yourself, it is in a trickier spot since it's catering to the diagnostics industry. The diagnostics industry has had challenges after the pandemic normalization. There was a strong boost and a strong market that was buying a lot of instruments, reagents, and technologies for COVID research and COVID diagnostics. That is being normalized. With that being said, the diagnostics industry segment is also a very healthy and a strong industry to be in.
If you look historically, it's typically also a very stable one. We believe that this industry will come back, and it's a wise industry to continue to perform within.
Great, follow-up question on, on the segments. bioprinting have emerged in the last 2 quarters as vast, sort of, profit driver here, or sort of the major profit driver of BICO. Is, I'm guessing here, biosciences based on sort of margins when acquired products that goes into biosciences, they held a lot higher margins compared to bioprinting, at least on an EBITDA level. Is bioprinting the most profitable segment, even medium term on your end, or is biosciences sort of the structure of the products that are in biosciences? Does that have the same opportunity to expand its margins that we have seen in bioprinting?
Thank you, Ulrik, Jake, where I will try to answer that question. No, we see, we see the same margin potential in both business areas. The strong margin development in Bioprinting is very much driven by the underlying market demand, and also the cost-saving initiatives launched in 2022, where we cut costs in Bioprinting, is now showing effect.
Just giving that, it's obviously very important, which sort of segment of the market you're addressing. If you can give us an update on the split between the revenue split between customer groups, the pharma, academia, the diagnostics, and the other segment, that would have been very helpful.
Yeah, I, I won't be, we won't be able to give you a, a split on the customer segments i-in this call, Ulrik.
Okay, fine. Then on to Ginolis, an obvious question, what is left of Ginolis right now? Is Ginolis to be considered cleaned out of the balance sheet, as well as what triggered this additional writedown? Because the first writedown you did of Ginolis was related to weak COVID-related demand. Just trying to figure out here what's triggered the second writedown and what's left.
Yeah, that's a good question, Ulrik. As we mentioned in the Q1 call and also in the Q4 call, we have right-sized Ginolis now, to a minimum cost base in order to serve current service contracts and also take on new orders. The company has been significantly scaled down. With that, and with sort of a weaker outlook than when we acquired the company, that results in consequences in our balance sheet. We have taken a prudent approach in Ginolis. Back to your question, yes, Ginolis is now from a balance sheet perspective, cleaned out. What mainly remains in Ginolis now is inventory balances and the remaining balances related to the facility.
Okay, great. On the, the gross margin, you mentioned it was affected in the quarter, by, by this, well, mainly Ginolis, but was there other segments beyond Ginolis and extension than Bioautomation, that was hit by, by this writedown in the quarter?
Yes, part of the writedowns is in Bioautomation. It's also back to the same comment that I had in the call. It's due to we have concluded that some of the inventories will not be able to sell within the near future, and hence we have taken a prudent approach and done an extraordinary writedown of inventories, also related then to the ongoing inventory management work that we are working actively on.
Okay, great. That would be my last question, because it looks like you're getting receivables under control now. You have used a little bit of factoring here in Q2, but doesn't look that much. You talked about, and you mentioned in the report, this elevated inventory levels and ongoing actions being made to take the, the inventory level down. Can you perhaps give us some more information on what's, more concretely, what is being done in order to reduce inventory levels? That would be very helpful.
Yeah, sure, Ulrik. It's a good question. As you know, Marino Külz joined us as COO in beginning of January. Since he joined, he has been re-reviewing the entire supply chain within the group, with focus on, on improving inventory management work and work with inventory in another fashion, where, where you, where you actively pursue a lower inventory level, and actively review the processes of your inventory levels, which has not been done to the same extent previously.
Okay, great. That was all question on, on my end. Thank you, and I'll get back into the queue.
Thank you.
The next question comes from Rickard Anderkrans from Handelsbanken. Please go ahead.
Hi there. Good morning, and thank you for taking my questions as well. First one, many companies have raised their WACC assumption in conjunction with the annual report, just like you did at BICO. But you decided to do it again now, which triggered the impairment of goodwill. Are other assumptions like growth and profitability in the impairment test unchanged since you highlight WACC as the key driver behind the impairment?
Yeah. No, as you say, as you said, Rickard, I mean, interest rates in the world have gone up quite rapidly within the last quarters, which called for an increase also in the BICO WACC. In connection to this impairment test, we have made a slight revision of our assumptions for 2023 and 2024, but that has a minor impact on the goodwill impairment. The predominant impact from the impairment is related to increased interest rates, which causes an increase in our WACC or weighted average cost of capital.
Perfect. Helpful. You also almost made a 60% cut to the earn out liabilities. Can you talk about the growth expectations you had then and the growth expectations you're forecasting now for, for the earn out?
It's a very good question, Rickard. The earn-out targets set in 2021 was also quite successfully set because there was at very, very high levels, higher levels than we actually anticipated at the time of the acquisitions. This is rather a consequence of these targets being very high set in 2021, and now in retrospect, in 2023, we see that the targets have... will not be met, hence we have adjusted the liabilities for these earn-outs.
All right. double-digit growth or?
Our assumptions for these businesses remains unchanged. It's rather that we see that we won't meet the earn-out targets that have been set at much higher levels.
Okay. All right. And can you... You also mentioned in, in the report and also ahead of the numbers that, you're working on an enhanced commercial strategy and operating model. Can you elaborate a bit more what you're doing concretely, to, to execute on, on that update?
Yeah, sure, Rickard. Maybe I can start, Erik, and then you can fill in. As you know, if you have followed BICO for a while, we have launched cost-saving initiatives in 2022, and we have also launched additional initiatives now in Q2 2023. That has been based on a individual company by company basis. This review of our operating model is really focused on finding more synergies, cost synergies between the companies, and to some extent, try to eliminate some dual factors. Maria will, of course, be involved in this work when she joins. It's partially focused on cost-saving initiatives, but then also focused on increasing our commercial abilities that Rolf also mentioned in the beginnng of the call.
Summarize as well. Okay, thank you.
All right, and final one. You mentioned that you're targeting to lower sort of CapEx, OpEx levels towards industry standard levels. Is that sort of a 60%-70% CapEx to sales and 30% OpEx to sales, or how should we think about the, the relative levels of your benchmarking against here?
Yeah, I wouldn't call it CapEx, Rickard. I would call it the capitalized R&D. It's not tangible CapEx, but it's intangible CapEx. I think the levels you referred to are in line with what we see.
All right. How quickly do you think you can achieve this? Is it within, you know, a 3-year period, or, or what's the ambition internally?
I won't comment on the ambition, Rickard, but of course, the ambition is very high. I mean, as Rolf began the call with, we see a significant commercial abilities, and now Maria will join and accelerate that work, but I won't be able to come into the exact timing of these potential effects.
All right. Fair enough. Thank you for taking my questions.
Thank you, Rickard.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Once again, thank you so much for taking the time today. We appreciate it. Have a good day.
Thank you.