Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Vitrolife interim report January to June 2019 conference call. At this time, all participants are in listen-only mode. There will be a presentation followed by a question-and-answer session. At which time, if you wish to ask a question, you will need to press star one on your telephone keypad and wait for your name to be announced. I must advise that this conference is being recorded today, Friday, 12 July 2019. I would now like to hand the conference over to the CEO today, Thomas Axelsson. You can go ahead.
Thank you very much. Today we will do the interim report January to June 2019, and we will focus on the second quarter. The speakers of today will be Mikael Engblom, the CFO of the company, and myself, Thomas Axelsson, the CEO. With that, please go to page number two, and we will go through the presentation. A quick summary on quarter two. It was a fourth quarter with high growth and good profitability. In the figures, we can mention that higher sales of SEK 381 million, which is an increase of 34%. If you see the local currency growth there, it was 29%, and out of that, it was 18% in organic growth. Our EBITDA for the period was SEK 146 million, and that is a margin of 38%.
For the summary also, I would like to mention that is two acquisitions done, an acquisition of the artificial intelligence system for embryo assessment, and also an acquisition of a company in U.K., Parallabs Ltd. Please go into page three there, and we will go into more details regarding the quarter. Page three is about sales and growth and market region. As mentioned before, I'm only going to talk about local currency and also regarding organic growth. As mentioned, it was a good quarter. All regions, all four regions, had good growth. All product areas within the regions had growth. We were able to secure some good orders that we've been working with for a while. Also within the quarter, we can see that our attention, our ambition to build more about sales and marketing strength in some of the regions are paying off.
Let's start from the left with North and South America. I'm very pleased with the development that we have had in North and South America for the last couple of quarters. The increase this quarter with the 65% is a combination of double-digit growth for all areas, but of course, also due to the acquisition and the starting of distribution within the Genomics has pushed the numbers up to 65%. I would like to mention that one of the things that we have had a struggle about in earlier years, mentioned in Q4 2018, Q1 2019, and also in this quarter, that interest for Time-lapse is for sure being larger from the customers, and it's also been turning into sales.
The growth in North and South America is a combination of good growth in all product area, more acceptance for time-lapse, and also, of course, the distribution of the Genomics side. If you will go into the EMEA region, the sales there was SEK 151 million. It is a local growth of 15%. The growth there is a combination of growth within, as I said, all product areas in all regions there, but also on the disposable devices in Genomics. For those two areas that I just mentioned, in those two areas, we are dealing with distribution rights for the Illumina products for this artificial reproduction technology field for IVF clinics. The two regions where we don't have those rights are the region Asia and Japan Pacific.
Both of their, let's say growth numbers, 38% in Asia and 19% in Japan Pacific is coming from only organic growth. We as a company are very pleased with those numbers. The growth, 38% in Asia, is mainly coming from time-lapse. I would like to mention there that we got the EmbryoScope+ approved a couple of quarters ago, and we have said that it takes time to get the products out in the market due to budget process and that kind of circumstances, as you know, when you're dealing with hardware. We are very pleased that we have got EmbryoScope+ right now moving and some larger clinics has placed orders, and we are looking forward to this market.
For the Japanese and Pacific markets, as mentioned, it is 19% growth, and the sales are SEK 52 million, and everything is done in our traditional product areas, nothing of the Genomics. If you are going from the sales in different territories and looking into the business units, what we are doing there, what we have performed, please go to page number four. Let's start from the top, the Genomics. Genomics, we have been only dealing with them for two quarters. For the first half year, we have sold for SEK 54 million. Out of this quarter, SEK 33 million. What I'd like to mention there is that taking over something and building up a new structure, new competence, and also partly dealing with a new customer segment within this field, it's been a couple of challenges.
Those challenges, I do feel that we have done quite good, and we are now ready for a continuous growth and also for some development activities. The structure are now in place. It is the sales and distribution structure. It is the development and also a support structure. By that, we go into the ART equipment, our smallest area, where we have changed the business, and we are continuing changing the business and only focusing on our own products, no distribution of other products and also production. I mean, production and sales of the high-margin products, where we have some kind of uniqueness. The growth was 24%, and the sales of SEK 15 million is mostly related to what we are calling the laser systems. Time-lapse. Time-lapse is a combination of hardware and also disposables for using inside our time-lapse equipment and also partly service and software.
The time-lapse units had a growth of 56%, and the sales were SEK 109 million. In this quarter, the difference that's seen in the number is more hardware sales. I would like to mention here is that the hardware sales can fluctuate between the quarters, and I'm just saying that to be a bit conscious regarding the growth of 56%. We are looking forward to also more sales within the Time-lapse units. I'm going to explain that later on some new products. Disposable devices. All product areas within disposable devices are showing growth. This growth is of 11%, and in absolute numbers, it's SEK 47 million. If you go to media, it's a mixed picture, and I am very pleased with the 4% growth, even if it's a bit lower than last quarter.
What has happened is that during this quarter, some of the media growth that is only, it's good to say only, is 4%, is due to it has been negatively impacted by some delivery problems. Those delivery problems are only for a few unique products for the Chinese market. You are well aware of, the Chinese registration process and regulatory process means that to be able to have good growth and legally approve the right products for the Chinese market, we are doing products only for the Chinese market. Currently, we've had some supply issues based on a raw material situation. Our projection is that that will be sold during Q3. By that, please go to page number five.
Within this quarterly report, Mikael will later on explain that and also show figures that we are doing investments, and those investments can be clearly shown in the increase in our marketing and sales cost, also in increase in absolute numbers in regulatory. Why have we talked about that for a couple of quarters, and why are we continuing talking about we are doing investments in future growth? We are doing it because we want to continue to have growth within the company. Let's look upon a couple of things that has happened this quarter. I would like to first mention our acquisition that we did from Virtus Health and Harrison.ai, and that is a technology for being able to use deep learning artificial intelligence for embryo assessment.
We will continue then to have a collaboration with those two partners, and that's very important for continuing with the regulatory path or continuing with doing clinical studies, setting up an RCT. We are internally, of course, also working with the integration and development of further improved artificial intelligence system. All of that is for increasing outcome at the same time and easiness of use. Another investment area mentioned is the Genomics. We have got the organization in place, and development is still starting in this field. It is for being able to have our own products, our own chemicals, means our own kits that will be run on Illumina machines.
When that development is ready and approved for sales from our side, we will then get the opportunity to also do the sales in Asia Pacific, where we currently are not doing. Parallabs, a very small acquisition that we are mentioning, even if it is only on SEK 24 million , but it is a typical thing that we are going forward and trying to do our best for our customers and be stronger from a customer and market presence. We have bought [Distiguru] that has a great network in U.K. and Ireland. Why I mention this? Because clinic chains are growing and they are also growing over the borders. Due to that, we need to follow the clinic chains on a non-domestic approach.
If we then look on page number five and the right side, I would like to then go to sales and marketing and also a situation where product development has reached an end and we are introducing products. At the ESHRE conference, which is the world's largest fertility congress that was at the end of June, we shown a couple of new products, and I would like to mention three of them. First is EmbryoScope Flex. It's a typical example of our ambition to grow and have different product options for the different customer needs. So EmbryoScope Flex is made so you can have 24 patients with six embryos. So you can see there's a difference here in this product, and it is based upon the need to have a larger capacity for clinics that are running mild stimulation.
That's, for instance, taking place in Japan more and more and in some of the markets where you have larger or let's say, huge clinics. So it's a specific niche product for mild stimulation, larger clinics. The other launch, the pre-launch, is we are expanding and we are using our competence within the incubator field. So we are launching something that we have named CulturePro, which is an incubator with a superior embryo culture environment. The reason for introducing this is that it is in high capacity incubator with a good opportunity for the customers to use an eWitness system traceability and also that it is economical-wise for the clinics due to low gas consumptions. To give you a hint about the size and how you can use it, you can use it for 15 culture dishes, which means for 15 patients.
Also a short one regarding the differentiation of our media. There is a growing demand from the end users, from the patients regarding the kind of treatment that they would like to have. And in some countries, the patients are coming in and discussing with the clinics, and they are asking for specific-oriented therapies and services from the clinics. By that, we are introducing this specific patient pack for the EmbryoGlue. By that, I would like to hand over to Mikael, and please then go to page number six.
Thank you. Some short comments on the financials during the second quarter. We had a positive currency effect in the EBITDA result of SEK 7 million, primarily coming from the euro and the U.S. dollar strengthening against the Swedish krona compared to the same quarter last year. We had about one percentage point improvement in EBITDA margin as a result of the introduction of IFRS 16. That is the leasing costs such as rental agreement being recorded outside the EBITDA metric. Looking at the gross margin, it was 64% in the second quarter compared to 66% in the same quarter last year. The decline is primarily due to that Genomics business unit has a lower margin than the average of the group. The EBITDA result was SEK 146 million compared to SEK 116 million last year. It is an increase of 26%.
The increase stems from increased sales together with the currency effect that I mentioned earlier. EBITDA margin was 38% compared to 41% last year, and the decline is primarily due to the Genomics having a lower margin than average of the group, together with investments in marketing and sales as Thomas mentioned earlier. The net debt in relation to EBITDA was -0.8, we have a net cash position, even if it is a little bit lower than the same period last year.
During this quarter, we have had the cash flow being impacted by both paying dividends of about SEK 92 million, and we have done the two acquisitions that Thomas mentioned earlier of the AI technology of SEK 56 million and the Parallabs of SEK 24 million. With that, please turn to page number seven for the outlook. As before, we forecast long-term market growth of 5%-10% in monetary terms.
We, as before, expect that this will be driven by the growth of the middle class and the trend that patients are gaining weight before they have children and the increased social acceptance of IVF. We will focus on expanding sales, and this will be, for example, by strengthening our sales and support channels, which the acquisition of Parallabs is an example of. We will also focus on broadening the product offering, and this will be done both by development projects and by acquisitions. With that, operator, we are ready to take questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask question, please press star one on your telephone and wait to be given an operator. Once again, please press star and number one if you wish to ask question. Your first question comes from the line of Ludvig Lundgren . Please ask your question.
Yes. Thank you for taking my question. Just two quick questions here. When you first announced Illumina partnership, the guidance was that revenue would be accretive of about 10% the total revenue. I was wondering if you still stand behind this guidance and also I was curious about your expectations for the ART business unit. What do you think that we'll continue to see growth here in the upcoming quarters in 2019, what's your outlook there?
Yes. Hi, Ludvig. I can start with answering the first question then on the Illumina. Yes, we estimated that the growth would be 10% in relation to the sales of 2018, and that we still believe that that estimate is valid. When it comes to the question of the ART equipment, as we mentioned in the first quarter, we had some orders were delayed due to the IT incident from the first quarter to the second quarter. If you look on the second quarter, you have an an effect of that. We had about SEK 3 million that were delayed from the first quarter in shipments and sales for the second quarter. If you would look on ART equipment, I would recommend you look on the first six months as a total.
Based on that, you will see that we are down somewhat in revenue in relation to last year. We are working on expanding sales. We are working with regulatory approvals to different markets, and we're working with market teams to expand sales of the laser products.
Okay. All right. Thank you for that. That was everything from me.
Your next question comes from the line of Victor Forssell. Please ask your question.
Good morning, everyone, and thank you for taking my questions. A few ones from my side. Is it possible for you to quantify somehow the split between the EmbryoScope sales from the single order in China compared to sort of the underlying growth? That would be helpful. Thank you.
Yeah. We have not disclosed the specific number of that transaction, we have stated before that we are having a list price of the EmbryoScope+ which is in the region of EUR 100,000-EUR 150,000. That is an indication, but we don't disclose any specific numbers for each orders.
Okay. Thank you. Is it fair to assume that it was a double-digit growth then excluding this order as well for the segment as a whole?
Yeah. I don't want to comment on any specific numbers besides what I just mentioned in terms of list prices.
Okay. Thank you. On media, the delivery issues in the Asian region, if you could add some more color on your statement there, how much would you assess that the negative impact was in this single quarter? If you see any risk of delivering issues going forward as well, just in these specific media products.
Okay. It's Thomas here.
Yeah.
I'm not going to do any specific questions regarding the financial numbers. It has impacted our numbers a little bit. We are working with the supply issue, and we do a projection as we work with, but we see that this will be solved during the Q3, somewhere under the Q3.
Okay. Fair enough. Just the last one from my side. Can you quantify the positive currency effect on the gross margin as well?
Yes. It is not a huge impact. It's less than one percentage points of positive impact from a margin perspective.
Okay. Thank you very much.
Thank you.
Your next question comes from the line of Daniel Albin. Please ask your question.
Thank you for taking my question. I have a couple of them. I think if you can first elaborate on why we are seeing cash flow from operating activities before working capital being negative in the quarter.
During the quarter, we have had very strong sales, which is, of course, tying up working capital. We've also had the big order to China of time-lapse in the end of the quarter, which made the end point of working capital high in the quarter.
Looking at, for example, account receivables and days outstanding, we have seen quite an uptick the last, I would say, two, three quarters. Is it something that is due to this change in segment mix, or are you being more generous with credit times?
Well, we have taken on the Genomics business from the first of January. When we took on that business, we had to take on the working capital of setting that business up. There is an effect of a new business segment being added that is tying up more working capital. At the same time, we had this order in the end of the quarter related to China, which impacted the numbers.
Of course, credit terms is also something that we are looking into in terms of business transactions, et cetera.
On this 20 EmbryoScopes delivered to China this quarter, can you say something about how committed they are in buying after-market products? Have you bundled the deal, giving away free media products, for example?
We don't comment any details regarding our specific deals with customers.
Okay. On the Genomics business, I wonder if you can elaborate on the organic growth momentum year- on- year in that business.
On Genomics business, I don't really understand the question. It's only for two quarters, so what do you mean with year- on- year?
I mean, before, if you know the figure Illumina had in Q2. Are you seeing you taking market share, et cetera?
Yeah. We don't want to comment against the numbers that Illumina were reporting last year. We're not able to do that comment on it.
Okay. No worries. That was all for me.
Thank you.
Once again, if you wish to ask a question, please press star one on your telephone keypad. There are no further questions at this time. Please continue.
Okay. If there isn't any further questions, I would like to thank you all for listening in on the Vitrolife interim report, January to June 2019. I wish you all a nice summer if you are in the northern zone. Thank you, and bye.
That concludes our conference for the day. Thank you for participating. You may all disconnect. Speakers, please stand by.