Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Vitrolife Interim Report, January to March 2018. At this time, all participants are in a 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'll need to press star and one on your telephone keypad. I must advise you, the conference is being recorded today, Tuesday, the 24th of April, 2018. I would now like to hand over to your speaker today, to Thomas Axelsson. Please go ahead, sir.
Thank you very much. Good morning, and welcome to Vitrolife Interim Report, January to March 2018. Speakers today is going to be Mikael Engblom, the CFO, and myself, Thomas Axelsson. Please change to page two. We can start the presentation. The summary of Q1. Q1 was a quarter with high profitability and also good growth in Time-lapse. The sales was SEK 264 million. It was a growth of 8%, and it was also 8% in local currency. The quarter, if you look into the business units and our sales, it was good sales for Time-lapse. A little bit weaker for media sales. I will come back and explain more about that later. EBITDA, a best ever, 40% margin.
During the quarter, as we have presented before or informed about, is that we have done an acquisition of an Embryo transfer, that we are currently in early production on and also early development. Also that we got the market approval for EmbryoScope in China, both of those things is for strengthen our portfolio. Please go to page three, I will start with the business units. If you look on page three, I will start from the right side and go business unit after business unit. The ART equipment.
ART, I just think they had a good quarter, we were growing with 6%, since we are still doing the transformation of the product portfolio, where we are reducing, or actually quitting all of the distributors products, so we can focus on our own products, lasers, and also quality control systems like Log & Guard, the growth was 6%. I want to say, when we look on this kind of equipment, that it can vary with the quarter since it is hardware and capital goods. Time-lapse, yes, we are continuing the good growth that we have seen for quite a while right now, a growth of 31%.
It is the same kind of momentum that we have seen before, that it is more customers that is acquiring the Time-lapse equipment, and also that it is some larger clinic chains that are working and changing the workflow with the help of Time-lapse. During this quarter, we have not seen any bigger effects of the approval of EmbryoScope in China. If we go into then the disposable devices, increase of 8%, and that increase is partly coming from that we have increased our capacity, so we can start to take the orders and also being able to ship to customers that has been waiting on our new needles.
We are, however, going to continue in investing in new equipment, so we can get larger growth on this side, and that is for doing more of an automatic and robotized production, which will give us quite a lot higher output and at the same time, a lower cost within that business unit. We are also going to launch, and we have done it in Q1, product after some regulatory approval for the needles. Media. I do think that's something that I will get some questions on, and I'm trying to explain both the market situation and also regarding the business unit. The situation for media this quarter was a negative growth of 1%. That's something that we haven't seen for the last 10 years.
Our sales in the last three quarters has been showing, in the last four quarters, as you can see, has been showing some growth, this quarter, the sales on media was SEK 131 million. How can we look on the media business? Last year, it was a growth of 9%, Q4 it was 6%, and this quarter it was -1%. We still continue, and we still believe that it's going to be a continuous growth within the media. However, during this quarter, there has been a couple of things that I would like to explain more on from the market side. By that, change to next page, where we have sales and growth per market region.
Same here, let's go from the right side towards the left side. What we've done this quarter to be able to report and add information to the financial market, and also how we are viewing the business inside the company, we have divided up Asia and Pacific into two territories. One territory is Asia, and when we are talking about Asia, we are talking about the distributor market. In Asia, all markets there is distributor markets, and when we talk about Japan Pacific, it is a direct market where we have our own organization and also meeting the end user with our own sales force. Japan Pacific then, it's good growth. We had a tremendous growth last year in Japan, Pacific, and we are still growing well with 15%.
The growth in that area are continuing to come from a good mix, but the main growth business unit is Time-lapse, and then it is EmbryoScope+. It is China, Asia, and China is our biggest market, depending upon the quarter, but it's a little more than 15% of our total sales, it's less than 20%. With China being the biggest market for Vitrolife, and since China also is the biggest market, if you look on IVF cycles, it is important for us to trace that market if we see any changes. I want to say that we don't see that we have lost any market shares or any customers. What is it that we have found out why we see some negative trend in media?
After discussions with customers and with key opinion leaders, we have found out that there has been less IVF cycles in the first quarter. It's difficult to define why. There are some customers that has closed the clinic for an extra week in February. Some customers is also talking about that it is more of a balance between demand and output from the IVF clinics. Still, all customers are saying that they are positive about the future, and some of them are also investing or planning for growth, which is quite positive. Once again, we are not losing any market shares as we can see on the media business in China.
In EMEA, our biggest market, 44%, it's good balanced growth between all mature markets and also between the business units. With a growth rate of 11%, we are satisfied with that in the EMEA market. Americas is something that I personally am not satisfied with. It is a decline of 2%. The reason behind that is that we have not sold any Time-lapse during this quarter. It's also a situation where we see that there are some concerns regarding our prices, and we have lost customers in South America, and all of that has been due to pricing issues.
What we can't do in United States, that we can do in other markets, is to use our products that we have developed the last couple of years. For instance, the vitrification, it is still not approved in U.S. We have also less acceptance for Time-lapse in the U.S., and EmbryoScope+ is not yet approved there. In Americas overall, we do think that we have lost some market shares. Overall, it is good growth. It is China that has been some concern, but I'm also concerned regarding the future if our information is correct. By that, I would like to hand over to Mikael.
Yes, I will take you through the key financials and on page five. In the quarter, we had a SEK 3 million positive currency effect on EBITDA. We also concluded the acquisition of the Embryo transfer catheter technology that Thomas Axelsson mentioned before from CrossBay Medical Inc, and we paid $5 million in the first quarter. On top of this, there can be additional purchase prices and royalties to be paid later in relation to sales performance. Looking at the first quarter income, we can see the gross margin was stable at 65%. We do see a negative effect of less media sales, so less proportion of media sales, as media is our business unit with our highest gross margin.
On the other hand, we see economies of scale of increased sales, so these effects net out each other. That's why we have a 65% gross margin, or 69%, if we exclude the amortization of acquisition-related intangible assets. The EBITDA margin was 40%, so 1 percentage point better than the same quarter last year. It's a stable product mix, and it's a good cost control and operating expenses that explains this situation. We continue to have a strong financial position, and we have a net debt in relation to EBITDA, which is -1%. Please change to page 6 on the outlook.
We continue to see a long-term market growth of 5%-10%, as we have done before, and it's, as before, driven by the growing middle class and parents waiting to have children later in life, and also increased social acceptance for doing IVF around the world. We continue to expand our sales. We're investing in marketing and sales, for example, marketing approvals. As Thomas mentioned before, we are trying to get our products approved in different markets. We also target clinic chains with our products to increase our share of wallet amongst the growing clinic chains around the world. Furthermore, we're broadening the product offering with the product development projects in all our business units, and we also add on acquisitions, as, for example, the ETC project that I just mentioned.
With that, operator, we are ready to take questions.
Thank you very much indeed, sir. If you wish to ask a question, please press star and one on your telephone keypad, and an operator will take your name for the question. That's star and one if you wish to ask a question or to simply make a comment. That's star and one, please. We have a question come through. If you stand by, we'll just take those details for you. Just while we're waiting for the information to come through, it's star and one on your telephone keypad if you wish to ask a question or simply make a comment. Your first question comes from the line of Patrik Ling, and your line is now open, sir.
Okay, great. Thank you. A few questions. If we circle back to media, what type of visibility do you have and do your customers have? I mean, when they say that nothing has really changed, I mean, we saw a slight drop in media sales also in the fourth quarter. Now it's actually, for the first time in a decade, negative. What type of visibility do you have here, and what type of visibility do your customers have?
What do you mean with visibility? Do you mean how we can raise the usage inside a clinic, Patrik, or what?
No, I mean that when you talk to clients, and they say that they are still positive, how much do they actually know? What type of backlog of patients do they have? What type of usage, how precise can they be in saying that, yes, demand will come back, and, yes, the demand is still there and the number of cycles will come back? I mean, that type of visibility.
If you're looking on China, then because that's the only place where we have, let's say, dig in a little bit deeper on the market situation. You know, this is a private market also there, where it is private payers, and they have a demand from different customers. What they can look on is the queue, for instance, to a clinic. They can also look upon patients that they're doing exams on. You know, there isn't any longer, let's say, visibility, if I'm going to use your words, than about a quarter, because it is within a quarter that a patient is coming in, they do the exam, and they are in case of if they will continue, they are putting the lady on a hormone treatment.
That's one of the things. Another visibility is also in China, regarding how the government is guiding regarding this kind of treatment. The guiding is that the regions, and also the, let's say, the industry, and when I talk about the domestic industry, will build up more opportunities for the Chinese people to do IVF.
What is visibility then that is negative, that is hard to give any, let's say, projections on, is that one customer said that they are starting to see a trend in China that may be similar to what it has been in Japan and some Western countries, where the couples, even if they now are allowed to have more than one child, that they don't wanna have more than one child, because it is too costly with school and also with some kind of daycare for children. There is not any clear indications right now that there will be more cycles just due to the situation that you can have more than one child.
However, a sign also in China is that you are getting married later on in life, and that's one of the, let's say, the biggest reasons why you are starting to give an IVF cycle.
The fact that the Chinese market, I mean, if we just talk about China, has grown so much over the last three, four, five, six years, and, you know, sales in China is now, as you said, somewhere between 15% and 20% of your total. That also means that the number of cycles have grown, and it might also be a treatment that attract, you know, maybe the less wealthy population, part of the population. Do you think that there is an sort of price issue here also, that they are looking for cheaper alternatives? I mean, when you talk about the U.S. and South America, it's indicate that there might be a little bit higher price pressure.
You as a high quality, high price provider, do you think that you might be suffering a little bit from that, You're not just looking at the top of the market anymore, that this is becoming a broader type of treatment, and it maybe goes down a little bit into the income layers, and therefore they demand maybe cheaper input goods into that treatment?
I don't foresee that in a quarter. I mean, that's a reaction that goes too quickly. If I wanna do projections strategically, yes, there is going to be probably some kind of a market in China where it's going to be, let's say, more cost conscious people that will start to do IVF, and those needs to be cheaper. However, the clinics that they have started in cities, and then they define those cities as smaller cities within the population between 500,000 to 1 million. Those clinics, they have a challenge in growing, because, you know, the market in China, the bigger clinics, they are so big, so they have an industry.
They are able to do an IVF treatment, very, very costly and efficiency due to that. I mean, if they do 10,000 or 15,000 cycles, the efficiency is of course bringing down the cost. One of the concerns that many of the new clinics, let's say, clinics that has been started the last three years, it is that they have a problem in competing with those bigger centers. If I also look into the long-term perspective on China, there is going to be more domestic competition for sure. We don't see that yet on media.
It has come up on disposable products, and I do foresee that's also going to be on capital goods, an increased competition from a domestic player, but that is not within this quarter or next quarter.
Oh, okay. I mean, if I remember correctly, you had once, a few years back, when we had the Chinese New Year, some impact from switching from, you know, one year to one animal year to the other animal year. There are no such thing in this.
No.
sales figure?
No, no. I mean, we have asked the same kind of question, because we were supposed, at least I was surprised the last time, but there is no indications on that. No, it's not, it is not.
Okay, great. I actually have another question or two other questions, and that is for ART equipment, where you saw growth of 6%, but that was including products that you are trying to phase out. Could you give us a feeling for how the underlying growth for the products that you're actually keeping is developing in that area?
Well, we are seeing a good growth of our own products, at the same time, we're declining sales of the perspe- from other manufacturers. We have not disclosed any specific numbers for the different specific products in that, but that is the trend. We foresee that to continue during the whole 2018.
Okay, it's fair to assume that your proprietary products is growing slightly faster than the overall growth?
I think, I mean, what we have said before is that we expect not any big changes in growth rate in ART equipment this year, as a consequence of one part of the product groups growing and one part of the product groups are declining. We expect not any big changes in sales in 2018 versus 2017.
Okay. Then lastly, there is a quite large jump year-over-year, from this, other operating expenses and income. Is that where you see the FX impact coming? Or is the FX hitting you somewhere else?
No, that's right. I mean, the FX coming from revaluation of accounts receivable and accounts payable is being captured in the other operating income. That is the reason for that amount.
Okay. How should we look upon FX going forward? Because, I mean, in the last quarters, you have guided a little bit cautiously, maybe on margin, saying that we shouldn't really expect any large margin expansions from the level where you are. I mean, now you're reaching 40% EBITDA margin, and maybe then to some extent, due to positive effects of impact. But, in general, I mean, the level where you are right now compared to where you will be, is this a sustainable level, 40%, or should we see it reverse a little bit?
Yeah, I mean, we, as we said before, I mean, we are very happy with this profitability level. It is above our financial target. We have also guided that we anticipate that we will increase our R&D spendings as a relation to sales. Without giving any firm forecast, I think what we're seeing is that we are currently reporting at a very high profitability level, and we expect our R&D spendings in relation to sales to increase somewhat going forward.
Okay. Thank you. That's all for me.
Thank you. Thank you, Patrik.
Thank you very much. At the moment, gentlemen, there are no further questions coming through.
Okay, if that's the case, I want to thank you everyone for listening in, and, bye from us.
Thank you very much indeed, sir. With many thanks to our speakers today, that does conclude the conference. Thank you all for participating, and you may now disconnect. Speakers, please stay online for me.