Ottobock SE & Co. KGaA (OBOCY) Q2 2026 Earnings Call Transcript

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Good afternoon, ladies and gentlemen, and a warm welcome to Ottobock's conference call following the publication of our financial results for the first half of 2026. Today's speakers are Oliver Jacobi, CEO, and Dr. Anne Kreitz, CFO of Ottobock. Before we start the presentation, please note that the call will be recorded. After the presentation, we will open the line for questions. If you wish to ask a question, please use the raise hand function at the bottom of your Zoom screen. And if you dialed in via phone, please press star 9 on your telephone keypad to ask a question. Further instructions regarding the Q&A session will be provided later by the moderator. And with that, I hand over to you, Oliver.

Yeah, thank you. And also from my side, a warm welcome from Dudelschreit. And yeah, let me start with the headline. So strategically and operationally, we are fully on track. So in the second quarter, we have seen a strong demand in our key markets. And yeah, so the timing facts we have seen beginning of the year are normalized now. Second key message we want to deliver is our organic core revenue. So we grew with 6.7% in the first half year, with 8% in the second quarter. So this is driven by EMEA on a broad base, so as well in B2B as well as in B2C. the underlying ebitda margin improved even more strong than the the revenue so we are now on 25.3 percent in q2 uh 27.9 percent on the m&a side we also fulfilled our plan so we acquired one technology company, so FAS, Functional Electrostimulation Company, from Spain. We acquired a leading patient care company in Norway, and the signed human mobility divestment also took place, so that's what we already discussed during our meetings earlier, so everything well on track with this we decided to narrow our guidance so we are lifting the lower end from five to six percent growth and keeping the upper end with eight percent and we are increasing our EBDR margin guidance from 26.5 above 26.5 percent to above 27 percent If we have a look into the region, so I would start then probably with the left side with the Americas. So here the key message is that the main market, the U.S. market, is actually on a positive side. so we have on the b2b side in the u.s one percent growth in the first half of the year with four percent in the second half of the year b2c still with a good growth momentum in h1 in in the u.s a little bit different the situation in canada and especially in latin america so So in Canada, we had last year a so-called War Amps program, which in the moment is on hold. That's why the Canadian numbers are below prior year. And we do have timing effects in Latin America. So in the main market, Brazil, there are elections ahead. Therefore, there's a blackout period and no tenders performed. performed so we do expect here also a better development from the third and fourth quarter especially EMEA now accounting for 75 percent of our revenue performed very strong we had a very strong b2b business so double digit growth in in the first half of the year which was driven First of all, by many different markets, so Western Europe, but also export and the EMEA markets, Russia and Ukraine, but also really important to note the innovations. the patient care business in western europe had very good momentum in the second quarter so with 6.3 6.4 growth we are back on track so growing above slightly above the market in the second quarter. APEC, so 3.6% growth in the first half of the year. There are two factors important to mention. First of all, we had a very strong comparator period last year with a high growth momentum. And then we have this year some timing effects. So with a relatively small sales in this region, a tender which is postponed, like, for example, now in India or a reimbursement gap, which we have seen now for one two months in australia have a direct impact but these are timing effects um so the the catch-up will follow and therefore we are confident also to overperform there uh this is the second half of the year so um regarding the the acquisitions so i mentioned already we acquired Bletchford in Norway so Norway was a wide spot on our patient care landscape Norway is a very attractive market for patient care very profitable and we had a unique chance to acquire the market leader so this has happened in May and integration is already going forward And so far, very good momentum we can see there. With Fazia, we acquired a company which is leading in the electro-stimulation. So, we are already in this business. So, we have a distribution business in this field. But what we were missing was the possibility to influence also the innovation paths. then the regional expansion and of course what we do have here now is a higher margin so when you're coming from the distribution business towards your own business you also propose a higher margin so we are very much looking forward with this business so definitely a growth driver for the coming years and the divestment of our real trade business so we spoke about this we had the signing with DH Care in June and the closing is expected to be at the end of the year so we are in the moment in the operational separation of the business we are very happy to have a partner who is a strategic buyer so that means the business will continue and it's going very well forward So for us as a management team, but also for the organization, it is really good to focus even more now on our core business, so prosthetics and neuroanthetics, because the wheelchair business, anyhow, we had a lot of projects running there and it was a bit of distraction from the core business. so this is now gone therefore we will focus on the core business and also report from next year on only the core business so this core and non-core will be not here anymore and now i'm handing over to arne who will guide you through the financials thank you oliver um i'm happy to take you through a bit more of the details of the financials and starting with the big picture where we're looking very positively on so we've reached our plans for q2 which means strong organic growth of eight

percent in q2 leading to an h1 growth of 6.7 percent and so exactly the acceleration that We also highlighted in our previous call, we had been discussing the 5.1% in the first quarter. I think it's good to see that we now have reached the 8%, so being on a very good track on the top-line development. Same holds true for the underlying EBDA side. We arrived at 207 million in the first half of 2026, which means a 25.3% margin. and what is always important is the comparison to the comparator a year or half year last year and here we can see a 2.2 percentage increase if I'm looking specifically into the second quarter we're talking about a 2.8 percentage increase to 27.9 percent so when I say the pattern that if we're growing strong on the top line side, then we can immediately see this also in the strong EBDA performance, and that we've been seeing in Q2, 8% on the top line, translating to a strong margin of 27.9%. Free cash flow and the cash conversion are actually strong, so good operational performance but we have a special effect on the tech side and so we have a bit of timing effects which will normalize in the course of the year yeah so all in all we can see in q2 a special effect of 35 million 25 million of that will normalize in the course of the year it's a bit the timing of the pre-tax payments which last year had been at q3 and now this year in q2 but that will normalize. There's a second effect also on the income tax, which is that some of the tax refunding that we're expecting will move into the next year. So, also a timing effect, but most likely only happening next year. If I'm normalizing for the tax effect, then we would actually see also a strong performance on the free cash flow development. A bit deeper into the revenue development if we're looking into the development in b2b and b2c we see an 8.7 increase in the first half year with 11.7 percent in q2 so very strong development on the b2b side and please keep in mind that we're looking into a strong comparator quarter also last year so we are actually happy with the 11.7% and I think it's showing really the strong momentum that we're continuing to see on the B2B side. On the patient care side, we're looking at 4.2% of a year-to-date performance. In the first quarter, we had been at 4.7%, so a bit slower on the second quarter. If I'm looking a bit more into the details, then we can actually see that the core regions in Western Europe and North America actually have been performing very well with beyond 6% growth in the first half of the year. We had a bit of special effects and timing in the smaller regions, specifically in APAC and LATAM, and that is a little bit mixing up the picture. But from our point of view, that will also normalize in the course of the second half of the year. So if we're looking into the core regions, which is clearly Western Europe and North America, and we're also looking into a strong top-line development on the B2C side. Moving on to the regions, 9% in EMEA, already explained by Oliver. So continued strong momentum, broad-based. and we also again have been seeing some momentum in russia ukraine i know that there are typically questions around that so we can see one to two percent of a spike event impact if we're looking into the numbers but if you look into that you can see that the majority of the growth is really broad based and and not spike event driven and from that end we're looking into a strong performance all in all in the mayor america's a bit mixed actually good recovery on the u.s side with we had been a bit lighter on the first quarter now we're seeing a catch-up arriving at four percent on the b2b side even stronger on the b2c side so we think a good momentum on the u.s side which is a bit mixed up by canada and that by the facts that Oliver already explained. So, again, a bit of a mix of effects, but the key message is that in the most important market in the U.S., we think we have seen in Q2 the positive development that we also have been foreseeing when we talked about Q1. On APAC, 3.6% and a bit slower growth in the second quarter. and here you just need to keep in mind that I mean if I'm looking into Q2 and we're talking about 26 million of revenue if we then have some tender business moving into the third quarter that already has a relevant impact then on the relative growth rate so nothing structural no change in the general market condition this is a bit of timing which we will see recovering in the second half this year. The core EBTA is set up by 2.2%. If we're looking into the regional split, then we can see again that all regions have improved in their profitability with a good growth that we've been seeing in EMEA. Of course, we can also see the strongest impact then on the top-line side, with reaching 26% in the EMEA region. But all in all, you can see that our efficiency measures are really broad-based in the across the organization, and that's why we keep seeing this positive margin development basically across the entire organization. Underlying net income, we're also seeing continued good momentum and keeping the big picture. Top line, we've been growing by 6.7%. EBTA have been growing by 18%. Now looking into the underlying net income, we're growing at 24%. and that's again the typical logic in our P&L when we're growing strongly on the top line side this translates into an overproportional growth on the EBDA side and then everything which is coming below the EBDA is pretty stable so depreciation is stable financing costs have been lower because of the lower debt level and that we saw in H1 and also low interest rates that we've been facing. And then the tax rate has also slightly improved compared to last year. So when I say if the top line is growing well, if the EBDA is performing, then this translates nicely into strong net income development. Pre-cash flow already described. Again, not an operative topic. seeing that the cash conversion continues to be strong and improving and if you take the tax effect into consideration then this normalizes and there's a little bit of working capital effect also in the first half year specifically on the receivable side which had been a bit up but that is more like also now a bit of timing so on the specific date of when h1 ended you see it's been a bit up but that is a timing effect which will normalize also in the second half of the year so the really impact that you need to understand for the free cash flow is the tax effect and that's what i already explained earlier net depth and leverage you can nicely see the trend that we have been on now for a long time mq2 we see a slight increase towards 2.5 turns, which is driven by the acquisition, but also the dividend payments, which had happened in May. We're expecting for the full year that we are going below two turns. And if you recall, that's exactly our capital allocation policy. We always said during the IPO or target is to go below two. And despite the large amount of acquisitions and dividend payments that we have been doing this year, we'll see that we're continuing to move into our targeted below two range. That brings me to the guidance, which with all the positive developments that we've been seeing in Q2, we decided to narrow. So we are foreseeing on the top line a six to eight percent increase in the course of the year. So as you recall, the way we're setting the guidance, we always want to have a good chance to end up in the upper half of the guidance. And that's why looking into the six to eight percent and also into the narrowing of the guidance we're actually looking very positively into the second half of the year on the bda side we've raised from beyond 26.5 percent to beyond 27 percent and also to put this into context and last year we had been arriving at 26 percent we always said for the midterm guidance that we're expecting one percentage point increase per year so that we're now putting the guidance to go beyond 27% is clearly indicating that we are on a good track regarding the EBITDA margin development.

Yeah, so to sum it up, I think the second quarter, we saw the growth and improved profitability as we said it would. And as Anna said, we are very positive for the second half of the year, the innovations are coming to the market. So the demand is continuously high. So therefore, we narrowed our guidance, still keeping in mind that we want to be reliable and, of course, deliver to our promises. So with this, I think we open up the session for questions.

Ladies and gentlemen, we will now begin our question and answer session. If you have a question, we ask that you please use the raised hand function at the bottom of your Zoom screen or star 9 if dialled in by phone. When it is your turn, you'll receive a prompt. Please unmute or press star 6 to ask your question. If you want to withdraw a question, please lower your hand using the raised hand function or by pressing star 9. Thank you and a moment for the first question, please. We'll take our first question from Hugo Solvid with BNP Parabas. You may now unmute your line and ask your question.

Hi guys, hope you can hear me okay. Thanks for taking my questions and congrats on the print. Just a few please on the guide range. Thank you, Anne, for already pointing to the top end of that new 6-8% guide, but just want to understand how you guys put the low end at 6%, which would imply the significant deceleration into H2. In other words, what needs to go wrong here for us to start thinking about the low end. And second, on M&A, 112 million deployed year-to-date. Your guide was 40 to 50 million. Should we assume that you will pause here into H2 and possibly also into 2027, if you can update us on what the funnel for acquisition is looking like? And you mentioned Norway being a very attractive market. can you expand a bit on that and lastly if i may um just in terms of uh the the directionally the the margin for between b2b and b2c obviously strong uptake in h1 but uh can you help us understand if before you have also seen an increase in q1 and in q2 i'm not sure that We've been provided with the details back in the one interim statement.

So, I mean, the guidance, so six to eight, as I said in my last words, so we want to promise to, we want to deliver to our promise. And, of course, we would like to end up in the upper half of the range we're giving. So that's why we do not foresee any major hurdles. But, I mean, as we said before, yeah, so we have to deliver. We have to show that we are reliable. and that's why we picked up the 6% to 8%. If something is clear more towards the end of Q3, then, of course, we will change the guidance accordingly. Second question regarding M&A. So we always gave a range, yeah, but we also said if there are good opportunities then this range might exceed yeah so we we do have the financial flexibility that was from the very beginning also important for us to to note yeah so if we can see that there are good targets on the market then we also would react accordingly that doesn't mean that now we exceeded our M&A budget and we have to stop. So we are still looking and if there are good opportunities on the market, we also would continue. So it doesn't mean that we put it now on hold for the second half of this year or maybe even 27. Therefore, everything is fine there. And Marjan?

On the third one, B2B V2C margin, when i can share that we're continuing to see the improvement both on the b2b and on the b2c side so i mean along the same logic that we said yeah when b2b is running well and we'll see typically good mix effects and a bit more of scalability on the b2b side that's why good development on the b2b side and b2c is continuing to show the step-by-step improvement on the margin side so from that end that is that is well on track and the marginal improvement is coming from from both businesses thank you and on what makes norway attractive markets thank you

what makes norway so the reimbursement system um so uh you know that normally our b2c business has a lower EBITDA margin than the B2B business. In this case, the B2C margin is similar to the B2B business, so it's very attractive. And it also, so this, the point is there that we have a very good reimbursement in neuro-arthotics and in the moment there was no one really covering this area so now we have the opportunity with acquiring the market leader really to set there the standard and grow in the field of neuropathetics in Norway.

It's very clear, thanks so much.

Our next question comes from Oliver Rehnberg with Calper Chevrolet. Please unmute your line and ask your question. Please feel free to unmute your line and ask your question.

Hi, good afternoon. Can you hear me? Perfect, perfect. Two questions from my side. One on this kind of spike events. Thanks for bribing the color thing you mentioned there. So it was a kind of 1% to 2% contribution from that year-in-year. But I think this is a year-in-year comparison. Can you just give us a flavor like what kind of contribution from Russian-Ukrainian sales you now see versus the pre-war baseline, just to get a flavor there. And can you just talk to, I think, a large part of this is funded by Europe, is there any kind of developments? And also, I think you mentioned or it sounded like there's an upside to the scenario. I mean, so far, you have not incorporated any kind of more spike events into your guidance, because now we're seeing kind of some contributions coming in. Have you now incorporated with the kind of top-line change or not yet? That would be question number one. And secondly, also on the Norway deal, it looks still like a reasonably full price for the asset. Can you just give us a bit of flavor when you expect to earn your costs of capital on this kind of acquisition and whether we should expect any kind of similar deals going forward of that kind of magnitude?

So I will take the spark topic. So, I mean, pre-war and now, very difficult to assess. So we didn't have an infrastructure in Ukraine at all. So, therefore, it was a relatively small market for us, we have to admit. And so, here we definitely have seen a major uplift, but from a very low base. So, we normally do not provide any market details, but here we have seen quite a huge impact. On the Russian side, so we were there already. We had quite a valid business there. and i think we are growing there with with the reimbursement in the civilian market so i think the overall information which is important to note is that basically nothing has changed in russia in in terms of market participants competition yeah so everybody who was there before is still there but also in russia the reimbursement grew which doesn't mean necessarily that a lot of new patients are served in the civilian sector but the level of reimbursement per patient grew quite significantly so this we have seen so there's an there's an upselling effect more than a quantitative effect. We said already several times, so we are not taking part in any military tender or whatever. So this is more a part which is closed for foreign companies, so it's more served by Russian companies. And therefore, for us, we do not see really more and more of this spike impact in Russia while we do see it in Ukraine. So there definitely we have this increased patient base. So to give you maybe an overview, so we had a pre-war quantity of 8,000 to 10,000 prosthetic fittings per year and we have now since the beginning of the war we have roughly 150 000 new amputees so additional to the to the pre-war number and you're right in the moment due to infrastructure constraints they are not all yet fitted so if we're talking about four year, four and a half year now time period there is quite a backlog plus additional now we are coming into the refitting phase it means besides those who are not fitted yet the ones who were fitted in the very early stage of the war they're already due to to a new fitting so there we do expect a further acceleration uh and uh yeah even increasingly as long as the war continues and uh norway

no way happy to talk a bit about it so um first of all the mechanics of the norway first of all it's a it's a strategic deal as Oliver said was a wide spot on the landscape but we had not been present so following our invest in the best strategy and you know looking for the market leading players in order to further evolve on our integrated b2b and b2c business i think this is a deal which is really spot on and where we've been looking for for a longer time so it it's clearly following strategic regression regarding the financial parameters and i would consider it to be a good deal you need to understand that the standalone margin of the patient care business in norway is already very high it's probably the highest that we have in the network and it's the highest that we have in the network and then you need to understand that the pre-owner has been bletched for it so you can understand that they have penetrated the products into the channel so we see a good opportunity you know to bring our high margin products better into the market and keep that share up and as oliver said this whole field of neurothotics which is a clear future growth field for us and where reimbursement has been established also for the high-end solutions, that is a completely, I would always say, untapped field that we can now penetrate into Norway. So it has a lot of good parameters on the profitability of the business and the synergies and upsides associated to it. And, you know, regarding the capital cost, we clearly will be earning our capital cost with that deal. So if you take the, 8.5%, 9% of WEG, and we're clearly expecting that we're going beyond the capital cost. So it's a strategic sound deal that will give us a good upside on the top line, but also on the margin side, B2B and B2C, and it will also earn its capital cost.

Okay, perfect. Thanks so much.

Our Our next question comes from Anna Ratcliffe with Bank of America. Please unmute your line and ask your question.

Hi, thanks for taking the questions. I wanted to dig in a bit on Americas. I appreciate the commentary on LATAM in Canada, but on the 4% organic growth in the U.S. Maybe a bit below expectations. Is there anything to flag on the U.S. MPK K2 reimbursement? is that still a meaningful tailwind for for 2026 and how do you see u.s growth playing out through the balance of the year and then just on the margin guidance raise um how much of that is favorable mix through you know just an increasing number of mpks being sold um versus an improvement in cost savings and um different initiatives um and what do you expect for for inflation through the the second half of the year thanks again for taking the questions So, yeah, regarding the U.S. business, so, no, we do not see any headwind in terms of penetration of the K2 population and others.

But you have to keep in mind, we had last year mid-double-digit or even in the high teens growth in the U.S. market. So it means we are growing this year from a very high base. And that's something what we, of course, always have to keep in mind. The penetration of the K2 population is continuing. We do see still roughly 20% growth rate in this area. But we do have in other areas, of course, a lower growth rate because the penetration is already on a different level. So nothing structural. And we also do believe that in the second half of the year, we will see a little bit more momentum because we have seen the fourth quarter last year was a little bit slower than the first three quarters. So, therefore, we do expect also here to see a steady uplift on the organic growth rate. Margin?

Regarding the margin, so you can see year-to-date we are up 2.2%, and then also in the guidance we're reflecting that we're expecting in the second half of the year that there will be a good margin development. And the effects are, yes, there's a bit of a marginal impact, and there's an impact on efficiency gains, but you also need to keep the scale effect in mind. I keep repeating that. If we're growing beyond 5%, I would typically assume the normal year cost growth is around 4% to 5%, 2% or 3% of inflation. and then as a growth company a bit of investment into the company so when we are growing beyond the five percent that typically brings us into a good scaling opportunity because again the global fixed costs are pretty set and then if we're growing with the high-end components that gives us a good scale effect so if i say um you know how does that split i think there will be a bit of margin upside in the overall year and then scale and mix scale and efficiency is probably 50 50 on the drivers of the margin improvement yeah so scale if i'm looking into the 2.2 percent then i would say that is one and one percent on the efficiency side and then a bit of additional mixed effect um that we're seeing and then sorry the um on inflation in the second half of the year and i mean we've been just running through our forecasting and i have to say we're not expecting a larger effect of inflation in the second half of the year so um oil price development we did the calculation you know how is that running through into our material cost and that is that is pretty minor and so expecting maximum two to three million of an impact so that's negligible and then also on the other supply side we're not seeing a lot of the push at the moment so from that end we expect a normal inflation for this year and no impact on the margin side our next question comes from farco friedrichs with deutsch bank please unmute your line and ask your question Thank you.

Good afternoon. I have two questions, please. The first one, could you provide a little bit more color again on this strong 12% organic growth in the B2B business with respect to which products have been driving this the most? And would that be a good indication for what you might deliver in the second half as well of this year? And then my second question, and sorry if I missed that, on the B2C business, which you mentioned was a tad softer in Q2. Do you expect that to recover now in the third or fourth quarter? I saw the comms are not too easy, but is there still the potential that this bounces back in the second half?

Yeah. So regarding the B2B growth, so it's actually, I mean, across the product. So we do see still a strong growth in our high-end products. So in the mechatronica area of prosthetics and neuro-arthetics, but we also do see overmarket growth. over market growth rate in feet and liner so we launched also some new mechanical knee joints which are picking up very nicely so it's actually a broad range of products which are fueling the growth we have in the upper limb prosthetic field we launched a Michelangelo hand there we can see quite a good growth momentum so it's not specific one or two products so it's it's actually on a broader range which is for us of course also a very good indicator for the future so it's more more sustainable um on the b2c side um so as we mentioned so So it's coming more from timing effects of emerging markets. We always have in emerging markets or in some markets, we have periods where tenders are on hold or they are a little bit delayed. And that is actually happening this year or it happened in the second quarter. So one of the markets, Australia, but especially in Latin America, we have seen here a bigger impact in the second quarter. But as mentioned before, we do expect that this is only timing. So it means in the third and also in the fourth quarter, this will resolve. of the core markets or the most important markets where we have a stable reimbursement system in North America and Western Europe, we are actually on track.

Okay, thank you.

As a reminder, if you would like to ask a question, please use the raise hand feature. When your name is announced, please unmute and ask your question. Our next question comes from Beatrice Fairbairn with Berenberg. Please unmute your line and ask your question. Hi, thank you for taking my questions.

I just had a couple on the kind of growth side of things. So firstly, could you specify how much of the B2B growth was impacted by these kind of special or timing effects that you've just mentioned? And then just to clarify on the kind of spike event impact, you mentioned it was about about one percentage point. What is your kind of expectation for the remainder of the year and how much is factored into guidance? Apologies if I missed this earlier. And then finally, how much impact was FX on a gross margin? And you two, would you be able to specify that? Thank you.

I got the first point right, B2B and timing effect. So in the B2B business, there were not too many timing effects. So there was something in the end of the first quarter with the war in the Middle East. We had some deliveries delayed, but this was all realized in the second quarter. So therefore, on the B2B side, we are actually more or less on track. So the timing effect was on the B2C side. I just saw it was Falko asking now. I hope I explained it so that this would be resolved in the third and fourth quarter. um regarding the the spike uh topic so anna mentioned it uh so it's uh on the emir growth uh yeah so we're talking about uh one to two percent so also nine percent um yeah so one to two percent uh are affected by by spike events um but as i also mentioned um so this effect is getting smaller and smaller so it's more the Ukraine is fitting their patients this spike event will be slow because the refitting cycles there are already considered normal fittings so it's not very often not done anymore by the military because people are retiring from military, so they are civilians. They still have the status of veterans, but they are civilians. So they are moving into the normal reimbursement. And therefore, that's already for our industry. So this is a normal course of business. So that's what we mentioned before. So we are talking about an increased patient base, which stays now for the next decades in the system. Therefore, this spike impact you will see decreasing all the time.

The effects impact on margin, on gross margin, I think you asked, right? It's apparently low, so it's minus 0.1%.

Great, thank you. This concludes the Q&A session. I will now hand back over to Oliver Jacoby, CEO, for closing remarks.

Okay, so, yeah, then thanks a lot for taking part in the call. And, I mean, you can not see, but you can hear us. So the management is satisfied with the first half of the year and optimistic for the second half of the year. So I hope we answered all your questions. and we're looking forward for the next call after the third quarter. Thanks a lot.

This concludes today's call. Thank you, everyone, for joining. You may now disconnect.