BICO Group AB (publ) (CLLKF) Q2 2023 Earnings Call Transcript

BICO Group AB (publ) (OTCPK:CLLKF) Q2 2023 Results Conference Call August 22, 2023 4:00 AM ET

Company Participants

Isabelle Ljunggren - Head, Communications

Rolf Classon - Chairman

Erik Gatenholm - CEO

Jacob Thordenberg - CFO

Maria Forss - New President and CEO

Conference Call Participants

Ulrik Trattner - Carnegie

Rickard Anderkrans - Handelsbanken

Isabelle Ljunggren

[Call Starts Abruptly] 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.

Rolf Classon

Thank you, Isabelle. Good morning, everyone. My name is Rolf Classon, and I am since May 9 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, and 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. And 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 something that is at the forefront in the development of drugs and pharmaceutical products.

I have -- just to give you a little bit of a hint of a few things I've done. I've grown up in 2 companies, basically, Pharmacia, and later on in Bayer, and retired from full-time executive roles as CEO of 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, 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 the Chairman of Aidian Diagnostics in Finland that we sold to Nordstjernan early last year, and I'm currently on the board of another [indiscernible] owned company.

So for me to have the chance to be involved with BICO, having spent so much time in life science industry is really, really exciting. Yesterday, the Board -- late in the afternoon, the Board concluded and made the decision to offer the position as President and CEO of BICO to Maria Forss, currently with 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 health issues in his immediate family. And I took that serious, 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 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 Erik's self-awareness, his maturity that he raised that question.

And as me, as a single loyal shareholder, he was also looking at what was most important to him. At the end of June, together with the Board, who fully supported Erik's thinking 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 in -- 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 ahead 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, and her leadership and her leadership style is also very strong, especially in a company as decentralized as BICO is in many ways.

Maria has -- yesterday, we made the decision, Maria accepted. And Erik will stay as President and CEO until Maria will join us at the latest, hopefully, November 27. But we will also provide continuity. So Erik will remain in a capacity as senior adviser to Maria and the Board. And 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. So 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 2 committed chairpersons, Helena Skantorp, Chairwoman of the Audit Committee; and Ulrika Dellby, the Chairperson of the Remuneration Committee, and not in any kind of operative setting, but as a support to management and to the leadership on a temporary basis maybe for the next 4 to 5 months, something like that.

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, and I think that's a transition that we are doing right now. And I'm so pleased and I'm so impressed with Erik Gatenholm and the way he himself came to that conclusion. So 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 to the phase of really trying to maximize the commercial output, the commercial benefits of a unique and differentiated product line that we have.

And with that, enough from me, and I would like to hand over to you, Erik.

Erik Gatenholm

Thank you. Next slide, please. So thank you for the introduction, Rolf. I'm Erik Gatenholm, President and CEO for BICO. By my side, I have BICO's 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 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, and 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. So 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 quarter last year, especially given that it is a slower market at the moment. We're also delivering a stable gross margin of 71.4%, excluding effects of an inventory write-down of SEK 42 million to be [indiscernible] 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 contribution in Q4 2023.

And as announced yesterday, we had a one-off noncash 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. And with that being said, Jacob will go into more detail on the financial performance. Next slide, please.

Jacob Thordenberg

Next slide, please. Thank you, Erik. Before I will start with the Q2 results, I will elaborate on the one-off noncash 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 interest rate environment.

We have, in the quarter, also revised estimates regarding valuation of group earn-out liabilities, resulting in reduced liabilities and a positive EBITDA effect of SEK 161 million. These liabilities have been adjusted since BICO has met with the target, which was set at very high levels, primarily in 2021 or targets for 2023 and 2024 will not be 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 cost 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, write-downs are the result 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 are deemed as low.

BICO has also resolved the need for a write-down of SEK 28 million in 2 larger customer projects, including contract assets. The projects have been reevaluated where 1 has been concluded as confirmed bad debt and 1 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 write-down 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 write-downs, the gross margin was 71.4%, which is in line with previous quarters. In total, these noncash flow one-off items impact the Q2 2023 EBIT with negative SEK 830 million and generates a positive effect on the Q2 EBITDA of SEK 94 million.

Next slide, please. Thank you. 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 noncash 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 -- 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 write-downs of SEK 41.7 million related to the inventory write-down in Ginolis of SEK 15 million and SEK 27 million in group companies related to the ongoing inventory management work.

The 3 final items in the table. Restructuring costs related to personnel changes is related to costs associated with additional cost saving programs, extraordinary governmental support and acquisition-related costs and bonuses. And these are affecting cash flow but of one-off nature.

And summarizing this, after noncash and cash flow affecting items, adjusted EBITDA for the second quarter amounted to negative SEK 11.5 million. Next slide, please.

So 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 million 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 given a slow global life science market. The business area 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.

While automation sales levels are, however, far below expectations due to the ongoing pandemic amortization 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 SEK 11.5 million, as just mentioned, compared to SEK 11.1 million 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. However, 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. And BICO 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. And as mentioned, this can be explained by the write-down in inventory of SEK 42 million. And 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 negative SEK 898.4 million driven by the one-offs in the quarter.

Next slide, please. A few comments on development in Ginolis. And as we mentioned in the Q1 earnings call, Ginolis has been rightsized to a minimum cost and organizational level with the ability to still accept new orders and honour 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 SEK 11.8 million, decreasing the EBITDA margin by 4.3 percentage points.

And 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. And 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. And 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 30. Despite the decrease in cash reserves significantly impacted by the investments into the buildings, BICO cash balance remains strong and will be further strengthened 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, and 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. And BICO has made an extensive overview of inventory levels, which has resulted in a write-down in inventory of SEK 42 million. And we saw positive development in 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.

And as mentioned on the previous slide, we have divested the building in Berlin, Germany. For Oulu, Finland, we are actively seek -- we actively seek to lease out the facility, and we are also evaluating the opportunity to divest.

And with that, I give the word back to Erik to comment on the performance of business area in Q2.

Erik Gatenholm

Thank you, Jacob. Next slide, please. For Q2, the Bioprinting business area reported net sales of SEK 175.8 million, representing 32.5% of total group sales. The organic growth in this segment was 13.8%, and the adjusted EBITDA was SEK 26.4 million, responding 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 market fluidic printing applications. Next slide, please.

Moving on to Biosciences, where the business area's net sales amounted 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. And 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. But the Pharmaceutical segment, on the other hand, has shown 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 negative 36.7%, and adjusted EBITDA amounted to negative SEK 26.1 million, corresponding to a margin of negative 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 a 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 effects from Q3 and onwards.

What we are seeing is the 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%.

And before the Q&A, I will give you a brief outlook. Next slide, please. And this can be summarized in 2 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 within 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 net working 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.

And with that, we would like to welcome any questions and comments that you may have.

Question-and-Answer Session

Operator

[Operator Instructions] The next question comes from Ulrik Trattner from Carnegie.

Ulrik Trattner

A few questions on my end. And perhaps if Mr. Classon is still on the line, it would be interesting to hear from a Board of Director's view if this should be interpreted that you still regard BICO to be heading in the right direction and the transition here of CEO is just entering a new phase of the development and perhaps maturing the company a little bit faster?

Rolf Classon

Thank you for the question. I'm happy to do that. I feel very strongly that BICO is heading in the right direction. I feel strongly that we have unbelievable assets in our technologies and our product lines. We have a very fresh product line.

Most of our sales come from products that have been launched in the last 3, maybe 4 years. We have a whole host of new products coming out in the next 24 months.

So 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 of our -- 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 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. And then you will see that not only are we moving in the right direction, we are doing it with some speed and with some good outcomes. So 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. So thank you for your questions.

Ulrik Trattner

Great. And perhaps some questions for Erik and Jacob, and starting off with the market outlook for each segment. Quite surprisingly very strong development for Bioprinting and Biosciences. And on the flip side, looks like really weak underlying development as well as on your side for the segments addressing diagnostics. But could you just highlight -- I know you touched upon this, but the market fundamentals here and the underlying market, what makes you form 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?

Erik Gatenholm

Very good question, Ulrik. And I can gladly share some more insight and perhaps elaborate a little bit on your points. Let's start with Bioprinting. It's a healthy and fast-growing market. And 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.

So 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 in a strong market that was buying a lot of instruments, reagents and technologies for COVID research and COVID diagnostics. Now that is being normalized.

With that being said, the diagnostics industry segment is also a very healthy and a strong industry to be in. And if you look historically, it's typically also a very stable one. So we believe that this industry will come back, and it's a wise industry to continue to perform within.

Ulrik Trattner

Great. And a follow-up question 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. I'm guessing here and Biosciences based on 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, the structure of the products that are in Biosciences, does that have the same opportunity to expand margins that we have seen in Bioprinting?

Jacob Thordenberg

Thank you, Ulrik. Jacob here. I will try to answer that question. No, we see the same margin potential in both business areas, and 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 that is now showing effect.

Ulrik Trattner

And just given 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, the academia, the diagnostics and the other segments, that would have been very helpful.

Jacob Thordenberg

Yes. I won't be -- we won't be able to give you a split on the customer segments in this call, Ulrik.

Ulrik Trattner

Okay. Fine. And then on to Ginolis and an obvious question, what is left off of Ginolis right now? And is Ginolis to be considered cleaned out of the balance sheet? As well as what triggered this additional write-down? Because the first write-down you did of Ginolis was related to weak COVID-related demands. So just trying to figure out here what's triggered the second write-down and what's left?

Erik Gatenholm

Yes. That's a good question, Ulrik. And as we mentioned in the Q1 call and also in the Q4 call, we have rightsized Ginolis now to a minimum cost base in order to serve current service contracts and also take on new orders. So the company has been significantly scaled down. But with that and with sort of a weaker outlook than when we acquired the company, that results in consequences in our balance sheet. So we have taken a prudent approach in Ginolis.

So back to your question, yes, Ginolis is now, from a balance sheet perspective, cleaned out. And what mainly remains in Ginolis now is inventory balances and the remaining balances related to the facility.

Ulrik Trattner

Okay. Great. And on the gross margin, you mentioned it was affected in the quarter by this or mainly Ginolis. But was there other segments beyond Ginolis and extension then Bioautomation that was hit by this write-down in the quarter?

Erik Gatenholm

Yes, part of the write-downs is in Bioautomation. And it's also back to the same comment that I had in the call is 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 write-down of inventories also related then to the ongoing inventory management work that we are working actively on.

Ulrik Trattner

Okay. Great. And 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. And you talked about, and you mentioned in the report, this elevated inventory levels and ongoing actions being made to take the inventory level down. But 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.

Erik Gatenholm

Yes. Sure, Ulrik. It's a good question. And as you know, Marius Balger joined us as COO in beginning of January. Since he joined, he has been reviewing the entire supply chain within the group with focus on improving inventory management work and work with inventory in another fashion 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.

Operator

The next question comes from Rickard Anderkrans from Handelsbanken.

Rickard Anderkrans

So first one. So 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?

Erik Gatenholm

Yes. No, as you say, 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.

Rickard Anderkrans

Perfect. Helpful. And 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 the earn-out?

Erik Gatenholm

It's a very good question, Rickard. And the earn-out targets set in 2021 was also quite successful, we said, because there was at very, very high levels, higher levels than we actually anticipated at the time of the acquisitions. So 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. But 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.

Rickard Anderkrans

Okay. All right. And you also mentioned 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 execute on that update?

Jacob Thordenberg

Yes. Sure, Rickard. Maybe I can start, Erik, and then you can fill in. But 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, and that has been based on our 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. And Maria will, of course, be involved in this work when she joins. So it's partially focused on cost-saving initiatives, but then also focused on increasing our commercial abilities that Rolf also mentioned in the beginning of the call.

Erik Gatenholm

Summarizes well. Thank you.

Rickard Anderkrans

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 6% to 7% CapEx to sales and 30% OpEx to sales? Or how should we think about the relative levels of your benchmarking against here?

Jacob Thordenberg

Yes, I wouldn't call it CapEx, I will call it the capitalized R&D. So it's not tangible CapEx, but it's intangible CapEx. And I think the levels you referred to are in line of what we see.

Rickard Anderkrans

All right. And how quickly do you think you can achieve this? Is it within a 3-year period? Or what's the ambition internally?

Jacob Thordenberg

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 significant commercial abilities. And now Maria will join and accelerate that work, but I won't be able to comment to the exact timing of these potential effects.

Operator

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Erik Gatenholm

Once again, thank you so much for taking the time today. We appreciate it. Have a good day.