Earnings Call: Q3 2020

Oct 16, 2020

Thank you very much. Welcome everyone to Gearing It's 3rd Quarter Earnings Call. With me, I have also our CFO, Lars Sandstrom, who will present the detailed financials in a moment. Let's get started and move over to Page number 2, please. So before we get into the figures and facts of Gearing's performance in the Q3, I'd like to spend a brief moment on the latest regarding the COVID-nineteen pandemic, which is still obviously impacting not only us, but millions of people around the world as we speak. Unfortunately, we are in a situation where we continue to see record number of cases on a daily basis. So it seems safe to say that there is a second wave here now that we need to address, obviously. This pandemic is also having a negative impact on all the patients that are waiting for elective surgery, and we've seen a quite significant buildup of the back log, and it keeps growing now every day. So it's quite a challenge for the health care system. Given that the second wave that we see in these regional flare ups, it's a little bit too early to predict when we will move into a situation when this is under control. It seems like in many places, it's going in the other direction at the moment. This, of course, has a profound impact on the work situation for all dedicated clinicians out there and also on our employees, especially the ones working on the front line, but also a lot of people in the other structures, other parts of Giedingen. I'm very happy with the great cooperation that I see and the dedication from all the people. So I'd just like to start by thanking all of you as well. Thanks very much for the efforts and achievements in the Q3 of 2020. With that, we can move over to Page number 3, please. So if we start with the summary and look at the key takeaways in regards to our performance for the Q3. As well known by now, the COVID-nineteen pandemic has created a huge need for advanced ventilators for ECMO therapy products and sterile transfer products. And our world leading positions in these areas contributed to an organic 33.4% increase in sales for the quarter. And one example is that we delivered more advanced ventilators this quarter than we normally do in a year. So we've delivered 17,700 ventilators at the end of the Q3, and we are continuing to deliver at full speed here in the beginning of Q4 before we plan for any ramp down. Organic order intake is down 5.3%, mainly due to elective surgeries procedures still being behind last year's level in hospitals in most parts of the world, I should say. The large volumes overall volumes that we have though, combined with the productivity improvements that we've done in recent years, resulted in substantially higher margins, strengthened free cash flow and significantly lower net debt as well. So this meant that our leverage so significant improvement. We can then move over to Page number 4, please. So we continue to use this way of describing the impact of COVID-nineteen for us in the Q3, and this highlights the impact in different parts of our business. So ore intake is still growing for our ventilators and ECMO related products, where we are number 1 in the world. But the growth in the Q3 has been at a lower pace compared to the exceptional growth that we saw late in the Q1 and throughout the whole of the second basically. If we look at cardiac and vascular consumables for elective surgery, this was growing has been growing sequentially since May, but it's still behind the previous year's level, so in line with the assumptions that we had that it was going to take towards the end of the year for this to come back fully. Our Life Science business continues to perform very strongly in sterile transfer, which is towards pharma customers, where we are a strong market leader. In Surgical Workflows, the order intake is still muted due to hospitals focusing on COVID-nineteen, but we also do see in some areas green shoots of progress in terms of planning for investments and planning for decision making as well. When it comes to supply and logistics, we've managed to handle the challenges linked to supply of components in a very good way. I must say, I'm impressed with how the team has handled the challenges exceptionally well done in the quarter. It's been a monumental exercise to ramp up to the over 1200 ventilators a week that we've been producing for a while now. So really well done. I'm also satisfied with the fact that the interruptions in the supply chain and the production, Olive, had limited impact on the output. The 3rd quarter has been much smoother than the Q2, and this obviously can be seen in the financial performance as well in the quarter. In parallel, we've also been working on continuous productivity improvement throughout the business in a really good way. So this is one of the cornerstones of our strategy, and we're able to continue to work through that as well despite all the challenges with COVID-nineteen. In the quarter, we had some under absorption in production of capital goods, which is mostly evident in Surgical Workflows, but you can also see it in parts of Life Science with the Life Science supply chain. And then finally, from a financial perspective, we see a significantly improved margins due to volume and mix. The Acute Care Therapy products come with the margin that is higher than the average in the group. We also see very strong cash flows, partly because earnings are higher, of course. But at the same time, we've continued to work really actively with keeping our working capital at a good level despite the increased volumes. So a job well done by many people in the company in this regard. Let's move over to Page 5. We said after the Q2 that we would try to provide some more detailed insights to the dynamics of the business that are positively impacted versus the ones that are negatively impacted, both in terms of top line, but also in of cost. So this is the first shot at doing this. So let's take a closer look at the order growth so far 2020 and divide it into a number of larger building blocks. So order growth is up 19 percent in total. So large extent, obviously, related to Critical Care, where we have our world leading ICU ventilators. If we take Critical Care out, orders are down 6% year to date organically and down 4% if we add the orders coming from Apicon, which we acquired in early January this year. If we then take this one step further and take out all the product categories performing well year to date, this means that in other words taking away the order growth from ECMO related products and from sterile transfer products where we are world leading and where we've seen a strong underlying demand and really good potential to demand good potential to expand, sorry. If we take all this out, these are areas where also we, by the way, have increased capacity and already implemented and a number of activities under implementation as well. But if we take all this out, that leaves us with cardiac system, vascular systems in acute care therapies, which is closely linked to how fast hospitals can get back to historical levels on elective surgeries. And it leaves us with the demand for capital goods in Life Science and Surgical Workflows, where capital goods is down, while service and spare parts still are holding up quite well. So if we would only have these product categories to offer, then our orders would have been down 15% organically year to date. So that gives you a little bit of help understanding the dynamics from a portfolio and market category perspective. But again, we are not down 15%. We are up 19%, and we are well positioned for the long term growth with our world leading products. What happens short term, however, is very much related to both the short term development of COVID-nineteen and the second wave that I touched on initially. And that is unfortunately very, very hard to predict at the moment. With that, we can move over to Page number 6, please. So let's take a closer look on where we are trend wise when it comes to orders. We can clearly see that the trends are starting to converge now, taking us one step further towards normalization. Within Critical Care and Cardiopulmonary, we've had an exceptionally strong order intake in the late part of Q1 and throughout the Q2. We filled the order book for the 26,000 advanced ITU ventilators during the Q3. As I mentioned earlier, we've delivered 17 1,700 of those at the end of September. We continue to grow on ventilators and ECMO related products, but not at the extraordinary pace that we saw in earlier quarters. In the dialogue with our customers, it's clear that some of them are looking into increasing capacity in ITUs in order to potentially be forced to manage a second wave of COVID-nineteen and also, of course, the regular flu season at the same time. It is, however, too early to say anything about what we expect for 2021 on ventilators given the uncertainty that I just mentioned. In cardiac and vascular systems, the orders have been growing since May, but we still have some distance to go before being on par with last year's order levels. All in all, this is creating a significant backlog in hospitals, which we do we will do everything that we can to help out with. But the short term development again here is very hard to predict at the moment given the signs of the severe second wave of COVID-nineteen that is also hitting extremely different depending on where in the world you look. In Surgical Workflows, our main businesses are within products for operating rooms and the flow of sterile goods in hospitals. Both of these categories have been in some kind of low activity mode throughout the Q3 as well when it comes to the order side of the business. And this is simply because hospital allocate much of their time and resources still to manage COVID-nineteen. If you look at orders related to service, spare parts and consumables within Surgical Workflows, this has been holding up quite well as hospitals need to ensure uptime also in operating room even if it is at a lower capacity level on average. Life Science is trending upwards due to strong development mainly within sterile transfer products for biopharma customers, but we also see strong interest or strong increase in the interest related to the production of the COVID-nineteen vaccine. So we've had a boost both related to research for the vaccine, but also now for planning of production. So the major part of order growth so far this year is our still related to other biopharma drugs. Can move over to Page 7, please. Here, we'd like to take a look at what these converging trends indicate when it comes to next year's sales. So as I mentioned a moment ago, our order intake from ICU Ventilators is still growing organically, but the trend, as it seems for now, is moving towards a more normal level of net sales next year. This could, of course, change if governments and hospitals decide to increase ICU capacity in order to have a larger safety margin, but it's too early to have a view on that still. The eco trend is positive for next year when it comes to net sales with also with strong healthy margins. Cardiac and vascular system products have a margin that is much higher than the average group and the average of the group. And they also have lead times that are short basically in the same quarter from order to delivery most of the time. So the two basic questions here is when will we grow versus last year and at what magnitude. And the backlog is for sure there, and the hospitals would like to start taking care of that immediately. But as we know, there is the second wave that's holding things back for now. And as I mentioned a moment ago, geographically speaking, it's very, very different depending on where in the world you book today. In Surgical Workflows, we have longer lead times from order to delivery, up to 6 months. And given the minus 15.6 percent organic order intake year to date, it's not unlikely that we need to wait until the second half of twenty twenty one until we see a clear shift upwards in the net sales trend for Surgical Workforce. The trends in Life Science are pointing upwards in total, with expected net sales growth in the full year of 2021 in the products for the biopharma segments, which normally comes with a healthy margin contribution as well. As orders on capital goods have been soft so far this year overall and the lead times are quite long in this part of the business, it's expected to dampen the growth a little bit for next year. Overall, we see that the product categories with positive trends have quite a nice margin from a mix perspective. So this is quite clear in the actual results of the Q3 as well. Again, a lot of uncertainty here given the current COVID-nineteen situation, and there's not that much we can do about that. It's something we just have to live with, unfortunately. Let's then move to Page number 8. So when it comes to the outlook here, as a consequence of the uncertainty in the short term and the quite wide range of potential outcomes, we choose not to provide an outlook for how much we will grow net sales organically in Q4 and the full year of 2020. And this has to do with the uncertainty that I mentioned. Looking at the recovery of elective surgeries, it's very much driven from patient anxiety coming back to the hospitals. It's driven by capacity and operational ability in hospitals to manage the backlog. It differs vastly depending on where you look geographically. And there is, of course, a second wave effect when it comes to the categories that are positively impacted as well. So this overall mix makes it very, very difficult to predict. And therefore, we choose not to provide any guidance. Let's then move over to Page number 9. I wanted to share some information regarding the cost impact from COVID-nineteen so far as well. So as everyone on this call knows, this has been a year of many changes in how we work in many ways for the better, I have to say. I just wanted to give you one example of what this means for us in terms of cost savings. So during the 1st 9 months, our new ways of working has created savings within OpEx amounting to SEK 200,000,000. Roughly half of this is what we deem as structural savings, for example, from new virtual ways of meeting and training both internally but also training customers. And this is an area where we don't expect the old ways of working to come back. Cynthia, the new ways are better, creating more value, both for our customers and also for us as a company. The other half consists of activities like marketing in general, the trade fairs, sales travel and so on. So these are activities that we expect to come back to some degree when we move into whatever the new normal will look like, simply because they do make a difference, difference, positive difference here. So these are investments that we would like to start doing. So that gives you a little bit of a flavor of the COVID impact on OpEx year to date and a little bit what to expect going forward as well. Let's move over to Page number 10, please. So if we leave COVID-nineteen and the impact of that for a while and look at other activities and events in the quarter, We continue with our improvement plan when it comes to increasing productivity at a very fast pace. The initiatives that we informed about in the Q2 report is progressing according to plan and is expected to contribute with annual savings of approximately SEK130 1,000,000 gradually being realized during the second half of twenty twenty. When it comes to our offering, it has been a quite intense quarter from a news perspective, and we've chosen to provide a number of examples of this. This has been very well received, we feel, by customers and the community at large. As you might remember as well, we presented a white paper in the previous quarter presenting the benefits by using an advanced ICU ventilators, where ours is the most advanced compared to many of the others out there. Recently, we received the results from a study on the impact of patients. This study showed that the through the use of NAVA, the days on mechanical ventilation could be reduced from 12 to 8 days, which is quite a remarkable improvement with many positive consequences. Fewer days in the ICU also translate into significantly improved health economy, enabling hospitals to free up precious ICU beds and resources. Unfortunately, this technology is still rather underpenetrated, and we will do everything that we can to expand the usage. This will mean so many benefits for all stakeholders, both for patients, as I mentioned, and also the economics of the health care systems. In the quarter, we also launched a campaign called Life Defining Moments, which includes films that I really recommend you to take a look at and get a feeling of what's driving us to develop the best products out there in the market. We also received 510s for our Flow E and Flow C anesthesia systems and for our Servo Air, enabling us to help clinicians and patients in the U. S. Market with our world leading technology in these products. In the modern intensive care unit, a large number of medical devices are used that generate independent alarms. And without coordination, this can lead to a very disruptive noise levels and stress for both staff and then also for patients. So in September, getting in collaboration with other industry leading partners presented the concept of Quiet ICU. At groundbreaking solutions expected to reach the market in the next few years. This fits perfectly with getting it online that I mentioned in the previous quarterly call as well. So it's another step of making progress when it comes to digitalization and using digitalization to improve the situation for both patients and the health care systems. As mentioned before, the backlog in elective surgery is growing larger each day at the moment, which puts an even higher pressure on productivity in the surgical process in the hospital setting. As a consequence of this, we also launched a product called Torin OptimalQ. This is an easy to use planning tool where we let hospitals capitalize on our knowledge base with thousands and thousands of man hours of experience on how to plan the activities around the OR in the most effective way. Finally, on the people front, I'm proud to present Anna Ronde as responsible for legal compliance and governance for getting it. So she will join the management or has joined the management team already starting in October. She has a vast experience for multinational companies and is one of the founders of the Nordic Business Ethics Network. And Anna joins the exec team in the company and will play and Network. And Anna joins the exec team in the company and will play an integral part in the continuous work that we're doing to shape culture and behavior in Jeringue when it comes to these areas. We can then move over to Page 11, please. So in the quarter, we also announced that Geringa will be carbon neutral by 2025, which will be achieved through a combination of activities such as transition to renewable energy sources. We have reduced travel through more modern ways of meeting. We have more sustainable logistics solutions and so on. So this is some examples from our own operations. But of course, it's even more important that we help our customers with their ambitions to reduce the climate footprint. This is why we go full speed forward with our sustainable product development. I've included 2 examples here on what that can look like. So our anesthesia devices can help customers reduce the usage of the environmentally dangerous agents quite a lot. In the case presented here, the net reduction was 42%. So it's a really impactful solution. The other example comes from the use of 1 of our new sterilizers, bringing down the energy consumption with up to 30% and reducing water consumption with up to 95%. So really remarkable if you ask me. And if you don't believe me, ask our customers. This has been received very, very positively. We can now move over to Page number 12, and we'll start looking at the top line. So we had record net sales in the Q3 and orders starting to move towards more of a normal situation. So order intake, we saw a reduction of 5.3% organically. So organic order intake declined now after strong growth early in the year in Critical Care, which is part of our biggest business area, Acute Care Therapies. Order intake in most of the other parts of Acute Care Therapies and Surgical Workflows is increasing sequentially, but still are not on par with previous year. And this is mostly as a result of elective procedures still being postponed and the hospital system struggling to catch up with the pre COVID surgery levels. The organic order intake decreased marginally in Life Science, mainly related to capital goods. And I think one thing that stands out here is the negative development Asia Pacific year on year, mainly attributable to very strong growth past year, for example, in Japan, which if you go back a year, we talked about that. So it's not really any underlying trend or anything. It's more a quarterly fluctuation, I would say. Net sales increased 33.4% organically. The very strong order of growth in Acute Care Therapies 6 is exclusively attributable to advanced ICU ventilators and products for ECMO therapy. In addition, sales, albeit marginally, in products for planned vascular procedures also increased in the quarter. Sales in Life Science were positively affected by continued very good sales in sterile transfer and a bit of a recovery in sterilizers as installations were allowed to be implemented at customers. Net sales in Surgical Workflows was negatively affected by lower orders received in previous quarters. We see continued good activity in service, spare parts and consumables. So this helps to, to some extent, mitigate the negative effect of the capital goods. We can then move over to Page 13, please. When I look at the order intake breakdown by business area, it decreased by 11.7% to SEK 5,898,000,000 in the quarter. In Acute Care Therapies, we had an organic reduction of the 0.4% and SEK 404,000,000 in actual numbers. We saw continued growth in advanced ICU ventilators, quite a lower level than in previous quarter. If we look at the orders received in cardiovascular surgery products, this increased sequentially but did not reach the same level as last year. From a Life Science perspective, almost flat. It was minus 0.2 percent organically, but plus SEK 75,000,000 in actuals. Ordering take here increased organically in sterile transfer, as I mentioned earlier, but also in disinfectors, while other products did not reach the previous year's level. The positive development in Americas in Q2 was maintained in the Q3 of 2020 when it comes to Life Science as well. If you look at Surgical Workflows then, there we had a minus 14.5 percent organic development on order intake at minus SEK450 1,000,000 in actual numbers. We had here a continued subdued order activity in capital goods in all regions, and this is primarily a result of the COVID-nineteen and the negative impact that this has on the capital part of our offering. Orders received in the smallest product category in Surgical Workflows, which is integrated workflow solutions, our software business actually increased in the quarter. We can then move over to Page 14, please. If you look at the net sales then by business area, the net sales for the quarter increased by 27.9% to SEK 7,976,000,000. Currency impacted negatively by SEK 433,000,000 and Capital Goods grew way faster than consumables, service and spare parts. And this is obviously then mostly related to ventilators being delivered. So on Acute Care Therapies, we had a 63.1 percent organic increase or SEK 1,875,000,000 in actuals. Here, we have the main contributors being the intensive work to deliver ventilators and ECMO products to hospitals. This contributed to the sharp increase in turnover that we see here. Deliveries of products for planned vascular surgery increased marginally, while the sales of products for cardiac surgery were still lower than at the same period last year. Sales of durable goods increased sharply as a result of large delivery of ventilators, as I mentioned earlier. And if we look at the supply chain perspective on sales, say the disruption in Production and Logistics, have had a limited impact on deliveries in the quarter. It's been a much smoother quarter than the Q2 this year. If we move then to Life Science, we had a 33.4 percent organic improvement or SEK 232,000,000 in actual numbers. So net sales increased organically in all regions and product categories due to large deliveries, some of which were actually brought forward. Growth was particularly high in sterilizers where installations could resume on a larger scale during the quarter and in sterile transfer, where growth from previous quarters continued to strengthen. If we then look at Surgical Workflows, we had a minus 11.2 percent organic sales development or in actions, minus SEK368 1,000,000. And this is the lower order intake in the first half of the year that had a significant impact on the sales development in the 3rd quarter. Sales in the 2 major product categories, infection control and in surgical workplaces, significantly decreased And we did integrated solutions or integrated workflow solutions, which is a softer part, kept up sales a bit better compared to the previous year. And as I mentioned a couple of times, sales in service, spare parts and consumables were also relatively good compared to the Q3 of 2019. With that, we can move over to Page 15, please see, and we look at the gross profit perspective. So adjusted gross profit increased by SEK 1,207,000,000 to SEK 4,378,000,000 in the quarter, driven mainly by the significant sales growth in ventilators and ECMOVE products in acute care therapies and sterile transfer in Life Science. The gross margin continues to strengthen. Of course, this is heavily impacted by the increased sales in acute care therapies, which brings both healthy product and also regional mix. At the same time, we see headwinds when it comes to under absorption within production capital equipment, particularly in Surgical Workflows, but also in parts of Life Science. All in all, the things mentioned together with the implemented productivity improvements in earlier this year and then 2018 2019 and also a slightly positive currency effect on the margin, we ended up with a 4.1 percentage point increase in the adjusted gross margin. And then to go further down the P and L, let's move over to Page 17. And with that, I leave over to you, Lars. Thank you, Matthias. Adjusted EBITA then increased by SEK 1,352,000,000 in the quarter, and adjusted gross profit impact on the margin amounted to 3.8 percentage points due to the reasons Mattias just mentioned there. And looking further on the P and L then, we managed to keep adjusted OpEx stable organically despite significant growth in net sales and some incremental increase in R and D spend. This was possible due to new ways of working, which is most evident in the sales organization, which Matthias already mentioned, in combination with the long term activities to improve productivity that we have been informing about since long. All in all, the significant growth in combination with only small changes in OpEx translated into significant leverage and margin impact of 8.3 percentage points. Currency effects had an impact of SEK 30,000,000 on adjusted EBITDA and 1 percentage point impact on the margin. All in all, this resulted in an adjusted EBITDA of SEK 2,000,000,000 28,000,000 compared to SEK 677,000,000 in Q3 2019. And the margin increased from 10.9 percent to 25.4% year on year. Over to Page 18, please. Let's take a look at the BA contribution to adjusted EBITDA. Starting with Acute Care Therapies. Here, we increased the adjusted EBITDA by SEK 1,370,000,000 and the margin improved by 19.5 percentage points, thanks to the sharp increase in sales volumes from ventilators and ECMO related products, despite the year on year decline in consumables for elective cardiovascular procedures, which normally comes with a somewhat higher gross margin. Life Science, adjusted EBIT increased by SEK 83,000,000 and the margin increased by 7.8 percentage points, mainly due to increased volumes and mix effects and here also then due to the increased sales in sterile transfer. Surgical Workflows adjusted EBITDA decreased by SEK 109,000,000 compared to Q3 2019, and the margin decreased here by 4.8 percentage points as a result of lower sales volumes and under absorption in the 2 main product areas, surgical workplaces and infection control. Service, spare parts and consumables held up quite well on sales, as Matias said earlier, but could only mitigate the decline to some extent. The adjusted EBITDA was negatively impacted by SEK 30,000,000 in currency effects in the quarter. Then over to Page 19, please. The free cash flow was strengthened by SEK 980,000,000 to SEK 1,567,000,000, mainly due to increased earnings and continued active work on keeping working capital in control, which continues to decrease in terms of number of days, which is, of course, now helped by the steep increase in revenues. And we are now just below 100 days, down 30 days from the peak in Q2 2018. We also see a steep increase in our operating return on invested capital, where we take a jump from the long term trend we have seen since Q2 2019. And now we are at some 17.8% on a rolling 12 month basis. Then let's move to Page 20, please. Following the good and strong cash flow here, the net debt came down to SEK 9,900,000,000 compared to SEK 14,000,000,000 in Q2 2019. And if we adjust for pension liabilities, we are at SEK 6,300,000,000. This brings a leverage of 1 point four times EBITDA. And if we adjust for pension liabilities, the leverage is at 0.9 times. Liquidity was unchanged during the quarter since we continue to amortize loans and also paid the dividend during the quarter. And cash amounted to approximately SEK 5,700,000,000 at the end of the quarter here. And this is, of course, something we're looking closely at. And our intention is to have a more effective balance sheet and reduce the level of cash. But we also follow and make sure that, if things have normalized a bit more here, then that will also start happening. Then let's move to Page 22 and over to Mattias. Right. Thank you very much, Lars. I'll make a brief summary here before we move to Q and A. So Q3 of 2020 was a quarter of record sales growth. We also see greatly improved margins, partly because of the volume effect, of course, but also because of the good operational leverage in the business, thanks to the productivity work done in earlier part of this year previous years. This also translates into a significant strengthened free cash flow, bringing down the leverage to under 1.4% now compared to 3.1% a year ago. And most importantly, our intense cooperation with the hospitals and clinicians around the world really continues both to fight the second wave of COVID-nineteen, but also now help with bringing back elective surgeries, reducing the backlog that has been built up and helping move towards a much more sustainable and better performing health care system going forward. With that, a very strong quarter, and I open up for Q and A. Thank you. You. Our first question comes from the line of Katherine Tennyson at Bank of America. Please go ahead. Your line is open. Hi. Thank you so much for taking my questions. I have 3 highlights. So firstly, I was just wondering if you could give us a sense of how 2021 might compare to 2019 for your 3 core businesses based strictly on what you're seeing in the order books and on the leads and conversations that you're having now in H2 as customers plan for 2021? Secondly, on your cardiovascular business, we are seeing a return to Aleksey's procedures. Just wondering what levels of inventory in your hospitals in Europe and the U. S. Have? And perhaps, is there a bit of a lag time there before we see that elective recovery fall into your numbers? And then thirdly, if you could just give us an idea, I appreciate it's early days in Q4, but what levels of recovery are you seeing in ACGX ventilators? Thank you. Yes. Thanks, Kevin. Can you repeat the third question? I didn't quite get the Q4 regarding ACT there. Barry, just repeat that again with your cut outs. Yes. Can you repeat the third question? I didn't quite get that. It was just on the base OC3 business in Q4, what levels of the cabaret are we seeing relative to Q3? Okay. All right. When it comes to 2021 versus 2019, we've chosen not to give guidance for either Q4 of this year, but also not for 2021. And it's simply because it is still very dynamic, a lot of moving parts. We've done surveys and looked at data. And if you look at the because it all hinges on the both, of course, the say, how we handled the 2nd wave of COVID-nineteen, but also then the comeback of elective surgeries. And if you look at the reasons why elective surgery isn't coming back as strongly as one would have hoped at the moment or as quickly as one would have It's driven by patient anxiety. People don't dare to go to hospitals still. That's a major factor, more than maybe we would have thought during the first half of the year. There is a lack of trained clinical staff in many hospitals around the world. And there are operational challenges as well. We're operating room capacity in some areas and so on. It's just planning ability in other areas. So this just makes it very, very difficult to predict. And also, as I mentioned, very big geographic differences depending on where you look around the world. So it makes it impossible to really make any credible statements about the finish of this year and also 2021. When it comes to the order book, though, as we wrote in the report, it is on a higher level than the same period last year. And it's not only because of the ventilators or even if that has a big impact or a big part of the order book still, but we have delivered 17,700 so far this year. We have a couple of very hectic weeks ahead of us still. And then planning for a ramp down that we will see how much we we actually do or how much capacity we keep depending on how the second wave evolves here. When it comes to cardiac surgery and the level of inventory, if you look at backlog numbers, so this is evolving and the statistics are a little bit different, both in terms of numbers, but also reliability depending on where you look. But there's millions of surgeries now in backlogs around the world. It is, in my view, impossible to predict the magnitude and the pace of the comeback. If I look at the forecast that were done at the beginning of this year and how that has actually panned out so far, there hasn't been a great accuracy even in those forecasts. So it doesn't really give you courage to make a lot of statements about the future either. But we do see much better planning and a bit more productivity than we saw in the 2nd quarter. So I think that is promising. It's more down to the patient anxiety, the lack of staff, partly lack of operating room resources and planning ability that I alluded to. If you then look at ACT and the Q4 level of activity, I can't say much more than that we've seen when it comes to ventilators. We had a peak of demand order intake wise in the middle of the second quarter, and then it was much more quiet in July. And then it has started to pick up again, which makes the planning more difficult. So we were expecting a continued decline all the way back to normal levels, but we don't see that at the moment. It's just very difficult to predict, but the trend has changed a bit. And the opposite impact is what you see when it comes to the elective surgery cathingovers, where we saw really a steady incline or a steady improvement, especially at the end of the Q2 and then sequentially during the Q3, but not yet back to the 100% levels. And I don't think we will be back to 100% level also before the end of this year now. So I think it will be a bit more prolonged recovery of the backlog or working down on the backlog than maybe we expected in the Q2 of this year. That's really helpful. Thank you. Thank you. Our next question comes from the line of Annette Luk of Handelsbanken. Please go ahead. Your line is open. Thank you so much. First of all, on the ventilators, you have now delivered almost 18,000. Can I is it as simple as the total order book is 26,000, so would you be able to deliver all of your ventilators during the Q4? Or will there still be some element of delivery like in the Q1 of 2021? And then to Life Science, assuming that we sometime during 2021 will reach a vaccine for COVID-nineteen, how do you see a potential within the beta bags for that part of your division? Thank you so much. When it comes to the order book, we did fill the order book during the Q3 as expected, so the 26,000. The order book as we speak is actually a bit higher, but we do expect to deliver the 26,000 during this year. There's no change to that. We have the capacity to do that and we have no cancellations. So we would deliver at least the 26,000 events this year. When it comes to the Life Science part and the questions on vaccine impact, I think this is one of the areas where that makes predictions for 2021 difficult because we've had a really good momentum during 2020 in this part of the business. We can see now that we are in discussions with most of the companies that have vaccines under development. And depending on who succeeds, we've had different magnitudes of impact on us. All very positive scenarios, but quite a big difference in the potential output. Can you then just to follow-up on the first question. In respect to Q1, should we expect any delivery of ventilators? Or will we basically, based on the information you have right now, going down to 0? No, no, it will not go down to 0. It's we expect to deliver 26,000 this year, and we expect to deliver quite a month, a bit of ventilators in Q1 next year as well, but I can't give you the amount. But it's certainly it's not a saturated market, and we have some in the order book also for Q1. Okay. Thank you so much. Thank you. Our next I have a couple of questions. First, just a clarification. Did you say it was uncertain how much sales would grow in Q4 that didn't appear so well? Yes. Yes, correct. Okay. And then regarding Slide 9, cost savings. Is this only a part related to COVID? And if so, could you update us a little bit about the other type of cost savings from the restructuring and the status of closing the margin gap versus international competitors? The EUR 100,000,000 plus EUR 100,000,000 that we showed there, obviously, COVID related impacts. If you look at the other productivity improvements, these are different numbers. So we did mention the other restructuring of SEK 130,000,000 impact starting in the second half of twenty twenty one. So all those initiatives are going on as well under the surface. And think if it's one thing that I think it makes is difficult when it comes to from a numbers perspective with the pandemic is that a lot of the good progress when it comes to productivity is kind of overshadowed by everything that's happening here. So we're trying to provide a bit more granular information. But to answer your question, the what you saw on the slide there is the COVID impact and then there's additional restructuring impact that you'd see from the second half of this year. Okay. 2 more very quick ones. You talked about the excessive amount of cash. Are you planning for Sorry, you broke up there. Can you repeat the question, please? Yes. It was mentioned that you have a high amount of excess in cash on the balance sheet. So and that would be adjusted. So is that going to come in extra dividends or paying down debt? That's a discussion for the board. But we paid down debt already now in Q3, and we'll continue to do that for sure. But then, of course, there needs to be a discussion. I mean, our priorities capital allocation priorities haven't changed otherwise. It's M and A is still a potential area of cash allocation as well. But then, of course, a dividend discussion may need to take place in the board also. But that's too early to say, and it's a question for the board. Okay. And a very quick one. Consider your commentary about ventilated demand picking up now again. Does that mean we could see or what will that mean, you think, for 2021 and the likelihood of selling less or more than rental, I just don't know, in 2019? Yes. We've seen a change in trend when it comes to order pattern in ventilators. So a little bit up again towards the end of the quarter. But it doesn't really, at this stage, at least change our view on 2021. We still think that 2021 is a year of more back to normal for our Critical Care business. That's the main scenario that we have. Okay. But of course, it's rather big difference if you sell 8,000 or 12,000. But maybe that's too early to tell. Yes, exactly. You're right. It's a big difference, but it's too early to say what's realistic. Okay. Thank you. Thank you. Next question comes from the line of Peter Testa of 1 Investments. Please go ahead. Your line is open. Hi. I have a couple of questions, please. One is you've highlighted the time lags on surgical workflows and also some of the mix changes that you have within the acute care business and different divisions of equipment going at different paces. Can you give some sort of sense as to how you're thinking about cost alignment with this and the flexibility that you have to say manage the margins in surgical workflows or the cost structure in the production side of acute care? Yes. You're mixing a little bit, I think, surgical workflows and acute care. Now if I start with surgical workflows, as you've mentioned as I mentioned on the call, there a lead time of normally 6 months when it comes to between order and delivery of Surgical Workflows equipment. So of course, we manage capacity in the factories to the best ability when it comes to these fluctuations. So we've made some temporary reductions to cope with the lower activity of beer that we are in at the moment. When it comes to other cost adjustments, we're more or less following our original plan. There was a solid plan before the pandemic already to restore profitability in Surgical Workflows with the aim to arrive at the double digit digit EBITA margin. So all those activities are still being implemented. We are continuing the factory transitions that we had initiated from Manka to Postman, for example, that's been going on despite the pandemic and other transfers we're doing of product part of the portfolio as well. Quality value engineering initiatives are still going on despite the pandemic. So overall, there's good work being done in Surgical Workflows related to the original improvement plan that we launched a couple of years ago. When it comes to Acute Care, it's, of course, also capacity balancing in many aspects. With the ventilator production, we are ramping with still a plan to ramp down during November December to more towards more normal levels. But we maintain some flexibility, especially when it comes to component sourcing to be able to respond to potentially higher demand, but without risking entering 2021 with too much of a cost structure. And then for the other parts of Surgical Workforce when it comes to capacity, we've adjusted that a little bit on the elective surgery exposed products as well, while being in a factory move situation as well, where I think the team has done an exceptional job here in the middle of the pandemic. So we do make adjustments there as well, and we have some we have a rather flexible setup already in the 1st place here. So that's less of a challenge, I think, for us. Okay. And then the other question I have was just looking at the consumables trends. I was wondering if you could give some sort of view in the different divisions as to what the consumables trend has been like through the quarter or maybe exit rate, just some sort of understanding as to where you are? It's held up pretty well. It's better UT is obviously better than Q2, But just getting some sort of sense of exit rate would be great, please. Yes. I can't give you an exit rate at the end of the quarter. That's not something that we disclose. But the overall dynamics is that first of all, you should be aware that Ventilators and Stera Transfer, they are capital goods, both of them. So that's clearly reflected in the numbers. When it comes to Ecmo, there is a hardware component, but it's also largely a consumables business. This has continued to trend positively during the quarter. It's still more of a situation that we are the bottleneck with our manufacturing. So we're continuing to implement the investments that are already decided to take out some of the bottlenecks and increase capacity here. So and I expect that to be the picture going forward as well. We have now, in addition to COVID-nineteen, the normal flu season coming up. So it's going to be a very busy 4th quarter for us from a cardiopulmonary perspective, I'm sure. And then when it comes to consumables in Surgical Workflows, for example, this is one category in the Post SW portfolio that has held up recently well. It's quite linked to elective surgery development actually. So I think that's probably the best indication I can give. Maybe just to elaborate on that. Given the length of elective surgery for some of these and the fact that it's picked up from obviously the low periods coming out of Q2, does that mean that you probably finished the quarter better than the average? Or do you think they're pretty average in the elective surgery exposed businesses across the period? I really I can't we've chosen not to provide guidance on this because there are a lot of moving parts here. But we are optimistic about Q4. I feel very comfortable with the situation that we're in. But since it's such a big difference between the best case and the good case, it's we've provided decided not to provide a forecast. Yes. Okay, fine. Thank you very much. Thank you. Our next question comes from the line of Oliver Rijndek of Kepler Cheuvreux. Please go ahead. Your line is open. Thanks very much for taking my questions. 3, if I may. Firstly, coming back to the split you provided between COVID and non COVID business where we have seen the 15% decline in the 9 months. Can you actually share with us the numbers, what you've seen in Q3? And also how that changed versus Q2, which probably was a trough? And to what extent you also see that clients are pushing back here not only on priorities, but also because it's a lack of funding. Secondly, coming back of rents, if I may, when you're saying that 2021 will trend down towards a normalized year, The way I would read that is, however, that still 2021 rents should be above the level of 2019. Is that correct? And can you also talk about the service attachment rate of the ventilators that you're currently selling? And then lastly, on ECMO, you mentioned there's still obviously some kind of supply constraints. Can you talk about what kind of capacity increase plan? How are you ramping up on that currently? And is the demand is also still expected to be strong next year? Thanks very much. Well, that was quite an amount of questions. When it comes to the first one, on Q3 split, I can't give you that off the top of my head in the call. We've done a year to date split, so we would have to look into that separately. What we could mention there is that, of course, Q1 was more of a normal quarter and the COVID impact was increasing in Q2 and Q3. So the and so that is, I think, clearly and especially when it comes to the capital equipment that was more impacted during the Q2 and Q3 compared to Q1. So that is that helped a little bit, I think. Yes. When it comes to the reasons for surgery delays, it is most of the areas that I touched on battling the COVID 19 both end of first wave and the way with the beginning of the second wave. There is patient anxiety. There is the lack of clinicians, trained staff. Finance, I would have expected to be a little bit higher on the agenda, but we don't hear that much of that. It's mostly in the U. S. Where you see some hospitals holding back, much less so in Europe and then certainly not much in Asia. And the question of the 2021 bent level, I can only say it more or less back to normal. But again, there is, say, a quite big span on the different scenarios there as well. So it's just too early to say. With attachment rate, I'm not sure what you mean if you mean service contracts. But this is in general, I'd say the installed working with the installed base is a key priority, not only when it comes to service contracts and the attachments of those, so service work and spare parts. But also, there's a training element here. There is a connectivity element. There is a software upgrade element. So there are many different ways of working within Formbase compared to 5, 10 years ago when ventilated was a more mechanical than electromechanical and software driven product. And And then I think the final question was on the ECMO ramp up, which is going well, really both keeping up production levels in the normal setting, so to speak, while making this capacity expansion. We do believe that this growth is sustainable and that also next year, the growth here should be above 10%, so in line with the historic level before COVID-nineteen basically. Okay. Thanks so much indeed. Thank you very much, Oliver, for that question. Lars Mattson here, Head of Investor Relations. This we are running over time at the moment, so I would say that this was the last question and the last answer for Matthias this time around. I would like to thank you all for participating, and please contact me if you have any follow ups. Very good. Thank you, Lars, and thanks, everyone, for listening in today. I wish you a good rest of the day. Thank you very much.