Good day, and welcome to the Getinge Group Q4 Report conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Joacim Lindoff. Please go ahead, sir.
Thank you very much, and a warm welcome to all of you, and thanks for joining the earnings call today. The presentation for today is accessible via a link in the report, and it's also available on our webpage under the Investor Section/Presentations. Together with me, I have our CFO, Reinhard Mayer, who will support me during today's call, and he will be presenting the Q4 financials in more detail, and obviously, join me also during the Q&A session. I would like to begin with slide number three in the presentation deck, which gives you the fourth quarter in brief. As a starting point, I would like to highlight that it's been a quarter with continued focus on both short and long-term improvements within the group.
Despite the challenging development with negative order intake and net sales, which impacted the gross profit negatively, we delivered an EBITDA before restructuring cost in the quarter of SEK 1,970 million, which is an improvement of 2.6% versus last year. This is very much thanks to our Efficiency Enhancement Program that continues to develop well. The restructuring and integration costs for the quarter were higher than last year due to the transformation process, which still continues within the company with good speed. In the quarter, we had larger write-downs of intangible assets, mainly related to IT systems and R&D, which is also included in the numbers.
I am really pleased to see the strong cash flow from operations during the quarter, which increased with 20.2% to SEK 1,783 million, and we also saw the cash conversion increasing to 80.4%, compared to a 68.5% in Q4 2015. During the quarter, we launched a new governance model for the sites under the Consent Decree in order to further enhance the level of control and progress. The remediation process continued with very high activity, and inspections are carried out on a regular basis in line with the CD and our ongoing discussions with FDA. As mentioned before, we are in close contact with the FDA and follow their guidance and requirements very closely. However, as we've also stated before, we cannot rule out new requirements or additional costs from the FDA.
Rest assured, we will get back to you with an update as soon as we would have new information from the agency. In October 2016, we announced that the board of directors had tasked the executive team in Getinge to prepare for a listing and distribution of Patient and Post-Acute Care to our shareholders. Obviously, this is pending a shareholder decision, and we would do this in order to capture the full potential of the business. The preparation project has progressed very well during the quarter, and we have named the executive management team for the new company, which will come into effect April 1st, 2017. Our plan is that the business area will start working as a standalone business within the group from that same date.
The board of directors is proposing a dividend of SEK 2 per share, corresponding to approximately 40% of our net profit in 2016, which is in line with our dividend policy, and according to us, a well-balanced proposal. In summary, the quarter has been challenging from a top-line perspective, yet encouraging with actions, both short-term and long-term positioning of the group, of the company. We have gained substantial operational efficiencies, thanks to our Big 5 program, and we have made progress in key areas, ensuring our long-term profitable growth. So I'll take it step by step now and move over to slide 4. The organic order intake in the quarter was -1.1%, which obviously is not on a satisfactory level.
The main reason for the decline is a significant drop in Surgical Workflows, which did not live up to last year's strong performance in Q4. At the same time, it is encouraging that Acute Care Therapies is performing well in the quarter, and Patient & Post-Acute Care shows order intake growth after a period of negative trend. Our region, APAC and Americas, reported organic order intake growth of 5.5% and 2.4%, respectively, while EMEA reported a disappointing 6.9% decrease performance, to a large extent related to the decline within Surgical Workflows in Northern Europe, U.K., our DACH, and Benelux areas. If we then move over to the organic net sales, we had a decline of 2.3% compared to Q4 last year. This was due to mainly two reasons.
Firstly, as you know, we had a negative order intake of 3.2% in Q3 2016, which is clearly reflected in the level of net sales in Q4. Secondly, Surgical Workflows reported a decline of 7.2% compared to a strong quarter last year. Acute Care Therapies reported a 2.5% growth on inorganic net sales, while Patient & Post-Acute Care was down 0.9%, mainly due to a weak order intake performance in previous quarters. The organic sales decline in all three regions. EMEA and APAC declined around 1%, while Americas saw a more significant drop of -4.8%, mainly due to lower sales within Surgical Workflows.
Moving over to slide five, and I will try now to provide you with a high-level update on the performance in the respective business areas, and we will start with Surgical Workflows. The decline in order intake for the quarter amounted to -9.2%, and was mainly due to weak performance in the Infection Control part and Integrated Workflow Solutions, where the main drop came from delays in projects around our OR Integration side. We also saw a drop in order intake in our Life Science business for the quarter. All of these areas did not live up to the strong performance with double-digit growth that we saw in Q4 2015. APAC grew slightly in order intake, mainly due to strong performance with operating tables in Eastern Asia.
A significant decline took place in EMEA, driven, as said before, by our regions in Northern Europe, U.K., DACH, and Benelux. We also saw Americas declining, mainly driven by U.S. and Canada. The organic net sales development for Surgical Workflows was disappointing as well, with a decrease of 7.2% versus Q4 last year. This is a result of the lower sales, primarily in Infection Control and Integrated Workflow Solutions. The net sales trend was positive in Life Science, thanks to extensive deliveries during the quarter. Life Science, in general, presented a very positive year, both in net sales and profitability, which is very good to see. All regions saw organic net sales decline in the quarter. Most notable was the decline in the Americas, mainly caused by reduced revenues from Surgical Workplaces and Infection Control in the U.S.
The lower net sales had an impact on the gross profit and EBITDA before restructuring for the quarter, but I would like to say that the effect, too, was to some extent offset by savings coming from our efficiency enhancement program. In Surgical Workflows, we have launched a plan in order to reignite growth in Surgical Workflows, especially addressing the U.S. and EMEA markets, and obviously, also in a longer perspective, addressing the tier two value segment marketing, targeting especially the growing demand in emerging markets for our products. In 2017, we will also launch more products and solutions in Surgical Workflows than ever before. These launches includes new operating tables, new pendant range, new operating light range, new solutions for low-temperature sterilization, new solutions for our integrated workflows area, et cetera.
We feel very confident that these launches will drive a positive development of the business and in the business area going forward. Moving over to slide six, Acute Care Therapies, where the organic order intake totaled +5.4% due to an increase more or less all across the portfolio. Best performance was seen in Cardiopulmonary and Vascular Interventions, with an increase of 13.5% and 21.9% respectively. The net sales increased organically by 2.5%, despite the 4.1% drop in organic order intake that we saw in Q3 last year. The increase is again broad, but we see especially strong performance with Cardiac Surgery, Cardiopulmonary, and Vascular Interventions. All regions are showing growth, both in organic order intake and in net sales.
Strongest growth in the order intake took place in APAC, which was up with 9.3%, and the best performance in organic net sales took place in EMEA, with a positive of 4.5%, with good performance, for example, in Middle East and Africa. High net sales contributed to a strengthened EBITDA before restructuring, which increased by a healthy 11.9% and amounted to 923 million SEK for the business area. All in all, a good performance, both for the quarter and full year, and we will obviously continue to build on this in 2017 and onwards, both in terms of sales and R&D investments.
If we move over to slide seven, and our Patient and Post-Acute Care, where we saw order intake increase organically by 1.4% compared to the same period last year, primarily as a result of strong growth in capital goods, especially among our IPC pumps, preventing deep vein thrombosis. The organic order intake growth was strong in Americas, mainly within the capital segment. APAC increased its organic order intake as well, while we saw reduced order intake in EMEA, mainly caused by the development in our hygiene product ranges and medical beds. Organic net sales decreased by 0.9% in the quarter as a result of declined sales in hygiene products and medical beds. On the other hand, we saw growth in several product groups, such as main products for prevention of deep vein thrombosis.
Capital goods increased their share of the total sales marginally versus rental and service. APAC and EMEA saw organic sales decline in the quarter, with 6.1% and 1.8% respectively, while the Americas grew 1.8%, thanks to positive development in medical beds. The gross profit and overall margins were strengthened as a consequence of favorable product mix and higher efficiency as a result of the ongoing efficiency program. As a consequence, EBITDA before restructuring increased by 3.4% to SEK 630 million versus Q4 last year. We continue to strengthen our product line in this area as well, and we will continue to support this and support our growth plans, both in Acute C are and in the long-term care arena. Next slide, please, and going into FDA.
As you know, we continue to work hard and focused with our remediation program as previously described, and we are in close contact with FDA. The improvement work in Getinge has continued at the same robust rate as before, and we have, during the quarter, utilized around SEK 70 million for remediation, covered by the provision made in Q3. During the quarter, we have also launched a new governance model for the sites covered by the Consent Decree. The new model brings further clarity on responsibility and authority, and therefore, further enhances the level of control in order to meet the time schedule for the remediation process. The development of our remediation program is followed up closely by the Getinge executive management team, at least on a biweekly basis.
To the right of this slide, you will see a brief background on the Consent Decree and where we stand as a repetition for those of you who have not seen this one before. Moving over to slide nine. In October 2016, the Getinge executive team was tasked by the board of directors to prepare for listing and distribution of our business area, Patient and Post-Acute Care, to Getinge shareholders. During the fourth quarter, we have had strong progress in this project, in accordance, I would say, in accordance with the plan that we have, and we are following a structured and very well-managed process. Our intention is that Patient and Post-Acute Care will be a standalone business within the group as of April 1st, 2017.
The plan is, as before, that the listing will take place latest in Q1 2018, obviously, pending a shareholder decision planned for at an extra shareholders meeting in autumn 2017. The executive management team for the new company has been appointed, and they will start working as this team from the, from April 1. All positions in this team are recruited internally, except for the new CFO, Mr. Jonas Lindqvist. Jonas currently works for Beijer Ref, which is a listed company in Sweden, where he has held the CFO role since 2004. Jonas will join us latest on July 15, and until he arrives, we will have an interim CFO in place. As being communicated earlier, the financial targets are being reviewed during this process, and this goes both for the new company and for Getinge.
The review targets will be presented as soon as the preparation of the proposal to the shareholders is finished, most probably during Q3 2017. Then I suggest that we move to slide 10, and an update on the efficiency enhancement program. As stated in our Q3 report, the integration process continues, mainly within Acute Care Therapies and Surgical Workflows, while further and new integration activities, including our Patient & Post-Acute Care business, has been paused. This is a natural effect of the preparation for the distribution and listing of the business area. Obviously, efficiency projects not related to the integration will continue, both within the new company as well as in the new Getinge setup. All in all, Big 5, the Big 5 efficiency enhancement program has continued with high speed in the whole organization during the fourth quarter.
The program delivered increased savings amounting to between SEK 140 million and SEK 150 million, and accumulated for the full year, we have delivered savings of SEK 395 million-SEK 420 million, which is ahead of our initial plan. We see planned progress in our lean sales and admin process, and also very nice progress in our actions around direct sourcing, where we have overachieved with regards to the targets that we had for the full year. This, for me, very much confirms the commitment within the organization to drive operational efficiency. And to be clear, our efficiency enhancement program continues within all our entities going into 2017.
Before I then have the pleasure of handing over to Reinhard, I would like to update you briefly on our situation when it comes to R&D, and this is on slide 11. We have a large and strong pipeline with product launches for 2017, especially within the Surgical Workflows. And we have a long-term plan to meet the growing demand within the value segment or tier two, and that, especially within emerging markets, which is articulated in our newly launched strategic plan for the emerging markets. As we stated in our Q3 report, we need to focus on areas of strength within the business going forward and to grow from these unique positions.
One part of the solution is to make complementary acquisitions, which is obviously always on our agenda, and another part is to allocate more and focus R&D resources into the areas where we want to grow. We, as a company, will be investing significantly more in these areas in 2017 and onwards, and we have, therefore, increased our gross R&D budget for 2017 to support our long-term profitable growth in a very tangible way. By that, I would like to hand over to Reinhard for a financial overview, and I will then be back for the summing up and the outlook. Reinhard?
Thank you, Joacim. So let us move to our results, slide 14, which shows the performance on group level. As Joacim mentioned, the organic order intake in the quarter was down 1.1% compared to the same quarter last year. From a regional perspective, EMEA showed organic decline in order intake in the quarter, leading to a 1.1% decline for the full year, 2016. Americas had a positive organic order intake in Q4 of 2.4% and ended on a 1.1% decline for the full year due to the decline we have seen in Q2 and Q3. When looking at the organic net sales, we had a decline of 2.3% in the fourth quarter versus last year, to a large extent, due to weak order intake in Q3.
The organic net sales for the financial year were down 0.8% due to performance in Q3 and Q4. GP margin declined 1.1 percentage points to 46.1, compared to in Q4 2015, which driven decline in net sales and price pressure, especially within the Surgical Workflows. Acute Care Therapies was affected by significant amount of ventilator deals with lower margin in this quarter. Full year is down with -0.3 percentage points, driven by net sales decline and price pressure. The operating expenses were down 3.9% in the quarter, and 4.9% for the full year, mainly due to the efficiency enhancement program, Big 5. Selling and admin expenses increased due to increased focus within the quality function. However, strengthening the organization and the processes, which will bring benefits on a long-term perspective.
When taking current effects into account, the increase was only 0.2%, which is basically flat, despite our increased focus within quality, which I just mentioned. EBITDA before restructuring increased with 2.6% to SEK 1.97 billion for the quarter, which leaves us with an EBITDA margin of 20.7% compared to 20.4% in Q4 2015. The full year, EBITDA before restructuring increased with 3.9%, and the EBITDA margin increased to 14.6%. Let's move over to slide 15 and the restructuring cost. Two factors have had a material impact on our restructuring costs during the quarter. First, we have write-down of intangible assets related to IT systems in Surgical Workflows and Patient & Post-Acute Care, which are moving both into an SAP environment.
We have also seen a write-down of R&D projects related to sterilizers and endoscopes within the Surgical Workflows business, which resulted out of impairment tests undertaken when closing the book. In total, the write-down of intangible assets amounts to approximately SEK 170 million. Secondly, we have other restructuring and integration costs related to the ongoing transformation within Surgical Workflows and Acute Care Therapies, amounting to SEK 151 million. In total, restructuring and integration costs amounted to SEK 1,313 million for the full year 2016. Now, let's change to slide 16 and the foreign exchange effect. Just a repetition, and for all of you who are new to the Getinge Group. The group has two dimensions of exposure. First dimension is currency transaction exposure.
This relates to when the group's factories are selling to the group's foreign subsidiaries, which we hedge for. The other dimension is the translation exposure. This relates to when the group company results are translated into Swedish krona. This effect is not hedged. I'm not going to go through all the details behind the development, but you could see that on the EBITDA before restructuring costs, the transaction impact was SEK -14 million and the translation effect was SEK -6 million, resulting in a total effect of SEK -20 million for Q4. For the full year, 2016, we saw a positive impact from transaction effect amounting to SEK 106 million. For 2017, we expect that currency transaction effect to increase to SEK 200 million for group earnings. Let me move to slide 18 and our balance sheet.
Net debt amounted to SEK 23.4 billion at the end of the period. Adjusted change in net debt amounted to SEK 1,359 million, and the net debt to equity ratio improved with 4.9 percentage points to 111.8%. Net debt before restructuring ratio decreased slightly to 3.88 for the period. Finally, we go to slide 20. When we look at the cash flow for the quarter, we saw a strong improvement in the operational cash flow and a substantial increase in cash conversion. The group's operating cash flow increased with SEK 300 million, representing a growth of 20%, and the cash conversion increased to 80.4%, compared to 68.5% for the corresponding quarter in 2015.
For the full year, 2016, cash conversion increased to 6.9%, 73.6. Cash flow after investing activities increased with 113% in the fourth quarter, and 12.6% for the full year, 2016. Now I hand over again to you, Joacim.
Thank you very much, Reinhard. Before I am summing up, I would like to give you a few comments to our outlook for 2017, and we are now on slide 22. We believe that we will see a slight positive growth in organic net sales in 2017, mainly based on our analysis of market growth, our pipeline, and as I described before, the product launch just described. As stated before, the currency transaction effects are expected to have a positive impact of approximately SEK 200 million for 2017. When it comes to the financial consequences of the Consent Decree with FDA, and again, then excluding costs for the remediation program, we expect a negative impact as an effect of loss of sales of SEK 50 million on the group's 2017 operating profit.
As stated before, we will inform you if further material input from FDA is received. It is, in this context, also important to underline again, that our remediation work is progressing with full speed and according to plan. We will not be able to give you a detailed guidance on the restructuring costs for 2017, mainly due to the ongoing spin-off process. Our current estimate is, however, that it will be significantly lower than in 2016. For example, we do not foresee additional remediation costs based on our current information from FDA, and we also do not see further significant write-down needs related to R&D. These two cost drivers alone added up to more than SEK 500 million in restructuring costs in 2016.
So finally, before I open up the question, I would like to do a very brief summary. In the quarter, we continued to focus on both the short-term agenda and the long-term progress of the group and its business areas. Organic order intake and net sales development in the quarter was not on a satisfactory level for the group, to a large extent due to disappointing performance within Surgical Workflows. However, I am pleased to see an increase in organic order intake in Patient and Post-Acute Care in the quarter, and a robust growth within Acute Care Therapies. Our efforts on the cost side is clearly reflected in the positive trend in EBITDA before restructuring, which continued to increase by 2.6% for the fourth quarter and 3.9% for the full year.
Also, cash flow from operations increased with 20%, and the cash conversion increased to 80.4% in the quarter. Our efficiency program continues to deliver on, and in some areas, above plan. We continue our focus in this area, obviously taking the spin-off process into account, and strongly feel that this will create a good base for continuous improvements and free up resources for further investments in, for example, R&D. And as always, our focus on the quality remediation program has been and remains a top priority, and we are putting the necessary resources in place to meet and exceed the FDA expectation.
As always, I'm also confident with our long-term strategic direction in place, a plan for handling the challenges within Surgical Workflows, and the upcoming future listing of our Patient and Post-Acute Care business, we will continue to build sustainable and profitable businesses going forward. With that as summary, I would like to open up for questions.
Certainly. Thank you, sir. If you'd like to ask a question at this time, please press the star or asterisk key, followed by the digit one on your telephone keypad. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find your question has already been answered, you may remove yourself from the queue by pressing star two. Once again, please press star one to ask a question. We'll just pause for a moment to assemble the queue. We'll now move to our first question, which comes from Kristofer Liljeberg from Carnegie. Please go ahead.
Yes, thank you. My question relates to, to, savings in 2017. You definitely have a plan for, for 2016. Could you say anything, how you expect or how, how confident you are in, in the previous target or maybe SEK 1.1 billion in savings in, in 2017? And maybe also if you could say something, how much of this will then be used to increase R&D spending? Thank you.
Thank you very much for your question. I would like, if I start with the first one, when it comes to the Big 5, as said, we continue with high focus in that area, and it is really only the integration plans related to the Patient and Post-Acute Care, which is paused. So we go ahead there with full speed. We will come back with detailed plans when we are presenting the new targets for the new company and also for new Getinge. So, that is something that we hope to be able to present somewhere as stated in Q3, during 2017. But I would like to ensure everybody that we continue with full speed on this program.
As I said before, this is very much, in, in my view, a, a program which, not only will, will increase our, our margins and profitability in the company, but also allow us to free up funds to invest further in R&D. As I stated before, we will do significant investment in gross R&D in all our areas, all our business areas, during 2017. We have both an ongoing and also a future pipeline, which looks very promising.
But you're not willing to say how much you expect to increase R&D in 2017?
It is very much depending on the business cases that we get presented, but we have, as an executive management team, put a fairly large amount of gross R&D on the side and going to invest that in the business cases that we see fit in our focus areas.
Okay. Another question I have, and I might guess historical R&D spending might be a reason for it, but could you elaborate a little bit how... What's your thinking about the fact that you underperformed the market when it comes to order and sales growth?
I would put it like this, that we see this mainly in our Surgical Workflows part, where the quarter, as I alluded to earlier, is not on a satisfactory level. We but I believe that this is not because of a weak product pipeline. We have both a current pipeline and also a future pipeline that looks very good. It is for us to step up and come back in the areas of Surgical Workflows, and therefore, we have, as I mentioned before, made very tangible plans on how we want to get back on track in U.S. and how we want to get back on track in EMEA, and also further detailing out how we want to address the value segment in emerging markets.
I think with those three things, we should be able to get back on track, but again, not on a satisfactory level on Surgical Workflows, and I think that we could have done more there.
Okay. Thank you.
Thank you. We'll now take our next question from Lars Hevreng of Danske. Please go ahead.
Yes, thanks. Can you just say something about the new organization, as you put it, in terms of dealing with the FDA? What's new there, and what has been established now, which hasn't been established before?
There is nothing new from FDA. As I said, what we have done, and that is really to just further strengthen our focus on the remediation program, is that we have put the so-called CD sites under a little bit of different type of organization, with a very close follow-up from Getinge as from the Getinge executive team, and thereby making sure, through a very tight follow-up, that we're following the plans that is required by FDA. So really only an organizational change to put additional focus on the work there, without no further information from FDA at this point.
Okay. Can I just ask, in relative to your earlier guidance for 2016, I mean, transaction benefit of SEK 150 million, FDA-related costs, operating-wise at, or in effect, rather, at SEK 130 million. What was the actual amounts in terms of transaction and FDA-related effects?
I don't have that exact number here, to be honest, but I would be surprised if we're far off that number.
Okay, and then finally, on the Acute Care Therapy side, the low margin, lower margin ventilator sales in Europe, and which was the reason for the gross margin development. What's behind that?
The major part there is we have had some major orders in the ventilation side, and those big tenders has driven a price pressure that we normally do not see in more transactional business.
Okay, thank you.
Thank you. And now move to our next question from Scott Bardo of Berenberg. Please go ahead.
Yeah, thank you very much for taking my questions. So the first question, please, just relates to PPAC, or legacy extended care. So first question here, and a short one, can you confirm whether you've been approached regarding this business by a third party potentially interested in acquiring this business? So can you confirm whether you've been approached or not, please, for that business? And secondly, here we are with margins for this business, some 13% now, and that's clearly a long shot away from the 22% or so we've seen in the past. It seemed that the real problem started to come in with the TSS acquisition, which was pulled out as being quite loss-making.
Obviously, with, you know, your initial plans to spin out this business, can we have an update here as to how profitable the TSS business is now within the context of this division, whether it's still having huge problems or whether this has been, you've got to grips with these issues? So that's a two-part question on extended care, please. The second question relates to the underlying margin progression for the group. Last year, you delivered a 14.6% underlying margin with a whole series of one-offs that were pulled out and encapsulated within your adjusted numbers. This year, you delivered around 14.6% margin, highlighting no underlying progression this year. And that's in spite of some SEK 400 million or so cost savings.
What I'm trying to understand, actually, is you talk a little bit about going full steam ahead with the plan. The plan, as we learned and knew about it before, was SEK 1 billion or so contribution from cost savings next year. By and large, do you see that still in effect, and should we expect underlying margins to improve for Getinge finally next year or fiscal 2017? Thank you.
Thank you, Scott. I will try to cover the first two questions, and then I'll leave over to Reinhard for the third one. And the first question around approaches for the PPAC business, we discussed with different players, but this is obviously something that where the board is approached, and I can't really deem whether they have taken this into consideration or not, but that would be a question that you would need to ask to the board. When it comes to the financial, the detailed financials of the TSS, we don't have that right now, or rather, we can't really say too much about that one.
What I can say is that the reason for taking the decision to spin off the Patient and Post-Acute Care is obviously to bring back focus into this business across the product categories and making sure that we allow this business to act in both the Acute Care arena and also in the long-term care arena, to fully get out the potential of this business and, hopefully start our way back from a margin perspective. When it comes to the targets, again, as I've said already, we will come back with new targets, both for New Getinge and for the new company, probably in Q3 2017. Reinhard, if you could elaborate on the third question.
Yeah, I mean, related to your expense question, I mean, one can say, and I think we had spoken about that, in our presentation, that we have seen significant reduction in the expense side during the full year. However, flattened, in Q4, as we had started our transformation program, Q4, 2015 already. So a chunk of those savings were seen at that point in time. In parallel, we have increased our efforts in the efficiency process, in the quality organization, and that, of course, went against that savings program. And then, I have to say, a large chunk of our realized savings in the Big 5 programs actually goes into our margin, through direct sourcing and indirect sourcing activities, which really has helped to mitigate the revenue shortfall, which we have seen.
If we would not have had those programs, the GP margin would have been worse than what we can report today.
Okay, so maybe just to follow up, because obviously there's a lot of anxiety in the market at the moment. Consensus forecasts look for around SEK 4.9 billion EBITDA next year. Now, given what you've just mentioned about a 200 million SEK transactional benefit, that implies around a SEK 400 million underlying bridge to get to those numbers from what you just delivered. And where we were going into this was that you were due to deliver some, well, let's say 600-700 incremental profit from your Big 5 plan. So what I'm trying to understand, actually, just to get some sense from you guys, do you see consensus forecasts in scope? Or is there reason to assume that the cost savings plans that you've already publicly disclosed, you're gonna fall materially short of?
Can you help us understand actually, so we can get a feeling of stability in the earnings trajectory for the company?
As we have said before on a number of occasions here, we guide on top line where we see a slight positive, where we have a slight positive view on 2017, and I believe we need to leave it by that.
Okay, thank you. Then just last question for me, please. I'm very, quite impressed with the cash generation of the business. I appreciate some of the one-off, or restructuring items impacting the reported numbers were non-cash charges. Despite reasonably good cash generation, debt paydown was quite poor. Well, actually, the net debt increased. What I'd like to understand, and I think this is a live issue in the equity market today, can you please give us some sense of where your financial covenants are on your debts, please? I think you're at 1.12 at the moment. How you view that ratio, and what your financial requirements are in terms of refinancing or potential equity issues? Can you make a very clear statement on that, please?
Yes, but let me maybe first reflect on your earlier statement. I think what I had alluded to, that we were able actually to bring down debt in comparison to like for like currencies by SEK 1.359 billion. Since we have today an international debt structure with a lot of loans from U.S. dollar currencies, transforming them in today's currencies is, of course, increasing the nominal value of the debt. But when we eliminate that, and that is really the underlying performance of the company, we actually have been able to pay down debt by SEK 1.35 billion , which is a very good performance, to my recollection. And I have to say, this journey will continue going forward as we have a strong focus on our cash flow also in 2017.
You have seen in the fourth quarter some good signs of increased cash flow over prior year period. Going down to the covenant question, I think I had alluded to in last earnings call, that we have only one covenant in our debt contracts with banks, and that's on Net Gearing, and there we have a covenant of 1.75. As you can read from the report, we are today at 111.8%, which is significantly below, and not more to say to that.
Thank you. Very clear. Thanks so much.
Thank you. We'll now move to our next question from Annette Lykke from Handelsbanken. Please go ahead.
Thank you very much. Joacim, maybe, I mean, it's after a couple of years where you have had the difficulties to grow your top lines in, you can say, a complicated hospital markets. I'm just wondering, on the delta here, you mentioned new products as one. Could you share a little bit more light on that? How, when are these products going to be launched? Will that be from ... Are they launched now, or will it be from the very beginning? And maybe a little bit on how much of sales do you expect is coming from, in a percentage, is coming from new products. Do you have a target here?
As it can be hard to see with the, with order generation down 1% in Q4, how you would manage to grow your business, in, for example, in the first quarter. Also, another question would be on, on your cash or potential cash need for, for the PPAC division once you're going to spin out. Would you need to make more radical restructuring of that business unit, and do you expect to have to potentially buy, or do acquisitions? So my question is really: do you expect to make a cash call in connection with the spin out?
Thank you, Annette, for the questions. Let me start with the question around the product launches, where, as I said, and if we then take the area where we have seen the biggest problem during Q4, we can see that we have, as I said before, very interesting launches coming up, both in terms of new operating tables, new lights, new pendants, additions to our low-temp sterilization range, and additions into our integrated workflow solutions. Whether you-- A number of these projects, sorry, products, has been launched to some markets also during 2016, in the latter parts of 2016, where it takes time to get obviously traction on the market for these new products.
But some of them are already launched, and the rest of the product is in pipeline and well planned for launches, in the beginning and in the middle of 2017. Each of these products have their own business cases that we are following very much in detail, both in terms of the cannibalization to current product ranges, but also how much new sales that they are generating. So that is something that we're following up very closely. And what I can say there is that the expected slight increase in our net sales for 2017 is obviously supported by these launches. So without those, it would have been a bigger problem to achieve that.
So the launches will help us to drive that goal. When it comes to PPAC, we are in, I would say we feel very comfortable with the financials of both companies, so there are no plans there. When it comes to the question around restructuring of PPAC, when it becomes a spun-off company, that is also nothing major on the agenda there. We are going to build a new, sustainable company that we can drive in a profitable way going forward, and that is our main goal right now. And obviously, the same goes for New Getinge, where the intention is also to make sure that we use this spin-off to really make sure that we are putting this company there to grow in a very long-term and sustainable way.
Okay. Well, then let me ask to thank you to the new products, because it, it's-- you have so many different products, so many categories. The new products are they representing areas of like 10 or 20, 30% of your sales in Surgical Workflows, or is it less or more? So we have a feel for how sort of vital or essential these launches are to generate sales.
That is a very tricky one to answer and would probably require much more investigation to give you a detailed answer on that one. But let me put it like this, that we have a very competitive product range already now in Surgical Workflows. That is my absolute view when it comes to Surgical Workplaces, where the tables, pendants, and lights comes in. When it comes to our Infection Control healthcare part, where, for example, the low-temperature sterilization and integrated workflows to an extent comes in. So let me answer it by saying that we see a very good possibility to, with the help of these launches, support the needed smaller turnaround of Surgical Workflows going forward.
With those launches, I believe that we have a very good possibility to achieve that. Sorry for not being able to be more precise there.
Yeah. Thank you very much.
Thank you. We'll now move to our next question from Hans Mähler of Nordea. Please go ahead.
Yes. So first, a question on the price pressure. Is it correctly understood that the pricing pressure has accelerated or intensified now over the second half of 2016? And then also you mentioned something about delays in the OR area. Is that something that will come instead in Q1, or could it be potentially lost sales there? Thank you.
Thank you for your question, Hans. I would put it like this, that we have, during 2016, seen a price pressure that has been in line with our expectations, where we have seen around -1%. Some projects has been exposed to heavier price competition. So I would say that we're probably aligned with many of our competitors when they're stating that we have a price pressure on 1% to -3%, on average. And that is obviously something that I believe that we have, in a fairly good way, been able to counterattack through both the, the, I would say, the activities that we have had in the efficiency enhancement program, and especially, I would say, around our ability to be more efficient in our direct sourcing side.
When it comes to the OR Integration, that is only a smaller product range in our total Surgical Workplaces setup. And the reason for mentioning that in my previous discussion was that it, from a percentage basis versus where we usually are, has a quite significant... Those orders are not lost, they are postponed to a later date.
Understand. And, and then also a follow-up on, on the impact from the Consent Decree in 2017, when, where you mentioned a SEK 50 million impact. Is that incremental on top of what you've seen during 2016, or is that an isolated impact for 2017?
It is an isolated impact, and it's then a net operating profit decline of SEK 50 million that we can see then, based on what could have been achieved if it wasn't under the Consent Decree.
Okay, so that is a little bit smaller than what you had in 2016, then?
That is, our analysis as it stands right now, yes.
Okay, thank you so much.
Thank you. We'll take our final question today from Johan Unnérus from Swedbank. Please go ahead.
Thank you for taking my questions. Yes, I got a few. I mean, the sense overall is that you're doing appropriate and robust measures, but you leave us with very extensive uncertainty, unfortunately. One thing that could be good to get a better understanding is if you could provide a bridge for the margins, what currency and what price pressure, savings, and product mix. I think that would be very helpful. We get some little bits and pieces, but not full picture. Is that possible to give now or later?
Let me say that, I mean, we have no bridge prepared to be shared, but we certainly can today in discussions later in the months. We'll be able to today to bring that forward, but not in this presentation in a form that everybody understands it.
... Yeah, I think that would be useful. And also, I think, going back some time, you also provided us with a sense of market positions in different product lines. I think that would be also be very useful, especially as you're now going to put more resources into R&D and innovation. Is that something that we could get going forward?
Yes, absolutely.
That's very useful. The R&D, should we understand that as a mix of completely new product, products, or more of the product, upgrades and new versions? I expect we'll get more product upgrades.
Yep. I think you should see it as a, as a mixed bag there, when it comes to R&D. Many of them, if it would be in... I take an example of saying that we have exactly new products coming out for the sterilizer. There, it's, it's quite often, I mean, it's difficult to decide whether it's an upgrade or whether it's a facelift or whether it's a completely new product, given that it will continue to sterilize with steam. But, you will see a mixed bag, in all three business areas with, with innovations that will, so to say, take us to the next level, but also a, a number of, of good facelifts that both will increase the, the, sales possibilities and arguments, but also obviously looking at the cost position of the different products.
Earlier in this call, you gave us the impression that you're sort of assessing new opportunities now or very soon. Could you give a sense of the lead time from a decision to go ahead and for the product to be in the market? I guess if you were to assess the project or take a decision next month, I guess it's more realistic to see it on the market perhaps next year or so.
It's very much dependent on the scope of project, what type of project, what type of length of validation time you have for a new product, et cetera, et cetera, et cetera. But you would be looking at smaller facelifts would be taking us six months, and then you would be looking at up to two years or two and a half years for more complex product, depending on the solution. So I'm not able to give you a good and fixed number there. But we have...
Let me put it like this to give it a little bit more flavor, and that is, we have in all three business areas, very good and detailed product generation plans that in detail describes what type of products, when, and which markets that we're gonna launch those products to, including obviously also plans on how we take products out of our product portfolio. And I feel very confident with how those plans are looking. In all three business areas, I feel comfortable with, if we take Surgical Workflows where we have issues right now, I feel very comfortable, as I said before, that the new products being launched, the products that are in pipeline to be launched, will help us to drive that business area going forward.
Yeah, hopefully you can give us more details then at the Q3, and more specific guidance that is intended anyway. And finally, then on Acute Care, as an example, which is the business line that seems to be doing better, at least top line-wise. If you're looking at the gross margins and EBITDA margins for the full year and comparing last year, it's actually level. So it's a bit that you get a sense that the savings are sort of being absorbed, perhaps, by price pressure and some other issues. What can you give us some flavor on that?
Johan, this is Reinhard. Following, I can say, I mean, we had alluded that the enhancements in our quality function specifically reside in the ACT business area, and that's where you basically see most of the additional costs for those functional activities flying in. And then we have also seen impact on the margins through tightened quality measures put in place subsequent to number of improvements to adhere to the FDA and other quality body requirements. And then staying on the same level is actually a very good achievement. And I think with volume growth coming forward, it will develop well.
We should expect improved leverage and no major change in price pressure going forward on that side?
I would think so.
Okay. Thank you.
Thank you. That will conclude today's Q&A session. I'll turn the call back to you, Sir, for any additional or closing remarks. Thank you.
Well, thank you. I would just like to say thank you again to everybody, and have a good day. Thank you.
Thank you, Sir. That will conclude today's conference call. Thank you for participation, ladies and gentlemen. You may now disconnect.