Welcome to the Getinge Q4 2022 earnings call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing star and zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mattias Perjos. Please go ahead.
Thank you very much. Welcome to today's conference. I have our CFO, Lars Sandström, with me as well, who will support during part of the financials presentation. We can move directly to page two, please. Before we dig into the facts and figures regarding our performance and outlook, I just wanted to briefly touch on what I think is a really important subject that was highlighted in a good way in the last edition of The Economist. This is the fact that we nowadays get much less output from healthcare despite spending much more, and also despite having more people than ever working in healthcare. All of this, of course, boils down to having problems with doing the right things and doing them right.
What we usually call effectiveness and productivity. The low productivity in healthcare is nothing new. I think the problem right now is that it has decreased a lot recently, which is of course impacting patients. It's impacting clinicians and also, of course, companies like ours. Some of the examples of the short-term problems here that is that we see more patients with severe symptoms. We've, you can see that the COVID quarantine in different parts of the world has led to a weaker immune system. It's also led to people staying away from hospitals and which means that illnesses are diagnosed at a later stage and then people show up with more at a more severe stage. That requires a different approach to treatment.
We can also see that the productivity is lower, meaning that we have slower throughput. We can see that the engagement among people working in the system is lowering as well. The burnout ratio is shooting up among clinicians, which means that we have a loss of competence and a loss of capacity as well. Even if there are more people working there, it still means that there's a lot of operational challenges in the system. Our people have worked hand in hand, on the frontline with the people in the healthcare system to try to deliver as much care as possible. It has been a challenge during the whole of 2022, and the last quarter was no different in that regard.
What is urgently needed, I think, is that we need to be able to more efficiently manage patient queues, staffing and other flows within the hospital, which should lead to better working environment for healthcare professionals. We also need products that get that allow patients to leave the hospital faster and in a healthier condition than what is the case right now. We need products that are easier for healthcare professionals to handle as well. There needs to be a easier learning curve to go through for new people working in this environment. We have a lot of good solutions for this. That's not the purpose of this call, but I just wanted to paint a bit of a background picture when it comes to our industry.
With that, we can move to page number three, please. If we start with the key takeaways regarding performance for the fourth quarter of 2022. We saw net sales and order intake declining organically by 5.3% and 6.7% respectively. This was mainly a result of continuing external challenges. This means that hospitals have not yet recovered to pre-pandemic levels for elective surgery, and they're also generally experiencing lower productivity than before the pandemic, as I mentioned a moment ago. We can also see that treatment needs related to seasonal influenza was lower than expected and lower than in past fourth quarters. This also impacted our orders and sales negatively.
In addition to this, we also have, as a company, challenging comparative figures in products for COVID-19 treatment and also for vaccine productions. We're also continuing to experience the supply chain challenges, which negatively impacted net sales by at least SEK 400 million in the quarter. This is mainly in capital goods in Acute Care Therapies now. The challenges have narrowed somewhat compared to the past, but in terms of magnitude, they are similar. We had lower sales volumes, an unfavorable mix effect, and also a general increase in cost pressure, which contributed to lower margins in the quarter. To counteract these effects, we're continuing our work on price adjustments, ongoing productivity improvements, and also more thorough rationalizations where needed.
Getinge's free cash flow and financial position remains very strong. Very low level of net debt, keeping us in a good shape to take on additional opportunities ahead here. Finally, the Board of Directors proposes an increase of the dividend to SEK 4.215 per share. We can move over to page four, please. If we take a brief step back here and look at some of the other key events in the quarter. When it comes to our offering and the customer perspective, one of the products that we launched in the quarter was Livit FLEX. This is a system for bioprocess control that enhances the effectiveness in pharmaceutical development. We also launched Ultima 815, which is an optional injection dryer.
This enables quicker and more environmentally friendly processes in laboratories. In addition to this, I also want to mention that Getinge's Flow-c anesthesia machine was approved for sale in China during the quarter. When it comes to sustainability, the journey towards carbon neutral production continues at a fast pace. One example of this in the quarter is that the solar panels at our production facility in Turkey started producing energy during the quarter. Also I want to mention that Getinge's vascular grafts, so the artificial blood vessels, received EU MDR certificates. The production facility in France was awarded with the business areas four EU MDR certificates for its quality control. The production facility in Solna, Sweden also received the EU MDR certificate for the Servo-c ventilator.
During the quarter, we also announced that the U.S. Food and Drug Administration included Getinge subsidiary Datascope to add an additional facility in the company's existing consent decree. This is due to findings from previous FDA inspections and a warning letter related to operational compliance with the company's quality management system and process. We also had a few items affecting comparability in the fourth quarter. As you all know very well by now, we have a continuous improvement approach to everything that we do. This is because we want the business and the people in the front line on the business to be agile and forward-thinking. Normally, we work with gradual and continuous improvement.
In some cases though, we need to take somewhat larger structural adjustments. In this quarter, we decided to do so in order to adjust our cost base and increase productivity further in slightly bigger steps than normally. Consequently, we've made a provision of SEK 195 million. The cost savings from this will gradually impact the P&L during 2023. The full impact will happen from 2024 and onwards. We also made write-downs related to capitalized development projects in Acute Care Therapies. This is a consequence of the impairment test that we do on a regular basis. This is not something that's expected to have a material impact on our forward-looking expectations on growth.
Also wanna mention that in the quarter, we decided to build a new production unit in Derby, in U.K. The new facility is a facility that will replace the one that we acquired from Quadralene in 2020. It will serve as a new hub in the U.K. by co-locating sales, manufacturing, and logistics. This investment will also result in higher production capacity for consumables offerings in terms of disinfection products for sterile reprocessing. Just as a reference here, the income from chemicals increased by 10.7% in 2022, so significantly above the growth rate of most of our other categories. It also comes with a higher margin than average in Surgical Workflows. We can then move over to page number five, please.
As I mentioned earlier, order intake decreased by 6.7% and net sales by 5.3% organically in the quarter. Orders were down in Americas and in EMEA. The comparison here is impacted by last year's strong order growth in ECMO and BetaB ags due to the Omicron breakout at the time. We could also see though that orders picked up quite strongly in Asia-Pacific this year, and this is mainly due to COVID flare-ups in China in December. On net sales, we had a flat development in Americas to a large extent due to continued strong development in Surgical Workflows. This is something we're very encouraged by given that it's a very important part of our strategy for this business area.
Net sales in Asia-Pacific was negative in all business areas in the quarter, mainly due to previous lockdowns in China. As this has changed now, we expect things to start to normalize in 2023. As I mentioned before, we saw quite nice growth in orders in China in the quarter. We can move over to page number six, please. When it comes to the outlook for 2023, we're expecting a weaker first half of the year as a result of continuing challenging comparative figures for a significant portion of Acute Care Therapies and for Life Science.
The second half of the year is expected to be stronger, and this will result in a healthy growth for us in the second half of the year and an anticipated organic sales growth of 2%-5% for the full year. We can move over to page seven, please. If we look at some of the details when it comes to order growth, we can see that Acute Care Therapies had a -4.4% organic development in the quarter.
The lower organic order intake in Acute Care Therapies was primarily attributable to advanced ventilators and ECMO therapy products in EMEA for the first two months of the quarter. The quarter ended with a strong order intake in mainly China as a result of the higher rate of COVID-19 infection spreading. The order intake for products for planned cardiovascular procedures increased slightly compared with 2021. If we then look at Life Science, we had a -32% organic development on the order intake. The order intake for Life Science declined significantly in Americas and EMEA. This is due to challenging comparative figures in sterilizers and also a continuing falling demand for COVID-19 related products.
On a positive note, the service business continues to grow. This is a very good sign as we clearly can see a positive relationship over time between good service business and an overall healthy business for us, both from a financial standpoint, but also from a customer loyalty perspective. Finally, Surgical Workflows. Here we saw a 3.2% organic improvement. The order intake in Surgical Workflows increased as a result of the positive trend in digital health solutions and in infection control. As I mentioned earlier, the positive trend in North America is continuing, something that we're very happy about. We can then move over to page number eight. Looking at the sales perspective in Acute Care Therapies, we were down 9.8% organically.
The net sales here in ACT declined in all markets due to challenging comparative figures in ECMO therapy products and also a shortage of components, which impacted delivery capacity, mainly related to cardiac a ssist within Acute Care Therapies. Net sales increased in products for elective cardiovascular procedures, but it has not yet reached pre-pandemic levels. When it comes to sales of capital goods, this was negatively affected by the continued continuing shortage of components. In Life Science, we saw a minus 3.6% organic development. This was a result of challenging comparative figures in products related to COVID-19 vaccines. The positive trend though in sterilizers, in wash disinfectors, and also the service business continued in the quarter.
Recurring revenue for Life Science declined as a result of lower volumes of consumables related to production of COVID-19 vaccines. In Surgical Workflows, we had a 0.9% organic improvement. The increase in Surgical Workflows was due to operating room and digital health solution products. Again, the performance in North America was particularly encouraging for SW. Net sales in Asia Pacific fell mainly as a result of lower activity in China. The strong order intake in prior quarters in Americas contributed to a modest increase in net sales for the quarter. We saw an organic increase in recurring revenue as a result of the positive trend in service and in consumables.
Currency had a SEK 911 million or an 11.4% positive impact on net sales for the group in the quarter. Organic net sales of capital goods declined by 4.9% in the quarter to a large extent due to supply challenges. The decline in consumables is related to lower sales of ECMO and or products for treatment of ECMO and BetaBags, which is part of our cell transfer offering, and something I mentioned before. With that, we can move over to page number nine.
Looking at the development of gross margin, we can see that our adjusted gross profit increased by SEK 3 million to SEK 4,153 million in the quarter, where a positive FX effect accounted for SEK 469 million. For the group as a whole, the adjusted gross margin declined by 3.1- percentage- point. This is an effect of unfavorable mix, supply constraints, reduced absorption in our factories, and also cost inflation. These effects were partly offset by price increases, some productivity enhancing measures, and also support from currency, but obviously not fully offset. For Acute Care Therapies, the adjusted gross margin declined to 58.4% due to lower sales, unfavorable mix, a shortage of components and also cost inflation.
This was to some extent offset by positive FX effects, price increases, and productivity improvements. When it comes to Life Science, the adjusted gross margin declined by 5.4- percentage- points, mainly as a result of lower volumes, of unfavorable mix, some supply chain challenges also here, and also non-recurring warranty costs and under absorption in some of our factories. Favorable currency effects contributed positively to the margin, but to a much more extent. Surgical Workflows, adjusted gross margin fell by 1.8-p ercentage- points. This was primarily a result of cost inflation and of FX. This could be partly offset by continuing productivity improvements. With that, we can move over to page 11, and I leave over to Lars.
Right. Thank you, Mattias. Adjusted EBITDA declined SEK 406 million compared to the same period last year, while margin decreased to 15.5%, mainly due to negative effects from GP and OpEx, which ties back to the lower volumes, unfavorable mix effects and supply chain related costs and challenges overall. Adjusted for currency, GP had a 3.4- percentage- point impact on the EBITDA margin due to the reasons just mentioned by Mattias. Organically, we had lower SG&A than previous year, negative FX revaluation effect in other OpEx is impacting us quite negatively. Cost inflation and somewhat higher activity was partly offset by reduced variable pay to employees. In all, this brings us to reduced operational leverage on OpEx and a 2.3- percentage- point impact on the margin year-on-year.
Higher activity in R&D, where some come from development, maintenance, EU MDR, but also from acquisitions. Currency had a negative impact of 0.4- percentage- points on the margin. Adjusted for currency, D&A didn't have any impact on the margin in the quarter. All in all, this resulted in adjusted EBITDA of SEK 1.317 billion, and the margin decreased to 6.1%. Worth mentioning here, is also the restructuring efforts made in the quarter, as previously mentioned by Mattias, and where most of the effects are expected to come gradually in 2023. Let's move over to page 12, please. The free cash flow amounted to SEK 708 million for the quarter and SEK 2.3 billion for the full year 2022.
Working capital for the quarter was mainly a result of high material costs and supply chain disruptions, which resulted in less inventory reduction than normally given the season. We expect this to normalize gradually during the year. Working capital days continue to be well below 100, and we are now at some 96 days, down 33 days from the peak in Q2 2018. Going forward, we expect working capital days to increase somewhat, mainly relating to the inventories and high material costs during the first half of the year. We are on trend on operating return on invested capital with 14.6% on a rolling 12-month basis, and that's still well above our cost of capital. Let's move to page 13.
The change in net debt year-over-year was positively impacted by the cash flow, taking us to SEK 2.6 billion. If we adjust for pension liabilities, we are at SEK 0.1 billion. This brings us to a leverage of 0.4x EBITDA. If we adjust for pension liabilities, leverage is at 0x . Cash amounted to SEK 5.7 billion at the end of the quarter as well. Let's move to page 15. Back to you, Mattias.
All right. Thank you. When it comes to summarizing the key takeaways for the quarter, fourth quarter of 2022, we can see that the organic development on net sales and orders were negatively impacted by external challenges that I mentioned in the beginning of the call. Our margins in the quarter have been impacted by lower volume, by unfavorable mix effect, some continuing supply chain disturbances and also inflation. We've been able to partly offset this with price increases and continued productivity improvements. We've continued to have healthy free cash flow and a very strong financial position. When it comes to some of the more forward-looking parts, we expect the challenges to remain.
We can see gradual improvements in parts of supply chain, in parts of the operating environments in hospitals and so on. We expect this to be only a gradual improvement during the year. This takes us to an outlook for 2023, where we expect net sales to grow 2%-5% organically, and with a stronger second half of 2023 than the first half. Finally, I would like to take this opportunity to thank our customers, our employees, who have worked hard for a very, very long time now, sometimes under very difficult circumstances, to deliver vital care to patients around the world. I look forward to 2023 with a continued deep commitment to helping both customers and patients in the best possible way.
With that, I open up for questions. Thank you very much.
We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from the line of Erik Cassel from ABG. Please go ahead.
Hi. Good morning, Mattias and Lars. I thought I'd start off with some questions on 2023 and your guidance.
I mean, the 2%-5% organic growth guidance, it's a pretty wide range. I understand the uncertainty given how back end load the year should be. Could you maybe explain what needs to happen for you to be in the upper part of that range? That's not included in the low end. If there's some sort of larger swing factor that you see.
No, there's no larger swing factor. I think we need to see a continued normalization primarily when it comes to the operating environment in hospitals so they can focus on getting elective surgeries back to where they need to be above pre-pandemic levels. We need to get rid of some of the supply chain disruptions that we still have primarily related to our cardiac assist product.
Okay. Thank you. In previous quarters, you've been able to provide some guidance for full year margins based on, you know, where volumes are heading. I get that there's a lot of moving parts. Is it possible to share how you're thinking about profitability in 2023?
I think as you alluded to yourself, it is a very uncertain environment to navigate in right now. First of all, from a volume perspective, and as you know, we are very, very volume sensitive with the operating leverage that we have. We refrain from giving any guidance. I think we feel good about improving from where we are. With, I mean, a few basis points, we decide not to give any official guidance here. Volume is a key factor. We have some mix effects that are going to have an impact as well. We continue to see inflation providing some uncertainty to the development as well. Of course, we will offset this with continued price work.
That's a key theme for 2023. Also some of the productivity improvements that we've already on, and some of the enhanced measures now that we've implemented in the fourth quarter as well. If you summarize all that up, we expect some small improvement, we refrain from giving detailed guidance.
Okay. I fully understand. Last question for me. I mean, on the orders in China, what was the magnitude of the total order take that you received now in Q4 and Q1? Is everything expected to be delivered during Q1? Also, if there's any, you know, ongoing discussions for more orders going to China or if you're done with that now?
Yeah. We don't disclose details by country. We saw a heightened level of order intake from China, primarily when it comes to ventilators in the quarters. We're in the process of delivering this. I mean, there's ongoing discussions and sort about additional business, but it's not something that we will speculate in right now. I don't think you should assume any big step up in orders of sales because of this. It's a slightly heightened level December last year in Q1 this year. I think on the overall level for full year 2023, nothing really material.
Okay. Thank you very much. That's all for me.
Thank you.
The next question comes from the line of Rickard Anderkrans with Handelsbanken. Please go ahead.
All right. Good morning. Thank you for taking my questions. So first one, you know, the margin in Life Science segment declined significantly here in the quarter, even adjusting for the one-off there. How should we think about more normalized margins for the segment heading into 2023? More of a sort of a post-COVID scenario. How should we think about, you know, the levels in relation to where we ended up for the full year?
Yes. Hi there, Rickard. When we look at last, as you mentioned, we had some one-offs here in the fourth quarter. If you look at bottom EBITDA margin, the decline there is, I would say half of it is roughly around the impact from the one-offs. And going forward then, I think, since we will have a somewhat lower share of sales on the consumable side from the effect, that will of course impact us going into 2023. We still have a very good order book when it comes to the rest of the product. That, and that together with the easing out of the supply chain issues that we actually have and the work we do to right-size part of the Life Science organization now with the current demand, especially on the BetaBag.
We should get back to, not the pandemic, so let's say levels, but there should be an improvement coming back.
Thank you very much. I wanna dig a little bit deeper into China. You have previously mentioned that you're losing market share to local players in Surgical Workflows segment, but we have also seen the first approval of a Chinese developed ECMO solution rather recently. But as you mentioned, you know, we've seen order step up here entering Q1 as well, in Acute Care Therapies. Can you talk a little bit about, you know, the dynamics in China heading into 2023 and beyond? Would be interesting to hear a bit more on, you know, the competitive landscape development, what you're doing to secure your sort of and protect your market shares overall. That would be very helpful. Thank you.
As said, we do see a heightened demand both on ventilators and also ECMO therapy products right now to China. As I mentioned on the call, we also had an approval of our anesthesia machine for China as well. We think that in the short term we definitely remain competitive. We're monitoring the development of new entrants as well, but we have a very strong position with really strong clinical performance of our ECMO solutions very much liked by customers. We feel that we have a pretty robust position from that standpoint.
When it comes to the medium and longer term, we expect this market to be back to a double-digit growth market overall. I mean, we have several categories where we are really strong if you look at, for example, our vascular interventions portfolio and so on. We remain generally positive towards our possibilities in China. We expect to be about 10% growth in the longer term. It is a decline from where we've been. We've been more like 15%-16% pre-pandemic, but it still will remain a good market and a clear number to follow.
Perfect. Just a super quick final one. Can you quantify or give them some magnitude on the cost saving initiatives in 2023?
Yeah. When you look at the decisions and restructures we have done now in the fourth quarter report here, there will probably be some more coming here in the coming quarter. We expect that to gradually come through, let's say half, 50%, 75% of that coming in during 2023. What you should also remember is that we have an underlying cost inflation that we are fighting against here. Restructuring and continuous productivity work is what we are putting in to offset some of that impact.
All right. Thank you very much. I'll get back to you.
The next question comes from the line of Oliver Reinberg with Kepler. Please go ahead.
Yeah. Thanks so much for taking my question. The first one would be on ECMO. Can you just talk to the level of inventories that you see? Given now obviously that Q4 was softer with some kind of increase in demand from China, is it reasonable to assume that ECMO can actually grow again high single digits in 2023? Secondly, on ventilators, can you just confirm where you came in in terms of ventilator sales in the full year? I think in Q3 you talked about 6,500 to 7,000. Just try to get a confirmation of that. Here, is there a chance you go back to the pre-pandemic baseline now with the incremental demand from China? The last question is just in terms of housekeeping.
Is there any kind of color you can provide us in terms of the restructuring costs that we should expect for the full year? Also, can you give any kind of color on capital S&D in the full year? This increased 35%, so I'm just trying to understand if anything here is noteworthy. Finally, also on a full year basis, you obviously had reduced variable employee costs. Can you give us any kind of sense for the magnitude of the full year cuts here? Thank you very much.
I have five questions. We'll try and take them one by one. When it comes to ECMO, we do expect to return to growth. I wouldn't say maybe high single digit, but at least single digit growth in ECMO is our expectation, depending on how things pan out during the year, of course. When it comes to ventilator sales, we ended up with 7,300 machines last year. We don't expect any big upswing this year. Our expectations is basically flat. One thing I wanna highlight though is the work on the installed base. We've had really good traction when it comes to developing the service business and developing a more consumables business from this.
I think it's gives maybe sometimes the wrong picture to just look at number of machines when it comes to ventilators. When it comes to your request on restructuring, we don't guide forward looking. We have a few more things that I think we can implement during the year, but we will not provide details now on the cost impact of this. We think and hope that the main things have been put into place, but there will be some additional measures. On R&D, I didn't quite hear your question. If you repeat. Or actually Lars heard it.
I think I heard. You asked about the level of capitalization for next year. I think you can expect a similar level, maybe slightly higher. We see that we have quite a few pro-projects running now in capitalization phase. That was gradually increasing during 2022, and I think on this level where we are now is where we are running into next year.
On the last question on variable pay, it's also not something that we've provided granular details on, and we refrain from doing so now as well. The only thing I wanna say is that the system with variable pay in the company is set up to balance out the kind of performance fluctuations that we've seen lately. We believe that it's kind of serving its purpose.
That's all I have on. Thanks so much. Cheers.
Thank you.
The next question comes from the line of Kristofer Liljeberg with Carnegie. Please go ahead.
Well, thank you. Two questions from me. First of all, one about the midterm margin guidance and how you feel about that given that the starting point is now lower and you have more or less lost the year. That's my first question. Then wonder if you could in some way maybe quantify a little bit what you mean with weak first half. Does that mean negative organic growth or do you think you could start to grow at least a little bit already in Q1 second quarter? Also, what that means when it comes to margin and maybe earnings development year-over-year. Thank you.
No, I think on your last question there on what we looked on, I think what we talked about weak is a little bit connected of course to the comparables then, when we compare the first half 2023 versus 2022. I think we will probably be slightly positive, at least what we see in the first half, and then improving gradually after that in the second half. And when it comes to your first question there on the midterm, as I understood it, on the EBITDA margin, you said that we lost a year and coming out now with 16.1% and what you think going forward on that. Is that correct?
Yes. I guess margin now is probably lower than what you expected it to be in a year ago and to the when you announced that guidance.
No, that's true. I think it's for the reasons we have mentioned during just every quarter this year, are the what we see. What we now say going forward is that we see that on the supply chain issues, we should see gradual improvement coming forward that would ease up a lot of disturbances impacting absorption and also of course volume. We have lost quite a bit of volume this year. We go out the year here, we've lost SEK 400 million in the quarter as we mentioned here. By getting that part back and also together with a slightly improved product mix going into 2023, especially then going into the second half, that will help the margin going forward.
Then as we mentioned, we have the cost inflation continuing to hit us, and that we work with improvements together with the continued focus on improving the price picture here in 2023. That is why we say that we give a stable guidance on the EBITDA margin for 2023. It is a bit tricky actually to forecast. It is very much depending on demand. If we see volume picking up better, then we will have significant that helps of course quite significantly. That's why we are a bit cautious here.
Okay. I understand. Thank you.
The next question comes from the line of Robert Davis with Morgan Stanley. Please go ahead.
Hello. Yeah, thanks for taking my questions. I have a couple . Just one was just around the broader CapEx environment you're seeing within the hospitals. I know you mentioned that the elective procedures are not back up to a sort of normalized level yet. In terms of the spending and priority, I'd be kind of curious where you're seeing hospitals spend that money. Is it in the products you're getting? Is it in the kind of larger capital equipment machines? That was my first question. The second one's just on supply chains. Could you just give us some sense of where you're seeing the biggest bite points in your supply chains? Which particular components are you sort of struggling most to get hold of, and what gives you conviction that's gonna get better?
Is that just a sort of broad-based improvement? There's specific suppliers you're having trouble with that you've got visibility that's getting better. The last one, if I can, is just around the comments you made around the installed base and service. Can you just give us some sense of the capture rate you have of your installed base against maybe some sort of smaller independent service providers and where you think you can get that to? Thank you.
Yeah. Thanks. When it comes to the broader CapEx environment, we think it's rather positive still. We do see continued investments in both operating room equipment. We've seen some investments when it comes to CSSD environment as well. Customer seems, I wouldn't say surprisingly, but it is positive that they're not holding back as much as one could have feared, I think in this environment. Compared to our equipment compared to others, I don't really have a great insight on some of the other capital equipment categories where we are not present. I refrain from providing any information there.
When it comes to supply chain, it's, it has narrowed quite a bit to very specific components in certain product groups. I think there is a broad based in improvements, but we have some specific issues, especially related to our Project Assist product category. That's really where the main issue is for us. When it comes to the capture rate, we don't provide capture rates. I think we are the prime supplier and partner when it comes to serving the installed base. It's more often the hospitals themselves that service, rather than going to third party actors in this case, I would say.
We feel good about the penetration rate. It has started to improve since the big increase of installed base during 2020 and 2021. Like we highlighted some a couple of years back even, we can see that there is better and better traction, both when it comes to service offering, when it comes to consumables for some of the therapies that we offer, and also more and more interest in some of the connected solutions for managing.
That's great. Thank you.
Thank you.
The next question comes from the line of Victor Forssell with Nordea. Please go ahead.
Yeah, thanks a lot for taking my question. Starting off on the margins again, I perhaps misheard you there. Did you say that you aim to... Sort of the margins in first half of this year, are they going to be slightly positive before improving much more in the second half, or did I misinterpret that?
No, that was a referral to net sales.
Okay. Perfect. Then just following up on the margins as well, we started to see at least on perspective of ECMO starting to decline by Q2 in 2022, where you saw the larger headwinds. Where would you say in terms of, you know, customer destocking, et cetera, where are you on that trend line entering Q2 you think? Is it possible that ECMO could actually hold up decently in Q2 already? Is that the way we should look at it?
I think we have limited visibility on stocking levels. We're confident that they've gone down compared to what they were a year ago. There's no question about this. When it comes to guiding, we've said for the full year we expect an improvement, but not a dramatic improvement. When it comes to quarterly or half-year guidance, we refrain from giving any details.
Yep. Fine. Just lastly, coming back to EBITDA margins. It's clear that you aim to improve them. It's a lot of swing factors, obviously. But is the expectation feasible? The expectation of growing 2%-5% on top line, is it feasible to see you expanding those margins in any sort of scenario, depending on where you end up in the net sales range? Or would it be, well, much tougher for you if you end up at just 2%?
I think it's reasonable to expect an improvement. It of course becomes much easier in the upper end of the range. Mix, though, I think is probably more important factor here than the absolute number when it comes to the margin improvement.
All right. Thanks a lot.
The next question comes from the line of David Adlington with JP Morgan. Please go ahead.
Hey, guys. Thanks for the questions. Maybe just to push a little bit on phasing. I know you said sort of first half revenues slightly up, but just so we get in the right spot for the first quarter, should we be expecting Q1 sales and also margins to be down, year-on-year? Secondly, just a housekeeping, just wondered what the FX impact you're expecting both on top line and margins. Finally, just in terms of your cost inflation, your underlying cost inflation, I suppose mostly around salaries, what are your assumptions on that front, please? Thank you.
Yeah. On your questionnaire, now we are dissecting the half year as well. I think what we said, it will be, as we said, gradually improving during the year with the first half being less good than the second half. Of course then gradual means a bit weaker in Q1 and then gradual improvement also in Q2. That is what we see. Then when we look at FX, when actually we have a significant weak krona during 2022 and we don't forecast currencies. Technically then just going forward, we will have a slightly positive impact in the beginning of the year on top line, then it fades out during the rest of the year. Then when it comes to bottom line, it is limited impact.
If there is a big change in closing rates, we have a revaluation effect, and that hits us, and that is impossible to forecast. If we take that away, it will have limited impact for next year.
Just on wage inflation?
Yes, sorry. Wage inflation as well. We don't expect anything else than anyone else here. I think, we have had gradual increases during last year in mainly U.S., which are normally quicker to adopt to a new reality. We then of course comes Europe now, this year, and we don't expect to be better or worse than average of Europe. You know big part of our cost base is in Germany, France, and Sweden when it comes to people.
I suppose what I'm getting at is if your top line is 2% growth, but your wage inflation is 4%-5% is, I suppose difficult for us to model much in the way of margin expansion.
Yeah. That can be a bit painful. We need to work with restructuring and
Price increase.
Price increase.
Understood. Great. Thank you.
Thank you.
The next question comes from the line of Peter Östling with Pareto. Please go ahead.
Thank you for taking my questions. Most of them has already been answered or asked. A couple of ones. When I assess the hospital and supply chain environment, especially in the U.S., it seems like Getinge is facing a much tougher headwinds compared to many of your peers, especially your U.S. peers. Looking at the hospital sector, they had a very tough first half last year, but has then improved quite significantly, even though staffing shortages is still a lingering headwind. What... I'm just trying to get around if the geographical mix, U.S., ex-U.S. is negative for you in this current environment, compared to your, especially your U.S. peers? That was my first question.
I don't know if maybe you have already talked about this, if you could say anything about price volume during 2023 and, let's say if that you end up in the middle of the 2%-5% guidance. How much of that is volume and how much of that is price? Lastly, you are alluding to that you have quite a number of long contracts that has not been renegotiated yet. Can you talk a little bit about your average length of those contracts and if these contracts will have a positive effect in 2024 instead of 2023? Thank you.
All right. Thank you. When it comes to the U.S. question, I think in general, if you look at our competitors, most of them have close to half of their sales in the U.S. Very often, the incumbent, so to speak, benefits a bit in the difficult environment. There's probably an element of that. Having said that, though, I think when it comes to, for example, Surgical Workflows, we've done well in the U.S. This is a category where we've focused for a long while getting the right products, having the right people supporting customers on the ground, and we clearly see the results of all this as well. It's also categories where we are largely unconstrained when it comes to supplies.
The other part for the U.S. performance for us is heavily impacted by cardiac assist and the supply chain problems we've had there. We've had some restrictions when it comes to ECMO product supplies as well, so that also factors into the overall picture when you compare our performance in the U.S. to competitors. I think those are the main explanatory factors. When it comes to price and volume for 2023, we have an ambition to hit at least 3% price increase in 2023. When we make guidance, though, it's a mix of volume increase and price increases. You'd have to make your own estimate of how successful we were with the different components there in the growth equation.
When it comes to longer term contracts, yes, we have several of those as well, but we're not providing any forward-looking information on how they expire and what the potential price impact could be. The average ambition for the group is 3% for 2024.
Okay. Thank you, Mattias. Just a quick additional question before I get back into the queue. When it comes to the mesh settlement, what's your best guesstimate now when you will pay out what's left of that settlement?
Yeah.
Will it be during 2023?
Yes, it will be. We expect it to be in Q1.
Can you give us a number approximately?
No. Not yet. We can't give you a number. We expect it to be within what we have accrued for for this.
Okay. Many costs as I understand it, has been taken along the time, relate regarding if you compare to the initial reservations that you made. The end amount will probably be significantly less than if you add the two reservations together.
Well, yes, lawyers and the legal costs are high, maybe not so high as you might allude to here. When it comes to the payments as such, we don't really intend to share the number at the end of the day. We want this to be not an opportunity for anyone to get attracted by anything here and start. You will see it in the cash flow when it comes. I mean, within the provision we have taken. That I think we will stay on that communication.
Okay, great. Thank you, Mattias and Lars.
Thank you.
There are no more questions on the telephone at the moment. I would now like to turn the conference back over to Mattias Perjos for any closing remarks.
All right. Good. Thank you. nothing else to summarize, I think from my end. We've gone through the material. I'm happy that we've exhausted the queue of questions as well. Thanks everyone for dialing in today. I wish you good rest of the day. Thank you very much.