Hello, and welcome to the Getinge Q3 2019 Report. Throughout the call, all participants will be in a listen-only mode, and afterwards, there will be a question and answer session. Just to remind you, this conference call is being recorded. Today, I'm pleased to present Mattias Perjos, CEO, and Lars Sandström, CFO. Please go ahead with your meeting, Mattias.
Thank you very much. Welcome to today's phone conference. We're gonna go through the results of the third quarter here, myself and Lars Sandström, our CFO. So we can move directly over to page number two, please. If we start to look at the key takeaways from the third quarter in terms of performance, we can see that our top line continues to outgrow the market a little bit. So it's been about two years of really steady growth now. It's also good to see that the net sales continues to grow in all business areas and all of our regions, so it's very much across the board.
In the quarter as well, we had good support from the volumes, and there were really no material disturbances in the supply chain or production in the quarter. The result of this is that both the gross margin and the EBITDA margin increases in the quarter versus last year's softer margins. Margins are also improving sequentially, as you can see, compared to the previous quarter, and this is despite the continued cost increases that we have as we continue to invest in remediation. This is what we planned for in our year calls, and it will continue for coming quarters as well.
Looking at the rolling 12-month performance, we can see also a clear shift upwards, and it's a good indication, I think, that some of the improvements that we've talked about since the Capital Markets Day in 2018 are generating results. And we believe that we have still a lot more work to do there. So we reiterate that 2019 will remain a year of implementation for us. When it comes to cash, the positive development in underlying cash flows continues, supported by both an improved operating profit and also working capital. This also has an impact on the leverage, so we're now at 3.0 on leverage, so yet another piece of evidence that we're continuously moving in the right direction.
We can then move over to page number three, please. So the key takeaways in terms of events and actions just a brief comment on OpEx to start with. OpEx is declining sequentially, which means that we start to see a positive impact from the restructuring efforts that we made in the first half of 2019. The third quarter, we have still some restructuring costs. We took SEK 39 million in the quarter, a little bit less than the two previous quarters. And in this case, it's mainly related to Acute Care Therapies and also global sales. And it's a number of activities to support productivity improvement in selected areas within these two functions or two parts of the company.
Remediation costs that I mentioned on the previous picture here continues to have a negative impact on margin, both versus last year and also sequentially. So, it will continue for the remainder of this year and well into 2020 as well, these investments. It's a rather high activity level at the moment. We see a positive trajectory when it comes to the premium products that we've launched, the updated products that we've launched in the last 12 months. So this is encouraging. So some examples of this are the ventilator Servo-u 4.0 platform. And we have also a new set of sterilizers out on the market that have been very well received.
The third example will be the Polaris 2 that we mentioned in one of the previous quarters. So it's very good to see the market response from these recent launches. At the same time as we're strengthening our premium offering, we do aim to increase our offering to the growing value segment, as well. For those of you with really good memories, you may remember that at the Capital Markets Day in November of 2018, we presented a number of 5% of Surgical Workflows portfolio being able to address the value segment. So, we start from a rather low base here, and therefore, I'm happy to see that we have launched the operating table, Maquet Lyra, in the third quarter.
It's a high-quality table, developed in collaboration between our R&D teams in Europe and in China, together with customers in this segment as well, and it will be produced in our factory in China. It's a really good match of functionality tailored for the real needs of the customer and the price that we're able to demand for this. That's very, very good. Over then to page number four, please. So a few comments on the organic growth pattern when it comes to order intake to begin with. We had 3.5% organic order intake growth, 8.2% in actual numbers.
There's acute care therapies accounts for the most part in absolute terms, mainly due to strong developments within the cardiopulmonary segment and heart lung machines and consumables, more specifically. This is very much across the board as well, geographically speaking. We also had a significantly increased order intake in Life Science, and in most of the product areas inside this business area. Surgical Workflows though, decreased the organic order intake compared to the previous years, and this was mainly related to tougher comps in Americas, where we had the strong Q3s in both 2018 and 2017. If we then look at this from the top line from the sales perspective, we had 4.8% organic growth, 9.7 in actual numbers.
Here as well, we had continued growth in all business areas, in all markets. Overall, stronger growth in developed markets, which means a slightly more positive contribution in terms of results from a regional mix perspective. Looking at the BA perspective, Acute Care Therapies is developing positively in all our regions, accounts for most of the growth in actual numbers. Life Science growing strongly in the largest market, which is EMEA, while performance was a little bit weaker in Americas and APAC in the quarter. And from a Surgical Workflows perspective, we performed extremely well in Asia Pacific, thanks to a number of deliveries in the month of September.
Growth in America and EMEA was also higher than the market growth, but a little bit less than Asia Pacific. And if you look at the mix perspective between capital and consumer goods, we can see the capital goods sales continue to increase as a proportion of total sales, dampening the margin a little bit, at least in the shorter term perspective. Now we can move over to page number five, please. So if we dissect the contribution in order intake a little bit and look at it from each business area when it comes to organic order intake, as I mentioned, we see strong growth overall. Acute Care Therapies was up 6.9% organically. This is 397 million SEK in actual numbers.
We had good growth, all regions and most of our categories as well, and very strong growth within heart, lung-related machines and consumables or our cardiopulmonary business. Looking at Life Science then, we had 10.5% organic order intake growth, 78 million SEK in actual numbers. We had very strong order intake growth in Americas and in EMEA, and we had a slight decrease in Asia Pacific. From a product perspective, we saw good growth in sterilizers, in isolators, and in consumables also for the Life Science BA. Surgical Workflows had a 3% organic order intake decline, but 30 million SEK up in actual numbers.
The organic order intake here was mainly attributable to Americas, where we had strong orders both in the third quarter of 2017 and in 2018. So, somewhat challenging comps for Surgical Workflows in this part of the world. We had, I think, good news in terms of Infection Control performance, so positive development there for Surgical Workflows, and especially in the EMEA region. We can then move over to page six, please. So if we look at the development in net sales, we had net sales for the quarter increasing organically by 4.8% and 9.7% in actual. So, the number was SEK 6,236 million.
We had a positive currency impact of SEK 283 million, but as you can see in the picture here, every business area contributed positively. We could also see that capital goods grew 3.4 percentage points faster than consumable goods in the quarter, which does have a somewhat negative impact on the gross margin in the short and medium term. ACT then, who had 3.6% organic growth of SEK 276 million in actions, there was a broad-based increase all regions and most product categories. We saw continued strong development in critical care, which has been a success for quite some time now, growing in all of our regions.
Also happy to note that we have very strong development in cardiac assist and cardiac surgery business, so very positive. On the negative side, we had the sales of grafts not reaching last year's level. This was mainly because of a rather significant delivery in Japan in the third quarter of 2018. When it comes to consumables in ACT, we had sales increase as a proportion of sales, which then has a positive overall margin effect, the gross margin effect. When it comes to the Life Science business area, we had a 2.9% organic increase in net sales, SEK 33 million in actual numbers. Very strong organic sales growth in the largest market, which is EMEA.
We had, from a product perspective, good growth in disinfectants and in isolators. If we look at the decline in sales in Americas, it was mainly attributable to North America, where we had a number of projects delivered in the third quarter of 2018, so impacting comparability to some extent. On the split between capital and consumables for Life Science, we had an increase of capital in relation to consumables, so a little bit negative impact on the Gross Margin for Life Science. When it comes to Surgical Workflows, we had 10% organic sales growth, which equates to SEK 244 million in actual numbers. Same as, like, ACT here, rather good base, so organic growth in all regions and product categories.
We saw very good growth in Surgical Workflows. Mostly [inaudible] in the operating rooms. We had high growth in the Integrated Workflow Solutions as well. The pattern from the previous quarter continues here, which is also encouraging to see. In Surgical Workflows, capital goods sales increased at a faster pace than consumables, which does have some negative impact on the gross margin. We can move over to page seven, please, and look at the gross margin development for the first quarter. Gross profit as such increased by SEK 450 million to SEK 3,171 million in the quarter, driven mainly by Acute Care Therapies, Surgical Workflows, and support from currency.
So the currency support was SEK 177 million in the quarter. There was a small IFRS 16 effect as well of SEK 29 million, which was the positive impact on the GP. Compared with the preceding years, top Q3 margin, the gross margin is 2.9 percentage points higher. This is driven by improvement in all of our three business areas. And there's some operational leverage because of the higher volumes, and we've also had a rather trouble-free quarter when it comes to supply chain and production. So that has a positive impact as well.
On the margin, I said, with positive contribution from volume, currency, a little bit negative contribution from the product mix, but this was then counterbalanced by a slightly positive regional mix from increased share of sales in higher income markets. So, that's the, the P&L down through gross margin. And with that, I would like to move over to page number nine, and I leave over to you, Lars, to continue.
Thank you, Mattias. Coming in then to Adjusted EBITDA. As you can see, the Adjusted EBITDA increased by SEK 239 million, and the Adjusted EBITDA margin improved 3.2 percentage points year-on-year. Currency effects had an impact of SEK 93 million on EBITDA and supported the EBITDA margin then by 1 percentage point. Gross profit increased by SEK 450 million and had a positive impact on the margin amounting to 2 percentage points compared to last year's somewhat soft performance. And thanks to the high volume and the fewer disturbances in the supply chain and production overall, there is also an improvement sequentially compared to the second quarter, when we, for example, were negatively affected by unprofitable deals in DACH.
Adjusted for currency and IFRS 16, OpEx increased by SEK 101 million year-on-year, which implies almost a neutral impact on the margin. Increase is primarily due to investments in compliance, quality, and remediation in preparation for EU MDR. However, OpEx decreased sequentially by 1.4% or SEK 29 million, which shows that the restructuring effort starts to pay off. IFRS 16 impact was some SEK 3 million for the Adjusted EBITDA for the, for the quarter. And all in all, this resulted in an Adjusted EBITDA of SEK 677 million, and an Adjusted EBITDA margin then of 10.9%. Then let's go to page ten, please. If you look at the BA contribution to Adjusted EBITDA, here we have a positive currency tailwind of SEK 93 million for the total.
And if we start with Acute Care Therapies, it increased its Adjusted EBITDA by SEK 182 million, and the margin improved by 4.1 percentage points to 18%. This was mainly due to increased sales volume, high gross margin, and constant currency effect, which was partly offset by higher remediation costs. Life Science Adjusted EBITDA increased by SEK 60 million, which represents an increase of 2.6 percentage points on the margin, mainly attributable to higher gross margin compared to last year, which was to some extent offset by a higher cost base. In Surgical Workflows, Adjusted EBITDA increased by SEK 84 million, corresponding to increase of 3.6 percentage points. And it's thanks to higher sales and improved gross margin in most product lines, including service and unchanged operating expenses.
As you know, we have high net sales volumes at the end of the year, and this quarter, we shipped somewhat higher volumes in the last month of the quarter as well, where some should have been maybe coming a little bit more in the fourth quarter. So this explains the high net sales that you saw here already in the first quarter, and also then consequentially improving the EBITDA margin here for this quarter already. The cost for common group functions increased by SEK 43 million, mainly attributable to increased compliance activities. Let's go then to page eleven, please. We continue to see good development in the underlying OpEx development, which is tracking according to plan, as Mattias already mentioned.
Today, we are some 10,457 FTEs, and we do see continuous underlying decline in the number of FTEs using the natural turnover, turnover, and only refill where it brings value to the big customers and the business. However, we have increased the number of FTEs in the quarter, and this was mainly attributable to supply and production, and remediation, and somewhere, some part in our global sales organization, where we see- where we have a net decrease when it comes to FTEs, more in admin and in general. Our work to continue to bring down OpEx in relation to net sales continues, also according to plan.
As you can see in the graph to the right, OpEx expense adjusted for the IFRS 16 effect in relation to net sales on a rolling twelve-month basis are now 1 percentage point below the peak level in the first half of 2018. Let's move to page 20. For cash flow, here, cash flow before changes in working capital was supported by the improved operating profit, while tax recovery last year is making the comparison with Q3 this year, where we have more of a normal tax paid to be distorted. So the difference, in total of SEK 291 million on paid taxes in Q3 2019 versus last year, 2018, which, of course, has an impact then when you compare them year-over-year.
Changes in working capital continues to be positive despite strong growth in the net sales. Net investment, you can see here year-to-date, is SEK 122 million below 2018 level. However, I just would like to mention that we expect it to rise a little bit when you come into Q4. Net sales was negatively impacted by currency, IFRS 16 revaluation of pension liabilities. Net debt in relation to Adjusted EBITDA, rolling twelve amounts to 3.0 here at the end of September. Let's go over to page 13, please. During 2018 and this year, we have been working intensely with improvement working capital.
As you can see in the left graph, we broke the trending working capital days in the second quarter last year, and this has been followed by decline each quarter since. We are now at some 114 working capital days. The working capital, as such, is decreasing 7.1% year-over-year, at the same time as our net sales is growing 4.8% organically. This work will continue, just as with everything else we do in order to improve productivity and the both underlying earnings and cash flow improvement. Of course, you should expect this deep, deep decline in working capital days to slow down a bit as we get into comparisons that are tougher. Nevertheless, we do still have many things to improve in this area going forward.
Let's move over to page 15, and back to you, Mattias.
All right. Thank you very much, Lars. We can skip 14 and move directly to page number 15, and talk a little bit about the outlook. So we do expect an organic net sales growth of 2%-4% for the full year of 2019. Nothing has really changed fundamentally, I think, in terms of market growth and so on. From a customer perspective, we expect the overall positive demand pattern to continue, both on capital goods and on consumables. We also, in general, I would say, have positive signals from customers on our newly launched products, and we expect the same with the ones who come for the rest of 2019 and the coming year. So our general outlook remains positive.
However, we did see a decline in orders in Surgical Workflows for this quarter, especially in America. So that makes the gap; there's some gap to fill here before year-end, that we need to be aware of. And I also reiterate what we said during the whole year, that we do see that parts of the order, strong order growth, so far this year is set for delivery in 2020. So that's the reason for keeping the guidance unchanged. So no, no change in the outlook for 2019. So we can move then to page number 17, please, and the summary. So just to, before we move to Q&A, recap the key takeaways for the third quarter of 2019.
We continue to deliver growth, a little bit above the market growth that we're in. We are starting to see positive development in margin margins in all our business area, and there's a clear shift in the rolling twelve-month figures, from this perspective. We also continue to see positive development in the underlying cash flows for the business. This means that our leverage has now declined to 3.0. So another example that the business continues to move in the right direction. Finally, I just want to remind also everybody that 2019 is still a year of implementation for us. We feel that we've made good progress on the plan that we outlined at the Capital Markets Day in 2018.
The third quarter was a good step in that direction. A lot of work remains though, and we continue to focus on this. And with that said, I open up for questions.
Thank you. Ladies and gentlemen, if you do wish to ask a question, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Once again, it's zero one on your telephone keypad to register, and there will be a brief pause while questions are being registered. And our first question comes from the line of Alex Gibson from Morgan Stanley. Please go ahead. Your line is now open.
Hi, great. Thanks for taking my question. So I have three. The first one, could you please break out what impact your own savings programs have had on the sequential quarter-over-quarter improvement you've seen in your margin profile? Any details on various programs and initiatives, their current status and when they will be completed, will be helpful. My second question is around the U.S. market with regards to orders. We've seen some data and a few competitors highlight some weakness in the U.S. market, and your orders also turned negative in the quarter. Any insight on the health of the U.S. market at the moment would be very helpful.
And then my last question, it might be a bit early, but I wanted to know what factors and when will you have confidence to give guidance on the trajectory of your margins, and if there's still any uncertainty around that? Thank you.
All right. Thank you, Alex. When it comes to the first question on the savings program, we do not break down and share details of this externally. I reiterate what we said when we announced the restructuring the first and second quarter of this year, that in general, the payback for these initiatives are about one year. But we're not prepared to give further breakdown in this regard. When it comes to the U.S. market, we try to keep our ears close to the ground here as well. We did have tougher comps based on the performance in the two previous third quarters. It is by nature as well a bit lumpy, this business, because it's significant investments.
We don't generally see any weakening demand from customers. And I think the reason for our own disappointment here is that we do have some more market shares for this part of the business, and we would have hoped to continue to grow even if we had had more challenging comps here. But we're still optimistic about the underlying opportunities for us in the U.S. When it comes to guidance, I don't have a lot of updates to give you either, unfortunately. We do feel there's a little bit more stability, of course, but I reiterate what we said in 2018, that it's not going to be a straight line turnaround.
It's a three-to-four-year journey. The third quarter was a good quarter, and we're happy about that. But we're not prepared to issue any more detailed guidance at this stage. I can't give you a point in time when we'll be able to do that. We evaluate this every quarter.
Okay, thank you. And if I could just follow up on the, on the first one, so the breakdown, the sequential improvement in gross margin, could you even break down how much of that you think was attributable to, self-driven programs versus, say, product, regional mix? Can you give us that detail?
Well, there is, when it compares to sequential, there are less impacts from that coming from regional and product mix. It's more a question of that we had more of some disturbances, as we mentioned, in the second quarter, and this has been much, so to say, smoother. And it's also higher volumes that impact the leverage. And of course, we have a lot of activities when it comes to restructuring. It's not one activity. We work finding small areas where we see an opportunity for improvement, and then we address that. But there is a lot of broad-based improvement activities going on in the manufacturing side and all over the company. So this is more, many small steps that we in this quarter then see come through.
Okay, thank you.
Thank you. Our next question comes from the line of Annette Lykke from Handelsbanken. Please go ahead, your line is now open.
Thank you very much. First of all, congrats on a very strong Q3 report. My first question, after listening to a fairly confident CEO, is, how... I mean, the implicit growth rate for Q4 must, in the best case, be around 2%. If we go to the lower end of your range, it could be negative or 0%. Isn't your guidance too conservative, or otherwise, is it only the Surgical Workflows you are so uncertain on, that you feel that you have to guide for a lower implicit growth rate in Q4? My other question will be on the MDR preparations. You have mentioned those a couple of times. How will these affect costs in 2020? Should we see admin and R&D up, or will they stay at this current level?
Then, of course, also on the top line effect, I seem to recall that you had talked about a lot of SKUs, and you may wanted to do a bit of a slimming of the tail of the legacy products. How should we see that impact, if any, on the top line, also in 2020, when the MPR is taking effect from May?
All right. Thanks, Annette. I'll start with the guidance bit. And you know by now that we're trying to be a little bit conservative here, not overpromise anything. And to hit 4% for the full year still requires growth about 2% in the fourth quarter, so within the market here. We do have the significant part of the order book for 2020 as well, and 2020 Q4 is always a very busy quarter with the deliveries and so on, so there's always some risk associated with this. So it's that that's the reason for me remaining with the guidance. I can understand that it's seen as conservative absolutely, but this is a choice that we've made.
When it comes to the admin and R&D cost for 2020, we don't guide on this. As you know, what I can say in general is that the 6% growth R&D investment that we make is the number that we're quite comfortable with going forward, as well as more important for us is how we allocate the spend in the most productive way. When it comes to admin, there's not a lot of guidance I can give you there.
I mean, as Lars said earlier, the increase that you saw in some of the costs in the third quarter related to compliance work, both proactive work and some of the work in the wake of the issues we've had in Brazil, for example. But we don't expect any significant increase of this either. We do expect that when looking at OpEx as a whole, it will continue to creep down as a percentage of net sales. So I just want to reiterate that guide. When it comes to the SKU reduction, there's good progress, especially in Acute Care Therapies.
Surgical Workflows started a little bit later, but they have a good plan in place as well, and we do not expect this to have a significant impact on the top line here. We're talking really immaterial numbers, since it's, it's mostly variants of products that we believe can be replaced by others.
Is it fair to assume that in Acute Care Therapies and Surgical Workflows, you have been able to maybe replace some of the demand for the older products with new and maybe more profitable products, or how should we see this?
I honestly can't give you a good number on that. I don't have the breakdown with me today. Lars can add something else.
Thank you.
No. Okay, no, I think we would have to look back. I don't have this off the top of my head.
Okay. Thank you.
Thank you. Our next question comes from the line of Kristofer Liljeberg from Carnegie. Please go ahead. Your line is open.
Yeah, thank you. Can you hear me?
Yes.
Okay. Oh, good. Three questions. I hope that's okay. The first one, I totally understand you wanna—you don't wanna give any detailed guidance on 2020, but if I remember correctly, you previously said, you know, 2019 is the year of implementation, and that we should see more margin improvements from 2020. But so far this year, it seems margin may be improving a little bit this year as well. So is this still so that we should expect margin to improve more year over year, next year? That's my first one.
Yeah. Yes, yes, is the short answer. We've also said that it's not a straight line recovery, that there will be some fluctuations between quarters. So 2019, we do expect to be an improvement over 2018, and then 2020 should be a slightly bigger step in improvement. That's still the general thinking, yeah.
Okay. And that leads into the second question, and that's about what's gonna drive the margin improvements from here. We were happy to see, you know, the number of employees decreasing in absolute terms a few quarters ago. Now, it's increasing a little bit again. Is this the trend we should expect, so that margin improvements will be more from leverage on operating costs, or will it be more cost cutting?
It's for sure, long term, going to be more from true productivity. I think the FTE indicator that is here, it's a very crude KPI, actually. So it's much more important with how we work with productivity, with the people that we have. So, future improvements will definitely be much more from productivity than from cost cutting.
Okay, that's good. And, and my final one, just on the FTE cost, the provision you have now, I think it's still close to SEK 300 million. Is that enough, in your view, to do what need to be done in [inaudible] ?
Yes, we still feel that the provision is sufficient to cover the work that we need to do.
Great. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Ravi Shukla from AlphaValue. Please go ahead. Your line is open.
... hello, Mattias, Lars. I just had a question on profit margin, which I think somebody else has also asked. There was an operator interruption, and I couldn't get your answer to the margin question on... So, you did speak something about will 2020 be a year of margin improvements? Because the way I'm trying to understand is while you do not want to give a concrete number or the trajectory, should we be thinking of this, the margin in 2019 as something of the margin has kind of bottomed out, and we only get better from here? In terms of some quantitative commentary around that, if you may.
Yes. Yeah, I think the question that you partly missed, and just to reiterate, that was the whether we stand by the comments I made some quarters ago, that 2019-
Yeah
[is the year of implementation, and we should see benefits in 2020. We do stand by that comment. Still, we believe that 2018 would be a little bit better... Sorry, 2019 will be a little bit better than 2018, and then 2020 should be a further improvement. So, and then back to Christophe's question a moment ago, where we believe that the driver margin improvement should come from more productivity. Where I think we have made some good steps now in several parts of the business, so which is quite good, good momentum, and spirit, I think. But there's still a lot more to improve in almost all parts of the business.
Okay. And just a second one on, the capital versus consumables mix, the product mix, basically. So, it's, the product mix, capital has been outgrowing consumables for the past many quarters, so any kind of, you know, view that you may have that where product mix will start to have positive impact on your margins?
Well, we do have a positive impact from the consumables. We said, even if the ratio is still in favor of capital, and we've said that in a growth phase like this, it's quite natural that it is this way, and I couldn't, even if I wanted to, give you a picture on how this will be going forward.
Okay, perfect. Thank you. So that's it from my side.
Thank you.
Thank you. Our next question comes from the line of Johan Unnérus from Pareto Securities. Please go ahead, your line is open.
Thank you for taking my questions. And, yes, with this sort of, delivery during the implementation stage, of course, we're curious about the future results. But, anyway, some question regarding Surgical Workflow. It's been, a soft spot with some challenges. In this quarter, it's a pretty good outcome, and, and you are also clear that the capital goods contributed, quite substantially. So the first, the question is, to what extent is there any unusually big capital orders in, Surgical Workflow?
Hello, that's Lars here. I think there is nothing unusual in that sense. When it comes to sales, we had a quite strong quarter in sales, in capital goods. And as I mentioned there before, there is a, as you know, SW is, the Surgical Workflows has a very strong fourth quarter, and then that is also for the latter part of the year. So we could see already now, at the end of Q3, that some of the deliveries were picking up quite in a good way already earlier in the quarter here.
Yes, and, and on the broader picture on Surgical Workflows, can we, how should we look at the strong Q3? Is that a sign that you're in a better position to recover and improve margins ahead? Of course, this is a bit of a longer journey, I guess. But, what's the outlook? Are you more confident now? Is, and can we regard this as you see past the low point?
Yeah, I think we should be past the low point. I think I said already last quarter that we do also, for Surgical Workflows, expect the 2019 to be a little bit better than 2018. I also think you can look a little bit at the two quarters combined, in a way, if you want to understand the underlying dynamic of SW. So I think the—I want to reiterate, they are still in the early phase of their turnaround. There are good plans in place and good progress on some fronts, but there's still a lot of work to do there.
Good. And is it possible to say anything about contribution from launches of new products? It seems to pick up a bit. To what extent is that contributing to organic growth at this stage?
Yeah, we can't break that down for you, unfortunately. I think we're just happy to note that the products we have launched are very well received by customers in general, but I couldn't give you a number on how much they actually contribute to growth.
Yeah. Okay, thank you.
Thank you. Our next question comes from the line of Scott Sheridan from Berenberg. Please go ahead, Scott, your line is open.
Yeah, thanks very much for taking my questions. So, Mattias, lots of programs going on, as you mentioned, to improve efficiencies to the company. And you clearly have some confidence building upon margin momentum into 2020. So I wonder if you could spell out for us what are the main sorts of projects that are ongoing in the organization which start to kick in with some visibility next year to help support your margin aspiration for next year and beyond. So that would be helpful, please. So that's the first question. Thanks.
Yeah, thanks, Scott. Yeah, I think the two enablers that I've talked about before are still valid. The SKU reduction program that's going on in all our 3 BAs and especially ACT and SW, I think are important to continue to implement during 2019 and next year. We also have an initiative ongoing when it comes to harmonization of processes, to be able to generate some economies of scale in things we do, not just in factories, but by all the support processes in the company as well. So this is work in progress in 2019 and likely for first half of 2020 as well. But they start to gradually help in different areas after being implemented.
We have then as well, I would single out also when it comes to the supply chain, when it comes to warehousing and logistics, we've made good progress in warehouse reductions in several geographies. Also good progress when it comes to consolidation within logistics to lower the cost and also work to increase the service level of this part of the organization. So that's still ongoing. We have the improvement initiative that's going on across all our factories as well, and with so far really different momentum. So we see some positive contributions in certain areas, but still a lot more to come in the coming quarters and years.
We have the purchasing program going on as well, which is generating some results, but also early days. So all these types of initiatives are really in full swing in 2019, but we do expect the bulk of the improvement to be ahead of us. That's a little bit more detail.
Very good. And when we think about previous attempts for recovery, for Getinge, I recall that, you know, there was a year where margins started to increase, and what disappointed there the year after was the growth turned negative or didn't deliver as expected. So I wonder if you can add to some comfort about the sustainability of the top line, you know, what you think are really the main drivers, why the organization is in a better place to deliver that? Perhaps also touch upon timing for the PMA for the covered stent. Thanks.
Yeah. When it comes to the market, bit, we Looking into 2020, we still remain with a 2%-4% market growth, and that we'll be able to at least stay in line with this. We believe that, again, in the dialogue with customers and so on, I think it's a positive dialogue. We don't see any decrease in investment anywhere that we need to be worried about. And we feel that we still have several white spots when it comes to the matching of our product portfolio with geographies. A bit more work to do there, even if that's been the main driver of growth so far the last two years.
So, that's kind of the reasoning for having some confidence in that we'll still be able to grow at least with the market.
Yeah. And on covered stent, any, any sense of when the PMA is set to be approved there?
Yeah, we said earlier that at the end of this year, and we remain, we still have a dialogue ongoing with FDA on this, so no news today on.
Last one from me. Obviously, there's still a few lingering issues for the company with respect to Consent Decree, warning letters, and the mesh litigation. Can you give us some sort of timing, actually, of when there are certain milestones, to you know, progress away from these, from these issues and impacts? Can you give us some sense of how you're thinking about these over the coming 12 months?
I probably can't give you that much more detail than we've said in earlier calls. When it comes to the remediation efforts in our Warning Letter side and in cardiopulmonary, it's really a high intensity. A lot of work going on at the moment, and you can see that in the P&L, well, mainly on the Gross Margin, but say more than on the OpEx side. And that will continue well into the second half of 2020, as well, the way we see it at the moment. So we're trying to compensate by other productivity improvements, work really to kind of finance these investments. When it comes to mesh, there's no news either.
We, the time frame we mentioned in the previous quarter is unchanged so far. Nothing material has changed in either direction, the way we look at it.
Okay. Thanks so much, [Dave].
Thank you.
Thank you. Our next question comes from the line of Carolina Elvind from Danske Bank. Please go ahead. Your line is now open.
Hi, Carolina from Danske Bank here. My first question is on restructuring, because you talked a bit about now what the main ongoing projects are. Could you give some color on how that is progressing per division? Then my second question is on the U.S. business, because as I understand it, you've been working on the sales and service structure there, and just to give an update on how that is progressing. Thank you.
Yeah. Thanks, Carolina. When it comes to the restructuring, the initiatives that we implemented in the first two quarters, such as there's generating some benefits that you can detect in the P&L today, but we don't break it down any further than what we've done previously. A lot of it was related to Surgical Workflows in the first two quarters, a little bit more on ACT and global [inaudible] now in the third quarter. Similar type of payback on these initiatives, I would say, as earlier. When it comes to the U.S. business, it's correct that we had some, in the first quarter, we made some improvements when it came to [sale] structure and also the way we work with service.
And then we do see some recovery from that, is one of the positive improvements in the third quarter compared to both third quarter last year, but also previous quarter.
Okay. Thank you.
Thank you. As we have no more questions registered, I now hand back to our speakers for any closing comments.
All right. Thank you very much. Nothing else really to add. I think we covered most of the things with the questions now, so I think we can close the call here and just thank you for your attention today.
This now concludes our conference. Thank you all for attending. You may now disconnect.