Good morning, and welcome to today's earnings call. I have Lars Sandström, our CFO, with me today, who will support me during the call and also present some of the detailed financials. So, we can start by moving over to right away to page number two, please. I'd like to start by summarizing the key takeaways from the second quarter. So, we continue to outgrow the market. We have positive performance in the U.S. continuing, and I was particularly happy to see that our net sales in China increased by more than 30% in the second quarter, so very strong development there.
I am pleased with the development in Acute Care Therapies and in Life Science in the quarter, and it's also very good to see that our working capital is continuing to decline despite our growth. This has a very positive impact on our cash flow, as you will see in a short moment. We do see good progress as well when it comes to many things in our turnaround plan. However, I'm not really satisfied with our gross margins, which were impacted negatively by the development in Surgical Workflows.
On the OpEx side as well, we have the continued investments in compliance, in quality, and remediation measures, as well as the adjustments to the European Union's forthcoming medical device regulation, EU MDR, which does have an impact on the OpEx. Of course, we as well have continued investments in fueling our growth. Those are the main takeaways from the quarter. We can move over to page number three, please. In terms of events here, we're not satisfied with the current level of operating expenses, and therefore, we've initiated further restructuring activities in the quarter. This is in addition to those that we presented in the first quarter.
The cost in the second quarter is SEK 106 million , and this is primarily related to efficiency enhancement in sales and in administrative processes. We expect this to have a positive impact on earnings in the second half of 2019. Just to give an example here, one of those measures is that our two shared service centers are being merged, with all of our operations in Costa Rica being transferred to the unit in Kraków, in Poland. This we expect to be completed by the end of September in this year. I also want to highlight that we have no new material information to give regarding negotiations with the authorities in Brazil.
There's also no update really on the mesh litigations and the FDA warning letters, other than what has already been communicated. When it comes to our portfolio, we have introduced a new steam sterilizer, and the upgraded version of our strong performing Servo-u ventilator is also ready for launch now on all markets that require CE marking, and we expect it to to continue to fuel the growth in our critical care business, which is already already quite good. Also, customer satisfaction is key for us, and in the quarter, we received both partner awards and excellence awards from customers, thanks to the value that we continue to create for them.
We also received a Red Dot Design Award for the high-quality design and also the user-friendliness of our new Maquet PowerLED II surgical light, which was launched a couple of quarters ago. So some real good positive developments in that area as well. With that, we can move over to page number four, please. So if we look at the organic growth from mainly a geographic perspective, we had order intake growth of 5.2% organically in the second quarter, 11% in actuals.
We do see continued strong growth with Acute Care Therapies leading the development here, so they account for the largest share of growth in absolute figures, mainly due to very strong trend in our Cardiopulmonary business, and specifically, heart-lung machines and disposables for this. It's worth pointing out, though, that most subsegments within Acute Care Therapies performed very well in the quarter from an order intake standpoint. We had a little bit lower order intake in EMEA, attributable to Surgical Workflows in Eastern Europe, where we had a strong quarter the same period last year, but we did have a decline in EMEA this year.
We do see very strong growth in Life Science in Americas and EMEA, and also healthy growth in Surgical Workflows in both Americas and in APAC. Overall, very positive development on the order front. If we then move to sales, we see continued growth in all of our business areas. If you look at the Acute Care Therapies, again performed positively in all regions and accounted for the largest share of growth in absolute figures. We also had robust growth in Life Science in Asia Pacific, particularly related to washer disinfectors and sterilizers, but we had slightly lower sales in North America.
When it comes to Surgical Workflows, we had good performance in Asia Pacific, while sales fell organically in EMEA, mainly related to Infection Control. If you then look at the split between capital goods and recurring revenue, you can see the sales of capital goods continuing to increase as a percentage of total sales, which does have some negative impact on the gross margin, which you will see in the coming pictures here. It's worth pointing out, though, that it's growing at a slower rate than in previous quarters, so a little bit of rebalancing going on there. So after order intake, we can move to page number five, please, and look at the contribution here by BA.
So, overall, a very strong development for the group, as I mentioned, and if you look at Acute Care Therapies, we had 7.7% organic growth and SEK 455 million in actual numbers. So positive trend with order growth in all of our product categories, highly robust in heart-lung machine, including consumables, as I mentioned. From a Life Science perspective, we had 15.5% growth organically and SEK 129 million in actuals. We had sterilizers in Americas contributing to a large share of this, and also isolators in EMEA, worth pointing out.
If you then look at Surgical Workflows, from an organic perspective, we had a small decline, 0.9%, but an increase in actual numbers of SEK 86 million. The decline, the organic decline was attributable to Eastern Europe in EMEA, and if you look at Americas and Asia Pacific, we had a much more healthy performance, especially when it comes to Surgical Workplaces. So that's the makeup of the order intake in the second quarter. So let's move over to page 6, please. So this gives you an overview of the development in sales by business area. So net sales for the quarter increased organically 4%.
In actual numbers, it was 9.5%, so the total number was SEK 6,277 million for the second quarter. There was a positive currency impact here of SEK 319 million in the quarter. And as you can see, every business area contributed positively to the sales development. We also can see that the capital goods grew 0.6 percentage points faster than consumables, which does have a negative impact on the gross margin in the short term. But again, it's a little bit of a rebalancing compared to past quarters. So ACT 6% organic growth, SEK 393 million in actual numbers, and good growth in all regions this quarter.
We had 14% growth in critical care, mainly due to strong sales of ventilators. It's also positive to see that we had healthy growth in cardiac surgery products on all of our markets. For the first time in almost two years, we could see that the sales of expandable vascular stents have actually stabilized in this quarter, so that's also very positive. The sales of capital goods increased also in ACT, which has a little bit of a negative margin effect for that business area. If we move to Life Science then, we had a 3.9% organic sales growth. It was SEK 51 million in actual numbers, and particularly high growth in washer disinfectors and sterilizers in Asia Pacific.
We did also have good growth in isolators and sterilizers in EMEA. Americas was a bit weaker, attributable to North America, primarily, and we could in Life Science as well see that the sales of capital goods increased in relation to consumables, which again has a slight negative effect on the gross margin. Surgical Workflows, then if we move to sales in that business area, we had 0.8% organic growth and SEK 102 million in actual numbers. We had high growth in Asia Pacific and Americas, while EMEA did not meet last year's strong results in terms of sales performance.
If we look at Surgical Workplaces and integrated workflow solutions, we had a good, rather good quarter in terms of sales development for those two subcategories. We had a negative development in Infection Control in EMEA that hampered the overall growth a little bit. We could also see in terms of capital and consumables, we had capital goods increasing at a marginally higher rate than consumables. That's the overall view on net sales development in the second quarter, and with that, we can move over to page number seven, please. We'll spend a short moment here on the gross margin development for the second quarter.
You can see that the gross profit increased by SEK 257 million to SEK 3.101 billion in the quarter. This is driven mainly by Acute Care Therapies and also support from currency. The currency support in the quarter was SEK 163 million here. It's also worth mentioning there's a slight positive impact from IFRS 16 on adjusted gross profit. This amounts to SEK 29 million in the quarter.
If we then compare this with the preceding year, the gross margin is 0.2 percentage points lower, mainly due to the negative development within Surgical Workflows, and the reason for this is that we had a number of large customer products in surgical tables and other operating room hardware in the DACH region that hurt the gross margin development. When it comes to the margin, we had a positive contribution from volume and currency, and some very slightly negative contribution from product mix. What this means is that we had more growth in capital than in recurring. It was counterbalanced to some extent by a slightly positive regional mix from increased share of sales in the U.S., but it was not enough to have an overall positive impact.
With that, we move over to page number nine, and I leave over to you, Lars.
Thank you, Mattias. Moving over to the EBITDA, page 10. As you can see, Adjusted EBITDA increased by SEK 53 million, and Adjusted EBITDA margin was flat year-over-year. Here, currency impacts had an impact of +SEK 61 million on EBITDA, and this supported the EBITDA margin by 0.4 percentage points. The gross profit increased by SEK 257 million, but had a negative impact on the margin, amounting to 0.7 percentage points, then excluding currency, and this is mainly attributable to the surgical workflow development. OPEX increased SEK 88 million year-on-year due to investment in compliance, quality, remediation, and also preparations for the EU MDR, as well as some currency impact here. But on the EBITDA margin, OPEX contributed with 0.2 percentage points, excluding currency in IFRS 16, meaning that we have some slight leverage coming through.
All in all, this resulted in Adjusted EBITDA of SEK 591 million, and an Adjusted EBITDA margin of 9.4%. Then we move to page 10, please. Here, let's take a look at the BA contribution to Adjusted EBITDA, which was positively impacted by currency, as mentioned, of SEK 61 million in the quarter. Acute Care Therapies increased its Adjusted EBITDA by SEK 102 million, and the margin improved by 0.8 percentage points, and this is mainly due to higher sales volume and currency. Life Science Adjusted EBITDA increased by SEK 11 million, resulting in margin increase of one percentage point, and it was mainly attributed to the higher sales and gross margin compared to last year.
Surgical Workflows Adjusted EBITDA fell by SEK 35 million to -SEK 74 million, primarily due to lower gross margin, largely as a result of a number of large, as Mattias mentioned, customer projects in surgical tables and other or hardware. This was, to some extent, partly offset by continued OpEx, OpEx focus in SW. This is the BA, as Mattias mentioned earlier, where we see a significant need for improvement in our commercial execution and productivity improvements going forward. Surgical Workflows also had a headwind from currency impacting the EBITDA negatively. The cost for common group functions, etc., increased by SEK 25 million, and this is mainly attributable to the compliance areas. Let's move to page 11 then, please. We continue to see good development in the underlying OpEx development, which is tracking according to plan.
Today, we are 10,409 FTEs compared to 10,792 by the end of Q1 2018. We do see continuous underlying decline in the numbers of FTEs, and we are using the natural turnover and to some extent, restructuring activities, and we only refill if it brings value to customers and the business. However, we had increased the number of FTEs in the quarter, attributable to factory temporaries and remediation resources. Just to give you an example, we have increased some 50 FTEs in Hechingen related to remediation work and also the increasing demand since February 2019.
The increased number of FTEs, together with the increasing cost for quality and remediation overall, together with the compliance and EU MDR preparation, had a slightly negative impact on OpEx in relation to net sales in rolling twelve, but we are still significantly lower compared to the peak in Q1 2018. Our work to continue to bring down OpEx in relation to net sales continues. During the second quarter, we announced additional SEK 106 million in restructuring related to dedicated activities to address improvement areas impacting both OpEx and COGS. Then let's move over to page 12, please. The increase in profit had a positive impact on free cash flow, which was SEK 576 million for the quarter, compared to SEK 47 million previous year. Year- to- date, we have SEK 750 million in free cash flow versus SEK 46 million previous year.
Cash flow was positively impacted by the continued healthy trending working capital, despite the solid growth. Net investments also come in on a lower level and is now below our rate of depreciation. A dividend of SEK 272 million was paid to the parent company shareholders during the second quarter. And net debt here was adversely impacted by currency impact, IFRS 16 effects, and revaluation of pension liability. Excluding IFRS 16 effects, net debt in relation to Adjusted EBITDA rolling twelve was in line with Q4 and Q1 in 2019. Then let's move over to page 13, please. During previous year, we have been working intensely with breaking the growth trend in working capital that we saw in the years before.
As you can see in the left graph, we broke the trending working capital days in the second quarter last year, followed by decline each quarter since. We are now at about 160 working capital days. Working capital is decreasing 6% year-on-year, at the same time as our net sales is growing 4% organically. This work will continue, just as with everything else we do in order to improve productivity and thus both underlying earnings and cash flow improvement. Of course, you should expect this, the declining working capital to slow down a bit. As you know, we soon come into tougher accounts as we started to improve quite well in Q3 last year, reporting SEK 801 million in free cash flow in that quarter.
Nevertheless, we do see a change in behavior to the better in the organization when it comes to these things, which is encouraging as we still have many things to improve in this area. Let's move to page 15 then, and over to you, Mattias.
Great. Thank you very much, Lars. So, move actually to page number 15 and the outlook for 2019. We still expect an organic net sales growth of 2%-4% for the full year of 2019. It's in the upper range of this, but still within the span that we've given as guidance. The reason for this is that nothing has really changed fundamentally. From a customer perspective, we expect the overall positive demand pattern to continue, and this goes for both capital goods and for consumables. We also have, in general, positive signals from customers regarding our newly launched products, and we expect the same with the ones to come in the rest of 2019. So, this kind of reconfirms the overall positive outlook that we have.
One thing to bear in mind, though, is that a big part of the strong order growth is also for delivery in 2020, which is good, and we secure the longer-term growth prospects as well. But it also means that we stay within the guidance bracket of 2%-4% for 2019. With that, we can move over to page 17 and the summary before we move to the Q&A. So, if you look at page 17, just to reiterate the key takeaways here, we continue to deliver strong growth. Again, it's another solid quarter when it comes to growth in order intake and in sales.
We have a very positive underlying development in Acute Care Therapies and, Life Science, while there is significant room for improvement in, in Surgical Workflows. But the good news here is that there are challenges in the core business is now concentrated to, to Surgical Workflows, and we have a focused effort going on there, as well since, some time ago. We've taken, restructuring costs of SEK 106 million in the quarters, in the quarter, and this is, because of focused activities, targeting productivity in sales and in admin processes primarily. And we do expect this to start to have a positive impact on EBITDA already in the second half of 2019. And I also want to highlight again the positive development in, in working capital and the free cash flow that, that continues.
It's important as well to keep in mind that we will continue to intensify our efforts to strengthen the profitability of the operations in general and in Surgical Workflows, in particular, in the coming quarters. I also want to take the opportunity to remind everybody that we are on what is typically a four-year turnaround journey that started in the second half of 2017. We're well underway on this journey. And 2019, like we said at the Capital Markets Day in 2018, is a year of implementation. So you will see a lot more activities during the course of this year, and we still expect a more solid improvement from 2020 onwards.
That's the summary from the second quarter of 2019, and with that, I open up for questions.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press the 01 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing 02 to cancel. There will be a brief pause while questions are being registered. Our first question comes from the line of Kristof Liljeberg from Carnegie. Please go ahead. Your line is now open.
Yeah, thank you. I have two questions. First one, on ACT, of course, very positive development, impressive growth. Could you maybe describe what, what's driving this? How much of growth is coming from new products, and what do you think is the reason for you outperforming market or continue to outperform market? Second question on Surgical Workflows and the weakness there. Is it possible for you to be a little bit more specific about what type of, or what are you gonna do to improve profitability? And whether the restructuring you're doing is that mainly to help the gross margin or operating costs? Thank you.
All right. Thank you, Kristofer. When it comes to ACT and the performance there, your first question, I'd say that it's a mix of very strong clinical performance of much of our products, especially when it comes to Cardiopulmonary and critical care that's driving the growth. We also have good development, as I said, on our cardiac surgery portfolio, which is also very encouraging. And this was also the first quarter where we didn't see a decline in the stent business, so that's another positive.
So it's a mix of, I guess, strong clinical performance compared to our competitors, and also good sales management in driving the growth in a targeted way here, partly helped them by the bottoming out of the stent business. When it comes to the Surgical Workflows weakness, as you say, they're following the program that we've talked about for the overall group when it comes to margin performance. So this entails everything from purchasing, both direct, indirect purchasing. There is the factory efficiency initiatives that are going on, but it's early days still for Surgical Workflows.
You need, you need to remember that we've had a number of management changes in this business, and the current management team is partly new as well since a couple of quarters back. So, this is still early days for the turnaround in Surgical Workflows, I'd say. And the activities that are being rolled out in terms of restructuring, it's both related to COGS and OpEx, but primarily OpEx. And when it comes to Surgical Workflows, specifically, I would like to remind you of the cost that we took in the first quarter as well, which is related to the IWS business, the software business. This was entirely related to Surgical Workflows. And as you probably saw in the report, half of the restructuring cost is related to Surgical Workflows also in this quarter.
So if you look at the restructuring charges you have taken now in the first half of the year, how much will that—how much improvement will that lead to in the second half, on an annual basis?
We don't give any detailed guidance on this, but in general, it's about a one-year payback on the restructuring initiatives that we have communicated so far.
Okay. Thank you.
Thank you. And our next question comes from the line of Michael Jüngling from Morgan Stanley. Please go ahead. Your line is now open.
Great. Thank you, and good morning, everyone. I have three questions. Firstly, on order backlog, can you comment on the directionality, on whether the quality of the backlog is supportive of improving gross margins or perhaps the other way? Secondly, also on order book growth, can you comment on how you see the second half of 2019, given that you've got significantly easier comparisons; should we expect these order backlog growth rates or order intake growth rates to continue?
Question number three is on the EBITDA margin outlook for the second half, and I, I fully appreciate that you don't give guidance, but I'm confused by your remarks on page one, right from the beginning, where you highlight that you will see ongoing headwinds from investments in quality, MDR, in the coming quarters. And then in the same paragraph, you then write, strengthening profitability in the second half. Which way is it? Is the net going to be positive, or is the net of those two items going to be negative for margins in the second half, excluding, obviously, the impact from currency fluctuations? Thank you.
Okay. I can start with the we start from the first question here when it comes to the order backlog. We don't comment particularly on the quality of what's in the order backlog. I should say that we don't expect any significant change from what we've had historically here, other than what you can see in the mix in order intake between the business areas and capital and recurring. And when it comes to the order growth guidance, again, we don't give a detailed guidance or a numbers guidance on this. But as I said in one of the pages here earlier, we do expect. We feel a good, very positive sentiment from customers overall.
We have, our new products being well received by the market as well, and we do expect the same for products that are, are about to be launched. So, we, we do expect continued positive momentum when it comes to, to order growth. When it comes to EBITDA, you're correct that we don't give guidance on this. What we have said, though, is that we, we do expect, even if, if 2019 is the year of implementing a lot of improvement efforts, we still expect, an underlying improvement compared to, to 2018.
We just want to flag that we do have quite an intense period here in 2019 when it comes to both remediation, when it comes to our proactive compliance initiatives, in the wake of what's happened in Brazil. There are costs associated with EU MDR as well, and of course, we're continuing to invest in growth. So all these investments, they do have an impact on the margin. We at the same time, though, have a lot of improvement efforts going on as well, and the net of this is that we do expect to perform better on Adjusted EBITDA this year than the year before.
But more guidance than that, we're not prepared to give.
Okay. And if I may ask a follow-up call or question on order growth, can you comment on the sustainability of the Americas number? I mean, since Q3 of 2018, it seems that the business has definitely improved and is moving in the right direction. Can you give some comfort that what we've seen in the last two, three quarters is really a fundamental improvement on which we can rely on to continue in the Americas for the next 1-2 years? Have you got the turnaround now ready and functioning in the Americas?
I think in, if you look at the changes that we've made in, in Americas in terms of, how we prioritize and how we allocate sales resources and so on, I do think that this is, positive and, and sustainable. The overall market is favorable at the moment, as well. We have no reason to believe that it's going to, to change. So we do think it's a, a sustainable change for the better. That's correct.
Okay. Thank you.
Thank you. Our next question comes from the line of Johan Unnérus from Pareto Securities. Please go, your line is now open.
Thank you, and thank you for taking my questions, just a few. To start off with Surgical Workflows, you clearly have quite a lot of work to do, and the first stage is probably about reaching stability. Is that something that we can expect already during the second half of the year, or what should we look at that?
Yeah, you're right. I mean, there are challenges now and turnaround efforts are to a higher degree, at least in the core business, concentrated to Surgical Workflows. As we highlighted, tried to highlight in the quarter, we've had a couple of problematic customer projects in the DACH area that hurt us in the second quarter. Other than that, I think the implementation of the improvement program is going according to plan, but again, it's not a quick fix, this. So we do expect also Surgical Workflows to improve on an underlying basis in 2019 compared to 2018. That's the only guidance we give in that regard.
Okay. Thank you. That's useful. And then the full year sales guide appears, of course, rather conservative. You also added that clarified that some of the very healthy order intake is more directed to, well, after 2019. But is it possible to say anything about the order, the sales and- that you expect in second half of the year? What's the cover rate from the order book? Is that normal, or is it on the conservative side, or is it – c an you give us any flavor on that without being too specific?
Yeah, sure. I think the cover ratio, if you want to call it that, is on normal levels here. So I think we have fairly good visibility, and as I mentioned, it's an unusually large portion of the order book that is for 2020, this year. Otherwise, in terms of year-to-go orders that we need to book and turn this year is on normal levels now. So the guidance, we remain with the guidance that we had. We realize that it can be seen as conservative, but we do want to be a little bit prudent here as well.
Yeah, that's probably very sensible. And what about that the order book is unusually, well, more extended? Is that also a reflection of the higher level of capital goods and that you won or get support from tenders?
Yeah, for sure, the part of the order book that is for 2020 is capital driven. That's true.
Yeah. Okay, thank you.
Thank you. Our next question comes from the line of Scott Bardo from Berenberg. Please go ahead. Your line is now open.
Yeah, thanks very much for taking my questions. So firstly, on Surgical Workflows, can you talk a little bit more about the problems you had with the larger orders in the DACH region? How typical or atypical is that? And perhaps give us some feeling for outside of those projects, what the margin would have been. I mean, how loss-making were those projects, and why? Also on the group gross margin, please, just to get a feeling, you're starting to see the mix more normalized as you identified towards consumables, which are typically higher margin, and some of the mix regionally is supportive of some of your, you know, higher margin businesses and regions. Yet group gross margins have not really progressed, even in Acute Care Therapies.
So can we have a little bit more discussion? I know there's a lot of intense efforts to improve gross margin, but did that disappoint you this quarter? And perhaps give us some sense of how that evolves going forward. Last question, please, on the shared service initiative. I think Getinge has spent much time building out a shared service center in Costa Rica to serve the North American market, and now you consolidate that. So can you give us some sense as to what went wrong with that initiative, why that didn't materialize as you expected, and whether there's any execution risk or opportunities surrounding the full consolidation to Poland? Thanks.
Mm-hmm. Good. Yeah, thanks, Scott. I think if we start with Surgical Workflows, we do believe that it's atypical and certainly hope that is the case. So sometimes when you have larger, more complex projects, we do encounter implementation issues, and that's what happened, and they kind of became a little bit concentrated here to the second quarter and in DACH. So, but I guess the details or the nature of this is not something that we communicate. It's just implementation/execution problems, I would say. When it comes to the group gross margin, you're right that we have a positive mix effect from ACT and also from U.S. having better traction.
But you need to remember that we have a significant growth in Asia Pacific as well, and not only in China, but also other parts of Asia Pacific. So the net effect of this is a bit negative, and same thing when it comes to the capital versus recurring revenue, even if it's rebalanced a little bit since previous quarters. When it comes to the shared service centers, it's a long story. I think I'd just like to remind everybody that when this was set up, it was at a time when Getinge was a SEK 30 billion company with the target of becoming a SEK 50 billion company.
What happened afterwards is there was a decision to spin off Arjo, and at that point, we felt that we had the mass still to to sustain two operations, especially since Arjo had communicated that they would stay with us in the shared service center set up. Now they've communicated that they will not. So we have some we have some TSA cost impact of this also in the second quarter, and it's clear now that for the future, we will be alone with a SEK 25 billion business, so half of what the shared service center structure was set up to to cope with. So that's really the reason for this.
So it's just really a very different position we find ourselves in now compared to the plan when these were created. And we do see now that the consolidation into to Kraków is good. It's sized to support the type of business we are now and that we expect to be in the coming years. And we also do get some process synergies from being in one place. So we think overall it's healthy, even if it has some structural impact in the second quarter.
Okay, thank you. Just to follow up, can you give us some sense of what degree of savings you are likely to receive from this Costa Rica initiative? And just extending upon some of the activities going on in the organization, given your efforts for the European Medical Device seg, can you highlight whether you've identified any means for SKU reduction going forward, and whether that will lead to any benefits that you anticipate into 2020? Thank you.
Mm-hmm. If you look at the shared service center question to begin with, then there is a part of the restructuring cost related to this. It's the same thing like the other restructuring initiatives, that it's about a one-year payback on this. The absolute level is not something that we communicate. When it comes to the EU MDR implementation, that is going according to plan rather well for us, I would have to say. And there is an SKU reduction here in the range of what we communicated at the Capital Markets Day. So we're about a fourth of our SKUs, which will have a positive impact, but it's not an impact that we have decided to quantify and communicate externally.
Thank you.
Thank you. And our next question comes from the line of Sten Gustafsson from Nordea. Please go ahead. Your line is now open.
Yes, good morning, Sten Gustafsson from Nordea. I had a few questions. First, when it comes to the, the clean OpEx level, is, is the H1 level you had, is that a good proxy for, for second half, like it was last year? And then on, on Surgical Workflows, could, could you remind me why, and I think you have said that before, why a lot of the stranded costs following the Arjo spin-out ended up with, with Surgical Workflows? And, and to follow up on, on the Surgical Workflows, do, do you have the right product offering in place with all the approvals, etc. , in the relevant markets in that division? Thank you.
Yeah. On the OpEx side there, Sten, Q1, if that is a good proxy, I would say we, you saw here in Q2, we have further investments in, in what we call them, compliance-related activities and also, the remediation work coming in here. That it's a bit of an increase compared to Q1, but we also then are working on, the restructuring activities. So exactly how that plays out, I will not tell you, but, these are the, let's say, the moving parameters. And when it comes to stranded costs and why it mainly impacts SW, I think these were more closely related, historically, so that's why it is more impacting SW than the other parts of the, ACT.
Okay. And how is that exactly more closely related?
But it was more that these, facilities, etc. , were more closely connected. So that's why physical practice.
And on the product offering within Surgical Workflows?
Yeah, I think, in general, we have a very good competitive offer. I think the area where, you know, since before that we have more challenges is on the value part of the offer, where a lot of our efforts now in terms of developing new products are being focused on. So, that's maybe the area where we're a little bit less competitive still. A lot of efforts going into today, but overall, I would say that we have a competitive and good portfolio in ASW.
Do you have a low temperature product approved in the U.S.?
Not approved in the U.S. We have our Stericool range, which is developing very well, but it's not approved in the U.S.
Okay. Do you anticipate that to be approved soon, or?
No, this is a long-term process, really. This is the reason why we entered into the cooperation with TSO3 in back in 2015 or whenever it was, as well. But Stericool is not approved in the U.S., and this is the ambition that it will be, but it is a long-term process here. It's not something that will happen in the next year.
All right. Thank you very much.
Thank you. Next question comes from the line of Kristof Liljeberg from Carnegie. Please go ahead. Your line is now open.
Yeah, thank you. Two follow-up questions. For those problematic projects in Surgical Workflows that you have highlighted, were they loss-making? Could you confirm that?
Yes, they were.
Okay, but you don't wanna highlight significantly?
No, we don't want to disclose the number here, but they were loss-making in the quarter. That's correct.
Okay. Without them, would you be able to say whether the beta loss would have been lower than in last year still?
No, we can't communicate that, unfortunately.
Okay, fine. And then, on coming back to the restructuring charges you're taking now, considering that they are becoming a bit larger than before, and you're talking about the one-year payback, does that mean we should expect, like, SEK 200 million in savings from them next year? Is that how we should see it?
Yeah, okay. Sorry.
No, I think when it comes to the restructuring activities, we are doing this, step by step, and we take some of them are already impacting now, and some of them rolled out. So it's, we cannot say first year-over-year, it's as simple as that. But they are, rolling out and they are coming in, and we see the things happening. We are closely tracking that the restructuring activities and, very often it's FP connected to that. We are closely monitoring that this is happening as well in the company. Then, of course, there is always other areas, increasing costs. We mentioned a few here today when it comes to the engagement activities and the compliance activities, etc. , going in the other directions, but, underlying it should come in, in the coming year and years here, for sure.
Amount, SEK 200 million plus something, is that the correct assumption? Maybe some of that's happening already this year.
Yeah. I think year- on- year, that's the correct assumption there. I think the thing that's important that Lars pointed out is that we do have the things going in the other direction when it comes to remediation, to compliance, to EU MDR and so on. So the net effect is a little bit more difficult to guide on.
Sure. And could I just – o ne more thing. You, you highlighted that CapEx now is lower than depreciation, and, and I see CapEx coming down a bit year-over-year. Is that the new sustainable level, or is this just a temporary effect?
But I think what we are doing is when it comes to, the underlying, you can say, PPE, machineries, etc. , there we are rather well invested. And when it comes to R&D, that is more connected to the opportunities and projects that we have. So that is more impacted by what kind of projects that are in the pipeline, etc. , and what we come. So that is a bit different. So as you know, investments in R&D should be positive, whereas the others are more connected to product activity. But as we, we have no intention, as I mentioned, at Capital Markets Day, to increase when it comes to CapEx.
As a percentage of sales or an absolute number?
No, an absolute, absolute number.
Okay. Okay, thank you.
Thank you. And our next question comes from the line of Scott Bardo from Berenberg. Please go ahead, your line is now open.
Yeah, thanks for the follow-up. So, again, just on surgical workspaces, obviously, this is the business which continues to weigh on the organization and is below your expectation and peers. So I wonder if you could just please highlight a little bit more, what is the problem child within that business? Is it operating tables, lights, Infection Control, disinfection? Can you give a little bit more clarity, actually, whether there's one particular category which is clearly flagging here? And question for Lars, please. You know, good and healthy working capital dynamic that you've been able to deliver. Can you outline a little bit specifically how you've managed to achieve this, given the growth in the top line?
And what perhaps would be a target, an optimal working capital day, for Getinge, in your opinion? And last question, please. I think you've highlighted in previous occasions, you expect, net debt to EBITDA leverage to come down to under 3x this year, which I think implies, some reasonable, EBITDA growth for the company. And just wondered if you continue to, maintain that view. Thank you.
Yeah. You want to start with SW?
Yeah, I can – yeah, sure. I can start with S- SW. And I think there's only three legs in SW. You have the Surgical Workplaces, you have Infection Control, and, IWS, the software business. When it comes to IWS, we had some challenges already last year that, I believe have been dealt with. Part of the restructuring cost in the first quarter was related to, to this. So it's probably less of that at the, at the moment. Still a lot of work to, to do, but I think the, the, the implementation is a little bit further ahead there.
The other two bigger areas than the surgical work, those, Surgical Workplaces and Infection Control, I'd say there's a little bit similar to the overall situation for Getinge, if you look in the past. There hasn't been enough focus on both commercial practices to some extent, I'd say in terms of discipline when it comes to pricing, especially of accessories and non-standard products that go into tenders. That's one area. I'd say there's also purchasing, indirect and direct purchasing. The factory footprint has. There's been a number of unfortunate changes over the years, which has rather than decreased cost and improved efficiency, it's been the opposite.
It has increased complexity and raised the cost level. So, a rather difficult starting point, there. So those are the main components, I guess, of the challenge in SW. And I just like to remind again, that it's early days. We've had a very high level of rotation of management in Surgical Workflows over the years. So Stefan and his team, now they need 2019 and the part of 2020, I think, to do a crisp implementation of their turnaround plans.
Well, coming over then to your question on working capital and how, I think, I talked about this in other, other occasions as well. This is not one activity that we have done. It is really a lot of dedicated activities in ensuring that working on receivables, to ensure that we have a tight grip and view to receive our money, to make sure we have it. And we are, as you know, operating in very many countries, so it's a lot of activities happening all over the world. And also in inventories, to ensure that we have a good tight grip on the inventory that we put on stock, and all through the value chain from the factories out to the different sales companies that we have, to really make sure that we keep the right levels also.
And also, this is part of the incentive for people working in the company, so it helps also the motivation somewhere. When it comes to target, we don't really work in that sense, what is the right target? I see there is continuous areas of improvement. We have done a lot of, so say, first steps. Now, it will become a bit more complicated. It's more connecting the rings to ensure that we have good flows all the way through from purchasing to the factories into the SCUs. So it's not. It's getting harder to continue to drive improvement, but we have, as I said, a lot of activities running there. And to your question on net debt, and yes, we have a clear ambition to strive towards three and below.
I just know that we have in this first half year, we have revaluation impacts impacting our net debt, increasing it with almost around SEK 700 million-SEK 800 million. That is literally working against us. Revaluation is effective and coming from IFRS 16, currency and pension liabilities, increasing the net debt. But still, we are working in this direction for the full year and, and then going forward as well.
Understood. Thanks very much.
Thank you. And our next question comes from the line of Virendra Chauhan from Alpha Value. Please go ahead. Your line is now open.
Hello, Matt and Lars, thank you for taking my questions. First of all, I joined the call a little late, and forgive me if there are some repetitions from my side. So first question is, why is there a sudden jump in your restructuring cost? So I do understand that it's largely a lot the segment-wide allocations, but could you give me some color on that, firstly?
Yeah, sure. No, I think it's not more dramatic than we've come one step further in our turnaround journey, and we're getting more visibility on what's possible to speed up and so on. So it's mainly an effect of that, I would say. And it's not a lump sum targeted to one specific area. It's initiatives across both the group central functions and different parts of the BA and sales organization. So it's just really that we come one step further in the turnaround journey, and there are things that we see that we can speed up a little bit.
Okay, okay. And just following up on that, so I mean, Getinge has been standing on, let's say, quality or remediation for a while now. So internally, how do you like, kind of, you know, judge the impact of the same? And in terms of visibility, how long do you expect this kind of spending?
Mm-hmm. Yeah, when it comes to remediation, first of all, I'd like to point out that we are remediated in Wayne and Merrimack, so two of the factories under the consent decree. So here, the increase in spending has for sure ceased, and we're even making reductions there, and a little bit more forward-looking work. When it comes to the situation in Cardiopulmonary, so Hechingen and Rastatt, there is more intense activities. There, I've said in previous calls that they are 2-3 years behind the U.S. sites, and we would like to get out of this as quickly as possible.
So we have sped up the work there in the late last year and the start of this year, which you can see also in the remediation spend. And then in addition to this, we have the warning letters in Mahwah and Fairfield, and same thing there, we'd like to fix these problems as quickly as possible, so there is a heightened level of spend there as well. And as you may know, these are things that we identified back in 2017. We had some work done in 2018, but interrupted by FDA inspections, so which then led to the warning letter. So the real pace of work is actually late last year and early or the main part of this year, I would say.
So that's the reason for this. When it comes to actually finishing this, it's really not up for us to say. We follow the time frames that we have communicated to the FDA, but they are really the judge of when we're finished, both when it comes to the consent decree side, but also the warning letter side.
Okay. Okay. So, thanks, thanks very much. And I have another last question on the guidance front. So with 5% growth approximately in H1 and pretty strong order book dynamics, like, why are we still forecasting 2%-4% for the year? So, I mean, anything in, like, what I have, f rom my understanding, like anything in particular driving this sort of caution, because 2% at the lower end would be a pretty bad H2.
There's only two things driving the caution. One is that we would like still to be prudent and conservative and not promise something that we can't keep. And the second reason is that there is an unusually big portion of the order book that is for 2020. So that's really the reason. So I did say earlier on the call that we expect to be in the upper part of this range, but we did not want to change the total guidance.
Okay. Okay. And, like, could you, like, break that? Like, what kind of order book do you expect, like for 2020?
No, we do not break down that and communicate it externally.
Okay. So thank you. Thank you very much.
Thank you.
Thank you. Ladies and gentlemen, just to remind you, if you wish to ask a question, please press 01 on your telephone keypad. There will be a further pause while questions are being registered.
Okay, so, time is out, actually, it's 11:00 A.M., and if you have further questions, please contact us via Investor Relations. Thank you for taking the time of today's call, and have a good day.