Welcome to Gothenburg. Welcome to Lindholmen Science Park, and most important, welcome to Getinge Capital Markets Day 2018. My name is Lars Mattsson, and I will be your host here today. I'm also working as head of investor relations here at Getinge. Before we kick off with the first, I would like to touch briefly upon the agenda for today. We start off with a strategic update, followed by a short break where you can stretch your legs, have coffee, talk to someone in the executive team, and when we are back, we will make a deep dive into the world of Acute Care Therapies, held by a presentation held by Jens Viebke, the President. After that, we will listen to Mr. Stéphane Le Roy, our newest member in the executive team, who will present Surgical Workflows and why we have such great opportunities to improve margins in that specific business area.
After that, we will listen to Harald Castler, who will present the newest business area in this company, Life Science, which is also a business with great opportunities, not only in margins, but also in growth. And then we will end off with a Q&A, of course. Now, in just a couple of seconds, you will be able to listen to a man who was born in the northern part of Sweden in the early 1970s. He has been working at Sandvik, SKF, and he's been leading companies and organizations through turnarounds similar to the one that we are in right now, with great success. He's also, by the way, a big fan when it comes to mountain biking. I'm proud to introduce our President and CEO, Mattias Perjos.
Thank you very much, Lars.
Welcome. There you go.
Good afternoon, everyone, and a warm welcome also from me. It's really great to see the attendance that we have today, and I was a little bit worried at one stage because when we announced that we would have a capital markets day in November in Gothenburg, I got a lot of comments from you guys that why Gothenburg and why November? And the reason is, of course, that we didn't want you to travel for the great weather or the good food. We wanted to really be focused on Getinge for 3.5 hours here together with us today, so it's as simple as that. We also happen to have our headquarters right here in Lindholmen Science Park.
So I will kick off today with talking a little bit about what Getinge is today, a snapshot of the status of the company right now. I will talk a little bit about some trends that impact us in the space where we are active, and I will talk a little bit about the strategy that we have decided on, and how to capitalize on the opportunities that come from those changes in our space. As Lars said, I have a background in... My roots are in Swedish industry. I've worked most of my life outside of Sweden, but now since about 18 months back in Swedish setting again, and it's been an eventful first 18 months on the job, to say the least.
Despite the headwinds and challenges that we have faced, though, I have to say that the atmosphere in the company at the moment is one of forward-looking optimism, and I hope we can share some of that with you through the presentations today. This is Getinge in one picture. We are a SEK 24 billion company, active in an addressable market of SEK 170 billion, which is obviously not the whole healthcare space, but the part of healthcare that is addressable with the portfolio that we have today.
The sub-segments that we are exposed to have a rather attractive growth dynamics of 2%-4% per year, so not the higher end of med tech, but also not the lower end, and we will drill down into this in the different BA presentations in a moment. 90% of our sales go to hospitals today. The remaining 10 go to the Life Science industry, to pharma s in Life Science. We are a hospital-focused company in that sense, and inside the hospital, we're very focused on the operating room as such. The reason for that is that the vast majority of the value that's created in a hospital is created in the operating room.
But to be able to effectively work and support our customers with improving the performance in the operating room, we also need to understand the processes that goes on around the operating room. We need to know the adjacent parts of the hospitals and the flows between as well. And I think this is an area that we really have as a key competence in the company as well. I also want you to remember the three strategic themes that we have on the bottom right here. They will be a golden thread through the presentations and the discussions today. So we have what we call a therapy theme, which is about finding the best balance between clinical outcome and economic value for our customers.
We have a theme that is focused on infection control and on productivity in hospitals, so it's really a cornerstone of what we're trying to achieve together with our customers as well. There's a third theme, which is about, compliance and, making sure that our customers in pharma, have, clean processes and are able to handle their products in a, in a sterile way through both research and, production. So these are key, three key areas that will come back, during the day. If we break down the addressable market in a little bit more granular detail when it comes to, to geography and to our business areas, you can see that in Western Europe, which is our home market, is also where we have the biggest, market share today.
The opportunities from our perspective lie in emerging markets, so, large parts of, of Asia Pacific, the Middle East, and, growing Africa as well. That's in relative terms. If you look in absolute terms, the single biggest opportunity for Getinge going forward is the U.S. still. If you compare with our peers in terms of market share and level of penetration, we are severely under-penetrated in the American market in many of our categories, so a lot of time today will be spent on, how we address this as well. Another topic that has been, getting a lot of interest lately is, our gross margin development.
The last few quarterly reports, we've had a lot of swings and changes in our gross margin pattern, and I wanted to take the opportunity to highlight a little bit the dynamics behind this. So you can see that in North America, we on average have higher. These are now year-to-date numbers for 2018, so the first three quarters of this year. On average, we have higher gross margins in North America compared to EMEA and compared to Asia Pacific. The reason for this is partly driven by the way the healthcare system works with reimbursement and price levels and so on, but there's also a category mix component in here that is important to be aware of.
So it's not necessarily so that selling in emerging markets compared to North America is always better. It's, for example, more attractive for us to sell part of our cardiac surgery offer in many emerging markets compared to selling parts of our surgical workplace offer in the US. So there is a significant gross margin, and not only from a geographic perspective, but also from a portfolio perspective. There's a similar margin dynamic when we compare consumables with capital goods. But from a Carsten's perspective, you cannot decouple these two. I mean, capital goods is what drives consumables and service in the end as well, so they are strongly linked.
The growth phase that we're going through today as a company really means that it needs to be a capital equipment-led growth to make sure that we have an installed base and that we have really good coverage with our customers. What I think is important to understand, and what sometimes gets missed, is the cycle of capital equipment and how it's linked with consumables and service. So if we take, for example, a sterilizer, in the year when it's sold, it's for us, it becomes sale in sales in that year, obviously. Consumable consumption starts once it's switched on. If it's a new hospital, it may be a time lag between the time point where we recognize the revenue and once it's up and running and actually consumes sterilants, for example.
After the warranty period expires, we start consuming spare parts and generating service revenue from this. Over the lifetime of a sterilizer, on average, it generates three to five times its initial sales value in consumables, in service, and in spare parts. We have a lot of work to do to increase the attachment rate when it comes to service to our capital goods, so that's something that we see as a key opportunity, and that Carsten Blecker will touch a little bit more on in his part of the presentation. In terms of snapshot of what Getinge looks like today, I also want to highlight the organization structure that we have chosen. You probably remember that a lot of 2017 was spent on updating and reviewing the strategy.
A consequence of that was that we felt that we needed a different organization structure to really implement the strategy effectively. So we've gone now for what we call a business area-led balanced organization. So if you look historically, Getinge has been a holding company, holding structure. It was a completely functional organization from end of 2015 to early 2017 or 1st of October 2017, and it's now a more decentralized structure, led by three business areas with full profit and loss responsibility and visibility for the business as well, and one global sales organization in addition to this. The reason for going for this type of structure is, it's really two external reasons. The first one has to do with customers. There is customer consolidation going on in our industry.
It's at an increasing pace, and it's really clear that customers want fewer and bigger partners to work with. So from that perspective, it's absolutely necessary for us to have one global sales organization that we can talk to with one common interface from Getinge to our customers. The second reason is regulatory. It's really clear in our past and some of the challenges that we faced in recent years, that we cannot afford to be in a position where we have different parts of the organization interpreting the rules that govern our business in different ways, and even worse, implementing the quality systems and so on in different ways. So we need one way of addressing this.
So that's the other external factor that dictates the type of organization that we've chosen to go with. From my perspective, this also combines very well with the philosophy of delegation and ownership of results, close to the, as close to the customers as possible. That's why I like to have it in a BA structure with really ownership and visibility as far out in the markets as possible. So that's the structure we've gone for. There's sometimes a misconception that we choose this type of structure to generate synergies, but that, to me, is really just a nice side effect or a bonus of the structure. There are synergies to be had inside the group, so no question about this.
We have support processes, there is logistics and warehousing, there is IT, and so on, that all have synergies that we can address as a company if we work in a structured and methodical way, as one, as one group. But it's not the reason for choosing this type of organization setup. It's about customers, it's about regulations, and it's about delegated structure with ownership of results as close to the customer as possible. That's a very brief snapshot of what Getinge looks like today. So I want to frame the discussion about what goes on in our industry now, and how we adapt to this by sharing a number of key facts with you. So if you remember, again, the three strategic themes that I talked about a moment ago, and you couple this with what's on the screen here.
I've taken the U.S. as one example when it comes to hospital-acquired infections. So in U.S. alone, 2 million people are affected by this. They acquire an infection in a hospital that they didn't have when they entered the hospital. They went there for something else, but got infected by something while in hospital. 90,000 people out of those 2 million actually die. They don't make it, you know. So this comes at, obviously, a big cost to society, but also a tragedy for the families and people involved in this. So it's a really significant global problem. It's not a developing world problem, it's in every country around the world.
So a key theme for us to address, and we're in a very good position to be able to do this as well. We have also one key component in our portfolio that has to do with cardiovascular disease and treatment of this. And this is the number one cause of death globally. Almost 18 million people die every year because of cardiovascular disease, and many times more than that are obviously affected and require treatment. You will see in the business area presentations in a moment, that we have a very competitive portfolio to address this. There's also a demographic challenge that I think is worth highlighting.
So if you, if you look at where we are now, between now and 2025, we will add another 1 billion people to the planet. Almost one third of those will be 65 years and older, and this comes with lifestyle-related diseases. We live longer, but are a little bit sicker and so on, and have higher demands on the treatment. So it's another area that has a big impact on how we strategize and how we tailor our offer to meet these needs. And the final piece of information on this picture relates to productivity. So if you look at the years 2000 to 2015, and we look at the length of stay, average length of stay in hospital.
Length of stay, as you probably are aware, is one driver, big driver of cost, and it also... the longer you're in hospital, the bigger the risk that you acquire an infection as well. So in OECD 35, during those 15 years, the average length of stay has decreased from 9.5 to 7.8 days. While this is a positive trend, it's in the right direction, in terms of productivity development, it's not good at all. It's not really on par with what's necessary for the society to cope with the cost of managing healthcare. And this is an area where we, as a company, are really well positioned to help our customers become much more productive in the way healthcare is delivered.
If we then break down this a little bit and look at a little bit more from our perspective, there's a number of trends that we've touched on here, and a number of opportunities that we can turn into business opportunities for Getinge. So value-based healthcare is one of those. We are a believer that the care needs to be patient-centric, it needs to be outcome-focused, and we need to take into account the whole, the efficiency of the whole chain. We need to abandon this siloed way of working, which is way too common in healthcare today. There are huge productivity benefits by working in a more holistic way, and we have a meaningful contribution to that, I think.
We're also being asked more often for new ways of doing business, so sharing opportunity and sharing risk with the customers. So this is something that we are experimenting with, and we'll touch on a little bit later in the presentation as well. There's also a technology theme, new technologies emerging when it comes to digitalization, to connectivity, and so on, that opens up significant opportunities for us. Everything from what's called Getinge Online, where we monitor the capital equipment that is installed in our customers. We launch...
Combining this with artificial intelligence and data management, we're launching now actually something called Getinge Prime, which is a predictive intelligence maintenance engine that combines connectivity, digitalization, machine learning in a very, very, very good way, with significant benefits for our customers. There's also the theme of what we call digital surgery, where the robot tends to get the bulk of the attention. But it's really about much more than just robotic surgery. This is about understanding big data, it's about machine learning, it's about taking the variability out of the surgical process to make sure that outcomes are improved on average.
So we have a strategic partnership with Verb Surgical that Stephane will talk a little bit more about in his part of the presentation, but it's really one of the key areas of investment for us at the moment. We also recognize that the changes that are going on in healthcare today are rather massive. There's a lot of different players in the industry as well. It's important for us to find our position, our optimal position in the ecosystem, and be open to partnerships with other companies, not only partnering with our customers, but also partnering with other players in the healthcare space, to really provide the best possible solution for our customers. We'll come back to that as well a little bit more in detail later on.
Another opportunity that hasn't got much attention, but we had another more structured look at lately, has to do with sustainability. We performed the materiality analysis during this year. It is a theme that is gaining more attention in many different ways, and it's not something that we do just to be a good corporate citizen or do our part to help the planet. It is also about the way customers select their partners. This is getting much more attention from our customers when they choose who to partner with in our industry. It is also becoming more important in the war for talent. Most people, when you look at joining new companies, well, they factor this in as well.
They want to work in companies that have a sustainable approach to what they do. And it's been really encouraging to work with the organization during this year when it comes to sustainability. There's a great reception and willingness to address this, and really turn it into to viable, sustainable business for us as well. So we've chosen four out of the 17 United Nations Sustainable Development Goals to focus on. These are the four that we believe are most relevant for us as a company, and where we can have the biggest impact. And we've also committed to reporting in line with the global accepted ways of following up this.
That's a snapshot of where we are, a little bit of a framing of the challenges for the industry as such, and how the opportunities that we see from those. I wanna touch a little bit on the financial potential as well of Getinge. We have had during the last 18 months, a lot of focus on post-spin-off, what is the profitability potential of Getinge? There's been a lot of focus on our operating expenses compared to peers and compared to what's optimal for us.
I think it's good to see now in the data, if you go back and look at the third quarter report, that we've been able to address this in a structured way, partly growing into the suit that we had after Arjo had left the group, and partly working with reducing the cost and taking out some of the inefficiencies in our structure. So we are in a much better position now at the end of the third quarter than we were at the end of 2017. But I've always, from the start, said that the bigger potential for Getinge is probably in the gross margin. And I wanna confirm that that's still the case.
We touched a little bit on the gross margin profile of the business and the differences between geographic and category patterns here. But there's a significant gap. And we have shifted the focus, I would say, from growth, that was really the key priority for 2017 and early of this year, to work now more with productivity, and this entails not only operating expenses, but also working with our gross margin. So significant gap compared to a relevant peer basket here. And I wanna drill down in this from a cost perspective.
So if you disregard price and mix and those kind of effects, now, we can see that just in the cost structure, the part that make up COGS in our P&L, there are a number of things that are lower hanging fruits, if we call them that, that has to do with purchasing, that has to do with logistics, warehousing, and so on, that we've already started addressing and can see the first green shoots of improvement. There's a next level of potential improvement that has to do with how our portfolio is structured. We know that we need to go through a portfolio pruning exercise. We know that we need to go through and look at our factory footprint and make sure that we have the best possible setup for this as well.
So significant pieces to address in the cost part of the gross margin. There's a little bit of an element here as well of structural differences that are more difficult to address. This has to do with the level of vertical integration, for example, or the weight of the footprint in the U.S. compared with some of our competitors. So it's not something that is impossible to eliminate as a gap, but it is more structured and would take much longer time. So we're starting logically and in a systematic way with the lower-hanging fruits first. So if you translate all this then to a little bit further down the profit and loss statement to EBITDA level...
You can see that we have a significant gap compared with our relevant peers, and the purpose of showing this is really is not to put out new financial targets. We already said before the capital markets day that there will not be any new financial targets for Getinge. But we want to share some of the information and the analysis that we've done to show that we are aware of the gap that we have and the potential in our business, and a little bit detail on how we're approaching this to gradually close the gap. So there is both potential in OpEx and in gross margin for us here to drive a better performance.
I mentioned a moment ago that a lot of the focus in 2017 was on reigniting growth again. I think this was the most logical way of approaching our turnaround, given that we are in a growing industry. We had a spin-off to go through. We had some ties, I guess, our hands were a little bit tied because of the remediation that we go through and so on. So the best approach was really to try to reinvigorate, ignite growth in the company, and I think we've done a good job of that the last year. We feel comfortable now with the recipe for growing the business, so we expect this to continue as well. There's no change in outlook here.
We remain optimistic and positive about our growth prospects. The focus now is more on productivity. So we are at a stage where we're at the end of the implementation phase of our global QMS system. We've made the most necessary changes to our ERP system to be able to monitor and drive our business as well. We are mindful that growth can only be sustained through better sales management and so on, for a certain period of time. Long term, it needs to be fueled by more innovation. So we're gradually now diverting resources back from remediation into more proactive R&D and innovation to really make sure that we have a competitive portfolio also for the longer term.
There's a big job going on under the hood in Getinge when it comes to process harmonization. We've seen that the journey from a holding structure type of structure to more of a homogeneous group has meant that different factories, different product units in the company have different ways of managing their supply chain, for example. So harmonizing this will open up much better ways to really drive cost out of the business and increase our productivity. We're also actively, as I touched on earlier, working with logistics and warehousing. We've already addressed countries like the U.K., Japan. We've gone through an exercise in the U.S., where we can already see and measure the improvements from this.
We're starting to think about our overall factory footprint as well. So as an example of that is the decision that we took in September to start consolidating our footprint in New Jersey within the Acute Care Therapies business area. So we've decided to move the production from Mahwah and Fairfield into the Wayne facility. So three factories will become one in the end here. We've also decided to close the Caxambu factory in Brazil, which is an assembly facility for cardiopulmonary products. Then we will methodically address the other parts of our business as well when it comes to footprint.
Of all the changes that we're going through as a company now, whether it has to do with strategy, it has to do with culture, it has to do with operations, it has to do with sales and so on, we follow a rather systematic approach. I'm a strong believer in what I call the four S model, that you need to have a sound strategy as a starting point. You need to make sure that you have a structure that is suitable for the strategy that you wanna achieve. So strategy, you went through 2017. We changed the organization to fit this first of October last year, so we've lived in this structure a little bit over a year now.
We have done some tweaks on our systems, our ERP system, for example, to better suit what we're trying to achieve as a company. We are at the end state of the implementation of our global QMS system as well. We've put a lot of emphasis on developing the people as well in the organization, the people who will need to manage the implementation of our strategy and the implementation of the change that we have ahead of us. I think if you need to rank this by importance, I... It's extremely important that you have a sound strategy as a base. The second most important thing, or maybe the most important thing, is that you have skilled people in the organization as well. Here's one area where I am quite comfortable with what we have in Getinge.
We have a lot of passionate, knowledgeable people who knows what to do, as long as there is a clear strategy to work through. You can always, if you have those two elements in place, you can always work your way around imperfection when it comes to structure, when it comes to systems, and so on. And we can work more with the continuous improvement setup. But I'm extremely comfortable with the base that we have in place for working now with the productive change in the company. The most important part of all, though, relates to the culture in a company.
A lot of the challenges and the headwinds that we've had in Getinge has been because we haven't had always the most suitable culture when it comes to long-term thinking, when it comes to quality, when it comes to robustness of processes, and so on. So those are distinct improvement areas that we started addressing already last year. What I think is important to highlight, though, is that there is an extremely sound core when it comes to culture in Getinge. There is a true passion for patients and for customers. There is great clinical expertise, there is a great level of entrepreneurship, a willingness to take ownership of results, and so on, as long as people are given the freedom to do that.
So making sure that we build on that healthy part of the culture, adding a little bit more of the quality aspect of this robustness when it comes to how we think in terms of process and how we run our business and so on, is ultimately what will make Getinge a successful company also sustainably for the future. We're not going for a turnaround that is a quick fix for two or three years. We're not using shortcuts or band-aids. It needs to be about fundamental, lasting change. We need to be a successful company five, 10, 15 years from now as well, and the culture plays an extremely important role. To foster the culture, we want our culture to really be based on the values that we've decided on as a company.
To translate this into something tangible and really foster the culture, we've developed what we call a leadership model that describes the types of behavior that we expect from leaders in the company. Four cornerstones in this. One is about innovation. I touched on initially that it's crucial for us in the long-term success that we have a healthy view and a healthy approach to innovation, that we look at this through the eyes of the customer as well. What creates value for the customer? What is the customer prepared to pay for, in the end? And that it's not just engineering technology-driven in innovation. It needs to be with a purpose. That's really key.
In terms of performance as well, we're gonna touch and drill down a little bit more on that during the day here, but I think it's important to have a culture where people dare to be ambitious. It can be okay to fall short of your ambitions sometimes, as long as your absolute performance is better than if you'd had a much more conservative approach. So dare to stick your chin out and be a little bit ambitious is something that I would like to have in our culture as well. So we're working a lot with that also. I think any company that has more than one product line or and/or is active in more than one country will need to collaborate as well. Otherwise, it will not work effectively, and we're no different.
If you put it into the perspective of what Getinge looks like today, the changes we've been through and so on, it's very easy for organizations to have a bit of change fatigue. It's easy for people to feel like victims of change and become spectators of what's going on in the company. And we need to be really mindful that people are actually actors and co-architects of the future of Getinge. So this is something that we work consciously with the, with the... in working into the culture of the company as well. And the foundation for all this is trust.
So, not only trust inside the company, between people, departments, and geographies and so on, but also trust with regulatory authorities, for example, I think. Again, coming back to some of the headwinds, they relate back to lack of trust between us and some of our governing bodies, and that's not something that we can afford. But it needs to start with trust internally. So a lot of mindful, focused work going on in the company to achieve this as well. That's the end of my quick introduction.
So we've touched a little bit on what Getinge looks like today as a company, the challenges that provide opportunities for us, our strategy, how to address this, and the importance of working in a structured, methodical way with strategy, structure, system skills, and last but not least, the culture of the company.
Thank you, Mattias. Great presentation. I have one question for you, or actually two. You pinpoint the gap between us and the peers, but I would actually like to start with the gross margin. Would you dare to say that we have a bottom out now or quite soon, or is it too early to say?
Yeah, No, I think, yeah, I think we are in a trough at the moment here. I think if you look at the underlying performance of what's happened the first three quarters right now, and then we can see the effect of some of the initiatives we've already put into place, I'd really like to think that we are at the trough now, and that we will continue to have fluctuations in gross margins between quarters, depending on geographic mix, depending on which category sells most at a certain point in time, and so on. But the underlying trend should be positive from here. That's my firm conviction.
Great. Thanks for that answer. And number two, the gap. I mean, we have all seen the gap now and got a quite good figure on what we talk about, but what about the time?
Yeah. I think to me, it's important to address change in a structure, more of a continuous improvement type of way, than to... And also to look at where the baseline where you started, rather than measuring how far you are from Nirvana all the time. That becomes a little bit... It can be a little bit demotivating sometimes when you see how big the gap is. So we really try to look at, okay, where do we stand now? We know that other players in the industry have been able to do much better in terms of financial performance.
We've been able to go through and analyze the reason why, and I think there's a firm conviction in the company that there's no real reason why this gap should exist. But we need to be a little bit mindful and have some respect for the position we are in at the moment. And any time where you drive change a little bit too hard, you risk breaking something, so it's important that it's done in a structured way. So I really don't wanna put a timeline on what year we will be in line with our peers. What I can say is that 2019 is very much a year of still implementation. A lot of the things we've started, low-hanging fruits, is already this year, continue 2019.
So I think the real effect will probably be from 2020 and onwards.
Okay. Thank you again, Mattias.
Thanks a lot.
Thank you. You can walk down there, actually.
This way.
Yeah. So great. Next on stage is a man, a truly international man. I mean, he was born in Germany, raised in Spain, he has been living in Belgium, he's been living in the U.S., he's been working with Medtronic, Biomet. He has a PhD in Polymer Technology, actually, and a doctorate in business administration. But most important, he's really good when it comes to leading sales organizations, and that's, that's something that he really has proven in the last year. I'm proud to present our Chief Commercial Officer, Carsten Blecker, up on stage. Welcome.
Thank you, Lars. Very kind introduction. Ladies and gentlemen, good afternoon. It's an honor and pleasure to be here with you today. I know that many of you know Getinge extremely well for many years, and I think it's a nice opportunity that I can give you a little bit more of insight into the part of the commercial strategy. Before I do so, let us give you a brief overview of how our organization, from a commercial point of view, is set up. So we actually, we have 40 directly and fully owned subsidiaries for sales and service organizations. As you can imagine, I don't have 40 direct reports, and we have been clustering this according to similar dynamics into 10 regions, and through these 40 subsidiaries, we actually conduct business in a little bit more than 150 countries.
Out of these 150 countries, like Mattias actually pointed to, our number one country by far is North America or U.S., which represents, roughly speaking, 35%. It's followed by Germany, a country where we have tremendous high market share, and then it's followed by China. I predict that in future years, like it would be normal, China will become number two. And actually, I also predict that U.S. will have an even higher market share or an even higher share of the revenue percentage that we have. Like it should be, like most of the med tech firms have 50 or some of even have 60% of their revenue of global sales coming through North America. With that said, let me give you an overview of the overall global commercial strategy.
Our overall global commercial strategy is set up in a way, and this is something that we really like pushing very hard, of allowing local organizations to be very entrepreneurial. But at the same time, we don't want people to reinvent the wheel, and we want people, and then my team, to do a lot of best practice sharing. And this is actually what is happening nowadays. Now, the team is actually focusing then on six very distinct strategic work streams that they're adapting to the local conditions. The first one is a little bit of a different way, and I think that Mattias, in a way, alluded to this, of how we are selling. It doesn't mean that we're selling in this way to every single customer, but we are selecting specific customers that are a little bit more innovative. We're calling them maybe early adopters or innovators.
What we're doing here is we are creating value through differentiation, and the differentiation that we are creating has two dimensions. The one dimension is the payment modality, and the other dimension is how we are providing efficiency. The efficiency could be clinical, or the efficiency could also be operational. From that point of view, let me give you a couple of examples here. We are currently working with a hospital in Switzerland. This hospital does a lot of bypass surgery and is looking into their data, and they want to have a much more reliable, homogeneous outcome.
So we are in a discussion with them as being their partner in working together from a clinical point of view and providing and explaining all the technologies we can offer, that they will be taking 10-year data, and actually, they're partnering with a second hospital to have more data, and they will be putting that data into an algorithm that we are writing for them.
So the day of tomorrow, when a surgeon, before he does a certain planning, the next day, he will be operating X patients, he looks at the patient profile, compares the patient profile with the algorithm, with the data he gets or she gets, and, and basically then will decide, okay, the likely most suited therapeutic approach is X, Y, Z, off pump, on pump, et cetera, and will also be able, most likely, to predict certain complications that a patient could suffer in this particular surgery, in this particular treatment, and will be able to either prevent the complication or to treat it much faster. From an operational efficiency point of view, we are. Let me give you another example. We are working with a hospital in Sweden, and this hospital has some opportunities to improve the operational efficiency.
So we're working with this hospital and their management in the area of the operating room, and we are redesigning the processes. And once these processes are redesigned, we are anchoring the right and new behavior through our integrated workflow solution system, basically through our IT solutions. And here, in this particular case, the second dimension starts. The second dimension, I mentioned the payment modalities. We are offering this hospital a risk-sharing model. So once the system is installed, once the process has been redesigned, the hospital will make a payment of 50% of the entire project. And then we have defined new milestones and gates that are related to efficiencies that we will deliver or that they will deliver to themselves, and that are also related to customer satisfaction.
I believe that this is a truly great opportunity to become a truly recognized partner to our hospitals. Now, the second work stream that I wanted to speak about, in strategic work stream, is service. Service as a growth engine. Now, service nowadays represents, roughly speaking, 20% of our revenue. You might think that that is a lot, but actually, we have a huge installed base of equipment around the world, and we feel that we can do much more and much better, and we are focusing on many things in order to drive our service business. Let me give you two elements here. One is pricing. So we're looking very detailed on how much we should be charging for the different types of service that we are providing.
The other one is spare parts, also on pricing, and there are spare parts that are very generic and where the pricing maybe needs to be lower, and there are spare parts that are very genuine, where, where the cost and the price actually should be much higher. The second element on, on service that I think is, is very important nowadays is we are connecting as many of our devices to our online service tool as we can, for two reasons. Number one is, it, it becomes much more effective and efficient for us to do preventive maintenance when we have the machines connected. Secondly, if we have many machines connected, we actually get a lot of data, and there again, we are writing algorithms or can write algorithms in order to carry out preventive maintenance.
If we carry out preventive maintenance, the day of tomorrow, we can sign contracts with our customers to assure a much higher degree of uptime, which is beneficial for the operational efficiency in the hospital, and we can charge for that. A third element that I wanted to highlight as it relates to the strategy is basically the high ambition sales culture. The high ambition sales culture, I think that if I see you later for coffee, you will say, "Carsten, isn't it a given that the sales team should have a high ambition?" Absolutely, that is the case. Our sales team, I can tell you, is extremely knowledgeable on the technical side, extremely knowledgeable on the clinical side.
We'll speak afterwards when I go to the sixth bubble. It is very close to our customers, but here and there, we still can improve, for example, on the numerical side. Through our customer satisfaction survey, we, for example, know that our customers feel that we are not doing so well in this partnership, in differentiating ourselves through new offerings, or that we are not yet doing as well and not that skilled in, for example, explaining the total cost of ownership to our customers, and we need to become better on that. The fourth opportunity for us is to focus on the high growth markets that we have for Getinge. Some of them are absolutely evident.
These are the Chinas, the Indias, the part of Eastern Europe, even North Africa, where we recently opened a branch office, or Vietnam, where we are about to open a new subsidiary. But the most evident one, I think I'm repeating myself here, but I think it's very important, and Mattias also highlighted this, is truly North America. It's truly the USA, with 35% of our total sales, we have an opportunity to grow much more. Now, almost coming to the end of a very simple and, I think, straightforward commercial strategy, we are also focusing on optimizing the geographic and portfolio mix. This is a very, very simple, almost mathematical exercise, where we are drilling through the countries, and we are drilling through the portfolio, and we are looking at in which particular area we are actually under-penetrated with a specific technology.
I would like to give you two examples for that. One example is, and I mentioned before, that in Germany, we have extremely high market shares in most of our portfolio, but for example, in Infection Control, we don't have a high market share. So as we have flagged this and put this on the radar screen, we have taken action, we have hired people, and we can already see that our order intake in Infection Control in Germany is growing very nicely. Or another opportunity is we are doing this year extremely well with what we call Extracorporeal Life Support. But it happens to be that we have not launched this technology in Japan yet. So by the end of March or beginning of April, in Japan, we will be launching and coming to market with this therapy.
As we speak, we are adapting actually our go-to-market strategy as well to go hand in hand, and this will be very promising for the growth of Japan next year. Last but not least, customer centricity. We need to reach the next level of customer centricity, and this might sound as a buzzword if I only tell you that we want to reach the next level of customer centricity, because the first step really is: how are we doing as it relates to customer centricity? And in order for us to know that, we have done a customer satisfaction survey in the ten most important markets for Getinge that I mentioned before. And the outcome actually has been extremely nice.
I think it reflects of what, what Mattias very kindly was saying before, that we have many good people working in the company with a lot of passion, because it shows from the Net Promoter Score, that, that I'm sure that this is a known term for you. It shows that almost 50% of people that buy from Getinge, they would go to a peer customer that is not buying from Getinge, and they would tell this customer, "Please go. I recommend to you that you also buy from Getinge." This actually implies that on a, on a scale from 0 to 10, you either need to score Getinge with a 9 or with a 10 on 10.
As more importantly, it becomes pretty impressive when you look at this, and when you're looking at the peer group, the peer group actually, instead of having almost 50%, would have more or less half of that rating and that rank. Okay? We are very happy. We are very proud of this base of where we are as it relates to customer satisfaction and the feedback, but that doesn't mean that we're going to rest a minute. We actually have taken the customer satisfaction survey, and the customer satisfaction survey we have, we have very much filtered the areas where we are doing equal or worse than our competition and the ones that truly matter to our customers. And in those particular areas, we have defined 10 work streams that the team is working on, that will be building a solution menu.
Then we will be giving the solution menu to all of our countries. We will be monitoring the top 10 and top 20 of how they're developing specifically, but all the different countries across the world, where we have a subsidiary, will have access to those solutions, and we trust that going forward, the recommendations of customers to non-customers to work with Getinge will actually even be better than today. Okay? I know that you're all very fact-based, so I didn't want to leave the podium without sharing with you some hard facts. The hard facts is, I truly believe that from an order intake and net sales perspective, I guess that you already have observed that we have a pretty strong momentum.
But not only have we been able, within my functions, to drive strong momentum, I think we also have been able to contain the OpEx development, operating expenses. Even in a year where we actually had to compensate for stranded cost of a spin-off of Arjo. At the same time, we are looking into reducing inventory, to working very hard on working capital, and collecting from our customers, payments much faster, so we have reduced DSOs by 2.3 days. And last but not least, and I think that this is also important and ties well into the explanation of margins, I feel actually that we have a pretty stable situation when we isolate the volume and mix, and purely look at the rate or the pricing. Our pricing situation is very similar to what the market trend is.
The industry reports, and we have been looking at this at a price pressure of -1 to -1.5%. So particular in the area of Surgical Workflows, we had -1.1%, so pretty similar as the industry average. And actually, in the case of Acute Care Therapies, we are flat or slightly positive. I have not mentioned here Life Science, because in Life Science, as you know, we do like custom equipment, and it's not possible to fully isolate the mix. But in Life Science, we actually would be positive after the first nine months of the year, with 3.6% in this particular case. I hope that this has provided you. My brief presentation has provided you better insight on what we do in the commercial side of the business. I will be available for you during the break, and thank you for your attention.
Thank you, Carsten.
Thank you.
Really good presentation.
Thank you.
I'm so happy when I see those pictures with the customers, and that they are satisfied, but, but also, of course, that we still have room for improvement, which is great. Some say that we have a really wide portfolio, and that it might be a problem from productivity or efficiency perspective. What's your take on that?
I think if you speak to our customers, and particularly when you speak to GPOs or IDNs in the U.S., they will be very happy that we have a wide portfolio. What could be a problem is not a problem, because we, from a sales perspective, we have specialized sales teams, and then we have either key account management in, in parts of Europe, or what we call corporate accounts in the U.S., that bring everything back together when we start a negotiation with the GPO or IDN. So I think it actually is it creates a synergetic effect from a sales perspective.
Good to hear about that. Well, we will touch base later on, and you can always in the breaks ask questions to Carsten and the other, the team, of course. Thank you again. Great.
Thank you, Lars.
That's bye. So next up is a man who was born actually a couple of minutes by car from the small village of Getinge. So it was only a matter of time; it was practically written in stone that this guy should start to work in this company at some point in time. He has been having leading positions in companies like Volvo, Scania, Sobi, which we saw from Biovitrum. He has been through actually the same type of turnaround that our CEO has, with great success. I'm happy to introduce our CFO, our, yes, CFO, Lars Sandström. Welcome up on stage. Let me do it like this-
All right.
You get the right picture.
Thank you, Lars.
Yeah.
All right. Afternoon, everyone. I will just grab this one. As you heard Mattias and Carsten presenting today, there is a continued focus on top line and sales development, but also now moving into productivity and performance, further down in our P&L. And this will, of course, impact our cash flow and also our net debt development, which I will talk a little bit today. But first, I would like to talk about our financial targets. We have three financial targets, and they remain. Net sales, organic net sales of a growth of 2%-4%, and this is then in the addressable geographies and product segments that we have. And then, as mentioned, this growth, together with the focus on profitable growth, we also then reiterate our target when it comes to EPS, with a growth of more than 10%.
And finally, the dividend policy, where we have a range of 30%-50% of the net income is to be distributed. Then this is then the foundation for a good cash flow development, and focus on that. As you know, the first line in the cash flow is always the profitability and the, and the result, and the second then is working capital. And if you look at the working capital development of Getinge, we have, during the last two years, had a growth, an increase of our working capital impacting our cash flow negatively. And what we did in the beginning of the year, together with the focus now in the three business areas we have, and global sales, we took all the legal entities and the balance sheets we have of the group, and clearly directed them.
These are the ones belonging to global sales, and these are the ones for each business area. Really starting saying, "Okay, let's start finding activities to start improve our performance," and really tracking the activities, get them implemented, and make sure that they come through as well. And this is both in the areas of accounts receivable, inventories, and accounts payable. If you look at receivables, it's really about where are our overdues? Where are they? Why are they there? And really working diligently with the dispute management.
And then in the normal order to cash process, ensure that when we deliver a product or equipment or a service, it is up and signed off with the customer, and a good clearance with the customer, so we can issue an invoice and start getting paid on time, really to improve all the processes we have. Inventories as well, here, this is an area cutting through the whole company, and it starts with procurement. How do we work with that? How do we work with logistics to have good, efficient flow? Production in the factories, how do we do the production planning? And then following the work in progress and the finished goods in the factories, in the distribution centers, and in all our sales entities that we have. And really here again, ensuring activity is in place, tracking them, and ensuring they come through.
So if you look at then the cash flow impact, we measure both, of course, money in the cash flow, but also days to see the efficiency. When we came into out of 2017, we were at around 126 days, and then it continued up to 127 in 2017, and it continued further into 2018. And then we could start to see a breaking of the trend here. Of course, the nice growth in sales is supporting, but when we came into the third quarter here, we can actually see that we start breaking the trend, coming down to 126 days. And as you remember, in the third quarter, we also had a positive cash flow supporting us from working capital of SEK 373 million then.
So we start to see that the activity start to bite, and we, when I look forward into next year, I don't see any reason why we should not continue, keep tracking and delivering on improvements, and continue this improvement. The next level in the cash flow is the net investments. When we talk about and look at net investments, we look at R&D, IT, and ordinary machinery and equipment. Here you can see the last three quarters, the development. If we compare that with the depreciation rate, we are at around SEK 90 million above our current depreciation rate, so we are still adding a little bit more investments than we are depreciating. If you look at the three areas, then R&D, they are rather stable.
When I look forward here, I expect this, and we plan for that to continue on this level. When it comes to IT, here, we have had quite significant investment in our IT platform, mainly connected to SAP and the rollout we have done here. And that is an investment that is ongoing. And here, when we come into the spring next year, we will have rolled out SAP to cover around 95% of our sales. And here we say, "This is where we should be. It doesn't make sense to take the last 5% here." So, and when it comes to the industrial side, here we have mainly an SAP platform, but also to some extent, others. And there will be some investments going forward in some of the factories, and also some updates in the SAP platform here.
But as a general, I expect that we can bring down the investments in IT going forward here into next year. And when it comes to machinery and equipment, here we have had quite some investments as well. This is partly related to the remediation work we do that triggers investments in our different factories. But if I look at where we are now and a little bit into the future here, I think in a general term, we are well invested when it comes to our machinery and equipment. And then for the total cash flow, here you can see both operating cash flow and cash flow after net investments. And we have had a gradual improvement during the last three quarters. There are always, of course, seasonal variances in a single quarter.
But here in the third quarter, we had positive momentum, giving us a cash flow after net investment of SEK 801 million, both coming then from our working capital improvement and also the underlying result. This, of course, adds to our net debt reduction. And before that, I would just like to show you a little bit how our funding looks like at the moment... So here you can see our, the maturity profile of our, of our funding over the coming years, and then also here you can see the duration of the portfolio. And when we came out of last year, we had the spin-off and the rights issue behind us, and we have during this year worked consequently to have a more, call it conservative and more solid funding and duration structure.
So we have gone up from 1.3 years up to 2.3 years now. When on top of this, we also have committed and not utilized funding of SEK 7 billion. So we have a solid funding of the group. Then looking at leverage, you can see that we started the year at leverage of around 3.0, and this has then increased somewhat during the year. And we came up to 3.5 end of Q2, and then together with the positive cash flow coming in after the third quarter, we are down towards 3.3.
When I look into the future here, we see that with this continued focus on driving top line in a good, consistent way, together with the focus on improving our profitability, we should be able to go back and aiming back towards the three level again when we come out of 2019. Another area where we often get questions from you and your colleagues is when it comes to currency and how currency impacts our result. We talk about translation impact and transaction impact. I would like to start talking a little bit about translation impact then. Here you can see how the revenues and operating expenses and operating costs are divided into different currencies, and this is translation, and so it is our foreign subsidiaries translated into SEK.
If you take the largest one, then the US dollar, here you can see that we have a slightly positive exposure if you take revenues minus operating costs, generating then the currency impact, depending on the development of the currency. Second largest is the euro. Here you can see that the revenues and operating costs are more in balance. And then you can see the other currencies coming there. And the second from right, you have the SEK, and here, of course, we have less revenues than the cost. But also in this column here is the provision we made in the third quarter of SEK 1.8 billion. All in all, then, the translation impact that we have for the first three quarters this year was -SEK 49 million. Then comes transaction exposure.
When it comes to transaction exposure, it's really four parameters that one need to that are impacting. It's the last year's hedge rate, it's this year's hedge rate, and it's of course, the flow, and then the currency pair. And we have around more than 100 currency pairs that we manage. So an example here, the first, the dark column to your left, it's the Australian dollar to SEK. And here we have, this is a result of our exports from Sweden and our SEK countries to Australia. And here we had a currency rate last year of 6.05, and this year is 6.55, and we have a net flow of AUD 19 million Australian dollars, giving then an impact of SEK 9.5. On the other end, to the furthest to the right, you have the euro dollar flow.
It's the net flow. Here we are selling more out of the euro currencies than we are importing back from the US dollar currencies. Here, if you take last year's hedge rate, 1.05, this year's rate, 1.15, and a net flow then of EUR 42 million, giving an impact of 4.2 times the translation, that's SEK 37.8 million. And that is then giving our, the transaction impact. So all in all, this adding up for this year, the first three quarters, SEK 169 million, and we have said that we expect to be around SEK 200 million for the full year. And as I mentioned, there are these four parameters impacting.
As we work, when we communicate in our report, we communicate these two parameters, and going forward, we will continue to have this information in our quarterly reports, but we will stop giving it, the forward-looking guidance on this. Because, and it is because the parameters I mentioned, we are continuously working with how we hedge, so we change and do new hedges, depending on the flows and how the flows are developing. So the given number at the beginning of the year gives you the wrong foundation, and it gives the wrong impression that this is going to be stable, because we are actively working with our hedging every month. So therefore, this number will change. So we will give you the numbers in the quarterly report. This is the translation, this is the transaction impact. Summing up, our financial targets remain.
We continue to focus on revenue and improving our underlying profitability, together with continued dedicated work and focus on working capital, tight grip on investments, and a solid funding situation. We'll continue to work to drive down our net debt, and also working on our leverage, where I see we will come more back towards the level of 3 when we come out of 2019. Right?
Thank you, Lars.
Thank you.
Great presentation. I have one question for you. I sometimes hear the word, rights issue. What's your take on that? Could you elaborate a little bit on that?
Yes. Well, as I mentioned here, when I look upon our performance and our underlying development that we have, the funding structure and the cash flows, I don't see any reason why that should be on the table for us. And that is then, of course, including the provisions we have made, and we have in the balance sheets connected to Mesh, Brazil, et cetera, so that is all included.
Great for clarifying that. Once again, big thank you.
Thank you.
All right. Next up on stage is a woman who is born actually in Borås, where I was born. I know that there are some more in this audience, example, Peter there, the treasury head of treasury in this company, born in Borås, 1 hour from here. She is has got a Master of Science in Chemistry, Engineering, Textile. She has huge experience from the med tech industry. She has been working in quality and R&D interlinked most of her time. For example, 20 years in Mölnlycke Health Care. Since 2010, she has been working in Getinge. To begin with, in Arjo, setting up the quality management system for that company, which is now Arjo. Now, she's doing the very same in this company. I'm proud to present our Vice President of Quality, Regulatory, and Compliance, Lena Hagman.
Thank you, Lars.
You're welcome. Welcome, and there you have this.
Thank you.
Yep.
Good afternoon, everyone. I would like to take you through three different areas today. First is where we are in the remediation work and other related issues with FDA. Secondly, our quality and regulatory...
It is because the parameters, as I mentioned, we are continuously working with how we hedge, so we change and do new hedges, depending on the flows and how the flows are developing. So the given number at the beginning of the year gives you the wrong foundation, and it gives the wrong impression that this is going to be stable, because we are actively working with our hedging every, every month. So therefore, this number will change. So we will give you the numbers in the quarterly report. This is the translation. This is transaction impact. Summing up, our financial targets remain. We continue to focus on revenue and improving our underlying profitability, together with continued dedicated work and focus on working capital, tight grip on investments, and a solid funding situation.
We'll continue to work to drive down our net debt, and also working on our leverage, where I see we will come more back towards the level of three when we come out of 2019. Right?
Thank you, Lars.
Thank you.
Great presentation. I have one question for you. I sometimes hear the word, rights issue. What's your take on that? Could you elaborate a little bit on that?
Yes. Well, as I mentioned here, when I look upon our performance and our underlying development that we have, the funding structure and the cash flows, I don't see any reason why that should be on the table for us. And that is then, of course, including the provisions we have made, and we have in the balance sheets connected to Mesh, Brazil, et cetera, so that is all included.
Great for clarifying that. Once again, big thank you.
Thank you.
All right. Next up on stage is a woman who is born actually in Borås, where I was born. I know that there are some more in this audience, example, Peter there, the treasury, head of treasury in this company, born in Borås, one hour from here. She is has got a Master of Science in Chemistry, Engineering, Textile. She has huge experience from the med tech industry. She has been working in quality and R&D interlinked most of her time. For example, 20 years in Mölnlycke Health Care. Since 2010, she has been working in Getinge. To begin with, in Arjo, setting up the quality management system for that company, which is now Arjo. Now, she's doing the very same in this company. I'm proud to present our Vice President of Quality, Regulatory, and Compliance, Lena Hagman.
Thank you, Lars.
You're welcome.
Thank you. So good afternoon, everyone. I would like to take you through three different areas today. First is where we are in the remediation work and other related issues with FDA. Secondly, our quality and regulatory strategy, and a very short update where we are in the implementation of our, of the new regulation for the European MDR. So back in time, before 2014, the company didn't invest enough in the quality and regulatory area, and that was actually very obvious in the beginning of 2015, when the company received a consent decree.
I'm pretty aware of that many of you have read the decree, because it's a public document, but the essence of the document is that we, every year, will have a third-party auditor coming to our CD sites, performing an audit, and then submit the agency and myself an audit report at the same time. We are then responsible to set up a correction plan. This correction plan will then be approved by FDA, and then on bi-monthly updates, we are sending our updates to, to the FDA. So FDA is very much on top where we are in our remediation work. The, the last years, we have invested a lot in the quality and regulatory area. We have invested in our people. We have also invested in, in our systems.
But we also were setting up a governance structure for our CD sites in order to get more transparency and be more close to remediation work at the CD sites. So where are we then with the remediation work? Many of you may ask. So remediation is built on two phases. The first phase has been completed in all the three sites. The first phase is actually when you bring up your quality system to a compliant level. So all the day-to-day business that we are currently doing in our, at our CD sites, is actually performed according to a compliance system. The second phase of remediation is where you need to review all the old documents and records to make sure that you will fill some of the potential gaps you had when you were out of compliance.
When you do that kind of, of a retrospective review, you will identify product improvements that needs to be done. You need to do some revalidation of your processes in production. You may end up with to update your product documentation to be up to par where the industry currently are, and then you need to review all your complaints in order to see if you have missed any reportable complaints. Those complaints then needs to be reported to the agency in bulk, and in some occasions, this will also end up in that we need to do recalls or removals or corrections in the field. That's the normal process of the second phase of remediation. For the U.S. sites, we see that we have completed that phase end of this year, and we believe we need a couple of more years for our German Hechingen facility.
I'm pretty sure as well that many of you have read or seen that we rather recently received a Warning Letter for our Fairfield operation back in September. The Warning Letter was a result of a three-month inspection by the agency, by 2-3 auditors on site during this time. The finding that ended up on the Warning Letter has no material impact from a financial perspective, and it has no patient safety risk associated with the findings either. Already back into last year, we identified those gaps ourselves through our quality system and the mock and internal audit program we have in place. So before FDA actually came on site for the inspection, we had already established a remediation plan to go through Fairfield and Mahwah once again in the remediation work.
So I think it's a very good way to show that our new way of working is actually showing that it works, because we identify the problems we have ourselves before we have an inspection. At the same time, when we were setting up this new remediation plan for Fairfield, Mahwah, we also started to see if we could build the three New Jersey quality system into one, to gain the benefit of in the remediation work in Fairfield, Mahwah, what we have done in Wayne. And this is now an enabler, so to say, for the decision we have taken to move and consolidate all our operations in New Jersey under the Wayne operation. Very quickly then about our quality and regulatory strategy, why are we doing that?
We're actually doing that to be on par with the regulation, but also to avoid that we will be in the same situation once again, that we have been in the past. The main purpose of the strategy is that we will get out of remediation, of course, but it's also to set up a global quality system. By having a global quality system, I can then do, together with my team, an interpretation of the regulation and also the latest understanding of regulations and standards, and implement those into common procedures, policies, and roll them out to all the local facilities to be implemented in their local quality system. This is the way that I can make sure for myself that we have the latest interpretation of the regulation, and everyone starts to do it globally at the same time....
The quality system will then also be a mechanism to do audits at our internal sites, actually to see how well they have implemented the regulation and the quality system. The quality system will also help me to reduce the number of certificates. To reduce the number of certificates will then make the business less complex. I will also be able to move to one notified body. By moving to one notified body, that is a preferred notified body, will give me the confidence that I have one interpretation of the regulation from their side, instead of having many different ways of doing the interpretation, because the notified bodies are acting different as well.
To have a common system, a way of working, will also facilitate and help our, our, our growth in the company through efficiency through the entire processes that we are doing. So the quality system is the base to, to build the growth for the company in the future. I also said that I will give you a very quick update where we are in the European Medical Device Regulation. We have established plans, one from a quality system perspective, how we are working, how we are fulfilling the regulation, and all the BAs, or the two BAs, has developed their own plan to see how they can bring up the products to a compliant level to the new regulation. We are on par on, on our plans.
We have also, together with the business areas, identified key products that we would like to do new recertification. It's very common in the industry today that we are doing that, and the reason for that will allow us to have a little bit longer implementation time of the new regulation. Another good thing with doing this is also that we can take out the tail of our product portfolio. That will also help us in the efficiency in general, so to say, because it takes some time and effort to keep those products up to speed with the new regulation. So it will be a clean-out of our portfolio at the same time. That was very quickly, but as a summary, we are in compliance. In the operation we are doing, we are operating under a compliant quality system at our CD sites today.
We have established a quality and regulatory strategy that will avoid us to be in the same situation in the future, and we have solid plans in place for how we should implement the new regulation that will be effective soon. Thank you.
Thank you, Lena. So here, thank you. Okay, so one single question then, or perhaps two: Have we seen the worst when it comes to these things?
Yes, I think we have, because we have invested a lot in this area, and it's also that we have much better control today and transparency in the company that we didn't have in the past. So I would say yes, and I also believe that the agencies see the improvements that we are doing, and I feel that we start to build the trust that Mattias was talking about before.
Great. What about information when it comes to these things? Could you please elaborate a little bit on when to inform, and when to not, and how to inform? I specifically talk about the FDA-related issues there.
Okay. So the regulation is controlling us from a safety perspective, the risk to patients. And there, of course, because I said we have a compliance system, we are following the rules and best practice, when to report and how to report. Then, of course, also, FDA have their rules when they do the kind of announcement and so forth, and they are following that. And in those cases, when it's something material from a finance regulation that needs to be reported, of course, we are doing that as well.
Great.
So we're following the rules, that's, and best practice-
Yeah.
in the industry.
That's an important thing. I mean, that's what everyone does, isn't it?
Yes.
Yeah, okay.
Yes.
Good.
Normal practice.
Okay, so a big applause to you. Great, thank you.
Thank you.
So, we're about on time, so we will have a 20-minute break, so see you back in 20 minutes, basically. Thank you.
So welcome back, everyone, and I hope you had a really good break, talking to someone in the executive team, perhaps Mattias Perjos or someone else.
. Yeah, I can understand that. So, well, now we are going to make a deep dive into Acute Care Therapies, our largest business area. And you're going to meet a person who was born in Skåne, raised in Stockholm. He has been living in the U.S. for a while, in Merrimack, in New Hampshire. He's got a PhD in polymer technologies. He is a master of science in engineering. And I'm happy to introduce Mr. Jens Viebke, the President of Acute Care Therapies, up on stage. Welcome.
Thank you, Lars. Thank you. Welcome, everyone, and thank you for being here today to take part of our presentations. Acute Care Therapies delivers solutions for therapy and life support in, I would say, acute environments, and that's within intensive care, cardiovascular surgery, and cardiovascular intervention. Our addressable market is half of Getinge's addressable market, which means SEK 85 billion, and it's predicted to grow with 2%-4% in the midterm. Many of you in this room know how we report our business. We report our business in four sub-segments, so-called product areas. First, we have Critical Care. That's 25% of ACT's revenue. Critical Care is located in Solna, Sweden, and Feldkirchen, Germany. The second product area is Vascular Systems.
Vascular Systems is 20% of the total revenue, and is located in La Ciotat, in France, and in Merrimack, New Hampshire, and that's also where I'm based since almost 4 years today. The third product area is Cardiopulmonary. Cardiopulmonary is 23% of our revenue, and this is where we have the heart-lung machines and the extracorporeal life support solutions, and also, very important, the corresponding consumables. Cardiopulmonary is located on 3 sites, 2 in Germany, Hechingen and Rastatt, and 1 in Turkey, in Antalya. The last product area is what we call Cardiac Systems. Cardiac Systems is as much as 32% of our revenue, and this is where we have our endoscopic vessel harvesting, the EVH portfolio. We have our beating heart surgery portfolio, and also the intra-aortic counterpulsation portfolio, which is basically the pumps and the disposable balloons.
This product area is located in New Jersey on three different sites, Wayne, Mahwah, and Fairfield. How have these different units been doing during the last year? What for someone else?
Providing guidance.
Yeah, I can understand that. So...
Well, now we are going to make a deep dive into Acute Care Therapies, our largest business area, and you're going to meet a person who was born in Skåne, raised in Stockholm. He has been living in the U.S. for a while, in Merrimack, in New Hampshire. He's got a PhD in polymer technologies. He is a master of science in engineering. And I'm happy to introduce Mr. Jens Viebke, the President of Acute Care Therapies, up on stage. Welcome.
Thank you, Lars. Thank you. So welcome, everyone, and thank you for being here today to take part of our presentations. So, Acute Care Therapies delivers solutions for therapy and life support in, I would say, acute environments, and that's within intensive care, cardiovascular surgery, and cardiovascular intervention. Our addressable market is half of Getinge's addressable market, which means SEK 85 billion, and it's predicted to grow with 2%-4% in the midterm. Many of you in this room know how we report our business. We report our business in 4 sub-segments, so-called product areas. First, we have Critical Care. That's 25% of ACT's revenue. Critical Care is located in Solna, Sweden, and Feldkirchen, Germany. The second product area is Vascular Systems.
Vascular Systems is 20% of the total revenue and is located in La Ciotat, in France, and in Merrimack, New Hampshire, and that's also where I'm based since almost 4 years today. The third product area is Cardiopulmonary. Cardiopulmonary is 23% of our revenue, and this is where we have the heart-lung machines and the extracorporeal life support solutions, and also, very important, the corresponding consumables. Cardiopulmonary is located on 3 sites, 2 in Germany, Hechingen and Rastatt, and one in Turkey, in Antalya. The last product area is what we call Cardiac Systems. Cardiac Systems is as much as 32% of our revenue, and this is where we have our endoscopic vessel harvesting, the EVH portfolio. We have our beating heart surgery portfolio, and also the intra-aortic counterpulsation portfolio, which is basically the pumps and the disposable balloons.
This product area is located in New Jersey on three different sites, Wayne, Mahwah, and Fairfield. So how have these different units been doing during the last year? Well, if we look at gross margin versus organic growth, you can see that cardiopulmonary has been growing quite fast at decent margins, and this is mainly due to the drive from extracorporeal life support solutions. Critical Care has also been growing quite fast at a slightly less margin than we have been used to in the past, and this is mainly due to geographical mix. We have been very successful in selling, especially our ventilators in emerging markets lately. The next product area is cardiac systems.
Cardiac systems is growing at a more moderate rate, but it has a very high margin, and this is mainly driven by EVH, and also the disposable balloons for intra-aortic counterpulsation. And then we have Vascular Systems, which is growing at a slower rate and also at lower margins, and this is mainly due to the quite heavy competition we've seen on covered stents due to the entry of both Gore and Bard in the market. So this is the view that most of our customers have of our portfolio. And as you can see, we are pretty well equipped, both in intensive care systems and in cardiovascular surgery. In cardiovascular interventions, we are more of a, I would call it, focused niche player. We're very good in certain niches.
If we look further into the market share that we have in our addressable product segments, you see that in the ICU and in the cardiac OR, we are really the market leader in this perspective. While, of course, as expected in cardiovascular interventions, meaning the cath labs and the hybrid ORs, we are a bit of a smaller player. Another way of looking at our portfolio is to follow the patient flow or the patient pathway through the hospital, which is sometimes also referred to as a therapeutic pathway. I brought an example here of coronary artery bypass surgery, which is called CABG.
In CABG, you can see that we actually do have quite a lot of product covering all the steps that the patient experiences in the hospital, from the stabilization in the early phases of coming into the hospital, through the operative procedures, and all the way afterwards in the support for recovery. It's actually very hard for a lot of our peers and competitors to follow us here because we have a very broad portfolio. To do this type of analysis of a therapeutic pathway is actually a pretty good structural tool to understand where we have the gaps in our product portfolio to be relevant to our customers, and we do this quite frequently. Another therapeutic pathway that we work a lot with is ARDS, which stands for acute respiratory distress.
Now, sometimes when I talk about CABG, I get the question if we wouldn't be better off investing more into PCI. But I really think that CABG in itself has a lot of advantages. If you look to the lower right of this slide, you will see that the first reason why I think CABG is important is that for more complex patients, and this group is actually growing, patients that have a more complex disease, even maybe with some comorbidity, it is actually significantly better patient outcomes from CABG compared to PCI. So it certainly has its place there. Secondly, there are health economic studies on CABG versus PCI, and sure, in the beginning, initially, PCI is a lot cheaper than CABG.
But as time progresses, CABG kind of catches up with PCI, and this is due to the medications and sometimes revascularization, and also the type of monitoring that you have to do of those patients. So the longer time goes, the closer it is to come to each other for a single patient. Then you also have the global perspective, and the global perspective is, yes, we do see a bit of a slow, slight downturn in the number of CABG cases in high-income economies. However, in both mid and low-income economies, we see a quite stable growth, which we think is depending on the cost for man-hours versus material cost for these different types of therapies in different regions of the world.
So now I've talked a little bit about our product portfolio, how we report it, and sort of how the customers perceive our workflow, and then a bit of a short deep dive on CABG. And if we look at our results through the last year, and many of you in the room know about this because you follow us quite closely, you can see that we have essentially outpaced the predicted market growth in terms of sales. However, on the profitability side, we're still lagging a bit behind the average of our peers. And as Mattias alluded to in his presentation, this is not only structure. There is certainly some opportunity for improvement here on the profitability side. And we, of course, already have some short-term actions ongoing on this one.
First, we are working a lot with outsourcing of sub-assemblies to lower-cost vendors. And this is, of course, not—should not mean worse quality, but we're, but lower cost. This is something that we worked in a very structured way within, in the product area of Critical Care for a number of years, and we're now really seeing the fruit of that. And we also now use that methodology and those suppliers across all of ACT. Secondly, we work a lot with improved category management and vendor management. And category management, this is really to pool all of the Getinge group's purchasing power into one place. And the vendor management is something that comes very naturally as we do remediation, because vendor management is very important in being compliant.
Thirdly, you saw Lena presented that, if we look at gross margin versus organic growth, you can see that cardiopulmonary has been growing quite fast at decent margins. And this is mainly due to the drive from extracorporeal life support solutions. Critical Care has also been driving or growing quite fast, at a slightly less margin than we have been used to in the past, and this is mainly due to geographical mix. We have been very successful in selling, especially our ventilators in emerging markets lately. The next product area is cardiac systems. Cardiac systems is growing at a more moderate rate, but it has a very high margin, and this is mainly driven by EVH, and also the disposable balloons for intra-aortic counterpulsation.
And then we have Vascular Systems, which is growing at a slower rate and also at lower margins, and this is mainly due to the quite heavy competition we've seen on covered stents due to the entry of both Gore and Bard in the market. So this is the view that most of our customers have of our portfolio. And as you can see, we are pretty well equipped, both in intensive care systems and in cardiovascular surgery. In cardiovascular interventions, we are more of a, I would call it, focused niche player. We're very good in certain niches. And if we look further into the market share that we have in our addressable product segments, you see that in the ICU and in the cardiac OR, we are really the market leader in this perspective.
While, of course, as expected in cardiovascular interventions, meaning the cath labs and the hybrid ORs, we are a bit of a smaller player. So another way of looking at our portfolio is to follow the patient flow or the patient pathway through the hospital, which is sometimes also referred to as a therapeutic pathway. And I brought an example here of coronary artery bypass surgery, which is called CABG. And in CABG, you can see that we actually do have quite a lot of product covering all the steps that the patient experiences in the hospital, from the stabilization in the early phases of coming into the hospital, through the operative procedures, and all the way afterwards in the support for recovery.
It's actually very hard for a lot of our peers and competitors to follow us here because we have a very broad portfolio. To do this type of analysis of a therapeutic pathway is actually a pretty good structural tool to understand where we have the gaps in our product portfolio to be relevant to our customers. We do this quite frequently. Another therapeutic pathway that we work a lot with is ARDS, which stands for acute respiratory distress. Now, sometimes when I talk about CABG, I get the question, if we wouldn't be better sites or moving into a new phase under the consent decree, they are much more compliant, we're getting things in place.
That also means that there is an opportunity to work a lot with process optimization and also organizational optimization around those sites, which also will lead to lower costs. And at least, I think that my friend and colleague, Carsten, has a very good focus in his global sales organization, and I think Carsten alluded to that in his presentation as well, how we focus the best growth opportunities with the highest margins in the future. So instead of trying to boil the whole ocean, we're now focusing on the really good opportunities with our sales investments. And then, of course, in the longer term, we have a number of focus areas. First, we really want to grow, create growth through innovation. And when we talk about that, it's really about building our R&D capabilities for new innovations.
The way we do that is that we're extremely focused on two things: either to create solutions that really gives a better patient outcome, or to create solutions and product that give a lower treatment cost, or actually, in the best case, to be able to do both of those together. Another area which we are looking into a lot at the moment, and Carsten alluded to that as well, that's to capabilities for both developing and selling integrated solutions. As you saw in the CABG example, we have quite wide solutions and combinations of products. And especially, it's especially fruitful to work together with our key customers here to sort of create new types of business model, et cetera.
When you talk about these key customers, they are also very important strategic relationships for us to understand how we can actually serve our customers in a better and a broader way. Other types of strategic partnerships are really when we do acquisitions to fill gaps in the product portfolios. So we will, we are, in a very structured way, looking at potential acquisitions with that intent, really to create cross-selling with the portfolio that we already have. But we're also looking at things like distribution agreements or even just pure partnerships to be able to serve our customers in a better way moving forward. And for both of these areas, both the integrated solutions and on the partnership side, it's extremely important to work with the enabler, which is really digitalization and connectivity.
What we will not forget is also to work with, I would call it, productivity improvement in the longer perspective. And a great example of this is when we work with new technology platforms that we can actually implement across a broader part of ACT. And when we do this, we get great sort of benefits, both in COGS and in time to market and even in inventory. Another example that's been mentioned already by Mattias is to work with selective footprint consolidation, which is also good for COGS in terms of lowering overhead and also for cash flow efficiently. There's one more area that I think may be important to our growth going forward, and that's the growth opportunity that we see in the value segment.
So ACT today sells about 20% of our total revenues into the value segment, which I think is a fairly good result already. However, we still think that there is more to come in this. And I brought a couple of examples here from how we work with that. For example, in ventilation, we have the Servo-u, so addressing the premium segment. We have the Servo-air, addressing the value segment. In anesthesia, we have the Servo-i, and we have the Flow, sorry, the Flow-i, and we have the Flow-c, which is newly launched and is addressing the value segment. In cardiopulmonary and ECLS, so Extracorporeal Life Support, we have the Cardiohelp addressing the premium segment, and we have Rotaflow addressing the value segment.
What is really cool with this setup is that in the first two examples here, both for ventilation and anesthesia, we have managed to address two segments from a single product platform, which becomes very important from an economies of scale perspective. So that was a lot about the different actions that we're dealing with, and I thought that if I should just summarize sort of the top three actions, both on growth and on margin improvements. On the growth side, it's really about focusing R&D toward patient outcomes and/or treatment cost. The second part is to very actively analyze and work with potential acquisitions to be able to fill gaps in our portfolio. And the third one is really to utilize our broad portfolio to work with integrated solutions and new business models together with key customers.
On the margin side, it's about, really about focusing a bit of our R&D capacity versus driving COGS down. And a very important part in that is to work with technology platforms that we can use across ACT and maybe also partially across parts of, of the whole Getinge group. And then lastly, it's really footprint consolidation, where it makes sense, and also continue to focus on cash flow improvements. Thank you very much for listening.
Thank you, Jens. Great presentation. And I would like to ask you one thing regarding margins. I mean, you showed a great picture where we have the cardiac systems outperforming the other areas. What in what way can you mitigate deterioration when it comes to margins in that specific case, or could you elaborate a little bit on that?
So, Cardiac Systems is, as you saw, more of a moderate growth-
Yeah.
But it's a very high margin, and it's basically made up of three product segments. The first one is EVH, the second one is intra-aortic counterpulsation, and the third one is beating heart. And we're working very structured with sort of have doing different types of activities to be able to sort of mitigate the potential margin erosion. We're often investing more into PCI. But I really think that CABG in itself has a lot of advantages. If you look to the lower right of this slide, you will see that the first reason why I think CABG is important is that for more complex patients, and this group is actually growing, patients that have a more complex disease, even maybe with some comorbidity, it is actually significantly better patient outcomes from CABG compared to PCI, so it certainly has its place there.
Secondly, there are health economic studies on CABG versus PCI, and sure, in the beginning, initially, PCI is a lot cheaper than CABG. But as time progresses, CABG kind of catches up with PCI, and this is due to the medications and sometimes revascularization, and also the type of monitoring that you have to do of those patients. So the longer time goes, the closer it is to come to each other for a single patient. Then you also have the global perspective, and the global perspective is, yes, we do see a bit of a slight downturn in the number of CABG cases in high income economies.
However, in both mid and low income economies, we see a quite stable growth, which we think is depending on the cost for man-hours versus material cost for these different types of therapies in different regions of the world. So now I've talked a little bit about our product portfolio, how we report it, and sort of how the customers perceive our workflow, and then a bit of a short deep dive on CABG. And if we look at our results through the last year, and many of you in the room know about this because you follow us quite closely, you can see that we have essentially outpaced the predicted market growth in terms of sales. However, on the profitability side, we're still lagging a bit behind the average of our peers.
And as Mattias alluded to in his presentation, this is not only structure. There is certainly some opportunity for improvement here on the profitability side. We, of course, already have some short-term actions ongoing on this one. First, we are working a lot with outsourcing of sub-assemblies to lower cost vendors. And this is, of course, not should not mean worse quality, but lower cost. This is something that we worked in a very structured way within the product area of Critical Care for a number of years, and we're now really seeing the fruit of that. We also now use that methodology and those suppliers across all of ACT. Secondly, we work a lot with improved category management and vendor management. Category management, this is really to pool all of the Getinge group's purchasing power into one place.
The vendor management is something that comes very naturally as we do remediation, because vendor management is very important in being compliant. Thirdly, you saw Lena presented that some of our sites are moving into a new phase under the consent decree. They are much more compliant. We're getting things in place. That also means that there is an opportunity to work a lot with process optimization and also organizational optimization around those sites, which also will lead to lower costs. And at last, I think that, my friend and colleague, Carsten, has a very good focus in his global sales organization, and I think Carsten alluded to that in his presentation as well, how we focus the best growth opportunities with the highest margins in the future.
So instead of trying to boil the whole ocean, we're now focusing on the really good opportunities with our sales investments. And then, of course, in the longer term, we have a number of focus areas. First, we really want to grow, create growth through innovation. And when we talk about that, it's really about building our R&D capabilities for new innovations. And the way we do that is that we're extremely focused on two things: either to create solutions that really gives a better patient outcome, or to create solutions and product that give a lower treatment cost, or actually, in the best case, to be able to do both of those together. Another area which we are looking into a lot at the moment, and Carsten alluded to that as well, that's to capabilities for both developing and selling integrated solutions.
As you saw in the CABG example, we have quite wide solutions and combinations of products. And especially, it's especially fruitful to work together with our key customers here to sort of create new types of business model, et cetera. And when you talk about these key customers, they are also very important strategic relationships for us to understand how we can actually serve our customers in a better and a broader way. Other types of strategic partnerships are really when we do acquisitions to fill gaps in the product portfolios. So we are in a very structured way, looking at potential acquisitions with that intent, really to create cross-selling with the portfolio that we already have. But we're also looking at things like distribution agreements or even just pure partnerships to be able to serve our customers in a better way moving forward.
And for both of these areas, both the integrated solutions and on the partnership side, it's extremely important to work with the enabler, which is really digitalization and connectivity.
What we will not forget is also to work with, I would call it, productivity improvement in the longer perspective. And a great example of this is when we work with new technology platforms that we can actually implement across a broader part of ACT. And when we do this, we get great sort of benefits, both in COGS and in time to market, and even in inventory. Another example that's been mentioned already by Mattias is to work with selective footprint consolidation, which is also good for COGS in terms of lowering overhead, and also for, for, cash flow efficiency. There's one more add within the hospital. We provide technical service to probably one of the largest installed base in the industry, which is allowing us to build and sustain relationships throughout the life cycle of the equipment with our customers.
So if I look at it from an economical perspective, what is good in this business area is that we have a good mix. We are both able to enjoy very significant growth when there is a strong demand on infrastructure goods, like we see now, but at the same time, we have this stabilizer effect of service revenue, which is great as a recurring entity. As a result, we see a long-lasting potential of a 2%-4% growth in this business in the coming years, which we see we have already outperformed this year. In this business unit, we are at the center of the hospital, which is surgery. We are also playing in the, at the intersection of two flows, the patient flow and the instruments flows.
So what is good is we are not only acting as an equipment provider, we are acting as an advisor to hospitals in how they can set up and improve these processes. I think it makes a lot of sense to have these two businesses together. Here I talk about sterilization and operating rooms. Why is that? First of all, many jobs look similar. These are capital equipment businesses with installation, with service, so a lot of synergies can be achieved in combining these two businesses together.
The second thing is from a commercial perspective, and I've been experiencing this myself when leading a sales unit, there are many times where, when we talk with our customers, they are buying operating rooms and sterilization unit together, so they like the fact that we are able to offer complete packages, and it offers, I think, also a great competitive edge in this segment. As you can see, we enjoy pretty strong market shares globally, of course, depending on the product and depending on the regions. I want to guide you through a couple of innovations that are coming out as we speak, which make the teams very proud of. The first one that I want to talk about is a new hybrid OR that we have been developing with our partners from Siemens Healthineers.
I was actually talking about this earlier at the break with one of your colleagues. This new hybrid OR allows intraoperative imaging within the OR. But the issue with that in the past is that we had to move the patient in between the gantry, and you cannot really do that in a surgical environment. So together with our partners, we developed a tabletop called Pilot that allows to transfer the patient without having to manipulating the patient. So I think it's a great innovation here. Second example, a new washer disinfector, designed and manufactured actually very close to here in Växjö, which is called 86 Turbo, which will enhance the speed of processing of instruments. The last innovation that I like very much as well is on the Tegris software. Tegris is our OR and video management system.
It brings a new feature called Room to Room Display. What it does is it allows a surgeon to send his images to another operating room in order to get a second opinion from a fellow colleague. In the past, he couldn't do that so easily, and now he can get a second opinion on his case live while he's operating, and we are very happy with this new feature. We are convinced that these products will continue bringing growth in the next years. I want to go with you through a couple of trends that are touching this industry, in particular, the ones that I talked about. On the sterilization side, I would choose low temperature sterilization. Of course, it's already a business for quite some time, but we see an increased demand globally for this technology. Why is that?
Minimally invasive surgery, as well as robotic, is going to introduce a lot of devices that cannot stand steam sterilization. So as a result, there will be a growing need for low temperature sterilization. The good news is, we've made very significant investments here by acquiring technology, a company called Stericool, and now we are well positioned to capture this growth. Already this year, we grow the units about 43% versus last year, which I think shows the dynamics of this segment. On the surgery side, I want to talk about outpatient surgery and ambulatory care. This is changing very quickly. Just to give you a figure, in Germany, we just passed the bar of 2,500 outpatient surgery centers. This is double to what it was 10 years ago. This is a completely disrupting element of our industry.
It will require us to develop, and we are doing this as we speak, of course, products that are well adapted to this trend. And as well, it's also changing our go-to-market, and we are working with Carsten on that, on how to make sure that this segment is also addressed by our sales teams globally. So after all the theory, I would like to bring you a, a concrete example. This is the new Royal Adelaide Hospital. This is the state's flagship hospital. It opened in October 2017. It will bring advanced care to 85,000 patients a year.... And the discussions with our sales teams started in 2009, which I think shows you the, the depth of the relations you need in this industry in order to build such projects in the long term. For us, what does this mean?
It means a full sterilization unit, 41 surgical suites equipped with equipment, as well as piloting the new feature that I talked about before, the room-to-room display. And also a lot of products from Jens' organization, the ventilation, the ECMO, and some of the cardiac surgery product as well. Just to give you an idea of the range, the complete deal value was around EUR 21 million. I think it shows the strength of the combined portfolio. There were questions in the past, just before, why does it make sense to have a great portfolio? I think this is a great showcase of why this is good to be, to have many solutions together. Now, I want to step back and have a look with you on the trends that are affecting this industry, but more specifically, the, this business area and what we do about it.
I think for the capital goods, the main disruptive trend is globalization. Of course, we have an increasing revenue base coming from our emerging markets, so it's completely disrupting the way we innovate and the way we go to market. And I'll read you an example of what we do around this, the core principle being proper product segmentation and right innovation. At the same time, in some of the mature markets, we are very well aware that there is austerity measures in place, and this will not stop. So we have to find also affordable solutions and to find ways to promote our products differently, maybe by new payment models, maybe by more risk sharing.
area that I think may be important to our growth going forward, and that's the growth opportunity that we see in the value segment. ACT today sells about 20% of our total revenues into the value segment, which I think is a fairly good result already. However, we still think that there is more to come in this. I brought a couple of examples here from how we work with that. For example, in ventilation, we have the Servo-u, so addressing the premium segment. We have the Servo-air, addressing the value segment. In anesthesia, we have the Servo-i, and we have the Ser-Flow, sorry, the Flow-i, and we have the Flow-c, which is newly launched and is addressing the value segment.
In cardiopulmonary and ECLS, so Extracorporeal Life Support, we have the Cardiohelp addressing the premium segment, and we have RotaFlow addressing the value segment. And what is really cool with this setup is that in the first two examples here, both for ventilation and anesthesia, we have managed to address two segments from a single product platform, which becomes very important from an economies of scale perspective. So that was a lot about the different actions that we're dealing with, and I thought that if I should just summarize sort of the top three actions, both on growth and on margin improvements. In our on the growth side, it's really about focusing R&D towards patient outcomes and/or treatment cost. The second part is to very actively analyze and work with potential acquisitions to be able to fill gaps in our portfolio.
The third one is really to utilize our broad portfolio to work with integrated solutions and new business models together, together with key customers. On the margin side, it's about, really about focusing a bit of our R&D capacity versus driving costs down. And a very important part in that is to work with technology platforms that we can use across ACT, and maybe also partially across parts of, of the whole Getinge group. And then lastly, it's really footprint consolidation, where it makes sense, and also continue to focus on cash flow improvements. Thank you very much for listening.
Thank you, Jens. Great presentation. I would like to ask you one thing regarding margins. I mean, you showed a great picture where we have the cardiac systems outperforming the other areas. What, in what way can you mitigate deterioration when it comes to margins in that specific case, or could you elaborate a little bit on that?
So, Cardiac Systems is, as you saw, more of a moderate growth-
Yeah.
But it's a very high margin. And it's basically made up of three product segments. The first one is EVH, the second one is intra-aortic counterpulsation, and the third one is beating heart. And we're working very structured with sort of doing different types of activities to be able to sort of mitigate the potential margin erosion.
It has also an impact in how we go to market and how we promote our solutions. Digitalization for us and within Getinge, we are convinced that it has not yet fully disrupted this industry. Unlike retail or travel, there was a very fast transformation. We believe that the digital transformation has yet to come to healthcare. I talked to you previously about these processes, traceability of instruments. Most of this, in many hospitals, still this is paper-based. Scheduling of operating rooms, whiteboards, patient flow, sometimes phone calls, Excel files. So already today, we have the ability, with the software we provide, to bring this digitalization going forward. But we are also investing significantly in this business. I think the great example is our partnership with Verb Surgical, the joint venture led by Google.
We want to be a partner in building this next generation surgery, which will combine instruments, robotics, as well as algorithm and data. We are very happy and proud to be partnering in this adventure. Digital is also transforming equipment. I think this was addressed before already by Mattias and Carsten. Already today, our engineers are able to connect to the equipment and see what's going on in order to be able to diagnose the breakdown faster. It's very good for us, and it's very good for the customer. For us, it's efficiency. For the customer, it's uptime. So it's truly a win-win game on the digitalization of equipment. We want to bring that further.
We believe that by monitoring sensors constantly, we will be able to even predict when there is a drift of some parameters, the maintenance, and we think this can be a disruptive element in the coming years. Of course, digital is also changing the way we interact with our customers. Already today, we roll out an iPad-based service reporting systems that allows technicians to send the report straight away to the customer. By the way, also ordering the spare parts automatically and so on, which is also a great efficiency gain. But in the future, we believe that digital is going to disrupt this industry further. There will probably be much more online resources for education, and we see that there will be more and more integrated transactions between us and our customers.
We already have EDI, electronic data interface between some of our key customers and ourselves, so we are able to directly link our SAP system with theirs. Efficiency for both parties. Finally, digitalization is disrupting and is changing our company. What we are doing right now is we are rolling out SAP in all parts of the organization, both the sales units and the factories, and we are building the backbone of the future efficiency gains that will be possible in the coming years. Automation, probably, of the processes, we already started to do so in some of our shared service centers globally. Beyond digitalization, the thing I want to talk to you about now is segmentation. This is a slide that is familiar to you, was presented by Jens previously. The scores are a little bit different, I have to say.
You will not be surprised that our presence here in this field is mainly on what we call the premium segment, and this is changing as we speak. So how do we do that? I think it starts with a proper, real segmentation. Sometimes I hear that you need cheap products for-
EVH, we are working a lot with new innovation to generate new IP around that, where we really have a market leadership. In intra-aortic counterpulsation, we're focusing a lot of going from two product platforms down to one, but at the same time lowering our COGS, so we can sort of use that in all parts of the world, makes it a lot more efficient. Then finally, in beating heart surgery, one of our consolidations in terms of footprint is that we're actually moving the most important product line, the Acrobat- i, from our factory in Wayne to Getinge's factory in Suzhou, in China, to be able to push the manufacturing cost down even further. So there you have actions, basically, in all three groups within that segment that will protect the margin.
Sounds like you have a good plan. Again, thank you, Jens.
Thank you so much, Lars. Talk more later on. Thank you.
Great.
Thank you.
Yeah. Now it's time for our newest member in the executive team. He's born in France, he's living in Paris. He's soon to move, actually, to close to Rastatt, where we have one of our biggest sites related to Surgical Workflows. He joined this company in 2012, but prior to that, he has been working in General Electric Healthcare, in Siemens Healthcare, so he has got great experience from this industry. He's also an endurance runner, which might be good to know. So I'm really happy to introduce to you the President for Surgical Workflows, Mr. I'm so sorry. Stéphane Le Roy. Sorry. Stephane.
Thank you, Lars. Yeah. You will have to remember that name next time. Yeah, I will for sure. Ladies and gentlemen, pleasure and honor to be presenting to you this afternoon.
Of course, I'm, I'm really thrilled and honored to take this role and lead this business area going forward. I love this business. I'm truly passionate about medical technology, and especially about the portfolio of Getinge, and I will tell you why in a minute. Safer surgeries, reduced infection is our medical ambition with healthcare providers globally, but at the same time, we are well aware that healthcare fundings is under shortage globally. So in this business area, we want to be part of the solution of this equation. We are a world leading provider of equipment, services, consumables, and software to operating rooms and sterilization units around the world. Our business model range from single unit sales, that would have a price point of around EUR 20,000, to situations where we have complete turnkey projects, and in that case, we go up to several million EUR.
When we do that, we are able to design, implement, install complete units, partnering with ecosystems of general contractors, so we can be there with the hospitals globally when there are renovations or new hospitals. On top of that, we provide software that is allowing our customers to optimize their processes around these areas. I speak here about the traceability of instruments, the scheduling of operating rooms, as well as the patient flow within the hospital. We provide technical service to probably one of the largest installed base in the industry, which is allowing us to build and sustain relations throughout the life cycle of the equipment with our customers. So if I look at it from an economical perspective, what is good in this business area is that we have a good mix.
We are both able to enjoy very significant growth when there is a strong demand on infrastructure goods, like we see now, but at the same time, we have this stabilizer effect of service revenue, which is great as a recurring entity. As a result, we see a long-lasting potential of a 2%-4% growth in this business in the coming years, which we see we have already outperformed this year. In this business unit, we are at the center of the hospital, which is surgery. We are also playing at the intersection of two flows, the patient flow and the instruments flows. So what is good is we are not only acting as an equipment provider, we are acting as an advisor to hospitals in how they can set up and improve these processes.
I think it makes a lot of sense to have these two businesses together. Here I talk about sterilization and operating rooms. Why is that? First of all, many jobs look similar. These are capital equipment businesses with installation, with service, so a lot of synergies can be achieved in combining these two businesses together. The second thing is from a commercial perspective, and I've been experiencing this myself when re-leading a sales unit, there are many times where when we talk with our customers, they are buying operating rooms and sterilization unit together, so they like the fact that we are able to offer complete packages, and it offers, I think, also a great competitive edge in this segment. As you can see, we enjoy pretty strong market shares globally, of course, depending on the product and depending on the regions.
I want to guide you through a couple of innovations that are coming out as we speak, which make the teams very proud of. The first one that I want to talk about is a new hybrid OR that we have been developing with our partners from Siemens Healthineers. I was actually talking about this earlier at the break with one of your colleagues. This new hybrid OR allows intraoperative imaging within the OR. The issue with that in the past is that we had to move the patient in between the gantry, and you cannot really do that in a surgical environment. Together with our partners, we developed a tabletop called Pilot that allows to transfer the patient without having to manipulating the patient. I think it's a great innovation here.
Second example, a new washer disinfector, designed and manufactured actually very close to here in Växjö, which is called 86 Turbo, which will enhance the speed of processing of instruments. The last innovation that I like very much as well is on the Tegris software. Tegris is our OR and video management system. It brings a new feature called Room-to-Room Display. What it does is it allows a surgeon to send his images to another operating room in order to get a second opinion from a fellow colleague. In the past, he couldn't do that so easily, and now he can get a second opinion on his case live while he's operating, and we are very happy with this new feature. We are convinced that these products will continue bringing growth in the next years.
I want to go with you through a couple of trends that are touching this industry, in particular, the ones that I talked about. On the sterilization side, I would choose low temperature sterilization. Of course, it's already a business for quite some time, but we see an increased demand globally for this technology. Why is that? Minimally invasive surgery, as well as robotic, is going to introduce a lot of devices that cannot stand steam sterilization. So as a result, there will be a growing need for low temperature sterilization. The good news is, we've made very significant investments here by acquiring technology, a company called Stericool, and now we are well positioned to capture this growth. Already this year, we grow the units about 43% versus last year, which I, I think shows the dynamics of this segment.
On the surgery side, I want to talk about outpatient surgery and ambulatory care. This is changing very quickly. Just to give you a figure, in Germany, we just passed the bar of 2,500 outpatient surgery centers. This is double to what it was 10 years ago. This is a completely disrupting element of our industry. It will require us to develop, and we are doing this as we speak, of course, products that are well adapted to this trend. And as well, it's also changing our go-to-market, and we are working with customer on that, on how to make sure that this segment is also addressed by our sales teams globally. So after all the theory, I would like to bring you a concrete example. This is the new Royal Adelaide Hospital. This is the state's flagship hospital. It opened in October 2017.
It will bring advanced care to 85,000 patients a year, and the discussions with our sales teams started in 2009, which I think shows you the depth of the relations you need in this industry in order to build such projects in the long term. For us, what does this mean? It means a full sterilization unit, 41 surgical suites equipped with equipment, as well as piloting the new feature that I talked about before, the Room to Room display, and also a lot of products from Jens' organization, the ventilation, the ECMO, and some of the cardiac surgery product as well. Just to give you an idea of the range, the complete deal value was around EUR 21 million. I think it shows the strength of the combined portfolio. There were questions in the past, just before, why does it make sense to have a great portfolio?
I think this is a great showcase of why this is good to be to have many solutions together. Now, I want to step back and have a look with you on the trends that are affecting this industry, but more specifically, this business area and what we do about it. I think for the capital goods, the main disruptive trend is globalization. Of course, we have an increasing revenue base coming from our emerging markets, so it's completely disrupting the way we innovate and the way we go to market. And I'll give you example of what we do around this, the core principle being proper product segmentation and right innovation. At the same time, in some of the mature markets, we are very well aware that there is austerity measures in place, and this will not stop.
So we have to find also affordable solutions and to find ways to promote our products differently, maybe by new payment models, maybe by more risk-sharing. End market, you can have expensive products for mature market. I think this is a very simplistic way to look at segmentation. You have very high-level institutions in emerging markets who will also buy premium equipment, and at the same time, in some very mature markets, you also have a demand for more affordable, good enough products. We even see secondhand equipment sometimes, a lot in very mature markets. So we have to have a great segmentation, much more granular than we could have thought some time ago. When you do that, and when you know which products you want to launch, you have two ways to do it. The first one is value engineering.
So we take products, we make them more simpler, we simplify, we make them more affordable, we remove some features, never compromising on quality, easy to buy, easy to service. Just an example on that one, we introduced a table called Meera ST, which is a de-featured version of a table we introduced two years ago. Great success, cost down, margin was very good as well, and this is a great example of what we can do with this value engineering projects. Second way to do it is we start from scratch. We take some of our factories globally, like in China or Poland, and we start the design. We start from scratch, and we manufacture in these factories.
Another example here, our latest ceiling pendant, called Moduevo, was designed and is now assembled in Suzhou, in China. We are selling this not only in China, we are also selling it globally with a lot of success. So we believe that this segmentation, as well as the innovation, will continue to fuel growth in the future. How does that translate to the financials? I would say here, contrasted picture. We are enjoying, since the beginning of the year, very strong growth, 5.3%. I think this is clearly outperforming market growth, so we probably have gained market share. I think this is the result of a very good portfolio, as well as the good commercial reach and the strength of our sales teams globally. At the same time, we are disappointed by the margin development.
As you can see, we believe that there is a 12-point gap versus industry average. So when I step into this role, this will clearly be one of my priorities to reduce this gap. A lot of actions are already in place. Most of them, we would describe as fixing the fundamentals, and I will go through them in a minute. We need to work on COGS. We need to work on SG&A. On the COGS side, just to give you a figure, 70% of our product cost comes from purchasing. So if we want to move the needle, we have to work on purchasing. We have to work on consolidating our suppliers. We already do, but we have to take this even another step.
We have to work on localizing our ecosystems of suppliers around the factories in order to make sure that we reduce the shipping costs. At the same time, we need to go on working on the efficiency of our plants, the throughput, by rolling out lean programs, which are already well advanced in the company, but we need to take this even a step further. A lot of it is going to be as well, what I call discipline in expense control, right-sizing the organization, particularly on the SG&A, and I think we have the potential to move the needle pretty quickly on this side as well. Another part that sometimes we underestimate, but it has also an impact in how we go to market and how we promote our solutions.
Digitalization for us and within Getinge, we are convinced that it has not yet fully disrupted this industry. Unlike retail or travel, there was a very fast transformation. We believe that the digital transformation has yet to come to healthcare. I talked to you previously about these processes, traceability of instruments. Most of this, in many hospitals, still this is paper-based. Scheduling of operating rooms, whiteboards, patient flow, sometimes phone calls, Excel files. So already today, we have the ability, with the software we provide, to bring this digitalization going forward. But we are also investing significantly in this business. I think the great example is our partnership with Verb Surgical, the joint venture led by Google.
We want to be a partner in building this next-generation surgery, which will combine instruments, robotics, as well as algorithm and data, and we are very happy and proud to be partnering in this adventure. Digital is also transforming equipment. I think this was addressed before already by Mattias and Carsten. Already today, our engineers are able to connect to the equipment and see what's going on in order to be able to diagnose the breakdown faster. It's very good for us, and it's very good for the customer. For us, it's efficiency. For the customer, it's uptime. So it's truly a win-win game on the digitalization of equipment. We want to bring that further. We believe that by monitoring sensors constantly, we will be able to even predict when there is a drift of some parameters, the maintenance.
We think this can be a disruptive element in the coming years. Of course, digital is also changing the way we interact with our customers. Already today, we roll out an iPad-based service reporting systems, that allows technicians to send the report straight away to the customer. By the way, also ordering the spare parts automatically and so on, which is also a great efficiency gain. But in the future, we believe that digital is going to disrupt this industry further. There will probably be much more online resources for education, and we see that there will be more and more integrated transactions between us and our customers. We already have EDI, electronic data interface between some of our key customers and ourselves, so we are able to directly link our SAP system with theirs. Efficiency for both parties.
And finally, digitalization is disrupting and is changing our company. What we are doing right now is we are rolling out SAP in all parts of the organization, both the sales units and the factories, and we are building the backbone of the future efficiency gains that will be possible in the coming years. Automation, probably, of the processes, we already started to do so in some of our shared service centers globally. Beyond digitalization, the thing I want to talk to you about now is segmentation. This is a slide that is familiar to you, was presented by Jens previously. The scores are a little bit different, I have to say. You will not be surprised that our presence here in this field is mainly on what I call, what we call the premium segment, and this is changing as we speak.
So how do we do that? I think it starts with a proper, real segmentation. Sometimes I hear that you need cheap products for. 28% of our COGS today comes from service, labor, and infrastructure behind our engineers. So I am convinced that service is a great pocket of COGS efficiency. I lived that myself in a country organization. We are working on the fundamentals to improve this. Carsten talked about this before, and it's obviously a main area of focus for us and for myself in the coming months. The first thing we do is we try to make our products more reliable, because when there is a breakdown under warranty, you go for free, both for the spare parts and for the labor.
So obviously, if we want to make our service more efficient, we have to work on our products first. The second thing we do is we work on the scheduling, and we work on what we call the first time fix. First time fix is a great indicator of how well we are able. It means is your technician able to solve the problem now, or does he have to come back? If he has to come back, it means that either he's not well-trained or he didn't have the right spare part. So we are working on both components, training and spare parts availability, to make sure that we are able to make this service network even more efficient in the future. I want to be clear on something. 65% of our revenue comes from equipment, 30% comes from service.
So if we want to change the profitability, it has to be by working on these legacy businesses. We need to be better at these core things we do historically, which we are very proud of, but this is where we have to do most of the efforts in order to reduce the gap. Then, of course, at the same time, we are investing in the long-term enablers like IT or consumable, that will be a well-appreciated new enabler of growth and profit. But I'm convinced that this is where, in these big bubbles in the middle, that we have to move the needle when it comes to closing the gap on profitability. We also want to make sure that what we do in the short term is not going to hinder our capacity to grow in the next years.
So we go on focusing on the main elements that will be the ones important going forward. Innovation. We want to remain at the forefront of innovation and be better performing than our competitors on the adaptation to market trends. Emerging markets, definitely, this is not going away. I'm convinced that we have one of the deepest commercial reach in emerging market, and we need to continue to leverage that. It's a great opportunity to distribute our products more globally. A lot of it is going to be a cost journey, as I told you before, working with discipline and ambition on cost management. And finally, we want to do all this by keeping the customer at the center of what we do.
This might sound a little bit obvious, as well as Carsten was saying, but I want to make sure that we bring innovations that make sense, that have a business driven ambition. We want to make sure as well, that we are open to new business models. I think risk-sharing is going to be of growing importance in the next year. We already see that in some hospitals in the Netherlands or in Sweden, and probably as well, more consultancy approach when we sell capital goods. So when I step into this role, I have to say that I feel confident because I see short-term actions that can move the needle, as well as long-term enablers that are very healthy. Thank you very much for your attention.
Thank you, Stéphane. Really good presentation.
You got my name this time.
Yeah, I really, I studied hard. Sorry for that. Well, I mean, you have been in office now for a little bit more than one week. So what has been most surprising to you?
I would not use the word surprise. I think I know this company. I've been here for six years. I know the products, I know the teams, so for me, I wouldn't use the word surprise. I know this industry as well from my previous experiences, so... Of course, I need to sharpen my judgment on many things. I need to have a view at the global P&L, which was not the case until now, but I'm not surprised. I'm confident in the things that I found since one week.
Good to hear. Okay, one more question then. If you should single out one, one action that you would like to focus on, one, one thing only, what would that be?
It's a good question. After one week, I would say that my feeling is that the utmost important is going to be a long-term, consistent industrial strategy. Which means where do we want to produce? Where do we want to do research? Where will be our suppliers going forward? I want to make sure that we take no shortcuts. We will have to work with high ambition in how we reduce the gap in the short term, but at the same time, I want to make sure that this industrial footprint will be very strong in 3, 5, 10 years going forward. So for me, the right balance between, I would say, immediate benefits and longer term performance, this will be my prime area of focus in the coming months.
Sounds like a really good idea.
Thank you again.
So now we are going to meet a man who has been working in this company for more than 30 years. He has a background as an engineer in chemistry, and I would dare to say, actually, that there's nothing worth knowing when it comes to infection control and sterilization and Life Science that he doesn't know. You can try to ask him questions later on. Well, I'm proud to present the President of Life Sciences, Mr. Harald Castler, up on stage. Welcome, Harald.
Thank you, Lars.
The stage is yours.
Thank you. Okay, Life Science. We are the new business area in Getinge. We only represent 10% of the business, so you could ask: Why do they need to make a business area of such a small business? But the answer is that this is a business that has a completely different customer base, and it has a different regulatory environment. We are not in under FDA, we are not in medical device regulatory framework. So it requires a slightly different strategy and structure. It's also a business with a fantastic growth opportunity if it gets the right attention, and it has now. So what are we doing? We are providing equipment and technical expertise to prevent contamination, and we do that in three areas. In pharmaceutical production, and medical device, we do it in the lab environment and in medical research.
And this is a business of approximately 23 billion SEK, and it grows about 3%-5% per year. So what product lines do we have in here? We have sterilizers, and these machines are used for sterilizing either the final drug or it's used for sterilizing tools and equipment used in the manufacturing process of drugs. We have cleaning machines. They are also used in the manufacturing process of drugs for cleaning tools and equipment used in the manufacturing process. Then we have something called isolators. And an isolator is a box in which you have a sterile environment. And inside there, you can then manufacture a sterile drug, or you can do quality testing, where you need an environment that is sterile and it doesn't contaminate your result.
Then we have something called Sterile Transfer, and this is a technology used to transfer stuff in and out of the isolator. And this is a technology where we have a lot of patents, where Getinge is an industry standard, and I will come back later to that. So we have three customer segments, and the largest one is pharma production and medical device. This is 70% of our business. Here we have a strong position, 20% market share. Then we have lab, which is 20% of our business, and medical research, which is 10% of the business. We have a little bit weaker position there, but we are still a relevant supplier to these markets. In pharmaceutical production, which is our main focus, here we also have the highest growth.
Here we have 6% in average. Within pharma production, there is one sub-segment called biomed, and biomed is the really fast-growing segment here. Here we have double-digit growth, and this is a market that is really transforming the industry at the moment. So if we then look into our customer, this is a snapshot of the customers we dealt with in 2017, and here you can see all the big brand names of the big pharma. These are very demanding, challenging customers, but once you have gained their trust, it is also very rewarding. They are global, they have factories all over the world, and here we have one of our strengths, I would say, with a very strong geographical coverage.
What is missing on this page are the Chinese customers, because China is today our fastest growing market. In the past, we used to supply these guys when they expanded into China, but today we do more and more business with domestic Chinese players. What we have seen now in the last couple of years is also that Chinese manufacturers are now investing abroad. So right now, we have a company called Wuxi Biologics, and we are working with them on a project in Ireland and also a project in United States. So this is a new trend, how the Chinese companies now go out and start competing with the multinationals. So I talked about biopharma, and this is what a manufacturing line looks like in a factory producing biotech drugs.
Here you can see there is a lot of steps, could be 10-20 different operations you do. Where we are focusing our business today, that is in the last step that you see to the left, which is called the filling line. That is where our offer goes today. But if you look at the different steps under the headline downstream, which means that is downstream the bioreactor, that is a sterile environment. There is a lot of transfer situations of liquids and powders between those steps where you need to keep it sterile. When you come then to the filling line, this is a typical filling line. A filling line can be placed either in a clean room, or it can be placed in an isolator that we see here.
The trend is now to go away from the clean room, and go to isolator technology. It has advantage because it's cheaper to operate, and it's more comfortable for the workers. Around the filling line, we have then our sterilizers and washers. Here, we are taking care of all material and components and tools that needs to go in and out of this sterilizer. When you want to go through that barrier, that wall, into the sterile environment, that is the tricky part. There we have our technology, which is called DPTE, and Getinge it is a world standard. It consists of a multiple use port that is mounted in the isolator. To that, you take then a bag.
This is called a BetaBag, and it has—this is a single-use product, and it has a flange here, and this one is made in Tyvek. It can be done in different material, could be polyethylene or polyurethane. Here, you put your components inside, and then you put this one into a sterilizer, and you sterilize so the inside gets sterile and all the components. Then you take it and.
28% of our COGS today comes from service, labor, and infrastructure behind our engineers. So I am convinced that service is a great pocket of COGS efficiency. I lived that myself in a country organization. We are working on the fundamentals to improve this. Carsten talked about this before, and it's obviously a main area of focus for us and for myself in the coming months. The first thing we do is we try to make our products more reliable, because when there is a breakdown under warranty, you go for free, both for the spare parts and for the labor. So obviously, if we want to make our service more efficient, we have to work on our products first.
The second thing we do is we work on the scheduling, and we work on what we call the first time fix. First time fix is a great indicator of how well we are able. It means, is your technician able to solve the problem now, or does he have to come back? If he has to come back, it means that either he's not well trained or he didn't have the right spare part. So we are working on both components, training and spare parts availability, to make sure that we are able to make this service network even more efficient in the future. I want to be clear on something. 65% of our revenue comes from equipment, 30% comes from service. So if we want to change the profitability, it has to be by working on these legacy businesses.
We need to be better at these core things we do historically, which we are very proud of, but this is where we have to do most of the efforts in order to reduce the gap. Then, of course, at the same time, we are investing in the long-term enablers like IT or consumable, that will be a well-appreciated new enabler of growth and profit. But I'm convinced that this is where, in these big bubbles in the middle, that we have to move the needle when it comes to closing the gap on profitability. We also want to make sure that what we do in the short term is not going to hinder our capacity to grow in the next years. So we go on focusing on the main elements that will be the ones important going forward. Innovation.
We want to remain at the forefront of innovation and be better performing than our competitors on the adaptation to market trends. Emerging markets, definitely this is not going away. I'm convinced that what we have one of the deepest commercial reach in emerging market, and we need to continue to leverage that. It's a great opportunity to distribute our products more globally. A lot of it is going to be a cost journey, as I told you before, working with discipline and ambition on cost management. And finally, we want to do all this by keeping the customer at the center of what we do. This might sound a little bit obvious, as well as Carsten was saying, but I want to make sure that we bring innovations that make sense, that have a business driven ambition.
We want to make sure as well that we are open to new business models. I think, risk sharing is going to be of growing importance in the next year. We already see that in some hospitals in the Netherlands or in Sweden, and probably as well, more consultancy approach when we sell capital goods. So when I step into this role, I have to say that I feel, confident because I see short-term actions that can move the needle as well as long-term enablers that are very healthy. Thank you very much for your attention.
Thank you, Stéphane. Really good presentation.
You got my name this time.
Yeah, I really, I studied hard. Sorry for that. Well, I mean, you have been in office now for a little bit more than one week. So what has been most surprising to you?
I would not use the word surprise. I think I know this company. I've been here for six years. I know the products. I know the teams. So for me, I wouldn't use the word surprise. I know this industry as well from my previous experiences, so of course, I need to sharpen my judgment on many things. I need to have a view at the global P&L, which was not the case until now, but I'm not surprised. I'm confident in the things that I found since one week.
Good, so yeah. Okay, one more question then. If you should single out one action that you would like to focus on, one thing only, what would that be?
It's a good question. After 1 week, I would say that my feeling is that the utmost important is going to be a long-term, consistent industrial strategy, which means where do we want to produce, where do we want to do research, where will be our suppliers going forward? I want to make sure that we take no shortcuts. We will have to work with high ambition in how we reduce the gap in the short term, but at the same time, I want to make sure that this industrial footprint will be very strong in 3, 5, 10 years going forward. So for me, the right balance between, I would say, immediate benefits and longer-term performance, this will be my prime area of focus in the coming year, in the coming months.
Sounds like a really good idea. Thank you again. So now we are going to meet a man who has been working in this company for more than 30 years. He has a background as an engineer in chemistry, and I would dare to say, actually, that there's nothing worth knowing when it comes to infection control and sterilization and Life Science that he doesn't know. You can try to ask him questions later on. Well, I'm proud to present the President of Life Science, Mr. Harald Kastler, up on stage. Welcome, Harald.
Thank you, Lars.
The stage is yours.
Thank you. Okay, Life Science. We are the new business area in Getinge. We only represent 10% of the business, so you could ask, why do they need to make a business area of such a small business? But the answer is that this is a business that has a completely different customer base, and it has a different regulatory environment. We are not under FDA, we are not in medical device regulatory framework, so it requires a slightly different strategy and structure. It's also a business with a fantastic growth opportunity. It will take a little bit longer, because that means some structural changes into our portfolio. We need to shift a little bit the mix in the portfolio to achieve the last few percent.
If we look into our different products, and then you can see the bubble up to the left, that is Sterile Transfer. That is a product growing 20% per year and with very high margins. So of course, here we want to maintain that position, continue to grow and continue to have high profitability, and to innovate more products around transferring sterile goods in and out of, of, isolators. Then we have washers and sterilizers. I don't think we will have much higher growth, but I think we will move those up on profitability. Isolators far to the right, or left from your side, that is a small business and, a business we are now really looking into, what we, what shall we do? Either we will, step out of that business or we will prune the portfolio.
But we definitely need to do something. It's low-growing business and low margin. The aftermarket, we have spoken about today, it consists actually of two parts for us. One is spare parts. We do a good, healthy margin on that. Then we have the service hours. And I would say in service hours, margins are low. We are addressing that with efficiency improvements, same type of improvements that Stéphane was talking about. But I think to lift it really further, we need to improve and increase the knowledge content in the service we provide. And I know there is a market for it, and customers are asking, but it will take a little bit longer time to deliver that. So what are then the key activities?
And when I say short term, I mean that these activities will start paying off. We will see result of this in 2019. So you can see for washers and sterilizers, we are ramping up our capacity. This year, we have been sold out quite early. For next year, we're ramping up capacity with 25 and 15 percent, and we have already now order in-house for more than half of next year. And at the same time, we are translating growth into profitability, and we have actions in place to drive down costs for washers and sterilizers in the range of 4%-5%. For the Beta Bag business, we are doing now a pilot where we're actually insourcing part of the job. So we are going to...
Today, we are buying this part, and the first flange here is already welded to the bag. We are gonna do that welding in-house. We will start with one quality, and that's 15% of the volume. We know that we can drive down cost if it gets the right attention, and it has now. So what are we doing? We are providing equipment and technical expertise to prevent contamination, and we do that in three areas: in pharmaceutical production, and medical device, we do it in the lab environment and in medical research. This is a business of approximately SEK 23 billion, and it grows about 3%-5% per year. So what product lines do we have in here?
We have sterilizers, and these machines are used for sterilizing either the final drug, or it's used for sterilizing tools and equipment used in the manufacturing process of drugs. We have cleaning machines. They are also used in the manufacturing process of drugs for cleaning tools and equipment used in the manufacturing process. Then we have something called isolators. And an isolator is a box in which you have a sterile environment. And inside there, you can then manufacture a sterile drug, or you can do quality testing, where you need an environment that is sterile and it doesn't contaminate your result. Then we have something called Sterile Transfer, and this is a technology used to transfer stuff in and out of the isolator.
This is a technology where we have a lot of patents, Getinge where Getinge is an industry standard, and I will come back later to that. So we have three customer segments, and the largest one is pharma production and medical device. This is 70% of our business. Here we have a strong position, 20% market share. Then we have lab, which is 20% of our business, and medical research, which is 10% of the business. We have a little bit weaker position there, but we are still a relevant supplier to these markets. In pharmaceutical production, which is our main focus, here we also have the highest growth. Here we have 6% on average. And within pharma production, there is one sub-segment called biomed, and biomed is the really fast-growing segment here.
Here we have double-digit growth, and this is a market that is really transforming the industry at the moment. So if we then look into our customer, this is a snapshot of the customers we dealt with in 2017, and here you can see all the big brand names of the big pharma. These are very demanding, challenging customers, but once you have gained their trust, it's also very rewarding. They are global. They have factories all over the world, and here we have one of our strengths, I would say, with a very strong geographical coverage. What is missing on this, 5%, if we do it in-house, but it will also give us advantage when it comes to inventory and to quality control.
And then when it comes to isolators, pruning the portfolio and focus on a few products where we are strong. So long-term focus, innovation together with customers. Remember the B. Braun case, we will continue working like that, be very close to the big pharma. Grow with the biopharma market, the fastest growing market, find more products like the Magic Beta Bag. This is also an area where we are focusing our efforts in merger acquisitions. Profitability through efficiency, this is mainly for sterilizers and washers, and you saw example of that on an earlier slide. And then we have the leverage of the after market, where I would say we don't have all actions in place there yet.
This is a bit of an untapped opportunity, but, we are gonna work on, on leverage our after market, position as well. So I think that was my last slide. Thank you for your attention.
Thank you, Harald. Thank you.
Thank you.
So, I mean, the sterile transfer, that certainly seems to be a golden nugget for you. How to expand, I mean, further down the road when it comes to that, downstream, upstream part that you presented here? You clearly stated here that we are looking into opportunities via. Yeah. What's the... I mean, how are things looking when it comes to that? Is it a fragmented market or... Yeah, elaborate, please.
We have, you could say in that market, there are some really big multinational competitors. Yeah. Here we have Sartorius, here we have Pall, Millipore, Thermo Fisher, big companies. Yeah. But there are also a lot of startup companies here, and there are also, businesses that belong to big conglomerates, where they could be one percent of their business. So there are definitely acquisition opportunities, but there is always a strong competition for them. Mm-hmm. So, it's also finding something with the right price, of course. But as I understand, you are scouting, as we speak. We are, we are regularly scouting in this area. Yeah. And of course, we are also working with our own, innovation efforts.
Yeah, that's for sure important to mention. Well, thank you, Harald, as always, good. And you can actually stay, because now the presentation is over. Now it's time for a Q&A session.
So our page are the Chinese customers, 'cause China is today our fastest growing market. And in the past, we used to supply these guys when they expanded into China, but today we do more and more business with domestic Chinese players. And what we have seen now in the last couple of years, is also that Chinese manufacturers are now investing abroad. So right now, we have a company called Wuxi Biologics, and we are working with them on a project in Ireland, and also a project in United States. So this is a new trend, how the Chinese companies now go out and start competing with the multinationals. So I talked about biopharma, and this is what a manufacturing line looks in a factory producing biotech drugs.
Here you can see there is a lot of steps, could be 10-20 different operations you do. Where we are focusing our business today, that is in the last step that you see to the left, which is called the filling line. That is where our offer goes today. If you look at the different steps under the headline downstream, which means that is downstream, the bioreactor, that is a sterile environment. There is a lot of transfer situations of liquids and powders between those steps where you need to keep it sterile. When you come then to the filling line, this is a typical filling line. A filling line can be placed either in a clean room, or it can be placed in an isolator that we see here.
The trend is now to go away from the clean room, and go to isolator technology. It has advantage because it's cheaper to operate, and it's more comfortable for the workers. Around the filling line, we have then our sterilizers and washers. Here we are taking care of all material and components and tools that needs to go in and out of this sterilizer. When you want to go through that barrier, that wall, into the sterile environment, that is the tricky part. There we have our technology, which is called DPTE, and Getinge, it is a world standard. It consists of a multiple-use port that is mounted in the isolator. To that, you take then a bag.
This is called a BetaBag, and it has—this is a single-use product, and it has a flange here, and this one is made in Tyvek. It can be done in different material, could be polyethylene or polyurethane. Here, you put your components inside, and then you put this one into a sterilizer, and you sterilize, so the inside gets sterile and all the components. Then you take it and-
For those businesses from a margin perspective, even under the old structure, the margins that you're highlighting for the peers, Getinge, it was at only a few years ago, this doesn't appear to be huge price pressure in these segments. So why are margins so low for these businesses today? Thanks.
Thank you.
I can, I can start then, and then we'll let Harald and Stéphane elaborate a little bit. But to your first question, I just want to outline, first of all, the bars in the gap, they're not to scale, they're illustrative, I think. So, if you don't, don't read too much into the length of the structural bar there. I think we are convinced, as I try to convey in my presentation as well, that we think most of the gap is addressable over time. The structural part, when it comes to vertical integration, for example, or a bigger portion of the business in the US, is the smaller part of this.
I'm not gonna go into provide more guidance and divide things up in buckets here. I think we can maybe elaborate a little bit by BA, but we don't wanna be put everything into detailed portions, to buckets here. But we can address, I think, the differences in business area profitability a little bit. We'll start with Surgical Workflows, and then.
No, I think it's a fair question, why this is such a low standard. The way I look at this, indeed, a couple of years ago, it was higher. So for me, the underlying growth potential of margin is not at 3%, is probably somehow higher. I think we also had some inorganic effects in the last months and years. So I hope reasonably soon, we'll be able to bridge that gap. And as Mattias was saying, I think the industrial component to it is probably where we can make the biggest improvements going forward.
When it comes to Life Science, I would say that this business suffered quite a lot during the reorganization we did a couple of years ago. Before that, we were roughly at 15% margin, and I think we can, we should be able to easily get back to that level. We lost attention, and you lose a few % immediately if you don't pay attention to a business. So I would say that getting back in shape, we have done it before. We lost attention to a business. We were almost nearly losing the business, if I would go back two years from now. There was no attention to it. New question. Hans Mähler?
Yes, thank you. Hans Mahler, Nordea. A question for Lena on, on the quality side. When, when you noted the gaps in quality six months before you had this inspection in Fairfield, how come you still get the Warning Letter? Isn't those systems in place to prevent just such things?
It actually takes some time to get those corrections up and running, that's the reason. And of course, we should also bear in mind that FDA is doing their sampling, so to say, and even if we have identified the gaps, we didn't have time to correct all the gaps. And even though FDA is writing those-
You connect it to the isolator and hook it on, and then you can transfer what's inside through the barrier without compromising the sterile integrity. These bags, they go for about SEK 2,000-SEK 3,000 each, and we manufacture about 200,000 per year. For every filling line where we install our Alpha port, we have a secure business of several million SEK per year. So it's a fantastic business. So that's we, we want to see, of course, more of. But not all drugs are... As I said, we have biopharma, which is about 20% of all drugs are made with biological ingredients, but the majority of drugs are still made from chemicals. When you have chemicals, what you do is that you then sterilize, in the end, the product in its final packaging. So here is a case.
This is B. Braun, and B. Braun is one of the largest manufacturers of intravenous solutions. This is a very simple type of drug, and low cost, and you have to manufacture it close to the market. So B. Braun, they would have 50, 60 plants around the globe. And also, freight cost is, of course, sensitive, but also manufacturing cost. B. Braun was not a customer to us three years ago. They came, and they asked what Getinge could do to reduce the energy consumption of a machine like this. We worked with them for one year, and we came up with a B. Braun standard, a new machine that was 40% less in energy consumption. Since then, we have delivered two machines to Germany, we have delivered one to Malaysia, and right now we are quoting one machine to United States.
So this is an example of how we work together with close customers, and we develop sort of standards with each of these global accounts. So how is then the business doing? So we can see here to the right, that when it comes to top line, it goes really well. In the first three months, our order intake is up more than 12%. Invoicing is up 5.5%, but you should then remember that it takes us normally 8-10 months from we receive an order until we deliver. So the strong order intake you see this year will pay off in invoicing next year. And of course, we are out-beating the market by far.
If you look at profitability, here we have a gap, and if we compare to our peers, we believe that 90% long term is where we could be. Today, we are at 12, there is a 7% difference. I would say the first half of that, we know how to do. This is about efficiency, and we have actions in place to deal with that. The second half will take a little bit longer, because that means some structural changes into our portfolio. We need to shift a little bit the mix in the portfolio to achieve the last few percent. If we look into our different products, and then you can see the bubble up to the left, that is Sterile Transfer. That is a product growing 20% per year and with very high margins.
So of course, here, we want to maintain that position, continue to grow, and continue to have high profitability, and to innovate more products around transferring sterile goods in and out of isolators. Then we have washers and sterilizers. I don't think we will have much higher growth, but I think we will move those up on profitability. Isolators far to the right, or left from your side, that is a small business and a business we are now really looking into. Whatever we do, either we will step out of that business or we will prune the portfolio, but we definitely need to do something. It's low-growing business and low margin. The after-market, we have spoken about, today. It consists actually of two parts for us. One is spare parts.
We do a good, healthy margin on that. Then we have the service hours. And I would say in service hours, margins are low. We are addressing that with efficiency improvements, same type of improvements that Stefan was talking about. But I think to lift it really further, we need to improve and increase the knowledge content in the service we provide. And I know there is a market for it, and customers are asking, but it will take a little bit longer time to deliver that. So what are then the key activities? And when I say short term, I mean that these activities will start paying off. We will see result of this in 2019. So you can see for washers and sterilizers, we are ramping up our capacity.
This year, we have been sold out quite early. For next year, we're ramping up capacity with 25% and 15%, and we have already now order in-house for more than half of next year. And at the same time, we are translating growth into profitability, and we have actions in place to drive down costs for washers and sterilizers in the range of 4%-5%. For the BetaBag business, we are doing now a pilot where we're actually insourcing part of the job. So we are going to... Today we are buying this part, and the first flange here is already welded to the bag. We are going to do that welding in-house, and we will start with one quality, and that's 15% of the volume.
We know that we can drive down cost 5% if we do it in-house, but it will also give us advantage when it comes to inventory and to quality control. Then when it comes to isolators, pruning the portfolio and focus on a few products where we are strong. So long-term focus, innovation together with customers. Remember the B. Braun case, we will continue working like that, be very close to the big pharma. Grow with the biopharma market, the fastest-growing market, find more products like the magic BetaBag. This is also an area where we are focusing our efforts in merger acquisitions. Profitability through efficiency. This is mainly for sterilizers and washers, and you saw example of that on an earlier slide.
And then we have the leverage of the after-market, where, I would say we don't have all actions in place there yet. This is a bit of an untapped opportunity, but, we are going to work on, on leverage our after-market, position as well. So I think that was my last slide. Thank you for your attention.
Thank you, Harald. Thank you.
Thank you.
So, I mean, the Sterile Transfer, that certainly seems to be a golden nugget for you . How to expand, I mean, further down the road when it comes to that, downstream, upstream part that you presented here? You clearly stated here that we are looking into opportunities via M&A .
Yeah.
What's the... I mean, how are things looking when it comes to that? Is it a fragmented market or, yeah, elaborate, please.
We have, you could say, in that market, there are some really big multinational competitors.
Yeah.
Here we have Sartorius, here we have Pall, Millipore, Thermo Fisher, big companies.
Yeah.
But there are also a lot of startup companies here, and there are also businesses that belong to big conglomerates, where they could be one percent of their business. So there are definitely acquisition opportunities, but there is always a strong competition for them.
It's also finding something with the right price, of course.
But as I understand, you are scouting, as we speak.
We are regularly scouting-
Yeah, yeah.
in this area.
Yeah.
And of course, we are also working with our own innovation efforts.
Yeah, that's for sure important to mention. Well, thank you, Harald, as always, good. And you can actually stay, because now the presentation- ... are over. Now it's time for a Q&A session, so I would kindly ask the presenters to come here up on stage, join us, too, and we will get some chance for you actually to ask questions. And I would kindly ask you to wait until you get the mic, and of course, but even more important, please state your name and where you come from. Great. So do we have the mics ready? Yeah, good. Good. So who will be the first one? Right. Annette? Who will-
Annette Lykke, Handelsbanken. My question to you would be, we have seen presentation of three interesting divisions, and for all the divisions, you are below margins compared to your peers. How come? Is this related to prices, products? Are you more into the low spec? Is it regional mix, or how would you explain such a, I would say, systemic deviation?
Relevant question. I would like to address that to you, Mattias, if that's okay.
Yeah. It's broad enough to not be possible to delegate this one.
Yeah, yeah. You made it easier for me, Agneta.
Yeah, I think it is. Pricing is the lesser factor in this. I think as Carsten has shown as well, we don't see any systematic price decline in any of our markets. It has more to do with, I think, the legacy structure that we come from. We do have... There's been a lack of methodical and structured work when working through the supply chain, and that's something that's impacted all our businesses in the structure that we have been. So that's why you see the same kind of pattern across the business. Then, of course, you have some areas, like in ACT with the remediation, where it's further reinforced the lack of competitiveness.
It comes mostly from, I would say, supply chain value chain inefficiencies, and that's why, because of our history, that's why you see it rather evenly spread across the board.
Next question, Scott Bardo, please.
Yeah, thanks very much. Scott Bardo from Berenberg. Yeah, I just want to come back to one of the first charts that you showed, Mattias, with respect to the gap on the gross margin and the gap on the operating level. And what was quite noticeable from my standpoint is what you're classifying as structural is broadly the same in gross margin and in operating margin, which seems a surprise to me, given this very intense remediation phase and costs running through the business. So perhaps can you explain a little bit how confident you are what is addressable margin for the company? And perhaps talk about some firm buckets, if you like, where you can see a margin step up for the organization.
Also, just following on from that, if possible, particularly like to pull in the surgical workflows and the Life Science businesses, just to understand where it went wrong for those businesses from a margin perspective. Even under the old structure, the margins that you're highlighting for the peers, Getinge, it was at only a few years ago, this doesn't appear to be huge price pressure in these segments. So why are margins so low for these businesses today? Thanks.
Tnk you.
I can start then, and then we'll let Harald and Stephan elaborate a little bit. But to your first question, I just want to outline first of all, the bars in the gap, they're not to scale, they're illustrative, I think. So, if you don't read too much into the length of the structural bar there. I think we are convinced, as I try to convey in my presentation as well, that we think most of the gap is addressable over time. The structural part, when it comes to vertical integration, for example, or a bigger portion of the business in the US, is the smaller part of this.
I'm not going to provide more guidance and divide things up in buckets here. I think we can maybe elaborate a little bit by BA, but we don't want to put everything into detailed portions into buckets here. But we can address, I think, the differences in business area profitability a little bit. We'll start with Surgical Workflows then.
No, I think it's a fair question, why this is such a low standard. The way I look at this, indeed, a couple of years ago, it was higher. So for me, the underlying growth potential of margin is not at 3%, it's probably somehow higher. I think we also had some inorganic effects in the last months and years. So I hope reasonably soon, we'll be able to bridge that gap. And as Mattias was saying, I think the industrial component to it is probably where we can make the biggest improvements going forward.
When it comes to Life Science, I would say that this business suffered quite a lot during the reorganization we did a couple of years ago. Before that, we were roughly at 15% margin, and I think we can, we should be able to easily get back to that level. We lost attention, and you lose a few % immediately if you don't pay attention to a business. So I would say that getting back in shape, we have done it before. We lost attention to a business. We were almost nearly losing the business, if I would go back two years from now. There was no attention to it. New question. Hans Mähler ?
Yes, thank you. Hans Meller, Nordea. A question for Lena on, on the quality side. When, when you noted the gaps in quality six months before you had this inspection in Fairfield, how come you still get the Warning Letter? Isn't those systems in place to prevent just such things?
It actually takes some time to get those corrections up and running, that's the reason. And of course, we should also bear in mind that FDA is doing their sampling, so to say, and even if we have identified the gaps, we didn't have time to correct all the gaps. And even though FDA is writing those findings, even if we are telling them that we are aware of them, that's the practice, I'll say, that they are doing that. So even if we were aware, we didn't have the time to correct them, because it was so close in time.
Yeah, but what, what I understand, though, also, if you have a plan in place, they could accept that, or was that the-
Not always. That's what I'm saying. Sometimes they do, and they were much more open to do that in the past. Nowadays, they don't look into that easily, so to say. It depends if it has been going on for six months, forever, for instance, then they could do it, but this is a little bit too close in time, and then it's the practice that they do it.
Okay, fair enough. Thank you.
Kristofer, next.
Yeah, thank you. Kristofer Liljberg from Carnegie. For Lars on the cash flow, when it comes to DSOs, is it possible to say how much of improvements is really doable there? And then on CapEx, I don't know if I got it correctly, but are you saying that CapEx in absolute terms could actually go down a little bit in coming years, or as a percentage of sales? Thank you.
Right. What I said on the DSO there, we are not splitting it up, but we see improvements in all areas, actually, both on the receivable sides and inventory side. Mainly accounts payable is not a big portion of this, but it's really on those. I think, Carsten, you can testify that you have really dedicated to work when it comes to inventories and accounts receivables, really tracking this and doing improvements to sharpen it. And it's not quick fixes here, it's really structural improvements that we do. So that is driving the improvement. And we're not giving guidance, but as I said there, we continue to see improvements coming through. That we is our belief. And when it comes to investment, I did not put it into relation to sales.
This was more on the absolute level here, saying that on R&D and machine equipment, R&D is rather stable, machine and equipment, here we are rather well invested. And when it comes to IT, I see we should be able to reduce this somewhat going forward, and giving that, the platform rollout that we have done now in the global sales area is more almost done when we come through in the spring here.
Good. David Adlington.
Hi, David Adlington, JPMorgan. Yeah, just so first, just, I'm just trying to square the circle here, because gross margins have fallen quite a lot over the last couple of years, and you've cited sort of deteriorating products and geographic mix. But then you're sort of talking towards that actually, the cost base is what needs to be fixed to improve the gross margins from here. So I just wondering if you could sort of put some further color around how I square that circle. And secondly-
If you are confident on the outlook for margins, just wondering why you decided not to give a hard target, both in terms of actual number and also time frame? Thanks. Thank you, Olaf.
When it comes to setting targets, it is clear that we want to deliver and work on the financial targets we have set. And having the history, we don't want to do that as for now. That was also part of the message when we invite you here, that we are not giving-
Findings, even if we are telling them that we are aware of them. That's the practice, I'll say, that they are doing that. So even if we were aware, we didn't have the time to correct them, because it was so close in time.
Yeah, but what, what I understand, though, also, if you have a plan in place, they could accept that, or was that the-
Not always. That's what I'm saying. Sometimes they do, and they were much more open to do that in the past. Nowadays, they don't look into that easily, so to say. It depends if it has been going on for six months, for instance, then they could do it, but this is a little bit too close in time, and then it's the practice that they do it.
Okay, fair enough. Thank you. Kristoffer, next.
Yeah, thank you. Kristoffer Lillberg from Carnegie. For Lars, on the cash flow, when it comes to DSOs, is it possible to say how much of improvements is really doable there? And then on CapEx, I don't know if I got it correctly, but are you saying that CapEx, in absolute terms, could actually go down a little bit in coming years, or as a percentage of sales? Thank you.
Right. What I said on the DSO there, we are not splitting it up, but we see improvements in all areas, actually, both on the receivable sides and inventory side. Mainly, accounts payable is not a big portion of this, but it's really on those. I think, Carsten, you can testify that you have really dedicated to work when it comes to inventories and accounts receivables, really tracking this and doing improvements to sharpen it. And it's not quick fixes here, it's really structural improvements that we do. So that is driving the improvement. And we're not giving guidance, but as I said there, we continue to see improvements coming through. That we is our belief. And when it comes to investment, I did not put it into relation to sales.
This was more on the absolute level here, saying that on R&D and machine equipment, R&D is rather stable. Machine and equipment, here we are rather well invested. When it comes to IT, I would say we should be able to reduce this somewhat going forward. Given that the platform rollout that we have done now in the global sales area is more almost done when we come through in the spring here.
Good. David Adlington.
Hi, David Adlington, JPMorgan. Yeah, just so first, just, I'm just trying to square the circle here, 'cause gross margins have fallen quite a lot over the last couple of years, and you've cited sort of deteriorating products and geographic mix. But then you're sort of talking towards that actually the cost base is what needs to be fixed to improve the gross margins from here. So I just wondering if you could sort of put some further color around how I square that circle? And secondly, if you are confident on the outlook for margins, just wondering why you decided not to give a hard target, both in terms of actual number and also time frame. Thanks.
Thank you, Olaf.
When it comes to setting targets, we have it is clear that we want to deliver and work on the financial targets we have set. Having the history, we don't want to do that as for now. That was also part of the message when we invite you here, that we are not giving financial targets or guidance on other levels than what we have now. When it comes to improvements...
Yeah.
I'm not sure exactly what type of color you were looking for for today. We've tried to provide. I think if we start with the mix bit, I think this is a fact of life. If you look at the market dynamic, there is higher growth rates in emerging markets than, for example, here in Europe. So I think we, as a player in this market, we can only adapt our way of working according to this. So that dynamic, I think, is important. And then we highlight again that we've grown. Now, the growth this year is more than two-thirds from emerging markets. We see the potential in the U.S., but we've had some changes this year.
We've had a change of management, change of ways of working and so on. We're going through a pilot now, testing a new sales model in the US as well. That obviously doesn't have any benefits this year, only cost. So we do think that will be a positive addition to the mix picture going forward, but most of the growth has been from emerging markets now. So I think in terms of comps, it will be less big a difference between quarters going forward. But the market dynamics is here to stay. There's no way around that at all.
Thank you. Hi, Edward Ridley-Day . First, for Jens, a couple of questions. You talked about new technology, but can you give some examples of where you see areas that you could buy into through early-stage technology, and/or adjunctive areas that you might want to invest in? That's my first question. And then secondly, I just want to check, in terms of the competitors you've highlighted-
There's no mention of Abiomed. Now, I know Abiomed is not an exact competitive product, but it has clearly had a major impact on the market. So can you tell us what you can do to stop their advance?
Thank you. Good question. So, first, when it comes to new technologies and sort of things to add, I mean, there's a lot of stuff we can do, and maybe I can combine that a little bit with Abiomed question. Of course, the Abiomed has done a tremendous job on the reimbursement side. I mean, hospitals get really, really well paid for what it is. I also actually find that technology highly invasive. I do also think that that's actually one of the key areas for us in the future. Yes, we have the balloon pumping technology. That's a 40-year-old concept. However, it is much less invasive than Abiomed, meaning that it actually provides a pretty secure platform for a lot of patients.
On the other hand, there is also a lot of attention to the PVAD segment, and there are technologies being developed in other places. So there is still some room sort of in the IP landscape to come into that market, so that's obviously a focus. Another area that we are looking very actively at is, and one thing that irritates me a little bit is that for most of our capital devices, we do have great sort of razor-blade models. For example, the PulseCath technology and hemodynamic monitoring is a great example of that. But today, we by far have the largest installed base of ICU ventilators across the world, but we do not have the razor blade, truly.
So anything that would sort of be a high-value consumable, not the sort of commoditized stuff, but a high-value consumable that could go onto that installed base, perhaps with a new software, would be something that we would be very interested in.
Thank you. That's helpful. And, Mattias, just a quick follow-up then. I mean, are there parts of acute care, I mean, are -- is Getinge the right owner of all of those products? I mean, there are some areas where you're competing with very well-funded competitors, for example in grafts and covered stents. Is it really -- are those really areas which you need to be in, given the, some of the initiatives you're having in other areas of acute care and in the other businesses?
Yeah, I think we are a good owner of the products that we have today. I think what you're probably getting at is some of the implants portfolio, where we're up against a different type of competitive dynamic than the other, the rest of the portfolio. And like Jens touched on in his presentation, we believe that we have a viable niche strategy for this segment still. It's also a business that is affected by the Consent Decree and all the complications that come with that. But if there's one area that you could maybe question whether we're the best owner for the future, it would probably be that. But we do believe still that it's a sustainable niche strategy from where we stand today.
Thank you.
Rickard Koch, next.
Rickard Koch, SEB. There's been a number of unfortunate issues in the past few years, and how, how confident are you, how confident can we be that there won't be a, a new outbreak of new issues coming up, wiping out lots of profits?
It's you need to be, of course, have respect a little bit for the history here. But we honestly don't see anything else around the corner that could pop up and become a material problem for us. But of course, we are humbled by the history with FDA, with the compliance in Brazil, and most recently, mesh. But we for sure don't see anything that kind of red flag on the horizon today.
So the assessments that you've been doing haven't led up to anything else but the incident that you reported that you found already?
Yeah, that's true. I mean, when there's something material that we would find, we would communicate that. It's the same thing as with the FDA and quality. Having said that, of course, in the normal course of business, as we work through with compliance and everything, it's normal that things pop up, but we deal with this in a structured way. And I think one key thing for us, and it comes back again to the changing culture that is absolutely necessary, is that we need to now really act early when things pop up. We need to fix the root cause here.
There's been a little bit of a you can find examples where things have been kind of pushed under the carpet for a while, hoping that it will go away, and it, it never really does, you know. So, we need to make sure that things are dealt with in an early phase, then they don't become material.
Anette?
Question for Lars on the cash flow. Can you confirm that the outcash from these unfortunate events, mesh, Brazil, FDA, is going to be in the region of SEK 500-600 million per year, the next three years, in terms of payments of different kinds?
When it comes to the Brazil, we hope to have more done this year or maybe a little bit early into next year. When it comes to the mesh, we have not given any guidance on payments, et cetera. What we have said is that we have now, in the provision, a significant part is connected to the legal costs.
And then the remaining part then connected to, settlement, that kind of activity. There we see that the cases will come through, so say the system, when we come into late 2019 or into 2020 rather than now. So that's when we, that's why. So then you have to draw the conclusions from that. But as I said, we try to keep this communication around the mesh very tight, because we don't want to open up for speculation from any other parties in this, that we are confronting in this.
But you can confirm that over the next couple of, maybe three years, you have payments of around SEK 2.4 billion to be made?
Well, the provision we have set is to cover to get us through the process. And if it rather I would say 3, 3 years than 2 years, 3 years, and then maybe a little bit longer as well when it comes to the mesh.
Okay, and then a follow-up question to Mattias. Can you maybe share with us how you see the difference between the mesh situation you are within hernia, compared to the mesh situations within pelvic, where you had like 100,000+ cases to be solved? And the number of procedures done are not that different in the two areas of hernia and pelvic mesh surgeries. But can you say why you think this will only be 900 cases?
Well, we've never said that it will only be 900 cases. We've disclosed that we had 900 cases right now. That's the only information that we have communicated. And I will not elaborate on any more details on how we've arrived at this estimate, other than that we've had our own internal investigation. We've used a couple of external professional sources to arrive at this number as well. And the other thing that I would say is that it's a very big difference between the pelvic cases and the hernia cases here. And that's one of the reasons why it's now a rather complicated evaluation process that we need to go through. But more than that, we will not elaborate on when it comes to mesh.
Sten Gustafsson, please.
Yes, Sten Gustafsson from ABG. It takes me a little bit this, but for most of our capital devices, we do have great sort of razor-blade models. For example, the PulseCath technology and hemodynamic monitoring is a great example of that. But today, we by far have the largest installed base of ICU ventilators across the world, but we do not have the razor-blade, truly. So anything that would sort of be a high-value consumable, not the sort of the commoditized stuff, but a high-value consumable that could go onto that installed base, perhaps with a new software, would be something that we would be very interested in. Thank you. That's helpful. J ust a quick follow-up then. I mean, are there parts of acute care, I mean, is getting to the right owner of all of those products? I mean, there are some areas where you are competing with very well-funded competitors, for example in grafts and covered stents. Is it really—are those really areas which you need to be in, given the, some of the initiatives you're having in other areas of acute care and in the other businesses?
Yeah, I think we are a good owner of the products that we have today. I think what you're probably getting at is some of the implants portfolio, where we're up against a different type of competitive dynamic than the other, the rest of the portfolio. And like Jens touched on in his presentation, we believe that we have a viable niche strategy for this segment still. It's also a business that is affected by the Consent Decree and all the complications that come with that. But if there's one area that you could maybe question whether we're the best owner for the future, it would probably be that. We do believe still that it's a sustainable niche strategy from where we stand today.
Thank you.
Rickard Koch, next.
Rickard Koch, SEB. There's been a number of unfortunate issues in the past few years, and how, how confident are you, how confident can we be that there won't be a, a new outbreak of new issues coming up, wiping out lots of profits?
You need to be, of course, to have respect a little bit for the, for the history here, but we honestly don't see anything else around the corner that could pop up and become a material problem for us. But of course, we are humbled by the history with FDA, with the compliance in Brazil, and most recently, with mesh. But we for sure don't see anything that kind of red flag on the horizon today.
So the assessments that you've been doing haven't led up to anything else but the incident that you reported, that you found already?
Yeah, that's true. I mean, when there's something material that we would find, we would communicate that. It's the same thing as with the FDA and quality. Having said that, of course, in the normal course of business, as we work through with compliance and everything, it's normal that things pop up, but we deal with this in a structured way. And I think one key thing for us, and it comes back again to the changing culture that is absolutely necessary, is that we need to now really act early when things pop up. We need to fix the root cause here. There's been a little bit of a... You can find examples where things have been kind of questions, first to Mattias and Lars maybe.
Could you elaborate a little bit on?
C osts for closing the margin gap? And I'm thinking about moving production, closing down facilities, and what the footprint would look like, sort of, in an ideal world for you to close the gap. If you could elaborate on that, that would be great. And then I have some questions for Jens and Stefan, but we can start with that one.
Okay. Well, if I start then, the footprint as such, we're not gonna give any kind of future vision of what an ideal state looks like. We've gone through the exercise as part of our strategy. We've communicated the decisions that we made related to ACT now. There is some analysis done in surgical workflows, but I think it's fair to give Stefan two weeks maybe on the job before we provide more a granular picture here. And we will not communicate it until decisions are made. So I'm not gonna give you a vision of what an ideal structure will look like.
When it comes to the costs for this, I mean, we do them because they make business sense from a financial perspective. There is, of course, some restructuring costs associated with moving production and so on, and this will show up as restructuring costs in our P&L as well. But we don't guide on what this will be, and we don't guide on what the savings will be either for these closures. But they make good business sense financially. That's really the main message here.
Okay, thank you. If I may, then, on a question to Jens. Could you share with us the exposure to this open heart surgery over the total ACT business, and where you see the growth in developing? It seems to be more in emerging markets and how that will impact your sort of performance going forward, both in terms of growth rates and margins, if you can help with that.
It would be very hard for me to sort of model that, because as you saw, we have a very broad product range. And I also think that the mid and low income segments are a little bit broader than just emerging markets as well. But of course, in general, the prices in those markets are slightly lower. And as you saw, we're trying to do a number of different sort of actions on our cost base to be able to sort of match that. It's not gonna work in all areas, because there are some very big cost or price differences in some areas, but we can certainly get a long way towards that.
But you still think you can, by driving growth in emerging markets, improve margins overall?
For CABG, by driving, no, I would say sustaining margins on that piece.
Okay. And how, how much of the, of the ACT business is this? Maybe it was in the presentation.
No, it wasn't, because we really, as you saw, when you look at that flow through CABG, through the hospital, it basically involves all of the different units. I don't have a perfect number on that.
Okay, thank you.
Thanks.
Finally, to Stefan. It seems like the low temperature business is growing faster, if I understand correctly. Could you share with us sort of your exposure to that segment of the market?
Yeah, as I said, we have made investments here a couple of years ago on acquiring a company called Stericool in Turkey, and they are providing a very, very good and affordable solution to capture the growth of this market. So I think with that product, we have the ability as well as the sales reach in order to grow this in number of units very significantly in the coming years. We have a competitive market where we believe we have room to grow. We have competitors that have been there for a while, but with this new product, we believe that we do have the capacity to enter this market with a nice price point.
Okay, but of your business today, how much is sort of low temperature?
No, it remains, I would say, marginal out of the complete.
Okay.
the complete revenue.
Okay.
But I think it will grow as a share of our revenue. Sure.
Thank you.
Yeah, thanks for the follow-up. Yeah, so just a few questions related to the outlook or frame of direction for the company. I just wonder if you could sort of comment a little bit as to the merits of still providing a reported earnings growth target, when this year you have SEK 2.2 billion in provisions, and then you outline again restructuring costs for some of these initiatives. So can you talk a little bit to that? Also, question for Lars, please. If I understood you correctly, and we're actually gonna perhaps get less guidance from you than more guidance from you, certainly with respect to transactional impact. I'm not sure I understood really the reason this year, probably impacts profitability to 7% or so, so relatively material.
Can you perhaps go a little bit more detail here and share some views as to where you've hedged at least, and how we should expect next year? Following on, please, Mattias, I think you discussed in the past or shared a view in the past, that clearly a focus on growth this year, now a focus on improving efficiencies, and that you should start to expect margins for the group to start to improve as of 2019. You're now describing 2019 as an implementation year, so I'm just trying to understand if there's any backpedaling from a view that the business should be in some sort of progressive form next year. Thank you.
Thank you. All right, thanks, Scott. You asked so many questions, it's difficult to remember the first one. So I'll start with the last one, and there's no backpedaling at all. When it comes to the implementation, it's more about the momentum of improvement. I would describe it as that you can expect better momentum in 2020 and onwards. So 2019 is for sure an implementation year. We will have things to implement in 2020, 2021 as well. So from that perspective, every year is likely to be some kind of implementation year. So there's no backpedaling. We expect improvements also next year, but a better momentum in the future years.
When it comes to your first questions about the EPS target, this was always meant to be a medium to long-term target, and it's meant to illustrate the desire to continuously improve in productivity, more than just what's driven by the top line. So therefore, we don't see any need to change this. There's not been any discussion in the board to rethink the financial targets as such. And I think the middle one I'll leave to Lars.
Thank you. Also, you mentioned there on restructuring. I think the level we have had historically is around SEK 200 million, and we don't see that to change dramatically going forward either here. Then there can be different quarters and different movements between years, somewhat, et cetera, but that is where we are. And then when it comes to the guidance there on the transaction exposure, I mean, the reason why is because we started the year at SEK 100 million, and now we're up to SEK 200 million, and it's a consequence of what we have been doing. When it comes to hedging, the flows are changing, et cetera, and we are more and more. Historically, maybe we were more tying up the full year, and then we were fully hedged, and then that was it.
So then it was easier to give this kind of guidance. But today, we are continuously looking at our flows, what kind of levels of hedging we would like to apply, depending on, different parameters. Therefore, this number will change. So the guidance we would give you, so let's say, for next year would not be relevant next month, and that's not good as an information, I think. So that's why we will not do it.
Direction is positive next year, but we don't know where you hedge, so-
No, I think, let me. We are not there yet, as I said. Where we are now, yes, it could be, but it depends on the flows as well. You saw the board, we tried to show you the range here. There are very big variations, hitting us, depending on the flows.
Thank you.
Peter Östling, please.
Thank you, Peter Östling, Pareto Securities. Just a quick question. There was a mention during the presentation regarding quality and the implementation of the Medical Device Directive, that there were some opportunities to prune the portfolio. Could you put some numbers around that, please? Thank you.
I think, again, the short answer is probably no, but it is a significant tail of products, though. And we've gone through this exercise end of last year, and it's for sure more than 10%, and it's less than 30. So it is in that span; it varies. And this affects not Life Science as such. It affects ACT and Surgical Workflows, really. But it is in that range, but it's also... We have a first analysis. We believe we know what it needs to do, but we also know that when you start implementing things, you may have to reconsider and so on.
So I think the way you should think about this is that there will be some pruning of the portfolio that will not have an impact on top line, because it's mostly removing variants of products that we already can cover with other products. And it's mostly also work that we believe will help productivity in the company, because there is less record keeping, there is less maintenance cost related to keeping a product range, really. So, but in the range of 10%-30%, to give you something broad, at least.
I have just a quick follow-up.
Okay.
On the product assortment. How much of your total product portfolio is local, and how much is sold globally?
Oh, that I don't even know, but I can let the BA heads have a stab at this, or?
Yeah, I can start. Oh, I'm actually on here. Great. You can keep the mic. I would say it's almost, in ACT, it's almost nothing that's sold locally. It doesn't really... These are expensive products to develop. There are, in very few cases, we could finance a product by just going locally with it.
Okay, so this tail pruning affects the global product portfolio more or less?
Yes, in ACT's case, absolutely.
Okay. Thank you.
Should we go for Oliver first, and then you, David?
Oliver Reimer from Berenberg. Three questions of me. You talked about the different growth initiatives for the business areas. I mean, I understand that you don't want to give precise, quantified guidance, but can you at least give us a kind of ranking in terms of which business area do you expect to grow stronger than the others? Because obviously, that plays quite a significant role for the margin mix effect. Secondly, when do you expect to be in a position to provide more financial targets? Is that something that we expect, can we expect for 2019, or is it rather too early? And then third question on the intra-aortic balloon pump. There was obviously some kind of regulatory news on it.
I understand most of that may not have a direct impact, but can you still reassure us in terms of talking about what is the short- and mid-term growth potential for the product portfolio? Thanks very much.
Thank you. Okay, I'm back online. We've decided to not give more breakdown than what we showed today. You can see that the growth rates of our different BAs are roughly similar on average for ACT and for Surgical Workflows. It's a little bit higher if you look at it from a potential perspective and also in actions for Life Science. But there will be swings between quarters here as well, and that's just the nature of our business. So we don't really separate and have in our plans that ACT or SW will outgrow the other.
When you look at the improvement potential, you can see there's obviously a little bit more work for Stefan to do when it comes to operational efficiency, so he has a bigger, bigger gap to close there in ACT. But growth-wise, they have on average the same market growth rates, and there's no reason to believe that over time, this will differentiate significantly. The balloon pump question, I will give to Jens.
Oh, good. So in terms of, First of all, I don't think we should guide in detail on growth in balloon pumps, because that's very detailed. But what I can tell you, and I think we talked about it in the break as well or before this started, there is a... For balloon pumps, it's really about replacement cycles. It's, and I would say growth in emerging markets. So it's really about how you replace old fleets of balloon pumps. And there is a certain sort of seasonality in that growth. And then, of course, with that follows new types of, or more or less buys of balloons to come with them.
So it's probably more, since we own a very big share of that total global market. It's more of a seasonality. For example, as an example, in the U.S., we have probably by now replaced most of the old balloon pumps. Now we've seen sort of that market a little bit saturated, and it's coming down. But then people tend to use newer devices more, so we see a little bit of an upside in the disposable balloons.
Okay. This is something I got asked in the break as well. So in terms of guidance now, we keep the targets that we have, as Lars mentioned in his presentation. We haven't ruled out that we will provide additional guidance in future years, but we don't. We're not in a position to make any promises on this today. We were hoping that the session that we've had and gone through today was gonna be additional color on what you already know, but there will be no new financial targets for 2019. But we haven't ruled out looking at this for future years. But this is a board discussion as well, not just a management team discussion.
David, are you still interested? Yep.
Yeah, just a couple of follow-ups. So just on the EU Medical Device Directive, just in terms of costs associated with that and how you're going to recognize those. And then secondly, just in terms of any impact of tariffs. I know a couple of your competitors have talked about the potential impact of tariffs and how they're looking to mitigate those.
I can start with the MDR cost. We may want to come back on how actually this will... What is R&D and what is OpEx and so on. But what we've said, though, in terms of the overall cost for this, it will mainly be done with internal resources. So you shouldn't expect a restructuring cost or a peak in 2019 or 2020 to deal with this. We have some additional costs, but they've been there also for a while, and they will continue as we work through the portfolio. When it comes to tariffs, really, we don't have a significant impact the way the sanctions or trade war is developing at the moment.
We have rather small flows here. So we've done a preliminary analysis, and the way it looks at the moment, it's immaterial impact, but it's very difficult to say where, which way this would go and what the impact will be, so.
Scott, again? Yeah, you got to take the chance when you get it.
Yeah, thanks very much. Yeah, I just want to talk a little bit about, obviously, the challenges that the organization have had from a remediation perspective and the extensive resource that you put into that. Interested about this comment of your R&D staff being involved in some of this process. So can you give us a feeling for is there now a bolus of money or resource now going into R&D, and what sort of timeframe would we expect the fruits of that to come through? So that's the first question. I have another question, again, just as to the vision. I really do appreciate you putting out and identifying the differences between your competitors. Does that mean that the management board is now incentivized towards closing those gaps?
Questions, first to Mattias and Lars maybe. Could you elaborate a little bit on the costs for closing the margin gap? And I'm thinking about moving production, closing down facilities, and what the footprint would look like, sort of, in an ideal world for you to close the gap. If you could elaborate on that, that would be great. And then I have some questions for Jens and Stéphane, but we can start with that one.
Okay. Well, if I start then, the footprint as such, we're not gonna give any kind of future vision of what an ideal state looks like. We've gone through the exercise as part of our strategy. We've communicated the decisions that we made related to ACT now. There is some analysis done in Surgical Workflows, but I think it's fair to give Stéphane 2 weeks maybe on the job before we provide more granular picture here and we will not communicate it until decisions are made. So I'm not going to give you a vision of what an ideal structure will look like.
When it comes to the costs for this, I mean, we do them because they make business sense from a financial perspective. Of course, there is some restructuring costs associated with moving production and so on, and this will show up as restructuring costs in our P&L as well. But we don't guide on what this will be, and we don't guide on what the savings will be either for these closures. But they make good business sense financially. That's really the main message here.
Okay, thank you. If I may, then, on a question to Jens. Could you share with us the exposure to this open heart surgery over the total ACT business? And where you see the growth in developing. It seems to be more in emerging markets, and how that will impact your sort of performance going forward, both in terms of growth rates and margins, if you can help us there.
It would be very hard for me to sort of model that, because as you saw, we have a very broad product range. I also think that the mid and low income segments are a little bit broader than just emerging markets as well. But of course, in general, the prices in those markets are slightly lower. And as you saw, we're trying to do a number of different sort of actions on our cost base to be able to sort of match that. It's not going to work in all areas, because there are some very big cost or price differences in some areas, but we can certainly get a long way towards that.
But you still think you can, by driving growth in emerging markets, improve margins overall?
For CABG, by driving, no, I would say sustaining margins on that piece.
Okay. And how much of the ACT business is this? Maybe it was in the presentation.
No, it wasn't, because we really, as you saw, when you look at that flow through CABG, through the hospital, it basically involves all of the different units. So I don't have a perfect number on that.
Okay, thank you.
Thanks.
Finally, to Stefan. It seems like the low temperature business is growing.
That is a little bit what I see when I try to. If that gives you a little bit help. Given the improvements we see in profitability, fueled with the revenue growth, but also the performance activities we do. Then, of course, the tight grip on working capital and investments there. So that is then giving this.
Sorry, the definition of that is the EBITDA over operating cash flow?
Yes.
Great. So we have time for one more question with respect to time. So, well, you win there.
Follow-up question. When you talk about pruning the portfolio, are you talking about selling assets or just closing it down?
It's a little bit of both, but it's more discontinuation than selling.
I mean, I'm thinking about cost absorption here. So if you take out a large share of your sales, it will have a negative impact.
No, no, no, that's not the way to think about it. We don't take away a large share of the sales. The pruning that we're talking about is really removing variants that can be replaced by other parts in the portfolio. So for example, respond to a tender. We don't need all the kinds of variants or products we have to do that. We can fill them with other already existing products. So when we went through the portfolio review and made this analysis, we can really see that we can discontinue between 10% and 30% of the sellable products, if you like, without hurting the top line. So it's. There's no issue with cost absorption here. It is complexity reduction, and it'll be better for productivity.
Okay. With the verification. Great. So that was the last question, and then it's over. And we are really happy to have been you, having you here, and we would like to say a big thank you to you all. And also, I would like to say a big thank you to everyone who has participated in making this happen. So the communications team, the financial team inside Getinge, the team in place, the tech guys, the movie guys, and of course, the executive team. So okay, thank you, and see you.
... faster, if I understand correctly. Could you share with us sort of your exposure to that segment of the market?
Yeah, as I said, we have made investments here a couple of years ago on acquiring a company called SteriCool in Turkey, and they are providing a very, very good and affordable solution to capture the growth of this market. So I think with that product, we have the ability as well as the sales reach in order to grow this in number of units very significantly in the coming years. We have a competitive market where we believe we have room to grow. We have competitors that have been there for a while, but with this new product, we believe that we do have the capacity to enter this market with a nice price point.
Okay, but of your business today, how much is sort of low temperature?
No, it remains, I would say, marginal out of the complete revenue.
But I think it will grow as a share of our revenue. Sure.
Thank you.
Thanks for the follow-up. Yeah, so just a few questions related to the outlook or frame of direction for the company. I just wonder if you could sort of comment a little bit as to the merits of still providing a reported earnings growth target when this year you have SEK 2.2 billion in provisions, and then you outline again restructuring costs for some of these initiatives. So can you talk a little bit to that? Also, question for Lars, please. If I understood you correctly, and we're actually gonna perhaps get less guidance from you than more guidance from you, certainly with respect to transactional impact. I'm not sure I understood really the reason this year probably impacts profitability to 7% or so, so relatively material.
Can you perhaps go a little bit more detail here and share some views as to where you've hedged at least and how we should expect next year? Following on, please, Mattias, I think you discussed in the past or shared a view in the past that clearly a focus on growth this year, now a focus on improving efficiencies, and that you should start to expect margins for the group to start to improve as of 2019. You're now describing 2019 as an implementation year, so I'm just trying to understand if there's any backpedaling from a view that the business should be in some sort of progressive form next year. Thank you.
Thank you.
All right, thanks, Scott. You asked so many questions, it's difficult to remember the first one, so I'll start with the last one, and there's no backpedaling at all. When it comes to the implementation, it's more about the momentum of improvement. I would describe it as that you can expect better momentum in 2020 and onwards, I think. So 2019 is for sure an implementation year. We will have things to implement in 2020, 2021, as well, so from that perspective, every year is likely to be some kind of implementation year. So there's no backpedaling. We expect improvements also next year, but a better momentum in the future years.
When it comes to your first questions about the EPS target, this was always meant to be a medium to long-term target, and it's meant to illustrate the desire to continuously improve in productivity more than just what's driven by the top line. So therefore, we don't see any need to change this. There's not been any discussion in the board to rethink the financial targets as such. And I think the middle one I'll leave to Lars then.
Thank you. I just... Also, you mentioned there on, restructuring. I think the level we have had historically is around SEK 200 million, and we don't see that to change, dramatically going forward either here. So just... Then there can be different quarters and different, movements between years somewhat, et cetera, but that is where we are. And then when it comes to the, the guidance there on, on the transaction exposure, the reason why is because we started the year at SEK 100, and now we're up to SEK 200, and it's a consequence of what we have been doing. When it comes to hedging, the flows are changing, et cetera, and we are more and more... Historically, maybe we were more tying up the full year, and then we were fully hedged, and then that was it.
So then it was easier to give this kind of guidance. But today, we are continuously looking at our flows, what kind of levels of hedging we would like to apply, depending on, different parameters. Therefore, this number will change. So the guidance we would give you, let's say, for next year would not be relevant next month, and that's not good as an information, I think. So that's why we will not do it.
The direction is equal to next year, and we don't know when you hedge, so-
Mm-hmm. No, I think, let me... We are not there yet, as I said. Where we are now, yes, it could be, but it depends on the flows as well. You saw the board, we tried to show you the range here. There are very big variations hitting us, depending on the flows.
Thank you.
Peter Östling, please.
Thank you, Peter Östling, Pareto Securities. Just, a quick question. There was a mention during the presentation regarding quality and the implementation of the Medical Device Directive, that there were some opportunities to prune the portfolio. Could you put some numbers around that, please? Thank you.
I think, again, the short answer is probably no. It is a significant tail of products, though, and we've gone through this exercise end of last year, and it's for sure more than 10%, and it's less than 30%. So it's in that span, it varies, and this affects not Life Sciences as such, it affects ACT and surgical workflows, really. But it is in that range, but it's also... We have a first analysis. We believe we know what it needs to do, but we also know that when you start implementing things, you may have to reconsider and so on.
So I think the way you should think about this is that there will be some pruning of the portfolio that will not have any impact on top line, because it's mostly removing variants of products that we already can cover with other products. And it's mostly also work that we believe will help productivity in the company, because there is less record keeping, there is less maintenance cost related to keeping a product range, really. But in the range of 10%-30%, to give you something broad at least.
May I have just a quick follow-up?
Okay.
On the product assortment? How much of your total product portfolio is local, and how much is sold globally?
Oh, that I don't even know, but I can let the BA heads have a stab at this, or?
Yeah, I can start. Oh, I'm actually on here. Great, you can keep the mic. I would say it's almost, in ACT, it's almost nothing that's sold locally. It doesn't really... These are expensive products to develop.
T here are in very few cases we could finance a product by just going locally with it.
Okay, so this tail pruning affects the global product portfolio more or less?
Yes, in ACT's case, absolutely.
Okay. Thank you.
Should we go for Oliver first, and then you, David?
Oliver Reinberg from Kepler Cheuvreux . Three questions from me. You talked about the different growth initiatives for the business areas. I mean, I understand that you don't want to give precise quantified guidance, but can you at least give us in terms of kind of ranking in terms of which business area do you expect to grow stronger than the others? Because obviously, that plays quite a significant role for the margin mix effect. Secondly, when do you expect to be in a position to provide more financial targets? Is that something that we expect, can we expect for 2019, or is it rather too early? And then third question on the intra-aortic balloon pump. There was obviously some kind of regulatory news on it.
I understand most of that may not have a direct impact, but can you still reassure us in terms of talking about what is the short- and mid-term growth potential for the product portfolio? Thanks so much.
Thank you.
Yeah, okay, I'm back online. We've decided to not give more breakdown than what we showed today. You can see that the growth rates of our different BAs are roughly similar on average for ACT and for surgical workflows. It's a little bit higher if you look at it from a potential perspective and also in actions for Life Science. But there will be swings between quarters here as well, and that's just the nature of our business. So we don't really separate and have in our plans that ACT or SW will outgrow the other.
Then when you look at the improvement potential, you can see there's obviously a little bit more work for Stefan to do when it comes to operational efficiencies, so he has a bigger gap to close there in ACT. But growth-wise, they have on average the same market growth rates, and there's no reason to believe that over time, this will differentiate significantly. And the balloon pump question I will give to Jens.
Oh, good. So in terms of first of all, I don't think we should guide in detail on growth in balloon pumps, because that's very detailed. But what I can tell you, and I think we talked about it in the break as well, or before this started, there is, for balloon pumps, it's really about replacement cycles. It's. And I would say growth in emerging markets. So it's really about how you replace old fleets of balloon pumps. And there is a certain sort of seasonality in that growth. And then, of course, with that follows new types of, or more or less buys of balloons to come with them.
So it's probably more, since we own a very big share of that total global market, it's more of a seasonality, for we have, for example, as an example, in the U.S., we have probably by now replaced most of the old balloon pumps. And now we've seen sort of that market a little bit saturated, and it's coming down. But then people tend to use newer devices more, so we see a little bit of an upside in the, in the disposable balloons.
Okay. This is something I got asked in the break as well. So in terms of of guidance now, we keep the targets that we have, as Lars mentioned in his presentation. We haven't ruled out that we will provide additional guidance in future years, but we don't--we're not in a position to make any promises on this today. We were hoping that the session that we've had and gone through today was gonna be additional color on what you already know, but there will be no new financial targets for 2019. But we haven't ruled out looking at this for future years. But this is a board discussion as well, not just a management team discussion.
David, are you still interested?
Yep. Yep.
Yeah, just a couple of follow-ups. So just on the EU Medical Device Directive, just in terms of the costs associated with that and how you're going to recognize those. And then secondly, just in terms of any impact of tariffs. I know a couple of your competitors have talked about the potential impact of tariffs and how they're looking to mitigate those.
I can start with the MDR cost. We may wanna come back on how actually this will... What is R&D and what is OpEx and so on. But what we've said, though, in terms of the overall cost for this, it will mainly be done with internal resources. So you shouldn't expect a restructuring cost or a peak in 2019 or 2020 to deal with this. We have some additional costs, but they've been there also for a while, and they will continue as we work through the portfolio. When it comes to tariffs, really, we don't have a significant impact the way the sanctions or trade war is developing at the moment.
We have rather small flows here. So we've done a preliminary analysis, and the way it looks at the moment, it's immaterial impact, but it's very difficult to say where, which way this would go and what the impact will be, so.
Scott, again? Little bit closer. Yeah, you, you gotta take the chance when you get it.
Yeah, thanks very much. Yeah, I just want to talk a little bit about obviously, the challenges that the organization have had from a remediation perspective and the extensive resources that you put into that. Interested about this comment of your R&D staff being involved in some of this process. So can you give us a feeling for is there now a bolus of money or resource now going into R&D, and what sort of time frame would we expect the fruits of that to come through? So that's the first question. I have another question, again, just as to the vision. I really do appreciate you putting out and identifying the differences between your competitors.
Does that mean that the management board is now incentivized towards closing those gaps, or is it still related to this sort of 10% reported number?
I can start with the last bit, and then I think it's maybe better that I... I've answered this R&D remediation question a number of times, and I think maybe Lena or Jens can provide a bit more detail on how this this works. But if I start with the incentive bit, then the EPS bit was always only a part of an incentive program. We have in the group we have a long-term incentive programs that runs over three years, which is based on partly EPS and partly on growth. There is the short-term incentive program, which is an annual program as well, which is not EPS related.
It is based on sales growth, it's based on working capital targets, and it's based on EBITDA or pre-tax profit, depending on where you are in the organization. And there's no change for that. So it's actually not as big a portion as you may think, that is measured on EPS. On remediation R&D cost, we let Jens answer. I think your mic still works.
Yeah, so I'm probably—It's mainly in my organization. And what I can say is that, of course, it has a bit of an impact, but we did a very good job as that we had the Consent Decree. We managed to actually package most of the R&D projects where they were. Then, of course, since we raised the bar in terms of being compliant in the old organization, some of the old work needs to be redone. However, it's not everything, and there were actually a quite healthy pipeline that was frozen. So there will be... It's not like we're starting over completely. That's true. But of course, there's been a significant number of R&D resources involved in the remediation, especially as pertains to product documentation, et cetera.
Especially for the American sites, who Lena indicated are in pretty good shape now, we start to turn that back into real innovation. Some of the projects, they're restarting, some have become obsolete, and some power is also put into completely new innovation, I would say, on those sites.
Thank you. All right, and just a follow-up. I think that there has been some continued concern over the relatively high leverage of Getinge, and that may be compounded by additional provisions or so, so it's appreciated you highlight your considerable bank resource. I just wonder if you could please go a little bit further and help us understand, in your mind, what do you see as the cumulative free cash flow for Getinge over the next three years or so? Or give us some feeling as to the cash power of the business. And also, please remind us, your covenants are they based on net debt to equity as they were in the past, or has that changed a little bit there, please?
Yes, when it comes to the covenants, we don't disclose. That's the relationship we have with our banks, but that is not an issue for us. But when it comes to the cash generation here, to give you a little bit an indication on. If you ask me what I see then, so to say, in the future, I see when we talk about cash conversion, when we go into the future here, then I see we should be going towards the top, around 70%. That is a little bit what I see when I try to... If that gives you a little bit help. Given the improvements we see in profitability, fueled with the revenue growth, but also the performance activities we do, and then, of course, the tight grip on working capital and investments there.
So that is then giving this.
The definition of that is operating cash flow?
Yes.
Great. So we have time for one more question with respect of time. So, well, you win there.
Follow-up question. When you talk about pruning the portfolio, are you talking about selling assets or just closing it down?
It's, it's a little bit of both, but it's more discontinuation than, than selling.
I mean, I'm thinking about cost absorption here. So if you take out a large share of your sales, it will have a negative impact.
No, no, no, that's not the way to think about it. We don't take away a large share of the sales. The pruning that we're talking about is really removing variants that can be replaced by other parts in the portfolio. So for example, respond to a tender. We don't need all the kind of variants of products we have to do that. We can fill them with other already existing products. So when we went through the portfolio review and made this analysis, we can really see that we can discontinue between 10% and 30% of the sellable products, if you like, without hurting the top line. So it's, there's no issue with cost absorption here.
It is complexity reduction, and it'll be better for productivity.
Okay. With the clarification.
Great, so that was the last question, and then it's over. And we are really happy having you here, and we would like to say a big thank you to you all. And also, I would like to say a big thank you to everyone who has participated in making this happen. So the communications team, the financial team inside Getinge, the team in place, the tech guys, the movie guys, and, of course, the executive team. So okay, thank you, and see you.