Good day, and welcome to the Getinge Group Q3 report conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mattias Perjos. Please go ahead, sir.
Thank you very much. Well, welcome to all of you, and thanks for joining the Q3 Report Call today. As usual, the presentation is accessible via a link in the report, and it's also available on our webpage under the Investors section, under Presentation. Together with me today, I have our interim CFO, Niklas Lindström, who will support me during the call today. The agenda for the call, you can see on page number two, where we start off with an overview of our business performance. With that said, we can move directly to slide number four and the key takeaways for the quarter.
To start with, we still have the challenges that I've addressed in both Q1 and Q2, which we have worked with, continued to work with during Q3, and will also continue during the rest of 2007. First and foremost, you can see that the weak Q2 organic order intake is impacting net sales for the quarter. However, we do see promising growth in order intake for the third quarter. Most encouraging is the performance in Acute Care Therapies, when it comes to the business areas, and Americas when it comes to the sales regions. And I'm particularly happy with the good traction of Surgical Workflows in Americas during the quarter.
Overall, the order intake for the quarter makes us stay with our outlook for the full year on a slight positive organic net sales. We do see increasing costs during the quarter, and I think it's important to keep in mind that we've reached a point now where we have come very far in the preparation for the potential spin-off of Arjo. So we're practically now two companies in the same structure with all the costs associated with this, but none of the synergies left. So some of the increased costs that you see now is related to the spin-off of Patient and Post-Acute Care , but also to R&D, to quality, and to sales improvements that we have informed about before.
Our efficiency enhancement program, the Big 5, continues to deliver and helps to mitigate the negative impact from the cost increases that I just mentioned. And we will also address now the costs incurred in connection with the preparations for the distribution, the potential distribution of Patients and Patient and Post-Acute Care , and also the preparations for the implementation of the updated strategy going forward, and the organization changes related to this. I also want to highlight that our quality remediation program has continued with high intensity at the plants that are covered by the consent decree with FDA. In both Wayne and also in Hechingen, Merrimack, we're progressing according to earlier communicated plan.
In Hechingen, we've started working according to the adjusted plan that was created during the second quarter. And during the third quarter, we've also now appointed a new managing director for the Cardiopulmonary business, including the production in Hechingen, and the purpose here is obviously to drive and create higher efficiency in the remediation process. When it comes to the preparation of a proposal for the potential spin-out of Patient and Post-Acute Care, this has progressed very well in the quarter. As a consequence, our ambition is to finalize the spin-off before the end of this year. And we reiterate that the estimate of costs associated with the separation is in the range of SEK 400 million-SEK 500 million.
Close to half of those are non-recurring, and in the first nine months of the year, the cost amounts to SEK 360 million, whereof SEK 144 million are one-offs. During the quarter, we've also been making some adjustments in the organization in order to reduce complexity and enhance efficiency. In short, to describe this, we're dividing the supply chain function in two, and moving the production and the factory that is back to the business areas in order to create increased clarity and efficiency all the way from R&D through production, and also improve the accountability for the business areas.
Direct purchasing and logistics is moved to a group function in order to continue to carve out some of the synergies that we do have as a group. So we're, we do not intend to lose anything in this regard. When it comes to the sales organization, we decided to simplify further and move from the three sales regions that we have to one global sales organization, with one chief commercial officer, in order to enhance sales management efficiency. And I want to highlight that we're removing these three macro regions, and we're working with 10 regions instead, but these are sub-regions that already existed, so it's not something that we've created in addition to what we had in place before.
And I'm confident that these adjustments will be, will be beneficial going forward, together with the, the revised strategy that we expect to present in the middle of November. Finally, on the takeaways, we have, we've completed the rights issue, which was oversubscribed and as such successful, and the funds have been used to pay down debts and thereby decreasing our leverage significantly. Then I think we can move to page five and take a closer look at the the top line and the operational performance during the quarter. We are reasonably satisfied with the organic order intake for, for the quarter. We saw an increase with 4.7% year-on-year. The organic net sales was down to the weak second quarter we had order intake wise.
On the gross margin front, we had a slight improvement due to continued efficiency improvements in the group. But lower net sales and higher OpEx combined related to the spin-off, but also to R&D, quality, and sales, had a negative impact on EBITA 1 in absolute terms, and obviously also the EBITA 1 margin. When you compare to last year, we had lower restructuring costs during the quarter, which explains the improvement in EBIT. We do see a decline in cash flows from operations and lower cash conversion, and this is mainly a consequence of higher inventory level, which has built up working capital.
And finally, we see a decrease in leverage due to the pay down of debt with the funds from the rights issue. We can then move to page six, and I'll talk a little about the top line per business area and the sales region. So on that page, you can see the overall distribution of our top line between our business areas and regions. Our order intake for the third quarter amounted to SEK 7,334 million. So organically, this was an increase with 4.7%, with growth in all our business areas.
If you look at this from a capital goods perspective, we had an increase of 6.6% and a disposable increase or increase of recurring items by 2.9%, year-on-year. The increase is most obvious in Acute Care Therapies, increasing with 7.7% in the quarter. This is mainly supported by strong development in ventilators in Critical Care , and disposables within Cardiopulmonary. In Surgical Workflows, the growth is mostly related to tables and lights within Surgical Workplaces , whereas in Patient and Post-Acute Care, it's mostly driven by service. From a geographic perspective, all business areas reported growth in Americas, which shows strong performance during the quarter.
The same goes for Asia Pacific, where all business areas improved the numbers year-on-year. In EMEA, we reported a 1% decline due to lower organic order intake within Surgical Workflows and also Patient and Post-Acute Care . If we then look at net sales, our net sales declined organically by 0.7% due to weak performance in Americas in terms of delivery. Sales in capital goods fell by 1.2%, and the sales in disposables decreased by 0.3% year-on-year. Organic net sales decreased by 1.1% in acute care therapies. This is primarily the result of lower order intake in Americas and EMEA in the previous quarter, in Q2 of 2017.
Surgical Workflows net sales increased by 0.5%, mainly as a result of strong development in Life Science. Net sales for Patient and Post-Acute Care fell organically by 1.8%, and as a result of lower sales of capital goods in Patient Handling , Hygiene, Wound Care , and DVT. This was partly offset by higher net sales in Medical Beds and in the bariatric product group. Seen from a regional standpoint, all the business areas reported decline in net sales in Americas during the quarter, leading to a 3.2% decrease for the region.
EMEA reported a 1.2 sales growth due to growth in Surgical Workflows and Patient and Post-Acute Care , while Asia Pacific reported a growth of 0.9% attributable to acute care therapies. With that, we can move to the next page and have a closer look at the cost increases for the quarter and the period. The Big Five efficiency enhancement program is progressing according to plan, and the savings is mitigating some of the impact from cost increases that we have because of the spin-off, R&D, and the investment in quality and safety.
The savings for the quarter amounted to slightly more than SEK 100 million, mainly as a result of improved efficiency in direct and indirect sourcing. The total savings in 2016 and the first three quarters of 2017 amounted to approximately SEK 700 million. And this takes us to the next page. We'll talk about R&D quality and the spin-off related costs. During the quarter, we've increased our spending in R&D in actions and also in relation to net sales. And we're trying to remain stringent and do this in an efficient and focused manner in order to reach a critical mass in each of the products that we decide to go forward with.
Where we see the need, we will use also cooperations and partnerships in order to enhance both the output and the offer to our customers and also to mitigate risk. As we stated before, quality remains a top priority for us going forward, and a consequence of this is that we're continuously strengthening the organization and really trying to spread best practice in all regions and our sites going forward. In the short term, this does add cost, and year- to- date, we've added approximately SEK 150 million year on year on the quality side. As I mentioned earlier, the spin-off process represents a significant part of the increased OpEx-related cost.
The total cost for the first three quarters adds up to approximately SEK 360 million. And the ambition now is to finalize the spin-off during the fourth quarter, and therefore, we're also confident that the estimate given earlier of a range between SEK 400 million and SEK 500 million is still valid. And we can move to the next page, and I'll talk a little about the FDA and the remediation process. We've had continued intense activity during the quarter at all of our sites, and the sites are still in different phases in the remediation process. In Merrimack, we see a stable performance, and in Wayne, we also continue to see progress in the right direction.
In Hechingen, which I repeat, is the most complex site that we have under the Consent Decree, we did replan the process in the second quarter, and during the third quarter, we've appointed a new managing director for Cardiopulmonary, who's responsible also for the production site and responsible for driving the remediation process in Hechingen forward with the right speed and the right quality. During January to September of this year, SEK 212 million of the provision have been utilized for improvements. SEK 21 million of those relates to the third quarter, and the provision totaled SEK 615 million at the end of the third quarter.
And just we can move to the next page and a little bit more detail on the spin-off process here. It's been progressing really well during the quarter, which makes us comfortable that we have communicated our ambition is to finalize the process in the fourth quarter of this year. If the board decides to go forward with the proposal and if the EGM votes in favor. This would mean then that we enter 2018 with two well-prepared companies and one project less on our table. So that will leave much more room for focusing on the respective businesses going forward.
In conjunction with this process as well, we are now finalizing our review of the strategy for both companies and also our financial targets for both companies, both Getinge and the remaining Getinge. Our aim is now to present this information to the capital markets in the middle of November. We can then move to the next page, and I'll touch a little bit about on the organizational adjustments that we've made as well.
One, the first thing is that we've decided to divide the supply chain into two parts, where we move the responsibility for production, so the manufacturing sites, to the business areas, and we move direct spend and logistics to group function in order to make sure that we still get the synergies from this part of the business. We're also simplifying the sales organization, going from three sales areas and directors to one global sales organization, leaving sales with one representative in the management team as well, so the executive management team becomes a little bit smaller also.
This is, I should just highlight that it's a consequence of the work that we've done, and it's a natural modification that we do in order to reduce organizational complexity and increase accountability and efficiency in everything from R&D to production to sales and service. It is also a way of sharing best practices across the different parts of our geographical footprint in a better way than before. We can move to the next page, which is about the rights issue. As I mentioned in the beginning, the rights issue was successful and gave us the opportunity to reduce debt quite significantly.
As you can see on the left of the slide, the net debt is reduced to SEK 17.6 billion, which leaves us with a leverage of 2.93 compared to 3.90 year-on-year. With that said, we can move to the next page and talk a little bit about the business areas and their performance. We start with Acute Care Therapies. We see a strong order intake, mainly due to strong performance in ventilators, in Critical Care and in disposables in Cardiopulmonary, and this is across all regions.
From a net sales perspective, we had a decrease organically by 1.1%, mainly due to the weak order intake in the first half of the year in Americas and in the second quarter in EMEA. Our gross margin increased slightly, but lower sales and the consequent lower gross profit, and also the increased R&D spend, contributed to lower EBITA and also EBITA 1 margin. EBIT increased compared to last year, mainly due to lower restructuring costs compared to the same quarter last year.
If we then move to Surgical Workflows , we see a positive development in order intake in Surgical Workflows, where Americas stands out in a really good way, good intake in both Surgical Workplaces , primarily within tables and lights, and also in Infection Control. We see a slight increase in organic net sales, mainly due to good performance in EMEA. Despite the negative top- line actions, we see a slight positive development in gross margin, and this is due to a combination of FX and efficient supply chain. EBITA 1, however, was negatively impacted by increasing OpEx, mainly within sales, quality, and R&D.
If we move to PPAC, then Patient and Post-Acute Care reported organic and actual growth in order intake, with good progress in Americas and in Asia Pacific. Net sales then was down 1.8%. This was mainly driven by capital goods and the performance in Americas because of weak order intake in the previous quarters. Gross profit declined slightly due to lower net sales, but gross margin improved thanks to efficiency enhancement in the supply chain of PPAC. Increasing OpEx related to the spin-off as such has impacted both EBITA 1 and the EBITA 1 margin negatively. And with that overview, I hand over to Niklas Lindström for a brief presentation, deep dive into the financials.
Okay, thank you, Mattias. So let us move to the results on slide 18, an overview of the quarter. As said earlier, we had a net sales decline, a slight decline of organically 0.7%, landing at revenue of SEK 6.696 billion. Due to effects and higher efficiency in supply chain, we have a slight improvement in growth. However, our higher OpEx, driven by the spin-off, but also R&D quality and sales, led to a decrease in EBITA 1 margin, which ended up at 9.8% versus last year, 13.9%. However, the lower restructuring cost in the quarter compared to last year contributed an increase in earnings per share from -0.36 SEK to +0.20 SEK.
With that said, we can move over to page 19, and overall distribution of our top line between the top line and the margin development. As Mattias mentioned, we reported 4.7% growth in organic order intake, but we had FX headwind, which took us down to 2.2% in actuals. We saw the same impact in organic net sales, which was minus 0.7% organically, but ended up at minus 3.4% after a 2.8% headwind from FX. Despite declining net sales, the gross margin improved slightly, among other things due to FX, but also product mix and efficiency enhancements in supply chain. Increasing OpEx contributed to an unfavorable development in sales and admin in relation to net sales.
All in all, this contributed to EBITA 1 growth of -31.6%, in the quarter. Year- to- date, we are down 1.3%. So with that, let's move over to page 20 and look at the FX effect. Our currency transaction exposure relates to when the group's factories are selling to our subsidiaries internationally, and this we hedge for. This contributed with 65 million SEK for the quarter, and 198 million SEK year- to- date. The translation exposure relates to when the group company results are consolidated and translated into SEK. This is not hedged. You can see that on EBITA 1, the transaction impact was 65 million SEK, and the translation effect was 2 million SEK, resulting in a total effect of 67 million SEK for the quarter.
It is also worth mentioning that the currency transaction effects are expected to have a positive impact of approximately SEK 250 million on the EBIT, EBIT for full year 2017. So let's move to page 22 and the net debt. Net debt amounted to SEK 7.6 billion at the end of the period. The adjusted decrease in net debt amounts to SEK 4.539 billion, and this is due to the rights issue. Our leverage, net debt to EBITA before restructuring ratio, decreased from 3.9- 2.93 for the period, and this is calculated on a 12-month rolling basis. The gearing, net debt to equity ratio, decreased from 121%- 74.1%. Finally, over to page 24 and the cash flow situation.
If we take a look at the cash flow, the group's cash flow from operations amounted to SEK 592 million, compared to last year, SEK 775 million for the quarter, corresponding to a cash conversion of 66.4%, versus last year, 89.5%. During quarter three, we have seen net investment of SEK 410 million, versus last year, SEK 376 million. It's resulted in a cash flow of the net investment of SEK 182 million. With that, I leave it over to you again, Mattias.
Great, thank you, Niklas. Before moving to the summary, I just wanted to give you a few comments on our outlook, and we're now on slide 26. We did expect a slight organic growth in net sales for the full year 2017. We're confident that the order book that we have and the intake in the third quarter supports this. We can also say the currency transaction effects for a full year 2017 are expected to have positive impact of approximately SEK 250 million on the group's earnings.
We want to reiterate that the estimated costs related to the potential distribution and listing of the Patient and Post-Acute Care still amounts to SEK 400 million-SEK 500 million, and roughly half of those are one-time costs. Then we can move to the summary here. So I would just like to summarize briefly before we open up for questions. So after the third quarter, we see improvements when it comes to order intake, and this makes us comfortable keeping the outlook for slight organic net sales for the full year of 2017. We do have an OpEx increase during the quarter. It's partly linked to the spin-off, but also due to investments in sales, in quality, and in R&D.
And the impact of this is, to some extent, mitigated by the savings from our efficiency enhancements, primarily when it comes to direct and indirect spend. When it comes to the FDA remediation, we see good progress, and we've appointed a new managing director for Cardiopulmonary, including the production in Hechingen with responsibility for really driving remediation in Hechingen with good speed forward. Regarding the spin-off process, this is progressing really well, especially during the current quarter, and our ambition is now to finalize the distribution and listing of Patient and Post-Acute Care before the end of 2017.
And finally, I want to mention that we've taken a number of decisions as a consequence of the updated strategy to adjust the organization, and the aim is to enhance efficiency in production and sales, and at the same time continue to carve out the synergies that we have as a group. We are also in the end of the process of reviewing our strategy and the financial targets for the group. And our aim is to come back with the information on this in the middle of November. And finally, one thing less to do for next year, we finalized the rights issue and de-leveraged the company a bit, which brings us to a good strong financial position going forward.
So as you can see, we have a lot of things that we need to get in place during the fourth quarter, and we need to make sure that we can end the 2018 with less distractions on the table, really enabling us to focus on our customers, our offerings, and the day-to-day improvements. Challenging fourth quarter in terms of workload and activities, but I'm convinced we will manage this in a good way and enter 2018 in a good place. So with that summary, I open up for questions.
Thank you, sir. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that's star one to ask a question. We'll now take our first question from Chris Berg of Jefferies. Please go ahead.
Hi, good afternoon. Thank you for taking my questions. Firstly, just on the spin-off costs, please. So, on my math, about 90% of the remaining cost is likely to be one-off. Can you just confirm that you've now booked the majority of the recurrent costs ahead of the distribution?
Well, I think what we've said is that we have SEK 360 million year to date, right?
Correct. So if I take the midpoint of your guidance, the 400-500, that would imply 90 to go. But given--
Yeah, I think, yeah--
Well below that in one-off costs, that would imply there's SEK 81 million- of one-off costs.
Yeah, okay. Okay, well, I can say that we remain with our guidance, but it will be closer to SEK 500 million than SEK 400 million in the outcome here. Obviously, a little bit depending on the exact timing of the spin-off, but it will be closer to the upper part of the range.
Got it. Okay, fine. And just on the order development, I mean, the headline number is clearly a more robust position than it has been for much of the year. I mean, I know you're lapping a challenging quarter, but even if I adjust for the favorable comp, I mean, there's a pretty nice development in Americas this time around. I know Surgical Workflows, there was a big improvement in that region, which is probably a key driver to that performance. But could you just provide a bit more color around the, you know, the sort of general conditions in the U.S. market and how you expect that to develop into the fourth quarter and going into next year?
Yeah, I don't--I mean, it is positive. I agree with this. There's no major change to w e've been optimistic about the U.S. market for a while, and you can see now the good development we have, for example, in Critical Care ventilators. It's not only U.S. related, it's actually very much product related as well, I would say. We see good traction in other parts of the world. One thing that I think is positive is that we, you may remember, developed a new plan for the workflows in the U.S. and started implementing this in the beginning of this year. And we're starting to see some good momentum from this, which shows in the figures as well.
It's a big number for the quarter, but I think, trend-wise, we're optimistic that we will be on the right track for the rest of the year and obviously the coming years as well.
Okay, thanks. And just lastly, in the release and during this call, a couple of times, you referred to a challenging fourth quarter. I just wanted to make sure that this is more in reference to the fact that, you know, your fourth quarter is very seasonally strong, and clearly, you've got some very large and important strategic projects underway. It’s more a reference to that rather than any sort of incrementally negative expectations about the market or your position within it?
Yes. No, absolutely. Thanks, thanks for making that clarification. That you're absolutely right. It, it is more about the activities and the workload that we have in terms of the finalizing the spin-off, work, continuing the work with quality, finalizing the strategy update, setting the organization and everything for 2018. That, that's exactly correct.
Okay, thanks. I've got a couple of follow-ups on OpEx, but I'll jump back in the queue.
Thank you.
We will now take our next question from Hans Bauer of Nordea. Please go ahead.
Yes, good afternoon. It's Hans Bauer here. A follow-up on the order intake here. You mentioned that the growth was partially driven by the launch of new ventilators, right? Or maybe I should clarify, is it driven by new ventilators in the offering? And if so, should we see similar impact on the coming quarters? And also, if you see some impact on the order development for a more stable sales and marketing organization now. And also would like to ask about the gross margin, given the low volumes in the quarter, have you seen less of a pricing issue in the quarter that you have seen, and you've seen in the general pricing condition, or been able to price up new products or so?
Could you give some color on that? Thank you.
I'll try to remember all the questions. When it comes to Critical Care , it is more about ventilators in general. It's not materially related to new products in that sense. It's overall good development for the range as such, I would say. So, it's good to clarify. What was the other questions?
If you have seen an impact on the orders from a more stable sales and marketing functioning in the company, given all the turbulence you've seen over the years, if that has helped anything in the quarter?
Yeah, okay. It's difficult to quantify the link. I think we are seeing a little bit more stability in the sales organization in general, but I really, it's hard to link this directly to the performance as such. But we do see more stability. That is a correct observation, I would say.
Maybe you can say something about the--
When it comes to pricing--
Maybe you can say something about October. Have you seen that, that development, like, continued into, to October, or?
No, we don't. I don't want to talk about October until we talk about the quarter as such. So we generally remain reasonably positive about the market outlook.
On the gross margin?
Yeah, what-- sorry, again, what was the, you mean the, price pressure related to gross margin, or, what's--
Yeah, I'm surprised to see the strong gross margin, given rather low volume. So I wonder you can discuss the pricing environment or if you have launched products that have helped the gross margin, so.
Yeah. No, we do have a pricing initiative going. I still think that it's early days for this. I wouldn't read too much into this. We don't see any significant change really when it comes to pricing in the market.
Okay. Thank you very much.
We will now take our next question from Kristofer Liljeberg of Carnegie . Please go ahead.
Yeah, hi. It's Kristofer Liljeberg from Carnegie. I have a question on, on, on the higher cost and the investments you're doing. So first, for the fourth quarter here, based on what you see for sales, you expect margins to be down, flat, or up in the fourth quarter? And then if you look into next year, I wonder a little bit how long, for how long you expect to continue with this large type of investment. Should we see a similar type of increase in operating costs for particularly the R&D and, and quality and sales in, in 2018, as we have seen in 2017? Thank you.
Okay. We don't really guide on cost to margins going forward. What I can say in general, though, is that in addition to the spin-off of cost, we have continued to build, rebuild, I would say, part of the sales organization. So that's absolutely visible in the OpEx. We have continued to build quality as well. So that's something you can see. There is a bit of build-up in the supply chain organization as well to continue to drive the Big 5 program.
We're at a stage as well, when it comes to the spin-off, where we have now two companies that are practically separated and operating as two companies with the full cost structure that goes with it, but we have none of the synergies left. So we're in a bad position in that sense. And the comment I made in the report is that we're aware of this, and we're at a position where we can start to work down as well as some of the costs that are a little bit unnecessary to have with us going forward.
This relates both to the spin-off costs as such, but also other costs in the wake of the strategy rollout and the organization change, and also addressing the stranded costs that we will have in Getinge going forward. That's something that we will work now diligently on in the fourth quarter, but we don't give any details in detailed guidance on cost levels or margins going forward.
But do you see that you have a good organization in place now, or will you have to do similar type of investments in 2018 to be where you want to be?
Well, we're at least much closer to having the good and desired organization in place than we've been for a while. That much I can say. Whether we're there or not, there's still a little bit of way to go that we need to finalize during the year, I think, but we're reaching a position that we want to be.
Okay, thank you.
As a reminder, to ask questions, please press star one. We'll now take our next question from Ines Silva from Bank of America Merrill Lynch . Please go ahead.
Hi, good afternoon, everyone. Thank you for taking my questions. The first one is just a follow-up from what we were just discussing, because I just wanted to sort of clarify. In terms of your added investments in quality and R&D, if we say those should be plateauing in the first half of next year, is that something you'd be comfortable with?
Yeah, plateauing, I think for sure we're reaching the end of the investment wave, I would say, at least in this regard. That's comfortable to state, I think.
Okay, okay, that's fair enough. And the second question is, you said that you've transferred the production responsibility from the supply chain to each business area. I just wanted to confirm, is this effectively undoing something that was done a couple of years ago under the Big Five?
Yes, in a way, if you take it a bit longer history, the factories used to be part of the business areas, and then there was the reorganization and change in the first quarter of 2016, where the factories they were taken out of the business areas and put together with purchasing in the logistics, in the supply chain function. And one of the things that we believe haven't worked satisfactory is that this created a little bit of a silo inside the group, and it has reduced accountability across the organization. So it's actually moving back the factories to where they were before 2016.
In our view, though, it doesn't undo anything of the efficiency enhancements and so going forward. The efficiency enhancements so far have been more in purchasing than in manufacturing anyway. And in terms of footprint, if you look at what the factories do, it's extremely limited, the synergies between the business areas. There's much more to do inside the business areas than within the individual factories from where we are. So we think it's a move that reduces complexity, it increases accountability, and it still preserves the possibility to improve efficiency.
Okay, there shouldn't be material costs associated with this change?
No, absolutely not.
Okay, so is there a risk that there are other sort of areas where you could do the same?
Sorry, is there a risk that?
There are other areas where you would think of undoing something what, that was done in the last couple of years?
No, I think-
Under the Big Five.
We feel it's fine-tuning left, and I think the organization announcement that we announced end of September are implementing, and now we should be done with this before the end of November, and what remains is fine-tuning, yeah, more than anything else.
Okay, thank you. Last question is, you mentioned that you should be ready to present the reviewed strategy in November. I just wanted to confirm if this would be through a capital markets day or any other form?
Yeah, there will be. I can't confirm the form. I don't think it'll be a full-blown capital market day. We will probably go with a lighter type of briefing, still face-to-face meetings in middle of November, but not a full-blown capital market day is what I envision. And we'll both talk about strategy and financial goals for both the New Getinge and for Arjo.
Okay. Thank you very much.
We will now take our next question from Alex Gibson of Morgan Stanley. Please go ahead.
Hi. Thanks for taking my questions. I have three, and I'll ask them in sequential order, please. Of the SEK 216 million of spin-off costs that are recurring in so far this year, can you identify how much of them are incremental in Q3? And can you also break down these costs attributable to each business division?
Okay, we'll start. I'll give that to Niklas. I don't have the number off the top of my head for this one.
Should I start?
Yeah.
Okay. Yeah, for the quarter, it was SEK 92 million in off costs. So that is the amount.
That is the recurring amount?
Yeah, exactly. In office.
Okay.
That is not really distributed per BA. It's mainly, of course, in the part of the business that will be spun off, are you?
Yeah.
But, it can also be small parts in the rest of the organization supporting the spin-off.
Okay, thank you. Just follow up on the investment. How long will the elevation in R&D and quality investment stay elevated for? You're anticipating this for the next two quarters, and then it will get to a more steady run rate, or is this something that's going to be a multi-year elevation of investments?
We, I know, can't give you a detailed guidance on this, but it's not multi-year. That's not what I envisage. We're talking about a couple of quarters from that here.
Okay, thank you. Very clear. And, one on the capital raise. Now that it's fully complete, can you give us details on how you're allocating these funds, specifically, how much there is going towards spinning off the business to these incremental investments in R&D? Can you give us percentage terms of how you want to allocate those funds?
I mean, the funds were completely allocated to pay down debt, so.
Fair enough. Yes. Okay. And, on the finally, on organic growth rate, you've had a couple of quarters where it's been a bit tougher getting negative organic growth rate coming through. What gives you confidence in the final quarter of an improvement in momentum? Can you identify any specific products that you anticipate to drive the orders growth, or is it more of a relatively easier comp that you're looking at?
Okay. Well, it's a number of factors. I think, first of all, we have a better open order book going into the fourth quarter than we did last year, so that's one comforting thing. We can also see that we have a reasonably good pipeline in most parts of our business when it comes to inquiries and quotations, and the data with customers continue to be positive, I'd say. And there's also the fact that we are now two separate companies, so the internal distractions are getting much less as well. And we're gradually shifting the focus outward again towards our customers. I think this will also help going forward. So it's a combination of those kind of factors that gives us confidence.
Okay, thank you.
Thank you.
We will now take our next question from Scott Bardo from Berenberg. Please go ahead.
Yeah, thanks very much for taking my question. So, according to this Big Five efficiency program that you've outlined, you've now made the SEK 700 million savings. I think that's now SEK 300 million cumulative as to last year. However, despite that, your margins have not improved. Actually, they've been down year-over-year. I appreciate there's extra PPAC costs borne within the P&L, but arguably they're offset by the favorable transactional benefit you're getting on currencies at the moment. So what I'm--it seems to me at least, that all of these savings are being utilized and reinvested into the business.
I just wonder if you confirm that, and then take that discussion further, any savings you make going forward, is there a much greater likelihood of fall through to the bottom line or, or not? If you could clarify that, please. Thank you.
Yeah. No, you're, you're absolutely right that all the savings that are freed up through the Big Five program have been channeled back into investments in, in our, in quality. Primarily, it's been the, well, apart from the spin-off, the quality has been the, the biggest factor. Then we have R&D and sales, and also a bit of supply chain when you look at the OpEx level, investment to actually generate the savings. So it is more that has been consumed than the program has generated. The purpose is, of course, not to continue this way, but we don't give guidance on when we reach a point where we see a net gain from this.
Sorry, just to understand the last comment. I mean, do you not think that there will be a net gain going forward? I mean, that wouldn't--
No.
--correlate with your comments about, you know, reducing this intensity and--
No, no, I didn't mean to say that. I think the program will continue. We do see concrete savings from this. And once we're able to fade down or reduce the investment that are needed in rebuilding the sales organization, in building the quality structure and so on, we will see a gradually increased flow through of the savings from Big Five to the bottom line as well. But I said, I cannot give you a timing guidance on this part.
Okay, thank you. Then just some additional clarity, please. I mean, obviously there's next to no financial guidance in the market for Getinge at the moment. However, you have now got a reasonable order book into the fourth quarter. You know what your nine-month sales are. So can you give us a sense of what slight means now? Is this, 1%-2% growth? Can you at least give some additional clarity there, please?
Yeah, sure. We've said that slight means 0%-2%, and it's in the lower half of this, so we're talking about less than 1%, this year.
Okay, thank you. And last question, please. Again, just to help us better understand the positioning of the new two businesses. Now that you've raised capital, can you give us a feeling as to what the leverage position of the company will be at the end of this fiscal year in its current structure, please?
No, I don't want. We don't give guidance on this. I don't wanna. We haven't. It's not something we've disclosed earlier, and I don't wanna start now either.
Okay, maybe just sneak one quick one in then, please. So, I noticed that for the Acute Care Therapies business, which has had reasonable growth, actually, for the first few quarters at least, you had an okay gross margin that didn't deteriorate, but your EBITA margin fell significantly or fell, you know, a couple of hundred basis points, if you like. You was highlighting there was some additional R&D there. So, can you talk a little bit about what sort of investments you're making specifically for that division, and why that's sort of weighing so heavily this quarter on profitability in that division? Thank you.
I don't have the specific, Mattias. Do you have something you can?
No, no, no, I don't have it.
No, sorry, Scott, I don't have that off the top of my head either, something we would have to go back and look at.
All right. Thanks, Mattias.
We will now take our next question from the Annette Lying from JPMorgan . Please go ahead.
Hello, can you hear me?
Yeah, now, now I can hear you, yes.
Perfect. Hi, guys, thanks for taking the questions. Yeah, just I wonder if there are any significant tenders that you could pull out that have been included in orders in the quarter? And then I'm sort of from that, really, I'm just trying to reconcile the difference between the order growth and the sales decline, particularly in Surgical Workflows in the U.S. Were there any multi-year orders in there? And what risk is there that those order growth doesn't translate into sales growth in the fourth quarter?
Okay. No, I'd say there's nothing significant that stands out. It's within the normal course of the business. There are some large orders, but they not larger than normal, I would say. So there's nothing that stands out that distorts the pattern in that, I'd say.
Okay, thanks.
Thank you.
As a reminder, to ask the question, please press star one. We'll now take our next question. Be sure to press star four, please . Please go ahead.
Yes, thank you very much. I have three questions, please. The first one, and I'll take them one at a time. The first one is, as you change the manufacturing responsibility, whether you think going forward, there's also a need to change the manufacturing footprint? Because in the past, the volatility in sales has resulted in kind of, you know, erratic, manufacturing cover and overhead. Do you think you need to consolidate the manufacturing footprint still?
That's a part of the analysis that we're doing in conjunction with the updated strategy. And I don't wanna disclose information in advance of this, but you're right in the sense that we have a rather unbalanced footprint in the group, and have had for a while. I think Arjo with being spun off is they have a good footprint, actually, quite well utilized. On the Getinge side, there's a lot of improvement potential, actually, from where we stand. But I can't give you any detailed guidance on changes in the footprint at this stage.
Fine. Okay. And then can you give some view, based upon your review of the Big Five program, as to what you think the benefits that remain out of the total original program, guidance on benefit? How much remains to be executed in value?
There's no change to this, because the program is progressing according to the plans that we have, and we do expect the same kind of gains as well. It's just back to the discussion with Scott earlier, that we do have a lot of the investments that we've done during this year. We're reaching a stage where I think we can probably lower the reinvestment level a bit, but there's no change to the Big Five program as such.
Fine.
We still, we can see the same potential as earlier.
Okay. And the last question was relating to the quality investments that you're making. And you said it's a substantial part of the reinvestment. Are these recurrent investment levels, or are they sort of one-off investments, in terms of cost that will then wind down? Is it a recurrent cost or one-off cost?
Well, so some of it is recurring for sure, in terms of building the organization. The one-off is what we've made provisions for l arge, largely. So there's a recurring part now that we're building up over time to really make sure that we have a system that works for us, and that we're fully in compliance. I think once we reach that stage, we can look at making the system a bit more efficient. If you look at peers in our industry, who are going through the same kind of challenge, you end up with a slightly oversized, a little bit overcomplicated the system to be on the safe side, so to speak, and then you can work with efficiencies once you reach this point.
Right. Okay. No, thank you very much for the answers.
Thank you.
We will now take a follow-up question from Scott Bardo from Berenberg. Please go ahead.
Yeah, thanks very much for taking quick follow-up. Yeah, so, it just relates actually to what one should expect with respect to your midterm targets. Now, of course, I don't expect you to give us the numbers now, but are we to expect a margin figure for you over a defined time period, or some sort of growth figures, both in terms of EBITA and sales? If you could at least help set expectation there, please. And also, just to understand, you've been following very closely to this Big Five program, as you identified. I think when this program was announced, there were a whole series of one-off costs, which have been sort of flowed through the P&L restructuring costs.
And that's a significantly taper down, according to the previous plan, to be relatively negligible from 2018, 2019. So I just wonder if you can compare, or, add thoughts, do you anticipate then, you know, additional costs to those that were outlined, over and above the Arjo ones, which you've already taken this year? So in short, are we expecting restructuring costs to come down, going forward to the group? Thank you.
Sorry, are we expecting what to come down?
Restructuring costs.
Restructuring costs.
The Big Five plan had restructuring costs taken 2015, 2016, 2017, with negligible restructuring costs thereafter. If you followed that plan, I would expect a similar profile for restructuring costs. I just wondered if you could share thoughts of the new restructuring costs as well to come?
Yeah, well, I think I don't have any change really to communicate in this regard. We will come back to it in the middle of November, where we'll talk a bit more detail, but I think there's no significant change for this topic, I think. When it comes to the targets as such, I would really like to ask you to wait for another four weeks or so, and then we'll come back. But it will be both a presentation about the strategic priorities going forward, and also quantitative targets, financial targets going forward.
Okay, thank you. And then just lastly then, please. Obviously, there's been quite a lot of swings in volatility in the Swedish krona. Can you confirm that you've been able to hedge your successful rates, or should we expect, you know, this to translate into some sort of transactional negative for the company in the future? Can you comment a little bit about hedging and when the sort of the currency volatility in the Swedish krona starts to impact you? Thank you.
I think it's, it was the presentation we had, before, that you could see that there is, a hedge effect that is possible for the full year. We cannot comment on next year right now. Then, of course, we have a translation effect, which is the internal consolidation of the numbers, which we have, a view on up to now, but we do not forecast for the rest of the year.
Okay. Thanks very much.
Thank you.
Okay, that was the last question, and we say thank you to all participants, and thank you and goodbye.
Thank you very much.