Good day, and welcome to the Getinge Q2 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. Good morning, and a warm welcome to all of you. Thanks for joining the call today. As usual, the presentation is accessible via link in the report, and it's also available on our webpage under the investor sections, under presentations. Together with me, on the call, I have our CFO, Reinhard Mayer, who will support me and also go through the detailed financials in a moment. On page number two, you can see the agenda for today. We will start off with a short business overview, for the performance during Q2. We will also go through the financial performance in a bit more detail, have a quick outlook and a summary before we move to Q&A.
We can jump directly to slide number 4 and start talking about the takeaway number one for the second quarter. To start with, we still have the challenges that I addressed in Q1, and we will continue to work on this during the whole year of 2017. The first three are multiyear challenges, actually. They will continue for a number of years. First and foremost, we see continued challenges when it comes to organic top-line development, which I addressed already in the first quarter call. It's most obvious in Surgical Workflows and in Americas after the second quarter. Our estimates for the full year, however, remain the same as in the previous quarter, which means that we keep the outlook for the full year unchanged.
When we talk about continued efficiency enhancement, our Big Five program continues to deliver according to the plan that we set out. The overall direction and the content of the program remains firm. There's no change in this regard. As mentioned, though, in the first quarter report, the spin-out process related to Patient and Post-Acute Care has added a layer of complexity, which we need to take into account as we execute on the program. When it comes to the Quality Remediation program, this has continued with the really high intensity at the different plants covered by the Consent Decree with FDA. In both Wayne and also Hudson Merrimack, we've made good progress, and basically progressing according to the earlier communicated plan.
As you may remember, though, I mentioned after Q1 in the call, that we have been undertaking a replanning in Hechingen, and the result of this replanning now is a SEK 488 million additional provision in order to make the necessary changes to go through with the remediation program. So those are the three top challenges on the page four. The two- second one, which are a little bit more short term in nature, we have first the distribution and listing of Patient and Post-Acute Care. The preparation for the proposal here is progressing very well according to plan.
It does add a layer of complexity in the short term, but in the long run, we do see positive effects for both businesses with the improved focus for both of them. We reiterate the estimate of the cost that we made associated with the separation. It's in the range of SEK 400 million to 500 million, where close to half are non-recurring. Finally, as announced during June, we are planning for a rights issue in order to pay down debt, and the notice for the EGM was published earlier today to take care of this. With that, we can move over to page five and takeaway number two, which then focuses on the remediation. The Consent Decree that we have with FDA is a truly complex one.
It's one of the most complex in the history of the FDA, actually. This is because of both external and internal factors. One complicating factor is that it comprises sites both in the U.S. and in Europe, where normally the FDA operates only inside the U.S. Secondly, the regulatory demands have grown more rigorous compared to when the sites in scope were established. And thirdly, Getinge has a history of decentralization with no common quality system, which means that we had different starting points for the different sites when we went into the consent decree here. So that's also part of the explanation for the difference in progress between the sites. We can take a look at where we stand after the second quarter.
There's been an intense activity during the quarter at all of the sites who are in different phases, as I mentioned. Hudson now is closed. We have completed the move to Merrimack, and the remediation for Hudson Merrimack is going according to plan. The same thing goes for Wayne. We see a good progress in the right direction also there. When it comes to Hechingen, though, it is the most complex site, which has led to the replanning that we mentioned after the first quarter. Here, we had to make an additional provision of SEK 488 million in order to make the necessary changes to adjust and speed up the remediation program at the site.
The cost for the 488 million are primarily attributable to increased staffing and product and process validation at the site. During the first half of 2017, we had 141 million of the provision utilized for improvements. 76 million of this was for was done in the second quarter. And at the end of the quarter, we had a provision of 710 million altogether for the remediation program. That gives an overview of where we stand when it comes to remediation. And with that, we can move over to page number six and takeaway number three. The overall conclusion here is that our business performance for the second quarter was was not satisfactory. Our net sales and order intake declined organically compared with the year earlier quarter.
However, at gross profit and the EBITDA level, this trend was offset by, partly by currency effects and also by internal efficiency improvements. So even if we see an increase in OpEx due to the spin-off related costs and the strengthening of the quality R&D and sales organization. And then, of course, if we move further down the profit and loss statement, the provision on SEK 488 million for hedging has a significant impact on EBIT. We also see a decline in cash flows from operations and lower cash conversion, and this is mainly as a consequence of higher inventory level and DSO, which has built up working capital during the quarter.
At the same time, though, we do see a positive trend when it comes to leverage, so we had a further reduction of this, compared to the previous quarters. With that overview, I guess we can move to page seven and takeaway number four. Here we can conclude that the improved gross profit and also consequently, EBITA 1, is to a large extent attributable to FX. We had SEK 235 million of the SEK 282 million increase gross profit comes from FX, and the balance of 47 million comes from internal efficiency and also partly a more favorable product mix.
Same story as on the previous page, the SEK 488 million provision obviously has a significant impact on EBIT and net profit, which meant that the earnings per share decreased to 0.01 SEK. With that overview, we can move to page eight and the overall distribution of our top line between the business areas and the different regions. If you look at the organic top line development in the second quarter, you can see this on slide eight, the order intake here amounted to SEK 7,539 million. Organically, this meant we had a decrease of 3.8% in the quarter.
The decline is most pronounced in surgical workflows, where we had an organic decrease of 8.4% in the quarter. Within surgical workflows, though, we had integrated workflow solutions reporting growth in all regions, while the other product segments noted declines in the organic order intake year-on-year. The weak performance in surgical workflows also explains a big portion of the continued weak order intake in Americas. Here, we also had a negative contribution from the performance of patient and post-acute care. So Americas was down 3.6% in the quarter.
If we then move to look at Acute Care, we had the organic order intake falling by 0.4% in the quarter compared to the previous year. This is primarily due to lower order intake in Cardiac Systems and in Vascular Systems. In Cardiopulmonary, though, we saw a strong order intake for the quarter, so this mitigated the decline a little bit. When it comes to the organic order intake for patients in Post-Acute Care, this fell by 2.2%. This was related to a soft performance of DVT and also Wound Care in both leasing and capital goods.
Asia Pacific, there we saw a slightly increased order intake for the quarter due to robust growth in acute care therapies, while EMEA, we had a downturn in order intake, mainly related to surgical workflows. Looking at the net sales perspective, we had a decline of 0.5% in the quarter. Sales of capital goods fell by 2.3%, while net sales in disposables increased by 1%, year on year. Organic net sales increased by 4.8% in Acute Care Therapies, and this was then primarily the result of good performance within Cardiopulmonary. We look at Surgical Workflows, the net sales declined organically by 6.5%, mainly due to a somewhat soft quarter for Life Science and the negative trend that we saw in Surgical Workplaces.
Net sales for Patient & Post-Acute Care fell organically by 0.8%. This was the result of lower sales on capital goods and leasing within hygiene and wound care. This was partly offset by higher net sales in medical beds and in the bariatric product range. If we look at the robust trend in Acute Care Therapies, this contributed to an organic net sales increase in Americas of 2.4%. In EMEA, we had a net sales decline, organic net sales decline by 2% as a result of low sales in Surgical Workflows. Asia Pacific, we had a net sales that declined organically by 3%, also here, mainly as a result of soft performance within surgical workflows.
With that summary, I think we can move to page nine to take a closer look at Acute Care Therapies. We do see a slight decline in order intake to a large part offset by positive development in Asia Pacific, and this is mainly due to strong performance in Cardiopulmonary in China. Net sales increased organically by 4.8% in the second quarter. Cardiopulmonary here also representing the largest increase, followed by Critical Care. From a regional perspective, all regions reported growth. Growth in Americas was mainly attributed to solid performance in the U.S. and in Canada. East Asia, Australia, New Zealand reported a particularly favorable performance within Asia Pacific, while the trend in EMEA was primarily the result of increased sales in Cardiopulmonary and Critical Care in Central and Western Europe.
We also had strong sales development and a combination of product mix, foreign exchange, and supply chain improvement, and this helped the increased gross profit and led to solid or positive development when it comes to EBITA 1. Below EBITA 1, however, we had the impact of the hedging and provision of SEK 488 million, so that brought it down significantly on EBIT level. We can then move to page 10 and look at Surgical Workflows, who had a tougher quarter than Acute Care. As I mentioned earlier, we see a significant decrease in Surgical Workflows, both in order intake and in net sales, and it goes both for actions and organically.
The comps organically for Q2 2016 were order intake up 3.3% and net sales 2.4%, so there was some impact of more challenging comps as well, but underlying it is a challenging trend for Surgical Workflows. Despite the negative top line, the impact on gross profit is mitigated partly due to a combination of FX and efficient supply chain, but the EBITA 1 in Surgical Workflows was negatively impacted by increasing OpEx, mainly within R&D, but also in sales. Then we can move to our third business area, which is Patient and Post-Acute Care.
Here, we see a decline in organic order intake, mainly attributable to the Americas and related to products for prevention of DVT, deep vein thrombosis, and also Wound Care, and this goes both for rental and for capital goods. Net sales also declined organically, primarily as a result of reduced rental and lower sales of capital goods in hygiene and in Wound Care. This was offset by higher sales in Medical Beds and in the Bariatric product range. Patient Handling had a positive contribution to the quarter, and the main reason for this was good growth in EMEA.
On the picture, the drop in APAC looks dramatic, but it represents actually only SEK 7 million. Actually, it's not a large amount of money in absolute terms. The growth in actual net sales, in combination with the efficiency enhancement in the supply chain function, contributed to a substantial increase in gross profit and EBITA 1. This is despite the increase in OpEx, and the increase in OpEx. It's very much related to spin-off costs when it comes to Piggyback. We can then move over to page number 12, and we'll talk a little bit about the performance in our efficiency enhancement program, also called Big Five. We can see here from the graphics that the program is progressing according to plan.
The savings for the quarter amounted to just about SEK 100 million, mainly because of good progress within direct and indirect sourcing. If you look at the total savings in 2016 and the first half of 2017, this amounted to just above SEK 600 million. And as we've mentioned earlier, and I'd like to reiterate, we do allocate a large portion of these savings to fund product development and to strengthen the quality organization, and also for some of the spin-off related costs. But the program as such is moving according to plan. And that takes us to page number 13, where we'll talk a little bit about R&D quality and the spin-off related expenditures with that.
As I mentioned earlier, we've channeled the savings from Big Five largely to product development, and this is really to secure future growth and margins for the group. During the quarter, we've increased our spending in R&D, both in absolute and in relation to net sales. We're making all efforts to do this in an efficient and focused manner in order to reach critical mass in each of the products that we decide to go forward with, so this means being selective among the opportunities that we have at hand. Where we see the possibility and the need, we will also use strategic collaborations in order to enhance the output, to complement our product portfolio to mitigate risk, as well.
A few words on quality as well. This is obviously a crucial area for us going forward. As a consequence, we are strengthening the organization, and this is—we do by creating a global quality management system and, and thereby ensuring best practice in all regions and all sites going forward. So we're moving from this delegated structure with different quality systems and different starting points to one more homogeneous setup in the group. In the short term, though, this adds costs for the group. So year to date, we've added approximately SEK 100 million of costs when it comes to the quality structure in the group.
A large portion of this is explained by hiring new staff, but there are also some reallocations in FTEs from supply chain as well to make sure that we have a consistent setup in the group. As I mentioned earlier, also, the spin-off process consumes some resources. The total cost for the first two quarters adds up to approximately 100 million SEK, where the lion's share is attributable to Q2. This is expected to be ramped up during the coming two quarters, and the estimate that we gave earlier of SEK 400 million to 500 million on the full year is still valid. That really summarizes the main overview, and I leave over to Reinhard Mayer to give you a more detailed overview of the financials.
Thank you, Mattias. So let's move to our results, slide 16, performance on group levels. As Mattias mentioned, we report a negative growth in organic top line, but increase in actual figures in both order intake and net sales, thanks to strong support by favorable foreign exchange rates. The increased sales contributed to improved gross margin. It was also supported by higher efficiency in supply chain and a favorable product mix. We have an increase in OpEx due to strengthening of R&D, quality, and sales, but also spin-off related expenses. We saw a slight increase in selling and admin development in relation to net sales. All in all, this contributed to an EBITA1 growth of 9.6% in the quarter. For June year to date, we are up 19.5%. Let's move to page 17 and the foreign exchange effect.
Our currency transaction exposure relates to when the group's factories are selling to the group's foreign subsidiaries, which we hedge for. This contributed with SEK 56 million for Q2, and with SEK 133 million for June year to date. The translation exposure relates to when the group company results are translated into Swedish krona. This is not hedged. You can see that on EBITA1, the transaction impact was SEK 56 million, and the translation effect was SEK 71 million, resulting in a total effect of SEK 127 million for Q2. It is also worth mentioning that currency transaction effects are expected to have a positive impact of approximately SEK 250 million on the group's earnings for the full year 2017. Let's move to page 19 and the net debt.
Net debt amounted to SEK 22.6 billion at the end of the period. The adjusted increase in net debt amounts to SEK 56 million, versus last year's increase of SEK 497 million. This led to net debt to equity ratio decreasing to 113%. Our leverage, net debt to EBITDA before restructuring ratio, decreased from 3.99 to 3.59 for the period, which is calculated on a rolling 12-month basis. Finally, over to page 21 and the cash flow. If you take a look at the cash flow, the group's cash flow from operations amounted to SEK 223 million for the quarter, corresponding to a cash conversion of 29.1%, versus 44.7% in prior year.
The change is, Mattias mentioned, mainly attributable to an increase in working capital, explained by tied-up capital in inventory and sales receivables outstanding. During Q2 2017, we have seen net investments of SEK 390 million, which is a decrease of 2.7%, which resulted in a cash flow after net investment of SEK -208 million. It represents a decline of 36.8% versus last year. With that said, I'll leave over to you, Mattias.
Great, thank you, Reinhard. Before summing up, I'd just like to give you a few comments to our outlook, and we're now on slide number 23. Despite the somewhat soft second quarter, we still expect slight growth in organic net sales when it comes to the full year of 2017. Reinhard has just elaborated on the currency transaction effects, and we do expect a full year positive impact of about SEK 250 million on the group's earnings for 2017. I reiterate as well that the estimated cost related to the potential distribution and listing of the Patient and Post-Acute Care amounts to between SEK 400-500 million. Half of these are one-time costs.
In essence, the outlook is unchanged for 2017 compared to what we mentioned in the first quarter. With that, we can move to the summary, and that is page number 25. Before we open up for questions, I'd just like to make a brief summary of what we covered in this call. We do see improvements in gross profit and EBITA 1. We can see continued efficiency enhancements when it comes to direct and indirect spend. We do challenge this mostly to strengthen our R&D quality, but some of the savings are also consumed by costs related to the spin-off of PPAC. We see a strong development in Acute Care Therapies when it comes to net sales.
When it comes to the net attached to the acute care, obviously, on EBIT levels, a lot of these benefits are eaten up by the provision of SEK 488 million to account for the replanning of the remediation in Hechingen. The challenges that I mentioned in the Q1 call, they remain, and they will continue during the full year. There's no question about this. We see challenges when it comes to the top line. However, we don't see any needs at the moment for adjusting the output for the full year. When it comes to the remediation process related to the consent decree, it is a complex situation, will continue to be a substantial challenge for a long period of time.
We will continue with efficiency enhancement through Big5 , even if we have some additional complexity due to the spin-off. We will focus on working capital in order to free up resources to invest in the areas where we can create values for our customers. R&D is an example of this. I also want to mention the planned Rights Issue. It's, I think, in long term, very good for the group. Short term, it adds a little bit of work, especially in some of the central functions here, but we believe that's a, it's a good thing to do for the long term.
When it comes to a little bit longer-term perspective, I also would like to mention that we are working on the long-term plan for Getinge, which I really look forward to present later on this year. We said that during the fourth quarter, we would be able to elaborate a bit more on the longer-term plans for the group. So with that summary, I open up for questions.
Thank you. If you would like to ask a question over the audio line at this time, please press star one on your telephone keypad. Please ensure that your mute function is switched off to allow your signal to reach our equipment. Again, that's star one if you would like to ask a question. We'll pause now for a brief moment to allow everyone's signal. Again, just as a reminder, that's star one to ask a question. We will now take our first question from Scott Bardo from Berenberg. Please go ahead, your line is open.
Yeah, thank you very much for taking my questions. First question, please, relates to what appears to be relatively persistent weakness for the Surgical Workflows division. So I wonder if you could talk a little bit more, please, as to what is actually driving this weakness. I would imagine you're contracting or failing to grow in line with the market at the moment. So has there been any sort of fresh competitive dynamics we should be aware of, or is this some inefficiencies from your side? Following up on this, I think you were very positive about growing this business this year with some new product launches, so perhaps you can provide a little bit more detail there. So that's question number one, please, Surgical Workflows.
Also, please, I'd like to understand a little bit more about the heightened remediation costs or replanning at Hechingen. I think now, and we're approaching best part of SEK 2 billion for FDA-related remediation plans. It seems that there's a heightened cost going into this German facility. So what, what actually is this cash being used for? Do you anticipate any disruption to operations? Is FDA fine encapsulated within this sum of money? Perhaps if you can just give a little bit more background as to what exactly you're doing with this money would be very helpful. Third question for me, please, just relates to the closure of the Hudson facility and move over to Merrimack. This seems to be a positive step.
Can you please quantify what savings we might now expect as a result of this, cessation of double running costs, and whether this now paves the way for you to, launch new products or get certain PMA approvals in the North American market, which could add to growth? Thank you.
Okay, thanks, Scott. It's Mattias. I'll start. When it comes to Surgical Workflows, it's two main things, I would say that explains the performance. The one of them is internal. Really, it's really clear when talking to our units around the world, that we've had a lot of internal focus, both because of the One Getinge rollout and the changes that were related to this. But also due to the spin-off, now has added a little bit of complexity, as I mentioned, and also internal focus that's obviously been diverted away from the market. So I think that is part of the explanation of the performance.
The second bit is, as you mentioned, we do have some good product launches this year, and we can see when you take a more granular look on this, we do have some nice progress with, for example, the Mira range that we launched earlier. We do also see on the software side, we also have some positive development there. But it's clouded by the overall trend when it comes to the product ranges related to tables, to lights, and to pendants, where we see a little bit quicker decline than we had expected here. We are still the market leader.
I'd like to point that out, but there is also a more competitive environment out there, and we do have a higher pressure from competitors on parts of the product range within Surgical Workflows. So that's a bit more granular view on this. When it comes to your question on remediation for Hechingen, you asked whether FDA were okay with this. I think they don't really care about the amount of money that we spend. They care about the time plan and the actual changes that we make. And this is something that we communicate to the FDA, and we have had a dialogue with them ongoing. I'm not gonna elaborate more on this.
When it comes to the SEK 488 million provision, this is used mainly for external resources to support with the actual work that needs to be done when it comes to the remediation. The main change from earlier is that we had to rescope the remediation, take a more holistic view, instead of just fixing the findings that came up from the FDA audit and the third-party audit. We've needed to take a complete process view on this in Hechingen, which wasn't done in the same way as in Wayne and Hudson, Merrimack before. When it comes to the closure of Hudson, I do agree that it's a really good step to have completed the move now.
However, we don't provide any more detailed insight on the cost related to the move and savings related to this.
Okay. And just if you can clarify, is it still your anticipation that you can grow Surgical Workflows, or are these pressures that you refer to something that's gonna persist for some time and challenge that business? I think you referred to a lot of confidence in growing that business at the beginning of the year. I just wonder if anything's changed now.
Well, long term, I think this is a business that we will be able to grow, absolutely. I think in the short term, this year and then part of next, I think we've gone through the spin-off process, and we see some better traction on the new products. There is. You need to be aware whether there is a sales cycle related to this. I mean, some products take longer to get launched and for customers to warm to. I do think that long term, we will see benefits from this. We're also continuing to work on what we call the Tier Two segment within Surgical Workflows as well.
This, however, even if we talked about it for a while, it is still in its infancy when it comes to developing and launching the actual products. So there will be some time before we see positive effects from this. So, in summary, a little bit of a struggle in the short term, but I think the longer term prospects for Surgical Workflows are still positive.
Okay, thanks. I'll jump in the queue.
Thank you. We can now take our next question from Kristofer Liljeberg from Carnegie. Please go ahead. Your line is open.
Yeah, thank you. A couple of questions for, from me as well. First, could you explain a little bit more why you still expect growth to be positive for the full year, given the flat development year to date and continued weakness in order intake? Second question on the separation cost, how much of that was booked as non-recurring here in the first half of the year? And also, now on the product mix, that has been pretty positive for the gross margin, both in the first and second quarter. It seems order momentum for acute care deteriorated a bit here in the second quarter. Does this mean we should expect a less positive product mix in the third quarter? Thank you.
Yeah, Kristofer, this is Rainer speaking. I mean, the outlook, I mean, I leave that to Matthias later on, but, let's say you asked a specific question regarding what is in Q2, the spin-off related one-time costs. And, here I can say it's around SEK 22 million, which was so to say, non-recurring and one-time related. The rest is so to say, then, expense related. Yeah.
Good. Thanks, Rainer. When it comes to the outlook, this is us maintaining the outlook or keeping it unchanged, is really based on when we look at the pipeline of opportunities that we have with customers now. So, we try to look at some leading indicators when assessing the complete outlook. And in terms of product mix, it would be speculative, I think, for us to make any statements on this.
We don't see any predictable changes in this, I would say.
Okay. So you have, you said SEK 22 million in non-recurring for the separation this quarter. You had almost SEK 80 million then, hurting the adjusted EBITDA figure from this separation. Is that correct?
Well, slightly below 80, but that's correct.
Okay. Was that all of that in PPAC, or did you have costs in the other businesses as well?
No, this is spin-off-related cost assigned to PPAC.
Okay. Could I ask one more question? When it comes to the increased competition you see in Surgical Workflows, I'm just curious to hear a little bit where that's coming from. Is it mainly that you are too exposed to the high-end segment or something else?
Yeah, we traditionally, as you know, we have a very strong position in the premium segment, and the faster growing part of the market is on the Tier two or the value segment part of the market. So that's really where we see the weakness. Okay, thank you very much.
Thank you. We can now take our next question from Lars Hevreng, from Danske Bank. Please go ahead, your line is open.
Yes, thanks. Is there any possibility to guide on the FX effect, I mean, yourself for the full year, but should we expect a similar positive impact in the third quarter and then a negative impact in the fourth quarter? Is that how we should see it? The other question is on if you just could clarify the working capital development in the second quarter was a little contrast to the first half performance or the second quarter performance in previous years. If you could clarify that again, please.
Yeah. Well, I start with the last point, working capital. I mean, basically, I think there we need to allude to two areas. One is the inventory increase, and clearly, so to say, here, it has to be seen. One, we had a ship hold in Q2 on some of the products that had sort of stopped some products going out and leaving sort of the effects of it on the Cardiac Assist side. One effect. Second effect is that we basically are streamlining our operations, hence, as we still foresee a growth for this year, some of the stocking up is related to foreseeable growth.
And then, the third piece is really so to say that the DSO side became a bit difficult in two areas within the Tier two business, which we are working on, and in Middle East on, so to say, the other side of the business, and there we have, so to say, some mitigation plans in place. Hence, the working capital, especially on the inventory side, will improve, and on the receivable side also coming forward. We have identified them in a plan in place, that said. To the foreign exchange, I mean, the 250 million is, so to say, the positive impact overall. Let's, I mean, that is what I for sure see, if positive surprises come, we will give you an upside on that.
Okay, but should we assume the majority of the remainder for the year will impact the third quarter, not the fourth?
That's true.
Okay.
Because that's where we have a lot of, so to say, transactions happening between the factories and the sales companies.
Okay, thank you.
Thank you. We can now take our next question from Annette Like, from Handelsbanken. Please go ahead, your line is open.
Thank you very much. I would like, first of all, to hear about the FDA related cost where you're taking a provision. You said that this was mainly external. I'd like to hear if any reason to believe part of this will be ongoing, as you have to ensure that you are compliant with FDA request, and you will have to basically lift your quality, Q&A, quality assurance to a completely different level than you have now. Also, can you tell us if there's any meetings with FDA, any dialogues, any sort of approval or so in accordance to the changes to your remediation process? And then in respect to your R&D, are you going to change that a lot?
I mean, my impression is that it is less focused than, and if you're only spending around 3% of your turnover, it has to be a very dedicated, very focused effort in terms of products out of this. How will you do that compared to how you have done it in the past? Thank you so much.
Thanks, thanks, Annette. When it comes to the dialogue with FDA, this is between us and FDA, so this is not something that we comment on publicly. When it comes to the cost, you're absolutely right. They are external, for the most part, and this is needed to get the actual work done, the detailed work with the remediation. The ownership of the program is still with the local management, and to a higher extent than it has been in the past, as well. This was one of the changes that we informed about in the previous quarterly call. So, there will be some costs.
When you go through a process like this, you do have a buildup of costs compared to where you were before. That's really normal, and this you can see in other companies who've gone through remediation as well. Once you're through remediation and you have a stable system that works the way it's intended, you can start to work this down a little bit again. But this, again, it's a longer-term process, so there will be some of the costs sticking with us. But one of the reasons for going external as well is to make it easier to reduce this gradually once we are in a good position when it comes to our quality system.
When it comes to the R&D bit, I think it's a good observation. The resources that we spend on this, we need to be more selective compared to the past. That's really clear. I think one of the things that we're trying to improve is to look at the comparison across the company. I think, as you know, Getinge was organized more of a holding type of structure, where there was less comparison between R&D products and within the different business areas. And we're trying to do a better job now of comparing the returns for different initiatives, and in that way, be a bit more selective going forward.
... Okay. Can I ask a follow-up on FDA? In connection with your 2Q results, you were stating that you sort of highlighting that we could be in a situation that we were in now, where you had to do additional provisions to because you were not satisfied. At that time, you said it was mainly based on your own internal, you were behind your own internal targets or progress. Is that changed? Has there be a further demand from FDA to do this, or is it still Getinge or higher management that thinks they're behind where they want it or wish to be?
Yeah, this is entirely internal decision from us. We were not happy with the progress that we saw towards the end of the first quarter, so we've decided to make additional efforts to speed this up. We've had no further instruction or demand from the FDA in this regard.
Okay, thank you so much. I drop back.
Thank you. We can now take our next question from Hans Meyer from Nordea. Please go ahead, your line is open.
Yes, good morning. A follow-up question on your guidance. Historically, you typically guided both on revenues and orders, or you implied that the revenue guidance is also valid for orders. And in this case, order is now lagging a bit. Should we still expect that the orders could be positive for the year as well, or is it only revenues you're talking about? And secondly, I also wonder if you can talk a little bit more about your sort of market position. If you look on the three different segments, how you're performing compared to the market, which area you're losing most market share, and the way you see sort of a real weakness in the market and not only problems with Getinge. Thank you.
Okay, thanks, thanks, Hans. On the guidance, we don't change. We guide on sales now, and we don't intend to change this a nd we, as you know, we have a mix of recurring and recurring revenue and revenue based on capital goods, and especially in the capital goods, you can have some significant fluctuations. But we guide on sales, and the outlook for this is unchanged. And when it comes to, let me just clarify, when your question about the segments, was it related to the three business areas or something else?
Yeah. Just give me a little bit more color on how you perform compared to, or how you perform compared to the market in the three different business areas.
Okay. I think, in overall view, I mean, we'll come back to this in a little bit more detail when we talk about the strategy for Getinge in the fourth quarter. I think the overall summary, though, is that obviously in Surgical Workflows, we're not growing with the market as in total. As I tried to explain during parts of the presentation, we do see good growth when it comes to our software business, for example. Here, we're growing above the market. In some of the other areas, when it comes to Surgical Workplaces, for example, we're clearly not growing with the market.
In acute care and PPAC, I mean, especially the PPAC has a rather wide portfolio. If you try to drill down, so it's difficult to make a summary view here, but it's on overall level, we're also not growing with the markets there. In acute care, we have a portfolio where some of the niches we're active are low single digits growth, and here we're keeping up with the market. Others are higher, even double-digit growth segments, and here we are a little bit behind. But acute care, I guess, is the area where we're keeping up best with the market pace overall.
But still underperforming, or?
I'd say, yeah, it depends on the different niches a little bit too much. It's more or less in line, I guess, yes, from an overall perspective, but for sure not outperforming the market.
Okay, fair. And just lastly, in terms of pricing, have you seen any change in trend when it comes to the pricing environment currently?
No major change. I think there is some price erosion on the more mature parts of the product ranges, but there's no significant change in the last couple of quarters here.
Okay, fair enough. Thank you.
Thank you. We can now take our next question from Michael Jungling from Morgan Stanley. Please go ahead, your line is open.
Good morning. Thank you. Three questions, please. Firstly, on order intake, the decline in the Americas of -7.5%, for capital equipment, how much do you feel is driven by poor execution versus the Obamacare repeal threats? Secondly, on sales force stability, can you talk about the stability of your sales force, retaining good people? I suspect a decline in organization and revenues, and also in orders, it's difficult to do so. And then thirdly, on the capital market day that you had highlighted previously, when will you be in a position to announce the date, and is the agenda still going to include giving a midterm outlook? Thank you.
Okay. Thank you. When it comes to the team. I'll start from the bottom, actually, with the capital markets day. We will announce the date for this in September, and then we'll be held, yeah, we'll announce the date in September, full stop. When it comes to the sales force stability, it's quite a varied picture. If you look at some of the business that we are under the consent decree, and we have some supply constraints, we have quite a large turnover when it comes to the sales force, especially in the U.S. When it comes to the other businesses, it's very, very stable, I would say. So it's quite a different picture depending on where you where you look.
Can you repeat the question on Americas' order intake? I wasn't quite sure what the specifics are.
Yes, so the question was, is the decline for capital equipment in the Americas of -7.5%, how much of that is self-incurred, if you like, or poor execution versus the threat of Obamacare repeal, which may be impacting hospital decisions and in buying capital expenditure because of doubtful debt concerns?
Yeah. Yeah, I think the short answer is that we don't have that information. We don't know. There's an element of both probably, but I can't give you 50/50 or any ratio, if you will.
Okay. And when it comes to the CMD, thanks for giving us the month of the announcement, but can you comment on whether the intention is still to give us midterm guidance? Revised midterm-
What do you mean by, what do you mean by midterm guidance?
Well, well, let me rephrase it. What is your intention for the CMD? What do you want people to get out of the CMD?
The intention is to give you a good overview of the mid- to long-term prospects for Getinge and our plans going forward. That's really the idea. In terms of granular financial targets and so on, we'll come back on that.
Okay. And can I ask a brief question, please, on disposable sales and orders. How long does it take for poor capital goods orders to eventually also show up in declining disposable sales? Does it take six months to show up? Is it three months? Is it a year?
Oh, sorry. I mean, it's basically, I mean, Michael, this is Reinhard Mayer speaking. I mean, you can't really relate to that in generic. You would need to relate to this in specific. We do talk here, I mean, capital equipment, let's say if you talk about Cardiac Assist, an installed base, which stays there between eight to 10 years, hence, let's say a fluctuation in capital equipment recycle can take sort of a couple of years until you actually realize that in disposables. And, specifically here, one can say, I mean, we have seen some positive movement in the past with basically replenishing complete Cardiac Assist fleets of intra-aortic balloon pumps. This has sort of a decyclical approach, and that doesn't mean really that we do see an impact.
It's more that, the capital equipment sale and order side is, slightly impacted. So it's very difficult to say, unless installed base is taken away, which we don't see, it does, sort of say, not have an impact on, disposable right away.
Great. Thank you.
Thank you. We can now take our next question from Chris Cooper, from Jefferies. Please go ahead. Your line is open.
Hi, good morning. Thanks for taking my questions. Just firstly, on sales mix, please, can you provide an update on how much revenue is generated by capital goods and how much is disposable for each of the three business segments? And also, how you expect that to trend going forward, just at a high level. Next, on Hechingen, what are your expectations, please, for when this latest remediation program will be completed? Apologies if I missed it. And given also, just secondly to that, given that the charge taken during the quarter relates only to employee costs and process validation, would it be prudent for us to expect further charges in the coming quarters? I'm not looking for numbers there, but just obviously confirming whether the deficiencies in the previous program did indeed extend beyond those two areas.
And just lastly, on cash flows, I mean, you provided a bit of color there on the, on the working capital build, but cash investment in inventories in particular nearly doubled year-on-year, and I'll just be curious to get your thoughts, please, on what you believe to be the new normal run rate, and how quickly we can expect that to normalize. Thank you.
Okay. Thanks, thanks, Chris. On your first question, we don't provide more detail than what's stated in the, in the interim report. So, I don't, I'm not able to shed any more light on, on this, in this, this call. When it comes to, to, FDA, we've taken a provision, now, based on what we can see, the work, in the coming years. You did not miss anything on the timeline because we, this is something we communicate with the FDA, on. So there, we don't give specifics on, on any updated, timeline for, for this. We've just provided the information now of the provision that we believe is needed to, to go through the remediation program.
When it comes to the cash flow, I leave that to Reinhard to elaborate on.
Yeah, I mean, your question related to inventory increase and when will that, sort of say, now come down and normalize, clearly, I mean, towards the end of the year. I mean, as said, we, with our sales and operations planning, we are sort of mitigating somehow the demand from a factory to stabilize the inventory side, but also, let's say, take the balance sheet to prepare for the growth. And here, it is sort of a swing between the quarters. We do absolutely foresee that the inventory levels will come down in Q3 and Q4 going forward. There might be, let's say, a specific development in one or the other line, but, let's say the general trend will decline, and we will see the very improvements there.
Okay, thanks. And just a quick follow-up on the Hechingen question. So, previous to when this plan was redrawn, I believe you'd been expecting the first quarter 2018 as a sort of reasonable benchmark for when the remediation may have been completed. Now, obviously, you, you've gone back to the drawing board to some extent, but would it be unreasonable to think that maybe a year, given that previously the expectation was for a year, would be a sensible expectation on our part for when the remediation will be completed?
I think we need to be clear here that it's really not for us to say where remediation is completed or when we're off the consent decree. This is for FDA to say. We can only work on the remediation as such, and make sure that we have a system that lives up to the demands of the FDA. And I think it'd be a mistake to give specific timelines for this in this call. It's really something we communicate with the FDA, and it's not up to us to say when we're finished with remediation.
Okay. But that was the reason for the question. I mean, you said earlier in the call, the new plans that you've drawn out were entirely an internal decision. They weren't as a result of communication with the FDA.
Yes, that's correct. That's correct. But when it comes to communication about-
At this stage, how much longer do you think until your remediation is complete? I mean, I appreciate it's more difficult to know when the FDA is gonna be happy.
Mm-hmm. Yeah. And then it, it's really, it's... I don't know, it's not very fruitful to even have an internal perspective on this because it's only the external perspective that counts, really. It doesn't matter what we think internally, unfortunately. I wish it did, but it doesn't.
Okay, thanks.
In the interest of time, that will conclude today's Q&A session. I'll now turn the call back over to you for any additional closing remarks.
Great. Thank you very much, and thanks for your attention during this call. I just to sum up, I reiterate what we said in the summing up here, that we on a high level, we've had a challenging second quarter, a number of short-term challenges that still remain, but we do keep the outlook for the full year intact. There's no change to this. So with that, thank you very much for the attention. I wish you a good rest of the day.
Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.