Good day, and welcome to the Getinge Group Q2 Report conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Alex Myers. Please go ahead, sir.
Thank you very much, and warm welcome to all of you, and thanks for joining the telco today. We'll try and stick to the announced time schedule, which means that we'll attempt to close this conference at 11:00 A.M. CET. As per the information for today's press release, you should have been able to access a slide presentation that we use as a format for this session, and the presentation is available on your webpage.
Together with me is Pernille Fabricius, the Group CFO, and she'll be presenting the Q2 financials and joining me also in the Q&A session later on. I'd like to start with slide number 3, which gives you the quarter in brief.
I'd like to start by saying that we had a slow start in Q1 regarding order intake, but I'm very encouraged to see a strong order intake in the second quarter, which was above expectations. We reached 3% growth in the quarter, which is also a very encouraging sign. Accumulated for the year, that brings us to an organic intake of order intake of about 0.5%.
So we've gone from, let's say, a decline in the first quarter to an accumulated growth in the second quarter. Regarding net sales, the quarter was flat if we describe it in organic terms, and this is a direct consequence of the order intake in the Q1, which was soft.
But we also had some supply constraints in our Cardiopulmonary portfolio in connection with our remediation activities in Hechingen, and I'll comment a bit about that also later. The gross profit declined in actual terms, but this was primarily due to currency, currency translation effects. On the upside, we had expenses that were significantly below last year, and that contributed towards an EBITA improvement of more than 10% in the quarter.
Our focus on quality remains very high and remains equally important as before. We established a global Quality Management System on a global scale, and that will give us a platform as a group to continue our improvements.
We have a high level of activity in Hechingen, but we're still awaiting a formal response from the FDA on the remediation plan, and I'll comment that a little bit later as well. Finally, on the innovation front, we have some interesting launches in the quarter, which I believe will contribute to our growth. I'll take it step by step now, and over to slide number 4, commenting on the top line.
Order intake, as I mentioned, was above our own expectations for the quarter, and we grew by 3%. We had a very strong performance in APAC with almost 10% growth. Also, EMEA had a strong performance, while Americas had a slight decline.
Order intake was positive, both within equipment and recurring revenue, and this is a bit of a change in trend. We've had recurring revenue growth all along, but we were -- we had a sluggish start in equipment, and now we're seeing equipment also growing in the quarter. This is very encouraging for the remaining of the year, where we expect also the equipment side of the business to pick up.
Both Surgical Workflows and Acute Care Therapies had strong quarter, had strong growth in the quarter, while Patient and Post-Acute Care had a weak quarter two. A bit on net sales. We were fairly flat in the quarter, a decline organically of 0.3%, but we describe it as flat and see it as flat when adjusting for currency.
This is a direct consequence of this, let's say, the soft Q1 in orders, which were translated into the net sales in quarter two. But we also experienced some supply constraints within our cardiopulmonary portfolio in Hechingen, and this is in conjunction with the remediation work and the focus we have there.
But without these constraints, we would have actually achieved a slight organic growth in the quarter. Surgical Workflows and Acute Care Therapies showed growth in the quarter, while Patient and Post-Acute Care declined. The decline in Patient and Post-Acute Care is primarily, really, if we take the primary reason, it is a lower sales in medical beds equipment.
Half of the decline is actually due to a strategic decision that we took in emerging markets, where we decided to actively focus on high-margin medical beds and move away from low-margin products, while the other half of the decline is attributable to a decline in medical beds in the U.S. Rental, where we've had decline in previous years, has actually been relatively flat, so far this year.
Geographically, we grew in APAC, and had a stable development in EMEA, while we had a slight decline in the Americas. Over to slide five. Now that we have a total company structure, a one-company structure in place, we feel we have a good platform to start leveraging our size, and launching new innovations. What I'd like to do is highlight two areas where we're strengthening our offering in the quarter.
The first area is a growing segment within patient care, within actually the safe patient handling segment and sector of the business, where we're focusing on bariatric care. We're broadening our portfolio in three areas: within specialized medical beds with the Citadel Plus, within ceiling lift systems with the Maxi Sky 2 Plus, and we've also made an acquisition in the U.K. to strengthen our U.K. footprint.
We acquired a company called 1st Call Mobility , and it's the market leader in the segment within the bariatric segment in the U.K. It has a turnover of SEK 100 million, and has had an impressive growth rate in the last five years of about 30%, with favorable margins as well.
So we see that as a bolt-on acquisition, not a major acquisition on group level, but an important acquisition for the U.K. market. Also within Surgical Workflows, we're renewing our portfolio with a new generation mobile operating table, the Meera, which we believe is going to be a very good replacement and advancement of our portfolio. And we're also introducing the Volista, which is a more advanced lighting system focusing on both the top and the mid-tier. Over to Slide 6. Here, I'll be short. The plan is progressing very well, I should say. We're on plan. The so-called Big Five program is delivering savings.
We've delivered savings about SEK 85-90 million in the quarter, and over the first two quarters, about SEK 160-170 million. The overall expense decrease in the quarter was 8%, which has helped us, I would say both having a more effective organization, but also bringing down our expenses and contributing to the EBITDA increase.
Here, we'll continue to tap the synergies that we see in the One Getinge. While, again, I want to highlight that we're keeping focus in the field untouched, I should say, and that we're keeping both our sales and service organizations focused on top-line growth. A bit on FDA and the Consent Decree. Here, we do not have any significant new information to give you.
So the information is very similar to Q1. The news is that we've established a global structure and a global Quality Management System that's now helping us harmonize our processes and also helping us to create a culture and a process of continuous improvement for our Quality Management Systems. We're focusing very much particularly on the Hechingen, as we've done since the first quarter, and we're doing that following observations from a third-party inspection earlier this year.
We've initiated and submitted the improvement plan, and right now we're working from that improvement plan and towards that improvement plan during Q1 and also in Q2, but we haven't had any formal response from the FDA on this plan. We're in close dialogue with the FDA, and we're awaiting their agreement.
Until we have a response, we can't specify the financial consequences of this plan, but I also want to highlight that we do foresee that there are going to be additional investments necessary for us to fulfill that plan. The closing balance for the remediation is SEK 87 million, and as mentioned earlier, this does not include additional investments related to Hechingen. Now I'd like to hand over to Pernille for the financial overview, and I'll come back with the summing up and the outlook.
Thank you, Alex. So if we turn to page nine, Getinge saw an organic decrease in net sales of 0.3% to net sales of SEK 7,159 million, adjusted for currencies and divestments. At actual rates, the net sales of Q2 amounted to SEK 6,927 million. Gross profit at SEK 3,167 million for the quarter represented a margin of 45.7%, a decrease of 0.7 percentage points from last year due to changes in product and service mix and impacted by currency development.
SG&A reduced in the quarter significantly to SEK 2,342 million due to the significant focus on efficiency and cost reduction. To the Big Five program, we carry restructuring costs, which at the quarter were SEK 141 million.
Finally, profit before tax improved to SEK 311 million. Turning to the Q2 income statement, you will find the financials at actual rates, as well as last year's rates, adjusted for currency and divestment to facilitate the organic comparison to last year.
As mentioned, sales was down in the quarter to SEK 6,927 million, representing the -3.5% growth, of which 0.3% organic. Gross profit at SEK 3,167 million, down by 4.9%, of which 0.7% organic. EBITA before restructuring at SEK 788 million, up 10.2%. SG&A costs were reduced by SEK 260 million in the quarter, which more than compensated for the impact of lower sales.
Also, after adjusting for one-off impacts, did we see the EBITA before restructuring and acquisition costs improve. Consequently, we saw a net profit improve to SEK 227 million, up from SEK 177 million last year. To note is that we used SEK 42 million of the quality provision, which ended at SEK 87 million, as Alex explained. No additional provision related to Hechingen has been taken in the Q2. Turning then to the half year trading in headlines on page eleven. Net sales at SEK 13,304 million, down 4.2%, of which -1.7% organic....
Gross profit at SEK 6,617.8 million, constituting a margin of 46.4%, 0.2 percentage points decline from last year, adding the volume impact mentioned in Q1 to the mix and currency impact seen in Q2. Again, the significant focus on expense reductions led to an EBITA before restructuring at SEK 1,408 million, slightly down to last year, but at par when adjusting for one-off.
Net profit improved to SEK 342 million with more than 20%. Turning to order and net sales on page 12, taking a closer look at the orders net sales by geography and product category, it is most relevant to look at the organic development. Looking first at the geographic development, EMEA improved on Q1 and saw a positive order intake of 4.3%.
Net sales also improved on Q1, but were still slightly negative at a -0.3% organic growth compared to last year. The U.S. this quarter experienced a negative organic order growth of -1.2% and a sales development of minus 1.1% compared to last year. North America showed a stable sales development, with Canada slightly down and Brazil slightly up.
The U.S. was mainly impacted by negative growth seen in the Patient and Post-Acute Care segment. APAC showed a positive organic development in both order intake and net, and sales in the quarter, and saw a strong development in specifically the Surgical Workflows category. Turning from geographical split to split by product categories, both Surgical Workflows and Acute Care Therapies experienced organic growth to last year in orders as well as in net sales.
Patient and Post-Acute Care, as Alex explained, realized a negative development in both order intake of -5.6% and in sales of -5.3%. To mitigate the downward trend on in top line in the Patient and Post-Acute Care product category, the focus is on boosting the product portfolio with, for example, as Alex mentioned, the Citadel Plus, as well as the Maxi Sky 2 Plus ceiling hoist, and the acquisition of 1st Call Mobility in the U.K. Turning to page thirteen on product segmentation, you will find the areas, again, Surgical Workflows, Acute Care Therapies, and Patient and Post-Acute Care. Surgical Workflows, as mentioned, experience an organic growth intake, order intake increase of 3.3% compared to last year, with growth in all product categories and strong growth in APAC of 27.8%.
Revenue in the quarter decreased by 0.6%, but was up organically by 2.4%. Life Science increased by 42% with a strong development in Europe and Southeast Asia. Surgical Workflows showed a negative organic growth. Gross margin reduced to 35.9% due to mix and currency. SG&A costs reduced and consequently, EBITA before restructuring ended at 193 million SEK, 8.1% margin in the quarter.
Acute Care Therapies segment grew again this quarter, organically 8.7% in order intake. Net sales grew by 0.8%, with the APAC and the U.S. showing positive growth and EMEA slightly negative. Gross margin increased due to positive mix reduced by currencies.
EBITA before restructuring and integration costs reduced to SEK 491 million compared to SEK 514 million last year. This segment was impacted by generally higher quality costs included as part of administration costs. Patient and Post-Acute Care. This segment experienced reduced order intake compared to last year, particularly impacted by U.S. and East Asia, primary hygiene products and beds. Also, service developed negatively in this segment.
Gross margin reduced to 42.6%, again, due to mix and currency. EBITA in this segment was positively impacted by the efficiency program, and EBITA before restructuring and acquisitions landed at SEK 154 million, compared to SEK 128 million last year. Page 14 is just for information purposes, the product segmentation as per half year. Turning to page 15, the balance sheet.
The main focus now is reduction of stock and account receivables. Focus first half has been on cost reduction, the Big Five program. In the coming half year, we will widen our attention to working capital management. The debt multiple is 4x at quarter end.
Turning to page 16, cash flow from operations ended at SEK 463 million, which represented a cash conversion of 44.7%. This is, in our view, not satisfactory, and the focus will be as set on improving the cash conversion going forward. I'll hand over to Alex.
Okay. I'll look at the outlook now, just to give you a few comments. And what I wanted to do is focusing more on the changes and not going through what is the same. If I take the next slide number 20, what is the same is the Consent Decree, where we haven't changed anything since last quarter, and also for the restructuring costs for the full year.
So, regarding the changes, we're trying to give you a clear clarification of the top line expectations. And then I should say this is more clarification than a material change in our plan or what we see, but also consideration of where we are in the first half of the year.
So we see the year having a moderate organic revenue growth, and also in organic terms. And we actually see, region by region, a very similar picture to what we had before. So we can continue to see revenue growth in EMEA as slightly positive. Also, the Americas have a similar outlook to that of EMEA, with North America being more positive, while a more challenging picture in Latin America.
Asia Pacific is also expected to grow with a positive outlook, and there we see Southeast Asia and India, particularly, growing. China is, we believe, still difficult to predict, but at the same time, we see China having had good order intake in the past quarters. So here it's more clarification rather than a material change.
We also decided to take away the currency statement that we had before, because we do see a different currency volatility and a different currency situation. So we felt it was not relevant to keep that statement in, in order to guide you a little bit, a little bit better.
So those are the reasons for the change, and, and the rest remains, remains unchanged, going forward. So finally, before we take questions, I'd like to summarize a bit the second quarter, and I'll start a bit with what we promised or what we said were our priorities for the second quarter already at the end of the first quarter. We said we'd focus on two things.
One was order intake growth, and the other was to ensure that the Big Five continued to give an effect on our PNL and also effectivizing the organization. I believe on those two points, we did deliver on the order intake, and we also have delivered on the Big Five program.
So that, for me, is an indication that the company transformation is progressing according to plan, and it's very encouraging to see the order intake growth now taking us into the second half of the year. It was very important for us to do that. On net sales, I would say the quarter reflects more the first quarter order intake.
So, we did our best to get the net sales into growth, and we ended up with an organic flat, but it's very much related to a soft first quarter. So, I'm very optimistic about the rest of the year, and we'll continue now going forward on order generation in Q3, because we do have a very heavy quarter in Q4 in terms of seasonality. And also we have a good order book now that we have to transform into revenues in the next coming quarters. So those are the priorities for the next, I would say, two quarters and the rest of the year.
Beyond the immediate sales focus, we'll also be bringing a stronger pipeline of innovation to the market, and we'll do that throughout the remaining of the year, but we also have to leverage the innovation that is coming out during this quarter. And as always, our focus on quality management and our quality management systems are our top priority, and we're putting the necessary resources and also the necessary investments into the quality system, both globally, but also specifically in Hechingen.
So with that summary, I would like to invite you for any questions, and Pernille and I will do our best to answer all your questions on this. Thank you very much, and we open up the forum now.
Thank you. If you would like to ask a question at this time, please press star one on your telephone keypad. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star two. So again, it's star one to ask a question. We will just pause for one moment to allow everyone a chance to signal. We will now take our first question from Richard Koch from SEB. Please go ahead.
Hi. I was just wondering, you mentioned that you had some suppliers restriction in Hechingen. How big has that impact been so far, and how much do you expect for the rest of the year?
Yeah, I would say, I would say like this, actually, the Cardiopulmonary portfolio in the quarter had a slight decline, but not a very large decline. However, we're operating in a category where there's a, I would say, a double-digit growth in the actual category. So we have a delta between what we can produce, if we're going to comply with our validation exercise. So I think it's a... So I just don't want you to think that, you know, we're having a decline on the top line. We're actually keeping the top line quite stable on those products. It's just that we can't, we can't manage, let's say, the demand at the moment and have to prioritize.
I don't want to put a number in that because it's actually not a number that we're actually declining. It's just an opportunity that we're missing, and I'd rather not quantify that.
... Okay. And when do you expect to hear back from the FDA on your plan for Hechingen, and also, do you have any signs of more facilities potentially being in trouble?
No, we don't do that. Again, it's very hard for me to speculate on when we get the FDA answer, and I know it because I also was expecting it, to be honest, in the first quarter, and I was hoping to get it also in the second quarter. So, now I'm kind of learning not to speculate on their behalf. But what we have signaled to them very clearly is that, we're working on that plan, so they know what our proposed plan is, and they know we're working on it. And from there, we haven't heard any, I would say, anything negative or anything to the contrary. So that's where we are on that one.
I'm sorry, no other factors that you have any-
Yeah.
-inspections?
Yeah. Yeah. Correct. Correct. I mean, we do get inspections from the FDA, so it's a normal, I would say that's a normal occurrence. So, we do get inspected, and we will always get inspected, but there are no signs kind of beyond normal inspections, where in some cases, you know, we perform 100% with no observations, in that in other cases, we do get observations. So I would call that a normal situation.
Okay, great. Thank you.
Thank you.
We will now take our next question from Kristofer Liljeberg, from Carnegie. Please go ahead.
Yeah, thank you. On the currency effects, could you just clarify what the total impact was on adjusted EBITDA figure?
Yeah. So that is a question to me. I think you need to probably look at more at the gross margin. So if I tie the gross margin in from last year to this year, the gross margin last year was 46.4% in quarter, and it landed at 45.7%.
As a positive impact, we had one-off, so that was medical device tax and the forward rates compared to last year's rates, and that impact was SEK 26 million on the forward rates. Then we had mix that reduced the margin by 1%. And then we basically had the translation impact which reduced our gross profit margin by 0.5%.
That is, as a result of the decline in the U.S. dollar, or the increase in the U.S. dollar, sorry, which makes our sales in Swedish krona, or results in a reduction in sales in Swedish krona. When we then compare to the fact that we have production outside of the U.S. dollar, in euros and in shortages, et cetera, you see that effect.
But if I look at Slide 10 in the presentation package-
Yeah.
You have a figure there, EBITDA before restructuring acquisition expenses at last year's rate, SEK 873.
Yeah.
So is that the currency-adjusted figure? I'm not sure I follow that.
Yes, by far it is.
Sorry?
Yes, it is.
Okay. And in the same table, the SEK 80 million prior period adjustment, what's that?
The SEK 80 million prior period adjustment, that's, two elements. It's one, a provision or a, a settlement of a case, that we had, which related to prior years, and then it's, an inventory, reduction, that we, that we also had to take, which related to prior years.
Okay. And now, the reason you're not guiding for FX for the full year, you're not even saying anything about the hedges. Is that correct?
Yes. So, that is correct. So if you take, the hedge, impact, we previously guided, that the currency impact compared to last year, year's hedges, would be, a positive impact of SEK 150 million, which is now slightly lower due to changes in volume, and we completely stick to that. But in addition to that, we are impacted by, as you can see, quite significantly by the translation, currency impact, and that, and that is the difference in picture, is that, made us not want to guide on it in our, in our outlook.
Okay, but the SEK 150 million hedge effect, that's only slightly lower than-
Yeah.
What you had said before?
Yes. Correct.
Okay. Thank you.
Okay, thank you.
We will take our next question from Sten Gustafsson from ABG. Please go ahead.
Yes, good morning. Thanks for taking my questions. Do you see a risk for any long-term negative implications on your business or your brand name, following the FDA issue?
Yeah, I mean, I do think there is always a risk, of course, when you're connected to a Consent Decree. I think our customers think we've been handling it in a very professional way, and they're actually, you know, continuing, I think, to praise us overall as a group.
So I think we have still a very good relationship with our customers. I think also you should know that the Consent Decrees are attached to many other companies, many other, I would say, very respectable companies. So in the industry, it's not seen as a unique thing. But of course, I take it very seriously that our image might be tarnished.
And we are working. I think the only way to work with that is to give good service and good information to our customers.
Okay. My second question would be if you could give us a percentage of your Maquet business, the old Maquet business, which is related to tenders, compared to sort of spot supply. That would be very helpful. Thank you.
Okay. I would say there, to be honest, I don't have that number in my head at the moment. Because our business is very much, I would say more than half is consumables, and the other half is equipment. But I think the best thing to do there, Sten, is to get back to you on that. So that's something we can calculate. I just don't have it in my head.
Thank you very much. That would be very helpful.
Okay, we get back to you now. Thank you.
Now we'll take our next question from Ines Silva, from Bank of America. Please go ahead.
Hello, good morning. Thank you so much for taking my questions. I have three, please. So first of all, regarding the FDA Consent Decree, I was wondering, I understand you're not gonna give us an estimate for the investments you believe you would need in Germany, but could you provide some kind of comment that would help us, that would guide us, through what this investment could be?
Maybe compare it with the investment you needed to do in the U.S. last year and, and this year as well. Then secondly, could you give us an outlook for capital equipment sales over the next quarter, given that the orders appear to be recovering? And do you think that this is the bigger delta that will allow you to end up the year with positive revenue organic growth?
And then, thirdly, could you please comment on your working capital consumption, which appears to be accelerating, and what are the reasons for that and your outlook for that? Thank you.
Okay, good. I'll take the first two, and then Pernille can take the third one. So, regarding the Consent Decree, we've made calculations on what we think the plan is, but there, we're really avoiding mentioning numbers because I don't want to come back and give you completely different numbers. Of course, the Hechingen plant is one of four plants, but it is the major of the four plants.
So the number is not going to be, I would say, as big as the overall number of remediation. But beyond that, I don't want to go into too much detail on that or give you estimates. We're also looking at a plan. I can give you the time perspective.
It's a plan overview for the rest of 2016 and also during 2017. So it's a plan that goes over a two-year period and doesn't end this year. Regarding capital equipment sales, we do see an increase in revenues in the second half of the year versus previous year.
And it's encouraging now that we have equipment sales in growth in the second quarter. So that's a very important parameter for us. The growth is lower single-digit on capital equipment on the order growth in the second quarter. So that's kind of reflecting going into the second half.
But we do have a so-called season, or if you want to call it hockey stick, on the fourth quarter, which is the main quarter to go. So, so we're looking at growth in the second half on capital equipment, and Q2 was lower single digits on capital equipment.
So, on working capital, as I highlighted, we are definitely not satisfied with the conversion of 44.7%. What we have been focused on, as I said in the speech, has been primarily on driving costs out of the business, which you've also seen in our financials.
And there has been sort of a slight deviation of focus from actually monitoring inventory reductions and reductions of accounts receivables. So the answer to your question is that it is a matter of focus, and we are already creating that within the group to put effort on improving the cash conversion for the coming time.
Thanks for that. Can I just follow up, asking, I mean, I think in the first quarter, you mentioned that this, this was also related with emerging markets. So could you update us on that? I mean, what kind of trends are you seeing in emerging markets regarding working capital consumption?
Okay, sorry. It was working capital question?
Yeah, it's working capital.
Okay.
Yeah. You know, to be honest, I'm, I can't remember whether I commented on that. I don't actually think maybe I did, but, but, it is a normal dynamic that the working capital days or the account receivable days are longer in emerging markets.
And if we fold out the account receivables here, you see the kind of same picture. So, but there's not going to be a particular difference in our approach throughout the world. We have many, many levers to improve the working capital there, and we don't, and we are going to just pull in all of those to ensure that we get this right.
Okay, great. Thank you. And just regarding Hechingen again, if your plan is through 2016 and into 2017, is it reasonable to, for us to assume that, your revenue will be some kind of disrupted while you are taking these improvements on this plant throughout this same period?
... Yeah, I would say it's hard to estimate that. I don't, we already have disruptions, let's say, currently, which I'm mentioning. So we don't foresee any other ones than that. And again, our challenge is, it's actually not that we can't produce as much as we've done before, it's more we can't cope with the demand.
So in some sense, it's a positive or a theoretical, let's say, gap that we have. So we don't foresee at the moment any major changes in disruption. But of course, that also depends on what kind of reply we get from the FDA on our plan.
Thanks very much.
Okay.
We will take our next question from Annette Lykke from Handelsbanken.
Thank you very much. First, just a follow-up question on Hechingen and sort of the constraints you have on supply constraints. In terms of the timing effect of these, should we expect those to be similar to the timing effect of the remediation program, meaning rest of 2016 and 2017?
And my second question is on the restructuring gains that you have achieved so far. Are you still confident with the 10% achievements for 2016? Or do you think it can be slightly higher? And also, you are guiding a total restructuring cost in this respect of SEK 800 million.
Where are you expecting sort of the next step to happen during the second half, and where would you expect to spend these investments?
Okay, I'll take the first one, and Pernille will take the second one then. Regarding Hechingen and what we anticipate is that throughout 2016, the current, let's call it disruption or slow production in Hechingen will continue.
What I'm hoping is that by the beginning of 2017, we will have made adjustments and we'll be getting better and, let's say, more efficient in that. So that's my read at the moment, but again, I can't guarantee things, but that's the way we see it. So 2016, same, beginning of 2017, improving.
Yeah, and then, over to me. So what you are correctly observing, Annette, is that we have reduced our SG&A costs quite significantly to date, and that we had promised a reduction for the full year of to the tune of SEK 300 million, and whether or not we are, we are beyond that in our plan. So what we are still aiming for is an improvement in the full year to the level of SEK 300 million, and we do that carefully. Also because, when we look at the Big Five, we see that, and the selling and admin costs, we see that as a net.
So there will be, over the course of, the coming six months, investments, also in the, in the admin costs that will, potentially drive those, into the SEK 300 million area. So, so we don't, we don't change that, to the positive, at this moment.
And then in terms of our restructuring costs, also correct, that they are, actually lower, than, than probably what you would have expected at this time, compared to the SEK 800 million that we have, predicted for the, for the full year.
Also, at this point, we are not going to change that, because we are going into a next phase of the Big Five program, where we will be taking it from the sales regions to the supply chain and the PCUs, and there will be restructuring costs related to that. So, I hope that this answers your question.
Yes. Maybe just a follow-up to Alex on your expectations for a solid or a few percent growth for the capsule goods. How much of that is related to your new introductions? Will they have any impact in this respect, and what are the risks of getting further sort of lack of interest in the market itself, with hospitals consolidating and having strict budget restraints?
Yeah, I mean, to take your first question, I think the innovations are just being released, so it takes time before they pick up. And when we release innovations, we release them as we go, so to speak, because we have registrations in some markets and another is not.
So I would say there's no material impact on those innovations for this year, but they will be picking up, and especially, I would say, the Meera and the Surgical Workflows, both the Meera and the Volista are actually replacing quite big volumes, so they're upgrading our portfolio on quite big volumes. The bariatrics is more of a small segment, which has high margins, but low, relatively low margins in the niche, or at least a smaller segment.
So for this year, I don't think you should expect a major impact, but we do have a good, I would say, order pipeline for those products and more, we'll see more effect from those in 2017.
Thank you.
Your next question was more on the consolidation of hospitals?
Mm-hmm.
Good. Yeah. So there, I mean, we see the consolidation happening. It's happening very much in the U.S. I would say Europe and APAC or emerging markets, the structures aren't changing as much. So we see the rest of the world kind of being stable, and we do have the budget constraints, but it's not a consolidation. In the U.S., there is a consolidation going on, and of hospitals, but our approach is actually we've also consolidating ourselves and presenting ourselves as One Getinge.
And that has had a major positive impact because now we're considered kind of one of the big ones, or at least a respectable major player in the market. And we're leveraging there our whole key account structure as One Getinge group.
One before, we were kind of three medium-sized companies approaching the customers, and now we're approaching as one, one supplier.
Okay, thank you.
Thank you.
We'll take our next question from Oliver Reinberg from Kepler. Please go ahead.
Yeah, good morning. Oliver Reinberg from Kepler Cheuvreux. Three questions, if I may. Firstly, on the outlook, I think in prior calls, you talked about a 2%-4% organic sales growth for the full year, and that this also applies for this year. Can you just confirm that? And is there any chance you give us with the- provide us with a minimum adjusted EBITDA target for the full year, given the fact that you now basically provide less disclosure on currencies?
Secondly, on Acute Care Therapies, I was actually encouraged to see the 8.7% organic order increase. That is obviously your key division. Can you just talk about what was driving? That appears it was largely coming from EMEA and critical care. Is this underlying business or was there also a project business involved here?
Thirdly, on the divisional ward , you obviously changed the leadership here. Can you just provide any kind of color, what kind of changes you expect from that? Also, we have seen the transaction between Abbott and St. Jude, and we'll be curious to hear your thoughts on how this could impact your business. Thank you.
Yeah. Okay, I can start with the outlook. And again, it's a clarification from earlier. And what I want to avoid is kind of that we have a broad span of kind of how we're interpreting that outlook. The 2%-4% has been a target that we've had over the whole four-year period as an average target for the year. And already, I think last quarter, I was talking about being on the lower side of that and not at the higher side. And now we're clarifying now. I would say we're more careful in saying we believe in a moderate growth, but I want to avoid giving specific numbers on that.
On the EBITDA outlook, again, we've chosen not, not to give, an EBITDA, outlook in, in, in numbers. What I can say there is we're, we're keeping the plan, and, and we feel we, we are on our own plan, but, but I want to avoid, specifying a number since we've taken an active decision, not to do that.
On ACT, we're also very happy with, with, the 8.7% order intake growth. And I can say, you know, when we looked at the product categories, it's all product categories in the quarter, except cardiopulmonary, that had a slight, single-digit decline, a lower single-digit decline. So that, in a sense, is very encouraging for us because it spread over, everything else, other than cardiopulmonary.
And specifically, critical care has grown double-digit in the quarter. So that's why we highlighted it. So it's overall, and it's not any big one-off items, I don't believe. I don't have all the information and detail for every country, but on a group level, there's not any big significant, let's say, one-off. Also, that business is very driven by consumables, so it's not really tender-driven in that sense.
The leadership change, I would say was a natural change where we agreed kind of with Heinz that, you know, he wanted to look at other opportunities. He also had a CEO job where his role is very different today, where this is a president of one of the business category units.
So I felt I needed a more tailor-made profile to that, also very much innovation-driven. So I would say it's been more choice of Jens having the right profile, coming from an innovation and let's say product technology background, but also having experience in the commercial side of the business. So I would call it a more undramatic and a more mutual agreement kind of discussion with one. And of course, Jens was a very highly regarded talent.
Another thing I think, which is for me, actually an advantage, is that, a big part of our cardiovascular and, basically ACT business is U.S.-based. Our markets are there, our customers are there, to a large extent. And Jens is also based in Merrimack, New Hampshire, where also Atrium is based. So I think there is a geographic advantage. And at the same time, we have a very strong base, in Germany, as well.
Great. And the merger between Abbott and St. Jude, any thought on that?
No, I mean, it's a big one. We don't have any specific thoughts on that. I mean, we're continuing to focus on our own portfolio, which we believe has a growth potential.
Okay, thank you. Last quick follow-up, if I may. Pernille, the SEK 80 million, again, on page 10 of the presentation, you said this was provisions and inventories. Is that actually a charge that incurred this quarter or in the second quarter last year?
... So, the reason why we have included that, and I understand you take that, and take a look at that earlier. That's because we went in and took a specific look at the inventory in one of our countries where we had a reduction, which was a one-off to previous years. And then in addition to that, we settled a case, which was also a previous case.
Right, and the charge was booked in the second quarter of this year?
Yeah.
Okay, great. Thanks a lot. Okay.
And we'll take-
Thank you.
Our next question from Scott Bardo from Berenberg. Please go ahead.
Yeah, thanks very much for taking my question. So first question. So gross margins, I think now are at the lowest point for 10 years, and I think that there's clearly been a lot of focus on the impacts of currencies that have impacted that gross margin over the last two or three years.
This year, actually, you were calling out that this should support gross margins, but now currencies seem to be creeping in as a reason for gross margin pressure. So look, I mean, I just wonder if you could help give us some feeling for where you see gross margin at the group level for the full year.
I think that's quite important, so we get a feeling for how much of these cost savings you run through, flow through to the bottom line. So I think you're about 47% gross margin last year. How do you see it for full year 2016, please? Second question, on remediation costs cashing in. I think if I understood, the FDA was due to come back to you in June.
Could you please confirm that that didn't happen, or have they come back to you, and are disagreeing with your plan? Just wondering if you could clarify there, please. And following on from that discussion, you mentioned that it's not, the remediation is ongoing, you're following your plan. It's not coming out of your provision, and you've not made an additional expense for it.
Where are these costs going? And what is the impact to EBIT as a result of this remediation work? Does that get reversed if you take a provision or so later on during the year? They're the first two questions, please, and I have a follow-up. Thanks.
Yeah. So I think, Scott, they are for, the first one is for me, then, Alex comes in on the remediation, and then I talk about the cost. So you are right that we have seen a reduction in our gross profit margin, and that that has basically reduced now to 45.7% in the quarter.
As I said, we did have a mixed impact in the quarter, which reduced our gross profit margin by 1%, and that was primarily in Patient and Post-Acute Care, where we had fewer service contracts, as Alex alluded to, and less DVT.
And that's, of course, an area that's going to have a focus for the rest of the year to get that back up with, as Alex said, the service organization in the U.S. being focused in on improving the service category. So that's one area where there's going to be a positive impact. Then there is, unfortunately for us, the translation impact that you heard the other questions on.
And that, there we have an impact, and we do have an impact from the U.S. dollar increase and the fact that we use the SEK as our reporting currency and the mix of having production in other currencies.
We will see over the next part of the year, actually a slight positive impact on translation, we believe, from the reduced British pound following the Brexit. So that we are expecting to be less of an impact for the rest of the year. Then I think you asked a general question as to how we monitor our current impacts of currencies and our volumes.
And there we have a treasury policy with a focus on predictability and minimization of currency impact on volumes. Which is also the reason why we forecast a year-on-year development on currencies that we have listed as SEK 150 million.
But what we are currently looking at is whether these long-term contracts should form part of our policy going forward, and that we'll come back to and explain later. In terms of a full year guidance on where our gross profit margin will end at, the efforts that we are now making within the PPAC, or Patient and Post-Acute Care, as well as the currency impacts that we see, will take the margins up from where they are today. But I don't think I should give you a specific guidance on where they are going to land.
Okay, thank you.
Yeah.
So I think if I understood, last year, you were expecting gross margins to improve from 47%. I'm still confused as to whether that's the case today or whether you think they're going to be broadly similar or down. So, does that guidance before not exist, or?
... I think that what we're still guiding is that they should be slightly up from the 47% full year.
Thank you.
We are not changing that.
Okay. Regarding Hechingen and remediation, we have no response from FDA, so we, we haven't heard from them specifically on that, on that plan. So there hasn't been a meeting or, you know, where we got another type of input. Then, on the remediation expenses and costs, yeah, Pernille, maybe you want to comment on that?
Yeah, so I can do that very quickly, given time. You are right, we contain the costs, the current costs related to quality improvement in our admin costs. Of course, we also have a certain run-off on our provision that we disclose. That's all that you see there. There's nothing additional to that.
Okay. You haven't, you haven't quantified those costs, no?
No, we haven't quantified the costs that we currently hold in our admin costs and the increase in those, no, anymore.
Thank you. Just very lastly then, Alex, I mean, is it, is it your interpretation that given this has been going on some time with Hechingen and, and the FDA have not come back with an immediate response, that there's no indication that you'll have some sort of injunction or prohibition of selling these products into the U.S.? Would... Is it the interpretation that if that were the case, you would have heard by now? Thank you.
Yeah. Again, it's hard to interpret the signals when the signals aren't clear or when you're not getting the signals. So I think what we feel is that, you know, we have safe products. We have products that are needed in the U.S., and the Hechingen products, and we're continuing to be able to sell them there. So in that sense, let's say our reading is that, yeah, if something would have happened and should have happened, it would have happened by now. But that doesn't guarantee, of course, future reactions.
So our reading is, if I would say it, moderately positive, because we, you know, we do have products that make a significant difference in the U.S. market. And prohibiting those or giving an injunction, we believe would hurt the U.S. patients, to be honest. So that's our reading. But again, it's very, it's a very personal reading and also a reading from our quality organization. Okay. I think that brings us to 11 o'clock. So I would say we call it a day with this meeting, and both Pernille and I, and others are available for follow-up calls throughout the day.
Please, please feel free to contact us individually. I'd like to once again thank you for dialing in, and I look forward to speaking with you again after quarter three. Thank you very much.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.