Good day, and welcome to the Getinge Group Q1 report conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Alex Myers, the CEO of Getinge Group. Please go ahead, sir.
So, thank you very much, and welcome to all of you to this telco. Apologies, we're slightly delayed. We were waiting for a few callers that wanted to also get on the call. We'll attempt to close this conference by about 3:30 P.M. sharp, so 3:30 P.M. CET. And as per the information you got in today's press release, you should have been able to access the slide presentation, which for this session. It's also available on our, on our web page. So I, I would also like to begin by welcoming Pernille Fabricius for the first time as CFO for Getinge, and this is her first report together with me, and together, we'll take you through both the financials, but also the business overview.
So I'd like to go to slide number three, which gives you quarter one in brief. Just as a starting point, I'd like to say that we're going through a huge transformation, quite significant transformation in the company. We're on our first quarter of a journey, which is going to take three to four years to get there. I believe, actually, that a lot of things that we've started are going on track and are in place. I should also say that we had a soft start to the year regarding revenues, and I'll be making comments on both of those throughout this presentation. We're departing on our four-year journey, and the transformation plan is moving according to plan.
We see early signs of expenses going down and margins improving. We also see the sales and admin expenses decreasing by about 4.5% in this quarter, and that's an indication that the Big 5 initiatives are beginning to kick in and have delivered an estimated SEK 75 million- SEK 80 million savings in the quarter. So that's a good early sign of the transformation program in terms of the Big 5, and I'll talk a bit about that later. Last year, we ended the year with good growth both in quarter three and quarter four, and this year has started softer and slower than planned, and actually slower than our expectations.
We declined organically by 2% and net sales by 3.4% organically, and I'll comment this more in depth in the next slide. Gross margins improved slightly, and that was driven primarily by positive currency effects and the medical device tax, and to a less extent, the positive product mix. The volume effect, however, has affected us negatively, so that has been the soft spot in our quarter for quarter one. Talking about profit before tax, there we saw a slight improvement, but the EBITDA has decreased versus last year. The final point here, which I'll also return to a bit later, is that we have full focus on remediation and our quality plan.
We have a continued success in the U.S., where we've had a successful third-party certificate inspection in Atrium, following a very positive inspection in Merrimack. So on that hand, we have positive news to come with. On the other hand, we still have a pending FDA decision regarding Hechingen, and we have no new information regarding the financial aspects around that, and I'll get back to that as well in a later slide. So a quick comment on top line, both order intake and net sales. Here we've had a mixed picture organically, and both in terms of geography, but also in terms of product groups.
And here, I should say, we've gone over to the new organizational structure, which is Surgical Workflows, which I could call a merger between Maquet Surgical Workplaces and Infection Control. We have Acute Care Therapies, which is a big part of the legacy Maquet portfolio, and then we have Patient and Post-Acute Care, which is the extended care legacy portfolio. So there, order intake was down 2%, down in Surgical Workflows by 4.7%. Acute Care Therapies actually increased in the period, organically, by 2%, and PPAC, as we call it, declined by 4.6%.
We had very good growth in recurring revenues, but a decline in equipment sales, and the whole explanation of the shortfall in the quarter is due to equipment sales, and I'll give you kind of a more detailed very soon. On the growth side, we had Cardiac Assist growing, Cardiopulmonary had good growth, and also Infection Control within the Life Science sector grew. And finally, on the growth side, we also had our DVT portfolio, which is part of PPAC, which actually had a decline in the last part of last year, so we're very happy to see that growing again. It's also a product category with good profitability that has helped us in the product mix positive effect that we've had.
On the negative side, we have Surgical Workplaces that has declined in the quarter. Also, Infection Control on the healthcare side had a decline in the quarter and medical beds. And here I should say that on Infection Control healthcare, we've had a long period of growth, and it is very much a cyclical, equipment-led category. So we do see ups and downs from quarter to quarter, but in no way does it mean that we've lost width, and we believe a lot in the Infection Control continued growth.
One final point on orders was that our rental business was also flat in the quarter, and that also reflects a change versus earlier quarters, where we've had a continuous decline on the rental business, while this quarter we've achieved a stability. Net sales, also quick comments on that. We had a decline of 3.2%. We had growth in the Americas and very good performance in the U.S. in the quarter, while we had a decline in our EMEA region and also our APAC, Asia Pacific, region. So here on the positive side, U.S. very strong quarter. Germany, also a strong quarter regarding net sales. China and India also performed well regarding net sales in the quarter. While on the negative side, U.K. had a negative quarter in terms of growth.
Japan and Australia as well, and also, Brazil, declined in the quarter. So a final point here is also that we've had a major transformation in our sales companies, where we've essentially gone from three independent sales companies to one company structure in each of the 40 markets we're in. So, also in the quarter, quite a lot of focus on the organizational change, and I would say from now, we have one common management team in each of the markets. And in that sense, the transformation, or the transition, I should say, has gone quite smoothly. Over to slide five. A bit on the transformation program. I should say we're progressing on plan.
We've begun showing early signs of progress, and that's reflected in the quarter with about SEK 75 million-SEK 80 million being delivered of the so-called Big 5 initiatives. And in essence, that is also reflected in lower admin sales and also lower sales costs, or admin expenses, I should say, and also lower sales expenses, primarily due to an early consolidation that we've done of the management teams around the world. Finally, on this slide, I think it's worth noting that we talked about a lot of restructuring activities for Extended Care a year ago. A lot happened in the first quarter last year, and we implemented throughout the second and third quarters.
It's good to see that we've had a positive margin development within Patient and Post-Acute Care, which is the legacy portfolio from the Extended Care. Pernille will show you a bit more of the figures around the three business category units, which we'll get back to later. On slide number six, a lot of focus on FDA and the remediation program, and overall, we see a lot of progress around the world. But here I wanted also to start with Hechingen, because I know it's a high focus, both internally but also externally. In January, we announced that we had an inspection in Hechingen by Quintiles, which is our third-party inspector, and it resulted in a number of observations that needed to be addressed.
Since then, we've initiated a lot of actions, a significant number of actions. Just to give you a feeling of what actions we've done, we've changed in the leadership of Hechingen, both on the operational side, but also on the quality side. We took people from other parts of the company where we have a good track record regarding remediation and quality management systems, and brought them to Hechingen as a specific task force. We developed an improvement plan, which we sent to the FDA for approval, and now we're awaiting a decision from the FDA. I should say we're in close dialogue with the FDA and are awaiting their feedback on that plan.
In the meantime, we're working on that plan, because we still need to continue with the remediation work. But until we get a decision, we cannot specify the financial consequences of this plan. But at the same time, we foresee that the plan, if decided and approved as is, or if amended, will mean that we need additional investments that are going to be necessary to get Hechingen to the level where we want to. So regarding other sites, good progress that I mentioned in the U.S. We've had a certification inspection without any observations, and this is very good news for both Hudson and Merrimack, which are part of the Atrium acquisition that we did.
We're waiting now within 60 days, a response from the FDA on that inspection. So finally, the closing balance for the remediation is SEK 129 million. And as I mentioned earlier, this doesn't include the additional investments related to Hechingen. And there again, we're waiting for a decision and approval from FDA. So with that, I'll hand over to Pernille, and she'll take you through the financials.
Yeah. Thank you, Alex. The main headline of the quarterly trading is the lower sales, which in turn, to some extent, is compensated by the reduction in costs. Sales in the first quarter amounted to SEK 6.377 million, down 5% when comparing to the same period of last year, of which 3.2% is the organic impact.
Looking at the gross profit, that landed at SEK 3.11 million, down 4.2%, 3.4% organic. Gross profit in 2016 was positively impacted by currency of SEK 35 million, and last year had a negative impact of medical device tax of SEK 27 million.
A djusted for this, the underlying organic gross margin deteriorated from 47.2% to 46.2%, primarily, as Alex said, related to the impact of lower volumes. Selling and admin costs, which is a great focus point for us, reduced in the quarter to a total of SEK 2.406 million, with SEK 128 million, equal to a 4.4% reduction relating to the Big 5 program, in particularly Lean Sales and Admin. One needs to notice here that last year, operations cost base was reduced with the sale of Pulsion impacting by SEK 76 million. Consequently, EBITA before restructuring amounted to SEK 666 million , down 13.5% from last year, to a 0.3% organic.
Restructuring costs relating to Big 5, we kept at SEK 127 million, which is down from SEK 183 million of last year. Financial items amounted to SEK 157 million, down from SEK 189 million of last year, positively impacted by the lower interest costs that we have, or interest rates that we had. Tax was kept at 27%, and net profit for the quarter therefore amounted to SEK 115 million, up from SEK 107 million of last year. By the end of the quarter, we had a remaining provision for FDA of SEK 129 million. If we turn to orders and net sales, so the top line, and start by business category development, then Surgical Workflows saw lower sales volumes in operating rooms, tables, and lights, and Life Science developed negatively in the quarter.
Acute Care Therapies grew, and particularly within the cardiovascular segment. Patient and Post-Acute Care reduced due to, in particular, lower sales in the capital equipment in Europe and China. Looking at the geographical development, EMEA deteriorated based on high last year with large capital projects. Americas achieves growth positively, particularly in the U.S., with negative developments in LATAM and Canada. Asia saw a negative growth, impacted in particular by large projects in Australia and Hong Kong that we had last year in Q1. Turning to the new product segmentation and starting by looking at the Surgical Workflows, this segment saw reduced sales of 6.7% and a lower gross margin due to lower volumes.
SG&A costs reduced due to the Lean Sales and Admin program, and EBITDA before restructuring and integration ended at SEK 45 million compared to SEK 59 million last year. EBITA was positively impacted by SEK 32 million of currency, transaction impact of SEK 27 million, and translation of SEK 5 million. Restructuring costs were kept at SEK 42 million. Looking at the Acute Care, that saw growth of 0.9%, with good growth in the product categories all through this product segment. Gross margin was kept at 55%. Costs were stable, and EBITA landed at SEK 371 million, compared to SEK 406 million of last year. Last year here again was impacted by the sale Pulsion, which reduced costs of last year by SEK 76 million. Here we had restructuring costs of SEK 58 million.
Patient and Post-Acute Care sales reduced by 4.9%. Rental developed very positively, but capital equipment saw a negative growth. Gross margin increased, impacted by the rental business in particular, and the margin ended at 47.3%. EBITA in this segment is worth noting because it was very positively impacted by the previous restructuring that has happened in this segment, and landed at, and EBITA landed at SEK 255 million, compared to SEK 240 million of last year. Looking at the currency, this positively impacted the Post-Acute Care segment with SEK 10 million, transaction SEK 6 million, and translation SEK 4 million. In this segment, we saw a very low restructuring cost of SEK 14 million, since lots of restructuring already had been carried out in the previous year. Turning to the cash flow.
The cash flow from operations ended at SEK 700 million, with a conversion rate of 75.5%. There is a huge focus here on cash improvements in the new organization, and we are developing plans for inventory reductions, for example. Turning to the balance sheet finally, we would like here to highlight the reduction of net debt to SEK 22.6 billion, and the ratio of net debt to EBITDA of 3.9, compared to 3.93 of last year. It is the aim to further reduce our debt level and ratio in the years to come. With these words, I'll hand over to Alex.
Okay. Thank you, Pernille. So just a few final comments, two more slides before we open up for the Q&A. Regarding the revenue outlook, we see 2016 being positive and having a positive revenue outlook versus 2015. We continue to see revenue growth in EMEA despite the slow start to this year. And we also see a continued growth in the Americas, and the same goes for APAC. We see North America continuing a positive trend, and we also see a continuing challenge in Latin America.... Regarding Asia Pacific, we see an overall expectation to grow, and we have a positive outlook for Southeast Asia and India.
Actually, in the last couple of quarters, we've also seen China get back on track in turn, in terms of growth. Even though quarters vary a little bit from quarter to quarter, we also have China in a cautiously positive growth outlook. The financial consequences related to the Consent Decree for the time being remain unchanged, but to SEK 130 million in 2016. But as I said before, adjustments could be necessary once the revised plan has been approved by the FDA. The currency effect, the outlook there hasn't changed versus earlier, and we see a positive impact of about SEK 150 million.
The same goes for restructuring, where we haven't changed the outlook from the original outlook of SEK 800 million that were presented at the Capital Markets Day. Finally, over to 15, which is the last slide before we open up for questions. I should say again, it's the first quarter of a major transformational change of the company. I think it has gone smoothly. We have made a lot of changes in the first quarter. And we believe that the plan is in line with the original estimates and ambitions of the plan. We see efficiencies kicking in already in the first quarter. And our weakness in this quarter, to be honest, has been the net sales and the top line.
I think also we should see this quarter as the smaller of the quarters during the year. And as you know, we have a much heavier second half of the year than the first half of the year, and we do have some catching up to do. We have actions in place, and we're very much focusing on order generation. As we did last year, if you remember, in the third quarter, was very much about order generation, and we delivered in the fourth quarter growth. So despite the fact that we are behind plan, I do believe that we have three quarters to do the catching up that's necessary. You'll also be seeing more on innovation moving forward.
We're looking over our innovation pipeline, and throughout the year, towards the end of the year, we'll see more innovation coming out. And we will be investing more in innovation in the longer term perspective as well. Finally, Quality Management System. I want to point out that our products are saving lives on a daily basis. But we do have a Quality Management System that needs to be improved and made globally. I should say, having global standards in order to meet the demands from the regulatory, the regulatory demands that we have around it. And I can assure you, we have full focus on that, not only in Hechingen, but in all other sites as well.
But of course, right now, we have extra focus and extra resources in Hechingen. So with that, I would like to thank you for your attention and open up for any questions that you might have. Thank you very much, and I'll hand it over to the operator.
Thank you, sir. 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 phone is switched off to allow your signal to reach our equipment. Again, please press star one to ask a question. We'll take our first question from Annette Lykke from Handelsbanken. Please go ahead. Your line is open.
Thank you so much. First of all, I'd like just to ask in respect to your program, the Big 5, and the timing aspects. In September last year, you highlighted that you were sort of expecting a top-line growth of 2%-4%. I just want to know how likely you feel it is to reach the indicator 40% of your EBITA gains of SEK 2.5 billion-SEK 3 billion in 2017, or if you see some sort of a potential delay in this respect? My other or my second question is in respect to the FDA observation you've seen in Germany.
Could you share with us the nature of these observations, and why it is so hard for the company or the production facility down there to be compliant with the regulatory demands from FDA? It seems for me that you have, over a certain period of time, spent a lot of or invested a lot of money in some improvements. Thank you.
Okay, thank you for the questions. They're both very relevant, of course. I can start with you're asking about the potential delay of the Big 5 and how much we phase over time in relation also to the top line. Of course, the top line 2%-4% is an ambition that we have over the four-year period. We continue to have that ambition. But of course, we can't say it's a fact, so we started a bit slow this year. But I should say the ambition is still there, absolutely, and I think we should see this quarter as a slow start, but again, I mentioned it's the smaller of the three quarters going forward.
Regarding these, the Big 5, what we did was we phased a 10% delivery of the Big 5 in year one, and I think we're tracking well on that. I think it's too early to say that to make, I would say, comments on 2017. I can assure you we're right now mapping all the activities that are necessary for us to deliver in 2017. And now we're doing it more as a bottom-up exercise, so it's not now top management saying that this is what needs to be delivered. It's actually middle management that's confirming this. And so far, I don't think we can, we should say anything that we're off plan.
I think, a lot of our internal confirmations are made. But of course, we are reliant on top line as well. The strategic plan is not that much reliant on top line as the previous plan was, but of course, if we don't grow, there will be a gap. So that would be my answer to that. Regarding the Hechingen and the compliance, I agree with you that a lot of money has been spent, and I have the same questions as you're setting right now, to me.
I should say that money has been invested in more plants than just Hechingen, so I think we have to remember that we have invested in about 20 plants, in actually all the Maquet plants, were also the ones not under the consent decree, were part of the remediation program, and Hechingen was one of them. Hechingen has very safe and very good products that save a lot of lives, so I want to emphasize that. But we haven't had the proper processes and controls there, and we also have had what we call document control, which is how we documented the products historically when they were developed.
And also our complaints handling, which has been handled very much locally, and we're moving now to a much more professional global complaints handling system. So my answer there is that Hechingen also originally, when we did the original inspections from the FDA, had most observations, so they had the longest way to get there, let's say, to the end game. So what we've done now, which is different, is that we have now a management that's mapping things and mapping progress much closer, but we also have people that have a proven track record on solving these issues that are working now in Hechingen from other parts of the company. But I think it's a very relevant question you're raising.
Okay. So the nature of the observations is still on the processing and the documentation side, more than on any sort of a technical or production-related issues, if I understand you right?
Yes, you could say that. It's design validation and process, and a matter of us following the processes that we have set out.
Okay. Thank you very much.
Thank you.
We'll now take our next question from Scott Bardo, from Berenberg. Please go ahead. Your line is open.
Yeah, thanks very much for taking my questions. So the first one relates to the top-line development. And I think clearly not a good quarter in terms of top-line growth. Looking back, I think this is perhaps the worst top-line growth quarter that you've had since 2009. So what I wanted to understand actually was of this top-line development, do you believe any of this relates to the change in operational structure within the organization? Or you mentioned that there was some change in the Hechingen facility that limited your ability to supply. Do you think that any of that was the impact here rather than underlying demand? If so, could you please quantify? I'd also like to just quickly talk a little bit about the FDA remediation programs.
Obviously, you've done your analysis now, you're waiting for the FDA to come back with some visibility on Hechingen. But can you at least share a feeling at this stage as to whether you expect your ability to supply in the market to be impaired at all, or whether there is a possibility of some sort of injunction, as you've seen historically in Hudson? Furthermore, on that point, can you please just give us some clarification of where we are with some of the other facilities, Wayne and Rastatt? You know, is there potential for further nasty surprises there, or are things on track? Last question, please, relates to a floor EBITA guidance. Now, I appreciate we all tried to get this last time, and it was well, I think there was quite a lot of confusion surrounding this.
But if you manage to grow the top line modestly, as you now outline within your full year guidance, can you please at least give us a feeling of where you see a floor EBITA for the group this year, just so we can understand how the phasing of your efficiency programs and underlying margin expectations help? Thank you.
Okay. Thank you. Thank you, Scott. I can, I'll take the fir- I'll take the top line and the, the remediation, consent decree-related ones, and Pernille will take the EBITA guidance. So, regarding the top-line decrease, again, it's very much related to equipment sales. We've had consumables and recurring revenue actually having a very, very strong performance. The changes that we've done organizationally have been on management level, and we haven't changed anything in the field really regarding organizational structure. So what has happened is management. And regarding equipment sales, it Those happen over a longer-term perspective.
So I think the changes in the quarter, I think might have affected our focus, but I don't really think they've materially affected our sales, and that is the feedback we're getting from the regions. Possibly some of the smaller product categories in the quarter got less attention than the bigger categories in the quarter. And that's something we're dealing with internally to make sure that we don't do it. So my answer would be probably not, but, but I do, I do accept that we have made a big transformation, and focus on management has been very much to make sure that the organizational structure is in place. We did have supply issues on the Cardiopulmonary portfolio.
And the reason for that is, now we're following the validation procedures and the testing procedures that we should be following in order to be fully compliant, and that has slowed down production. And, we made an estimate, we think it's around SEK 50 million in the quarter, I believe. I have to double-check that before you, I can write it down in stone. But, but we did have, lost, possible sales, let's say, from, from the quarter due to, slower, production, and supply. Then you had a question on, injunction, or, or not, and I, I think, there it's, again, we presented a plan and we're in dialogue.
And I can't guarantee what the FDA will decide, so I can't give you those guarantees. But all I can say is we're having a dialogue with the FDA on our plan, and that's where we are at the moment. It's very, very difficult to guess what the FDA is thinking. I think we've given them a reasonable plan, and they know we're genuinely focusing on the area, and we have a good relationship with them. On the other hand, they don't feel we did a good enough job in this particular site. Other facilities, my answer there would be, again, you can never guarantee, but we don't see any significant risks there.
But we are on the FDA's watch list, so we are monitored much closer than we would be in a natural situation. But the FDA has visited and inspected Rastatt and other parts of the business with good results. And we've also had several FDA inspections, also with good results in other parts of the business. So we don't see an effect, let's say, a Hechingen effect, going into other sites at the moment. But again, we are on the FDA's watch list, and that means they're looking at us much closer and much more in detail. So over to Pernille regarding the EBITDA.
Yeah. So, as you referred to, and I was not on the call last time, is the baseline, I think, and the baseline discussion that there was for 2015. So, what we can say was, or is that the baseline for 2015, is SEK 4.5 billion on EBITA before restructuring costs. To that, there is the Big 5 restructuring program that we are well underway with and very much focused on. And as Alex said, that's going to yield, the aim is that that's going to yield SEK 2.5 billion- SEK 3 billion over a period of three to four years. And 10% is the aim for this year.
And we have absolutely no reason to believe that that won't be the case at this point in time. So those two elements stands. Then in terms of giving exact guidance to when EBITA for before restructuring for the full year, this is not something that we do. What we can say is that there are other factors impacting, of course, our outlook, such as the revenue, where we still have a positive outlook and see no reason not to have that. But we also, of course, potentially could be impacted by the decisions of the FDA. But this is where we stand for now.
Okay. Thanks very much for answering my questions.
Just perhaps just one quick follow-up. So I just wanted to make sure I understood your comments correctly surrounding the FDA. You have the green light, or, well, you're close to getting the green light at Hudson, or for example, there was no observations there. Am I to understand that's also the case at Rastatt and Wayne now as well? So you've had positive observations from Quintiles, and you're just waiting for FDA certification?
Yeah, I just have to make a slight correction. You're right on your comments on Merrimack and Hudson and Wayne as well. My Rastatt comment on the inspection was that Rastatt we also had Surgical Workplaces based in Rastatt as a unit, so I was referring to that one. Then the Hechingen is in, regarding Hechingen, we have R&D that is actually located in Rastatt, and production is located in Hechingen. So in a sense, Rastatt is under different quality systems, one of which has done well in inspections, which is the Surgical Workplaces, and the other one has not done well in the inspection, which is the one associated with Hechingen. So just to clarify that.
Rastatt, under Surgical Workplaces, that quality system is not under the Consent Decree. So, it's a little bit complicated to, I would say, to describe, but, Rastatt is a multiple Quality Management System location, if I would describe it that way.
Okay, thanks for the clarification. Thank you.
We'll now take the next question.
Thank you. Thank you, sir.
From Kristofer Liljeberg from Carnegie. Please go ahead. Your line is open.
Yeah, hi, good afternoon. Two questions. First, if you could give us some more clarity what type of visibility you have for improving top line growth, both sales and orders in the coming quarters. Second question is on the SEK 130 million negative effect from the consent decree, on the operating line this year. Is this including, in sort of a way, your best expect- or best guess for what's gonna happen in Hechingen? Or will that come on top of that? Thank you.
Okay, thank you. I'll take top line growth, and Pernille will take the consequences on the P&L and the SEK 130 million. So top line, I think what we expect is we want to catch up, and we do have a plan. We're discussing with our regions on how to catch up. I should also say that we did have a soft order intake in the quarter, and as you know, that has a carryover effect into a following quarter. So our focus very much is on order generation. And I have a few things also to take up. I think, regarding Americas and the U.S., we've had a good start, and we see that continuing.
Regarding APAC, there we've had two very significant deals that we had in the last quarter, in the first quarter last year, which was one was very significant in Australia, and one was very significant in Hong Kong. And that has a direct effect, let's say, on the comparisons. So we believe now we're going into a more normalized quarter in Q2 for APAC, and we see the growth coming. So, EMEA, there we've had a mixed picture, so there it's very much focused on getting the equipment orders back in place. And I think there we, you know, we've shown before that, you know, we can mobilize and we can do the catching up.
And also there, I should mention that the comparisons last year this quarter, I'm not at all defending on that the percentage is weak. All I'm saying is we're comparing with a decent growth quarter last year in quarter one, while we softened up a bit in quarter two and quarter three. So we foresee a turning point in that going forward. Then on the SEK 130 million, I think we have to clarify what we mean-
Yeah
... so we don't get the misinterpretations on that.
So the SEK 130 million is what's left of the provision that was made back in 2014 for the remediation then. And what we are now talking about in terms of the FDA is that they'll come back to us and ask us to do further work. And the exact feedback we do not know yet. And once we know that, we will also know what the financial consequences are going to be of that, and that will be in addition to the SEK 130 million.
Yeah, but haven't you said also, I don't know if 130 million is the exact figure, but there will be an... If you look at the negative effect from lost sales from the consent decree that were, like, SEK 230 million or something last year.
Yeah.
Yeah. Yeah.
Yeah, I could say that, that's referring to that. Yeah, so what we do, what we have now is a pot of remediation money left. I think it's SEK 129 million-
Yes, yes
... that's still left in the remediation bucket, if you want to say. This SEK 130 is the negative effect as a totality of us losing sales and the result of that in terms of GP margin and then bottom line effect.
Sure.
So you're correct in that. And in that sense, we're in this scenario losing less than we did last year. And those products were very much associated to the Atrium products. So what we're talking about here, the additional that might come, is it would be some kind of a new remediation plan, I would say.
Yeah.
Or a new re-remediation necessary investment.
Okay, so from Hechingen again, you expect more, the large effect will be on the investments you have done rather than the impact from sales restrictions. Is that what you say?
Yeah, we don't have the decision from FDA. So, from what we can see and what we know, the answer is yes. But again, the FDA has to decide, and the FDA is evaluating our plan.
We are awaiting their feedback, so.
Okay. And coming back, a follow-up also, coming back to this, baseline earnings of almost SEK 4.8 billion, so you're not willing to say whether you expect to grow from that level or not, is that correct?
Well, now you're, you added the two numbers together, so no, what we are basically saying is we have given out a baseline of SEK 4.5 billion, and we are basically saying that we are tracking on our savings program and plowing, plowing on with that. And then there will be ups and downs, so to repeat what I just said, so you're right. In summary, no, we are not, we are not giving guidance on the EBITDA for the full year, more than this.
Okay, thank you.
Thank you.
Thank you.
We'll now take our next question from Michael Jungling from Morgan Stanley. Please go ahead.
Thank you. Good afternoon. I have three questions. Firstly, on the margin expansion program, you mentioned previously that it was very, that the cost savings and the margin expansion was not dependent or not materially dependent on the top line. But now that you are declining in terms of sales, is that still hold true for 2016 and 2017? Question number two is on cost savings. I think you have a run rate of SEK 75 million-SEK 80 million in Q1. That probably means you will do more than the 10% run rate you had guided to, and hence, is there a more realistic run rate that you can give us for the end of 2016? And question number three is on current receivables.
Can you comment as to why they increased in the first quarter, and whether you see some impairments as a result of the weakness in some of those markets that you're in? Thank you.
Thank you. I think I'll-
Yeah.
Give Pernille a shot on that, and then I can comment if there's anything else.
So in terms of the first one, you ask whether the savings program is now dependent on the fact that the sales development has been a bit lower. So, the Lean Sales and Admin program that we're currently carrying out, we're carrying that out completely regardless of what's happening on the top line. It's very much preserving the sales force, and there's a focus on ensuring that sales is definitely not harmed by this. So, no, there's no direct dependency to this.
Then in terms of the fact that you've observed that our run rate, and we've realized more cost savings than what we had have said originally, what I can say is we have not sort of cast in stone that it's absolutely going to be SEK 250 million- SEK 300 million, but we are raising that as the number. Also because there will be other items that we've been moving around this, which could be investment in R&D. So we are plowing on towards this total saving.
Then in terms of the accounts receivables and, and the fact, that you have observed that they are increasing, I think that, that you are right in that observation, and I can only say that, that, we have high on our agenda to make sure that, that, that we, we get our cash conversion, continuously at a, at a good level, and that we, get our arms around accounts receivables and, and get the cash flow, flowing. But there's also been quite a lot, of, of organizational, change internally, but, but it's a focus area for, for the rest of the year.
So can I just follow up? The cost saving achieved in Q1 is not an indication that you're running ahead of your initial guidance of 10% run rate end of 2016 and 40% end of 2017?
You shouldn't take it as that, no. You should just take it as we're doing very well in our cost savings initiatives.
Okay. And then on the current receivables, are there any indications that you are struggling to collect receivables?
No, not really. There's an indication that we could do more on reducing them.
Okay. Thank you.
Thank you.
We'll now take our next question from Lars Hevreng from Danske Bank. Please go ahead.
Yes, thank you. Can you say anything more specific about the comments in the report about Europe? Sales decreased 5%, and you said all product categories were weak. That's a bit unusual statement from your side, but if you could clarify whether there was some common denominator behind that comment. And also, generally, about the gross margin development, this seems to be a fairly stable quarter, and you also referred to some positive product mix effects in Q1, particularly for the Acute Care division. And could you comment upon whether these were non-recurring, so to say? And these comments that you have, that's also on the background, you also complain about the capital equipment sales, which I guess that makes...
If that would come back, so to say, then I guess that's a negative impact going forward on the gross margin.
Okay, yeah, I can take the question. I can clarify a bit on Europe, and, and, I also thought maybe that statement was not completely clarifying. When we talked about in all product groups or product categories, we meant the three product business category units. So of course, below them, they're both pluses and minuses, just to make that clear. So what happened in EMEA was that all the three product category units went down. But if I take also the statement that recurring revenues were up and had a good quarter, that also goes for EMEA. So the description on capital goods going down and recurring revenues going up, that's also valid for the EMEA region.
If I look at EMEA, geographically, I should say we had a soft quarter in the north. So both Nordic and U.K., Ireland, I would say if I cluster those as Northern, which is also an organizational territory that we have, which is we call it North, that's where we had the softness. In the Nordic specifically, we had a very, very, very high quarter last year in 2015, but we decided not to use that in the way as an excuse. I don't think that's in the way an excuse, but it is a fact that we had a very strong quarter last year in the Nordic.
In the U.K., Ireland, there, the NHS did not release funds as we had hoped for and as we had calculated with, and that's where the shortfall came. So it's very much a geographic shortfall, and actually, Germany did well. The Benelux were more or less flat, I would say, as a total, if I would describe them. Spain did quite well, and the South did quite well. So we were dragged down from the North, so to speak. So it wasn't, the picture isn't everywhere with everything, but it's very much a north focus. And equipment focus in there, I should say, it, it's.
Partly, when I look at EMEA, it's explained by, by medical beds, which is very much U.K. driven, and also some bigger projects within the healthcare sterilization regarding orders in the quarter. So that was the first question, and unfortunately, I forgot the other one. Can you repeat that one?
Yes, of course. That's on gross margin, 'cause that seems to be, I mean, in Q1, it was similar to last year. So it was—that seemed to develop fine. But then you also referred to positive product mix, particularly in the Acute Care division. So whether, I mean, to make up for the revenue shortfall, so to say, would that come from capital equipment? And I guess that would dampen the gross margin development, or if you see some other top-line drivers.
Yeah, if I would comment on the product mix, there we had a product mix which was favorable. So, generally, we have higher margins in the Cardiac Assist products and Cardiopulmonary products, where we actually had a good overall development, even though we couldn't supply the market fully with what it wanted, but we did have a decent development in the quarter. And then I mentioned DVT, which is part of the PPAC, which is also high margin. So there we've had a positive product mix. However, the volumes were down, so I would say that brought us down. So it's a negative volume effect, but a positive product mix effect. And then also generally, recurring revenues are actually high margin for us.
So I think that also should give a mixed effect that improves the percentages. But again, the total is down because of the volume.
Okay. Can I just also ask these items that you explained at the fourth quarter call? I guess you said the earnings, sorry for coming back to this, but you said an earnings base on the EBITA level at SEK 4,677. And should we now see 4.5, roughly, as the earnings base? Then, of course, for the second quarter, the ongoing quarter, is there anything else than this SEK 100 million asset write-off in the, I mean, the division that was used to be called Extended Care? Is there anything else that you would highlight which could have a big impact on the year-over-year comparison for this ongoing second quarter, similar to what you referred to in this perfusion business gain in Q1?
So I think, from experience, you know, I think we'd just like to keep it a bit simple. You're right that the indication was something like 4.5-6 at the quarter call, at the fourth quarter, and I'm rounding it down to 4.5. And whether it's 4.5 or 4.5, that's fair enough. But this is our baseline, and then on that, you should not expect more deviations. That's absolutely clear. And then we do our savings program, and we do our top line, and we do our work with the FDA.
Okay. But then for the second quarter, is there anything else than this SEK 100 million asset write-off last year? Anything else, other in the comp quarter that you would highlight already today?
No. No, there's not.
Okay.
No, I think that was the main-
Yeah.
Yeah, that was the only one, that was the major one last,
Yes
... last year. Yeah.
Yes.
It was roughly around 100.
Yeah
... in the second quarter.
Okay. Thank you.
Thank you.
We will now take our next question from Rickard Koch from SEB. Please go ahead. Your line is open.
Hi. A lot of talk about the Hechingen today, but I didn't quite understand. Are there selling restrictions today at Hechingen?
On the Hechingen? No.
But do you expect that to be after the FDA impact, or do you just don't know at all?
No, we don't know at all. I think it would be wrong to speculate.
Okay.
So the restrictions were around the Atrium that we've had, and I think it would be wrong to make any kind of speculation there.
Okay. And when do you expect the demand for equipment to improve? I mean, have you seen any indication of that so far? So you expect it already in Q2, or later in the year, or what's your visibility on that?
Yeah, right, right now, I would say part of it in Q2, but most of it in the latter part of the year. I think that's something that takes a little bit longer to fill the pipeline. And again, we have a bit of a mixed picture because we have Life Sciences with a better pipeline and healthcare with a bit lower pipeline, if I go back to the Infection Control, let's say, part of the portfolio.
Okay. And lastly, across the different regions, in the APAC region, it's very weak in all divisions except for in Acute Care. Why are there so big variations there? Why is it so strong there, or why is it so weak in the others?
Okay, can you repeat that? Is that a question on Acute Care specifically?
Order intake in Acute Care is up 14%, while in the others-
Yeah
... the other divisions is -16 and -18-
Yeah
... or -19.
Yeah.
Why, why is there such big difference?
Yeah, primarily it's, and there, APAC has been affected by, two major orders that we had a year ago. So we had a major order in Australia, in medical beds primarily, and, and also to a certain extent in Infection Control, and also in Hong Kong, we had the, the same. So the comparisons are more difficult, and, and that's more or less where we've lost out this year versus last year. So that we see going forward, we have a more normalized, quarter going forward in those. So that's the explanation. And in, in the emerging markets, when, when you have major fluctuations in, in, for example, Australia, which is a major market, then, then you see an effect, directly on the, on the total region.
So it's a bit more volatile in that sense, where the Australia, Japan, also Hong Kong is quite large. When we get the big orders, then they tend to be quite large, and when we don't have them, they hit us in percentages.
Okay, thank you.
Thank you. I think we can take a couple more questions. We're beginning to run overtime, but so maybe two. If there are two there, that would be great.
Thank you, sir. Our next question comes from Hans Mähler, from Nordea Markets. Please go ahead. Your line is open.
Yeah, good afternoon. A question about the Infection Control. Sorry for sticking to the old business areas, but is it fair to say that some of the growth or strong growth lost in or late in 2015 was on the expense of 2016? So on a rolling basis, you're more or less growing in line with the market instead of above the market for that segment. And my second question is related to all the Extended Care, then. Is it fair to assume that your rental business has troughed now, and that we actually can see some growth in 2016? And also, what can you say about profitability in that unit right now? Thank you.
Yeah, I can take both. On the Infection Control part, we did have, we did have a strong end to the year. We don't work in a way that we, you know, we try and get things in one year, and move things around. So I don't have the perfect answer to that. I think partly could be that the strong end to 2015 started off a slow 2016. So partly, but nothing that was planned or that we really discussed actually internally, whether that's the case. I would still say we're gaining market share slightly, but maybe not as much as, let's say, the fourth quarter.
I think I mentioned that the fourth quarter was also, I would say, a significantly strong quarter for Infection Control, and it was also beyond our expectations at the time and our plan. So we were very happy to see that. Then on the rental, we projected a flattening out of rental, and I would say that we're going through that phase, and you don't, you never know exactly what quarter it's going to fall in, but I hope it's troughed. I should also say that we've had partly help in this quarter, that we've had the flu season in the U.S.
And there I also have to be open that, that when we get a flu season that's in a way beyond the normal, we do see a tendency of more sales. So I would say we're not completely—we are flat in the quarter, but we've gotten help, some help. And I see that flattening out, and I don't see a huge growth in the year, but I would be happy with kind of a flattening out and being more under control on the top line. However, we did the restructuring, and I think that's reflected in the margins. So I think you should see that the improvement has been done due to the restructuring that we did one year ago.
Now we're comparing more apples to apples rather than before, when we walked away from some business.
Okay, thank you so much.
Thank you. Okay, we can take the last one.
Thank you. We'll take our final question from Peter Östling from Pareto Securities. Please go ahead. Your line is open.
Okay, thank you for taking my questions. The first one is, you state in the report that you have more or less aligned the sales forces, going forward. But at the same time, you've also stated that, the materialization of, of any, EBITA, improvement in this transformation program, is not, affected that much on, on the, the top-line growth. But, I mean, in my book, aligning sales forces should actually have a positive, effect on the top line, which would then drive the improved EBITA. Maybe I've misunderstood something here. If you can comment a little bit on that.
Yeah. I think, again, these kinds of processes are take time and, and are, quite transformational. So there's going to be happening things, I think, throughout the next couple of years. So just to clarify, what we've done up until now is that we've just merged the management teams. We haven't done anything else than that. So we have not merged shared services in, in the, the Americas, or, we, we're continuing to do shared services in Europe. But we're essentially just merged the management teams and, and actually delayered in a way, or we have fewer managers now in the sales companies. The sales forces are intact, so we haven't changed the sales forces at all. And, what will happen maybe over time is that, in the sales forces, that we'll, we'll, optimize the portfolio.
So each salesperson maybe changes their portfolio with whatever, 10%, 20% of the portfolio, the salesperson might change over time. And then we'll start facing the customer as one Getinge when it comes to key accounts. So key accounts and projects, big projects, there we go as one Getinge. And there, I believe, there should be a leveraging effect where we can bring the whole portfolio to the customer, while before we, we were only showing the customer part of the portfolio. So I think it's a transition. And, and just so you know, all we've done up until now is just the management, the management consolidation and, and nothing more than that. So there's much more to be done, over time.
Okay. Thank you.
Okay.
Thank you.
Thank you very much. Once again, thank you for your attention. Sorry, we went five minutes above schedule, and we look forward to any further questions. Both Pernille and I will be available in the coming days, if there are any more questions to be taken individually. Thank you very much.
Thank you.
Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.