Welcome to the interim report, January to March 2015. Today's conference is being recorded. At this time, I would like to turn the conference over to Alex Myers. Please go ahead, sir.
So, thank you very much, and, a warm welcome to all of you that are out there. And, thank you for taking the time to be with us over the next hour. And thank you also for taking the time to be with my first quarterly report for Getinge. I want to say, first of all, that it's a great honor for me taking over the helm of Getinge, after Johan Malmquist, who's been very successful at growing and developing the company for the past 18 years. I've worked closely with Johan and have high respect for what he's built up, and now I'm taking it over, and, I feel it's really a company in a very attractive sector.
We have lots of opportunities that I'll be focusing a lot on in my so-called first 100 days, which I'll get back to you about. We do have some short-term challenges, which I'll also be highlighting in the first quarter. Though I've worked for Getinge before, at the moment, I'm in my current role for the after three weeks at the role. So in that context, I feel I'll be giving you some early thoughts and impressions. I'll talk a bit about the highlights of the quarter, but I do have my teammate here in Ulf, who's a long-standing CFO with the company. Ulf has, of course, a complete history of the company and much, much deeper knowledge of the business.
So, Ulf and I will be a team today, but I also feel Ulf and I will be a team going forward. Where I'll be focusing on highlights, I'm more focusing also on the commercial side of the business and the changes that need to be made going forward. And I'll also be commenting on what I've called my 100-day process, which will culminate in the Capital Markets Day later this year, and I'll also get back to that. I hope also Ulf will give me a more in-depth support here on your questions. I think together we'll answer all the questions that we can, and Ulf and I will be playing a little bit together.
Whatever I can't answer after my three weeks, I'll send it over to Ulf, but of course, I'll also be giving you my opinion. So, we'll stick to the time schedule that has been announced in advance, and this means we'll try and close the conference at 4:00 P.M. sharp. And you should have received the information and the material that we sent out through the link. And we'll follow the slide presentation as a format for the for this information meeting. So with that, I'll go to slide Number 2 about the Getinge Group overall performance for the quarter. And I'll start with a summary slide. As you can see, we've had overall growth.
Our orders increased to SEK 7.2 billion, which is actually an increase of about 20%, but actually it's primarily attributed to currency effects. So taking the currency effects away, we've had an organic growth of 2%, which is very close to our plans and expectations for the quarter. Group revenue, on the revenue side, we grew slightly lower than 1%, and it is a bit of a consequence, I would say, of slightly soft quarters earlier on the order side. So again, I would say it's in line with our expectations for the beginning of this year. I'd like to highlight a bit of the highlight for the quarter.
It's been Medical Systems, and there we had order growth by 5%, which is very encouraging. And I think, particularly because we've had high focus on the organization regarding the FDA follow-up, regarding communicating the Consent Decree to our customers, and focusing a lot on the process improvement of our processes. I think the 5% is actually quite an encouraging figure and probably one of the good highlights for the quarter from my perspective. Another highlight, of course, is the Consent Decree, which was signed on February 3rd, and I'll comment a little bit more on this later in this presentation. Extended Care, there we've had a decline in orders. I'll come back to that in a later slide.
But I'd like to comment that Extended Care is going through a process now of stabilizing the top-line decline. And in parallel, we're working a lot on restructuring and resizing parts of the business within Extended Care, and I would say especially in the U.S. and Europe. So I think in light of that, I would see the 2% decline as a relative stabilization versus earlier quarters. Finally, a comment on Infection Control. We grew orders about 1% in the quarter, and this figure should also be compared with a very strong Q1 in 2014. I'll comment a bit on geographies. From a geographic standpoint, we've had a Europe that has been growing by about 1.6% order growth, and North America around 2%.
And I would call that in line with our plan. And I would say slightly, without being over-optimistic, I would say it's an encouraging sign to see both Western Europe and North America growing at kind of the 2% level. If I take North America, the U.S. had a particularly strong month. We grew 5% in the month. And there, that's also an encouraging sign, I would say slightly ahead of our plan. So even though North America was on plan, U.S. was particularly ahead of plan. Outside Europe and North America, we have a region which we've called Rest of the World, but it's actually a mixed region with a very mixed picture in the quarter.
So Rest of the World, excluding Europe and North America, we grew 3.7%. And again, it's a mixed picture. We have on one hand, on the positive side, very high growth rates in emerging markets outside BRIC. Also Australia, we've had a very strong month in Australia, or sorry, a quarter, while Japan and BRIC have experienced a decline. And in this cluster, Japan and BRIC, I would like to highlight that the Japanese decline is very much attributed to an unusually strong quarter last year, ahead of a VAT change that was introduced in April 2014. So I would call the Japanese decline in the quarter more of a phasing issue rather than a, let's say, an inherent issue.
On the other hand, BRIC remains a challenge, and we believe the challenge, which has existed for a while, it represents a broader economic, I would say, challenge, and not only a challenge for Getinge per se. But we also believe that this challenge will remain more or less in the situation we're in, for the year, for the rest of the year. So we don't foresee any quicker turnaround in the BRIC markets. But on the other hand, we're very happy to see the overall emerging markets, including BRIC, going in a positive direction. Finally, regarding a bit of the mix on the top line, we have a capital equipment versus recurring revenues.
In earlier quarters, we saw capital equipment in quite, I would say, large decline regarding order expectations. We've seen a stabilization in this quarter, where actually, orders on the capital equipment are declining in a single-digit level, while we're in growth regarding recurring revenues in the mid-single-digit level. So we see a bit of an equalization, let's say, in the quarter between capital equipment and recurring revenues. So that was a bit on top line. I wanted to comment a bit on gross margins. And on gross margins, we've had a decrease overall in the quarter from 49.4%- 46.8%. Again, the reasons are mixed, and I would cluster them in three buckets. One is the negative currency effects with the gross margins.
Ulf will tell you more, I would say, overall, and give you more information on the currency effects overall and how they've affected, I would say, us through the P&L. We've also had some operational reasons, which is low utilization of the capital goods plants, primarily within Maquet or Medical Systems and Infection Control. We've had generally a low utilization of capital goods, and we've also had an unfavorable product mix, primarily in Extended Care and the rental business, where we had a very strong quarter regarding mix, last year in 2014. Operating expenses increased, including currencies, by 16%. But if we would exclude currencies, the increase has been about 5% on the expense side. And the reasons for that is twofold.
One is that we're investing in sales expenses in emerging markets to grow our business. And the other thing we're doing actually has to do with an increased focus from the group perspective on shared services and also procurement, where we're actually bringing in more focus centrally on establishing shared services and also starting to procure, especially in indirect costs, centrally. And what's happening is in the short term, this is adding a bit of a cost, but in the long term, and that we'll also be describing in the Capital Markets Day, our objective is to achieve considerable savings on group level within these areas. But it is adding a bit of a cost, let's say, in the early phase of this process.
So on EBITDA, we increased our EBITDA to SEK 717 million in the quarter. A lot has to do with the positive impact of a non-recurring revenue of about SEK 76 million, which is due to our divestment of the perfusion business within Pulsion. And we've also had positive currency effects on the EBIT, EBITDA level. On the negative side, we've estimated the negative financial impact of the Consent Decree on the EBITDA level to be around SEK 50 million in the quarter. So overall then, if I would describe the quarter, I would say it's encouraging regarding top line development, especially, I would say, in the sense that Medical Systems has had a very strong quarter in terms of orders.
But it has been also disappointing regarding the margin development throughout the business, in all business areas. We have a relatively, I would say, accumulated a relative weak start to the year, but with an encouraging sign on the top line. I'll move then over to Medical Systems, which is the next slide. I mentioned overall a strong order intake. There, I would like to mention Europe growing at 5.6% and North America actually growing at above 10%. I think that's also very encouraging in terms of the context of the FDA focus that we have. Our top line challenges in the quarter lie with BRIC. Again, I've mentioned BRIC in my general statement.
I would say this is also valid for Medical Systems, where we continue to have a soft outlook for the year. But overall, let's say emerging markets are looking quite robust, excluding the BRIC countries. We've had a lower gross margin in the quarter for Medical Systems, and that's also a combined result of a negative currency effect, but also under absorption of our manufacturing units, especially for capital equipment, which has resulted in a weak result in the quarter. EBITDA, again, improvement, primarily due to the non-recurring revenue, where we have the SEK 76 million positive contribution to the quarterly EBITDA. And that's coming from the divestment of Pulsion's perfusion business, and I would say that is a strategic move from our side.
We would like Pulsion to focus more on its core business, which is actually the ICU segment. Again, just to mention the cost in the quarter, Ulf will give you a good overview of the FDA consent decree, but in the quarter, we had an estimated consequence of SEK 50 million in negative EBIT, EBITDA impact due to the consent decree. Consent decree was a big milestone for us. We have signed, the consent decree was signed in February. We're fully committed and fully focused on adhering to the plan. We're improving our business and our activities. And overall, I would say we're within plan, and we're following very, very closely on the consent decree plans and commitments that we have.
A lot is going on also in Medical Systems regarding initiatives on how to effectivize the business. We've announced restructuring initiatives in cardiovascular and the cardiac surgery business units. Also, I must say now, coming in my 100 days, I'll also be reviewing what more can we do and what more initiatives can we have within Medical Systems regarding structure. Finally, I'd like to highlight some of the launches, which I think are very interesting, going in an interesting direction, which is IT solutions, where we've launched Insight, which is a new IT system focused on clinical logistics. It was launched in the quarter, providing a software solution that offers relevant information to more effectively manage patient flows in real time.
I think that's a good direction also for Getinge to increase, let's say, our focus within the IT and information sector in terms of our solutions portfolio. Now over to Extended Care. The organic order intake was a decline of 1.9%. We had a very strong performance in what we call the rest of the world, also including BRIC, in this case, and other emerging markets, while we were weaker in Europe and North America. In Europe, we had a strong Germany, which is posting a healthy order intake. We had a bit of a sluggish U.K., where we didn't experience the usual uptake we get in NHS's last quarter of their fiscal year.
We had more of a flat development rather than an uptake. The rental market in the U.S. remains an industry-wide challenge. We've recently announced a lot of restructuring initiatives in the U.S., but also in Europe, to rightsize the organization, and I'll comment a bit on that as well. We had a decline in gross margins, again, a mix of currency, but also an unfavorable product mix within rentals. I mentioned before that we had a very favorable Q1 last year in terms of product mix within Extended Care. We're restructuring a lot in Extended Care, and we have parallel initiatives in Europe and the U.S. In Europe, the organization has been simplified. We're streamlining and, I would say, reducing the layers, organizational layers.
We're also streamlining R&D to focus on fewer, bigger projects, I would say. And at the same time, in the U.S., we have a restructuring project going on in order to structure ourselves around, again, the concept of fewer, bigger depots. We're reducing the number of depots from 86- 58, and this will affect around 85 employees in the U.S. market. So a lot going on regarding restructuring. Finally, I would mention regarding Extended Care that we're taking a lot of actions, and there's a lot of urgency in the organization regarding structure. And I feel now we have a good grip on the situation, but we still have a lot of improvements, especially on the performance side, to be done within the business area.
Finally, the third business area, Infection Control. We organically grew our revenues by about 1% in the quarter. It's been compared to a very strong quarter last year, and we've had satisfactory growth in Europe and what we call the rest of the world, while the BRIC countries continue to be challenging, I would say, as I've mentioned several times, several times before. Here we have a low-margin development, where we have a lower utilization of our capital equipment, and also combined with some adverse currency effects. Again, a similar situation to the other business areas. For me, it's been important to get a new management team on board, I must say. I'm very happy to have Joacim Lindoff on board as the new CEO.
I think Joacim has a very well-proven track record, and he can give us a balance, I would say, of continuity, but also a bit of sense of urgency in getting Infection Control back on track. Here again, we have a lot of restructuring initiatives, I would say, already in the pipeline. But I will be focusing also more in my 100-day, let's say, planning towards making sure that we have enough sense of urgency and are able to turn around the business. Here, I must say, in this specific case, though I'm encouraged with Medical Systems and also Extended Care, I feel we're achieving the changes necessary.
I'm a bit disappointed with the performance of Infection Control, and I'll be personally focusing a lot of effort around that, going forward in my first 100 days. Over to the next slide, which is an overview of the FDA situation. We reached on February third a major milestone. We signed an agreement and a Consent Decree. As I mentioned before, we're fully committed, fully focused on following the agreed improvement plans. We have some key milestones that have already been achieved. I should say, we've completed communication internally. We've communicated to our employees internally about what the Consent Decree is about, why it's important, and how we follow up on that. We've notified our customers about both the Consent Decree, but also the certification of the medical necessity, so the specific products.
We've gotten actually a good, I would say, early commitment from our customers. Over 88% of the relevant customers have, I would say, signed the information we have given them. Now we're beginning our first audit together with our agreed auditors with the FDA, which is a company called Quintiles. Quintiles is starting actually a few days ago, or today, I think, with the agreed audit in Hudson, which is expected to take seven weeks. So I would like to say that overall, we feel that the Remediation Program is, in a way, in full force, and we're progressing according to plan, overall. There, I can assure you there's high focus within the organization around this. Ulf will give you more information regarding the financial consequences.
So then, before I hand over to Ulf, I'd like to give you some thoughts about my initial priorities and focus areas. I'm convinced that Getinge has solid opportunities for growth, and I do believe we can improve our performance going forward. The past years have been challenging, and my first priority is to get a stability in the organization and focus on some key issues. One of them being FDA and FDA compliance and the whole improvement program there, but also focusing on issues such as margin improvement and future growth. So, what I plan to do is to get to know the organization that I don't know very well outside of Extended Care. I led Extended Care for five years, but Maquet and Infection Control are both very important parts of our business.
And I will seek a lot of both information, but input from those organizations. My ambition is to deliver on 2015. I do not plan to. I would say, I will put full force in supporting the plans rather than turning the plans into a different direction. I feel it's important that we do deliver on our plans. And we have started a bit slower than expected overall in Q1, so we have a lot, let's say, a lot to catch up on rest of the year. But I will quickly immerse myself into the issues and make sure we achieve of 2015, based on the existing plans.
I believe in the opportunity for performance improvement in the company, and I'm dedicated to... I'm sort of using the 100-day plan as a call to action in the organization. Together, I plan to basically develop, identify, challenge the existing plans, and come with an improvement plan that's focused on very tangible initiatives, and a series of initiatives that will start and implement within the next strategic period. My ambition is to present this plan in the Capital Markets Day. We indicated August thirty-first, but I must say here that we've already gotten some input from our U.K. colleagues that August thirty-first is a bank holiday.
So, what I really would like to do is first apologize that it ended up on a bank holiday, but I would really like the U.K. investors and analysts, of course, to participate in our Capital Markets Day. So we're based on the input we've gotten, we're going to be looking for a date the same week, but later that week, and not on the bank holiday in the U.K. Then, my ambition is to present the new financial targets and also to present a very tangible plan for Getinge for the years to come. So I will hand over to Ulf.
Thank you very much, Alex. This is a summary of the consolidated profit and loss statement. As Alex has previously comment on the top line growth, the changes in gross margin and expenses, I will make comments about the FDA financial impact, restructuring cost, and FX effects in the quarter. However, I would like to make a short comment regarding the group's financial net, which has increased by SEK 31 million compared to last year. The main reason to the increase is the negative FX impact of SEK 27 million in the quarter, as new major changes in the expected cash flow has occurred during the first quarter. Let's now move to the financial impact of the consent decree and the financial status of the remediation program within the Medical Systems.
The total financial consequences related to the Consent Decree, excluding the cost for the Remediation Program, are still estimated to amount to approximately SEK 500 million and will impact the group's operating profit for 2015. Out of the SEK 500 million, SEK 100 million were charged to the quarter, of which SEK 50 million for loss of revenue and higher costs and impacting the group's EBITDA result, and the other SEK 50 million booked to the restructuring cost line in the P&L for the initial payment to the U.S. government. As previously announced, Getinge provided SEK 995 million in 2014 related to the Remediation Program for strengthening Medical Systems' quality system. SEK 105 million of that amount was utilized during the quarter, in addition to the SEK 550 million–SEK 570 million utilized in 2014.
The remediation program is progressing according to plan and has already led to major improvements. The total remediation program is expected to be completed in mid-2016. At the end of March 2015, the closing balance of the reserve for the remediation work amounts to SEK 420 million. We then move over to the restructuring charge in the quarter. The booked restructuring charges in the quarter amounted to SEK 183 million, and are relating to those activities Alex earlier described. I will only try to summarize them here. Medical Systems had a charge of SEK 69 million in the quarter. The main part of that was the payment to the U.S. government as a part of the Consent Decree, and also the restructuring of R&D within the cardiac surgery.
Extended Care had a charge of SEK 91 million, and the major part of that was for the restructuring improvement for the improved rental business in the U.S. And also, they had a restructuring program related to the R&D organization. Infection Control had a charge of SEK 24 million, and that relates it to the ongoing efficiency enhanced program within the supply chain. The Getinge Group have also initiated a review of the restructuring opportunities and the initiatives, and expected that the amount for 2015 will be SEK 540 million. If we then move over to the effects, effects in the first quarter and also for the estimate for the whole year, the group has two currency exposure. The first is the currency transaction exposure, and it relates to when the group's factories are selling to the group's foreign subsidiaries.
The other is the translation exposure, when the group's company results are translated into the Swedish krona, and that we do not hedge. In the first quarter, you could see in this table that the EBITDA was impacted by SEK 76 million, and you could see the transaction effect and the translation effect. The EBITDA was then impacted by two, and profit before tax was impacted negative of 25. The reason why the FX effects turns negative on pre-tax profit level is that the major part of our restructuring charges and amortization of intangibles on acquired companies are denominated in foreign currencies, such as U.S. dollar and euro. Also, the financial net had a negative FX effect of SEK 27 million in the quarter.
If we take a look on the full year effect, the net effect of the exchange rate fluctuation in 2015 is expected to have a negative impact of approximately SEK 10 million on the group's profit before tax, of which transactions effects amount to -SEK 250 million, and exchange rate translation effects to approximately +SEK 250 million, based on the prevailing exchange rate scenario. If we then move over to cash flow, the group cash flow was good in the first quarter and amounted to SEK 654 million. The quarterly cash flow represented almost 70% of the quarter's EBITDA. The strong cash flow conversion should be explained by good collection of accounts receivable, and in comparison with last year's quarter, these were down by 2 days to 72 days.
DIO, unfortunately, increased by four days to 137 days, which is mostly related to safety stock in connection with move of production. So in general, I should say, good performance of the group's working capital in the quarter. The balance sheet, the closing net debt amounted to SEK 23.5 billion, and the closing equity amounted to SEK 18.6 billion, which resulted in a net-to-equity ratio of 1.26 times, and an equity asset ratio of 33.4%.
Adjusted for currency fluctuation, the net debt decreased in the quarter by approximately SEK 370 million. The dividend amounted to SEK 667 million, which was approved by the annual general meeting on the 27th March, was taken out of equity, but was paid to the shareholder on the 1st of April, and therefore, not included in the cash flow. I think I stop there, Alex, and hand over to you again.
Okay, thank you, Ulf. So a bit on the outlook for 2015. I'll start, again, really by confirming also the outlook that has been given before. We believe that, we do have, an outlook for organic revenue growth, and in 2015, and we do expect to see an improvement over the previous year. We have clarity on the FDA issues, through the consent decree, and we expect the negative financial impact to be approximately SEK 500 million, and this is communicated earlier. At the time, we don't have, any reason to believe that this figure should be changed at this point in time. The currency effects, Ulf, talked about and gave you an overview.
And there, we expect to have the negative impact to the amount of SEK 10 million Swedish crowns. And then we'll start to become more positive in 2016 and moving forwards. We've had an initial review of the restructuring opportunities, again, as Ulf mentioned, and at this point, we expect the amount to be the SEK 540 million that Ulf mentioned. Finally, then moving forward, I really believe that the potential for improving the group's profitability in the medium term remains favorable. I think improvement initiatives are already underway. So I should say we're already working on it, and it's my ambition to develop the performance improvement plan in the next 100 days, which will be focusing on growth, but also a lot on margin improvement, over the next few years.
We've had an initial review, and we'll be coming back to you during the Capital Markets Day. And I'm confident that we can materially improve the profitability of the business going forward. But I also believe it's important for me to base it on very tangible plan and not to come with something, I would say, after my third week at work. Rather, I would rather do it in a well-worked through way, and then present it to you with some financial targets going forward.
So I'm looking forward to seeing you all at the Capital Markets Day later in the year. And then, once again, we'll come back with the exact date, but it will be sometime during that week that we've already flagged. So thank you, and I would suggest now that we hand over to any questions from the audience, and both Ulf and myself will answer the questions. Thank you very much.
Thank you. If you would like to ask a question at this time, please press the star or ask Direct key, followed by the digit one on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipments. If you find that your question has already been answered, you may remove yourself from the queue by pressing star two. Again, please press star one to ask a question. Our first question is from Mr. Justin Morris, from Citi. Please go ahead, sir.
Hi, gentlemen. Thanks for taking my questions. I have three, if I may. First was just on the timing of the Capital Markets Day. Obviously, it's a couple of months later than what Johan had initially indicated. I was just wondering if that means, is there anything we can read into that in terms of the level of challenge that's maybe ahead for the company, particularly in light of the fact that you seem to have extended the restructuring program for 2015 as well? Any color on that would be good. The second question was just on the phasing of the Consent Decree impact. Obviously, you only had about a SEK 50 million impact in the first quarter, and you're guiding for about SEK 450 million for the year on EBITDA.
So I was just wondering, in light of the fact that you said the audit has already started and will only take seven weeks, if you could maybe explain how the phasing of the other SEK 400 million will come through. And maybe also if you could give a number on how much inventory sell down there was in the first quarter that offset the impact. And then lastly, it's just an accounting question really. On the SEK 76 million gain in the Medical Systems business from the disposal, could you just maybe explain why that was a gain on the sales line as well as the EBITDA line? And then just clarify whether you included the SEK 76 million in organic growth or not. Those are my questions. Thanks.
Okay, thank you very much, Justin. So this is Alex. I'll tackle your first question. Ulf will take the other two, and I might also be adding on some to Ulf's answers regarding the Consent Decree. If I would say the Capital Markets Day, I would say, yes, we did flag, or the previous management, let's say, flagged for the end of Q2. And I must say, it shouldn't be read in any different way, other than I started in end of March. This quarter has three days. Let's say I was at the company three days when this quarter is coming, and I really believe in doing a proper job.
And also, I should say, getting the supervisory board fully on board with the new financial targets. I also didn't want to just take up, let's say, existing projects, but my ambition is to take the plan and take the strategy, but also, let's call it, stress test it, ask questions about it, and also add to it. So the decision, I would say, was purely a matter of doing a professional job, giving it 100 days, which I've actually worked with quite a lot in my previous experience, also with private equity. I think it's very good to get a tangible plan.
Then the 100 days actually ended up in the middle of the summer, so I would say for practical reasons, we had to move it to a later date than that. But you shouldn't read anything, let's say, anything else negative other than a purely, let's say, a 100-day planning horizon. Ulf?
Yeah, and I think your question was about, that we still believe that the impact from the Consent Decree will be SEK 500 million, when we only took a charge of SEK 50 million. But you should also remember that we took SEK 50 million for the payment to the U.S. government, so the total impact on operating level is SEK 100 million. And, so I think we had a good start as far as the Consent Decree and our organization. Maybe you would like to fill in there, Alex, that we actually had a very good performance of our salespeople going out and collecting information and so on. So I think we had a good start, but there's still a lot of risk left to see how our customer will act when we going forward.
Yeah. I would like to add there that, let's call it the initial reaction of our customers, has been very supportive for us, if we put it that way. They, so they've signed, and they've understood the situation. What we don't want to do is, I would say, overreact in a positive way on that. They do have time to think about it and maybe change their mind over time. So, we still believe we want to hold it, hold, let's say, our estimate. But I should say the first quarter was more positive than we had anticipated.
Then I think you had a question regarding inventory. As you could see, that inventory actually went up in this quarter, so there were no really significant sell-out of inventory with respect to product, which is under the Consent Decree. I think it was quite a normal month when it comes to the inventory situation. Then the last question, Justin, if I got it right, you wonder over why we booked the gain on the investment within the Pulsion perfusion business. That has been booked to the line, which is called other income and expense. So I don't really understood if what you mean, but if you could repeat that question, I will try my best to explain it.
Yeah, I'm just trying to find the exact wording, but it somewhere in the release, it said that it was a nonrecurring sales effect, I believe. I'm just trying to find the exact wording, but I just wanted to clarify whether there was a SEK 76 million increase to the sales in Medical Systems because of that divestment, basically.
Okay. No, but that gain on that investment has been booked to the line in the PNL, called other income and expenses.
Okay. And if I could just ask one quick follow-up. It was just the reason for... I mean, can you give any specifics on why you're now saying restructuring will be SEK 540 million in 2015? Because that's quite a bit more, at least, than I had anticipated. So what are the, you know, additional restructuring measures for exactly?
Yeah, I don't want to go at this point. I don't think we should go into detail on what it is. I feel it's a bit premature, but well, I should say I've been focusing quite a lot of my early days around what can we do more on group level and how can we leverage group resources, and some of these projects will require some restructuring. So I would say we'll have clarity at the Capital Markets Day, so you'll be able to see it. You'll be able to see the whole, the total picture. But I think right now, it would be wrong to go into details on the specific amount.
Okay. Thanks, Alex. I'll go back. Thank you.
Thank you.
Our next question is coming from Mr. Erik Hultgård from Nordea. Please go ahead, sir.
Yes. Hi, thank you for taking my questions. I have a follow-up there on the phasing of supply restrictions related to the Consent Decree, and basically, it's two questions. First, could you give us some timeline for the expected relocation of production from the Hudson site to Merrimack? I think you, Alex, said that the audit should take some seven weeks.
Should we then expect that supply of part of the restricted product should be back again in Q3? Second question related to that, the move of vascular implant production to France, I think you say that it's expected to be completed this quarter. Will that also mean that supply restrictions should, on the revenue side, should peak in Q2 and then fade going into the second half? I think I'll stop there, and then I have one more follow-up.
Okay. When it comes to the relocation of production from Hudson to Merrimack, that is going according to plan. There is different time, so to say, set up, and we are starting to move some of our production, especially of the mesh product, is already on its way to Merrimack. We are following a plan. It's going to be more or less completed in the second part of 2015.
When it come to the vascular graft, which is moved into France, that has nothing to do, so to say, with the FDA situation. That is a complete different thing, and that is also following going according to the plan. It should be completed during this year. So I think we are well in line with our plans, and it would not, so to say, have any major impact on the relationship with the FDA situation.
All right, thank you. Just finally, how confident are you to regain the customers that you may lose due to these supply restrictions?
Yeah, I would say, I'd like to be careful on answering that. I would say it's so far so good. We've had more than 88%, let's say, of customers signing the information that we got. So, I would be, I would say carefully optimistic. I think there are always risks going forward, but, I mean, we're doing everything we can to inform them and to keep them confident in us. So again, I don't want to make predictions on the future, but I would say the first quarter has been slightly ahead of our plan on that.
All right. Thank you so much.
Thank you.
Our next question is from Mr. Richard [inaudible ] from Kepler Cheuvreux. Please go ahead, sir.
Hi, Richard [inaudible] at Kepler Cheuvreux. I have a couple of questions. First one, something that obviously has quite high growth is your restructuring costs, and, and you now expect significantly higher costs than previously. I don't quite understand, what is the total impact of the sort of traditional restructuring costs and the FDA-related ones? Are we talking about SEK 540 + SEK 500?
Yeah, I think... Okay, was that your only question? Okay, because then we can jump in and-
No, I have more questions after that.
Okay.
Should we start with that, Richard, Richard?
Yeah.
Yeah, so there is, so to say that, we have said that the consent decree will have a $500 million negative impact. In the first quarter, we took $100 million, and $50 million went into the restructuring cost line. There is still a risk also that we have to pay an additional $50 million, which we also have stated in the press release. If that happened, that will also be booked to the restructuring line. That is not included in the new estimate. It doesn't include the $540 million. The $540 million is included, what Alex said, some additional activity, which we will present at the Capital Markets Day. The thing is that we have been able to book the $50 million payment to the U.S. government on the restructuring line in the P&L.
So of the SEK 540, so far SEK 50 is related to the FDA, and the remaining SEK 490 is just sort of other restructuring charges. And if so, how can you, how can you already now quantify that without having fully reviewed this?
Just to make it clear, we had an overview in one of the slides of the quantification, which is a major part of the SEK 540.
Yeah.
Which is under infection control Medical Systems. So there's just, well, let's say, one outstanding beyond that, there are a few, let's say, outstanding projects that we're in discussion, but we thought it was, it's probably prudent to flag them already now rather than wait for the Capital Markets Day to come.
Okay.
But there is an overview slide with an overview of what we've already, let's say, flagged and communicated.
We have already booked SEK 200 million in this quarter. So I think it's, yeah, there is a major part already explained of the SEK 540.
Okay. And in the SEK 500 million, the financial impact from FDA-related problems, do you expect any lost sales in 2016 and onwards, or is this only for 2015 and, and-
Yeah, I would say we, well, we have, the horizon we have is 2015. I would say we don't, we don't have a horizon for 2016, and onwards. We, we're focusing on, on getting the situation, let's say, in a positive way, now. So, we—I don't have a comment on 2016.
So any customer that would not be willing to jump back to your products would mean a larger negative impact related to these FDA problems?
Yeah, I would say it is a hypothetical, let's say, question, but, yeah, there, there is a potential that we would lose customers. Again, I want to highlight that, over 88% have already, let's say, you know, signed, documents that they understand the situation, and they're willing to continue with us. But of course, there is a, there is a risk, going forward. It's, it's just I would say, so far so good, that we've, that we've managed to have a good, transition and a good information around this issue.
We have also included as a part of the SEK 500 million-
Yeah
... that risk.
Yeah.
But I can't quantify it exactly how many customers we have calculated that we lose, but we have taken, so to say, in that when we did the calculation of the SEK 500 million.
But that's sort of what I just asked. But have you then estimated that that is sales that's lost sort of for eternity?
Yeah, I would say not, no, I would say not eternally. What we've done is we've calculated the risk for 2015, and it's a mixture of sales and bottom line effect. And so far in the first quarter, let's say, it's been better than what we had calculated with. Yeah.
Okay. Thanks. Last question. How exactly are you treating this sort of lost sales? Are you or the cost that's impacting EBITDA, where is that coming in? Are you first booking sales and then sort of deducting costs? Or how is that coming into the P&L?
Now, we are booking it as the normal way you book sales, and the normal way you book cost. It is that we do calculate what we believe we have lost in top line due to the Consent Decree and what more cost we have incurred. It's done in a very normal way, nothing special.
Okay. Yeah, I don't know what's normal, but basically, you're booking sales that has never happened. Is that what you mean?
No. We book sales as we invoice.
Yeah.
But then we had, so to say, we could see if we had not had the Consent Decree and certain activities going on, we believe that we could have booked more sales and sold more. But due to that, we had to get the customer to sign the documents and do those activities. We could see that we lost revenue in the first quarter due to those activities, and this is what we tried to quantify with the SEK 50 million in the first quarter.
Yeah.
Great.
I would say we look very much at how it was last year and then compare.
Yeah.
So I would say it's not a very much more scientific process than that, and we look versus our forecasts and versus our actual sales a year ago, and I would say, and then basically we book it in the P&L.
Yeah, correct.
Yeah.
Great. Thank you.
Thank you.
Our next question comes from Mr. Martin Brunninger from Jefferies. Please go ahead, sir.
Thanks very much for taking my questions. I have actually only two questions. First, maybe, a detailed one on the restricted products, that you have. How much inventory do you think you have left? And, you know, if you assume normal, demand for these type of products, for Flixene, for Advanta, for [inaudible], how many quarters do you think you can supply to your main customers? And secondly, the more broader question to Alex, when you came on board as a CEO, what were the kind of two main points that you think you can turn around within 12 months, and where you think you can improve profitability? Maybe we can talk a little bit broad on this, on this subject, I think. Thanks very much.
Thank you. I think if I take the first one, maybe I must say I don't have the full overview. I would say we don't think the consequences are material, let's say, but I don't have the exact numbers, to be honest, so maybe we can come back to that. But it's really not material, and I don't think we should expect any bigger gaps in the overall picture. The second one, the two things I can turn around, I should say the I believe, and I think we do have a challenge on our margins.
Now, I don't wanna, let's say, promise that margins can be changed in a very quick period of time, but I do, I do believe in margin improvement in the next strategic period, let's say in a, in a three-year period. And I do think that we can improve on the margin side, quicker than that. So I would say margins is one of my focus areas. And we do have a challenging situation also with our customers, looking very much on pricing, and our customers are under pressure.
The other area I would say is, of course, growth and how we can get a sustainable growth platform, and there I do believe also we can get back into more of a growth, organic growth, trajectory, after, I would say, some flat years. So I would like to be able to say growth and margins are the two. I think one of the leverages is for us to leverage the group perspective, and there, I think there's a lot to be done, where the group, as a Getinge, we can act in procurement, we can act on shared services. So there's a lot we can do by combining the group rather than running three individual, let's say, business units with a full back-end organizations. That would be, let's say, an enabler to try and get there.
And when you talk about the three year period, would you see that more as a linear improvement over, say, the six months? Or would you think that's more a hockey stick, that you don't see much in the first 24 months, and then you see all the improvement coming in later? And the other thing, I kind of hear through that one of the margin improvements that we haven't heard before so much is product mix pricing. What's there that you can improve in the Medical Systems? Do you think there was wrong pricing from previous management, or what is the low-hanging fruits there?
Yeah, again, I would, I would like to to be given some time to go through that. I could answer yes to all your questions. I think there is, I will be looking at pricing, I will be looking at margins. And, and, I would, I would like to get the chance to come back to that at the Capital Markets Day with a, a very clear, let's say, plan, but also clear phasing. So, so you get the chance to see that, you know, how the phasing is looking. So I'd like to get back to you on that, but, I can assure you, I will be asking the same questions to the organization.
Very good. Very last question, maybe. Will you, will you be investing in the headquarters?
We're sensible. I think we should do that. And again, things like shared services, centralized procurement, I think are very much themes that where we can leverage and actually get cost benefits over time. And maybe in some cases, quickly. And there, I would invest, let's say, I wouldn't call it headquarter, I would call it group resources. Then where we place them, that should be another distinction. So I believe in leveraging the group quite a lot. And if the business case shows a positive business case, I think we should do that. Otherwise, I don't believe in, let's say, fat headquarters growing on their own. Absolutely not.
Yeah, your headquarters are anything but fat, but you think you will add some medical affairs people, at least, to the headquarters on a corporate level?
Yes, yes, we will. And I would say we already have started that journey. So I believe it's important to get the payback on the investments. I see it purely as an investment case. And yes, you're right, it's been a very lean headquarters historically. So I would say we'll be very wise, but I do see increases, the increased need for more resources to drive central programs.
Excellent. Okay, thanks very much. Mm, bye.
Thank you.
Our next question comes from Mr. Hans Mähler from Handelsbanken. Please go ahead, sir.
Hi, Hans Mähler with Handelsbanken. First, a question regarding the BRIC countries. Could you give some more color on the individual countries there, what you're seeing, and if the situation has worsened compared to what you saw in the fourth quarter? And also, secondly, on the amortization and financial net in Q1, is that a fair assumption for the level it will be going forward for 2015 as well? Maybe a question for Ulf. Thank you.
Okay, thank you very much. I can take the BRIC, and I think, Ulf, maybe you can give some input on how it was historically the last quarters. I would say the BRIC, we see a situation where, if I take it, BRIC, BRIC by BRIC, if I would put it that way, I would say, Russia, we have a situation on the overall economic outlook. And, and Russia, we basically had a sharp decline. I think it's improved slightly in the last quarter versus earlier quarters. And there we see a slow, let's say, a slow recovery and probably not recovery during this year.
China and Brazil, I would say China, we've seen single digits, or sorry, lower double-digit declines. I don't know how that is versus earlier quarters, but I would say it feels more, it's easier to forecast now, but it is going to be challenging this year. And in China, we see it as a combination of economic factors, but also kind of a slowdown and a more focus on the lower-priced products. So there's an increased competition in China. And I would say Brazil and India. In India, we see a slightly better situation, so it's not a double-digit decline, but it's a lower single-digit decline at the moment.
And Brazil, I would say it's also around the lower double digits. So again, it's very much, I would say, economy based on the economic climate that we have. We believe we're keeping our market shares, and we see a slow recovery, so we don't want to promise a recovery this year. Again, I just want to emphasize, the other markets, excluding BRIC, are doing very, very well, and we've had a good start. So Ulf, I don't know how that's in relation to the last couple of quarters on the BRIC.
No, I think it is quite similar as we had at the end of last year in the BRIC markets. It has not been such a major change in the first quarter compared to the last quarters in 2014. And I think you, Hans, you also had a question regarding if amortization cost it will be quite similar going forward in the coming quarters, and you could assume that. That's okay. And then you asked about the financial net, and that is also okay. There is still a little bit of a FX risk in the financial net, which could change over the year, and that.
But otherwise, you could also assume that the quarter will look quite similar as the first quarter, but also take into consideration that we will reduce our net debt. We have actually reduced our net debt in the first quarter, excluding currency, and that will also have an impact of reduced financial net going forward.
Okay, very good. Thank you so much.
Thank you. Regarding timing, we've made a bit of a management decision here that we'll prolong it with 10 minutes because we acknowledge we stole a little bit of your Q&A time with our presentation. So we'll prolong it for 10 minutes if there's need for questions. And then, of course, after that, both Ulf and I will be available for Q&A directly. So if there are any more questions, we'll continue until 10 past. So please continue.
Yes, thank you. Our next question comes from Mr. Lars Hevreng from SEB. Please go ahead, sir.
Thank you. Could you just say something more about the increase in admin spend, which goes beyond the increase in reported revenues? You mentioned a bit that some investments will be done to gain for long-term benefits, so to say. But could you just say something about the ongoing activities there? That's one question. The other question being simply the cash flow effect from this divestment in the quarter, and whether that's paid, et cetera, and where we see that?
If I start with the expenses, we had an increase in admin expenses in the quarter, as could be seen. But if you adjust for currency, it's something between 6%-8%. And most of that relates to our activity as for to the shared service activities, where we have, so to say, to do the investment upfront, and then the saving will come later. And then also we have started, as Alex described here, employed certain people here at the headquarters, who is now starting to work with indirect spend and also direct spend.
So that there is an increase, which we also have good business cases on, which also will be presented at the Capital Markets Day, what those savings will be in the future. But when it comes to the gain on the sold investment, I have to come back with that, Lars, before I could tell you exactly how much was paid. I'm not sure if they paid the whole amount upfront, but I will come back to that to you and give you the details about that.
Okay, thank you.
Thank you.
Our next question is from Mr. Kristofer Liljeberg from Carnegie SE. Please go ahead, sir.
Yes, thank you. Kristofer Liljeberg, Carnegie. Three questions if we have time. First, on the currency impact for the year, I struggle to understand how it could be worse than three months ago, because if I'm looking at the sensitivity table in the annual report, the U.S. dollar and British pound improvement should have added some SEK 100 million compared with the plans for the year. So I guess I'm missing something, if you could help me there.
Also, the second question on the restructuring cost now being higher, and part of that related to the new plans of centralizing things, how should we expect or think about costs when we move into 2016? To reach your margin target, should we expect there will be more costs in 2016? Finally, could you just explain what will be left at the Atrium site when you have moved out certain products there? Thank you.
Thank you. If I start with the FX, now, with it, if you take a look on, on our P&L, Kristofer, you could see that, with the high portion of restructuring costs and high amortization costs, and also the FX effect in the financial net, that those add more or less up to something around SEK 2 billion. And that has a very big impact on, on our, finally, translation, when we talk about translation, because the transaction has not changed anything since we communicated that. But due to the increase in dollar and also the euro, it has had a negative impact on, on the profit before tax.
But Ulf, could I-- The table you have in the annual report, is that for EBITDA then, or is it pre-tax profit?
I, I-
Maybe we could come back to that, maybe.
Yeah, I don't have the annual report in front of me, Kristofer, but I-
Okay, but let's discuss that afterwards instead.
Okay, that's good. Then I think you had something about-
Restructuring
-the restructuring. What was your question there? Could you repeat that?
No, the fact that you're announcing additional costs now, and that seems to be partly related to the program of centralize more of, you know, back office costs, procurement, et cetera. And I guess this is a pretty, you know, a program that will be ongoing for some years. So should we expect this type of restructuring costs also happening in 2016, or do you take everything now in 2015?
Yeah, I would say like this, we don't have the total picture, to be honest, of that. Again, we'll have it by the Capital Markets Day, and we'll even have it before that, but I don't want to give you a phasing of that. All I can say is that, within each initiative, there'll be a clear business case. So we'll see the cost, the benefits of the investment. And then we will phase it, let's say, over, I would say, a three to four year period. But I don't have the overview right now, so I don't want to give you, let's say, any right or false answer on how we phase it. But I think you should be confident that we will have positive business cases on all the initiatives that we come forward with.
Thanks. And then the last question was, what you will have left at Atrium, and will you move more or less all production for products that are now banned by the FDA?
Yeah, I mean, we're moving to a new location. So, so in the old Atrium, so to speak, there will be nothing, right? So I'm, I'm looking to Ulf, just so I don't make any mistakes. But the, the thinking is we're moving to a new location, and we're setting things up, so we have the pro- the proper processes, quality management systems, and starting fresh, so to speak, and then get approval for moving things from Hudson to, to Merrimack, in that. So nothing, nothing will be left in the old building.
Okay, that makes sense. And the inspection you said that Quintiles is doing now, that will be ongoing for seven weeks. Is that the first of several inspection or is that the one you needed?
Well, that's a major one. But of course, we have to be, let's say, open to any request from the FDA to inspect us. So there will be other inspections, I assume, but this is one of the milestones where we're asking also to transfer products into a new factory. So this is an important one, but I don't think it's by no any way the only one. I think it's the one we know about right now, and the one we've agreed with FDA, according to the plan.
Okay, but do you expect that you will be able to start selling again in, like, after that, in seven weeks from now?
For some products, yes.
Okay. Thank you.
Our next question is from David Adlington from J.P. Morgan. Please go ahead, sir.
Hi, guys. Thanks for taking the questions. Firstly, for Alex, a shorter term one. You said during the presentation that you aim to deliver on the plan for 2015. I just wondered if you could share with us some color on what that plan is, both in terms of revenue growth, but more particularly around margins, and maybe not on actual margin, but whether, you know, the directions of that margin development, given Q1 margins are down quite sharply. And then secondly, longer term, obviously, margins have clearly been under some pressure. You've got some moving parts there, price, costs, mix, and potentially some growth issues as well. Clearly, you can address the cost base, but I just wondered what you can do about price, mix, and growth, please.
Yeah, I mean, I would like. Again, I'm confident on the revenue. I think we're gonna hold the plan. And what I would like to do is not to give you any indications right now on, let's call it the margins and the bottom lines. I need to get on top of it myself. As you've mentioned, that we had a weak start in the year, and there I would rather not, let's say, promise any kind of direction there.
But what I want to give you a direction on is, I'm not, I would say my ambition is to fulfill the plans that exist and not, let's say, to come and question the previous management's plan. So I will do everything I can to deliver on that. Regarding the longer term perspective, I agree with you. There is a focus that we can do on pricing, more smarter, maybe more strategic pricing.
So that'll be an area I will be looking at and challenging the individual business areas. And I do think there's a lot to be done on the structural side. Within supply chain, I believe there's a lot to be done within procurement, both indirect and direct, and also a lot of shared services. I'll be focusing on, I would say, every area and turning every stone within 100 days, and then we'll come with the overall plan.
Great. Thank you. Maybe just to follow up, just strategically, do you think the group as it stands, do you see any non-core assets that could be disposed of?
Again, too early to say, I should say. So I'd like to pass on that one until I have a full overview, also of the two other business areas that I hadn't directly worked with before.
Sure, fair enough. Thank you.
Okay, it's slightly over 10 past, so what I would propose is, unfortunately, we have to close the meeting now. Apologies that it's taken a little bit longer, but I think it was important to make sure we got enough of the Q&A. Ulf and I will be available for the rest of you if you have any, and of course, we'll do it through Kornelia. So, hopefully, you've got a good picture of my first three weeks and also the quarter. And I look forward to, again, meeting you at the Capital Markets Day. And we'll come again with a final date for that, that it doesn't coincide with the U.K. Bank holiday. So thank you very much, and look forward to hearing from you soon. Thank you.
That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.