Getinge AB (GNGBF) CEO Mattias Perjos on Q3 2020 Results – Quick Version Earnings Call Transcript


Getinge AB (OTCPK:GNGBF) Q3 2020 Results Earnings Conference Call October 16, 2020 3:40 AM ET

Company Participants

Lars Mattsson – Head of Investor Relations

Mattias Perjos – President and Chief Executive Officer

Lars Sandström – Chief Financial Officer

Conference Call Participants

Catherine Tennyson – Bank of America

Annette Lykke – Handelsbanken

Kristofer Liljeberg – Carnegie

Peter Testa – One Investments

Oliver Reinberg – Kepler Cheuvreux

Disclaimer: *NEW* We are providing this transcript version in a raw, machine-assisted format and it is unaudited. Please reference the audio for any questions on the content. A standard transcript will be available later on the site per our normal procedure. Please enjoy this timely version in the interim.

Operator

[00:00:01] Welcome to the guessing, Getinge AB Q3 reports twenty twenty the to all participants will be in listen only mode. So there’s no need to muturi an individual airlines announced would still be a question and answer session. Just to remind you, this conference is being recorded. I’m going to hand the floor to Mattias Perjos CEO.

Mattias Perjos

[00:00:25] Thank you very much. Welcome, everyone, to getting its third quarter earnings call with me, I have also our CFO, Lars Sandström, who will present the detailed financials in a moment. Let’s get started and move over to page number two, please.

[00:00:45] So before we get into the figures, in fact, on getting us performance in the third quarter, I just like to spend a brief moment on the latest regarding the 19 pandemic, which is still obviously impacting not only us, but millions of people around the world as we speak. And unfortunately, we are in a situation where we continue to see record number of cases on a daily basis. So it seems safe to say that there is a second wave here now that we need to address, obviously, that this pandemic is also having a negative impact on all the patients that are waiting for elective surgery.

[00:01:21] And we’ve seen a quite significant buildup of the bacteria and it keeps growing now every day. So it’s quite a challenge for the health care system. And given the second wave that we see in these regional flare ups, it’s a little bit too early to predict when we will move into a situation where this is under control. It seems that in many cases it’s going in the other direction at the moment. And this, of course, has a profound impact on the work situation for all dedicated clinicians out there and also on our employees, especially the ones working on the front, but also a lot of people in the in the other structures, other parts of the world getting in. I’m very happy with the great cooperation that I see and the dedication from all the people. So I just like to start by thanking all of you as well. Thanks very much for the efforts and achievements in the third quarter of 2012. We that we can move over to page number three this. So if we start with the summary and look at the key takeaways in regards to our performance for the third quarter as well, well known by now, the covid 19 pandemic has created a huge need for advanced ventilators, for XHTML therapy products and sterile transfer products. And our leading physicians in these areas contributed to an organic thirty three point four increase in sales for the quarter in one eye. One example is that we delivered more advanced ventilators this quarter than we normally do in a in a year.

[00:02:54] So we’ve delivered 17000 700 ventilators at the end of the year, at the end of the third quarter. And we’re continuing to deliver at full speed here in the beginning of the fourth quarter before we plan for any ramp down at organic order intake is down five point three percent, mainly due to elective surgery procedures still being behind last year’s levels in hospitals in most parts of the world, I should say, the large volumes, overall volumes that we have, though, combined with the productivity improvements that we’ve done in recent years, resulted in substantially higher margins, strengthen free cash flow and significantly lower debt as well. So this meant that our leverage continued to improve down to just under one point four, compared to three point one year ago. So significant improvement. We can then move over to page number four, please.

[00:03:58] So we continue to use this way of describing the impact of covid-19 for us in the third quarter, and this highlights the impact in different parts of our business. The order intake is still growing for our ventilators and related products where we are number one in the world. But the growth in the third quarter has been at a lower pace compared to the exception of growth that we saw late in the first quarter and throughout the whole of the of the second quarter.

[00:04:26] Basically, if you look at the cardiac and vascular consumables predicted surgery this was growing, has been growing sequentially since May, but it’s still behind the previous year’s level. So in line with the assumptions that we had that there was going to take towards the end of the year for these two to come back fully alive, science business continues to perform very strongly in Stara Transfer, which is to WERSHBA, my customers, where we are a strong market leader in surgical workflows. They were in Bakersfield, muted due to hospitals. Focus on focusing on covid-19. But we also do see in some areas green shoots of progress in terms of planning for it, for investment and planning for decision making as well. When it comes to supply and logistics, we’ve managed to handle the challenges linked to supply of components and a very good way. I must say, I’m impressed with how the team has handled the challenges is exceptionally well done in the quarter. It’s been a monumental exercise to ramp up to the over twelve hundred ventilators a week that we’ve been producing for a while now. So it’s a really well done. I’m also satisfied with the fact that the interruptions in the supply chain and the production will have had limited impact on the on the outlook. The third quarter has been much smoother than the second quarter. This obviously can be seen in the in the financial performance as well in the quarter impairment.

[00:05:51] We’ve also been working on continuous productivity improvement throughout the business in a really good way. So this is one of the cornerstones of our strategy and we’re able to continue to work through that as well. Despite all of the challenges with the recall, the 90s and in the quarter, we have some under absorption in production capital goods, goods, which is mostly evident in the surgical workforce. But you can also see the parts of lifescience supply chain. And then finally, from a financial perspective, we see a significantly improved margins due to the volume and mix the acute care therapy products. Currently the margin that is higher than the average in the in the group, we also see very strong cash flows, partly because earnings are higher, of course. But at the same time, we continue to work really actively with keeping our working capital at a good level despite the increased volume. So a job well done by many people in the company in this regard.

[00:06:50] And let’s move over to page number five then. As we said after the second quarter, that we would try to provide some more detailed insight to the dynamics of the business that are positively impacted versus the ones that are negatively impacted, both in terms of the top 10 battles, in terms of cost. So this is a first shot at doing this. So let’s take a closer look at the broader growth so far 2020 and divided into a number of larger building blocks. So the growth is up 19 percent in total. So large extent obviously related to critical care where we have our world leading ICU ventilators if we take critical care out. Orders are down six percent year to date organically and down four percent if we add the orders coming from AFRICOM, which we acquired in early January this year. If we don’t take this one step further and take out all the product categories performing well year to date. So this means that, in other words, taking away the order growth from Heckmann related to products and from stand there transfer products where we are leading and where we’ve seen a strong underlying demand and really good potential to good potential to expand. Or if we take all this out, these are areas where also we, by the way, have increased capacity and already implemented and a number of activities under implementation as well. But if we take all these out, that leaves us with cardiac system, vascular systems in acute care therapies, which is closely linked to how fast hospitals can get back to historical levels of elective surgeries. And it leaves us with the demand for capital goods in life, science and surgical workloads where capital goods is down one service and repair costs still are holding up quite well.

[00:08:50] So we would only have these product categories to offer them. Our orders would have been down 15 percent organic the year to date. So that gives you a little bit of help understanding the dynamics from the portfolio when market category perspective. But again, we are not down 15 percent, we are up 19 percent, and we are well positioned for the long term growth with our leading products. What happens short term, however, is very much related to both the short term development of covid-19 and the second way that I touched on initially and that it’s unfortunately very, very hard to predict at the at the moment. We that quickly moved over to page number six, please. So let’s take a closer look on where we are trend wise, when it comes to orders, we can clearly see that the trends are starting to converge now, taking us one step further towards normalization within critical care and cardiopulmonary. We’ve had an exceptionally strong order intake in the first part of the first quarter. And throughout the second quarter, we feel the order book for the 26000 advanced ICU ventilators during the third quarter. As I mentioned earlier, we’ve delivered 17000 700 of those at the end of September. We continue to grow on ventilators and related products, but not at the extraordinary pace that we saw in the earlier quarters and in the dialogue with our customers. It’s clear that some of them are looking into increasing capacity and its use in order to potentially be forced to manage a second wave of Kokabee 19 and also, of course, the regular flu season at the at the same time. It is, however, too early to say anything about what we expect for 2021 on ventilators, given the uncertainty that I just mentioned.

[00:10:43] In cornichon vascular systems, the orders have been growing sequentially since May, but we still have some distance to go before being on par with last year’s order levels. All in all, this is creating a significant battle in in hospitals, which we do. We will do everything that we can to help out with the short term development. Again, here, it’s very hard to predict at the moment, given the signs of a severe second wave of covid-19 that is also hitting extremely different, depending on where in the world you looked in surgical workflows. Our main businesses are within four operating rooms and the flow of sterile goods in hospitals. Both of these categories have been in some kind of low activity mode throughout the third quarter as well when it comes to the order side of the business. And it is simply because hospitals allocate much of their time and resources still to manage covid-19 people who get orders related to service, spare parts and consumables within surgical workflows.

[00:11:46] This has been holding up quite well as hospitals need to ensure uptime also in the operating room, even if it is at a lower capacity level. And on average, lifescience is trending upwards due to a strong development, mainly within sterile transfer products for biopharma customers. But we will see strong interest or strong increase in the interest related to the production of covid-19 vaccine. So we’ve had a boost, both related to research for the vaccine, but also now for plan planning of production. So the major part of order growth so far this year is that we’re still related to two other biopharma drugs.

[00:12:28] We move over to page number 17. Here we would like to take a look at what these converging trends indicate when it comes to next year’s sales. So as I mentioned a moment ago, our order intake from ICU ventilators is still growing organically. But the trend, as it seems now, is moving towards a more normal level of net sales next year. This could, of course, change if governments and hospitals decide to increase ICU capacity in order to have a larger safety margin. But it’s too early to have a view on that. And the trend is positive for next year when it comes to that sense with also with strong, healthy, healthy margins, cardiac and vascular systems products have a margin that is much higher than the average group and the average of the group. And they also have lead times that are short, basically in the same quarter from order to delivery. Most, most of the time. So the two basic question here is when will when will we grow versus last year and what magnitude? And the backlog is for sure there. And hospitals would like to start taking care of that immediately. But as we know, there’s there is the second wave that’s holding things back for now. And as I mentioned a moment ago, geographically speaking, it’s very, very different, depending on where in the world you look today in surgical workflows, we have longer lead times from order to delivery up to six months.

[00:13:58] And given the minus fifteen point six percent organic order intake year to date, it’s not unlikely that we need to wait until the second half of 2021 until we see a shift, of course, in the same trend for those. The trends in lifescience are pointing upwards in in total, with expected net sales to grow in the full year of 2021 in the products for the biopharma segments, which normally comes with a healthy margin contribution as well as orders on capital goods have been soft so far this year overall, and the lead times are quite long in this part of the business is expected to dampen the growth a little bit for next year. Overall, we see that the product categories with positive trends have quite a nice margin. From a mix perspective, though, this is quite clear in the actual results of the third quarter as well. Again, a lot of uncertainty here given the current covid-19 situation and there’s not that much we can do about that. That’s something we just have to live with, unfortunately.

[00:15:07] Let’s move to page number eight. So when it comes to the outlook here, as a consequence of the uncertainty in the in the short term and the quite wide range of potential outcomes, we choose not to provide an outlook for how much we will grow organically in Q4 and the full year of 2000 and 2010.

[00:15:30] And it has to do with the uncertainty that I mentioned, looking at the recovery of elective surgeries. It’s very much driven from patient anxiety. Coming back to the hospitals is driven by capacity and operational ability in hospitals to manage the backlog. It differs vastly depending on where you look geographically. And there’s, of course, a second wave effect when it comes to the categories that are positively impacted as well. So this overall mix makes it very, very difficult to predict and therefore we choose not to provide any guidance.

[00:16:05] Let’s move over to page number nine. It’s and I wanted to share some information regarding the cost impact from covid-19 so far as well. So everyone on this call knows this has been a year of many changes in how we work in many ways for the better. I have to say, I just wanted to give you one example of what this means for us in terms of cost savings. So during the first nine months, our new ways of working as created savings within OpEx that amounted to approximately 200 million SEK. Roughly half of this is what we need. Structural savings, for example, from new research and ways of meeting and training, both internally, but also training customers. And this is an area where we don’t expect the old ways of working to come back to invest in new ways are better, creating more value both for our customers and also for us as a company.

[00:17:03] And the other half consists of activities like marketing in general, the trade fairs, sales, travel and so on. So these are activities that we expect to come back to some degree when we move into whatever the new normal will look like, simply because they do make a difference, a positive difference here. So these are investments that we would like to start to start doing get that gives you a little bit of a flavor of the covid impact on OpEx year to date and a little bit what to expect going forward as well. Let’s move over to page number 10, please. So we leave covid-19 and the impact of that for a while and look at other activities and events in the quarter. We continue with our improvement plan when it comes to increasing productivity at a very fast pace. The initiatives that we informed about in the Q2 report is progressing according to plan that is expected to contribute to the annual savings of approximately 130 million SEK gradually being realized during the second half of 2000 and 2006 when it comes to our offering. It has been quite intense quarter from a news perspective, and we’ve chosen to provide a number of examples of this.

[00:18:21] This has been very well received, received by and by customers and the community at large. And as you might remember, is well, we presented a white paper in the previous quarter presenting the benefits by using an advanced ICU ventilators where ours is the most advanced compared to many of the others out there. Recently, we received the results from a study on the impact of the patient. The study showed that the through the use of Narva the on mechanical ventilation could be reduced from 12 to eight days, which is quite a remarkable improvement with many positive consequences. And fewer days in the ICU also translate into significantly improved health economy, enabling hospitals to free up precious ICU beds and resources. Unfortunately, this technology is still rather under penetrated and we would do everything that we can to expand the usage of this would mean. So are so many benefits for all stakeholders, both for patients, as I mentioned, and also the economics of the healthcare system.

[00:19:30] In the quarter, we also launched a campaign called The Life Defining Moments, which includes films that I really recommend you to take a look at and get a feeling of what’s driving us to develop the best products out there in the market. We also received the five point case for our flow and close the anesthesia systems and for our surgical air, enabling us to help clinicians and patients in the U.S. market with a world leading technology in these products and in the modern intensive care unit, a large number of medical devices are used that generate independent alarms and without coordination.

[00:20:08] This can lead to a very disruptive and stress for both staff and also for patients. So in September, and getting in collaboration with other industry leading partners, presented the concept of quiet ICU at groundbreaking solutions expected to reach the market in the next few years. This fits perfectly with the getting it on lines that I mentioned. The previous quarterly call as well was it’s another step of making progress when it comes to digitalisation and using digitization to improve the situation for both patients and their healthcare systems.

[00:20:47] Had mentioned before the backlogging elective surgery is growing larger each day at the moment, which costs an even higher pressure on their own productivity in the surgical process, in the hospital setting. The consequence of this. We also launched a product tour of the MACU. This is an easy to use planning where we let hospitals capitalise on our knowledge base with thousands and thousands of man hours of experience on how to plan the activities around the or in the most effective way. And finally, on the people front, I’m proud to present all the best responsible for legal compliance and governance for forgetting us. She was on the management there, has told the management team already starting in October, she has a vast experience for multinational companies and is one of the founders of the Nordic Business Ethics Network. And I’m a joins the executive in the company. I will play an integral part in the continuous work that we’re doing to shape culture and behavior and getting it when it comes to these areas.

[00:21:51] We can then move over to page 11. So in the quarter, we also announced that getting it will be carbon neutral by 2025, which will be achieved through a combination of activities such as the transition to renewable energy sources. The sources we have reduced travel through more modern ways of meeting. We have more sustainable logistics solutions and so on. So this is some examples from our own operations. But of course, it’s even more important that we help our customers with their ambitions to reduce the climate footprint. And this is why we go full speed forward with our sustainable product development. And I’ve included two examples here on what that can look like. So our anesthesia devices can help customers reduce the usage of the environmentally dangerous agents quite a lot. In the case presented here, the net reduction was 42 percent. So it’s a really impactful solution. The other example comes from the use of one of our new sterilizes, bringing down the energy consumption with up to 30 percent and reducing water consumption with up to 95 percent. So what’s really remarkable, if you if you ask me and if you don’t believe me, ask our customers. This has been received very, very positive. We can move over to page number 12 and we’ll start looking at the top line.

[00:23:25] So we had record net sales in the in the Q3 and order starting to move towards more of a normal situation. So order intake wise, we saw a reduction of five point three percent organically and organic decline now after strong growth early in the year in critical care, which is part of our biggest business area, acute care therapy and ordering take in most of the other parts of the future.

[00:23:51] Therapies and surgical workflows is increasing sequentially, but still not on par with the previous year. And this is mostly as a result of elective procedures still being postponed and the hospital system struggling to catch up with the with the pre Colgin surgery. That was the organic ordering to decrease the margin in lifescience mainly related to the capital goods. And I think one thing that stands out here is the negative development. The Asia-Pacific year on year mainly attributable to very strong growth last year, for example, in Japan, which if you go back a year, we talked about that. So it’s not really any underlying trends or anything is more a quarterly fluctuation on net sales. They increased thirty three point four percent organically. The very strong order of growth in acute care therapeutics is exclusively attributable to advanced ICU ventilators and products for actual therapy. And in addition, sales, albeit marginally in products for planned vascular procedures, also increased. In the end, the same thing lifescience positively affected by continued very good sales, Estero transfer and a bit of a recovery in sterilizers as installations were allowed to be implemented as customers and that same historical workloads just negatively affected by lower orders received in in previous quarters. We see the continued good activity in service, spare parts and consumables. So this helps to some extent mitigate the negative effect of the capital goods.

[00:25:38] We can then move over to page number 13, please. When I look at the order intake breakdown by business area, it’s decreased by eleven point seven percent to five billion, 898 million SEK in the quarter. In acute care therapists, we had a organic reduction of the zero point four percent and the 404 million sick in in actual numbers. We saw continued growth in advanced ICU ventilators, but a lower level than in previous quarter. And if we look at the orders this evening, cardiovascular surgery products this increase sequentially, but did not reach the same level as last year from a lifescience perspective, almost was flat.

[00:26:26] It was minus zero point two percent organically, but plus 75 million in enactors ordering takir increased organically in sterile transfer, as I mentioned earlier, but also in in disinfectants. While other products did not reach the previous year’s level, the positive development in in America in in Q2 was maintained in the third quarter of 2020 when it comes to life sciences.

[00:26:58] You can look at surgical work because then they had a minus 14 and a half percent organic development and order intake in minus 450 million SEK in the actual numbers that we had here, Eric continued subdued order of activity in capital goods. You know what regions? And this was primarily a result of the cold in 19 and the negative impact that this has. Some of the capital Cockermouth orders received in this morning’s product category in surgical services, which is integrated workflow solutions. Our software business actually increased in the quarter.

[00:27:36] You can then move over to page number 14, please. Look at the net sales then by business area, the net sales for the quarter increased by twenty seven point nine percent to seven billion. Nine hundred and seventy six million currency impacted negatively by 433 million sic and capital goods grew way faster than consumer goods, services and spare parts. And this has obviously been mostly related to two ventilators being delivered on acute care therapists.

[00:28:09] We had a sixty three point one percent organic increase or one billion eight hundred seventy five million in in actions. Here we have the main contributors being the intensive work to deliver ventilators and Eckmann products to hospitals. And this contributed to the sharp increase in turnover that we see here. Delivering some products for plant vascular surgery increased marginally while the sales of products for cardiac surgery were still lower than at the same period last year. Sales of durable goods increased sharply as a result of last delivery of ventilators, as I mentioned earlier. And if we look at the supply chain perspective on, say, say, the disruption in production logistics have had a limited impact on deliveries in the quarter. It’s been a much smoother quarter than the second quarter of this year. You can move on to the lifescience, we had a thirty three point four percent organic improvement of 232 million in actual numbers, so net sales increased organically in all regions. And the product categories due to large deliveries, some of which were actually built for growth, was particularly high in Sterilizes, where installation’s could resume on a larger scale during the quarter. And then there are transfer results from previous quarters continued to strengthen. It would then look at surgical work clothes. We had a minus eleven point two percent organic sales development or inactions, minus 368 million. And this is a lower order intake in the first half of the year that had a significant impact on the sales development in the third quarter. Sales in the two major product categories, infection control and in sort of the workplace has significantly decreased.

[00:30:05] And within integrated solutions and integrated workflow solutions, which is the softer part, kept up sales a bit better compared to the previous year. And as I mentioned a couple of times, sales and service, spare parts and consumables were also relatively good compared to the third quarter of 2019.

[00:30:26] With that, we can move over to page 15. And we look at the gross profit perspective, so adjusted gross profit increased by one billion to under seven million, six to four billion, 378 million second quarter, driven mainly by the significant sales growth in ventilator’s and EKU products in therapies. And there transfer in the lifescience. The gross margin continues to strengthen. Of course, this is heavily impacted by the increased sales in acute care therapies, which brings forth healthy products and also a regional mix. At the same time, we see headwinds when it comes to under absorption within production of capital equipment, particularly in surgical workflows, but also in parts of life sciences at all.

[00:31:20] And all the things mentioned together with the implemented productivity improvements in earlier this year and in 2018 and 19 and also slightly positive currency based on the margin, we ended up with a four point one percentage point increase in the adjusted gross margin.

[00:31:40] And then to go further down the dead end, let’s move over to page number 17. And with that, I leave over to you Lars.

Lars Sandström

[00:31:49] Thank you, Mattias. Adjusted to an increase by one billion, 352 million in the quarter, adjusted gross profit impact on the margin amounted to three point eight percentage points due to the reasons not to mention there and looking further down the line. And we managed to keep adjusted OpEx and stable organically, despite significant growth in net sales and some incremental increase in R&D. And this was possible due to new ways of working, which is most evident in the sales organization, which party you’ve already mentioned in combination with the long term activities. To improve productivity that you have been performing about since Long Island, all the significant growth in combination with only small changes in OpEx translated into significant leverage and margin impact of eight point three percentage points. Currency effects had an impact of 30 million on adjusted a bit, one percentage point. The impact on the margin. Well, you know what, this resulted in an adjustable rate of two billion, 28 million compared to six hundred seventy seven million in Q3 2009. And the margin increased from ten point nine percent to twenty five point four percent year on year. Over to page 18, please. Let’s take a look at the contribution to adjust the debate. Starting with acute care therapists. Here we increase the deficit by one billion, 370 million, and the margin improved by nineteen point five percentage points, thanks to the sharp increase in sales volumes from ventilator’s and related products. Despite the year on year decline in consumer goods for elective cardiovascular procedures, which normally comes with a somewhat higher gross margin.

[00:33:55] LifeScience adjustable rate increased by 83 million and the margin increased by seven point eight percentage points, mainly due to increased volume and mix it in here also due to the increased sales in general transfer. So they were close enough that it decreased by 109 million compared to Q3 2019 and the margin decrease here by four point eight percentage points as a result of lower sales volumes and under absorption in the two main product areas. So workplaces and infection control. Service, the spare parts and consumables held up quite well, sale for that earlier, but could only mitigate the decline to some extent. And just the way it was negatively impacted by the military and its effects in the quarter. Then over to page 19. The free cash flow was strengthened by nine out of 80 million to one billion, 567 million, mainly due to increased earnings and continued active work on keeping working capital in controlled. Which continues to decrease in terms of the number of days. Which is, of course, now held by the state, increasing revenues. And we are now just, you know, 100 days down for two days from the peak into 2018. We also see a steep increase in our operating return on invested capital. We take a jump from the long term trend we have seen since Q2 2009 and now we are at seventeen point eight percent on a rolling basis.

[00:35:47] Then let’s move to page 23. Following the good and strong cash flow here, the net came down to nine point nine billion, compared to 14 billion in Q2 2013. And if was just for pension liabilities. We are at six point three billion six. This brings an average of one point four times EBITDA, and if just two pension liabilities that have received zero point nine times. Liquidity was unchanged during the quarter since we continue to amortize loans and also pay the dividend during the quarter and cash amounted to approximately five point seven billion sic at the end of the quarter here. And this is, of course, something we’re looking closely at. And our intention is to have a more effective balance sheet and reduce the level of cash. But we also follow and make sure that those things have normalized a bit more here and also stock up. Then let’s go to page 22 and over to Mattias.

Mattias Perjos

[00:37:01] All right, thank you very much, Lars. I’ll make you a brief summary here before we move to Q&A. So Q3 of 2020, with a quarter of record sales growth, we also see greatly improved margins, partly because of the volume effect, of course, but also because of the good operational leverage in the business thanks to the productivity work done in the early part of this year in previous years. This also translates into a significantly strengthened free cash flow, bringing down the leverage to under one point for now compared to three point one a year ago. And most importantly, our intense cooperation with the hospitals and clinicians around the world really continues both to fight the second wave of covid-19, but also now help with bringing back elective surgeries, reducing the backlog that’s been built up and enhancing and move towards a much more sustainable and better performing healthcare system going forward. So with a very strong quarter and I open up for four Fortuny.

Question-and-Answer Session

Operator

[00:38:11] Thank you, if you wish to ask a question, please, the little one on your telephone keypad, Snout’s and the kid wants your name, you can ask a question if you find your questions answered before it’s your turn to speak. You can see right to counsel. Our first question comes from the line of Catherine Tennyson at the Bank of America. Please go ahead. Your line is open.

Catherine Tennyson

[00:38:35] Hi. Thank you so much for taking my questions. I have three Hinode, so firstly, I was just wondering if you could give us a sense of how one might compare it to twenty nineteen for U.S. intervention based on what is so many order. But and on the news and conversations that you have and I went to a couple of planned for twenty twenty one. Secondly, on your cardiovascular business, you are seeing a return to elective procedures, just wondering what levels of inventory in your hospital can go up. And you have and perhaps is there a bit of a lag time before we see that elective recovery program to your numbers? And then certainly if you could just give us an idea sort of early days in Q4, but what level of recovery are you seeing? A expansion. Thank you.

Mattias Perjos

[00:39:28] Yeah, thanks, thanks. Can you repeat the third question I didn’t quite get the cue for regarding aesthetes.

Catherine Tennyson

[00:39:37] I just repeat that again, because it’s.

Mattias Perjos

[00:39:42] Can you repeat the third question, I didn’t quite get that.

Catherine Tennyson

[00:39:45] It was just only ACP business in Q4 what levels of recovery are we seeing relative to Q3.

Mattias Perjos

[00:39:55] Ok, or when it comes to 2021 versus 2019, we’ve chosen not to give guidance for Q4 of this year, but also not for 2021, and it’s simply because it is still very dynamic, a lot of moving parts. We’ve done surveys, surveys and look at data. And if you look at the because it all hinges on the boat, of course, the say how we handle the second wave of covid-19, but also then to come back of all the negatives surgeries. And if you look at the reasons why elective surgery isn’t coming back as strongly as one would have, would have hoped at the moment, as quickly as one would hope, it’s driven by patient anxiety. People don’t dare to go to hospitals. That’s a major factor. More than maybe we thought that during the first half of the year, there is a lack of trained clinical staff in many hospitals around the world. And there are operational challenges as well in the operating room capacity in some areas and so on, and just planning ability in another area. So this just makes it very, very difficult to predict and also, as I mentioned, very big geographic differences, depending on where you look around the world. So it makes it impossible to really make any credible statements about the finish of this year and also 2021. And when it comes to the order book, though, what we wrote in the report, it’s it is on a higher level than the same period last year.

[00:41:31] And it’s not only because of the ventilator’s or even if that has a big impact or a big part of the order book still. But we have delivered 17000, 700 so far this this year. We have a couple of very hectic weeks ahead of us still and then planning for a ramp down that we will see how much we actually do or how much capacity we keep depending on how the second wave evolves. And when it comes due to cardiac surgery and the level of inventories, you look at the backlog numbers of these diseases evolving and then the statistics are a bit different, both in terms of numbers, but also reliability, depending on where you are, where you look. But there’s millions of surgeries now in in backlogs around the world. It is, in my view, impossible to predict the magnitude and the pace of the of the comeback. If I look at the forecasts that were done at the beginning of this year and how that has actually panned out so far, there hasn’t been a great accuracy even in those forecasts. So it doesn’t really give you courage to make a lot of statements about the future either. But we do we do see much better planning and a bit more productivity than we saw in the second quarter.

[00:42:44] I think that that is promising is more down to the patients anxiety, the lack of staff, the lack of operating room resources and ability that I alluded to. If you don’t look at HP and the Q4 level of activity, I can’t say much more than that. We’ve seen that when it comes to ventilators, we had a peak of demand order intake wise in the middle of the second quarter, and then it was much more quiet than in July. And then it has started to pick up again, which makes the planning more difficult. So we were expecting a continued decline all the way back to normal levels. But we don’t see that at the at the moment. It’s just very difficult to predict. But the trend has changed a bit. And the opposite, the impact is what you see when it comes to the elective surgery categories where we saw really a steady incline or steady improvement, especially at the end of the second quarter and then sequentially during the third quarter, but not yet back to the 100 percent levels. And I don’t think we would be back 200 percent level before the end of this this year. And I think it would be a bit more prolonged recovery of the back or working down on the back of that. Maybe we expected in the second quarter of this year.

Catherine Tennyson

[00:44:05] That’s really helpful. Thank you.

Operator

[00:44:09] Thank you. This question comes from the line of Annette Lykke of Handelsbanken.

Annette Lykke

[00:44:16] Thank you so much. First of all, on the ventilator’s and you have now to almost 18000 cannot. Is it as simple as the total order book is 26 and 6000. So would you be able to deliver all of your ventilator’s during the fourth quarter, or will this still be some element of the delivery by the first quarter of twenty twenty one? And then there is the last time, assuming that we sometimes doing a 20 21 will in which a vaccine for covid-19. How do you see a potential within the pizza box for that part of your division? Thank you so much.

Mattias Perjos

[00:45:07] You know, when it comes to the order book, we did feel they were doing the third quarter as expected. So the 26000 they would have book as we speak is actually a bit higher. But we do expect to deliver the 26000 during this year. There’s no change to that. We have the capacity to do that and we have no cancellation. So we will deliver at least to 26000 events this year when it comes to the lifescience part and the questions on the vaccine, the impact, I think this is one of the areas where that makes the predictions for 2021 difficult because we’ve had a really good momentum going to in this part of the business. We can see now that we are in discussions with the most of the companies that have vaccines under development and depending on the magnitude of the well, the impact on us all very positive scenarios, but quite the big difference in the potential of continue.

Annette Lykke

[00:46:07] Then just to follow up on the first question, in respect of Q1, should we expect any delivery of ventilators or will we basically, based on the information you have right now, going down to SEAL?

Mattias Perjos

[00:46:23] No. No, I will not go down to zero, it’s we expect to deliver 26000 this year and we expect to deliver quite a bit of ventilator’s in Q1 next year as well. But I can’t give you the amount, but it’s certainly it’s not the saturated market. And we have some intuitive calls for a Q1.

Annette Lykke

[00:46:41] Ok. Thank you so much.

Operator

[00:46:46] Thank you. Our next question comes from the line of Kristofer Liljeberg of Carnegie. Please go ahead. Your line is open.

Kristofer Liljeberg

[00:46:55] Thank you. I have a couple of questions for us, just a clarification. Did you say it was uncertain how much sales would grow in Q4? I didn’t hear so well.

Mattias Perjos

[00:47:06] Yes. Yes, correct.

Kristofer Liljeberg

[00:47:09] Ok, and then we go to slide nine cost savings, especially only related to Korea, and if so, could you update us a little bit about the other type of cost savings from the restructuring and, you know, the state of closing the margin gap versus international competitors?

Mattias Perjos

[00:47:36] The 100 plus 100 that we showed there, obviously covid related, in fact, if you look at the other productivity improvements there, these are different numbers. So we did mention that the other restructuring of 130 million impact starting in the second half of 2021. So all those initiatives are going on as well under the surface. And I think if it’s one thing that I think it makes is difficult when it comes to from a numbers perspective with the pandemic, is that a lot of the good progress when it comes to productivity is kind of overshadowed by everything that’s happening. So we’re trying to provide a bit more granular information. But to answer your question, the what you saw on the slide there is the covid impact and then there’s additional restructuring impact that you see from the from the second half of this year to more.

Kristofer Liljeberg

[00:48:27] Very quick one. You talked about the excessive amounts of cash for good timing for plus for.

Mattias Perjos

[00:48:38] So you broke up there. Can you repeat the question, please?

Kristofer Liljeberg

[00:48:42] It was mentioned that you have a high amount of excess cash on the balance sheet, so that would be adjusted. So is that going to come in next to the evidence or paying down debt?

Mattias Perjos

[00:48:55] That’s a discussion for the board, but we will pay down debt already now in the third quarter and we’ll continue to do that for sure. But then, of course, there needs to be a discussion. I mean, our priority is capital allocation priorities haven’t changed. Otherwise, it’s M&A is still a potential area of cash allocation as well. But then, of course, the dividend discussion may need to take place in the board also. But that’s too early to say. And it’s a question for the board.

Kristofer Liljeberg

[00:49:21] And a quick one. Consider your commentary about them today. Is the demand picking up now again? Does that mean we could see? What will that mean, you think, for 2021 and the likelihood of selling less or more than once? That’s a stunning 29 to.

Mattias Perjos

[00:49:42] Yeah, we’ve seen a change in trend when it comes to weather pattern in in ventilator’s, so a little bit up again towards the end of the quarter. But it doesn’t really at this stage at least change our view on or 2021. We still think that 2021 is a year of more back to normal for our critical care business. And that’s the main scenario that we have.

Kristofer Liljeberg

[00:50:06] Ok, but of course, it’s a rather big difference if you send 8000 or 12000, whatever. That’s too early to tell.

Mattias Perjos

[00:50:14] Yeah, exactly. Or you’re right. And so it’s a big difference, but it’s too early to say to really think. OK, thank you.

Operator

[00:50:25] Thank you. Next question comes from the line of Peter Testa of One Investments. Please go ahead. Your line is open.

Peter Testa

[00:50:33] Hi, I’m a couple of questions, please. One is you’ve highlighted the time lags on surgical workflows and also some of the mix changes that you have within the acute care business at different divisions and equipment going at different paces. Can you give some sort of sense as to how you’re thinking about cost alignment with this and that flexibility that you have to, say, manage the margins and surgical workflows or the cost structure in the production side of acute care.

Mattias Perjos

[00:51:04] And you’re mixing a little bit of things out of the workforce and an acute kind of I start with so they can work also, as you’ve mentioned, as I mentioned in the corner there, there’s a lead time of normally six months when it comes to between order and delivery of surgical equipment. And so we manage capacity in the in the factories to the best ability when it comes to these fluctuations that we’ve made some temporary reductions to cope with the lower activity fear that we are in at the at the moment when it comes to other cost adjustments were more or less following our original plan. It was a solid plan before the pandemic. We’re ready to restore profitability in surgical workflows with the aim to arrive at the double digit, to beat the margins of all of those activities are still being implemented where we are continuing the factory transitions that we had initiated from mankind to Boston, for example, that’s been going on despite the pandemic. And another Trancers we’re doing the product. Part of the portfolio is when quality value engineering initiatives are still going on despite the pandemic.

[00:52:16] So overall, there’s good work being done and of to workforce related to the original improvement plan that we launched a couple of years ago. When it when it comes to acute care, it’s the it’s, of course, also capacity balancing in many aspects with the ventilator production we are ramping. We’ve seen a plan to ramp down in November and December to more towards more normal levels. But we maintain some flexibility, especially when it comes to two component sourcing, to be able to respond to potentially higher demand, but without risking entering 2021 one with too much of the cost structure. And then for the other parts of the federal workforce, when it comes to what capacity, we we’ve adjusted that a little bit on the on the elective surgery exposed products as well while being in effect to remove situation as well. I think the team has done an exceptional job here in the middle of the of the pandemic. So we do make adjustments there as well. And we have some we have a rather flexible setup already in the first place. So that’s less of a challenge, I think, for.

Peter Testa

[00:53:24] Ok, thank you. And then the other question, I was just looking at the consumables trends. I was wondering if it gives some sort of view and the different divisions as to what the consumables trend has been like through the quarter or maybe exit rates or some sort of understanding as to where you are held up? Pretty well. It’s better. Better Q3 is obviously better than Q2, but just getting some sort of sense of exit of exit rate would be great. This.

Mattias Perjos

[00:53:48] Yeah, I could give you an exit rate at the end of the quarter, something that we disclose, but the overall dynamics is that, first of all, you should be aware that the ventilator’s and on transfer, they are capital goods, both of them. So that’s reflected in the numbers. When it comes to Exmoor, there is a hardware component, but it’s also largely a consumer goods business. This has continued to trend positively during the quarter. It’s still more of the situation that we are the bottleneck with our manufacturing. So we’re continuing to implement the investments that are already decided to take out some of the bottlenecks and increase capacity here. So and I expect that to be the picture going forward as well. We have now, in addition to covid-19, the normal flu season coming up. That’s going to be a very busy fourth quarter for us from the pulmonary perspective, I’m sure. And then when it comes to consumables in in and in surgical workflows, for example, this is one category in the NSW portfolio that has held up reasonably well. It’s quite linked to elective surgery development, actually. So I think that that’s probably the best indication I can give you.

Peter Testa

[00:55:02] Maybe just elaborate on that, given the length of elective surgery for some of these and the fact they’ve picked up from there still parents coming out of Q2, does that mean that you probably finished the quarter better than the average, or do you think they’re pretty average and the elective surgery exposed businesses across the Perth?

Mattias Perjos

[00:55:21] I really I can’t chosen not to provide guidance on this, because there are a lot of a lot of moving parts here, but we are we are optimistic about the fourth quarter. I feel very comfortable with the situation that we’re in. But we’ve since it’s such a big difference between the best case and the good case, it’s we decided not to provide a forecast.

Peter Testa

[00:55:42] Ok, thank you very much.

Operator

[00:55:50] Thank you. Our next question comes from the line of Oliver Reinberg of Kepler Cheuvreux, please go ahead. Your line is open.

Oliver Reinberg

[00:55:58] Well, thanks very much for taking my questions for you. For me, firstly, coming back to the speech you provided between corporate and non corporate business, while we have seen a 15 percent decline in the nine months. Can you actually share with us the number, what you’ve seen in Q3 and also how that changed was Q2, which probably was the trough? And to what extent you also see that kind of pushing back here, not only on priorities, but also because of the lack of funding. And secondly, a coming back offensive Venza for me when you’re saying that 2021 will trenched down towards a normalized year. The way I would read that is however. But still 2021 rents should be above the level of 2019. Is that correct? And can you also talk about this sort of attachment of this ventilator’s adequately selling? And then lastly on Egmont, you mentioned this is obviously some kind of supply constraints. Can you talk about what kind of capacity increase you planned and how you you’re ramping up on that currently and if the demand is also still expected to be strong next year? Thanks so much.

Mattias Perjos

[00:56:59] Well, it’s quite a quite an amount of questions. So when it comes to the first one on Q3 split, I can’t give you that off the top of my head in the in the call we’ve done the year to date. So we would have to look into that. That’s.

Lars Sandström

[00:57:12] But we could mention there is, of course, Q1 was more of a normal quarter on this because it, in fact was increasing in Q2 and Q3 today. And so that is, I think, clearly, and especially when it comes to the capital equipment that was more impacted during the Q2 and Q3 compared to Q1, so that it doesn’t help when it comes to the reasons for surgery delays.

Mattias Perjos

[00:57:44] It is most of the areas that I touched on the battling the covid 19, both in the first way and they were the beginning of the second wave. There’s patient anxiety. There is the lack of clinicians, trained staff, finance. I would have expected to be a little bit high on the agenda, but we don’t hear that much of that. It’s mostly in the US where you see some hospitals holding back, much less so in Europe and certainly not much in Asia. And the question of the 20, 21 percent level, I can only say more or less back to normal. But again, there is there is a quite big span on the different scenarios there as well as it’s just too, too early to say with attachment rate. I’m not sure what you mean if you mean the service contracts, but in general, I’d say the installed working with the installed base is a key priority, not only when it comes to service contracts and the attachment of those. So service work and spare parts. But also there’s the training element here. There is the connectivity element. There is a software upgrade element. So there are many different ways of working within four days compared to five, 10 years ago. And today there’s also a more mechanical than electromechanical and software driven product. And I think the final question was on the Ximo ramp up, which is going when we read about keeping up the production levels in the normal setting, so to speak, while making this capacity expansion, we do believe that this growth is sustainable and that and also next year, the growth here should be above 10 percent in line with the historic level before covid-19, basically.

Oliver Reinberg

[00:59:41] Ok, thanks so much indeed.

Lars Mattsson

[00:59:45] Thank you very much for that question, Lars Mattsson here, head of investor relations. We are running the time at the moment. So I would say that this wasn’t just a question of the loss of the markets this time around. I would like to thank you all for participating. And please contact me if you have any follow ups.

Mattias Perjos

[01:00:04] Very good. Thank you, N10, thanks, everyone, for listening in today. I wish you a good rest of the day. Thank you very much.

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