Getinge AB (GETI-B.ST) reported a 10% increase in order intake for Q3 2023, with organic growth at 7.4%. The Swedish medical technology company saw strong performance across most business areas, except for Life Science.
Key Takeaways
• Order intake grew 10% (7.4% organic growth)
• Net sales rose 3.5%, but organic growth was flat year-over-year
• Adjusted gross margin declined due to negative mix, inflation, and under-absorption
• TÜV SÜD reinstated CE certification for HLS and PLS consumables used in ECMO therapy
• Getinge expects organic net sales growth of 2% to 5% for 2024
Company Outlook
• Organic net sales growth forecast at 2% to 5% for 2024
• Recent acquisitions expected to contribute an additional 3% to 5% growth
• Improvements in supply chain challenges for Acute Care Therapies anticipated in Q4
• Focus on sustainable productivity improvements
Bearish Highlights
• Adjusted gross margin declined due to negative mix, inflation, and under-absorption
• Temporary supply challenges affected net sales and margins in Acute Care Therapies
• Life Science business area underperformed in Q3
• Quality-related costs estimated between SEK100 million and SEK200 million for Q3
Bullish Highlights
• 10% growth in order intake, with organic growth at 7.4%
• Strategic acquisitions of Intact Solution and Paragonix Technologies
• CE certification reinstated for HLS and PLS consumables used in ECMO therapy
• Cardiosave balloon pump certification extended until July 1, 2025
Misses
• Flat organic growth year-over-year
• Decline in sales of consumables for balloon pumps and ECMO hardware
• Total full-year impact of quality-related costs projected to exceed SEK0.5 billion
Q&A Highlights
• Supply challenges in Acute Care Therapies expected to improve in Q4
• Restructuring costs of SEK97 million aimed at addressing inflationary pressures
• Life Science expected to see strong delivery quarter in Q4
• Regulatory situation for Cardiac Assist in Europe remains unchanged
Getinge AB reported mixed results for its third quarter of 2023, with strong order growth offset by flat organic sales. The company's CEO, Mattias Perjos, highlighted a 10% increase in order intake, driven by robust performance across most business areas, excluding Life Science.
Net sales for the quarter rose by 3.5%, although organic growth remained flat year-over-year. The adjusted gross margin saw a decline, attributed to negative mix effects, inflation, and under-absorption. However, the company noted that price increases helped mitigate these impacts.
In a positive development, TÜV SÜD reinstated CE certification for Getinge's HLS and PLS consumables used in ECMO therapy. Additionally, the certification for the Cardiosave balloon pump was extended until July 1, 2025, allowing for product improvements.
Getinge made strategic moves during the quarter, acquiring Intact Solution for its Life Science division and Paragonix Technologies to enhance its organ transport offerings. These acquisitions are expected to contribute an additional 3% to 5% growth in 2024, on top of the projected organic net sales growth of 2% to 5%.
The company reported adjusted EBITA of SEK903 million, with a margin of 11.5%. Free cash flow stood at approximately SEK0.4 billion, while net debt was SEK11.3 billion, reflecting a leverage of 2x EBITA.
During the earnings call, Getinge acknowledged temporary supply challenges affecting net sales and margins in Acute Care Therapies (ACT) during Q3 but expressed optimism for improvements in Q4. The company maintained its full-year guidance of 2% to 5% organic net sales growth.
Getinge faced questions about sales declines in consumables for balloon pumps and ECMO hardware, which it attributed primarily to tough year-over-year comparisons rather than significant market share losses. The company has resumed deliveries to the CE market and anticipates a stable supply situation moving forward.
Quality-related costs were a topic of discussion, with Q3 costs estimated between SEK100 million and SEK200 million. The total full-year impact is projected to exceed SEK0.5 billion. Restructuring costs of SEK97 million were also reported, aimed at rightsizing across various functions to address inflationary pressures.
Looking ahead, Getinge remains focused on resolving supply issues in ACT, enhancing productivity, and prioritizing R&D investments. The company expects Life Science to see a strong delivery quarter in Q4 and anticipates healthy growth from recent acquisitions.
Full transcript - None (GNGBF) Q3 2024:
Operator: Welcome to the Getinge Q3 Report 2023. [Operator Instructions]. Now I will hand the conference over to the speakers, CEO, Mattias Perjos; and CFO, Agneta Palmer. Please go ahead.
Mattias Perjos: Thank you very much, and thanks, everyone, for joining today. We can move directly to Page 2 and the key takeaways from the quarter, please. So we look back at a quarter where we continue to see strong global market momentum for our products. Order intake growth for Getinge as a whole increased by 10 percentage points, of which organic growth amounted to 7.4%, and this is thanks to positive development in all business areas, except for life science, and it's a good geographic spread as well when it comes to the order intake. Net sales increased by 3.5% in the quarter, where organic growth was flat to last year. Adjusted gross margin in Life Science and Surgical Workflows improved in the quarter. However, it decreased in Acute Care Therapies and also for the group as a consequence of this, and this is mainly due to negative mix, inflation and under-absorption. This was partly mitigated then by healthy price increases, which signals that our products are attractive to customers. And even for financial leverage has increased somewhat after the acquisition of Paragonix, our financial position remains solid. With that, we can move over to Page 3, please. So we wanted to take an opportunity to highlight some of the key activities and events in the quarter. And if we start with sustainability and quality in the quarter, the notified body TÜV SÜD reinstated CE certificate for the HLS and PLS consumables that are used for ECLS or ECMO therapy. TÜV SÜD also extended the temporary suspension of the CE certificate for the in-product balloon pump, Cardiosave until July 1, 2025. This decision has no material financial impact for us and the extended time period will now allow us to improve the product in line with the regulatory requests that we have. We're still able to supply the CE markets with our Intra-Aortic balloon catheters. And furthermore, and as informed about earlier in the quarter, we made a provision of SEK482 million related to the ongoing negotiations with CGU in Brazil. If we then move to offering and customers, our server ventilators received official cybersecurity clearance, which is called authority to operate certification from the U.S. Defense Health Agency. This means that the ventilators are allowed to be purchased by the U.S. Department of Defense and operate within their strict networking environment. We consider this an important quality stamp and proof of our strategy to provide safe device connectivity for our customers. Within our Life Science business, we acquired assets of the U.S.-based company Intact Solution with technology that makes a septic treatment and transfer safer and more effective throughout the complete bioprocessing value stream. In September, we also completed the acquisition of Paragonix Technologies, which is a leading U.S. company within the fast-growing market for organ transport products and services. We see a strong fit with Getinge's existing product portfolio, our technologies and also our global sales reach. Paragonix will form a new product area within acute care therapies called Transplant Care and would be an additional lever for us in our purpose as a company to help save more lives globally. We can then move over to Page 4, please. So as I mentioned earlier, order intake grew by 10% in the quarter, where 7.4% was organic growth. Net sales increased by 3.5% and 0.2% of this was organic growth. Order intake grew in all regions, and the intense or the increase in organic order intake was especially strong in Americas, driven by acute care therapies and the surgical workflows. From a net sales perspective, we had organic growth around 1%, 2% in Americas and EMEA, whereas APAC declined organically compared to last year's strong performance. We can then move over to Page 5, please. This takes us to the outlook then, where we reiterate our previous guidance for 2024, and we expect organic net sales growth to be in the range of 2% to 5%. And in addition to this, we expect recent acquisitions to contribute with 3% to 5%. We can then move to Page 6, please. So we move into dissecting the order intake per business area a bit. In Acute Care Therapies, the organic order intake increased strongly during the quarter, mainly in critical care, in cardiac surgery and in cardiopulmonary. For Life Science, the order intake declined organically mainly due to fewer orders for steam sterilizers compared to the comparable quarter last year. There was a positive performance in bioprocessing and the growth in sterile transfer also continued. In Surgical Workflows then, the organic order intake increased overall, mainly thanks to a double-digit increase, both in Infection Control and in Digital Health solutions, while orders in Surgical Workflows declined slightly. So all this together summarizes to 7.4% organic order intake growth and in actuals growth was 10%. Let's move over to Page 7 then. So looking at the sales breakdown for the quarter. Organic net sales in Acute Care Therapies decreased slightly during the quarter, mainly due to a lower number of consumables sold in Cardiac Assist and lower sales of ECLS hardware in cardiopulmonary. Furthermore, temporary supply chain challenges have impacted net sales negatively in the quarter, but we are expecting the situation to improve in Q4. In Acute Care Therapies, we saw continued growth within Critical Care as well. And if we move to Life Science, the Life Science organic net sales declined mainly due to lower sales in bioprocessing and sales of isolators. This was partially offset by the strong performance within Sterile Transfer. However, net sales from High Purity New England in the quarter makes up for all and a little bit more of this. If we then move to Surgical Workflows, organic net sales for Surgical Workflows increased following growth in all product categories. And I also want to point out that the acquisition of Healthmark continues to contribute to growth in a material way for Surgical Workflows. Acquisitions contributed to an increase in net sales of SEK535 million in the quarter. Currency had a SEK286 million negative impact on net sales for the Getinge Group in the quarter. Recurring revenue increased while sales of capital goods was down year-on-year. Can I move over to Page 8, please. So looking then at the gross margin and the gross profit. The adjusted gross profit decreased by SEK91 million to SEK3,799 million in the quarter, where currency effect impacted negatively by SEK151 million. The group's adjusted gross margin declined by 2.8 percentage points versus last year, mainly attributable to negative mix, inflation and under-absorption. This was partly offset by healthy price increases. Inflation is mainly attributable now to employee costs. We have seen a decline when it comes to material cost. We see good traction in normalizing cost of materials, thanks to the purchasing initiatives that we have been working hard on for the last couple of years also. For Acute Care Therapies, the adjusted gross margin decreased by 5.6 percentage points, mainly due to lower sales, negative mix effect, under absorption and higher quality improvement costs compared to the comparable quarter. For Life Science, the adjusted gross margin increased by 2.9 percentage points as a result of price adjustments, productivity improvements and also mix, and this was partly offset by higher materials and employee costs. Surgical Workflows, adjusted gross margin increased by 1.2 percentage points to a large extent, thanks to the strong performance of acquired Healthmark on price adjustments and also of mix effects. Overall, I'd say we are pleased to see that the integration of the acquisitions made last year have developed according to plan, even a little bit better in some cases and that the business performance has been above expectations. So on that positive note, I hand over to Agneta on Page 9.
Agneta Palmer: Thank you, Mattias. So adjusted EBITA declined by SEK198 million and the margin came in 3 percentage points lower, mainly then coming from the decline in the gross margin. Adjusted gross profit had a negative effect on the margin by 2.7 percentage points due to what was just mentioned by Mattias. However, on the OpEx side, adjusted for currency, we really start to see encouraging signs on OpEx, which had a 0.4 positive impact on the margin in the quarter due to operating leverage and positive contribution from acquisitions. Adjusted for currency, depreciation and amortization had no impact on the margin. And finally, FX impacted negatively by 0.7 percentage points. All in all, this resulted in an adjusted EBITA of SEK903 million and the margin of 11.5%. Over to Page 10, please. Free cash flow amounted to around SEK0.4 billion, lower operating profit and higher financing costs contributed negatively. Working capital, however, increased to a less extent than last year. We do see positive development in operating receivables where we have been able to leverage learnings from previous periods and apply those in many of our markets. The provision made for Brazil has no impact on the cash flow in the quarter. Working capital days continued to be well below 100. We are now at 91 days. We continue to be below trend on operating return on invested capital with 10.4% on a rolling 12-month basis, which is still above the cost of capital. Let's then move to Page 11, please. The change in net debt year-over-year is due to the acquisitions that were finalized in the fourth quarter of 2023 and in this quarter, taking us to SEK11.3 billion in net debt at the end of the third quarter. If we adjust for pension liabilities, we are at SEK8.6 billion. And this brings us to a leverage of 2x EBITA, which is well below the 2.5x, which we have communicated previously as a threshold. If we adjust for pension liabilities, leverage is at 1.5x EBITA. This signals that we remain in a solid financial position even after the recent strategic acquisitions, and this is according to our plan. We intend to work this down going forward. Cash amounted to approximately SEK2.2 billion by the end of the quarter. So all in all, we can conclude that the financial position continues to be strong. Let's then move to Page 13, and back to you, Mattias.
Mattias Perjos: All right. Thank you, Agneta. And on Page 13, I just wanted to take the opportunity to summarize the key takeaways again. Main one is that we continue to see strong order intake growth across regions and most of our product categories as well. Temporary supply challenges have impacted both net sales and especially margins in Acute Care Therapies in the quarter, but we are expecting the situation to improve in the fourth quarter. Even if financial leverage has increased somewhat after the acquisition of Paragonix, our financial position remains solid. And we reiterate our guidance for the full year. So 2% to 5% organic net sales growth. And in addition to this, we expect the recent acquisitions to contribute with 3 to 5 percentage points of growth. So the current priorities for us are addressing the remaining challenges in acute care therapies. This is the number one priority for the whole company. We're also working on sustainable productivity improvements and remain cost conscious when it comes to expanding our business, and we continue creating added value for our customers, both through organic development, the investments that we make in R&D, for example, and also inorganically like with the acquisition of Paragonix. With that said, I open up for questions. Thank you.
Operator: [Operator Instructions]. The next question comes from Erik Cassel from Danske Bank.
Erik Cassel: So first question, I mean, in the report, you're seeing consumables down in balloon pumps and hardware down in ECMO. I mean, naturally something that might be the sale having some impact, but I also know that comps were really hard for both last year. I mean, I just have to ask, is there an aspect here of market share losses in either of these business areas? Or is it just purely comps?
Mattias Perjos: Yes. Thanks, Erik. A bit hard to say. I think it's definitely a comps effect in there. We have no information on any significant market share losses. I think we're expecting the customers will find a second source for ECMO hardware, but there's nothing material in the quarter that we can call out due to this.
Erik Cassel: All right. And then how much of the strong order intake that you're seeing now within ACT relates to ECMO consumables? And are you seeing any sort of trends that based on these issues that you have now in Q3 that customers are looking to maybe build their own safety stocks in Q4?
Mattias Perjos: I don't think we have not been able to supply enough for anyone to build really safety stocks. I think we've gotten out of the backorder situation outside of the EU markets, at least, but there's been -- we have no evidence of anyone kind of trying to stockpile this. And we are now from the first week of October back to delivering now with the new packaging solution also to CE market. So we're hoping for a more stable supply situation going forward.
Erik Cassel: I was thinking more on the order side. It sounded like you were talking about deliveries, but it's the same story of orders?
Mattias Perjos: Yes. Sorry, I misunderstood that. No, I think there's nothing I can call out in the order pattern that indicates any stocking at customers.
Erik Cassel: Okay. Perfect. Just the last question. I mean, how high were the costs related to quality and regulatory this quarter when it comes to ECMO balloon pump? And have you changed your view in any way or where the full year costs will end up?
Mattias Perjos: It’s broadly in line with what we communicated. We don’t detail out everything that we invest now in upgrading products and fixing like the changeover now we had in the factory when it comes to the HLS/PLS production. So nothing really to add there of material nature in that regard.
Operator: The next question comes from Mattias Vadsten from SEB.
Mattias Vadsten: Yes. I will start off with tweaking the question on ECMO a little bit, strong in Q2 in cardiopulmonary, weak during Q3 with what appears then to have been stability in production in Q2 and with problems during September. So based on sort of coming quarters for ECMO, do you see growth mainly being reliant on sort of your internal supply stability, if you get what I mean. And then if you could comment on what makes you comfortable that production will be more stable going forward? That's the first one.
Mattias Perjos: Yes, I think we have certainly -- historically, our production capacity has been a limiting factor when it comes to growing the business. I think with the new packaging now implemented for CE markets and the production being up and running again. We're certainly hoping for a more stable supply and that we won't be the bottleneck to growth. That as much as I can say on that going forward here. I think it's anyone's guess right now what the flu season will do this year. I mean, the last couple of years, we've seen really no effect from that, but that's something we'll have to evaluate in the coming months here.
Mattias Vadsten: The next one, orders, if we look on Life Science, orders remain well above sales last 12 months. So question is, I guess, do you see organic sales growth get going here in Q4 already? And also, I appreciate you won't comment on sort of margins in the order book, but what kind of product areas do you expect to be growing strongly here into 2025? That's the next one.
Agneta Palmer: So Q4 is -- we anticipate that it is a strong delivery quarter for Life Science. If we look at the margins going forward, as you can see in the last couple of quarters, we have had a pickup of the BetaBag Sterile Transfer, which is comparatively within Life Science, high-margin products. But it is, as you know, very subject to the product mix in Life Science.
Mattias Vadsten: Good. And I will limit myself to one more question. So also, you flagged critical care having strong orders where I assume vents is the largest part. So if you could comment to what extent this is due to an easing competitive pressure in this area? That's the last one.
Agneta Palmer: Yes. I will say we confirm that, of course, that we have an uptick in orders, but it’s too soon to confirm that it is due to the movements in the market. So we’ll have to come back on that I anticipate in the first half of 2025 before we can conclude on that.
Operator: The next question comes from Kristofer Liljeberg from Carnegie Investment Bank.
Kristofer Liljeberg-Svensson: Three questions. First is, if you could quantify the effect on sales from the production or delivery issues you have here for ECMO consumables in the quarter?
Agneta Palmer: So to quantify the effect of the reinstatement of the CE mark, is that your question? Or can you clarify, please?
Kristofer Liljeberg-Svensson: Yes, exactly.
Agneta Palmer: Yes. So it's -- we will share this, it is not material overall, but there is an effect of some between SEK50-plus million shift between the third and the fourth quarter.
Kristofer Liljeberg-Svensson: On sales?
Agneta Palmer: On sales.
Kristofer Liljeberg-Svensson: Okay. And you also said that there were some additional costs for this. So is it possible to say how much this has impacted earnings in the quarter?
Agneta Palmer: I'll not single that out and quantify that effect, but there is an effect of that for sure that we've had to make adaptations to production and supplier interactions, et cetera.
Kristofer Liljeberg-Svensson: Okay. But if we instead look at the total impact on EBITA from all the quality issues which has varied between SEK100 million and SEK200 million before possible to give that figure for the quarter?
Agneta Palmer: Yes. So if we say we do have, as you say, those elevated quality costs in line with those levels. In Q3, the main pieces for what we have already mentioned, the underabsorption piece, which is partly related to that we have to make adaptations to our production processes mainly. We also had some more scrapping, but the main thing is the negative mix and the currency that we have mentioned.
Kristofer Liljeberg-Svensson: Yes. But you can't say whether it's SEK100 million, SEK200 million or even more this quarter?
Agneta Palmer: We say that what we have said for the full year that those are the levels of quality-related costs. And then additionally, we have had some underabsorption for this in the third quarter and some scrapping, I would say.
Kristofer Liljeberg-Svensson: Okay. And could you remind me what you have said the impact will be for the full year?
Agneta Palmer: So we said in the range of SEK0.5 billion, and now we are trending a bit above that with the additional underabsorption scrapping.
Kristofer Liljeberg-Svensson: Okay. My other two questions. One is, if you could just comment a little bit on the strong order growth in Surgical Workflows. We saw a couple of years ago, the catch-up from the pandemic, and now it seems to picking up again, particularly in the U.S. So whether you have more better momentum gaining market share? And then my third question relates to the comment about acquired business contributed to organic growth from Q4. Is it possible to say how much those businesses are growing right now?
Mattias Perjos: Yes. I can comment on the infection control. I said we've had a good comeback after the pandemic, as you stated. Right now, in the quarter, the main positive contribution was from infection control and from digital health. I wouldn't say that's a continued pandemic catch-up. I mean some -- in some cases, there are large projects when it comes to infection control that we win and that has a positive impact. Digital Health is a smaller part of surgical workflows, but with good underlying growth momentum, there's been a long period where customers have been very, very focused on this post-pandemic operational struggles that they've had. There's been a lot of other large IT investments that have kind of pushed out the types of solutions that we do in digital health. So it's encouraging, I think, to see that seem to be bandwidth and budget for these type of investments now as well. So those are the main factors. I would not say that we are gaining market share in the U.S. or anything like that. We're trying to hold the fort there, but there's no market share gain.
Agneta Palmer: And then when it comes to the acquisitions, we stick by the guidance that we have given then for the full year. And as we mentioned, we had a contribution of SEK535 million in Q3, and we have a healthy growth in these areas. So that is what we expect to see in line for Q4 as well.
Operator: The next question comes from David Johansson from Nordea Markets.
David Johansson: First one I had was on the additional restructuring you have done in Acute Care Therapies of SEK97 million. Is this quality costs for the new packaging solution for ECMO consumables? Or is there something else new in this quarter?
Agneta Palmer: Yes. So that is a number of sort of rightsizing initiatives that we are running across the different functions of our company to address our cost base. So it's not primarily linked to the quality piece.
David Johansson: Okay. Then I'd like to follow up on that. I was wondering then on the large layoff you have done at your Wayne production facilities in the U.S. Can you elaborate on what has happened there? And what the reason is for this reducing headcount to this degree?
Agneta Palmer: We'll not comment on that individual case, but it's not a large layoff that we have done in the Wayne facility. We always review our teams and how they should deliver in the -- have the best prerequisites to deliver. We have done that in a way, but it's not the main thing.
David Johansson: Okay. Okay. But it's one of the initiatives you're taking in the SEK97 million restructuring then?
Agneta Palmer: Yes, that is correct.
David Johansson: Yes. Okay. Perfect. Then just a quick one on the regulatory situation for Cardiac Assist in Europe. Has something new come up? Or what is the reason for the extended suspension period?
Mattias Perjos: Nothing new has come up. It's just that -- like we indicated when we got the CE certificates to suspend it, some of the technical challenges with the existing balloon pump platform, just can't be sold in a short period of time. So I think the extension now allows us to work through the remaining couple of challenges that we have yet to resolve. So -- but nothing new has happened. It's in line with expectations.
David Johansson: Okay. Perfect. Those are my questions.
Operator: The next question comes from Aisyah Noor from Morgan Stanley (NYSE:MS).
Aisyah Noor: My first one is on the ACT restructuring costs kind of similar to the question before this. What functions are you reducing? And which segments within ACT does this relate to? And does this reflect a lower growth outlook for ACT in 2025?
Agneta Palmer: Yes. So it is broadly. So I will not single out any specific functions, but it's both within the supply chain of the business area in the sales organization and in the supporting functions that we work with rightsizing initiatives. It will -- we do not expect this to have any -- if anything, positive effect on our profitability going forward.
Mattias Perjos: I think it's important to state overall that it's really about trimming and adjusting to inflation across all our businesses. So we have restructuring costs not only for ACT, but we have that for our other parts of business as well. So this is normal course of business and really just trying to mitigate the reality of inflation that we've had for the last couple of years.
Aisyah Noor: Okay. One question on the -- I think you mentioned SEK50 million of pushout from the ECMO supply issues. That doesn't really explain the magnitude of the drop in sales in Q3. Can you just explain kind of what was the driver of the shortfall in your ACT business in Q3?
Agneta Palmer: Yes. So I would say, firstly, we had very tough comps from last year. So that's important to keep in mind that we had some catch-up of deliveries coming into Q3 of last year. So that, I would say, is the main impact, apart from what I mentioned.
Aisyah Noor: Okay. My last question is on the Life Science business. What was the growth rate for China specifically? And did you see the trend worsened sequentially into October?
Mattias Perjos: We don’t disclose growth rates on individual country levels. We called out double-digit growth in both China and the U.S. for bioprocessing in the quarter. But that’s the only details we will share.
Operator: The next question comes from Oliver Reinberg from Kepler Cheuvreux.
Oliver Reinberg: And three also on my side. Mattias, can you just provide a bit of color on the aftermath. I mean the FDA letter occurred in May so that we are now half year down the road. Can you just provide some kind of color what you hear from the FDA from clients, from competition? I think you talked about that there's a broader trend to find alternative sources. Any kind of update on the situation would be helpful.
Mattias Perjos: Yes, sure. I mean, there isn't that much update to provide. There's been no new news from FDA. We continue to have the weekly meetings that we've had for a long time with them, and we do see eye-to-eye on the -- on what we need to implement on our product platforms to address the concerns that they have raised in the letter to health care providers. So that work is progressing according to plan. So nothing new on that front. When it comes to customers, we've spent a lot of time with our local organization, clarifying what this actually means. There's been a lot of confusion and misunderstandings of the content of the letter. So there's been a dialogue with many customers around this. The main concerns raised by customers still relate to supply situation being able to get products primarily for ECMO therapy. We do expect, though, that customers will develop alternative sources that they will have a plan B in place. We don't see any major cancellations or anything today. But I think, like we said when this first happened in May, we do expect customers to think about their sourcing strategy and have an alternative to us as well. We don't see any major impact at all of this right now, but we still keep an eye on this month by month and quarter by quarter.
Oliver Reinberg: Okay. Perfect. And second question would be on China. Can you just provide a kind of a broader update on the demand situation there? And any kind of color whether you see any uptick in terms of stimulus trends or if you have any insight to when the stimulus packages could support your demand situation?
Mattias Perjos: We're aware of the stimulus package, and we continue to monitor and keep a dialog with customers. We do expect that there will be some tailwind from this. We can't see that that has impacted the quarter at all so far. So if anything, it's a future effect of this is something we'll have to come back with more information when we see any material changes.
Oliver Reinberg: Okay. Super. And third and last question just on the Paragonix transaction. It was obviously a kind of larger capital deployment at 10x EV sales. Can you just provide a kind of a bit more insights on the kind of growth prospects like what growth do you expect in heart and lung, how significant is the contribution from abdomen? And any kind of color what do you expect outside the U.S. any insights when you -- what kind of sales perspective are all and when do you expect this to earn a kind of cost of capital? Any kind of discussion around that would be helpful.
Mattias Perjos: Yes, we will come back – we’ve owned them for 2 weeks in the third quarter. So it’s a little bit too early to make too many conclusions. What I can say is that we’re extremely happy to have now Paragonix as part of our portfolio. It’s a great strategic fit with especially our cardiopulmonary business in ACT. The reception from customers has been exceptionally positive. Every one that we’ve interacted with, and Paragonix, we closed the quarter with very good momentum and we expect that to continue. The growth drivers for this market, we expect to be sustainable for the foreseeable future after the next 10 years. But I really can’t – with this short period that we’ve owned the company, make too many other conclusions. So we look forward to coming back on this once we closed out 2024.
Operator: The next question comes from David Adlington from JPMorgan (NYSE:JPM).
David Adlington: I really just wanted to focus on margins. Obviously, you've reiterated the revenue guidance that we're now -- or middle October still no margin guidance. Just wondered if you could give us maybe some expectations for this year and thoughts into next year just relative to -- obviously, you're down 300 basis points year-on-year this quarter, 30 basis points year-to-date. Just wondering if you're expecting any margin expansion this year with a stronger Q4? And then sort of that trajectory into next year would be helpful as well.
Agneta Palmer: Yes. Thanks, David. We will stick by what we communicated back in May in the capital markets, which is a rather flattish margin for this year in absolute numbers, that is, of course, then an increase given the growth that we have, but that's we stick by that perspective.
David Adlington: And then thoughts on the next year, given the moving parts?
Agneta Palmer: You will have the same answer there. We stick by that outlook that we gave in May.
Mattias Perjos: Any other questions here?
Operator: The next question comes from Sten Gustafsson from ABG Sundal Collier.
Sten Gustafsson: First one, a follow-up on David's question here. Could you remind me what you guided for in May in terms of margin outlook for 2025? That would be my first question please?
Agneta Palmer: Yes. We have shared that material, but it's a rather flattish development.
Sten Gustafsson: Also for '25?
Agneta Palmer: Yes.
Sten Gustafsson: Yes. Excellent. So -- and then on ECMO and HLS, it sounded like you said you haven't lost any more good share, but you expect customers to start to use other suppliers. And we have seen recently also new -- well, new products being approved here in Europe from one of the competitors, for example, on ECMO. So my question is what type of growth outlook do you see for your ECMO and Intra-Aortic balloon pump franchise for the coming year? With regards to -- I mean I know you don't typically guide on specific products, but some sort of direction would be good in relation to your overall organic growth guidance.
Mattias Perjos: Yes. No, absolutely. I think in this one, we have actually guided a bit earlier, we've said that when it comes to our cardiopulmonary business, which is essentially ECMO, ECLS. We said that we expect a rough growth around 8% for this business over time. Bear in mind, though, that is a somewhat lumpy business, partly due to the supply chain and call it challenges that we've had. But the underlying growth for the therapy is expected to be around 8%. Balloon pumps is a different story. That's always or at least the recent history has been a slower growth category. So underlying growth there is more in the range of 2%, 3%. And obviously also still with some lumpiness, like you've seen in the last couple of years when it comes to both supply, but also some of the regulatory hurdles that we need to pass for this business.
Sten Gustafsson: But you still expect to be able to grow cardiopulmonary 8% even with increased competition?
Mattias Perjos: I think the beauty of this is that it's a growing therapy overall with a lot of potential therapy and indication expansions that can be done. And I think if you look at, for example, the stent business where we were alone for quite some time, and we had new entrants expanding the market. We do expect to be able to grow around 8%, even with the new competition. We do expect this segment will grow as a whole. It's a very powerful therapy for patients and room for indication expansion. So short answer is yes.
Sten Gustafsson: Okay. Great. My last question, just a clarification. You talked about the late shipments here in September of roughly SEK50 million. Is it fair to assume that, that had a negative impact then on EBITA of SEK30 million, which we then should add back to Q4 if -- well, provided that the shipments will take place now in October?
Agneta Palmer: Yes. So that's a fair assumption on the sort of margin of those products. Then we have had other additional costs in Q3 to sort of adjust production to this new CE mark product.
Mattias Perjos: I think it's important to keep in mind that it's a complex operation, the manufacturing of these products. So it is not only that the products that don't get shipped and that margin impact. We're producing this now in a new packaging as well under partly new conditions, which has meant extra costs during the quarter as well and under absorption.
Sten Gustafsson: But in terms of adding -- I tried to adjust my numbers ahead of the report, and so I took up a little bit more. So now when I need to put that back into Q4, obviously, the costs are already sort of gone, but the SEK30 million in EBITA is a good approximation of the shipment.
Agneta Palmer: Yes. That's a good property of value of those.
Operator: The next question comes from Rickard Anderkrans from Handelsbanken (LON:0R7R).
Rickard Anderkrans: First one on the guidance. So I guess some of us out here are curious and wondering why it was -- the organic growth guidance wasn't narrowed given where we are in the year, it's quite a wide range of outcomes it implies for Q4. So maybe you could elaborate on some of the swing factors to get you to the low versus the high end, respectively? And where do you expect to end the year in the higher or the lower end of the growth guidance? I'll start there.
Agneta Palmer: Yes. Thank you for that question. So we will stick by what we have communicated in terms of guidance. I will not give a narrowing span. I will say this that you've seen the order book. It's very strong. We have all the teams lined up to deliver for this in Q4 and -- but there are risks on the timing. So just to say that is why we still remain with a rather. It is a high -- supply high production in Q4 that we have in front of us.
Rickard Anderkrans: Okay. That's clear. And secondly, on the -- following up a little bit on the U.S. ECMO Intra-Aortic balloon pump franchise. So you mentioned that you see signals of customers maybe diversifying, but sort of -- it would be interesting to hear a little bit on the visibility into customer behavior, would a customer tell you if they intended to transition away or switch? And do you think that the recent HLS supply disruptions could increase the risk of customers transitioning given that you also mentioned that supply is a critical concern for a lot of customers.
Mattias Perjos: Yes. I didn't say that we have seen a lot of customers starting to transition. I said that we will be surprised if they didn't create plan Bs and created a second source for this. And we know there are discussions going on in customers here. But you have the whole range of customers. I'm saying that we will stick with the platform that we're happy with from Getinge. Others have said that yes, most likely, we will need to find a second source at least as well. So -- but the impact of that is much too early to say. So I think that's really all the like we can shed on it. When it comes to the supply situation, the supply constraints in Q3 were more for the CE market, so not for the U.S. think the U.S. supply situation has improved in the last few months. And the main frustration earlier has been -- with customers has been that they haven't had enough supply. I think we are out of a back order situation now in the U.S., so that should not be a factor that creates mitigation to competitive platforms.
Rickard Anderkrans: Very clear. And just a final question on the FDA quality record backlog. How are you tracking towards resolving that the backlog?
Mattias Perjos: There’s been really good progress in the third quarter. We are well over 99% done with that now and expect now in the fourth quarter to resolve remaining open issues.
Operator: [Operator Instructions] The next question comes from Aisyah Noor from Morgan Stanley.
Aisyah Noor: Just a housekeeping question for Agneta on the below EBIT items. Should we expect any more one-off impacts in Q4 or 2025 from either the Brazil provisions or the ACT restructuring? And then on the interest cost that was running a bit higher in Q3 versus the first half run rate. So would it be fair to assume a more elevated figure for Q4?
Agneta Palmer: Yes. Thank you for those questions. For Brazil, it is as we have communicated, not final yet, but this is the best assessment, and we don’t expect any material changes in Q4. For restructuring, we are, as mentioned, running a number of rightsizing and productivity initiatives and some of those will impact to not to the same extent as in Q3, but there will be some impact also in Q4. And then finally, coming into the interest expense that is related to the higher debt level – higher net debt as a consequence of the acquisition of Paragonix, and this is completely according to plan.
Operator: The next question comes from Kristofer Liljeberg from Carnegie Investment Bank.
Kristofer Liljeberg-Svensson: I want to follow up on your comment about margin before. I understand the comments about flattish margin this year. But for next year, could you maybe explain the rationale for what will not make the margin improve next year if you would have lower impact from quality cost, less cost inflation seems demand is pretty good.
Agneta Palmer: So in the guidance that we have given, that is what we stick by, so to speak. And we are very, as you know, very subject to mix. We have a slightly different mix coming into 2025. So that is with high growth in some of the acquisition areas, mainly then in Surgical Workflows, which is very, very good profitability for us, but from a mix perspective, impacting the margins overall for the company. So that is part of it and also that we see stronger growth within some of the product areas with slightly different margin composition. But we do expect, like you say, that we will remain on elevated quality cost levels also last year. We will not give guidance on the exact levels here, but that is part of it as well.
Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
Mattias Perjos: Great. Thank you very much. I think we've already gone through the summary here. So nothing else to add from our side other than thanking you for taking the time to join us today and wish you a good rest of the day. Thank you.
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