Getinge AB (publ)

Welcome to the Yeartinger 2023 Q1 report with CEO Matthias Perios and CFO Lars Sandström. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing star 5 on their telephone keypad. Now I will hand the conference over to the speakers. Please go ahead. This call is being recorded. Your line is muted.

Thank you very much. Thanks for joining everybody. Sorry for the delay. There was a technical glitch apparently in the beginning here, but I think we're good to go now. With me today, I have our CFO, Lars Sandström, who will go through the financials a little bit later, but we can start with moving over to page number two and talk about the key takeaways for the first quarter of 2023. We had net sales and order intake increasing organically by 7.5% and 2.9% respectively in the quarter. This is a consequence of high demand for ventilators in the expansion of China. We also saw a recovery in cardiovascular procedures and large deliveries in surgical workflows in order to meet the need for productivity enhancing infrastructure in healthcare around the world. Surgical workflows specifically increased in sales by almost 20% organically, and this is thanks to better availability of components that enable the prompt loading of deliveries, but also a good underlying demand situation. The supply chain challenges that we still have with us are now mainly concentrated to intraortic balloon pumps and products for ECMO therapy within acute care therapies. where we still have orders worth over 400 million sec awaiting delivery. The higher sales volume, the price increases that's been implemented, and the positive currency effects contributed to a stronger adjusted cost of profit and EBITDA, despite the higher cost inflation in goods and services, as well as personnel-related higher costs. We're actively continuing to work to raise prices and reduce our costs, which is having an effect. It's a very measurable effect, albeit with some time lag. Pre-cash flow was better than in the same period last year, adjusted for large payment related to the final settlement with regards to surgical mesh. So getting a financial position remains very solid with a low level of net debt. We can then move over to page three, please. So let's focus on some other key events during the quarter. When it comes to our offering and our customers, I'm really pleased that the Getting Us Covered Stent System, ICAST, received pre-market approval, the PMA, from the U.S. Food and Drug Administration for the treatments of patients with iliac artery occlusive disease. We expect this to have a positive impact on sales and margins for acute care therapists from the fourth quarter. manufacturer of ultrasonic cleaning technologies, which is used in hospitals and surgery centers to decontaminate surgical instruments. This is part of our strategic journey of securing an even more attractive product offering a better portfolio in the important U.S. market. Getting also launched a new Cervo-C ventilator that offers lung protective treatment functions for both pediatric and adult patients. And Cervo-C is a very cost-effective offering with the aim to make high-quality healthcare available to more hospitals and patients globally. And finally, on the offering front, as a consequence of growing demand for our DPT alpha port in recent quarters, we have initiated a project to increase production capacity by 50% at the production unit in in France. This is of strategic importance for us as a larger installed base of alpha ports contributes to increased need for DPT beta bags where we have a leading position globally. When it comes to sustainability and quality, we can see that carbon dioxide emissions, energy consumption, and the share of renewable energy continue to develop in a positive direction thanks to the ongoing improvements that we have in our business. We can also see that customers are placing an increasingly higher value on sustainability when it comes to tender processes, for example. So we're ready and in a good position, competitively speaking, for this. During the quarter, we also reported on a suspension of the C-mark and quality-related field measures regarding our intra-aerobic balloon pump. The C mark has also been temporarily suspended for consumers used in ECMO therapy due to shortages in the design of the packaging. However, deliveries to existing customers have been approved, citing the clinical benefits of this therapy in accordance with the EU regulation. So, we are producing and delivering as we speak despite the suspension of the CMARC. And we just want to underline that we take these issues very seriously and react accordingly, which may lead to some delivery disruptions during the second quarter of this year. We're going to move over to page number four, please. So as I mentioned at the beginning, we have order intake increasing by 2.9% in the quarter and net sales by 7.5% organically. Order intake was significantly positive in EMEA due to especially strong performance in surgical workflows. Both acute care therapies and surgical workflows grew orders in Asia Pacific in the quarter, but due to a drop in life science capital goods, the overall order intake was down in the quarter in Asia Pacific. Americas was flat on orders in the quarter with a mixed picture in the business areas where life science reported decline due to significantly reduced demand for products related to COVID-19 vaccines. At the same time, acute care therapies stands out in a positive way, mainly due to a recovery in cardiovascular procedures. On net sales, we had a positive development across the board with EMEA in the lead. This is to a large extent leading to large volumes being delivered in surgical workloads. This has been supported by a healthier situation in the supply chain, enabling earlier deliveries than we had previously planned. The growth in Asia Pacific is due to healthy growth in surgical workflows and large volumes of ventilators being delivered to China in the quarter. Our estimate is that we have been delivering ventilators of an additional value of some 150 to 200 million sets versus what would have been normal in the first quarter. Our belief is that the demand from China will be muted for the rest of the year when it comes to ventilators. The outlook otherwise in China we remain positive about. America has grown nicely thanks to elective procedures picking up in acute care therapies and certain workflows delivering on the much larger order book that we have for North America versus last year. Also here we see some support from supply, which has helped us deliver a bit earlier than planned in that week. We can then move over to page number five, please. So when it comes to guidance, we reiterate the net sales output for the full year 2023, despite the positives in the first quarter. The reason is that we expect the second quarter to be slightly weaker compared to last year, and that we grow slightly year on year in the second half of 2023, which should then take us to organic growth in net sales of two to 5% for the full year. The main uncertainty is regarding supply chain and quality challenges in cardiac assist and cardiopulmonary. And again, we take this challenge extremely seriously. We are working hard as we speak to resolve all the issues related to this so we can continue to deliver high quality and safe products to our customers and patients. We can then move to page number six, please, and dissect the order growth a bit more. When it comes to acute care therapies, we had 5.1% organic care growth. The increased order intake in acute care therapies is mainly attributable to ventilators for the Chinese market and products for cardiac surgery in North America. Organic order intake for products for ECMO therapy increased marginally compared to the previous year. In life science, we had a 12.7% organic drop, and the decline in water intake in life science is mainly due to lower demand for products related to COVID-19 in Americas and in Asia Pacific. The water increase in EMEA for life science is mainly a result of increased customer activity in North Europe. Surgical workflows, here we had 6.6% organic growth in orders, and the increased surgical workflows order intake increased organically in all product categories in the quarter. Asia Pacific and EMEA accounted for significant growth, while Americas ended up slightly below last year's strong order intake. We're going to move to page number seven, please, and do the same exercise on sales. Here we had acute care therapists growing 6.5% organically. The ACP organic net sales increased significantly in Asia Pacific as a result of large deliveries of ventilators to the Chinese market. Net sales also increased in cardiovascular products. This would negatively impact the in the QCAP purpose by continued component shortages, primarily in intralogic balloon pumps and in ECMO therapy. This backlog is estimated to be at least 400 million sec in net sales, and this is something that we hope to be able to deliver in the second half of this year. Life science, here we had a 10.3% organic drop in sales, and the life science net sales became mainly as a result of significantly reduced demand for products related to vaccines against COVID-19, mainly in consumer goods. The positive trend in the service business over life science continues, which we're very happy about. Certified workflows, here we had the biggest increase, 19.6% organically, and certified workflows grew its sales organically because all product categories had a strong quarter in both Americas and in EMEA. An improved supply chain situation contributed positively to capital goods in the quarter. Recurring revenue also increased organically, thanks to positive development in all the sub-parts, which is consumables, service, and spare parts. In the quarter, currency had a 481 million sec, or a 7.8% positive impact on net sales for . Capital goods organic growth was 9.4% in the quarter, positively impacted by an additional sales of the ventilators to China and also a more positive situation in the supply chain for surgical workflows. Recurring revenue grew 6.5% organically and this is thanks to continued good job in our service organization overall. It's also thanks to strong deliveries of cardiovascular consumables and a continued positive trend in surgical workloads. We can then move over to page number eight, please. Adjusted gross profit increased by 473 million SEC to 3,734,000,000 SEC in the quarter, where a positive currency effect accounted for 287 million SEC. For the group as a whole, the adjusted gross margin declined by 0.4 percentage points, and this is an effect of unfavorable mix, some supply chain disturbances, and also cost inflation. The effects were partly offset by price increases, productivity improvements, and some support from currency as well. For acute care therapists, the adjusted gross margin declined by 0.6 percentage points, and this is due to unfavorable mix, some shortage of components, and also due to cost inflation. Here it was also offset to some extent by positive currency effect and successful pricing. For life science, the adjusted gross margin declined by 0.6 percentage points, mainly as a result of lower volumes, cost inflation, and also some under absorption. Favorable currency effect and the cost reductions contributed positively to the gross margin in life science. Circular workflows suggest the gross margin increased by 0.4 percentage points, primarily as a result of higher volume, currency effect, price increases, and a better level when it comes to absorption as well. These positives were partly offset by cost implications. With that, we can move over to page number 10, and I leave over to you, Lars. All right. Thank you, Mathias. Adjusted EBITDA increased 133 million compared to the same period last year while the margin was flat despite negative effects from those profits and OPEX. So adjusted for currency, GDP had a minus one percentage point impact on the beta margin due to the reasons just mentioned by Mattias. Organically, S&A increased by some 7.1% versus previous year due to higher activity level, cost inflation in purchase services, and personal related expenses. This was slightly beneath the organic growth for the quarter, but when adjusting for FX and other OPEX, And somewhat higher R&D, and putting it together, this takes us to reduce operating leverage on OPEX over minus 0.8 percentage points versus last year. R&D activities increased in the quarter, mainly in acute care therapies. And adjusted for currency, DNA had a positive effect of plus 0.6 percentage points on the margin in the quarter. So all in all, this resulted in an adjusted EBIT of 972 million and the margin of 13.6%. Let's go to page 11, please. Free cash flow in the quarter amounted to minus 700 million due to a substantial payout related to the mesh settlement that we have previously announced. We do not share the exact amount, but just for this payment or this payout, the underlying free cash flow is better than last year's plus 400 million with a healthy margin. Looking closer at working capital, it develops according to the seasonality with some buildup on inventories here in the first quarter, which is also negatively impacted by cost inflation on input materials. Working capital days continue to be well below 100, and we are now at some 95 days. Down 34 days from the peak in Q2 2018. Going forward, we expect working capital days to increase somewhat, mainly related to the inventories where higher material costs are impacting and also the supply chain disturbance. We are back on trend on operating return on invested capital with 14.4% on a rolling 12-month basis, well above the cost of capital. Let's go down to page 12. The change in net debt on year-on-year was negatively impacted by the mesh payout, taking us to 3.7 billion. If we adjust for pension liabilities, we are at 1.2 billion. This brings us to leverage of 0.6 times EBITDA. And if we just attention, I build this leverage is still low and at 0.2% times EBITDA. And cash amounted to approximately 4.6 billion at the end of the quarter. By that, let's move to page 14 and back to Mattias. Yeah, thank you. So we jumped right into the key takeaways of the summary for the first quarter of 2023. So we've seen healthy growth in the quarter in net sales, and we continue to have a strong order book as well. We reiterate the outlook for full year 2023 with the 2 to 5% organic net sales growth. We can see improvement when it comes to gross profit and adjusted EBITDA thanks to volume, to price increase, and positive currency effect. We have a strong underlying cash flow from our operations, and our financial position remains very solid. And last but not least, it's very nice to finally see the PMA for our high-cost cover spending system. So finally, I will also take this opportunity to thank our customers and our employees who are still working in somewhat challenging conditions and look forward to seeing gradual improvements during 2023. So with that, I open up for questions.

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