Getinge AB (publ)

Welcome to the Getting the Q3 Report 2023. 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. CEO Matthias Perjos and CFO Lars Sandström. Please go ahead.

Thank you very much and welcome to today's conference. This is Mattias Pergers, CEO of Geringe and with me CFO Lars Sundström who will present the financials in a moment. We can move directly over to page number two please. So let's start by looking at the key takeaways for the third quarter of 2023. Getting a sales rose organically by 5.7% in the quarter. The order intake declined organically by a total of 1.9% in the quarter, which was exclusively linked to acute care therapists, where we still have a large order book that we're working through. In the quarter, we worked intensely to address the challenges that we have in cardiac assist and cardiopulmonary, and improvements have been made, enabling us to gradually increase delivery volumes, mainly for consumables in cardiac assist. However, the challenges are continuing to have a negative impact on our order intake, on our delivery capacity, and also on our costs. The margins improved versus last quarter to a large extent due to higher deliveries of consumables, mainly in cardiac assist. It's also worth mentioning that we completed two important acquisitions just after the end of the quarter and we continue to have a stable free cash flow and a solid financial position with a healthy safety margin when it comes to leverage. Which is also the case when we include the acquisitions into the equation and we will talk about that a bit later in the presentation. We can then move over to page number three please. So if we start by looking at some of the key activities and events in the quarter, and we begin with sustainability and quality. Carbon dioxide emissions, our energy consumption and the share of renewable energy continue to develop in a positive direction for Geringen. The science-based targets initiative also validated getting us near and long-term targets of reaching net zero greenhouse gas emissions across the value chain. So it's good evidence that we're on the right track with this, that we have ambitious but reachable targets. There's also been a change in the executive team where Jeanette Tidén-Carlsson decided to step down from her role as executive vice president brand and communication. Jeanette has done a really good job during her six years with Geringen and under her leadership, Geringen's brand recognition has increased on our key markets. I've appreciated her as a colleague as well and I wish her all the best in her next career step. The process to recruit a successor has been kicked off and is ongoing. When it comes to our offering to customers, I'm happy to note that FDA granted clearance for a new ventilator in the US market that expands our leading offering there. Getting a Life Science launched Apliflex STGMP, a customizable single-use bioreactor that enables customers to move from research to full-scale production within the same safe system. It is designed to meet all requirements for clinical cell and gene therapy as well as mRNA application. So this is a very important step for our customers. And as I mentioned initially, we completed two important acquisitions just after the quarter end. Healthmark and High Purity New England complementing our infection control business and our offering towards customers in the biopharma segment in an almost perfect way with minimal overlap and extensive growth opportunities. We can then move over to page number four and take a closer look at the most recent acquisition which is Healthmark. So I'd like to spend some time on this one just as we did with High Purity New England in the previous quarter. We're truly happy about this acquisition, and there are many reasons for this. First and foremost, Healthmark has built a strong brand in sterile reprocessing in the US since late 60s, with a true customer-centric approach in everything that they do. Through this acquisition, we broaden our consumables portfolio significantly, for example, within cleaning verification and packaging, where we have minimal overlap with our current offerings. This acquisition also means that we strengthen our U.S. presence, both when it comes to our customer base and also our infrastructure in the U.S. This will help us augment the attachment rate to our existing and appreciated capital equipment, and in addition, we will leverage our global reach to drive Healthmark's international expansion. I'm also happy to declare that we will retain key management with vast experience from building the Healthmark success story. Hedmark will make a noticeable impact in surgical workflows also from a financial perspective. Net sales for the financial year ending last October is expected to be around $126 million and growth in the end market is expected to be at a healthy mid to high single digit level. The business operates at mid-teen EBTA margin and from a group perspective we expect a positive contribution on EPS adjusted for PPA in 2025 and on reported EPS from 2026. We can then move over to page number five and the status when it comes to improvement efforts on cardiac assist and on cardiopulmonary. Let's start with the slide for cardio pulmonary that we introduced last quarter. I won't go through all the data here rather focus on the changes since last quarter. On quadrups there are no big new events here besides making progress according to plan and the same goes for HLS PLS with one important difference that by the end of September we received an extended exception that permits deliveries according to the European Union MDR article 59 until September 30th 2024. This gives us a good margin now to have an approved packaging solution in place before then. We can then move over to page number six please. So focusing then on cardiac assist. Again, I won't spend time on basic facts about the business here either, rather cut straight to the core of the business that we deal with. When it comes to the balloons, we had an issue with a third-party component in the insertion kit. Early Q3, we identified the root cause of this. We received corrected components and resumed global deliveries, taking us to a growth year on year. So this particular issue is now out of the way. On the pumps, we received good news in the quarter that the CE certificate was reinstated. We have continued with the ongoing field corrections expected to be resolved in full during 2024, followed by regulatory approval. So a slight facing due to additional testing and design verification, among other things. Most important here now is that we can sell and deliver the pumps globally as of today, as we had the CE mark reinstated. However, we stay with the message from last quarter that we expect to ramp up delivery volumes gradually during the second half of 2023, so basically the final quarter now, and we expect less constraints during next year. As we all know, these challenges have the highest possible priority in getting at the moment, why it's good to see some positive traction and results, and we will continue to report on progress on this in the coming quarter. We can then move over to page number seven, please. Looking then at the top line evolution, as I mentioned earlier, order intake declined by 1.9% and net sales increased by 5.7% organically in the quarter. The lower organic order intake for the quarter was exclusively attributable to acute care therapists with mainly cardiac assist contributing to the downturn. The effects from this is something that we can see in all geographic regions. On the other hand, we had a positive development in all regions in net sales in acute care therapists due to a large extent thanks to delivering on the backlog in cardiac assist consumables, so the balloons themselves. The surgical workforce also had a strong quarter with growth in all regions, so that's also worth mentioning. We can then move over to page number eight, please. So if we summarize this into an outlook, it takes us to a situation where we expect organic net sales growth to be 2% to 5% for 2023. And this is basically repeat, no change in the overall outlook compared to what we said earlier. We can then move over to page number nine, please. So we had weaker order intake in acute care therapists, as I mentioned in the quarter. It was down 7.6% organically. The lower order intake for the quarter was mainly related to cardiac assist, as I mentioned. This was largely the results of customers waiting for deliveries of previously booked balloon pumps before they placed new orders. This pattern was seen in the order intake for all regions. If you look at the order book for the business area as a whole, it was just over 10% higher than last year. Life science then, we had 8.5% organic growth. So life science increased its order intake in all key categories except for sterile transfer, where the customers still have sufficient numbers of DPTE beta bags in stock. The trend in the US was overall strong while the order intake in China was weak in the quarter. The order intake increased in all product categories in America. Looking at surgical workflows then, we had a 3.6% organic order increase and the order intake for surgical workflows increased organically in both infection control and also in surgical workplaces. The order intake remained positive in the strategically important US market. Growth was also healthy in Germany and Japan, while the order intake in Latin America declined for surgical workflows. We can then move over to page 10, please. Looking then at the sales perspective in acute care therapists, we had a 6% organic increase in sales. And this was thanks to large deliveries of consumables in cardiac assist, which contributed to the sharp growth. Growth was also healthy in ventilators and in cardiac surgery products in the quarter. Life science was flat in the quarter, completely unchanged, with large deliveries in steam sterilizers. Sales of sterile transfer products for customers in the biopharma segment continued to decline in the quarter. The performance in China during the quarter was especially weak while sales to UMP and customers increased for life science. In surgical workflows we had a 7.4 organic increase and this was in all product categories and all regions. The performance in Southeast Asia and also Japan was particularly strong while sales in China fell for surgical workflows. Currency had a 271 million SEC or a 3.9% positive impact on net sales for the group in the quarter. Looking at recurring revenues, this grew by 6.9% in the quarter, positively impacted by strong deliveries in inter-optic balloons. We can then move over to page 11, please. So one step down the P&L, our adjusted gross profit increased by 298 million SEK to 3,890,000,000 SEK in the quarter, where a positive FX effect accounted for 114 million SEK. For the group as a whole, the adjusted gross margin declined by 0.7 percentage points due to unfavorable mix effects, lower absorption, cost inflation, and currency. These effects were partly offset by price increases. For acute care therapists, the adjusted gross margin declined by 0.6 percentage points, mainly due to mix and also higher costs related to ongoing improvements in cardiac assist and in cardiopulmonary. The margin was also impacted by negative currency effects, higher costs for input goods and for personnel. This was offset by price increases, strong sales, mainly in consumables and cardiac assist, and continuing productivity enhancements. For life science, the adjusted gross margin declined by 4.5 percentage points as a result of negative product mix and higher cost for input goods, personnel, and also currency effects. Price increases in life science contributed positively to the margin. Certical workflows suggested gross margin increased by 0.9 percentage points, and this was primarily a result of price increases and higher sales volumes. This was offset by higher cost for input goods and personnel and also here negative currency effects. So with that, we can move over to page number 12 and I leave over to you Lars.

All right, thank you Mattias. Adjusted EBITDA decreased some 69 million compared to the same period last year. Adjustable currency, GP, had a minus 0.3 percentage point impact on the beta margin due to what just what Mattias said. Organically, S&A increased by 8% versus previous year. The difference is mainly explained by a lower level of variable pay last year, creating a delta of some 30 million year on year. In addition, we have some 25 million of extra costs relating to the challenges in cardiac system cardiopulmonary. When looking at underlying OPEX, it is negatively impacted by cost inflation and a higher level of activity versus last year. This is to some extent mitigated by restructuring efforts. The change in R&D is related to somewhat higher activities, including costs for EU MDR. And the minus 77 million on other OPEX was mainly attributable to currency effects related to operating receivables and liabilities in foreign currencies. When putting it all together, we end up with a reduction of operational leverage of minus 2.3 percentage points impact on the margin. Adjustable currency, DNA, had a positive impact of some 0.5 percentage points on the margin in the quarter. And FX had a slightly negative impact on the margin in the quarter. All in all, this resulted in just a bit of 1,101,000,000 and a margin of 14.5%. Over to page 13, please. Free cash flow amounted to 1.1 billion and was impacted by a higher operating profit, including a net effect of some 250 million compensation from insurance related to mesh litigations in the court. Looking closer at working capital, the negative change was mainly due to changes in inventories. And working capital days continued to be well below 100, and we are now at some 96 days, down a bit more than 33 days from the peak in Q2 2018. We continue to be somewhat below trend on operating return on invested capital with 11.3% on a rolling 12-month basis. Let's move to page 14. The change in net debt year on year was positively impacted by the operating profit and support free cash flow, taking us to 3.8 billion in net debt at the end of the quarter. If we're just for pension liabilities, we are at 1.5 billion. This brings us to leverage of 0.7 times EBITDA. If we just for pension liabilities, leverage is at 0.3 times EBITDA. Cash amounted to approximately 5.3 billion at the end of the quarter. If we then add the acquisitions closed and paid for since the end of the quarter and use perform on the debt side on the equation, we end up at 8.7 billion in net debt or 6.4 billion if we exclude pensions. And that is leverage of 1.6 times EBITDA, actual rolling credits or 1.2 times if we exclude pensions. Let's move to page 16 and back to you, Mattias.