Getinge AB (publ)

Welcome to the Getinger Q4 2023 report. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to the Speaker CEO Matthias Pergeus and CFO Lars Sandström. Please go ahead.

Thank you very much and welcome everyone to today's conference. I have Lars Sandström with me here today and he will do the deep dive into the financials and also help with the Q&A a bit later. But we can move directly into page number two to look at the key takeaways for the fourth quarter of last year. In terms of sales, getting net sales increased by 16.5% in the fourth quarter, and this is following growth in all business areas and regions. Organic growth accounted for 10.1% of this, acquisitions for 5%, and currency for 1.5%. Our order intake increased by 4.1% in the quarter, driven by acquisitions and currency. Organically, it decreased by 2.4%. which is mainly due to the challenging comparative figures from 2022 in connection with China lifting its COVID-19 restrictions back then. Despite the increased sales, the adjusted EBITDA margin was lower than last year, mainly due to the quality costs for the improvement work in acute care therapies that we've had since the second quarter of 2023. In the fourth quarter, these additional costs amounted to just over 200 million SEK corresponding to minus two percentage points on the margin. These costs are expected to continue to affect us a bit into 2024 until we have resolved the current deficiencies in accordance with the timetable that we have previously communicated. In addition, the margin was negatively impacted by a generally unfavorable geographic and product-related mix and also higher cost for input goods and for employees. Free cash flow increased in Q4 and our robust financial position stands firm, providing us with a solid ground for continued investments in our growth. The board of directors has also decided to propose a dividend of 4.4 sec per share compared to 4.25 sec last year. So with that, we can move over to page number three, please. So we're going to take a short step back and look at some other key events during the quarter. When it comes to our offering to begin with, in December, our Servo Air received sales approval from Chinese authorities. And this is going to be the first ventilator that we manufacture in China. So that's a good positive step. In surgical workflows, we launched McKay-Coren, a new operating mobile premium table, and this is our first connected mobile premium table, setting a new standard also when it comes to safety in this industry. We also have a small organizational change to report. Our CFO, Lars Sandström, who is here today with me, has decided to pursue what he believes is an exciting opportunity outside of Geringen. Lars has been instrumental in developing getting his finance organization to the current high standard that we have and I really appreciated our close collaboration. Agneta Palmer who is currently the executive vice president for operational services has been appointed his successor and Agneta has a strong track record both in and outside of getting it. The handover process has already started and will continue until 31st of March when Agneta finally formally takes over. Agneta has also been instrumental in her previous job in building the finance organization, so she's very familiar with this. And I think there's also a clear recognition of a strong succession planning and I wish both Lars and Agneta best of luck in the new roles. When it comes to sustainability and quality, I want to mention that the continued quality improvement efforts in cardiac assist and cardiac pulmonary according to our previously communicated plan are ongoing and that's following that plan. For cardiac pulmonary and the packaging solutions, we still have the testing ahead of us and for cardiac assist, we continue with the field corrections that we've been on for a while there and this is also in line with the plan previously communicated. When it comes to carbon dioxide emissions, energy consumptions and the share of renewable energy, we continue to develop in a positive direction also here. Our index for improvements related to customer quality also improved in the quarter as the number of open complaints have been worked on. And the positive trend in the number of training sessions, which totaled more than 45,000 in 2023, It's due to an increased number of global customers in the online academy portal that we have, which has proven very effective. We can then move over to page number four, please. So we'll talk a bit about net sales and order intake. Our order intake, as I stated earlier, declined by 2.4% in the quarter and net sales increased 10.1% organically. Acute care therapies and surgical workflows or organic order intake declined in total due to soft development in EMEA and APAC, while both business areas showed positive development in our important Americas region. Life science increased its order intake in all product categories except for bioprocessing, and the trend in the US was especially strong from a geographic perspective. So organic net sales increased organically in all business areas and regions with EMEA growing at over 14%. Let's then move over to page number five. So we're providing a bit of updated guidance for 2024 as well. So this takes us to the outlook where we expect organic net sales for growth to be two to 5% for 2024. And in addition to this organic growth, we expect our recent acquisitions to contribute with three to five percentage points. We're going to move to page number six. So when it comes to order intake, acute care therapists had a decline of 2.4% organically. And the decline in the quarter was mainly related to cardiopulmonary and cardiac assist. We're getting it still has many orders that have not yet been delivered. Life science, there we had 4.2% organic growth and life science increased its order intake in all product categories except for bioprocessing. The trend in the US was strong while the order intake in China remained weak. The trend in EMEA and Americas was strong, but the order intake in APEC remained weak, and this was again mainly related to China. In surgical workflows, we had a 4.9% organic decline. This was across order intake. From a geographic perspective, it was particularly weak in Asia Pacific, while other regions were basically unchanged. Then move to page number seven. Looking at our sales then in acute care therapies, we had 7.6% organic sales growth. And the increase is mainly thanks to large deliveries of hardware in cardiac assist, which are expected to then drive future sales of consumables. There is on the margin, it's a negative mix effect from this. We will talk a bit more about in a short while. From a growth perspective, though, we also saw healthy development in cardiopulmonary within acute care therapies. Higher volumes of consumables in cardiac assist and cardiopulmonary and a strong trend in service and spare parts contributed to an increase in recurring revenue as well. Moving then to life science, we had a 4.9% organic growth. And the reason behind this is due to slight recovery in the biopharma segment. Sales to European customers performed positive in the quarter. I think it's worth mentioning as well. Surgical workflows then, we had a 15.6 percentage points organic sales increase. And this was in all categories and across all regions geographically. Performance in surgical workforce was particularly strong in Europe, mainly in Central and Eastern Europe. Acquisitions is worth mentioning as well. In the quarter we had a contribution of 421 million SEK from our recent acquisitions. Currency had 127 million SEK or 1.5% positive impact on net sales for the group in the quarter. Recurring revenue grew by 9.9% in the quarter, positively impacted by service and disposables. We can then move to page 8. Let's have a look at the gross margin evolution. Adjusted gross profit increased by 443 million SEK to 4,596,000,000 SEK in the quarter. where a positive FX effect accounted for 63 million sec. From a margin perspective and for the group as a whole, the adjusted gross margin declined by 2.5 percentage points as a result of temporary costs related to the earlier mentioned challenges in cardiac assist and cardiopulmonary and also generally unfavorable product mix. The margin was also negatively impacted by the general cost increase due to inflation that we see and this was partly offset by price increases and the activities that we've had in place to enhance productivity and to some extent also currency effects. For acute care therapies the adjusted gross margin declined by 1.9 percentage points mainly due to the costs we've talked about here related to the ongoing improvements in cardiac assist and cardiopulmonary. The margin was also impacted by negative currency effects, higher costs for input goods and personnel. And this was then partly offset by price increases, a continued recovery of consumables in cardiac assist and cardiac pulmonary, and also productivity improvements. When it comes to life science, the adjusted gross margin fell by 3.9 percentage points as a result of a negative product mix acquisition and higher costs for input goods and personnel. The margin was also negatively impacted by impairment and provisions of just over 40 million SEK in life science. Price increases and currency helped to somewhat reduce these negative effects. In surgical workflows, the adjusted gross margin fell by 1.0 percentage points, primarily as a result of higher costs for input goods and personnel. So this is mainly an inflationary effect as well. This was an offset by contributions from acquisitions and also price increases. So with that summary, we can move over to page nine and I leave it over to you Lars.

All right, thank you Mattias. Approved EBITDA was basically unchanged versus the same period last year, but the margin came in 2.2 percentage points lower. Adjusted gross profit effect on the margin was minus 2.5 percentage points due to what was just said by Mattias. Adjusted for currency, OPEX had a slightly positive impact on the margin in the quarter. This is despite an OPEX increase of 442 million year-on-year, which is explained by the acquisitions done and employee-related expenses. effects and costs related to the improvement efforts in cardiac assist and cardiopulmonary. Other OPEX was minus 113 million in the quarter but year on year this is a gain of plus 37 million due to less negative impact on receivable and liabilities in foreign currency this year versus last. Adjustable currency DNA had a positive impact or effect of 0.3 percentage points on the margin in the quarter And FX had a slight negative impact on the margin in the quarter as a whole. All in all, this resulted in just a bit of 1,318,000,000 and the margin of 13.3%. Over to page 10, please. Free cash flow amounted to almost 1 billion and was impacted by higher operating profits. Looking closer at working capital, we managed to handle the seasonality effect quite well and we see improvement here, especially on the inventory side. Working capital days continues to be well below 100 and we are now close to 94 days, down a bit more than 35 days from the peak in 2018. We continue to be somewhat below trend on operating return on invested capital with 11% on a rolling 12-month basis, but still above the cost of capital. Let's move to page 11. The change in net debt year on year was impacted by acquisitions finalized in the quarter, taking us to 8 billion in net debt at the end of the quarter. And if we exclude pension liabilities, we are at 5.3 billion. This brings us to leverage of 1.4 times EBITDA. And if we adjust for pension liabilities, it's at 1.0 times EBITDA. And cash amounted to approximately 2.7 billion by the end of the quarter. And all in all, we can conclude that the financial position continues to be strong even after the acquisitions. Let's move to page 13 and back to you, Mattias.

All right. Thank you, Lars. Let's just quickly sum up before we move to the Q&A. So in the fourth quarter of 2023, we had strong net sales, both in actions and organically speaking. Order intake was on the weaker side, but our backlog and the ongoing dialogue that we have with customers lead us to an outlook of 2% to 5% organic growth in sales for 2024. And in addition to this, we expect our recent acquisitions to contribute with three to five percentage points of growth in 2024. The beta margin came in 2.2 percentage points below last year, which is almost exclusively explained by the additional cost for quality improvement activities in cardiac assist and cardiopulmonary this quarter. From a cash flow perspective, we strengthened our free cash flow by more than a third versus last year, and we do have a solid financial position despite finalizing two material acquisitions in the quarter. And our current priorities when looking ahead now are really, number one, addressing the remaining challenges in acute care therapies, working with the sustainable productivity improvements to reinstall the operational leverage in our business, and really continuing working with our offering to create additional value for our customers. With that, I open up for questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Eric Castle from Danske Bank. Please go ahead.

Hi, good morning everyone. So first question just on the effects on scrapping within ACT and life science. What's the total effect of just scrapping and then are you expecting that to be somewhat recurring in any sense? Thanks.

Good morning, Erik. We don't quantify the exact scrapping cost, but you're right in the sense that there is a mix of scrapping and other costs for quality problems, mainly in acute care therapies, but also partly in life science. But we do not break this down into detail, unfortunately.

Alright, then next question. What's the current quality work impact on ECMO consumable production? output capacity and then how does that compare to the sort of customer demand you're seeing for those consumables?

We currently don't have any major restrictions when it comes to production output. I think we've had some disturbances but as we speak it's a fairly manageable situation I think within Cordia Pulmonary. From a demand perspective, there is also a continued healthy demand of these products. We have some obstacles when it comes to selling because of the administrative procedures related to Article 59, for example, and participation in new tenders and so on. But generally speaking, it's a rather stable situation.

Okay, thank you. Then the last one. I've been hearing from customers that the time of Quadrox deliveries in the communication from your sales has shifted to age 2 from age 1 previously. And I'm just wondering if this implies that the new packaging solution is delayed in any sense and if that would impact all of the ECMO consumables.

Can you repeat? You broke up a bit in the beginning when it came to the expectation now compared to earlier.

Oh yeah, sorry. I was just wondering because I've been hearing that the expected timeline of Quadrox deliveries has changed from age two to age two from age one in the communication from your sales personnel to customers. So I was just wondering if there is any sort of timing delayed concerning your packaging solution for ECMO?

No, I think we've never communicated or at least not intended to communicate a re-installment of Quadrox shipping in the first half of 24. So I'm not sure where that information comes from. There is no real change in our packaging plans. When you look at the HLS-TLS part, we believe we have a solution, but it needs to be tested and verified and we need to submit this to the authorities as well. And it's the same procedure for Quadrox. So I think it's a... Mistake in communication somewhere if if you've got the information that it was supposed to be resolved in q1. That was never the plan Or so even half one Okay, perfect.

Thank you very much.

Thank you The next question comes from Oliver Rainberg from Kepler Chewbacca, please go ahead and

Thanks for taking my question. Matthias, the first one would be on the guidance. Just in terms of in the past, you provided some color, how you think about the margin progression. So can you just talk to your ability to restore the kind of margin in 2024, how you think about consensus expectation and probably giving some kind of color, what are the main margin drivers in 2024, considering gross mixed efficiencies and quality cost reduction?

We've chosen now only to give guidance on top line, so the 2-5% growth that I mentioned in the call. When it comes to margin, we will give an update about earlier at the Q1 report, given that we are having a change of CFO as well. I think it's important that Agneta gets a chance to get her feet under the table and form her view on this. So we will have to wait with the margin guidance until next report.

Okay, but is it at least fair to assume a certain clear margin improvement this year or is it nothing that you would comment on?

I think it's fair to assume an improvement in both the beta margin and the beta, yes. But the extent of this we will need to come back with.

Okay. Secondly, in terms of the kind of quality costs you talked about, the kind of more than 200 million Q4, Can you just provide any kind of color to what extent this has deviated from your early expectations? So has the kind of extent of quality costs increased? And can you also give us a sense like what was the total sum of quality costs that you incurred in 2023, please?

To answer the first part of the question, it is difficult to predict the quarterly evolution of these costs. Some of them are scrapping and they occur in a quarter, then they're gone. Others relate to heightened costs for personnel for resolving complaints, for example, and those are a little bit more semi-structural, maybe. And we've just decided to not try to guide on this because it's a fairly dynamic situation with this and it changes quarter to quarter. So it's something we just have to report on the outcome per quarter. And the total costs for 2023, for the same reason, difficult to quantify exactly what is what in that, but we've had The communication from Q2 with the 400 million second then tailing off is basically still intact.

Okay, thank you. And then last question, just in terms of midterm guidance, you obviously told this earlier. So can you just talk to when we can expect an update on the midterm guidance? I think in the past you stated that despite the kind of quality cost, the characteristics of the business have not changed. in contrast to your earlier midterm expectations. Is that still the case today?

Yeah, that is still the case today. But like I've said in many of these calls, we've lost at least two years here in the wake of COVID and with some of the additional improvement work that's required in cardiac assist and cardiopulmonary, plus some of the headwinds in life science, even if that looks like it's maybe improving now, at least starting in the U.S. Okay, perfect.

Thanks so much. I hope I can thank you. Thank you.

The next question comes from Matthias Vadsten from SEB. Please go ahead.

Thanks for taking my questions. I think I will start in ECMO and I think if we could just zoom out here for a bit. If you could talk about, you know, what the segment has performed in 2023 versus 2022 and if you could give some sort of feel where we are prior to compared to prior to the pandemic in 2019 you know just so we could zoom out a bit and then maybe look upon the development from here and based on how the demand situation look for your customers that would be my first one yeah

Yeah, if we zoom out and compare with pre-COVID levels, so we are at a higher level now of ECMO deliveries in our cardiopulmonary business unit compared to 2019, for example, which is the latest undisturbed year. Then, as you are well aware, we had a peak in 2020 and 2021, and we're below that peak now. But compared to last year, It's relatively flattish, I would say, and slightly above 2019 levels. When it comes to the long-term outlook, we believe that the growth prospects for this part of the business is around 8% for the future.

Okay, so slightly above, but not more precise versus 2019, basically. Okay. No, not more perverse, slightly above 2019. Okay, good. And then in life science, perhaps on the biopharma part, if you could comment, if you see any change in customer demand this quarter or running out of the quarter compared to what you felt in maybe Q3 and early parts of 2020 or Q4, that's the next one.

Yeah, I think in the US it's a gradually improving picture. So a little bit better towards the end of the quarter than the beginning of the quarter. And that's obviously the most important market for us. In China, which is the second most important, very difficult to say. I think we didn't see any particular improvement there. I really can't give you any leading indicators either for improvement. This is something we'll have to continue to watch month by month, I think.

Good. And then my last one maybe relates to more modeling Q1. If you could give any flavor on what were the temporary increase in sales in quarter one, sort of the comparison quarter, quarter one, when we model quarter one 2024.

Yeah. I think We will not give exact numbers, but what we can mention is that we had pretty good deliveries in ACT, to some extent supported by China and also in the carded pulmonary side. Also on the SW side, we came into 2023 there with still quite a high backlog on orders from the disturbances from that year before, and that we worked down during the first half of 2023. that also supported the sales here in Q1. So it was a pretty good Q1 last year actually.

Thank you very much.

The next question comes from Christopher Liljeberg from Carnegie. Please go ahead.

Thank you. I have three questions. First, did you say something about quality cost also in life science?

No, that's correct. We have about 40 million SEC impacting life science in the quarter, and part of that is also scrapping and quality costs.

Could you give some more flavor what that is related to, something we should be concerned about, or?

Yeah, no, I think it's not that we are concerned. It is a bit of a hangover. You can say connected to the sterile transfer with the high, high volumes we had and then coming back to more. Well, now it's lower than normal levels, but they are also in some parts of the production there. We had some disturbances and that led to some scrapping during the quarter here that we need to take care of.

But it's not a systemic problem. I think that's important to underline in that sense.

Okay. But is it old products that you have shipped to customers before that was sent back or something that happened in production this quarter?

It's a mix on incoming goods from suppliers. And it's to some extent also from some of the deliveries that has been done. So to make sure that we have the right product quality, we have taken care of those issues now.

Okay. Then on surgical workflows, another strong quarter when it comes to sales deliveries, but first quarter in a while with weaker orders. Do you think that this fantastic catch-up you have seen since the pandemic is over now and that you would expect a more normal surgical workflow growth also for sales going forward?

I think the short answer is yes, there has been a catch-up effect and I think we will return to some kind of new normal with surgical workflows still with good underlying demand but the catch-up effect I think is probably over for the most part.

What you should also maybe remember there is that we have now the acquisition of Healthmark coming in here as from Q4 and

the rest of 2024 of course and that is also supporting some works sw going forward yeah sure then coming back to the previous questions about the margins and i understand you don't want to say too much but would it be possible maybe if we leave quality cost beside But are the positive and negative drivers for the underlying margin in 2024? If you could talk a little bit about that.

Yeah, if we do a quick flyover, maybe I think if you look at critical care, for example, I think that we've had positive margin evolution and we think this is sustainable in terms of hardware demand. There's not going to be a whole lot of growth, but we do have really good momentum when it comes to capitalizing on the installed base now, both in terms of service, spare parts, but also connected offering, software upgrades and those type of solutions. So that will remain positive about for 2020-24. In cardiopulmonary, we do a longer-term growth to be around 8%. Margin-wise, though, it's really very much impacted from the quality work, and that's difficult to guide on. We had a very weak margin in cardiopulmonary in 2023 and difficult to guide going forward on this one, since it's really a lot of moving parts. If you look at cardiac surgery, it's one of our more stable businesses. Not very strong growth, but really strong profitability. And we expect that to continue to be the case also. Cardiac assist, which is the other problematic part of acute care therapists, is from a demand perspective rather stable. It's more that we ourselves have been the bottleneck in supplying the market here, plus the fact that our margins have been plummeting. compressed with the because of all the quality work that's being done and also some of the supply chain issues that we've had the stop and go in production and and so on and i think that will continue to be challenging during 2024 as well On the implant side, it's a bit of a mixed picture, I'd say, when it comes to our stent. We have the PMA, as you know, we have really good demand outside of the US for this, and still early days when it comes to getting traction in the wake of the PMA and sales activities that we started in Q4. On the graft side of vascular systems, it's rather stable, good performance, both from a volume and margin perspective. So nothing really to call out there, I think. Infection control, if we move to surgical workflows, also rather stable business with lower than average margins, as you know, but with a trend development that is in the right direction. And as like Lars mentioned here with the acquisition of Healthmark as well, that will continue to be healthy for that part of our business. If you look at the operating tables, lights, pendants, also broader stable demand, but like you alluded to yourself here, the catch-up effect of that part of the business is gone, but we do have some exciting product launches like the core and operating table, which should give us some momentum during 2024. And on the digital side, that was one of the better growth areas for 2023. And we expect this to continue to have good momentum as well, even if it doesn't move the needle greatly for the group. And in life science, like you've seen also in the report, order intake wise, it looks a little bit brighter right now. We believe the sterile transfer is kind of bottoming out and hopefully the same picture when it comes to bioprocessing. And when it comes to the call it the legacy business, one of the washers and sterilizers and so on there, we do have good growth momentum. And from a margin evolution perspective, I don't think you should expect any, any dramatic changes there either. So that's I think the best summary and overall service business I would maybe call out as well as the continued positive. It was a positive driver in 2023. And it will continue to be in 2024, I think.

Thank you for that. You commented before on the question that margin would improve in 2024 without being more specific, of course. Is it fair to assume that's also valid if we adjust for quality costs both in 2023 and 2024? So that the underlying margin would improve also?

Yeah, I think that's it. I think that is great, because it's always what you mean by what do we talk about when we talk about quality. You have the pure quality costs when it comes to scrapping.

I mean, you have 400 million in second quarter. You said 200 million in Q4. I don't remember in the third quarter if it was 200, but that should be around 800 million. Okay.

My point is here also that it's important to remember that when we had Q2, we talked about we had costs, but we also had significant impact on lost volumes, etc., and the disturbances that create in production. So it's really when we get back on track in the supply chains, get production running much more smoothly, that takes away a lot of waste in the system, and that helps margin. You can see that in SW. during 23 where we came into the year getting out of a lot of disturbances where we could then start improve our operations significantly also bringing down working capital etc so when that eases off it helps of course especially then for 2024 act but we are careful to say when that will happen because we don't really know exactly yet okay yeah that's fair thank you very much

Thank you.

The next question comes from David Adlington from JP Morgan. Please go ahead.

Hey, guys. A few questions from me. Firstly, just wanted to double check. I heard right. But did you say that ECMO growth was 8% of the medium term? And I think previously you've talked about 15 to 20. Just wondered what changed your outlook there. Secondly, just in terms of what's preventing you from giving margin guidance this year, we've not had margin guidance for some time now. I just wondered if there was a particular lack of visibility that you were concerned about, obviously particularly in a year when we're down nearly 300 basis points, would be good to get some margin guidance there at some point. And then finally, just some help with below the line items, both in terms of net financial items and tax review ahead would be useful. Thank you.

Yeah, when it comes to ECMO, we haven't had any official guidance on this, as you probably know. I think historically, before the pandemic, it has grown around 15%. And we've said for some quarters now that we expect this to be maybe 10 or high single digits. So the 8% is more a confirmation of that. That's what we see when it comes to medium-term outlook for that therapeutic area. Margin guidance, we will come back, but earliest at the next quarterly report, so middle of April. It's really just in the wake of the CFO change here that we would like to get some additional time to work things through properly. And when it comes to the net financials, I don't know if you had any specific... It is pretty straightforward.

It is a result of the higher net debt and the funding we have. And also the high interest rates that has happened if we compare with last year. And this is on the level where we are now going into 2024. And on the tax side, it's a normal quarter, I would say, coming through here and for the full year. And looking forward, we don't expect big changes going forward either. There is a lot of discussions in the US now, as you know, in the tax reforms that they are planning. We will see if it has an impact on us or not. But if the current proposals come in, that could have a slight positive impact, but I think we will have to wait until they have decided.

Perfect. So in terms of net financials, we should take your Q4 number and just multiply that by four.

I think that's a reasonable number to going forward. And of course, we will work with cash flow to bring down our net debt, and that should have an somewhat positive impact, but let's see. Let's deliver that first.

Great. Thank you.

Thank you.

The next question comes from Sten Gustafsson from ABG Sundal Collier. Please go ahead.

Yes, good morning and thank you for taking my questions. I was wondering would it be possible for you to quantify the total amount of quality costs you had in 23? I think that would be very helpful and to have as a reference when we talk about 24. That would be my first question and then the other one and also confirm that or maybe you could specify how much of it is in OPEX and how much was impacted on cost of goods sold. And then when it comes to the overall OPEX for 2024, it would be helpful if you could provide us with some insight into sort of the balance between your price increases you plan and the cost inflation that you expect for 2024. in order to sort of try to work out how the underlying OPEX development will be for the year. That would be very helpful. Thank you.

Yeah, I will give it a try. If you look at 2023, I think the roughly 800 million, that is the combined effect of Q2, Q3 and Q4, is this kind of an indication that we can give at least. The majority of that is in COGS, but the breakdown of that number I think we're not going to provide because it is a mix of scrapping, it's a mix of under-absorption and it's of a heightened personnel cost to deal with challenges and so on. So we're not going to break that down, but that gives you an indication of what it was in 2023. When it comes to OPEX and looking into 2024, we expect salary inflation to be in the range of 4% to 5%, and the salary cost in the company is around 10 billion SEK, so that provides an indication for that. There is some salary inflation, of course, impacting the cost of goods sold as well in terms of what we get from our suppliers, so that will also be continued headwind. We've had a lot of that headwind already in 2023 and actually starting in 2022, as you probably know. We will try to continue to offset as much as possible of this with price increases. We had 3% average price increase in 2023. And even if it's getting increasingly difficult to continue to implement price increases, we still have ambitious targets between 2% and 3% for 2024 as well.

Excellent. Thank you very much. That's very helpful. One last one, the transportation costs. If you could provide some guidance on that, given the situation in the Red Sea, how that will impact you in any way. I mean, freight rates has gone up. If it also has an impact on delayed shipments or supply chain constraints, with ships out of Taiwan or something.

I think for us, our biggest transportation lanes are actually more Europe, between Europe and the US. So we are less impacted by that. There will probably be some delays in time with the transportation back and forth from Europe and China. and to some extent a high cost, but it's still a smaller part of us. We don't expect big impacts on that. Maybe, as I said, a little bit on the lead times.

Okay, excellent. Thank you very much. Thank you.

The next question comes from Rikard Anderkrans from Handelsbanken. Please go ahead.

Good morning, and thanks for taking my questions. So two from me, please. So China was around 9% of group sales in 2022. What was the contribution in 2023? And do you still have a sort of positive midterm outlook for China with around, I believe you talked about around 8% growth CAGR in sort of midterm perspective? So first one there on China, please.

i think i have to come back to you on the the percentage of sales of the group here but it's it's slightly less but not the big big difference here since the big impact in in life science and that's as you know a smaller part on the revenue base of of the group and when it comes to golf Mathias, anything you would like to add?

No, growth going forward. We still expect China to be growing faster than the average market for us. And this is really on the back of acute care therapists mostly, I should say. The competitive situation in surgical workforce that we had for some time is more challenging. And we expect the growth to decelerate for surgical workforce in China. In acute care therapies, though, we have a rather strong competitive position. We have not seen at all the same weakness there. Life science, we've had some significant headwind, especially now in 2023. And like I said in the initial commentary, it's difficult to judge when this will change. But we hope at least it has bottomed out in China. So overall, we do expect China to continue to be a positive contributor when it comes to growth. And when it comes to the sales of last year, I think we ended up with 9.4% share of the group total.

All right, thank you. Just a quick follow-up. Do you expect sales growth in China in 2024 as well?

Yes, we do.

But it does require an improvement when it comes to water intake and especially the bioprocessing environment in China. Like I said, if you get therapies, I think it's more stable and easier to predict. Life science is more of a moving part, I think.

That's clear. And final question. You mentioned in the CEO commentary about a hardware boost in the cardiac assist segment in the quarter. Could you add some magnitude to that? And could you also comment on the magnitude and facing of boost in consumables that you also called out expecting going forward?

I mean those effects are there as you mentioned. We've decided not to quantify this though neither when it comes to hardware nor consumables.

Okay but is it reasonable to assume a boost in consumables starting Q1 already or just to get a sense of where you are in that uptick?

No I don't from that angle I know then we still have a backlog that we're working on. to bring down our backorder situation in the cardiac assist disposables. So that, given the uncertainties, but that should be able to support what you want.

Okay, thank you for taking my questions. Thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

All right, thank you very much. I think we have done the summing up that needs to be done here, so nothing really to add from our side. I appreciate you taking the time to join us today and look forward to continuing the dialogue during 2024. So thank you very much and have a good rest of the day.